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

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Showing 10 posts from August 2010.

Court Of Chancery Approves "Bonus" Fee In Indemnification Claim

O'Brien v. IAC/Interactive Corp. , C.A. 3892-VCP (August 27, 2010), affirned, August 11, 2011 (Del. Supr).

This is an interesting decision because, perhaps for the first time, the Court explicitly orders payment of a contingent fee in an indemnification case. The fee in question involved a bonus for success in the underlying arbitration proceedings.  As the Court held, if the fee is due and is reasonable, it should be paid.

Supreme Court Clarifies Standing Rule In Double Derivative Actions

Lambrecht v. O'Neal,  Del Supr., C.A. 135, 2010 (August 27, 2010)

This decision sets out the standing requirement for a double derivative suit following a merger.  In a stock-for stock merger, stockholders of the acquired company lose their stock in that company in return for stock in the new parent company who, in turn, becomes the sole stockholder of the company acquired in the deal.  A derivative suit by the former stockholder of the acquired company is then a "double derivative" suit because it really is on behalf of the new parent company for damages done to its subsidiary.  May the stockholder bring such a suit considering he is no longer a stockholder of the subsidiary?

The Delaware Supreme Court says he may do so long as he continues to hold stock in the parent company.

Court Of Chancery Addresses "Blank Check Company" Agreement

Ruffalo v. TransTech Service Partners Inc., C.A. 5039-VCP (August 23, 2010)

This decision addresses the rights of investors in a so-called "blank check company" where a pool of money is raised to invest in some to-be determined business.  Not surprisingly,  the investors' rights are determined by what the certificate of incorporation provides. That may not be an easy matter to determine, as such "contracts' are, as here, complicated and not always clear.

Court Of Chancery Clarifies Rules On Class Action For Fraud Claims

Posted In Class Actions

Dubroff v. Wren Holdings LLC, C.A. 3940-VCN (August 20, 2010)

This decision clarifies when a class action may be brought arising out of a claim based on the duty of disclosure.  Briefly, when there was no request for the stockholders to vote [such as when they just receive notice of a completed corporate action], then a plaintiff must prove "reliance, loss causation and damages."   As those elements of the claim may vary for each individual plaintiff, a class action is inappropriate.  Delaware does not recognize the "fraud on the market" theory in those instances.

Court Of Chancery Finds Claim For Violation Of Section 141 Is Direct

Posted In Directors

Grayson v. Imagination Station Inc., C.A. 5051-CC (August 16, 2010)

Determining if a claim is direct or derivative is often difficult.  Here the Court explains that a claim asserting the directors are acting outside their authority in violation of the relationship set out in Section 141 of the Corporation Code is direct. The facts of this case are unusual as it involves a stockholder agreement whose apparent violation is at the center of the decision.

Court Of Chancery Awards Fees For Contempt

Aveta Inc. v. Bengoa, C.A. 3598-VCL (August 13, 2010)

This is an interesting decision for its explanation of the criteria the Court will consider in reviewing a fee application. The Court held that when the fee award is under the terms of a contract, then the primary criteria is to make the applicant whole for the fees it paid. Of course, the fees must still be reasonable.

Court Of Chancery Explains Pill Limits

Posted In M&A

Yucaipa American Alliance Fund II, L.P. v. Riggio, C.A. 5465-VCS (August 12, 2010)

In this important decision, the Court of Chancery explains the limits on what may be included in a poison pill.  Briefly, the pill must not preclude a successful proxy contest.  This may mean that a pill that is triggered by a very low threshold is invalid.  However, a pill that does preclude joint proxy solicitations seems permissible.  In any event, the Unocal test will be applied.

The Court's very careful analysis is well worth studying.  For as it makes clear, the process used to adopt the pill is important with, as usual, the role of independent directors being critical. The effect of the pill under the particular circumstances is also important and while the Court does seem willing to accept the judgment of the Board when the process is sound,  the facts will be reviewed in a sort of balancing test to see if a proxy contest is precluded by the pill.

Court Of Chancery Reiterates Duty Of Attorneys

Phillips v. Firehouse Gallery LLC, C.A. 3644-VCL (August 9, 2010)

To its credit, the Court of Chancery has recently reminded attorneys of their obligations to cooperate in litigation.  Here it levied a $5,000 fee to be paid personally by a lawyer who failed to carry out that responsibility.

Benchmark Litigation 2011 Names 5 Morris James Partners Among Top "Local Litigation Stars"

Posted In News

Morris James LLP is pleased to announce that five of its partners have been recognized among the top Delaware litigation attorneys in Benchmark Litigation 2011 - The Guide to America's Leading Litigation Firms and Attorneys.

Morris James’ Litigation Stars

Rich Galperin 
Clark Collins
Richard Herrmann
Lewis Lazarus
Edward McNally 

Benchmark Litigation focuses exclusively on litigation lawyers and firms in the United States.  Recommendations are based on extensive face-to-face and telephone interviews with the nation’s leading private practice lawyers and in-house counsel.

18 Morris James Attorneys Selected by their Peers for Inclusion in The Best Lawyers in America® 2011

Posted In News

18 Morris James attorneys in 13 practice areas were recently selected by their peers for inclusion in The Best Lawyers in America® 2011.  New to the list are Mark D. Olson and Bruce W. Tigani from the firm’s Tax, Estates and Business practice.  The firm’s Real Estate Practice Group Chair, Richard Beck, has been named in this highly regarded publication since its inception in 1983. 

The Best Lawyers in America® 2011 has become universally regarded as the definitive guide to legal excellence.   Their rigorous research is based on an exhaustive peer-review survey in which more than 39,000 leading attorneys cast almost 3.1 million votes on the legal abilities of other lawyers in their practice areas.  The Morris James attorneys listed in the 2011 edition and the areas of law in which they are recognized include:

COMMERCIAL LITIGATION
 P. Clarkson Collins, Jr. (2005)
• Lewis H. Lazarus (2006)
• Edward M. McNally (2005)
• James W. Semple (2009)

CORPORATE LAW
• P. Clarkson Collins, Jr. (2005)
• Lewis H. Lazarus (2006)
• Edward M. McNally (2005)

ELDER LAW
• Mary M. Culley (2008)

EDUCATION LAW
• David H. Williams (2007)

FAMILY LAW
• Gretchen S. Knight (2007)

INFORMATION TECHNOLOGY LAW
• Richard K. Herrmann (2003)

INSURANCE LAW
• Mary B. Matterer (2009)

LABOR AND EMPLOYMENT LAW
• David H. Williams (2007)

PERSONAL INJURY LITIGATION
• Keith E. Donovan (2009)
• Dennis D. Ferri (2007)
• Richard Galperin (2005)
• Francis J. Jones, Jr. (2008)

REAL ESTATE LAW
• Richard P. Beck (1983)
• John Bloxom IV (2010)

TAX LAW
• Daniel P. McCollom (2007)
• Mark D. Olson (2011) *
• Bruce W. Tigani (2011) *

TECHNOLOGY LAW
• Richard K. Herrmann (2003)

TRUSTS AND ESTATES
• Mary M. Culley (2008)

* Indicates First Year on List