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

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Is Appraisal Arbitrage Past Its Prime?

Posted In Articles

Once again, some corporate lawyers are complaining that the Delaware courts are too good to stockholders or, more often, plaintiffs’ lawyers. In the more recent past, those complaints focused on merger litigation that led to disclosure-only settlements. Now the outcry is over so-called appraisal arbitrage. But, just as the Delaware courts eventually curbed disclosure-only settlements in merger litigation, the more recent appraisal decisions are making appraisal litigation much less attractive. In just five days, two Court of Chancery decisions dealt major setbacks to appraisal arbitrage. More ›

Where Is Delaware Corporate Litigation Going?

Posted In Articles, Corporate Law

Litigation involving Delaware corporate law is undergoing major changes. Some commentators predict that Delaware will cease to be the favored forum for M&A litigation. While we disagree with that forecast, it is important to understand what is going on and how those changes may affect future litigation. There are two major evolutions and one more minor development that are worth considering. More ›

Court of Chancery Awards Mootness Fee for “Helpful” Supplemental Disclosures

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The Court of Chancery’s highly-publicized decision in In re Trulia, Inc. Stockholders Litigation, 129 A.3d 884 (Del. Ch. 2016) (Bouchard, C.) (discussed here) took aim at the problem of disclosure-only settlements and class-wide releases in M&A litigation.  Trulia announced the Court’s preferred approach for adjudicating disclosure claims – either (1) on a pre-closing preliminary injunction motion, or (2) on a mootness fee application after defendants moot plaintiffs’ claims with voluntary supplemental disclosures.  Trulia also warned that parties choosing the “suboptimal” disclosure-only settlement and class-wide release path should expect the Court to be “increasingly vigilant” in assessing the reasonableness of the “give” and “get.”  After Trulia, the Court will only approve disclosure-only settlements if the supplemental disclosures address a “plainly material” misrepresentation or omission and the release is “narrowly circumscribed.” 

When setting forth the “plainly material” standard for disclosure-only settlements in Trulia, Chancellor Bouchard noted that disclosures need not be plainly material to support a mootness fee award.  In the Chancellor’s words, awards in the mootness fee scenario “may be appropriate for supplemental disclosures of less significance than would be necessary to sustain approval of a settlement.”  Id. at 898 n.46.  The Court of Chancery has since adhered to this view in Louisiana Municipal Police Employees’ Retirement System v. Black, 2016 WL 790898 (Del. Ch. Feb. 19, 2016) (Noble, V.C.) (discussed here).  There, then-Vice Chancellor Noble awarded a mootness fee for disclosures that were material, “if not much more than material,” noting that “Trulia does not require a ‘plainly material’ inquiry in the mootness fee award context.”  Id. at *7 n.53.

No Court of Chancery opinion, however, addressed whether, post-Trulia, a disclosure must at least cross the threshold of materiality to support a mootness fee award until the recent decision in In re Xoom Corporation Stockholder Litigation, 2016 WL 4146425 (Del. Ch. Aug. 4, 2016) (Glasscock, V.C.).  In Xoom, Vice Chancellor Glasscock held that the standard for disclosures on a mootness fee application is whether the disclosure was helpful and there was a benefit to the class, and not whether the disclosure was material. More ›

What is Business Divorce?

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Most times, a business divorce is exactly what you think it is: a legal proceeding in which two or more business partners sever their business relationship.  While on its face it is “just business,” the business divorce often creates as much emotional drama as a divorce between spouses. Knowing when, how and why the partners need to separate their interests is critical to guiding people through situations that may need a business divorce. More ›

Disregard of Speculative Financial Projections Was Not Bad Faith

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In a stockholder challenge to a sale of the company, a plaintiff may rebut the business judgment rule by pleading facts that support a reasonable inference that at least half of the directors, who approved the sale, were not disinterested or independent in breach of their fiduciary duty of loyalty. While the prohibition against self-interested transactions by the board is the most fundamental obligation under the duty of loyalty, the good-faith corollary to the duty of loyalty under In re The Walt Disney Derivative Litigation, 907 A.2d 693, 754-55 (Del. Ch. 2005), is "something of a catch-all," providing a "fiduciary out from the business judgment rule." Good faith under the duty of loyalty prohibits "intentional dereliction of duty, [or] inaction in the face of a duty to act," which allegations support a claim for bad faith. In a bad-faith claim, the board's intentional action, or inaction in the face of a known duty to act, cannot be explained "as in the corporate interest: res ipsa loquitor." The Delaware Court of Chancery has emphasized that pleading facts to support a bad-faith claim is the "most difficult path to overcome dismissal" and that such facts are a "rara avis." More ›

