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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 17 posts in CCLD.
Delaware Superior Court Finds Purchase Agreement Language Limits the Scope of Possible Claims Concerning Earn-Out Dispute
Under an asset purchase agreement (“APA”), the purchaser (“PCM”) acquired substantially all of the assets of the “En Pointe” business from the seller (“Collab9”). The APA provided for an earn-out payment, calculated upon a percentage of En Pointe’s Adjusted Gross Profit over several years. The APA provided that the purchaser “shall have sole discretion with regard to all matters relating to the operation of the Business.” The agreement further disclaimed any express or implied obligation on the part of the purchaser to take any action, or omit to take any action, to maximize the earn-out amount, and stated that the purchaser “owes no duty, as a fiduciary or otherwise” to the seller. The APA also contained a clear combined integration and anti-reliance provision. More ›
Superior Court CCLD Addresses Pleading Standards for Trade Secret, Fraud and Implied Covenant Claims
Brightstar and PCS, two competitors that distribute new and pre-owned mobile devices, entered into a buy/sell agreement as part of negotiations for a proposed merger and strategic alliance. Under the buy/sell agreement, PCS purchased mobile devices from Brightstar for re-sale to third parties and was subject to a non-circumvention provision that restricted PCS from purchasing these devices from certain other suppliers. After their merger discussions faltered, PCS terminated the agreement, and Brightstar brought suit for unpaid amounts and alleged misappropriation of pricing information. PCS counterclaimed for, inter alia, fraud and breach of the implied covenant of good faith and fair dealing. More ›
CCLD Holds that D&O Policy’s Duty to Defend “Securities Claims” Extends to Appraisal Proceedings under 8 Del. C. § 262
CCLD Holds that D&O Policy’s Duty to Defend “Securities Claims” Extends to Appraisal Proceedings under 8 Del. C. § 262, that Pre-Judgment Interest on an Appraisal Award May be a Covered “Loss” and that a Breach of Consent-to-Defense Clause does not Bar Coverage Absent Prejudice to Insurer
The Complex Commercial Litigation Division of Delaware’s Superior Court has become a leading venue for complex insurance coverage disputes. This decision addresses D&O insurers’ denial of coverage for over $13 million spent defending an appraisal proceeding under 8 Del. C. § 262, as well as $38.4 million in pre-judgment interest on the appraisal award. More ›
After a 6-day jury trial before the Complex Commercial Litigation Division of the Delaware Superior Court, a jury found that Overstock knowingly violated the Delaware False Claims and Reporting Act (“DFCRA”) by failing to report and remit dormant gift card balances to the State of Delaware. The jury verdict was for approximately $3 million. The Court held that under 6 Del. C. §1205(a), the DFCRA’s damages and penalties provision, Plaintiffs are entitled to an award of civil penalties, treble damages, and reasonable attorneys’ fees and costs. After finding that there was sufficient evidence presented to support the jury’s verdict, the Court then found that the statutorily mandated treble damages were not excessive or unconstitutional because they were not disproportionate to the harm caused and to Overstock’s level of culpability. Finally, the Court held that the proper method for calculating reasonable attorneys’ fees and costs is the lodestar method, which is the method used most often in cases involving fee-shifting statutes including federal False Claims Act cases. Under the lodestar method, the Court multiplies the hours reasonably expended against a reasonable hourly rate that can then be adjusted to account for additional factors such as the contingent nature of the case and the quality of the attorney’s work.
Addressing an issue for which there is a split in authority, the Delaware Superior Court held that a Civil Investigative Demand (“CID”) initiated by government authorities will trigger an insurer’s duty to defend and indemnify an insured. After plaintiff Conduent State Healthcare came under investigation for Medicaid fraud, defendant AIG declined to advance defense costs, arguing that the investigation, by itself, did not constitute an insurable claim under plaintiff’s policy. The Superior Court held that the policy language providing coverage for a “Claim alleging a Wrongful Act” extended to the CID. The Court rejected the argument that “investigating an unlawful act by the insured, is different from alleging an unlawful act,” finding that to be a distinction without a difference. The Court relied upon insurance contract interpretation principles and construed the policy against its drafter, holding that the duty to defend and indemnify should be interpreted broadly in favor of coverage.
