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

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Showing 5 posts from November 2009.

Court of Chancery Explains Limitations for Receiver Litigation

Posted In Dissolution

In the Matter of Texas Eastern Overseas Inc., C.A. 4326-VCN (November 30, 2009)

This decision answers the question of whether it is possible to have a receiver appointed for a dissolved Delaware corporation more than 3 years after it is dissolved. Section 278 of the Delaware General Corporation Law provides for a 3 year statute of limitations for litigation against a dissolved Delaware corporation. However, when the petition to appoint a receiver seeks to get at assets still held by the dissolved corporation (in this case an insurance policy), the Court ruled that the petition may proceed. The theory is that the persons protected by Section 278, such as its stockholders, will not be affected by the appointment of a receiver who is only seeking assets still held by the entity and that they would not receive anyway.

Court of Chancery Holds Arbitrator Decides Limitations Defense

Posted In Arbitration

Lefkowitz v. HWF Holdings LLC, C.A. 4381-VCP (November 11, 2009)

The Delaware Arbitration Act has a unique provision that permits the Court of Chancery to enjoin an arbitration when the claim asserted is barred by a statute of limitations. However, to get into Court, the arbitration agreement must be governed by Delaware's Arbitration Act. If it is not, then this unique remedy is not available, and it is up to the arbitrator to decide if the claim is barred on limitations grounds.

This decision also contains an excellent discussion of when the Delaware Arbitration Act applies and, when it does, to what extent its provisions control.

Court of Chancery Explains Anti-Reliance Clause

Posted In M&A

Airborne Health, Inc. v. Squid Soap, LP, C.A. 4410-VCL (November 13, 2009)

In this decision, the Court explains that an anti-reliance clause is different from an integration clause. The anti-reliance clause bars claims of reliance on extra contractual promises and must be very specific in doing so. A more general integration clause will not bar such claims of reliance.

There are two aspects of this decision that are particularly worth noting. Most importantly, this is the first extensive and significant opinion by the newest Vice Chancellor. It shows he writes wonderfully well and is fun to read.

Second, he brings to the task his extensive business background. That shows how important it is to have a judge who knows what he is talking about.

As a result, the future of the Court of Chancery looks secure.

Court of Chancery Expands Dissolution Remedy

Posted In LLC Agreements

Lola Cars International Limited v. Krohn Racing LLC, C.A. 4479-VCN (November, 12, 2009)

The Delaware Limited Liability Company Act permits the Court of Chancery to dissolve an LLC when it is not "reasonably practicable to carry on the business" of the LLC. The initial decisions under this statute tended to adopt a narrow construction of its terms and dissolution was not ordered just because of a business dispute between the members of the LLC. More recent decisions have expanded the circumstances when dissolution will be ordered, including when there is a management deadlock. This decision expands that trend to permit dissolution when there is serious mismanagement established. While not yet to the point of "no-fault" dissolution, the trend is headed that way, and it remains to be seen exactly how much mismanagement needs to be shown to win a dissolution decree. Probably disloyalty such as self-dealing is still required.

Court of Chancery Explains Duty of Good Faith and Fair Dealing

Amirsaleh v. Board of Trade of The City of New York, Inc., C.A.2822-CC (November 9, 2009)

The law of good faith and fair dealing in contracts is a “judicial tool used to imply terms in a contract that protect the reasonable expectations of the parties." This decision clearly explains Delaware law in this area, including the point that not acting in good faith involves bad faith and that is proved by showing an improper motive.