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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 25 posts from March 2015.
Morris James LLP has formed a Data Privacy and Information Governance Group. The Data Privacy and Information Governance Group is an interdisciplinary team of corporate and fiduciary duty attorneys, attorneys well-versed in electronic data storage and discovery, attorneys with bankruptcy and insurance-related backgrounds, and non-attorney IT staff knowledgeable about trends in data security and technology. Together, the group advises boards of directors and officers in assessing and managing risk and defending claims for alleged breach of fiduciary duty arising from data breaches. More ›
The Honorable Karen Weldin Stewart v. Wilmington Trust SP Services, Inc., C.A. 9306-VCP (March 26, 2015) This and the AIG decisions are the leading decisions on when the in pari delicto defense works. The Court carefully summarizes the 3 exceptions to when in pari delecto bars a recovery: (1) the adverse interest exception, (2) the fiduciary duty exception, and (3) the public policy exception such as in the case of the federal securities laws. Of these, the "greatest of all" is the fiduciary duty exception that even permits aiding and abetting clams to proceed.
Professional Investigating & Consulting Agency, Inc. v. Hewlett-Packard Company Del Super. No. 12C-06-196 MMJ CCLD (March 23, 2015) This decision upholds a rare multimillion dollar jury verdict for interference with the plaintiff's business, including a $5,500,000 damage award for "humiliation" damages. The Court also awards attorney fees to the successful plaintiff. The opinion is an excellent review of when a jury verdict may be set aside by the Court.
3850 & 3860 Colonial Blvd. LLC v. Griffin, C.A. 9575-VCN (March 30, 2015) This decision explains how hard it is to appeal an order staying litigation in favor of arbitration. Even when there are some good arguments over whether the dispute is subject to arbitration, the Supreme Court precedent strongly disfavors an interlocutory appeal.
Nationwide Emerging Managers LLC v. Northpointe Holdings LLC, No. 441, 2014 (March 18,2015) This is yet another Supreme Court decision marking the bounds of the covenant of good faith and fair dealing. The covenant is not to be used to modify the terms of a contract, to add terms the parties chose to not include or to provide a remedy that the parties never intended would apply in the event of a breach. While Delaware courts try to reach a "fair" result, that will not warrant letting a party alter what it bargained for after the fact.
We’re back with the second episode of CorpCast, Morris James LLP’s podcast discussing Delaware corporate and commercial law and practice. In “Advancement 101,” we discuss the fundamentals of advancement actions in Delaware’s Court of Chancery, distinguish advancement rights from indemnification rights, and provide frameworks for thinking about advancement both from the perspective of a director or officer seeking advancement and from the perspective of a company facing an advancement demand. We will also touch on some of the common practice pitfalls in this area of the law and consider several reasons why Delaware may be the best venue to bring an advancement action. More ›
It is well settled that stockholders of Delaware companies generally have the right to inspect the company's books and records upon the showing of a proper purpose. However, as demonstrated in the Court of Chancery's decision in Fuchs Family Trust v. Parker Drilling, C.A. No. 9986-VCN (Del. Ch. Mar. 4, 2015), that right is not absolute. Even where a proper purpose exists, the demand is properly denied where the requested books and records would not advance that purpose. More ›
Swomley v. Schlecht, C.A. 9355-VCL (March 12. 2015) This decision explains what notice is required when a representative litigation is to be dismissed as moot and a fee paid to the plaintiff's attorneys. Notice should be given to the class or the other stockholders in the way and form spelled out in this case. Further, the case may be re-filed by another stockholder who has the right to claim it was not moot. No hearing is required before the case is dismissed after the notice is given.
Delaware Supreme Court Leaves Open The Question Of Whether Breach Of Contract Is A Business Judgment
Friedman v. Khosrowshahi, No. 442,2014 (March 6, 2015) In this interesting order affirming a Chancery decision, the Supreme Court went out of its way to make a point. A stockholder suit alleging that the board breached a stock option plan may state a claim for breach of contract that does not necessarily involve a business judgment rule analysis but instead may involve a breach of the duty of loyalty. If so, then it may not be easily dismissed under a Rule 23.1 motion.
Wilmington Savings Fund Society, FSB v. Caesars Entertainment Corporation, C.A. 10004-VCG (March 18, 2015) This is an interesting decision because it holds that a forum selection clause must be "clear and unambiguous" before it will be held to provide an exclusive forum for all disputes. Clauses that just refer to specific types of disputes, such as contract disputes, will then not control where other disputes may be filed.
