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Showing 201 posts in Derivative Claims.

Applying New Rule 23.1, Chancery Establishes Leadership Structure in Fox Derivative Litigation

Posted In Chancery, Derivative Claims, Rules of Procedure


In re Fox Corp. Deriv. Litig., C.A. 2023-0418-JTL (Del. Ch. Dec. 29, 2023).
The newly amended Court of Chancery Rule 23.1 identifies factors for a court to consider when resolving a litigation leadership dispute. In this case, which is the first decision to apply the amended Rule, the Court of Chancery carefully balanced those factors and identified the lead plaintiff and the lead counsel. More ›

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Chancery Approves Reduced Fee Award for Derivative Settlement Based on Therapeutic Benefits

Posted In Chancery, Derivative Claims, Fee Awards, Settlements


Sciabacucchi v. Howley, C.A. No. 2021-0938-LWW (Del. Ch. July 3, 2023)

A stockholder filed a derivative action alleging breach of fiduciary duty and unjust enrichment in connection with a board compensation committee’s decision to award compensation to directors. Months later, the parties reached a therapeutic settlement, including that dividend-equivalent payments to directors on their unexercised stock options would no longer be in cash; rather, they would be applied to reduce the options’ exercise price. The plaintiff valued the alleged benefit to the company at $23.8 million. In exchange for the therapeutic terms, the plaintiff released all claims. The plaintiff’s counsel sought a fee and expense award of $2.8 million, which the defendants agreed not to oppose. More ›

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Chancery Provides Additional Analysis of Primedia Claims in MFW Context

Posted In Chancery, Derivative Claims, M&A


City of Dearborn Police and Fire Revised Retirement System (Chapter 23) et al. v. Brookfield Asset Management Inc., C.A. No. 2022-0097-KSJM (Del. Ch. June 21, 2023)
In a short letter decision, Chancellor McCormick supplemented an earlier decision with a more fulsome analysis of plaintiffs’ Primedia claim (a direct claim challenging a merger based on a board’s failure to obtain value for material derivative claims), which the Court had earlier decided was subject to dismissal under MFW. Under Primedia’s three-part test, to bring a derivative claim post-merger, the former stockholder must plead (1) a colorable underlying derivative claim, (2) that the value of the derivative claim was material in the context of the merger, and (3) “that the acquirer would not assert the underlying derivative claim and did not provide value for it.” Here, the Court held that Plaintiffs failed to establish Primedia’s second prong because their claims and calculations were “woefully underdeveloped[.]” Specifically, plaintiffs speculated the defendants could have been liable for the entire lost market capitalization in the years following the merger, but they could not explain how that measure of damages made sense. Other metrics, including comparing the deal price to the trading price at the time of the transaction, showed that the derivative claims were not material to the merger consideration. 

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Chancery Rejects “Largely Precatory” Proposed Derivative Settlement

Posted In Chancery, Derivative Claims, Settlements


Knight v. Miller, C.A. No. 2021-0581-LWW (Del. Ch. June 1, 2023)
Under Court of Chancery Rule 23.1(c), the Court must approve the settlement of any derivative litigation. This case provides a rare example of the Court rejecting a settlement after determining that the “give"—i.e., the substance of the settlement—did not justify the “get"— i.e., ending the litigation. More ›

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Chancery Grants Single-Member Special Litigation Committee’s Motion To Terminate Derivative Claims

Posted In Chancery, Derivative Claims, Special Committees


In re Baker Hughes, a GE Company, Derivative Litigation, C.A. No. 2019-0201-LWW (Del. Ch. Apr. 17, 2023)
After the Court of Chancery made a pleadings stage determination that the demand was futile, a board of directors delegated its authority over derivative claims to a one-member special litigation committee.  The committee retained independent advisors, conducted a nine-month investigation, and determined the Court likely would hold the transactions at issue were entirely fair and further that prosecution would not be in the best interest of the company or its stockholders.  The committee moved to terminate the derivative action.  Derivative plaintiffs took discovery and opposed the motion to terminate, challenging the committee’s independence, process, and conclusions. More ›

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Court of Chancery Finds That Complaint Fails To Adequately Plead Caremark Claim In Context Of SolarWinds Cybersecurity Breach

