Main Menu

Showing 183 posts in Derivative Claims.

Chancery Denies Derivative Plaintiff’s Motion to Compel Work Product Prepared by Oracle’s Special Litigation Committee

Posted In Chancery, Derivative Claims, Discovery, Privilege

In re Oracle Corp. Derivative Litig., C.A. No. 2017-0337-SG (Del. Ch. July 9, 2020)

After investigating certain potential derivative claims arising out of Oracle Corporation’s acquisition of NetSuite, Inc., and after trying unsuccessfully to settle those claims, Oracle’s Special Litigation Committee (“SLC”) agreed that permitting a derivative plaintiff to pursue those claims was in Oracle’s best interests. This opinion concerns the lead derivative plaintiff’s subsequent motion to compel, which sought the production of forty-two documents the SLC withheld on work product grounds. The documents at issue were the SLC’s counsel’s notes and memoranda of witness interviews, factual summaries prepared by the SLC’s counsel, counsel’s draft report to the SLC, and financial analyses and damages models prepared by or at the direction of the SLC’s counsel. The Court found that all forty-two documents were protected work product because they were created in anticipation of litigation in order to aid the SLC in connection with this action. In addition, the documents were afforded a higher degree of protection as opinion work product because they also reflected attorney thoughts and impressions. More ›

Share

Chancery Compares Aronson and Rales Tests for Demand Futility; Finds Well-Pled Caremark Claim Showing No Good Faith Effort to Oversee Financial Reporting and Related-Party Transactions Made Demand Futile

Posted In Caremark Claims, Demand Futility, Derivative Claims

Hughes v. Hu, C.A. No. 2019-0112-JTL (Del. Ch. Apr. 27, 2020).

Everyone from bar applicants to seasoned litigators and counsel advising boards of directors can find something of interest in Hughes v. Hu, which (i) provides a comprehensive review of how the Court of Chancery evaluates demand futility in derivative actions and (ii) discusses the type of allegations that will support a well-pled Caremark claim for failure to take affirmative steps to ensure an effective board-level monitoring reporting system is in place. More ›

Share

Chancery Dismisses GoPro Derivative Action for Failure to Allege Directors Intentionally Made Inflated Revenue Forecasts or Failed to Exercise Appropriate Caremark Oversight

Posted In Demand Futility, Derivative Claims

In re GoPro, Inc. S’holder Deriv. Litig., C.A. No. 2018-0784-JRS (Del. Ch. Apr. 28, 2020)

This opinion serves as a reminder that particularized allegations of non-exculpated wrongdoing are necessary to support the contention that a demand would be futile. Vice Chancellor Joseph R. Slights, III dismissed a breach of fiduciary duty derivative action for failure to allege demand futility with the detail prescribed by Chancery Court Rule 23.1. The plaintiffs, GoPro, Inc. stockholders, filed suit against officers and directors after complications with the launch of a new drone caused the company to miss its revenue forecast. The complaint alleged that pre-suit demand was futile because a majority of the board faced liability for its knowledge of, but failure to disclose, the company’s revenue shortfall and were beholden to the CEO/controlling stockholder such that they could not exercise independence. The missed revenue projections also spurred a federal securities class action suit, naming three of the same defendants, where a ruling denying a dismissal motion found that the class plaintiffs well pled that the named overlapping defendants made false or misleading statements regarding the drone. More ›

Share

Chancery Follows Recent Precedent Finding Pre-Suit Correspondence to be a Litigation Demand, Dismisses Derivative Complaint for Failure to Allege Wrongful Refusal

Posted In Demand Refusal, Derivative Claims

Dahle v. Pope, C.A. No. 2019-0136-SG (Del. Ch. Jan. 31, 2020).

Incorporating the analysis set forth in Solak ex rel Ultragenyx Pharmaceutical, Inc. v. Welch, 2019 WL 5588877 (Del. Ch. Oct. 30, 2019), the Court of Chancery again dismissed a derivative complaint under Rule 23.1 after finding that the plaintiffs’ pre-suit correspondence was a litigation demand. More ›

Share

Supreme Court Affirms Dismissal of Uber Derivative Action for Failure to Plead Demand Futility

Posted In Delaware Supreme Court, Derivative Claims

Mcelrath v. Kalanick, No. 181-2019 (Del. Jan. 13, 2020). 