The Rites of Spring are upon us: budding flowers, warmer temperatures, and a Delaware court issuing an important decision just before the annual Tulane Corporate Law Institute begins. This year the honor of issuing that decision fell to Chancellor Bouchard who issued his opinion in Strougo v. Hollander, C.A. No. 9770-CB (Del. Ch.) on March 16, 2015. The opinion addressed plaintiff’s motion for partial judgment on the pleadings that a fee-shifting bylaw adopted after the challenged transaction did not apply to him. The Court found that the fee-shifting bylaw did not apply to the plaintiff in this case, and in reaching this conclusion, made some interesting comments that will undoubtedly further the debate over the proposed legislation to eliminate fee-shifting bylaws and regulate forum selection bylaws. More ›
Directors and officers of struggling corporations seeking capital or startups willing to trade equity for cash should read the Delaware Court of Chancery's recent transcript ruling in Elite Horse Investments Ltd. v. T3 Motion, C.A. No. 10550-CB (Del. Ch. Jan. 23, 2015), carefully and consider it a cautionary tale. If control of a business can be purchased, sitting directors and officers should not be surprised when the new controlling stockholder or control group installs their own directors and replaces management. Moreover, directors and officers should think long and hard before attempting defensive measures aimed at protecting their positions or other entrenchment motives. As discussed below, the Court of Chancery will not hesitate in enjoining such conduct. More ›
We’re trying something new, and we hope you’ll like it. Morris James LLP’s Corporate and Fiduciary Litigation Group introduces CorpCast, a podcast discussing Delaware corporateand commercial law and practice. In this first episode, we discuss In re Numoda Corporation S’holders Litig., C.A. No. 9163-VCN (Del. Ch. Jan. 30, 2015), the first written opinion from the Court of Chancery to apply recently amended sections 204 and 205 of the Delaware General Corporation Law. More ›
The Delaware State Bar Association is submitting new legislation that will prohibit the use of fee-shifting bylaws or corporate charters for litigation involving "intracorporate" disputes. A copy of the proposed bill with commentary is available here. The result would be to limit the Delaware Supreme Court's decision in ATP Tour Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014) to its facts involving non-stock corporations.
The Delaware State Bar Association has prepared a new "Delaware Rapid Arbitration Act." A copy with commentary is available here. The DRAA is designed to address the current problems with costs and delays that infect many arbitrations. It sets strict limits on how long the arbitration should take and penalizes arbitrators who fail to act within those limits. It is expected that the DRAA will also avoid the extensive e-discovery that has more recently been permitted in arbitrations that are now closer to full-scale litigation. Arbitrator selection will also be streamlined. The DRAA requires that only parties who have signed an agreement to use its terms are subject to the DRAA. Hence, these arbitrations will not be available to cover stockholder or other representative litigation.
Morris James is pleased to announce that Nicolas Krawitz was admitted to the Bar of the State of Delaware on March 4, 2015. Nicolas is an associate in the Business Litigation Group focusing on commercial litigation and corporate and fiduciary litigation. Mr. Krawitz attained his Juris Doctor at Georgetown University Law Center in 2014, where he graduated with cum laude honors. At Georgetown, he specialized in corporate law and achieved CALI Excellence for the Future Awards for highest marks in Corporate Controls, Compliance & Governance, Emerging Growth Companies & Their Venture Capital Financing, and Administrative Law, and also served as an editor for the American Criminal Law Review. “Morris James is proud to welcome Nick Krawitz to the Delaware Bar,” said Managing Partner David H. Williams, “We are pleased to add such a talented lawyer to our Business Litigation Group.” Nicolas served as a legal extern for the United States Department of Justice in the Executive Office for U.S. Trustees – Office of General Counsel. He earned his undergraduate degree in Finance from Tulane University, where a focus of his studies was the valuation of companies and financial instruments.
Fuchs Family Trust v. Parker Drilling Company, C.A. 9986-VCN (March 4, 2015) Everyone knows that a proper purpose is needed to justify inspection of a company's records and that investigating wrongdoing is such a proper purpose. But is it enough to just allege that alone, even when there is sufficient evidence that there was wrongdoing? As this decision explains, it is also necessary that the inspection may lead to some sort of action. Here the wronging had already been addressed by a new board and further inspection of the company's records did not seem necessary. Hence, inspection was denied.
When a company receives an adverse judgment holding it responsible for hundreds of millions in damages, shareholder derivative suits often follow. A typical claim is that had the board exercised proper oversight, the company and its stockholders would not have suffered such severe monetary losses. When a stockholder makes a demand on a board that it take action against the officers and directors allegedly responsible for the company's losses, the board is obligated to take a position on the demand following appropriate investigation. When and for how long the company is entitled to investigate depends upon the context. If, for example, a stockholder receives no response from a company for six or more months after delivery of a demand, the stockholder can file a derivative action and claim that the board's refusal to investigate is wrongful. Where the factual predicate underlying the claimed injury is not finally determined, however, as when a judgment for monetary liability is on appeal or the claimed losses are the subject of ongoing securities claims, the Delaware Court of Chancery typically will stay the derivative action. The Court of Chancery's well-reasoned transcript decision in Hays v. Dvorak, C.A. No. 9768-CB (December 15, 2014), illustrates the practical approach that guides the court's resolution of a motion to stay when the underlying factual predicate for the plaintiff's claim of injury may be reversed or substantially modified on appeal. More ›