Posts from December 2020

CCLD Holds Indemnification Provision Does Not Cover First-Party Claims

Ashland LLC v. Samuel J. Heyman 1981 Continuing Trust for Lazarus S. Heyman, C.A. No. N15C-10-176 EMD CCLD (Del. Super. Ct. Nov. 10, 2020)

This case illustrates that Delaware courts will follow the “American Rule” that parties must pay their own legal fees unless they otherwise agree. In this case, the parties’ Stock Purchase Agreement (“SPA”) required defendants to indemnify against “Losses” – which was defined to include reasonable attorneys’ fees and expenses. The Court previously had found that the defendants breached a section of the SPA. Plaintiff then sought to recover as “Losses” its attorneys’ fees and expenses in proving the breach. The Court reasoned that indemnification provisions are presumed not to provide for fee-shifting in claims between the parties (first-party claims) absent a clear and unequivocal articulation of that intent. While there is no specific language that must be used, the SPA here contained a separate, relatively straightforward and narrower prevailing party fee-shifting provision, which did not apply to the claims at issue. Because the indemnification provision did not clearly support fee-shifting for first-party claims, and because the plaintiff was not entitled to attorneys’ fees based on the straightforward fee-shifting provision to which the parties had agreed, the Court granted defendants’ motion for summary judgment that plaintiff was not entitled to recover its attorneys’ fees and expenses under the indemnification provision.

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Chancery Dismisses Section 220 Complaint on Jurisdictional Grounds, Finding That Plaintiffs Filed Seven Hours Prematurely

MaD Investors GRMD, LLC, et al. v. GR Cos., Inc., C.A. No. 2020-0589-MTZ (Del. Ch. Oct. 28, 2020)
At 5:03 p.m., on the fifth day after serving a Section 220 demand (the “Demand”) on GR Companies, Inc. (the “Company”), MaD Investors GRMD, LLC and MaD Investors GRPA, LLC (together, “Plaintiffs”), filed a complaint to compel inspection of books and records pursuant to 8 Del. C. § 220 (the “Complaint”). The Company filed a motion to dismiss, asserting that Plaintiffs had filed the Complaint prematurely. Plaintiffs filed a cross-motion for leave to amend the Complaint (the “Leave Motion”).  More ›

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Chancery Sustains CEO’s Contract Claims in WeWork Litigation

In re WeWork Litig., Consol. C.A. No. 2020-0258-AGB (Del. Ch. Oct. 30, 2020).
A company facing a liquidity crisis (the shared working space company, WeWork), its outgoing CEO (Adam Nuemann), and two related SoftBank investment entities that collectively owned more than forty percent of the company’s equity entered into a Master Transaction Agreement (“MTA”). The MTA was designed to provide funding to the company, facilitate the CEO’s exit, and provide liquidity to minority stockholders. The MTA required a specific sequence of transactions from the entities: (1) equity financing; (2) stock purchase via a tender offer; and (3) debt financing after the closing of the tender offer. The tender offer’s closing was subject to certain conditions, which the parties to the MTA were required to use their reasonable best efforts to meet. More ›

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Chancery Addresses Fiduciary Duty Claims Related To Financial Statements Created For Merger

In re Baker Hughes Inc. Merger Litigation, C.A. No. 2019-0638 AGB (Del. Ch. Oct. 27, 2020).
This decision arose out of a merger involving Baker Hughes and the oil and gas segment of General Electric (GE). Stockholders of Baker Hughes brought post-closing breach of fiduciary duty claims against certain officers of Baker Hughes and aiding and abetting claims against GE, with the allegations focused on certain financial statements provided by GE in connection with the merger. GE did not maintain separate statements for its oil and gas business line in the ordinary course. The parties accounted for this by having GE prepare unaudited financial statements for that business line and conditioning closing obligations on GE providing audited financial statements that did not differ materially in an adverse manner.  More ›

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Chancery Holds California Statutory Bar to Choice-of-Forum Clauses in Employment Contracts Prevents Exercise of Personal Jurisdiction – Despite Parties’ Choice of Delaware Law and Agreement to Litigate in Delaware

