Posts tagged News

Additional Complaints Filed Against Yahoo! in Delaware

Yesterday, February 27, 2008, two new complaints were filed against Yahoo! in the Court of Chancery. The first is a class and derivative action, Plumbers and Pipefitters Local Union No. 630 Pension-Annuity Trust Fund v. Yahoo!, C.A. 3578. The second, Mercier v. Yahoo!, C.A. 3579, an additional class action to those previously filed.

The plaintiff in the second action, Vernon A. Mercier, was also the lead plaintiff in Mercier v. Inter-Tel (Delaware), Inc., 929 A.2d 786 (Del. Ch. 2007). In a decision in that action last August, Vice Chancellor Strine denied the plaintiff’s application for a preliminary injunction and found that directors fearing that stockholders are about to make an unwise decision that poses the threat that all stockholders will irrevocably lose a unique opportunity to receive a premium for their shares have a compelling justification for a short postponement in the merger voting process to allow more time for deliberation.  The decision is worth reviewing for its interesting discussion of the interplay between the Blasius and Unocal doctrines.    

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Class Actions Filed in Delaware Challenge the Yahoo! Board's Rejection of Microsoft's Offer

On Monday, February 11^th, and Thursday, February 21st, two related class actions were filed in the Court of Chancery against the directors of Yahoo! for breach of fiduciary duties in connection with the offer by Microsoft, made on February 1st, to acquire Yahoo! for $31 per share, a price which reflected a 62 percent premium above the Yahoo! share value at the close of the day prior to the offer.  The first complaint, Wayne County Employees’ Retirement Sys. et al. v. Yahoo!, Inc., Court of Chancery C.A. No. 3538, can be accessed here.  The second complaint, Police and Fire Retirement System of the City of Detroit et al. v. Yahoo!, Inc., Court of Chancery C.A. No. 3561, can be accessed here.

The second complaint alleges that the Yahoo! board members have breached their fiduciary duties by rejecting Microsoft’s value-maximizing offer by refusing to consider and respond to the offer in good faith.  The plaintiffs also seek an injunction preventing Yahoo! from initiating any defensive measures and an order compelling Yahoo! to redeem its poison pill and invalidate certain severance plans.   

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"It's Not a Crime Against Nature"--But It's Wrong!

In back-to-back hearings last month, Vice Chancellor Leo E. Strine, Jr., had occasion to stress his—and presumably the entire judiciary’s—intolerance for speaking objections at Delaware depositions. Both cases involved out-of-state attorneys and should thus serve as a reminder to Delaware counsel to inform co-counsel of the judiciary’s strict adherence to this policy. 

In Benton v. Guitar Center, C.A. No. 3075-VCS, Vice Chancellor Strine was so troubled by the defending attorney’s repeated speaking objections, which “unduly lengthened the deposition” and “obstructed the legitimate inquiries of counsel,” that he instructed Delaware counsel and the out-of-state attorney who defended the deposition to draft a letter to disciplinary counsel, enclosing the transcript. And in case that was not enough, he further instructed Delaware counsel to see to it that the out-of-state attorney come to town to chat with disciplinary counsel about the appropriate rules of conduct for a deposition in Delaware. See pages 4-5. 

Court: It's not a crime against nature. But it was -- I can only imagine how patience testing it was for the person taking the deposition, because I read it, and every single question, there were inappropriate speaking objections. It's just ridiculous. And people want to practice that way, they can practice in jurisdictions where inappropriate, ridiculous obstruction of questioning is tolerated. But this ain't one of them.

The attorneys in Benton faced particularly poor timing, though, as Vice Chancellor Strine had encountered a very similar issue the day before in a hearing for SinoMab Bioscience Ltd., et al. v. Immunomedics, Inc., C.A. No. 2471-VCS. There, Vice Chancellor Strine made clear, at pages 62-63 of the transcript, that there was no debate about the impropriety of speaking objections in Delaware:

Court: There’s no wiggle room about whether what your partner did was an inappropriate way to object at a Delaware deposition. Not gray. Clearly wrong.

. . .

It's not a crime against nature. It happens. . . . The best of us do it. But it doesn’t help to come and argue with the basic proposition that it was wrong.

At the hearing, Vice Chancellor Strine awarded costs to the moving party. After the hearing, when he granted the proposed order, Vice Chancellor Strine made clear that the award of costs, which included attorneys’ fees, was partially a remedy for the improper speaking objection. (See the comments section of the order.)

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Delaware's Court System Does It Again!

