Delaware Business Litigation Report

Chancery Rejects Declining-Percentage Method, Awards $266.7 Million in Attorneys’ Fees for $1 Billion Class Action Settlement

In re Dell Techs. Inc. Class V S'holders Litig., C.A. No. 2018-0816-JTL (Del. Ch. July 31, 2023, revised Aug. 22, 2023)
Stockholders filed class actions in the Court of Chancery challenging the terms of a redemption of a special class of common stock. After years of litigation and the filing of pre-trial briefs, nineteen days before trial, the parties reached a cash settlement of $1 billion. The plaintiff's counsel submitted a fee application for 28.5 percent of the common fund. Stockholders holding more than 25 percent of the class objected to the fee application and asked that the Court instead apply the declining-percentage method used for calculating fees in federal securities litigation. More ›

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Chancery Orders Company to Produce Books and Records in Response to Section 220 Demand and Grants Stockholder Leave to Seek Fees and Costs

Myers v Academy Securities, Inc. C.A. No. 2023-0241-BWD (Del. Ch. July 27, 2023).
Under Section 220 of the Delaware General Corporation Law ("DGCL"), stockholders are entitled to corporate books and records if they make a valid demand on the company, have a proper purpose for conducting an inspection, and establish that each category sought is essential to that purpose. In this case, a Magistrate in Chancery found that the stockholder met his burden to receive books and records for the purpose of determining the value of his shares. The Court also recommended that the stockholder be permitted to seek his attorneys' fees and costs for the books and records action. More ›

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Chancery Finds Member Breached LLC Agreement in Unilaterally Dissolving the Company

VH5 Capital, LLC v. Jeremiah Rabe, C.A. No. 2020-0315-NAC (Del. Ch. June 30, 2023)
The at-issue LLC had two members – the defendant and the plaintiff, both of whom also constituted the company's board. The company never observed any corporate formalities, including never holding any meetings or appointing a third board member, as required by the company's LLC Agreement. After operating for mere months and never earning a profit or accumulating assets, the defendant unilaterally dissolved the company. More ›

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Chancery Approves Revised Class Action Settlement After Denying Initial Proposal Due to Overly Broad Release

In re AMC Entm't Holdings, Inc. S'holder Litig., Consol. C.A. No. 2023-0215-MTZ (Del. Ch. July 21, 2023)
In re AMC Entm't Holdings, Inc. S'holder Litig., Consol. C.A. No. 2023-0215-MTZ (Del. Ch. Aug. 11, 2023)
The board of directors of a company in financial distress sought to raise capital by issuing more common stock. Existing common stockholders did not approve the proposed measure. The board then issued new preferred stock with sufficient voting power to ensure the passage of board proposals to issue new common shares. Stockholders filed a class action, alleging that the board violated the Delaware General Corporation Law in creating the preferred stock and breached its fiduciary duties by diluting the common stock's voting power. More ›

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Chancery Refuses to Order Specific Performance Due to Inaccurate Representations and Warranties

Restanca, LLC v. House of Lithium, Ltd., C.A. No. 2022-0690-PAF (Del. Ch. Jun. 30, 2023)
The parties seeking specific performance of an agreement must establish a clear right to performance, including that all conditions to closing have been met. In this case, a buyer refused to close on the acquisition of an electric scooter company, and the seller sought specific performance in the Court of Chancery. In its post-trial decision, the Court denied that relief because the sellers inaccurately represented that the seller’s equity holders had executed a secondary sale agreement and that the seller had delivered certain financial statements to the buyer. Because neither of those things had in fact occurred, not all conditions to closing were satisfied and the buyer could walk away from the transaction. Further, because Delaware is a pro-sandbagging jurisdiction, it did not matter whether the buyer knew (as seller argued) that representations were inaccurate, and holding seller to its representations did not create an unjust result.

