Showing 136 posts by Albert H. Manwaring, IV.
Chancery Denies Specific Performance in De-SPAC Transaction Based on Difficulty of Enforcement and Plaintiff’s Inequitable Conduct
26 Capital Acquisition Corp. v. Tiger Resort Asia Ltd., CA No. 2023-0128-JTL (Del. Ch. September 7, 2023)
Even where the parties have contractually agreed that specific performance is the preferred remedy for a breach, the decision whether to award that relief nevertheless remains within the Court of Chancery's discretion. In this decision, addressing the availability of specific performance, the Court assumed without deciding that the defendant target of a SPAC had not used its reasonable best efforts to close the transaction in breach of the agreement, that the SPAC was ready, willing, and able to close, and that money damages were an inadequate remedy at law. More ›
REM OA Holdings LLC v. Northern Gold Holdings LLC, C.A. No. 2022-0582-LWW (Del. Ch. Sep. 20, 2023)
Delaware is a contractarian state and the presumption is that parties are bound by their agreements. That presumption applies with even greater force when the parties are sophisticated and engage in arms-length negotiations. In this case, the defendant, a 50% member of an LLC, challenged a $10 million financing agreement entered into by the LLC’s other 50% member. That arrangement allowed the lender to purchase an interest in the company. In challenging the agreement, the defendant member argued that the plaintiff did not provide him with the term sheet for the transaction. In this decision, the Court of Chancery upheld the transaction, reasoning that, while the defendant member did not receive the term sheet, the consent for the loan that he signed repeatedly referenced the term sheet, the defendant was a sophisticated party with counsel, and he had the opportunity to inspect the consent and inquire about the term sheet as a matter of basic diligence. The Court also rejected numerous other defenses to enforceability.
Sorrento Therapeutics, Inc. v. Mack, C.A. No. 2021-0210-PAF (Del. Ch. September 1, 2023)
Under the corporate opportunity doctrine, an officer or director may not take a corporate opportunity for himself if "(1) the corporation is financially able to exploit the opportunity; (2) the opportunity is within the corporation's line of business; (3) the corporation has an interest or expectancy in the opportunity; and (4) by taking the opportunity for his own, the corporate fiduciary will thereby be placed in a position inimical to his duties to the corporation.” Broz v. Cellular Info. Sys., Inc., 673 A.2d 148, 154-55 (Del. 1996). In this post-trial opinion, the Court of Chancery held that a co-founder and former CEO who stayed on as President following his sale of the company to a strategic acquirer breached his fiduciary duties by usurping its corporate opportunities. While the defendant argued the company lacked the resources to pursue the opportunity, the Court reasoned that there was "no structural or situational barrier" to the company obtaining the capital needed. The Court did not credit the defendant's argument that the company was not likely to pursue the opportunities. The Court also explained that the corporate opportunity "test focuses on the company's ability to pursue the opportunity, not the board's likelihood of actually deciding to do so." The Court also found that the third prong was met because the opportunities were in the same line of business in which the company operated, but the defendant had usurped them for his own venture. It accordingly found the defendant liable and ordered supplemental briefing regarding the appropriate remedies.
Chancery Finds Defendants Liable for Fraud Based on the Failure to Disclose Internal Billing Practices
NetApp Inc. v. Cinelli, C.A. No. 2020-1000-LWW (Del. Ch. Aug. 2, 2023)
This decision arose out of the sale of the company Cloud Jumper to NetApp, Inc. The seller’s management had been recording internal software use as revenue in its unaudited financial statements but never disclosed this practice to the buyer in the sale’s process. In this post-trial opinion, in addition to breaches of contract, the Court of Chancery held that the defendants were liable for fraud because they failed to disclose internal billing practices that created the appearance of higher company revenue. The Court reasoned that this failure constituted common law fraud because the defendants had a duty to speak regarding the billing practice, there was circumstantial evidence that they had scienter to commit fraud due to their knowledge of the internal billing practice, and the plaintiffs relied on the financial data that reflected the billing practice when considering whether to pursue the deal. The decision also reflects a detailed analysis of damages and expert testimony related to the misrepresentations.
