Bin v. Heckmann Corp., C.A. No. 4802-CC, Chandler, C. (Del. Ch. Jan. 8, 2010)
Document: Bin v. Heckmann Corp., C.A. No. 4802-CC, Chandler, C. (Del. Ch. Jan. 8, 2010)
The Court granted summary judgment in part in favor of plaintiff and found that, notwithstanding that Heckmann’s certificate of incorporation provided for mandatory advancement relating to claims against plaintiff for his actions as a director of Heckmann, the Heckmann by-laws could allow for the imposition of conditions on such advancement. The Court focused on the fact that the bylaws and certificate were drafted and put into place at the same time and were in place when plaintiff became a director of Heckman. The Court, however, found that plaintiff was entitled to indemnification under Section 145(c) of the DGCL in connection with claims by the Company against plaintiff which were dismissed in an earlier action. Finally, the Court denied pre-judgment interest as well as “fees on fees” on the grounds that plaintiff did not succeed on his advancement claim.
In Re Sunbelt Beverage Corp. Shareholder Litig., Consol. C.A. No. 16089-CC, Chandler, C. (Del. Ch. Jan. 5, 2010)
Plaintiff brought this consolidated breach of fiduciary duty and appraisal proceeding based on claims that the Sunbelt board cashed out plaintiff at an unfair price pursuant to a merger. Plaintiff sought rescissory relief or in the alternative an appraisal of the fair value of her shares. The Court awarded plaintiff the fair value of her shares ($114.04 per share), which was $68.20 per share in excess of the merger consideration, as well as pre- and post-judgment interest, court costs, and expert fees of over $840,000, but not attorneys’ fees. The Court found that the Board’s process in approving the merger failed the fair dealing prong of the entire fairness test since there were no procedural protections in place, such as a special committee, and the fairness opinion was “pure window dressing”. The Court also found the merger consideration to be unfair and awarded damages rather than rescissory relief because of the difficulty in crafting such relief and since money damages were an adequate remedy.
Deloitte LLP, et al. v. Flanagan, C.A. No. 4125-VCN, Noble, V.C. (Del. Ch. Dec. 29, 2009)
Document: Deloitte LLP, et al. v. Flanagan, C.A. No. 4125-VCN, Noble, V.C. (Del. Ch. Dec. 29, 2009)
The Court granted summary judgment on plaintiffs’ claims against a former partner of the accounting firm for breach of contract, breach of fiduciary duty, equitable fraud and common law fraud. The claims were based on the defendant’s trading in securities of certain firm clients in breach of his partnership agreement and fiduciary duties, and then fraudulently misrepresenting his trading activity.
NACCO Indus., Inc., et al. v. Applica Inc., et al., C.A. No. 2541-VCL, Laster, V.C. (Del. Ch. Dec. 22, 2009)
Plaintiffs sought damages and other relief based on various claims, including breach of contract and the implied covenant of fair dealing, as well as fraud, in connection with NACCO’s failed attempt to acquire Applica. NACCO initially entered into a merger agreement with Applica which was subsequently terminated by Applica in favor of a purported superior proposal by another bidder. The Court granted defendants’ motion to dismiss the implied covenant claims, as well as plaintiffs’ equitable fraud and aiding and abetting breach of fiduciary duty claims. However, the Court denied the motion as to plaintiffs’ breach of contract, tortious interference with contract, fraud and civil conspiracy claims. The breach of contract claims were based, in part, on the “no-shop clause” of the merger agreement as well as a provision requiring prompt notice of the terms and status of another offer. The fraud claims were brought based on statements that the third party acquiror made in its Section 13(d) filings under the Securities Exchange Act of 1934. The civil conspiracy claim as it survived was brought against Applica in connection with the surviving fraud claim.
Whittington v. Dragon Group, L.L.C., et al., No. 392, 2009 (Del. Dec. 18, 2009)
Document: Whittington v. Dragon Group, L.L.C., et al., No. 392, 2009 (Del. Dec. 18, 2009)
The appellant appealed the Court of Chancery’s holding that his action to enforce rights as an alleged number of Dragon Group, L.L.C. was barred by the doctrine of laches, applying by analogy a three-year statute of limitations found in 10 Del. C. § 8106. The Delaware Supreme Court determined that the applicable analogous statute of limitations was twenty years and remanded the matter for further consideration. The Supreme Court found that the Agreement in Principle at issue, which reflected a global settlement of earlier actions and disputes among the parties, was a “specialty contract” as it was a contract under seal. The word “seal” appeared next to the signature lines of the parties to the contract. Therefore, under 10 Del. C. § 8106, the analogous statute of limitations was twenty years.
