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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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- February 19, 2021
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Showing 173 posts by Lewis H. Lazarus.
Chancery Invalidates Elon Musk’s $55.8 Billion Pay Package
Tornetta v. Musk, et al., C.A. 2018-0408-KSJM (Del. Ch. Jan. 30, 2024)
Stockholders of Tesla, Inc. brought a derivative action against Elon Musk and six individual Tesla directors, alleging that the directors breached their fiduciary duties by awarding Musk performance-based stock options in January 2018 with a potential $55.8 billion maximum value and $2.6 billion grant date fair value. Following a trial, the Court of Chancery held that the defendants failed to meet their burden to prove the fairness of the compensation plan and granted the plaintiffs’ request to rescind the plan in its entirety. More ›
Chancery Decides Scope of Expert’s Authority in Valuation Dispute Resolution Mechanism
Paul v. Rockpoint Group LLC, C.A. 2018-0907-JTL (Del. Ch. Jan. 29, 2024)
This dispute arose from a disagreement over the authority of an appraiser to include legal assertions and extrinsic evidence in his valuation. The underlying dispute stemmed from the departure of a co-founder from a limited liability company. The parties' LLC Agreement established a dispute resolution mechanism to determine the value of the co-founder's share if a subsequent qualifying transaction occurred. More ›
Chancery Dismisses Double-Derivative Claims for Failure To Plead Demand Futility
City of Hialeah Emps. Ret. Sys. v. Insight Venture Partners, C.A. No. 2022-0846-MTZ (Del. Ch. Dec. 28, 2023)
A venture capital fund invested in two different entities. One of the entities then acquired the other. In the two months following the deal announcement, the acquirer’s stock fell by thirty percent, as markets remained relatively flat. The plaintiff brought six double-derivative claims, alleging that the acquirer’s directors had breached their fiduciary duty by overpaying for the target, and that the venture capital fund was the acquirer’s de facto controller and had benefitted itself via the acquisition at the acquirer’s expense. More ›
Chancery Denies Application for Preliminary Injunction After Finding Restrictive Covenants Arose from Breach of Fiduciary Duty and Were Facially Unreasonable
Sunder Energy, LLC v. Jackson, C.A. No. 2023-0988-JTL (Del. Ch. Nov. 22, 2023)
The head of sales for a company that sold residential solar power systems nationwide resigned from his position after signing an independent contractor agreement with a corporate competitor. His former employer—headquartered in Utah and incorporated in Delaware—filed an action in Delaware seeking injunctive relief and enforcement of the restrictive covenants in its limited liability company agreement. More ›
Chancery Holds that LLC Agreement Did Not Confer Jurisdiction Over Contract and Tort Claims
Ramco Asset Mgmt. LLC v. USA Rare Earth, LLC, C.A. No. 2022-0665-SG (Del. Ch. Oct. 20, 2023)
Plaintiffs brought claims alleging improper dilution of their equity interests when transferring their holdings in an Australian rare-earth mining company to a Delaware limited liability company. Their claims included breach of fiduciary duty, fraud, breach of contract, and conspiracy. All five defendants moved to dismiss for failure to state a claim and on forum non conveniens grounds, and four of the five moved to dismiss for lack of personal jurisdiction. More ›
Chancery Concludes Accountant Provision in Stock Purchase Agreement Calls for Expert Determination Rather than Arbitration
ArchKey Intermediate Holdings Inc. v. Mona, C.A. No. 2021-0383-JTL (Del. Ch. Oct. 3, 2023)
Parties to a stock purchase agreement disputed post-closing price adjustments. The agreement called for an independent accountant to resolve such disputes and referred to the accountant as an “arbitrator.” As the parties litigated in the Court of Chancery, the purchaser moved to compel arbitration so that an independent accountant could resolve all disputes the seller raised. The seller contended that the agreement’s accountant provision called for an expert determination rather than an arbitration. More ›
Chancery Denies Advancement for Director Suspected of Leaking Confidential Financial Information
Hoffman v. First Wave BioPharma, Inc., C.A. No. 2023-0097-MTZ (Del. Ch. September 27, 2023)
A company's board of directors suspected one of its members had leaked the company's financial information to a third party and that the third party used the information to obtain a more favorable settlement with the company. In response, the board formed a board committee for discussion of confidential matters consisting of all directors other than the one suspected of having leaked information. The excluded director engaged an attorney to contest the formation of the board committee and filed an action for the advancement of his legal fees. He relied on an indemnification agreement that granted him a mandatory advancement right for fees incurred by reason of his corporate status in connection with a covered proceeding; he argued that the directors must have investigated his conduct if they had reached a conclusion that he had leaked information and that an investigation was a covered proceeding. More ›
Chancery Upholds Claims Against LLC Officers and Others Arising from Squeeze-Out of Minority Unitholders
Cygnus Opportunity Fund, LLC v. Washington Prime Group, LLC, C.A. No. 2022-0718-JTL (Del. Ch. Aug. 9, 2023)
An Indiana corporation reorganized via bankruptcy into a Delaware LLC, and a senior note holder negotiated for nearly 90 percent of the equity. The LLC agreement required that at least one member of the five-member board of managers be independent. It prohibited the controller from acquiring additional shares or squeezing out the minority without approval of the majority of independent managers or a majority of votes cast by minority unitholders. It also required the controller to provide notice of a proposed squeeze-out so that minority unitholders would have the option to challenge the fairness of the transaction unless it had received approval from a majority of the minority or a minority-approved independent manager. More ›
