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Showing 233 posts in Fiduciary Duty.

Court of Chancery Sustains Aiding-and-Abetting Breach of Fiduciary Duty Claim Against Financial Advisor Based on its Conflicts of Interest in Going-Private Transaction

Posted In Aiding and Abetting Claims, Fiduciary Duty, M&A

Morrison v. Berry, C.A. No. 12808-VCG (Del. Ch. June 1, 2020)

Even if fiduciary duty of care claims against a target company’s board of directors are exculpated, an aiding-and-abetting claim against a financial advisor to the board may survive a motion to dismiss when the advisor is alleged to have knowingly misled the board and prevented the board from running a reasonable sales process. More ›

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Chancery Finds Employment Agreement’s Forum Selection Clause Did Not Reach Fiduciary Duty Claims, But Stays Case Pending Resolution of First-Filed Texas Action

Posted In Fiduciary Duty, Forum Selection Provisions

EnVen Energy Corp. v. Dunwoody, C.A. No. 2019-0579-KSJM (Del. Ch. May 28, 2020)

This case illustrates Delaware’s approach in interpreting contractual forum selection provisions and in considering whether to stay a later-filed action under the well-known McWane doctrine. More ›

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Corporate Opportunity Doctrine Waiver Does Not By Itself Also Constitute a Waiver of Default Fiduciary Duties under an LLC Agreement

Posted In Fiduciary Duty, LLC Agreements

77 Charters, Inc. v. Gould, C.A. No. 2019-0127-JRS (Del. Ch. May 18, 2020)

The Court of Chancery held that a waiver of the corporate opportunity doctrine did not by itself constitute a waiver of default fiduciary duties under an LLC agreement. 

Plaintiff 77 Charters, Inc. held non-preferred ownership interests in a joint venture. Defendant Jonathan Gould indirectly held similar non-preferred interests and managed the joint venture’s managing member. Subsequently, Gould indirectly purchased an owner’s preferred interests, and revised the joint venture’s waterfall repayment structure to provide a guaranteed, higher rate of return for preferred interests, at the expense of the residual, non-preferred interests, and reduced the standard of care for the Gould managing member. After 77 Charters filed a books and records demand and settled a related action, Gould sold the joint venture at a price that returned no funds to 77 Charters as a residual owner of non-preferred interests. 77 Charters filed contract and tort claims, and defendants moved to dismiss. More ›

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Chancery Dismisses Claims that Minority Stockholders who Rolled Over Equity in a Controlling Stockholder Merger Joined a “Control Group”

Posted In Controlling Stockholder, Fiduciary Duty, M&A

Gilbert v. Perlman, C.A. No. 2018-0453-SG (Del. Ch. Apr. 29, 2020)

Delaware law imposes fiduciary duties upon controlling stockholders who use their power to control the corporate machinery. For that reason, determining who comprises a control group affects who may owe fiduciary duties. In some circumstances, where minority stockholders pool their interests to gain majority control and then bind themselves to act together to effectuate a transaction, minority stockholders may take on the duties of a controlling stockholder as members of a control group. But where an already existing controlling stockholder effectuates a cash-out merger, minority stockholders who roll over their shares and enter into a voting agreement to support the transaction will not be deemed part of a control group unless a plaintiff can plead that “the minority-holder’s participation [was] material to the controller’s scheme to exercise control of the entity, leading to the controller ceding some of its control power to the minority-holders.” More ›

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Chancery Dismisses Claims Seeking to Compel a Dividend Declaration and for Breach of the Duty of Care

Posted In Demand Futility, Fiduciary Duty

Buckley Family Trust v. McCleary, C.A. No. 2018-0903-AGB (Del. Ch. Mar. 31, 2020).

This case involved a minority stockholder in a Subchapter S corporation seeking relief as a result of its dissatisfaction with management’s operating performance and the company’s unwillingness to pay dividends, matters which defendants contended were well within the exercise of their business judgment. The Court of Chancery granted defendants’ motion to dismiss the complaint. More ›

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Surveying the Law, Chancery Declines to Dismiss a Claim that a 35% Holder was the Controlling Stockholder of the Acquirer (as Well as the Target)

Posted In Controlling Stockholder, Fiduciary Duty, M&A

Voigt v Metcalf, C.A. No. 2018-0828-JTL (Del. Ch. Feb. 10, 2020).

