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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 7 posts from July 2010.
When may a former director obtain advancement of his attorney fees when he files suit? A series of past decisions held that a counterclaim plaintiff may, in the right circumstances, obtain advancement for prosecuting his counterclaim and other decisions have upheld advancement for a plaintiff under a bylaw or other right that was broadly drafted to require such advancement.
However, when the bylaw or other contractual provision requires advancement for litigation "in defense" of a claim, this decision holds a plainitff may not obtain advancement for bringing suit on his behalf.
This decision is interesting for its discussion of the role of an appointee of the bankruptcy court and the pursuit of post-bankruptcy derivative claims.
Stockholder agreements frequently provide that notice must be given before any stock subject to the agreement may be transferred. Usually, the notice triggers a right to buy. Here the Court, as expected, held that the failure to give the notice does not end the other party's right to buy, but the stock and informal notice is not good enough to comply with the formality required by the agreement.
This decision holds that insurance in the form of an indemnity bond or a D&O policy may cover losses suffered as a result of the Madoff fraud. The application of a bond to such claims may surprise some as Madoff was not an employee whose dishonesty was the cause of the loss. However, as the Court notes, the bond at issue was written very broadly and may well cover dishonesty of such third persons.
For some reason probably rooted in human nature, parties to LLC agreements seem to think the agreement should provide that all the parties act "fairly" toward one another. Of course, each party then defines what is "fair" by what they want to get out of the deal. However, as this decision points out, when an agreement provides that a party has the discretion whether to advance additional funds or not, that is its choice to make. Whether the choice is "fair" or not is irrelevant and the other parties to the agreement have no basis to complain about that decision.
This decision holds that the Unifrom Contribution Among Joint Tortfeasors Act applies to claims against directors. While at least 1 other court agreed with this point, this is the first Delaware decision on this issue.
This is important becaue it has serious implications to settlements with some but not all directors in derivative and class claims and as it may give leverage to former directors who are now on the outs.
Perhaps no area of Delaware corporate law is as confusing as that applicable when a company is taken private by a majority owner in a freeze out of the other shareholders. This scholarly opinion explains that at least 3 different standards of review have been applied by the Court of Chancery in its review of such transactions. As a result, the Court has certified its latest decision for appeal to the Delaware Supreme Court with a request that the law be clarified.
Until that clarification is issued, however, this is the definitive analysis of Delaware law in this area and deserves to be read, carefully.