Showing 116 posts from 2022.
Superior Court Orders Earn-Out Payment under Ambiguous Merger Agreement after Defendant Withheld Documents in Discovery
Fortis Advisors, LLC v. Dematic Corp., C.A. No. N18C-12-104 AML CCLD (Del. Super. Dec. 29, 2022)
Defendant acquired the plaintiff's hardware and software solutions business. The merger agreement required the defendant to make contingent payments if the company achieved performance targets. The targets were based on EBITDA calculations and sales of "Company Products," which the merger agreement referred to in a disclosure schedule that contained descriptions of products’ functionalities. Under the agreement, the defendant committed to incentivizing its sales force to sell Company Products and integrating the products into its own products and services. At the end of the earn-out period, the defendant reported low sales and EBITDA. From limited documentation, the plaintiff was able to determine that defendant based its calculations only on the acquired products, not an integrated portfolio. Plaintiff filed suit for breach of contract, alleging that the defendant either failed to incentivize its sales force and integrate the products, or had failed to properly account for "Company Products" when calculating contingent payments. More ›
Delaware Supreme Court Overturns $700 Million Award in Master Limited Partnership Litigation
Boardwalk Pipeline Partners L.P. v. Bandera Master Fund LP, C.A. No. 2018-0372 (Del. Dec. 19, 2022)
Delaware Master Limited Partnerships (MLPs) can structure their organization to permit maximum flexibility, including eliminating fiduciary duties and limiting investor rights to the four corners of the MLP agreement. At issue in this case was whether the partnership's general partner properly exercised a call right to take the partnership private. Under the partnership agreement, the general partner could exercise this right if it received an opinion from counsel acceptable to the general partner that certain changes in regulation would have a specific effect on the business. More ›
Chancery Finds Buzzfeed and Others Not Bound by Arbitration Provisions in Employment Agreements
Buzzfeed v. Anderson, C.A. No. 2022-0357-MTZ (Del. Ch. Oct. 28, 2022)
In 2021, Buzzfeed engaged in a SPAC transaction wherein its stock was converted into stock in Buzzfeed’s post-SPAC corporate form. An IPO followed. In connection with the IPO, former employees of the pre-transaction Buzzfeed (“Old Buzzfeed”) who had received shares in the post-transaction Buzzfeed (“New Buzzfeed”), filed mass arbitrations against New Buzzfeed, certain officers and directors, and the IPO transfer agent. These former employees and New Buzzfeed shareholders alleged that, because a different class of stock was offered in the IPO than the class of stock that they held, they were unable to participate in the IPO, suffering $9 million in damages. In response, New Buzzfeed, certain officers and directors, and the IPO transfer agent sued in the Court of Chancery seeking: (1) to enjoin the arbitrations, (2) a declaration that they were not bound by arbitration provisions in employment agreements entered into with Old Buzzfeed, and (3) a declaration that the former employees were obligated to comply with a forum selection clause in New Buzzfeed’s charter and bring their claims in the Court of Chancery. The plaintiffs moved for summary judgment on their claims; the former employees moved to dismiss the complaint for lack of subject matter and personal jurisdiction. More ›
Superior Court Finds that Non-Recourse Provision Does Not Bar Fraud Claims Against Non-Seller Defendants
Amerimark Interactive LLC v. Amerimark Holdings, C.A. No. N21C-12-175 MMJ CCLD (Del. Super. Nov. 3, 2022)
This decision discusses and applies numerous rules governing fraud claims under Delaware law. For instance, an anti-reliance provision eliminates extra-contractual fraud claims while preserving intra-contractual fraud claims, and a non-recourse provision limits the entities and people against whom a claim can be brought. And, in Online HealthNow, Inv. v. CIP OCL Investments, LLC, 2021 WL 3557857 (Del. Ch. 2021), the Court of Chancery determined that a non-recourse provision did not bar claims against a non-signatory party. Here, the Superior Court applied Online HealthNow and held that fraud claims against non-seller defendants who allegedly were knowingly complicit in contractual fraud were not barred by the non-recourse and anti-reliance provisions of the agreement at issue.