Olson v. Halvorsen, et al., No. 338, 2009 (Del. Dec. 15, 2009)
Document: Olson v. Halvorsen, et al., No. 338, 2009 (Del. Dec. 15, 2009)
On appeal, the Delaware Supreme Court affirmed the Court of Chancery’s holding that the appellant (plaintiff below) had failed to establish that his investing partners in a Delaware limited liability company (“LLC”) had orally amended the LLC’s compensation provisions. The Supreme Court thus upheld the Court of Chancery’s finding that the statute of frauds applied to LLC operating agreements and its determination that the plaintiff had failed to satisfy the multiple-writings exception to the statute of frauds. Specifically, the Supreme Court found that the statute of frauds does not conflict with the Delaware limited liability company act (the “LLC Act”), and that the LLC Act does not guarantee enforcement of all oral contracts but only permits them. The Supreme Court also found that the legislative history of the LLC Act and the adoption of amendments to allow for oral LLC Agreements did not suggest the intent of the Delaware General Assembly to preclude the application of the statute of frauds to oral LLC agreements.
Paolino v. Mace Security Intn’l, C.A. No. 4462-VCL, Laster, V.C. (Del. Ch. Dec. 14, 2009)
Document: Paolino v. Mace Security Intn’l, C.A. No. 4462-VCL, Laster, V.C. (Del. Ch. Dec. 14, 2009)
The Court denied defendant’s motion to dismiss plaintiff’s complaint for indemnification and advancement in connection with a pending arbitration involving the parties, staying the action as to the request for indemnification and granting summary judgment in favor of plaintiff as to the advancement claim. The Court found that it was premature to address indemnification while the underlying arbitration was ongoing, but the Company’s by-laws provided for mandatory advancement rights with respect to matters such as those involved in the arbitration, which were not altered by plaintiff’s employment agreement.
Grunstein, et al. v. Silva, C.A. No. 3932-VCN, Noble, V.C. (Del. Ch. Dec. 8, 2009)
Document: Grunstein, et al. v. Silva, C.A. No. 3932-VCN, Noble, V.C. (Del. Ch. Dec. 8, 2009)
The Court considered defendants’ motion to dismiss certain of plaintiffs’ claims based on contract, equity and tort in connection with an alleged breach of an oral partnership agreement. The partnership was formed to acquire an eldercare and rehabilitative services company, Beverly Enterprises, pursuant to a merger agreement. The agreement was amended whereby the original acquiring entities were replaced by companies controlled by one of the three partners to the oral partnership who was named as one of the defendants. In this decision, the Court considered and dismissed plaintiffs’ breach of fiduciary duty claim as duplicative of their breach of contract claim, but upheld their promissory estoppel and fraud claims, as well as certain of their negligent misrepresentation claims. The Court also upheld plaintiffs’ breach of contract claim, but dismissed their tortious interference claims.
Vichi v. Koninklijke Philips Electronics N.V., C.A. No. 2578-VCP, Parsons, V.C. (Del. Ch. Dec. 1, 2009)
This action involved a dispute over a loan between a Netherlands holding company and plaintiff. Defendants moved to dismiss on several grounds, including lack of personal jurisdiction as to certain defendants, forum non-conveniens, and failure to state a claim, and to stay in favor of a Netherland’s proceeding involving the bankruptcy of the joint venture established in connection with the loan. In granting certain of the motions to dismiss for lack of personal jurisdiction, the Court found that it could not exercise jurisdiction over one of the individual defendants under Section 18-109 of the Delaware LLC Act since he did not participate materially in the management of the LLC, and the claims against such defendant did not relate to the business of the subject LLC. The Court also dismissed certain fiduciary duty claims by the plaintiff creditor since such claims were direct and Delaware law precludes direct claims by creditors of an LLC for breach of fiduciary duty.
Mangano v. Pericor Therapeutics, Inc., C.A. No. 3777-VCN, Noble, V.C. (Del. Ch. Dec. 1, 2009)
Document: Mangano v. Pericor Therapeutics, Inc., C.A. No. 3777-VCN, Noble, V.C. (Del. Ch. Dec. 1, 2009)
Plaintiff held a substantial percentage of Defendant’s shares, many of which were in a voting trust. The trust under its terms would terminate when Plaintiff’s beneficial stock ownership fell below 45%. Plaintiff was also restricted pursuant to a stock purchase agreement with respect to stock transfers, but such restrictions did not preclude transfers to family members. Plaintiff transferred shares to his sister which reduced his ownership below 45% and he sought to have his other shares released from the trust and to vote them. Defendant claimed that he remained the beneficial owner of the shares. On Plaintiff’s partial summary judgment motion the Court found that Plaintiff had not retained beneficial interest in the transferred shares and there was no issue of fact and therefore summary judgment was appropriate. The Court rejected the use of the definition of “beneficial ownership” under the federal securities laws and instead looked to Delaware case law as a guide, finding that “beneficial owner” is one who holds some equitable right in the stock. The Court terminated the voting trust allowing Plaintiff to vote his shares.
