Archive: June 2014

David Raul v. Astoria Financial Corporation, C.A. No. 9169-VCG (June 20, 2014) (Glasscock, V.C.)

By Masha Trainor and Dotun Obadina

Raul v. Astoria Financial Corporation involves the question of whether, under the corporate benefit doctrine adopted by Delaware courts, a stockholder can recover, from a corporation, attorneys’ fees incurred as a result of the stockholder’s attorney investigating the corporation’s activities.  In this case, David Raul (“Raul”), as custodian of Malka Raul Utma, NY, a common stockholder of Astoria Financial Corporation (“Astoria”), filed a complaint against Astoria, seeking an equitable assessment of attorneys’ fees incurred in connection with the investigation of potential violations of “say-on-pay” disclosure requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Say-On-Pay Disclosure Requirements”).

The corporate benefit doctrine provides for an award of attorneys’ fees to a stockholder if (1) the stockholder presents a claim to the corporation such that, at the time the claim was presented, a suit based on the actions underlying the claim would have survived a motion to dismiss and (2) a material corporate benefit results.

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In re TriQuint Semiconductor, Inc. Stockholders Litigation, C.A. No. 9415-VCN (Del. Ch. June 13, 2014)

By William Axtman and Joshua Haft

In In re TriQuint Semiconductor, Inc. Stockholders Litigation, plaintiff stockholders of TriQuint Semiconductor, Inc. (“TriQuint”) moved to expedite their breach of fiduciary duties claims against TriQuint’s board of directors for approving a merger of equals with RF Micro Devices, Inc. (“RFMD”) in which the shares of each company would be exchanged for 50% of the shares of a newly formed entity, Rocky Holding, Inc. (“Rocky Holding”). In this letter opinion, the Delaware Court of Chancery ruled on plaintiffs’ motion for expedited proceedings with regard to plaintiffs’ claims that the TriQuint board (i) engaged in defensive entrenchment tactics, (ii) agreed to preclusive deal protection devices, and (iii) failed to provide all material information to the stockholders in advance of the stockholder vote.

In order to show good cause for expedited proceedings under Delaware law, plaintiffs must articulate “a sufficiently colorable claim” and show “a sufficient possibility” of irreparable injury so as to justify imposing the costs of an expedited preliminary injunction proceeding on the defendants and the public.

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Crothall, et al. v. Zimmerman, et al., Del. No. 608, 2013 (May 28, 2014)

By Eric Feldman and Naomi Ogan

In Crothall, et al. v. Zimmerman, et al., the defendants in a derivative suit sought to reverse the Delaware Court of Chancery’s decision awarding attorneys’ fees to counsel for Robert Zimmerman, the plaintiff in the underlying action. Zimmerman, a common unitholder of Adhezion Biomedical, LLC (“Adhezion”), originally brought a derivative suit against the directors and certain investors of Adhezion, claiming that (i) certain financing transactions involving the sale of Adhezion units were substantively unfair, and (ii) the units issued in those transactions were not properly authorized in accordance with Adhezion’s operating agreement. The Chancery Court’s opinion rejected Zimmerman’s claim of substantive unfairness, but agreed that Adhezion’s operating agreement had been violated because the units issued in the financing transactions had been issued without an amendment approved by a separate vote of the common unitholders.

The Chancery Court, however, awarded only nominal damages for the breach of the operating agreement, and, before a final judgment was entered, Zimmerman decided to sell his Adhezion units and abandon the lawsuit, thus rendering his claims moot.  As a result, the Chancery Court granted the defendants’ motion to dismiss Zimmerman’s claims. Nevertheless, Zimmerman’s counsel was allowed to intervene in the case, and was ultimately awarded $300,000 in attorneys’ fees, on the theory that Adhezion had realized a corporate benefit from the Chancery Court’s decision that a vote of the common unitholders was required to authorize additional units under the operating agreement.

