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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.

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Photo of Delaware Business Litigation Report Edward M. McNally
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Edward M. McNally has more than 40 years of experience applying Delaware law. He is recognized for his knowledge of Delaware law in Delaware’s state and federal courts. Clients have …

Showing 1368 posts by Edward M. McNally.

Federal District Court Explains PSLRA Requirements For Lead Plaintiff and Counsel

Posted In Securities

Wigginton v. Advance Auto Parts Inc., CA 18-212 MN (D. Del. November 2, 2018)

This is an excellent review of how the District Court will analyze the requirements of the PSLRA in selecting the lead plaintiff and lead counsel in a securities litigation. Briefly, the plaintiff with the most at stake should take the lead with its chosen counsel so long as it is qualified by past experience to do so. That such a plaintiff may have acted in 5 or more other securities cases is not disqualifying.

Court Of Chancery Resolves 2 Significant Indemnification Issues

Posted In Indemnification

Creel v. Ecolab Inc., C.A. 12917-VCMR (October 31, 2018)

This decision resolves indemnification issues that regularly arise. First, when there are two possible indemnitors and one pays up, may the indemnitee still seek indemnification from the second indemnitor?  It depends on when the obligation to indemnify arose. If the indemnitor who actually paid up only assumed that duty after the underlying claim arose that led to the expense to be paid, then that indemnitor is a volunteer and its indemnitee may seek payment from the other indemnitor. Note that this decision does not foreclose suit by the actual indemnitor for equitable contribution. More ›

Court Of Chancery Provides Guidance On Reconciling Public Policy Exception To Noncompete Agreements

Posted In Injunctions

Cabela’s LLC v. Wellman, C.A. 2018-0607-TMR (October 26, 2018)

Delaware law broadly enforces noncompete agreements. However, it will not do so when the public policy of a state with greater contacts to the parties prohibits that enforcement. As this decision explains, how to decide what exactly that competing public policy is may not be easy to do given the exceptions to that policy that frequently exist. Here the Court carefully examines the public policy of Nebraska and finds it permits enforcement of noncompete agreements when to do so will prevent unfair competition. More ›

Court Of Chancery Dismisses Complaint Alleging Aiding and Abetting Claim

Tilden v. Cunningham, C.A. 2017-0837-JRS (October 26, 2018)

This is an interesting decision for many reasons. It includes a comprehensive analysis of when demand on a board is not excused, when ignoring a forum selection clause constitutes prejudice sufficient to invoke a laches defense and why a named plaintiff cannot also be the attorney on the complaint. Perhaps its more lasting impact will be its holding that when directors are exculpated by a 102(b)(7) defense there cannot be an aiding and abetting claim against a third party who facilitated the actions alleged to be a breach of fiduciary duty.

Court Of Chancery Explains When To Stay A Case In Favor Of Foreign Litigation

Posted In Case Summaries

Lexington Services Ltd. v. US Patent No. 8019807 Delegate LLC, C.A. 2018-0157-TMR (October 26, 2018)

This decision explains when to stay a Delaware litigation in favor of litigation in a foreign country. As it notes, when the law of that other country is not well explained to the Court with respect to the enforcement of a forum selection clause, it will apply Delaware law to decide that issue.

Delaware Superior Court Explains When Implied Covenants Triggered

The GWO Litigation Trust v. Sprint Solutions Inc., C.A. N17C-06-356 PRW CCLD (October 25, 2018)

While every contract has an implied covenant requiring the parties to act fairly and in good faith, it is not always easy to know how that applies in a given case. This decision is a good example of how the court will approach that issue. It finds that the contract impliedly limited the right of a party to compete with an entity it had formed with another party to exploit a business opportunity.

Court Of Chancery Clarifies Set Off Rights Under Acquisition Agreement

Posted In M&A

Post Holdings Inc. v. NPE Seller Rep LLC, C.A. 2017-0772-AGB (October 29, 2018)

Acquisition agreements frequently contain escrows to cover any claims for breach of the warranties in the agreements or other post-closing claims. But that does not mean that a buyer may set off an unliquidated claim against its post-deal payment obligations under the agreement. As this decision holds, to have that set off ability, the agreement must permit it as a matter of right.

