Archive: February 2018

Chancery Court Applies Contract Terms to Clarify Difference Between Void and Voidable Stock Issuances

By Jessica Pearlman and Jonathan Miner

Southpaw Credit Opportunity Master Fund, L.P. v. Roma Restaurant Holdings, Inc., C.A. No. 2017-0059-TMR (Del. Ch. Feb. 1, 2018) came before the Delaware Court of Chancery as a dispute over control of the board of directors of Roma Restaurant Holdings, Inc. (“Roma” or the “Company”). Plaintiffs were a stockholder group that had taken a majority position in Roma’s common stock. After learning of Plaintiffs’ majority position, the Roma board adopted a new equity compensation plan and issued sufficient shares of restricted stock to Roma employees to dilute Plaintiffs below a majority ownership position. Plaintiffs considered the dilutive restricted stock issuances as invalid for a number of reasons, including the Company’s failure to obtain contractually mandated stockholder agreement joinder documents from each recipient before issuance, and presented Roma with a written consent that removed two of Roma’s current directors (the “Defendant Directors”) and replaced them with Plaintiffs’ nominees. Roma contested the validity of Plaintiffs’ written consent and the case came before the Court under Section 225 of the Delaware General Corporation Law (DGCL) to determine the proper composition of Roma’s board of directors. Vice Chancellor Montgomery-Reeves found that the disputed restricted stock issuances were void and could not be counted toward a stockholder vote.

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COURT OF CHANCERY HOLDS THERE MUST BE A GAP IN AGREEMENT FOR AN IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

By: Scott E. Waxman and Douglas A. Logan

In Christopher Miller, et al., v. HCP & Company, et al., memorandum opinion 180201, the Court of Chancery granted a motion to dismiss because the underlying Limited Liability Company Agreement did not contain a “gap” for an implied covenant of good faith and fair dealing to fill. Rather, the Court of Chancery held that the Limited Liability Company Agreement contained negotiated investor favorable provisions regarding good faith and fair dealing, thus undercutting any argument that the Court of Chancery should read an implied covenant into the operating agreement.

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Transparency is the Best Policy: Teetering on the Edge of Misleading

By Lisa Stark and Rashida Stevens

In Chatham Asset Management, LLC v. Papanier, C.A. No. 2017-008-AGB (Del. Ch. Dec. 22, 2017), the Delaware Court of Chancery found that the plaintiffs, Chatham Asset Management, LLC, Chatham Fund, LP, and Chatham Asset High Yield Master Fund, Ltd. (collectively, “Chatham”), pleaded sufficient facts to avoid dismissal of a claim that the director defendants of Twin River Worldwide Holdings, Inc. (“Twin River”) breached their fiduciary duties by making materially false and misleading statements in tender offer materials. Read More

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