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R. Eric Hacker

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Showing 29 posts by R. Eric Hacker.

Even Though Evidence Supports Plaintiffs’ Fraudulent Inducement Claim, Chancery Denies Relief Where Plaintiff Never Gave Defendant Fair Notice of Claim Prior to Trial

HOMF II Investment Corp. v. Altenberg, C.A. No. 2017-0293-JTL (Del. Ch. May 19, 2020)

Due process requires that a plaintiff provide the defendant with fair notice of the plaintiff’s claims. As this recent post-trial decision shows, the failure to give fair notice can procedurally bar recovery -- even when the trial evidence establishes that the claims have substantive merit. More ›

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Superior Court Stays First-Filed Declaratory Judgment Action in Nokia Technology Dispute

Nokia Solutions v. Collison Comm., Inc., C.A. No. N19C-10-262 AML CCLD (Del. Super. Apr. 30, 2020)

Delaware law recognizes several doctrines intended to respect principles of comity and the efficient administration of justice when there is competing litigation across jurisdictions. Those doctrines are applied flexibly and have developed to avoid incentivizing races to the courthouse, as illustrated by this Delaware Superior Court decision staying a first-filed declaratory judgment action.  More ›

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Chancery Compares Aronson and Rales Tests for Demand Futility; Finds Well-Pled Caremark Claim Showing No Good Faith Effort to Oversee Financial Reporting and Related-Party Transactions Made Demand Futile

Hughes v. Hu, C.A. No. 2019-0112-JTL (Del. Ch. Apr. 27, 2020).

Everyone from bar applicants to seasoned litigators and counsel advising boards of directors can find something of interest in Hughes v. Hu, which (i) provides a comprehensive review of how the Court of Chancery evaluates demand futility in derivative actions and (ii) discusses the type of allegations that will support a well-pled Caremark claim for failure to take affirmative steps to ensure an effective board-level monitoring reporting system is in place. More ›

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In a Books and Records Action, Court Critiques Defendant’s Motion to Dismiss, and Declines to Order Inspection of Documents Not Requested in the Plaintiff’s Demand

Paraflon Investments, Ltd. v. Linkable Networks, Inc., C.A. No. 2017-0611-JRS (Del. Ch. Apr. 3, 2020).

Sometimes it bears repeating that Section 220 actions are intended to be summary proceedings to evaluate a stockholder’s pre-suit demand to inspect a corporation’s books and records.  More ›

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Chancery Denies Preliminary Injunction Based Upon Overbroad Restrictive Covenants

FP UC Holdings, LLC v. Hamilton, C.A. No. 2019-1029-JRS (Del. Ch. Mar. 27, 2020).

A party seeking a preliminary injunction must demonstrate a likelihood of success at trial. In a breach of non-compete action, this burden may not be met when economically unjustified restrictive provisions are “too broad as they would essentially prevent Defendant from operating … anywhere in the United States.” More ›

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Chancery Denies Non-Member, Non-Manager’s Bid for Equitable Dissolution of LLC

SolarReserve CSP Holdings, LLC v.  Tonopah Solar Energy, LLC, C.A. 2019-0791-JRS (Del. Ch. Mar. 18, 2020).

While the Court of Chancery has recognized the concept of equitable standing to seek judicial dissolution, this case shows that equity is not a tool to rewrite the plain language of an operating agreement or to help a party regain the rights it bargained away. More ›

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Surveying the Law, Chancery Declines to Dismiss a Claim that a 35% Holder was the Controlling Stockholder of the Acquirer (as Well as the Target)

Voigt v Metcalf, C.A. No. 2018-0828-JTL (Del. Ch. Feb. 10, 2020).

This decision contains an instructive review of the factors the Court of Chancery will examine to determine whether a minority stockholder may in fact be a controlling stockholder in the circumstances of a specific transaction – an area of the law that has assumed increased importance after Corwin. More ›

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Chancery Denies Fees to Stockholder who Compelled Admittedly-Overdue Annual Meeting, But Primarily for his Own Interest in Forcing a Buyout

Posted In Fee Awards

Martin v. Harbor Diversified, Inc., C.A. 2018-0762 SG (Del. Ch. Feb. 5, 2020).

A plaintiff who achieves a corporate benefit for the enterprise may be eligible for attorney’s fees, but he is not entitled them. Here, after trial on a paper record, the stockholder-plaintiff obtained an order directing the corporation to hold an annual meeting to elect directors (its first in eight years) and to produce certain books and records. The Court agreed that compelling an annual meeting met the minimum requirements to be eligible for a fee award, but the Court concluded that the circumstances made a fee award inequitable. More ›

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Post-Closing Earn-Out Claims Dismissed, But Fiduciary Duty Claims Against Former Director Survive

Neurvana Medical, LLC v Balt USA, LLC, C.A. No. 2019-0034-KSJM (Del. Ch. Feb. 27, 2020).

Neurvana Medical, LLC (“Neurvana”) sold a medical device to Balt USA, LLC (“Balt USA”), largely for post-closing consideration if the device obtained regulatory approval. Balt USA was required to use commercially-reasonable efforts to obtain the approval, but otherwise, Balt USA had sole discretion over the process. More ›

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Chancery Appraisal Decision Illustrates the Importance of Reliable Expert Testimony and Witness Credibility to Fair Value Determinations

Posted In Appraisal, Chancery

Manichaean Capital, LLC v. SourceHOV Holdings, Inc., C.A. No. 2017-0673-JRS (Del. Ch. Jan. 30, 2020).

