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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 65 posts by Kirsten A. Zeberkiewicz.
Chancery Dismisses All Claims in Stockholder Challenge to Cash-Out Merger Transaction
Harcum v. Lovoi, C.A. No. 2020-0398-PAF (Del. Ch. Jan. 3, 2022)
In Harcum, the Delaware Court of Chancery dismissed all claims brought in a stockholder suit alleging fiduciary breaches in connection with the $1 billion dollar acquisition of Roan Resources Inc. by Citizen Energy Operating, LLC. The Court found that the transaction was “cleansed” pursuant to Corwin v. KKR Financial Holdings LLC, 125 A.3d 304, 312 (Del. 2015), because the plaintiff failed to adequately plead that any alleged controllers were conflicted or that the transaction was not approved by an uncoerced, fully informed stockholder vote. More ›
Chancery Finds Lack of Personal Jurisdiction Over Delaware Corporate Officers Based on Due Process Considerations
In re Bam International, LLC v. The MSBA Group Inc., C.A. No. 2021-0181-SG (Del. Ch. Dec. 14, 2021)
Two officers of a Delaware corporation were sued for alleged tortious interference with an escrow agreement between the Delaware corporation employing the officers and the plaintiff (another Delaware corporation). The plaintiff also brought a breach of contract claims against the Delaware corporation and other entity defendants. The two officers moved to dismiss for lack of personal jurisdiction arguing that, other than their status as officers of a Delaware corporation, they had no relationship with Delaware. The officers further noted that they were not signatories to the contract at issue, which, in any event, was only connected to Delaware by choice of law and forum clauses. Plaintiff contended that the officer defendants, as fiduciaries of a Delaware entity, had implicitly consented to jurisdiction pursuant to 10 Del. C. § 3114(b). More ›
Chancery Defers Substantive Arbitrability Question to Arbitrator
Hagler v. Evolve Acquisition LLC, et al., C.A. No. 2021-0431-SG (Del. Ch. Dec. 28, 2021)
A party to a purchase agreement filed an arbitration relating to certain indemnities for alleged breaches of representations and warranties in the agreement. A few months later, another party to the purchase agreement filed an action in the Delaware Court of Chancery seeking a declaratory judgment relating to the same financial figures at issue in the arbitration and seeking an injunction (and other relief). The defendant in the Court of Chancery action moved to dismiss for lack of subject matter jurisdiction, claiming that the arbitration provision in the purchase agreement deprived the Court of jurisdiction and that any questions about arbitrability were for the arbitrator. Plaintiff argued that there was a broad equity carve-out from arbitration in the purchase agreement, which indicated that substantive arbitrability was an issue for the Court, not for the arbitrator. More ›
Chancery Dismisses Breach of Fiduciary Duty Claims Involving Bio-Tech Company Developing a COVID-19 Vaccine
In re Vaxart, Inc. Stockholder Litigation, Consol. C.A. No. 2020-0767-PAF (Del. Ch. Nov. 30, 2021)
Plaintiffs challenged amendments to warrant agreements between Vaxart and its former controlling stockholder, Armistice, alleging that the board intentionally withheld information significantly affecting the company’s share price, which permitted Armistice to engage in insider trading in violation of the board’s and Armistice’s fiduciary duties. Defendants moved to dismiss for failure to state a claim and for failure to make demand on the board. The Court granted the motion in part and dismissed derivative claims against Armistice and the board, finding that plaintiffs had failed to establish that Armistice was a controller and (relatedly) that demand on the Vaxart board would be futile. More ›
Chancery Denies Books and Records Inspection Brought to Advance the Stockholder’s Interests as a Creditor
Georgia Notes 18, LLC v. Net Element, Inc., C.A. No. 2021-0246-JRS (Del. Ch. Nov. 18, 2021)
Plaintiff, a stockholder and creditor of the defendant company, demanded to inspect the company’s books and records pursuant to 8 Del. C. § 220. The company objected, arguing that the plaintiff had failed to state a proper purpose for inspection and had a primary improper purpose. The Court found in the company’s favor, determining that plaintiff sought documents for the primary improper purpose of seeking pre-litigation discovery in connection to its interests as a creditor. More ›
