Delaware Transactional Law Updates

Document: Highfields Capital, Ltd. v. AXA Financial, Inc., C.A. No. 804-VCL, Lamb, V.C. (Del. Ch. Aug. 17, 2007)

In an appraisal action pursuant to 8 Del. C. § 262, the Court found that the fair value of the petitioner’s stock in an insurance company was $24.97 per share, where the merger price of $31 per share was a good indicator of the target’s fair value plus synergies accomplished by the merger.

Document: In Re Tyson Foods, Inc. Consol. S’holders Litig., Consol. C.A. No. 1106-CC, Chandler, C. (Del. Ch. Aug. 15, 2007)

The Court, on a motion for judgment on the pleadings by the corporation’s outside directors, refused to dismiss fiduciary duty claims related to “spring-loaded” stock options based solely on the board’s technical compliance with the stock option plan.  The Court held that where it “may reasonably infer” that directors who did not disclose that options were timed before positive press releases, may not have acted in a manner consistent with their duty of candor.

Document: Mercier v. Inter-Tel (Delaware), Inc., C.A. No. 2226-VCS, Strine, V.C. (Del. Ch. Aug. 14, 2007)

The Court denied a motion for a preliminary injunction holding the plaintiff did not have a reasonable probability of success on the merits where the board delayed a stockholder vote on a merger because the stockholders were going to reject the merger.  There was no showing that the directors were conflicted and additional information disclosed during the delay caused stockholders to approve the merger.

Document: CBOT Holdings, Inc. v. Chicago Board Options Exch. Inc., C.A. No. 2369-VCN, Noble, V.C. (Del. Ch. Aug. 3, 2007)

The Court stayed an action as to claims relating to contractual rights and fiduciary duties regarding the demutualization of an options exchange pending an SEC review of the company’s filing.

Document: Feldman v. Cutaia, C.A. No. 1656-VCL, Lamb, V.C. (Del. Ch. Aug. 1, 2007)

The Court granted the defendants’ motion to dismiss a derivative complaint where the class’ standing was extinguished by a merger, and dilution claims were likewise dismissed where no controlling stockholder was alleged.

Document: Law Debenture Trust Co. of New York v. Petrohawk Energy Corp., C.A. No. 2422-VCS, Strine, V.C. (Del. Ch. Aug. 1, 2007)

The Court granted summary judgment to the defendant corporation relating to claims by holders of notes issued by the corporation that change of control rights pursuant to the indenture under which the notes were issued were triggered by a merger, where the pre-merger majority stockholder held a slim majority after the merger, and where pre-merger director approval of the post-merger board was given.

Document: Thompson v. The Williams Companies, Inc., C.A. No. 2716-VCS, Strine, V.C., (Del. Ch. July 31, 2007)

After trial, the Court dismissed an employee’s claims for advancement where the corporation’s by-laws permitted advancement upon the terms and conditions that the board deemed appropriate and the board of the corporation conditioned the advancement of legal fees upon receiving (i) a written representation from the employee that he qualified for indemnification, and (ii) a security interest in the full amount of the advanced funds.

Document: Friendly Ghost Enter., LLC v. McWilliams, C.A. No. 2935-VCN, Noble, V.C. (Del. Ch. July 27, 2007)

The Court, on a motion for reargument, stayed an action in the Court of Chancery pending the outcome of arbitration in New York, where recent precedent by the Delaware Supreme Court implied a more narrow interpretation of the Parfi Holding AB v. Mirror Image Internet, Inc. case than the Court had originally applied.

Document: Ropp v. King, C.A. No. 2536-VCN, Noble, V.C. (Del. Ch. July 25, 2007)

The Court granted a motion to dismiss an appeal from an order issued by the Delaware State Department of Justice, Division of Securities, which found that the defendants did not violate Delaware securities laws, holding that the Commissioner did not have standing to appeal an order issued in his own name.

Document: NAMA Holdings, LLC v. World Mkt. Center Venture, LLC, C.A. No. 2756-VCL, Lamb, V.C., (Del. Ch. July 20, 2007)

Ruling on a books and records request under Nevada law, the Court permitted the managing member of the defendant LLC to limit the inspection of documents to non-confidential documents, but required the company to allow the requesting member’s agent to review the documents.

Document: Lillis v. AT&T Corp., C.A. No. 717-VCL, Lamb, V.C. (Del. Ch. July 20, 2007)

The Court awarded option holders the value of stock options based on the Black-Scholes method, where the corporation, by way of a merger, cancelled options that had strike prices below the price of the underlying stock because such options were controlled by agreements that contained anti-destruction clauses.

