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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 12 posts from February 2013.
Under the McWane doctrine, a Delaware court will dismiss a case if another proceeding filed elsewhere is more advanced and will provide complete relief for any valid claim. As this decision illustrates, while Delaware does not too often apply McWane, it will do so when it is the plaintiff in the Delaware litigation who has chosen to first seek relief in another state's court. The lesson is to not treat the Delaware court as your second choice.
When is a claim that stockholders were wrongly diluted by the issuance of stock a derivative claim and not a direct claim? Under the Gentile rule, such a claim is derivative unless the dilution was done to benefit a controlling stockholder of a control group. Determining when several stockholders constitute a "group" for this purpose is not easy. Just acting together is not enough. This decision explains what else is required, such as acting to carry out a preconceived goal.
When a secured creditor forecloses on its line, the resulting sale must be "commercially reasonable." What does that mean exactly? This decision provides guidance to answer that question. For example, just because the lender works with the company to get the best price does not mean the resulting sale to the lender is tainted.
This is yet another example of the Court of Chancery explaining that the deal protection rules set by Omnicare have long since been modified by the Court. The correct analysis is not to just adopt some rigid formula but to instead carefully test the actual impact of the deal protection measures on the possibility some other bidder may appear. This decision tells you how to do just that test.
This books and records case provides a good summary of the law limiting inspection to what the petitioner really needs to fulfill her proper purpose in seeking inspection. The decision covers both inspection to value shares and to investigate alleged wrongdoing.
The liability of a custodian or receiver for a dissolving corporation is not clear. Judicial immunity does protect him from many claims, but as this decision points out, not from all claims. The discussion of what claims are or are not barred by immunity is particularly helpful for anyone assuming the role of a custodian or receiver.
In recent years, the Delaware Supreme Court has stressed that it is desirable to file a books and records case before starting derivative litigation. But do you need to do that every time? In the unusual situation presented by this case, the Court of Chancery declined to hold up a derivative case to permit a books and records case to go first. In granting an immediate appeal, the Court recognized that the Supreme Court may want to clarify the law in this area.
This decision is a good review of the qualifications needed to serve as a class representative. Particularly noteworthy is its holding that merely voting in favor of the merger under attack is not an automatic disqualification. So too, the sale of the stock prior to the merger is not grounds for disqualifying a proposed class representative.
It is not always easy to have the Court of Chancey expedite your case just because you ask for an injunction. Here, the Court denied expedition because the plaintiff had waited 5 months to ask for it and because the plaintiff's claim was really just for damages.
This case involves a classic mistake. The contract contained a severability clause that required a court to enforce the contract even if one of its provisions was unenforceable. The Court held that the marketing commitment of key importance to the defendant was not enforceable. But, as a result of the severability clause, the Court enforced the contract in favor of the plaintiff and awarded it damages. Hence, using form contract terms is not a good idea.
Delaware law has long permitted parties to a contract to limit remedies for a breach of that contract. But many attorneys believed that no matter what the contract said, a remedy for acting in bad faith still survived and permitted a suit to enforce that remedy. That is still true, but only barely. For, as a recent Court of Chancery decision shows, even a claim for acting in bad faith may be severely limited.
This legal result began by at least by 2002. In that year, the Delaware Supreme Court suggested in Gotham Partners v. Hallwood Realty Partners, 817 A. 2d 160 (Del. 2002), that perhaps the parties to a limited partnership might be able to contract away "traditional notions of fiduciary duties." The Delaware General Assembly readily agreed, by amending the Delaware Limited Partnership Act to expressly permit waivers of any fiduciary duties owed by a general partner to the limited partner investors. Only the duty to act in good faith could not be waived under the Limited Partnership Act or the Limited Liability Company Act. More ›