Archive: September 2014

Jefferson v. Dominion Holdings, Inc., C.A. No. 8663-VCN (September 24, 2014) (Noble, V.C.)

By Jamie Bruce and Carty Bibee

On September 24, 2014, Vice Chancellor Noble issued his opinion in Jefferson v. Dominion Holdings, Inc., a matter involving a dispute between a corporation and one of its stockholders over the scope, and attendant confidentiality concerns, in the stockholder’s inspection of the books and records of the corporation under 8 Del. C. § 220.

The Court concluded after trial that the plaintiff stockholder Jefferson (“Plaintiff Stockholder”) demonstrated that valuing his stock in defendant Dominion Holdings, Inc. (“Defendant Corporation”) was a proper purpose for his requested inspection.  In this Order, Vice Chancellor Noble addressed two issues: (1) the scope of the production of books and records and (2) the confidentiality concerns of Defendant Corporation.

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Seaport Village Ltd. v. Seaport Village Operating Company, LLC, C.A. No. 8841-VCL (Sept. 24, 2014) (Laster, V.C.)

By Nick Froio and Zack Sager

Seaport Village Operating Company, LLC (the “LLC”) sought to recover from Seaport Village Ltd. (“Limited”) attorneys’ fees and expenses that the LLC incurred in two related actions.  The limited liability company agreement of the LLC (the “LLC Agreement”) provided that if any action was brought by a party against another party relating to or arising out of the LLC Agreement, the prevailing party shall be entitled to recover from the other party reasonable attorneys’ fees, costs and expenses.  Limited’s only defense was that because the LLC did not sign the LLC Agreement, it was not a “party” to the LLC Agreement.  The Court of Chancery rejected this argument citing Section 18-101(7) of the Delaware Limited Liability Company Act, which states that “[a] limited liability company is bound by its limited liability company agreement whether or not the limited liability company executes the limited liability company agreement.”  The court held that since the LLC was bound to the LLC Agreement and that, as a matter of contract law principles, “only parties to a contract are bound by that contract,” the LLC was a party to the LLC Agreement and could enforce the fee-shifting provision.

SeaportVillageLtdvSeaportVillageOperating

In re Nine Systems Corp. S’Holders Litig., Consol. C.A. No. 3940-VCN (September 4, 2014) (Noble, V.C.)

By Marisa DiLemme

In re Nine Systems Corp. S’Holders Litig. involves the 2002 recapitalization of a two-year-old start-up company, Streaming Media Corporation, later known as Nine Systems Corporation (the “Corporation”).  The Corporation was going to have to liquidate unless it could carry out two acquisitions, and the purpose of the 2002 recapitalization was to fund these acquisitions. The recapitalization was approved by four of the directors of the Board of the Corporation, one the CEO of the Corporation and the other three employees of three private equity funds, two of which provided the financing needed for the acquisitions through the recapitalization, and the third of which was given a 90-day option to participate in the recapitalization but did not do so.  The fifth director, whose firm had brought in minority stockholders, was not kept informed regarding the recapitalization, which was highly dilutive to the minority stockholders, and never fully approved it.  The terms of the recapitalization were proposed by the director whose firm was the largest participant in the recapitalization based on his estimate that the Corporation was worth $4 million, without any independent valuation of the Corporation.  After the acquisitions, the Corporation became successful, and it was sold four years later for $175 million.

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Pontone v. Milso, C.A. No. 8842-VCP (August 22, 2014) (Parsons, V.C.)

By Jamie Bruce and Mark Hammes

This case involves a claim for advancement of legal fees by plaintiff Scott Pontone (“Pontone”), a director and officer of two Delaware corporations, based on indemnification and expense advancement provisions of the corporations’ bylaws. Faced with both a motion to dismiss for lack of standing and Pontone’s motion for summary judgment, the Court granted in part and denied in part the  motion to dismiss, and granted partial summary judgment in Pontone’s favor with respect to advancement of certain legal fees and expenses.  The Court also found that Pontone was entitled to advancement as to 75% of his “fees on fees” in prosecuting this action.

Pontone was the Vice President of Old Milso, a New York regional casket manufacturer, when it was acquired by The York Group, Inc. (“York”) in 2005.  After the acquisition, Pontone served as a director and Executive Vice President of Both York and the successor entity Milso Industries Corporation (“New Milso”) until 2007.  In May 2010, Pontone entered into a consulting arrangement with a competitor, Batesville Casket Company (“Batesville”).  In August 2010, York and New Milso instituted an action in a federal court in Pennsylvania (the “Underlying Action”) against Pontone and Batesville alleging that they engaged in a wrongful scheme to induce several employees and many of their most lucrative customers to switch to Batesville.  The Underlying Action is still ongoing.

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