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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 19 posts from February 2016.
In 2011, the Delaware Supreme Court in Central Mortgage v. Morgan Stanley Mortgage Capital Holdings, 27 A.3d 531, 537 (Del. 2011), unequivocally stated that the "pleading standard in Delaware to survive a motion to dismiss is reasonable 'conceivability.'" That standard remains the benchmark plaintiffs must meet when asserting claims subject to a motion to dismiss in Delaware. For stockholder plaintiffs, however, what is "reasonable" is often measured by what pre-suit investigation the plaintiff's counsel undertakes in support of the plaintiff's claims. Stated simply, if a stockholder plaintiff fails to utilize its Section 220 rights for books and records prior to filing a lawsuit, the plaintiff's claims better include all necessary facts that could have been discovered through a Section 220 demand. More ›
Merger or company sale agreements frequently include clauses limiting what a buyer may rely upon after due diligence, particularly when there is some hold back of the merger or sale consideration that the buyer may seek to retain after the closing based on a misrepresentation claim. But as this careful decision explains, the elimination of reliance claims needs to be in a clause applying to the buyer, not just in a clause that tries to limit the representations from the seller. These clauses need very careful drafting and this decision explains how that should be done.
This is an interesting decision for two reasons. First, the decision awards a mootness fee for disclosures and changes to deal protection measures in a merger gone bust. Thus, the opinion is useful precedent in the post-Trulia world, where mootness fee applications are one of the two optimal methods for adjudicating disclosure claims. More ›
In Amalgamated Bank v. Yahoo!, Inc., C.A. No. 10774-VCL (Del. Ch. Feb. 2, 2016), Plaintiff Amalgamated Bank’s Section 220 books and records demand sought, among other things, the emails of certain Yahoo officers and directors. Yahoo objected to the request as overly broad, but the Court found differently. Continuing the trend from Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Trust Fund IBEW, 95 A.3d 1264, 1271 (Del. 2014), which first permitted access beyond board materials, the Court ordered inspection of certain Yahoo director and officer documents and communications. In addition, the Court found that the directors’ and officers’ personal email accounts were subject to inspection if they were used to conduct business. This development signals to corporate officers and directors’ that personal emails may be discoverable in a 220 Action if the emails are essential to fulfilling a plaintiff’s proper purpose. More ›
Court of Chancery Approves Disclosure Settlement Post-Trulia and Finds Management Projections Plainly Material
In re BTU International, Inc. Stockholders Litigation, Consol. C.A. No. 10310-CB (Del. Ch. Feb. 18, 2016)(Transcript)
As detailed in a prior post (available here), the ruling in In re Trulia, Inc. Stockholders Litigation, 2016 WL 270821 (Del. Ch. Jan. 22, 2016) changed the legal landscape for so-called disclosure settlements. Among other things, Trulia holds that disclosures must be “plainly material” to support a disclosure settlement – meaning that it “should not be a close call that the supplemental information is material as that term is defined under Delaware law.” Exactly what disclosures fit into that category remained an open question. More ›
This is an interesting decision because it explains inspection rights in the LLC context under the two different standards set out in Section 18-305(a) and (b) of the LLC Act. As expected, it is better to seek inspection as a manager than as a member. Managers have similar “unfettered” access to company books and records as corporate directors, absent restrictions in the LLC agreement. Also notable, inspection rights may include the books and records of subsidiaries, under the right circumstances.
This is an important decision because it explains the specificity with which provisions indemnifying a party for liabilities under a separate contract must be stated. In this case, Glencore, which had sold an aluminum plant to an Alcoa subsidiary pursuant to an agreement in 1995 (the “1995 Agreement”), claimed that Alcoa had agreed in the 1995 Agreement to indemnify Glencore for any liabilities arising out of an earlier sale agreement pursuant to which Glencore had purchased the plant from Lockheed in 1989 (the “1989 Agreement”). In a separate litigation, Lockheed was claiming that Glencore had to indemnify Lockheed for certain environmental liabilities pursuant to the 1989 Agreement. More ›
Welcome back to CorpCast! In this 2015 Year in Review, we discuss several important cases from the past year, starting with the tidal wave of antagonism in the Court of Chancery towards disclosure-only settlements ending with In re Trulia, Inc. Stockholder Litigation. We then move to discuss several instances of “financial advisors behaving badly,” with a look at In re TIBCO Software Inc. Stockholders Litigation and RBC Capital Markets, LLC v. Jervis. We’ll also take a look at opinions dealing with conflicted transactions, revisiting Corwin v. KKR Financial Holdings LLC and Delaware County Employees Retirement Fund v. Sanchez, as well as discussing In re Cornerstone Therapeutics Inc., Shareholder Litigation and In re Dole Food Co., Inc. Stockholder Litigation. Finally, we’ll look to some contract actions, including 1 Oak Private Equity Venture Capital Limited v. Twitter, Inc. and SIGA Technologies, Inc. v. PharmAthene, Inc., and touch on the invalidation of company bylaws in In re Vaalco Energy Inc. Consolidated Stockholder Litigation. More ›
Morris James Partner Joseph R. Slights, III Nominated to Become Next Vice Chancellor of the Delaware Court of Chancery
Morris James LLP is pleased to announce that partner Joseph R. Slights, III has been nominated by Governor Jack Markell to become a Vice Chancellor of the Delaware Court of Chancery. The judicial nomination was announced on Monday, February 8th.
