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

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Showing 123 posts from 2011.

Court of Chancery Circulates Draft Practice Guidelines

Posted In Case Summaries

 Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | December 28, 2011

The Delaware Court of Chancery has long followed unwritten practices that knowledgeable attorneys follow. Recently, the court began circulating a draft "Guidelines to Help Practitioners Litigating in the Court of Chancery."

A product of consultation between the court and its rules committee, the guidelines are still a work in progress. They should not be cited to the court and do not set a standard of conduct or practice that the court requires be followed.

Yet a wise attorney will follow these established practices, if only to avoid unnecessary conflict with the court or appearing to be ignorant of its traditions. This is a brief summary of the 18 pages of guidelines. More ›

Court Of Chancery Extends Stockholder Meeting Date

Sherwood v. Chan,  C.A. No. 7106-VCP (December 20, 2011)

There is nothing more sacred in Delaware corporate law than the right of the stockholders to elect directors.  This decision illustrates that point and what the Court of Chancery will do when it feels that right has been improperly infringed, including extending the meeting date.

Supreme Court Determines Interest Award

Brandywine Smyrna Inc. v. Millennium Builders Inc., No. 53, 201 (December 9, 2011)

 When a prevailing party is entitled to interest on its judgment has sometimes been confusing.  This decision affirming the general right to interest clarifies Delaware law.

Court Of Chancery Clarifies Pleading Rules For Bad Faith Claims

Posted In Business Torts

Clean Harbors Inc. v. Safety-Kleen Inc.,  C.A. 6117-VCP (December 9, 2011)

This decision clarifies the detail that must be pled to assert a claim that the defendant acted in "bad faith."  The short answer is that any set of facts that warrants such an inference is enough to state such a claim.

Court Of Chancery Provides More Guidance On Fee Awards

In re Compellent Technologies Inc. Shareholder Litigation, C.A. 6084-VCL (December 9, 2011)

How do you set the fee to be awarded when there is no monetary recovery in a representative action?  For example, if the litigation creates a benefit to shareholders by reducing deal protection measures to permit a possible topping merger bid, but no topping bid appears, what should be the fee?   Using studies that attempt to calculate the benefits of such litigation, this decision sets out a methodology to guide applicants.

Preferred Shareholder Must Look to Certificate of Incorporation to Prove Redemption Right, Supreme Court Reaffirms

Posted In Case Summaries

Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | December 7, 2011

When is a holder of preferred shares of a Delaware corporation entitled to have the corporation redeem its investment? In SV Inv. Partners LLC v. ThoughtWorks Inc., Nov. 15, the Delaware Supreme Court reaffirmed that question is answered by reference to the terms of the certificate of incorporation that establish the rights of the preferred stockholder and to the proof at trial.

At issue was a clause in the company's charter that required the company to redeem the entire amount of outstanding preferred stock "out of any funds legally available therefore and which have not been designated by the board of directors as necessary to fund the working capital requirements" of the company. The Court of Chancery had concluded that "funds legally available" meant funds that could be disbursed for redemption without violating the Delaware General Corporation Law, specifically Section 160 of the DGCL, or common law. The Court of Chancery had rejected the plaintiff's definition of "legally available funds" as meaning the same as "surplus."  More ›

Supreme Court Clarifies Inspection Rights

Espinoza v. Hewlett-Packard Company, C.A. 208, 2011 (November 21, 2011) This decision clarifies the scope of the right to inspect a company's records to investigate allegations of wrongdoing.  The decision is somewhat unique because it also raised issues of attorney-client privilege and work product protection that the Supreme Court did not need to decide. Briefly, a document may be subject to inspection when it is "essential" to accomplish the purpose of the inspection.  That in turn means the document must address the issue involved, such as the alleged wrongdoing, and not just be information otherwise made available to the inspector. Obviously, this is a fact intensive test.  In this case, for example, the information sought was contained in other documents provided and the document sought did not really add much to the mix of information addressing the key question the stockholder wanted to investigate.

