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

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Showing 19 posts from May 2012.

Court Of Chancery Upholds Contract As Bar To Estoppel Claim

Blaustein v. Lord Baltimore Capital Corporation,  C.A. 6685-VCN (May 31, 2012)

This decision reiterates the settled Delaware law that when a contract deals with the parties' rights on a particular subject, one of the parties can not claim that it entered into the contract based on an oral promise that differs from what the contract provides.  After all, if you could do that, then why have the contract in the first place? More ›

Court Of Chancery Implements The Pharmathene Decision

PharmAthene Inc. v. SIGA Technologies Inc., C.A. 2627-VCP (May 31, 2012)

The original PharmAthene decision is a landmark in the law of remedies for breach of contract because it imposed a form of profit sharing. This latest decision in that case, together with the attached Order, explains in detail how that remedy is to work.

This decision, including its award of expectation damages, was largely affirmed on May 24, 2013. See Del Supr C.A, 314, 2012

Supreme Court Upholds Section 220 Jurisdictional Rules

Central Laborers Pension Fund v. News Corporation,  No. 682, 2012 (May 29, 2012)

The right of a stockholder to inspect a company's books and records is govenned by Section 220 of the DGCL.  A beneficial owner must first show proof of beneficial ownership, however, and Section 220 tells how to do so.  Here the plaintiff for some reason just ignored Section 220's requirements to show beneficial ownership.  When then faced with a motion to dismiss, he argued that he could supply that proof later because it was just a clerical mistake to not do so when his complaint was filed. The Delaware Supreme Court forcefully rejected  that argument and upheld the dismissal of his complaint.

Note that the Supreme Court sidestepped the holding of the Court of Chancery that once it filed a derivative suit, this plaintiff lost its rights under Section 220.

Court Of Chancery Interprets Release

Posted In Business Torts

Travelers Casualty And Surety Company v. Sequa Corporation,  C.A. 7055-VCG (May 29, 2012)

This decision involved an interesting argument over the scope of a release.  As is common, the release was signed on behalf of a parent company and all its subsidiaries. To escape the scope of the release, a subsidiary argued that it was only bound to release the same claims that its parent had, but not any claims that were unique to the subsidiary.  The Court sidestepped that argument because in any case the release did not cover the claims asserted by the subsidiary.  However, this stands as a warning to better draft releases that cover all entities in a control group.

Court Of Chancery Interprets LLC Consent Rights

Posted In LLC Agreements

Paul v. Delaware Coastal Anesthesia, C.A. 7084-VCG (May 29, 2012)

The LLC statute, like the DGCL, permits the operating agreement to bar member action by written consent.  Here the plaintiff argued that such an agreement's fairly common provisions dealing with how members were entitled to vote at a meeting also precluded member action by written consent. The Court held that any such prohibition must be clearly set out in the operating agreement and not merely implied.  Hence, the written consents were upheld.

Court Of Chancery Explains Reformation Remedy

Posted In M&A

Brinckerhoff v. Enbridge Energy Company Inc., C.A. 5526-VCN (May 25, 2012)

This is an interesting decision because it suggests a remedy other than damages in an unfair price case.  Once a deal has closed, the plaintiff may find that his remedies in a pure unfair price claim are limited.  Frequently, damages against directors are foreclosed by an exculpation clause. Here the Court suggests that, at least when the merger consideration is not just cash, reformation may be an available remedy.  Given that has happened just once, it may be a long shot at best.

This decsiion was upheld by the Supreme Court on MAy 28, 2013. 67 A3d 369.

Court Of Chancery Applies Hirt Test

Posted In Class Actions

Coyne v. Catalyst Heath Solutions Inc., C.A. 7448-VCN (May 25, 2012)

This decision applies the familiar Hirt factors to decide who should be lead class counsel.  Note the slight preference for who has the most support among the various plaintiffs' firms.

