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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.

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Court Of Chancery Rejects Attorney-Driven Books And Records Demand

Wilkinson v. A. Schulman, Inc., C.A. No. 2017-0138-VCL (Nov. 13, 2017)

This decision has potential far-reaching consequences for shareholder-plaintiff litigation. As is well known, some entrepreneurial plaintiff-side corporate law firms advertise that they are “investigating” matters following a corporation’s report of some misfortune. That is done to attract a stockholder as a potential client. They then use that client’s status as a stockholder of the corporation to bring suit or, often, to demand an inspection under Section 220 of the DGCL of the books and records they need to support a well-pled complaint. This decision holds that when the demand is really generated by the law firm, and not the client, inspection will be denied for failure of an actual “proper purpose.” The case turned on its facts showing that the client had no real interest in what the law firm wanted to investigate. While some will argue that problem may be cured by a better “informed” client, that perhaps is too cynical. We shall see if this decision makes it harder for such plaintiff-side firms to bring such cases in the future.

Be Careful What You Ask For in a Section 225 Case

McnallyDelaware recognizes the need to promptly resolve disputes over the composition of the board of directors of a Delaware corporation.

November 17, 2017Delaware Business Court Insider

Delaware recognizes the need to promptly resolve disputes over the composition of the board of directors of a Delaware corporation. Section 225 of the Delaware General Corporation Law provides that the Delaware Court of Chancery may “hear and determine” who is on the board. Those proceedings are “summary” in nature meaning that the entire case can go to trial in 90 days or less from the date the complaint is filed or even less when the circumstances warrant extra expedition. This fast adjudication, however, warrants special caution as a recent Court of Chancery decision points out. More ›

Morris James Leads in Delaware Today “Top Lawyers” Issue with 29 Attorney Recognitions

Posted In News

Morris James LLP is pleased to announce it received 29 recognitions in Delaware Today magazine’s 2017 Delaware Top Lawyers issue.  The recognized lawyers were chosen by their peers in a survey to members of the Delaware State Bar Association. 

Gretchen S. Knight, Lewis C. Ledyard III, Rich Galperin, Ian D. McCauley and James H. McMackin III, distinguished in bold, received the most votes of any lawyer in their respective categories. Morris James attorneys were rated as “Top Lawyers” in 12 separate practice areas, and Keith Donovan was recognized in multiple categories.  More ›

Court Of Chancery Explains Limitations Period In Equity

Bioveris Corporation v. Meso Scale Diagnostics, C.A. No. 8692-VCMR (Nov. 2, 2017)

Some assume that a statute of limitations will not apply in the Court of Chancery. But as this decision illustrates, that is an oversimplification. The Court of Chancery may well use the same statute of limitations period applicable in an action at law, by analogy, under the equitable doctrine of laches.  This is especially true when the claim is a legal one seeking legal relief.  This decision also illustrates an important point regarding claim accrual.  When a claim arises out of an obligation to make a series of payments over time, it is possible the Court will start to run the laches period from the first non-payment. In other words, subsequent non-payments might not constitute a new claim with a new limitations period or otherwise lengthen the time period to sue.

Court Of Chancery Issues A Definitive Opinion on Aronson

Lenois v. Lawal, C.A. No. 11963-VCMR (Nov. 7, 2017)

This case illustrates the power of well-functioning special committee to diffuse the potentially corruptive influence of a self-interested controller on a transaction. The result of a well-functioning special committee in this case was that the derivative plaintiff was unable to get around the pre-suit demand on the board requirement.  Applying the second prong of the Aronson test for demand futility, the Court interpreted that portion of the test to require the plaintiff sufficiently allege that a majority of the board faces a substantial likelihood of liability for non-exculpated claims. In other words, that a non-exculpated claim may be brought against less than a majority of the board or some other individual at the company, or that the board committed exculpated duty of care violations, will not alone prove demand futility.  