Posted In Caremark, Chancery, Derivative Claims


Construction Industry Laborers Pension Fund v. Bingle, C.A. No. 2021-0940-SG (Del. Ch. Sept. 6, 2022)
Under the Delaware Supreme Court’s Caremark decision and its progeny – including its most recent articulation in Marchand v. Barnhill – corporate directors who in bad faith fail to impose systems for monitoring important risks or fail to act in response to known “red flags” conceivably face monetary liability for breaching the fiduciary duty of loyalty. This decision discusses that, where Caremark claims have survived a motion to dismiss under Court of Chancery Rule 23.1, the alleged breaches generally have been in the context of violations of positive law or regulations.  More ›

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Chancery Rejects Challenge to Director’s Appointment and Dismisses Derivative Claims

Posted In Chancery, Demand Futility, Derivative Claims


Simons v. Brookfield Asset Mgmt., Inc., C.A. No. 2020-0841-KSJM (Del. Ch. Jan. 21, 2022)
If a derivative plaintiff does not make a pre-suit demand on the board, then under Court of Chancery Rule 23.1, the plaintiff must allege particularized facts demonstrating that demand would have been futile because a majority of the board was incapable of impartially considering a litigation demand.  More ›

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Chancery Dismisses Derivative Action Arising from $1.2 Billion Stock Sale Based on Plaintiffs’ Failure to Plead Demand Futility

Posted In Chancery, Demand Futility, Derivative Claims


In re Kraft Heinz Co. Deriv. Litig., Cons. C.A. No. 2019-0587-LWW (Del. Ch. Dec. 15, 2021)
The Court of Chancery dismissed an insider-trading action on the grounds that plaintiffs failed to plead that a majority of a company’s board was not disinterested or independent. By way of background, an investment firm held 24 percent of a publicly-traded Delaware company and rights to three seats on an eleven-member board. At an August 2018 meeting, the board received information that the company likely would miss annual financial targets. Four days later, the investment firm sold nearly a third of its stake, for more than $1.2 billion. The stock sale occurred after the investment firm provided the company with a statement that the firm was not in possession of any material, nonpublic information, and after the company’s board approved lifting insider restrictions that permitted the firm to sell the shares. Three months later, the company disclosed disappointing financial results, and the stock price dropped significantly. More ›

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Chancery Dismisses Derivative Suit Involving Wayfair and Challenging Debt Issuance to Private Equity Shareholders for Failure to Make Demand

Posted In Chancery, Derivative Claims


Equity-League Pension Trust Fund v. Great Hill Partners, L.P., C.A. No. 2020-0992-SG (Del. Ch. Nov. 23, 2021)
A derivative suit brought on behalf of online home goods retailer, Wayfair, challenged the issuance of $535 million in convertible debt early in the COVID-19 pandemic to certain of Wayfair’s private equity investors and their affiliates. The transaction was recommended by a transaction committee and an audit committee, and was ultimately approved by the Wayfair board. The defendants moved to dismiss under Rule 23.1 arguing that the plaintiff was required but failed to make a pre-suit demand on the Wayfair board. Plaintiff argued that demand was futile because, in addition to the four directors who were on the buy-side of the transaction and thus interested, three directors sitting on the audit committee faced a substantial likelihood of liability. Plaintiff needed to sufficiently allege that at least one of the audit committee members was conflicted to arrive at a majority of the board for demand futility purposes. Finding that plaintiff had failed to adequately plead demand futility, the Court granted the defendants’ motion to dismiss. More ›

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Chancery Holds Plaintiffs Adequately Pled Wrongful Refusal Where Board Did Not Correct Unauthorized Charter Amendments

Posted In Chancery, Demand Refusal, Derivative Claims


Drachman v. Cukier, C.A. No. 2019-0728-LWW (Del. Ch. Oct. 29, 2021)
To survive a motion to dismiss in the demand refusal context, the plaintiff must allege facts that create a reasonable doubt that the board’s decision to deny the demand was consistent with its duty of care to act on an informed basis or that the board acted in good faith, consistent with its duty of loyalty. Where the board’s response and other circumstances give rise to a reasonable inference that directors did not care about a clear, continuing violation of law, the standard for wrongful refusal may be met.  More ›

