Showing 18 posts from September 2021.
Chancery Addresses Common Interest and Privilege Log Issues in Matter Involving Special Discovery Master
Buttonwood Tree Value Partner, L.P. v. R.L. Polk & Co., Inc., et al., C.A. No. 9250-VCG (Del Ch. Jul. 30, 2021)
With increasing frequency, the Court of Chancery is appointing Special Discovery Masters and Discovery Facilitators as discovery issues continue becoming more complex and time-intensive. With those appointments also comes the opportunity for litigants to challenge the findings of those Special Masters and Facilitators and force the Court’s de novo review. This is just such a case. More ›
Company Did Not Breach Mandatory Redemption Provision Where Special Committee Determined Company Lacked Funds To Redeem All Preferred Shares
Cont’l Investors Fund LLC v. TradingScreen, Inc., C.A. No. 10164-VCL (Del. Ch. July 23, 2021)
A holder of preferred stock often possesses redemption rights that permit the stockholder to require a company to repurchase the stockholder’s shares. But what happens if the company determines that it lacks the funds to repurchase the stock? As illustrated in this case, a stockholder challenging the determination bears the burden of proof to show that the company’s determination was improper. More ›
Rales, Aronson and … Zuckerberg: Delaware Supreme Court Adopts Three-Part Demand Futility Standard
On September 23, 2021, the Delaware Supreme Court decided United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund v. Zuckerberg, et al., __ A.3d __, 2021 WL 4344361 (Del. Sept. 23, 2021). In affirming the Court of Chancery’s decision, the high Court concurred with the Court-below’s articulation of a new three-part standard to assess whether a derivative plaintiff meets her pleading burden to show that a pre-suit demand upon the board would have been futile. More ›
ShareChancery Permits Service By Email Upon Singaporean Defendants
Skye Mineral Investors, LLC v. DXS Capital (U.S.) Ltd., C.A. No. 2018-0059-JRS (Del. Ch. Jul. 15, 2021).
Delaware’s long-arm statute permits service of process on a foreign defendant by personal service, by mail with signed return receipt, by means authorized by the foreign jurisdiction where service is to occur, or “[a]s directed by a court.” 10 Del. C. § 3104(d). In this decision, the Court of Chancery confirms that each of the grounds is an independent basis for effecting service, and alternative methods of service are appropriate so long as they are “reasonably calculated to give actual notice.” More ›
Chancery Finds LLC Managers Liable for Self-Dealing Scheme Depleting Nearly All Investment Capital
Stone & Paper Investors, LLC v. Blanch, C.A. No. 2018-0394-PAF (Del. Ch. July 30, 2021)
This post-trial opinion involves a particularly egregious set of facts. Two LLC managers were accused of breaching their contractual and fiduciary duties and of fraudulently inducing the plaintiff, Stone & Paper, to invest $3.5 million in the company, Clovis Holdings, in connection with a series of self-dealing transactions wherein the managers paid themselves large sums of money in the form of salary and purported “loans” without receiving the required approvals for interested transactions. More ›
Chancery Finds Equitable Defenses Bar LLC Dilution and Redomestication Claims, and Holds it Lacks Jurisdiction to Dissolve a Foreign Entity
In re Coinmint, LLC, C.A. No. 2019-0983-MTZ (Del. Ch. Aug. 12, 2021)
This decision illustrates that, in specific circumstances, the equitable defenses of waiver, acquiescence, and estoppel may preclude a party from challenging otherwise voidable actions. In addition, deciding an issue of first impression, the Court held that it lacks subject matter jurisdiction to equitably dissolve a non-Delaware business entity. More ›
Superior Court CCLD Dismisses Complaint Seeking Insurance Coverage for Appraisal Proceeding
Jarden, LLC v. ACE Am. Ins. Co., C.A. No. N20C-03-112 AML CCLD (Del. Super. July 30, 2021)
Director and corporate liability insurance coverage is determined by the specific language of the insurance policies. Last year, the Delaware Supreme Court held that an appraisal claim under 8 Del. C. § 262 was not a “securities claim” because it was not a claim for a “violation of law[,]” as required under that policy’s definition. See In re Solera Ins. Coverage Appeals, 240 A.3d 1121 (Del. 2020). This case addressed similar issues under somewhat different policy language. More ›
Superior Court’s Complex Commercial Litigation Division Reaffirms Delaware’s Public Policy Against Intra-Contractual Fraud
Aveanna Healthcare, LLC v. Epic/Freedom LLC, N20C-08-055 AML CCLD (July 29, 2021).
