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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Court of Chancery Validates Cure of Defective Corporate Acts Affecting Herman Miller’s Acquisition of DWR
Sections 204 and 205 of the DGCL permit corporations to cure and validate defective corporate acts under the right circumstances. This is another decision explaining when the Court will validate an attempted cure under Section 204. The opinion explains, among other things, that there is no set time limit to seek validation of a cure under Section 205. It further explains what sort of defective acts may be addressed in Section 205 proceedings. More ›
Enterprise Holdings Inc. v. Rolen Stockholder Representative LLC, C.A. No. 2017-0422-AGB (Del. Ch. June 27, 2018)
Merger agreements sometimes provide for post-merger purchase price adjustments to be made by an independent accounting firm. This is another decision, in the form of a bench ruling, where the Court of Chancery readily enforces such an agreement, albeit with some guidance to the accountant on what issues are for the accountant to decide and what issues must remain for the Court.
Under the Cryo-Maid decision, a forum non conveniens motion must consider the impact on a defendant forced to litigate in Delaware when discovery is needed in a foreign land. Here the Court considered the impact of the recent amendments to the Italian Data Protection Code on discovery and found that it did not impose an undue hardship under the facts present in this case. This may become more important as those European laws on privacy protection start to be considered for their effect on litigation outside of the EU.
Court rules require pre-trial disclosures regarding testifying experts and the subjects they will opine on. Adequate disclosure is a prerequisite to admissibility. Insufficient disclosure could result in the Court disallowing or striking expert trial testimony. This decision explains the type of disclosures that are sufficient and those that are deficient, granting in part and denying in part a motion to strike.
Many merger agreements provide for additional payments after closing depending on the target’s performance. This decision examines certain language controlling the buyer’s obligations to achieve the post-closing milestones. The relevant language was subject to more than one reasonable construction, thus ambiguous, and extrinsic evidence would be necessary to resolve the dispute. Accordingly, the Court denied the buyer’s motion to dismiss.
An LLC agreement may provide what payout a departing member receives for his or her interest. It also may provide that a member may be forced to withdraw by his or her other members. This decision addresses what should happen when an LLC agreement provides for a forced withdrawal but is silent on the issue of the payout. Adopting the reasoning of a prior Delaware decision in the limited partnership context, the Court holds the forced-out member should receive the same sort of “fair value” awarded in stock appraisal cases. This is another example of how rules of law or equity may fill in gaps in LLC agreements and why such agreements must be drafted carefully.
Cumming v. Edens, C.A. No. 13007-VCS (Del. Ch. July 12, 2018)
This transcript ruling makes two important points about discovery obligations in the Court of Chancery. First, blanket form objections to document requests amount to a waiver of otherwise valid objections. Objections to scope and burden and the like need to be spelled out specifically with supporting facts. Second, investment bankers, even as third parties to a litigation, generally will not get far with objecting to requests on the basis of burden. Given their role in many transactions, they are front and center, house a lot of critically relevant information, and have been paid well enough to cover the expenses associated with production. In short, they are not your typical third party who may be given some more leeway when it comes to discovery burdens.
This is an important decision because it upholds the right of an insurance company to recover defense costs it advanced when it is later determined there was no insurance coverage for the underlying litigation. While the opinion applies Tennessee law, some parts of the opinion suggest that the Court would reach the same result if Delaware law applied. That is so even though the Court recognized that permitting such a recovery is the minority positon in the United States. The opinion is also useful for its explanation of how an insurer may preserve its right to recover those advances by making it clear that it is advancing the costs subject to its right to recover them later if a court decides there was no insurance coverage.
Thirty Morris James attorneys in thirty-two practice areas were selected by their peers for inclusion in The Best Lawyers in America© 2019 edition. Additionally, three of those attorneys were named “Lawyer of the Year” for their respective practices, including David H. Williams for Education Law, Employment Law – Management, and Litigation – Labor and Employment, Richard Galperin for Healthcare Law, Medical Malpractice - Defendants, and Personal Injury Litigation – Defendants, and John M. Bloxom, IV for Real Estate. Congratulations to Kenneth L. Dorsney, Shannon S. Frazier, Kevin G. Healy, Eric J. Monzo, John H. Newcomer, Jr., K. Tyler O’Connell and Jill Spevack Di Sciullo for being recognized for the first time. More ›
It is not always clear when two agreements are to be read as one. This is because incorporating one agreement into a second agreement may not be explicit. This decision sets out the principles under Delaware law that govern how to decide if two agreements should be read together, including that there must be an “explicit manifestation of intent” to incorporate one document into another.
This is an interesting decision because it dismisses a counterclaim that is contradicted by the claimant’s answer to the complaint. Thus it goes beyond the normal rule that requires a factual pleading to be accepted as true when considering a motion to dismiss.
Contracts often use the word “including” as part of a definition of a term. But is that to limit or enlarge what that term means? This decision holds that “including” is a term of enlargement or extension when used that way and grants a partial summary judgment based on that interpretation.
Chancery Rejects Merger Price as Indicator of Fair Value in Appraisal Based on Flaws in Sales Process
Appraisal is a limited statutory remedy that provides a Delaware general corporation’s stockholders, who dissent to the sufficiency of the merger price, with the right to have the Delaware Court of Chancery determine the “fair value” of their shares, 8 Del. C. Section 262. In determining fair value, the court must consider all relevant factors. While a single or multiple factors may be considered in the valuation, the court’s determination of the relevant factors must be grounded in the evidentiary record and “accepted financial principles.” More ›
Supreme Court of Delaware, Applying New York Law, finds that Settlement Amounts were not Uninsurable Disgorgement Under D&O Policies
The Supreme Court of Delaware affirmed the Superior Court’s finding that under the relevant D&O policies at issue, the settlement amounts TIAA-CREF paid to class action plaintiffs did not represent uninsurable disgorgement. In doing so, the Supreme Court distinguished certain cases from New York relied upon by the insurance companies that held settlements represented uninsurable disgorgement. Unlike the cases cited by the defendants, the settlement amounts at issue in the underlying cases here did not represent the return of ill-gotten gains. After this decision, whether or not a claim will be treated as uninsurable disgorgement should be an important consideration by defendants when deciding whether to settle merger objection litigation with a payment to the class.
This decision has an extensive discussion of when a Delaware court will stay a matter in favor of litigation in another forum. Its application of the McWane doctrine governing stays of second filed cases is particularly helpful. Under the circumstances of this case, a stay in favor of the foreign jurisdiction was warranted.