Court Of Chancery Permits Jurisdictional Depositions

Posted In Jurisdiction

Reid v. Siniscalchi, C.A. 2874-VCN (May 25, 2012)

Discovery in aid of proving jurisdiction is usually available.  But is there a limit?  This decision explores that question and permits depositions to prove jurisdiction.

Court Of Chancery Explains Burden Of Proof In Accounting Case

Posted In Business Torts

Whittington v. Dragon Group LLC, C.A. 2291-VCP (May 25, 2012)

This decision explains how to apply the burden of proof in an accounting case.  Merely producing a cancelled check is not enough.

New ANDA Litigation Book

Posted In News

Kenneth L. Dorsney Is Editor-In-Chief and a Co-Author of a New ANDA Litigation Book Published by the American Bar Association

The recently released book, ANDA Litigation, provides both a ready roadmap for novice litigators in the field as well as more detailed material and strategy to assist the more experienced ANDA litigator. The first part details the Hatch-Waxman Act and how it was implemented. Practical tools in these chapters include: an overview of the drug approval process, including required notice and pre-litigation considerations, and issues related to the timeline of litigation.

Following this, the authors explore even deeper into the actual litigation under the act, with topics covering: responses to the complaint, discovery, the work of experts, and patent claim construction and summary judgment. Further chapters are practice-focused, covering issues including preparing the case for trial, the work of trial, managing the litigation process, and post-trial issues, including appeals to the U.S. Court for the Federal Circuit. Finally, the authors discuss remedies, settlement, and antitrust implications, and the book also includes chapters on regulation and litigation of pharmaceuticals outside the U.S.

Please visit the American Bar Association’s bookstore to learn more or to order a copy of this new book, ANDA Litigation: Strategies and Tactics for Pharmaceutical Patent Litigators.

 


Representing a compromise in the pharmaceutical industry in balancing patent exclusivity against market competition, the effect of the Drug Price Competition and Patent Term Restoration Act (commonly known as the Hatch-Waxman Act) on controlling the pharmaceutical market remains unsettled. Amendments to the original act included provisions for an abbreviated process for FDA approval of generic versions of patented pharmaceuticals through the filing of an Abbreviated New Drug Application (ANDA) and the right to initiate patent litigation against an applicant. This law has resulted in ANDA litigation cases and a constant struggle to shape the landscape of the patent and regulatory regime governing FDA approved patented and generic drugs.

The Hatch-Waxman Act with it amendments is a hybrid of two already complex areas of the law -- U. S. patent law and FDA regulatory law -- which makes patent litigation in this area especially complicated and hotly contested. ANDA Litigation: Strategies and Tactics for Pharmaceutical Patent Litigators is a single-source guide examining the intersection between the statutory and regulatory scheme governing approval of generic pharmaceuticals and U.S. patent law in the context of Paragraph IV ANDA litigation. In 19 detailed chapters, this single-source reference focuses both on the current and developing law as well as the strategies and tactics employed by the litigants.

Court Of Chancery Again Decides What is A Security

Posted In Securities

Fletcher International Ltd. v. ION Geophysical Corporation, C.A. 5109-VS (May 23, 2012)

When a preferred stockholder has the right to approve the issuance of any new securities by its company, the question arises whether that right extends to the issuance of notes.  In the second decision in this case, the Court again determines whether such notes should be considered securities subject to approval by a preferred stockholder.  In keeping with the brevity expected of a blog, the short answer is that the longer the term of the note, the closer it is to being classified as a security.  Of course, that is too short an answer, but you will need to read this detailed opinion to really understand the test.

Court Of Chancery Awards Fees For Fraud

Paron Capital Management LLC v. Crombie,  C.A. 6380-VCP (May 22, 2012)

Recovering attorney fees is rare in Delaware litigation.  However, this decision enforces another of the few exceptions to the American rule that usually denies a fee award.  The exception is for when a fraud requires a plaintiff to spend the fees in defense or prosecution of a claim involving a third party.  In that case, the fees are really just damages caused by the fraud and may be recovered.