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Supreme Court Affirms Court of Chancery’s Decision Directing “Long Dark” Company to Produce Books and Records to a Stockholder Free of Confidentiality Restrictions

Hauppauge Digital, Inc. v. Rivest, C.A. No. 2019-0848 (Del. July 10, 2023).
Under Delaware law, once a stockholder has established a proper purpose to inspect a corporation's books and records, the Court of Chancery has the discretion to impose limitations or conditions on the Section 220 production. In this case, the Supreme Court of Delaware agreed with the Court of Chancery's decision not to impose any limitations on the production. More ›

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Chancery Approves Reduced Fee Award for Derivative Settlement Based on Therapeutic Benefits

Sciabacucchi v. Howley, C.A. No. 2021-0938-LWW (Del. Ch. July 3, 2023)
A stockholder filed a derivative action alleging breach of fiduciary duty and unjust enrichment in connection with a board compensation committee’s decision to award compensation to directors. Months later, the parties reached a therapeutic settlement, including that dividend-equivalent payments to directors on their unexercised stock options would no longer be in cash; rather, they would be applied to reduce the options’ exercise price. The plaintiff valued the alleged benefit to the company at $23.8 million. In exchange for the therapeutic terms, the plaintiff released all claims. The plaintiff’s counsel sought a fee and expense award of $2.8 million, which the defendants agreed not to oppose. More ›

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Chancery Finds that Acquiror Aided and Abetted Breaches of Fiduciary Duties by Exploiting Management’s Conflicts of Interest

In re Columbia Pipeline Group Merger Litig., Consol. C.A. No. 2018-0484-JTL (Del. Ch. June 30, 2023)
To establish a claim for aiding and abetting a breach of fiduciary duties, a plaintiff must show “i) the existence of a fiduciary relationship giving rise to a duty to the plaintiff, (ii) a breach of that duty by the fiduciary, (iii) knowing participation in the breach by the defendant, and (iv) damages proximately caused by the breach.” Id. at 94. The plaintiffs alleged that TransCanada, the acquirer in the merger transaction, aided and abetted a breach of fiduciary duties in the merger sale process and in disclosures to the stockholders in connection with the merger vote. More ›

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Chancery Denies Books and Records Request Related to Disney’s Opposition to Florida Legislation Prohibiting LGBTQ+ Topics in Classrooms

Simeone v. The Walt Disney Company, C.A. No. 2022-1120-LWW (Del. Ch. June 27, 2023)
The Walt Disney Company opposed Florida legislation that limits instruction on sexual orientation and gender identity in Florida classrooms. The Governor of Florida responded by threatening the revocation of tax-favorable treatment for Disney. The plaintiff filed a books and records demand and then litigation, alleging that Disney's opposition to the legislation put at risk Disney's tax-favorable treatment and that Disney's directors and officers may have breached their fiduciary duties by putting their own beliefs ahead of their obligations to stockholders. More ›

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Chancery Provides Additional Analysis of Primedia Claims in MFW Context

City of Dearborn Police and Fire Revised Retirement System (Chapter 23) et al. v. Brookfield Asset Management Inc., C.A. No. 2022-0097-KSJM (Del. Ch. June 21, 2023)
In a short letter decision, Chancellor McCormick supplemented an earlier decision with a more fulsome analysis of plaintiffs’ Primedia claim (a direct claim challenging a merger based on a board’s failure to obtain value for material derivative claims), which the Court had earlier decided was subject to dismissal under MFW. Under Primedia’s three-part test, to bring a derivative claim post-merger, the former stockholder must plead (1) a colorable underlying derivative claim, (2) that the value of the derivative claim was material in the context of the merger, and (3) “that the acquirer would not assert the underlying derivative claim and did not provide value for it.” Here, the Court held that Plaintiffs failed to establish Primedia’s second prong because their claims and calculations were “woefully underdeveloped[.]” Specifically, plaintiffs speculated the defendants could have been liable for the entire lost market capitalization in the years following the merger, but they could not explain how that measure of damages made sense. Other metrics, including comparing the deal price to the trading price at the time of the transaction, showed that the derivative claims were not material to the merger consideration. 

