Showing 17 posts from February 2020.
Court of Chancery Finds the Delaware Uniform Fraudulent Transfer Act Grants Standing for Insureds with Contingent, Unmatured Claims to Sue Insurers, but Dismisses Certain Claims as Time-Barred
Burkhart v. Genworth Fin. Inc., C.A. No. 2018-0691-JRS (Del. Ch. Jan. 31, 2020).
This case illustrates not only that plaintiffs who have only unmatured and contingent claims against a transferor have standing to seek relief under the Delaware Uniform Fraudulent Transfer Act (“DUFTA”), but also that they must comply with that statute’s rules for timely filing to avoid dismissal. Here, the plaintiffs are a class of insureds who hold long-term care insurance policies and insurance agents who receive commission payments from selling the insurance policies. The defendant is Genworth Life Insurance Company (“GLIC”), which underwrote the insurance policies at issue. GLIC allegedly made fraudulent transfers between 2012 and 2014 while GLIC was near insolvency by: (1) declaring $410 million in dividends, and (2) terminating intra-company contracts that provided financial support. The plaintiffs filed an action in 2018 in which they argue that GLIC’s fraudulent transfers violate the DUFTA. More ›Share
Appraisal of Panera Bread: Court of Chancery Again Defers to Deal Price, Denies Request for a Refund of the Amount of Synergies
In re Appraisal of Panera Bread Co., C.A. No. 2017-0593-MTZ (Del. Ch. Jan. 31, 2020).
JAB Holdings B.V. (“JAB”), a private company that also owns Einstein Bros., Caribou Coffee and Krispy Kreme, acquired Panera Bread Company (“Panera”) via a cash-out merger for $315.00 per share on July 18, 2017. Multiple dissenting shareholders (the “Petitioners”) filed an appraisal action, asserting that the fair value of their shares was $361.00 per share. Post-trial, the Court of Chancery disagreed with the Petitioners, ruling that the deal price minus synergies was the best evidence of fair value. This was because Panera had followed a reliable sale process and any flaws in that process did not undermine its reliability. Specifically, the Court held that, among other factors, the parties’ arm’s length negotiations, Panera’s disinterested and independent board, price increases during negotiations, the fact that no other parties bid on Panera either before or after the announcement of the merger, and the outreach that Panera did with potential buyers provided persuasive evidence of a reliable sale process. More ›Share
Co-Founder Squeezed Out in Conversion from LLC to Corporation Adequately Pled Claims for Fraud, Breach of Fiduciary Duties, Aiding and Abetting, and Civil Conspiracy
Ogus v. SportTechie, Inc., C.A. No. 2018-0869-AGB (Del. Ch. Jan. 31, 2020).
Simon Ogus was a co-founder of a sports-technology news company. He owned 44.5 percent of the LLC’s units, held veto power over major decisions of the company, and had employment protection based on a requirement that the company could only terminate his employment for cause. After outside investors began making large investments in the company, several officers and directors persuaded Mr. Ogus to: (1) approve a conversion of the LLC to a corporation; (2) sign a written consent of stockholders to expand the size of the board of directors; and (3) execute a shareholders agreement that gave the company the option to purchase Mr. Ogus’ shares if his employment was terminated for any reason, at fair market value, as determined in good faith by the board. One month later, the company terminated Mr. Ogus without cause and proposed to purchase his shares. Mr. Ogus brought suit, claiming that the officers and directors conspired to remove him from the company and eliminate his 44.5% interest to enrich themselves, and transfer control of the company to Oak View Group, a private equity & venture fund. Defendants moved to dismiss his suit. More ›Share
Chancery Follows Recent Precedent Finding Pre-Suit Correspondence to be a Litigation Demand, Dismisses Derivative Complaint for Failure to Allege Wrongful Refusal
Dahle v. Pope, C.A. No. 2019-0136-SG (Del. Ch. Jan. 31, 2020).
Incorporating the analysis set forth in Solak ex rel Ultragenyx Pharmaceutical, Inc. v. Welch, 2019 WL 5588877 (Del. Ch. Oct. 30, 2019), the Court of Chancery again dismissed a derivative complaint under Rule 23.1 after finding that the plaintiffs’ pre-suit correspondence was a litigation demand. More ›Share
Chancery Rejects Challenge to Financing Made Open to All Investors, Reasons the LLC Operating Agreement Allows Self-Interested Conduct, so any Claims Must Assert Bad Faith
MKE Holdings Ltd. v. Schwartz, C.A. No. 2018-0729-SG (Del. Ch. Jan. 29, 2020).
