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Photo of Delaware Business Litigation Report Albert J. Carroll
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acarroll@morrisjames.com
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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 191 posts by Albert J. Carroll.

Court of Chancery Defends Aruba Networks Appraisal Decision

Posted In Appraisal

Verition Partners Master Fund Ltd. v. Aruba Networks Inc., C.A. No. 11448-VCL (Del. Ch. May 21, 2018)

This opinion arises out of the appraisal proceeding relating to Hewlett-Packard’s purchase of Aruba Networks. The case led to two notable opinions, so far.  More ›

Court of Chancery Declines To Restrain Controller In Proposed Viacom-CBS Deal

CBS Corp., et al. v. National Amusements, Inc., et al., C.A. No. 2018-0342-AGB (Del. Ch. May 17, 2018) (Letter Op.)

Arising out of the highly-publicized dispute over the proposed transaction involving CBS and Viacom, each controlled by the Redstones, this decision is both front-page newsworthy and legally significant.  CBS and Viacom used to be one entity but split.  The Redstones retained voting control in each through a dual-class voting structure.  Later, the Redstones began pushing to merge the entities once again and both entities formed special committees to consider the proposal.  More ›

Court Of Chancery Applies LLC Contractual Fiduciary Duty

Posted In LLC Agreements

MHS Capital LLC v. Goggin, C.A. No. 2017-0449-SG (May 10, 2018)

Alternative entity agreements may eliminate common law fiduciary duties and often do, supplanting them with contractual fiduciary duties.  These frequently include an obligation to act “in good faith” or “in the best interests of the company,” broadly or in certain circumstances.  Thus, even with fiduciary duty exculpation clauses in LLC agreements, managers may still find themselves exposed to a member’s allegations that they failed to satisfy their standard of conduct, as this decision illustrates.  This decision also is interesting for its discussion of the potential impact of bankruptcy court sale orders on the Court of Chancery’s ability to enter equitable relief.

Court of Chancery Explains What Is A Proper Claim Reserve When Dissolving

Capone v. LDH Management Holdings LLC, C.A. No. 11687-VCG (April 25, 2018)

Under the LLC Act, as with the DGCL, an entity planning to dissolve and distribute its assets is required to set aside some reserve of assets to pay all known claims.  Failure to set aside sufficient assets may result in revocation of the entity’s certificate of cancellation, thereby reviving the entity, as happened in this case.  This decision explains when claims are “known” by the entity (i.e., the entity has actual knowledge of the claims) and how the entity may value those claims for purposes of retaining sufficient assets to potentially satisfy them.  Importantly, the reserve need not match all potential damages dollar-for-dollar.  The value of claims may be discounted based on their lack of merit, for example.

Court Of Chancery Addresses Conflicted Transaction And Secondary Liability

Posted In Fiduciary Duty

RCS Creditor Trust v. Schorsch, C.A. No. 2017-178-SG (Del. Ch. Apr. 5, 2018)

This is an interesting decision for two reasons. First, it distinguishes between classic self-dealing claims and tag-along challenges to business decisions. Just because a plaintiff successfully pleads that a controller is looting a company in some respects, does not mean all allegedly-related challenges will survive dismissal.  Second, it explores when an alternative theory of secondary liability or a claim for unjust enrichment may accompany a sufficiently plead breach of fiduciary duty.

Court Of Chancery Explains When A Minority Stockholder Has Control

Posted In Fiduciary Duty

In re Tesla Motors Inc. Stockholder Litigation, C.A. No. 12711-VCS (Del. Ch. Mar. 28, 2018)

Under Delaware law, a controlling stockholder need not be a majority stockholder. Rather, a controlling stockholder might be a group of aligned stockholders who together hold a majority.  Or, as in this case, it might be a minority but substantial stockholder who practically has and exercises board-level control with respect to the challenged transaction.  The presence of a controller is an important factor in litigation, including because, as here, it might prevent defendants from achieving a prompt dismissal of a post-closing fiduciary duty action based on stockholder approval under the well-known Corwin decision.  In this case, the factors relevant to finding control by the roughly 22% minority stockholder (i.e., Elon Musk) at the motion to dismiss stage included: (1) the individual’s history of eliminating opposition; (2) the board’s lack of safeguards to prevent his control over the company’s consideration and negotiation of the self-interested transaction; (3) a board packed with members interested in the transaction or beholden to him; and (4) public disclosures portraying him as in control.

