Delaware Docket

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

 

Chancery Court Finds Statute of Limitations Bars Humvee Joint Venture Breach of Contract Claims

By Scott Waxman and Mark Hammes

In AM General Holdings v. The Renco Group, C.A. No. 7639-VCS (Del. Ch. Aug. 22, 2016), the Court of Chancery held that Delaware’s three-year statute of limitations barred contract claims brought by one party in a joint venture to produce Humvee automobiles against its joint venture partner.

AM General LLC (“AM General”) manufactured and sold specialized vehicles including the Humvee. Prior to 2004, its sole member was The Renco Group, Inc. (“Renco”).  In August 2004, Renco and MacAndrews & Forbes Holdings Inc.  (“M&F”) entered into a joint venture with Renco whereby they formed AM General Holdings LLC (“Holdco”).  Renco contributed AM General to Holdco and M&F contributed cash.  An M&F subsidiary became the managing member of Holdco.  A Holdco Agreement set forth the mechanisms for distribution of profits between Renco and M&F and provided for certain contractual protections for Renco, restricting certain related party transactions, management fees, distributions and the like and giving Renco access to books and records of Holdco.

Read More

Plaintiff’s Counsel Recovery in a Derivative Case Settling Under the Transitive Property Limited to Actual Benefit to Plaintiffs

By: Nicholas Froio and David Noll

In Baker v. Sadiq, C.A. No. 9464-VCL (Del. Ch. August 16, 2016), the Court held that the proper calculation of an attorney’s contingency fee for a derivative action settled using the transitive property is based upon the actual settlement value. Baker concerned fees owed to plaintiff’s counsel (“Counsel”) after the settlement of a derivative action by minority shareholders for misappropriation by the majority shareholder.  The settlement of those claims was a buyout of the minority shareholders at a better pro rata value than could be expected from the derivative action.  By holding that the appropriate measure of fees is based upon actual cash payments, Plaintiff’s counsel received approximately one ninth of its expected award to be collected from an entity with no assets.

Read More

Chancery Court Finds Unqualified Inspection Right in Statutory Trust Agreement Renders Default Preconditions and Defenses Inapplicable

By: Scott Waxman and Eric Jay

In Grand Acquisition LLC v. Passco Indian Springs DST, C.A. No. 12003-VCMR (Del. Ch. Aug. 26, 2016) the Delaware Court of Chancery found that under the Delaware Statutory Trust Act (the “Act”), the governing instrument of a Delaware statutory trust (DST) does not need to affirmatively disavow the preconditions and defenses applicable to inspection rights related to a DST’s books and records under Section 3819 of the Act in order to create a separate and distinct contractual right that can, in some circumstances, render statutory preconditions and defenses inapplicable to such requests. Read More

Innocence Lost: The Rebuttable Presumption Of Stock Ownership

By Joanna Diakos Kordalis and Priya Chadha

In Pogue v. Hybrid Energy, Inc., C.A. No. 11563-VCG (Aug. 5, 2016), the Court of Chancery held that inclusion of a party (in this case the plaintiff) in a stock record provides a prima facie but rebuttable case that such party is a stockholder of record for purposes of seeking books and records under DGCL Section 220.  In Pogue, the Court held that the defendant had successfully rebutted the presumption that plaintiff was a stockholder by clear and convincing evidence and therefore the Court denied the plaintiff the relief sought and granted the defendant’s motion for summary judgement.

Read More

Chancery Court Determines the Appropriate Valuation Method for Use in Connection with an Appraisal Action Involving the Greatest Divergence among Valuations the Court Has Seen to Date

By: David L. Forney and David Valenti

In determining the fair value of stock of a privately held corporation at the time of a cash-out merger in connection with an appraisal action by minority stockholders—where one of the minority stockholders’ experts proffered a fair value greater than eight times that provided by the company’s expert—the Delaware Court of Chancery found that the valuation method used by the company’s expert was unreliable. The Court held that in this case the discounted cash flow analysis is the most reliable indicator of fair value because (1) the company’s stock is not publicly traded, (2) historical sales of stock are not reliable indicators of fair value, and (3) no comparable company valuation exists.

Read More

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.

Read More

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.

Read More

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.

Read More

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.

Read More

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.

Read More

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.

Read More

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.

Read More

Copyright © 2016, K&L Gates LLP. All Rights Reserved.