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Chancery Stays Case So That Committee of Company May Decide Whether It Has Power to Interpret Alternate Dispute Resolution Provision of Agreement


Terrell v. Kiromic Biopharma, Inc., C. A. No. 2021-0248-MTZ (Del. Ch. Jan. 20, 2022)
When an alternative dispute resolution (“ADR”) provision is an arbitration provision, presumptively the Court may consider the scope of the provision absent “clear and unmistakable” evidence to the contrary. When an ADR provision is not an arbitration provision, however, the Court applies contract interpretation principles to determine who – as between the Court or the person or body specified in the provision – may construe its scope. More ›

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Chancery Dismisses All Claims in Stockholder Challenge to Cash-Out Merger Transaction


Harcum v. Lovoi, C.A. No. 2020-0398-PAF (Del. Ch. Jan. 3, 2022)
In Harcum, the Delaware Court of Chancery dismissed all claims brought in a stockholder suit alleging fiduciary breaches in connection with the $1 billion dollar acquisition of Roan Resources Inc. by Citizen Energy Operating, LLC. The Court found that the transaction was “cleansed” pursuant to Corwin v. KKR Financial Holdings LLC, 125 A.3d 304, 312 (Del. 2015), because the plaintiff failed to adequately plead that any alleged controllers were conflicted or that the transaction was not approved by an uncoerced, fully informed stockholder vote.  More ›

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Chancery Curtails Discovery in Appraisal Action Instituted as a Substitute for Books and Records Demand


Wei v. Zoox, Inc, C.A. No. 2020-1036-KSJM (Del. Ch. Jan. 31, 2022)
Often, stockholders who suspect corporate wrongdoing in connection with M&A transactions demand to inspect the company’s books and records under Section 220. But if, through no fault of the stockholder, the timing of a closing makes Section 220 relief more difficult to obtain, may the stockholder use Section 262, the appraisal statute, and its broader available discovery, to accomplish the same goal? In this case, the Court concludes that the answer is a qualified yes. That is, the stockholders are entitled to discovery in the appraisal proceeding. But if it appears the proceeding is just a means to investigate a potential class action for breach of fiduciary duties, the stockholder is entitled to discovery only to the limited extent it would have been available under Section 220, and not to the broader extent typically available under Section 262. 

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Chancery Rejects Argument that Omitted Information Prevents Corwin Dismissal


Galindo v. Stover, C.A. No. 2021-0031-SG (Del. Ch. Jan. 26, 2022)
If a majority of fully informed, uncoerced, disinterested stockholders vote to approve a merger not involving a conflicted controlling stockholder, then under the Corwin doctrine, the business judgment rule applies because the vote cleanses any breach of duty (except a claim for waste). In this decision, the Court of Chancery returns to what it means for the stockholder vote to be “informed.” More ›

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Delaware Uniform Arbitration Act Did Not Permit the Court of Chancery to Confirm or Vacate an Interim Partial Arbitration Award Because It Was Not Final


Astrum Fund I GP, LP v. Maracci, C.A. No. 2020-0919-PAF (Del. Ch. Jan. 27, 2022) Maracci v. Astrum Fund I GP, LP, C.A. No. 2021-0073-PAF (Del. Ch. Jan. 27, 2022)
A limited partnership agreement’s dispute resolution framework mandated arbitration for certain disputes but contained a Delaware forum selection provision for the resolution of damages. Limited partners initiated arbitration proceedings against the partnership and its general partner after a real estate transaction resulted in the loss of their entire investment. The arbitrator issued an interim partial award (“IPA”) after finding that the general partner had breached the agreement and breached the general partner’s duty of care. The arbitrator did not issue a final award because of the agreement’s requirement that a Delaware court determines damages. More ›

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Chancery Dismisses Action for Declaratory and Injunctive Relief for Lack of Subject Matter Jurisdiction on Grounds that the Proposed Declaratory Judgments Would Provide an Adequate Remedy at Law