Court Of Chancery Explains Expanded Jurisdiction Under Director Consent Statute

Posted In Jurisdiction

LVI Group Investments LLC v. NCM Group Holdings LLC, C.A. No. 12067-VCG (Del. Ch. Mar. 28, 2018)

In Hazout v. Tsang Mun Ting, 134 A.3d 274 (Del. 2016), the Delaware Supreme Court expanded the basis for personal jurisdiction over nonresident directors and officers of Delaware corporations under 10 Del. C. § 3114, the so-called director consent statute.  Hazout overruled long-standing Court of Chancery precedent that narrowly construed Section 3114’s “necessary or proper party” clause to actions alleging the director or officer had breached a fiduciary duty owed to the corporation.  This decision is notable because it explains and applies Section 3114’s expanded scope.  

Court of Chancery Applies Revlon to a Warrant to Buy

Posted In Fiduciary Duty

Carr v. New Enterprise Associates, Inc., C.A. No. 2017-0381-AGB (Del. Ch. Mar. 26, 2018)

This decision addresses a host of interesting topics.  First, it declines to invoke the so-called step-transaction doctrine under which the Court treats the steps in a series of formally separate but substantially-linked transactions involving the transfer of property as a single transaction.  Second, it declines to apply the mootness doctrine in a challenge to an unexercised warrant.  Third, it wrestles with deciding whether challenges to a financing and a warrant issuance are direct or derivative claims.  Fourth, it address the pre-suit demand on the board requirement.  Fifth, it finds a sufficiently pled claim of aiding and abetting a breach of fiduciary duty.  Sixth, it decides that intermediate scrutiny (i.e., Revlon) may apply when a party is granted an option to acquire a company under a warrant.  Finally, it applies Cornerstone to dismiss exculpated directors from a money damages action where the complaint failed to adequately plead a duty of loyalty claim against them.

Court Of Chancery Explains When Directors Lack Independence To Consider Pre-Suit Demand

In Re Oracle Corporation Derivative Litigation, C.A. No. 2017-037-SG (Del. Ch. Mar. 19, 2018)

Delaware law requires a derivative plaintiff to make a pre-suit demand on the board unless excused as futile.  Because some level of social and business ties are common among the director-class and because such ties to an interested party is one potential path to successfully alleging a director lacks independence to impartially consider a pre-suit demand, such relationships are an oft litigated topic in the demand context.  Frequently, such connections even when considered collectively are found not to rise to a level negating a director’s ability to consider a demand.  But, as this decision explains, sometimes they are.  While each director-by-director assessment is a highly-factual question, this case is a worthwhile read to understand the type and magnitude of relationships that might call into doubt one’s independence.

Court Of Chancery Awards Nominal Damages For Breach Of Fiduciary Duty

Posted In Fiduciary Duty

The Ravenswood Investment Company LP v. The Estate Of Bassett S. Winmill, C.A. No. 3730-VCS (Del. Ch. Mar. 21, 2018)

It is easy to assume that some form of meaningful relief must be available when a fiduciary bears the burden of proving a self-dealing transaction is entirely fair, but fails to carry it.  But that is not always true, as this decision shows.  For instance, as happened here, if stock options were issued for inadequate consideration, the plaintiff still needs to prove actual damages or that rescission would be appropriate under the circumstances.  A failure to do so could foreclose meaningful relief and result in only nominal damages.  We can put it no better than the Court did: “[T]here is [an] important lesson to be learned from this case.  While this court endeavors always to remedy breaches of fiduciary duty, especially breaches of the duty of loyalty, and has broad discretion in fashioning such remedies, it cannot create what does not exist in the evidentiary record, and cannot reach beyond that record when it finds the evidence lacking.  Equity is not a license to make stuff up.”

