Chancery Denies Request for Mandatory Preliminary Injunction to Waive Advance Notice Bylaw and Permit Director Nominees to Stand for Election
Paragon Tech., Inc. v. Cryan, C.A. 2023-1013-LWW (Del. Ch. Nov. 30, 2023).
In Delaware, a preliminary injunction is granted “sparingly and only upon a persuasive showing that it is urgently necessary, that it will result in comparatively less harm to the adverse party, and that, in the end, it is unlikely to be shown to have been issued improvidently.” A party seeking a mandatory injunction must also show entitlement to the relief it seeks as a matter of law based on undisputed facts – akin to a summary judgment standard. In this case, “with some trepidation[,]” the Court of Chancery denied a request for preliminary mandatory injunctive relief due to factual disputes concerning whether a stockholder plaintiff complied with advance notice bylaws requiring disclosure of plans to change the corporation’s business and potential conflicts of interest. More ›
Bocock v. Innovate Corp., C.A. No. 2021-0224-PAF (Del. Ch. Dec. 6, 2023)
In this recent letter opinion, Vice Chancellor Fioravanti considered whether the plaintiffs’ failure to provide specific objections to discovery requests in a timely manner resulted in the waiver of those objections. More ›
Chancery Evaluates Supplemental Disclosures to Determine the Corporate Benefit and Awards Plaintiffs a Proportional Fee
Allen v. Harvey, C.A. No. 2022-0248-MTZ (Del. Ch. Oct. 30, 2023)
Delaware cases provide guidance on the standard for evaluating the “corporate benefit” from supplemental disclosures in advance of a stockholder vote – and the fees that should be awarded to plaintiffs for prompting such disclosures. This case involved supplemental disclosures of potential sources of conflicts held by a special committee’s chair and advisors in advance of a merger vote. The Court held that such disclosures were not extraordinary, but they still warranted a proportional fee award. More ›
Delaware Supreme Court Affirms Busted-Deal Decision and Attorneys’ Fees for Contingency Fee Based Representation
Energy Transfer LP v. The Williams Companies, Inc., No. 391, 2022 (Del. Oct. 10, 2023)
Busted-deal litigation is commonplace in Delaware and often requires Delaware courts to interpret provisions in merger agreements obligating parties to work towards closing and granting one party or the other fees in the event of a breach and failed deal, e.g., break-up fees or reimbursement fees. Here, in a decade-long busted deal suit, the Court of Chancery had found that the plaintiff had fulfilled its contractual obligations and the defendant, therefore, was not entitled to a break-up fee that would have exceeded $1.5 billion. The trial court also found that the defendant owed the plaintiffs approximately $410 million in reimbursement fees and $85 million in attorneys' fees under the merger agreement. On appeal, the Delaware Supreme Court affirmed each finding, examining the at-issue provisions and the trial court's determinations. Notably, on the attorneys' fees issue, the Supreme Court agreed with the trial court that the contingency fee nature of the plaintiff's representation did not warrant a finding of unreasonableness. While most decisions addressing the reasonableness of contractual fee awards have dealt with hourly fee representations, the Court found nothing inherently unreasonable about enforcing a contractual fee-shifting arrangement to cover a contingent fee award.
Greenlight Capital Offshore Partners, LTD., v. Brighthouse Financial Inc., C.A. No. 2022-1067-LWW (Del. Ch. Nov. 20, 2023)
Valuation is a well-established proper purpose to inspect corporate books and records. While each case turns on its own facts, in general the availability of public information to satisfy a valuation demand will result in a relatively narrow court-ordered inspection. Here, the plaintiff conceded the availability of public information for valuation purposes, but sought more to help it speculate regarding the company’s dividend potential, after recent extraordinary dividends at the subsidiary level caused the stock price to jump. While dividend capacity may be relevant to valuation, the Court of Chancery largely denied the inspection, finding the requested information too removed from the company’s current value and thus not necessary and essential to the plaintiff’s valuation purpose.
Assad v. Botha, et al., C.A. No. 2022-0691-LWW (Del. Ch. Oct. 30, 2023)
Here, Vice Chancellor Will awarded a $100,000 mootness fee for “material—and unremarkable—disclosures” following the recently heightened mootness fee standard announced in Anderson v. Magellan Health, Inc. (analyzed here), authored by Chancellor McCormick. Magellan announced that the Court would award mootness fees for supplemental disclosure only where such disclosures are “material,” not merely “helpful,” and such fees, if awarded, may be lower than those awarded historically. This opinion represents one of the first decisions applying Magellan, and awarded $100,000 where plaintiffs sought $850,000.