State Courts Continue to Wrestle With Jurisdictional Conflicts

Posted In Case Summaries

 Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | November 16, 2011

What happens when two courts in different states have the same case? Delaware courts, both state and federal, frequently face that question.

A Delaware entity may be sued in Delaware because that is its place of incorporation. Particularly in class action litigation, the Delaware entity may also be sued by a second plaintiff in another jurisdiction where that plaintiff resides, on the same claim brought in Delaware.

In just the last few weeks, the Delaware Court of Chancery and the federal District Court in Delaware have provided guidance of what they will do when faced with multijurisdictional litigation. More ›

Court Of Chancery Analyizes Class Conflicts

Posted In Class Actions

Garrett v. Zon Capital Partners LP,  C.A. 5607-CS (November 10, 2011)

This is a rare Court of Chancery decision discussing when a class should be certified. The Court reviewed and dismissed the claim that there was a conflict of interest among class members, based on a funds flow analysis.

Court Of Chancery Explains Good Faith And Fair Dealing

Posted In M&A

Winshall v. Viacom International Inc.,  C.A. 6074-CS (November 10, 2011)

This is another case where a party tried to re-do a contract by claiming that the failure to give it more than it bargained for constituted a violation of the covenant of good faith and fair dealing.  In rejecting that claim, the Court again explains the tight limits of that covenant.  It just can not be used to make a new deal.

Affirmer, del Sup. 39, 2013 (October 7, 2013).

Court Of Chancery May Appoint A Receiver To Collect Insurance

Posted In Dissolution

In The Matter of Krafft-Murphy Company Inc., C.A. 6049-VCP (November 9, 2011)

This decision upholds the power of the Court of Chancery to appoint a receiver for a dissolved Delaware corporation to collect on the corporation's insurance polices covering asbestos claims. This may be done even more than 10 years after formal dissolution and provides a way to pursue insurance coverage despite the general law that prohibits direct claims against an insurer.

See also the Supreme Court's reversal of part of the Court's ruling at Anderson v. krafft-Murphy Company, Inc. Del Sup. C.A. 85, 2013 ( November 26, 2013).

Court Of Chancery Again Interprets The Step Transaction Doctrine

Posted In M&A

Coughlan v. NXPB, C.A. 5110-VCG (November 4, 2011)

It is sometimes important to decide if a series of transactions are to be coupled together to be treated as one.  The so-called step transaction doctrine does that when applied.  Here the Court used the step transaction to interpret an agreement that gave the selling stockholders the right to a bump up in the merger consideration and certain protections if company assets were sold before all the additional consideration was paid.  This somewhat lenient application of the doctrine may signal its greater acceptance by the Court.

Out of Many Can Come One: Supreme Court Considers Transaction Aggregation Doctrines

Posted In Case Summaries

Authored by Peter B. Ladig
This article was originally published in the Delaware Business Court Insider | November 2, 2011

Recently, the Delaware Supreme Court issued an opinion resolving a dispute between an indenture trustee and the issuer of bonds pursuant to an indenture governed by New York law arising out of the issuer's business plan of divesting certain assets. While any example of the Supreme Court's analysis of a contractual provision is helpful to drafters of those contracts, it was the Supreme Court's emphasis on uniform interpretation of boilerplate provisions that makes this opinion noteworthy. More ›

Superior Court Explains Physical Evidence Requirement

Posted In Business Torts

Elegant Slummimg Inc. v. NGM,  C.A. 810C-11-013-RFS (November 30, 2011)

This scholarly review of Delaware law explains the "physical evidence requirement" in some insurance policies. 

Court Of Chancery Explains The Incorporation Basis For Personal Jurisdiction

Posted In Jurisdiction

Connecticut General Life Insurance Company v. Pinkas, C.A. 5724-VCN (October 28, 2011)

It is sometime claimed that the act of incorporating a Delaware corporation is enough to subject the incorporator to jurisdiction in Delaware.  After all, an old case does do just that.  But as this decision points out, the act of incorporating has to be an integral part of the actions that give rise to the claims asserted.  That is not so easy to show and did not work in this case.