Delaware Transactional Law Updates

Document: Seidensticker v. The Gasparilla Inn, Inc., C.A. No. 2555-CC, Chandler, C. (Del. Ch. June 19, 2007)

The Court granted a stockholder plaintiff’s motion for partial summary judgment requesting a declaration that the stockholder owned his shares free of restrictions in a stock purchase agreement that provided the defendants a right of first refusal on the shares, where the defendants had failed to comply with the stock purchase agreement with respect the exercise of their contractual rights.

Document: In re: Lear Corporation S’holders Litig., C.A. No. 2728-VCS, Strine, V.C. (Del. Ch. June 15, 2007)

The Court refused to issue a preliminary injunction based on claims that directors breached their duty to achieve the best sale price for the corporation, where the merger agreement had an effective post-signing check.  However, the Court issued a preliminary injunction based on the failure to disclose to stockholders the CEO’s potential conflict of interest, where the CEO had performed a leading role in the merger negotiations.

Document: In re: The Topps Company S’holders Litig., C.A. No. 2786-VCS, Strine, V.C. (Del. Ch. May 9, 2007)

The Court denied a motion to dismiss or stay the Delaware branch of class action litigation where courts of another state had refused to stay the foreign litigation, when the only reason was that the plaintiff in that jurisdiction had reached that the court before the Delaware action had been filed.

In re: World Health Alternatives, Inc., Case No. 06-10166(PJW) Gross, U.S.B.J. (Bankr. D. Del. June 8, 2007)

The Court denied a motion for preliminary injunction, where the bankruptcy trustee failed to show a reasonable probability of success on the merits that proceeds from a directors and officers insurance policy were part of the bankruptcy estate and, although paying the directors and officers reduced the coverage amount available to the company, the company had no right to the proceeds being paid to settle claims against the directors and officers.

Document: Kaufman v. Kumar, C.A. No. 2418-VCL, Lamb, V.C. (Del. Ch. June 8, 2007)

The Court exercised its discretion to dismiss a derivative action based on the principles of comity, where the claims were a subset of a prior action filed in the federal courts located in the state of New York.

Documents: Desimone v. Barrows, C.A. No. 2210-VCS, Strine, V.C. (Del. Ch. June 7, 2007)

The Court dismissed a derivative action regarding the backdating of stock options where (i) the plaintiff lacked standing to complain about options granted before they were a stockholder; (ii) the plaintiff failed to adequately plead demand futility and the directors did not face personal liability for the wrongs alleged as the options were granted to employees and officers and it was not alleged that the board knew of the backdating; and (iii) the plaintiff failed to state claim as to stock options granted every year at the annual meeting pursuant to a stockholder approved compensation plan.

Document: Matulich v. Aegis Comm’ns Group, Inc.  C.A. No. 2601-CC, Chandler, C. (Del. Ch. May 31, 2007)

The Court dismissed for failure to state a claim, an action to invalidate a short form merger effected pursuant to 8 Del. C. § 253.  The plaintiff claimed that the stockholder held less than 90% of the shares entitled to vote on the merger given the corporation had issued a series of preferred stock that had the right to “consent to” a merger but where such series explicitly had no voting rights.  The Court held that such preferred stock was not included in the shares entitled to vote upon the merger for the purpose of the 90% requirement 8 Del. C. § 253.

Document: Beal Bank, S.S.B. v. WestPoint Int’l, Inc., C.A. No. 2617-CC, Chandler, C. (Del. Ch. May 30, 2007)

The Court denied motions to dismiss for failure to state a claim where the lienholders of a bankrupt corporation alleged breaches of fiduciary duties by the directors, and where the court determined that further development of the record was needed as to what rights were granted to lienholders by the Bankruptcy sale order.

Document: Xpress Mgmt., Inc. v. Hot Wings Int’l, Inc., C.A. No. 2856-VCL, Lamb, V.C. (Del. Ch. May 30, 2007)

The Court granted a motion to stay a judicial proceeding to dissolve a joint venture company, until the completion of pending litigation in Canada over the intellectual property held by the company, and its main asset, where, (i) the Canadian action was filed first; (ii) the agreement governing the intellectual property was governed under Canadian law; (iii) and where the Canadian government had an interest in resolving the intellectual property interests locally.

Document: In the Matter of Transamerica Airlines, Inc., C.A. No. 1039-VCP, Parsons, V.C. (Del. Ch. May 25, 2007)

The Court, pursuant to the uniform foreign money judgment recognition act, recognized and enforced a judgment issued by the courts of Nigeria in 1999 on a Delaware corporation where (i) the defendant had participated in the litigation and therefore had notice of such litigation, (ii) failures of communication were due to the defendants’ dissolution of a subsidiary that was involved with the Nigerian litigation, and (iii) the delay in the enforcement of the judgment was partially due to the defendants’ statements regarding such dissolution.

