Archive: April 7, 2019

IN REJECTING DEFENDANTS’ MOTION FOR DISMISSAL, CHANCERY COURT FINDS THAT INDIVIDUAL FIDUCIARY MAY BE HELD LIABLE FOR TRADES THAT AN ASSOCIATED ENTITY OR FUND MAKES

By: Scott E. Waxman and Adrienne Wimberly

In the consolidated stockholder derivative litigation, In re Fitbit, Inc., CA No. 2017-0402-JRS (Del. Ch. Dec. 14, 2018), the Delaware Court of Chancery denied the Defendants’ motion to dismiss Plaintiffs’ insider trading and breach of fiduciary duty claims. The claims stem from alleged insider knowledge of members of Fitbit’s Board of Directors (the Board) and chief financial officer that Fitbit’s PurePulse™ technology was not as accurate as the company claimed. Plaintiffs alleged that members of the Board structured the company’s Initial Public Offering (IPO) and Secondary Offering (together, “the Offerings”) to benefit Fitbit insiders and voted to waive employee lock-up agreements, thereby allowing those insiders, to prematurely sell stock in the Secondary Offering. As a result of their sales, the alleged insiders sold about 6.2 million shares for over $115 million in the IPO and about 9.62 million shares for over $270 million in the Secondary Offering.

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CHANCERY COURT DENIES MOTION TO PERFECT SERVICE FOR SERVICE ON DISSOLVED LIMITED LIABILITY COMPANY

By: Scott Waxman and Greyson Blue

In Tratado de Libre Commercio, LLC v. Splitcast Technology, LLC, C.A. No. 2019-0014-JRS (Del. Ch. Mar. 6, 2019), the Delaware Court of Chancery examined the requirements for perfecting service upon a dissolved limited liability company (“LLC”). In ruling that Tratado de Libre Commercio, LLC (“Tratado”) had failed to perfect service of process on a dissolved entity, Splitcast Technology LLC (“Splitcast”), the Court highlighted its broad authority to establish service of process requirements under Court of Chancery Rule 4(d)(7) (“Rule 4(d)(7)”) in claims against defunct entities. The Court’s decision both illustrates the scope of its authority and confirms its willingness to hold that court-mandated standards for delivering service upon defunct corporations also apply in the context of defunct LLCs.

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