Partner Patricia A. Winston Appointed to Jurisdiction Improvement Committee Tasked with Improving the Efficient Resolution of Citizens’ Disputes

Posted In News

As a member of the Jurisdictional Improvement Committee, Morris James Partner Patricia A. Winston will serve on a team tasked with taking a comprehensive look at reforming and updating the jurisdictional authority of each of Delaware's courts.  Recently formed by the Delaware Judiciary, the Jurisdictional Improvement Committee was created in response to the Joint Study of the Delaware Courts by the Delaware Chapter of the American College of Trial Lawyers (ACTL) and the Delaware State Bar Association (DSBA). The Committee’s mission is to help the Delaware Courts operate more productively and efficiently by eliminating unnecessary overlap in the trial courts’ jurisdiction and by assigning certain types of cases to the trial court best positioned to address those cases cost-effectively and expertly.  More ›

Ian D. McCauley to Participate in a CLE Panel Discussion on Recent Developments in E-Discovery

Morris James attorney Ian D. McCauley will serve on a panel discussing the latest eDiscovery issues at a CLE program titled “Recent Developments in Data Security and E-Discovery.”  The program is sponsored by the E-Discovery and Technology Law Section of the Delaware State Bar Association and is scheduled for Tuesday, November 14th, 2017 from 8:30 a.m. – 11:45 a.m. at the New Castle County Delaware State Bar Association with webcasts being offered in Dover and Georgetown.  With cyber-attacks constantly in the news and counsel continuing to struggle with discovery issues, this CLE promises to be both important and timely for lawyers. Click here for registration.  More ›

Court Of Chancery Favors Plain Language In Earn-Out Dispute And Declines To Imply Contractual Terms

Greenstar IH Rep. LLC v. Tutor Perini Corporation, C.A. No. 12885-VCS (Oct. 31, 2017)

With every contract under Delaware law comes the obligation to not act so as to deprive the counter party of the benefit of its bargain. This implied obligation plays a limited role, however, and does not trump the contract’s plain terms. This decision addresses this principle in an earn-out dispute surrounding terms about profits and taxes.

Court Of Chancery Enforces Arbitration Clause Despite Designated Arbitrator’s Unavailability

Posted In Arbitration

In re Good Technology Corporation Stockholder Litigation, C.A. No. 11580-VCL (Oct. 27, 2017)

This decision resolves a unique dilemma: what to do when the contracting parties agree to an arbitration clause designating a specific arbitrator (the former mediator in the case) to resolve disputes, but, it turns out, he will not serve in that capacity and the parties cannot agree on a replacement. Under the facts of this case, which involve the JAMS rules, the Court enforces the arbitration clause so that the chosen but unavailable arbitrator can decide whether he should pick his successor as a matter of procedural (as opposed to substantive) arbitrability.

Delaware Supreme Court Sets A New Standard And Clarifies The Spectrum Of Forum Non Conveniens Standards

Gramercy Emerging Markets Fund v. Allied Irish Banks P.L.C., No. 49, 2017 (Oct. 27, 2017)

Under the Cryo-Maid factors, a Delaware court may dismiss a suit on forum non conveniens grounds only after the defendant shows that litigating in Delaware would impose overwhelming hardship.  Under the McWane doctrine, when a Delaware action is not the first-filed suit on the subject matter because there is a prior pending suit elsewhere, however, a Delaware court has discretion to dismiss or stay the later-filed suit whether or not the defendant faces overwhelming hardship. This decision deals with a particular convergence of these two doctrines, answering the question: when a first-filed suit elsewhere is procedurally dismissed and thus no longer pending, is a motion to dismiss for forum non conveniens in a later-filed Delaware suit still subject to the more plaintiff-friendly overwhelming hardship standard? The short answer is no.  But that doesn’t mean the suit should be subject to the more defendant-friendly McWane standard instead. Rather, as the Court holds here, there is a middle ground, tilted to neither plaintiff nor defendant.  The Court rules that the Cryo-Maid factors relevant to a showing of overwhelming hardship control the analysis, but requires only that the factors favor dismissal, rather than establish overwhelming hardship.