This case exemplifies the Delaware courts’ approach to examining demand futility. In 2016, Uber Technologies, Inc. (“Uber”) acquired Ottomotto LLC (“Otto”), a company started by a contingent of employees from Google’s autonomous vehicles group, in order for Uber to gain expertise in developing autonomous vehicles. The shareholder-plaintiff brought a claim, on behalf of Uber, against some of Uber’s directors. The plaintiff alleged that Uber’s directors ignored the risks presented by Otto’s alleged theft of Google’s intellectual property, which eventually led to Uber paying a settlement of $245 million to Google and terminating its employment agreement with Otto’s founder. More ›

Share

Uber Board Was Disinterested and Independent to Assess a Pre-Suit Demand for Acquisition of Google Program

Posted In Derivative Claims

Uber Technologies’ board approved the acquisition of Google’s more mature autonomous vehicle program. The transaction was high risk and flawed from its inception, ending in embarrassment after Uber learned that key employees hired from Google had misappropriated Google’s proprietary information in the autonomous vehicle program. Uber issued $245 million in its stock to settle Google’s misappropriation claims. An Uber stockholder brought derivative claims against the Uber directors who approved the acquisition of Google’s autonomous vehicle program. More ›

Share

Chancery Addresses Discovery and Privilege Implications of Oracle Special Litigation Committee’s Decision to Defer to Stockholder-Plaintiff’s Prosecution of Derivative Claims

Posted In Derivative Claims, Privilege, Special Committees

In re Oracle Corp. Deriv. Litig., C.A. No. 2017-0337-SG (Del. Ch. Dec. 4, 2019). 

In this decision, the Delaware Court of Chancery considered the implications of a decision by a special litigation committee of Oracle Corporation to cede control of derivative claims to a stockholder-plaintiff – including whether that decision required the production of Oracle’s privileged documents that were provided to the committee and its counsel. More ›

Share

Venture Capital Firms Did Not Constitute a Control Group Barring Stockholder Direct Claims for Dilution

Posted In Derivative Claims

Light bulbTo avoid demand futility and standing requirements for a derivative claim, the plaintiff stockholders in Sheldon v. Pinto Technology Ventures, No. 81, 2019 (Del. Oct. 4, 2019) attempted to plead a direct claim for dilution of their voting and economic interests by alleging that several venture capital firms constituted a “control group” of stockholders under Gentile.

Dilution claims are “classically derivative” under Delaware corporate law. In Gentile v. Rossette, 906 A.2d 91 (Del. 2006), the Delaware Supreme Court recognized an exception that dilution claims can be both derivative and direct in character when: “a stockholder having majority or effective control causes the corporation to issue ‘excessive’ shares of its stock in exchange for assets of the controlling stockholder that have a lesser value; and the exchange causes an increase in the percentage of the outstanding shares owned by the controlling stockholder, and a corresponding decrease in the share percentage owned by the public (minority) shareholders.” More ›

Share

Chancery Finds Request for “Corrective Action” to be a Litigation Demand, Dismisses Derivative Claims for Failure to Plead Wrongful Refusal

Posted In Derivative Claims

Solak v. Welch, et al., C.A. No. 2018-0810-KSJM (Del. Ch. Oct. 30, 2019).

Under the Delaware Supreme Court’s decision in Spiegel v. Buntrock, 571 A.2d 767 (Del. 1990), a stockholder who makes a demand upon the board to address potential wrongdoing concedes that the board may properly decide whether to cause the corporation to bring suit.  That concession makes it more difficult to satisfy pleading standards in a later derivative suit.  In this recent decision, the Court of Chancery reviewed the law in this area and concluded that – despite a disclaimer to the contrary – the plaintiff’s pre-suit letter was a litigation demand. More ›

Share

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 ›

Share

Chancery Denies Motion for Reargument, Finding No Change to Delaware Legal Principles for Existence of “Control Group” of Stockholders

Posted In Derivative Claims

Silverberg v. Padda, C.A. No. 2017-0250-KSJM (Del. Ch. Oct. 18, 2019)

Delaware courts recognize that a group of stockholders can constitute a “control group” when those stockholders “are connected in some legally significant way—such as by contract, common ownership, agreement, or other arrangement…” and work together toward a shared goal.  Sheldon v. Pinto Tech. Ventures, L.P., 2019 WL 4892348, at *4 (Del. Oct. 4, 2019) (citing Dubroff v. Wren Hldgs., LLC, 2009 WL 1478697, at *3 (Del. Ch. May 22, 2009)).  Under such circumstances, the control group stockholders may owe fiduciary duties to the corporation’s minority stockholders.  Where a minority stockholder adequately pleads (1) the existence of a control group;  and (2) a self-dealing breach of fiduciary duties by that control group, the minority stockholder’s claims may be both direct and derivative. Gentile v. Rossette, 906 A.2d 91, 99-100 (Del. 2006).  In Silverberg v. Padda, Plaintiffs argued that they had alleged a direct claim by pleading that a control group of stockholders had breached fiduciary duties by approving alleged dilutive preferred stock issuances.  After the Court dismissed this claim based on Plaintiffs’ failure adequately to allege a control group, as opposed to mere parallel action,  Plaintiffs asserted in a motion for reargument that the Delaware Supreme Court’s recent Sheldon opinion had established a new legal principle to assess the existence of a control group.  The Court disagreed, ruling that Sheldon had reaffirmed the Dubroff standard that the Court had applied in dismissing Plaintiffs’ claims.  See Morris James blog post of October 14, 2019 (discussing the Court’s earlier decision).  The Court re-affirmed its holding that Plaintiffs’ allegations did not suffice to allege a control group because the agreement between the allegedly controlling stockholders (1) did not relate to the challenged transaction; (2) included persons other than the purported control group members; and (3) did not bind the signatories with respect to their votes on the challenged transaction.  Because the Court determined that Sheldon did not affect the Court’s holding that such allegations do not suffice to establish a control group, the Court denied Plaintiffs’ motion for reargument.