Document: Cobalt Operating, LLC v. James Crystal Enter., LLC., C.A. No. 714-VCS,  Strine, V.C., (Del. Ch. July 20, 2007)

The Court awarded the plaintiff, the purchaser of a radio station, the difference between the actual value of the radio station and the sale price, where the Court found that the station had fraudulently increased its sales figures by invoicing for advertisements that it did not play on the airwaves.

Document: Brandin v. Deason, C.A. No. 2123-VCL, Lamb, V.C. (Del. Ch. July 20, 2007)

The Court denied a motion to stay a derivative action relating to stock option backdating in favor of a later-filed parallel proceeding in a Texas federal district court, where unsettled aspects of Delaware law were at issue and the parties had already begun to prosecute the case in Delaware.

Document: Fairthorne Maint. Corp. v. Ramunno, C.A. No. 2124-VCS, Strine, V.C. (Del. Ch. July 20, 2007)

The Court granted a motion for judgment on the pleadings to the plaintiff, a non-stock development corporation, as to certain claims relating to its property rights and as to counter-claims based on quorum requirements for the non-stock corporation’s election of directors and books and records requests, and awarded attorneys’ fees where it found that the defendants’ counterclaims were frivolous.

Document: In re: TD Banknorth S’holders Litig., C.A. No. 2557-VCL, Lamb, V.C. (Del. Ch. July 19, 2007)

The Court disapproved of a proposed class action settlement where it found that the plaintiffs were unreasonable in their decision not to prosecute claims of violations of a stockholders’ agreement, and that the settlement notice and consideration were inadequate.

Document: Gradient OC Master, Ltd. v. NBC Universal, Inc., C.A. No. 3021-VCP, Parsons, V.C. (Del. Ch. July 12, 2007)

The Court denied a motion by preferred stockholders to enjoin an exchange offer where the plaintiffs failed to show a reasonable likelihood of success on the merits that the offer was actionably coercive or that disclosure violations existed, and where there was no showing of irreparable harm because money damages were available.

Document:  Rhodes v. SilkRoad Equity, LLC, C.A. No. 2133-VCN, Noble, V.C. (Del. Ch. July 11, 2007)

The Court denied a Rule 12(b)(6) motion to dismiss claims made by former stockholders that controlling stockholders had improperly spent corporate assets since, although such claims are usually derivative in nature, the harm fell disproportionately on the former stockholders because such expenditures could be seen as an attempt to remove the former stockholders at a reduced price.  The Court, however, dismissed claims based on allegations of unfair trade practices, slander, and breach of contract.

In Re: RNI Wind Down Corp., Case No. 06-10110(CSS), Sontchi, U.S.B.J. (Bankr. D. Del. July 9, 2007)
The Court overruled objections by the Plan Administrator that indemnification and advancement of attorneys’ fees to a former officer in connection with government civil and criminal investigation into the officer’s actions in connection with the debtor, should be disallowed under 502(e)(1)(B) of the Bankruptcy Code, holding that the claims for indemnification and advancement were not contingent, and the officer was not co-liable for such claims. The Court also refused to estimate the officer’s claim where the Plan Administrator had not shown it would cause undue delay to the administration of the bankruptcy.

Document: Robotti & Co., LLC v. Gulfport Energy Corp., C.A. No. 1811-VCN, Noble, V.C. (Del. Ch. July 3, 2007)

Ruling on a books and records request, the Court permitted a stockholder to review corporate board minutes relating to a stock offering where the petitioner had shown a proper purpose to investigate mismanagement, but denied other information requests where no proper purpose was shown.

Document: AT&T Corp. v. Clarendon Am. Ins. Co., No. 567, 2006, Jacobs, J. (Del. July 2, 2007)

The Delaware Supreme Court reversed the decision of the Superior Court dismissing, for failure to state a claim, an action to recover settlement amounts and attorneys’ fees the plaintiff claimed it was owed under certain directors and officers insurance policies issued by the defendants (the “Policies”). The Court held that, under California law, the directors suffered a “loss” as defined in the Policies, although the stockholder plaintiff who had nominated the directors covered under the Polices, had paid the settlement amounts and attorneys’ fees owed by such directors, and that the complaint stated a claim for equitable subrogation, finding the plaintiff stockholder was not a “volunteer” under California law where the stockholder had an interest in protecting its employees whom it had appointed as directors of the corporation.