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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 233 posts by Albert J. Carroll.
Under Section 18-802 of the Delaware LLC Act, the Court of Chancery may dissolve an LLC when it is “not reasonably practical” for it to carry on its business in conformity with its LLC agreement. This decision explains when that might occur, such as when the defined purpose becomes impossible to fulfill.
The Court of Chancery has long demanded that litigants abide by the discovery rules and respect scheduling orders. This is an excellent summary of Delaware discovery obligations and a good list of many ways a litigant can go wrong in responding to discovery. More ›
Under Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014), commonly referred to as MFW, a controller may gain the benefit of business judgment review when it conditions a transaction—from the outset (i.e., ab initio)—on two procedural protections. Those involve approval by (i) an independent special committee and (ii) a majority of the minority stockholders. The point of the timing requirement is that the controller disables its influence from the beginning, instead of using the option as a bargaining chip when negotiating economic terms. More ›
This decision provides an excellent summary on Delaware law concerning when the Court will enjoin litigation in another jurisdiction to enforce a contract’s forum selection clause, as the Court did in this case. It also notes a potential trap for the unwary in situations where the clause selects only a court lacking jurisdiction to hear the dispute, rendering the forum selection invalid. That may occur for Delaware forum selection clauses when the Court of Chancery is the sole selected forum but cannot hear the dispute because of its limited subject matter jurisdiction. To avoid that problem, it would be best to identify an alternative within the jurisdiction, or accept any court within the jurisdiction.
Litigation seeking to inspect a corporation’s records under Section 220 of the DGCL might toll the statute of limitations for certain claims under the right circumstances. There are important limits to this form of tolling. For example, it is not automatic and will only apply to claims that are the subject of the inspection demand. This decision does a good job of explaining these limits and the factors a court will consider in determining whether inspection-based tolling should apply. It otherwise examines and applies the law on the statute of limitations and issues of inquiry notice.
Court of Chancery Addresses Contractual Fiduciary Duties, Secondary Liability, and Banker Liability in the MLP Context
This is the latest decision in a long-running saga in the master limited partnership (MLP) context involving Enbridge Energy. The Court of Chancery had previously dismissed the complaint for failure to state a claim. The Delaware Supreme Court reversed that dismissal while providing important guidance on properly construing contractual fiduciary duties in the MLP context. The defendants moved to dismiss the amended complaint on remand. This is the Court of Chancery’s decision granting in part and denying in part that motion. More ›
Court of Chancery Addresses Confidentiality in Appraisal Context and Use of Discovery to Identify New Claims
It is common and accepted practice for parties in Court of Chancery litigation to enter into a stipulated order governing the inevitable exchange of commercially-sensitive information during the discovery process. Those orders spell out how such information may or may not be disclosed, including in court filings, while adopting the standards and procedures reflected in the Court of Chancery rule on the topic, Rule 5.1. More ›
Stock preferences are in derogation of the common law and thus strictly construed. Any rights, preferences, and limitations of preferred stock that distinguish it from common stock must be expressly and clearly stated. But, as this decision explains, that does not mean that extrinsic evidence cannot be considered to construe ambiguous provisions. The decision also affirms that stockholder rights to inspect corporate records for a proper purpose cannot be taken away by a certificate of incorporation.
Court of Chancery Enforces Redemption Rights and Addresses the Potential Effect of a Merger on Previously-Exercised Put Rights
This decision is necessary reading for drafters of redemption rights. It involves the interpretation of a redemption rights agreement granting a stockholder the right to force the company to buy back its shares and some interplay between those put rights and the DGCL in the event of a merger. More ›
In re Appraisal of Kate Spade Company, C.A. No. 2017-0714-AGB (Del. Ch. June 21, 2018)
The duty to collect and produce non-privileged relevant information extends beyond email to text messages and other forms of electronic communications. Standard practice in Delaware involves at least inquiring of custodians the extent to which they used text messages to engage in substantive communications on potentially relevant topics and to collect text message data when they answer affirmatively, absent an agreement to contrary between the parties. This bench ruling addresses that practice and reflects the Chancellor’s view that text messages often may be a critical source of information.
Court of Chancery Validates Cure of Defective Corporate Acts Affecting Herman Miller’s Acquisition of DWR
Sections 204 and 205 of the DGCL permit corporations to cure and validate defective corporate acts under the right circumstances. This is another decision explaining when the Court will validate an attempted cure under Section 204. The opinion explains, among other things, that there is no set time limit to seek validation of a cure under Section 205. It further explains what sort of defective acts may be addressed in Section 205 proceedings. More ›
Enterprise Holdings Inc. v. Rolen Stockholder Representative LLC, C.A. No. 2017-0422-AGB (Del. Ch. June 27, 2018)
Merger agreements sometimes provide for post-merger purchase price adjustments to be made by an independent accounting firm. This is another decision, in the form of a bench ruling, where the Court of Chancery readily enforces such an agreement, albeit with some guidance to the accountant on what issues are for the accountant to decide and what issues must remain for the Court.
Court rules require pre-trial disclosures regarding testifying experts and the subjects they will opine on. Adequate disclosure is a prerequisite to admissibility. Insufficient disclosure could result in the Court disallowing or striking expert trial testimony. This decision explains the type of disclosures that are sufficient and those that are deficient, granting in part and denying in part a motion to strike.
Many merger agreements provide for additional payments after closing depending on the target’s performance. This decision examines certain language controlling the buyer’s obligations to achieve the post-closing milestones. The relevant language was subject to more than one reasonable construction, thus ambiguous, and extrinsic evidence would be necessary to resolve the dispute. Accordingly, the Court denied the buyer’s motion to dismiss.
An LLC agreement may provide what payout a departing member receives for his or her interest. It also may provide that a member may be forced to withdraw by his or her other members. This decision addresses what should happen when an LLC agreement provides for a forced withdrawal but is silent on the issue of the payout. Adopting the reasoning of a prior Delaware decision in the limited partnership context, the Court holds the forced-out member should receive the same sort of “fair value” awarded in stock appraisal cases. This is another example of how rules of law or equity may fill in gaps in LLC agreements and why such agreements must be drafted carefully.