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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 2 posts by Kuhu Parasrampuria.
Chancery Denies Former Derivative Plaintiff Standing to Challenge Merger That Extinguished Derivative Claims
When a stockholder derivative claim is extinguished in a merger, the former derivative plaintiff may have standing to contest the merger directly on the ground that the entity’s fiduciaries permitted a material litigation asset to be extinguished in the merger process without value to the stockholders. In the well-known precedent In re Primedia Stockholders Litigation, 67 A. 3d 455 (Del. Ch. 2013), the Court of Chancery established a three part standing test: 1) Was the underlying claim viable? 2) Was its value material in light of the merger consideration? 3) Did the company fail to receive value for the claim in the merger because the buyer would not be willing to pursue it? Applying this test, here the Court ruled that the former unitholder and derivative plaintiff lacked standing to attack the merger and dismissed the claim. More ›
This case again illustrates the contractual nature of Delaware alternative entities and the important interpretive role the courts perform construing alternative entity agreements when internal governance disputes arise. The case arose out of the parties’ competing requests for declaratory judgment regarding Caiman Energy II, LLC’s (“Caiman”) limited liability agreement (“LLC Agreement”). The Defendants, including Caiman and EnCap Capital Management (“EnCap”), argued that the provisions of the LLC Agreement grant EnCap plenary power with respect to a Qualified IPO, including the ability to change the definition of a Qualified IPO and to modify the procedures the contracting parties would otherwise have to take relating to a Qualified IPO. EnCap asserted that it could implement an Up-C IPO using its authority to effect a Qualified IPO. An Up-C IPO refers to a transaction whereby a limited liability company (“LLC”), which is taxed as a pass-through entity, performs an IPO through a holding company that has an interest in the LLC. Plaintiff Williams Field Services Group, LLC (“Williams”) contended that the Encap proposed Up-C IPO was inconsistent with the terms of the LLC Agreement. More ›