Under Delaware law, parties may agree contractually to disclaim reliance – and potential liability for fraud – based on false extra-contractual statements. Delaware public policy, however, does not allow a party to disclaim liability for fraudulent statements within the parties’ contract. In addition, an owner who knowingly causes a company to make misrepresentations may be personally liable for fraud, even though an agreement provides such representations are made by “the company.” More ›
Chancery Grants Special Litigation Committee’s Zapata Motion, Finds Committee Was Sufficiently Independent and Reasonable
Diep v. Sather, C.A. No. 12760-CM (Del. Ch. July 30, 2021)
Under Zapata, when analyzing a motion to dismiss by a special litigation committee, the court evaluates whether the committee was independent, acted in good faith, and had a reasonable basis for its conclusions. The court then applies its own independent business judgment to determine whether dismissal is in the best interest of the corporation. Here, the plaintiff challenged the independence of the special litigation committee and the reasonableness of its investigation and findings. More ›
Chancery Dismisses Claims Relating to Proposed Financing of Italian Soccer Club
Feldman v. AS Roma SPV GP, LLC, C.A. No. 2020-0314-PAF (Del. Ch. July 22, 2021)
In Feldman, plaintiffs were minority members of a Delaware limited liability company that held a controlling interest in a premier Italian soccer club. The LLC’s managing member and its controllers and associated entities sought to exit their control investment in the club. A sales process stalled during the coronavirus pandemic. The controllers called for additional capital from existing members on a pro rata basis, either through new financing or conversion of debt, in exchange for units with priority status and liquidation preferences. The controllers approved a related amendment to the LLC agreement. Due to insufficient interest from members, the controllers instead proposed a financing transaction that included member loans with certain preferences, such as premium payments in the event of the company’s sale. Eighty percent of membership interests participated in the loans. Soon after, a sale of the club was announced. More ›
Chancery Shifts Fees, Finds That Defendant’s Litigation Tactics in Books and Records Case Crossed The Line Between Aggressive Litigation And Glaringly Egregious Conduct
Pettry, et al. v. Gilead Sciences, Inc., C.A. Nos. 2020-0132-KSJM; 2020-0138-KSJM; 2020-0155-KSJM; 2020-0173-KSJM (Del. Ch. July 22, 2021).
Delaware follows the American Rule: all litigants pay their own attorneys’ fees, no matter the outcome of the litigation. In rare cases where a litigant’s conduct is “glaringly egregious,” Delaware courts will make an exception and shift fees. This is known as the “bad faith” exception. More ›
Chancery Confirms Operation of Savings Statute and Tortious Interference Framework in Dispute Involving Fiduciaries with Competing Creditor Interests
Skye Mineral Invs., LLC v. DXS Capital (U.S.) Ltd., C.A. No. 2018-0059-JRS (Del. Ch. July 28, 2021)
Delaware’s savings statute—10 Del. C. § 8118(a)—protects claims from being time-barred where they were timely brought in an incorrect forum. Here, the Court of Chancery applied the savings statute in the context of claims alleging that, in a course of conduct dating back to 2013, majority LLC members managed the company to protect their affiliate’s status as a senior secured creditor and drive the company into bankruptcy, all to eliminate the minority members’ interests. More ›
Chancery Addresses Whether LLC Agreement Modified or Eliminated Fiduciary Duties
In Re Cadira Group Holdings, LLC Litigation, Consolidated C.A. No. 2018-0616-JRS (Del. Ch. July 12, 2021)
The Delaware Limited Liability Company Act provides that “the fiduciary duties of a member, manager, or other person that is a party to or bound by a limited liability company agreement may be expanded or restricted or eliminated by provisions in the limited liability company agreement.” Yet to eliminate fiduciary duties, Delaware law requires that the intent to do so must be “plain and unambiguous.” More ›
