Posts from October 2014

Court Of Chancery Denies Fee Request for Lack Of Causation

In re TPC Group Inc. Shareholders Litigation, C.A. 7865-VCN (October 29, 2014) This is the latest in a series of decisions dealing with the claims of plaintiff stockholders for an attorneys' fee based on improved consideration received in a merger after the stockholders filed suit.  The argument is that the pendency of the suit contributed to upping the merger price. While the burden of proving there was no connection between the suit and the bump up is on the company, here that burden was met and the fee petition was denied. Share

An Ounce of Preservation Is Worth a Pound of Argument

Authored By Peter B. Ladig This article was originally published in the Delaware Business Court Insider | October 29, 2014 Because the Delaware Supreme Court decides so few cases, it is not uncommon to believe it will jump at the chance to decide an issue it has not seen before. Two recent decisions from the court, however, highlight the important procedural limitations imposed by Supreme Court Rule 8 on the court's ability to decide issues before it, even the novel or interesting ones. In both of these decisions, the Supreme Court declined to address unsettled questions of Delaware law because the appellant failed to raise the argument made on appeal to the Delaware Court of Chancery. More importantly, the Supreme Court also revealed that it looks at the "interests of justice" exception to Rule 8 more narrowly in a corporate or commercial case, making it more important that all of the relevant arguments are presented to the trial court or well planned on appeal. More › Share

Court Of Chancery Explains When Entire Fairness Review Applies

In re Crimson Exploration Stockholder Litigation, C.A. 8541-VCP (October 24, 2014) This is an important decision for 2 reasons. First, it collects the prior decisions that determine when a less-than-50% owner is considered a controlling stockholder so as to potentially invoke entire fairness review.  Second, it then reviews the prior decisions that hold when a controller is competing with the minority stockholders, even when the controller is not on both sides of the deal. That may occur, for example, when the controller receives special treatment in the transaction. Share

Court Of Chancery Explains Claim For Merger Consideration

Mehta v. Smurfit-Stone Container Corporation, C.A. 6891-VCL (October 20, 2014) This decision explains the rights of a dissenting stockholder who demands appraisal and then withdraws that demand. She is entitled to damages if she does not then receive the merger consideration. Share

Claims Challenging Stock Issuance Validity Subject to Stay

Authored By Albert H. Manwaring, IV This article was originally published in the Delaware Business Court Insider | October 22, 2014 The 2013 amendments to the Delaware General Corporation Law (DGCL) added new Sections 204 and 205, which set forth self-help procedures for a corporation to ratify, and vest the Court of Chancery with jurisdiction to validate, defective corporate acts, including the invalid issuance of stock, that might otherwise be void or voidable due to noncompliance with the DGCL or a corporation's organizational documents. These new sections were enacted in response and to overturn Delaware case law that held unauthorized corporate acts were void or voidable despite equitable considerations. (See, e.g., STAAR Surgical v. Waggoner, 588 A.2d 1130 (Del. 1991).) New Section 205 confers jurisdiction on the Court of Chancery to determine the validity of any corporate act or transaction, any stock, or right or option to acquire stock. Sections 204 and 205 became effective April 1. More › Share

Morris James Leads Delaware Today "Top Lawyers" Edition with 25 Recognitions

Morris James LLP is pleased to congratulate the lawyers listed below, who were most recommended by their professional peers in a survey of Delaware attorneys conducted by Delaware Today magazine. Morris James received more "top lawyer" peer recognitions and had more "top vote-getters" than any other law firm. Top vote-getters are listed in bold below and a number following a name indicates the number of recognitions this year. More ›

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Company Ordered to Produce Records Related to Subsidiaries

This article was originally published in the  In Oklahoma Firefighters Pension & Retirement System v. Citigroup, C.A. No. 9587-ML (Del. Ch. Aug. 13, 2014), a stockholder sought books and records related to a company's board of directors and senior management regarding certain public investigations of two of the company's wholly owned subsidiaries. Citigroup Inc. argued that the stockholder failed to demonstrate a nexus between the subsidiaries' wrongdoing and the board or senior management, and therefore failed to show a credible basis to infer possible mismanagement or wrongdoing. The master in chancery disagreed with the company's argument and recommended the court find that the stockholder stated a proper purpose for the inspection. More ›

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Court Of Chancery Explains Effect Of Stockholder Vote In Non-Controlling Stockholder Case

In re KKR Financial Holdings LLC Shareholder Litigation, C.A. 9210-CB (October 14, 2014) This important decision addresses two tricky questions of Delaware corporate law. First, it clarifies that the informed vote of a majority of the disinterested stockholders will invoke the business judgment rule when there is no controlling stockholder pushing the transaction. Second, it makes it clear that stockholder approval may ratify director actions even when the stockholder vote is not required to implement that action. The decision carefully reviews prior cases in reaching these conclusions and for that reason alone is worth a reading. Share

