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

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Showing 10 posts from January 2008.

Superior Court Allows Expert Testimony On "Materiality" When Not An Ultimate Issue

Mizel v. Xenonics, Inc., 2008 WL 116203 (Del. Super. Jan. 11, 2008).

This decision addresses the question of whether an expert can testify as to materiality under the securities laws. The moving party argued that materiality was an ultimate issue in this breach of contract action and thus could not be the subject of expert testimony, citing Hill v. Equitable Banks, 1987 WL 8953 (D. Del. 1987), a case in which the ultimate issue was whether certain alleged misrepresentations and omissions were material. 

The court, however, distinguished this case from Hill, finding that materiality was not the core question before the jury. The critical issue was whether the plaintiff, a warrant holder, was prevented from exercising his purchase rights—a fact the company denied completely.    More ›

Court of Chancery Grants Advancement to an Employee

Posted In Case Summaries

Sassano v. CIBC World Markets Corp., C.A. No. 3066-VCL ( January 17, 2008).

It is not widely recognized that Delaware law permits a corporation to grant advancement of attorney fees to employees who are not directors and may even be fairly minor employees. Here, the bylaws provided advancement of fees for an officer with "management supervisory functions". The court carefully went over whether the plaintiff had those duties and found that he did and thus, should be advanced his fees for the defense of an SEC investigation.

Court of Chancery Upholds Agreement To Agree

Pharmathene Inc. v. SIGA Technologies. Inc., C.A. No. 2627-VCP (January 16, 2008).

Whether an agreement to agree may be enforced seems like an odd question. After all, if the parties really had an agreement then why not just say so and not use a term sheet or other vague type of "agreement to agree" to express their intent. This decision illustrates just why that may occur because the parties apparently were uncertain if they really wanted to bind themselves to one another just yet. Nonetheless, they did list all the essential terms of what they wanted in their contract in a term sheet and when they seemed to have acted to carry out their deal, the court here indicated it will enforce an agreement to agree when to let one party walk away seems inequitable.

Court of Chancery Defines Illegal Vote Buying

Portnoy v. Cryo-Cell International Inc., C.A. No. 3142-VCS (January 15, 2008).

This is the definitive decision on when arrangements to secure a stockholder's vote are invalid. "Vote buying" has long been criticized without much thought. After all, the Delaware General Corporation Code specifically authorizes arrangements to lock up a stockholder's vote. However, paying for that vote seems somehow wrong, perhaps because of political reasons. Here, the court carefully sets out the policy considerations and decides when paying for a vote is invalid.

In general, when a stockholder's agreement to cast his vote for management pursuant to a contract with the corporation is publicly announced, then it will be valid. If the other stockholders do not like it, then they can vote the other way. The exceptions to this are when corporate assets are used to buy the vote and then it becomes more troublesome. The arrangement will be struck down when it is not in furtherance of a proper corporate purpose and is unreasonable.

This decision also comments on how to conduct a stockholder meeting. Postponing votes by lying about why there is a delay is frowned upon, to say the least.

Court of Chancery Orders Meeting For Bankrupt

Fogel v U.S. Energy Systems, Inc., C.A. No. 3271-CC (January 15, 2008).

This is another in a line of decisions holding that the Court of Chancery may order the holding of a stockholders' meeting even if the company is in a bankruptcy proceeding. The automatic stay does not apply.

Superior Court: Oral Contract Created By Contractor's Representations

 

MAA Real Estate LLC v. Patel, C.A. No. 06C-02-249 (Del. Super. Ct. Dec. 7, 2007).

In this breach of contract action, there was no written agreement, only an unsigned pricing sheet prepared by the contractor making the repairs. The court had to determine whether the parties nonetheless mutually assented to any of the terms on the sheet or otherwise entered into an oral contract.

The court held that there was no mutual assent to the items on the pricing sheet, as it did not state the specific materials required to complete the renovation. The customer could only show that the contractor represented that he would install non-skid tile flooring. That created an oral contract. By failing to install non-skid tile, the contractor breached the agreement.

The measure of damages was the cost of replacement and repair for the proper flooring.



 

Superior Court: Employer Owes No Duty to Employee's Spouse

In re: Asbestos Litig., 2007 WL 4571196 (Del. Super. Ct. Dec. 21, 2007).

In this negligence action, a wife alleged that she was exposed to asbestos while laundering her husband’s work clothes. The employer moved for summary judgment, claiming it owed no duty to an employee’s spouse who had never set foot on company property and had only been injured as a result of take-home exposure.  This argument presented an issue of first impression in Delaware. 

In addressing the core question of when a duty of care arises, the court conducted a review of the doctrinal approaches advanced throughout the history of tort law, from Cardozo’s foreseeability analysis to Learned Hand’s B<PL formula. The court observed that none of these approaches had been adopted in Delaware to the exclusion of the others. Instead, it was up to the court to consider the relationship of the parties in each particular case in light of its peculiar facts.
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Superior Court Grants Motion to Amend Answer, Even Though Defendant Had Some Knowledge of New Fact Before Filing

Delta Eta Corp. v. University of Delaware, 2007 WL 4578278 (Del. Super. Ct., Dec. 27, 2007).

This decision addresses a party’s ability to amend its answer, under Rule 15(a), when the 20-day period to amend as a matter of right has expired. The litigation arose when the University of Delaware terminated a lease it entered into with a fraternity to maintain a chapter house and then took title to the property, triggering a requirement under the agreement that it pay the fraternity the fair market value of the remainder of its leasehold interest.

In its answer, UD admitted that it owed the amount determined by a neutral appraiser to be the value of the interest. But when the fraternity moved for summary judgment, UD moved to amend its answer to deny that the amount was accurate. UD argued that it learned of severe mold damage to the chapter house that should have been taken into account in the valuation.
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Court of Chancery Sets Fees for Supplemental Proxy Materials

Posted In Case Summaries

In re James River Group Inc. Shareholders Litigation, C.A. No. 3173-VCL ( January 8, 2008).

Here, the court awarded $400,000 in fees in connection with the settlement of a class action when the relief obtained was a supplement to the proxy statement.

While the company claimed it was always going to send the supplemental materials, the court noted that was contrary to the recital in the settlement agreement. Seems like it is not good to go back on your word in Chancery Court.

Court of Chancery Requires Disclosure By Special Committee

Ryan v. Gifford, C.A. No. 2213-CC (January 2, 2008).

This is an interesting decision because it points out how to do almost everything wrong in using a special committee to investigate accusations of misconduct. The result is that any privilege from disclosure that the work of the special committee may have enjoyed was completely lost and all of its extensive efforts were ordered to be turned over to the plaintiffs in the underlying litigation.

The decision also points out the limits on what its holding may have been in other contexts where the special committee's work was properly used and its privileges maintained.