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  • Delaware Chancery Court Finds No Fiduciary Duty Breach, Notwithstanding Entire Fairness Review, And Determines Appraisal Value To Be Well Below Deal Price
     
    07/25/2017

    On July 21, 2017, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery (i) entered judgment in favor of defendants Sprint Nextel Corporation (“Sprint”) and Softbank Corp. (“Softbank”) on claims of breaches of fiduciary duty and aiding and abetting, respectively, in connection with Sprint’s merger with Clearwire Corporation (“Clearwire”); and (ii) appraised the fair value of Clearwire’s stock at the time of the merger, awarding the dissenting stockholder petitioners $2.13 per share, notwithstanding that the transaction closed at $5.00 per share.  ACP Master, Ltd., et al. v. Sprint Corporation, et al. & ACP Master, Ltd., et al. v. Clearwire Corporation, C.A. No. 8508-VCL, C.A. No. 9042-VCL (Del. Ch. July 21, 2017).  Stockholder petitioners had challenged the merger, alleging that Sprint was a controlling stockholder of Clearwire and allegedly breached its fiduciary duties during negotiations leading to a deal price that substantially undervalued Clearwire.  Applying an entire fairness standard of review, the Court found that Sprint did not breach any fiduciary duties.  Noting that the appraisal statute requires the exclusion of “any synergies present in the deal price,” the Court evaluated the competing discounted cash flow (“DCF”) analyses offered by the parties and adopted the $2.13 per share value determined by the approach offered by Sprint, even though it amounted to less than half of the $5.00 per share deal price. 

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  • Delaware Chancery Court Dismisses Post-Closing Challenge To Two-Step Merger Under Corwin Finding Tendering Stockholders Were Fully Informed 
     
    07/18/2017

    On July 13, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery dismissed a former stockholder’s breach of fiduciary duty claims against the former directors of Diamond Resorts International (“Diamond”) and an aiding and abetting claim against Diamond’s financial advisor in connection with Apollo Global Management LLC’s (“Apollo”) acquisition of Diamond in a two-step merger under Section 251(h) of the Delaware General Corporation Law, 8 Del. C. § 251(h).  Appel v. Berkman, C.A. No. 12844-VCMR (Del. Ch. July 13, 2017).  Relying on Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015) and In re Volcano Corp. Stockholder Litigation, 143 A.3d 727 (Del. Ch. 2016), the Court held the merger was “cleanse[d]” because “the disinterested stockholders of Diamond were fully informed and uncoerced when they overwhelmingly accepted the tender offer.” 

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  • Third Circuit Holds That Statutes Of Limitation May Be Tolled By Books-And-Records Demands Under Delaware Law Despite Inquiry Notice To Plaintiff Of Wrongdoing
     
    07/18/2017

    On June 13, 2017, Chief Judge Smith of the United States Court of Appeals for the Third Circuit reversed in part the District Court’s dismissal of claims for breach of contract as untimely.  Norman v. Elkin, No. 16-1924 (3d Cir. June 13, 2017).  The Third Circuit found that plaintiff’s argument that his books-and-records demand tolled the relevant statute of limitations was not categorically barred by a finding that plaintiff had “inquiry notice” of defendant’s wrongdoing at the time he filed the demand.  The Court vacated dismissal of the contract claims and remanded them to the District Court with instructions to determine whether plaintiff’s books-and-records demand tolled the statute of limitations and, if so, whether the claims were timely. 

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    CATEGORY: Books and Records
  • Delaware Chancery Court Issues Opinion Offering Rare Interpretation Of Stock Transfer Restriction Provision, Delaware General Corporation Law Section 202   
     
    07/18/2017

    On July 10, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery found plaintiff was not bound by stock transfer restrictions under which the company had sought to revoke his ownership and was therefore entitled to inspect the books and records of a company in which he held stock.  Henry v. Phixios Holdings, Inc., C.A. No. 12504-VCMR (Del. Ch. Jul. 10, 2017).  The opinion is one of few offering substantive guidance regarding Delaware General Corporation Law (“DGCL”) Section 202, 8 Del. C. § 202, a provision governing stock transfer restrictions.  Applying the statute, the Court held that “in order for a stockholder to be bound by stock transfer restrictions that are not ‘noted conspicuously on the certificate or certificates representing the security,’ he must have actual knowledge of the restrictions before he acquires the stock” or “affirmatively assent[] to the restrictions, either by voting to approve the restrictions or by agreeing to the restrictions.”

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    CATEGORY: Books and Records
  • Delaware Chancery Court Declines To Dismiss Challenges To Director Option Grants And Outside Investor Voting Agreement
     
    07/11/2017

    On June 28, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery declined to dismiss purported derivative and direct stockholder claims for breaches of fiduciary duty against the directors of Sorrento Therapeutics, Inc. (“Sorrento”) regarding the directors’ decisions to grant themselves stock options in several subsidiaries and their decision to condition a private placement investor’s acquisition of newly issued shares on a voting agreement requiring the investor to vote the shares as the board directs.  Williams v. Ji, C.A. No. 12729-VCMR (Del. Ch. June 28, 2017).  Declining to dismiss the complaint, the Court determined that the options grants to the directors themselves “are subject to the same entire fairness review as any other interested transaction.”  As to the voting agreement, the Court held that defendants must establish that “the agreement is intrinsically fair and not designed to disenfranchise Sorrento stockholders.”     

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  • Delaware Supreme Court Affirms Dismissal Of Disclosure Claim Based On Subsequent Employment Of Special Committee Chair By Legal Counsel That Advised Committee
     
    06/27/2017

    On June 15, 2017, the Supreme Court of Delaware affirmed dismissal of a putative stockholder class action alleging breach of fiduciary duty by the directors of Blount International, Inc. (“Blount”) and aiding and abetting claims against other defendants, including Blount’s financial advisor, following Blount’s acquisition by a buyout group consisting of Blount’s CEO and COO, who are also board members, and several entities.  Chester Cty. Ret. Sys. v. Collins, No. 603, 2016 (Del. June 15, 2017).  Plaintiffs claimed that the proxy statement was materially misleading because it failed to disclose inter alia that the special committee chairman would become a partner at the law firm advising the committee shortly after closing.  Although Chief Justice Strine, writing for the Court, observed that “prudence would seem to have counseled for bringing [] to light earlier” the chairman’s impending partnership, the Court agreed with the decision of the Delaware Court of Chancery in Chester Cty. Ret. Sys. v. Collins, 2016 WL 7117924 (Del. Ch. Dec. 6, 2016), that this and the other omissions were immaterial and affirmed the dismissal. 

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  • Delaware Supreme Court Affirms Dismissal Of “Demand-Refused” Derivative Suit Regarding Alleged Misconduct In Foreign Exchange Business 
     
    06/27/2017

    On June 19, 2017, the Supreme Court of Delaware affirmed the dismissal of a shareholder derivative suit against the board of directors of The Bank of New York Mellon Corporation (“BNYM”) in which plaintiff had asserted a breach of fiduciary duty claim regarding certain alleged misconduct in the bank’s foreign currency exchange business.  Zucker v. Hassell, C.A. No. 11625-VCG (Del. June 19, 2017).  Without further elaboration, the Delaware Supreme Court’s brief order provides that the decision of the Delaware Court of Chancery “should be affirmed on the basis of and for the reasons assigned” in its opinion (see Zucker v. Hassell, C.A. No. 11625-VCG (Del. Ch. Ct. Nov. 30, 2016)).  As discussed in our post regarding that decision, the Chancery Court found that plaintiffs failed to adequately plead that BNYM’s board of directors wrongfully refused the demand to sue, after the board had formed a special committee of independent directors, which hired competent and unconflicted outside counsel, to conduct an investigation and evaluate the demand.    

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  • Delaware Chancery Court Dismisses Caremark Claim For Failure To Adequately Allege That The Board Consciously Disregarded FCPA Violation Red Flags
     
    06/20/2017

    On June 16, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery dismissed breach of fiduciary duty and other claims brought derivatively against the directors and former chief financial officer of Qualcomm, Inc. (“Qualcomm”) for failure to plead demand futility, finding that the complaint did not adequately demonstrate that the directors faced a substantial likelihood of personal liability.  In re Qualcomm Inc. FCPA Stockholder Derivative Litigation, C.A. No. 11152-VCMR (Del. Ch. June 16, 2017) (letter).  The stockholder plaintiffs’ derivative complaint alleged that Qualcomm’s board ignored red flags that resulted in alleged violations of the Foreign Corrupt Practices Act (“FCPA”) and a March 2016 U.S. Securities and Exchange Commission (“SEC”) cease-and-desist order.  The Court found, however, that the complaint did not adequately allege that “the board consciously disregarded the [alleged] red flags” and dismissed the claims.  

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  • After Settlement By Director Defendants Of Merger-Related Fiduciary Duty Breach Claims, Delaware Chancery Court Rejects Financial Advisor’s Bid To Invoke Settlement Consent Provision To Stay Trial On Aiding-And-Abetting Claims 
     
    06/16/2017

    On May 26, 2017, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery granted plaintiffs’ request to sever and stay fiduciary duty breach claims settled with directors of Good Technology Corporation (“Good”) and other defendants, notwithstanding the opposition of the sole remaining defendant, a financial advisor to Good, in connection with the acquisition of Good by BlackBerry Ltd. (“BlackBerry”), alleged to have aided and abetted those breaches.  In re Good Tech. Corp. Stockholder Litig., C.A. No. 11580-VCL (Del. Ch. May 26, 2017) (Transcript).  Stockholder plaintiffs reached agreement on preliminary settlement terms with defendants other than the financial advisor weeks before a scheduled trial and sought to sever and stay those settled claims.  The financial advisor opposed the severance and sought a continuance of the trial, arguing that the settlement contravened the settlement consent and indemnification provisions in its engagement letter with Good—drafted in the wake of In re Rural Metro Corp., 88 A.3d 54 (Del. Ch. 2014)—intended to protect against just such an eventuality.  Noting that neither plaintiffs nor the settling defendants were parties to the engagement letter, and concluding that the advisor could recover money damages were it subsequently determined that the provisions were breached, Vice Chancellor Laster granted the severance request, denied the continuance request, and ordered the claims against the financial advisor to proceed to trial as previously scheduled.  Shortly thereafter, according to a transcript of a June 1, 2017 settlement conference, the advisor settled the claims against it for $35 million, to be funded pursuant to the indemnification agreement. 

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    CATEGORY: Fiduciary Duties
  • Delaware Chancery Court Declines To Dismiss Claims Under Corwin, Finding The Complaint Adequately Pleaded That The Shareholder Vote Was Structurally Coercive
     
    06/16/2017

    On May 31, 2017, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery declined to dismiss purported derivative and direct stockholder claims for breaches of fiduciary duty against the directors of Charter Communications, Inc. (“Charter”) regarding share issuances to, and a voting proxy agreement with, its largest stockholder, Liberty Broadband Corporation (“Liberty”), in connection with Charter’s recent acquisition of Bright House Networks, LLC (“Bright House”) and merger with Time Warner Cable (“TWC”) (the “Acquisitions”).  Sciabacucchi v. Liberty Broadband Corp., C.A. No. 11418-VCG (Del. Ch. May 31, 2017).  The Court found that, while plaintiff did not sufficiently allege that Liberty controlled Charter, plaintiff did adequately plead that the stockholder vote approving the share issuances and voting proxy agreement suffered from “structural coercion,” and therefore failed to ratify the transactions under the doctrine established by Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015).  Because it found the briefing insufficient to efficiently analyze whether plaintiff’s claims were direct or derivative, however, the Court reserved decision on the motion to dismiss and requested supplemental briefing on the issue. 