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In Recent Facebook Decisions, Chancery Permits Demand-Futility Plaintiffs to Proceed Before Demand-Refused Plaintiff

Posted In Demand Futility, Demand Refusal, Derivative Claims


Feuer v. Zuckerberg, C.A. No. 2019-0324-JRS & In re Facebook, Inc. Deriv. Litig., Consol. C.A. 2018-0307 (Del. Ch. Oct. 5, 2021), rearg. denied (Del. Ch. Nov. 8, 2021)
Recent decisions in the Facebook derivative litigation addressed issues of case management where competing groups of derivative plaintiffs disagree about whether making a pre-litigation demand upon the board was futile, and where disputes are raised about whether the suits should be consolidated, and which theories should proceed first. More ›

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Chancery Applies Recent Zuckerberg Decision and Holds That Demand Was Not Excused

Posted In Chancery, Demand Futility, Derivative Claims


Genworth Fin., Inc. Consol. Deriv. Litig., C.A. No. 11901-VCS (Del. Ch. Sept. 29, 2021)
In a demand futility analysis, Delaware courts have traditionally applied the Rales and Aronson decisions. However, the Delaware Supreme Court recently adopted the Zuckerberg test. Under this new three-part test, Delaware courts ask: (1) whether the director received a material personal benefit from the alleged misconduct of the litigation demand; (2) whether the director would face a substantial likelihood of liability on any of the claims that are the subject of the litigation demand; and (3) whether the director lacks independence from someone who received a material benefit from the alleged misconduct that is the subject of the litigation demand or who would face a substantial likelihood of liability on any of the claims that are subject to the litigation demand. More ›

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Chancery Dismisses Derivative Claims That Private Equity Sponsors Comprised A Control Group

Posted In Chancery, Controlling Stockholder, Demand Futility, Derivative Claims


Patel v. Duncan, C.A. No. 2020-0418-MTZ (Del. Ch. Sept. 30, 2021)
For stockholders to comprise a control group, the alleged group members must be connected in some “legally significant way – such as by contract, common ownership, agreement or another arrangement – to work together toward a shared goal.” Sheldon v. Pinto Tech. Ventures, L.P., 220 A.3d 245, 251-52 (Del. 2019). There must be “an indication of an actual agreement, although it need not be formal or written.” Id. Here, the court dismissed a claim alleging that two private equity funds comprised a control group that agreed to cause the corporation to engage in two unfair, self-interested transactions as a quid pro quo arrangement between them. Specifically, the plaintiff alleged they agreed to cause the corporation to overpay in two successive transactions in which the counterparties who benefitted unfairly were affiliates of the respective private equity funds.  More ›

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Chancery Dismisses Derivative Claims Alleging Insider Trading and Misleading Disclosures for Failure to Plead Demand Futility

Posted In Chancery, Demand Futility, Derivative Claims, Disclosure Claims


In re Zimmer Biomet Hldgs., Inc. Deriv. Litig., C.A. No. 2019-0455-LWW (Del. Ch. Aug. 25, 2021)
Under Court of Chancery Rule 23.1, a stockholder-plaintiff may only bring a derivative suit on behalf of a company if the plaintiff (i) first makes a demand on the board to bring suit and is wrongfully refused, or (ii) adequately pleads that a demand would have been futile because the directors were incapable of impartially considering it. Here, the court granted the defendants’ motion to dismiss, because the stockholder-plaintiff failed to allege facts that a majority of the board of directors – who concededly were otherwise disinterested and independent – faced a substantial risk of personal liability. More ›

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Chancery Grants Special Litigation Committee’s Zapata Motion, Finds Committee Was Sufficiently Independent and Reasonable


Diep v. Sather, C.A. No. 12760-CM (Del. Ch. July 30, 2021)
Under Zapata, when analyzing a motion to dismiss by a special litigation committee, the court evaluates whether the committee was independent, acted in good faith, and had a reasonable basis for its conclusions. The court then applies its own independent business judgment to determine whether dismissal is in the best interest of the corporation. Here, the plaintiff challenged the independence of the special litigation committee and the reasonableness of its investigation and findings. More ›

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