Verdesian Life Sciences, LLC is an agricultural company focused upon rolling up various companies with proprietary plant health technologies. All members of the Board of Managers of Verdesian were appointed by Paine Schwartz Partners, LLC (“Paine”), a private equity firm that owned over seventy percent of the Class A Units of the company. Paine also benefited from a management agreement that entitled it to receive certain management fees tied to acquisitions. The LLC Operating Agreement required the Managers to perform their duties in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of Verdesian. However, the Operating Agreement also allowed Managers and Members to “consider only such interests and factors as such Manager or Member desires, including its, his or her own interests” when facing discretionary decisions. The Court of Chancery concluded that the Operating Agreement “directs the Managers to operate in good faith and with ordinary care and effectively exculpates Managers for conflicted, negligent and other detrimental decisions … so long as taken in good faith.” More ›Share
Chancery Finds Liquidated Damages Clause for Breach of Non-Compete Unenforceable
Lyons Ins. Agency, Inc. v. Wark, C.A. No. 2017-0348-SG (Del. Ch. Jan. 28, 2020).
In this decision on cross-motions for summary judgment, the Delaware Court of Chancery held that a liquidated damages clause for a breach of a covenant not to compete in an employment contract (the “Non-Compete”) was unenforceable on public policy grounds. The Court noted that while Delaware will enforce a non-compete that is “reasonably tied to the interests of the employer,” liquidated damages clauses that are “untethered to the losses caused by ex-employee competition,” are unenforceable contractual penalties. More ›Share
Delaware Court of Chancery Grants Motion to Dismiss Disclosure Claims Because Hedge Fund had Sufficient Information to Consider Corporation’s Self-Tender Offer
Chatham Asset Mgmt., LLC v. Papanier, C.A. No. 2017-0088-AGB (Del. Ch. Jan. 13, 2020).
The directors of a Delaware corporation that makes a self-tender offer must disclose all material facts. A fact is material if there is a substantial likelihood that a reasonable stockholder would consider it important in deciding whether to tender. More ›Share
Court of Chancery Finds Possibility of Actual Control and the Doctrine of Inherent Coercion Preclude Summary Judgment Based on Disinterested Stockholder Approval
The standard of review and who has the burden of proof are important issues in any trial of stockholder litigation. One instance where entire fairness is the standard of review is a merger where a controlling stockholder is on both sides of the transaction. Since the Delaware Supreme Court’s Kahn v. Lynch decision in 1994, Delaware law in that circumstance has mandated an entire fairness standard of review with the burden on the controlling stockholder and the proponents of the transaction to prove that the transaction was fair. But what happens when, after discovery, Plaintiffs fail to adduce evidence that a purported controlling stockholder in fact coerced the minority stockholders into approving the transaction? The Court of Chancery answered that question in In Re Tesla Motors, Inc. Stockholder Litigation, Cons. C.A. No. 12711-VCS (February 4, 2020), holding that disputed issues of fact remain to be resolved as to whether Elon Musk, as the owner of 22.1% of Tesla’s shares, was a controlling stockholder. The possibility that he might be a controlling stockholder invokes the potential for inherent coercion and therefore prevents summary judgment based on an informed Corwin-cleansing vote of a majority of the disinterested stockholders. More ›Share
Chancery Denies Attempt to Use Mediation Communications to Supplement Mediation Term Sheet
Starkman v. O’Rourke, C.A. 2018-0901-KSJM (Del. Ch. Jan. 14, 2019) (ORDER).
Parties who resolve a case through a mediation conducted under Court of Chancery Rule 174 should include all material provisions in any mediation term sheet. As the Order in Starkman demonstrates, Rule 174 provides no opportunity for a party to introduce mediation communications to assert that a signed mediation agreement does not accurately reflect the parties’ discussions. More ›Share
Delaware Supreme Court Explains That Litigants Seeking Application of Foreign Law Have Burden To Establish its Substance
Germaninvestments AG v. Allomet Corp., No. 291, 2019 (Del. Jan. 27, 2020).
In reversing the Court of Chancery’s decision that Austrian law applied to the interpretation of whether a forum selection clause was permissive or mandatory, the Delaware Supreme Court ruled that, to the extent prior decisions were unclear on the issue, a party seeking the application of foreign law in a Delaware court has the burden not only of raising the issue of the applicability of foreign law under court rules, but also, of establishing the substance of the foreign law to be applied. More ›Share
Delaware Superior Court Distinguishes Between Affirmative and Negative Covenants in Earnout Dispute
Quarum v. Mitchell Int’l, Inc., C.A. No. N19C-03-087 AML CCLD (Del. Super. Jan. 21, 2020).