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  • Two Recent Delaware Appraisal Decisions, Though Unlikely To Squelch Plaintiffs’ Enthusiasm For Appraisal Actions, Give Companies Some Comfort That Loss Is Not Guaranteed
     

    06/06/2017


    Recent rulings issued by the Delaware Chancery Court in two appraisal cases handed wins to the defendant companies, reflecting at least some degree of temperance within the Delaware Chancery and potentially stemming the tide of decisions that favored appraisal petitioners.  These decisions, issued while the Dell and DFC Global appraisal decisions (in which the Chancery Court found that the statutory “fair value” of the stocks significantly exceeded the deal price) are before the Delaware Supreme Court, represent significant victories for the defendant companies and a warning to stockholders willing to gamble on a costly appraisal action.

    CATEGORY: Appraisals
  • Delaware Supreme Court Affirms Dismissal Of Challenge To Controlling Stockholder Take‑Private Deal
     
    05/31/2017

    On May 22, 2017, the Supreme Court of Delaware affirmed the dismissal of a breach of fiduciary duty action against the directors of Books-A-Million, Inc. and other defendants following a “squeeze-out” merger by the company’s controlling stockholders.  In re Books-A-Million, Inc. Stockholders Litigation v. Anderson, Consol. C.A. No. 11343-VCL.  Without further elaboration, the Supreme Court’s brief order provides that the decision of the Delaware Court of Chancery “should be affirmed on the basis of and for the reasons assigned” in its opinion (citing In re Books-A-Million, Inc., C.A. No. 11343 (Del. Ch. Oct. 10, 2016)).  As discussed in our post on the Chancery Court’s decision, the lower court found—based on the complaint and the proxy filed by the company in connection with the merger—that the transaction followed the framework established by the Delaware Supreme Court in Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014).  Under that framework, a controlling stockholder transaction that is approved by both an independent special committee of the board—with access to its own advisors and the ability to definitively reject the deal—and an informed, uncoerced vote of the majority of minority (i.e., non-controlling) stockholders will be reviewed under the deferential “business judgment rule,” as opposed to the entire fairness standard typically applied to controlling stockholder transactions.

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  • Delaware Chancery Court Holds That Well-Pled Unocal Claim Does Not Automatically Excuse Pre-Suit Demand
     
    05/23/2017

    On May 15, 2017, Vice Chancellor Sam Glasscock III of the Delaware Chancery Court dismissed a shareholder derivative action asserting that the directors of The Williams Companies, Inc. (“Williams”) breached their duty of loyalty in connection with its entry into, and subsequent cancellation of, an agreement to acquire the remaining interest in its affiliate, Williams Partners L.P. (“WPZ”).  Ryan v. Armstrong, C.A. No. 12717-VCG (Del. Ch. May 15, 2017).  Plaintiff, a Williams shareholder, alleged that Williams’ directors were “motivated . . . by a desire . . . to entrench themselves” when they approved the WPZ acquisition in the context of “acquisition overtures” made toward Williams by another company, Energy Transfer Equity, L.P. (“ETE”).  The Court held that allegations of “defensive measures”—even if sufficient to trigger enhanced scrutiny under Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985)—do not result in “automatic demand excusal.”  Therefore, because demand futility was not otherwise adequately pleaded, the Court granted dismissal under Court of Chancery Rule 23.1 for plaintiff’s failure to make a pre-suit demand on the Williams board to pursue the litigation.

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  • Delaware Chancery Court Declines To Dismiss Acquiror’s Post-Closing Indemnification Claims In Light Of Contractual Ambiguity In Stock Purchase Agreement
     
    05/16/2017

    On May 3, 2017, Vice Chancellor Joseph R. Slights of the Delaware Court of Chancery declined to dismiss a lawsuit brought by the buyer of EMSI Holding Company (“EMSI”) asserting post-closing claims for indemnification against the sellers—the company’s former investors—for allegedly fraudulent representations made by EMSI in the Stock Purchase Agreement (“SPA”).  EMSI Acquisition, Inc. v. Contrarian Funds, LLC, et al., C.A. No. 12648-VCS (Del. Ch. May 3, 2017).  Specifically, the Court concluded that extrinsic evidence is required to resolve an ambiguity in the SPA as to whether plaintiff’s indemnification claims were subject to contractual limitations on recovery.  Significantly, the Court also declined to import a heightened pleading standard from federal securities fraud cases to assess whether the complaint adequately pleaded that the representations were fraudulent.  Separately, the Court dismissed plaintiff’s additional claim for the “confirmation” under the Delaware Arbitration Act of an auditor’s post-closing determination—pursuant to the SPA—of purchase price adjustments, because the SPA “explicitly provide[d]” that the auditor was “acting as an expert and not an arbitrator.”   

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    CATEGORY: Deal Disputes
  • Delaware Chancery Court Dismisses Breach Of Fiduciary Duty And Quasi-Appraisal Claims Under Corwin 
     
    05/16/2017

    On May 11, 2017, Chancellor Bouchard of the Delaware Court of Chancery dismissed with prejudice a putative class action brought by stockholders of networking solutions company Cyan, Inc. (“Cyan”) against Cyan’s board, asserting a breach of fiduciary duty and “quasi-appraisal” claim in connection with Cyan’s merger with Ciena Corporation in a cash and stock transaction. In re Cyan, Inc. Stockholders Litigation, C.A. No. 11714-CB (Del. Ch. May 11, 2017).  Plaintiffs claimed that the board failed to disclose material information in the proxy statement, which allegedly prevented Cyan’s shareholders from determining whether to pursue appraisal rights.  The Court dismissed the claims, finding that:  (i) the business judgment rule applied because the merger consideration primarily consisted of stock in a publicly traded company and plaintiffs failed to plead a breach of the duty of loyalty; and (ii) in any event the proxy disclosures were sufficient to infer that the 98% stockholder approval of the merger was a fully informed vote, thereby precluding post-closing litigation under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304, 308-09 (Del. 2015).  The Court dismissed plaintiffs’ “quasi-appraisal” claim on the same grounds, observing that quasi-appraisal was merely a remedy for a disclosure claim and not a distinct cause of action.  

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  • Delaware Chancery Court Holds That Former Stockholders Lack Post-Merger Standing To Bring Mismanagement Claims
     
    05/09/2017

    On May 4, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed for lack of post-merger standing an action by former stockholders of Massey Energy Company (“Massey”) against its former officers and directors for their alleged failure to act in good faith to ensure that Massey complied with mine safety regulations.  In re Massey Energy Company Derivative and Class Action Litigation, C.A. No. 5430-CB (Del. Ch. May 4, 2017).  The plaintiffs, who were divested of their shares in connection with a merger of Massey while the litigation was pending, purported to assert two claims:  (i) a breach of fiduciary duty derivative claim and (ii) “inseparable fraud,” styled as a “direct” claim.  As to “inseparable fraud,” plaintiffs were relying on what Chancellor Bouchard described as “dictum” in the Delaware Supreme Court’s decision in Arkansas Teacher Retirement System v. Caiafa, 996 A.2d 321, 322-32 (Del. 2010), which stated that “Delaware law recognizes a single, inseparable fraud when directors cover massive wrongdoing with an otherwise permissible merger.”  But Chancellor Bouchard found that the misconduct alleged could only constitute a derivative claim, because the allegations “implicated” the directors’ “normal duty” to the corporation to manage its affairs and the allegations of harm—including the “prospect of . . . fines, penalties . . . and the like”—are “prototypical examples of corporate harm that can be pursued only derivatively.”  The Court also concluded that plaintiffs’ allegations that the merger was “necessitated” by the misconduct were unavailing, because “inseparable fraud” is not an exception to the “continuous ownership rule for maintaining derivative standing.”

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    CATEGORIES: Fiduciary DutiesStanding
  • Delaware Chancery Court Dismisses Breach Of Fiduciary Duty Claims By Minority Stockholder Of Subsidiary In Relation To Acquisition Of Parent Company 
     
    05/09/2017

    On May 2, 2017, Vice Chancellor Laster of the Delaware Court of Chancery dismissed a purportedly derivative and putative class action brought by a minority stockholder of software company VMware, Inc. (“VMware”), a subsidiary of controlling stockholder EMC Corporation (“EMC”), in connection with EMC’s acquisition by Denali Holding Inc. (“Denali”).  Ford v. VMware, Inc., C.A. No. 11714-VCL (Del. Ch. May 2, 2017).  Plaintiff asserted breach of fiduciary duty claims against EMC, the dual directors of both EMC and VMware, and Denali, and brought aiding and abetting claims against Denali its affiliates.  The alleged breaches included (i) failing to spin off VMware to activist EMC stockholder Elliot Associates, (ii) selling VMware to a “known looter,” (iii) restricting VMware’s operations under the merger agreement and (iv) Denali’s issuance of so-called “tracking stock.”  The Court found that none of these theories sustained a viable breach of fiduciary duty claim and dismissed the action in its entirety. 

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  • Second Circuit Affirms Dismissal Of Shareholder Suit, Finding Subject Matter Jurisdiction Was Properly Exercised, Equity Dilution Claim Was Derivative, And Demand Futility Was Inadequately Pleaded
     
    05/02/2017

    ​On April 26, 2017, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a lawsuit brought by a shareholder of Star Bulk Carriers Corp. (“Star Bulk”) against its directors and entities affiliated with the director defendants.  F5 Capital v. Pappas, No. 16-530 (2d Cir. April 26, 2017).  Challenging various transactions in which Star Bulk had engaged, plaintiff asserted derivative claims for breaches of fiduciary duty and waste, as well as a purported direct class-action claim for wrongful equity dilution.  Affirming the dismissal of all claims, the Second Circuit held that (1) the equity dilution claim was not within the “limited circumstances involving controlling stockholders” to enable it to be considered a direct (rather than derivative) claim; (2) the district court nevertheless had and properly retained subject matter jurisdiction; and (3) plaintiff failed to plead demand futility, as required under Federal Rule of Civil Procedure 23.1 to maintain shareholder derivative claims.  

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  • Former CEO Granted Right To Inspect Books And Records Of Company After Demonstrating At Trial A “Credible Basis” To Infer Potential Wrongdoing By Board Chairman
     
    04/25/2017

    On April 17, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery ruled, in a post-trial decision, that defendant Cypress Semiconductor Corporation (“Cypress”) must allow plaintiff and former Cypress CEO, T.J. Rodgers, to inspect certain books and records of Cypress pursuant to Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220.  Rodgers v. Cypress Semiconductor Corp., C.A. No. 0070-AGB (Del. Ch. Apr. 17, 2017).  Chancellor Bouchard found that Rodgers, who made the demand in his capacity as a stockholder, sufficiently established a valid primary purpose for seeking inspection of the materials:  to investigate potential wrongdoing by Ray Bingham, the Executive Chairman of the Board.

