Delaware Transactional Law Updates

Document: Eugene M. Julian v. Eastern States Construction Service, Inc., C.A. No. 1892-VCP, Parsons, V.C. (Del. Ch. July 8, 2008)

The Court interpreted three stockholders agreements between the Plaintiff and his two Defendant brothers, each respectively dealing with one of three separate companies.  The Court held that, as per the terms of two of the agreements, the Plaintiff did not have the right to voluntarily retire before the age of 62 and retain his stock in the companies.  Accordingly, he was required to sell back his stock to two of the companies.  With regard to the third company at issue, the Plaintiff could retain his interest because the Defendant brothers waived their right to insist upon a resale by knowingly failing to enforce any specific buy-back provisions upon the Plaintiff’s severance of formal relations with the subject company.  However, the Court also held that the Defendant brothers, in their capacity as directors, breached their fiduciary duties by granting themselves highly lucrative bonuses.  As they stood on both sides of the transaction and could not establish entire fairness, the Defendant brothers were ordered to disgorge the bonuses and reimburse the Plaintiff for associated attorneys’ fees and costs.

Document: Gila Dweck, et al. v. Albert Nasser and Kids International Corp., C.A. No. 1353-VCL, Lamb, V.C. (Del. Ch. July 2, 2008)

The Court held that Defendant Albert Nasser had granted his long-time attorney the requisite authority to enter into the settlement at issue, thereby making such settlement binding on the Defendants. Viewed under agency principles, the record showed that the Defendants consented to the terms of settlement by instilling the attorney with actual authority to settle the litigation.  In addition, the Defendants’ long-standing and personal course of dealings with the attorney supported implied authority to settle the litigation.  The Defendants were also likely bound by the attorney’s actions based on apparent authority, as the record showed he represented to others the attorney’s authority to act as his agent.Wayne County Employees’ Retire. Sys. v. Corti, et al., C.A. No. 3534-CC, Chandler, C. (Del. Ch. July 1, 2008). The Court denied a motion for preliminary injunction brought by the Plaintiff, a shareholder of Activision, Inc. (“Activision”), to stop a special meeting of Activision’s shareholders.  The Plaintiff sought to compel Activision to make additional disclosures about a proposed merger with Vivendi S.A., to be voted upon at a special meeting.  The Plaintiff was unable to establish the materiality of its disclosure claims because it “failed to demonstrate how any of the alleged omissions would significantly alter the total mix of information” already provided to the shareholders in a 300-page proxy statement.

Document: David P. Simonetti Rollover IRA v. Margolis, et al., C.A. No. 3694-VCN, Noble, V.C. (Del. Ch. June 27, 2008)

The Plaintiff brought a class action suit on behalf of other public holders of the common stock of defendant The TriZetto Group, Inc (“TriZetto”).  The complaint requested a preliminary injunction to prevent TriZetto from being acquired by defendant Apax Partners, L.P. (“Apax”). The Plaintiff alleged that both defendant corporations violated their duties of disclosure and TriZetto’s board failed to satisfy its Revlon duties by limiting potential bidders from submitting deal proposals.  The Court preliminarily enjoined the vote of the stockholders of TriZetto, pending further disclosures concerning the potential benefits of the transaction to outside financial advisors.  The Court, however, dismissed the Revlon claim.

Document: London, et al. v. Tyrrell, et al., C.A. No. 3321-CC, Chandler, C. (Del. Ch. June 24, 2008)

The Court denied the defendant board of directors’ motion to dismiss Plaintiffs’ complaint alleging demand futility under Rule 23.1, as analyzed under the two-prong Aronson test.  First, the Defendants were interested with regard to the granting of stock options because they stood on both sides of the transaction, as they both granted and received the options.   Second, the Court found reasonable doubt that the option plan was an exercise of business judgment because the Defendants backdated the options at a price based on a year-old company valuation that was based on incomplete and deceptive information.  Accordingly, Plaintiff adequately pled demand futility with particularity and raised the inferences necessary to state a claim.

