Delaware Docket

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

 

Can’t Have It Both Ways: Court Grants Grupo México’s 12(b)(2) Motion To Dismiss for Lack of Personal Jurisdiction

By Joanna Diakos and Ian Edwards

In Lacey v. Mota-Velasco, et al. (C.A. No. 2019-0312-SG), the Delaware Court of Chancery (the “Court”) dismissed Grupo México S.A.B, de C.V (“Grupo México”) from a derivative lawsuit filed by a stockholder of Southern Copper Corporation (“Southern Copper”) on the grounds that the Court lacked personal jurisdiction over Mexico-based Grupo México.

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Court of Chancery Allows for Interim Distribution to Stockholders of Altaba, Inc., with Some Conditions

By Scott E. Waxman and B. Ashby Hardesty, Jr.

In In re Altaba, Inc., C.A. No. 2020-0413-JTL, Vice Chancellor Laster authorized Altaba, Inc. (the “Company”), a company pursuing dissolution under Sections 280 and 281(a) of the Delaware General Corporation Law (the “DGCL”), to make an interim distribution to its stockholders, on the condition that it reserved funds for lawsuits pending in Canada resulting from data breaches that the Company disclosed in 2016 (the “Canadian Actions Claim”). Vice Chancellor Laster also allowed the Company to hold back less than the full amount of security requested by Carsten Rosenow, an individual who filed a breach of privacy lawsuit against the Company (the “Rosenow Claim”).

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DELAWARE COURT OF CHANCERY DENIES MOTIONS TO DISMISS CLAIMS ALLEGING BREACHES OF FIDUCIARY DUTY IN ALLEGED CONTROLLING STOCKHOLDER TENDER OFFER

By: David Forney and Caitlin Velasco

In In Re Coty Inc. Stockholder Litigation, C.A. No. 2019-0336-AGB (Del. Ch. Aug. 17, 2020), the Delaware Court of Chancery (the “Court”) denied a Rule 12(b)(6) motion to dismiss claims brought by stockholders (the “Plaintiffs”) of Coty Inc. (“Coty”) against its directors and de facto controlling stockholder, JAB Holding Company S.à.r.l. and its affiliates (“JAB”), over JAB’s 2019 partial tender offer, whereby it increased its ownership stake in Coty from 40% to 60%. The Plaintiffs alleged that JAB opportunistically timed and priced the tender offer so that it undervalued Coty and structured the tender offer in a coercive manner.

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Court Dismisses Contractual Claims for Advancement and Indemnification

By: Scott E. Waxman and Marissa Leon

In Nathan Brick v. The Retrofit Source, LLC, et al. (C.A. No. 2020-0254-KSJM), the Court of Chancery in the State of Delaware (the “Court”) dismissed claims for advancement and indemnification by a former officer of an automobile lighting products supplier.

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CHANCERY COURT FINDS EXCUSABLE NEGLECT AND VACATES DEFAULT JUDGMENT

By: Joanna Diakos and Greyson Blue

In James Rivest v. Hauppauge Digital, Inc., C.A. No. 2019-0848-PWG (Del. Ch. Aug. 3, 2020), the Delaware Court of Chancery examined the circumstances in which the Court will set aside a default judgment under Court of Chancery Rule 60(b)(1). The Court’s decision illustrates the context in which a party’s failure to timely respond may warrant relief from a previously issued court order. It also highlights the Court’s willingness to consider the unique challenges imposed by the COVID-19 pandemic in exercising its discretion.

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Delaware Court of Chancery Finds Valuation of Stock Alone is Sufficient to Support Books and Records Request

By: Joanna A. Diakos Kordalis and Serena Hamann

In Avery L. Woods Trust v. Sahara Enterprises, Inc., C.A. No. 2020-0153-JTL (Del. Ch. July 22, 2020), the Delaware Court of Chancery (the “Court”) granted an inspection of books and records to Avery L. Woods (“Woods”), the trustee of the Avery L. Woods Trust (the “Trust” ) finding that the Trust’s stock valuation and investigation of possible mismanagement reasons for inspection sufficient and proper.

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Delaware Chancery Court Parses Valuation Methods in Battle of the Experts

By: David L. Forney and Zane A. Madden

In William Richard Kruse (the “stockholder”), v. Synapse Wireless, Inc. (the “Company”), C.A. No. 12392-VCS (Del. Ch. July 14, 2020), the Delaware Court of Chancery (the “Court”) held that, after its review of the evidence as factfinder, the Company had carried its burden of proving a reliable appraisal of its fair value related to its 2016 merger transaction. As is typical in appraisal disputes, each party’s expert presented wildly different valuations. In this lengthy case, the Court nevertheless analyzed each proposed valuation model on its own merits and did not engage in compromise jurisprudence in order to achieve a sense of fairness for one party. In coming to its conclusion, the Court adopted the Company’s discounted cash flow valuation method, eschewing all other methods as unreliable in this case. The Court’s value was almost half of the merger transaction value upon which the stockholder exercised its appraisal rights.

