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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 8 posts in Complex Commercial Litigation Division.
Delaware Superior Court’s Complex Commercial Litigation Division Declines to Dismiss Delaware Attorney General’s Claims Against Opioid Makers
In January 2018, Delaware’s Attorney General filed an action against certain opioid makers and distributors, along with pharmacy chains CVS Health Corp. and Walgreens Boots Alliance Inc. The State alleged that the drug manufacturers lied to prescribers and patients, and encouraged high doses of the painkillers while failing to disclose accurately the risks of addiction and overdose. As to the distributors and pharmacies, the State alleged they had duties to actively prevent opioid diversion and to report any suspicious orders. The Court held that the State stated prima facie claims of consumer fraud and negligence against the manufacturers, reasoning that allegations that they labeled drugs in a manner inconsistent with FDA-approved uses were sufficient to survive dismissal. The Court also held that the State met its pleading requirements for negligence and consumer fraud against the distributors, including by adequately alleging a prima facie case of reasonable foreseeability and proximate cause. The State did not state a claim against the pharmacies, however, because the State’s comprehensive pharmacy regulatory scheme and enforcement procedures preempted the claims in the complaint.
D & O insurance covers actions taken by a director. However, when a director acts on behalf of another entity in dealing with the insured company, it is not always easy to decide if the claim against him arises out of his role as a company director. This decision applies a “but for” test in this way. If the claim would not exist “but for” the conduct on behalf of the other, non-insured entity, then the claim is not based on the director’s conduct as a director of the insured entity and the "capacity” exclusion applies to deny coverage. This result turns in part on the specific language of the policy that insured against conduct “solely” taken as a director.
This is an interesting decision because it explains when there is privity between parties so as to preclude a claim that one party has resolved previously. Briefly, there needs to be a common interest between the parties without any conflicting interest that would make the settling party an improper representative of the other party. In this action, the Court held that because of newly discovered evidence, the Court could no longer find that the parties were in privity, and it reversed its prior decision dismissing plaintiffs’ claims against one of the defendants on res judicata grounds.
While every contract has an implied covenant requiring the parties to act fairly and in good faith, it is not always easy to know how that applies in a given case. This decision is a good example of how the court will approach that issue. It finds that the contract impliedly limited the right of a party to compete with an entity it had formed with another party to exploit a business opportunity.
Superior Court of Delaware CCLD Finds 6 Del. C. 1-308 Permits Parties to Reserve Their Rights Without Pleading Duress
In this decision by the Complex Commercial Litigation Division, the Court held, for the first time, that under 6 Del. C. 1-308, a party may make a payment with a reservation of rights under without having to plead duress. The Court held that this section was designed to permit parties to a contract – like the plaintiff here – to continue performance even while a dispute between parties is unresolved. In doing so, the Court held that Section 1-308 superseded the Supreme Court’s decision in Western Natural Gas Company v. Cities Service Gas Company, 201 A.2d 164 (Del. 1964) in that respect.
A claim for tortious interference with a contractual relationship must include an allegation that the conduct complained about was itself wrongful. This decision explains what is such “wrongful” conduct and concludes that the use of confidential information to contact a party to a contract to dissuade it from going forward is such wrongful conduct.
This decision upholds coverage under a D&O policy for a claim alleging fraud by directors. This is not too surprising as the Delaware Corporation Law has long relied on insurance to cover the gap in the DGCL that denies indemnification for some claims based on disloyalty. The business judgment rule, the right to advancement, and indemnification and insurance are the triad of protections for Delaware directors.
This decision holds that Delaware does not recognize a claim for the implied warranty of accuracy for a report of an inspection company. Of course, that does not mean there is no breach of contract claim for inspection services. The problem in such matters is that the contract often contains a limitation of damages clause that a clever plaintiff may try to avoid, but not this time.