Delaware Docket

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

 

Delaware Court of Chancery Holds That Third-Party Stockholder Has Standing to Enforce Anti-Takeover Protections

By Scott E. Waxman and Frank J. Mazzucco

In Arkansas Teacher Retirement System v. Alon USA Energy, Inc., et al., C.A. No. 2017-0453-KSJM (Del. Ch. Jun. 28, 2019), the Delaware Court of Chancery found that a plaintiff stockholder, in connection with a merger, had standing as a third-party beneficiary to bring claims for breach of fiduciary duty and breach of a stockholder agreement.

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Former Derivative Plaintiff Lacks Standing to Pursue Direct Claims Against General Partner

By: Scott Waxman and Zack Sager

In Morris v. Spectra Energy Partners (DE) GP, LP, the Court of Chancery held that the plaintiff, who previously lost standing to maintain a derivative action after it ceased to be a unit holder of a limited partnership, also lacked standing to directly challenge the fairness of the transaction that extinguished its right to pursue the derivative action.

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Delaware Court of Chancery Holds Deal Price Generated Through Reliable Sales Process Was Fair Value

By: Shoshannah D. Katz and Serena M. Hamann

In the statutory appraisal proceeding, In re Appraisal of Columbia Pipeline Group, Inc., Cons. C.A. No. 12736-VCL (Del. Ch. August 12, 2019), the Delaware Court of Chancery determined that the fair value of Columbia Pipeline Group, Inc. (“Columbia” or the “Company”) common stock at the effective date of acquisition by TransCanada Corporation (“TransCanada”) was the deal price of $25.50 per share, not the $32.47 per share price proposed by the petitioners. The petitioners argued that the Court should determine fair value using the discounted cash flow method (“DCF”), while TransCanada proposed use of the deal price minus synergies and Columbia’s unaffected trading price as valuation indicators. The Court ruled the sale process in this case was sufficiently reliable to make the deal price a persuasive indicator of fair value.

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Delaware Court of Chancery Allows Derivative Claim To Proceed Regarding Allegedly “Grossly Excessive” Non-Employee Director Compensation

By Remsen Kinne and Frank J. Mazzucco

In Stein v. Blankfein et al., C.A. No. 2017-0354-SG (Del. Ch. May 31, 2019), the Delaware Court of Chancery, in considering a motion to dismiss, allowed a stockholder’s derivative claim to proceed against an entity’s non-employee directors alleging that such director compensation was grossly excessive and thus represented a breach of the fiduciary duty of loyalty.

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Chancery Court Reaffirms Protection of Mandatory Advancement Rights

By: David Forney and Rich Minice

In Nielsen v. EBTH Inc., C.A. No. 2019-0164-MTZ (Del. Ch. Sep. 30, 2019), the Delaware Court of Chancery reaffirmed its standard favoring advancement of expenses to officers or directors of a company where the corporation provides mandatory advancement rights either by its certificate of incorporation (“Charter”) or separate indemnification agreements. The court granted summary judgment in favor of the plaintiffs because they (i) either used their corporate powers or such powers were necessary for the commission of the alleged misconduct in the underlying action; or (ii) the alleged misconduct in the underlying action is inextricably intertwined with the actions taken in the plaintiffs’ former capacities as officers or directors, such that the plaintiffs would necessarily be required to disprove allegations that they acted improperly as such. Advancement is appropriate when either of the two prongs for this nexus test are met.

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CHANCERY COURT ALLOWS CLAIMS DUE TO MANAGER’S ALLEGIANCE TO PARTICULAR EQUITY HOLDERS OVER THE COMPANY

By: Scott E. Waxman and Douglas A. Logan

In Klein and Cambridge Therapeutic Technologies, LLC, v. Wasserman et al., C.A. No. 2017-0643-KSJM (May 29, 2019), the Delaware Court of Chancery addressed claims of breach of fiduciary duties, tortious interference, and civil conspiracy. Defendants’ motion to dismiss the claims was granted in part and denied in part.

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rejecting a suit seeking a 43.9% higher payout, the delaware chancery court declared that the $18 per share price paid for stillwater was the fair value.

