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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Morris James Blogs
Showing 10 posts from September 2023.
Chancery Finds Derivative Plaintiffs Breached Duties in Withholding Arbitration Award of the Company
Optimiscorp v. Atkins, C.A. No. 2020-0183-MTZ (Del. Ch. June 1, 2023)
As this decision explains, when stockholder plaintiffs control the derivative claims of the company, they serve as agents of the company and owe the company fiduciary duties. This dispute involved the defendant-stockholders improperly withholding an arbitration award, which was obtained as a result of their successful litigation of derivative claims on behalf of the company. Ruling on summary judgment, the Court of Chancery held that the defendants breached their fiduciary duties to the company by withholding the award. The Court found that the defendants acted as agents of the company in the derivative claims and, therefore, owed fiduciary duties to the company. The Court reasoned that the defendants, as the company's agents, were required to return the award to the company because a monetized derivative asset belongs to the company. The Court ruled that the defendants breached their duty of care by divesting the company's board of its authority to manage the award and by failing to perform their obligations as company agents. Further, by withholding the award with the intent of distributing it to themselves, their friends, and their family, the defendants also breached their duty of loyalty. In ruling so, the Court rejected the defendant's argument that the business judgment rule should apply to their actions, finding the business judgment rule is intended to apply to directors, while derivative stockholder plaintiffs are held to a simple negligence standard with respect to their duty of care and a more stringent duty of loyalty than directors.
Chancery Finds that Buyer Breached Purchase Agreement by Denying Sellers’ Rights to Participate in a Defense
LPPAS Representative, LLC v. ATH Holding Co. LLC, C.A. 2020-0241-KSJM / Shareholder Representative Services LLC v. ATH Holding Co. LLC, C.A. No. 2020-0443-KSJM (Del. Ch. May 2, 2023)
Delaware law recognizes parties’ ability to create a contractual right for an indemnifying party to participate in the defense of a claim. In this case, the Purchase Agreement provided the Sellers with such Participation Rights in connection with third-party claims that may give rise to Sellers’ indemnification obligations. The Court determined that the Buyer breached the Purchase Agreement by not allowing the Sellers to participate in the defense of investigations. More ›
Chancery Holds Unocal Claims for Injunctive Relief are not Subject to Corwin Cleansing
In re Edgio, Inc. Stockholder Litigation, C.A. No. 2022-0624-MTZ (Del. Ch. May 1, 2023)
Under Corwin, a fully informed, uncoerced vote of the disinterested stockholders can shift the standard of judicial review for certain transactions from heightened scrutiny to the business judgment rule. But there are some transactions that Corwin cannot cleanse. Here, at the motion to dismiss stage, the Court declined to apply the Corwin doctrine to a Unocal claim seeking to enjoin certain alleged defensive measures taken by the company's board. More ›
Chancery Grants Single-Member Special Litigation Committee’s Motion To Terminate Derivative Claims
In re Baker Hughes, a GE Company, Derivative Litigation, C.A. No. 2019-0201-LWW (Del. Ch. Apr. 17, 2023)
After the Court of Chancery made a pleadings stage determination that the demand was futile, a board of directors delegated its authority over derivative claims to a one-member special litigation committee. The committee retained independent advisors, conducted a nine-month investigation, and determined the Court likely would hold the transactions at issue were entirely fair and further that prosecution would not be in the best interest of the company or its stockholders. The committee moved to terminate the derivative action. Derivative plaintiffs took discovery and opposed the motion to terminate, challenging the committee’s independence, process, and conclusions. More ›
Chancery Orders Discovery Record Be Made Available to Stockholders in the Settlement Class
In re AMC Entertainment Hldgs., Inc. S’holder Litig., 2023-0215-MTZ (Del. Ch. May 20, 2023)
Under Delaware law, class members are entitled to access to the discovery record to assess the terms of a proposed class action settlement. In addition to confidentiality concerns, the size of a class and the scope of a discovery record present logistical challenges regarding access, particularly if class members are not represented by counsel. More ›
Chancery Prioritizes Efficiency in Ruling on Discovery Motions
Brown v. Matterport, Inc., 2021-0595-LWW (Del. Ch. Jun. 5, 2023)
The plaintiff sued alleging that the defendants had used lockup restrictions to improperly prevent him from selling shares. The Court of Chancery considered three discovery motions, and the ruling in all three instances focused on the efficiency of the discovery process. More ›
Chancery Determines That Former Executives Are Not Entitled to Equity Awards Under Separation Agreement
SeaWorld Entm't, Inc. v. Andrews, C.A. No. 2020-0955-NAC (Del. Ch. May 19, 2023)
SeaWorld Entertainment, Inc. granted unvested equity awards to employees. Pursuant to equity agreements, the awards would vest if the company's controller sold its stock above a threshold price and if the company still employed the awardees at the time of sale. Under the terms of the underlying incentive compensation plan, the company had sole discretion to amend any term of the equity agreements, including to treat individuals differently. More ›
Chancery Denies Sellers’ Claim Against Buyers for Failure to Close, Finds That Sellers’ Award of “Phantom Equity” to Former Employee Breached Merger Agreement Representations
HControl Holdings LLC vs. Antin Infrastructure Partners S.A.S., C.A. 2023-0283-KSJM (Del. Ch. May 29, 2023)
In Delaware, buyers bear the burden of proving by a preponderance of the evidence their claims for breach of a merger agreement, and sellers bear the burden of proving that buyers could not exercise their termination rights because buyers were in breach of their own obligations. In this case, the Court finds for the Buyers and determines that they were entitled to terminate the deal because the Sellers breached representations in the Merger Agreement. More ›
Chancery Denies Plaintiff’s Request for Advancement and Indemnification Based on the Broad Release and Finds No Success on the Merits under DGCL Section 145(c)
Kokorich v. Momentus, Inc. C.A. 2022-0722-MTZ (Del. Ch. May 15, 2023)
Delaware law establishes mandatory indemnification rights under 8 Del. C. § 145(c) where a director or officer was "successful on the merits or otherwise" in the underlying proceedings. Sections 8 Del. C. § 145 (a) and (b) are enabling provisions that explain what additional rights a corporation can offer. In this case, the Court denies the Plaintiff's advancement and indemnification claims because he released such claims against the Company and did not achieve success on the merits. More ›
Superior Court Declines to Dismiss Counterclaims Based on “Interrelated Wrongful Act” Clause in D&O Coverage Dispute Arising Out of Viacom-CBS Merger
National Amusements Inc. v. Endurance American Specialty Insurance Co. (Del. Super. April 28, 2023)
In this D&O insurance coverage dispute, the plaintiffs moved to dismiss the defendant insurers' counterclaims, which contended that the "Interrelated Wrongful Acts" clause barred coverage under the present D&O policies for certain merger-related litigation initiated in 2019. That clause deemed interrelated acts a single claim and deemed them to be made in the earliest policy period in which the earliest interrelated claim was made. Defendants' theory was that the merger litigation initiated in 2019 arose from interrelated prior wrongful acts starting in 2016 when the plaintiffs were involved in a battle for corporate control, which were the subject. More ›
