About This Blog

Summaries and analysis of recent Delaware court decisions concerning business-related litigation.

Morris James Blogs

Links

Showing 15 posts from February 2015.

Delaware Adopts Curative Procedures for Invalid Past Corporate Actions

Posted In Articles
Business lawyers frequently face mistakes their clients make in documenting what they want to accomplish in terms of corporate actions, such as issuing stock. Clients will ask for advice years after they have delivered stock certificates to investors, but without actually authorizing that stock in any formal way. That stock is not valid. What to do about that and similar miscues has long been a problem. More ›

Rare Guidance on the Duty to Supplement Interrogatory Responses

Posted In Articles
One of the many things young lawyers are taught when preparing written responses to discovery is to reserve the right to supplement or amend the responses at a later date. This common reservation of rights is included and often forgotten. But this reservation of rights can turn into a requirement under the Delaware Court of Chancery rules under certain circumstances. Rule 26(e)(2) requires a party to "seasonably" supplement a discovery response if the party obtains information upon the basis of which (a) the party knows the response was incorrect when made or (b) the party knows the response was correct when made but is no longer true and a failure to supplement "is in substance a knowing concealment." Written discovery is often served early in the discovery process, so as the discovery record and other knowledge grows, it is often the case that answers given early in the case no longer become accurate. When the duty to supplement arises, and what a "seasonable" supplementation means has received scant attention in written opinions, which, not surprisingly, often leads to lawyers pushing the envelope on what "seasonably" means under the rule. In OptimisCorp v. Waite, C.A. No. 8773-VCP (Del. Ch. Jan. 28, 2015), however, the Court of Chancery had the opportunity to provide some rare guidance on when the duty to supplement arose and the outer limits of a "seasonable" supplement. More ›

Court Of Chancery Enforces Section 273

Posted In Dissolution
In The Matter Of Bermor Inc., C.A. 8401-VCL (February 9, 2015) This decision reinforces that the joint venture statute for Delaware corporations, Section 273, requires the Court to dissolve the entity upon a deadlock. Absent extraordinary circumstances amounting to a fraud, the Court has no discretion to do otherwise.

Master in Chancery Explains Damages Needed to Justify Books and Records Based On Wrongdoing

Walther v. ITT Educational Services Inc., C.A. 8273-MA (February 10, 2015) When a stockholder seeks to inspect a company's records based on alleged wrongdoing, it is necessary to also show that wrongdoing has led to some damage to the entity. Otherwise, the inspection will be denied.

Court Of Chancery Upholds Arbitration Clause In Breach Of Fiduciary Duty Case

Posted In Arbitration
Lewis v. AimCo Properties L.P., C.A. 9934-VCP (February 10, 2015) This decision enforces an arbitration clause in an LLC agreement even when the claim asserted a breach of fiduciary duty. While not surprising in itself, the decision may also have broader implications about whether a bylaw with an arbitration provision may be enforced in a breach of fiduciary duty case.

Court Of Chancery Explains Conspiracy Theory Of Jurisdiction

Posted In Jurisdiction
Virtus Capital L.P. v. Eastman Chemical Company, C.A. 9808-VCL (February 11, 2015) This is a very useful decision because of its detailed explanation of the conspiracy theory of jurisdiction, which was first adopted in the famous Istituto Bancario case. As the decision makes clear, breaches of fiduciary duty claims are particularly suited for that theory and do not violate the corporate shield doctrine.

Choice-of-Law Agreements and Public Policy Enforceability Exception

Posted In Articles
Authored By P. Clarkson Collins, Jr. This article was originally published in the Delaware Business Court Insider February 11, 2015 By statute, Delaware has affirmed the ability of parties to agree to have their rights, remedies, liabilities, powers and duties governed by the law of Delaware. Title 6, Section 2708 of the Delaware Code recognizes that the parties' contractual choice-of-law provision is itself a "significant material and reasonable relationship with this state and shall be enforced whether or not there are other relationships with this state." A recent decision of the Delaware Court of Chancery reveals that important limitations remain, however, on the ability of parties to enforce Delaware choice-of-law provisions. More ›