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  • Delaware Chancery Court Applies Corwin To Dismiss Post-Merger Fiduciary Duty Claim After Finding A Royalty Agreement Did Not Constitute An Unreasonable Deal Protection Device
     
    04/18/2017

    On April 13, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed a shareholder derivative suit alleging a breach of fiduciary duty against the directors of Paramount Gold and Silver Corp. (“Paramount”) in connection with Paramount’s merger with Coeur Mining, Inc. (“Coeur”).  In re Paramount Gold and Silver Corp. Stockholders Litigation, Consol. C.A. No. 10499-CB (Del. Ch. Apr. 13, 2017).  In doing so, the Court (i) rejected plaintiffs’ contention that certain consent rights in a royalty agreement entered into by the parties at the time of the merger agreement constituted an unreasonable deal protection device, and (ii) found that plaintiffs had failed to identify any material deficiencies in the company’s disclosures in advance of a shareholder vote on the merger.  Chancellor Bouchard, therefore, relied on the doctrine set forth in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), and applied the business judgment rule to the directors’ decision “because the [m]erger was approved by a fully informed and uncoerced vote of a majority of Paramount’s disinterested stockholders.”

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  • Delaware Chancery Court Dismisses Suit Challenging Board Compensation Awards Under A Stockholder-Approved Compensation Plan
     
    04/11/2017

    On April 5, 2017, Vice Chancellor Joseph R. Slights of the Delaware Court of Chancery granted defendants’ motion to dismiss a stockholder derivative suit against the directors of Investors Bancorp, Inc., which had asserted a claim for breach of fiduciary duty in connection with the directors’ decision to grant themselves restricted stock and stock options under an equity compensation plan previously approved by a stockholder vote.  In re Investors Bancorp, Inc. Stockholder Litigation, C.A. No. 12327-VCS (Del. Ch. Apr. 5, 2017).  Plaintiffs, Investors Bancorp stockholders, had challenged the awards as “grossly excessive compensation” and also alleged that stockholder approval of the equity compensation plan was ineffective because the plan did not contain “meaningful limits” and, in any event, the disclosures in connection with the vote were materially misleading.  But the Court found that the plan—even as alleged—did contain “director-specific limits” on equity compensation, the awards were within those limits, and the stockholder vote was fully informed.  Therefore, the Court held that the stockholder approval constituted “ratification of the awards,” rendering them subject to the “business judgment rule’s presumptive protection” and reviewable only as “waste,” which plaintiffs did not plead.

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  • Delaware Chancery Court Declines To Dismiss Fiduciary Duty Claims In Shareholder-Approved Merger, Finding That Shareholders Alleged Sufficient Facts To Negate Application Of Corwin
     
    04/11/2017

    On March 31, 2017, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery declined to dismiss a shareholder claim for breach of fiduciary duty against the board of directors (the “Board”) of Saba Software, Inc. (“Saba”) in connection with Saba’s shareholder-approved all-cash merger with affiliates of private equity group Vector Capital Management, L.P. (“Vector”).  In re Saba Software, Inc. Stockholder Litigation, C.A. No. 10697-VCS (Del. Ch. Mar. 31, 2017).  The Court held that plaintiff’s allegations, if taken as true, “allow a reasonable inference that the stockholder vote approving the transaction was neither fully informed nor uncoerced.”   Therefore, notwithstanding the stockholder approval, the Court declined to apply the business judgment rule (as would ordinarily apply under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015)) and declined to dismiss the claims against the Board.  The Court did dismiss the aiding and abetting claims against Vector, finding that plaintiffs failed to allege that Vector knowingly participated in the Board’s alleged breach.

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  • Delaware Supreme Court Determines “Reasonable Best Efforts” Provisions Impose Affirmative Obligations, But Affirms Chancery Court’s Refusal To Enjoin Merger Termination
     
    04/04/2017

    On March 23, 2017, the Supreme Court of Delaware affirmed the Court of Chancery’s denial of an injunction sought by plaintiff The Williams Companies, Inc. to prevent defendant Energy Transfer Equity, L.P. from terminating a merger of the two energy companies.  The Williams Companies., Inc. v. Energy Transfer Equity, L.P., C.A. Nos. 12168 & 12337 (Del. Mar. 23, 2017).  The 4-1 decision authored by Justice James T. Vaughn, Jr. determined that the Chancery Court erred by “adopt[ing] an unduly narrow view of the obligations imposed” by defendant’s covenants in the merger agreement to use “reasonable best efforts” to consummate the deal and “commercially reasonable efforts” to secure an opinion from its outside tax counsel—a condition precedent to the merger—that the transaction qualified for tax-free treatment.  According to the Delaware Supreme Court, those provisions “placed an affirmative obligation on the parties to take all reasonable steps to obtain the [tax-free] opinion and otherwise complete the transaction.”  Nevertheless, the Supreme Court affirmed the denial of the injunction because the Chancery Court found that defendant’s conduct (or lack thereof) did not “materially contribute” to outside tax counsel’s decision not to issue the tax-free opinion. 

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    CATEGORIES: InjunctionsDeal Disputes
  • Delaware Chancery Preliminarily Enjoins Merger-Related Stockholder Meeting Until Financial Advisor’s Fees For Merger-Related Financing Are Disclosed   
     
    03/28/2017

    On March 22, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery preliminarily enjoined a stockholder vote on the proposed acquisition by Consolidated Communications Holdings, Inc. (“Consolidated”) of FairPoint Communications, Inc. (“FairPoint”).  Vento v. Curry, C.A. No. 2017-0157-AGB (Del. Ch. Mar. 22, 2017).  Plaintiff, a Consolidated stockholder, alleged that the Consolidated board of directors breached their fiduciary duties by failing to adequately disclose the financial interests of Consolidated’s financial advisor in the transaction and sought to enjoin the vote pending distribution of corrected disclosures.  The Court agreed that the disclosure was inadequate and delayed the vote until five days after Consolidated disclosed the amount of the advisor’s fees.

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    CATEGORIES: InjunctionsDisclosures
  • Delaware Supreme Court Reverses Dismissal Of LPA Breach Claims, Holding General Exculpatory Provisions Did Not Preclude Claims For Breaches Of Specific Provisions And Easing The Standard For Pleading Bad Faith
     
    03/28/2017

    On March 20, 2017, the Supreme Court of Delaware reversed the Court of Chancery’s dismissal of a lawsuit challenging a transaction between affiliated entities.  Brinckerhoff v. Enbridge Energy Co., No. 273, 2016 (Del. Mar. 20, 2017).  Plaintiff, a common unitholder of a Delaware master limited partnership, Enbridge Energy Partners, L.P. (the “MLP”), brought suit against several defendants, including the general partner Enbridge Energy Co. (“EEP GP”); its controlling parent, Enbridge, Inc. (“Enbridge”); another affiliate of each; and certain directors and officers of these entities.  Plaintiff alleged that defendants approved a transaction involving conflicts of interest in bad faith and in violation of certain provisions of the MLP’s Limited Partnership Agreement (“LPA”).  In reversing the dismissal, the Court held that (1) “good faith” and other provisions in the LPA exculpating the general partner from monetary damages can replace default fiduciary duties with a contractual good faith standard, but do not preclude equitable relief or alter the affirmative obligations under the LPA; and (2) bad faith was sufficiently alleged under the LPA “if the plaintiff pleads facts supporting an inference that [the general partner] did not reasonably believe it was acting in the best interest of the [MLP].”

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  • Delaware Chancery Court Focuses On Negotiation History In Denying Former Securityholders A Milestone Payment Based On The Interpretation Of An Ambiguous Merger Agreement
     
    03/21/2017


    On March 15, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery decided, post-trial, that a biopharmaceutical company was not required to pay a $50 million “milestone payment” under the terms of a merger agreement.  Shareholder Representative Services LLC v. Gilead Sciences Inc. et al., C.A. No. 10537-CB (Del. Ch. Mar. 15, 2017).  As noted by the Court, this case turned on the interpretation of one word—“indication”—as it was used in a merger agreement.  Finding the term “ambiguous when construed within the four corners of the merger agreement,” the Court relied on extrinsic evidence—primarily related to the negotiation history—to determine that the limited approval of a drug to treat a narrow subpopulation of blood cancer patients did not constitute the requisite approval for a specified “indication” that would trigger the contractual milestone payment.

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    CATEGORY: Deal Disputes
  • Delaware Supreme Court Affirms Dismissal Of Caremark Action For Failure To Plead Bad Faith With Particularity 
     
    03/14/2017

    On March 3, 2017, the Supreme Court of the State of Delaware affirmed the dismissal of “Caremark” claims for alleged bad-faith failure of oversight brought derivatively by a stockholder against the directors of Qualcomm, Inc. in the context of international antitrust enforcement and other actions against the company.  Melbourne Mun. Firefighters’ Pension Trust Fund v. Paul E. Jacobs et al. C.A. No. 10872-VCM (Del. Mar. 3, 2017).  Without further elaboration, the Court’s brief order provides:  “it appears to the Court that the judgment of the Court of Chancery should be affirmed on the basis of and for the reasons assigned in its memorandum opinion dated August 1, 2016.”  Id. at *1 (citing Melbourne Mun. Firefighters’ Pension Trust v. Paul E. Jacobs, et al. and Qualcomm, Inc., C.A. No. 10872, 2016 WL 4076369 (Del. Ch. Aug 1, 2016)).  As discussed in our post regarding that decision, the Chancery Court dismissed the complaint for failure to plead that demand on the board was futile, because the complaint failed to set forth particularized allegations showing that the directors acted in bad faith by consciously disregarding their oversight duties and thus did not demonstrate that the directors faced a substantial likelihood of liability.  

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    CATEGORY: Fiduciary Duties
  • Massachusetts Supreme Court Affirms Dismissal Of Shareholder Class Action And Clarifies That Directors Generally Owe Fiduciary Duties To The Corporation, And Not Its Shareholders  
     
    03/14/2017

    On March 6, 2017, in a decision authored by Justice Margot Botsford, the Massachusetts Supreme Judicial Court affirmed the dismissal of an action for breach of fiduciary duty brought by former shareholders of EMC Corporation against its directors in connection with its merger with Dell Inc., finding that the claims could only have been brought derivatively.  Int’l Brotherhood of Electrical Workers Loc. No. 129 Benefit Fund v. Tucci, SJC-12137 (Mass. Mar. 6, 2017).  In its decision, the Court clarified that “the general rule of Massachusetts corporate law is that a director of a Massachusetts corporation owes a fiduciary duty to the corporation itself, and not its shareholders.”  Further, the Court found that the injury alleged—the undervaluation of EMC in the transaction—“qualifies as a direct injury to the corporation” and “fit[s] squarely within the framework of a derivative action,” which plaintiffs as former shareholders did not—and could not—bring.   