Focus Fin. Partners, LLC v. Holsopple, C.A. No. 2020-0188-JTL (Del. Ch. Oct. 26, 2020).
Delaware law promotes freedom of contract, and Delaware courts enforce contractual choice-of-forum and choice-of-law provisions, including those in employment-related contracts. Recently, however, several Delaware cases have considered whether such provisions can be enforced against non-residents in the face of contrary substantive law or fundamental public policy in their home jurisdiction. In California, a statute (“Section 925”) makes choice-of-law and choice-of-forum provisions voidable by the employee if the provisions appears in an agreement signed as a condition of employment. Here, the Court addressed how to reconcile Section 925 with the parties’ agreement to resolve disputes in Delaware and to apply Delaware law. Specifically, when the defendant (a former employee who lives and works in San Francisco) was hired, he received incentive units pursuant to agreements that contained restrictive covenants and selected Delaware as the exclusive forum for disputes, and selected Delaware law as the applicable law. The plaintiff brought suit in Delaware to enforce the restrictive covenants, and the employee moved to dismiss for lack of personal jurisdiction. More ›

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Delaware Supreme Court Clarifies When Books and Records Requests to Investigate Wrongdoing or Mismanagement Have a “Proper Purpose”

Section 220 of the Delaware General Corporation Law permits a stockholder to inspect corporate books and records for a “proper purpose” reasonably related to her interests as a stockholder. In AmerisourceBergen Corp. v. Lebanon Cty. Employees’ Ret. Fund, __ A.3d __, 2020 WL 7266362 (Del. Dec. 10, 2020), the Delaware Supreme Court held that a stockholder who has a “credible basis” to investigate potential wrongdoing or mismanagement need not identify a specific intended use or “end” for the information requested. In addition, the Court clarified that a stockholder need not show, as a matter of law, that the potential wrongdoing is actionable. Rather, a “credible basis” to suspect possible wrongdoing or mismanagement is sufficient.  More ›

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Delaware Supreme Court Affirms CCLD Ruling Relying on Expert’s “Dual Hypothetical World” Damages Model for Measuring Business-Interruption Loss

XL Ins. Am., Inc., et al. v. Noranda Aluminum Holding Corp., No. 444, 2019 (Del. Oct. 2, 2020)
An aluminum manufacturer (the “Insured”) decided not to rebuild and resume operations at its facility following two operation-disabling accidents. The Insured made a claim pursuant to its “all risks” property-insurance policy (the “Policy”) to recoup certain amounts including business-interruption losses. The insurers (the “Insurers”) and the Insured each hired expert forensic accountants who, relying on different damages models, rendered widely divergent calculations of the Insured’s loss. Following a seven day trial in Superior Court wherein both parties’ experts presented their methodologies for calculating the business-interruption losses, the jury found in favor of the Insured. More ›

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Enforcing a “Draconian” Bargain, Chancery Grants Motion to Dismiss Claims Arising from Right to Repurchase Interest Upon Termination

Moscowitz v. Theory Entertainment LLC, C.A. No. 2019-0780-MTZ (Del. Ch. Oct. 28, 2020)
This case illustrates that the Court will enforce parties’ agreements even if they reflect a bad bargain for one party. Plaintiff Todd Moscowitz, a co-founder of Theory Entertainment LLC (“Theory” or the “Company”), resigned from Theory without giving prior notice, which triggered a “for cause” termination provision under agreements he had entered into with the Company. The termination provision allowed Theory to repurchase Moscowitz’s entire equity stake for a fraction of its value. To avoid that potential outcome, Plaintiff’s resignation notice contained language purporting to preserve his membership interest in Theory and to render his resignation void ab initio if a court were later to determine otherwise. More ›

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Chancery Enters Judgment for Seller On Post-Closing Milestone Payment Claim Because Buyer Failed to Establish Occurrence of Condition Subsequent

