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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 10 posts from March 2013.
Who decides if a dispute is subject to arbitration? The Delaware Supreme Court decision in the Willie Gary case sets the way to resolve this question. However, those rules are often hard to interpret. This decision explains Willie Gary in a useful way.
When may a partnership demand advancement of its litigation expenses from a limited partner who has arguably breached the partnership agreement? Only when the partnership agreement is very clear in granting that right, according to this decision.
On March 15, the Delaware Court of Chancery significantly expanded the right of a stockholder to make direct claims against corporate fiduciaries. Previously, many of those claims were classified as derivative claims that could only be brought in the name of the corporate entity. As a result, stricter pleading rules applied and such claims might be dismissed for a variety of other reasons, such as a cash-out merger that denied standing to the plaintiff or a decision by an independent committee to drop the claim on behalf of the entity. Thus, by expanding the number of "direct" compared to "derivative" claims, the decision in Carsanaro v. Bloodhound Technologies, C.A. 7301-VCL (Mar. 15, 2013), expands stockholder rights. More ›
There is a minor uproar over the recent Delaware decision that some suggest holds the directors of a Delaware corporation to a higher standard of corporate governance when the corporation's business is in a foreign country. In a bench ruling declining to dismiss a derivative suit, the court said in In re Puda Coal Stockholders Litigation, Del. Ch. C.A. 6476-CS (February 6, 2013):
"If you're going to have a company domiciled for purpose of its relations with investors in Delaware and the assets and operations of the company are situated in China that, in order for you to meet your obligation of good faith, you better have your physical body in China an awful lot. You better have in place a system of controls to make sure that you know that you actually own the assets. You better have the language skills to navigate the environment in which the company is operating. You better have retained accountants and lawyers who are fit to the task of maintaining a system of controls over a public company." More ›
This decision gives a good explanation of how to calculate fees in a supplemental disclosure case. It is particularly noteworthy in comparing the fees awarded to those won in other cases.
This decision permits a suit to proceed that seeks the appointment of a trustee for a solvent corporation based on allegations of breach of fiduciary duty. That may be particularly unusual for prior decisions have required that there be a prior adjudication of a serious breach of duty before an action seeking a trustee might be filed. Perhaps here the gross breaches of duty alleged were enough to convince the Court to let the action go to trial.
This is a major decision. For some time lawyers have struggled to understand when a claim is derivative or direct. The distinction is important if for no other reason than derivative claims may be mooted by a merger that eliminates the plaintiff as a stockholder with standing to sue. Under the Delaware Supreme Court's Gentile decision, some claims alleging a wrongful stockholder dilution may be direct, derivative or both. Which ones qualify? This decision answers that question with a thoughtful analysis that is useful in dealing with other factual patterns besides the controlling stockholder that was involved in Gentile.
This decision is also important for its holding that when a stockholder consents to any corporate action by a written consent form that refers to other documents that define the transaction consented to, the other documents must be given to the consenting stockholder for her consent to be effective.
This is an important decision dealing with a so-called "Proxy Put." Briefly, a Proxy Put permits creditors to call corporate debt when a new board of directors is elected without the consent of the current board. This decision applies the reasonableness standard of Unocal rather than the stricter standard of review of Blasius to decide if the Board has properly refused to approve a competing slate of directors for purposes of preventing a Proxy Put.
The Court carefully distinguished other circumstances where such a Put might be upheld, such as when a competing slate's election might cause immediate harm to the corporation.
This transcript sets 2 guidelines that a class representative should follow with respect to trading in the securities held by the class it represents. First, any trading should be first reviewed by class counsel to avoid problems with using insider information gained in the course of the litigation. Second, the class representative should retain at least 75% of the securities it held when the class was certified to be sure it continues to have the same economic interests that warranted its appointment to represent others.
Recently, the Delaware Court of Chancery has set out what it expects from Delaware lawyers serving as co-counsel in litigation controlled by non-Delaware attorneys. The court explained: "The concept of 'local counsel' whose role is limited to administrative or ministerial matters has no place in the Court of Chancery. The Delaware lawyers who appear in a case are responsible to the court for the case and its presentation." This raises the related issues of what non-Delaware law firms should expect from their Delaware co-counsel in Delaware litigation and what the Delaware counsel should in turn expect from their non-Delaware co-counsel. Treating these issues openly can only help those relationships More ›