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  • Delaware Chancery Court Holds That Former Stockholder Lacks Standing To Bring Section 220 Action For Inspection Of Books And Records
     
    03/07/2017

    On February 27, 2017, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed for lack of standing a lawsuit for inspection of corporate books and records brought by a former stockholder squeezed out in a two-step merger.  Weingarten v. Monster Worldwide Inc., C.A. No. 12931-VCG, 2017 WL 752179 (Del. Ch. Feb. 27, 2017).  As noted by the Court, this case presented an issue of first impression:  whether a plaintiff seeking corporate records under Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220, must be a stockholder at the time the complaint is filed.  Based on the language of the statute, the Court held that the former stockholder lacked standing to bring a Section 220 action because he no longer owned shares following the merger.

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  • Vermont District Court Dismisses Shareholder Lawsuit Asserting Section 14 Claims Premised On Forward-Looking Projections 
     
    02/28/2017

    On February 16, 2017, Judge Geoffrey W. Crawford of the United States District Court for the District of Vermont dismissed a putative shareholder class action against Keurig Green Mountain, Inc. (“Keurig”), Keurig’s former CEO and directors and corporate investors that acquired Keurig, alleging that the proxy disseminated to Keurig shareholders in connection with the buyout was materially false and misleading in violation of Sections 14(a) and 20(a) of the Securities Exchange Act.  Montanio v. Keurig Green Mountain, Inc., Case No. 5:16-cv-19.  The Court concluded that plaintiff’s primary allegation—that the board knowingly relied on depressed projections from management to justify accepting a low-value offer—failed to state a claim because plaintiff could not plead that the projections were objectively false.

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    CATEGORY: Disclosures
  • Delaware Chancery Court Approves Modification To Plan Of Allocation 
     
    02/21/2017

    On February 15, 2017, Vice Chancellor Laster approved a modification to a plan of allocation of settlement consideration in In re Dole Food Co., Inc., S’holder Lit., C.A. No. 8703-VCL (Del. Ch. Feb. 15, 2017).  The Court found the original plan was too administratively difficult and costly to implement due to a discrepancy between the number of class shares stipulated to in the prior settlement and the number of facially valid shares claimants submitted after the settlement.

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    CATEGORY: Fiduciary Duties
  •  New York Appellate Division Refines The Colt Standard For Nonmonetary Settlements Of Merger-Related Class Action Suits 
     
    02/14/2017

    On February 2, 2017, in Gordon v. Verizon Communications, Inc., No. 653084/13 (N.Y. App. Div. Feb. 2, 2017) (“Gordon”), the New York Supreme Court, Appellate Division, First Department reversed the decision of the trial court and approved a proposed nonmonetary settlement of a putative shareholders’ class action challenging the acquisition by Verizon Communications, Inc. (“Verizon”) of the 45% interest in Verizon Wireless held by subsidiaries of Vodafone Group PLC.  In doing so, the Appellate Division added to the five-factor Colt standard of review—and focused on—two additional factors for the evaluation of proposed nonmonetary class action settlements:  “whether the proposed settlement is in the best interests of the putative settlement class as a whole, and whether the settlement is in the best interest of the corporation.”  Id. at *21; see also In re Colt Indus. S’holder Litig., 155 A.D.2d 154 (N.Y. App. Div. 1990), aff’d as modified sub nom. Colt Indus. S’holder Litig. v. Colt Indus. Inc., 77 N.Y.2d 185 (1991).

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  • Delaware Supreme Court Affirms Holding That Business Judgment Rule Applies When Informed Majority Of Stockholders Tenders Shares In A Two-Step Merger
     
    02/14/2017

    On February 9, 2017, the Supreme Court of the State of Delaware affirmed the dismissal of a breach of fiduciary duty action brought by former shareholders of Volcano Corporation in connection with the acquisition of Volcano in a two-step all-cash tender offer and merger pursuant to Delaware General Corporation Law Section 251(h).  In re Volcano Corp. Stockholder Litig., C.A. No. 10485-VCM (Del. Feb. 9, 2017).  Without further elaboration, the Court’s brief order provides:  “it appears to the Court that the judgment of the Court of Chancery should be affirmed for the reasons stated in its decision.”  Id. at *1 (citing In re Volcano Corp. Stockholder Litig., 143 A.3d 727 (Del. Ch. 2016)).  As discussed in our post regarding that decision, the Chancery Court had held that because a fully informed, uncoerced majority of stockholders had tendered their shares during the first step of the two-step merger, the business judgment rule irrebuttably applied to the board’s decision to approve the merger.

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  • Delaware Chancery Court Dismisses Post-Closing Merger Challenge Based On Shareholder Approval, Notwithstanding Alleged Presence Of Controlling Shareholder
     
    02/07/2017

    On January 30, 2017, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed a shareholder suit for alleged breaches of fiduciary duty by the directors of Merge Healthcare, Inc. (“Merge”) in connection with its acquisition by IBM.  In re Merge Healthcare Inc. Stockholders Litigation, C.A. No. 11388-VCG (Del. Ch. Jan. 30, 2017).  Specifically, the Court found that “a fully informed, uncoerced vote of the [c]ompany’s disinterested stockholders cleansed the [m]erger here, resulting in the application of the business judgment rule.”  The Court applied this analysis even though it assumed (without finding) that the chairman of the board was a controlling stockholder because the Court found that the chairman “did not extract any personal benefits because his interests were fully aligned with the other common stockholders.”            

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  • Delaware Chancery Court Holds That Corporations Cannot Enact Bylaws To Circumvent Simple Majority Vote Requirement For Shareholder Removal Of Directors
     
    01/30/2017

    On January 24, 2017, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery granted summary judgment in favor of plaintiff, a shareholder of Nutrisystem, Inc., who sued Nutrisystem and its directors for declaratory judgment to invalidate a provision in Nutrisystem’s bylaws purporting to require a vote of two-thirds of the company’s shares before a director could be removed from the board.  Frechter v. Zier, C.A. No. 12038-VCG (Del. Ch. Ct. Jan. 24, 2017).  Specifically, the Court held that the supermajority requirement violated Section 141(k) of the Delaware General Corporation Law (“DGCL”), which permits removal of a director by a simple majority vote of shares.

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  • Delaware Chancery Court Dismisses Caremark Claim Highlighting That Unsupported Inferences Do Not Demonstrate Demand Futility
     
    01/30/2017

    On January 19, 2017, Vice Chancellor Joseph R. Slights of the Delaware Court of Chancery dismissed a shareholder derivative suit claiming a breach of fiduciary duty by the directors of United Parcel Service, Inc. (“UPS”) for an alleged failure of oversight in connection with UPS’s compliance with laws governing the transportation and delivery of cigarettes.  Horman v. Abney, C.A. No. 12290-VCS (Del. Ch. Jan. 19, 2017).  Specifically, the Court found that plaintiffs failed to plead adequately that making a demand on UPS’s board to pursue the claims would have been futile because the complaint did not contain factual allegations sufficient to support a reasonable inference that the director defendants faced a substantial likelihood of personal liability.  

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  • Delaware Chancery Court Dismisses Derivative Claims For Failure To Allege Wrongful Demand Refusal With Particularity
     
    01/23/2017

    On January 19, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery dismissed a derivative suit brought by a shareholder of Mattel, Inc. (“Mattel”), after its board of directors declined to sue management to recover payments made to its former CEO under severance and consulting agreements.  Andersen v. Mattel, Inc., C.A. No. 11816-VCMR (Del. Ch. Jan. 19, 2017).  Vice Chancellor Montgomery-Reeves found that plaintiff failed to plead sufficiently particularized facts alleging gross negligence or bad faith, where the board made its decision after an investigation of the underlying events and also considered the potential consequences of the contemplated litigation.

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  • Delaware Chancery Court Rejects Post-Closing Challenge To Merger Approved By Disinterested Stockholders In Fully-Informed And Uncoerced Vote
     
    01/16/2017


    On January 5, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed a breach of fiduciary duty suit brought by a former shareholder against the eight members of the board of directors of Solera Holdings, Inc. (“Solera”) that approved a go-private merger with an affiliate of Vista Equity Partners (“Vista”).  In re Solera Holdings, Inc. Stockholder Litig., C.A. No. 11524-CB (Del. Ch. Jan. 5, 2017).  In doing so, Chancellor Bouchard relied on the doctrine set forth in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), and applied the business judgment rule to the directors’ decision because the merger—which at the time of suit had already closed—had been approved by a disinterested majority of Solera’s stockholders in “a fully-informed and uncoerced vote.”

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  • Delaware Chancery Court Finds Fee-Shifting Bylaw Facially Invalid Notwithstanding Its Limitation To Actions Brought In Violation Of An Exclusive-Forum Bylaw 
     
    01/09/2017

    On December 27, 2016, Chancellor Andre G. Bouchard of the Delaware Court of Chancery denied in part a motion to dismiss a putative shareholder class action challenging a fee-shifting bylaw recently adopted by Paylocity Holding Corporation.  Solak v. Sarowitz, C.A. No. 12299-CB (Del. Ch. Dec. 27, 2016).  Specifically, the Court found the fee-shifting bylaw was facially invalid even though it only applied to actions filed outside of Delaware, which would contravene Paylocity’s valid exclusive-forum bylaw. 

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    CATEGORY: Charters & Bylaws
  • Delaware Chancery Dismisses Quasi-Appraisal Claim Challenging Short-Form Merger
     
    01/09/2017

    On January 4, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Court of Chancery of the State of Delaware dismissed a putative class action complaint against United Capital Corporation (“United Capital”), its board of directors, and A.F. Petrocelli, who is board chairman and CEO, and the owner of 94% of United Capital’s stock, in connection with a short-form merger through which Petrocelli acquired all outstanding stock of the company.  In re United Capital Corp., Stockholders Lit., C.A. No. 11619-VCMR (Del. Ch. Jan. 4, 2017).  Plaintiffs sought a quasi-appraisal remedy for allegedly inadequate disclosures in the notice of merger.  The court found the disclosures provided sufficient material information to the minority shareholders to enable them to determine whether to pursue an appraisal and dismissed the claims.  

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  • Delaware Chancery Court Employs Transaction Price To Determine Fair Value In Appraisal Action 
     
    01/02/2017

    On December 16, 2016, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery relied on the final deal price to determine the fair value of stock in Lender Processing Services, Inc. (“LPS”), in an appraisal action brought by shareholder petitioners after Fidelity National Financial, Inc. (“Fidelity”) acquired LPS.  Merion Capital L.P., et al. v. Lender Processing Services, Inc., C.A. No. 9320-VCL.  While the court conducted its own DCF (discounted cash flow) analysis drawing from expert submissions, Vice Chancellor Laster ultimately deferred entirely to the deal price, finding that the sale process was fair and based on meaningful competition in a well-functioning market, and thus generated reliable evidence of fair value.

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    CATEGORY: Fiduciary Duties
  • Delaware Chancery Court Resolves Dispute Among Appraisal Petitioners By Appointing Lead Appraisal Counsel
     
    12/19/2016

    On December 8, 2016, Vice Chancellor Joseph R. Slights of the Delaware Court of Chancery granted a motion to appoint lead counsel in an appraisal action—over the objection of one group of petitioning shareholders—invoking the inherent power of the Court to manage its operations.  In re Appraisal of Rouse Properties, Inc., C.A. No. 12609 (Del. Dec. 8, 2016).  In so deciding, Vice Chancellor Slights analogized appraisal proceedings to class actions and found that the appointment of lead counsel in an appraisal proceeding did not infringe on petitioning shareholders’ statutory right to “participate fully” in the action. 