Court Of Chancery Allocates Fault In Breach Of Loyalty Case

In re Rural/Metro Corporation Stockholders Litigation, C.A. 6350-VCL (October 10, 2014) In a precedent-setting opinion, the Court of Chancery has allocated damages among some directors and one of their advisers in a breach of fiduciary duty case. This decision has big implications on how breach of duty cases are tried in the Court of Chancery. First, the Court held that a contribution claim by one defendant against other defendants requires joint liability, not just joint culpability. Hence, if some directors are exculpated by a Section 102(b)(7) clause, they cannot be held to contribute to a damages award even if they are negligent. Conversely, if they violated their duty of loyalty (a claim outside of 102(b)(7) protection), they may be held liable to contribute. Second, the Court held that an unclean hands defense may also bar a contribution claim under the right circumstances. While there are many other aspects of this decision that warrant close reading, it will affect most directly how defenses line up in cases going to trial. Share

Court Of Chancery Claim Of Oral Agreement

Black Horse Capital LP v. Xstelos Holdings, Inc., C.A. 8642-VCP (September 30, 2014) This decision is yet another example of the difficulty in recovering under almost any legal theory, except breach of contract, when there is a detailed contract that was designed to exclude other oral agreements. Not only will claims of a side oral agreement be rejected, but so too will theories like unjust enrichment that are pled to get around the problem that the plaintiff is not satisfied with the deal made in the writing that the parties signed. Share

Court Of Chancery Applies Limitations To Books And Records Case

Wolst v. Monster Beverage Corporation, C.A. 9154-VCN (October 3, 2014) Normally a books and records case will not be dismissed on the basis that the claim sought to be investigated is subject to some affirmative defense. That defense is for another day if the claim is ever filed. However, when that claim is clearly subject to a limitations defense, then investigation of it may be too burdensome to permit, as was the case here. Note, however, that the underlying claim involved in this case had been investigated before and that influenced the decision. Share

The Dilemma of the Unintended Fiduciary

Authored By Edward M. McNally This article was originally published in the Delaware Business Court Insider | October 8, 2014 A recent Delaware decision highlights a trap for the unwary adviser to a business entity. The decision holds that helping a business get started may create fiduciary duties owed by the adviser, even if he or she is not acting in one of the roles that are normally thought of as creating such duties, such as serving as a lawyer or trustee. Because those fiduciary duties limit what the adviser may do for those other than his or her immediate client, it is important to recognize when those duties exist. More › Share

District Court Explains Securities Law Pleading Rules

Stanley Black & Decker Inc. v. Gulian, C.A. 12-1342-LPS (D.Del. September 30, 2014) Stating a securities law claim is difficult under the standards set by the Dura and McCabe decisions and the PSLRA. This decision explains how to do it in a clear and concise way. Share

Court Of Chancery Upholds Creditor Derivative Claim

Quadrant Structured Products Company Ltd. v. Vertin, C.A. 6990-VCL (October 1, 2014) This is an important decision because it outlines the rights of creditors of an insolvent corporation to file a derivative suit for breaches of fiduciary duty, it holds that the creditors do not need to meet the continuous ownership rule that limits which stockholders may file such suits, and it implies that the demand requirements of Rule 23.1 must be met by a creditor plaintiff. Also interesting is the holding that director decisions that do not directly benefit them or their controller are subject to the business judgment rule, even in the context of an insolvent entity. Creditors had sought to impose a rule of law giving them a preference for their interests in such situations, but they did not get it here. Share

Supreme Court Stresses Literal Contract Interpretation

ev3 Inc v. Lesh, No. 515, 2013 (Del. September 30, 2014) Delaware law favors a strict interpretation of contract language. Here, the Supreme Court rejected an attempt to read into a contract provisions from a letter of intent signed before the final contract was executed. The final contract did not provide by its literal terms such an interpretation and the Supreme Court would not have any  of the plaintiff's attempts to read it otherwise. Share

Court Of Chancery Explains Inspection Rights For Subsidiary Wrongdoing

Oklahoma Firefighters Pension & Retirement System v. Citigroup Inc., C.A. 9587-ML (September 30, 2014) This decision explains when wrongful conduct at a subsidiary is sufficient to warrant inspection of the parent's records to determine if the parent has violated any Caremark duties.  At least when there is some basis to infer that the parent had oversight responsibility for the subsidiaries activities in question the very low standard for granting inspection is satisfied. Share

Court of Chancery Rejects Limits on Advancement Rights

Authored By Lewis Lazarus This article was originally published in the Delaware Business Court Insider | October 1, 2014 {Note the decision discussed in this article was certified to the Delaware Supreme Court on October 6, 2014.} By statute and case law, Delaware has long protected the rights of officers and directors to advancement of fees and expenses incurred defending claims arising out of the officers and directors' service. The public-policy rationale is that in the absence of such protection, qualified individuals would be reluctant to serve in management positions. Corporations whose documents are expansive in providing advancement, however, often are less generous when the time comes to advance company funds to someone the company believes has misused his or her position to the detriment of the company and its stakeholders. While a substantial body of case law has clarified many of the circumstances where directors and officers are entitled to advancement over the company's objections, issues continue to arise that enable the court to provide fresh guidance. The recent case of Pontone v. Milso Industries, C. A. No. 8842-VCP (Del. Ch. August 22, 2014), sheds light on the nature of claims entitled to advancement, whether a right to third-party advancement vitiates a director or officer's entitlement to advancement from the corporation itself, and the type of counterclaims that are subject to advancement. More › Share