Chancery Court Applies New Statutory Amendment Retroactively

Posted In Articles
Authored By Albert H. Manwaring, IV This article was originally published in the Delaware Business Court Insider February 4, 2015 Before the newly enacted statutory amendment, 10 Delaware Code Section 8106(c), parties could shorten, but were not permitted to lengthen, an applicable limitations period by contract because an extension of the statute of limitations by agreement violated public policy. (See, e.g., Bonanza Restaurant v. Wink, C.A. No. S10C-10-018 RFS (Del. Super. Apr. 17, 2012), aff'd, 65 A.3d 616 (Del. 2013); and Shaw v. Aetna Life Insurance, 395 A.2d 384, 386-87 (Del. Super. 1978).) The Delaware General Assembly recently enacted 10 Delaware Code Section 8106(c), which was effective Aug. 1, 2014. Section 8106(c) now permits contracting parties to extend the three-year limitations period, applicable to most contract actions brought in Delaware, by agreement for up to 20 years from the time a cause of action accrues, in a written contract "involving at least $100,000." Section 8106(c) allows parties to define the time period in which suit may be brought in their contract by reference to traditional measures of time (e.g., months, days or years), but also provides flexibility for contracting parties to define such period of time "by reference to the occurrence of some other event or action, another document or agreement or another statutory period," or even "an indefinite period of time" up to 20 years from the time a cause of action accrues. More ›

Court Of Chancery Explains Interrelationship Of Complaint Theories

The Renco Group Inc. v. MacAndrews AMG Holdings LLC, C.A. 7668-VCN (January 29, 2105) This decision explains how various liability theories in a complaint relate to one another so as not to be duplicative. For example, a breach of fiduciary duty claim will be dismissed when it relies on the same facts as a breach of contract claim. Moreover, a claim for violation of the duty to act in good faith and fairly may survive when it alleges a failure to uphold the reasonable expectations of the parties as to how a contract would operate. Note, however, that it would be a mistake to think that you can plead a violation of the covenant to act fairly in a very contract-based case. In a decision one day after Renco, the Court dismissed a claim based on the covenant when the contract language spelled out how the contract was to be implemented in more detail, leaving no gap for the covenant to fill. See  Fortis Advisors LLC v. Dialog Semiconductor PLC, C.A. 9522-CB (January 30, 2015).

Court Of Chancery Limits Implied Covenant Claims

Fortis Advisors LLC v. Dialog Semiconductor PLC, C.A. 9522-CB (January 30, 2015) When a contract spells out that  its obligations are to be carried out in a "commercially reasonable best efforts" manner, it will be harder to argue there is any gap that the covenant of good faith and fair dealing may fill.   That means the claim based on the implied covenant may be dismissed leaving the court to ponder what is "commercially reasonable."  This decision needs to be read in conjunction with The Renco Group Inc. v. MacAndrews AMG Holdings LLC, C.A. 7668-VCN (January 29, 2015) upholding a similar claim.

Court Of Chancery Explains Step-Transaction Theory

Ellis v. OTLP GP, LLC, C.A. 10495-VCN (January 30, 2015) Not infrequently a plaintiff will argue that 2 transactions are so interrelated that his rights have been violated by structuring the deal to take 2 steps to accomplish it.  An example is this case  of a purchase of a controlling interest at a premium followed by a cash out merger at a discount. This is a hard road to travel  and this decision explains what is needed to make the court consider 2 steps as if they were one. Briefly, one must be dependent on the other in such a way as to make the deal not possible unless both occurred.

Court Of Chancery Explains New Statutory Authority To Correct Corporate Mistakes

Posted In Uncategorized
In Re Numoda Corporation Shareholders Litigation, C.A. 9163-VCN (January 30, 2015) This is an important decision because it explains the effect of the new Sections 204-205 to the DGCL. Those provisions permit the correction of corporate actions that failed to comply with the requirements of the DGCL, such as having a board resolution before issuing stock. The decision holds that the Court's authority is limited to when some actual "action" has occurred, not just a "water cooler discussion" and there must be some real evidence to confirm that action was intended to have the consequences the plaintiff asks the Court to confirm.

Court Of Chancery Adopts Merger Price In Appraisal Proceedings As Fair Value

Posted In Appraisal
In Re Appraisal Of Ancestry.com Inc., C.A. 8173-VCG (January 30, 2015) After a complete analysis of the usual issues in an appraisal case involving a DCF valuation, the Court here concluded that the result was close enough to the actual price paid in the merger to warrant adoption of the merger price as fair value. The merger followed an extensive market shop and lengthy negotiations that gave the Court confidence the agreed-to value was fair.

Court Of Chancery Explains Equitable Estoppel Jurisdiction

Posted In Jurisdiction
McWane Inc. v. Lanier, C.A. 9488-VCP (January 30, 2015) This decision explains how a non-party to a contract with a Delaware forum selection clause may still be subject to the Court's jurisdiction under an equitable estoppel theory. Briefly, if you claim benefits under that contract, you may be barred from contesting its forum selection provision.

Court Of Chancery Explains When Interest Is To Be Compounded

ReCor Medical Inc. v. Warnking, C.A. 7387-VCN (January 30, 2015) This decision orders compound interest on an attorney fee award and explains why, even if that is not always to be done.