Chancery Finds that Acquiror Aided and Abetted Breaches of Fiduciary Duties by Exploiting Management’s Conflicts of Interest
In re Columbia Pipeline Group Merger Litig., Consol. C.A. No. 2018-0484-JTL (Del. Ch. June 30, 2023)
To establish a claim for aiding and abetting a breach of fiduciary duties, a plaintiff must show “i) the existence of a fiduciary relationship giving rise to a duty to the plaintiff, (ii) a breach of that duty by the fiduciary, (iii) knowing participation in the breach by the defendant, and (iv) damages proximately caused by the breach.” Id. at 94. The plaintiffs alleged that TransCanada, the acquirer in the merger transaction, aided and abetted a breach of fiduciary duties in the merger sale process and in disclosures to the stockholders in connection with the merger vote. More ›
Superior Court CCLD Declines to Award Costs for Special Master and Mediator, and Awards only Simple Interest on Judgment in Accord with Superior Court Default Rule
LCT Capital, LLC v. NGL Energy Partners LP, C.A. No. N15C-08-109 JJC CCLD (Del. Super. Ct. June 20, 2023)
Under Superior Court Rule 54, costs are allowed as a matter of course to the prevailing party. In this post-trial opinion, the Court denied costs associated with a special master fee and declined to include mediator fees but allowed costs relating to courtroom technology. The Court reasoned that the technology costs should be awarded because they were incidental and necessary to the trial. The Court found, however, that the fees related to the special master should not be awarded because those fees were similar to attorneys' fees. The Court also reasoned that the mediator's fees should not be awarded without a showing of abuse because mediator fees are typically split by the parties. More ›
Chancery Finds Derivative Plaintiffs Breached Duties in Withholding Arbitration Award of the Company
Optimiscorp v. Atkins, C.A. No. 2020-0183-MTZ (Del. Ch. June 1, 2023)
As this decision explains, when stockholder plaintiffs control the derivative claims of the company, they serve as agents of the company and owe the company fiduciary duties. This dispute involved the defendant-stockholders improperly withholding an arbitration award, which was obtained as a result of their successful litigation of derivative claims on behalf of the company. Ruling on summary judgment, the Court of Chancery held that the defendants breached their fiduciary duties to the company by withholding the award. The Court found that the defendants acted as agents of the company in the derivative claims and, therefore, owed fiduciary duties to the company. The Court reasoned that the defendants, as the company's agents, were required to return the award to the company because a monetized derivative asset belongs to the company. The Court ruled that the defendants breached their duty of care by divesting the company's board of its authority to manage the award and by failing to perform their obligations as company agents. Further, by withholding the award with the intent of distributing it to themselves, their friends, and their family, the defendants also breached their duty of loyalty. In ruling so, the Court rejected the defendant's argument that the business judgment rule should apply to their actions, finding the business judgment rule is intended to apply to directors, while derivative stockholder plaintiffs are held to a simple negligence standard with respect to their duty of care and a more stringent duty of loyalty than directors.
Superior Court Declines to Dismiss Counterclaims Based on “Interrelated Wrongful Act” Clause in D&O Coverage Dispute Arising Out of Viacom-CBS Merger
National Amusements Inc. v. Endurance American Specialty Insurance Co. (Del. Super. April 28, 2023)
In this D&O insurance coverage dispute, the plaintiffs moved to dismiss the defendant insurers' counterclaims, which contended that the "Interrelated Wrongful Acts" clause barred coverage under the present D&O policies for certain merger-related litigation initiated in 2019. That clause deemed interrelated acts a single claim and deemed them to be made in the earliest policy period in which the earliest interrelated claim was made. Defendants' theory was that the merger litigation initiated in 2019 arose from interrelated prior wrongful acts starting in 2016 when the plaintiffs were involved in a battle for corporate control, which were the subject. More ›
Plaintiff Overcomes Rule 23.1 In Walmart Opioids Litigation Based In Part On Over-Redacted Documents In Books And Records Productions
Ontario Provincial Council of Carpenters’ Pension Trust Fund v. Walton, C.A. No. 2021-0827-JTL (Del. Ch. Apr. 26, 2023)