For the sixth consecutive year in a row, Delaware has received the #1 Ranking from the Harris Poll State Liability Systems Ranking Study which is compiled by the United States Chamber of Commerce Institute for Legal Reform.  The Study attempts to quantify the perceptions corporate attorneys have about each state's legal system.  Respondents to the study are asked to grade states in each of the following areas:

• having and enforcing meaningful venue requirements;
• overall treatment of tort and contract litigation;
• treatment of class action suits and mass consolidation suits;
• punitive damages;
• timeliness of summary judgment or dismissal;
• discovery;
• scientific and technical evidence;
• non-economic damages;
• judges' impartiality and competence; and
• juries' predictability and fairness.

To read a copy of the study, click here.

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Rule Changes For The Court of Chancery

Effective January 1, 2007, there will be some significant rule changes in the Delaware Court of Chancery. Some of these changes will affect pending actions and are required reading. The most extensive changes are directed at preventing the kick-back abuses that have occurred in other jurisdictions where lawyers have allegedly paid professional plaintiffs to bring class and derivative suits. These changes may be briefly summarized as follows.

First, all complaints must now be "verified". In other words, the plaintiff must swear or affirm that the facts alleged are true or at least that there is a basis to believe they are true.

Second, in class and derivative suits, the plaintiff must file an affidavit stating he will not receive any payment for acting as a representative party, except for damages or fees and costs awarded by the Court. In effect, this means that the plaintiff may not receive any compensation for acting as a plaintiff unless the Court approves that payment. A similar affidavit must be filed when any settlement is presented for approval by the Court.

Third, in pending actions, the "no-kick-back" affidavit must be filed when any person asks to intervene as a representative party or asks to be appointed as a representative party.

There are some other more minor changes to the rules as well.

 

 

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Is Good Faith Still Alive After Disney?

On October 5, 2006, the Delaware State Bar Association sponsored a symposium entitled "Good Faith After Disney: The Role of Good Faith in Organizational Relations in Delaware Business Entities." The speakers included Chief Justice Steele and Justice Jacobs of the Delaware Supreme Court, and Chancellor Chandler and Vice Chancellor Strine of the Delaware Court of Chancery. The participants discussed whether a separate fiduciary duty of good faith exists under Delaware law. This debate stemmed from footnote 112 of the Delaware Supreme Court's opinion affirming Disney in which the Court explained it would "not reach or otherwise address the issue of whether the fiduciary duty to act in good faith is a duty that, like the duties of care and loyalty, can serve as an independent basis for imposing liability upon corporate officers and directors." The speakers explained that the Court of Chancery could not ignore the Delaware Supreme Court's opinion in Caremark, in which a separate duty of good faith was addressed. Attempting to reconcile the Caremark decision, the Court of Chancery explained in footnote 463 of Disney that "[i]n the end, so long as the role of good faith is understood, it makes no difference whether the words 'fiduciary duty of' are placed in front of 'good faith,' because acts not in good faith (regardless of whether they might fall under the loyalty or care aspects of good faith) are in any event non-exculpable because they are disloyal to the corporation." The lesson? There is no clear majority as to whether there is a separate fiduciary duty of good faith under which directors may be held liable. It is, however, more likely that good faith is merely an extension of the fiduciary duty of loyalty. Because of this uncertainty, it is probably a mistake to seek liability solely based on an independent fiduciary duty of good faith. For now, stick with the basic fiduciary duties of care and loyalty and allege good faith as part of the duty of loyalty.

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Delaware Recognizes New Defense to Contract Claims

In what the Court itself noted is an unprecedented decision for Delaware, the Delaware Superior Court has ruled that a defendant in a contract case may plead as a defense that the plaintiff violated the implied covenant of good faith and fair dealing. This decision in Daystar Construction Management Inc. v. Mitchell has particularly broad implications because of the wide-spread adoption of Delaware law as the choice of law in contracts. The Court noted that it is rare for the covenant to be used as a defense to a breach of contract claim. However, the Court's decision cited to an impressive list of sources in its detailed and thoughtful analysis. Given that the Court also held that the breach of covenant is an affirmative defense that must be specifically plead to be asserted, a review of the decision is now mandatory for any defense of a contract case governed by Delaware law. Share

Good Faith After Disney: Fiduciary, Contract, Agency, Statutory and Trust Law in Delaware Business Entities

Save the Date! On Thursday, October 5, 2006, the Delaware State Bar Association will be presenting a program entitled "Good Faith After Disney: Fiduciary, Contract, Agency, Statutory and Trust Law in Delaware Business Entities". The program will be held at the Chase Center on the Riverfront, 800 S. Madison St., Wilmington, DE. Attendees will receive 6.0 hours CLE credit. Share

