Posts from 2014

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

Court Of Chancery Upholds New Forum Selection Bylaw

City of Providence v. First Citizens Bancshares Inc., C.A. 9795-CB (September 8, 2014) This is the latest battle in the continuing war over the use of corporate bylaws to affect litigation over corporate internal affairs. Here, the Court upheld a bylaw of a Delaware corporation that chose North Carolina as the forum for litigation over internal affairs and dismissed the litigation in Delaware attacking that bylaw. The opinion is also noteworthy for putting to rest any argument that various statutes in the DGCL limit litigation over certain matters to just the Court of Chancery, such as books and records cases. Share

Entire Fairness for One, Entire Fairness for All

Authored By Peter B. Ladig This article was originally published in the Delaware Business Court Insider | September 24, 2014 As most lawyers familiar with corporate litigation in the Court of Chancery can tell you, determining the standard of review of a director's actions can be one of the most important aspects of a case. Although determining the proper standard of review is important throughout the life of an action, it can be most important at the outset, as it will dictate whether a complaint is subject to a pleadings-stage motion or whether discovery is inevitable. Not surprisingly, most defendant directors argue that their conduct is shielded by the business judgment rule rather than the harsher entire fairness standard of review that, in almost all instances, means the complaint will survive a motion to dismiss. More › Share

Court Of Chancery Explains Pleading Standard For Claims Against Disinterested Directors

In Re Cornerstone Therapeutics Inc. Stockholder Litigation, C.A. 8922-VCG (September 10, 2014)  This is a great decision to read to understand the pleading standard that applies to a complaint that alleges a controlling stockholder transaction. Even in such a transaction, the disinterested directors are not liable absent proof of a breach of a non-exculpated breach of duty. However, that rule will only apply after a full record is made at trial [or possibly at the summary judgment stage]. At the initial motion to dismiss stage, all the complaint need allege is that entire fairness review is required because of the control the majority stockholder had over the transaction. On September 26, 2014, the Court certified an interlocutory appeal to the Delaware Supreme Court. Share

Court Of Chancery Explains When Control Makes Dilution Claim Direct

In Re Nine Systems Corporation Shareholders Litigation, C.A. 3940-VCN (September 4, 2014) Whether a plaintiff's claim is direct or derivative is often a critical issue. It has now been established that when a controlling stockholder issues equity to himself at an unfair price, the resultant dilution claim is a direct one. This decision explains how to prove that a group of stockholders constitutes a control group and when interested directors as a majority of the board also may be considered to be a control group so as to make a dilution claim a direct claim. It is also interesting for its conclusion that, although the process used was not fair, the price was fair and only attorney fees may be awarded to the plaintiffs, Share

Court Of Chancery Explains Duties Owed To Investors

Ross Holding and Management Company v. Advanced Realty Group LLC, C.A. 4133-VCN (September 4, 2014) This is another decision pointing out that limitations on a fiduciary duty must be "plain and unambiguous" in an LLC agreement. Indeed, the failure to use language approved in prior cases seems inexcusable if it is intended to limit any fiduciary duties. Share

Court Of Chancery Explains How To Be An Unintended Fiduciary

Bennett v. Lally, C.A. 9545-VCN (September 5, 2014) Your duties to another person may change significantly if you become a fiduciary to him. That fiduciary relationship may be formed inadvertently as this decision explains.  Thus, giving advice to another,  intending to act [as in this case] as a third-party contractor may get you involved in a fiduciary relationship depending on what you agree to do and what control you have over the other person's affairs. This case explains what to avoid if you do not want to assume that fiduciary relationship and all its burdens. Share

Court Of Chancery Explains How To Form An Oral Partnership

Grunstein v. Silva, C.A. 3932-VCN (September 5, 2014) When parties enter into a business relationship but fail to document their agreement, a mess is sure to follow. This detailed opinion explains what evidence is needed to prove an oral partnership agreement or to prevail on the related liability theories of unjust enrichment, equitable estoppel and fraudulent inducement. Share