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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 12 posts from November 2013.
What is the status of a general partner in a Delaware limited partnership after that GP is removed? As this decision points out, the answer is not clear and it may be just a holder of an economic interest, but not a limited partner. That question can be resolved by a provision in the partnership agreement and that is the better course as it will then help to determine the former GP's buy out rights.
Section 228 of the DGCL sets out the requirements to act by stockholder consent. Here, the Court notes that each stockholder's signature should be separately dated. While somewhat forgiving of a failure to observe all the technical requirements when there is no real factual dispute over what the stockholders did, this is a warning that a consent may be invalid if not done right.
This decision clarifies the Court of Chancery's jurisdiction under the clean up doctrine and when a contract subject to specific performance has not yet been breached.
This is another decision holding that a contractual limit on when a claim "survives" is actually a limitation on when such a claim may be filed in court based on a breach of contract. In short, survival clauses may shorten the statute of limitations.
The decision is also helpful in explaining that there is no requirement that the claim actually be known for it to expire and how to plead any of the several tolling doctrines that might apply to save such a claim.
The so-called conspiracy theory of jurisdiction over a non-resident is often misunderstood. This decision is useful because: (1) it explains the relationship between jurisdictional discovery and the burden of alleging facts sufficient to establish jurisdiction and (2) it again explains what must be shown to warrant jurisdiction under the conspiracy theory.
A buyer of a business may not get what he was told to expect. This decision is a good review of the legal theories available to recover under those circumstances.
In what seems to have created a real stir, the Court of Chancery held that control over the assertion of the attorney-client privilege passed to the acquiring corporation in a merger. Hence, that entity could waive that privilege and obtain the legal advice the company received before the merger about certain aspects of its operations that the buyer now is arguing over. Frankly, there is a lot of authority supporting this result and it should not have come as a surprise.
What constitutes a "business combination" is an important question because that phrase is found in statutes and stockholder agreements that restrict certain corporate actions. Here, the Supreme Court makes it clear that a divestiture is not a "combination" and that the phrase needs to be interpreted in the context it is used.
Proxy contests can be as contentious as political elections. Fight letters inundate stockholders. Charges and countercharges abound. But does all this fighting need to follow any rules? In its Oct. 23 decision in Red Oak Fund L.P. v. Digirad, Del. Ch. C.A. 8559-VCN, the Delaware Court of Chancery attempted to answer that question.
Briefly, Red Oak lost its attempt to oust the board of Digirad by a proxy contest. Red Oak then filed suit complaining that the election was conducted unfairly. It claimed Digirad had: (1) leaked false preliminary proxy results, (2) postponed unfavorable quarterly financial results until after the election, and (3) failed to disclose a plan to safeguard valuable net operating losses. More ›
This is an interesting decision because it involves calculating how much litigation contributed to an increase in merger consideration when a competing bid drove the merger price up. There is no formula to apply to reach the result. Significantly, the attorneys were aided by the presumption that their efforts did have a positive affect. It may be that the fee awarded was also influenced by calculations of a "fair" hourly rate for the hours worked.
It is sometime thought that it is enough to state a claim for a complaint to just allege that the directors violated the terms of a stock option plan. Not so. As this opinion points out, the complaint must also contain factual allegations that the directors knowingly violated the terms of the plan. A simple negligent violation is not enough to state a claim. Thus, if the terms of the plan are sufficiently ambiguous that the directors may have believed their actions conformed to the plan's requirements, the directors are not liable for a breach.
In this appraisal case, the Court rejected the usual DCF analysis as unreliable and instead adopted the merger price as the fair value. The facts are a bit unusual. The merger was the result of a real marketing of the company.