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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 11 posts from April 2012.
This is an interesting decision because it explains the limits of drag along rights. While some old case law and some new contract language try to spell out when a stockholder, creditor or other interested party may have their rights affected by a corporate transaction taken without their consent, this makes it clear that there needs to be very explicit authority to do so, particularly when we are talking about drag along rights that are contractually based.
This is an interesting appraisal case because it explains the issues dealing with valuing a smaller company. As they are riskier, for example, a small company risk premium is proper in determining what its cost of capital should be.
Delaware has a savings statute that generally prevents the statute of limitations from expiring when a case is dismissed for technical reasons and then refiled in the right court. But, as this decision points out, the savings statute has a much narrower scope than some might believe. Thus, when as here, a case is filed in a jurisdiction other than that chosen by the parties in their contract and then dismissed for having violated the forum selection clause, the savings statute does not apply.
An advance notice bylaw requires stockholders to tell their company substantially in advance of a stockholders' meeting if they want to nominate someone to to be elected as a director at that upcoming meeting. But, under the Hubbard decision, sometimes the Court of Chancery will set aside such a bylaw when it is used in a way the Court finds is inequitable. Here Carl Icahn is claiming that the Board changed its basic business strategy after the advance notice bylaw deadline has passed and it would be inequitable under those circumstances to bar him from nominating a slate of directors to bring the company back on course. The Court has agreed to hear his claim. The outcome will be interesting.
2012 Federal Trial Practice Seminar: An Introduction to Federal Practice in the District of Delaware
The Delaware Chapter of the Federal Bar Association, in conjunction with the United States District Court for the District of Delaware, is pleased to announce another exciting new initiative. On the evenings of Thursday, May 17 and Thursday, May 31, 2012, from 5:00 to 7:30 p.m., the District Court and FBA will sponsor a two-night seminar program entitled “The Federal Trial Practice Seminar Presents: An Introduction to Federal Practice in the District of Delaware.” The sessions will take place in Courtroom 2B at the J. Caleb Boggs Federal Building.
Attorneys who have been practicing in the District for three years or less are eligible to participate in this seminar. One of the two seminar sessions will relate to an attorney’s interaction with opposing counsel and participation in the litigation process, while the other session will focus on an attorney’s interaction with the Court. Each session will include a presentation from a speaker and a panel discussion. The speakers and panel members will be current and/or former judges of the District Court.
Participation is limited to FBA members. Current FBA members may register for the seminar by contacting Steve Brauerman via e-mail at email@example.com, by no later than May 14, 2012. Those interested in participating in the seminar who are not currently FBA members may contact Mr. Brauerman at the e-mail address listed above to obtain additional information about FBA membership.
Space for the seminar is limited and applicants will be accepted on a first-come, first-served basis. Applicants should be available to attend both sessions. Admission to the seminar is free and the FBA expects to apply for Continuing Legal Education credit in Delaware for both sessions.
The Delaware Supreme Court has once again confirmed that substantial attorney fee awards may be appropriate even when the plaintiff has not won a large monetary recovery. That is particularly so when the plaintiff has protected stockholder voting rights, as in this litigation.
When a defendant engages in arguably unlawful conduct, a plaintiff files an action to complain about and seek relief prohibiting the unlawful conduct, and the defendant thereafter changes its practices and moots the plaintiff's complaint, a plaintiff may be entitled to attorney fees based upon the benefit conferred. Absent such a rule, a plaintiffs counsel could undertake a contingent-fee case, incur fees to investigate and file the action and then wind up with no case and no compensation, even though the defendant had changed its practices in a manner consistent with the plaintiff's demand. More ›
Directors who are also officers have an interest in a merger when they are to retain their jobs in the merged company. Delaware has recognized that this interest is inevitable in many cases and is usually not enough to make that director's vote for the merger considered an interested transaction. Of course, if future employment is negotiated improperly, the director may well be "interested," particularly if he both negotiates the merger and his future employment at the same time.
But what happens if he does not do so? Here the director/officer was deemed to be an interested director who had to prove the entire fairness of the deal because he knew he was about to be fired unless the deal was done soon. This illustrates the importance of context.
Finally, the opinion is also interesting for its review of when circumstantial evidence is enough to show the acquiror had knowledge of possible fiduciary duty breaches so as to be an aider and abettor.
A year or so ago, the DGCL was amended to permit the removal of a director by the Court of Chancery. While the grounds to do are broadly stated (including "breach of the duty of loyalty"), the statute requires that the director first have been convicted of a felony or been found in a prior case to have breached his duty of loyalty. There thus remains the question of whether director removal may be done without a prior action that establishes the grounds to do so.
This decision suggests that such a direct action for removal will be very hard to win, for the Court expressed serious concerns over whether it has that authority absent the statutory prerequisites. The question is still open to be squarely decided in another case.
Recently, the Delaware Court of Chancery has found wrongful conduct but denied the remedy plaintiffs sought. The El Paso case is a prime example.
The court found the board of directors and, particularly, El Paso's president had failed to act properly in negotiating a merger. Even the company's investment bankers had a conflict of interests, yet, despite critical language in its opinion, the court refused to enjoin the merger. More ›
This is another example of how an LP agreement may limit the review of a transaction by a court at the request of a dissatisfied partner. The partnership agreement provided that the GP only needed to act in good faith in approving a sale and defined good faith, in part, as established by reliance on an expert's advice. Since that was present, the court dismissed the complaint.