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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 23 posts by Alena Smith.
Chancery Grants Injunction Under the Delaware Deceptive Trade Practices Act
Next Level Ventures, LLC v. AVID USA Technologies LLC, C.A. No. 2022-0699-MTZ (Del. Ch. March 16, 2023)
The Delaware Deceptive Trade Practices Act (the "DDTPA”), 6 Del. C. § 2531, et seq., prohibits confusing or creating misunderstanding as to "the source, sponsorship, approval, or certification of goods or services" as well as to the products' “affiliation, connection, or association with, or certification by, another." In this case, the plaintiff asserted violations of the DDTPA in connection with the defendants' allegedly misleading statements. This decision grants the injunction against all defendants but narrows it to fit the specific allegations. More ›
Chancery Finds Delaware’s Officer Consent Statute Extends Beyond “Formal Officers” to De Facto or Acting Officers
Harris v Harris, C.A. No. 2019-0736-JTL (Del. Ch. January 19, 2023)
Delaware's Officer Consent Statute provides for service of process on anyone who "accepts election or appointment as an officer of a corporation…or who after such date serves in such capacity." In this case, Vice Chancellor J. Travis Laster addressed an issue of first impression and found that the Statute can be used to serve process on a person who performs the duties of an officer regardless of the person's formal title or acceptance of the position. This decision allows plaintiffs to engage in jurisdictional discovery to determine whether the company's advisor acted as its de facto officer. More ›
Chancery Orders an LLC to Provide Manager with Books and Records Comprising Informal Board Materials Related to Other Managers’ Actions
Bruckel v. TAUC Holdings, LLC, C.A. 2021-0579-MTZ (Del. Ch. Jan. 6, 2023)
Delaware law provides managers of an LLC with a right to inspect the company’s books and records for a purpose reasonably related to their management positions. In this Order, the Court emphasized that all managers of an LLC have equal access to the company's information. More ›
Chancery Finds SPAC’s Sponsor and Board Potentially Violated Fiduciary Duties by Depriving Public Stockholders of the Information Material to the Stock Redemption Decision
Delman v. GigAcquisitions3 LLC, C.A. No. 2021-0679-LWW (Del. Ch. January 4, 2023)
Delaware law establishes that fiduciaries of a corporation cannot be exempted from "their loyalty obligation and the attendant equitable standards of review that [the] court will apply to enforce it." In this case, following last year's Multiplan decision (discussed here), stockholders alleged that a SPAC's sponsor and board members breached their fiduciary duties by failing to disclose information material to the stockholders' decision on whether to redeem the stock prior to the de-SPAC transaction. This decision denies the defendants' motion to dismiss and finds that stockholders properly brought the lawsuit as a class action based on the fact that the alleged harm they suffered was individually compensable. More ›
Chancery Finds Stockholder Conferred a Substantial Corporate Benefit by Challenging the Joint Vote of Two Classes of Common Stock under Section 242(b)(2) of the DGCL
Garfield v. Boxed Inc., C.A. No. 2022-0132-MTZ (Del. Ch. Dec. 27, 2022).
Section 242(b)(2) of the DGCL requires the separate approval of different classes of stock for charter amendments that, inter alia, “increase or decrease the aggregate number of authorized shares of such class…” Section 242(b)(2) permits corporations to opt-out of this separate class approval requirement via a charter amendment – but any such amendment also must be approved by a separate class vote. This decision awards attorneys’ fees under the corporate benefit doctrine to a stockholder who questioned the validity of Class A and Class B common shares voting together on proposed amendments triggering these requirements, which then caused the corporation to provide separate class votes. More ›
Chancery Reasons Rule 15(aaa) Does not Contemplate Moving to Amend After the Responsive Brief is Filed and Before the Court Rules on a Motion to Dismiss
Wells Lory Hillblom, f/k/a Nguyen Be Lory vs Wilmington Tr. Co., 2021-1034-MTZ (Del. Ch. Dec. 6, 2022).
Rule 15(aaa), a rule unique to the Court of Chancery, requires plaintiffs faced with a motion to dismiss for failure to state a claim to either (i) stand on their complaint and answer the motion; or (ii) amend their complaint before the response to the motion is due. Plaintiffs could also seek to amend the complaint under Rule 15(aaa) after the Court decides that dismissal is warranted but only upon a showing of good cause why dismissal with prejudice is not just under all the circumstances. More ›
Chancery Grants Specific Performance For Release of Escrowed Funds, Rejects Sellers’ Representative’s Arguments to Withhold Funds As Inconsistent With Purchase Agreement’s Plain Language and the Implied Covenant of Good Faith and Fair Dealing
Am. Healthcare Admin. Services Inc. v. Aizen, C.A. No. 2019-0793-JTL (Del. Ch. Nov. 18, 2022)
Parties to acquisition agreements often have discretion concerning when to instruct an escrow agent to distribute funds post-closing, but any such discretion is limited by the plain language of the agreement and implied covenant of good faith and fair dealing. This decision addresses the availability of an unclean hands defense to contract claims seeking equitable relief. More ›
Stockholder Lacks Standing to Enforce the Merger Agreement but May Be Able to Recover Lost Premium Through an Action for Damages
Crispo v. Musk, C.A. No. 2022-0666-KSJM (Del. Ch. Oct. 11, 2022)
Stockholders generally have standing as third-party beneficiaries of corporate contracts under only limited circumstances. As this decision notes, whether contractual language gives standing to stockholders can be “a thorny legal issue.” More ›