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Showing 12 posts from July 2008.

Court of Chancery Holds Final Means Final

Sun-Times Media Group, Inc.v. Black, C.A. 3518-VCS (Del. Ch. July 30, 2008)

In the latest decision in the long running saga of Conrad Black, the Court of Chancery has decided that he is entitled to advancement of his legal fees until his appeals from his criminal conviction are concluded. The holding turns on the phase that required advancement until there was a "final disposition" of Black's case. The Court held that included all appeals. The conclusion seems almost unavoidable for all the persuasive reasons given by the Court.

This case involved many millions of dollars in fees and illustrates that  such "blank check" advancement provisions can be very expensive indeed.


Court of Chancery Appoints Class Representative with Close Relationship to Class Counsel

Posted In Class Actions

In Re: TD Banknorth Shareholders Litigation, C.A. 2557-VCL (Del. Ch. July 29, 2008)

It has long been known that some pension funds and other institutional investors use the same counsel over and over to bring their class actions. This decision recognizes that fact and holds that it is not a reason to disqualify the proposed class representative.


Court of Chancery Details Board Duties in a Merger

Posted In Fiduciary Duty, M&A

Ryan v. Lyondel Chemical Company, C.A. 3176-VCN (July 29, 2008)

This decision is a textbook explanation and summary of the Delaware case law on the duties of a board of directors when considering a takeover proposal. The Court first sets out the Revlon duties in detail including the effect on those duties when the Barkin "exception" may apply. Next, the Court explains how to comply with the principles of both Omnicare and Unocal concerning defensive measures that protect the proposed transaction. Finally, the Court explains why in the context of a summary judgment motion that the otherwise disinterested board may have its good faith questioned.

This last part of the decision is surely its most controversial. While the Delaware statute protects directors from attacks on their decisions based on their lack of care, the loophole has always been that the statute does not protect from act not taken in good faith. When does a lack of care turn into a lack of good faith is the question.

In a series of decisions such as the Disney case, the Delaware Supreme Court has tried to set out some guidance on this issue. However, the test to be applied is still vague and in the context of a summary judgment motion when all inferences must be drawn in favor of the plaintiff, the test becomes even more difficult in application. This decision illustrates that problem and is worth reading for that issue alone.


Court of Chancery Upholds Appraisal Demand

Posted In Appraisal

Andrew And Suzanne Schwartz 2000 Family Trust v. AM Apparel Holdings, Inc., C.A. 3172-VCS (Del. Ch. July 28, 2008)

The Delaware law has long been that the statutory requirements to obtain appraisal rights must be met, exactly. However, this decision is another example of when the Court will uphold appraisal rights when the company itself fails to comply with the statutory obligation of notice or has issued a confusing notice of the right to demand appraisal.


Court of Chancery Set Rules to Uphold Arbitration Awards

Posted In Arbitration

TD Ameritrade, Inc. v. McLaughlin, C.A. 3603-CC (July 24, 2008)

This decision set out in detail when the Court of Chancery may set aside an arbirtation award. Not surprisingly, the answer is not very often. The only part of the award set aside was due to an obvious math error. The Court upheld the rest of the award even against an attack that the award was manifestly contrary to law.

The analysis of how to determine if the award is contrary to law is particularly instructive.


Court of Chancery Upholds Corporate Documentation

Tanyous v. Happy Child World, Inc., C.A. 2947-VCN (Del. Ch. July 18, 2008)

This decision holds that when the corporate internal documents say the plaintiff is a stockholder, an alleged oral agreement that he was really just a lender with the stock as security is not to be believed. What is striking about this case is the extraordinary patience the Court gave to what seems to be a pretty far-fetched story that documents do not mean what they say.

The plaintiff contended that he was a stockholder entitled to inspection rights. The defense was that despite all the corporate documentation, including tax returns, that said the plaintiff was a stockholder, there really was a side deal that he was only a lender with a security interest in stock. Not surprisingly, that story did not wash.