Chancery Upholds Well-Pled Claims Relating to Former Fiduciaries’ Retention of Derivative Arbitration Award
Optimiscorp v. Atkins, C.A. No. 2020-0183-MTZ (Del. Ch. July 15, 2021)
In Optimiscorp, the Court upheld claims against former directors and officers of plaintiff Optimiscorp arising out of the defendants’ failure to turn over to the company an approximately $7 million derivative arbitration award. As part of a long-standing and acrimonious legal battle between warring factions of the company’s board of directors, defendants previously had brought a lawsuit in Delaware on behalf of the company asserting that the company’s sitting directors and former outside counsel had breached their fiduciary duties and engaged in legal malpractice. Stipulating to dismissal of the Delaware complaint, the parties pursued the matter in arbitration and the arbitrator ultimately found the outside counsel liable, issued an award, and ordered the payment of attorneys’ fees and costs. The financially struggling company received notice of the award and proceeded to make strategic business decisions in expectation of receiving the funds. However, asserting that certain shareholders who were accused of wrongdoing were not entitled to a pro rata portion of the award, the defendants declined to turn the award over to the company. As a result, the company was forced to take out short-term loans with unfavorable terms and faced other negative consequences. More ›
Court of Chancery Denies Lead Plaintiff’s Application for Incentive Fee from Overall Fee Award
Morrison v. Berry, C.A. No. 12808-VCG (Del. Ch. July 12, 2021)
Delaware courts generally do not award special compensation to lead plaintiffs in class action litigation. Delaware courts typically limit awards to out-of-pocket costs and expenses, unless lead plaintiffs take on extra—essentially, exceptional—burdens in the litigation. Submitting a modest award request does not necessarily portend success that an applicant will receive an award. More ›
Chancery Finds Change in Product’s Medicare Reimbursement Rate Was Not A Material Adverse Effect Excusing Buyer From Closing
Bardy Diagnostics, Inc. v. Hill-Rom, Inc. C.A. No. 2021-0175-JRS (Del. Ch. Jul. 9, 2021)
Bardy manufactures a patch that measures heart rate. Its reimbursement rate for the patch had for years been set around $365 per patch. When Hill-Rom acquired Bardy in early January 2021, the parties understood that this reimbursement rate might change, and prior to closing had built an earnout provision into their merger agreement to address this risk. The parties also included a Material Adverse Effect clause, giving Hill-Rom the ability to walk from the deal for any development that could “reasonably be expected to have a material adverse effect on … the Business of [Bardy] taken as a whole.” Yet any industry-wide change in the industries or markets in which Bardy operated, or any change in any “Health Care Law” would not constitute an MAE, unless such development had a “materially disproportionate impact on [Bardy] as compared to other similarly situated companies ….” More ›
Chancery Finds That the Standard of Review for the Conduct of a Shareholders’ Representative Turns Upon the Merger Agreement’s Language
Houseman v. Sagerman, C.A. No. 8897-VCG (Del. Ch. July 20, 2021)
A merger agreement between a subsidiary of Healthport Technologies, LLC and Universata, Inc., gave the owners of 72 percent of Universata’s stock (the “Owners”) the power to appoint a Shareholders’ Representative. Among other responsibilities, the Shareholders’ Representative was charged with “disbursing among the Shareholders the cash portion of the Purchase Price and any other payments paid to Shareholders under this Agreement.” More ›
Chancery Awards Attorneys’ Fees for Monetary and Therapeutic Benefits from Goldman Sachs Director Compensation Settlement and Considers Objector’s Fee Request
Stein v. Blankfein, C.A. No. 2017-0354-SG (Del. Ch. Jul. 12, 2021)
This decision concerns fee applications under the “corporate benefit” doctrine for benefits achieved in derivative litigation. More ›