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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 8 posts from April 2014.
The language of an LLC agreement is all important in determining what it permits. This decision illustrates that point by holding that, under the LLC agreement involved, a 90% owner cannot remove the LLC manager. This seems counterintuitive. But that is the lesson of LLC law - you get what you agree to even if it is odd.
After the Delaware Supreme Court's Martinez decision dismissing a case on forum grounds, some thought that Delaware might reject other cases as well. This decision limits Martinez's scope and makes it clear that Delaware entities will be subject to Delaware jurisdiction in the circumstances where the activities of the entity "implicates [the Court of Chancery's] fundamental and immutable responsibility to supervise the entities chartered and formed under Delaware law." While that mandate is clearly limited to some set of cases less than the universe of disputes a corporation may be subject to, what is covered remains to be seen.
Delaware continues to expand its enforcement of agreements not to compete with one's former employer. The latest step in this path to enforcement is the recognition that a noncompete and nonsolicitation agreement may be entered into by a mere click of the "accept" button on a computer screen. The Delaware Court of Chancery just upheld such agreements in Newell Rubbermaid v. Storm, Del. Ch. C.A. 9398-VCN (March 27, 2014). The decision has serious implications for employees who may wish to quit their present jobs to pursue careers at an employer's competitor. More ›
Delaware has a statue that requires a court to "borrow" the statue of limitations of another jurisdiction when a plaintiff seeks to avoid a limitations problem elsewhere by suing in Delaware. This decision explains when that statute will apply. The decision is also helpful in explaining when duplicative claims cannot be brought. That usually is the case when a plaintiff tries to expand a breach of contract action into a tort claim, for example.
This decision expands on the holdings of recent Court of Chancery decisions, one of which held directors not liable for breaches of their duty of care in a Revlon case and another that held an investment advisor liable for aiding and abetting the directors' breaches of duty. Thus, the Court explained that a typical exculpatory charter provision eliminates breaches of duty claims absent a "knowingly and completely failed" observance of a board's duty to get the best price for the sale of the company. Only such a complete failure is enough to state a breach of the duty of loyalty. Second, this decision limits the impact of the Rural Metro decision that held an investment advisor liable on an aiding and abetting claim. Rather, the degree of culpability must be much greater for such a claim to survive.
This decision explains how to calculate an attorney fee when there are 2 potential causes for a favorable settlement of a class action. The fee is divided based on the Court's views as to what is fair. A class member who hires its own attorney who is a cause of much of the recovery is not for that reason alone able to avoid a fee award to class counsel.
The record upon which a court evaluates a motion to dismiss is often outcome-determinative. If based upon the well-pleaded allegations of a plaintiff's complaint, the court cannot determine that it is reasonably conceivable that the plaintiff may obtain a recovery, the court must dismiss the complaint. As a general matter, the plaintiff controls the record by virtue of how and what the plaintiff pleads. The Delaware Supreme Court has held, however, that the record fairly before the court on a motion to dismiss may include documents "integral to and incorporated into the complaint." The recent Court of Chancery decision in In re Gardner Denver Shareholders Litigation, Cons. C. A. No. 8505-VCN (Feb. 21, 2014), provides useful guidance concerning how the Court of Chancery will treat deposition transcripts where, as is happening more frequently, a plaintiff pursues but abandons a preliminary injunction after deposing several witnesses, and then amends the complaint by selectively quoting from the deposition record. More ›
This is a critical decision to understanding the standard of review that the Court of Chancery will apply to a board's actions in selling its company. The decision makes 3 important points. First, the Court explains how and when the enhanced scrutiny standard of review applies and what that standard's "reasonableness" test means. The decision's explanation that the "rational basis" test of the business judgment rule standard differs from the "reasonableness" test of enhanced scrutiny is particularly helpful. Second, the decision explains when conduct that is wrong under a reasonable basis test is not so bad as to avoid exculpation under the director exculpation statute. This clarifies how far the prior law went in limiting exculpation when the conduct at issue showed an "utter failure" to follow one's duties. Third, the decision points out that if the board is aware that disclosure materials are inaccurate, then it may not be exculpated because the failure to correct the errors goes beyond a simple duty of care violation.