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Albert J. Carroll

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Showing 479 posts by Albert J. Carroll.

Chancery Orders Stay of “Dr. J” Litigation Pending Arbitrator’s Decision on Arbitrability


Erving v. ABG Intermediate Holdings 2, LLC, C.A. No. 2021-0816-NAC (Del. Ch. Nov. 28, 2022)
Basketball legend Julius W. Erving II, also known as “Dr. J”, sold a majority interest in his trademark and other intellectual property to a brand development and marketing company. The transaction involved the creation of an LLC—in which Dr. J held a minority interest and the marketing company held a majority interest and promised to grow Dr. J’s brand. The LLC operating agreement contained a dispute resolution provision that included an exclusive arbitration clause. Several years later, Dr. J filed claims in the Court of Chancery, alleging that the defendants had wrongfully diverted funds and failed to devote reasonable efforts to grow Dr. J’s brand. Defendants moved to dismiss the action in favor of arbitration or, in the alternative, to stay the case pending an arbitrator’s decision regarding whether the dispute must be arbitrated. More ›

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Chancery Permits Discovery Under the Hague Evidence Convention

Posted In Chancery, Discovery


In Re Cote D’Azur Estate, C.A. No. 2017-0290-JTL (Del. Ch. Dec. 12, 2022)
The Hague Evidence Convention provides an alternative method from the Federal Rules of Civil Procedure to compelling production from opposing parties across international lines. In this decision, the Court of Chancery considered a request for production under the Convention from a plaintiff-heir, seeking discovery on her late father’s former legal counsel regarding issues surrounding the family estate, established as a Delaware LLC, to control the family villa in France. Questions arose regarding the propriety of the legal advice provided to the father by counsel, and plaintiff-heir sought to compel production of discovery, while defendant-counsel refused to cooperate. More ›

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Chancery Addresses Real-Party-In-Interest and Collateral Estoppel Doctrines in Section 225 Dispute


Hawk Investment Holdings Ltd. v. Stream TV Networks Inc., C.A. No. 2022-0930-JTL (Del. Ch. Nov. 29, 2022)
This Section 225 decision involved Stream TV Networks, Inc. and its secured creditor, Hawk Investment Holdings Ltd. Under certain pledge agreements securing Hawk’s loans, Stream granted Hawk the right to vote all of its common shares in subsidiary Technovative Media, Inc. following an event of default. Hawk exercised those voting rights to remove and replace Technovative’s sole director, resulting in this litigation. In this decision addressing pre-trial motions, the Court validated Hawk’s standing to pursue its Section 225 claim as a stockholder notwithstanding that had assigned certain rights to an affiliate. In doing so, the Court explained statutory standing and the real-party in-interest doctrine in the Section 225 context. The Court also applied the doctrine of collateral estoppel to resolve several issues in Hawk’s favor based on prior litigation involving Stream. 

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Chancery Sides With Board in Dispute Over Stockholder’s Compliance With Advanced Notice Bylaws to Nominate Directors


Jorgl v. AIM ImmunoTech, Inc., 2022-0669-LWW (Del. Ch. Oct. 28, 2022)
The Court of Chancery rejected a stockholder’s bid for a preliminary mandatory injunction directing the board of AIM ImmunoTech, Inc. to include his nominees on the ballot of potential directors. The dispute centered on whether the board had wrongfully rejected the stockholder’s nominees based upon the board’s suspicion that the stockholder had not complied with the company’s advanced notice bylaws requiring the stockholder to disclose “all arrangements or understandings” with any of his nominees. Because evidence suggested that the stockholder and his nominees may have been part of an undisclosed plan to commence a proxy contest, the stockholder could not establish at the preliminary injunction stage that the board erred as a matter of law in rejecting his nominations. The Court also concluded that the stockholder failed to establish, as a matter of law, that the board acted with an entrenchment motive in rejecting the nominations. Accordingly, the Court found that the stockholder could not meet the heavy burden necessary to obtain preliminary mandatory injunctive relief.

