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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 7 posts from March 2019.
Chancery Declines to Extend Rent-A-Center Merger Agreement, But Questions Request for Termination Fee
The merger agreement at issue in this case included provisions permitting extensions or terminations to account for potential closing delays. Relevant here, the agreement allowed either party to terminate after a particular deadline if the other party had not timely exercised its right to extend the contract. The target exercised that right to terminate after the acquirer inadvertently failed to extend. This litigation ensued, with the acquirer making various equity-based arguments to prevent the target’s termination. More ›
Delaware courts generally respect and enforce forum selection provisions in contracts. It is often disputed whether or not certain contracting parties or parties related to contracting parties are subject to such provisions. That fight becomes more complicated when it is not a single contract but multiple related contracts at issue. This decision, dealing with a stock purchase agreement and related production facility leases, wades into these sometimes choppy waters. It addresses several doctrines in this area, including how Delaware courts interpret forum selection provisions, when Delaware courts read related contemporaneous agreements as a single agreement, when Delaware courts apply equitable estoppel in the context of forum selection provisions, and when non-signatories can enforce forum selection provisions against signatories.
This decision involves an increasingly rare occurrence in Delaware: an expedited pre-closing fiduciary duty challenge to a proposed merger. Specifically, stockholders challenged a proposed combination of a publicly traded asset management firm (Medley Management) with two corporations that it advises pursuant to management agreements: Medley Capital Corporation and Sierra Income Corporation. The proposed transaction involved Sierra acquiring Medley Management, which is majority owned by the Taube brothers, and Medley Capital, of which the Taube brothers owned less than 15%. Medley Management stockholders were to receive cash and stock representing a 100% premium to its trading price. By contrast, Medley Capital stockholders were to receive only shares of Sierra stock providing no premium against its net asset value. When a Medley Capital investor brought suit in early February, the parties agreed to an expedited trial four weeks after the filing of the case, prior to a March 11 stockholder vote on the merger. More ›
Court of Chancery Explains Interplay of Laches Defense, the Statute of Limitations and “Extraordinary Circumstances” Excusing Late Filings
As this decision explains, the Court of Chancery will apply the equitable doctrine of laches (untimeliness) at the pleadings stage to dismiss a claim when it is clear on a claim’s face that it is untimely and equity would not be offended by dismissing it. This is especially true where the claims at issue are common law claims for common law remedies, but were filed after the statute of limitations provided by law. The decision also explains the burden to plead facts sufficient to toll the statute of limitations under Delaware law, as well as when “unusual conditions” or “extraordinary circumstances” might excuse late-filed claims, with discussion of the factors Delaware courts consider in making that assessment. Here, the claims found to be untimely were the defendants’ counterclaims. While the Court dismissed those claims, it also explained that Delaware law allowed defendants to rely on the underlying allegations in support of an affirmative defense to offset any damages award in the plaintiffs’ favor under the circumstances.
Morris James is pleased to announce Kirsten A. Zeberkiewicz has joined the firm’s Corporate and Commercial Litigation group and Erin E. Larson has joined its Intellectual Property Litigation practice. "The addition of these new attorneys reflects Morris James’ ongoing commitment to developing and advancing lawyers who have achieved the highest levels of professional accomplishment," said Keith Donovan, Managing Partner of Morris James LLP.
Kirsten A. Zeberkiewicz focuses her practice on litigation involving corporations and alternative entities formed under Delaware law. She handles corporate governance and complex commercial litigation matters involving fiduciary duty claims, contract disputes, M&A challenges, and summary proceedings in the Delaware Court of Chancery and the Delaware Supreme Court. Prior to joining Morris James, Kirsten gained trial and litigation experience at a New York AmLaw100 firm. Kirsten earned her J.D. from the University of Pennsylvania Law School, cum laude, in 2002. She holds a B.A., magna cum laude, from Pennsylvania State University.
Erin E. Larson focuses her practice on patent litigation and counseling clients in all aspects of practice in the U.S. District Court for the District of Delaware. She is currently working on numerous ANDA and patent litigation cases, spanning a wide range of technologies. Erin is a First Lieutenant in the U.S. Army Reserves, where she coordinates personnel services. Erin earned her J.D. from the University of North Carolina School of Law where she served as Editor-in-Chief of the North Carolina Journal of Law & Technology. She holds a B.S. in Chemistry from Villanova University.
High Court Holds that Conflicting Contract Provisions Governing Agreement’s “Term” Create Ambiguity and Require Denial of Summary Judgment
The parties disputed the termination date of two related agreements through which CITGO agreed to ship oil using the plaintiff trucking company, with CITGO arguing for an earlier termination date. On appeal from a decision granting summary judgment in CITGO’s favor, the Delaware Supreme Court reversed and remanded the matter. Applying de novo review, the high court found that the two related contracts governing the transaction had conflicting terms and therefore were ambiguous with respect to the termination date. Although a provision in one agreement clearly set a one-year term – which the lower court found dispositive – the agreements read as a whole were ambiguous. In particular, the same contract with a one-year term (i) contemplated renewals, (ii) required 60 days’ notice for a termination and (iii) also provided for a review of pricing terms 60 days prior to the one-year period. That contract also provided (confusingly) that it would remain in effect until the termination of the second, related contract, which had a later default termination date. The Supreme Court also observed that avoiding an abrupt termination made sense in the commercial circumstances given the magnitude of the endeavor. In light of the resulting ambiguity, the Supreme Court reasoned it was appropriate to consider extrinsic evidence, which included internal CITGO emails indicating that it understood the contract to continue beyond the one-year term. The Court accordingly reversed and remanded the case for a trial on the issue of the agreements’ disputed term. More ›
Stockholders who seek to inspect the books and records of a Delaware corporation to investigate mismanagement merely have to demonstrate a “credible suspicion” that officers or directors have breached their fiduciary duties. That low standard means that in most instances either companies themselves or courts respond to narrowly tailored requests by producing, or ordering produced, necessary and specific information to enable a stockholder to investigate alleged wrongdoing. More ›