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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 8 posts from January 2014.
This is an interesting case because the Court grants specific performance of an somewhat vague contract and that breaks what would otherwise have been a stockholder deadlock. It has a good outline of the law of specific performance.
Advancement rights assure directors and officers that if they are sued for conduct arising out of their company service, the company will pay their attorney fees and costs as they are incurred. Without advancement rights, many people would not serve out of fear that their personal assets would be depleted in defending suits based on their conduct as directors or officers. For that reason, Delaware courts regularly enforce advancement rights, even after a finding of criminal guilt at the trial level, until the judgment is final and all appeals are exhausted. Nonetheless, mandatory advancement rights apply only if provided by charter, bylaw or contract. The recent case of Grace v. Ashbridge LLC, C.A. No. 8348-VCN (Del. Ch. Dec. 31, 2013), provides a cautionary tale that advancement rights that may have existed when the entity was a corporation do not necessarily survive intact when the entity converts to a limited liability company. More ›
Delays in discovery that affect the trial date will get a litigant in trouble with the Court. The Delaware Supreme Court has made this clear and required that scheduling orders be followed. This transcript makes this clear.
Section 220 of the Delaware General Corporation Law permits a stockholder to inspect the books and records of a corporation, provided that the demand for inspection meets certain form and manner requirements, and the inspection is sought for a proper purpose—one reasonably related to the interests of stockholders. The Delaware Supreme Court and the Court of Chancery have firmly established that investigation of corporate mismanagement or wrongdoing is a proper purpose under Section 220. To state a proper purpose to investigate mismanagement or wrongdoing of a corporation, a stockholder must, however, allege a "credible basis" to infer possible mismanagement or wrongdoing. The "credible basis" standard has been described as having the "lowest possible burden of proof under Delaware law." Before filing a derivative action, the Supreme Court and the Court of Chancery have encouraged stockholders to use the tools at hand by first seeking inspection of a corporation's books and records in order to successfully plead derivative claims under Court of Chancery Rule 23.1. Further, a Section 220 action for books and records is a summary proceeding, for which the Court of Chancery counsels against moving to dismiss based on its expedited nature and the attendant limited time to adjudicate a dispositive motion before trial. More ›
A party aggrieved by a trial court's decision may seek a stay while it appeals. To win a stay, it must satisfy the so-called "Kirpat" test, particularly its requirement of irreparable harm absent a stay. This decision illustrates the analysis of the Kirpat factors.
Anti-suit injunctions to enforce a choice of forum clause are not always easy to get. Delaware courts do not like to interfere with other courts jurisdiction. Instead, they prefer that a party aggrieved by the violation of a contract that selects Delaware as the forum to resolve disputes ask the non-Delaware court to stay its hand. However, as this decision illustrates, when pressed, a Delaware court will enjoin litigation elsewhere in the right circumstances. One such circumstance is when the party to be enjoined has tried to manipulate the system by taking inconsistent positions on what forum the contract requires. Trickery with the Courts is never a good idea.
In this case, the defendant quit his employment, lied to his co-owners about why and then set up a competing business. However, the LLC agreement did not have any limitation on competing with it. As a result, while the court was quick to condemn the lie, it held that competing was permitted. This is an example of how people in business together often feel there are some unwritten ethical rules that a court will enforce even if they are not part of the parties' agreement. At least in the area of competition, that is just not so. You need to get it in writing to enforce an obligation to not compete after some one leaves your employment. Of course, this does not mean that there are no fiduciary or other duties that may require a course of conduct not spelled out in writing. Hence, this decision should not be read too broadly
Morris James LLP is pleased to announce that Brett M. McCartney, Eric J. Monzo and David J. Soldo, have been elected partners effective January 1, 2014. The new partners are part of the Business Representation group in the areas of corporate litigation, bankruptcy and creditors’ rights and commercial litigation.
“The addition of this new group of partners strengthens our ability to offer exceptional service and value to our clients,” said David H. Williams, Managing Partner. Mr. Williams also congratulated the new partners for the manner in which they have distinguished themselves in the legal community.