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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 174 posts by Lewis H. Lazarus.
Chancery Enforces Parties’ Merger Agreement That Barred Claims Upon Termination of the Agreement
Yatra Online, Inc. v. Ebix, Inc., C.A. No. 2020-0444-JRS (Del. Ch. Aug. 30, 2021)
Agreements frequently specify how the termination of the agreement affects the parties’ rights and obligations. This case illustrates that Delaware courts generally enforce “effect of termination” provisions in merger agreements as readily as any other contract provision. More ›
Company Did Not Breach Mandatory Redemption Provision Where Special Committee Determined Company Lacked Funds To Redeem All Preferred Shares
Cont’l Investors Fund LLC v. TradingScreen, Inc., C.A. No. 10164-VCL (Del. Ch. July 23, 2021)
A holder of preferred stock often possesses redemption rights that permit the stockholder to require a company to repurchase the stockholder’s shares. But what happens if the company determines that it lacks the funds to repurchase the stock? As illustrated in this case, a stockholder challenging the determination bears the burden of proof to show that the company’s determination was improper. More ›
Chancery Permits Service By Email Upon Singaporean Defendants
Skye Mineral Investors, LLC v. DXS Capital (U.S.) Ltd., C.A. No. 2018-0059-JRS (Del. Ch. Jul. 15, 2021).
Delaware’s long-arm statute permits service of process on a foreign defendant by personal service, by mail with signed return receipt, by means authorized by the foreign jurisdiction where service is to occur, or “[a]s directed by a court.” 10 Del. C. § 3104(d). In this decision, the Court of Chancery confirms that each of the grounds is an independent basis for effecting service, and alternative methods of service are appropriate so long as they are “reasonably calculated to give actual notice.” More ›
Chancery Explains Pleading Standard and Sustains Unjust Enrichment Claim Related to Plaintiff’s Forfeiture of LLC Acquisition Rights
Angel v. Warrior Met Coal, Inc., C.A. No. 2019-0235-SG (Del. Ch. Jun. 30, 2021)
Under Delaware’s notice pleading standard, a plaintiff’s claim will survive a motion to dismiss if it is “reasonably conceivable” that the plaintiff might prevail. The Court here explained that test is whether a “claim’s success seems possible to a rational objective observer.” Notwithstanding this plaintiff-friendly standard, Delaware courts will dismiss a claim if a plaintiff fails to plead all necessary elements. More ›
Chancery Finds Breach of Fiduciary Duty Where Defendant Resorted to Extra-Contractual Self-Help
Macrophage Therapeutics, Inc. v. Goldberg, C.A. No. 2019-0137-JRS (Del. Ch. Jun. 23, 2021) (Post-trial Memorandum Opinion)
Macrophage Therapeutics, Inc. v. Goldberg, C.A. No. 2019-0137-JRS (Del. Ch. Jun. 23, 2021) (Letter Opinion)
Delaware law provides several remedies for a party who believes that a contractual breach has occurred. But extra-contractual self-help is usually not one. As this case demonstrates, the choice to seek direct retribution, rather than legal recourse, may constitute a breach of a director’s duty of loyalty. A related decision also considered and rejected the argument that formal board authorization was needed for a corporation to commence litigation. More ›
Chancery Rejects Plaintiff’s Attempt to Recharacterize Pre-Suit Demands
The Raj & Sonal Abhyanker Fam. Tr. v. Blake, C.A. No. 2020-0521-KSJM (June 17, 2021)
Court of Chancery Rule 23.1 presents a would-be derivative plaintiff with two exclusive options: make a pre-suit demand on the board to bring the claims at issue, or bring the claims and plead demand futility. A stockholder who elects to make a demand on the board may challenge whether the board wrongly refused the demand, but the stockholder cannot later bring suit and allege demand futility. And, as this case shows, the Court of Chancery will scrutinize a stockholder’s attempt to circumvent this restriction. More ›