Delaware District Court Applies Delaware Demand Standards

Butorin v. Blount, C.A. No. 15-283-LPS (D. Del. September 30, 2018)

In this decision, the Delaware Federal District Court applied the Delaware tests for deciding if demand is excused by the facts alleged in a derivative complaint. In dismissing the complaint, the Court held that simply pleading the Board should have known of business problems is not enough to excuse demand. The decision also notes several other defects in the complaint.

Court Of Chancery Upholds Waiver Of Appraisal

Posted In Appraisal

Manti Holdings LLC v. Authentrix Acquisition Co.,  C.A. 2017-0887-SG (October 1, 2018)

This decision upholds a contractual waiver of appraisal rights entered into at the time the investment was made. That is not new. However, what is important is the focus on the type of transactions that triggered the waiver, with a merger doing so but a stock sale not waiving the right to be carried along. Thus, the terms of the deal once again are critical.

Court Of Chancery Limits Non-Compete Agreement

Posted In Case Summaries

Badger Holding LLC v. Kirsch, C.A. 2017-0147-SG (October 1, 2018)

As this decision points out, if a non-compete agreement conditions its enforcement on the employer’s performance of its end of the bargain, then a failure to do so renders the non-compete unenforceable.

Court Of Chancery Provides Definitive Explanation Of A Material Adverse Effect Clause

Posted In M&A

Akorn Inc. v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL (October 1, 2018)

Merger agreements often permit the buyer to terminate items when a material adverse effect occurs. This 247 page opinion provides what may be the definitive analysis of such terms as “material adverse effect,” “reasonable best efforts” and “all actions necessary” that are often found in merger agreements. It is also a great source of the key reference materials that the Court of Chancery is increasingly turning to in interpreting what such terms mean in the real world. For example, it teaches that a MAE clause is focused on the target company’s own performance as different from the industry that it belongs to and explains the degree and length of a downturn needed to find an MAE. More ›

Court Of Chancery Again Holds Deal Price Establishes Fair Value

Posted In M&A

In Re PLX Technology Inc. Stockholders Litigation, C.A. 9880-VCL (October 16, 2018)

This massive decision is a primer on Delaware director fiduciary duty. It covers just about all the important issues, with an enormous amount of citations and explanation. It is particularly helpful in showing how directors must meet their disclosure obligations, both to their other directors and to stockholders. It is, of course, very much a product of its unique facts. More ›

Court Of Chancery Declines To Approve Derivative Settlement

Stein v. Blankfein, C.A. 2017-0354-SG (October 23, 2018)

This is the rare decision that declines to approve the settlement of a derivative suit. The Court rejected the settlement because the proposed terms required the corporation, as a nominal defendant, to release breach of fiduciary duty claims against the director defendants in return for which those directors would agree to make disclosures already required by law. The Court viewed that agreeing to do what you had to do anyway as providing no real consideration for the release of the claims. This result illustrates the scrutiny the Court of Chancery applies to such settlements that affect corporate and stockholder rights.

Superior Court of Delaware CCLD Finds 6 Del. C. 1-308 Permits Parties to Reserve Their Rights Without Pleading Duress

Posted In CCLD

Huntsman International LLC v. Dow Chemical Co., C.A. No. N17C-11-242-WCC-CCLD (Del. Super. Oct. 3, 2018)

In this decision by the Complex Commercial Litigation Division, the Court held, for the first time, that under 6 Del. C. 1-308, a party may make a payment with a reservation of rights under without having to plead duress.  The Court held that this section was designed to permit parties to a contract – like the plaintiff here – to continue performance even while a dispute between parties is unresolved.  In doing so, the Court held that Section 1-308 superseded the Supreme Court’s decision in Western Natural Gas Company v. Cities Service Gas Company, 201 A.2d 164 (Del. 1964) in that respect. 

Delaware Supreme Court Explains the Ab Initio Requirement of MFW

Posted In M&A

Flood v. Synutra Int’l, Inc., C.A. No. 101, 2018 (Del. Oct. 9, 2018)

 Under Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014), commonly referred to as MFW, a controller may gain the benefit of business judgment review when it conditions a transaction—from the outset (i.e., ab initio)—on two procedural protections.  Those involve approval by (i) an independent special committee and (ii) a majority of the minority stockholders.  The point of the timing requirement is that the controller disables its influence from the beginning, instead of using the option as a bargaining chip when negotiating economic terms. More ›