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CHANCERY COURT CLARIFIES MFW PROTECTIONS MUST BE IMPLEMENTED PRIOR TO ANY SUBSTANTIVE ECONOMIC NEGOTIATIONS

By: David Forney and Claire Suni

In In re HomeFed Corporation Stockholder Litigation, C.A. No. 2019-0592-AGB (Del. Ch. July 13, 2020), the Delaware Court of Chancery (the “Court”) found that the controlling stockholder of HomeFed Corporation undertook substantive economic negotiations with its minority stockholders in connection with a proposed squeeze-out merger transaction prior to implementing the procedural protections set forth in Kahn v. M&F Worldwide Corp. (“MFW”).   As a result, the Court ruled that the appropriate standard of review for the plaintiff’s claims of breach of fiduciary duty against the controlling stockholder and the board of directors was entire fairness, and not business judgment. The Court further found that two of the company’s directors were not independent and therefore could not avail themselves of exculpatory language in the company’s certificate of incorporation. The Court denied in full the defendants’ motion to dismiss under Rule 12(b)(6) for failure to state a claim for relief.

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FAILED BREACH OF CONTRACT CLAIMS UNDERSCORE CHANCERY COURT’S FOCUS ON CONTRACTUAL PLAIN LANGUAGE OVER OUTSIDE EVIDENCE

By: Scott Waxman and Adam Heyd

In Braga Investment & Advisory, LLC v. Yenni Income Opportunities Fund I, L.P., C.A. No. 2017-0393-AGB (Del. Ch. June 8, 2020), Braga Investment & Advisory, LLC (“Braga”), a minority investor in Steven Feller, P.E., LLC (“Newco”) alleged that Yenni Income Opportunities Fund I, L.P. (the “Fund”), the majority investor in Newco, had breached a purchase agreement for interests in Newco when the Fund amended it without Braga’s consent. Braga also contended that the Fund breached its co-investment agreement with Braga when it revoked Braga’s right to receive board packages under that agreement. The Delaware Court of Chancery (the “Court”) concluded that the Fund’s amendment of the purchase agreement did not require Braga’s consent, and that the Fund did not breach Braga’s right to receive board packages based on the ordinary use of that term.

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CHANCERY COURT RULES ON AGRIBUSINESS SALE FRAUD SUIT

By: Scott E. Waxman and Marissa Leon

In Agspring Holdco, LLC, et al. v. NGP X US Holdings, L.P., et al. (C.A. No. 2019-0567-AGB), the Delaware Court of Chancery (the “Court”) tolled the statute of limitations on claims by the purchaser of an agricultural commodities company and refused to dismiss the majority of fraud and related claims against officers of the company.

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Chancery Court Dismisses Former LLC Member’s Claims for Alleged Amounts Owed and Breach by Former Co-Members

By: Scott E. Waxman and Michael C. Payant

In Terry L. Menacker v. Overture, L.L.C., et al., C.A. No. 2019-0762-JTL (Del. Ch. Aug. 4, 2020), the Delaware Court of Chancery (the “Court”) considered a motion to dismiss claims by a former member of Overture L.L.C. (the “Company”) concerning a dispute over a buyout payment allegedly due upon his withdrawal as a member, certain other alleged past-due amounts, and an alleged breach of fiduciary duty by former co-members of the Company. The Court dismissed all claims, holding that (i) the Court lacked subject matter jurisdiction over the buyout payment dispute because it was subject to arbitration; (ii) plaintiff’s allegations regarding other amounts owed failed to state claims upon which relief could be granted; and (iii) plaintiff’s claims for breach of duty were derivative claims for which plaintiff lacked standing.

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Chancery Court Holds Under-Manned Board’s Acts Were Invalid but Potentially Susceptible to Validation under DGCL §205

By: Scott E. Waxman and Michael C. Payant

In Applied Energetics, Inc. v. George Farley, et al., C.A. No. 2018-0489-JTL (Del. Ch., Aug. 3, 2020), the Delaware Court of Chancery (the “Court”) considered a motion for partial summary judgment by Applied Energetics, Inc. (the “Company”) relating to actions by George Farley (“Farley”) as sole member of the Company’s board of directors (the “Board”) and compensation committee (the “Committee”). The Court granted summary judgment for the Company that certain actions taken by Farley were invalid for failure of authorization but denied the Company’s motion for summary judgment on other claims, holding (a) that the actions could potentially be validated under §205 of the Delaware General Corporation Law (“DGCL”); and (b) Farley could potentially recover damages for an allegedly-agreed salary or under an unjust enrichment theory.

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