Superior Court Complex Commercial Litigation Division Holds Settlements Arising out of Dole Stockholder Litigations Constitute “Loss” Under Insurance Policies
After trial and an adverse judgment in the amount for $148 million for breach of the duty of loyalty in a going private merger In re Dole Food Co., Inc. S’holder Litig., C.A. No. 8703-VCL (Del. Ch.), the liable defendants David Murdock, Dole Food Company, Inc. and DFC Holdings, LLC settled the claims by having Murdock pay the full award plus interest. The defendants then were sued by six of their excess insurance carriers, seeking a declaratory judgment that they did not have to fund the settlement. Among other reasons, the insurers asserted that the settlement payment representing the actual fair value of the merger consideration did not constitute a “Loss” under the policy. Defendants counterclaimed seeking declaratory judgment that the insurers breached the policies by refusing to pay for the Court of Chancery settlement as well as the settlement in San Antonio Fire & Police Pension Fund v. Dole Food Co., Inc., No. 1:15-CV-01140 (D. Del.). This decision grants in part and denies in part the parties’ cross-motions for summary judgment. Applying the rules of interpretation applicable to insurance policies, a unique and complex type of contract, the Court determined the settlement payments constituted a “Loss” covered within the policies but genuine issues of material fact remained as to whether the insureds breached a written consent provision and a cooperation clause in the policies.
Delaware Superior Court Ruling Provides Guidance for Pre-Trial Motion Practice and Trial Preparation
In this decision arising out of the Defendants’ Motions in Limine, the Superior Court’s Complex Commercial Litigation Division provides useful insight regarding pre-trial motion practice and trial preparation. By way of brief background, in 2013, plaintiff purchased a pharmaceutical services provider from defendants. The securities purchase agreement (SPA) included express representations and warranties related to financial statements. Over the course of several months after purchase, plaintiff discovered what it alleges were improper accounting practices that constituted fraud and that had caused it to overpay for the provider to the tune of $50 million. More ›
In this matter between Dole Food Company and its Insurers, Dole sought coverage under their D&O policies for two underlying cases in the Court of Chancery and the District Court for the District of Delaware. The Insurers refused coverage and filed this declaratory judgment action. The Complex Commercial Litigation Division of Delaware’s Superior Court granted summary judgment in favor of the Insurers as to Dole’s counterclaim that the Insurers had breached the implied covenant of good faith and fair dealing in denying coverage. Despite disputed facts, the Court held that it should not submit the question of bad faith refusal to pay Dole’s claims to a jury because the Insurers had reasonable grounds for relying on their defenses to liability. The Court found that the Insurers had several well-reasoned arguments for denying coverage based on various clauses contained in the insurance policies, including the Fraud Exclusion, the Written Consent Provision, and the Cooperation Clause.
Under Delaware law, contract defenses can apply to a declaratory judgment action when the action is one based on legal rather than equitable claims. In this matter, the Complex Commercial Litigation Division of Delaware’s Superior Court partially granted Bobcat’s partial motion for summary judgment stemming from its acquisition of a waste management business from Inland. Bobcat sought a declaratory judgment that it was entitled to claw-back / redeem an equity payment under the parties’ purchase agreement (the “UPA”) because the necessary condition to prevent the claw-back did not occur. Inland countered with the affirmative contract based defenses of impossibility/impracticability and prevention of performance.
Because Bobcat’s claim was based solely on a contract provision, which made it a legal claim, Inland’s contract defenses of prevention of performance and impossibility were applicable to the claim. Nonetheless, the Court found that the UPA was unambiguous in its terms. Inland knowingly assumed the risk that the condition preventing the claw-back might not occur and the terms of the UPA stated that if the condition did not occur, Bobcat could automatically redeem the equity. Therefore, the Court rejected Inland’s affirmative defenses as a matter of law and granted Bobcat’s motion for summary judgment on its claim to redeem the equity payment.
