Showing 8 posts from June 2021.
Chancery Finds No Transaction-Specific Control Where Plaintiffs Failed to Allege that a Majority of the Members of a Special Committee Were Under the Sway of a Would-Be Controller
In re GGP Inc. Stockholder Litig., C.A. No. 2018-0267-JRS (Del. Ch. May 25, 2021).
Under MFW and its progeny, if there is a conflicted controlling stockholder, then in order to receive the benefits of the business judgment rule, the transaction must be negotiated and approved by independent and disinterested directors and conditioned on an informed and uncoerced vote of a majority of the minority stockholders. A stockholder that owns less than 50% of the voting power of the corporation may be a controller if it exercises control over the business affairs of the corporation either generally or with respect to the transaction at-issue. More ›
Murphy Marine Services of Delaware, Inc. v. GT USA Wilmington, LLC (Del. Ch. May 28, 2021)
When interpreting a contract, Delaware courts generally stick to the four corners of the agreement at issue. One exception is when a contract is part of a set of inseparable agreements. In that situation, courts may construe all the agreements together as a whole. But, as seen here, the exception may not apply if the contract at issue independently effectuates the parties’ intent and does not expressly incorporate the other. More ›
Clifford Paper, Inc. v. WPP Investors, LLC, 2021 WL 2211694 (Del. Ch. Jun. 1, 2021)
The disenfranchisement of an investor with voting or consent rights often is considered to be a direct harm, thus permitting the investor to bring direct claims. Sometimes, however, the alleged harm from the violation of voting rights is to the company, and it does not directly affect the investor. The Court of Chancery’s recent decision in Clifford Paper, Inc. v. WPP Investors, LLC, 2021 WL 2211694 (Del. Ch. Jun. 1, 2021), illustrates that, in such instances, a court applying Delaware law may treat those claims as derivative. More ›
Stockholders Lack Derivative Standing to Challenge Transactions Whose Terms Were Set Before They Became Stockholders
In re SmileDirectClub, Inc., 2021 WL 2182827 (Del. Ch. May 28, 2021)
Under the “contemporaneous ownership rule,” to have standing to bring derivative claims, stockholders in a Delaware corporation must own stock at the time of a challenged transaction. The general rule is that the time of the transaction is when the terms were established, but there are narrow exceptions, such as where the terms were modified and not disclosed, in which case a court may look to when the transaction was consummated. In In re SmileDirectClub, Inc., 2021 WL 2182827 (Del. Ch. May 28, 2021), the Delaware Court of Chancery found that the general rule applied where plaintiffs challenged the terms of a transaction related to an IPO through which they became stockholders. More ›
Chancery Orders Specific Performance of Deal, Despite Lack of Debt Financing, Finding that COVID-Related Business Decline Was Not an MAE and Seller’s Cost-Cutting Efforts Were Not Breaches of the “Ordinary Course” Covenant
Snow Phipps Grp., LLC v. KCake Acquisition, Inc., 2020-0282-KSJM (Del. Ch. Apr. 30, 2021)
In Snow Phipps, the Court of Chancery refused to allow a private equity buyer with pandemic-related cold feet to back out of its bargained for agreement to purchase DecoPac, a cake decorating company. In ordering specific performance, the Court found: (1) the durationally insignificant COVID-related business decline did not constitute a material adverse effect (“MAE”); (2) the seller had not violated any of its covenants to operate in the ordinary course by attempting to mitigate business losses; and (3) the condition to closing that the buyer secure debt financing was excused under the prevention doctrine, because the buyer’s actions caused the condition not to be satisfied. More ›
Chancery Declines to Enforce Forum Selection Provision Actively Hidden From Defendant During Transaction
UBEO Holdings, LLC et al. v. Drakulic, C.A. No. 2020-0669-KSJM (Del. Ch. Apr. 30, 2021)
Generally, Delaware courts will enforce the terms an executed agreement, even against a party claiming not to have read the terms before signing. This rule applies with full force to forum selection provisions in which a contracting party consents to jurisdiction in a particular forum. As this case shows, however, rare exceptions exist. More ›
Implied Covenant of Good Faith and Fair Dealing Saves Employee’s Claim for Improper Termination Under Company’s LLC Agreement
Smith v. Scott, C.A. No. 2020-0263-JRS (Del. Ch. Apr. 23, 2021)
The Delaware LLC Act provides that fiduciary duties may be expanded or limited by the provisions of an LLC agreement. If the agreement is silent, then traditional corporate fiduciary duties apply. However, if the agreement unambiguously disclaims fiduciary duties, then the only duties that exist are those specified contractually in the LLC agreement and the implied covenant of good faith and fair dealing. More ›
Lyons Ins. Agency Inc. v. Wilson, C.A. No. 2017-0092-SG (Del. Ch. Apr. 29, 2021).
In this action, the Court of Chancery noted that it heard “perhaps the most cogent, and certainly the briefest, argument for fee shifting under the bad faith exception I have been privileged to hear: ‘perjury is bad faith.’” Plaintiff Lyons Insurance Agency Inc. (“Lyons”) sued its former employee Howard Wilson, an insurance broker, for breach of the non-compete in his employment contract. At a hearing for a preliminary injunction, Wilson testified that he needed to follow his clients to another firm because he could not entice them to stay at Lyons. Throughout the litigation, he maintained that he had not intended to rob Lyons of business. But, before a damages hearing, Wilson submitted an affidavit repudiating his earlier testimony. At the damages hearing, he testified that he conspired with the other firm to breach his employment agreement, recanting his earlier testimony. More ›