Even when its role is to determine the fair value of shares in an appraisal proceeding, credibility matters to the Court of Chancery. Following a three-party business combination, Petitioners (former minority stockholders) exercised appraisal rights under 8 Del. C. § 262. Petitioners and Respondent agreed to use a discounted cash flow analysis to determine the fair value because there was insufficient market-based evidence of fair market value. But the parties’ experts disagreed on the input values and results of the DCF analysis, leaving the Court to “grappl[e] with expert-generated valuation conclusions that [were] solar systems apart.” Mem. Op. 2.

After a lengthy comparison of the competing DCF analyses, the Court concluded that Petitioners’ calculation (with minor adjustments) represented fair value. By contrast, Respondent’s position suffered from significant credibility issues. One of the executives involved in the business combination transactions requested a backdated valuation, misrepresented the date of the valuation in discovery responses, and continued with its misrepresentation until the eve of trial. The Court also found Respondent’s expert was not credible because elements of his valuation approach were bespoke, were not used in the industry, and relied heavily on the ipse dixit of the expert. Complicating things further, Respondent disagreed with its own expert’s calculations and conclusions. These factors, combined with the superior DCF analysis by Petitioner’s expert, led the Court to accept Petitioner’s fair value calculation with only minor adjustments.

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Chancery Denies Attempt to Use Mediation Communications to Supplement Mediation Term Sheet

Posted In Chancery, Mediation

Starkman v. O’Rourke, C.A. 2018-0901-KSJM (Del. Ch. Jan. 14, 2019) (ORDER).

Parties who resolve a case through a mediation conducted under Court of Chancery Rule 174 should include all material provisions in any mediation term sheet. As the Order in Starkman demonstrates, Rule 174 provides no opportunity for a party to introduce mediation communications to assert that a signed mediation agreement does not accurately reflect the parties’ discussions. More ›

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Chancery Balances the Obligation to Defend an Arbitral Award from Collateral Attack with the Obligation to Defer to a Broad Agreement to Arbitrate

Gulf LNC Energy, LLC v. Eni USA Gas Marketing LLC, C.A. No. 2019-0460-AGB (Del. Ch. Dec. 30, 2019). 

Plaintiff (“Gulf”) invested over $1 billion to construct a facility designed to unload imported liquefied natural gas (“LNG”) in Pascagoula, Mississippi. Defendant (“Eni”) entered a “Terminal Use Agreement” (“TUA”) with Gulf to use the facility over a twenty-year period. When domestic production of LNG through shale boomed, importation became economically unfeasible and Eni did not use the facility other than one initial shipment. The TUA contained a provision requiring that any types of disputes under the agreement be arbitrated. In an initial arbitration, the panel determined that the purposes of the twenty-year TUA were “substantially frustrated,” terminated the agreement as of 2016, and awarded Gulf nearly $500 million in compensation for the benefits conferred upon Eni by Gulf’s partial performance. The arbitrators explicitly did not address Eni’s claims that Gulf had breached the TUA, finding the claim “academic” and deserving of no further consideration in light of the agreement’s termination. More ›

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Chancery Addresses Pleading Standards for Caremark Claims

Posted In Caremark, Chancery

In re LendingClub Corp., Consol. C.A. No. 12984-VCM (Del. Ch. Oct. 31, 2019).

Delaware law sets a high bar to sufficiently plead a Caremark claim for failure of board oversight, especially when the plaintiff must satisfy the heightened pleading requirements for establishing demand futility under Court of Chancery Rule 23.1.  To overcome those hurdles, a plaintiff must plead with particularity that the board of directors either (i) utterly failed to implement any reporting or information systems or controls to address the risk that ultimately manifested, or (ii) having implemented such safeguards, consciously failed to oversee their operation and thereby disabled themselves from being informed of the risk that ultimately manifested.  For either Caremark prong, the plaintiff must sufficiently plead bad faith, essentially that the directors knew they were not discharging their fiduciary duties. More ›

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Chancery Denies Section 220 Bid for Executive Compensation Records Involving Facebook

Southeastern Pa. Trans. Auth. v. Facebook, Inc., C.A. No. 2019-0228-JRS (Oct. 29, 2019)

Shareholders of a Delaware corporation have a qualified right to access corporate books and records for a “proper purpose.” One such proper purpose is to investigate potential mismanagement or fiduciary wrongdoing. Indeed, Delaware law encourages shareholders to use this “tool at hand” prior to bringing a derivative action. But this type of inspection has an important precondition: the shareholder must advance some evidence to suggest a “credible basis” from which the Court can infer actionable wrongdoing. As this decision involving Facebook illustrates, the credible basis standard is lenient but not meaningless, and may turn on, among other things, the potential for monetary damages arising out of the alleged wrongdoing. After a trial on a paper record, the Court of Chancery denied an attempt by two stockholders of defendant Facebook, Inc. to obtain additional documents related to the company’s executive compensation practices. More ›

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Court of Chancery Clarifies a Plaintiff’s Ability to Bind a Non-Signatory to a Forum Selection Provision

Neurvana Medical, LLC v. Balt USA, LLC, C.A. No. 2019-0034-KSJM (Del. Ch. Sep. 18, 2019), reargument denied (Oct. 10, 2019).

In Neurvana Medical, LLC v. Balt USA, LLC, the Court of Chancery declined to exercise personal jurisdiction over a French company, Balt International, S.A.S., the parent of Balt USA, LLC.  The Court rejected Neurvana’s argument that Balt International was so “closely related” to the asset purchase agreement at issue that the agreement’s forum selection clause bound Balt International, even though Balt International was a non-signatory.  The Court also declined to assert jurisdiction over Balt International based on the assertion that Balt USA was Balt International’s agent.  Thus, the Court granted Balt International’s motion to dismiss. More ›

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ehacker@morrisjames.com
T 302.856.0023
Eric Hacker helps businesses and individuals with a broad range of Delaware legal matters. He practices primarily within the firm's Business Litigation and Business Law Counseling …
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