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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 partner in the firm's Corporate and Commercial Litigation Group and focuses his practice on litigation involving corporations and alternative entities formed …

Showing 325 posts by Albert J. Carroll.

Chancery Addresses Civil Conspiracy Elements

Posted In Chancery

O’Gara v. Coleman, C.A. No. 2018-0708-KSJM (Del. Ch. Feb. 14, 2020).

This action arose out of corporate infighting among certain directors and investors at a nutrient-infused water company. The plaintiff, the company’s founder, brought tort and contracts claims against certain former directors and current stockholders, accusing them of wrongfully attempting to seize control of the company. The parties settled several claims, but some defendants and claims remained. In this motion to dismiss decision, the Court of Chancery addresses, inter alia, the elements of a claim for civil conspiracy and, relatedly, the conspiracy theory of jurisdiction.  More ›

Chancery Finds Pleadings Sufficient to Support Claim that a Corporate Self-Tender Offer was Coercive

Posted In Chancery, M&A

Davidow v. LRN Corp., C.A. No. 2019-0150-MTZ (Del. Ch. Feb. 25, 2020).

Delaware law does not invoke the entire fairness test for a voluntary, noncoercive offer by a corporation to buy its own shares. But, as this decision illustrates, Delaware courts will apply the entire fairness test where the self-tender is coercive or the board is interested or lacks independence in approving the transaction. More ›

Chancery Holds That Res Judicata Precludes Plaintiff’s Claim for Information Rights Under Merger Agreement

Posted In Chancery, M&A

Fortis Advisors LLC v. Shire US Holdings, Inc., C.A. No. 2018-0933-JRS (Del. Ch. Feb. 13, 2020)

The doctrine of res judicata bars a plaintiff from splitting claims arising from a single transaction into multiple actions. As this decision illustrates, the requirement to plead all claims arising from a transaction in a lawsuit to avoid claim preclusion on res judicata grounds may include a claim for information rights arising from a merger agreement. A party with information rights should carefully evaluate those rights when bringing a claim for breach of contract, and should not assume that subsequent claims for information rights under the contract will avoid claim preclusion under the doctrine of res judicata. More ›

Delaware Corporate and Commercial Case Law 2019 Year in Review

This top ten list summarizes significant decisions of the Delaware Supreme Court and the Delaware Court of Chancery over the past calendar year. Our criteria for selection are that the decision either meaningfully changed Delaware law or provided clarity or guidance on issues relevant to corporate and commercial litigation in Delaware. We present the decisions in no particular order. The list does not include every significant decision, but provides litigants and litigators with an array of decisions on varied issues likely to affect business transactions or business litigation.  More ›

Chancery Appraisal Decision Illustrates the Importance of Reliable Expert Testimony and Witness Credibility to Fair Value Determinations

Posted In Appraisal, Chancery

Manichaean Capital, LLC v. SourceHOV Holdings, Inc., C.A. No. 2017-0673-JRS (Del. Ch. Jan. 30, 2020).

Even when its role is to determine the fair value of shares in an appraisal proceeding, credibility matters to the Court of Chancery. Following a three-party business combination, Petitioners (former minority stockholders) exercised appraisal rights under 8 Del. C. § 262. Petitioners and Respondent agreed to use a discounted cash flow analysis to determine the fair value because there was insufficient market-based evidence of fair market value. But the parties’ experts disagreed on the input values and results of the DCF analysis, leaving the Court to “grappl[e] with expert-generated valuation conclusions that [were] solar systems apart.” Mem. Op. 2.

After a lengthy comparison of the competing DCF analyses, the Court concluded that Petitioners’ calculation (with minor adjustments) represented fair value. By contrast, Respondent’s position suffered from significant credibility issues. One of the executives involved in the business combination transactions requested a backdated valuation, misrepresented the date of the valuation in discovery responses, and continued with its misrepresentation until the eve of trial. The Court also found Respondent’s expert was not credible because elements of his valuation approach were bespoke, were not used in the industry, and relied heavily on the ipse dixit of the expert. Complicating things further, Respondent disagreed with its own expert’s calculations and conclusions. These factors, combined with the superior DCF analysis by Petitioner’s expert, led the Court to accept Petitioner’s fair value calculation with only minor adjustments.

Chancery Denies Attempt to Use Mediation Communications to Supplement Mediation Term Sheet

Posted In Chancery, Mediation

Starkman v. O’Rourke, C.A. 2018-0901-KSJM (Del. Ch. Jan. 14, 2019) (ORDER).