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    CATEGORY: Fiduciary Duties
  • Delaware Supreme Court Reverses Dismissal Of Derivative Suit After Finding Directors Lacked Independence
     
    12/12/2016

    On December 5, 2016, the Supreme Court of the State of Delaware reversed a dismissal of a shareholder derivative action after finding that the complaint adequately pled that a majority of the directors of Zynga Inc. (“Zynga”) lacked the independence to impartially consider a lawsuit asserting breach of fiduciary duty claims against Zynga’s controlling stockholder and former CEO and another director.  Sandys v. Pincus, C.A. No. 9512-CB (Del. Dec. 5, 2016). 

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  • Delaware Court Of Chancery Dismisses Pair Of “Demand-Refused” Derivative Suits, Highlighting The Difficulties In Bringing Such Actions 
     
    12/12/2016

    On November 30, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed a pair of shareholder derivative suits against nominal defendant The Bank of New York Mellon Corporation (“BNYM”) that sought to hold certain of its current and former directors and officers liable for allegedly causing or permitting certain misconduct to occur in the bank’s foreign exchange business.  Zucker v. Hassell, et al., C.A. No. 11625-VCG (Del. Ch. Ct. Nov. 30, 2016); Kops v. Hassell, et al., C.A. No. 11982-VCG (Del. Ch. Ct. Nov. 30, 2016).  The Court dismissed both complaints for failure to adequately plead that BNYM’s board of directors wrongfully refused the shareholders’ respective litigation demands, further reinforcing the difficulties that would-be plaintiffs face in satisfying the pleading standards required to obtain derivative standing to sue on behalf of a Delaware corporation.   

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  • Delaware Supreme Court Holds That Employer May Not Avoid Advancing Former Executive’s Litigation Expenses By Claiming Hiring Was Induced By Fraud
     
    12/12/2016

    On November 28, 2016, in a decision penned by Chief Justice Leo E. Strine Jr., the Delaware Supreme Court affirmed the Delaware Court of Chancery’s ruling that fraud in the inducement could not be raised as a defense to a summary advancement proceeding.  Trascent Mgmt. Consulting, LLC v. Bouri, No. 126, 2016 (Del. Nov. 28, 2016).  More specifically, the Court held: “Where a party has employed an officer under a contract where that party agreed to provide for advancement [of legal fees and costs] . . . until a court’s final judgment that the officer is not entitled to indemnification, that party may not escape the obligation by injecting into a summary advancement proceeding a defense based on the argument that the underlying contract under which the parties are operating is invalid altogether, because of fraud in the inducement.”

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  • Delaware Chancery Dismisses Stockholder Claims As Barred By Prior Court-Approved Settlement Agreement, Res Judicata And The Business Judgment Rule
     
    12/05/2016

    On November 23, 2016, Vice Chancellor Joseph R. Slights of the Delaware Court of Chancery dismissed derivative claims asserted by GAMCO Asset Management (“GAMCO”), stockholder of Clear Channel Outdoor Holdings Inc. (“CCOH”), against CCOH and its board, CCOH’s controlling stockholder, iHeartCommunications Inc. (“iHC”) and iHC’s parent company, iHeartMedia Inc. (“iHM”), and two private equity funds with a combined controlling interest in iHM and iHC.  GAMCO Asset Management Inc. v. iHeartMedia Inc., C.A. No. 12312-VCS (Del. Ch. Nov. 23, 2016).  The Court found that plaintiff’s claims were released by an earlier settlement of related issues, barred by res judicata, and that the business judgment rule protected the CCOH board and controlling stockholders from GAMCO’s claims for breach of fiduciary duty. 

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  • Delaware Chancery Court Dismisses Fraud Claim As Barred By Purchase Agreement Anti-Reliance Provisions
     
    12/05/2016

    On November 30, 2016, Chancellor Andre G. Bouchard of the Delaware Court of Chancery granted, in part, ValueClick Inc.’s motion to dismiss in a fraud and contract dispute over alleged misrepresentations relating to the sale of certain of its subsidiaries to IAC Search, LLC.  IAC Search, LLC v. Conversant LLC (f/k/a ValueClick, Inc.), C.A. No. 11774-CB, 2016 WL 6995363 (Del. Ch. Nov. 30, 2016).  ValueClick, now known as Conversant LLC, sold six subsidiaries — including Investopedia, LLC — to IAC for $90 million in January 2014 pursuant to a Stock and Asset Purchase Agreement (the “Purchase Agreement”).  In its complaint, IAC alleged that ValueClick fraudulently induced IAC to overpay for Investopedia by supplying false information to IAC during the due diligence process.  IAC also asserted several claims for breaches of representations and warranties included in the Purchase Agreement.  Although the Court upheld some of the breach of contract claims, Chancellor Bouchard found that “certain provisions of the [Purchase Agreement] add up to a clear disclaimer of reliance on extra-contractual statements that bar[] IAC’s claim for fraud.”

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    CATEGORY: Deal Disputes
  • Delaware Supreme Court Affirms Dismissal For Pleading Inadequacy When Plaintiffs Could Have Demanded Books And Records To Develop Facts
     
    11/21/2016

    On November 16, 2016, the Delaware Supreme Court affirmed a Delaware Court of Chancery decision by Vice Chancellor Sam Glasscock III that dismissed derivative and direct claims against two board members of Premium of America, LLC (“Premium”) and an affiliate.  Joseph Penar Family Trust v. Adams, No. 250-2016 (Del. Nov. 16, 2016), aff’g, C.A. No. 10441 (Del. Ch. Apr. 28, 2016).  Plaintiffs—members of Premium, a Delaware limited liability company (“LLC”)—had alleged that defendants misappropriated funds when liquidating the company’s assets in breach of their fiduciary duties.  The Supreme Court held that the Chancery Court “correctly determined that the appellants’ failure to allege in a non-conclusory fashion the circumstances of the alleged misappropriation required dismissal of the amended complaint.”  

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  • Delaware Chancery Court Awards Appraisal Value In Merger Of Pennsylvania-Based Community Banks
     
    11/14/2016

    On November 10, 2016, Chancellor Andre Bouchard of the Delaware Chancery Court granted the appraisal petition of former stockholders in Farmers & Merchants Bancorp of Western Pennsylvania, Inc. (“F&M”), awarding a “fair value” of $91.90 per share, rather than the merger price ($83 per share) at which the bank was actually acquired in October of 2014 by NexTier, Inc., another community bank in western Pennsylvania.  Dunmire et al. v. Farmers & Merchants Bancorp of Western Pennsylvania, Inc., C.A. No. 10589-CB (Del. Ch. Nov. 10, 2016).  The judicially determined appraisal amount reflects the Court’s decision to reject the valuations and certain methodologies advanced by both parties’ experts and instead to rely exclusively on a “discounted net income” valuation—a method that both parties agreed was conceptually appropriate—as applied by the Court.   

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    CATEGORY: Fiduciary Duties
  • Delaware Chancery Court Relies On Deal Emails To Interpret An Ambiguous Non-Compete Covenant In A Stock Purchase Agreement, Reverses A Preliminary Injunction And Permits Recovery Of Loss Suffered Therefrom  
     
    11/07/2016

    On October 31, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery entered a final post-trial decision resolving a dispute concerning the proper scope of a post-closing non-compete covenant entered into by parties to a stock sale.  Brace Industrial Contracting, Inc. v. Peterson Enterprises, Inc., Consol. C.A. No. 11189-VCG (Del. Ch. Oct. 31, 2016).  Although Vice Chancellor Glasscock had previously ruled for plaintiffs, preliminarily enjoining defendants from competitive activities that plaintiffs claimed were barred by the covenant, the Court’s final decision lifted the preliminary injunction after considering extrinsic evidence to interpret the disputed contractual terms.  

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    CATEGORY: Injunctions
  • Southern District Of Texas Dismisses Securities Claims For Purported Proxy Misstatements And Omissions Because Other Disclosures Contained In The Proxy And Prior SEC Filings Rendered At-Issue Information Immaterial
     
    10/31/2016

    On October 21, 2016, Judge Sim Lake of the United States District Court for the Southern District of Texas dismissed with prejudice a putative securities class action against Eagle Rock Energy Partners, L.P. (“Eagle Rock”), Vanguard Natural Resources LLC (“Vanguard”), their affiliates and their directors.  Braun v. Eagle Rock Energy Partners, L.P., 4:15-cv-01470 (S.D. Tex., Oct. 21, 2016).  Plaintiffs, a purported class of Eagle Rock unitholders, asserted that the joint proxy filed in connection with Vanguard’s $474 million acquisition of Eagle Rock did not adequately warn about a potential debt covenant breach by Vanguard and was therefore false or misleading.  The Court found that the disclosures in the proxy, taken together with Vanguard’s other public filings, rendered the alleged misstatements and omissions immaterial.

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  • Shareholder Fails To Demonstrate Demand Futility Because Allegations Did Not Plead That Board Consciously Ignored Supposed Red Flags Regarding BSA/AML Controls
     
    10/24/2016

    On October 18, 2016, Chancellor Andre Bouchard of the Delaware Court of Chancery dismissed a shareholder derivative action against the directors of Capital One Financial Corporation (“Capital One”), finding that plaintiff failed to plead demand futility in connection with his breach of fiduciary duty claims.  Reiter v. Fairbank, C.A. No. 11693-CB, 2016 WL 6081823 (Del. Ch. Oct. 18, 2016).  The Court held that the allegations—relying in large part on records obtained from Capital One under Section 220 of the Delaware General Corporation Law, which the Court found were incorporated by reference into the complaint—did not “reasonably permit . . . an inference that the defendants consciously allowed Capital One to violate the law” so as to demonstrate bad faith and excuse the demand requirement.

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  • Delaware Chancery Dismisses Cash-Out Merger Challenge, Holding That Informed Stockholder Vote Triggered Business Judgment Review Notwithstanding “Disquieting” Allegations
     
    10/17/2016

    On October 12, 2016, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery dismissed a putative shareholder class action alleging fiduciary breaches by the board of directors of OM Group, Inc. (“OM”) arising from OM’s cash-out merger with Apollo Global Management, LLC (“Apollo”).  In re OM Group, Inc. S’holders Litig., Consol. C.A. No. 11216-VCS (Del. Ch. Oct. 12, 2016).  The conduct of directors in cash-out mergers is typically subject to enhanced scrutiny under Revlon.  Because OM’s shareholders had voted overwhelmingly to approve the merger in an uncoerced vote that the Court found to be fully informed, the Court found the board’s conduct was protected by the “irrebutable business judgment rule” under Corwin v. KKR Fin. Holdings, LLC, 125 A.3d 304 (Del. 2015), and dismissed the case.  The Court reached this conclusion despite allegations of an egregiously flawed sales process that the Court described as “disquieting.”

