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

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Delaware Supreme Court Provides Additional Guidance on Pleading Direct Claims Against Controllers and Control Groups

Posted In Controlling Stockholder, Delaware Supreme Court, Derivative Claims

Sheldon v. Pinto Technology Ventures, L.P., No. 81, 2019 (Del. Oct. 4, 2019).

The Delaware Supreme Court affirmed the Court of Chancery’s dismissal of an alleged direct claim for dilution of the voting and economic interests of plaintiff stockholders because they failed to adequately plead that several venture capital firms constituted a “control group.”  The Court began its analysis with a review of the standard for a controller or control group under Delaware law.  In Gentile v. Rossette, 906 A.2d 91 (Del. 2006), the Court ruled that multiple stockholders can constitute a control group if they are connected in some legally significant way, such as by contract or other agreement, or working together towards a shared goal.  The Court noted the guideposts that define a “control group” established by In re Hansen Medical, Inc. Stockholders Litigation, 2018 WL 3025525 (Del. Ch. June 18, 2018) and van der Fluit v. Yates, 2017 WL 5953514 (Del. Ch. Nov. 30, 2017). More ›

Delaware Supreme Court Reminds Counsel of Obligation to Prevent Clients’ Abusive Deposition Misconduct

Posted In Delaware Procedure/Rules, Delaware Supreme Court, Discovery

In re: Shorenstein Hays-Nederlander Theatres LLC Appeals, Consol. C.A. Nos. 596, 2018 and 620, 2018 (Del. Jun. 20, 2019).

 “Depositions are court proceedings, and counsel defending the deposition have an obligation to prevent their deponent from impeding or frustrating a fair examination.”  After reversing and remanding a contractual dispute involving  popular Broadway shows back to the Court of Chancery on unrelated grounds, the Delaware Supreme Court included an Addendum to its opinion reprimanding an out-of-state attorney for permitting his client to engage in abusive deposition misconduct.  During the deposition, Carole Shorenstein Hays, a prominent theater producer, repeatedly provided answers characterized by the Supreme Court as ridiculous, problematic, flagrantly evasive, nonresponsive, and flippant.   Among other things, Hays claimed not to know whether she earned a university degree, claimed not to measure time in hours, refused to answer myriad straightforward questions, and made unprompted speeches in which she likened herself to Judy Garland and the deposition to a “piece of theatre that’s being recorded.”  While no Delaware attorney for Hays attended the deposition, the two attorneys representing her were both admitted pro hac vice and made no attempt to stop her misconduct.  The Court of Chancery had previously awarded attorneys’ fees and costs for this bad faith misconduct, and that ruling was not challenged on appeal.  The Supreme Court felt compelled, however, to address the situation.  The Supreme Court reasoned that, faced with such conduct, the deponent’s counsel “cannot simply be a spectator and do nothing.”  In addition, “Delaware counsel moving the admission of out of state counsel pro hac vice also bear responsibility in such a situation.  They must ensure that the attorney being admitted reviews the Principles of Professionalism for Delaware Lawyers, but they must also ensure that the out-of-state counsel understands what is expected of them in managing deposition proceedings outside the courthouse so that the litigation process is not abused.”  In light of restrictions Delaware court rules and precedent impose on conferring with a client-deponent during the deposition, the Supreme Court advised that these points “should be addressed beforehand in the deposition preparation.”