This decision contains an instructive review of the factors the Court of Chancery will examine to determine whether a minority stockholder may in fact be a controlling stockholder in the circumstances of a specific transaction – an area of the law that has assumed increased importance after Corwin. More ›

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Post-Closing Earn-Out Claims Dismissed, But Fiduciary Duty Claims Against Former Director Survive

Posted In Earn-Out, Fiduciary Duty

Neurvana Medical, LLC v Balt USA, LLC, C.A. No. 2019-0034-KSJM (Del. Ch. Feb. 27, 2020).

Neurvana Medical, LLC (“Neurvana”) sold a medical device to Balt USA, LLC (“Balt USA”), largely for post-closing consideration if the device obtained regulatory approval. Balt USA was required to use commercially-reasonable efforts to obtain the approval, but otherwise, Balt USA had sole discretion over the process. More ›

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Chancery Sustains Breach of Fiduciary Duty Claim Against Long-Time Friend and Financial Advisor, and Addresses Double-Derivative Standing for Alternative Entities

Posted In Derivative Standing, Fiduciary Duty

Bamford v. Penfold, L.P., C.A. No. 2019-0005-JTL (Del. Ch. Feb. 28, 2019).

After realizing that a 2016 reorganization stripped them of their voting and other governance rights in a highly profitable limited liability company, the plaintiffs brought direct and derivative claims against their former business partner and the entities he controlled. The defendant and his entities moved to dismiss, which the Court largely denied. Of particular note were the Court’s rulings about one of the breach of fiduciary duty claims and the plaintiffs’ standing to bring double-derivative claims challenging pre-organization conduct.     More ›

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Chancery Allows Fiduciary Duty Claims to Proceed against Minority Members Who Blocked Financings in Order to Bankrupt Company and Facilitate Unfair Asset Purchase

Posted In Controlling Stockholder, Fiduciary Duty, LLC Agreements

Skye Mineral Investors, LLC v. DXS Capital (U.S.) Ltd., C.A. No. 2018-0059-JRS (Del. Ch. Feb. 24, 2020) (Slights, V.C.).

Where parties to an LLC agreement do not unambiguously disclaim fiduciary duties, then Delaware law provides by default that managers owe traditional fiduciary duties to the entity and its members. The corporate law principles relating to fiduciary duties of controlling shareholders also apply, including that a minority member who exercises actual control may owe fiduciary duties. In this decision, the Court held that plaintiffs, the majority members of an LLC, adequately alleged that minority members exercised contractual blocking rights in a manner that gave them actual control over financing decisions and then used that control to implement in bad faith a scheme to enable the minority members to acquire the LLC’s assets on the cheap. With those allegations, the Court sustained a non-exculpated claim against the minority members for direct and derivative contract- and fiduciary-based claims. More ›

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Chancery Denies Motions for Summary Judgment in Tesla Litigation, Questions Remain as to Whether Musk is a Controlling Stockholder

Posted In Controlling Stockholder, Fiduciary Duty

In re Tesla Motors, Inc. S’holder Litig., C.A. No. 12711-VCS (Del. Ch. Feb. 4, 2020).

The Delaware Court of Chancery denied plaintiffs’ and defendants’ (including Elon Musk’s) motions for summary judgment on the grounds that genuine issues of material fact still remain to be determined at trial. The plaintiffs brought the action based on the allegation that Musk improperly influenced the Tesla board of directors to approve Tesla’s acquisition of SolarCity, another entity owned partially by Musk that was purportedly on the verge of insolvency.  More ›

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Co-Founder Squeezed Out in Conversion from LLC to Corporation Adequately Pled Claims for Fraud, Breach of Fiduciary Duties, Aiding and Abetting, and Civil Conspiracy

Posted In Breach of Contract, Fiduciary Duty, Fraud Claims

Ogus v. SportTechie, Inc., C.A. No. 2018-0869-AGB (Del. Ch. Jan. 31, 2020). 