President Nominates Former Morris James Partner to United States Court of Appeals for the Third Circuit

The partners and staff of Morris James congratulate our former partner, The Honorable Kent A. Jordan, who is currently serving on the U.S. District Court, District of Delaware, on his recent nomination by President George W. Bush to the United States Court of Appeals for the Third Circuit. For additional details, click here, to read a copy of the article which first appeared in The News Journal on Thursday, June 29, 2006. Share

Disney Ruling Affirmed

In Re The Walt Disney Company Derivative Litigation, William Brehm and Geraldine Brehm, et. al. v. Michael D. Eisner, et. al., No. 411, 2005 (Del. June 8, 2006). On June 8, 2006, the Delaware Supreme Court affirmed the Delaware Court of Chancery's decision issued by Chancellor William B. Chandler, III in August 2005 which stated that the directors of The Walt Disney Co. had not acted in bad faith when they awarded Michael S. Ovitz a $130 million severance package. According to the Supreme Court, the decisions made by the directors were "protected business judgments, made without any violations of fiduciary duty."

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Delaware Docket - The Newsletter of the Delaware Judiciary

Delaware Docket is published by the Administrative Office of the Courts. Several highlights from the Summer 2006 issue include: --Delaware's #1 Ranking for the Fifth Consecutive Year in a Row by the Harris Poll State Liability Systems Ranking Study by the United States Chamber of Commerce Institute for Legal Reform --Three Delaware Judges Were Among the 500 Leading Lawyers in America Chosen by Lawdragon --Delaware is Developing a New Case Management System for its Judicial Branch To read these and other articles concerning Delaware's Judiciary, click here. Share

2006 Bench and Bar Conference

Wednesday, June 7, 2006 Chase Center on the Riverfront 800 South Madison Street Wilmington, DE The 2006 Bench and Bar Conference begins at 10:30 a.m. with a seminar entitled "Professionalism and Ethics: Past, Present and Future". The seminar will end at 3:45 p.m. so that participants may join members of the Delaware State Bar Association at the DSBA Annual Meeting from 4:00 p.m. until 5:00 p.m. A cocktail reception and dinner will be held for all DSBA members immediately following the annual meeting. Share

United States District Court, District of Delaware Issues Order Regarding Deletion of Hard Drive

On August 19, 2004, two corporals and a sergeant, all members of the Delaware State Police Department (the "Plaintiffs"), filed an action alleging violations of the First Amendment Free Speech Clause. After several amendments to their complaint, the Plaintiffs filed a Motion for Sanctions and Other Relief (D.I. 87) which asserts that defendants intentially destroyed relevant evidence, namely the hard drive of one of the defendants' computers. On February 8, 2006 the defendants filed an opposition (D.I. 93) asserting that, while the hard drive was no longer available, it was duplicative in light of the process by which the Delaware State Police stores its data. The Court concluded that the defendants had a duty to preserve the hard drive since a user had the ability to manually designate a different file path and save a document outside of the system. Appropriate sanctions will be determined by the Court after independent experts are consulted to determine whether the hard drive can be recovered. 

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Emerging Trends in Fiduciary Duty Litigation: Lessons Learned from Emerging Communications and Disney

Partner, Lewis H. Lazarus and Associate, Joseph S. Naylor of Morris James' Corporate and Fiduciary Litigation Group were recently featured in BNA Inc.'s Corporate Accountability Report. "Emerging Trends in Fiduciary Duty Litigation: Lessons Learned from Emerging Communications and Disney", a reprint of which is attached above, outlines three significant lessons for directors and corporate practitioners relating to the Delaware Court of Chancery's review and analysis of directors' fiduciary duties, including the evolving duty of good faith.

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First Annual Mid-Atlantic Super eLaw Technology Conference

The Corporate Counsel Technology Institute (CCTI) at the Widener University School of Law along with the Delaware State Bar Association and other organizations will be sponsoring the First Annual Mid-Atlantic Super eLaw Technology Conference at Widener University School of Law in Wilmington, DE. The Chair of the conference and one of the featured speakers will be Richard K. Herrmann, a partner in Morris James' IP Practice Group. When he is not in the courtroom, Mr. Herrmann teaches Electronic Discovery and technology related courses at William & Mary Law School, Widener University School of Law, and the National Judicial College. He is also the Director of Widener's Technology and Law Center. The conference will take place from 8:30 am to 5:00 pm, on Friday, April 21, 2006. 

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