Dell Shareholders' Appraisal Claims Denied After Voting Mishap

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In July 2015, the Delaware Court of Chancery issued an opinion in In re Appraisal of Dell, Consol. C.A. No. 9322-VCL, holding that the technical missteps of a custodial bank necessarily required the court to deny certain beneficial stockholders' demands for appraisal. Nearly a year later and after trial, Vice Chancellor J. Travis Laster held that certain other petitioners seeking appraisal of their Dell shares were barred from doing so because the record holder of the shares voted in favor of the Dell going-private merger and, in doing so, violated the "dissenting stockholder" requirements of Delaware's appraisal statute, Section 262 of the Delaware General Corporation Law. Again, the court was faced with a situation where the petitioners argued that the defect in their appraisal demand was inadvertent.  More ›

Court Upholds Allegedly Unfair Master Limited Partnership Transaction

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When alternative entities first came into prominence, questions arose concerning the applicability to them and their stakeholders of corporate law fiduciary duty jurisprudence. Eventually the Delaware General Assembly amended the alternative entity statutes to permit the modification or elimination of fiduciary duties, including the duty of loyalty. While stockholders of Delaware corporations since 1986 were permitted to exculpate directors for liability for monetary damages, they cannot modify, much less eliminate, the duty of loyalty. In contrast, the Delaware courts of late have been consistent in enforcing as written the terms of alternative entity foundational documents that modify or eliminate fiduciary duties, often leaving investors with no remedy even though a similar fact pattern in a corporation would state a claim. The well-written April 29 decision from the court's newest vice chancellor, Joseph R. Slights III, in Brinckerhoff v. Enbridge Energy, C.A. No. 11314-VCS, illustrates this trend. More ›

The Court of Chancery Declines to Disturb Company’s “Waiver” of its Forum Selection Bylaw to Settle Derivative Action in California

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Manwaring and Carroll

Many Delaware companies have adopted forum selection bylaws that prevent their stockholders from bringing internal corporate claims in courts outside of Delaware.  These bylaws are a valid and effective tool for limiting duplicative stockholder litigation filed in multiple jurisdictions.  The Delaware courts have authorized their use and the Delaware General Assembly validated them under Section 115 of the Delaware General Corporation Law.  Numerous other courts have also enforced Delaware forum selection bylaws.

Although these bylaws specify Delaware as the exclusive forum, they often permit the company to waive its right to Delaware as the exclusive forum and consent to a different venue.  While even the seminal Delaware decision on forum selection bylaws, Boilermakers 154 Retirement Fund v. Chevron, 73 A.3d 934 (Del. Ch. 2013), approved of bylaws that permitted such a waiver, to our knowledge no court has addressed whether a company may properly waive its right to Delaware as the exclusive forum under a forum selection bylaw and consent to venue elsewhere.  That is, until Niedermayer v. Kriegsman, C.A. No. 11800-VCMR (Del. Ch. May 2, 2016) (Montgomery-Reeves, V.C.). More ›

Exercise of General Jurisdiction Over Foreign Corporations Overturned

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The Delaware Supreme Court overturned its long-standing precedent in Sternberg v. O'Neill, 550 A.2d 1105 (Del. 1988), and ruled that a foreign corporation's registration to do business in Delaware and related appointment of a registered agent for the acceptance of service of process did not subject the corporation to general jurisdiction in Delaware, in Genuine Parts v. Cepec, No. 528, 2015 (Del. Supr. April 18, 2016). Examining more recent U.S. Supreme Court jurisprudence undermining the rationale of the 1988 Sternberg decision, the Delaware Supreme Court concluded that compliance with Delaware's registration statutes could no longer be interpreted as a broad consent to personal jurisdiction in any cause of action, however unrelated to the foreign corporation's activities in Delaware. Thus, unless a foreign corporation has its principal place of business in Delaware or has operations here that are so substantial, continuous and systematic as to render the corporation "at home" here, Delaware cannot exercise general jurisdiction over the foreign corporation. Rather, personal jurisdiction will depend upon the presence of specific jurisdiction and a showing that the claim arose from the foreign corporation's activities in Delaware. More ›