Chancery Denies Member Status to Individual Not Admitted By Members in Accordance With LLC Agreement
Riverside Risk Advisors LLC v. Chao, C.A. No. 2019-0789-KSJM (Del. Ch. Oct. 26, 2022)
The LLC Act generally provides that someone is admitted as an LLC member as provided in the LLC agreement. Here, the plaintiff sued seeking declaratory relief that the defendant, a former employee, was not a member of the LLC and that a 2015 agreement was the LLC’s governing document, rather than an earlier agreement. The Court of Chancery ruled in the plaintiff’s favor, finding that the defendant was not a member because, under the LLC agreement, written consent of all members was required for admission, and the defendant needed to agree to be bound by the agreement in writing. But neither of these steps occurred. The Court also held that the 2015 agreement was the current operative agreement for the LLC despite not being approved by the defendant, because, as required by the previous LLC agreement, it was approved by all members, which the defendant was not.
Chancery Applies Implied Consent to Service Provision of Delaware LLC Act to Individual Without Any Formal Role at the LLC
In Re P3 Health Grp. Hldgs., LLC, Consol. C.A. No. 2021-0518-JTL (Del. Ch. Oct. 26, 2022)
The implied consent provision of Section 18-109 of Delaware’s LLC Act provides that “managers” of Delaware LLCs consent to the service of process in Delaware. The statute defines “managers” as both (1) those formally designated as managers, and (2) those who “participate  materially” in management. Disputes over whether an individual not falling in the first category falls in the second often focus on individuals with some formal role at the LLC. As this decision illustrates, however, an individual without any formal role at the LLC, but who otherwise participates materially in the LLC’s management, may also be found to be a manager, and thus have consented to service and jurisdiction in Delaware. Facts relevant to the Court of Chancery’s finding of an adequately alleged acting management, in this case, included the defendant’s direction of the company’s managers, control of the company’s advisors, involvement in legal decisions, and access to information.
Chancery Grants Specific Performance For Release of Escrowed Funds, Rejects Sellers’ Representative’s Arguments to Withhold Funds As Inconsistent With Purchase Agreement’s Plain Language and the Implied Covenant of Good Faith and Fair Dealing
Am. Healthcare Admin. Services Inc. v. Aizen, C.A. No. 2019-0793-JTL (Del. Ch. Nov. 18, 2022)
Parties to acquisition agreements often have discretion concerning when to instruct an escrow agent to distribute funds post-closing, but any such discretion is limited by the plain language of the agreement and implied covenant of good faith and fair dealing. This decision addresses the availability of an unclean hands defense to contract claims seeking equitable relief. More ›
Chancery Rules That Delisted and Long-Dark Corporation Failed To Show Harm Warranting a Confidentiality Order for Basic Financial Documents Responsive to a Books and Records Request
Rivest v. Hauppauge Digital, Inc., C.A. No. 2019-0848-PWG (Del. Ch. Sept. 1, 2022)
Plaintiff stockholder sought to inspect the books and records of a defendant company, requesting a narrow universe of annual and quarterly financial statements for closed periods in order to value his shares. For several years, including time periods after deregistering its stock from a public exchange, the defendant had not provided any financial information to stockholders or held an annual meeting. More ›
Chancery Finds Asset Purchase Agreement Required Buyer to Indemnify Seller for Liability Under State Tobacco Settlement
ITG Brands LLC v. Reynolds Am., Inc., C.A. No. 2017-0129-LWW (Del. Ch. Sept. 30, 2022)
Plaintiff acquired four cigarette brands from the defendant under an asset purchase agreement. Prior to entering into the APA, the seller had been making annual payments to the State of Florida based on the annual volume of tobacco product sales under a preexisting settlement agreement. The purchaser did not join the settlement, and the seller stopped making payments to Florida. Florida sued both parties in a Florida court over the lack of payments and obtained a judgment that the seller must continue to make settlement payments based on the purchaser’s own sales of the acquired brands. The seller and purchaser brought claims against each other in the Court of Chancery to determine which party bore responsibility for the Florida judgment. More ›
Court of Chancery Finds That Complaint Fails To Adequately Plead Caremark Claim In Context Of SolarWinds Cybersecurity Breach
Construction Industry Laborers Pension Fund v. Bingle, C.A. No. 2021-0940-SG (Del. Ch. Sept. 6, 2022)
Under the Delaware Supreme Court’s Caremark decision and its progeny – including its most recent articulation in Marchand v. Barnhill – corporate directors who in bad faith fail to impose systems for monitoring important risks or fail to act in response to known “red flags” conceivably face monetary liability for breaching the fiduciary duty of loyalty. This decision discusses that, where Caremark claims have survived a motion to dismiss under Court of Chancery Rule 23.1, the alleged breaches generally have been in the context of violations of positive law or regulations. More ›