Document: Jackson Walker L.L.P., v. Spira Footwear, Inc., C.A. No. 3150-VCP, Parsons, V.C. (Del. Ch. June 23, 2008)

In an issue of first impression before the Court of Chancery, the Court granted Plaintiff’s motion for summary judgment and upheld its right to advancement.  As outside counsel for the Defendant, Plaintiff’s actions were viewed as those of an agent eligible for advancement under 8 Del. C. § 145 and the Defendant’s bylaws.

Document: Philadelphia Stock Exchange, Inc., Nos. 613/65, 2007, Jacobs, J. (DE March 27, 2008)

The court affirmed the decision made by the Court of Chancery. There was an appeal from an Order and Final Judgment of the Court of Chancery approving a settlement of this shareholder class action, over the objections of certain members of the class. The court held that the Court of Chancery committed no legal error or abuse of discretion in approving the settlement.

Document: In re infoUSA, Inc., C.A. No. 1956-CC, Chandler, C. (Del. Ch. March 17, 2008)

The court granted the Special Litigation Committee (“SLC”) of the Board of Directors of defendant infoUSA’s motion to stay. The defendant formed the SLC in response to derivative litigation and an informal investigation by the Securities and Exchange Commission. After finding that the SLC had the authority it needed to conduct the investigation and consequently was properly formed, the court granted the motion to stay until June 30, 2008.

Document: Jana Master Fun, Ltd., v. CNET Networks, Inc., C.A. No. 3447-CC, Chandler, C. (Del. Ch. March 13, 2008)

JANA sought to replace the two current directors who were up for re-election, expand the size of the board from eight to thirteen, and nominate five individuals to fill the newly created positions. This action would result in a new majority of control of CNET’s board.  In response to JANA’s request of the stocklist materials in order to solicit shareholder proxies, CNET contended that JANA failed to state a proper purpose in accordance with the company’s bylaws.  Ultimately, the court held that the “Notice Bylaw” does not apply to JANA’s independently funded proxy solicitation and that it only applies to Rule 14a-8 proposals.

Hauspie v. Stonington Partners, Inc., C.A. No. 18524-NC, Berger, J. (Del. March 7, 2008)

The Court addressed whether a default judgment in excess of $750 million should be vacated. The trial court rejected Defendant’s arguments concerning defects in service of process, the alleged unenforceability of any judgment, and excusable neglect. This Court however, concluded that the original complaint failed to alleged fraud with particularity, as required by the Court of Chancery Rule 9(b). Ultimately, this Court vacated the default judgment and allowed the matter to proceed to trial.

Document: Weiss v. Swanson, C.A. No. 2828-VCL, Lamb, V.C. (Del. Ch. March 7, 2008)

The Court denied the Defendant’s motion to dismiss in this derivative action. The Court concluded that the complaint sufficiently pled a claim of breach of fiduciary duty against a majority of the company’s board of directors based on alleged issuance and receipt of options not authorized by the company’s plans.

Document: In re SS&C Technologies, C.A. No. 1525-VCL, Lamb, V.C. (Del. Ch. March 6, 2008)

The court addressed a motion to impose sanctions on the plaintiffs and their counsel. The defendants requested this motion in response to: a motion filed by the plaintiffs for leave to withdraw, but only giving notice to the putative class and their related resistance to a request that the discovery record pertaining to the plaintiffs be made part of the public record. The court held that the plaintiffs and their counsel acted in bad faith relating to their motion to withdraw. Accordingly, the plaintiffs are required to reimburse the defendants for their attorneys’ fees and other costs incurred relating to this aspect of the litigation.

Document: Reddy v. MBKS Company Limited, No. 300, 2007, Jacobs, J. (Del. March 3, 2008)

Reddy, the defendant below, appealed an order from the Court of Chancery granting summary judgment in favor of MBKS. The issue was whether the Court of Chancery correctly determined that actions taken by Reddy constituted a cancellation of shares of the MKBS companies. The lower court held that they did and this court affirmed the summary judgment motion. Because the charters of the MKBS companies were not amended to authorize the alteration of their capital structure, Reddy’s actions were legally ineffective because he did not comply with 8 Del. C. § 242.  This Court affirmed the lower courts holding.

