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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Showing 7 posts from February 2019.
This top ten list summarizes significant decisions of the Delaware Supreme Court and the Delaware Court of Chancery over the past calendar year 2018.
The cases selected either meaningfully changed Delaware law or provided clarity or guidance on issues relevant to corporate and commercial litigation in Delaware. More ›
Under Delaware law, stockholders who wish to pursue a derivative claim on the corporation’s behalf face an important decision—whether to make a pre-suit demand on the board to handle the suit itself, or bring the suit oneself and plead that the board cannot disinterestedly and independently consider a pre-suit demand under the circumstances. Neither path is easy. More ›
One proper purpose for a books and records inspection under Section 220 of the Delaware General Corporation Law is to investigate potential plenary claims. But what happens when the stockholder seeks records under Section 220 after it already initiated its plenary claims on the same subject? Shouldn’t investigations, by their nature, precede a charge? And may Section 220 be used as an end-around discovery rules in the pending plenary action? This decision addresses these issues, discusses the relevant Delaware precedent, and explains that, “although there is no bright-line rule prohibiting stockholders from using Section 220 to investigate pending plenary claims, Delaware courts have enforced those inspection demands in special circumstances only.” Special circumstances may include where the plenary complaint was dismissed without prejudice, with leave to amend. No special circumstances were present in this books and records action, so the Court of Chancery dismissed it.
Delaware Superior Court’s Complex Commercial Litigation Division Declines to Dismiss Delaware Attorney General’s Claims Against Opioid Makers
In January 2018, Delaware’s Attorney General filed an action against certain opioid makers and distributors, along with pharmacy chains CVS Health Corp. and Walgreens Boots Alliance Inc. The State alleged that the drug manufacturers lied to prescribers and patients, and encouraged high doses of the painkillers while failing to disclose accurately the risks of addiction and overdose. As to the distributors and pharmacies, the State alleged they had duties to actively prevent opioid diversion and to report any suspicious orders. The Court held that the State stated prima facie claims of consumer fraud and negligence against the manufacturers, reasoning that allegations that they labeled drugs in a manner inconsistent with FDA-approved uses were sufficient to survive dismissal. The Court also held that the State met its pleading requirements for negligence and consumer fraud against the distributors, including by adequately alleging a prima facie case of reasonable foreseeability and proximate cause. The State did not state a claim against the pharmacies, however, because the State’s comprehensive pharmacy regulatory scheme and enforcement procedures preempted the claims in the complaint.
Chancery Addresses the Arbitration Versus “Expert” Determination Distinction in Acquisition Agreement
Purchase agreements in M&A transactions often include alternative dispute resolution mechanisms. It similarly is not uncommon for parties to debate whether their agreement contemplates arbitration or an “expert” determination. There is a distinction between the two under Delaware law, and it is important. In particular, it dictates what role a court can play, such as in determining the scope of the non-judicial adjudicator’s authority in the first instance. The Court of Chancery thoroughly addressed the issue last year in Penton Business Media Holdings, LLC v. Informa PLC, 2018 WL 3343495 (Del. Ch. July 9, 2018). This is another decision on that topic, one reading the parties’ contract as requiring arbitration, not an expert determination, citing the contract’s references to the process as “arbitration.”
Delaware Supreme Court Addresses Emails and Jurisdictional Use Conditions in Books and Records Actions
Two prevailing questions for books and records inspections under Section 220 of the Delaware General Corporation Law are what records can I get, and what can I do with them? This decision from the Delaware Supreme Court addresses both issues. More ›
It is sometimes fair to characterize plaintiff-side representative litigation in the corporate context as lawyer-driven. This decision is notable because it addresses how that dynamic might affect a stockholder’s right to inspect corporate books and records under Section 220 of the Delaware General Corporation Law. The right to access records is not a license to fish. A stockholder can get necessary records, for a proper purpose—one that is in fact the stockholder’s true and primary purpose. That is where a lawyer’s involvement might make a difference. The purposes stated by counsel might not align with the stockholder’s actual motivations. More ›