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Bryan Townsend

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Showing 92 posts by Bryan Townsend.

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 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 Rules That Delisted and Long-Dark Corporation Failed To Show Harm Warranting a Confidentiality Order for Basic Financial Documents Responsive to a Books and Records Request


Rivest v. Hauppauge Digital, Inc., C.A. No. 2019-0848-PWG (Del. Ch. Sept. 1, 2022)
Plaintiff stockholder sought to inspect the books and records of a defendant company, requesting a narrow universe of annual and quarterly financial statements for closed periods in order to value his shares. For several years, including time periods after deregistering its stock from a public exchange, the defendant had not provided any financial information to stockholders or held an annual meeting. More ›

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Chancery Finds Asset Purchase Agreement Required Buyer to Indemnify Seller for Liability Under State Tobacco Settlement


ITG Brands LLC v. Reynolds Am., Inc., C.A. No. 2017-0129-LWW (Del. Ch. Sept. 30, 2022)
Plaintiff acquired four cigarette brands from the defendant under an asset purchase agreement. Prior to entering into the APA, the seller had been making annual payments to the State of Florida based on the annual volume of tobacco product sales under a preexisting settlement agreement. The purchaser did not join the settlement, and the seller stopped making payments to Florida. Florida sued both parties in a Florida court over the lack of payments and obtained a judgment that the seller must continue to make settlement payments based on the purchaser’s own sales of the acquired brands. The seller and purchaser brought claims against each other in the Court of Chancery to determine which party bore responsibility for the Florida judgment. More ›

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Chancery Determines Divorcee Was One Share Short of Equal Ownership Needed To Avoid Removal from Leadership of Business Empire


Haart v. Scaglia, C.A. No. 2022-0145-MTZ (Del. Ch. Aug. 4, 2022)
In public, a high-powered couple presented themselves as equal owners of an operating company, of which the wife was also the CEO and a director. After marrying, the husband transferred fifty percent of the common stock of an umbrella holding company to his wife. He also transferred to her one share shy of equal ownership of preferred stock—leaving her with 49.9995957 percent of the preferred shares. After she realized this imbalance, the wife continued to insist they were equal owners. As their marriage deteriorated, the husband used his one-share majority to remove her from leadership at the holding company and the operating company, of which the holding company was the sole member and managing member. She brought claims in the Court of Chancery, alleging equal ownership and a corporate deadlock, seeking judicial dissolution. More ›

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Chancery Dismisses Claims Alleging Directors Approved Spring-Loaded Stock Options Before Press Releases on COVID-19 Vaccine Efforts


In re Vaxart, Inc. S’holder Litig., Consol. C.A. No. 2020-0767-PAF (Del. Ch. June 3, 2022)
A small biotechnology company issued a press release that connected the company to the federal government’s Operation Warp Speed program and its efforts to develop a COVID-19 vaccine. The body of the press release provided more clarity than the headline—namely, that the company had been selected to participate in a primate research study, not selected as a final recipient of funds for vaccine development. Stockholders filed suit, alleging that the company’s selection was material information that should have been disclosed in advance of the stockholders’ vote on an amendment to the company’s equity incentive plan that enabled officers to issue themselves spring-loaded stock options prior to the press release. The defendants moved to dismiss. More ›

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Chancery Sustains Claims for Improper Termination of Agreements For Cause in Connection with a Joint Venture to Develop Data Centers for Amazon


W.D.C. Holdings, LLC v. IPI Partners, LLC, C.A. No. 2020-1026-JTL (Del. Ch. June 22, 2022)
Two entities entered into a joint venture to develop data centers for Amazon. One entity managed the joint venture day to day, and the other controlled the board and had removal rights under certain circumstances. When whistleblowers raised concerns of potential kickbacks and the FBI executed a search warrant on the managing entity’s CEO, the second entity issued letters seeking to remove the CEO and corporate affiliates for cause from their roles in the joint venture and to terminate certain other agreements. The managing entity filed suit to challenge its removal and its affiliates’ removal, and the termination of the other agreements. The defendants moved to dismiss. More ›

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Supreme Court Reverses Chancery Approval of Litigation Settlement for Overly Broad Release and Recommends Change to Chancery Rule 23.1


Griffith v. Stein, No. 264, 2021, C.A. No. 2017-0354 (Del. Aug. 16, 2022)
The Court of Chancery denied a non-monetary settlement for derivative claims that included allegations of excessive non-employee director compensation, siding with an objector, and awarding the objector fees. Subsequently, the parties agreed to a new settlement that included a financial benefit to the corporation. The objector then renewed his objection, arguing that the settlement improperly released future claims and that the plaintiff was not an adequate representative of the corporation’s interests. The plaintiff argued that future claims could be waived because the settlement included a compensation cap, that the released claims were covered by allegations of the complaint, and that the parties were only trying to import the Delaware standard of corporate waste into their release. The Court of Chancery approved the new settlement and did not award the objector additional attorneys’ fees. The objector appealed. More ›

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Chancery Declines to Order Acquirer to Make Contingent Payments after Discontinuing Development of a Medical Product

Posted In Chancery, Earn-Out, M&A


Pavel Menn v. ConMed Corp., C.A. No. 2017-0137-KSJM (Del. Ch. June 30, 2022)
Plaintiff was a representative of stockholders who had entered into a stock purchase agreement (“SPA”), in which the defendant acquired a company engaged in developing a medical product. The SPA allocated the risk of continued development via a contingent payment structure, including milestone payments and earn-out payments. The defendant agreed to use “commercially best efforts” to maximize the payments, and to accelerate the payments to the stockholders if the defendant permanently discontinued development or sale of the product, except for certain reasons, including risk of injury to patients. After making several milestone payments, the defendant discontinued development due to concerns of the risk of injury to patients. The plaintiff demanded acceleration payments and brought claims when defendant declined to make these payments. More ›

