Delaware Transactional Law Updates

Document: CEF 2002 Aircraft, L.L.C. v. RC Leasing LLC, C.A. No. 2567-CC, (Del. Ch. Apr. 19, 2007)

The Court amended a preliminary injunction, allowing aircraft companies to operate their planes, where the defendants were not in danger of insolvency and such operation did not endanger the plaintiffs’ ability to recover the collateral from a leasing agreement in dispute.

Document: Abrams v. Sachnoff & Weaver Ltd., No. 564, 2006, Steele, J. (Del. Apr. 4, 2007)

The Court affirmed a Court of Chancery decision granting summary judgment to the defendant law firm, which served as counsel in a derivative action, as to claims for legal fees by the plaintiff’s husband who was a lawyer.

Document: Holman v. Northwest Broadcasting L.P., C.A. No. 1572-VCN, Noble, V.C. (Del. Ch. Mar. 29, 2007)

A limited partner sought the books and records of a limited partnership pursuant to 6 Del. C. § 17-305.  In a post-trial opinion, the Court granted the information request with regard to salary information for use in valuation of the limited partner’s partnership interest, but denied broader requests where the limited partner was already receiving audited financial statements, and had not shown credible evidence of mismanagement.

Documents: Troy Corp. v. Schoon, C.A. No. 1959-VCL, Lamb, V.C. (Del. Ch. Mar. 26, 2007)

The Court denied a motion to dismiss an action for improper venue, where the agreement contained a forum selection clause that required any dispute be resolved in federal court, which was unavailable due to lack of subject matter jurisdiction.

Document: In re Netsmart Tech., Inc. S’holders Litig., C.A. No. 2563-VCS, Strine, V.C. (Del. Ch. Mar. 14, 2007)

The Court granted a preliminary injunction enjoining the consummation of a merger until the dissemination of more complete disclosures to the stockholders, including projections relied upon by the special committee’s financial advisor in rendering its fairness opinion and a description of the board’s failure to seek strategic buyers in the sale of the company.  The Court also found a probability of success on the plaintiffs’ flawed process claim, but declined to enjoin the stockholders’ vote regarding the merger on this basis.

Documents: Highland Select Equity Fund, L.P. v. Motient Corp., C.A. No. 2092-VCL, Lamb, V.C. (Del. Ch. Mar. 14, 2007)

On remand from the Delaware Supreme Court, the Court clarified that an information request under 8 Del. C. § 220 did not have a proper purpose where the request was overbroad and the parties were preparing to wage a proxy contest.

Document: Openwave Sys. Inc. v. Harbinger Capital Partners Master Fund I, Ltd., C.A. No. 2690-N, Lamb, V.C. (Del. Ch. Mar. 5, 2007)

In an action contesting the election of directors pursuant to 8 Del. C. § 225, the Court denied a motion for summary judgment regarding the nomination of directors pursuant to the by-laws of a corporation in order to allow for a more complete record at trial upon which to balance the equities of the parties’ conduct.

Document: Matria Healthcare, Inc. v. Coral SR LLC, C.A. No. 2513-N, Noble, V.C. (Del. Ch. Mar. 1, 2007)

The Court ruled on motions to dismiss and to compel arbitration relating to a merger agreement, holding that the dispute must be arbitrated pursuant to the plain language of the agreement, and dismissing claims of fraud required to be arbitrated under the agreement.

Document: Valeant Pharm. Int’l v. Jerney, C.A. No. 19947, Lamb, V.C. (Del. Ch.  Mar. 1, 2007)

The Court held, in a post-trial opinion, that bonuses paid to directors and executives relating to the IPO of a core business of a corporation were not entirely fair, and the director defendant had breached his fiduciary duty of loyalty by approving such bonuses.

Document: Ryan v. Gifford, C.A. No. 2213-N, Chandler, C. (Del. Ch.  Feb. 6, 2007)

The Court ruled on motions to stay and to dismiss derivative claims of breach of fiduciary duties and disclosure duties based on alleged stock option backdating.  The Court refused to stay, and denied the motion to dismiss, except for claims that arose before the stockholder purchased his stock.