By Scott E. Waxman and Pouya Ahmadi

In In Re: Appraisal of Stillwater Mining Company, Consol. C.A. No. 2017-0385-JTL (Del. Ch. Aug 21, 2019), the Delaware Court of Chancery (the “Court”) held that the fair value of Stillwater Mining Company (“Stillwater”) at the time of its acquisition through a reverse triangular merger with Sibanye Gold Limited (“Sibanye”) was $18 per share, equal to the merger consideration.

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Chancery Court Dismisses Uber Derivative Suit for Failure to Make Demand or Plead Demand Futility

By Annette Becker and Will Smith

In McElrath v. Kalanick, C.A. No. 2017-0888-SG (Ch. Del. April 1, 2019), the Delaware Court of Chancery (the “Court”) dismissed a derivative suit brought by a stockholder of Uber Technologies, Inc. (“Uber”) for damages arising from its acquisition of Ottomotto, LLC (“Otto”), an autonomous vehicle technology company. Plaintiff did not make demand on the defendant board of directors of Uber (the “Board”) for action prior to pursuing litigation. The Court dismissed the derivative suit finding that a majority of the Board that would have evaluated a demand was disinterested and independent, and therefore, had plaintiff made demand of the Board, such a demand would not have been futile.

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MAINTAINING GOOD CORPORATE GOVERNANCE: ENTIRE FAIRNESS CREEPING INTO ACTIONS BENEFITING A CONTROLLING STOCKHOLDER

By: Scott Waxman and Rich Minice

In Tornetta v. Musk, Civil Action No. 2018-0408-JRS (Del. Ch. Sep. 30, 2019), the Delaware Court of Chancery addressed the appropriate standard of review to apply when examining stockholder approval of a conflicted controller for the controller’s own executive incentive compensation package. In January 2018, Tesla, Inc.’s board of directors (the “Board”) approved a compensation package (the “Award”) for its CEO, Elon Musk. The Board then submitted the Award to Tesla’s stockholders for approval. The Award was overwhelmingly approved. Tornetta (“Plaintiff”), a Tesla stockholder, brought four direct and derivative claims against Musk and members of the Board (the “Defendants”) alleging the Award is a product of breaches of fiduciary duty, constitutes waste, and unjustly enriches Musk. The Defendants moved to dismiss all counts under Rule 12(b)(6) (the “Motion”).

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A SIGNATURE ALONE IS NOT DISPOSITIVE EVIDENCE OF AN INTENT TO BE BOUND IN AN AGREEMENT

By: Scott E. Waxman and Mehreen Ahmed

In Eagle Force Holdings, LLC, and EF Investments, LLC, v. Stanley V. Campbell, 2999991.08000 (Del. Ch. Aug. 29, 2019), the Delaware Court of Chancery (the “Court”) held that Stanley Campbell’s (“Campbell”) conduct and communications with the Plaintiff before and during the signing of the transaction documents did not constitute an overt manifestation of assent to be bound by the documents. Therefore, the breach of contract and breach of fiduciary duty claims failed.

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Failure to Make Demand on Board Prior to Commencing Derivative Action Not Excused When Plaintiff Did Not Demonstrate that Demand Would Have Been Futile Because Directors Acted in Bad Faith by Knowingly Breaching their Oversight Responsibilities

By: Eric E. Freedman and Serena M. Hamann

In Juan C. Rojas derivatively and on behalf of J.C. Penney Company, Inc. v. Marvin R. Ellison, et al, C.A. No. 2018-0755-AGB (Del. Ch. July 29, 2019), the Delaware Court of Chancery dismissed with prejudice a derivative claim brought against J.C. Penney Company, Inc. (“J.C. Penney,” or the “Company”) and current and former members of the Company’s board of directors (the “Board”), on the grounds that the failure of plaintiff Juan Rojas (“Rojas”) to make a demand on the Board prior to filing suit did not satisfy the requirements of Delaware law for excuse from the requirement to make such a demand. The Court held that Rojas had failed to allege facts from which the Court could reasonably infer that any of the Board members had acted in bad faith by knowingly failing to exercise their oversight responsibilities, and that Rojas therefore had not demonstrated that a demand on the Board would have been futile.

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