Qlarant, Inc. v. IP Commercialization Labs, LLC, C.A. No. 2021-0574-MTZ (Del. Ch. Jan. 25, 2022)
Pursuant to an asset purchase agreement, the plaintiff buyer purchased assets from a seller and several of its affiliates. Despite another company asserting that it owned twenty percent of the seller, the agreement represented that the seller had only two individual shareholders. The company that claimed it was a shareholder filed an action in Maryland challenging the asset purchase transaction. In turn, the plaintiff buyer filed an action in the Court of Chancery seeking declaratory judgments that the company was not a shareholder of the seller at the time of the agreement and that the asset-purchase transaction had been validly consummated. The plaintiff also asked the Court to permanently enjoin the company from asserting it was a shareholder of the seller. More ›

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Chancery Rejects Challenge to Director’s Appointment and Dismisses Derivative Claims


Simons v. Brookfield Asset Mgmt., Inc., C.A. No. 2020-0841-KSJM (Del. Ch. Jan. 21, 2022)
If a derivative plaintiff does not make a pre-suit demand on the board, then under Court of Chancery Rule 23.1, the plaintiff must allege particularized facts demonstrating that demand would have been futile because a majority of the board was incapable of impartially considering a litigation demand.  More ›

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CCLD Finds Claims for Pre-Litigation Breaches of Covenants Restricting Speech Exempt From the “Litigation Privilege”


Feenix Payment Sys. LLC v. Blum, C.A. No. 21-05-099 EMD CCLD (Del. Super. Jan. 25, 2021)
Under Delaware law, the litigation privilege prevents potential tort liability for statements that may be actionable (e.g., as defamation) where such statements were made in connection with a legal case. This case finds that the litigation privilege is not necessarily apt, however, to claims for breach of contract based on pre-litigation breaches of non-disparagement clauses or similar covenants. More ›

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After Entry of Default Judgment, Chancery Grants Leave to Amend Complaint to Add a New Claim for Reverse Veil-Piercing Against Two New Defendants


P.C. Connection, Inc. v. Synygy Ltd., C.A. No. 2020-0869-JTL (Del. Ch. Jan. 10, 2022)
After entry of a default judgment for liability, but before entry of a judgment awarding relief, the Court of Chancery granted the plaintiff leave to amend the complaint to add a new claim for reverse veil-piercing against two new entity defendants under Court of Chancery Rule 15(a). The Court found that the liberal Rule 15(a) standard regarding amendments to complaints applied – rather than the relatively stringent requirements for setting aside a judgment under Rules 59 and 60 – because the Court had only entered judgment on liability and had not yet determined the appropriate relief, and thus, the judgment was not final. More ›

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Court Of Chancery Affirms Arbitration Order And Denies Motion For Preliminary Injunction Based On The Preclusive Effect Of The Order


Agspring LLC v. NGP X US Holdings L.P., C.A. No. 2019-1021-JRS (Del. Ch. Jan. 19, 2022); Agspring LLC v. NGP X US Holdings L.P., C.A. No. 2019-0567-JRS (Del. Ch. Jan. 19, 2022)
Delaware follows the rule that an arbitrator’s award is “not lightly disturbed.” Accordingly, the applicable standard of review is “one of the narrowest standards of judicial review in all American jurisprudence.” To overturn an arbitrator’s order, a court must find that the arbitrator acted in “manifest disregard” of the law.  More ›

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Delaware Supreme Court Permits Substitution of Bankruptcy Trustee as Plaintiff to Resolve “Procedural Conundrum”


Lenois v. Lawal, No. 33, 2021 (Del. Dec. 9, 2021)
A company’s bankruptcy filing during an appeal of a dismissal of a derivative action presents questions of who, if anyone, has the standing to pursue the company’s potential claims. As this case shows, Delaware is loathe to permit such claims to abate merely because the procedural path forward is unclear. More ›

