Delaware Docket

Timely, brief summaries of cases handed down by the Delaware Court of Chancery and the Delaware Supreme Court.

 

Delaware Supreme Court calculates Aruba’s fair value in an appraisal using deal price minus synergies, reversing lower court’s 30-day stock price calculation

By: Jessica Pearlman, Marina Mehrtens and Joseph Phelps

In Verition Partners Master Fund Ltd. and Verition Multi-Strategy Master Fund Ltd. v. Aruba Networks, Inc., C.A. No. 11448-VCL (Del. Ch. Apr. 16, 2019), the Delaware Supreme Court unanimously held that the Court of Chancery abused its discretion when it calculated the fair value per share of the common stock of Aruba Networks, Inc. (“Aruba”) in an appraisal proceeding. The Court of Chancery assessed Aruba’s per share value at $17.13 by using the 30-day average market price at which Aruba’s shares publicly traded before Aruba’s merger negotiation with Hewlett Packard Company (“HP”) became public. The Delaware Supreme Court found this improper and affirmed its practice of viewing merger consideration as evidence of fair value, calculating Aruba’s fair value per share as $19.10 (the deal price minus the portion of synergies left with the seller).

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COURT OF CHANCERY FIND PROVISIONS OF MERGER AGREEMENT AMBIGUOUS AND DENIES TELECOMMUNICATIONS GIANT’S MOTION TO DISMISS

By: Scott E. Waxman and Rachel Cheasty Sanders

In Charles F. Dolan v. Altice USA, Inc. et al., Case No. 2018-0651-JRS (Del. Ch. June 27, 2019), the Delaware Court of Chancery address Defendants’ 12(b)(6) motion to dismiss filed in response to the Plaintiff’s complaint containing the following six causes of action: (i) breach of contract, (ii) breach of implied covenant of good faith and fair dealing, (iii) equitable fraud, (iv) promissory estoppel, (v) negligent misrepresentation, and (vi) declaratory relief. Defendants include telecommunications and media companies Altice USA, Inc. and Altice Europe N.V. (collectively, “Altice”). Additionally, Plaintiffs named as nominal defendants Cablevision Systems Corporation (“Cablevision”) and News 12 Networks, LLC (“News12”). Plaintiffs include members of the Dolan family, the controlling shareholders of Cablevision and News12 prior to the sale of those companies to Altice. The Court denied Defendants’ motion to dismiss on the Dolan family’s claims for breach of contract, promissory estoppel, and declaratory relief and granted the motion pertaining to the claims for breach of implied covenant of good faith and fair dealing, equitable fraud, and negligent misrepresentation. (1)

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Delaware Court of Chancery Allows Stockholder’s Derivative Claim to Proceed Against Alleged Controlling Stockholder Under Entire Fairness Standard of Review

By Scott E. Waxman and Frank Mazzucco

In Reith v. Lichtenstein et al., C.A. No. 2018-0277-MTZ (Del. Ch. Jun. 28, 2019), the Delaware Court of Chancery, in considering a motion to dismiss, allowed a stockholder’s derivative complaint to proceed against a minority stockholder under the entire fairness standard of review, because the complaint had sufficiently alleged that such minority stockholder, by exercising “actual control” as part of transactions being challenged, was effectively a controlling shareholder and thus owed fiduciary duties.

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LIMITED PARTNERSHIP IS DISSOLVED BECAUSE IT CANNOT FULFILL ITS PURPOSE

By Scott E. Waxman and Annamarie C. Larson

In GMF ELCM Fund L.P. et al v. ELCM HCRE GP LLC et al, C.A. No. 2018-0840-SG (Del. Ch. August 7, 2019), the Delaware Court of Chancery granted a petition for dissolution of a Delaware limited partnership, ELCM Healthcare Real Estate Fund LP (the “Fund”), because the principal of the general partner, Andrew White, was unwilling or unable to conduct the business of the Fund to fulfill the purpose set forth in its limited partnership agreement.

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Delaware Court of Chancery Applies Entire Fairness Review in Finding That Controlling Stockholders and Special Committee Members Breached Fiduciary Duties to Target Stockholders

By Lisa Stark and Frank Mazzucco

In FrontFour Capital Group LLC v. Taube, C.A. No. 2019-0100-KSJM (Del. Ch. Mar. 11, 2019), the Delaware Court of Chancery found that, due to their conduct in connection with two mergers of affiliated entities, controlling stockholders and special committee members breached their fiduciary duties to target stockholders under the entire fairness standard of review and failed to provide certain material disclosures to stockholders.

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An arbitrator, and not the courts, should decide the question of substantive arbitrability if “the parties’ contract provides ‘clear and unmistakable evidence’ of their intent that an arbitrator should decide the question”

By: Scott E. Waxman and Calvin D. Kennedy

In The Innovation Institute, LLC v. St. Joseph Health Source, Inc., et al., C.A. No. 2019-0156-JRS, the Court of Chancery decided to stay an action, pending the decision of an arbitrator on whether the underlying claims of the action are subject to mandatory arbitration, due to the parties agreeing to mandatory arbitration in the controlling LLC agreement. The action was brought by Innovation Institute, LLC (“Innovation”) against St. Joseph Health System, Inc. (“Health System”) and St. Joseph Health Source, Inc. (“Health Source”), a wholly owned subsidiary of Health System, seeking specific performance of Health Source’s obligation to contribute funding to Innovation in accordance with Innovation’s LLC agreement. 

