Archive: April 20, 2015

Chancery Court Holds That a Proper Purpose with a Credible Basis to Investigate is Required to Grant a Section 220 Action in Pursuit of a Future Derivative Litigation

By Meghan Wotherspoon and Calvin Kennedy

The Chancery Court held that a stockholder must show that there is a proper purpose with a credible basis in order to succeed in a Section 220 action to inspect the books and records of a corporation.

In Southeastern Pennsylvania Transportation Authority v. AbbVie Inc. and James Rizzolo v. AbbVie Inc., the plaintiffs, Southeastern Pennsylvania Transportation Authority (“SEPTA”) and James Rizzolo (“Rizzolo”), as shareholders of defendant AbbVie Inc. (“AbbVie”), made individual written demands on AbbVie for inspection of certain books and records pursuant to Section 220 of the Delaware General Corporation Law (“DGCL”). The plaintiffs sought to obtain records to demonstrate that AbbVie’s directors breached their fiduciary duties. AbbVie rejected the demands for failure to state a proper purpose and each plaintiff then filed a Section 220 Complaint. As the actions stemmed from the same event, the Court utilized a single Memorandum Opinion to deliver its decisions.

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Chancery Court Holds that both Exclusive and Nonexclusive Forum Selection Clauses Can Supplant the McWane First Filed Doctrine

By Scott Waxman and David Valenti

The Chancery Court held that the McWane first filed doctrine does not necessarily require a complaint to be dismissed or stayed in favor of a case pending in another state involving similar claims, parties, and facts, when the claim is based on an agreement including a bargained for, nonexclusive and irrevocable forum selection clause.

On April 15, 2015, the Chancery Court in Utilipath v. Baxter, C.A. No. 9922-VCP (Del. Ch. April 15, 2015) (Parsons, V.C.) denied a Motion to Dismiss a complaint attempting to compel enforcement of an alternative dispute resolution (“ADR”) provision in a Redemption Agreement as it pertained to a dispute over closing net working capital. Prior to August, 2013, defendants Baxter McLindon Hayes, Jr., Baxter McLindon Hayes III, and Jarrod Tyson Hayes (the “Hayes Defendants”) were the sole members of defendant Utilipath, LLC (“Old Utilipath,” and together with Hayes Defendants, the “Defendants”), a North Carolina LLC. In August 2013, the Hayes Defendants transferred all of their membership interests in Old Utilipath to defendant Utilipath Holdings, Inc. (“Holdings”), a North Carolina corporation. Subsequently Old Utilipath merged with plaintiff Utilipath, LLC, (“Utilipath”) a Delaware LLC, resulting in Holdings becoming the parent company of Utilipath.

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