Chancery Dismisses Derivative Suit Involving Wayfair and Challenging Debt Issuance to Private Equity Shareholders for Failure to Make Demand
Equity-League Pension Trust Fund v. Great Hill Partners, L.P., C.A. No. 2020-0992-SG (Del. Ch. Nov. 23, 2021)
A derivative suit brought on behalf of online home goods retailer, Wayfair, challenged the issuance of $535 million in convertible debt early in the COVID-19 pandemic to certain of Wayfair’s private equity investors and their affiliates. The transaction was recommended by a transaction committee and an audit committee, and was ultimately approved by the Wayfair board. The defendants moved to dismiss under Rule 23.1 arguing that the plaintiff was required but failed to make a pre-suit demand on the Wayfair board. Plaintiff argued that demand was futile because, in addition to the four directors who were on the buy-side of the transaction and thus interested, three directors sitting on the audit committee faced a substantial likelihood of liability. Plaintiff needed to sufficiently allege that at least one of the audit committee members was conflicted to arrive at a majority of the board for demand futility purposes. Finding that plaintiff had failed to adequately plead demand futility, the Court granted the defendants’ motion to dismiss. More ›
Chancery Dismisses Time-Barred Complaint Against Zillow
Chertok v. Zillow, Inc., C.A. No. 2019-0849-LWW (Del. Ch. Oct. 18, 2021)
Plaintiffs, a former co-founder and director of NMD Interactive (“Chertok”) and an LLC that he managed, brought a breach of contract action against Zillow seeking merger consideration and dividends in connection with Zillow’s 2013 acquisition of NMD. Over the course of six years, Zillow and plaintiffs engaged in negotiations relating to payment of consideration and dividends that Zillow continued to withhold based on plaintiffs’ alleged failure to comply with conditions in the merger agreement. Relevant to the analysis in this case, starting in 2011, NMD brought litigation unrelated to the merger against Chertok in New York federal court, which concluded in 2017. More ›
Chancery Resolves Contingent Claim Security Dispute Between Altaba and Verizon in Altaba’s Judicial Dissolution Proceedings
In re Altaba, Inc., C.A. No. 2020-0413-JTL (Del. Ch. Oct. 8, 2021)
Petitioner Altaba (formerly Yahoo!) implemented a statutory dissolution process whereby the Delaware Court of Chancery was charged with overseeing the winding up of Altaba’s affairs, including resolving any disputes about the amount and form of security to set aside for contingent, conditional, or unmatured contractual claims. In connection with this process, claimant Verizon objected to the amount and form of security that Altaba agreed to set aside to satisfy Verizon’s conditional claim relating to indemnification rights associated with consumer class action lawsuits against Altaba. More ›
Chancery Declines to Award Damages Equivalent to Contractual Dissociation Remedy Under Partnership Agreement
In re Cellular Telephone Partnership Litigation, Coordinated C.A. No. 6885-VCL (Del. Ch. Sept. 28, 2021)
Plaintiffs held a minority interest in a partnership owned and controlled by AT&T. In 2010, AT&T implemented a transaction causing the partnership to transfer its assets to an affiliate, freezing out the plaintiffs. In connection with the freeze out, plaintiffs received $4.1 million—their pro rata share of the $219 million that AT&T paid to the partnership. Plaintiffs later brought an action in the Court of Chancery alleging that by implementing the transaction, AT&T breached the partnership agreement on a number of different bases. More ›
Delaware Supreme Court Upholds Contractual Waiver of Statutory Appraisal Rights
Manti Holdings, LLC, et al. v. Authentix Acquisition Co., Inc., No. 354, 2020 (Del. Sept. 13, 2021)
This decision arose out of the acquisition of Authentix Acquisition Company, Inc. and a subsequent appraisal proceeding brought by dissenting stockholders under 8 Del. C. § 262. As a condition of an earlier merger involving the private equity firm Carlyle, the petitioners were parties to a stockholders agreement binding the corporation and all of its stockholders that purported to waive the stockholders’ statutory appraisal rights. At the trial court level, the Court of Chancery enforced the contractual waiver and granted the company’s motion to dismiss. On appeal, alongside other contentions, the petitioners argued that statutory appraisal rights are one of the fundamental features of corporate identity and should be found nonwaivable under Delaware law and public policy. More ›
