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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 15 posts from December 2015.
Not infrequently, the parties to a complicated contract include a contractual provision on how to resolve any later disputes. For example, it is common to agree to use an accounting firm to resolve accounting disputes, such as what is due under a payout formula. But what is the scope of review of such a determination? More ›
Practitioners often assume that if they provide a contractual right to an injunction for breach of contract, that the Court is obligated to find such a breach constitutes the irreparable harm that warrants an injunction. Not so fast, holds this decision. More ›
This is the rare decision where a suit against a Delaware entity is dismissed on the basis that Delaware is a too inconvenient forum. When foreign law is both unclear and will establish the basis for any relief, a foreign plaintiff may find it hard to sue in Delaware unless the suit contains the allegation that the very formation of the Delaware entity is part of the alleged wrong.
Exactly how much information is a stockholder entitled to under the “necessary, essential and sufficient” standard applied when the stockholder seeks to value his interest in the corporation? This decision suggests that 3 years of past financial information is enough.
This is an important decision, particularly if it is a precedent that will be followed in other contexts. Basically, the Court has held that expectation damages may be awarded for the breach of even a preliminary agreement when the agreement is sufficient to include an obligation to negotiate any remaining terms. As the dissenting opinion points out, other jurisdictions have confined the award in such cases to only reliance damages. Here, however, the bad faith of the defendant warranted greater damages, under the “wrongdoer rule” that excuses less proof of the actual damages when there is adequate proof of some damages and the wrongdoer's actions have made the amount of damages harder to prove.
Buyers and sellers and their counsel allocate risk in stock purchase or merger agreements. A buyer, for example, may not be willing to close if there is threatened regulatory action affecting an asset or liability it is acquiring. The parties then negotiate how to address this risk, often including the buyer's right to withdraw from the transaction unless the threat disappears. When a buyer seeks to avoid closing on the basis of threatened legal action as negotiated with the seller, the seller may have a different view as to whether the negotiated "threat" actually exists. Such was the circumstance in Rexam v. Berry Plastics, C.A. No. 10596-VCN (Dec. 3, 2015), and its holding in favor of the seller provides important guidance regarding what constitutes "threatened action" that might permit a buyer to be relieved of its obligation to close. More ›
This decision applies Delaware’s forum non conveniens law to a suit against a Delaware corporation arising out of events in India. The analysis is helpful for other cases because it deals with all the various factors to be considered, such as availability of discovery in a foreign country. As a result, it is a precedent for upholding jurisdiction over a Delaware entity is proper even if the events occurred far away.
Ian D. McCauley was appointed as an Associate Member of the Delaware Supreme Court Commission on Law & Technology. The Commission was created to develop and publish guidelines and best practices regarding the use of technology and the practice of law. According to former Supreme Court Justice Henry duPont Ridgely, Liaison Justice to the new Arm of Court, “The Court expects the Commission to become a valuable resource not only to all Delaware judges and lawyers for issues related to technology and ethics in the practice of law, but also to serve as a model for other states who are interested in assisting their judges and lawyers maintain their professional competence in technology.” Click here to see the full members list and read more about the Commission.
This is an interesting decision for 2 reasons. First, the Court explains what might have seemed obvious to most, that the LP agreement governs the rights of the limited partners to partnership distributions. Generally, each limited partner is to receive what each other similar limited partner receives and no side deal can alter what the LP agreement says in that respect. Second, the GP has only the rights to do what the partnership agreement says he can do. Thus, the GP cannot give some limited partners special privileges absent explicit authority to do so in the agreement.
Bloomberg BNA Corporate Law & Accountability Report
Albert H. Manwaring, IV was quoted in a Bloomberg BNA Corporate Law & Accountability Report article discussing the recent Delaware Supreme Court decision affirming that Royal Bank of Canada aided and abetted Rural/Metro Corp. directors’ breaches of fiduciary duty in connection with a $438 million buyout.
The Delaware Supreme Court, in a recent order affirming the opinion of the Delaware Court of Chancery, provided clear guidance about when third-party corporate advisers may raise the in pari delicto defense as a shield to claims brought by or on behalf of the corporation, in Stewart v. Johnson Lambert & Co., Del. Supr. No. 204, 2015, Order (Nov. 2, 2015). Specifically, when the corporation's fiduciaries have themselves engaged in the wrongdoing for which the third-party advisers have been joined, the adviser will face liability for knowing participation in a breach of fiduciary duty; the adviser, however, will not risk liability to the wrongdoing corporation for professional liability claims based on contract or negligence. At a time when auditors and financial advisers are increasingly targeted in corporate litigation, the Delaware Supreme Court's rejection of a professional adviser exception to the in pari delicto doctrine provides important guidance for corporations and their professional advisers to manage their respective risks. More ›
This is a potentially significant decision because it interprets a change in control clause to include a change in beneficial ownership of an entity's securities. Hence, not only actual changes in ownership may trigger such clauses and drafters need to be aware of this point.
In what is probably an unprecedented decision, the Court in this case awarded fees to an unsuccessful objector to a settlement of merger litigation. Note that the Court was very cautious in doing so and warns that this should not be taken as encouragement to object to settlements.
This is an important decision because it explains so well the effect of an anti-reliance clause in the agreement for the sale of a business. The clause will bar fraud claims based on misrepresentations outside the terms of the agreement even if the clause just states what was relied on and does not need to say there are no other facts relied on and even if the allegations claim omissions.
The opinion also states well when corporate officers may be liable for fraud claims.
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 Delaware courts over the last few years. In a highly-publicized 2011 decision, Vice Chancellor Laster criticized investment banker Barclays PLC for acting both as adviser to the seller and financier to the buyer in the Del Monte Foods Co. sale process. The following year, now Chief Justice, then Chancellor Strine, criticized Goldman Sachs’ role in the El Paso Corp. sales process for allegedly steering the sale to its favored buyer Kinder Morgan Inc.
In the latest Delaware decision criticizing bankers guiding corporate sales processes who seek to profit on both sides of a sale, In re Rural Metro Corp. Stockholders Litigation, the Supreme Court affirmed the Court of Chancery’s holding that investment banker RBC Capital Markets LLC (“RBC”) was liable for aiding and abetting the breach of fiduciary duties by the Board of Rural/Metro Corporation’s (“Rural” or the “Company”) in connection with its sale to private equity firm Warburg Pincus LLC (“Warburg”). (No. 140, 2015, 2015 WL 7721882 (Del. Nov. 30, 2015)). More ›