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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
It is common in a Section 225 action seeking the determination of the composition of a company's board of directors for the court to issue a status quo order. Those orders stop the company from taking any actions out-of-the-ordinary course of business until the Court decides who is really in control. Here the Court issued a similar order pending a decision on whether the plaintiff was entitled to have stock issued to it to take control. This extends the use of status quo orders to a new realm.
This decision holds that a clickwrap agreement is sufficient to bind an employee to a non-compete agreement. This is an important innovation as it will permit employers to implement non-compete agreements quickly and without much fuss.
Anti-suit injunctions to enforce a choice of forum clause are not always easy to get. Delaware courts do not like to interfere with other courts jurisdiction. Instead, they prefer that a party aggrieved by the violation of a contract that selects Delaware as the forum to resolve disputes ask the non-Delaware court to stay its hand. However, as this decision illustrates, when pressed, a Delaware court will enjoin litigation elsewhere in the right circumstances. One such circumstance is when the party to be enjoined has tried to manipulate the system by taking inconsistent positions on what forum the contract requires. Trickery with the Courts is never a good idea.
The Court of Chancery has again denied a request for an anti-suit injunction. This time the Court noted that the litigation sought to be enjoined would actually continue by a party not before the Court. Hence, the injunction was not going to accomplish an end to duplicative litigation.
The Court of Chancery often enters standstill orders or status quo orders when the control of a Delaware entity is in dispute. The orders are designed to prevent actions that may not be what the actual management would do in circumstances when the identity of that management is not in doubt. Disputes over the form of these orders are common and this decision seems to settle how one provision should be worded. At least in the absence of special circumstances, the provision of the order that prevents extraordinary actions should be worded so as to permit action after 7 days notice to the other side, who is then free to seek court action if it objects.
This is an important decision because it upholds the power of the Delaware Court of Chancery to enforce by an injunction the forum selection clause in a contract. Previously, there was some doubt under the existing case law whether such an injunction would issue, but, at least among sophisticated litigants, there is no doubt any more. Note that the clause in question provided that a "court in Delaware" would hear any dispute. A clause that attempted to vest jurisdiction only in the Court of Chancery is questionable because a contract alone cannot confer jurisdiction on that court with its limited equity jurisdiction.
This is an important decision dealing with a so-called "Proxy Put." Briefly, a Proxy Put permits creditors to call corporate debt when a new board of directors is elected without the consent of the current board. This decision applies the reasonableness standard of Unocal rather than the stricter standard of review of Blasius to decide if the Board has properly refused to approve a competing slate of directors for purposes of preventing a Proxy Put.
The Court carefully distinguished other circumstances where such a Put might be upheld, such as when a competing slate's election might cause immediate harm to the corporation.
It is not always easy to have the Court of Chancey expedite your case just because you ask for an injunction. Here, the Court denied expedition because the plaintiff had waited 5 months to ask for it and because the plaintiff's claim was really just for damages.
This decision provides a good review of when the Court will expedite a proceeding.
This is an interesting decision because it may extend the circumstances where the Court of Chancery will issue a preliminary mandatory injunction requiring the payment of money. It is often said, perhaps wrongly, that there is an adequate remedy by the award of damages that precludes issuing an injunction requiring such a payment. Here, however, the parties' contract contained a provision recognizing that irreparable harm would occur if the payment was not made and the failure to make the payment also frustrated a key provision in the parties' contract governing how their entity would be operated. That was enough to get the injunction.