Showing 16 posts from August 2019.
Morris James Named a Top Workplace for Mid-sized Employers in Delaware Twelfth Consecutive Year
Morris James was named a top workplace for mid-sized employers in Delaware for the twelfth consecutive year. This year's top workplace honor makes Morris James the only law firm in Delaware to be consistently top-ranked in the mid-sized employers category for the past twelve years. More ›Share
Chancery Denies Director Access to Privileged Materials Involving Counsel to Preferred-Appointed Directors
Gilmore v. Turvo, Inc., C.A. No. 2019-0472-JRS (Del. Ch. Aug. 19, 2019).
As several Delaware decisions teach, each director, as a member of the larger deliberative body that is the board, has a fundamental right to access corporate information to carry out his or her fiduciary duties. Thus, as a general rule, a Delaware corporation “cannot assert the privilege to deny a director access to legal advice furnished to the board during the director’s tenure.” There are several exceptions to this rule. More ›Share
Chancery Addresses Ripeness for Indemnification Claims Concerning Tax Liabilities
Hill v. LW Buyer LLC, C. A. No. 2017-0591-MTZ (Del. Ch. July 31, 2019).
As this summary judgment decision illustrates, even where parties to a securities purchase agreement agree on a buyer’s entitlement to indemnification for future tax liabilities, absent specific language to the contrary, the buyer generally must suffer harm before such a claim will be ripe for decision. That is because, under the ripeness doctrine, Delaware courts will decline to decide issues presenting only hypothetical harm. More ›Share
Formulaic Recitations of Equitable Jurisdiction Are Not Enough for Court of Chancery Jurisdiction
Athene Life and Annuity Co. v. Am. Gen. Life Ins. Co., C.A. No. 2018-0244-SG (Del. Ch. July 31, 2019).
The Court of Chancery is a court of limited jurisdiction. It maintains subject matter jurisdiction only for (i) equitable claims, (ii) when equitable relief is sought and no adequate remedy is available at law, or (iii) where a statute confers jurisdiction. Applying well-recognized equitable jurisdiction principles, the Court dismissed this breach of contract action. Although Plaintiffs sought equitable relief in the form of specific performance and an injunction, their request for equitable relief was merely a “formulaic incantation” rather than substantive. Applying a realistic assessment of the nature of the wrong alleged and the remedy available at law, the Court concluded that a legal remedy for the breach of contract claim was available in the form of a declaratory judgment and damages, and fully adequate. Normally when a court issues a declaratory judgment establishing the parties’ respective contract rights, the court will not presume that the defendant will fail to abide by the court’s ruling in the future requiring an injunction to secure performance. A real threat of continuing injury must be shown, which was absent here. More ›Share
Delaware Superior Court Addresses Choice of Law Issues in the D&O Insurance Context and Requires Carriers to Cover Pfizer’s Litigation Costs
Pfizer Inc. v. Arch Insurance Co., C.A. No. N18C-01-310 PRW CCLD (Del. Super. July 23, 2019).
This case from the Delaware Superior Court discusses important D&O coverage exclusion issues that frequently arise during securities litigation. Pfizer sought coverage from its insurers in connection with the defense and settlement of a securities action in the Southern District of New York. Defendants, the excess insurers, denied coverage based on “related wrongful acts” exclusions in the policies. They argued that the action “arose out of” or “shared a common nexus” with another action in the District of New Jersey such that the D&O policies’ exclusion provisions precluded coverage. Noting that the contract interpretation result would likely be different if applying New York law rather than Delaware law, and that the policies lacked a controlling choice of law provision, the Superior Court first applied the Restatement’s “most significant relationship” test to determine which state law should apply. Although some of the Restatement Section 188 factors tipped in favor of New York, the Court ruled that application of Delaware law was most consistent with the parties’ reasonable expectations at the time of contracting and with the Delaware choice of law precedent for D&O policies. For such policies, under Delaware law, the state of incorporation, rather than the state where the corporation is headquartered, has the most significant relationship. This also was consistent with the parties’ choice of Delaware law in the policies to govern arbitration or mediation of their disputes. Applying well-settled Delaware law to the interpretation of the policy provisions, the Court found the two actions were not “fundamentally identical.” Thus, the exclusion did not apply and the insurers were obligated to cover the costs. More ›Share
Chancery Offers Guidance on When the Limitations Periods Begin to Run For Claims Concerning Breaches of Representations and Warranties and Related Indemnification
Kilcullen v. Spectro Scientific, Inc., C.A. No. 2018-0429-KSJM (Del. Ch. July 15, 2019).
