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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 15 posts from September 2015.
There is no question that, in a books-and-records action, the scope of discovery is limited and such discovery is not an appropriate means of obtaining the same books and records sought in the action. In Chammas v. NavLink (Del. Ch. Aug. 27, 2015), however, the Delaware Court of Chancery rejected an argument that discovery should be limited to whether the plaintiffs had a proper purpose for the books and records demanded. Rather, the court held that it was appropriate for the company to produce discovery related to the affirmative defenses it asserted in the action. More ›
This an excellent review of the scope of a waiver of the attorney client privilege and it harmonizes conflicting prior decisions. It also is a good outline of what must be in a redaction log.
It is often said that when a majority stockholder issues more stock to himself at an unfair price that is a direct claim and not derivative. But as this decision points out, that is a little too simplistic. More ›
Aiding and abetting claims are often filed against those who have worked with a fiduciary that is breaching his fiduciary duty. This decision explains the requirements for such a claim, particularly the need to show the defendant is aware of the fiduciary’s breach of duty. The opinion is also a good primer on tortious interference law.
This decision has been widely reported as signaling the Court of Chancery’s intention to cut back on the wave of suits filed over almost every merger. More ›
Corporations are operated by humans, at least until the rise of Skynet (infamous as a primary antagonist in the Terminator movie franchise). As humans are prone to err, corporate acts may also be executed in error. In 2014, Delaware's legislature amended its General Corporation Law to include new Sections 204 and 205 that provide Delaware corporations the ability to cure certain defective corporate acts. Among other things, the new sections allow the Court of Chancery to determine the validity of any corporate act or transaction and any stock, rights or options to acquire stock. To date, only a handful of cases have generated written decisions concerning Sections 204 and 205. The Court of Chancery's Aug. 31 decision in In re Certisign Holding, C.A. No. 9989-VCN (Aug. 31, 2015), is one of the select cases dealing with the new sections. More ›
A principal difference between alternative entities and corporations under Delaware law is the ability in the former to modify or eliminate fiduciary duties. A Delaware court is required by statute to give effect to the principle of freedom of contract in interpreting limited liability company or master limited partnership agreements. When properly drafted, agreements modifying or eliminating fiduciary duties in alternative entities have real-world consequences particularly in conflict-of-interest transactions. A transaction with a controlling party that may not pass muster when challenged by equity holders in the corporate setting may be dismissed at the pleading stage when investors attacking the transaction must overcome the contractual standards in an alternative entity agreement. The recent case of In re Kinder Morgan Corporate Reorganization Litigation, Cons. C. A. No. 10093-VCL (August 20, 2015), illustrates this principle and reaffirms that Delaware courts will enforce alternative entity agreements as written. More ›
This decision explains that an advancement agreement that covers a former director for claims “related to the fact” he was a director has the same meaning as the more typical provision providing for advancement for claim arising “by reason of the fact” he was a director. More ›
This decision is an excellent primer for what must be plead to state a claim under various sections of the federal securities laws. The pleadings rules to establish a claim well enough to avoid a motion to dismiss are complicated and are well explored here. The opinion also has a good section on establishing jurisdiction over foreign defendants.
The current surge in stockholder activism raises the interesting question whether proxy contests should be conducted fairly. Should the protagonists only tell the truth in soliciting votes or may they act like some politicians and say almost anything to win, true or not? The Delaware Court of Chancery recently addressed these issues in Kerbawy v. McDonnell, Del. Ch. C.A. 10769-VCP (August 18, 2015). More ›
This decision explains well when a corporate officer may be personally liable for a business tort under the “personal participation doctrine.” Mere knowledge of wrongdoing is not enough, but active participation is also not required before an officer who encourages or directs wrongful conduct may be held personally responsible.
Attempting to fit a summary of the entirety of the Delaware Court of Chancery's recent 214-page opinion in OptimisCorp v. Waite, C.A. No. 8773-VCP (Del. Ch. Aug. 26, 2015), within the editorial restrictions of this publication would be an exercise in futility. Certain aspects of the opinion can be treated in this space, like the court's analysis of litigation misconduct, which included allegations of witness tampering and bribing. Allegations of this type are rare in Delaware. What the conduct was and whether it merited a remedy is not as important as the court's analysis in formulating the relevant standard, its search for precedent to provide it guidance and the ultimate remedy awarded. More ›
This decision concerns a soap opera with bizarre facts and alleged witness tampering that hopefully will never be repeated. It does have a good discussion on what notice the board of directors must give to a controller before taking action to oust him as CEO. None is the answer.
Former directors are entitled to advancement when they are sued “by reason of the fact” that they acted as directors in committing allegedly bad conduct. That test can be hard to apply. However, as this case makes clear, when the underlying acts occurred post-termination, it is hard to claim that advancement is warranted.
A stay of derivative litigation is hard to get even when there is another case pending elsewhere. But when, as here, the other litigation may expose the company to significant liability, a stay of the derivative action against the directors is easier to win in order to avoid the problems of simultaneously litigating both proceedings.