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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 14 posts from May 2010.
Delaware law governs privilege disputes in most cases in Delaware courts before it involves Delaware business disputes. This is an important point as Delaware law is more liberal than some states' law in upholding claims of privileged communication.
Preferred stockholders like to claim, in addition to the rights they have to be "preferred" under the certificate of incorporation, that they also have the right to enforce fiduciary duties to them by the board. Not so as this decision explains. When the preferred stock's "contract" touches on a topic, such as the right to share in merger consideration, then that defines their rights and they cannot resort to fiduciary duty law to expand those rights.
The calculation of damages for the wrongful conversion of convertible stock is not easy. This decision explains how.
Super Lawyers® magazine has named 7 Morris James partners as top legal counsel in Delaware. The multiphase selection process is handled by Law & Politics who evaluates each candidate on 12 indicators of peer recognition and professional achievement. Selections are made on an annual, state-by-state basis and include only 5 percent of the licensed attorneys in a state.
Morris James’ 2010 nominations include:
• David H. Williams - Employment & Labor, Government/Cities/Municipalities
• P. Clarkson Collins, Jr. - Business Litigation, Business/Corporate, Mergers & Acquisitions
• Richard Galperin - Personal Injury Defense: Medical Malpractice
• Lewis H. Lazarus - Business Litigation
• Edward M. McNally - Business Litigation, Business/Corporate
• James W. Semple - Business Litigation, General Litigation, Insurance Coverage
• Richard Herrmann – Intellectual Property Litigation
This is an important decision explaining the standard of review that the Court will apply in various circumstances involving a tender offer by a majority stockholder that is to be followed by a cash out merger. Briefly, if the minority stockholders are effectively represented by a special committee with real bargaining power and the merger is subject to approval by disinterested stockholders, then the business judgment rule will apply and not entire fairness review.
Sometimes it is difficult to understand the Delaware corporate law. The law is constantly evolving. The evolution is often through long, closely reasoned opinions and there are a lot of those opinions to digest. This decision then is particularly helpful in doing the work of consolidating the past decisions into one unified approach.
It is also an interesting example of the depth of research and thinking that goes into the decisions of the Court of Chancery. Actually, it is a little scary because it is hard to believe that we practitioners can ever get ahead of the Court .
A member of a LLC or LP has the right to a list of its members even after it has gone bust.
It is sometimes believed that remedies such as the right to inspect a company's records are not subject to an arbitration clause. Wrong. This decisions upholds arbitration of such claims in a variety of contexts.
This is the odd case whose dicta may be more important than we now appreciate. It has long been Delaware law that a plainitff loses standing to pursue a derivative case when he is ceases to be a stockholder after a merger. The exception is when the merger is done solely to deprive the stockholders of standing to sue.
Here the Court seems to be saying that when a merger is the only way out for a corporation that has been devastated by wrongful conduct, the former stockholders may have a claim for damages even after they cease to be stockholders. If so, that is new law and this bears watching.
This is an intesting case even though it deals with how to interpret a complicated indenture. As the Court explains, it will look to the commentary to the Model Debenture Indenture for guidance. The reason is that there is a need for uniform interpretation of such documents. It does not follow, necessarily, that the Court will accept "expert" testimony on what other contracts are supposed to mean.
When the economy is in stress, contracts to supply materials at a fixed price seem to be broken more often. This decision explains what you have to show to get a TRO against the breaking of such a contract by the supplier. In short, it is not easy but can be done when the ability to "cover" is not available.
It is important to note what sort of disclosure violations will casue an injunction to issue. This decision provides guidance on that issue by enjoining a merger until there are corrective disclosures over the discount rate used by the investment banker to give a fariness opinion, the projections of future income and the retention of management.
This decision explains 2 points of appraisal law. First, when the discounted cash flow approach is used to value a company, no control premium is added to the result. That sort of premium is only used when the valuation is based on comparable market prices or "comps" that reflect the minority discount inherent in the price of a small block of stock.
Second, at least in this case, there is no deduction for the capital gain tax due on the sale of assets by a holding company. Instead, those assets are valued on a pre-tax basis.
The standard of review that a court applies to a transaction may determine the outcome of the litigation in a close case. Here the Court explains that entire fairness does not govern the review of a noncoercive tender offer by a controlling shareholder. This continues the trend away from applying the test of Kahn v. Lynch that is now restricted to mergers involving a controlling shareholder. This decision also explains when a tender offer is deemed not to be coercive.
This decision addresses the prevously unanswered question of whether preferred stockholders may bring a derivative suit. They can. While to some this may seem obvious, the answer was by no means all that certain. In recent years the Delaware courts have consistently cut back on the rights of preferred stockholders and creditors to allege fiduciary duty claims. Now warrant holders and creditors may not sue derivatively [except when the entity is insolvent]. Hence, the right of preferred stockholders to do so was at least questionable.
This decision is also an excellent collection of the law on what claims preferred stockholders may bring, particularly on the limits to assert breach of fiduciary duty claims.