CCLD Rejects Several Defenses to Insurance Coverage of a Settlement Paid By Investment Fund
Sycamore Partners Management, L.P. v. Endurance American Insurance Co., C.A. No. N18C-09-211 AML CCLD (Del. Super. Sept. 10, 2021)
Prior to the closing of a leveraged buyout of a company (the “Merger”) whereby the plaintiff investment fund sought to divest, liquidate, and resell some of the company’s high-value assets (the “Restructuring Transactions”), the company’s stockholders brought derivative claims against the company’s board relating to the voting process underlying the Merger. The company settled the Merger-related claims, the Merger closed, and the plaintiff executed the Restructuring Transactions. Shortly thereafter, company bondholders sought information from the company—which the company never provided—regarding whether the Merger and Restructuring Transactions violated an indenture between the bondholders and the company. More ›
Chancery Addresses Indemnification Claim Turning on the Contractual Definition of a Covered Person
GMF ELCM Fund L.P., et al. v. ELCM HCRE GP LLC, et al., C.A. No. 2018-0840-SG (Del. CH. Sept. 22, 2021)
This indemnification dispute arose out of an alternative entity dissolution proceeding involving a health care business. The claimant was a former employee of an entity within the web of entities implicated in the case. He sought indemnification from several entities for his defense of third-party claims in a separate litigation, from which he was dismissed. After the liquidating trustee objected to his claim, the claimant sought to enforce his rights in the Delaware dissolution proceeding. More ›
Chancery Rejects Inadequate Disclosure Contentions and Grants Corwin Dismissal
Kihm v. Mott, C.A. No. 2020-0938-MTZ (Del. Ch. Aug. 31, 2021)
Under the Corwin doctrine, a fully informed and uncoerced approval of a board decision by the corporation’s disinterested stockholders can downgrade an otherwise heightened standard of review to deferential business judgment review and result in prompt dismissal of post-closing M&A litigation not involving a conflicted controlling stockholder. Kihm involved a merger breach of fiduciary duty challenge and an attempt to avoid Corwin cleansing based on alleged deficient disclosures in the target board’s recommendation statement to the stockholders. More ›
Chancery Declines to Dismiss Narrow Claims Relating to Entity’s Dissolution In Favor of Pending Related Action
Hawkins v. Daniel, C.A. No. 2021-0453-JTL (Del. Ch. Aug. 24, 2021)
The Delaware courts utilize several doctrines to address motions to dismiss or stay in favor of related litigation, including McWane and Cryo-Maid, all of which turn on legal and practical considerations and the court’s discretion. This decision illustrates the application of the well-established Cryo-Maid factors to a Delaware action alleging narrow claims related to an entity’s winding-up process where the parties were engaged in long-pending litigation elsewhere. More ›
Chancery Addresses Viability of Contractual Fraud Claims Allegedly Barred by Agreement’s Terms
Online Healthnow, Inc. v. CIP OCL Investments, LLC, C.A. No. 2020-0654-JRS (Del. Ch. Aug. 12, 2021)
Online Healthnow concerns “contractual fraud claims,” meaning a statement made in the agreement itself that is known to be false by the party making the statement and on which the counterparty relies to its detriment. Under a prior Court of Chancery decision in ABRY Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006), a seller cannot contractually eliminate its liability for engaging in knowing contractual fraud through provisions regarding anti-reliance and knowledge, and cannot rely on contractual caps for indemnity to limit the recovery for contractual fraud. This decision addressed the sellers’ unsuccessful attempt to limit the reach of ABRY Partners based on the relevant agreement’s survival clause purporting to terminate the challenged contractual representations at closing and the combination of anti-reliance and non-recourse provisions involving certain defendants. More ›