The Delaware Superior Court CCLD Dismisses Insurance Coverage Claims Against Non-Resident Defendants but Declines to Stay Litigation Against Delaware Insurers in Favor of Contemporaneously Filed New York Action
It is axiomatic that in order for a Delaware court to exercise general personal jurisdiction over a defendant, that defendant must either be incorporated or have their principal place of business in Delaware. If there is no general personal jurisdiction, then there must be specific personal jurisdiction. Moreover, under Delaware’s familiar standard in governing whether an action should be stayed in favor of a first-filed action, the Court will review the competing actions to determine whether the actions were contemporaneously filed (and will apply traditional forum non conveniens factors pursuant to General Food Corp. v. Cryo-Maid, Inc., 198 A.2d 681, 684 (Del. 1964)) or whether the foreign action is truly first-filed (thereby applying the standard set forth in McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng’g Co., 263 A.2d 281 (Del. 1970)). The “contemporaneous” determination is important because if the actions are filed contemporaneously, the movant seeking dismissal has the burden to prove that litigating in Delaware would cause “overwhelming hardship.” More ›
Superior Court CCLD Finds Court of Chancery Lacks Jurisdiction Over Dispute, Despite Forum Selection Clause in Agreement
Delaware law is clear that, while Courts will generally respect parties’ contractual choice of forum, a forum selection clause cannot confer jurisdiction or venue where it otherwise is not available. The contract at issue in this action, which arose out of stock purchase agreement in which plaintiff agreed to convey all of its issued and outstanding shares of a subsidiary to defendant, provided for exclusive jurisdiction in the Court of Chancery, or if the Court of Chancery lacked subject matter jurisdiction, the United States District Court for the District of Delaware. If the District of Delaware lacked jurisdiction, the venue would be in “any court of competent jurisdiction sitting in the State of Delaware[.]”
When the plaintiff filed suit in the Complex Commercial Litigation Division of Delaware’s Superior Court, the defendant argued that the parties’ dispute regarding post-closing tax matters should instead be filed in the Delaware Court of Chancery pursuant to 6 Del. C. § 18-111 (providing subject matter jurisdiction in the Court of Chancery to interpret and enforce LLC agreements and “any other instrument, document, agreement or certificate contemplated by … this chapter”). More ›
Superior Court CCLD Holds that Anti-Reliance Clause Clearly Disclaimed Reliance on Extra-Contractual Representations or Implied Warranties
In agreements governed by Delaware law, a standard integration or merger clause will not bar claims for misrepresentations made to induce entry into the contract. In order to bar such claims, the agreement must include language expressly disclaiming any reliance upon extra-contractual statements. While there are no “magic words” that are required, the language at issue must add up to a clear disclaimer. Here, the Complex Commercial Litigation Division of Delaware’s Superior Court considered a clause stating the plaintiff agreed “that the limited express warranties set forth in this section … are exclusive” and that the defendant “specifically disclaimed all other representations and warranties, express or implied[.]” The Court stated this was “more than a standard integration clause.” Reasoning that “[l]anguage indicating a clear understanding of the parties’ intent is all that is required[,]” the Court concluded this section was “drafted with sufficient clarity to establish that there was an understanding that [the claimant] could not rely upon any implied warranties, or any express warranties outside of the [agreement].” Therefore, the Court dismissed the plaintiff’s claim for fraud in the inducement based on alleged extra-contractual representations.
D & O insurance covers actions taken by a director. However, when a director acts on behalf of another entity in dealing with the insured company, it is not always easy to decide if the claim against him arises out of his role as a company director. This decision applies a “but for” test in this way. If the claim would not exist “but for” the conduct on behalf of the other, non-insured entity, then the claim is not based on the director’s conduct as a director of the insured entity and the "capacity” exclusion applies to deny coverage. This result turns in part on the specific language of the policy that insured against conduct “solely” taken as a director.
This is an interesting decision because it explains when there is privity between parties so as to preclude a claim that one party has resolved previously. Briefly, there needs to be a common interest between the parties without any conflicting interest that would make the settling party an improper representative of the other party. In this action, the Court held that because of newly discovered evidence, the Court could no longer find that the parties were in privity, and it reversed its prior decision dismissing plaintiffs’ claims against one of the defendants on res judicata grounds.
Superior Court of Delaware CCLD Finds 6 Del. C. 1-308 Permits Parties to Reserve Their Rights Without Pleading Duress
In this decision by the Complex Commercial Litigation Division, the Court held, for the first time, that under 6 Del. C. 1-308, a party may make a payment with a reservation of rights under without having to plead duress. The Court held that this section was designed to permit parties to a contract – like the plaintiff here – to continue performance even while a dispute between parties is unresolved. In doing so, the Court held that Section 1-308 superseded the Supreme Court’s decision in Western Natural Gas Company v. Cities Service Gas Company, 201 A.2d 164 (Del. 1964) in that respect.