Document: Postorivo v. Ag Paintball Holdings, Inc., C.A. No. 3111-VCP, Parsons, V.C. (Del. Ch. Feb. 29, 2008)

The Court granted the Defendant’s motion to dismiss, because the Plaintiff lacked standing to bring a derivative lawsuit because he was not a shareholder in the corporation. The deprivation of Plaintiff’s shares was due to a contractual forfeiture provision.

The Court denied Coral’s Motion to Enforce Final Judgment, which seeks to preclude Matria from submitting to arbitration before AAA certain claims arising out of Matria’s acquisition of CorSolutions. The Merger Agreement had stipulated that if a claim fell within the scope of arbitration before the Settlement Accountant and the scope of arbitration before the AAA, then the claim would be resolved by the Settlement Accountant. But the Court held that because Matria had been a victim of CorSolutions’ fraud and misrepresentation, relating to inflated revenues and earnings projections from overbilling of customers, the matter may be heard in front of the AAA.

Document: United Rentals, Inc. v. RAM Holdings, Inc., C.A. No. 3360-CC, Chandler, C. (Del. Ch. Dec. 21, 2007)

The Court denied the plaintiffs’ motion for summary judgment where it found that a merger agreement was ambiguous, and after a two day trial found that the plaintiffs’ failed to meet their burden to specifically enforce the merger agreement.  Applying the forthright negotiator principle, the Court found that the plaintiffs had not adequately informed the defendants of their understanding that the merger agreement included a right to specific performance.

Document: Alaska Elec. Pension Fund v. Brown, No. 85, 2007, Berger, J. (Del. Dec. 21, 2007)

The Supreme Court reversed and remanded the decision of the Court of Chancery, holding that where an out of state class action plaintiff gained an additional benefit after the settlement of Delaware litigation, it was the defendant’s burden to show that the existence of the foreign litigation did not contribute to the additional benefit with respect to the granting of legal fees to the foreign plaintiff’s attorney.

Document: The Territory of the U.S. Virgin Islands v. Goldman, Sachs & Co., C.A. No. 2505-VCS, Strine, V.C. (Del. Ch. Dec. 20, 2007)

The Court dismissed for failure to state a claim, a suit for liquidation distributions against a former stockholder in a corporation that was determined to have environmental liability after the corporation’s dissolution where the claims were not brought within three years of the dissolution of the corporation.

Document: Brown v. T-Ink, LLC, C.A. No. 3190-VCP, Parsons, V.C. (Del. Ch. Dec. 18, 2007)

The Court ruled on the substantive arbitrability of claims asserted pursuant to an arbitration clause in a limited liability company agreement, enjoining the arbitration of claims that were outside the scope of the arbitration clause, but permitting claims within the scope of the arbitration clause to go forward in arbitration.

Document: Fogel v. U.S. Energy Sys., Inc., C.A. No. 3271-CC, Chandler, C. (Del. Ch. Dec. 13, 2007)

The Court held that the termination of an officer and director by certain other members of the board of directors was not valid, where the termination was not effected by a formal action of the board of directors.

Document: Lehman Bros. Bank, FSB v. State Bank Comm’r, No. 656,2006, Jacobs, J. (Del. Nov. 7, 2007)

In reviewing a Superior Court appeal of a ruling of the Delaware State Bank Commissioner (“Commissioner”) with respect to state franchise tax owed by a federally charted bank with a branch in Delaware, the Supreme Court affirmed the lower courts ruling affirming the Commissioner’s decision to impose franchise tax based on income for banking activities outside of Delaware, notwithstanding that the Delaware branch was the bank’s only formally established retail office, but reversed the Superior Courts’ decision with respect to penalties, where it found that the Commissioner had abused discretion by not adequately explaining his refusal to abate penalties.

Documents: XO Commc’ns, LLC v. Level 3 Commc’ns, Inc., C.A. No. 2131-VCL, Lamb, V. C. (Del. Ch. Nov. 2, 2007)

The Court granted the plaintiffs motion for summary judgment as to claims requesting a declaration that, under New York law, where the plaintiff had previously purchased rights to use part of defendants fiber optic network to transmit information, and subsequently entered into a requirements contract for information transmission services with the defendant, the requirements contract was not breached by the plaintiffs’ continued use of the fiber optic network.