“I am honored and grateful to have been nominated by Governor Markell to serve on the nation’s premier court for the resolution of business disputes – the Delaware Court of Chancery,” Slights stated. “If I am fortunate enough to be confirmed by the Senate, I look forward to serving the citizens and the State of Delaware as Vice Chancellor.” More ›
In 1850, Abraham Lincoln prepared notes for a law lecture. He emphasized the importance of compromise because after litigation, "the nominal winner is often a real loser—in fees, expenses, and waste of time." Delaware law also favors the compromise and settlement of disputes, and that policy preference extends to class and derivative litigation. Settlements must be fair, however, and the courts in representative litigation have a special role to play in reviewing the give and the get to prevent abuse. In recent days, for example, practitioners have received clear guidance that a peppercorn of modest disclosure may not support a class settlement that includes a full release and dismissal of all breach of fiduciary duty claims. Similarly, as the recent case of Smollar v. Potarazu, C.A. No. 10287-VCN (Jan. 14, 2016), illustrates, even where a derivative settlement reflects real value to a Delaware entity, the Court of Chancery rarely will approve a settlement where an individual representative plaintiff receives a benefit personal to her that is not shared with the class she represents as that fact alone calls into question the fairness and reasonableness of the settlement. More ›
Section 115 of the Delaware General Corporation Law addresses forum selection provisions in corporate charters or bylaws. This decision explains how a contract may also select a forum, how to interpret such a contract and how such contractual provisions may be incorporated into other contracts.
This is an interesting decision for two reasons. First, it explains when directors might have a duty to cause the company to make disclosures to the stockholders about transactions that do not require the stockholders’ vote. Briefly, when a transaction not requiring a stockholders vote is so related to a transaction requiring their vote that the two matters are tied together, then the stockholders are entitled to be fully informed about both matters. More ›
Court Of Chancery Imposes An “Incorporation Condition” On A Stockholder’s Books And Records Inspection
This is a precedent-setting decision in the books and records context. In it, the Court imposes an “Incorporation Condition” on the stockholder’s inspection. That is, a stockholder who establishes a credible basis to inspect corporate records for the purpose of investigating alleged wrongdoing must agree -- as a condition to the inspection -- that all the documents it inspects will be deemed incorporated by reference in any later-filed derivative complaint. More ›
Discovery of financial information in M&A litigation, including appraisal actions, often involves two issues: (1) how far back before the transaction should there be discovery and (2) is post-transaction discovery permitted? This decision provides some guidance on both issues.
The increasing activist stockholder demands upon boards of directors call for careful responses. The recent Delaware Court of Chancery decision In re Ebix Stockholder Litigation, C.A. No. 8526-VCN (Del. Ch. Jan. 15, 2016), provides guidance on how to respond when the activist calls. Moreover, Ebix is being overlooked by many because most of the opinion focuses on the scope of releases contained in settlements of stockholder litigation. That itself is a hot topic that is part of the increased scrutiny the Court of Chancery is now giving to disclosure-only settlements. But while Ebix's discussion of the scope of releases is important, Ebix is worth a closer review for its guidance on activism. More ›
Court Of Chancery Explains Director Right To Information And What Communications Qualify As Corporate Books and Records
This is one of those scarce cases dealing with director access to a corporation’s books and records. After all, Delaware law provides directors with an almost unlimited right to a corporation’s records needed for them to exercise their fiduciary duties. Hence, these cases are rare. More ›
Under the fairly new provisions of Section 205 of the DGCL, the Court may validate certain “defective corporate acts,” including “any act or transaction purportedly taken by or on behalf of the corporation that is … within the power of a corporation …, but is void or voidable due to a failure of authorization.” More ›
The Court of Chancery expects a plaintiff to supply those facts necessary to state a claim in reasonable detail, particularly when those essential facts might be obtained by an inspection of an entity’s records. Here the Court dismissed a complaint for its failure to state those facts that would have been evident from a records inspection and when the absence of those facts made the complaint too difficult to understand.
Normally, the Court of Chancery does not favor fee applications before the litigation is completed. When, as here, the underlying instrument that provides for a fee award does permit such an application, the Court may grant it even when there is litigation between the same parties pending elsewhere.