Archive: December 2018

No Rummaging Required: Chancery Court Rules Form 10-K Adequate to Discharge Duty of Disclosure When Provided Conspicuously and Concurrently with Stockholder Proxy

By: Joanna A. Diakos and Will Smith

In a memorandum opinion, Samuel Zalmanoff v. John A. Hardy et. al, Civil Action No. 12912-VCS (Del. Ch. November 13, 2018), the Delaware Court of Chancery granted summary judgment in favor of the defendant board of directors of Equus Total Return, Inc. (“Equus”), ruling that the board of directors (the “Board” or “Defendants”) adequately fulfilled their disclosure obligations because the facts allegedly omitted from the operative proxy statement (the “Proxy”) were indisputably contained in the Form 10-K (the “10-K”), which the Board provided to stockholders in the same mailing as the Proxy.

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Delaware Chancery Court Rejects Fraud-Based and Uncapped Indemnification Claims of Great Hill Partners Against the Founders of Plimus

By:  Peter N. Flocos and Joanna Diakos

In a case arising out of the purchase by Great Hill Partners of Plimus (now known as BlueSnap, Inc.), the Delaware Court of Chancery, after a 10-day trial and extensive post-trial briefing and oral argument, recently rejected all of the fraud-based claims made by Great Hill against the two founders of Plimus, Messrs. Daniel Kleinberg and Tomer Herzog (the “founders”), who were also directors and major shareholders of Plimus at the time of the transaction. The Court’s decision in Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, No. 7906-VCG, 2018 WL 6311829 (Del. Ch. Dec. 3, 2018), is notable for its rejection of several claims Great Hill pressed for years after initiating the litigation in September 2012.

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MANDATORY INDEMNIFICATION PROVIDED UNDER BYLAWS TO AGENT DUE TO ACTIONS TAKEN ON COMPANY’S BEHALF

By: Annette BeckerRich Minice

In Fred L. Pasternack v. Northeastern Aviation Corp., C.A. No. 12082-VCMR (Del. Ch. Nov. 9, 2018), the Delaware Court of Chancery awarded mandatory indemnification for legal expenses and fees-on-fees to Fred Pasternack (“Pasternack”), a former pilot for Northeastern Aviation Corp. (“Northeastern”) under Northeastern’s Bylaws (the “Bylaws”) because he was determined to be an agent of Northeastern when attending a random drug test to maintain his pilot certification.

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POSSIBILITY OF WRONGDOING CONSTITUTES PROPER PURPOSE IN SECTION 220 PROCEEDING

By: James Bruce and Hillary Dawe

In Barnes v. Sprouts Farmers Market, Inc., Jennifer Barnes, a stockholder of Sprouts Farmers Market, Inc. (“Stockholder”), sought to inspect the books and records of Sprouts Farmers Market, Inc. (the “Company”) in order to investigate potential breaches of duty, corporate mismanagement, wrongdoing, and unjust enrichment by the Company’s fiduciaries. Section 220 of the Delaware General Corporation Law permits stockholders of a Delaware corporation to inspect a company’s books and records for any proper purpose. Such purpose need only be reasonably related to the person’s interest as a stockholder, and the stockholder need only show “some evidence to suggest a credible basis from which a court can infer” the related conduct.

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CONTRACT LANGUAGE MUST BE UNAMBIGUOUS FOR CHANCERY COURT TO GRANT DISMISSAL AS MATTER OF LAW

By: Scott E. Waxman and Douglas A. Logan

In Fortis Advisors LLC v. Stora Enso AB letter opinion 180810, Stora Enso AB (the “Defendant”) filed a motion to dismiss the claims by Fortis Advisors LLC (the “Plaintiff”), alleging the merger agreement (the “Merger Agreement”) entered into by each of the parties unambiguously did not obligate the Defendant to make further payments to the Plaintiff. The Chancery Court disagreed, finding the language of the Merger Agreement ambiguous, therefore denying the Defendant’s motion.

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Chancery Court Holds that Party Seeking Indemnification under Contract Procedure Loses Ability to Claim Excused Performance due to Material Breach

By Christopher J. Voss and Michael C. Payant

In Post Holdings, Inc., et al. v. NPE Seller Rep LLC, et al., Chancellor Andre G. Bouchard granted defendant NPE Seller Rep LLC’s (“Seller Representative”) motion for judgment on the pleadings on its counterclaim seeking payment of tax refunds and insurance proceeds allegedly owing under a stock purchase agreement (the “Agreement”). In rendering its decision, the Court concluded that once a party has made a contractual indemnification demand based on a counterparty’s alleged material breach, such party cannot rely on the same breach to excuse non-performance of its own obligations under the contract. The Court also found that unliquidated indemnification claims could not be the basis for an offset of amounts owed in the absence of contract language to the contrary.

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