Delaware Docket

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

 

Termination Fee is Not Exclusive Remedy for Breach of No-Shop

By Sara Kirkpatrick and Lisa Stark

On September 9, 2019, the Delaware Court of Chancery held that Genuine Parts Company (“GPC”) adequately pled facts that supported a pleading stage inference that Essendant Inc. breached its merger agreement with GPC by terminating the agreement to pursue a transaction with non-party Sycamore Partners (“Sycamore”) pursuant to a superior proposal termination right. The Court further found that GPC adequately pled that its acceptance of a termination fee from Essendant did not preclude GPC from pursuing breach of contract claims against Essendant for its alleged breaches of the parties’ merger agreement.

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COURT OF CHANCERY APPLIES POLITICAL QUESTION DOCTRINE IN DEFERRING TO U.S. PRESIDENT’S RECOGNITION OF VENEZUELAN PRESIDENT AND HOLDS THAT EXTRA-TERRITORIAL EFFECTS DO NOT PRECLUDE APPLICATION OF THE ACT OF STATE DOCTRINE

By: CJ Voss and Teresa Teng

In Jiménez v. Palacios et al., C.A. No. 2019-0490-KSJM (Del. Ch. Aug. 2, 2019), the Delaware Court of Chancery accepted as binding the U.S. President’s recognition of a foreign government and upheld the validity of that government’s appointments to the board of directors of a state-owned oil company. In turn, the state-owned oil company could validly appoint the board of directors of its Delaware subsidiaries. However, the court determined that the consents appointing the boards of directors of the Delaware subsidiaries were not appropriately considered on a motion for judgment on the pleadings and granted the plaintiffs the opportunity to identify facts in dispute foreclosing summary judgment in favor of the defendants. 

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earn-out provision of merger agreement requires extrinsic evidence to aid interpretation

By Scott E. Waxman and Pouya D. Ahmadi

In Western Standard, LLC, v. SourceHOV Holdings, Inc. and Pangea Acquisitions, Inc., C.A. No. 2018-0280-JRS (Del. Ch. July 24, 2019), the Delaware Court of Chancery (the “Court”) refused to the grant SourceHOV Holdings, Inc. (“SourceHOV”) and Pangea Acquisitions, Inc.’s (“Pangea”) motion to dismiss, holding that more extrinsic evidence was needed for the Court to be able to interpret the terms of the merger agreement (the “Merger Agreement”) among Pangea and BancTec, Inc. (“BancTec”) and decide whether there was a valid breach of a contract claim.

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delaware court of chancery allows stockholder to inspect books and records over defendant corporation’s objections

By Scott Waxman and Serena Hamann

In Senetas Corporation, Ltd. v. DeepRadiology Corporation, C.A. No. 2019-0170-PWG (Del. Ch. July 30, 2019), the Delaware Court of Chancery allowed a stockholder’s books and records inspection despite objections raised by the defendant corporation because the stockholder established a proper purpose for the inspection by proving a credible basis from which the Court could infer mismanagement or wrongdoing may have occurred and because the defendant failed to prove the plaintiff’s stated purpose was offered under false pretenses.

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In a $1.365 Billion Merger, the Target Company “Blindsided” the Proposed Buyer by Terminating the Merger Agreement and the Court Upheld the Termination; Court Requests Further Briefing re the $126.5 Million Reverse Termination Fee

By: Kevin Stichter and Tami Mack

In Vintage Rodeo Parent, LLC et al. v. Rent-A-Center, Inc., C.A. No. 2018-0927-SG (Del. Ch. March 14, 2019), the Delaware Court of Chancery (the “Court”) held that the target company Rent-A-Center, Inc. (“Rent-A-Center”) validly exercised its right to terminate the $1.365 billion merger under the merger agreement (the “Merger Agreement”) among Rent-A-Center and the proposed buyer Vintage Capital Management, LLC and certain affiliates (collectively, “Vintage”), despite Vintage’s claims that the term of the Merger Agreement had already been extended or, alternatively, that Rent-A-Center had not validly terminated.

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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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