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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 8 posts from February 2010.
Many decisions discuss when arbitration is required by an agreement. This one deals with the rarer problem of what claims may be presented to arbitrators in a matter that the parties concede must be arbitrated. The Court will usually leave that decision to the arbitrators in the first instance, but will at least consider if a claim is so far outside the scope of the arbitration clause that its presentation should be barred.
This decision explains what should be in a fee application to the Court of Chancery. Redacted bills, explanations of what the time was for and why it was spent are all required in a contested matter.
It is well known that an LLC agreement may limit the right to sue for breaches of fiduciary duty. What is less well thought out is what language needs to be used to do so. This decision tells you what to say if you want to limit liability.
Calculating damages in trade secret litigation is often difficult. Lost profits may overlap with unjust enrichment claims and the whole process may be affected by possible injuntive relief. This decision explains how a court will decide the right remedy and calculate damages. It is also a particularly good example of the Court of Chancery's thoughtful approach to remedies.
This significant decision holds that you cannot eliminate a director by amending the bylaws to reduce the number of seats on the board of directors. Of course, this only came up in the odd context of a stockholder who could not vote for directors and hence could not vote to eliminate them as well. Nonetheless, it is interesting as a limit on the power to amend bylaws
Perhaps more importantly, the decision explains the complicated and often misunderstood ways in which proxies are obtained to vote the shares of public companies. Those shares are mostly held in the name of Cede & Co., a depository for brokers and banks. Getting the proxy from Cede, and then to the brokers and then to the actual beneficial owners has proved cumbersome in fast proxy battles. This decision helps that process by letting the records of Cede act as a list of owners.
In this decision, the Court modestly reduced an attorney fee award because too much of the legal work was done by a senior partner when a lower cost associate could have been used. While perfectly reasonable, it only shows getting old is not for sissies.
The Delaware Court of Chancery (“Court of Chancery” or “Court”) has announced new rules for arbitration procedures of business disputes. This offers businesses another attractive option to resolve not only the corporate governance disputes traditionally associated with the Court of Chancery but also other commercial and business disputes. It provides access to efficient expertise in a confidential and expedited process. Arbitration before a member of the Court will provide greater finality for the parties, and for the Chancery judge or master, more flexibility to craft a remedy or other equitable relief.
The General Assembly recently conferred statutory authority, 10 Del. C. § 349 to the Court of Chancery to arbitrate business disputes without the requirement of a case pending before the Court ; thus, “arbitration only” cases are now permitted. This will allow the parties to seek arbitration very early in the dispute and avoid excessive attorneys’ fees and time. Eligibility is the same as for mediation of business disputes pursuant to § 10 Del. C. 347(a) and (b), except that the parties must consent to arbitration rather than mediation. See § 349(a). While not defined in the Delaware code, the term “business disputes” has been viewed as including commercial, corporate, and technology disputes. The parties must consent to arbitration through contract or through a stipulation to arbitrate. Under the new arbitration rules, the parties must satisfy the same requirements as in the mediation process. For example, at least one party must be a business entity (e.g., a corporation, business association, partnership) and at least one party must be a Delaware business entity or have its principal place of business in Delaware. Further, if the dispute involves only monetary claims, the amount in controversy must be at least $1,000,000. Finally, each party must be represented by Delaware counsel at the arbitration.
The rules expedite the resolution of disputes. Within 10 days of the filing of the petition for arbitration, a preliminary conference is required and the arbitration hearing will generally be held within 90 days of filing. The discovery process is truncated. The parties will only exchange the information and documents or conduct the depositions necessary to permit the arbitrator to understand the dispute. The arbitrator has the last word if the parties cannot agree.
The parties’ interest in confidentiality is recognized and accommodated. The petition for arbitration is not entered on the Court’s docket. The proceedings are confidential and do not become part of the public record unless the arbitration becomes the subject of an appeal to the Delaware Supreme Court which shall exercise its authority in conformity with the Federal Arbitration Act
On January 4, 2010 Chancellor Chandler, in an effort to encourage utilization of the arbitration rules, issued a standing order implementing the fee schedule for the arbitration of business disputes. The process is efficient. Parties must pay a $12,000 filing fee for the first day of arbitration and a $6,000 per day fee for each partial day thereafter, with all fees to be divided equally among the parties. This fee structure is quite favorable when compared to those charged in other arbitration forums, and allows disputants to eliminate the fees and expenses occasioned by a trial or unfocused settlement discussions.
The new rules provide access to the special expertise of the Court of Chancery’s judicial officers. Court of Chancery judges are accustomed to complex business litigation, have a pragmatic understanding of business realities, and are capable of prompt action. The new rules give the chancellors and masters of the Court the authority to fashion equitable and binding resolutions of complex commercial, corporate and technology disputes efficiently and expeditiously.
A copy of the jurisdictional statute can be found here: http://delcode.delaware.gov/title10/c003/sc03/index.shtml#349
A copy of the Delaware Court of Chancery’s New Arbitration Rules can be found here: http://courts.delaware.gov/rules/?Chancery96-97-98_020110.pdf
A copy of the Court’s Standing Order regarding fees of January 4, 2010 can be found here: http://courts.delaware.gov/forms/download.aspx?id=42348