Delaware Supreme Court Clarifies when a Bylaw may Provide for Reimbursement of Proxy Expenses

CA, Inc. v. AFSCME Employees Pension Plan, C.A. 329,2008 (Del. 2008) (en banc)

In response to questions certified to it by the SEC, the Delaware Supreme Court has decided if a bylaw may mandate reimbursement of proxy solicitation expenses. No is the short answer.

As pension plans and other institutional investors seeks representation on corporate boards, they are looking for ways to make that process less expensive. Under the current Delaware law, even a successful proxy contestant will not be reimbursed for expenses unless it elects the majority of the board. Given how difficult that is to do as an outsider, few want to go through the expense of the effort. Here the bylaw proposed mandatory reimbursement for any successful election campaign, even if only one slot was filled.

The Court makes a distinction between bylaws that affect "process and procedures" of the board from bylaws that affect "substantive business decisions." Only process and procedure bylaws are valid, and a bylaw may not dictate the decision a board must make in the exercise of its fiduciary duty. As the Court acknowledges, that distinction is a tight one to make as some process bylaws affect the decision to be made.

The Court leaves open the possibility that a provision in a certificate of incorporation may mandate proxy solicitation reimbursement. However, as such a change in the certificate must be proposed by the board itself, that route seems a long road to travel.


Court of Chancery Clarifies When Indemnification Right Includes Advancement

Sodano v. American Stock Exchange LLC, C.A. 3418-VCS (Del. Ch. July 15, 2008)

It is widely assumed that the right to be indemnified does not include the right to have attorneys’ fees advanced as the litigation proceeds. Actually, as this decision notes, lawyers deal in this area who do not even know the difference between indemnification and advancement. That is not entirely accurate as this decision holds it is all a matter of contract. When the contract or bylaw defines indemnification in such a way as to include advancement rights, then that is the deal and advancement is required.


A Settlement Is A Settlement, Not An Adjudication Of Fraud For D&O Policy Exclusion Purposes

AT&T v. Clarendon America Ins. Co., C.A. No. 04C-11-167-JRJ (Del. Super. Ct. June 25, 2008).

This decision will be of interest to any parties drafting or negotiating D&O policy exclusions.

This coverage dispute arose out of stockholder litigation brought against certain AT&T directors, alleging false and misleading statements. That action settled during trial, with AT&T agreeing to pay $100 million to the plaintiffs. National Union, AT&T’s excess D&O carrier, denied coverage. 

The issue before the Superior Court here, on AT&T’s motion for partial summary judgment, was whether National Union could deny coverage based on the policy’s fraud exclusion. AT&T argued that the fraud exclusion requires an adjudication and does not apply to settlements. More ›


Court of Chancery Divides Settlement Among Shareholders In Class Action Suit

The plan of allocation approved in Ginsburg v. Philadelphia Stock Exchange et. al., C.A. No. 2202-CC is a landmark decision for those in the business of litigation arbitrage, buying shares of a company that is involved in a class action that may lead to substantial settlement proceeds. More ›


Court of Chancery Declines To Enjoin Meeting

Wayne County Employees' Retirement System v. Corti, C.A. 3534-CC (Del. Ch. July 1, 2008)

In this disclosure case, the Court declined to order additional disclosures for all the usual reasons. The opinion is fun to read and makes the point that stopping a merger vote when, as now, the market is so uncertain, runs a real risk the deal will unravel. Hence, it is harder to stop the vote for less than material omissions.


Delaware Supreme Court Sets Pleading Rules

Wood v. Baum, Del Sup. C.A. 621, 2007 (Del. July 1, 2008)

The Delaware Supreme Court has clarified the pleading standard that must be met to excuse demand on a board in a derivative suit. When a non-exculpated claim is plead, such as fraudulent conduct, the plaintiff must state particularized facts to support her claim.

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