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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 275 posts by Albert J. Carroll.
The Delaware courts have long tried to balance the public’s right of access to information about judicial proceedings with the legitimate needs of litigants to keep certain information confidential. Rule 5.1 is the Court of Chancery’s codification of the standards and procedures for obtaining, maintaining, and challenging confidential treatment of court filings. Its overarching purpose is to protect the public’s right of access. More ›
Windy City Investments Holdings LLC v. Teachers Insurance and Annuity Association of America f/k/a Teachers Insurance and Annuity Association-College Retirement Equities Fund, C. A. No. 2018-0419-MTZ (Del. Ch. May 31, 2019).
Claims seeking to enforce earn-outs are frequent. Parties often contractually agree that earn-out disputes are subject to an expert determination, rather than litigation in a judicial forum, and courts often dismiss disputes on that basis. This case arises in the somewhat familiar scenario where the parties’ dispute concerns contractual provisions related to, but not subject to, that expert determination, and thus falls within a court’s purview. More ›
The typical claim for breach of fiduciary duty arises out of a single transaction or event, or several closely-related transactions or events. Still, as the Klein decision illustrates, there are circumstances in which the Court of Chancery will find an adequately stated breach of fiduciary duty claim arising out of a course of disruptive conduct. More ›
The absolute litigation privilege is an affirmative defense that bars claims arising from statements made in the course of a judicial proceeding. Here, the Delaware Court of Chancery addressed the scope of the absolute litigation privilege in response to a request for an injunction to bar defendant from prospectively disparaging plaintiff in other litigation. The agreements governing an investment by defendant in the plaintiff’s funds contained confidentiality and non-disparagement clauses. A falling out between the parties resulted in years of protracted litigation in Illinois and Delaware. This Court of Chancery action for breach of confidentiality and non-disparagement clauses in the controlling agreements is based on information disclosed in the prior actions. More ›
As this case illustrates, Delaware courts generally respect and enforce forum selection clauses, even those excluding Delaware, when, under the law governing the parties’ agreement, the parties validly choose another jurisdiction. Plaintiffs, a Swiss holding company and its largest equity owner, Richard Herrling (“Herrling”), brought an action in the Delaware Court of Chancery to enforce a Restructuring and Loan Agreement (“R&L Agreement”) entered into with defendants, Allomet Corporation and Yanchep LLC (jointly “Defendants”). The R&L Agreement contemplated the formation of a new Austrian holding company to implement a joint venture between Plaintiffs and Defendants to carry out the business of Allomet. Under the R & L Agreement, Herrling had advanced certain loans to keep the Allomet Corporation solvent while the parties completed negotiations for the joint venture. After the parties could not agree on the terms for the full legal implementation of the joint venture, Herrling walked away from the negotiations. He and the Swiss holding company to which he had transferred his interest in the Austrian holding company then filed a complaint for breach of contract in the Court of Chancery seeking specific performance of the R&L Agreement. More ›
Because LLCs are “creatures of contract” and the policy of the Delaware Limited Liability Company Act is to give maximum effect to the freedom of contract, parties can adopt contractual arrangements that, in the end, lead to deadlock. So, Section 18-802 of the LLC Act empowers the Court of Chancery to break a deadlock through a judicial dissolution whenever it is not “reasonably practicable to carry on the business in conformity with” the LLC agreement.
Here, the Court of Chancery ordered the judicial dissolution of an LLC in the pharmaceutical industry, Inspiron Delivery Sciences, finding it was no longer reasonably practicable to carry on the company’s business in conformity with its LLC agreement under the circumstances. The Court found that the two founding members were deadlocked on numerous important issues, such as the company’s strategic vision, and that the LLC agreement did not provide any alternate mechanism to resolve the deadlock. By giving the LLC members veto rights and consent rights over decisions, the parties created the possibility that they would become deadlocked; they also chose not to draft a means to resolve a potential deadlock, such as a buy-sell provision. As the Court explained, in such instances, it is not the Court’s role to redraft the LLC agreement for “sophisticated and well-represented parties.”
The federal Computer Fraud and Abuse Act (“CFAA”) carries both civil and criminal penalties for unauthorized access to protected computers. The Court of Chancery recently decided an issue of first impression in Delaware regarding the CFAA’s scope in connection with a suit by AlixPartners against a former partner for allegedly misusing the company’s confidential information and trade secrets.
Plaintiffs were two entities making up AlixPartners, a global restructuring firm, and the defendant was managing partner of the Paris office before joining a competitor. Defendant allegedly downloaded confidential client information onto his personal data device, both before and after his discharge, and later provided it to his new employer. Litigation ensued and the defendant sought dismissal of the plaintiffs’ claim under the CFAA. Dismissal of that claim turned on whether the defendant was potentially liable under the CFAA for: (i) misusing information obtained from a computer he was authorized to access (the “Broad Approach”); or (ii) unauthorized access to the plaintiffs’ computers (the “Narrow Approach”). More ›
Limited Delaware case law exists on the “efficient breach” theory. A new Delaware Supreme Court ruling examines that theory and confirms it is not a bar to recovery or an avenue for modifying damages calculations. Rather, efficient breach is the legal concept that a party might find an intentional breach to be economically advantageous if the breach’s benefits exceed the damages it might owe. Efficient breach aside, the task of Delaware courts is to interpret contracts to fulfill parties’ shared expectations at time of contracting. That is a concept the Supreme Court emphasized when reversing the Court of Chancery’s nominal damages award in this case. More ›
In the limited liability company context, LLC agreements sometimes provide for a buyout of a member deciding to withdraw its investment. Coming in many forms, such provisions give rise to potential valuation issues. This decision arises in that setting.