Simon Ogus was a co-founder of a sports-technology news company. He owned 44.5 percent of the LLC’s units, held veto power over major decisions of the company, and had employment protection based on a requirement that the company could only terminate his employment for cause. After outside investors began making large investments in the company, several officers and directors persuaded Mr. Ogus to: (1) approve a conversion of the LLC to a corporation; (2) sign a written consent of stockholders to expand the size of the board of directors; and (3) execute a shareholders agreement that gave the company the option to purchase Mr. Ogus’ shares if his employment was terminated for any reason, at fair market value, as determined in good faith by the board. One month later, the company terminated Mr. Ogus without cause and proposed to purchase his shares. Mr. Ogus brought suit, claiming that the officers and directors conspired to remove him from the company and eliminate his 44.5% interest to enrich themselves, and transfer control of the company to Oak View Group, a private equity & venture fund. Defendants moved to dismiss his suit. More ›

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Chancery Rejects Challenge to Financing Made Open to All Investors, Reasons the LLC Operating Agreement Allows Self-Interested Conduct, so any Claims Must Assert Bad Faith

Posted In Controlling Stockholder, Fiduciary Duty, LLC Agreements

MKE Holdings Ltd. v. Schwartz, C.A. No. 2018-0729-SG (Del. Ch. Jan. 29, 2020).

Verdesian Life Sciences, LLC is an agricultural company focused upon rolling up various companies with proprietary plant health technologies. All members of the Board of Managers of Verdesian were appointed by Paine Schwartz Partners, LLC (“Paine”), a private equity firm that owned over seventy percent of the Class A Units of the company. Paine also benefited from a management agreement that entitled it to receive certain management fees tied to acquisitions. The LLC Operating Agreement required the Managers to perform their duties in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of Verdesian. However, the Operating Agreement also allowed Managers and Members to “consider only such interests and factors as such Manager or Member desires, including its, his or her own interests” when facing discretionary decisions. The Court of Chancery concluded that the Operating Agreement “directs the Managers to operate in good faith and with ordinary care and effectively exculpates Managers for conflicted, negligent and other detrimental decisions … so long as taken in good faith.” More ›

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Delaware Court of Chancery Grants Motion to Dismiss Disclosure Claims Because Hedge Fund had Sufficient Information to Consider Corporation’s Self-Tender Offer

Posted In Disclosure Claims, Fiduciary Duty

Chatham Asset Mgmt., LLC v. Papanier, C.A. No. 2017-0088-AGB (Del. Ch. Jan. 13, 2020).

The directors of a Delaware corporation that makes a self-tender offer must disclose all material facts. A fact is material if there is a substantial likelihood that a reasonable stockholder would consider it important in deciding whether to tender. More ›

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Chancery Declines to Apply Corwin Where a Stockholder-Plaintiff Adequately Alleged the Existence of a “Control Group”

Posted In Controlling Stockholder, Fiduciary Duty

Garfield v. BlackRock Mortgage Ventures, LLC, C.A. No. 2018-0917-KSJM (Del. Ch. Dec. 20, 2019).

Under Delaware law, when a controlling stockholder benefits personally from the transaction in a manner not shared by minority stockholders, a stockholder vote does not trigger Corwin and restore the protections of the business judgment rule. This decision considers whether a stockholder-plaintiff sufficiently alleged a “control group” to avoid Corwin deference. More ›

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Chancery Dismisses Stockholder Claims that a Minority Owner was a Controlling Stockholder or that a Majority of the Board was Beholden to the Minority Owner in Approving a Merger Transaction with the Minority Owner

Posted In Controlling Stockholder, Fiduciary Duty, M&A

In re: Essendant, Inc. Stockholder Litigation, C.A. No. 2018-0789-JRS (Del. Ch. Dec. 30, 2019).

When as here a Delaware corporation’s charter contains an exculpation provision under Section 102(b)(7) of the Delaware General Corporation Law, stockholders who bring suit against directors who approve a merger transaction must allege violations of the duty of loyalty to state a non-exculpated claim. They may state such a claim if they adequately plead that a controlling stockholder breached duties for self-interested reasons, or that a majority of the board was self-interested or beholden to the buyer. They may also attempt to state a non-exculpated claim by claiming that a majority of the board acted in bad faith. To meet this bad faith standard, a plaintiff must plead facts showing that the decision to approve the transaction lacked any rationally conceivable basis associated with maximizing stockholder value. As the Court explained, allegations of mis- or non-disclosure will not suffice unless plaintiffs plead intentional misstatements or omissions based on a “factual narrative that would allow any inferential explanation of why these fiduciaries would so abandon their duties as to engage in bad faith." (emphasis in original). More ›

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