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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 12 posts by Aubrey Morin.
Chancery Confirms Bad Faith Pleading Standard for Officer Caremark Claims
Segway Inc. v. Hong Cai, C.A. No. 2022-1110-LWW (Del. Ch. Ct. Dec. 14, 2023)
The Caremark doctrine recognizes the duty of oversight for directors of Delaware corporations. Under In re McDonald's Corp. Stockholder Derivative Litigation, 289 A.3d 343 (Del. Ch. Jan. 26, 2023), corporate officers, and not just directors, owe a duty of oversight, at least within the scope of each officer’s responsibilities. This decision confirms that the same pleading standard – one requiring bad faith – applies to officer oversight claims. Here, the plaintiff brought such a claim against its former president arising out of declining sales of the company's transportation devices and an increase in accounts receivable. More ›
Chancery Dismisses Caremark Oversight Claims
In Re ProAssurance Corp. Stockholder Derivative Litig., Consol. C.A. No. 2022-0034-LWW (Del. Ch. Oct. 2, 2023)
Claims against corporate fiduciaries for breaches of the duty of oversight are colloquially referred to as “Caremark” claims. This decision exemplifies why Caremark claims are among the most difficult to prosecute and “should be reserved for extreme events.” More ›
Chancery Decision Explains Availability of Reformation as a Targeted Remedy
AECOM, et al. v. SCCI Nat’l Hldgs., Inc., C.A. No. 2022-0727-MTZ (Del. Ch. Sept. 27, 2023)
Although the Court of Chancery frequently resolves contractual disputes, it grants contractual reformation only when “intervention [is necessary] to ensure the deal is what the parties agreed upon.” This pleadings-stage decision provides insight into the Court’s approach to reformation because the Court found that one claim supported reformation but the other did not. More ›
Chancery Refuses to Impose Additional Conditions on Voluntary Dismissal of Claims Subject to Advancement
Sal Gilbertie, et al. v. Dale Riker, et al., C.A. No. 2020-1018-LWW (Del. Ch.)
The Delaware Court of Chancery frequently hears advancement disputes, wherein officers or directors of Delaware entities seek to enforce their right to the ongoing payment of legal fees in the defense of claims brought against them. Sometimes, as in this case, a plaintiff entity moves to voluntarily dismiss its claims rather than to pay the freight for both sides. Here, the plaintiffs sought to dismiss the pending claims subject to advancement with prejudice after the Court granted the defendants advancement in a separate action. The defendants opposed the plaintiffs’ motion and sought to impose additional conditions on any dismissal under the Court of Chancery rule governing voluntary, court-approved dismissals, including conditions related to advancement and a finding that the defendants had prevailed on the merits. The Court rejected the defendants’ requests because the advancement relief could be considered under the controlling Fitracks order, and any characterization was premature given the remaining counterclaims. Thus, the Court granted the voluntary motion to dismiss without any conditions.
Chancery Refuses to Order Specific Performance Due to Inaccurate Representations and Warranties
Restanca, LLC v. House of Lithium, Ltd., C.A. No. 2022-0690-PAF (Del. Ch. Jun. 30, 2023)
The parties seeking specific performance of an agreement must establish a clear right to performance, including that all conditions to closing have been met. In this case, a buyer refused to close on the acquisition of an electric scooter company, and the seller sought specific performance in the Court of Chancery. In its post-trial decision, the Court denied that relief because the sellers inaccurately represented that the seller’s equity holders had executed a secondary sale agreement and that the seller had delivered certain financial statements to the buyer. Because neither of those things had in fact occurred, not all conditions to closing were satisfied and the buyer could walk away from the transaction. Further, because Delaware is a pro-sandbagging jurisdiction, it did not matter whether the buyer knew (as seller argued) that representations were inaccurate, and holding seller to its representations did not create an unjust result.
Chancery Provides Additional Analysis of Primedia Claims in MFW Context
City of Dearborn Police and Fire Revised Retirement System (Chapter 23) et al. v. Brookfield Asset Management Inc., C.A. No. 2022-0097-KSJM (Del. Ch. June 21, 2023)
In a short letter decision, Chancellor McCormick supplemented an earlier decision with a more fulsome analysis of plaintiffs’ Primedia claim (a direct claim challenging a merger based on a board’s failure to obtain value for material derivative claims), which the Court had earlier decided was subject to dismissal under MFW. Under Primedia’s three-part test, to bring a derivative claim post-merger, the former stockholder must plead (1) a colorable underlying derivative claim, (2) that the value of the derivative claim was material in the context of the merger, and (3) “that the acquirer would not assert the underlying derivative claim and did not provide value for it.” Here, the Court held that Plaintiffs failed to establish Primedia’s second prong because their claims and calculations were “woefully underdeveloped[.]” Specifically, plaintiffs speculated the defendants could have been liable for the entire lost market capitalization in the years following the merger, but they could not explain how that measure of damages made sense. Other metrics, including comparing the deal price to the trading price at the time of the transaction, showed that the derivative claims were not material to the merger consideration.
