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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.

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Photo of Delaware Business Litigation Report Albert J. Carroll
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Albert Carroll is a member of the firm's Corporate and Commercial Litigation Group and focuses his practice on litigation involving corporations and alternative entities formed …

Showing 163 posts by Edward M. McNally.

Court of Chancery Applies Privilege Non-Waiver Rule

In Re Cellular Telephone Partnership Litigation, C.A. No. 6885-VCL (Aug. 29, 2017)

This is an interesting decision because it applies a recent addition to the Delaware Rules of Evidence, Rule 510(f), which allows a court to enter an order preserving privilege despite disclosure in connection with the litigation before it. Here, the Court of Chancery entered such an order in connection with an in camera review by a special discovery master.

Court Of Chancery Reviews When To Vacate An Arbitration Award

Posted In Arbitration

Carl Zeiss Vision LLC v. Refac Holdings, Inc., C.A. 11513-VCS (August 24, 2017)

This is another decision explaining the narrow circumstances when the Court of Chancery will vacate an arbitration award. It is very hard to get that relief.

Court Of Chancery Explains When Side Deals Are Actionable Under A Bad Faith Theory

Posted In Fiduciary Duty

Kahn v. Stern, C.A. No. 12498-VCG (Aug. 28, 2017)

It is not easy to sufficiently plead a bad faith breach of fiduciary duty by a board in approving a merger when a majority of the directors were disinterested and independent. One basis for such a bad faith breach might be that the board approved a merger where management extracted side deals, such as employment arrangements with the post-merger entity or performance-based sale bonuses. As this decision explains after reviewing the precedent, an extreme set of facts is required to survive dismissal on this theory.

Superior Court Explains Bootstrapping Doctrine

In Re Bracket Holding Corp. Litigation, C.A. N15C-02-233 WCC CCLD (July 31, 2017)

This decision is an excellent explanation of the “bootstrapping doctrine” that seems to often befuddle litigants. Briefly, a plaintiff cannot “bootstrap” a breach of contract claim into a fraud claim except in certain limited circumstances that this decision explains. For example, misrepresentations made to induce a contract may form the basis for a fraud calm.

Superior Court Explains The Personal Participation Doctrine

The Washington House Condominium Association Of Unit Owners v. Daystar Sills Inc., C.A. N15C-01-108 WCC CCLD (August 8, 2017)

When is a corporate employee responsible for tortious conduct in that capacity? This decision answers that question in a very helpful way. For example, mere nonfeasance is not enough to impose liability on a corporate actor.

Court Of Chancery Gives Guidance On What Constitutes Bad Faith

Posted In M&A

In Re Meadwestvaco Stockholders Litigation, C.A. No. 10617-CB (August 17, 2017)

As this decision explains, to state a claim attacking a merger on the basis that the Board acted in bad faith you need more than  accusations that directors were motivated to avoid a proxy fight involving an activist investor. Informed stockholder approval, disinterested directors, careful consideration, a premium price, reasonable deal protection devices, and prominent advisors all work to negate inferences of bad faith.

Court Of Chancery Explains Jurisdiction Based On Delaware Incorporation

Posted In Jurisdiction

Terramar Retail Centers LLC v. Marion #2-Seaport Trust, C.A. No. 12875-VCL (Aug. 18, 2017)

Merely incorporating a business in Delaware does not automatically subject you to personal jurisdiction in the Delaware courts. But, when the act of incorporation is part of the events forming the basis for a claim, it may be enough. This decision explains the parameters of jurisdiction based on incorporating in Delaware.

Court Of Chancery Applies M&F Worldwide To A Selling Controller

Posted In Fiduciary Duty

In Re Martha Stewart Living Omnimedia Inc. Stockholder Litigation, C.A. No. 11202-VCS (Del. Ch. Aug. 18, 2017)

Under M&F Worldwide, the business judgment rule standard of review applies to squeeze-out mergers with controlling stockholders if, from the outset of the negotiations, the controlling stockholder conditions the merger on both (i) negotiation and approval by a special committee of independent directors, free to select its advisors, empowered to say no, which fulfills its duty of care, and (ii) approval by an uncoerced, fully informed majority-of-the-minority vote. Compliance with M&F Worldwide limits plaintiffs to untenable waste claims. Significantly, this decision extends M&F Worldwide to circumstances where the controlling stockholder is a seller, rather than the buyer, and may have engaged in a conflicted transaction based on alleged side deals. The decision also holds that the dual protections of M&F Worldwide must apply from the start of the negotiations with the controller to be given effect.

