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Lewis H. Lazarus

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Showing 91 posts by Lewis H. Lazarus.

CCLD Bars Tort Claims Overlapping with Contract Claims under Economic Loss Doctrine

GEA Sys. N. Am. LLC v. Golden State Foods Corp., C.A. No. N18C-11-242 EMD CCLD (Del. Super. Ct. June 8, 2020)

This case illustrates the extent to which the economic loss doctrine bars tort claims arising out of the same transaction as claims for breach of contract. In this case, plaintiff GEA Systems North America LLC (“GEA”) sold defendant Golden State Food Corp. (“Golden State”) three industrial freezers for use in Golden State’s hamburger patty facility. Golden State argued, among other things, that the freezers did not meet the production figures that GEA promised and GEA failed properly to install or repair the freezers. For this alleged misconduct, Golden State brought claims for negligence, fraudulent inducement, and intentional misrepresentation as well as for breach of contract. On a motion to dismiss, the Delaware Superior Court held that the economic loss doctrine barred the fraudulent inducement and intentional misrepresentations claims, but not the claims for negligence and gross negligence. More ›

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Delaware Supreme Court Clarifies Materiality Standard for Director Disclosure

A plaintiff challenging a merger when a majority of the board approving the transaction is disinterested and independent and there is no controlling stockholder on both sides cannot state a cognizable claim of breach of fiduciary duty unless it can plead facts demonstrating that the business judgment rule does not apply.  More ›

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Chancery Finds Employment Agreement’s Forum Selection Clause Did Not Reach Fiduciary Duty Claims, But Stays Case Pending Resolution of First-Filed Texas Action

EnVen Energy Corp. v. Dunwoody, C.A. No. 2019-0579-KSJM (Del. Ch. May 28, 2020)

This case illustrates Delaware’s approach in interpreting contractual forum selection provisions and in considering whether to stay a later-filed action under the well-known McWane doctrine. More ›

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Chancery Dismisses Claims that Minority Stockholders who Rolled Over Equity in a Controlling Stockholder Merger Joined a “Control Group”

Gilbert v. Perlman, C.A. No. 2018-0453-SG (Del. Ch. Apr. 29, 2020)

Delaware law imposes fiduciary duties upon controlling stockholders who use their power to control the corporate machinery. For that reason, determining who comprises a control group affects who may owe fiduciary duties. In some circumstances, where minority stockholders pool their interests to gain majority control and then bind themselves to act together to effectuate a transaction, minority stockholders may take on the duties of a controlling stockholder as members of a control group. But where an already existing controlling stockholder effectuates a cash-out merger, minority stockholders who roll over their shares and enter into a voting agreement to support the transaction will not be deemed part of a control group unless a plaintiff can plead that “the minority-holder’s participation [was] material to the controller’s scheme to exercise control of the entity, leading to the controller ceding some of its control power to the minority-holders.” More ›

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Court of Chancery Adjudicates Books and Records Request Post-Trial for Delaware LLC

Trials involving books and records requests have become more common since the Delaware Supreme Court encouraged stockholder plaintiffs to use the “tools at hand” to discover information necessary to establish demand futility prior to pursuing derivative litigation. Less common are decisions post-trial regarding inspection rights for members of a Delaware limited liability company. The recent decision in Riker v. Teucrium Trading LLC, C.A. No. 2019-0314-AGB (Del. Ch. May 12, 2020) reflects the care by which the Court of Chancery applies the applicable standard to determine whether a member has met his burden to show entitlement to documents and, if so, the scope of necessary production. The case also demonstrates that a Company’s hard-fought litigation tactics opposing document requests, which the Court ultimately validates, does not by itself provide grounds to shift attorneys’ fees, particularly where plaintiff did not substantially prevail. More ›

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Chancery Defers to Liquidating Trustee in Approving a Sale of LLC Assets

Acela Invs. LLC v. DiFalco, C.A. No. 2018-0558-AGB (Del. Ch. Apr. 27, 2020).  

