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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 141 posts by Albert H. Manwaring, IV.
Chancery Revived a Dismissed Claim after Discovery Revealed a Desire for Liquidity that Resulted in a Divergent Interest in M&A Sale Process
In re Mindbody, Inc., S’holder Litig., Cons. C.A. No. 2019-0442-KSJM (Del. Ch. Dec. 9, 2021)
A desire for liquidity can result in a divergent interest sufficient to plead fiduciary duty claims against a defendant protected by an exculpatory charter provision. More ›
Chancery Sustains Claims for Controlling Stockholders’ Breach of Fiduciary Duties, But Dismisses Claim to Void Transaction under DGCL Section 205
Amgine Techs. (US), Inc. v. Miller, C.A. No. 2020-0537-JRS (Del. Ch. Nov. 29, 2021)
This case involves the Court of Chancery’s consideration of various Rule 12 arguments for dismissal advanced by defendants – alleged controlling stockholders who assigned certain of the corporation’s intellectual property to another entity they owned, and who allegedly caused the corporation to enter into a stockholders’ agreement that gave them preferential terms. More ›
Chancery Finds General Partner Breached Partnership Agreement in Exercising Call Right, and Awards Limited Partners Nearly $700 Million in Damages
Bandera Master Fund LP v. Boardwalk Pipeline Partners, LP, C.A. No. 2018-0372-JTL (Del. Ch. Nov. 12, 2021)
If a partnership agreement requires an opinion of counsel as a condition precedent, such opinion must be rendered in subjective good faith under Delaware law, As Boardwalk Pipeline Partners illustrates, a court applying Delaware law may reject such an opinion as rendered in bad faith if the counsel and the requesting party involved coordinate to develop counterfactual assumptions designed to generate a desired result for the requesting party. More ›
Chancery Applies Traditional Fiduciary Principles to a SPAC in First Test of the Popular Vehicle for Private Companies to Access Public Markets under Delaware Corporate Law
A Special Purpose Acquisition Company or SPAC is a popular investment vehicle to take private companies public. A SPAC, commonly referred to as a blank check company, is a company whose stock is traded on a public market, but has no operations. Typically, the SPAC raises capital through an IPO with the singular goal of entering into a business combination with a private operating company (referred to as a de-SPAC merger), taking the private company public and giving the new public company its stock listing. A SPAC is often formed and controlled by a sponsor, whose primary job is to identify a target private operating company for the de-SPAC merger. A common feature of a SPAC is that the sponsor receives founder shares in the SPAC for a nominal capital contribution, which shares convert to substantial common shares in the new public company if a business combination with a private company is consummated within the market-standard, two-year period from the IPO. However, if no such transaction is completed within two years, the IPO proceeds are returned with interest to the public stockholders, and the SPAC winds up and liquidates, which renders worthless the sponsor’s founder shares. While these features and structure are common in SPACs, and the attendant mismatched financial incentives between the sponsor and the public stockholders in a de-SPAC merger are known to SPAC investors, this does not remedy the conflicts of interest inherent in the SPAC structure. Moreover, that a de-SPAC merger may legally comply with the DGCL does not shield the merger from application of well-established equitable fiduciary principles of Delaware corporate law. More ›
ShareChancery Applies Plain Language of a Merger Covenant To Dismiss Acquirer’s Untimely Indemnification Claim and Deny Sellers’ Request for Detailed Annual Reports
Supernus Pharms., Inc. v. Reich Consulting Grp., Inc., C.A. No. 2020-0217-MTZ (Del. Ch. Oct. 29, 2021)
Supernus Pharmaceuticals, Inc. acquired biotech startup Biscayne Neurotherapeutics, Inc. pursuant to a 2018 merger agreement. In 2019, Supernus submitted indemnification claim notices to Reich Consulting Group, Inc., the security holder representative for Biscayne. Subsequently, Supernus filed an indemnification action against Reich in the Court of Chancery. Following trial, plaintiff Supernus’s only remaining indemnification claim was based on a provision in the merger agreement that required Biscayne to operate in the ordinary course of business during a specific period of time (“Ordinary Course Covenant”). More ›
Presented with Documents Outside the Pleadings, Chancery Converts Motion To Dismiss to Motion for Summary Judgment and Allows Discovery
Totta v. CCSB Fin. Corp., C.A. No. 2021-0173-KSJM (Del. Ch. Oct. 20, 2021)
While the Court may take judicial notice of the contents of materials like newspaper articles, public filings and websites for certain purposes, it generally may not do so to establish the truth of their contents. Where, as here, a party relies on documents outside the pleadings, the Court may convert a motion to dismiss into a motion for summary judgment, and therefore deny the motion. More ›
Delaware Supreme Court Overrules Gentile, Resolving Tension in Legal Test To Determine Whether a Claim Is Direct or Derivative
Brookfield Asset Mgmt., Inc. v. Rosson, No. 406, 2020 (Del. Sept. 20, 2021)
Seeking to bring clarity to the issue of whether a claim is direct or derivative—a potentially outcome-determinative issue—the Delaware Supreme Court overturned its own precedent in Gentile v. Rossette, 906 A.2d 91 (Del. 2006). More ›
Chancery Addresses Indemnification Rights Following CEO’s Partial Success On Underlying Claims, Including Success Based on Technicalities