Chancery Rejects “Largely Precatory” Proposed Derivative Settlement
Knight v. Miller, C.A. No. 2021-0581-LWW (Del. Ch. June 1, 2023)
Under Court of Chancery Rule 23.1(c), the Court must approve the settlement of any derivative litigation. This case provides a rare example of the Court rejecting a settlement after determining that the “give"—i.e., the substance of the settlement—did not justify the “get"— i.e., ending the litigation. More ›
Chancery Holds Unocal Claims for Injunctive Relief are not Subject to Corwin Cleansing
In re Edgio, Inc. Stockholder Litigation, C.A. No. 2022-0624-MTZ (Del. Ch. May 1, 2023)
Under Corwin, a fully informed, uncoerced vote of the disinterested stockholders can shift the standard of judicial review for certain transactions from heightened scrutiny to the business judgment rule. But there are some transactions that Corwin cannot cleanse. Here, at the motion to dismiss stage, the Court declined to apply the Corwin doctrine to a Unocal claim seeking to enjoin certain alleged defensive measures taken by the company's board. More ›
Entire Fairness Standard Applied to Transaction Benefitting Controllers of Controllers
Tueza v. Lindon, C.A. No. 2022-0130-SG (Del. Ch. Apr. 27, 2023)
Because controlling stockholders of Delaware corporations owe fiduciary duties to both the corporation and to its minority stockholders, the Court of Chancery will subject a transaction involving the company to entire fairness review if a controller receives a non-ratable benefit from a transaction. This case confronts a more nuanced question: Does entire fairness apply if the non-ratable benefit goes not to the controller but to a separate entity controlled by the controller's controllers? More ›
Chancery Court Again Applies Entire Fairness to Claims Challenging SPAC Transaction
Laidlaw v. GigAcquisitions2, LLC, C.A. No. 2021-0821-LWW (Del. Ch. Mar. 1, 2023)
In the aftermath of a SPAC merger, the plaintiff (a public stockholder) brought claims for breaches of fiduciary duty against the SPAC's board and sponsor, as controllers, for issuing an allegedly false and misleading proxy statement. According to the plaintiff, the proxy statement failed to disclose the net cash per share that the SPAC would contribute to the merger, which in turn misrepresented the anticipated value of post-merger shares, and that such information was material to the decisions of public stockholders whether to invest in the post-merger company or to redeem their SPAC investments. Plaintiff alleged that the sponsor and board were incentivized to minimize redemptions in order to secure returns for the sponsor, which purchased a 20% stake in the post-merger company at a nominal price. More ›
Chancery Resolves Dispute About Competing Forum Selection and Arbitration Provisions
Fairstead Cap. Mgmt. LLC v. Blodgett, C.A. No. 2022-0673-JTL (Del. Ch. Jan. 6, 2023)
This case highlights the difficulties that can arise when relationships are governed by contracts with competing forum selection and arbitration provisions. Two LLCs brought claims against a former principal for breach of the respective LLC agreements, both of which contained Delaware forum selection clauses. In response, the principal sought an injunction barring the LLCs from proceeding outside of arbitration because the principal’s employment agreement contained a broad arbitration provision that encompassed all of the parties’ disputes. More ›
Chancery Concludes Section 18-110 of the LLC Act Does Not Permit Standalone Books and Records Claims When Company Management Is Undisputed
Cardinale v. Feingold, 2023 WL 142510 (Del. Ch. Jan. 10, 2023)
In a dispute about the manager of a limited liability company, Section 18-110 of the LLC Act grants the Court of Chancery the statutory authority to order the production of books and records “relating to the issue.” Here, the plaintiff sought a declaration that he was the sole manager of six companies and also an order directing the defendants to turn over the companies’ books and records. The defendants, who had recently resigned as managers, confirmed that the plaintiff was the companies’ sole manager and asked the Court to dismiss the remainder of the action for lack of jurisdiction. The Court agreed. Because the identity of the companies’ manager was undisputed, the Court concluded it no longer had jurisdiction under Section 18-110 to order the production of books and records.