Delaware Docket

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

 

Directors Trigger Entire Fairness Review by Approving Merger to Extinguish Potential Liability for Derivative Claims

By  Lisa Stark and Claire White

In In Re Riverstone National, Inc. Stockholder Litigation, C.A. No. 9796-VCG (July 28, 2016), the Delaware Court of Chancery held that  a board’s approval of a merger agreement containing a release of claims against the directors and entered into while a potential derivative suit for usurpation of corporate opportunity was threatened against such directors warranted entire fairness review.

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In an Appraisal Action, Chancery Court Uses Its “Significant Discretion” to Determine that Stock Sold Was Undervalued by Approximately 7%

By Christopher Tillson and B. Ashby Hardesty, Jr.

On July 8, 2016, Chancellor Bouchard issued a memorandum opinion in In re Appraisal of DFC Global Corp., C.A. No. 10107-CB (Del. Ch. July 8, 2016), finding that shares held by former stockholders of DFC Global Corporation (“DFC”) sold to Lone Star Fund VIII (U.S.), L.P. (“Lone Star”), a private equity buyer, for $9.50 per share were undervalued. Chancellor Bouchard determined this through an examination of multiple valuation methods — comparable company and transaction analyses, discounted cash flow analyses, and the transaction price — and ultimately concluded that an equal blend of the three was the most reliable determinate of the shares’ fair value. In doing so, Chancellor Bouchard calculated that the fair market value of the DFC shares was $10.21 per share.

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Chancery Court Dismisses Only Certain Counterclaims Against Baseball’s Derek Jeter

By: Merrick Hatcher and Joshua Haft

In a mixed ruling, the Chancery Court denied, in part, baseball legend Derek Jeter’s motion to dismiss claims that he breached his fiduciary duty as a director of undergarment manufacturer RevolutionWear, that he violated the implied covenant of good faith and fair dealing, and that he fraudulently induced a contract with RevolutionWear and fraudulently concealed restrictions in his endorsement contract with Nike that precluded Jeter from fulfilling his promise to allow RevolutionWear to announce his role as a founder, substantial owner, and director.

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Advance the Rupees, Please: Sutherland Global Holdings Must Advance Former-Director’s Legal Fees Related to Failed Land Deal in India

By: Joanna Diakos Kordalis and Jonathan Miner

In Narayanan v. Sutherland Global Holdings C.A. No. 11757-VCMR (Del. Ch. July 5, 2016), Vice Chancellor Montgomery-Reeves of the Delaware Chancery Court held, in a post-trial opinion, that the bylaws of Sutherland Global Holdings, Inc. (“Sutherland”) and an indemnification agreement between Sutherland and Plaintiff Muthu Narayanan (“Plaintiff”) are disjunctive and must be read separately, allowing Plaintiff to prevail on his claim for advancement of legal fees and expenses.

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Chancery Court Enjoins Incumbent Board Members’ Plan to Reduce Number of Board Seats Prior to Contested Election at Annual Meeting

By Remsen Kinne and David Noll

In Pell v. Kill, et al, C.A. No. 12251-VCL (Del. Ch. May, 19, 2016), Vice Chancellor Laster preliminarily enjoined incumbent members of a board of directors from implementing a plan to reduce the number of board seats prior to a directors’ election at an annual meeting after a proxy challenge had been made.

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Chancery Court Enforces Good Faith Standard of Care in Limited Partnership Agreement

By Eric Feldman and Priya Chadha

In Brinckerhoff v. Enbridge Energy Co., Inc., et al., C.A. No. 11314-VCS (April 29, 2016), the Delaware Court of Chancery reiterated its adherence to the principle stated in the Delaware Revised Uniform Limited Partnership Act (“DRULPA”) of giving “maximum effect to the principle of freedom of contract and to the enforceability of partnership agreements” as well as to the ability under DRULPA of parties to a limited partnership agreement to define their respective standards of care and scope of duties and liabilities, including to eliminate default fiduciary duties, and dismissed the plaintiff’s claims.