Evans v. Avande, Inc. , C. A. No. 2018-0454-LWW (Del. Ch. Sept. 23, 2021)
The departure of a company’s CEO was contentious. After his termination, the company filed an action in the Court of Chancery, alleging that the CEO had breached his duty of loyalty, sought a declaratory judgment that his removal was valid and effective, and further asserted claims for tortious interference, defamation, and conversion against the CEO. After trial, the Court concluded that the CEO had breached his duty of loyalty but that the company had failed to brief, and therefore had waived, its claims for declaratory judgment, tortious interference, defamation, and conversion. On the basis of mandatory indemnification rights in the company’s charter and bylaws, the CEO filed a complaint in the Court of Chancery seeking indemnification for his fees incurred defending against the company’s suit. More ›
Chancery Dismisses Derivative Claims Alleging Insider Trading and Misleading Disclosures for Failure to Plead Demand Futility
In re Zimmer Biomet Hldgs., Inc. Deriv. Litig., C.A. No. 2019-0455-LWW (Del. Ch. Aug. 25, 2021)
Under Court of Chancery Rule 23.1, a stockholder-plaintiff may only bring a derivative suit on behalf of a company if the plaintiff (i) first makes a demand on the board to bring suit and is wrongfully refused, or (ii) adequately pleads that a demand would have been futile because the directors were incapable of impartially considering it. Here, the court granted the defendants’ motion to dismiss, because the stockholder-plaintiff failed to allege facts that a majority of the board of directors – who concededly were otherwise disinterested and independent – faced a substantial risk of personal liability. More ›
Chancery Denies Motion to Dismiss, Awaits Development of Factual Record to Rule on Laches Defense
Kim v. Coupang, LLC, C.A. No. 2020-0772-JRS (Del. Ch. Aug. 19, 2021)
If a court can rule on the affirmative defense of laches on the face of a complaint, it may grant a motion to dismiss. As this case illustrates, however, when a laches defense cannot be determined from the complaint, resolving that defense may have to await the development of the factual record. More ›
Applying Plain Contract Language, Chancery Awards $147 Million in Damages to Start-Up Company for Breach of Joint Venture Agreement
Symbiont.io, Inc. v. Ipreo Hldgs., LLC, C.A. No. 2019-0407-JTL (Del. Ch. Aug. 13, 2021)
Delaware is a pro-contractarian state. When fashioning an award for a breach of contract, a Delaware court can consider: (1) the bargained-for damages remedy; (2) whether at the time of contracting the damages from a breach would be uncertain or incapable of accurate calculation; and (3) whether the amount contractually called for would be unconscionable. More ›
Superior Court CCLD Dismisses Complaint Seeking Insurance Coverage for Appraisal Proceeding
Jarden, LLC v. ACE Am. Ins. Co., C.A. No. N20C-03-112 AML CCLD (Del. Super. July 30, 2021)
Director and corporate liability insurance coverage is determined by the specific language of the insurance policies. Last year, the Delaware Supreme Court held that an appraisal claim under 8 Del. C. § 262 was not a “securities claim” because it was not a claim for a “violation of law[,]” as required under that policy’s definition. See In re Solera Ins. Coverage Appeals, 240 A.3d 1121 (Del. 2020). This case addressed similar issues under somewhat different policy language. More ›
Chancery Dismisses Claims Relating to Proposed Financing of Italian Soccer Club
Feldman v. AS Roma SPV GP, LLC, C.A. No. 2020-0314-PAF (Del. Ch. July 22, 2021)
In Feldman, plaintiffs were minority members of a Delaware limited liability company that held a controlling interest in a premier Italian soccer club. The LLC’s managing member and its controllers and associated entities sought to exit their control investment in the club. A sales process stalled during the coronavirus pandemic. The controllers called for additional capital from existing members on a pro rata basis, either through new financing or conversion of debt, in exchange for units with priority status and liquidation preferences. The controllers approved a related amendment to the LLC agreement. Due to insufficient interest from members, the controllers instead proposed a financing transaction that included member loans with certain preferences, such as premium payments in the event of the company’s sale. Eighty percent of membership interests participated in the loans. Soon after, a sale of the club was announced. More ›
Chancery Confirms Operation of Savings Statute and Tortious Interference Framework in Dispute Involving Fiduciaries with Competing Creditor Interests
Skye Mineral Invs., LLC v. DXS Capital (U.S.) Ltd., C.A. No. 2018-0059-JRS (Del. Ch. July 28, 2021)
Delaware’s savings statute—10 Del. C. § 8118(a)—protects claims from being time-barred where they were timely brought in an incorrect forum. Here, the Court of Chancery applied the savings statute in the context of claims alleging that, in a course of conduct dating back to 2013, majority LLC members managed the company to protect their affiliate’s status as a senior secured creditor and drive the company into bankruptcy, all to eliminate the minority members’ interests. More ›
Court of Chancery Denies Lead Plaintiff’s Application for Incentive Fee from Overall Fee Award
Morrison v. Berry, C.A. No. 12808-VCG (Del. Ch. July 12, 2021)
Delaware courts generally do not award special compensation to lead plaintiffs in class action litigation. Delaware courts typically limit awards to out-of-pocket costs and expenses, unless lead plaintiffs take on extra—essentially, exceptional—burdens in the litigation. Submitting a modest award request does not necessarily portend success that an applicant will receive an award. More ›