Court of Chancery Enforces Section 145 Indemnification Rights of Subrogee

Posted In Indemnification

Meyers v. Quiz-Dia LLC, C.A. No. 9878-VCL (Del. Ch. Mar. 16, 2018)

This is an interesting indemnification decision for its handling of subrogation rights in the indemnification context, one involving former Quiznos officers.  First, it holds that, generally speaking, when a party who may be secondarily liable for indemnifiable litigation costs covers the indemnitee’s litigation costs, it may then recover those costs from the party who is primarily liable.  Second, it questions whether the “volunteer” exception can apply to subrogation rights in the Section 145 indemnification context.  Third, it holds that the Court will enforce fee-sharing arrangements among defendants such that the indemnitee can only recover its pro rata proportion of the fees.  Fourth, it enforces such a limitation on a subrogee, such that the subrogee cannot recover more than the indemnitee could have recovered. Fifth, it holds that a subrogee has the same right to fees-on-fees that the indemnitee would have if it had been the party seeking indemnification.

Delaware Corporate and Commercial Case Law Year In Review – 2017

Posted In Articles

Morris James attorneys Lewis Lazarus, Albert Manwaring and Albert Carroll authored an article published in Transaction Advisors titled Delaware Corporate and Commercial Case Law Year in Review – 2017. The article summarizes ten significant decisions of the Delaware Supreme Court and the Delaware Court of Chancery over the past year, including matters such as appraisal rights, duties in the master limited partnership context, director compensation awards, and preclusion in shareholder derivative litigation.  Continue reading for the full article. More ›

Court of Chancery Rejects Conspiracy Theory of Jurisdiction At Summary Judgment Stage

Posted In Jurisdiction

Reid v. Siniscalchi, C.A. No. 2874-VCS (January 30, 2018)

The facts underlying this summary judgment decision are rather remarkable.  The case is long-pending, and involved years of jurisdictional discovery granted for the purpose of allowing the plaintiff to explore its pleading-stage theory of personal jurisdiction under the so-called conspiracy theory.  The gist of that theory is that a Delaware court can exercise personal jurisdiction over all co-conspirators when one commits an act in the State that is central to carrying out the conspiracy.  It is a theory oft-invoked but rarely satisfied.  And, as this decision demonstrates, it is a theory that could be subject to some abuse by a clever litigant.  In this case, the evidence ultimately showed that the plaintiff misled the Court by claiming to be the victim of a Delaware-based conspiracy, when, in fact, the plaintiff was the architect of the very wrongdoing used to advance his conspiracy theory.  Thus, some ten years into the litigation, the non-resident defendant was dismissed from the case based on a lack of personal jurisdiction.   

Delaware Supreme Court Gives Preclusive Affect To Prior Dismissal In Wal-Mart Derivative Litigation

California State Teachers Retirement System v. Alvarez, No. 295, 2016 (Del. Jan. 25, 2018)

This is an important decision clarifying the rules regarding the preclusive effect a dismissal of a derivative suit may have on a similar suit pending or brought later in Delaware.  This litigation saga involving a bribery scandal at Wal-Mart took some interesting turns, ping-ponging between the Delaware Court of Chancery and the Delaware Supreme Court.  More ›

Court Of Chancery Explains Inspection Rights Under An LLC Agreement

Aloha Power Company LLC v. Regenesis Power LLC, C.A. 12697-VCMR (Dec. 22, 2017)

This books and records decision addresses inspection rights granted under an LLC agreement. It also is useful as a reminder that a mere decline in an entity’s performance is not a sufficient proper purpose supporting inspection.  While the “credible basis” standard for suspecting mismanagement is low, it is not that low.