Chancery Rejects Declining-Percentage Method, Awards $266.7 Million in Attorneys’ Fees for $1 Billion Class Action Settlement
In re Dell Techs. Inc. Class V S'holders Litig., C.A. No. 2018-0816-JTL (Del. Ch. July 31, 2023, revised Aug. 22, 2023)
Stockholders filed class actions in the Court of Chancery challenging the terms of a redemption of a special class of common stock. After years of litigation and the filing of pre-trial briefs, nineteen days before trial, the parties reached a cash settlement of $1 billion. The plaintiff's counsel submitted a fee application for 28.5 percent of the common fund. Stockholders holding more than 25 percent of the class objected to the fee application and asked that the Court instead apply the declining-percentage method used for calculating fees in federal securities litigation. More ›
Chancery Approves Revised Class Action Settlement After Denying Initial Proposal Due to Overly Broad Release
In re AMC Entm't Holdings, Inc. S'holder Litig., Consol. C.A. No. 2023-0215-MTZ (Del. Ch. July 21, 2023)
In re AMC Entm't Holdings, Inc. S'holder Litig., Consol. C.A. No. 2023-0215-MTZ (Del. Ch. Aug. 11, 2023)
The board of directors of a company in financial distress sought to raise capital by issuing more common stock. Existing common stockholders did not approve the proposed measure. The board then issued new preferred stock with sufficient voting power to ensure the passage of board proposals to issue new common shares. Stockholders filed a class action, alleging that the board violated the Delaware General Corporation Law in creating the preferred stock and breached its fiduciary duties by diluting the common stock's voting power. More ›
Chancery Approves Reduced Fee Award for Derivative Settlement Based on Therapeutic Benefits
Sciabacucchi v. Howley, C.A. No. 2021-0938-LWW (Del. Ch. July 3, 2023)
A stockholder filed a derivative action alleging breach of fiduciary duty and unjust enrichment in connection with a board compensation committee’s decision to award compensation to directors. Months later, the parties reached a therapeutic settlement, including that dividend-equivalent payments to directors on their unexercised stock options would no longer be in cash; rather, they would be applied to reduce the options’ exercise price. The plaintiff valued the alleged benefit to the company at $23.8 million. In exchange for the therapeutic terms, the plaintiff released all claims. The plaintiff’s counsel sought a fee and expense award of $2.8 million, which the defendants agreed not to oppose. More ›
Chancery Denies Books and Records Request Related to Disney’s Opposition to Florida Legislation Prohibiting LGBTQ+ Topics in Classrooms
Simeone v. The Walt Disney Company, C.A. No. 2022-1120-LWW (Del. Ch. June 27, 2023)
The Walt Disney Company opposed Florida legislation that limits instruction on sexual orientation and gender identity in Florida classrooms. The Governor of Florida responded by threatening the revocation of tax-favorable treatment for Disney. The plaintiff filed a books and records demand and then litigation, alleging that Disney's opposition to the legislation put at risk Disney's tax-favorable treatment and that Disney's directors and officers may have breached their fiduciary duties by putting their own beliefs ahead of their obligations to stockholders. More ›
Chancery Grants Single-Member Special Litigation Committee’s Motion To Terminate Derivative Claims
In re Baker Hughes, a GE Company, Derivative Litigation, C.A. No. 2019-0201-LWW (Del. Ch. Apr. 17, 2023)
After the Court of Chancery made a pleadings stage determination that the demand was futile, a board of directors delegated its authority over derivative claims to a one-member special litigation committee. The committee retained independent advisors, conducted a nine-month investigation, and determined the Court likely would hold the transactions at issue were entirely fair and further that prosecution would not be in the best interest of the company or its stockholders. The committee moved to terminate the derivative action. Derivative plaintiffs took discovery and opposed the motion to terminate, challenging the committee’s independence, process, and conclusions. More ›
Chancery Determines That Former Executives Are Not Entitled to Equity Awards Under Separation Agreement
SeaWorld Entm't, Inc. v. Andrews, C.A. No. 2020-0955-NAC (Del. Ch. May 19, 2023)
SeaWorld Entertainment, Inc. granted unvested equity awards to employees. Pursuant to equity agreements, the awards would vest if the company's controller sold its stock above a threshold price and if the company still employed the awardees at the time of sale. Under the terms of the underlying incentive compensation plan, the company had sole discretion to amend any term of the equity agreements, including to treat individuals differently. More ›
Following Flawed Business Acquisition, Chancery Dismisses Derivative Complaint for Failure to Plead Demand Futility
City of Coral Springs Police Officers' Pension Plan v. Dorsey, C.A. No. 2022-0091-KSJM (Del. Ch. May 9, 2023)
A terrible business decision does not ensure the Court of Chancery will sustain a derivative claim. A derivative plaintiff still must allege that a board of directors wrongfully refused a stockholder's demand to bring suit or that making a demand on the board would be futile because a majority of the board either was interested in the transaction or would face a substantial likelihood of liability for approving the transaction, or was dependent on someone who was interested or faced a substantial likelihood of liability. More ›