This case affirms that, absent an abuse of discretion, the Court of Chancery will defer to a sale agreement proffered and negotiated by a Court-appointed liquidating trustee. In this case, the Court had appointed the liquidating trustee (the “Trustee”) after granting judicial dissolution of a Delaware LLC due to member deadlock. At the last minute, and following a six-month sale process, a bidder that was owned by two of the LLC’s members made an offer that the Trustee rejected as untimely and inadequate. The bidder challenged the Trustee’s judgment in rejecting its bid. The Court upheld the Trustee’s decision to reject the bid, finding no evidence of an abuse of discretion.   More ›

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Chancery Finds Tortious Interference By Financial Industry Competitor and Addresses the Requirements for Obtaining Permanent Injunctive Relief

Preston Hollow Capital LLC v. Nuveen LLC, C.A. No. 2019-0169-SG (Del. Ch. April 9, 2020). 

This case illustrates the type of competitive conduct that will qualify as tortious interference with business relationships while demonstrating that permanent injunctive relief is unavailable absent a likelihood of future irreparable harm.  More ›

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LLC May Not Reverse Decision to Enter into Contractual Call Option Buyout Process with Members

Walsh v. White House Post Productions, LLC, C.A. No. 2019-0419-KSJM (Del. Ch. Mar. 25, 2020).  

Parties to LLC agreements often provide for buyout provisions upon specified events, such as when a member ceases to be an employee. The provisions set forth a process by which the parties agree up front to a price to acquire the departing member’s interest. In this case, the Court prohibited an LLC from withdrawing from a contractually agreed-upon process to buy its members’ shares once the LLC initiated the process. More ›

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Delaware Supreme Court Finds Limited Liability Partnership Agreement Chose the “Aggregate Model” and Partner Withdrawal Caused Dissolution

United States v. Sanofi-Aventis U.S. LLC, No. 256, 2019 (Del. Mar. 17, 2020).  

In this case, the Delaware Supreme Court answered three certified questions from the United States Third Circuit Court of Appeals concerning the effect of a partner’s withdrawal from a Delaware limited liability partnership formed to prosecute a qui tam action. The Court ruled that unambiguous language in the Partnership Agreement opting out of the “entity model” of partnership provided in the Delaware Revised Uniform Partnership Act meant that the partner’s withdrawal dissolved the partnership (Question 1). The Court also held that the entity that was continuing litigation through an amended complaint after the partner’s withdrawal was a new and different partnership (Question 2). Moreover, because the old entity dissolved at such an early point in the litigation, and because the partners had formed it solely to prosecute the litigation, the old partnership could not continue the litigation because to do so was inconsistent with the agreement’s requirements for a prompt liquidation (Question 3).  More ›

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Chancery Allows Fiduciary Duty Claims to Proceed against Minority Members Who Blocked Financings in Order to Bankrupt Company and Facilitate Unfair Asset Purchase

Skye Mineral Investors, LLC v. DXS Capital (U.S.) Ltd., C.A. No. 2018-0059-JRS (Del. Ch. Feb. 24, 2020) (Slights, V.C.).

Where parties to an LLC agreement do not unambiguously disclaim fiduciary duties, then Delaware law provides by default that managers owe traditional fiduciary duties to the entity and its members. The corporate law principles relating to fiduciary duties of controlling shareholders also apply, including that a minority member who exercises actual control may owe fiduciary duties. In this decision, the Court held that plaintiffs, the majority members of an LLC, adequately alleged that minority members exercised contractual blocking rights in a manner that gave them actual control over financing decisions and then used that control to implement in bad faith a scheme to enable the minority members to acquire the LLC’s assets on the cheap. With those allegations, the Court sustained a non-exculpated claim against the minority members for direct and derivative contract- and fiduciary-based claims. More ›

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Delaware Corporate and Commercial Case Law 2019 Year in Review

This top ten list summarizes significant decisions of the Delaware Supreme Court and the Delaware Court of Chancery over the past calendar year. Our criteria for selection are that the decision either meaningfully changed Delaware law or provided clarity or guidance on issues relevant to corporate and commercial litigation in Delaware. We present the decisions in no particular order. The list does not include every significant decision, but provides litigants and litigators with an array of decisions on varied issues likely to affect business transactions or business litigation.  More ›

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Court of Chancery Finds the Delaware Uniform Fraudulent Transfer Act Grants Standing for Insureds with Contingent, Unmatured Claims to Sue Insurers, but Dismisses Certain Claims as Time-Barred

Burkhart v. Genworth Fin. Inc., C.A. No. 2018-0691-JRS (Del. Ch. Jan. 31, 2020). 

