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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 15 posts from February 2014.
This may be the definitive opinion on how to do a cash out merger fairly. It contains a wealth of references to the case law dealing with all aspects of the dual duties to act fairly and provide a fair price and the potential remedies for the failure to meet those twin obligations.
Too often corporate documents refer to "indemnification" when they really mean "advancement." Here the Court was required to interpret an agreement that really called for advancing attorney fees but did not use the word "advancement." Hence, even if the right terminology is not used it still may be possible to win advancement.
Is it becoming easier for defendants to win summary judgment in corporate litigation? A recent Delaware Court of Chancery decision granting summary judgment to the defendants in a fiduciary duty case appears to resolve disputed facts in defendants' favor. Yet, it is settled law that a court may not resolve disputes of material fact without a trial. Has Delaware law changed when summary judgment is appropriate? More ›
When may a large stockholder wait before asserting its voting rights arising out of the failure to pay dividends to preferred stock? The short answer is that it all depends, particularly when the corporation is in the process of raising money by issuing debt that the preferred stock arguably had a right to prevent. For if the stockholder waits until after significant corporate action is taken, it may have acquiesced in that action and lost the right to object to it.
This decision affirms the standing of someone not yet elected to the board to seek relief under Section 225.
Some countries, particularly in Europe, have laws that restrict the ability to get discovery of email and other materials. This careful decision explains when the Court of Chancery will order that discovery anyway. The opinion reviews the United States Supreme Court decisions and the laws of France on this subject.
In contrast to many jurisdictions that have recognized special fiduciary duties owed by majority stockholders to protect minority stockholders in closely held corporations, Delaware courts have not adopted a special fiduciary duty of a controlling or majority stockholder to minority stockholders in closely held corporations, or a fiduciary duty to buy back a minority stockholder's shares. Thus, declining to follow the approach of many other jurisdictions, Delaware law does not afford minority stockholders in a closely held corporation any greater protection than the fiduciary duties a controlling stockholder owes to a minority stockholder in a public corporation. More ›
This may be the longest opinion ever written by the Court of Chancery. In one sense, that is too bad because it has the best explanation of loss causation in any recent opinion. Briefly, if A invests in company ABC because of false representations about its earnings and then the value of ABC declines because all its officers die, A has lost money because he invested in ABC. However, his loss is not caused by the fraud but by the deaths of the officers. In that situation, A has not proved loss causation. This is an important point that is too often overlooked.
Appraisal actions are increasing for several reasons. One reason is that the statutory rate of interest of 5% plus the federal discount rate paid to the stockholder is higher than that currently available elsewhere. Here the defendant offered to pay into court what it said was the fair value and thereby stop the accrual of interest. However, the Court held that the appraisal statute mandated interest be paid until the Court's judgment was paid.
This ruling illustrates an often overlooked point that the decision to advance attorneys' fees may constitute a self-dealing transaction when the party getting advancement is the party voting to do so. Hence, absent a proper basis, advancement is improper under those circumstances. Of course, when advancement is required by the bylaws, then it is required and acceptable even if the decision is made by the same parties whose fees are to be paid.
At the very end of 2013, the Delaware Court of Chancery issued a major insider-trading decision that has substantial implications for company officials selling their company stock. The decision in Silverberg v. Gold, Del. Ch. C.A. 7647-VCL (December 31, 2013), upholds using circumstantial evidence to establish that insiders were motivated by material nonpublic information to sell company stock. Silverberg's significance lies in the extent to which it draws inferences of wrongful conduct from some limited evidence. Thus, Silverberg may permit more insider-trading complaints to survive a motion to dismiss. More ›
This interesting decision deals with 3 aspects of fiduciary litigation in Delaware. First, under the Supreme Court's CERBCO decision, even if a transaction is called off, a fiduciary who proposed the invalid deal may be held liable for the company's expenses. This happens so rarely that it is not clear how to apply CERBCO. Well, this decision explains how it applies. The decision also explains when demand is not excused before filing an amended complaint when the composition of the board has changed since the original complaint was filed. Briefly, the Court looks to see if the new complaint is really a new claim and if it is, then the new board's independence is tested to see if demand is excused. Finally, the decision explains when a forum selection clause is not enforceable to remove the court's power to decide a breach of fiduciary duty claim. When the forum selection clause deals with the parties' contract claims, it does not preclude a Delaware court from dealing with fiduciary duty claims.
This is an interesting decision because it awards fees for some complicated non-monetary benefits the plaintiffs' counsel claimed to have achieved. How the Court analyzed the benefits is a guide to how it will do so in the future when the benefits go beyond mere additional disclosures.
Disappointed parties to merger or asset purchase agreements sometimes try to get a redo of their deal by arguing the other side has violated the duty to act fairly and in good faith in the course of implementing their transaction. This decision explains when that will not work and when it may succeed. If the parties contracted with respect to the subject the plaintiff is complaining about, it will do little good to try to cast its complaint as a matter of fair dealing. It instead should have done a better job of contracting. On the other hand, when the matter in dispute was not focused on by the parties in their deal, they have a better chance of having the Court fill the gap with a fair dealing and good faith analysis.
This is an excellent review of Delaware law on how to carry out the sale of a company. Perhaps more novel, however, is how the Court deals with a summary judgment motion at a late stage of a case and where there are apparently conflicting factual claims. For after all discovery is done, the Court shows that it is more willing to weigh the evidence to some degree and rule that the plaintiff's' claims just do not get to trial.