Under Delaware law, parties may structure covenants in an earnout agreement as affirmative (mandating action) or negative (prohibiting action). Given the important differences in the obligations these types of covenants impose, as illustrated by this decision, parties should carefully consider the contractual language in drafting. More ›Share
Supreme Court Affirms Dismissal of Uber Derivative Action for Failure to Plead Demand Futility
Mcelrath v. Kalanick, No. 181-2019 (Del. Jan. 13, 2020).
This case exemplifies the Delaware courts’ approach to examining demand futility. In 2016, Uber Technologies, Inc. (“Uber”) acquired Ottomotto LLC (“Otto”), a company started by a contingent of employees from Google’s autonomous vehicles group, in order for Uber to gain expertise in developing autonomous vehicles. The shareholder-plaintiff brought a claim, on behalf of Uber, against some of Uber’s directors. The plaintiff alleged that Uber’s directors ignored the risks presented by Otto’s alleged theft of Google’s intellectual property, which eventually led to Uber paying a settlement of $245 million to Google and terminating its employment agreement with Otto’s founder. More ›Share
CCLD Finds that Statute of Limitations for Tortious Interference Claim was Tolled until Key Documents Relating to the Alleged Scheme were Released
BTIG, LLC v. Palantir Technologies, Inc., C.A. No. N19C-08-314 EMD CCLD (Del. Sup. Ct. Jan. 3, 2020).
In this decision denying a motion to dismiss, the Superior Court’s Complex Commercial Litigation Division found that the plaintiff sufficiently alleged facts to toll the statute of limitations under the “time of discovery” rule, which is also known as the doctrine of “inherently unknowable injury.” More ›Share
Delaware Supreme Court Finds That Stockholder Failed to Satisfy Unambiguous Requirements of Advance Notice Bylaw
Blackrock Credit Allocation Income Tr., et al. v. Saba Capital Master Fund, Ltd., No. 297, 2019 (Del. Jan. 13, 2020).
The Delaware Supreme Court reversed the Court of Chancery’s decision requiring two closed-end trusts (together, the “Trusts”) to count the votes of Saba Capital Master Fund, Ltd’s (“Saba”) slate of dissident nominees at the Trusts’ respective annual meetings. The Supreme Court ruled that Saba’s nominations were ineligible because Saba had failed to respond to the Trusts’ request for supplemental information within the clear and unambiguous 5 day compliance deadline in the Trusts’ advance notice bylaws (the “Bylaws”). More ›Share
Chancery Further Explains the “Proper Purpose” Requirement for Section 220 Demands
Lebanon County Employees’ Retirement Fund v. AmerisourceBergen Corp., C.A. No. 2019-0527-JTL (Del. Ch. Jan. 13, 2020).
Section 220 of the Delaware General Corporation Law (“DGCL”) provides stockholders seeking information for a proper purpose with the right to inspect a corporation’s books and records. This recent decision provides additional guidance by (i) rejecting a “purpose-plus-an-end” test as inconsistent with the text of Section 220 and Delaware Supreme Court precedent; and (ii) explaining that a stockholder may have a proper purpose to investigate wrongdoing regardless of whether she can show potentially viable claims against a board of directors. More ›Share
Chancery Declines to Apply Corwin Where a Stockholder-Plaintiff Adequately Alleged the Existence of a “Control Group”
Garfield v. BlackRock Mortgage Ventures, LLC, C.A. No. 2018-0917-KSJM (Del. Ch. Dec. 20, 2019).
Under Delaware law, when a controlling stockholder benefits personally from the transaction in a manner not shared by minority stockholders, a stockholder vote does not trigger Corwin and restore the protections of the business judgment rule. This decision considers whether a stockholder-plaintiff sufficiently alleged a “control group” to avoid Corwin deference. More ›Share
Chancery Rejects Challenge to Delaware as Proper Venue in Books and Records Action
Stanco v. Rallye Motors Holding, LLC, C.A. No. 2019-0751-SG (Del. Ch. Dec. 23, 2019).
Delaware courts generally respect contractual forum selection provisions. When it comes to Delaware LLCs, however, the Delaware statute expressly precludes a non-managing member from waiving its right to a Delaware forum for proceedings involving the LLC’s internal affairs. 6 Del. C. § 18-109(d). And, in general, any waiver of rights must encompass knowledge of the right and clearly expressed intent to relinquish it. This case discusses the interplay between these rules. More ›Share