Chancery Approves Incorporation of Reference Condition in Section 220 Litigation

Books and records actions are heralded as the “tools at hand” for litigators pursuing shareholder claims against a corporation.  In fact, the Delaware Court of Chancery has been critical of litigants who failed to take advantage of a shareholder’s right to request the books and records of a corporation prior to commencing litigation against the corporation.  See, e.g., Thermopylae Capital Partners v. Simbol, 2016 WL 368170, at *17 (Del. Ch. Jan. 29, 2016). And while many shareholders have utilized Section 220’s summary proceeding to get a corporation’s books and records, Delaware courts have approved certain conditions on the use of those records. As discussed below, the Court of Chancery recently approved a company’s proposed incorporation condition, assuring the company that all the documents it produces pursuant to a books and records demand will be incorporated, even if not explicitly referenced, in any subsequent litigation where the plaintiff relies on any of the records produced by the company. More ›

Superior Court Explains Coverage Analysis Rules

Catlin Specialty Insurance Company v. CBL & Associates Properties Inc., No. N16C-07-166 PRW CCLD (October 17, 2017)

This is an interesting decision for two reasons. First, it settles the choice of law in a coverage case for a nationwide set of claims. The principal place of business for the insured is the law to apply. More ›

Superior Court Sets Out Rules For Class Certification

Posted In Class Actions

Wilmington Pain & Rehabilitation Center P.A. v. USAA General Indemnity Insurance Co., No. N15C-06-218 JRJ CCLD (October 17, 2017)

This is an important decision became it sets out the most recent rules for determining when a class may be certified. Briefly, the class members claims must be capable of resolution on a class-based basis and not by looking at each class member’s circumstance. While easy to say, that is harder to actually do and this decision explains the reasoning that should be used.

Petition Denied to Remove Wilmington Trust as the Trustee of du Pont Family Trusts

Wilmington Trust serves as the sole trustee for certain du Pont Family Trusts established in the 1940s and 1950s. For many years, Wilmington Trust was closely associated with the du Pont family, and was managed in part by family members. Following the near collapse of its business in the 2008 financial crisis, Wilmington Trust was acquired by M&T Bank. Today, Wilmington Trust is a wholly-owned subsidiary of M&T Bank, and no member of the du Pont family serves on Wilmington Trust’s board. In 2013, at the prompting of the current trusts’ beneficiary, Douglas du Pont, Wilmington Trust agreed to modify the trusts to authorize Mr. du Pont to serve as the “Investment Direction Advisor” for the trusts’ assets, which limited Wilmington Trust to a principally ministerial role in the trusts’ on-going administration. In October 2016, alleged tensions between Mr. du Pont and Wilmington Trust led Mr. du Pont to petition the Court of Chancery to seek to remove Wilmington Trust as the trustee altogether, and to appoint a successor trustee. More ›

Court Of Chancery Explains Long-Arm Jurisdiction Based On Creating A Subsidiary

Posted In Jurisdiction

The Dow Chemical Company v. Organik Kimya Holding A.S., C.A. No. 12090-VCG (Oct. 19, 2017)

Under the Papendick v. Bosch decision, incorporating an entity in Delaware may give rise to long-arm jurisdiction over the entity’s parent, even a foreign one with no other contacts with the State of Delaware. The act of incorporating in Delaware, however, must be an “integral component” of the alleged wrongdoing. This decision explains how to meet that test, which is heightened slightly after the plaintiff conducts jurisdictional discovery. The test was satisfied in this case based on allegations that the defendant, desiring to enter the U.S. market, misappropriated the plaintiff’s trade secrets and incorporated a Delaware entity to profit from the misappropriation.