In a decision driven by unique facts, the Court of Chancery relied upon the plaintiff's proposed valuation from an unconsummated deal to value a professional services company with “erratic and sparse” cash flows. The Court concluded that the company’s business model rendered both an asset accumulation method and a discounted cash flow method inappropriate. More ›
Delaware law, under 8 Del. C. § 145, allows for a corporation to agree in corporate documents or contracts to advance legal fees and expenses arising out of one’s service to the company. Aiming to bolster quality leadership, Delaware’s policy is to construe advancement provisions broadly in favor of advancement. Parties also utilize advancement provisions in the LLC context. Different from the corporate context, the foundational principle underlying an LLC relationship is the freedom of contract—the idea that parties are free to arrange their dealings as they choose. Overlaying this important principle is the notion developed under Delaware case law that, while the contract is paramount in the LLC context, structural choices might result in a court importing ideas from an analogous body of law, like corporate law. This recent Court of Chancery opinion recognizes and illustrates that notion when dealing with claimed advancement rights, explaining “parties are free to contract into corporate case law (or not) when they create LLCs, and courts will respect that choice.” More ›
When challenged, transactions involving a corporation and its conflicted controlling stockholder invoke Delaware’s rigorous form of judicial scrutiny, known as entire fairness review. But not always. With the right procedural protections in place, at the right time, even they can get the benefit of Delaware’s default deferential analysis, known as business judgment review. Business judgment review usually equates to an early dismissal in litigation. More ›
Delaware law permits parties conducting their business as limited liability companies to include mandatory arbitration or forum selection clauses in their LLC agreements, even those naming a forum outside of Delaware. And the State’s public policy supports enforcing contracts, including forum selection clauses, unless specifically prohibited by statute or upon a showing of fraud or overreaching. There is an important statutory exception in this context. Under Delaware’s LLC statute, 6 Del. C. § 18-109(d), other than for arbitration, a non-managing member of an LLC cannot waive its right to sue in the Delaware courts for matters relating to the LLC’s “organization or internal affairs.” More ›
In a closely-followed appeal from the Court of Chancery’s appraisal decision in the Aruba Networks case, the Delaware Supreme Court reversed the trial court’s fair value award of $17.13 per share and directed that the court-below enter judgment at the deal-price-less-synergies value of $19.10 per share. The Supreme Court found that the lower court abused its discretion when, because of the difficulty of estimating the amount of the buyer’s synergy value in the $24.67 deal price, it determined that Aruba’s pre-announcement, “unaffected” stock price was the best evidence of fair value. In so ruling, the Supreme Court provides important guidance about how to account for synergies arising from the expectation of the merger when determining the “fair value” of a going concern under Delaware’s appraisal statute in Section 262 of the DGCL. More ›
Under the “corporate benefit doctrine,” litigants whose efforts result in a substantial benefit to a Delaware corporation or its stockholders generally are entitled to an award of their attorneys’ fees and expenses. This opinion emphasizes that the doctrine is a flexible one based on the Court of Chancery’s prerogative to do equity in each case.
Here, the Court considers and denies a fee application by stockholder-plaintiffs who challenged a defective short-form merger. The basis for the plaintiffs’ claims included technical errors in the language of certain corporate instruments that resulted in a reverse stock split with a ratio much larger than intended (2,500 to 1, rather than 50 to 1). That, in turn, resulted in the merger receiving less than the required stockholder approval. When the corporation attempted to ratify the defective corporate acts under Section 204 of the DGCL and sought judicial validation under Section 205, the plaintiffs opposed it. Plaintiffs ultimately lost on the issue at trial. Although the end-result—removing a cloud over the merger’s validity—could be considered a “benefit” resulting from the plaintiffs’ litigation efforts, the Court denied their subsequent fee application. According to the Court, in particular, it would be inequitable to reward plaintiffs for conferring a benefit they opposed.
Under Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014), deferential business judgment review governs mergers between a controlling stockholder and the controlled corporation when the deal is conditioned “ab initio” on two procedural safeguards. Those are approval by (i) a special committee of independent directors, and (ii) an uncoerced, informed majority-of-the-minority stockholders’ vote. The reasoning goes, with so-called “MFW conditions” in place at the outset, a controller cannot dictate the economic terms or unduly influence the stockholder vote, thus ameliorating the concerns otherwise justifying the more exacting “entire fairness” review. More ›