Chancery Dismisses Simultaneously-Filed Delaware Action in Favor of New Jersey Action
Sweeney v. RPD Holdgs. Grp., LLC, C.A. No. 2020-0813-SG (Del. Ch. May 27, 2021)
Delaware’s forum non conveniens jurisprudence typically turns on when parties file competing actions. Under Cryo-Maid’s “overwhelming hardship” standard, a defendant seeking to stay a first-filed Delaware action in favor of litigation elsewhere must show that the six so-called Cryo-Maid factors tip overwhelmingly in the defendant’s favor. By contrast, under McWane’s less onerous discretionary standard, a defendant seeking to stay a later-filed Delaware action often succeeds if the defendant can point to foreign litigation between the same parties in a forum that can do prompt and complete justice. More ›
Chancery Clarifies When Related Agreements Will Be Construed Together
Murphy Marine Services of Delaware, Inc. v. GT USA Wilmington, LLC (Del. Ch. May 28, 2021)
When interpreting a contract, Delaware courts generally stick to the four corners of the agreement at issue. One exception is when a contract is part of a set of inseparable agreements. In that situation, courts may construe all the agreements together as a whole. But, as seen here, the exception may not apply if the contract at issue independently effectuates the parties’ intent and does not expressly incorporate the other. More ›
Delaware Court of Chancery Applies Direct/Derivative Distinction In Voting Context
Clifford Paper, Inc. v. WPP Investors, LLC, 2021 WL 2211694 (Del. Ch. Jun. 1, 2021)
The disenfranchisement of an investor with voting or consent rights often is considered to be a direct harm, thus permitting the investor to bring direct claims. Sometimes, however, the alleged harm from the violation of voting rights is to the company, and it does not directly affect the investor. The Court of Chancery’s recent decision in Clifford Paper, Inc. v. WPP Investors, LLC, 2021 WL 2211694 (Del. Ch. Jun. 1, 2021), illustrates that, in such instances, a court applying Delaware law may treat those claims as derivative. More ›
Chancery Declines to Enforce Forum Selection Provision Actively Hidden From Defendant During Transaction
UBEO Holdings, LLC et al. v. Drakulic, C.A. No. 2020-0669-KSJM (Del. Ch. Apr. 30, 2021)
Generally, Delaware courts will enforce the terms an executed agreement, even against a party claiming not to have read the terms before signing. This rule applies with full force to forum selection provisions in which a contracting party consents to jurisdiction in a particular forum. As this case shows, however, rare exceptions exist. More ›
Chancery Finds Subject Matter Jurisdiction for Case Seeking Specific Performance of a Non-Disclosure Agreement
Endowment Research Grp., LLC v. Wildcat Venture Partners, LLC, C.A. No. 2019-0627-KSJM (Del. Ch. Mar. 5, 2021)
The Court of Chancery may have subject matter jurisdiction if one or more of plaintiff’s claims are equitable in nature, the plaintiff requests equitable relief or a statute confers subject matter jurisdiction. In determining whether a plaintiff seeks equitable relief, the Court looks beyond what the plaintiff nominally seeks and instead assesses whether a legal remedy is available and fully adequate. At issue here was plaintiff’s request for specific performance of a non-disclosure agreement. The Court denied a defendant’s motion to dismiss for lack of subject matter jurisdiction because, inter alia, claims for breach of confidentiality and non-disclosure agreements lend themselves to equitable remedies, the value of the confidential information would be difficult to quantify and the breach would continue indefinitely without equitable relief. The Court noted as well that the parties stipulated in the non-disclosure agreement that a breach of the agreement would cause irreparable harm, and that money damages are not an adequate remedy. The defendant failed to show that the pleaded facts plainly established that this statement was untrue.