Texas Eastern Overseas, Inc., C.A. No. 4326-VCN, Noble, V.C. (Del. Ch. Nov. 30, 2009)
Document: Texas Eastern Overseas, Inc., C.A. No. 4326-VCN, Noble, V.C. (Del. Ch. Nov. 30, 2009)
Petitioner Ameripride Services sought the appointment of a receiver under Section 279 of the DGCL for Texas Eastern Overseas (“TEO”), a dissolved corporation, to maintain a lawsuit and pursue potential insurance coverage. TEO moved to dismiss the petition on the grounds that because it was dissolved for more than 3 years under Section 278 of the DGCL it could not be sued and Section 279 could not be used to defeat that time limit, particularly in the case where TEO has no assets. Ameripride sought judgment on the pleadings as to its petition. The Court denied TEO’s motion to dismiss and granted Ameripride’s motion finding that Ameripride had made a showing that TEO had undistributed assets warranting appointment of a receiver and that the policies underlying Section 278’s time limitation would only be minimally implicated. The Court stated that the receiver would not have a claim to assets of TEO distributed in the dissolution of TEO or a claim against its former shareholders, directors or officers, but only to potential insurance coverage which might be available as a result of pending litigation.
Levinhar, et al. v. MDG Medical, Inc. et al., C.A. No. 4301-VCS, Strine, V.C. (Del. Ch. Nov. 24, 2009)
Plaintiffs, the founders and former directors of MDG Medical, brought an action under Section 225 of the DGCL asserting that their ouster from the MDG board was wrongful. As a result of various capital infusions, the Plaintiff founders had sold shares sufficient to shift majority control to the new investors, but were entitled under a stockholders agreement to appoint two board members. The new investors, in connection with a new round of funding, used their voting control to amend the MDG certificate of incorporation to eliminate the right of the founders to appoint the two board members. The new investors then, however, rescinded the challenged certificate amendment and instead approved a merger of MDG into a successor corporation which did not provide the founders with the right to appoint two board members. The founders settled their Section 225 action for attorneys’ fees and then brought this action for breach of the stockholders agreement and breach of fiduciary duty based on a claim that the merger wrongfully deprived them of their rights under the stockholders agreement. The Court granted defendants motion for judgment on the pleadings on the grounds of res judicata in that the claims could and should have been pursued in the settled Section 225 suit.
Lola Cars Intn’l Limited v. Krohn Racing, LLC, et al., C.A. Nos. 4479-VCN and 4886-VCN, Noble, V.C. (Del. Ch. Nov. 12, 2009)
Plaintiff Lola owned 51% of an LLC with Defendant Krohn owning the remaining 49%. However, they agreed to equal representation on the LLC’s board. Lola asserted breach of the LLC’s operating agreement and the implied covenant of good faith by Krohn and also alleged breach of fiduciary duty of loyalty and care, including mismanagement, by Krohn’s designee to the LLC’s board. In its first complaint, Lola sought to dissolve the LLC and have a receiver appointed and also damages for its breach of contract and fiduciary duty claims. Lola sought in a second complaint to invoke a termination clause in the LLC agreement and injunctive relief. The Court denied Defendants’ motion to dismiss the first complaint but granted the motion as to the second complaint without prejudice finding the claim premature. In doing so, the Court found that demand with respect to Plaintiff’s derivative claims was excused because the LLC had a two member board with equal voting power and the defendant director faced a substantial risk of liability.
Xu Hong Bin, et al. v. Heckmann Corp., et al., C.A. No. 4637-CC, Chandler, C. (Del. Ch. Oct. 26, 2009)
The Court granted the plaintiffs’ motion to dismiss defendants’ counter-claims based on breach of contract and conversion as failing to state a claim, but denied the dismissal of defendant’s breach of fiduciary duty counter-claim. The Court found that there were disputed issues of fact as to whether a contract between the parties which plaintiff claimed contained a release of the fiduciary duty claim, was enforceable.
otal Holdings USA, Inc. v. Curran Composites, Inc., C.A. No. 4494-VCS, Strine, V.C. (Del. Ch. Oct. 9, 2009)
Total Holdings USA, Inc. v. Curran Composites, Inc., C.A. No. 4494-VCS, Strine, V.C. (Del. Ch. Oct. 9, 2009)
The Court denied defendant Curran Composites’ motion to dismiss for lack of personal jurisdiction, and held that Section 15-114 of Delaware’s Revised Uniform Partnership Act provided a basis for the court to exercise personal jurisdiction over Curran as a non-resident partner of a Delaware general partnership. The Court found, among other matters, that the general partnership agreement clearly chose Delaware law to govern, and the controversy involved a dispute over the meaning of the partnership agreement.
