Posts from July 2015

CorpCast Episode 8: The Controlling Stockholder

In this episode of CorpCast we go back to basics on the concept of the controlling stockholder.  We address what constitutes a controlling stockholder under Delaware Law, discuss the idea of “actual control,” and consider how the presence of a controlling stockholder affects the Court’s standard of review.  We’ll also discuss recent case law developments including In re KKR Financial Holdings, LLC, In re Crimson Exploration, Inc., and In re Sanchez Energy.

Love what you hear?  Go to our podcast tab for archived episodes and be sure to follow @DECorpCast for the latest updates.  If you have questions or comments, you can reach us at CorpCast@morrisjames.com.  Thank you for listening! More ›

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Delaware Expands Jurisdiction Over Directors

A recent but little-known decision by a Delaware court may have substantially expanded the state's jurisdiction over the directors of a Delaware corporation. Delaware has long had a director-consent-to-service statute: 10 Del. C. Section 3114 (the consent statute). Under that statute, consenting to serve as a director of a Delaware corporation also concomitantly gives consent to be sued in a Delaware court. However, the statutory language seemed to limit such suits to those involving a "violation of [the director's] duty in such capacity" as a director. Focusing on that language, for almost 25 years, Delaware courts held that the consent statute could only be used if at least one count of a complaint alleged the director-defendant had breached a fiduciary duty in his role as a director. Hence, absent such a claim, the consent statute was thought not to confer jurisdiction over a director by the Delaware courts. More ›

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Court of Chancery Explains Jurisdiction Despite Declaratory Judgment

Doe v. Coupe,  C.A. No. 10983-VCP (July 14, 2015)

It is often contended that the availability of a declaratory judgment in Superior Court to determine the parties’ rights may deprive the Court of Chancery of jurisdiction to grant an equitable remedy such as an injunction. After all, it is assumed that the parties will obey the decision of the Court in deciding their rights. More ›

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Court Of Chancery Explains The Continuing Wrong Doctrine

REDUS Peninsula Millsboro LLC v. Mayer, C.A. No. 8835-VCN (July 13, 2015)

It is settled law that a cause of action accrues when the wrong is committed, not when its effects continue to be felt in the future. But as this decision makes clear, that is not always the case. When additional wrongdoing adds to the injury, the action accrues with each wrongful act.

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Court Of Chancery Explains That The Existence Of A Controlling Stockholder Does Not Determine Demand Is Excused

Teamsters Union 25 Health Services & Insurance Plan v. Baiera,  C.A.  No. 9503-CB (July 13, 2015)

A transaction with a controlling stockholder that is the subject of a derivative complaint still requires that a majority of the directors be interested before demand is excused. More ›

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Court of Chancery Dismisses Appraisal Case For Violation Of The Continuous Ownership Rule

In re Appraisal Of Dell Inc., C.A. No. 9322-VCL (July 13, 2015)

To obtain appraisal rights following a merger a stockholder needs to continuously hold her stock through the merger date. But as this decision holds (and is almost certain to be appealed as the Court has itself invited), losing technical record title to the stock before the merger is complete also loses the right to an appraisal. Hence, great caution is needed by those who seek appraisal to be sure their stock is not retitled by their nominee.

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Delaware Superior Court Clarifies Breach Of Implied Covenant Claims

Charlotte Broadcasting LLC v. Davis Broadcasting of Atlanta LLC,  C.A. 13C-04-143-WCC (June 10, 2015)

This is an interesting decision because of its comments on when the implied duty to act fairly and in good faith may be asserted as a separate claim even when a claim based on the contract between the parties has not been breached under the contract’s literal terms. More ›

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Delaware Superior Court Explains Fraudulent Inducement Claims

ITW Global Investments Inc. v. American International Partners Capital Fund IV, L.P., C.A. No. 14C-10-236 JRJ (June 24, 2015)

This decision explains several important aspects of Delaware law. First, a claim for fraud cannot overlap with a breach of contract claim or it will be dismissed. More ›

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Delaware Superior Court Addressed Limitations On Damages Clause

Delphi Petroleum  v. Magellan Terminals Holdings L.P., C.A. No. 12C-02-302 FWW ( June 23, 2015)

This decision explains when a limitations on damages clause may not be
enforceable, such as when the claim is for fraud. As the Court noted, bad faith
conduct may also be outside the protection of such a clause.