Delaware law provides for a default three-year statute of limitations period for breaches of contract, generally applicable to claims for breaches of representation and warranties and related claims for indemnification concerning stock purchase agreements or assets sales. More ›Share
Chancery Examines Framework of Fiduciary Disclosure Obligations in Soliciting Private Investments
Clark v. Davenport, C.A. No. 2017-0839-JTL (Del. Ch. July 18, 2019).
This opinion decides a motion to dismiss fraud and related tort claims arising out of various investments against a former director and CEO and an employee of a controlling stockholder.
When the investments turned out to be worthless, the plaintiff investor brought suit for breach of fiduciary duties and common law fraud arising from information that the investor received before investing in a company controlled by a business colleague and friend. More ›Share
Chancery Determines Appraisal “Fair Value” Below Merger Consideration, Questions Judicial Notice of Valuation Scholarship
In re Appraisal of Jarden Corp., Consol. C.A. No. 12456-VCS (Del. Ch. July 19, 2019).
This decision presents another cautionary tale for stockholders of a target public company who consider seeking statutory appraisal instead of accepting the merger consideration. More ›Share
Chancery Denies Motion to Dismiss Claim for Breach of Earn-Out When Unable to “Divine any Meaning” From Provision
Western Standard, LLC v. SourceHOV Holdings, Inc., C.A. No. 2018-0280-JRS (Del. Ch. July 24, 2019).
Defendant Pangea acquired BancTec through a merger agreement that provided for an earn-out to former BancTec stockholders in the event that Pangea’s controlling stockholder realized certain returns on its post-merger stock. Plaintiff alleged that the earn-out was triggered when Pangea’s parent company became a wholly owned subsidiary of another company through a stock-for-stock transaction. More ›Share
Chancery Dismisses Oversight Claims Against J.C. Penney Board
Rojas v. Ellison, C.A. No. 2018-0755-AGB (Del. Ch. July 29, 2019).
As this Court of Chancery decision explains, the Delaware standard for imposing oversight liability on a board of directors under a Caremark theory is “exacting” and requires evidence of bad faith. Combined with the heightened “particularized” pleading requirements of Court of Chancery Rule 23.1, stockholders face an uphill battle when pursuing an oversight theory as the basis for liability and for excusing a pre-suit demand on the board. More ›Share
Chancery Decides Questions of First Impression Regarding Statutory Claims for Unlawful Dividends and Fraudulent Transfers
Enforcement mechanisms available to creditors of Delaware corporations may include, inter alia, claims against directors to recover unlawful dividends under Section 174 of the Delaware General Corporation Law (8 Del. C. Section 174), and fraudulent transfer claims against the corporation and transferees including, where Delaware law applies, under Delaware’s Uniform Fraudulent Transfer Act, referred to as DUFTA (6 Del. C. Section 1301). In JPMorgan Chase Bank v. Ballard, C.A. No. 2018-0274-AGB (Del. Ch. July 11, 2019), Chancellor Andre G. Bouchard of the Delaware Court of Chancery addressed three important questions of first impression concerning standing and limitations periods issues under these statutes. More ›Share
Stockholders Had Third-Party Beneficiary Standing to Enforce Anti-Takeover Protections
Section 203 of the Delaware General Corporation Law is a company anti-takeover statute. Section 203 prohibits a stockholder from engaging in a business combination with a company for three years after the stockholder acquires 15% or more of the company’s voting equity. If a company’s board pre-approves such a business combination, however, the Section 203 anti-takeover protections do not apply. More ›Share
CCLD Holds that D&O Policy’s Duty to Defend “Securities Claims” Extends to Appraisal Proceedings under 8 Del. C. § 262
CCLD Holds that D&O Policy’s Duty to Defend “Securities Claims” Extends to Appraisal Proceedings under 8 Del. C. § 262, that Pre-Judgment Interest on an Appraisal Award May be a Covered “Loss” and that a Breach of Consent-to-Defense Clause does not Bar Coverage Absent Prejudice to Insurer
Solera Holdings, Inc. v. XL Specialty Ins. Co., N18C-08-315 AML CCLD (Del. Super. Ct. Jul. 31, 2019).
