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

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Showing 17 posts from October 2013.

Court Of Chancery Explains Pleading Rules For Fiduciary Duty Claim

Posted In Fiduciary Duty

AM General Holdings LLC v. The Renco Group Inc., C.A. 7639-VCN (October 31, 2013)

This is another example of how the Court of Chancery treats breach of fiduciary duty claims that are duplicative of breach of contract claims. When the 2 claims overlap, the Court will dismiss the breach of fiduciary duty claim.  Of course, what constitutes such an overlap is not always easy to determine. This decision illustrates that process.

Court of Chancery Explains "At Issue" Waiver of Privilege

Posted In Discovery

JP Morgan Chase & Co. v. American Century Companies Inc., C.A. 6875-VCN (October 31, 2013)

As is well known, the attorney/client privilege may be waived by interjecting that communication into the matters "at issue" in the litigation.  Advice of counsel as a defense is one such instance.  This decision illustrates another -  when the advice apparently went to the valuation matters.

Also interesting is the Court's caution that just because one side interjects attorney communications into the issues, that does not mean that the opposing side's demand to see those communications also opens up its privileged matters to discovery as well.

Court Of Chancery Explains Limits Of Jurisdiction Over Foreign Entities

Posted In Jurisdiction

Baier De Adler v. Upper New York Investment Companies LLC, C.A. 6896-VCN (October 31, 2013)

This is an interesting decision dealing with jurisdiction over foreign entities. The Court will not take jurisdiction when the assets involved are located outside the US and not owned by a Delaware entity

Court Of Chancery Again Explains Conspiracy Theory Of Jurisdiction

Posted In Jurisdiction

Microsoft Corporation v. Amphus, Inc., C.A. 8092-VCP (October 31, 2013)

The alter ego and conspiracy theories of jurisdiction are among the hardest to understand.  This decision carefully and clearly applies those theories to a complicated fact pattern.

Superior Court Explains Insurance Policy Interpretation Rules

First Bank of Delaware Inc. v. Fidelity and Deposit Company of Maryland, C.A. N11C-08-221 (October 30, 2013)

This decision sets out in one place the standard rules for interpreting an insurance policy, particularly who has the burden of proving an exception to coverage exists and any exceptions to that exception. The decision is also noteworthy for adopting the rule that the exceptions to coverage should not be interpreted to swallow up all the coverage of the policy.

Supreme Court Applies 'Reasonable Conceivability' Test

Posted In Case Summaries

Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider October 23, 2013

Two important aspects of merger agreements are the price and the nature of the post-closing obligations of the sellers to defend or indemnify the buyer for claims arising out of presale conduct. As to the former, parties to merger transactions often bridge valuation gaps with earn-outs.

The selling stockholders receive a cash payment at closing and an additional contingent right to receive a specified amount of future payments depending on how well the business performs. Exactly how much is a function of the parties' written agreement. Similarly, the parties typically negotiate over the nature of the post-closing obligations of the seller to indemnify or defend. When disputes arise, parties calculate the likelihood of success in surviving a motion to dismiss for which the court's standard of review is critical. In the recent case of Winshall v. Viacom International, No. 39, 2012 (Del. Oct. 8, 2013), the Delaware Supreme Court addressed the standard on a motion to dismiss and also contractual provisions in a merger agreement regarding earn-out and indemnification provisions. Its opinion provides guidance to practitioners concerning how to draft provisions that carry out their intent on these points. More ›

Court Of Chancery Upholds Complaint of Insider Abuse

Posted In Fiduciary Duty

TVI Corporation v. Gallagher, C.A. 7798-VCP (October 28, 2013)

If you are looking for a case that lists almost every abuse a controlling group of stockholders can make, this is it.  The decision also sets out the right scope of review and what are reasonable inferences sufficient to warrant upholding a variety of claims as well.

Court Of Chancery Upholds Election Results

Red Oak Fund L.P. v. Digirad Corporation, C.A. 8559-VCN (October 23, 2013)

In this unusual case, the Court of Chancery upheld the results of a proxy contest. The opinion is noteworthy for its explanation of the tests the Court will use in ruling on a challenge based on claims the election was unfairly conducted.