Documents: Openwave Sys. Inc. v. Harbinger Capital Partners Master Fund I, Ltd., C.A. No. 2690-VCL, Lamb, V.C. (Del. Ch. May 18, 2007)

The Court, in a post trial opinion, upheld the validity of advance notice by-laws against a challenge by a stockholder that did not comply with such by-laws.

Documents: North American Catholic Educational Programming v. Gheewalla, C.A. No. 521, 2006, Holland, J. (Del. May 18, 2007)

The Delaware Supreme Court, affirming the Court of Chancery, dismissed a fiduciary duty claim by creditors of a Delaware corporation that was approaching insolvency, and held that creditors of the corporation could not bring direct claims against directors for breaches of fiduciary duties.

Document: Levy v. HLI Operating Co., C.A. No. 1395-VCL, Lamb, V.C. (Del. Ch. May 16, 2007)

The Court granted partial summary judgment to the defendant corporation in a suit where former directors were seeking indemnification and fees under 8 Del. C. § 145, where the action was more properly characterized as a suit for contribution by the stockholder who nominated the directors and had previously indemnified them.  The Court also required the return of the fees advanced to the directors by the company thus far in the indemnification litigation.

Documents: Metcap Securities LLC v. Pearl Senior Care, Inc., C.A. No. 2129-VCN, Noble, V.C. (Del. Ch. May 16, 2007)

The plaintiffs were a special purpose entity (the “SPE”) and an investment banking firm that had offered the SPE and its affiliates advice regarding a merger.  The plaintiffs sought reformation of an amendment to the merger agreement, under which the SPE was removed as a party, to restore third party rights they held in earlier revisions of the amendment but which were not included in the executed amendment.  The Court dismissed the petition for failure to state a claim, except with respect to claims of mutual mistake, where further factual developments were needed as to whether knowledge of the attorney who negotiated the amendment would be imputed to the SPE because of conflicts of interest between the SPE and its affiliates; and the motion to dismiss was denied as to a claim of unjust enrichment for work the investment banker performed on the deal after the amendment of the merger agreement.

Document: Pershing Square L.P. v. Ceridian Corp., C.A. No. 2780-CC, Chandler, C. (Del. Ch. May 11, 2007)

The Court denied a request for books and records pursuant to 8 Del. C. § 220, holding the petitioner did not have a proper purpose when the petitioner’s purpose was to broadcast improperly obtained confidential communications between the officers of the corporation and its directors.

Document: In re: The Topps Co. S’holders Litig., C.A. No. 2786-VCS, Strine, V.C. (Del. Ch. June 14, 2007)

The Court issued a preliminary injunction to correct disclosure violations where the proxy statement did not discuss unfavorable valuation calculations, and disparaged the offer of a second bidder who was restricted from responding by a standstill agreement with the company.  The Court enjoined the corporation from entering into the merger until it released the second bidder from covenants in the standstill agreement that prevented such bidder from responding to the proxy statement.  The Court, however, refused to enjoin the merger based on the directors’ alleged breached of the fiduciary duty to achieve the highest sale price for the corporation, where an earlier auction had failed and the corporation did not have a poison pill in place, and the directors secured a 40 day go-shop provision in the merger agreement.

Document: In re: Appraisal of Transkaryotic Therapies, Inc., C.A. No. 1554-CC, Chandler, C. (Del. Ch. May 2, 2007)

The Court, in an appraisal action, denied the respondent’s motion for partial summary judgment holding that beneficial stockholders who purchased stock from stockholders who had perfected appraisal rights between the record date and the merger were not required to show the shares they purchased were voted against the merger.

Document: LaPoint v. AmerisourceBergen Corp., C.A. No. 327-CC, Chandler, C. (Del. Ch. May 1, 2007)

The Court granted defendant’s motion for partial summary judgment on matters of contract interpretation, and refused to reform language requiring notice after “no less than twenty” days to mean that notice must be provided within twenty days. Further, the Court dismissed factually unsupported claims that a corporation was not operated as a separate entity due to a reorganization but denied summary judgment on all other matters.

Document: MBKS Company Ltd. v. Reddy, C.A. No. 1853-VCL, Lamb, V.C. (Del. Ch. Apr. 30, 2007)

The Court granted plaintiff stockholders’ motion for partial summary judgment on claims that their stock was not cancelled and that the director did not validly issue stock to himself; where the cancellation was not effected by an amendment to the certificate of incorporation of the company, and the stock was issued without consideration.

Documents: NAMA Holdings, LLC v. Related World Market Center, LLC, C.A. No. 2755-VCL, Lamb, V.C. (Del. Ch. Apr. 27, 2007)

The Court denied a motion to stay or dismiss claims of a third party beneficiary to a  limited liability company agreement pursuant to arbitration clauses found in the  limited liability company agreement and the operating agreement of an affiliated entity where the arbitration clauses did not contemplate compelling the third party beneficiary to arbitrate.