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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 24 posts from May 2014.
Often corporate bylaws or charters provide for advancement of attorney fees to directors and officers for acts taken in connection with "their duties to the company or by reason of their service as an officer or director." Then when it comes time to pay up to former officials, the company tries to avoid its obligation by arguing the underlying litigation involved an employment contract and is not "in connection with" or by reason of performing their official duties. This decision by a Master in Chancery reviews the case law and explains why that defense usually does not work.
This decision upholds service of process by mail under the Hague Convention.
Inspection of a company's records may not be conditioned on an agreement not to trade the company's stock following the inspection.
This decision holds that the Delaware Securities Act does not apply to trades outside of Delaware, even those between Delaware corporations. The opinion also has some useful descriptions of what constitutes a basis for a fraud claim.
This decision explains two aspects of advancement law that may be troubling to some. First, it explains when fees may be recovered for asserting a counterclaim. In general, the rule is that fees may be won for a compulsory counterclaim that may also diminish the recovery of the original plaintiff. Second, the opinion explains again how to treat the difficulty in assessing how much may be recovered in an advancement suit when the underlying litigation is on-going, including the fees-for-fees and interest issues.
This is an example of what happens when a stockholders agreement is badly drafted and the Court has to try to construe what it means. The opinion is interesting for the Court's method of analysis, using drafting history, presumptions found in corporate law and other interpretive aids.
In soliciting consent there is a duty to be truthful and to disclose the material facts. Here, the Court invalidated a written consent for want of full disclosure over how the consent was obtained. The decision also has an interesting discussion of what constitutes impermissible vote-buying
This interesting decision explains the status of a de facto director and what that means in terms of the validity of actions taken by such directors. In general, their actions are valid. The decision is also another illustration of the duties owed by a board of a charity to its beneficiaries.
A jury verdict tainted by a juror's internet search may be set aside due to the "egregious circumstance" that misconduct presents.
When is a declaratory judgment case sufficiently ripe that it may be decided? This is a difficult area of the law and this decision provides guidance. At least when the action seeks a declaration of insurance coverage, there probably needs to be an underlying litigation on file before there can be a declaration of coverage for that litigation.
Thirteen Lawyers and Four Practices Recognized as Top-Tier in Delaware
Morris James LLP is pleased to announce that thirteen attorneys in five separate practice areas have been top ranked among the leading Delaware lawyers in the 2014 edition of Chambers USA: America's Leading Lawyers for Business. Chambers also ranked four of its practice areas as among the top practices in Delaware including Bankruptcy/Restructuring, Chancery, Intellectual Property and Labor & Employment. Read more.
Under Delaware appraisal law, the fair value to be awarded to a stockholder does not include any "synergies" achieved by the merger itself. What is a "synergy?" An easy example is when the combined companies may realize some economy of scale because of their combination. After all, but for that combination, the stockholders in the pre-merged companies would not have been able to obtain that benefit. The question gets cloudier, however, when considering some post-merger plans the acquirer implements that improve operations. Is it a "synergy" when the old company might have done the same improvement on its own had it thought of it? This decision grapples with that question. It suggests that the answer lies in whether any post-merger improvement was "on the table" at the time of the merger and was not a new idea thought up only by the acquirer.
This is an excellent explanation of when a clam is a "direct" claim that may be asserted by a class and not a derivative claim. When the plaintiff's rights, such as the right to have a transaction approved in a certain way, are affected, then her claim is a direct one. Numerous examples are given as well.
Plaintiffs lawyers are questioning whether their cases will be heard by Delaware's courts. That concern is fueled by the Delaware Supreme Court affirmance of a trial court's dismissal of a case against DuPont Co., the ultimate Delaware corporation, on forum non conveniens grounds, in Martinez v. E.I. du Pont de Nemours & Co., 86 A.3d 1102 (Del. 2014). For if Delaware will reject a case as too inconvenient for a defendant like DuPont, whose headquarters is just four blocks from the courthouse, might not any defendant also have a case against it thrown out for the same reason? Of course, that is a too-broad reading of the Martinez case. Moreover, on April 28, the Court of Chancery sent a strong signal that the Delaware courts remain open to all, even foreign, plaintiffs. More ›
This decision clearly explains when a derivative suit should be stayed in favor of securities litigation elsewhere. The general rule is that when the derivative suit depends on the outcome of the securities litigation because it seeks recovery of the damages to be paid for a securities law violation, the derivative suit should be stayed. Of course, when the derivative suit is not dependent on the securities litigation outcome, the stay should be lifted.
This decision used the direct capitalization of cash flow method of valuing a closely held company with somewhat erratic cash flows. That is slightly different than the usual DCF method and this decision has a good explanation of how the proof convinces the Court to make various adjustments.
This decision upholds a bylaw that requires the payment of attorneys' fees by a plaintiff stockholder or member in a non-stock corporation who sues a corporation or its directors and loses. The decision is limited to just the bare legal question presented and is careful to note that a bylaw adopted for an inequitable purpose may still be declared invalid. Nonetheless, it is not hard to predict that a host of similar bylaws will now be adopted by Delaware corporations. This decision is another in the line of decisions upholding bylaws that affect litigation, such as the forum selection bylaw also just upheld. How far this will go remains to be seen.
When a claim is subject to arbitration needs to be decided by either the court or the arbitrator, and the Willie Gary decision says who gets that honor. This decision explains how to apply Willie Gary.
This decision explains when a party may get discovery into the issue of whether a claim is subject to an arbitration clause.
A poison pill may affect a proxy contest by limiting one side's ability to acquire stock to vote in its favor. But, as this important decision holds, the adoption of a pill is subject to the Unocal standard and not the more exacting Blasius "compelling justification" test. The opinion is also important for its exacting analysis of the justifications under Unocal to not waive a pill and to use a 2-level pill in the face of an imminent proxy contest.
In a comprehensive analysis of the standards of review, burdens of proof and potential damages implicated in a fiduciary-duty challenge to a squeeze-out merger, the Delaware Court of Chancery recently examined the harsh potential consequences for controlling shareholders who manipulate special board committees, the fairness opinions of their financial advisers, and proxy materials concerning the value of a company. More ›
This is another case where a company tries to avoid its advancement obligation by arguing that the conduct in question did not arise out of the former officer's official duties, but instead arose under an employment or similar contract. That distinction just does not work and it did not work here. The decision is also interesting because it points out that advancement rights in an LLC are not limited by the statutory language of Section 145 of the DGCL dealing with actions in "defense."