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Chancery Dismisses Claims Against Controller and its Affiliates Based on Group Pleading and Vague, General Allegations of Claims for Breach of Fiduciary Duty


Bocock v. Innovate Corp., C.A. No. 2021-0224-PAF (Del. Ch. Oct. 28, 2022)
A holding company acquired a controlling stake in an owner/operator of low-power television stations via a stock purchase agreement. The controller then designated certain of its own affiliates’ officers and directors as officers and directors of the acquired company. More than three years later, stockholders and option holders filed a complaint alleging that the controller, its affiliates, and the officers and directors had conspired to loot the company by usurping corporate opportunities, transferring assets for insufficient consideration, and entering into agreements that drained value from the company. The claims included breach of fiduciary duty, corporate waste, aiding and abetting, conspiracy, and tortious interference. More ›

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Chancery Trims Contract Claims in Post-Merger Dispute


In Re P3 Health Group Holdings, LLC, Consol. C.A. 2021-0518-JTL (Del. Ch. Oct. 31, 2022)
Plaintiff Hudson Vegas Investment SPV, LLC asserted various claims after its minority interest in Defendant P3 Health Group Holdings, LLC was wiped out in a business combination between P3 and a SPAC. The Court of Chancery has issued several decisions in the case; this one dealt with Hudson’s various claims for breach of P3’s LLC agreement. More ›

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Chancery Finds Buzzfeed and Others Not Bound by Arbitration Provisions in Employment Agreements


Buzzfeed v. Anderson, C.A. No. 2022-0357-MTZ (Del. Ch. Oct. 28, 2022)
In 2021, Buzzfeed engaged in a SPAC transaction wherein its stock was converted into stock in Buzzfeed’s post-SPAC corporate form. An IPO followed. In connection with the IPO, former employees of the pre-transaction Buzzfeed (“Old Buzzfeed”) who had received shares in the post-transaction Buzzfeed (“New Buzzfeed”), filed mass arbitrations against New Buzzfeed, certain officers and directors, and the IPO transfer agent. These former employees and New Buzzfeed shareholders alleged that, because a different class of stock was offered in the IPO than the class of stock that they held, they were unable to participate in the IPO, suffering $9 million in damages. In response, New Buzzfeed, certain officers and directors, and the IPO transfer agent sued in the Court of Chancery seeking: (1) to enjoin the arbitrations, (2) a declaration that they were not bound by arbitration provisions in employment agreements entered into with Old Buzzfeed, and (3) a declaration that the former employees were obligated to comply with a forum selection clause in New Buzzfeed’s charter and bring their claims in the Court of Chancery. The plaintiffs moved for summary judgment on their claims; the former employees moved to dismiss the complaint for lack of subject matter and personal jurisdiction. More ›

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Superior Court Finds that Non-Recourse Provision Does Not Bar Fraud Claims Against Non-Seller Defendants


Amerimark Interactive LLC v. Amerimark Holdings, C.A. No. N21C-12-175 MMJ CCLD (Del. Super. Nov. 3, 2022)
This decision discusses and applies numerous rules governing fraud claims under Delaware law. For instance, an anti-reliance provision eliminates extra-contractual fraud claims while preserving intra-contractual fraud claims, and a non-recourse provision limits the entities and people against whom a claim can be brought. And, in Online HealthNow, Inv. v. CIP OCL Investments, LLC, 2021 WL 3557857 (Del. Ch. 2021), the Court of Chancery determined that a non-recourse provision did not bar claims against a non-signatory party. Here, the Superior Court applied Online HealthNow and held that fraud claims against non-seller defendants who allegedly were knowingly complicit in contractual fraud were not barred by the non-recourse and anti-reliance provisions of the agreement at issue.

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Chancery Denies Member Status to Individual Not Admitted By Members in Accordance With LLC Agreement

Posted In Chancery, LLCs


Riverside Risk Advisors LLC v. Chao, C.A. No. 2019-0789-KSJM (Del. Ch. Oct. 26, 2022)
The LLC Act generally provides that someone is admitted as an LLC member as provided in the LLC agreement. Here, the plaintiff sued seeking declaratory relief that the defendant, a former employee, was not a member of the LLC and that a 2015 agreement was the LLC’s governing document, rather than an earlier agreement. The Court of Chancery ruled in the plaintiff’s favor, finding that the defendant was not a member because, under the LLC agreement, written consent of all members was required for admission, and the defendant needed to agree to be bound by the agreement in writing. But neither of these steps occurred. The Court also held that the 2015 agreement was the current operative agreement for the LLC despite not being approved by the defendant, because, as required by the previous LLC agreement, it was approved by all members, which the defendant was not.

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Chancery Applies Implied Consent to Service Provision of Delaware LLC Act to Individual Without Any Formal Role at the LLC


In Re P3 Health Grp. Hldgs., LLC, Consol. C.A. No. 2021-0518-JTL (Del. Ch. Oct. 26, 2022)
The implied consent provision of Section 18-109 of Delaware’s LLC Act provides that “managers” of Delaware LLCs consent to the service of process in Delaware. The statute defines “managers” as both (1) those formally designated as managers, and (2) those who “participate [] materially” in management. Disputes over whether an individual not falling in the first category falls in the second often focus on individuals with some formal role at the LLC.  As this decision illustrates, however, an individual without any formal role at the LLC, but who otherwise participates materially in the LLC’s management, may also be found to be a manager, and thus have consented to service and jurisdiction in Delaware. Facts relevant to the Court of Chancery’s finding of an adequately alleged acting management, in this case, included the defendant’s direction of the company’s managers, control of the company’s advisors, involvement in legal decisions, and access to information.