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Non-Resident Asset Managers Found Not To Be “Acting Managers” Subject To Personal Jurisdiction Under Delaware LLC Act


Dlayal Holdings, Inc. v. Gracey, C.A. 2020-1070-LWW (Del. Ch. Dec. 27, 2021)
Under 6 Del. C. § 18-109(a), serving as the manager of a Delaware LLC constitutes consent to be served through the company’s registered agent for all Delaware proceedings “involving or relating to the [company’s] business ... or a violation by the manager ... of a duty” to the company or its members. By its terms, the statute applies not only to formal managers identified in the company’s governing documents but also to acting managers – that is, persons who “participate[] materially in the management” of the company. This case clarifies what constitutes material participation under § 18-109(a). More ›

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Chancery Dismisses Complaint Against LLC Directors Based on Specific Terms of the Operating Agreement and Laches


Erisman v. Zaitsev, C.A. No. 2020-0903-JRS (Del. Ch. Dec. 29, 2021)
Under Delaware law, parties to limited liability company agreements have the freedom to alter or eliminate fiduciary duties, and to eliminate liability for breaches of contractual and fiduciary duties. Here, the Court of Chancery dismissed LLC members’ complaint because, among other reasons, the Operating Agreement (i) replaced default common law fiduciary duties with a contractual standard that limited director liability to claims in which directors did not rely on the terms of the Operating Agreement in good faith; and (ii) it further provided that the directors were not liable for money damages unless they failed to act in good faith, engaged in intentional misconduct or a knowing violation of the law, derived an improper personal benefit, or breached their duty of loyalty to the company. More ›

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Chancery Dismisses Derivative Action Arising from $1.2 Billion Stock Sale Based on Plaintiffs’ Failure to Plead Demand Futility


In re Kraft Heinz Co. Deriv. Litig., Cons. C.A. No. 2019-0587-LWW (Del. Ch. Dec. 15, 2021)
The Court of Chancery dismissed an insider-trading action on the grounds that plaintiffs failed to plead that a majority of a company’s board was not disinterested or independent. By way of background, an investment firm held 24 percent of a publicly-traded Delaware company and rights to three seats on an eleven-member board. At an August 2018 meeting, the board received information that the company likely would miss annual financial targets. Four days later, the investment firm sold nearly a third of its stake, for more than $1.2 billion. The stock sale occurred after the investment firm provided the company with a statement that the firm was not in possession of any material, nonpublic information, and after the company’s board approved lifting insider restrictions that permitted the firm to sell the shares. Three months later, the company disclosed disappointing financial results, and the stock price dropped significantly. More ›

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Chancery Issues Preliminary Injunction To Bar Arbitration on the Grounds that no Agreement was Formed


Hologram, Inc. v. Caplan
, C.A. No. 2021-0736-KSJM (Del. Ch. Dec. 14, 2021)
The Court of Chancery issued a preliminary injunction barring arbitration because the parties had never reached an agreement that included arbitration. By way of background, two former high-school classmates agreed in principle to begin a company. One would own ninety percent of the shares and serve as president and CEO, and the other would own ten percent of the shares in exchange for providing ideas and business opportunities. The president sent paperwork to his former classmate via email, including a restricted stock purchase agreement that proposed a vesting period for shares, required specific terms for acceptance, and included an arbitration provision. The former classmate responded with a request to change the shares to non-vesting. Over the ensuing months, the two could not agree on final terms, and the specific terms of acceptance (including in-person execution and payment) were never met. Nearly eight years later, as the company raised a $65 million Series B investment, the former classmate suddenly reached out to inquire about his ownership status. He subsequently filed a private arbitration demand against the company in Illinois. The company responded by filing a Delaware action seeking a declaration that the arbitration was improper because no agreement had been reached between the parties in connection with the claims made by the former classmate. The company moved for a preliminary injunction to prevent the continuation of the Illinois arbitration. More ›

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