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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.

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Photo of Delaware Business Litigation Report Kathleen A. Murphy
Attorney
kmurphy@morrisjames.com
302.888.6847
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Kathleen A. Murphy is an attorney in the Corporate and Commercial Litigation Group.  She focuses her practice on corporate, fiduciary, and commercial litigation. Prior to joining …

Showing 8 posts by Kathleen A. Murphy.

Chancery Offers Guidance on When the Limitations Periods Begin to Run For Claims Concerning Breaches of Representations and Warranties and Related Indemnification

Kilcullen v. Spectro Scientific, Inc., C.A. No. 2018-0429-KSJM (Del. Ch. July 15, 2019).

Delaware law provides for a default three-year statute of limitations period for breaches of contract, generally applicable to claims for breaches of representation and warranties and related claims for indemnification concerning stock purchase agreements or assets sales. More ›

Chancery Examines Framework of Fiduciary Disclosure Obligations in Soliciting Private Investments

Clark v. Davenport, C.A. No. 2017-0839-JTL (Del. Ch. July 18, 2019). 

This opinion decides a motion to dismiss fraud and related tort claims arising out of various investments against a former director and CEO and an employee of a controlling stockholder.

When the investments turned out to be worthless, the plaintiff investor brought suit for breach of fiduciary duties and common law fraud arising from information that the investor received before investing in a company controlled by a business colleague and friend.  More ›

Court of Chancery Addresses Stockholder Standing to Enforce Corporate Contracts, Declines to Dismiss Claim for Breach of Anti-Takeover Protections Akin to Section 203 of the DGCL

Posted In M&A

Ark. Teacher Ret. Sys. v. Alon USA Energy, Inc., C.A. No. 2017-0453-KSJM (Del. Ch. Jun. 28, 2019).

Section 203 of the Delaware General Corporation Law, an anti-takeover statute, prohibits a target from entering into a business combination with an acquirer for three years from the date that the acquirer first obtains 15% or more of the target’s stock, unless the target’s board pre-approves the transaction crossing the 15% threshold.  Here, to avoid Section 203’s three-year anti-takeover period, an acquirer sought pre-approval of its acquisition of a 48% block of shares.  The target’s board agreed, but on the condition that the acquirer enter into an agreement that retained Section 203’s three-year standstill period for one year.  A stockholder-plaintiff later brought suit arguing the acquirer failed to comply with the one-year standstill, and thus breached the agreement.  It also argued the acquirer’s breach of the agreement to shorten Section 203’s three-year standstill period to one year in effect revived the longer period, such that the merger was void ab initio under the DGCL.  When the defendants moved to dismiss claiming the stockholder-plaintiff lacked standing to enforce the target corporation’s agreement with the acquirer, the Court held that the stockholder sufficiently alleged it had standing as an intended third-party beneficiary.  The Court reasoned that provisions of the Delaware General Corporation Law have been likened to a contract that stockholders may enforce by suing directly.  Section 203 in particular was enacted to benefit stockholders by limiting hostile takeovers and encouraging fair, non-coercive acquisition offers.  Here, the target’s agreement with the acquirer adopted those protections for the same apparent purpose of directly benefitting stockholders. More ›

Delaware Supreme Court Highlights Risks Involved in Court Rules Governing Confidential Filings

DowDuPont Inc. v. The Chemours Co., C.A. No. 2019-0351 (Del. June 26, 2019).

A recent Delaware Supreme Court Order emphasizes the risks associated with the presumptions of public access to court filings and the requirements of Court of Chancery Rule 5.1, which governs the sealing of documents filed with the Court.  Rule 5.1 requires a public version of any document filed under seal, with asserted confidential information redacted, to be filed within a certain number of days. At the trial court level, after ruling that the complaint must be unsealed because the parties’ initial completely-redacted public version failed to comply with Rule 5.1, the Vice Chancellor invited the parties to file a motion for reargument with a revised redacted version of the complaint for his consideration. Instead of moving for reargument, defendants filed an application for certification of an interlocutory appeal to the Delaware Supreme Court on the ground that the complaint was subject to confidential arbitration.  In accord with the Court of Chancery, the Delaware Supreme Court denied the interlocutory appeal request, ruling that the issue did not meet the standards for certification because the sole issue on appeal was the parties’ compliance with Rule 5.1, and not whether the complaint was subject to confidential arbitration.  The Supreme Court noted that the parties potentially could have avoided the claimed irreparable harm caused by unsealing the complaint if they had moved for reargument with a revised redacted version of the complaint that complied with Rule 5.1. 

