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Is the Court of Chancery Reforming Stockholder Litigation?

A real change is going on in stockholder litigation in Delaware. Yet it is largely unnoticed because of the uproar over what will someday be seen as just a Supreme Court decision that did not have a lasting impact. We need a longer perspective to appreciate what is happening. First, however, we need to understand the recent problems in stockholder litigation that have provoked such ire. For several years now, almost every significant corporate merger of public companies has attracted litigation. Lawyers for small stockholders file these suits as soon as a possible deal is announced and even before the details are established. Compounding the costs of this litigation, these suits are often filed in several jurisdictions, forcing companies to defend themselves against the same allegations in multiple forums. The speed with which these suits are filed must mean that little, if any, real factual investigation is done before allegations of wrongdoing are made. It is no wonder corporate defendants find this litigation vexatious. More › Share

Avoiding the Entire-Fairness Standard of Review

Authored by Lewis Lazarus This article was originally published in the Delaware Business Court Insider | June 18, 2014 The Delaware Supreme Court's recent affirmance in Kahn v. M&F Worldwide, No. 334, 2013 (Del. Mar. 14, 2014),referred to as MFW,allows controlling stockholders to avoid the entire fairness standard of review if at the outset of a self-dealing transaction the controlling stockholder effectively relinquishes control over the outcome to an independent committee of disinterested directors and a nonwaivable, fully informed vote of a majority of the minority stockholders. In that circumstance, reasoned the Supreme Court, the transaction would reflect arm's-length bargaining and afford an independent majority of the stockholders the opportunity to decide for themselves whether to approve the transaction. More › Share

Standard to Allege Mismanagement in Motion to Dismiss Section 220 Complaint

 Authored by Albert H. Manwaring, IV
This article was originally published in the Delaware Business Court Insider | June 4, 2014 

Section 220 of the Delaware General Corporation Law permits a stockholder to inspect the books and records of a corporation, provided that the demand for inspection meets certain form and manner requirements, and the inspection is sought for a proper purpose—e.g., one reasonably related to the interests of stockholders. It is well established that the investigation of corporate mismanagement or wrongdoing is a proper purpose under DGCL Section 220. But, to state a proper purpose to investigate mismanagement or wrongdoing of a corporation, a stockholder must allege a "credible basis" to infer "possible" mismanagement or wrongdoing. The Court of Chancery has noted that the "credible basis" standard has, however, the lowest possible burden of proof under Delaware law.  More ›

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Delaware Judge Charles H. Toliver, IV Joins Morris James LLP

Morris James LLP is pleased to announce that Judge Charles H. Toliver, IV will join the firm in June, 2014, at the completion of his second 12-year term as Judge of the Delaware Superior Court. Judge Toliver was initially appointed to the bench in 1990 by Delaware Governor Michael N. Castle and reappointed in 2002 by Governor Thomas R. Carper. Judge Toliver will be a partner in the Litigation Practice and a member of the firm’s Alternative Dispute Resolution Group. Judge Toliver's practice will center upon civil, corporate and domestic relations mediation, arbitration and case analysis. David H. Williams, Morris James’ Managing Partner, stated, “We are extremely pleased to have Judge Toliver join the firm after his distinguished service on the Superior Court. His choice of Morris James among all the opportunities surely presented to him upon retiring from the bench is a sparkling reflection upon our attorneys and our firm. We look forward to his contributions to the firm and the growth of our alternative dispute resolution practice.” More › Share

Will Delaware Still Take Your Case?

Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | May 14, 2014  

Plaintiffs lawyers are questioning whether their cases will be heard by Delaware's courts. That concern is fueled by the Delaware Supreme Court affirmance of a trial court's dismissal of a case against DuPont Co., the ultimate Delaware corporation, on forum non conveniens grounds, in Martinez v. E.I. du Pont de Nemours & Co., 86 A.3d 1102 (Del. 2014). For if Delaware will reject a case as too inconvenient for a defendant like DuPont, whose headquarters is just four blocks from the courthouse, might not any defendant also have a case against it thrown out for the same reason? Of course, that is a too-broad reading of the Martinez case. Moreover, on April 28, the Court of Chancery sent a strong signal that the Delaware courts remain open to all, even foreign, plaintiffs. More ›

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Lessons for Controlling Stockholders in Squeeze-Out Mergers

Authored by Albert H. Manwaring, IV
This article was originally published in the Delaware Business Court Insider | April 30, 2014 

In a comprehensive analysis of the standards of review, burdens of proof and potential damages implicated in a fiduciary-duty challenge to a squeeze-out merger, the Delaware Court of Chancery recently examined the harsh potential consequences for controlling shareholders who manipulate special board committees, the fairness opinions of their financial advisers, and proxy materials concerning the value of a company. More ›

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Are Noncompete Agreements Only a Click Away?

Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | April 16, 2014 

Delaware continues to expand its enforcement of agreements not to compete with one's former employer. The latest step in this path to enforcement is the recognition that a noncompete and nonsolicitation agreement may be entered into by a mere click of the "accept" button on a computer screen. The Delaware Court of Chancery just upheld such agreements in Newell Rubbermaid v. Storm, Del. Ch. C.A. 9398-VCN (March 27, 2014). The decision has serious implications for employees who may wish to quit their present jobs to pursue careers at an employer's competitor. More ›

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Guidance on Use of Deposition Testimony in Motions to Dismiss

Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | April 9, 2014

The record upon which a court evaluates a motion to dismiss is often outcome-determinative. If based upon the well-pleaded allegations of a plaintiff's complaint, the court cannot determine that it is reasonably conceivable that the plaintiff may obtain a recovery, the court must dismiss the complaint. As a general matter, the plaintiff controls the record by virtue of how and what the plaintiff pleads. The Delaware Supreme Court has held, however, that the record fairly before the court on a motion to dismiss may include documents "integral to and incorporated into the complaint." The recent Court of Chancery decision in In re Gardner Denver Shareholders Litigation, Cons. C. A. No. 8505-VCN (Feb. 21, 2014), provides useful guidance concerning how the Court of Chancery will treat deposition transcripts where, as is happening more frequently, a plaintiff pursues but abandons a preliminary injunction after deposing several witnesses, and then amends the complaint by selectively quoting from the deposition record. More ›

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A Strong Message to Bankers Playing Both Sides of Sales Processes

Authored by Albert H. Manwaring, IV
This article was originally published in the Delaware Business Court Insider | March 26, 2014

Investment bankers seeking to profit as both adviser to the seller and financier to the buyer in corporate sales processes have faced increased scrutiny by the Delaware Court of Chancery over the last few years. In a highly publicized 2011 decision that changed the landscape for investment bankers, Vice Chancellor J. Travis Laster criticized investment banker Barclays PLC for acting both as adviser to the seller and financier to the buyer in the sale process of Del Monte Foods Co. Laster found that Barclays "secretly and selfishly manipulated the sale process to engineer a transaction that would permit Barclays to obtain lucrative buy-side financing fees." Laster explained that Barclays faced conflicts of interest in the sale process, which were not disclosed to the board of Del Monte Foods, in its role as financial adviser to the board, while at the same time profiting by providing staple financing to the buyer, private equity firm KKR & Co. More ›

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Delaware Expands Remedies for Former Employee Misconduct

 Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | March 19, 2014 

What can you do when you discover that a former employee is hurting your business by working for a competitor? If the employee never signed a noncompetition or nonsolicitation agreement, it may seem there is little you can do. However, the Delaware Court of Chancery's recent opinion in Wayman Fire Protection v. Premium Fire & Security LLC, C.A. No. 7866-VCP (Del. Ch. March 5, 2014), provides new remedies if that former employee has breached the duties the court explains in this decision. More ›

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Is Delaware Closing the Door to Foreign Tort Claimants?

Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | March 5, 2014 

The Delaware Supreme Court's Feb. 20 decision in an asbestos case brought by an Argentine widow against DuPont Co. is a hot topic in Delaware. Martinez v. E.I. du Pont de Nemours & Co., (Del. Supr. C.A. 669, 2012), upheld the dismissal of the asbestos case despite a vigorous dissent by Justice Carolyn Berger.

Dissenting opinions in Delaware Supreme Court decisions are very rare and that alone generates discussion. In Martinez, the majority opinion takes the time to respond to the dissent, recognizing that Berger makes some good points. Nonetheless, with new Chief Justice Leo E. Strine Jr. as part of the majority (in his capacity as chancellor designated as a justice for this one case), some wonder if this opinion signals an internal rift within the Supreme Court. More ›

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Is Delaware Expanding Summary Judgments?

Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | February 26, 2014  

Is it becoming easier for defendants to win summary judgment in corporate litigation? A recent Delaware Court of Chancery decision granting summary judgment to the defendants in a fiduciary duty case appears to resolve disputed facts in defendants' favor. Yet, it is settled law that a court may not resolve disputes of material fact without a trial. Has Delaware law changed when summary judgment is appropriate? More ›

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No Fiduciary Duty to Repurchase Minority Stockholder Shares

Authored by Albert H. Manwaring, IV
This article was originally published in the Delaware Business Court Insider | February 19, 2014 

 In contrast to many jurisdictions that have recognized special fiduciary duties owed by majority stockholders to protect minority stockholders in closely held corporations, Delaware courts have not adopted a special fiduciary duty of a controlling or majority stockholder to minority stockholders in closely held corporations, or a fiduciary duty to buy back a minority stockholder's shares. Thus, declining to follow the approach of many other jurisdictions, Delaware law does not afford minority stockholders in a closely held corporation any greater protection than the fiduciary duties a controlling stockholder owes to a minority stockholder in a public corporation. More ›

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Delaware Expands Insider-Trading Claims

Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | February 5, 2014 

At the very end of 2013, the Delaware Court of Chancery issued a major insider-trading decision that has substantial implications for company officials selling their company stock. The decision in Silverberg v. Gold, Del. Ch. C.A. 7647-VCL (December 31, 2013), upholds using circumstantial evidence to establish that insiders were motivated by material nonpublic information to sell company stock. Silverberg's significance lies in the extent to which it draws inferences of wrongful conduct from some limited evidence. Thus, Silverberg may permit more insider-trading complaints to survive a motion to dismiss. More ›

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Advancement Denied to Board Chair Following LLC's Conversion

 Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | January 29, 2013

Advancement rights assure directors and officers that if they are sued for conduct arising out of their company service, the company will pay their attorney fees and costs as they are incurred. Without advancement rights, many people would not serve out of fear that their personal assets would be depleted in defending suits based on their conduct as directors or officers. For that reason, Delaware courts regularly enforce advancement rights, even after a finding of criminal guilt at the trial level, until the judgment is final and all appeals are exhausted. Nonetheless, mandatory advancement rights apply only if provided by charter, bylaw or contract. The recent case of Grace v. Ashbridge LLC, C.A. No. 8348-VCN (Del. Ch. Dec. 31, 2013), provides a cautionary tale that advancement rights that may have existed when the entity was a corporation do not necessarily survive intact when the entity converts to a limited liability company. More ›

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