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Chancery Court Upholds Indicted Ex-Director's Advancement Rights

Advancement provides corporate officials with immediate interim relief from the personal out-of-pocket financial burden of paying the significant ongoing expenses inevitably involved with defending investigations and legal proceedings. Delaware corporate policy favors indemnification and advancement as an important means of attracting qualified individuals to serve in corporate capacities. The recent decision of Chancellor Andre G. Bouchard in Blankenship v. Alpha Appalachia Holdings f/k/a Massey Energy, C.A. No. 10610-CB (Del. Ch. May 28, 2015), reaffirms these important policies and provides a clear exposition from Delaware's new chancellor of the difficulty of successfully challenging typical mandatory advancement provisions. In Blankenship, the court upheld against multiple attacks a former corporate official's ongoing right to advancement following his indictment on criminal charges. This indictment arose out of an explosion in a coal mine that killed 29 miners during a time when the plaintiff was CEO of the mining company and charged the plaintiff with willful violations of mine safety standards and false statements to the government. More ›

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Delaware Student Data Privacy Protection Act Awaits Governor’s Signature

With the continuing push for more prolific and creative use of technology in Kindergarten through 12^th grade classrooms, student data has become more valuable, and the protection of that data of greater concern.  In the face of the perceived need for greater protection of student data, the Delaware General Assembly, on June 25, 2015, approved SS1 for SB 79 (the “Student Data Privacy Protection Act” or “SDPPA”).  Expressly modeled on California’s Student Online Personal Information Privacy Act, the SDPPA is designed to prohibit educational technology service providers from selling student data, using student data to engage in targeted advertising to students and their families, or creating student profiles for non-educational purposes. More ›

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Federal District Court Limits Fee Request

Mor v. Collis, D. Del., No. 13-242-RGA (June 30, 2015)

This is an interesting decision for the way it treats a fee request in connection with the settlement of Delaware litigation. More ›

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Court Of Chancery Declines To Second Guess On Compensation

Friedman v. Dolan, C.A. No. 9425-VCP (June 30, 2015)

This is another in the line of decisions that goes back at least as far as the Disney case where the Delaware Court of Chancery declines to upset the compensation awarded to officers and directors.  More ›

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Court Of Chancery Rejects Management Projections In An Appraisal

LongPath Capital LLC v. Ramtron International Corp.  C.A. No. 8094-VCP (June 30, 2015)

This decision turns on rejecting the projections of management about the future cash flow of the company to be appraised. More ›

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Do Equities Militate Against Restrictions Barring Petition for Dissolution?

Delaware courts often emphasize the freedom of contract of parties to define their rights, powers, duties, obligations, liabilities and restrictions in a limited liability or operating agreement under the Delaware Limited Liability Company Act (LLC Act). Pursuant to Section 18-802 of the LLC Act, a member or manager may file an application, seeking the Court of Chancery to "decree dissolution of a limited liability company whenever it is not reasonably practicable to carry on the business in conformity with a limited liability agreement." Since judicial dissolution under Section 18-802 of the LLC Act is not a mandatory provision of the LLC Act, the right to file for judicial dissolution may be modified, restricted, or waived in an operating agreement, as in R&R Capital LLC v. Buck & Doe Run Valley Farms LLC, 2008 Del. Ch. LEXIS 115 (Del. Ch. Aug. 19, 2008). In an action for judicial dissolution, the Court of Chancery recently had the opportunity to address whether parties had prohibited or restricted in their operating agreement the right of a managing member to file a petition for judicial dissolution under Section 18-802 of the LLC Act. More ›

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