Court of Chancery Eyes Duties in Deals Involving Stockholder

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To determine the applicable standard of review in a stockholder challenge to a corporate transaction, a plaintiff may rebut the business judgment rule by pleading facts that support a reasonable inference that "a controlling stockholder stands on both sides of a transaction, or at least half of the directors who approved the transaction were not disinterested or independent." If the business judgment rule is rebutted, the most rigorous standard of review, entire fairness, which examines fair dealing and fair price in a transaction, is applicable. A stockholder is deemed a "controlling stockholder," owing fiduciary duties to other stockholders, "if it owns a majority interest in [the corporation] or exercised actual control over the board at the time of the transaction." More ›

What Non-Delaware Lawyers Need to Know About e-Discovery in Delaware

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Many non-Delaware lawyers will, at some point in their careers, find themselves practicing in a Delaware court after being admitted pro hac vice. For those that do, it is important to note that the Delaware courts take e-discovery seriously and have a sophisticated understanding of it. The body of e-discovery law in Delaware continues to grow, tackling issues as broad as document collection and as narrow as records review and privilege logging. This article serves as a primer on conducting e-discovery in the Delaware courts. More ›

Breach of Fiduciary Duty Claim Subsumed by Breach of Contract Claim

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Defendants are often faced with complaints that assert multiple causes of action arising from the same set of facts and circumstances. A prime example of such a complaint is presented in CIM Urban Lending v. Cantor Commercial Real Estate Sponsor, L.P. C.A. No. 11060-VCN (Del. Ch. Feb. 26, 2016). In an effort to recover for a general partner's alleged improper payments to an affiliate, the plaintiffs in CIM asserted claims for breach of contract, breach of fiduciary duty, aiding and abetting breach of fiduciary duty and unjust enrichment. On the defendant's motion to dismiss, the court found that only the breach of contract claim could stand. The remaining claims, including for breach of fiduciary duty, were dismissed as duplicative of the core claim for breach of the limited partnership agreement. More ›

Court Upholds but Limits Claims Arising From Merger Agreement

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The Delaware courts regularly address contract claims arising out of merger agreements. Among other recurring issues are whether and how the parties limited claims based on alleged misrepresentations or omissions, whether a party can state a claim for breach of the implied covenant of good faith and fair dealing, and the nature of the remedies available in the event of breach. The recent case of Haney v. Blackhawk Network Holdings, C.A. No. 10851-VCN (Del. Ch. Feb. 26, 2016), addresses each of these issues and provides guidance to transactional and litigation attorneys concerned about minimizing litigation risk. More ›

Chancery Applies 'Rales' in Dismissing Derivative Claim

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In Sandys v. Pincus, C.A. No. 9512-CB, (Del. Ch. Feb. 29, 2016), the Delaware Court of Chancery considered the uncommon scenario of analyzing whether a demand made upon Zynga Inc.'s board of directors pursuant to Rule 23.1 would have been futile when the actions being challenged occurred at a time when Zynga's board was composed of several different directors. While a majority of the Zynga directors had not turned over between the time of the challenged actions and the time the litigation, enough of the interested directors were replaced in that period so that, at the time the derivative litigation was initiated, the Zynga board was populated by a majority of disinterested and independent directors. In considering whether demand on the Zynga board should be excused, the court analyzed this novel issue when determining what test should apply. More ›

Are Disclosure-Only Claims Dead Yet?

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Are "disclosure only" claims now at an end in Delaware? Following the Delaware Court of Chancery's Jan. 22 decision in In re Trulia, 129 A.3d 884 (Del. Ch. 2016), various commentators have concluded Trulia "likely spells the end of disclosure-only settlements in Delaware." But as Monty Python famously said, "I am not dead yet," and the same may be true of claims attacking a corporate transaction for want of adequate disclosures. More ›