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  • Delaware Chancery Court Dismisses Challenge To Controlling Shareholder Take-Private Deal
     
    10/17/2016

    On October 10, 2016, Vice Chancellor Travis Laster of the Delaware Court of Chancery granted a motion to dismiss in an action against the directors of bookseller Books-A-Million, Inc. and other defendants following a “squeeze-out” merger by the company’s controlling shareholders.  In re Books-A-Million, Inc., C.A. No. 11343, (Del. Ch. Oct. 10, 2016).  Vice Chancellor Laster found that the complaint did not sufficiently allege deviations from the framework established by the Delaware Supreme Court in Kahn, et al. v. M&F Worldwide Corp. 88 A.3d 635 (Del. 2014) (“M&F Worldwide”).  Therefore, the Court reviewed the transaction under the “business judgment rule” and dismissed the complaint.  

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  • Delaware Chancery Court Declines To Apply Revlon Or Unocal Scrutiny To Board Adoption Of Dissolution Plan 
     
    10/11/2016

    On September 29, 2016, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery dismissed a shareholder action against the directors and officers of Longview Energy Company (“Longview”) in connection with a board decision to dissolve the company following the sale of a significant portion of its assets.  The Huff Energy Fund, L.P.v. Robert D. Gershen, et al., C.A. No. 11116-VCS (Del. Ch. Sept. 29, 2016).  The Court held that defendants had not breached their fiduciary duties after rejecting plaintiff’s request to apply Revlon or Unocal scrutiny to the dissolution and finding in any event that the approval by stockholder vote “irrebutably reinstat[es] the business judgment rule.”      

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  • Third Circuit Halts Pennsylvania Hospital Merger On Antitrust Grounds, Reversing Previous Loss By FTC
     
    10/03/2016

    On September 27, 2016, the Third Circuit Court of Appeals reversed a District Court ruling and granted the preliminary restraining order sought by the Federal Trade Commission (“FTC”) and the state of Pennsylvania to enjoin a merger of two state hospital systems pending administrative review by the FTC.  FTC v. Penn State Hershey Medical Center, No. 16-2365 (3d Cir. Sept. 27, 2016).  The Court rejected as legally incorrect the District Court’s formulation of the geographic market for evaluating the possible anti-competitive effects of the proposed merger.

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    CATEGORY: Injunctions
  • Delaware Chancery Court Dismisses Post-Closing Merger Challenge Alleging Inadequate Disclosures Of Projections And Financial Advisor Fees
     
    10/03/2016

    On September 28, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed a shareholder challenge to the acquisition of Millennial Media, Inc. (“Millennial”) by AOL Inc. (“AOL”).  Nguyen v. Barrett, C.A. No. 11511-VCG (Del. Ch. Sept. 28, 2016). Plaintiff had sought post-closing damages for the Millennial board’s alleged failure to disclose (1) certain unlevered free cash flows and (2) details of compensation for Millennial’s financial advisor.  The Court rejected both claims.    
        
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  • Delaware Court Of Chancery Denies Litigation Financier’s Request For Litigation Fees, Notwithstanding Benefit To Company
     
    09/26/2016

    On September 19, 2016, Vice Chancellor Travis Laster of the Delaware Court of Chancery denied a fee application submitted by Preferred Spectrum Investments, LLC (“PSI”), a third-party that had funded successful shareholder litigation against Preferred Communication Systems, Inc. (“PCSI”).  Judy v. Preferred Communication Systems, Inc., Consol. C.A. No. 4662-VCL (Del. Ch. Sept. 19, 2016).  In rejecting PSI’s application, the Court held that litigation financiers that are not parties to the action lack standing to seek a fee award under Delaware’s “common benefit doctrine,” and that “parties cannot obtain an equitable fee award when they use litigation in support of a takeover.”

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    CATEGORY: Attorneys’ Fees
  • Delaware Court Of Chancery Holds Duke Energy Stockholders’ Derivative Suit Following Ouster Of CEO Partially Barred By Collateral Estoppel As A Result Of An Earlier Dismissal In North Carolina
     
    09/19/2016

    On August 31, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery granted in part and denied in part a motion to dismiss derivative claims against eleven directors of Duke Energy Corp. (“Duke”).  In re Duke Energy Corp. Derivative Litig., No. 7705-VCG, 2016 WL 4543788 (Del. Ch. Aug. 31, 2016).  The Court made two key rulings: 1) some, but not all, of plaintiffs’ claims were precluded by a prior ruling by a North Carolina court; and 2) for the non-precluded claims, plaintiffs adequately alleged demand futility.  

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  • Delaware Chancery Court Rejects Books And Records Demand Concerning Board’s Alleged Failure To Properly Account For U.S. Tax Liabilities On Foreign Earnings
     
    09/12/2016

    On August 31, 2016, Judge Abigail LeGrow, sitting by designation on the Delaware Court of Chancery, held that Pfizer, Inc. (“Pfizer”) did not need to make its books and records available for inspection to a shareholder purportedly investigating whether the board breached its fiduciary duties by failing to comply with applicable accounting standards.  Beatrice Corwin Living Irrevocable Trust v. Pfizer, Inc., C.A. No. 10425-JL (Del. Ch. Aug. 31, 2016).  In rejecting this shareholder demand pursuant to Section 220 of the Delaware General Corporation Law (“DGCL”), the Court found that the shareholder had not shown any “credible basis to infer mismanagement or wrongdoing by the board.”

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  • Delaware Chancery Court Issues Back-to-Back Decisions Regarding the Application Of Corwin Liability Shield In Post-Closing Merger Challenges  
     
    09/06/2016

    On August 24, 2016, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed a shareholder action seeking post-merger damages for breach of fiduciary duty against the directors and officers of C&J Energy Services, Inc..  City of Miami General Employees and Sanitation Employees Retirement Trust v. Jerry M. Comstock Jr., et al., C.A. No. 9980-CB (Del. Ch. August 24, 2016) (“C&J”).  The Court held that allegations that the majority of the board was interested in the transaction during its consideration were insufficient to rebut the business judgment presumption that applied once a majority of shareholders voted to approve the transaction.  The following day, on August 25, 2016, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery dismissed an action brought by former shareholders of Auspex Pharmaceuticals, Inc. for breach of fiduciary duty against the company’s directors and officers, which was also based on a sale of the company that had been overwhelmingly approved by the company’s shareholders.  Larkin v. Shah, C.A. No. 10918-VCS (Del. Ch. Aug. 25, 2016) (“Auspex”).  Both decisions turned on the  application of the Delaware Supreme Court’s decision in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), which held that the business judgment rule applies to a court’s review of a transaction that is approved by a majority of a company’s disinterested and uncoerced stockholders upon a fully informed vote.  

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  • Central District of California Denies Motion to Set Aside Judgment, Suggesting that Forum-Shopping May Have Motivated Litigants’ Conduct
     
    08/29/2016

    On August 17, 2016, Judge George H. King of the United States District Court for the Central District of California denied a joint motion to vacate the court’s prior dismissal of a shareholder derivative action so that the court could approve a proposed settlement.  In re CytRx Corp. S’holder Deriv. Litig., 14-6414-GHK-PJW, Dkt. 109 (C.D. Cal. Aug. 17, 2016).  Judge King found no grounds for vacatur and openly questioned whether forum-shopping—specifically, an attempt to avoid the Delaware Court of Chancery’s scrutiny of a proposed settlement—motivated the parties’ attempt to revive the California action.  This ruling highlights the impact of the Chancery Court’s increasing disfavor towards disclosure-only settlements of shareholder actions, and the alertness of other forums to litigants’ efforts to “avoid the glare of the Delaware Chancery Court’s spotlight.” 

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  • Delaware Chancery Court Utilizes DCF Method to Determine Fair Value of ISN Software Corp.
     
    08/22/2016

    On August 11, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery relied on his own discounted cash flow (“DCF”) analysis to determine the fair value of ISN Software Corp. (“ISN”) in an appraisal action brought by two minority shareholders following the merger of ISN with its wholly-owned subsidiary.  In re ISN Software Corp. Appraisal Litig., C.A. No. 8388-VCG (Del. Ch. Aug. 11, 2016).  In so ruling, the Court rejected not only the valuation advocated by ISN’s expert but also the valuations espoused by the minority shareholders’ experts, noting that “[i]n a competition of experts to see which can generate the greatest judicial skepticism regarding valuation . . . this case, so far, takes the prize.”  

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    CATEGORY: Fiduciary Duties
  • Seventh Circuit Follows Delaware Chancery’s Trulia Holding To Reverse Approval Of Settlement In Strike Suit
     
    08/15/2016

    On August 10, 2016, a divided panel of the Seventh Circuit Court of Appeals reversed a district court judge’s approval of a disclosure-only settlement in a putative stockholder class action challenging the acquisition by Walgreen Co. (“Walgreens”) of Alliance Boots Gmbh (“Boots”).  In re Walgreen Co. Stockholder Litig., No. 15-3799 (7th Cir. Aug. 10, 2016).  Writing for the majority, Judge Richard Posner rejected the proposed settlement, which contemplated $370,000 in plaintiffs’ attorneys’ fees in exchange for six additional disclosures to the stockholder class, finding it “inconceivable” that the new disclosures actually benefited the class.

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    CATEGORY: Fiduciary Duties
  • Delaware Court Of Chancery Slashes Attorneys’ Fee Request In Mootness Dismissal Context Despite Applying More Lenient Standard Based On Shareholder Benefit 

    08/15/2016

    On August 4, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery awarded counsel to shareholders of an acquired company $50,000 in attorneys’ fees—less than 20 percent of their requested fee award—in a mootness proceeding.  In re Xoom Corp. Stockholder Litig., C.A. No. 11263-VCG (consol.) (Del. Ch. Ct. Aug. 4, 2016).  The Xoom decision signals that despite the Court’s previously expressed openness to awarding attorneys’ fees to plaintiffs’ counsel for securing supplemental disclosures in the mootness context, see In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884, 898-99 (Del. Ch. 2016), that it will still heavily scrutinize the “get” part of the equation—i.e., the benefit of the additional disclosures to shareholders—even when there is no “give” (i.e., a broad class-wide release of claims) against which to weigh it.

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  • Delaware Chancery Applies Entire Fairness Standard, Denies Dismissal of Shareholder Suit Based on Claims that Directors Usurped Corporate Opportunity and Approved Merger to Avoid Liability
     
    08/08/2016

    On July 28, 2016, Vice Chancellor Sam Glasscock III of the Delaware Chancery Court largely denied motions to dismiss a breach of fiduciary suit brought by former minority stockholders of Riverstone National, Inc. (“Riverstone”) against CAS Capital Ltd. (“CAS”), the majority stockholder of Riverstone, the Riverstone board (“Director Defendants”), and, nominally, Riverstone.  In re Riverstone Nat’l, Inc. Stockholder Litig., Consol. C.A. No. 9796-VCG (Del. Ch. July 28, 2016).  The Court applied the entire fairness standard to the merger because plaintiffs alleged that the Director Defendants usurped corporate opportunities and then caused Riverstone to enter into a merger with Greystar Real Estate Partners (“Greystar”) to extinguish said claims (the “Usurpation Claims”).  Applying Delaware’s “reasonably conceivable” pleading standard, the Court held that plaintiffs adequately pleaded a claim for breach of loyalty in connection with the approval of the merger.