Share

Chancery Denies Former Derivative Plaintiff Standing to Challenge Merger That Extinguished Derivative Claims

Posted In Derivative Claims

Morris v. Spectra Energy P’tners (DE) GP, LP, C.A. No. 2019-0097-SG (Del. Ch. Sept. 30, 2019).

When a stockholder derivative claim is extinguished in a merger, the former derivative plaintiff may have standing to contest the merger directly on the ground that the entity’s fiduciaries permitted a material litigation asset to be extinguished in the merger process without value to the stockholders. In the well-known precedent In re Primedia Stockholders Litigation, 67 A. 3d 455 (Del. Ch. 2013), the Court of Chancery established a three part standing test: 1) Was the underlying claim viable? 2) Was its value material in light of the merger consideration? 3) Did the company fail to receive value for the claim in the merger because the buyer would not be willing to pursue it? Applying this test, here the Court ruled that the former unitholder and derivative plaintiff lacked standing to attack the merger and dismissed the claim.  More ›

Share

Chancery Rejects Attempt to Allege Gentile v. Rossette Direct Claims for Dilutive Preferred Stock Issuances

Posted In Derivative Claims

Silverberg v. Padda, C.A. No. 2017-0250-KSJM (Del. Ch. Sept. 19, 2019).

The Court of Chancery held that plaintiff common stockholders’ fiduciary duty claims challenging the company’s overpayment for dilutive preferred stock issuances were derivative in nature because plaintiffs failed to adequately plead the existence of a controller or control group that benefited at the expense of the minority stockholders.  The Court evaluated the common stockholders’ arguments under the standard set forth by Gentile v. Rossette, 906 A.2d 91 (Del. 2006), which provides that minority stockholders may seek direct relief for dilution claims when a controller or control group benefits at the expense of the minority stockholders’ economic and voting rights.  Gentile requires that a plaintiff plead facts sufficient to establish that a control group’s members are connected in some “legally significant way” and work together toward a shared goal, such as voting or other decision making.  The Court also relied upon Dubroff v. Wren Holdings, which emphasized that the existence of a control group does not require a formal contract, but there must be some indicia of an actual agreement that amounts to more than mere parallel interests among the group members.  More ›

Share

Blue Bell Creameries: Chancery Finds Zapata Committee to Address Derivative Claims is not Available to Conflicted General Partner

Posted In Derivative Claims, LP Agreements, Special Committees

Wenske v. Blue Bell Creameries, Inc., C. A. No. 2017-0699-JRS (Del. Ch. Aug. 28, 2019).

In Zapata v. Maldonado, 430 A.2d 779 (Del. 1981), the Delaware Supreme Court established that, even where a derivative plaintiff adequately pleads demand futility, a corporation may retain control over derivative claims by delegating authority to a committee of independent directors.  In this recent decision, the Court of Chancery applied principles of agency law to hold that, at least without prior authorization in a limited partnership agreement, a conflicted corporate general partner generally may not make a similar delegation, because the general partner is a “principal” who inherently retains control over its committee, the “agent.” More ›

Share

Chancery Dismisses Derivative and Direct Claims Claims Upon Finding Shareholder Plaintiffs Sold Shares Without Preserving Rights to Continue to Assert Direct Claims

Posted In Derivative Claims

Lazarus PhotoIt is well-settled in Delaware that a stockholder seeking to pursue derivative claims must own shares at the time of the wrong and continuously through the life of any litigation. Similarly, direct claims based on injury to the shares generally pass to a buyer. These principles, in combination with the public policy against issuing advisory opinions, mean that stockholders who sell all their shares and any right, title and interest in those shares after initiation of litigation generally will lose their standing to assert claims based on injury sustained as a shareholder or to those shares. The Delaware Court of Chancery applied those principles in Urdan v. WR Capital, C. A. No. 2018-0343-JTL (Del. Ch. August 19, 2019) and dismissed claims of breach of fiduciary duty and self-dealing because the stockholder-plaintiffs sold all of their shares after initiation of the litigation and thus lost standing to pursue their claims both derivatively and directly.  What makes this case particularly interesting was how the court determined that plaintiffs’ effort through a settlement agreement to preserve at least the direct claims by contract was ineffective due to the failure to incorporate by reference that preservation of rights in a companion Repurchase Agreement by which plaintiffs in fact sold their shares. More ›

Share

awards

  • US News Best Law Firms
  • JD Supra Readers Choice Award
  • Delaware Today Top Lawyers
  • Super Lawyers
Back to Page