Shareholder Representative Services LLC v. Shire US Holdings, Inc., et al., C.A. No. 2017-0863 KSJM (Del. Ch. Oct. 12, 2020)
After the purchaser of a drug manufacturer failed to make a post-closing milestone payment required under the applicable merger agreement, the seller filed a two count complaint in the Court of Chancery for breach of contract and attorneys’ fees. In a post-trial opinion, Vice Chancellor Kathaleen St. Jude McCormick concluded that a condition subsequent that would have relieved the buyer of its milestone payment obligation had not, in fact, occurred. The Vice Chancellor entered judgment for the seller and awarded attorneys’ fees based upon a prevailing party provision of the merger agreement. More ›

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Chancery Reaffirms Narrowed Application of Gentile

In re Terraform Power, Inc. Stockholders Litigation, C.A. No. 2019-0757-SG (Del. Ch. Oct. 30, 2020)
In Terraform Power, the Court of Chancery declined the defendants’ invitation to disregard the rationale of Gentile v. Rossette—the seminal decision on dual-natured direct and derivative stockholder claims under Delaware law. On a motion to dismiss, the Court concluded that the plaintiffs adequately plead a direct claim for relief under Gentile against a controlling stockholder for executing a private placement that increased the controller’s voting power for an allegedly inadequate price and correspondingly decreased the minority ownership stake and voting power. In doing so, the Court reaffirmed the Gentile’s continued, albeit narrow, application, unless and until the Delaware Supreme Court holds otherwise.  More ›

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Mindbody Deal Case Provides Conflict Takeaways For Boards

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Chancery Questions Utility of Aronson Test, Dismisses Derivative Suit of Facebook Stockholder for Failure To Allege Demand Futility

United Food and Comm. Workers Union v. Zuckerberg, C.A. No. 2018-0671-JTL (Del. Ch. Oct. 26, 2020)
In its recent decision in United Food and Comm. Workers Union v. Zuckerberg, the Court of Chancery discussed the legal tests to demonstrate demand futility in derivative actions under the seminal cases of Aronson and Rales. Reconciling longstanding and recent case law, the Court ruled that demand futility turns on whether at the time of filing of the complaint, the majority of a board of directors is disinterested, independent, and capable of impartially evaluating a litigation demand to bring suit on behalf of a company. More ›

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Chancery Invokes Internal Affairs Doctrine to Dismiss Dispute Over Former Delaware Corporation Brought Over Two Years After Its Migration to Nevada

Sylebra Capital Partners Master Fund, LTD v. Perelman, et. al., C.A. No. 2019-0843-JRS (Del. Ch. Oct. 9, 2020)

Defendant Scientific Games Corporation (the “Company”) is a gaming and lottery company that reincorporated in Nevada from Delaware in January 2018. The Company adopted new Nevada bylaws that, among other things, require stockholders to bring claims for breaches of fiduciary duties in Nevada. Because the Company operates in the gaming industry, the bylaws also require stockholders to meet “suitability” requirements and restrictions on sale set by gaming regulators in jurisdictions where the Company operates. Approximately four months before Plaintiffs filed suit, the Company filed suit in Nevada to force Plaintiffs to comply with an investigation into their suitability as stockholders. More ›

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High Court Affirms Deal Price Was Reliable Indicator of Fair Value Despite Flawed Process

Brigade Leveraged Capital Structures Fund Ltd. v. Stillwater Mining Co., C.A. No. 427, 2019 (Del. Oct. 12, 2020)

This case illustrates that, notwithstanding a flawed process for the sale of a company, the deal price may still provide a reliable indicator of the fair value of shares in an appraisal action. Petitioners had contended that the Court of Chancery abused its discretion in upholding a rushed sale process and in failing to make an upward adjustment to the deal price based on an increase in the company’s value post-signing. More ›

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Chancery Rebukes Party for “Distracting” and “Detrimental” Rule 11 Arguments

POSCO Energy Co., Ltd. v. FuelCell Energy, Inc., C.A. No. 2020-0713-MTZ (Del. Ch. Oct. 22, 2020)

Under Court of Chancery Rule 15, a Delaware plaintiff may request leave from the Court to amend or supplement a complaint. Leave to grant such motions is “liberally granted, unless, in a narrowly construed exception, there is inexcusable delay and prejudice to the defendant.” This opinion involves an unsuccessful opposition to a motion to amend based, in part, on the argument that the original pleading violated Rule 11.   More ›

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