Posts from 2013

Federal Court Clarifies Duty To Negotiate

Osco Motors Company, LLC v. Marine Acquisition Corp., No. 13-868-RGA-MPT (D. Del. December 2, 2013)

The duty to negotiate in good faith is now well recognized in Delaware under SIGA Acquisition Inc. v. PharmAthene Inc., 67 A.3d 330 (Del. 2013).  However, what is less clear is when exactly does that duty arise. This decision explains when the duty is created and distinguishes Delaware from New York law in that respect.

Share

Section 225 Order Stayed Pending Expedited Appeal

Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | September 25, 2013 

If there is a dispute over the identity of the directors of a Delaware corporation, the corporation, its stakeholders and those with whom it does business require prompt certainty as to who is in charge. For that reason, Section 225 of the Delaware General Corporation Law provides for a summary proceeding to determine who rightfully comprises the board and officers of a Delaware corporation. While there is a rich body of Section 225 case law, there are few decisions addressing whether the party who loses at the trial court level is entitled to a stay of the court's order pending an appeal. The Court of Chancery recently addressed this issue in Klaassen v. Allegro Development, C. A. No. 8626-VCL (Del. Ch. November 7, 2013), known as Klaassen II, and partially stayed its post-trial order to allow the losing CEO to pursue an expedited appeal. In this decision, the court provided guidance on how it may limit the conduct of a judicially sanctioned board while a party challenges that outcome on appeal. The court also identified a significant issue that, once resolved by the Delaware Supreme Court, likely will affect how parties resolve leadership transitions when they are at odds over how to manage the company's business and affairs. More ›

Share

Court Of Chancey Resolves Status Of Former GP

Policemen's Annuity and Benefit Fund of Chicago, Illinois v. DV Realty Advisors LLC, C.A. 7204-VCN (November 27, 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.

Share

Court Of Chancery Examines Technical Requirements Of Stockholder Consents

The Ravenswood Investment Company L.P. v. Winmill, C.A. 3730-VCN (November 27, 2013)

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.

Share

Court Of Chancery Clarifies Jurisdiction

Darby Emerging Markets Fund L.P. v. Ryan,  C.A. 8381-VCP (November 27, 2013)

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.

Share

Court Of Chancery Upholds Survival Claim Limits

ENI Holdings LLC v. KBR Group Holdings LLC, C.A. 8075-VCG (November 27, 2013)

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.

Share

Court Of Chancery Explains Conspiracy Jurisdiction

Lake Treasure Holdings Ltd. v. Foundry Hill GP LLC, C.A. 6546-VCL (November 21, 2013)

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.

Share

Court Of Chancery Reviews Theories Of Liability Under Sale Agreement

Osram Sylvania Inc. v. Townsend Ventures LLC,  C.A. 8123-VCP (November 19, 2013)

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.

Share

Court Of Chancery Holds Privilege Passes With Merger

Great Hill Equity Partners IV, L.P. v. SIG Growth Equity Fund I, LLP,  C.A. 7906-CS (November 15, 2013)

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.

Share

Supreme Court Explains Its "Business Combination" Ruling

Activision Blizzard Inc. v. Hayes, C.A. 497, 2013 (November 15, 2013)

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.

Share

Must Board Elections Be Fair?

Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | November 6, 2013

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 ›

Share

Court Of Chancery Calculates Benefit Conferred

In re Quest Software Inc. Shareholders Litigation, C.A. 7357-VCG (November 12, 2013)

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.

Share

Court Of Chancery Explains Stock Option Complaint Rules

Pfeiffer v. Leedle, C.A. 7831-VCP (November 8, 2013)

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.

Share

Court Of Chancery Adopts Merger Price In Appraisal Case

Huff Fund Investment Partnership v. CKx Inc., C.A. 6844-VCG (November 1, 2013)

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.

Share

Court Of Chancery Explains Pleading Rules For Fiduciary Duty Claim

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.

Share