Court Of Chancery Declines To Exercise Personal Jurisdiction Based On A Choice Of Law Provision In A Stockholders’ Agreement

Posted In Jurisdiction

EBP Lifestyle Brands Holdings Inc. v. Boulbain, C.A. No. 2017-0269-JRS (Aug. 4, 2017)

This decision holds that owning shares in a closely-held Delaware corporation and entering into a stockholders’ agreement containing a Delaware choice of law provision is not a sufficient basis, standing alone, for a Delaware court to exercise personal jurisdiction over a non-resident under Delaware’s long-arm statute. While these circumstances may be factors in the long-arm and due process analysis, more is required to purposefully avail oneself of Delaware law and be subject to personal jurisdiction in its courts.

Court Of Chancery Explains Fraud Pleading Standards

Posted In Fraud

Sparton Corporation v. O’Neil, C.A. 12403-VCMR (August 9, 2017)

This decision explains what needs to be alleged to state a fraud claim. More particularly, it is not enough to just generally allege that a defendant must have had knowledge of someone else’s false statement.

Court Of Chancery Upholds Claim Based On Low-Ball Self Tender

Posted In Fiduciary Duty

Buttonwood Tree Value Partners L.P. v. R.L. Polk & Co. Inc., C.A. No. 9250-VCG (July 24, 2017)

This an interesting decision because it upholds a claim that the controllers of a Delaware corporation breached their fiduciary duties by having their corporation make a self-tender at a knowingly low price all the while intending to sell it for much more, which they in fact did a short while later. The facts illustrate how not to do a self-tender in terms of acting fairly. While tender offers, even self-tenders, are often thought of as mere offers that stockholders are free to accept without later recourse or complaint, this decision shows why that might not always be true if the facts are bad enough.

Court Of Chancery Protects Privilege In Books and Records Action And Addresses Corwin’s Effect On Mismanagement Investigation Claims

Salberg v. Genworth Financial Inc., C.A. No. 2017-0018-JRS (July 27, 2017)

This is an important decision for its analyses implicating the Garner and Corwin rules.  The Garner rule is that, under certain narrow circumstances where the plaintiff establishes good cause, the attorney-client privilege will be unavailable to corporate fiduciaries who are defending against claims brought by the stockholders who are the object of their fiduciary duties.  Here, the Court of Chancery declined to invoke the Garner rule and protected the attorney-client privilege in a books and records case where the same stockholders were already pursuing derivative litigation against the company on the same subject as the records demand but could not gain access under Garner in that earlier litigation. More ›

Delaware Supreme Court Reverses DFC Global And Clarifies The Deal Price’s Role In Appraisal Litigation

Posted In Appraisal

DFC Global Corporation v. Muirfield Value Partners L.P., No. 518, 2016 (Del. Aug. 1, 2017)

Delaware law has long made clear that the deal price for a company, while relevant, does not necessarily equate to the “fair value” that petitioners are entitled to receive in an appraisal proceeding.  A string of recent Court of Chancery decisions, however, adopted the deal price as fair value, reinforcing the view that the market price for an arm’s-length transaction achieved after a thorough sale process likely will be the best evidence of fair value. Two decisions in mid-2016 arguably departed from this line of cases in setting fair value above the deal price, although on different grounds: Dell and DFC Global.  Both decisions have been widely-reported, hotly-debated, and appealed. More ›

Court of Chancery Decision Illustrates Flexibility In Rules Governing Trial

In Re Oxbow Carbon LLC Unitholder Litigation, C.A. No. 12447-VCL (Del. Ch. July 28, 2017)

This decision permits a rebuttal witness to testify in an unusual situation that illustrates the flexibility the Court of Chancery often employs when conducting a trial.  Among the issues addressed is the order of proof, belated identification of a witness, sequestration orders, the witness-as-advocate rule, and the tactical considerations in calling an adverse witness in support of your case.