This case illustrates not only that plaintiffs who have only unmatured and contingent claims against a transferor have standing to seek relief under the Delaware Uniform Fraudulent Transfer Act (“DUFTA”), but also that they must comply with that statute’s rules for timely filing to avoid dismissal. Here, the plaintiffs are a class of insureds who hold long-term care insurance policies and insurance agents who receive commission payments from selling the insurance policies. The defendant is Genworth Life Insurance Company (“GLIC”), which underwrote the insurance policies at issue. GLIC allegedly made fraudulent transfers between 2012 and 2014 while GLIC was near insolvency by: (1) declaring $410 million in dividends, and (2) terminating intra-company contracts that provided financial support. The plaintiffs filed an action in 2018 in which they argue that GLIC’s fraudulent transfers violate the DUFTA.  More ›

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Appraisal of Panera Bread: Court of Chancery Again Defers to Deal Price, Denies Request for a Refund of the Amount of Synergies

Posted In Appraisal, M&A

In re Appraisal of Panera Bread Co., C.A. No. 2017-0593-MTZ (Del. Ch. Jan. 31, 2020).

JAB Holdings B.V. (“JAB”), a private company that also owns Einstein Bros., Caribou Coffee and Krispy Kreme, acquired Panera Bread Company (“Panera”) via a cash-out merger for $315.00 per share on July 18, 2017. Multiple dissenting shareholders (the “Petitioners”) filed an appraisal action, asserting that the fair value of their shares was $361.00 per share. Post-trial, the Court of Chancery disagreed with the Petitioners, ruling that the deal price minus synergies was the best evidence of fair value. This was because Panera had followed a reliable sale process and any flaws in that process did not undermine its reliability. Specifically, the Court held that, among other factors, the parties’ arm’s length negotiations, Panera’s disinterested and independent board, price increases during negotiations, the fact that no other parties bid on Panera either before or after the announcement of the merger, and the outreach that Panera did with potential buyers provided persuasive evidence of a reliable sale process. More ›

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Court of Chancery Finds Possibility of Actual Control and the Doctrine of Inherent Coercion Preclude Summary Judgment Based on Disinterested Stockholder Approval

The standard of review and who has the burden of proof are important issues in any trial of stockholder litigation. One instance where entire fairness is the standard of review is a merger where a controlling stockholder is on both sides of the transaction. Since the Delaware Supreme Court’s Kahn v. Lynch decision in 1994, Delaware law in that circumstance has mandated an entire fairness standard of review with the burden on the controlling stockholder and the proponents of the transaction to prove that the transaction was fair. But what happens when, after discovery, Plaintiffs fail to adduce evidence that a purported controlling stockholder in fact coerced the minority stockholders into approving the transaction? The Court of Chancery answered that question in In Re Tesla Motors, Inc. Stockholder Litigation, Cons. C.A. No. 12711-VCS (February 4, 2020), holding that disputed issues of fact remain to be resolved as to whether Elon Musk, as the owner of 22.1% of Tesla’s shares, was a controlling stockholder. The possibility that he might be a controlling stockholder invokes the potential for inherent coercion and therefore prevents summary judgment based on an informed Corwin-cleansing vote of a majority of the disinterested stockholders. More ›

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Supreme Court Affirms Dismissal of Uber Derivative Action for Failure to Plead Demand Futility

Mcelrath v. Kalanick, No. 181-2019 (Del. Jan. 13, 2020). 

This case exemplifies the Delaware courts’ approach to examining demand futility. In 2016, Uber Technologies, Inc. (“Uber”) acquired Ottomotto LLC (“Otto”), a company started by a contingent of employees from Google’s autonomous vehicles group, in order for Uber to gain expertise in developing autonomous vehicles. The shareholder-plaintiff brought a claim, on behalf of Uber, against some of Uber’s directors. The plaintiff alleged that Uber’s directors ignored the risks presented by Otto’s alleged theft of Google’s intellectual property, which eventually led to Uber paying a settlement of $245 million to Google and terminating its employment agreement with Otto’s founder. More ›

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llazarus@morrisjames.com
T 302.888.6970
Lewis H. Lazarus, Chair of the Morris James Litigation Practice Group, focuses his practice on corporate governance and commercial matters in the Delaware Court of Chancery. He has …
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