To assert a derivative claim, a stockholder plaintiff must plead demand futility. The plaintiffs advanced three types of claims relating to Walmart’s distribution of opioids: a Massey Claim (i.e., affirmative law-breaking claim), a Red-Flags Claim (i.e., a species of a Caremark claim), and an Information-Systems Claim (i.e., a species of a Caremark claim). The Massey Claim asserted that Walmart’s directors and officers knew that Walmart was failing to comply with its legal obligations and made a conscious decision to prioritize profits over compliance. The Red-Flags Claim asserted that a series of red flags put Walmart’s directors and officers on notice of Walmart’s noncompliance or potential corporate trauma, but the directors and officers consciously ignored them. The Information-Systems Claim asserted that Walmart’s directors and officers knew that they had an obligation to establish a monitoring system to address a core compliance risk, but consciously failed to make a good faith effort to fulfill that obligation. More ›
Chancery Rules That Separate Accrual Periods Apply to an Information Systems Caremark Claim in Walmart Opioid Litigation
Ontario Provincial Council of Carpenters' Pension Trust Fund v. Walton, C.A. No. 2021-0827-JTL (Del. Ch. Apr. 12, 2023)
To determine the limitations period under laches, a court must determine when a claim accrued. Delaware courts have considered three different approaches to claim accrual: the discrete act approach, the separate accrual approach, and the continuing wrong approach. More ›
In re Mindbody Inc. Stockholder Litig., C.A. No. 2019-0442-KSJM (Del. Ch. Mar. 15, 2023)
Under Revlon, to demonstrate that they satisfied their fiduciary duties in connection with a sale of control, directors bear the burden of establishing both the reasonableness of their decision-making process and the reasonableness of their actions in light of the circumstances then present. As the Court reasoned in a prior opinion in this action (discussed here), "[t]he paradigmatic Revlon claim involves a conflicted fiduciary who is insufficiently checked by the board and who tilts the sale process toward his own personal interests in ways inconsistent with maximizing stockholder value." More ›
In re McDonald's Corp. Stockholder Derivative Litig., CA No. 2021-0324-JTL (Del. Ch. March 1, 2023)
A plaintiff can plead an oversight claim against a board by alleging particularized facts to support an inference that the directors either: (1) utterly failed to implement a reporting or information system or controls or (2) consciously failed to monitor or oversee the business and, as a result, disabled themselves from being informed of problems or risks that required their attention. A "prong-two" failure to monitor Caremark claim, or "red flags" claim, requires that the plaintiff plead that the board's information system generated red flags and that the board subsequently failed to respond and address the red flags. More ›
Chancery Finds Personal Jurisdiction Under Conspiracy Theory of Jurisdiction Based on Trust Domestication
Harris v. Harris, C.A. No. 2019-0736-JTL (Del. Ch. Jan. 16, 2023)
Under the conspiracy theory of personal jurisdiction, when defendants conspire to engage in tortious activities, the Delaware-directed acts of one co-conspirator can be attributed to the other conspirators for the purpose of establishing personal jurisdiction under Delaware’s Long-Arm Statute. Here, the plaintiffs alleged that the defendants acted in concert to support the domestication of a trust (specifically, a GRAT) in Delaware for purposes of a larger tortious scheme. Based on these allegations, the Court of Chancery found there was sufficient support to support personal jurisdiction under the conspiracy theory, or minimally to allow for jurisdictional discovery. But the Court also concluded that the discovery was unnecessary because there was evidence of spoliation, which allowed for a pleadings stage inference that the defendants were engaged in a conspiracy sufficient to support personal jurisdiction.
In Re Orbit/FR, Inc. Stockholders Litig., C.A. No. 2018-0340-SG (Del. Ch. January 9, 2023)
In In re Primedia, Inc. S’holders Litig., 67 A.3d 455 (Del. Ch. 2013), the Court examined whether a litigation asset being pursued derivatively was extinguished by the sale of the company to a third party that had no interest in pursuing the claim and had not valued the claim as an asset in the merger. Primedia sets forth certain stringent standards to assert a claim that the merger was unfair based on such a derivative claim. More ›
Harris v. Harris, C.A. No. 2019-0736-JTL (Del. Ch. Jan. 6, 2023)
Delaware law allows for two exceptions to the continuous stock ownership rule for stockholders to bring and maintain standing to assert derivative claims that predate a transaction: (1) when the transaction, which would otherwise deprive the plaintiffs of standing, is essentially a reorganization that does not affect the plaintiff’s relative ownership in the post-merger enterprise; or (2) when a plaintiff stockholder loses standing based on a merger consummated for the purpose of depriving the stockholder of the ability to bring or maintain a derivative action. Stockholders with derivative claims that predate a transaction also may assert direct claims to challenge a merger by pleading that the value of the derivative claim is material in the context of the merger, that the acquirer did not assign value or provide additional consideration for the value of the derivative claim, and that the acquirer will not assert the derivative claim. More ›