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

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Showing 5 posts from December 2007.

Court of Chancery Explains Contract Interpretation Rules

United Rentals Inc v. RAM Holdings Inc. C.A. No. 3360-CC (December 12 and 21, 2007)

In these two decisions the Court of Chancery sets out how it will interpret a contract. Following the objective theory of contract interpretation, the court searches for the "common understanding" of the parties. It will not hear evidence of a party's subjective mental impressions or unilateral understandings.

However, the court will apply the "Forthright Negotiator Principle" when a contract is ambiguous. Under that approach, a reasonable interpretation of contract language of one of the parties will be binding on the other party to the contract if he knew or should have known of the other party's understanding and did not object to it when the contract was signed. Silence then may be fatal.

Court of Chancery Upholds Statute of Repose for Dissolved Corporations

The Territory Of The Virgin Islands v. Goldman, Sachs & Co., C.A. No. 2505-VCS (December 20, 2007).

This decision upholds the law that Section 278 of the Delaware General Corporation Law ("DGCL") acts as a statute of repose to bar the filing of all litigation against a Delaware corporation after 3 years from the date of its dissolution.

As the court also notes, that means that a suit against stockholders under Section 325 of the DGCL for having received an improper liquidating distribution are also precluded under those circumstances.

Court of Chancery Explains Scope of Arbitration Agreement

Brown v. T-Ink, LLC ,C.A. No. 3190-VCP (December 18, 2007) Delaware courts have recently issued several decisions dealing with the scope of an agreement to arbitrate. This is yet another. The opinion is interesting for its explanation of the Delaware approach to determining whether it is for the arbitrator or the court to decide if an issue is subject to arbitration. Generally, that issue will be decided by the court unless there is a clear indication in the agreement that the arbitrator is to decide such questions. As this decision points out, references to the AAA rules and language including "all controversies" arising out of the parties' relationship indicate that an arbitrator should decide such issues.

Court of Chancery Holds Board Meeting Is Void

Fogel v. U.S. Energy Systems, Inc., C.A. No. 3271-CC (December 13, 2007).

Directors often think that if they get together that is a real board of directors'  meeting. Not so. As this decision holds, a board meeting is a formal event that must be preceded by the appropriate notice, be conducted by voting on the issues and otherwise be properly called and conducted. Gatherings of even all the directors that do not meet these tests are void.

Moreover, the consequence of holding a meeting void is that actions taken cannot be ratified later. Thus, even when all but one of the company's directors wanted to fire the CEO, their attempt to do so at a haste gathering of all the directors was ineffective.

Superior Court: Equitable Counterclaim Does Not Equal Ticket to Chancery

Rembrandt Technologies, LP v. Harris Corp., 2007 WL 4237752 (Del. Super. Nov. 30, 2007). 

This decision demonstrates the willingness of Delaware courts to uphold the plaintiff’s choice of forum (between the Superior Court and the Court of Chancery), despite an argument by the defendant that transferring courts would allow the hearing of all claims and thus promote judicial economy.  More ›