Parties who resolve a case through a mediation conducted under Court of Chancery Rule 174 should include all material provisions in any mediation term sheet. As the Order in Starkman demonstrates, Rule 174 provides no opportunity for a party to introduce mediation communications to assert that a signed mediation agreement does not accurately reflect the parties’ discussions. More ›

Delaware Supreme Court Explains That Litigants Seeking Application of Foreign Law Have Burden To Establish its Substance

Germaninvestments AG v. Allomet Corp., No. 291, 2019 (Del. Jan. 27, 2020). 

In reversing the Court of Chancery’s decision that Austrian law applied to the interpretation of whether a forum selection clause was permissive or mandatory, the Delaware Supreme Court ruled that, to the extent prior decisions were unclear on the issue, a party seeking the application of foreign law in a Delaware court has the burden not only of raising the issue of the applicability of foreign law under court rules, but also, of establishing the substance of the foreign law to be applied.    More ›

Delaware Superior Court Distinguishes Between Affirmative and Negative Covenants in Earnout Dispute

Posted In CCLD, Earn-Out

Quarum v. Mitchell Int’l, Inc., C.A. No. N19C-03-087 AML CCLD (Del. Super. Jan. 21, 2020).

Under Delaware law, parties may structure covenants in an earnout agreement as affirmative (mandating action) or negative (prohibiting action). Given the important differences in the obligations these types of covenants impose, as illustrated by this decision, parties should carefully consider the contractual language in drafting. More ›

Chancery Rejects Challenge to Delaware as Proper Venue in Books and Records Action

Stanco v. Rallye Motors Holding, LLC, C.A. No. 2019-0751-SG (Del. Ch. Dec. 23, 2019). 

Delaware courts generally respect contractual forum selection provisions. When it comes to Delaware LLCs, however, the Delaware statute expressly precludes a non-managing member from waiving its right to a Delaware forum for proceedings involving the LLC’s internal affairs.  6 Del. C. § 18-109(d). And, in general, any waiver of rights must encompass knowledge of the right and clearly expressed intent to relinquish it. This case discusses the interplay between these rules. More ›

Delaware Superior Court CCLD Disqualifies Counsel to Ensure Fairness of Litigation Process

Sun Life Assurance Company of Canada v. Wilmington Savings Fund Society, FSB, C.A. No. N18C-08-074 PRW CCLD (Del. Super. Dec. 19, 2019).

Motions to disqualify counsel rarely succeed in the Delaware courts. This decision illustrates the type of conflict that can justify disqualification based on prior representations. Plaintiff issued a life insurance policy of $6 million to an individual named Bartelstein. The policy was assigned to a trust whose beneficiary is an entity, with the moniker Ocean Gate, making Ocean Gate the policy’s ultimate beneficiary. Plaintiff filed this suit alleging the policy is void as a stranger-oriented life insurance wager on Bartelstein’s life procured for investors. The litigation gave rise to alleged conflict issues for involved counsel. More ›

Chancery Balances the Obligation to Defend an Arbitral Award from Collateral Attack with the Obligation to Defer to a Broad Agreement to Arbitrate

Gulf LNC Energy, LLC v. Eni USA Gas Marketing LLC, C.A. No. 2019-0460-AGB (Del. Ch. Dec. 30, 2019). 

Plaintiff (“Gulf”) invested over $1 billion to construct a facility designed to unload imported liquefied natural gas (“LNG”) in Pascagoula, Mississippi. Defendant (“Eni”) entered a “Terminal Use Agreement” (“TUA”) with Gulf to use the facility over a twenty-year period. When domestic production of LNG through shale boomed, importation became economically unfeasible and Eni did not use the facility other than one initial shipment. The TUA contained a provision requiring that any types of disputes under the agreement be arbitrated. In an initial arbitration, the panel determined that the purposes of the twenty-year TUA were “substantially frustrated,” terminated the agreement as of 2016, and awarded Gulf nearly $500 million in compensation for the benefits conferred upon Eni by Gulf’s partial performance. The arbitrators explicitly did not address Eni’s claims that Gulf had breached the TUA, finding the claim “academic” and deserving of no further consideration in light of the agreement’s termination. More ›

Delaware Superior Court CCLD Clarifies When a Plaintiff is on Inquiry Notice to Bring a Claim for Limitations Period Purposes

Ocimum Biosolutions (India) Ltd. v. AstraZeneca UK Ltd., C.A. No. N15C-08-168 AML CCLD (Del. Super. Dec. 10, 2019).