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  • Delaware Chancery Court Grants Motion to Dismiss in Caremark Action Against Qualcomm Directors and Officers 
     
    08/08/2016

    On August 1, 2016, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Chancery Court granted a motion to dismiss “Caremark” claims against directors of Qualcomm, Inc. for failure to plead that demand on the board of directors was futile, finding that the complaint failed to set forth particularized allegations of fact supporting an inference that a majority of the board faced a substantial likelihood of personal liability.  Melbourne Mun. Firefighter’s Pension Trust v. Paul E. Jacobs, et al. and Qualcomm, Inc., C.A. No. 10872, memo. op. (Del. Ch. Aug 1, 2016).  The complaint alleged that directors and officers of Qualcomm consciously disregarded antitrust enforcement actions in several international jurisdictions, ignored red flags regarding the firm’s compliance with international antitrust laws, and failed to remedy its business practices to comply with international antitrust laws, resulting in the imposition of fines and judgments against the company from multiple regulators in a number of jurisdictions, including a $975 million fine issued by the National Development and Reform Commission of the People’s Republic of China. 

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  • Delaware Chancery Court Clarifies Applicability of Statute of Limitations to Claim Regarding Allegedly Void Shares
     
    08/08/2016

    On August 3, 2016, Chancellor Andre G. Bouchard of the Delaware Chancery Court granted defendant’s motion to dismiss, finding that plaintiff’s claim was “barred under the doctrine of laches by applying the statute of limitations by analogy.”  Harold Kraft v. WisdomTree Investments, Inc., and Tradeworx, Inc., C.A. No. 10816-CB (Del. Ch. Aug. 3, 2016).  Harold Kraft, as trustee of the Kraft Family Trust, a stockholder of nominal defendant Tradeworx, Inc., sought a declaration that shares issued in 2000 to defendant, WisdomTree Investments, Inc., were invalid because they had been issued in exchange for services to be provided in the future, which was—at the time—in contravention of the Delaware General Corporation Law and the Delaware Constitution. Defendant moved to dismiss the complaint arguing that plaintiff’s claim, filed fifteen years after the challenged share issuance, is time-barred.  The Court held that statutes of limitations are to be applied “by analogy” to bar equitable claims seeking legal relief that are brought “outside the limitations period absent tolling or extraordinary circumstances.”

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  • Ninth Circuit Dismisses Director Defendant from Investor Suit to Cure Jurisdictional Defect, Affirms Dismissal for Failure to Make Demand
     
    08/01/2016

    On July 18, 2016, a unanimous panel of the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of a shareholder derivative action against Wynn Resorts, Limited (“Wynn Resorts”) and eleven individuals—including Steve Wynn—who sit or sat on its board of directors.  La. Mun. Police Employees’ Retirement Sys. v. Wynn, __ F. 3d __, No. 14-15695, 2016 WL 3878228, (9th Cir. July 18, 2016).  Its ruling confirmed that the federal courts may dismiss, sua sponte, a “stateless” defendant if necessary to perfect their diversity jurisdiction; that trial court determinations regarding demand futility are reviewed for abuse of discretion in the Ninth Circuit; and that plaintiffs alleging demand futility must plead their case with particularity.   

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  • Southern District of New York Grants Partial Summary Judgment Rejecting Successor Liability in Copyright Infringement Dispute
     
    07/25/2016

    On July 15, 2016, Judge Naomi Buchwald of the United States District Court for the Southern District of New York granted partial summary judgment to defendant Cowen & Company, LLC (“Cowen”) on successor liability claims brought by Energy Intelligence Group, Inc. and Energy Intelligence Group (UK) Limited (together, “EIG”).  Energy Intelligence Grp., Inc. v. Cowen & Co., No. 14-cv-03789 (S.D.N.Y. July 15, 2016).  The Court held that the assignment of the assets of Dahlman Rose & Company LLC (“Dahlman”) to Cowen following the acquisition of Dahlman by Cowen’s parent company, Cowen Group, did not create successor liability for alleged copyright infringement by Dahlman.  In so holding, the Court rejected the plaintiffs’ argument that two exceptions to the rule against successor liability for the assignment of assets applied, namely that Cowen had either expressly assumed Dahlman’s tort liability or that the acquisition was a de facto merger.

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    CATEGORY: Deal Disputes
  • Delaware Court of Chancery Dismisses Most Fiduciary Duty Breach Counterclaims Against Star Athlete Director 
     
    07/25/2016

    On July 19, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed most (but not all) breach of fiduciary duty counterclaims asserted by a sports apparel startup against its former director, Yankees baseball great Derek Jeter.  Jeter v. RevolutionWear, Inc., C.A. No. 11706-VCG (Del. Ch. Ct. Jul. 19, 2016).  The decision highlights that directorial fiduciary duties cannot be expanded by contract.  Specifically, the Court held that Jeter’s alleged contravention of certain marketing-related obligations that were part of his director agreement with the company, RevolutionWear, Inc. (“RWI”), did state a claim for breach of fiduciary duty because such contractual obligations “do not alter the fiduciary obligations of the director” even though they “may give rise to breach-of-contract claims.”  

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  • Delaware Chancery Court Grants Appraisal Rights to Shareholders in DFC Global Corporation Following Acquisition by Private Equity Fund
     
    07/18/2016

    On July 8, 2016, Chancellor Andre Bouchard of the Delaware Court of Chancery granted a petition for appraisal of former stockholders of DFC Global Corporation (“DFC”) at a “fair value” of $10.21 per share, rather than the price ($9.50 per share) at which DFC was acquired by a private equity fund in June 2014.  In re Appraisal of DFC Global Corp., C.A. No. 10107-CB (Del. Ch. July 8, 2016).  The judicially-determined appraisal value reflects an equally weighted blend of (1) a discounted cash-flow analysis, (2) a comparable company analysis, and (3) the actual transaction price of the deal. 

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    CATEGORY: Fiduciary Duties
  • Delaware Court Of Chancery Holds That Business Judgment Rule Applies When Informed Majority Of Stockholders Tenders Shares In A Two-Step Merger
     
    07/11/2016

    On June 30, 2016, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery dismissed a breach of fiduciary duty action brought by former shareholders of Volcano Corporation against the company’s board of directors and financial advisor. In re Volcano Corp. Stockholder Litig., No. CV 10485-VCMR, 2016 WL 3583704 (Del. Ch. June 30, 2016). The Court held that because a fully informed majority of stockholders had tendered their shares during the first step of a two-step merger, the business judgment rule applied to the board’s decision to approve the merger. 

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  • Delaware Chancery Denies Williams’ Request to Enjoin ETE from Terminating $38 Billion Deal
     
    07/04/2016

    On June 24, 2016, Vice Chancellor Sam Glasscock III of the Delaware Chancery Court issued a memorandum opinion denying a request by plaintiff The Williams Companies Inc. (“Williams”) to enjoin defendant Energy Transfer Equity L.P. (“ETE”) from terminating its merger agreement with Williams.  Williams Cos. v. Energy Transfer Equity, L.P., C.A. No. 12168-VCG, memo op. (Del. Ch. June 24, 2016).  Vice Chancellor Glasscock held that ETE was contractually entitled to terminate the merger because a mutual condition precedent—the issuance of a tax opinion by ETE’s counsel, Latham & Watkins LLP (“Latham”), that the transaction should receive tax-free treatment under Section 721(a) of the Internal Revenue Code (the “721 Opinion”)—was not satisfied.  Central to the decision was the Vice Chancellor’s conclusion that Latham’s determination was made in good faith.  Although Williams has appealed the decision, ETE terminated the merger as of June 29, 2016.

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    CATEGORY: Deal Disputes
  • Delaware Court of Chancery Rejects the Imposition of Non-Competition Restrictions on Selling Shareholders in Context of a Forced Sale
     
    06/27/2016

    On June 21, 2016, Chancellor Andre G. Bouchard of the Delaware Court of Chancery accepted a custodian’s plan for a judicially ordered sale of a company over the objections of one of the three shareholders of the company, but rejected a proposal to impose expanded non-compete obligations on selling shareholders.  See In re TransPerfect Global, Inc, et al., C.A. Nos. 9700, 10449-CB, Letter Op. (Del. Ch. June 21, 2016).  Specifically, the Court held that the plan “address[ed] the dual goals of maintaining the Company as a going concern and maximizing stockholder value” but that “it would not be appropriate to impose non-competition or non-solicitation restrictions on a selling stockholder as a condition of the sale of the Company absent evidence of wrongdoing.”  

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    CATEGORY: Injunctions
  • Northern District of Illinois Denies FTC’s Bid To Enjoin Chicago Hospital Merger
     
    06/20/2016

    On June 14, 2016, Judge Jorge Alonso of the United States District Court for the Northern District of Illinois denied the Federal Trade Commission’s (“FTC”) motion for a preliminary injunction against the merger of Advocate Health Care (“Advocate”) and NorthShore University HealthSystem (“NorthShore”), which operate hospitals in Chicago’s northern suburbs. Order, Federal Trade Comm’n v. Advocate Health Care Network, No. 15 C 11473 (N.D. Ill. June 14, 2016), ECF No. 472. The Order held that the FTC failed to show a likelihood that it would succeed on the merits of its antitrust claims.

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    CATEGORY: Injunctions
  • Delaware Court of Chancery Grants Partial Summary Judgment Barring Appointment of Non-Director to Special Litigation Committee
     
    06/20/2016

    On June 10, 2016, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery granted partial summary judgment to the plaintiff in a derivative action involving two nominal defendant Delaware limited liability companies (each, an “LLC”), Gemini Equity Partners LLC (“Gemini Equity”) and Gemini Real Estate Advisors, LLC (“Gemini Real Estate”).  Obeid v. Hogan, C.A. No. 11900-VCL (Del. Ch. Jun. 10, 2016).  The Court held that the defendant companies could not appoint defendant Michael Hogan, a retired federal judge, as the sole member of parallel special litigation committees for the LLCs because he is not a director or a manager of such LLCs. 

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  • Delaware Court of Chancery Finds Suit against Lululemon Chairman and Board Is Precluded by Previous Dismissal of New York Lawsuit
     
    06/20/2016

    On June 15, 2016, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed a derivative action against current and former directors of Lululemon Athletica, Inc., finding that plaintiffs’ claims were precluded by a previous dismissal of similar allegations in a New York based action.  Laborers District Council Constr. Indus. Pension Fund v. Bensoussan et al., C.A. No. 11293-CB (Del. Ch. June 14, 2016).

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  • Delaware Court of Chancery Invokes Equitable Exception to Rule That Demand Futility Is Assessed as of the Time Complaint Is Filed
     
    06/07/2016

    Under well-established Delaware law, a plaintiff seeking to pursue a shareholder derivative suit on behalf of the corporation must first either (a) make a demand on the company’s board of directors and have such demand wrongfully refused or (b) establish that such a demand would be futile.  Shareholder plaintiffs that opt for the latter approach often claim that the majority of directors who would have been tasked with deciding whether the company should act upon their demands were (or are) unable to reliably exercise their business judgment on the company’s behalf, particularly in cases where the lawsuits would target those same board members.