Court Of Chancery Dismisses Suit Over Merger

Posted In M&A

In re Bioclinica Inc. Shareholder Litigation, C.A. 8272-VCG (October 16, 2013)

This is an interesting decision because it dismissed an action against a merger when the complaint was similar to the standard form of complaint filed after most mergers are announced. Here, in contrast to what usually happens, the defendants chose to fight the allegations rather than settle with some additional disclosures and the payment of attorney fees. This does not mean we are in a new era of stand and fight. After all, one case does not make a trend. The opinion is a good collection of the Delaware law decisions on what must be pled to sustain such a complaint.

Court Of Chancery Explains Their Corporate Benefit Rule

Zimmerman v. Crothall, C.A. 6001-VCP (October 14, 2013)

When litigation confers a benefit upon a corporate entity, it is only fair that entity pay the fees incurred. Yet what constitutes a benefit may be contested, particularly by the corporation that is the subject of the suit. Here the Court held that forcing the LLC to comply with its agreements constituted such a benefit that fees should be awarded.

Superior Court Adopts Chancery Anti-Reliance Law

Posted In M&A

TEK Stainless Piping Products Inc. v. Smith,  C.A. N13C-02-175 (October 14, 2013)

When does the parties' contract bar a claim for fraud? Here the Superior Court adopted the Court of Chancery's line of decisions that holds to bar such a claim the contract must specifically disclaim any "reliance" on representations outside the terms of the contract itself.

Court Of Chancery Explains When Actions Are Void

Klaassen v. Allegro Development Corporation, C.A. 8676-VCL (October 11, 2013)

There is still an important distinction under Delaware law between actions that are void and those that are merely voidable. For only voidable actions may be ratified. This decision traces the history of that distinction with respect to calling of directors' meetings. Only meetings called in violation of the bylaws or certificate of incorporation are void. Others subject to some equitable attack are still able to be ratified.

Chancery Closing the Door to Multidistrict Litigation

Posted In Case Summaries

Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | October 9, 2013 

There is much agitation over multiforum litigation. Both the typical defendants in such cases, corporations involved in a merger, and the courts decry what they see as duplicative suits over the same dispute in two or more jurisdictions. The past legal rules that might have resolved the issue of what case goes forward no longer seem to work. The Delaware Court of Chancery is now moving forward to develop new approaches to resolve the problems presented by multiforum litigation over the same basic dispute. More ›

Supreme Court Upholds Its Pleading Standard

Winshall v.Viacom International Inc., No. 39, 2013 (October 7, 2013, corrected October 8, 2013)

This decision is particularly interesting for its affirmance in the face of questions from the Court of Chancery that the Delaware pleading standard is "reasonably conceivable" and not the federal "plausible" test of whether a pleading alleges facts sufficient to state a claim.

Superior Court Explains Mutual Mistake Law

Newport Disc Inc. v. Newport Electronics Inc.,  C.A. N12C-10-228 MMJ CCLD (October 7, 2013)

This is an action where the defendant tried to avoid its contractual obligations by asserting a mutual mistake led to the wrong language in the contract. The Court rejected that argument for want of clear proof of a mutual mistake.  This illustrates the all-too-human tendency to feel that the wrong result must be a "mistake."  The Court just is not going to buy that cop out.

Court Of Chancery Explains Consent Vote Rules

Flaa v Montano, C.A. 8632-VCG (October 4, 2013)

When can you challenge the right to consent to corporate action?  This decision explains the rules that govern such challenges, particularly when it is claimed that the consent is valid on its face.

Watch Out When Waiving Privilege

Posted In Case Summaries

 Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | October 2, 2013 

A recent master's opinion in the Delaware Court of Chancery may expand the scope of a waiver of the attorney-client privilege. While not without precedent, the ruling may come as a surprise to some. It warrants caution by all who consider waiving a privileged communication.

Mennen v. Wilmington Trust, Del. Ch. C.A. 8432-ML (September 18, 2013), involved an unusual situation. The defendant, Wilmington Trust, was accused of mismanaging the investments of a large trust. One of Wilmington Trust's defenses was that it was required to follow the investment decisions of an individual co-trustee and the co-trustee was responsible for the allegedly poor investment decisions. That issue turned on the meaning of the so-called "powers and responsibilities" clause of the trust instrument that dealt with the respective roles of Wilmington Trust and the individual co-trustee. Wilmington Trust argued that the trust gave it immunity when it acted on the advice of counsel that the meaning of the powers and responsibilities clause required Wilmington Trust to do what the co-trustee directed. Hence, advice of counsel was central to Wilmington Trust's defense. More ›