Even in circumstances where a statutory limitations period can be tolled, tolling typically will cease once a plaintiff may be charged with inquiry notice of its potential claims. In this dispute brought against the biopharmaceutical company AstraZeneca arising out of database subscription arrangement, the Complex Commercial Litigation Division of the Delaware Superior Court held that defendant AstraZeneca was entitled to summary judgment because the plaintiff Ocimum Biosolutions had inquiry notice of its claims for breach of contract and misappropriation of trade secrets more than three years before commencing suit.  More ›

Chancery Provides Further Clarity Regarding Material Adverse Effect Clauses in Merger Agreements

Posted In M&A, MAEs

Channel Medsystems, Inc. v. Boston Scientific Corp., C.A. No. 2018-0673-AGB (Del. Ch. Dec. 18, 2019).

Material adverse effect clauses provide a form of buy-side protection in merger agreements. These often are complex provisions permitting the buyer to avoid closing under the right circumstances, usually involving an actual or reasonably expected serious business deterioration. Channel Medsystems represents the latest decision from the Delaware courts interpreting and applying a material adverse effect clause. Here, the Court of Chancery held that a buyer’s termination of a merger agreement was invalid because the fraudulent conduct of an officer of the seller, which rendered certain contractual representations materially false, did not have, nor was reasonably expected at the time of termination to have, a material adverse effect on the seller. More ›

Chancery Enforces Delaware Forum Selection Clause and Examines the Limited Circumstances Where a Foreign Nation May Divest Delaware Courts of Jurisdiction

AlixPartners, LLP v. Mori, C.A. No. 2019-0392- KSJM (Del. Ch. Nov. 26, 2019).

In AlixPartners, the Court of Chancery confirmed its jurisdiction to adjudicate disputes relating to the internal affairs of a Delaware limited liability partnership and explained the limited circumstances in which foreign law may divest the Court of subject matter jurisdiction. The suit arose when an employer, the global business advisory firm AlixPartners, which operated as a limited liability partnership, sued an employee, who also held partnership interests, for breaches of the relevant LLP Agreement, Equity Agreement, and Employment Agreement. Pursuant to the LLP and Equity Agreements, the employee had received equity in two partnerships formed under Delaware law by AlixPartners. More ›

Chancery Examines Computer Misuse Claims Against Former Employee and Awards Defamation Damages Against Former Employer

Laser Tone Business Systems LLC v. Delaware Micro-Computer LLC, C.A. No. 2017-0439-TMR (Del. Ch. Nov. 27, 2019).

In one of her final opinions before joining the Delaware Supreme Court, Vice Chancellor Montgomery-Reeves addressed various statutory computer misuse claims against a former employee and awarded $100,000 in compensatory damages for the former employer’s libel and slander. In Laser Tone v. Delaware Micro-Computer, plaintiff, a photocopier company, terminated the defendant employee after he refused to sign a non-compete agreement. In its subsequent lawsuit, plaintiff claimed that the defendant stole company information and deleted certain data from his company computer and cell phone devices before departing. Certain of plaintiff’s executives then communicated to third parties that the defendant was “a thief and a drug user.” Plaintiff brought a cause of action against the defendant for violating the Delaware Misuse of Computer System Information Act (“DMCSIA”) by allegedly stealing data and deleting certain other information from company systems. The defendant counterclaimed for libel and slander, arguing that plaintiff’s communications were false and had caused him significant mental and reputational harm.

After a two-day trial on the merits, the Court of Chancery found insufficient evidence to support a majority of the plaintiff’s theories of liability, but did find that the defendant had deleted certain data from his company laptop in violation of the DMCSIA. Finding no non-speculative evidence of harm, however, the Court awarded only nominal damages. The Court also found that plaintiff failed to prove that the defendant had stolen any data. Having determined that plaintiff failed to prove the defendant was a “thief,” the Court denied plaintiff’s affirmative defense of truth and entered judgment for the defendant on his defamation counterclaims. The Court, in its discretion, awarded $100,000 in damages, basing the award on evidence that the defendant had “lost two jobs, customers, and friends; and, [because] he fear[ed] his business [was] in jeopardy.”