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    CATEGORY: Injunctions
  • Delaware Chancery Court Grants Appraisal Petition After Finding Dell MBO Transaction Provided Stockholders Less Than Fair Value
     
    06/07/2016

    Vice Chancellor Laster of the Delaware Chancery Court recently issued an important opinion in In Re: Appraisal of Dell Inc. C.A. No. 9322-VCL (May 31, 2016), holding that merger consideration offered to Dell, Inc’s common stockholders did not reflect the “fair value” of Dell’s shares. The decision will require the company to pay dissenting stockholders a 28% premium as compared to the consideration that was received by stockholders who did not exercise their appraisal rights. The opinion is notable for several reasons, including because the Court declined to accept that the negotiated market price for the deal was the best available indication of the fair value of the company. Instead, the Court challenged the accuracy of prevailing stock market valuations of Dell, and after criticizing several aspects of the sale process, ultimately concluded that neither the stock price nor the price negotiated during the sale process fairly reflected the fair value of the company. 

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    CATEGORY: Fiduciary Duties
  • Delaware Chancery Court Finds “Bad Faith” Claims Actionable Against Disinterested, Independent Directors Only When the Action Complained of Is “Otherwise Inexplicable”
     
    05/31/2016

    In a recent Delaware Chancery Court decision, In re Chelsea Therapeutics International Ltd. Stockholders Litigation, C.A. No. 9640-VCG (Del. Ch. May 20, 2016), Vice Chancellor Glasscock explained that the good faith requirement of the duty of loyalty offers an equity judge a “fiduciary out” to the application of the business judgment rule.  According to the Vice Chancellor, the court can consider the presence of “bad faith” in connection with a board decision, even if the directors were disinterested and independent.  But consideration of “bad faith” in this context is relevant only in the rare instance where the nature of the board action cannot be understood to be in the corporate interest.  In this case, the court rejected plaintiffs’ “pursuit of that rare bird,” dismissing the claims brought by representative stockholders.

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    CATEGORY: Fiduciary Duties
  • Delaware Chancery Court Enjoins Directors From Implementing Board Reduction Plan
     
    05/31/2016

    Vice Chancellor Laster of the Delaware Chancery Court enjoined certain directors of Cogentix Medical, Inc. from implementing a plan to reduce the size of the Company’s board to defeat a proxy fight.  Pell v. Kill, C.A. No. 12251-VCL (Del. Ch. May 19, 2016).  The opinion’s application of Delaware’s standard for reviewing director action that affects shareholder voting strongly favors protecting stockholder voting rights.

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    CATEGORY: Fiduciary Duties
  • Delaware Supreme Court Concludes “Holder Claims” Are Direct But Questions Viability Under Delaware Law
     
    05/31/2016

    On May 24, 2015, the Delaware Supreme Court ruled that former stockholders’ claims against a corporation, under New York or Florida law, for damages allegedly caused by holding already-purchased stock in reliance on purported misrepresentations constitute direct claims.  Citigroup Inc. v. AHW Invest. P’ship, MFS, Inc., No. 614 2015 (“AHW”).  This ruling addressed a certified question from the Second Circuit Court of Appeals, which sought guidance on whether so-called “holder claims” were direct or derivative in nature.  The ruling is most notable because the court expressed reservations about the validity of holder claims under Delaware law, although it did not decide the issue.

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    CATEGORY: Fiduciary Duties
  • Delaware Chancery Bars Appraisal Claims Where Evidence from Third Parties Confirms Appraisal Shares Were Voted in Favor of the Transaction
     
    05/23/2016

    The Delaware Chancery in In re Appraisal of Dell Inc., C.A. No. 9322-VCL (Del. Ch. May 11, 2016) considered whether mutual funds who were beneficial owners of Dell shares could pursue an appraisal action in the face of evidence showing that the shares were mistakenly voted in favor of a merger by an intermediary custodial bank.  The court ruled that the petitioners were barred from seeking an appraisal and, in so holding, provided a helpful framework for the burden-shifting analysis for proof of compliance with appraisal statute requirements.

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    CATEGORY: Fiduciary Duties
  • Delaware Derivative Action Barred by Dismissal of Competing Action in Arkansas
     
    05/23/2016

    The Delaware Chancery in In re Wal-Mart Stores, Inc. Del. Deriv. Litig., C.A. No. 7455-CB (Del. Ch. May 13, 2016) dismissed derivative litigation on issue preclusion grounds after another court dismissed a competing derivative action. 

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    CATEGORY: Fiduciary Duties
  • Federal Court Declines To Enjoin Hospital Merger Finding the FTC’s Proposed Market “Impermissibly Narrow”
     
    05/23/2016

    The federal government has enjoyed a recent string of successful challenges to proposed mergers on antitrust grounds.  These have ranged from the blocking of the combination of Staples and Office Depot by the United States District Court for the District of Columbia earlier this month to the abandonment of merger plans by Time Warner Cable and Comcast, as well as Halliburton and Baker Hughes, in the wake of government scrutiny.  But this trend was interrupted when Judge John E. Jones III of the United States District Court for the Middle District of Pennsylvania denied a motion for a preliminary injunction brought by the Federal Trade Commission (“FTC”) and the Pennsylvania Attorney General against the proposed merger of two Harrisburg-area hospital groups.

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    CATEGORY: Fiduciary Duties
  • Government Wins Again In Bid To Stem the Wave of Industry Consolidation, Obtains Preliminary Injunction Against Staples-Office Depot Merger
     
    05/16/2016

    The ongoing trend of companies in a wide range of industries seeking to grow quickly by acquiring competitors has increasingly been met with government resistance over the past few years.  For example, approximately one year ago, cable and broadband provider Comcast abandoned its plans to acquire Time Warner Cable in the wake of scrutiny from Department of Justice antitrust regulators.  And earlier this month, oilfield-services giants Halliburton and Baker Hughes announced that they would walk away from their $30 billion merger in the face of opposition from antitrust regulators (which requires payment by Halliburton to Baker Hughes of a $3.5 billion breakup fee).  Last week, Judge Emmet Sullivan of the United States District Court for the District of Columbia sided with the Federal Trade Commission (“FTC”) and entered a preliminary injunction blocking the combination of the country’s two largest office supply retailers, Staples and Office Depot, after holding a two-week trial.

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    CATEGORY: Charters & Bylaws
  • Delaware Supreme Court Holds Approval of Deal by Disinterested, Informed Stockholders Requires Dismissal of Aiding-and-Abetting Claims Against M&A Advisor
     
    05/16/2016

    On Friday, May 6, an en banc Delaware Supreme Court affirmed the Delaware Court of Chancery’s dismissal with prejudice of a claim against Merrill Lynch, Pierce, Fenner & Smith (“Merrill Lynch”) for aiding and abetting a breach of fiduciary duty while serving as financial advisor to Zale Corp. (“Zale”) in its sale to Signet Jewelers (“Signet”).  Singh v. Attencorough, No. 645, 2015 (Del. May 6, 2016) (en banc).  The decision has significant implications for (i) the effect of stockholder approval of a merger on the standard of review and (ii) investment banker conflicts. 

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    CATEGORY: Fiduciary Duties
  • The New York Court of Appeals Adopts Delaware’s Standard for Evaluating Shareholder Class Actions Challenging Going-Private Mergers
     
    05/09/2016

    On May 5, 2016, in In the Matter of Kenneth Cole Productions, Inc., Shareholder Litigation, No. 54, 2016 WL 2350133 (N.Y. May 5, 2016), the New York Court of Appeals adopted Delaware’s standard of review of shareholder class actions challenging going-private mergers.  Specifically, New York courts are now required to evaluate board approval of such mergers under the deferential “business judgment rule”—provided certain shareholder-protective conditions are present. 

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    CATEGORY: Standard of Review
  • Fiduciary Duty Claims on Behalf of Master Limited Partnership Against General Partner Dismissed as a Result of Delaware’s Flexible Limited Partnership Regulations, Notwithstanding “Harsh” Consequences
     
    05/09/2016

    In Peter Brinckerhoff v. Enbridge Energy Company, Inc., et al., C.A. No. 11314-VCS, memo. op. (Del. Ch. Apr. 29, 2016), newly appointed Vice Chancellor Slights of the Delaware Chancery Court dismissed class and derivative claims brought by an investor in a master limited partnership, Enbridge Energy Partners, L.P. (the “MLP”), against the general partner, Enbridge Energy Company, Inc., and its controlling parent (together, “Enbridge”), and Enbridge’s affiliates and directors.  This opinion is the latest in a series of Delaware court decisions reinforcing that, under Delaware law, “a limited partnership agreement may eliminate the fiduciary duties owed by the general partner to the partnership and its limited partners in favor of” specifically delineated contractual obligations. 

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    CATEGORY: Fiduciary Duties
  • New York Follows Delaware, Applies Business Judgment Rule to Going-Private Mergers
     
    05/09/2016

    On May 5, 2016, the New York Court of Appeals ruled that courts should apply the business judgment rule in shareholder lawsuits challenging going-private mergers, as long as shareholders were adequately protected—a decision that expressly follows the approach of the Delaware Supreme Court in its seminal case, Kahn et al. v. M&F Worldwide, 88 A.3d 635 (Del. 2014) (“MFW”). In the Matter of Kenneth Cole Productions Inc. S’holder Litig., No. 54, 2016 WL 2350133 (N.Y. May 5, 2016) (“KCP”). KCP marks the first time that New York’s highest court determined that the business judgment rule should apply in such situations. 

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    CATEGORY: Fiduciary Duties
  • OptimisCorp v. Waite, No. 523, 2015 (Del. Apr. 25, 2016)
     
    05/02/2016

    A unanimous Delaware Supreme Court criticizes directors’ use of deceptive “Pearl Harbor-like” tactics against another director, even in the name of protecting the company from perceived misconduct.   OptimisCorp v. Waite, No. 523, 2015 (Apr. 25, 2016).

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    CATEGORY: Injunctions
  • Genuine Parts Co. v. Cepec, 2016 WL 1569077 (Del. Apr. 18, 2016)
     
    05/02/2016

    The Delaware Supreme Court is the latest court to weigh in on the increasingly contentious question of whether a foreign corporation’s compliance with a state’s statutory registration requirements amounts to a broad consent to general personal jurisdiction within that state.  Writing for the majority in a rare 4-1 split decision, Chief Justice Strine held that it would be “unacceptably grasping” in today’s economy to require foreign corporations to acquiesce to Delaware’s exercise of general jurisdiction as a price of doing business in the state.  In so ruling, the Court partially overruled its own decision in Sternberg v. O’Neil, 550 A.2d 1105 (Del. 1988), which held that registering to do business in the state pursuant to 8 Del. C. § 371 and designating an agent for service of process pursuant to 8 Del. C. § 376 amounted to “actual consent” to Delaware’s exercise of general jurisdiction.

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    CATEGORY: Fiduciary Duties
  • Caskey v. OpKo Health Inc., C.A. No. 11415-VCS, hearing (Del. Ch. Apr. 22, 2016)
     
    05/02/2016

    The newest Vice Chancellor on the Chancery Court, Vice Chancellor Joseph R. Slights, will be formally installed by public investiture on Friday, May 13, 2016 and recently tackled the rarely discussed “pecuniary duty” in denying from the bench defendants’ motion to dismiss in Herbert Caskey, MD v. OpKo Health Inc. 

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    CATEGORY: Charters & Bylaws