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Equitable Fraud Claim Sufficient to Support Court of Chancery Jurisdiction


Trust Robin, Inc. v. Tissue Analytics, Inc., C.A. No. 2021-0806-SG (Del. Ch. Sep. 29, 2022)
After initially questioning its own subject matter jurisdiction in a dispute involving allegations of breach of contract and tort in connection with a services agreement, the Court of Chancery concluded that the plaintiff’s equitable fraud claim was not “simply a makeweight equitable hook” attached to its legal claims. The plaintiff sufficiently alleged a special relationship between the plaintiff and defendant, and it was possible that the plaintiff could recover for equitable, but not legal, fraud. The Court’s reasoning cited the alignment of the parties’ interests, the defendant’s control over the parties’ joint purpose by virtue of controlling certain intellectual property and other proprietary information belonging to the plaintiff, and the defendant’s alleged use of that control to engage in self-dealing. Therefore, the Court permitted the matter to proceed.

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Chancery Finds Personal Jurisdiction Over Individual Who Formed Delaware Entities in Connection with a Challenged Merger Transaction


In Re P3 Health Grp. Hldgs., LLC, Consol. C.A. No. 2021-0518-JTL (Del. Ch. Oct. 14, 2022)
The Court of Chancery rejected an individual defendant’s challenge to Delaware’s assertion of personal jurisdiction over him. Although the defendant portrayed himself as merely a shareholder of Delaware entities (which is not in itself a basis for personal jurisdiction), the Court found that he had transacted business in the state for purposes of Delaware’s Long Arm Statute because he also formed two entities as part of a planned merger. It did not offend due process to require the individual to defend litigation related to the merger in Delaware because there was a nexus between his contacts and the claims and because he should have reasonably anticipated that Delaware would exercise jurisdiction over him in litigation arising from the merger.

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Board Lacks Standing to Bring Motion to Dismiss Because It Delegated That Authority to Special Litigation Committee


Rowan v. Infinity Q Capital Mgmt., LLC, C.A. No. 2022-0176-MTZ (Del. Ch. Sep. 12, 2022)
If a conflicted board delegates all authority over derivative claims to a special litigation committee (“SLC”), then the board may lack authority separately to assert procedural defenses, including a motion to dismiss under Court of Chancery Rule 23.1. But whether a board has given up this authority depends upon the sequence and terms of the SLC’s creation. More ›

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Chancery Denies Preliminary Injunction For Overly Broad Restrictive Covenants


Kodiak Building Partners LLC v. Adams, C.A. No. 2022-0311-MTZ (Del. Ch. Oct. 6, 2022)
Delaware courts review noncompete and nonsolicitation agreements to ensure that they “(1) are reasonable in geographic scope and temporal duration, (2) advance a legitimate economic interest of the party seeking its enforcement, and (3) survive a balancing of the equities.” And Delaware law recognizes that an acquirer has a legitimate economic interest in protecting what it purchases, including the purchased company’s assets goodwill. Here, the plaintiff argued that it not only had a legitimate business interest in protecting the goodwill of the company it purchased, but also had a legitimate business interest in protecting its other businesses, including those that pre-dated the acquisition, and, as a result, could restrict a former employee from participating in industries relating to any of those businesses. The Court of Chancery disagreed, finding that the plaintiff’s legitimate economic interest did not extend to goodwill and competitive spaces acquired in other transactions with other companies in different industries. The Court also found that the scope of the noncompete and nonsolicitation covenants at issue were unreasonable, ruling that the provisions’ geographical scope was unreasonably broad, as they covered areas surrounding the plaintiff’s subsidiaries, rather than only areas related to the acquired company. The Court, therefore, declined to enter a preliminary injunction, finding the plaintiff did have a reasonable likelihood of success on the merits. In reaching this conclusion, the Court held that the employee’s promise not to challenge the reasonableness of his restrictive covenants within the relevant contract could not circumvent the Court’s mandate to review those covenants for reasonableness.

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acarroll@morrisjames.com
T 302.888.6852
Albert Carroll focuses his practice on litigation involving corporations and alternative entities formed under Delaware law. As a litigator, he represents and guides clients …
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