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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 5 posts by Damon B. Ferrara.
Chancery Rejects Challenge to Financing Made Open to All Investors, Reasons the LLC Operating Agreement Allows Self-Interested Conduct, so any Claims Must Assert Bad Faith
Verdesian Life Sciences, LLC is an agricultural company focused upon rolling up various companies with proprietary plant health technologies. All members of the Board of Managers of Verdesian were appointed by Paine Schwartz Partners, LLC (“Paine”), a private equity firm that owned over seventy percent of the Class A Units of the company. Paine also benefited from a management agreement that entitled it to receive certain management fees tied to acquisitions. The LLC Operating Agreement required the Managers to perform their duties in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of Verdesian. However, the Operating Agreement also allowed Managers and Members to “consider only such interests and factors as such Manager or Member desires, including its, his or her own interests” when facing discretionary decisions. The Court of Chancery concluded that the Operating Agreement “directs the Managers to operate in good faith and with ordinary care and effectively exculpates Managers for conflicted, negligent and other detrimental decisions … so long as taken in good faith.” More ›
Delaware Court of Chancery Grants Motion to Dismiss Disclosure Claims Because Hedge Fund had Sufficient Information to Consider Corporation’s Self-Tender Offer
The directors of a Delaware corporation that makes a self-tender offer must disclose all material facts. A fact is material if there is a substantial likelihood that a reasonable stockholder would consider it important in deciding whether to tender. More ›
CCLD Finds that Statute of Limitations for Tortious Interference Claim was Tolled until Key Documents Relating to the Alleged Scheme were Released
In this decision denying a motion to dismiss, the Superior Court’s Complex Commercial Litigation Division found that the plaintiff sufficiently alleged facts to toll the statute of limitations under the “time of discovery” rule, which is also known as the doctrine of “inherently unknowable injury.” More ›
Chancery Dismisses Stockholder Claims that a Minority Owner was a Controlling Stockholder or that a Majority of the Board was Beholden to the Minority Owner in Approving a Merger Transaction with the Minority Owner
When as here a Delaware corporation’s charter contains an exculpation provision under Section 102(b)(7) of the Delaware General Corporation Law, stockholders who bring suit against directors who approve a merger transaction must allege violations of the duty of loyalty to state a non-exculpated claim. They may state such a claim if they adequately plead that a controlling stockholder breached duties for self-interested reasons, or that a majority of the board was self-interested or beholden to the buyer. They may also attempt to state a non-exculpated claim by claiming that a majority of the board acted in bad faith. To meet this bad faith standard, a plaintiff must plead facts showing that the decision to approve the transaction lacked any rationally conceivable basis associated with maximizing stockholder value. As the Court explained, allegations of mis- or non-disclosure will not suffice unless plaintiffs plead intentional misstatements or omissions based on a “factual narrative that would allow any inferential explanation of why these fiduciaries would so abandon their duties as to engage in bad faith." (emphasis in original). More ›
Chancery Examines Computer Misuse Claims Against Former Employee and Awards Defamation Damages Against Former Employer
In one of her final opinions before joining the Delaware Supreme Court, Vice Chancellor Montgomery-Reeves addressed various statutory computer misuse claims against a former employee and awarded $100,000 in compensatory damages for the former employer’s libel and slander. In Laser Tone v. Delaware Micro-Computer, plaintiff, a photocopier company, terminated the defendant employee after he refused to sign a non-compete agreement. In its subsequent lawsuit, plaintiff claimed that the defendant stole company information and deleted certain data from his company computer and cell phone devices before departing. Certain of plaintiff’s executives then communicated to third parties that the defendant was “a thief and a drug user.” Plaintiff brought a cause of action against the defendant for violating the Delaware Misuse of Computer System Information Act (“DMCSIA”) by allegedly stealing data and deleting certain other information from company systems. The defendant counterclaimed for libel and slander, arguing that plaintiff’s communications were false and had caused him significant mental and reputational harm.
After a two-day trial on the merits, the Court of Chancery found insufficient evidence to support a majority of the plaintiff’s theories of liability, but did find that the defendant had deleted certain data from his company laptop in violation of the DMCSIA. Finding no non-speculative evidence of harm, however, the Court awarded only nominal damages. The Court also found that plaintiff failed to prove that the defendant had stolen any data. Having determined that plaintiff failed to prove the defendant was a “thief,” the Court denied plaintiff’s affirmative defense of truth and entered judgment for the defendant on his defamation counterclaims. The Court, in its discretion, awarded $100,000 in damages, basing the award on evidence that the defendant had “lost two jobs, customers, and friends; and, [because] he fear[ed] his business [was] in jeopardy.”