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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 12 posts from March 2014.
It is common in a Section 225 action seeking the determination of the composition of a company's board of directors for the court to issue a status quo order. Those orders stop the company from taking any actions out-of-the-ordinary course of business until the Court decides who is really in control. Here the Court issued a similar order pending a decision on whether the plaintiff was entitled to have stock issued to it to take control. This extends the use of status quo orders to a new realm.
This decision holds that a clickwrap agreement is sufficient to bind an employee to a non-compete agreement. This is an important innovation as it will permit employers to implement non-compete agreements quickly and without much fuss.
Investment bankers seeking to profit as both adviser to the seller and financier to the buyer in corporate sales processes have faced increased scrutiny by the Delaware Court of Chancery over the last few years. In a highly publicized 2011 decision that changed the landscape for investment bankers, Vice Chancellor J. Travis Laster criticized investment banker Barclays PLC for acting both as adviser to the seller and financier to the buyer in the sale process of Del Monte Foods Co. Laster found that Barclays "secretly and selfishly manipulated the sale process to engineer a transaction that would permit Barclays to obtain lucrative buy-side financing fees." Laster explained that Barclays faced conflicts of interest in the sale process, which were not disclosed to the board of Del Monte Foods, in its role as financial adviser to the board, while at the same time profiting by providing staple financing to the buyer, private equity firm KKR & Co. More ›
What can you do when you discover that a former employee is hurting your business by working for a competitor? If the employee never signed a noncompetition or nonsolicitation agreement, it may seem there is little you can do. However, the Delaware Court of Chancery's recent opinion in Wayman Fire Protection v. Premium Fire & Security LLC, C.A. No. 7866-VCP (Del. Ch. March 5, 2014), provides new remedies if that former employee has breached the duties the court explains in this decision. More ›
What must be pled to state a claim under the federal securities acts is often a difficult question. For example, what facts sufficiently allege scienter to state a claim under the heightened rules governing such complaints? This decision explains the applicable pleading rules very clearly.
Under the Delaware LLC Act, a manager or a person who acts like a manager is subject to jurisdiction in Delaware in a breach of duty case arising out of her management. Because the LLC agreement usually sets out who is a "manager," that is usually not disputed. However, it is often less clear who had exercised management duties sufficient to be subject to jurisdiction in Delaware. This decision helps decide that question. It points out that just being named an officer is not enough to submit to jurisdiction and that the nature of the defendant's' duties compared to what it is alleged she did improperly may also be determinative. In other words, if you "managed" X project but are sued for what you did on the Y project, there is no jurisdiction over you..
The Delaware Supreme Court has upheld the important Court of Chancery decision in the M&F Worldwide case that applied the business judgment standard of review to a merger that has the following conditions: (1) the controlling stockholder conditions the merger on the approval of both a special committee and a majority of the minority stockholders, (2) the special committee is independent, (3) the special committee is empowered to freely select its own advisers and to say no indefinitely, (4) the special committee acts with care, (5) the minority vote is informed, and (6) there is no coercion on the minority. Almost as importantly, the Court upheld the grant of summary judgment to the defendants. As a result, the structure approved here will now be the gold standard for mergers involving a controlling stockholder.
In these 2 decisions, the U.S. Magistrate shows a sound understanding of Delaware corporate law. She recommends the dismissal of these 2 derivative suits under Rule 23.1 because the complaints do not show the directors were disqualified from considering a demand they sue. The directors' interest in a compensation plan that was only currently applicable to employees did not make them interested under Delaware law.
The Delaware Supreme Court's Feb. 20 decision in an asbestos case brought by an Argentine widow against DuPont Co. is a hot topic in Delaware. Martinez v. E.I. du Pont de Nemours & Co., (Del. Supr. C.A. 669, 2012), upheld the dismissal of the asbestos case despite a vigorous dissent by Justice Carolyn Berger.
Dissenting opinions in Delaware Supreme Court decisions are very rare and that alone generates discussion. In Martinez, the majority opinion takes the time to respond to the dissent, recognizing that Berger makes some good points. Nonetheless, with new Chief Justice Leo E. Strine Jr. as part of the majority (in his capacity as chancellor designated as a justice for this one case), some wonder if this opinion signals an internal rift within the Supreme Court. More ›
Whether a stockholder or many stockholders acting as a group are in control of the process to sell a company has profound effects on the judicial review of what is done. As this decision points out, "control" may be exercised over just part of the process as well. Hence, this decision is a good explanation of when there is such control.
This is an important decision explaining when advisers in a merger may be liable for aiding and abetting a breach of fiduciary duty. Liability may attach even for just a breach of the duty of care if the adviser is aware that it is facilitating that breach. The key here is that the advising investment banker was trying to make a fee from both the seller and the buyer in the same deal. This then is just the latest such case criticizing double dealing and it is now time for lawyers to be sure the advisers are not engaged in such conduct. The opinion is also a good road map for how a board ought to conduct the auction of a company. While there are many opinions that say there is no fixed way to sell a company, those who just ignore these guidelines do so at their peril.
When an employee departs and there is no agreement that restricts his post-employment actions, the law has been often unclear on the former employer's rights to protect itself from unfair competition. This decision pulls much of that prior scattered case law together in a coherent discussion of the former employer's rights. It even deals with the misuse of computer systems statute that has seldom been discussed as a remedy for computer information theft.