Ramco Asset Mgmt. LLC v. USA Rare Earth, LLC, C.A. No. 2022-0665-SG (Del. Ch. Oct. 20, 2023)
Plaintiffs brought claims alleging improper dilution of their equity interests when transferring their holdings in an Australian rare-earth mining company to a Delaware limited liability company. Their claims included breach of fiduciary duty, fraud, breach of contract, and conspiracy. All five defendants moved to dismiss for failure to state a claim and on forum non conveniens grounds, and four of the five moved to dismiss for lack of personal jurisdiction. More ›
AECOM, et al. v. SCCI Nat’l Hldgs., Inc., C.A. No. 2022-0727-MTZ (Del. Ch. Sept. 27, 2023)
Although the Court of Chancery frequently resolves contractual disputes, it grants contractual reformation only when “intervention [is necessary] to ensure the deal is what the parties agreed upon.” This pleadings-stage decision provides insight into the Court’s approach to reformation because the Court found that one claim supported reformation but the other did not. More ›
Chancery Concludes Accountant Provision in Stock Purchase Agreement Calls for Expert Determination Rather than Arbitration
ArchKey Intermediate Holdings Inc. v. Mona, C.A. No. 2021-0383-JTL (Del. Ch. Oct. 3, 2023)
Parties to a stock purchase agreement disputed post-closing price adjustments. The agreement called for an independent accountant to resolve such disputes and referred to the accountant as an “arbitrator.” As the parties litigated in the Court of Chancery, the purchaser moved to compel arbitration so that an independent accountant could resolve all disputes the seller raised. The seller contended that the agreement’s accountant provision called for an expert determination rather than an arbitration. More ›
Hoffman v. First Wave BioPharma, Inc., C.A. No. 2023-0097-MTZ (Del. Ch. September 27, 2023)
A company's board of directors suspected one of its members had leaked the company's financial information to a third party and that the third party used the information to obtain a more favorable settlement with the company. In response, the board formed a board committee for discussion of confidential matters consisting of all directors other than the one suspected of having leaked information. The excluded director engaged an attorney to contest the formation of the board committee and filed an action for the advancement of his legal fees. He relied on an indemnification agreement that granted him a mandatory advancement right for fees incurred by reason of his corporate status in connection with a covered proceeding; he argued that the directors must have investigated his conduct if they had reached a conclusion that he had leaked information and that an investigation was a covered proceeding. More ›
Holifield v. XRI Investment Holdings, LLC, No. 407, 2022 (Del. Sept. 7, 2023)
This decision concerned the disputed transfer of a member's LLC units. Below, the Court of Chancery held that the disputed transfer was invalid because it violated the LLC agreement's terms governing transfers. The trial court also held that, under CompoSecure II, the transfer was incurably void, and thus beyond affirmative defenses like acquiescence, because the LLC agreement's “void" language provided for that outcome. However, in dicta, the trial court invited the Supreme Court to revisit its ruling in CompoSecure II, which upheld contractual voidness provisions in the alternative entity context. On appeal, the Supreme Court declined the invitation and ruled that CompoSecure II was correctly decided citing, inter alia, contractual freedom in the LLC context and the doctrine of stare decisis.
Gener8 LLC v. Castanon, 2022-0246-LWW (Del. Ch. Sept. 29, 2023)
This dispute concerned a non-compete agreement that the plaintiffs alleged the defendant breached by establishing a competing business. The defendant denied the existence of relevant texts and email communications, when in fact he intentionally withheld and deleted them. In discovery, he claimed no relevant communications existed on his phone, citing that he was not a “big texter.” The defendant testified to this at trial, and pled ignorance of both the operations of the competing enterprise and any discussions or communications to that effect. However, other parties produced text messages including the defendant, making clear that he had in fact sent many texts concerning these subjects. More ›
Barbey v. Cerego, Inc., C.A. No. 2022-0107-PAF (Del. Ch. Sept. 29, 2023)
This decision considered the proper constitution of the board of directors of a Delaware corporation, Cerego, Inc., under Section 225 of the DGCL after directors were removed following a corporate inversion whereby Cerego became a subsidiary of its wholly owned subsidiary, Cerego Japan, Inc. (“CJ”), a Japanese entity. More ›
Chancery Denies Specific Performance in De-SPAC Transaction Based on Difficulty of Enforcement and Plaintiff’s Inequitable Conduct
26 Capital Acquisition Corp. v. Tiger Resort Asia Ltd., CA No. 2023-0128-JTL (Del. Ch. September 7, 2023)
Even where the parties have contractually agreed that specific performance is the preferred remedy for a breach, the decision whether to award that relief nevertheless remains within the Court of Chancery's discretion. In this decision, addressing the availability of specific performance, the Court assumed without deciding that the defendant target of a SPAC had not used its reasonable best efforts to close the transaction in breach of the agreement, that the SPAC was ready, willing, and able to close, and that money damages were an inadequate remedy at law. More ›
REM OA Holdings LLC v. Northern Gold Holdings LLC, C.A. No. 2022-0582-LWW (Del. Ch. Sep. 20, 2023)
Delaware is a contractarian state and the presumption is that parties are bound by their agreements. That presumption applies with even greater force when the parties are sophisticated and engage in arms-length negotiations. In this case, the defendant, a 50% member of an LLC, challenged a $10 million financing agreement entered into by the LLC’s other 50% member. That arrangement allowed the lender to purchase an interest in the company. In challenging the agreement, the defendant member argued that the plaintiff did not provide him with the term sheet for the transaction. In this decision, the Court of Chancery upheld the transaction, reasoning that, while the defendant member did not receive the term sheet, the consent for the loan that he signed repeatedly referenced the term sheet, the defendant was a sophisticated party with counsel, and he had the opportunity to inspect the consent and inquire about the term sheet as a matter of basic diligence. The Court also rejected numerous other defenses to enforceability.