Supreme Court Clarifies Fraud Disclaimers

Posted In M&A

RAA Management LLC v. Savage Sports Holdings Inc., C.A. 577, 2011 (May 18, 2012)

It is common in sales of a company to have a non disclosure agreement containing a waiver of any claim, including a fraud claim, by the buyer that is based on any representation not specifically included in the final agreement of sale.  In other words, there may be no reliance on any oral representation or even any written materials unless the final agreement says the buyer is entitled to rely on that representation.  This Delaware Supreme Court decision squarely upholds such provisions.

After all, the result could hardly have been otherwise in this case.  For here, the would be buyer never actually agreed to buy, but only to take a look.  When it found out the facts, it walked away except to demand payment for its expenses.  To let a possible buyer recover expenses based on claims it had disclaimed going into the due diligence room seems unwise.

Court Of Chancery Explains Right To Reformation

ASB Allegiance Real Estate Fund v. Scion Breckenridge Managing Member LLC, C.A. No. 5843-VCL  (May 16, 2012)

This is an excellent review of when a contract may be reformed by a court to correct a drafting mistake known by just 1 of the parties who remains silent in the face of the other party's obvious mistake about what the contract says.  Reformation is particularly appropriate when there is strong evidence from past dealings over what the parties intended to be in the contract and when the error makes no economic sense.

Confirming a Settlement That Your Client Hates

Posted In Case Summaries

Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | May 16, 2012

Representing clients in class or derivative litigation is often tricky when a settlement is on the table. Your duty is to protect the class members or the entities that are your true clients.

But what happens when the class representative or nominal plaintiff does not agree with you? The usual solution to this dilemma, at least when considering a proposed settlement, is to take the dispute to the court for it to resolve. After all, the court will require that the class or other stockholders receive notice of the proposed settlement and will hear and decide any objection to it. What could be simpler? More ›

Court Of Chancery Crafts Settlement Options

Forsythe v. ESC Fund Management Co. (U.S.) Inc., C.A. 1091-VCL (May 9, 2012)

When the Court tasked with reviewing a settlement proposal in a derivative action is faced with apparently well-intentioned objectors who want to go to trial and not settle, deciding what to do is not easy.  This decision comes up with an ingenious solution - let the objectors "buy the settlement."   This is accomplished by giving the objectors time to put up a bond to effectively guarantee the recovery of the settlement amount and then permit the objectors to take over the litigation and go to trial.

It will be interesting to see if the objectors take the Court up on its proposal.  After all, the recovery in any derivative suit goes first to the entity involved.  Any one who funds such litigation needs to be aware of the risk that sharing in the recovery is its only reward.

Court Of Chancery Enjoins Proxy Contest For Violation Of NDA

Posted In M&A

Martin Marietta Materials Inc. v. Vulcan Materials Company, C.A. 7102-CS (May 4, 2012)

Non-disclosure agreements are often used and frequently ignored.  Well not any more.  This decision enjoins a proxy contest for 4 months because the bidder violated a NDA in its proxy materials.  This unique remedy will make it much more important to carefully draft and to honor NDAs.

Court Of Chancery Applies Corporate Law To Statutory Trust Case

Protas v. Cavanagh, C.A. 6555-VCG (May 4, 2012)

This decision answers the question of what law will apply to decide if a beneficiary of a Delaware statutory trust may bring a derivative suit.  The court held that the established law under the DGCL and Rule 23.1 applies.  Hence, the beneficiary must show that either the director defendants are conflicted or that there is a substantial basis to believe that they will be liable because their actions are so outlandish that they are not protected by the business judgment rule.

Delaware's Business Courts Seek Comments

Posted In Case Summaries

Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | May 2, 2012

In May 2010, the Delaware Supreme Court established its Complex Commercial Litigation Division. The CCLD is a true "business court," intended to supplement and complement Delaware's pre-eminent court for business disputes, the Delaware Court of Chancery. Since it was established, more than 100 civil actions have been filed in the CCLD. More ›