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Chancery Rejects “Largely Precatory” Proposed Derivative Settlement

Knight v. Miller, C.A. No. 2021-0581-LWW (Del. Ch. June 1, 2023)
Under Court of Chancery Rule 23.1(c), the Court must approve the settlement of any derivative litigation. This case provides a rare example of the Court rejecting a settlement after determining that the “give"—i.e., the substance of the settlement—did not justify the “get"— i.e., ending the litigation. More ›

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Superior Court CCLD Declines to Award Costs for Special Master and Mediator, and Awards only Simple Interest on Judgment in Accord with Superior Court Default Rule

LCT Capital, LLC v. NGL Energy Partners LP, C.A. No. N15C-08-109 JJC CCLD (Del. Super. Ct. June 20, 2023)
Under Superior Court Rule 54, costs are allowed as a matter of course to the prevailing party. In this post-trial opinion, the Court denied costs associated with a special master fee and declined to include mediator fees but allowed costs relating to courtroom technology. The Court reasoned that the technology costs should be awarded because they were incidental and necessary to the trial. The Court found, however, that the fees related to the special master should not be awarded because those fees were similar to attorneys' fees. The Court also reasoned that the mediator's fees should not be awarded without a showing of abuse because mediator fees are typically split by the parties. More ›

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Chancery Finds Derivative Plaintiffs Breached Duties in Withholding Arbitration Award of the Company

Optimiscorp v. Atkins, C.A. No. 2020-0183-MTZ (Del. Ch. June 1, 2023)
As this decision explains, when stockholder plaintiffs control the derivative claims of the company, they serve as agents of the company and owe the company fiduciary duties. This dispute involved the defendant-stockholders improperly withholding an arbitration award, which was obtained as a result of their successful litigation of derivative claims on behalf of the company. Ruling on summary judgment, the Court of Chancery held that the defendants breached their fiduciary duties to the company by withholding the award. The Court found that the defendants acted as agents of the company in the derivative claims and, therefore, owed fiduciary duties to the company. The Court reasoned that the defendants, as the company's agents, were required to return the award to the company because a monetized derivative asset belongs to the company. The Court ruled that the defendants breached their duty of care by divesting the company's board of its authority to manage the award and by failing to perform their obligations as company agents. Further, by withholding the award with the intent of distributing it to themselves, their friends, and their family, the defendants also breached their duty of loyalty. In ruling so, the Court rejected the defendant's argument that the business judgment rule should apply to their actions, finding the business judgment rule is intended to apply to directors, while derivative stockholder plaintiffs are held to a simple negligence standard with respect to their duty of care and a more stringent duty of loyalty than directors.

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Chancery Finds that Buyer Breached Purchase Agreement by Denying Sellers’ Rights to Participate in a Defense

LPPAS Representative, LLC v. ATH Holding Co. LLC, C.A. 2020-0241-KSJM / Shareholder Representative Services LLC v. ATH Holding Co. LLC, C.A. No. 2020-0443-KSJM (Del. Ch. May 2, 2023)
Delaware law recognizes parties’ ability to create a contractual right for an indemnifying party to participate in the defense of a claim. In this case, the Purchase Agreement provided the Sellers with such Participation Rights in connection with third-party claims that may give rise to Sellers’ indemnification obligations. The Court determined that the Buyer breached the Purchase Agreement by not allowing the Sellers to participate in the defense of investigations. More ›

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Chancery Holds Unocal Claims for Injunctive Relief are not Subject to Corwin Cleansing

In re Edgio, Inc. Stockholder Litigation, C.A. No. 2022-0624-MTZ (Del. Ch. May 1, 2023)
Under Corwin, a fully informed, uncoerced vote of the disinterested stockholders can shift the standard of judicial review for certain transactions from heightened scrutiny to the business judgment rule. But there are some transactions that Corwin cannot cleanse. Here, at the motion to dismiss stage, the Court declined to apply the Corwin doctrine to a Unocal claim seeking to enjoin certain alleged defensive measures taken by the company's board.  More ›

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