Chancery Holds that Plaintiff Cannot Recover Cash It Mistakenly Failed to Sweep from its Former Subsidiary’s Account Prior to Closing
Deluxe Entm’t Servs. Inc. v. DLX Acquisition Corp., C.A. No. 2020-0618-MTZ (Del. Ch. Mar. 29, 2021)
Delaware adheres to the objective theory of contracts and enforces the parties’ intentions as reflected in the four corners of an agreement. This is particularly true for sophisticated parties, whom Delaware law presumes are bound by the terms they negotiated. In this case, the plaintiff and defendant entered into an agreement where the plaintiff sold all of the outstanding shares of one of its subsidiaries to the defendant. Plaintiff alleged that, prior to the sale, it failed to sweep funds from the subsidiary’s bank accounts to which it was entitled under the purchase agreement. The Court rejected that claim in granting the defendant’s motion for judgment on the pleadings, in part because the agreement required the transfer of all assets except those explicitly excluded. The disputed cash neither was explicitly excluded, nor was it identified as among the wrongfully transferred assets the agreement required to be returned under a “wrong pocket” provision. Similarly, the Court rejected a claim for breach of the implied covenant of good faith and fair dealing because the parties’ agreement included a provision regarding an unintended asset transfer that did not address the disputed cash. Plaintiff’s alternative argument seeking reformation failed as well because plaintiff failed to plead with particularity mutual or unilateral mistake.
Chancery Finds It Reasonably Conceivable that Judicial Dissolution May Be Warranted When LLC’s Deadlock Provision Failed
Seokoh, Inc. v. Lard-PT, LLC, C.A. No. 2020-0613-JRS (Del. Ch. Mar. 30, 2021)
On application from a member or manager of an LLC, the Court of Chancery may dissolve an LLC whenever it is not reasonably practicable for the LLC to carry on the business in conformity with the LLC agreement. Several factors may suggest a lack of reasonable practicability, including that the members are deadlocked at the board level, the operating agreement gives no means for navigating around the deadlock, and due to the financial conditions of the LLC, there is effectively no business to operate. In this case, the Court held that the petitioner adequately pled board deadlock and ongoing negative financial performance due to the parties’ inability to agree. In rejecting the respondent’s argument that the parties’ “I cut; you choose” deadlock procedure precluded a judicial decree of dissolution, based on the pleaded facts, the Court found that it was reasonably conceivable that the deadlock procedure had broken down irretrievably. Because the contractual procedure did not mandate a price, pricing formula, or a closing timeline and the plaintiff adequately alleged that the parties were not dealing with each other in good faith and in a commercially reasonable manner, it was reasonably conceivable that judicial dissolution might be warranted. The Court therefore denied the respondent’s motion to dismiss.
Chancery Rules Corporation Cannot Offset Wife’s Recoupment Against Husband’s Advancement Simply Because the Pair Signed a Single Undertaking
Perryman v. Stimwave Tech. Inc., C.A. 2020-0079-SG (Del. Ch. Apr. 15, 2021)
Section 145 of DGCL permits corporations to grant advancement rights to persons who may be entitled to indemnification so that they may fund covered litigation costs pending indemnification. As part of this right, the DGCL also requires these individuals to undertake to repay the corporation if the advanced expenses ultimately prove not to be indemnifiable. In this case, the Court clarifies that two individuals who are married and execute the same undertaking nonetheless retain their individual rights to advancement and separate obligations for repaying any non-indemnifiable expenses. More ›
Chancery Enjoins Prosecution of Fraudulent Inducement and Declaratory Judgment Claims Based on Exclusive Delaware Forum Provision
SPay, Inc. v. Stack Media Inc. k/n/a JLC2011, Inc., et al., CA No. 2020-0540-JRS (Del. Ch. Mar. 23, 2021)
To obtain a preliminary anti-suit injunction, a movant must show (1) a reasonable likelihood of success on the merits, (2) irreparable harm absent an injunction, and (3) the balance of hardships tips in its favor. Although the Court of Chancery does not grant anti-suit injunctions lightly, it will do so when a party to a valid and absolutely clear forum selection clause attempts to litigate covered claims outside of the parties’ chosen forum. More ›