Chancery Suggests Alternative Approach To Contracts Providing That Prohibited Acts Are Void Ab Initio
XRI Investment Holdings LLC v. Holifield, et al., C.A. No. 2021-0619-JTL (Del. Ch. Sept. 13, 2022)
Under precedents such as CompoSecure, L.L.C. v. CardUX, LLC (Del. 2018), acts defined by an LLC agreement as “void” or “void ab initio” are incurable, whether through equity or otherwise. For the Court of Chancery in this post-trial decision, applying the CompoSecure holding prohibited the Court from giving effect to the plaintiff’s acquiescence in the transaction at-issue. While respecting and applying CompoSecure, the Court proposed an alternative approach under which equitable doctrines may militate against holding that a challenged act may never be cured. More ›
Equitable Fraud Claim Sufficient to Support Court of Chancery Jurisdiction
Trust Robin, Inc. v. Tissue Analytics, Inc., C.A. No. 2021-0806-SG (Del. Ch. Sep. 29, 2022)
After initially questioning its own subject matter jurisdiction in a dispute involving allegations of breach of contract and tort in connection with a services agreement, the Court of Chancery concluded that the plaintiff’s equitable fraud claim was not “simply a makeweight equitable hook” attached to its legal claims. The plaintiff sufficiently alleged a special relationship between the plaintiff and defendant, and it was possible that the plaintiff could recover for equitable, but not legal, fraud. The Court’s reasoning cited the alignment of the parties’ interests, the defendant’s control over the parties’ joint purpose by virtue of controlling certain intellectual property and other proprietary information belonging to the plaintiff, and the defendant’s alleged use of that control to engage in self-dealing. Therefore, the Court permitted the matter to proceed.
Chancery Finds Personal Jurisdiction Over Individual Who Formed Delaware Entities in Connection with a Challenged Merger Transaction
In Re P3 Health Grp. Hldgs., LLC, Consol. C.A. No. 2021-0518-JTL (Del. Ch. Oct. 14, 2022)
The Court of Chancery rejected an individual defendant’s challenge to Delaware’s assertion of personal jurisdiction over him. Although the defendant portrayed himself as merely a shareholder of Delaware entities (which is not in itself a basis for personal jurisdiction), the Court found that he had transacted business in the state for purposes of Delaware’s Long Arm Statute because he also formed two entities as part of a planned merger. It did not offend due process to require the individual to defend litigation related to the merger in Delaware because there was a nexus between his contacts and the claims and because he should have reasonably anticipated that Delaware would exercise jurisdiction over him in litigation arising from the merger.
Chancery Holds Defendant in Civil Contempt for Using Discovery Materials for Business Purpose in Violation of Confidentiality Order
Murphy Marine Services of Delaware, Inc. v. GT USA Wilmington, LLC, C.A. No. 2018-0664-LWW (Del. Ch. Sept. 19, 2022)
During the course of a two-part trial in which plaintiffs argued that the defendant breached the terms of a binding letter agreement, plaintiffs brought a motion for contempt against the defendant alleging that defendant used discovery materials produced by plaintiffs in connection with the litigation in negotiations with one of the largest customers of plaintiff Murphy Marine Services. In connection with the underlying action, plaintiffs produced documents to the defendant reflecting the revenue and financial information of Murphy Marine Services’ customers. Defendant admitted that estimates used in negotiating with one of Murphy Marine Services’ customers were determined using information obtained from those discovery materials. The confidentiality order entered by the Court in connection with the litigation contained common language providing that discovery materials would be used solely for purposes of the litigation. Thus, plaintiffs contended that using the discovery materials to gain a competitive edge in negotiating with one of Murphy Marine Services’ customers was a clear violation of the confidentiality order’s terms. The Court agreed with the plaintiffs. In addition to finding that defendant breached and repudiated the binding letter agreement, the Court therefore also found that defendant’s use of discovery materials for a business purpose violated the confidentiality order and ordered the defendant to pay the plaintiffs’ fees and expenses incurred in bringing the motion for contempt.
Board Lacks Standing to Bring Motion to Dismiss Because It Delegated That Authority to Special Litigation Committee
Rowan v. Infinity Q Capital Mgmt., LLC, C.A. No. 2022-0176-MTZ (Del. Ch. Sep. 12, 2022)
If a conflicted board delegates all authority over derivative claims to a special litigation committee (“SLC”), then the board may lack authority separately to assert procedural defenses, including a motion to dismiss under Court of Chancery Rule 23.1. But whether a board has given up this authority depends upon the sequence and terms of the SLC’s creation. More ›