Chancery Dismisses Claims that Minority Stockholders who Rolled Over Equity in a Controlling Stockholder Merger Joined a “Control Group”
Gilbert v. Perlman, C.A. No. 2018-0453-SG (Del. Ch. Apr. 29, 2020)
Delaware law imposes fiduciary duties upon controlling stockholders who use their power to control the corporate machinery. For that reason, determining who comprises a control group affects who may owe fiduciary duties. In some circumstances, where minority stockholders pool their interests to gain majority control and then bind themselves to act together to effectuate a transaction, minority stockholders may take on the duties of a controlling stockholder as members of a control group. But where an already existing controlling stockholder effectuates a cash-out merger, minority stockholders who roll over their shares and enter into a voting agreement to support the transaction will not be deemed part of a control group unless a plaintiff can plead that “the minority-holder’s participation [was] material to the controller’s scheme to exercise control of the entity, leading to the controller ceding some of its control power to the minority-holders.” More ›
Chancery Compares Aronson and Rales Tests for Demand Futility; Finds Well-Plead Caremark Claim Showing No Good Faith Effort to Oversee Financial Reporting and Related-Party Transactions Made Demand Futile
Everyone from bar applicants to seasoned litigators and counsel advising boards of directors can find something of interest in Hughes v. Hu, which (i) provides a comprehensive review of how the Court of Chancery evaluates demand futility in derivative actions and (ii) discusses the type of allegations that will support a well-plead Caremark claim for failure to take affirmative steps to ensure an effective board-level monitoring reporting system is in place. More ›Share
Trials involving books and records requests have become more common since the Delaware Supreme Court encouraged stockholder plaintiffs to use the “tools at hand” to discover information necessary to establish demand futility prior to pursuing derivative litigation. Less common are decisions post-trial regarding inspection rights for members of a Delaware limited liability company. The recent decision in Riker v. Teucrium Trading LLC, C.A. No. 2019-0314-AGB (Del. Ch. May 12, 2020) reflects the care by which the Court of Chancery applies the applicable standard to determine whether a member has met his burden to show entitlement to documents and, if so, the scope of necessary production. The case also demonstrates that a Company’s hard-fought litigation tactics opposing document requests, which the Court ultimately validates, does not by itself provide grounds to shift attorneys’ fees, particularly where plaintiff did not substantially prevail. More ›Share
Chancery Dismisses GoPro Derivative Action for Failure to Allege Directors Intentionally Made Inflated Revenue Forecasts or Failed to Exercise Appropriate Caremark Oversight
In re GoPro, Inc. S’holder Deriv. Litig., C.A. No. 2018-0784-JRS (Del. Ch. Apr. 28, 2020)
This opinion serves as a reminder that particularized allegations of non-exculpated wrongdoing are necessary to support the contention that a demand would be futile. Vice Chancellor Joseph R. Slights, III dismissed a breach of fiduciary duty derivative action for failure to allege demand futility with the detail prescribed by Chancery Court Rule 23.1. The plaintiffs, GoPro, Inc. stockholders, filed suit against officers and directors after complications with the launch of a new drone caused the company to miss its revenue forecast. The complaint alleged that pre-suit demand was futile because a majority of the board faced liability for its knowledge of, but failure to disclose, the company’s revenue shortfall and were beholden to the CEO/controlling stockholder such that they could not exercise independence. The missed revenue projections also spurred a federal securities class action suit, naming three of the same defendants, where a ruling denying a dismissal motion found that the class plaintiffs well pled that the named overlapping defendants made false or misleading statements regarding the drone. More ›
Chancery Provides Guidance on Rule 23.1 “With Particularity” Pleading Standard in Continuing Investors Bancorp Stock Awards and Options Dispute
Elburn v. Albanese, C.A. No. 2019-0774-JRS (Del. Ch. Apr. 21, 2020)
Finding that the stockholder plaintiff (the “Plaintiff”) had satisfied the Rule 23.1 “with particularity” pleading standard, the Court of Chancery declined to dismiss claims challenging an alleged quid pro quo arrangement between certain officers and the board of directors (the “Board”) at Investors Bancorp, Inc. (the “Company”) that had the effect of undoing and rendering meaningless the settlement (the “Settlement”) of a previous derivative action. More ›
This case affirms that, absent an abuse of discretion, the Court of Chancery will defer to a sale agreement proffered and negotiated by a Court-appointed liquidating trustee. In this case, the Court had appointed the liquidating trustee (the “Trustee”) after granting judicial dissolution of a Delaware LLC due to member deadlock. At the last minute, and following a six-month sale process, a bidder that was owned by two of the LLC’s members made an offer that the Trustee rejected as untimely and inadequate. The bidder challenged the Trustee’s judgment in rejecting its bid. The Court upheld the Trustee’s decision to reject the bid, finding no evidence of an abuse of discretion. More ›Share
Superior Court Allows Fraudulent Inducement and Breach of Contract Claims to Proceed in Parallel Based on Rescissory Damages Request
Firmenich Inc. v. Natural Flavors, Inc., C.A. No. N19C-01-320 MMJ [CCLD] (Del. Super. Apr. 7, 2020).