Document: In re Tyson Foods, Inc. Cons. S’holder Litig., Cons. C.A. No. 1106-N, Chandler, C. (Del. Ch.  Feb. 6, 2007)

The Court ruled on a motion to dismiss plaintiffs’ derivative claims for breach of the duty of loyalty (including the alleged issuance of “spring loaded” stock options), breach of the duty of disclosure, and breach of a settlement contract.  The Court refused to dismiss claims relating to stock options and other compensation, but dismissed certain other claims, based on, inter alia, statute of limitations grounds, and the plaintiffs’ failure to state a claim or to allege lack of independence of the compensation committee.

Document: AT&T Corp. v. Faraday Capital Ltd., No. 236, 2006, Berger, J. (Del.  Feb. 5, 2007)

The plaintiff appealed the Superior Court’s grant of summary judgment to insurers, holding that each prior lawsuit constituted a “Claim” under a directors and officers insurance policy.  The Delaware Supreme Court reversed, holding that each cause of action in each of the suits was a separate “Claim” under the policy.

Document: Multi-Fineline Electronix, Inc. v. WBL Corp. Ltd., C.A. No. 2482-N, Lamb, V.C. (Del. Ch.  Feb. 2, 2007)

The Court dismissed for lack of personal jurisdiction and on the grounds of mootness, claims against a controlling stockholder for breach of fiduciary duties, where the only connection the stockholder had with Delaware was that it agreed to a lock-up agreement with a Delaware choice of law clause, the dispute did not “reasonably pertain” to the agreement, and the agreement expired during the pendency of the litigation.

Documents: Creative Research Manuf. v. Advanced Bio-Delivery LLC, C.A. No. 1211-N, Parsons, V.C. (Del. Ch.  Jan. 30, 2007)

The Court rescinded a contract granting rights to intellectual property to the defendants and enjoined the defendants from seeking to enforce intellectual property rights, where the defendants had refused to perform under the contract.  Attorneys’ fees were also awarded to the plaintiff for the defendants’ bad faith actions in the litigation

Document: Express Scripts, Inc. v. Crawford, C.A. No. 2663-N, Chandler, C. (Del. Ch.  Jan. 25, 2007)

The Court denied the plaintiffs’ motion to disqualify the defendants’ attorneys due to a conflict of interest relating to a previous representation of the plaintiffs in a merger, where the plaintiffs “deliberately hesitated” in bringing the motion just before trial.

Document: Fitzgerald v. Vishay Intertechnology Inc., C.A. No.363, 2006 , Ridgely, J. (Del. Jan. 24, 2007)

The Supreme Court dismissed an appeal of a class action member who sought to reverse the Court of Chancery’s injunction against the prosecution of an action in California, where the class action member was not a named party to the action in the lower court.

Document: Sample v. Morgan, C.A. No. 1214-N, Strine, V.C. (Del. Ch.  Jan 23, 2007)

The Court denied a “frivolous” motion to dismiss claims that directors breached their duty to disclose material facts where the materials sent to the stockholders in connection with the vote on employee stock grants, which were equivalent to one-third of the company’s voting power, did not disclose the fact that all of the stock grants were to the CEO and two directors.

Document: FGC Holdings Ltd. v. Teltronics, C.A. No. 883-N, Parsons, V.C. (Del. Ch.  Jan. 22, 2007)

The plaintiffs moved to recover attorneys’ fees in an action to force a company to register a stock transfer and declare that a director had been validly elected, under the bad faith exception to the American Rule regarding fees, and under the indemnification section of the Delaware General Corporation Law.  The Court held that the company’s bad faith in the litigation justified an award of attorneys’ fees, but that a nominated director had no right to indemnification before his election.

Documents: Fonds de Régulation et de Contrôle Café Cacao v. Lion Capital Management LLC, C.A. No. 1509-N, Chandler, C. (Del. Ch.  Jan. 22, 2007)

In a post-trial opinion, the Court held that disputed shares in a corporation were validly issued and that directors were elected by the stockholders of record.  The Court also denied counter-claims for unjust enrichment for failure to show damages.

Document: Cypress Assoc. LLC v. Sunnyside Cogeneration Assoc. Project, C.A. No. 1607-N, Strine, V.C. (Del. Ch. Jan. 17, 2007)

The Court denied cross-motions for judgment on the pleadings where ambiguity in the waterfall provision of an indenture agreement required the Court to consider parol evidence.  The Court granted the defendant leave to amend its answer to add facts to a conclusory allegation that plaintiff had unreasonably withheld its consent to the amendment of a contract with a customer, where it was contractually required not to do so.