The Complex Commercial Litigation Division of Delaware’s Superior Court has become a leading venue for complex insurance coverage disputes. This decision addresses D&O insurers’ denial of coverage for over $13 million spent defending an appraisal proceeding under 8 Del. C. § 262, as well as $38.4 million in pre-judgment interest on the appraisal award. More ›Share
Superior Court CCLD Enters Final Judgment on Penalties and Damages against Overstock.com
French v. Overstock.com, Inc., C.A. No. N13C-06-289 PRW CCLD (Del. Super. June 28, 2019).
After a 6-day jury trial before the Complex Commercial Litigation Division of the Delaware Superior Court, a jury found that Overstock knowingly violated the Delaware False Claims and Reporting Act (“DFCRA”) by failing to report and remit dormant gift card balances to the State of Delaware. The jury verdict was for approximately $3 million. The Court held that under 6 Del. C. §1205(a), the DFCRA’s damages and penalties provision, Plaintiffs are entitled to an award of civil penalties, treble damages, and reasonable attorneys’ fees and costs. After finding that there was sufficient evidence presented to support the jury’s verdict, the Court then found that the statutorily mandated treble damages were not excessive or unconstitutional because they were not disproportionate to the harm caused and to Overstock’s level of culpability. Finally, the Court held that the proper method for calculating reasonable attorneys’ fees and costs is the lodestar method, which is the method used most often in cases involving fee-shifting statutes including federal False Claims Act cases. Under the lodestar method, the Court multiplies the hours reasonably expended against a reasonable hourly rate that can then be adjusted to account for additional factors such as the contingent nature of the case and the quality of the attorney’s work.Share
Chancery Dismisses Merger Challenge Concerning Board’s Delegation of Merger Negotiations and Management’s Undisclosed Compensation Discussions
In re Towers Watson & Co. Stockholder Litigation, C.A. No. 2018-0132-KSJM (Del. Ch. July 25, 2019).
The ultimate responsibility for considering a merger falls on the board to carry out consistent with each director's fiduciary duties. But management usually takes the lead role in negotiating with the counterparty. It is not uncommon for stockholder plaintiffs to make hay out of a board allowing potentially conflicted members of management to pick up that mantle. Sometimes those circumstances support a claim for breach of fiduciary duty and sometimes they do not. This motion to dismiss decision addresses claims in that context, with the Court of Chancery finding the case falls in the latter category. More ›Share
Chancery Rejects Second Plaintiff’s Attempt to Correct Pleading Deficiencies Following Dismissal of Aiding and Abetting Claim
In re Xura, Inc. Stockholder Litigation, C.A. No. 12698-VCS (Del. Ch. Jul. 12, 2019).
Under Delaware law, stating a claim for aiding and abetting a breach of fiduciary duty requires sufficiently alleging knowing participation by the non-fiduciary. That is not an insignificant pleading standard, as this letter opinion illustrates in rejecting a second bite at the apple by a different plaintiff. More ›Share