The defendants, while unable to appeal the Chancery Court’s ruling directly due to the absence of a final judgment, asked the Delaware Supreme Court to re-consider the merits of the Chancery Court’s  finding that attorneys’ fees were warranted on the basis of a corporate benefit to Adhezion. The Supreme Court reversed the Chancery Court’s ruling, finding that Zimmerman’s counsel had not created a corporate benefit, and therefore was not entitled to the $300,000 in attorneys’ fees originally awarded by the Chancery Court. Without evaluating the Chancery Court’s substantive reading of the Adhezion operating agreement, the Supreme Court held that when a plaintiff takes action to moot his own claim, as Zimmerman did by selling his units and abandoning his claims before entry of a final judgment after trial, no corporate benefit can be created and therefore no attorneys’ fees should be awarded on that basis. The Supreme Court noted that, while attorneys’ fees have previously been awarded on the basis of mooted claims, those claims were rendered moot by the actions of the defendant, not the plaintiff. In contrast, in this case the Supreme Court refused to award fees on the basis of a claim that even the plaintiff himself had chosen not to pursue.

Eurofins Panlabs, Inc. v. Ricerca Biosciences, LLC, et al., C.A. No. 8431-VCN (May 30, 2014) (Noble, V.C.)

By David Bernstein and Marisa DiLemme

The decision in Eurofins Panlabs, Inc. v. Ricerca Biosciences, LLC concerns a Stock and Asset Purchase Agreement (the “SAPA”) entered into in September 2012 by plaintiff, Eurofins Panlabs, Inc. (“Eurofins”), a Delaware corporation, and defendants, Ricerca Biosciences, LLC (“Ricerca”), a Delaware limited liability company, and Ricerca Holdings, Inc., a Delaware corporation.  Ronald Ian Lennox (“Lennox”), Chairman and CEO of Ricerca, is also a defendant in the case.

Most of the opinion focuses on Eurofins’ claims against Ricerca related to specific provisions of the SAPA, whether Ricerca breached these provisions, and whether the breaches of contract were also fraudulent.  The Court dismissed many of Eurofins’ claims against Ricerca.  All claims against Lennox, aside from those based on the relationship with AstraZeneca PLC (“AZ”), were also dismissed.

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Ravenswood Inv. Co., L.P. v. Winmill & Co. Inc., C.A. No. 7048-VCN (Del. Ch. May 30, 2014)

By David Bernstein and Elise Gabriel

In Ravenswood Investment Co., Vice Chancellor Noble of the Delaware Chancery Court considered the novel issue of whether, under Delaware law, a corporation may condition a stockholder’s right to inspect the corporation’s books and records on an agreement not to trade in the corporation’s stock for a period of time.  Here, the defendant Winmill & Co. Incorporated (“Winmill”), a Delaware holding company, had refused to allow plaintiff stockholder Ravenswood Investment Company, L.P. (“Ravenswood”) to inspect its nonpublic financial statements absent Ravenswood’s agreement not to trade in Winmill’s stock for up to a year.  Winmill was apparently concerned that Ravenswood would use the material, non-public information to trade in Winmill’s stock, thus threatening “tipper” liability under federal securities law. 

Vice Chancellor Noble concluded that a trading restriction imposed on a stockholder’s right to inspection under Delaware General Corporation Law § 220 is contrary to Delaware law.  He found that Ravenswood had requested inspection for the proper purpose of valuing its stock, and any purported secondary purpose or ulterior motive was irrelevant.  Vice Chancellor Noble was unwilling to incorporate an “inequitable” notion into Delaware’s § 220 jurisprudence that would frustrate a stockholder’s fundamental right to value its stock.  In a footnote, he further stated that the Court did not address whether the requested financial statements should be deemed confidential, but if the parties could not agree on a confidentiality agreement, the Court would be available to address that issue.  Vice Chancellor Noble refused, however, to require Winmill to pay Ravenswood’s attorneys’ fees, finding that Ravenswood had not produced requisite evidence of Winmill’s bad faith.

Ravenswood v. Winmill

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