Fraud claims that overlap with breach of contract claims often are subject to dismissal under Delaware law. Sometimes, however, fraud and contract claims may proceed in parallel, as the Complex Commercial Litigation Division of the Superior Court determined in Natural Flavors. Here, the Superior Court declined to dismiss a fraudulent inducement claim seeking rescissory damages notwithstanding an alternatively-pled breach of contract claim. The litigation concerned an Asset Purchase Agreement and allegations of fraud arising from a former employee’s whistleblowing. After the plaintiff-buyer’s initial fraud claim was dismissed as impermissibly bootstrapped to its breach of contract claim, the plaintiff filed an amended complaint for rescissory damages as compensation for alleged fraudulent inducement to enter into the APA, while alternatively seeking relief for alleged breach of the APA. The defendant-seller, again, sought dismissal of the fraud claim as duplicative of the breach of contract count. More ›
Chancery Finds Corporation Fraudulently Induced Investor into Contract, Acting “Through Concealment and Silence”
Maverick Therapeutics Inc. v. Harpoon Therapeutics, Inc., C.A. No. 2019-0002-SG (Del. Ch. Apr. 3, 2020).
In this post-trial opinion, the Court of Chancery found that Harpoon Therapeutics, Inc., (“Harpoon”), a Delaware corporation in the business of developing novel cancer therapies, fraudulently induced an investor into acquiring an interest in one of its business divisions by intentionally drafting a non-compete narrowly to exclude certain opportunities Harpoon wished to pursue, in contrast with its representations to the investor about its future plans. More ›
Chancery Finds Tortious Interference By Financial Industry Competitor and Addresses the Requirements for Obtaining Permanent Injunctive Relief
This case illustrates the type of competitive conduct that will qualify as tortious interference with business relationships while demonstrating that permanent injunctive relief is unavailable absent a likelihood of future irreparable harm. More ›Share
Chancery Finds Lack of Personal Jurisdiction Over Employee Defendants in Stock Appreciation Rights Dispute
Highway to Health, Inc. v Bohn, C.A. No. 2018-0707-AGB (Del. Ch. Apr. 15, 2020).
To establish personal jurisdiction over a nonresident defendant under the Delaware long-arm statute, 10 Del. C. § 3104, a plaintiff must show that: “(1) there is a statutory basis for exercising personal jurisdiction; and (2) subjecting the nonresident defendant to jurisdiction in Delaware would not violate the Due Process Clause of the Fourteenth Amendment.” More ›
As this decision demonstrates, Delaware courts will enforce the plain and ordinary meaning of contractual terms governing an earn-out payment, including the process by which a payment is to be calculated, noticed, and contested. More ›Share
Court of Chancery Permits Targeted Jurisdictional Discovery to Seek Proof to Support Non-Frivolous Claim of Personal Jurisdiction
HM Life Ins. Co. v. Wilmington Sav. Fund Soc’y, FSB, C.A. No. 2018-0649-SG (Del. Ch. Apr. 9, 2020).
If a plaintiff has pled facts in its complaint to support a non-frivolous claim of personal jurisdiction over a defendant, the Court of Chancery may allow targeted jurisdictional discovery to seek proof that the Court has personal jurisdiction over a defendant in response to a motion to dismiss for lack of personal jurisdiction. More ›
In a Books and Records Action, Court Critiques Defendant’s Motion to Dismiss, and Declines to Order Inspection of Documents Not Requested in the Plaintiff’s Demand
Sometimes it bears repeating that Section 220 actions are intended to be summary proceedings to evaluate a stockholder’s pre-suit demand to inspect a corporation’s books and records. More ›Share
Chancery Dismisses Claims Seeking to Compel a Dividend Declaration and for Breach of the Duty of Care
This case involved a minority stockholder in a Subchapter S corporation seeking relief as a result of its dissatisfaction with management’s operating performance and the company’s unwillingness to pay dividends, matters which defendants contended were well within the exercise of their business judgment. The Court of Chancery granted defendants’ motion to dismiss the complaint. More ›Share
On a motion to dismiss plaintiff’s claims for fraud, the Delaware Court of Chancery applied Delaware’s three-year statutory limitations period rather than Texas’s four-year period and dismissed plaintiff’s claims as time-barred. Narrowly interpreting the Delaware Supreme Court’s holding in Saudi Basic Indus. Corp. v. Mobil Yanbu Petrochemical Co., 866 A.2d 1, 16-18 (Del. 2005), the Court found that, except in circumstances where a party is forced to bring claims in Delaware, under Delaware’s “borrowing statute,” the shorter of Delaware’s statute of limitations and that of the foreign jurisdiction will apply. More ›Share