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In a Reckless Re-price, Results are not Realized

By David L. Forney and Tom Sperber

In Howland v. Kumar, C.A. no. 2018-0804-KSJM, the Delaware Chancery Court issued a Memorandum Opinion under Chancery Rule 12(b)(6) denying a motion to dismiss claims of breach of fiduciary duty and unjust enrichment on the basis that the defendants repriced stock options that they held immediately prior to making a public announcement that was sure to increase the stock price.  The Court also ruled under Chancery Rule 23.1 that the plaintiff adequately plead demand excusal. Thomas S. Howland, Jr. (“Plaintiff”), a stockholder of Anixa Biosciences, Inc. (“Anixa”), brought two derivative claims against Anixa and its directors and officers. The Anixa board of directors consisted of Chairman, President, and CEO Amit Kumar (“Kumar”), Lewis H. Titterton, Jr. (“Titterton”), Arnold M. Baskies (“Baskies”), John Monahan (“Monahan”), and David Cavalier (“Cavalier”). The officers included Kumar, John A. Roop (“Roop”), Michael J. Catelani (“Catelani”) and Anthony Campisi (“Campisi”, collectively, “Individual Defendants,” and, collectively with Anixa, “Defendants”).

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DELAWARE COURT OF CHANCERY USES COMPANY’S UNAFFECTED MARKET PRICE TO DETERMINE FAIR VALUE IN APPRAISAL ACTION

By Josh Gaul and Frank Mazzucco

In In Re: Appraisal of Jarden Corporation, C.A. No. 12456-VCS (Del. Ch. Jul. 19, 2019), the Delaware Court of Chancery (the “Court”) determined in a statutory appraisal action that, in connection with a merger, the fair value of Jarden Corporation was best represented by the unaffected market price of the company’s shares.

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PLAINTIFF ALLEGED FACTS SUFFICIENT TO SUPPORT CLAIMS AGAINST DEFENDANTS TO SURVIVE A MOTION TO DISMISS

By Annette E. Becker and Annamarie C. Larson

In Chester County Employees’ Retirement Fund v. KCG Holdings, Inc. et al, C.A. No. 2017-0421-KSJM (Del. Ch. June 21, 2019), the Delaware Court of Chancery denied the defendants’ motion to dismiss claims of breach of fiduciary duty, aiding and abetting, and civil conspiracy brought against the largest stockholder of KCG Holdings, Inc. (“KCG”), its directors, and its long time financial advisor for failure to maximize value for KCG stockholders when negotiating the merger transaction due to certain actions taken by influencers during the sale process.  The Court held that the plaintiff stockholders adequately pled their claims against the defendants to avoid dismissal of claims. 

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Russian Interference and Data Privacy: Facebook Stockholders Demand Section 220 Inspection to Investigate Wrongdoing of Board and Senior Management

By: Scott Waxman and Adrienne Wimberly

In In re Facebook, Inc., C.A. No. 2018-0661-JRS (Del Ch. May 30, 2019), the Delaware Court of Chancery granted a Section 220 demand for inspection of Facebook’s books and records, (the “Demand”) for the purpose of investigating potential wrongdoing on the part of the company’s Board of Directors (the “Board”). The consolidated action comes on the heels of news that the data of over 50 million Facebook users were poached by British political consulting firm, Cambridge Analytica and used to influence the 2016 Presidential Election. In April 2018, Plaintiff, Construction and General Building Laborers’ Local No. 79 General Fund (“Local No. 79”), a Facebook stockholder since 2015, served its initial Section 220 Demand. After receiving about 1,700 pages of significantly redacted books and records, Local No. 79 filed the present action to compel production which was consolidated with two similar Section 220 demands. After holding a paper record trial in March 2019, the Court ruled in favor of the Plaintiffs with some limitations on the scope of the demand.

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MANAGERS NOT PROPERLY REMOVED FROM LLC DESPITE SOLE MEMBER’S INTENT

By: Scott Waxman and Zack Sager

In Llamas v. Titus, the Court of Chancery held that, despite the intent of an LLC’s sole member, certain managers of the LLC were not removed as such because the sole member did not expressly remove them.  In its analysis, the Court applied corporate law principles by analogy because the LLC adopted a corporate-like structure.

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COURT OF CHANCERY FINDS NO SECTION 220 ISSUE WHERE STOCKHOLDER’S AND ITS COUNSELS’ PURPOSES FOR DEMAND ALIGN

By: Megan A. Wotherspoon and Rachel Cheasty Sanders

In Inter-Local Pension Fund GCC/IBT v. Calgon Carbon Corp., C.A. No. 2017-0910-MTZ (Del. Ch. Jan. 25, 2019), the Delaware Court of Chancery enforced an institutional stockholder’s demand for books and records under Title 8, Section 220 of the Delaware General Corporation Law (“Section 220”). The Court found that the stockholder’s affidavit affirming the demand in substantially final form, although not in exact final form, did not violate Section 220’s “under oath” requirements where the only change between the versions was the addition of a signature and the date. The Court also found that the stockholder’s demand was not lawyer-driven under Wilkinson v. A. Schulman, Inc., C.A. No. 2017-0138-VCL (Del. Ch. Nov. 13, 2017), where the stockholder’s goals of the demand and the purposes stated in the lawyer-drafted demand were not fundamentally misaligned, even where the stockholder’s representative could not articulate all the legal nuances of such purposes in deposition testimony.

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