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Chancery Court Blocks Former Judge From Serving On LLC Special Litigation Committees

By: Scott E. Waxman and Trevor M. Gates

In Obeid v. Hogan, No. CV 11900-VCL (Del. Ch. June 10, 2016), the Delaware Court of Chancery prevented a former federal judge from serving as the sole member of parallel special litigation committees formed to assess derivative actions because he was not a director or manager of the respective limited liability companies (“LLCs”).  In reaching this decision, the court followed corporate precedent in interpreting an LLC agreement because of the LLC’s “corporate-style governance structure.”  The court concluded an LLC board of directors could therefore delegate authority to a committee to take control of a derivative action, under certain circumstances, but that authority could not be delegated to a non-director/non-member in this instance.

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Directors’ Failure to Consider Speculative Projections in Recommending Tender Offer to Stockholders Insufficient to Plead a Claim for Breach of the Duty of Loyalty Based on Bad Faith

By: Michelle McCreery Repp and Benjamin Kendall

In In re Chelsea Therapeutics International Ltd. Stockholders Litigation, Consol. C.A. No. 9640-VCG (Del. Ch. May 20, 2016), the Delaware Chancery Court held that Plaintiffs, who alleged bad faith on the part of corporate directors based on a failure to adequately take into account speculative financial projections in evaluating the adequateness of an acquisition offer, had failed to state a claim on which relief could be granted.

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Dell Inc. Fails to Persuade Court That Merger Price was Best Evidence of its Fair Value

By: Naomi R. Ogan and Stephanie S. Liu

In In Re Appraisal of Dell, C.A. No. 9322-VCL, (Del. Ch. May 31, 2016), stockholders of Dell Inc. (“Dell”) sought appraisal of their shares in connection with Dell’s 2013 “go-private” merger. Vice Chancellor Laster of the Delaware Court of Chancery held that the fair value of the Dell’s common stock at the effective time of the merger was $17.62, approximately a 28% premium over the final merger consideration of $13.75 per share. In making its determination, the court rejected Dell’s contention that the negotiated merger consideration was the best evidence of Dell’s fair value and held that the Dell was sold for too little and that the concept of fair value under Delaware law is not equivalent to the economic concept of fair market value.

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Delaware Chancery Court Expands on Dissenter Requirement under DGCL Section 262

By: Naomi R. Ogan and Stephanie S. Liu

In In re Appraisal of Dell Inc., C.A. No. 9322-VCL, (Del. Ch. May 11, 2016), the Delaware Court of Chancery held that the shares held by fourteen mutual funds through a sponsor or institutions that relied on such parties to direct the voting of their shares (collectively, the “Petitioners”) did not qualify for appraisal in connection with Dell Inc.’s go-private merger because the dissenter requirement under the Delaware General Corporation Law (“DGCL”) was not met as the shares were voted in favor of the merger.

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Chancery Court Reaffirms Arbitrability to be Decided by Arbitrator if Claims are Not Frivolous on their Face

By: Scott E. Waxman and Douglas Logan

In Angus v. Ajio, the Delaware Court of Chancery denied Bruce Angus’ preliminary injunction to block arbitration initiated by Members of MoGo Sport, LLC (“MoGo”), a Delaware sports equipment and injury prevention company organized as a Delaware limited liability company. The court held that the arbitrability of the claims in the arbitration demand must be decided by the arbitrator and not the court if the party opposing arbitration cannot show the arbitration demand to be frivolous.

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Conflict Transaction Cleansed By Master Limited Partnership’s Special Committee

By Scott E. Waxman and Annamarie C. Larson

In Employees Retirement System of the City of St. Louis v. TC Pipelines GP, Inc., et al, (C.A. No. 11603-VCG), Vice Chancellor Glasscock granted the defendant’s motion to dismiss claims relating to the purchase of pipeline assets from the general partner’s parent.  The Court of Chancery held that the transaction was “fair and reasonable” to the master limited partnership because it was approved by a special committee and that the general partner did not breach the implied covenant of good faith and fair dealing.  In this case, the Court of Chancery reaffirmed parties’ abilities to contract freely when forming alternative entities such as a master limited partnership and confirmed that judicial review of such contractual terms is very limited.

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