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Chancery Dismisses Claims in Favor of Arbitration in Dispute over Sale of Pittsburgh Penguins


Wildfire Productions, L.P. v. Team Lemieux LLC, C.A. No. 2021-1072-PAF (Del. Ch. June 29, 2022)
The Federal Arbitration Act and the public policy of Delaware favor the resolution of disputes through arbitration. When parties contractually agree to arbitrate their disputes, Delaware courts will enforce the terms of arbitration provisions. More ›

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Chancery Dismisses Claims Seeking to Unwind Secondary Transactions that Allegedly Jeopardized Recovery for Primary Fraudulent Transfers

Posted In Chancery, DUFTA


Burkhart v. Genworth Fin., Inc., C.A. No. 2018-0691-JRS (Del. Ch. May 10, 2022)
The plaintiffs were a putative class of policyholders and insurance agents with an interest in long-term care insurance policies written by the defendant's insurance company. Plaintiffs alleged that the company’s parent and related entities fraudulently removed assets and support from the company and impaired the company’s ability to make payments to the policyholders and agents. The plaintiffs sought to unwind the purported fraudulent transactions under Delaware’s Uniform Fraudulent Transfer Act. After failing to obtain the dismissal of the DUFTA claims, the defendants allegedly diverted assets away from the initial transferees. Plaintiffs subsequently amended their complaint to include additional DUFTA claims seeking to unwind these secondary diversions. Defendants moved to dismiss the new claims on the grounds that plaintiffs were not creditors of the transferees, and thus lacked standing, and that plaintiffs had sought improperly to unwind transactions, rather than plead a right to payment. More ›

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Superior Court Classifies Cryptocurrency as a Security and Calculates Contract Damages Based on Cryptocurrency Valuation


Diamond Fortress Techs., Inc. v. Everid, Inc., C.A. No. N21C-05-048 PRW CCLD (Del. Super. Ct. Apr. 14, 2022)
Plaintiff Diamond Fortress contracted with the defendant company to provide its software to develop a trading platform for the defendant’s cryptocurrency. In exchange, the defendant agreed to pay plaintiffs in cryptocurrency at the time that defendant made its initial coin offering and at subsequent token distribution events. After the offering and events, the defendant failed, however, to make any payments to the plaintiffs. Plaintiffs filed claims against the defendant for breach of contract, and a default judgment was entered after the defendant failed to appear or respond. After finding that defendant had repudiated and breached the contract, the Court then determined how to calculate damages resulting from breach of a contract to be paid in cryptocurrency, which involved the novel issue under Delaware law of how to classify and value cryptocurrency. More ›

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Chancery Dismisses Contract, Dissolution, and Direct Claims, But Upholds Derivative Claim for Alleged Transfer of Funds Between Medicinal Marijuana Entities


BET FRX LLC v. Myers, C.A. No. 2019-0894-KSJM (Del. Ch. Apr. 27, 2022)
A minority member of a limited liability company had invested $8 million in the LLC. The LLC owned a majority interest in an entity that held a Pennsylvania medical marijuana grower and processor license. In addition to obtaining its membership interest, the plaintiff’s investment also secured appointment rights for one of the three manager positions, rights to participate in board decisions, and a veto right over sixteen types of actions. Ultimately, the plaintiff brought a series of claims in the Court of Chancery, alleging that the other members and their principals had funneled the plaintiff’s investment into a company that they owned—an Ohio-based medical marijuana company—via intercompany loans that were not being repaid and coverage of other corporate expenses. Defendants sought to dismiss all claims. More ›

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Delaware Supreme Court Interprets Deadline for Bringing Indemnification Claims


North American Leasing, Inc. v. NASDI Holdings, LLC, No. 192, 2020 (Del. Apr. 11, 2022)
Defendants acquired construction entities from plaintiffs and agreed to indemnify plaintiffs for any losses arising from performance and payment bonds on existing projects. Losses occurred in connection with one of the projects in 2017, and plaintiffs gave the defendants notice of indemnification claims for nearly $21 million. Defendants rejected the claims as untimely under the acquisition agreement, which they argued had a strict notice deadline of 2016. More ›

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Superior Court Sustains Certain Contract Claims in Dispute over Post-Acquisition Operation of Resort and Timeshare Business


CRE Niagara Holdings, LLC v. Resorts Group, Inc., C.A. No. N20C-05-157 PRW CCLD (Del. Super. Ct. May 31, 2022)
After acquiring a resort and timeshare business in 2017, plaintiffs brought claims of fraudulent inducement, breach of contract, and declaratory judgment against the seller. The seller filed claims in federal courts and in New York state court, and then separately filed parallel claims as counterclaims and a third-party complaint in Delaware. The seller alleged that plaintiffs did not adhere to past practices in operating the business post-acquisition, that they made the acquisition to loot the business, and that, as a consequence, the seller suffered from a diminution in value of the payment streams from certain contracts. The plaintiffs moved to dismiss the seller’s counterclaims and third-party complaint. More ›

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btownsend@morrisjames.com
T 302.888.6915
Bryan Townsend focuses his practice on litigation involving fiduciary, corporate, and commercial matters in the Delaware Court of Chancery. He represents directors and officers, as …
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