Court of Chancery Enforces the Absolute Litigation Privilege

Ritchie CT Opps, LLC v. Huizenga Managers Fund, LLC, C.A. No. 2018-0196-SG (Del. Ch. May 30, 2019).

The absolute litigation privilege is an affirmative defense that bars claims arising from  statements made in the course of a judicial proceeding.  Here, the Delaware Court of Chancery addressed the scope of the absolute litigation privilege in response to a request for an injunction to bar defendant from prospectively disparaging plaintiff in other litigation.  The agreements governing an investment by defendant in the plaintiff’s funds contained confidentiality and non-disparagement clauses.  A falling out between the parties resulted in years of protracted litigation in Illinois and Delaware.  This Court of Chancery action for breach of confidentiality and non-disparagement clauses in the controlling agreements is based on information disclosed in the prior actions. More ›

Chancery Adopts Narrow Interpretation of the Computer Fraud and Abuse Act

AlixPartners LLP v. Benichou, C.A. No. 2018-0600-KSJM (Del. Ch. May 10, 2019).

The federal Computer Fraud and Abuse Act (“CFAA”) carries both civil and criminal penalties for unauthorized access to protected computers.  The Court of Chancery recently decided an issue of first impression in Delaware regarding the CFAA’s scope in connection with a suit by AlixPartners against a former partner for allegedly misusing the company’s confidential information and trade secrets. 

Plaintiffs were two entities making up AlixPartners, a global restructuring firm, and the defendant was managing partner of the Paris office before joining a competitor.  Defendant allegedly downloaded confidential client information onto his personal data device, both before and after his discharge, and later provided it to his new employer.  Litigation ensued and the defendant sought dismissal of the plaintiffs’ claim under the CFAA.  Dismissal of that claim turned on whether the defendant was potentially liable under the CFAA for: (i) misusing information obtained from a computer he was authorized to access (the “Broad Approach”); or (ii) unauthorized access to the plaintiffs’ computers (the “Narrow Approach”). More ›

Chancery Awards Advancement to LLC Member Applying Corporate Law Precedent

Freeman Family LLC v. Park Avenue Landing LLC, C.A. No. 2018-0683-TMR (Del. Ch. Apr. 30, 2019).

Delaware law, under 8 Del. C. § 145, allows for a corporation to agree in corporate documents or contracts to advance legal fees and expenses arising out of one’s service to the company.  Aiming to bolster quality leadership, Delaware’s policy is to construe advancement provisions broadly in favor of advancement.  Parties also utilize advancement provisions in the LLC context.  Different from the corporate context, the foundational principle underlying an LLC relationship is the freedom of contract—the idea that parties are free to arrange their dealings as they choose.  Overlaying this important principle is the notion developed under Delaware case law that, while the contract is paramount in the LLC context, structural choices might result in a court importing ideas from an analogous body of law, like corporate law.  This recent Court of Chancery opinion recognizes and illustrates that notion when dealing with claimed advancement rights, explaining “parties are free to contract into corporate case law (or not) when they create LLCs, and courts will respect that choice.”  More ›

Chancery Imposes Rule 15(aaa)’s Requirement – Amend or Risk Dismissal with Prejudice – on Cases Transferred from the Superior Court

Otto Candies, LLC v. KPMG, LLP, C.A. No. 2018-0435-MTZ (Del. Ch. Apr. 25, 2019)

Rule 15(aaa), a rule unique to the Court of Chancery, requires plaintiffs faced with a motion to dismiss for failure to state a claim to either:  (i) amend their complaint; or (ii) stand on their pleading and risk dismissal with prejudice.  In this case, the plaintiffs initially brought suit in the Superior Court of Delaware, which does not have a corollary to Rule 15(aaa).  Before the Superior Court, defendants moved to dismiss the plaintiffs’ complaint on personal and subject matter jurisdictional grounds, as well as for failure to state a claim.  More ›