In Re John Q. Hammons Hotels Inc. Shareholder Litig., C.A. No. 758-CC, Chandler, C. (Del. Ch. Oct. 2, 2009)
Plaintiffs brought this class action seeking damages for the allegedly inadequate price paid for the publicly held Class A shares of John Q. Hammons Hotels, Inc. (the “Company”) arising out of a merger of the Company with a third party. Plaintiffs alleged that the consideration paid in the merger to John Hammons, the Company’s controlling stockholder, for his Class B stock unfairly favored him at the expense of the Class A stockholders, and claimed that Hammons and the Company board breached their fiduciary duties. The Court, on cross-motions for summary judgment, held that although the use of procedural protections for the minority shareholders could have resulted in the application of the business judgment rule, the procedures used were not sufficient and therefore the entire fairness standard of review was appropriate. The Court, however, denied the motions for summary judgment as to the fairness of price and fair dealing because of the existence of material factual issues.
In Re NYMEX Shareholder Litig.; Greene v. New York Mercantile Exchange, et al., C.A. Nos. 3621 and 3835, Noble, V.C. (Del. Ch. Sept. 30, 2009)
In Re NYMEX Shareholder Litig.; Greene v. New York Mercantile Exchange, et al., C.A. Nos. 3621 and 3835, Noble, V.C. (Del. Ch. Sept. 30, 2009)
These actions challenged the acquisition of NYMEX Holdings, Inc. by CME Group, Inc. Claims were brought by former shareholders of NYMEX and Class A Members (i.e. “seat holders”) of the NYMEX Exchange, a subsidiary of NYMEX. The Court granted defendants’ motion to dismiss the shareholder breach of fiduciary claims, finding that NYMEX’s 102(b)(7) exculpating provision protected the NYMEX directors from liability for duty of care breaches, that the shareholder plaintiffs did not sufficiently plead a breach of the duty of loyalty claim, and failed to sufficiently support their other breach of fiduciary claims. The Court also dismissed certain derivative claims which were brought as direct claims. The Court further dismissed the Class A Member fiduciary duty claims finding that the NYMEX Defendants did not owe fiduciary duties to the Class A Members. The Court also dismissed the remaining Class A Member claims based on a provision of the NYMEX Exchange bylaws.
City of Westland Police & Fire Retirement System v. Axcelis Technology, Inc., C.A. No. 4473-VCN, Noble, V.C. (Del. Ch. Sept. 28, 2009)
The Court dismissed plaintiffs’ action under Section 220 of the General Corporation Law of Delaware for books and records of the defendant company, finding that the plaintiff failed to demonstrate a credible basis from which the Court could infer mismanagement, waste or wrongdoing as required to state a proper demand for books and records. The Court specifically noted as to one of plaintiffs’ claims, that plaintiff must point to something other than a precipitous drop in stock price to be granted Section 220 inspection rights.
Zrii, LLC v. Wellness Acquisition Group, Inc., C.A. No. 4374 – VCP, Parsons, V.C. (Del. Ch. Sept. 21, 2009)
Plaintiff, a limited liability company, brought an action against members of the Company’s executive management team and contractors who were distributors of the Company’s products, for, among other matters, breach of contract and breach of fiduciary duty. In this decision, the Court of Chancery considered and granted Plaintiff’s motion for a preliminary injunction. Specifically, the Court found that Plaintiff had shown a reasonable probability of success on its civil conspiracy claim, its fiduciary duty claim, and its claim that defendants breached certain non-solicitation provisions in their contracts with the Company. The Court also found that the Company would suffer irreparable harm if defendants were not enjoined from recruiting the Company’s distributors and that the balance of equities favored Plaintiff. Thus, the Court granted an injunction against defendants for 3 months, enjoining them from disclosing trade secret information and recruiting Company distributors.
Julian v. Julian, et al., C.A. No. 4137-VCP, Parsons, V.C. (Del. Ch. Sept. 9, 2009)
Document: Julian v. Julian, et al., C.A. No. 4137-VCP, Parsons, V.C. (Del. Ch. Sept. 9, 2009)
The Court addressed several motions arising out of a dispute among brothers who are members of several Delaware LLCs. One brother requested a judicial determination of fair value of certain LLCs from which he resigned and alleged breach of fiduciary duty as to other LLCs in which he remained a member. The defendant brothers moved to dismiss the claims or stay certain claims in favor of a pending arbitration. The Court granted the motion as to several LLCs in favor of arbitration, but determined not to stay other claims relating to other LLCs.