2019 – Page 4 – Delaware Docket

Delaware Court of Chancery Applies Entire Fairness Review in Finding That Controlling Stockholders and Special Committee Members Breached Fiduciary Duties to Target Stockholders

Sep 04 2019

In FrontFour Capital Group LLC v. Taube, C.A. No. 2019-0100-KSJM (Del. Ch. Mar. 11, 2019), the Delaware Court of Chancery found that, due to their conduct in connection with two mergers of affiliated entities, controlling stockholders and special committee members breached their fiduciary duties to target stockholders under the entire fairness standard of review and failed to provide certain material disclosures to stockholders.

An arbitrator, and not the courts, should decide the question of substantive arbitrability if “the parties’ contract provides ‘clear and unmistakable evidence’ of their intent that an arbitrator should decide the question”

Sep 04 2019

By: Scott E. Waxman and Calvin D. Kennedy

In The Innovation Institute, LLC v. St. Joseph Health Source, Inc., et al., C.A. No. 2019-0156-JRS, the Court of Chancery decided to stay an action, pending the decision of an arbitrator on whether the underlying claims of the action are subject to mandatory arbitration, due to the parties agreeing to mandatory arbitration in the controlling LLC agreement. The action was brought by Innovation Institute, LLC (“Innovation”) against St. Joseph Health System, Inc. (“Health System”) and St. Joseph Health Source, Inc. (“Health Source”), a wholly owned subsidiary of Health System, seeking specific performance of Health Source’s obligation to contribute funding to Innovation in accordance with Innovation’s LLC agreement.

In a Reckless Re-price, Results are not Realized

Aug 22 2019

By David L. Forney and Tom Sperber

In Howland v. Kumar, C.A. no. 2018-0804-KSJM, the Delaware Chancery Court issued a Memorandum Opinion under Chancery Rule 12(b)(6) denying a motion to dismiss claims of breach of fiduciary duty and unjust enrichment on the basis that the defendants repriced stock options that they held immediately prior to making a public announcement that was sure to increase the stock price. The Court also ruled under Chancery Rule 23.1 that the plaintiff adequately plead demand excusal. Thomas S. Howland, Jr. (“Plaintiff”), a stockholder of Anixa Biosciences, Inc. (“Anixa”), brought two derivative claims against Anixa and its directors and officers. The Anixa board of directors consisted of Chairman, President, and CEO Amit Kumar (“Kumar”), Lewis H. Titterton, Jr. (“Titterton”), Arnold M. Baskies (“Baskies”), John Monahan (“Monahan”), and David Cavalier (“Cavalier”). The officers included Kumar, John A. Roop (“Roop”), Michael J. Catelani (“Catelani”) and Anthony Campisi (“Campisi”, collectively, “Individual Defendants,” and, collectively with Anixa, “Defendants”).

DELAWARE COURT OF CHANCERY USES COMPANY’S UNAFFECTED MARKET PRICE TO DETERMINE FAIR VALUE IN APPRAISAL ACTION

Aug 16 2019

By Josh Gaul and Frank Mazzucco

In In Re: Appraisal of Jarden Corporation, C.A. No. 12456-VCS (Del. Ch. Jul. 19, 2019), the Delaware Court of Chancery (the “Court”) determined in a statutory appraisal action that, in connection with a merger, the fair value of Jarden Corporation was best represented by the unaffected market price of the company’s shares.

PLAINTIFF ALLEGED FACTS SUFFICIENT TO SUPPORT CLAIMS AGAINST DEFENDANTS TO SURVIVE A MOTION TO DISMISS

Aug 05 2019

By Annette E. Becker and Annamarie C. Larson

In Chester County Employees’ Retirement Fund v. KCG Holdings, Inc. et al, C.A. No. 2017-0421-KSJM (Del. Ch. June 21, 2019), the Delaware Court of Chancery denied the defendants’ motion to dismiss claims of breach of fiduciary duty, aiding and abetting, and civil conspiracy brought against the largest stockholder of KCG Holdings, Inc. (“KCG”), its directors, and its long time financial advisor for failure to maximize value for KCG stockholders when negotiating the merger transaction due to certain actions taken by influencers during the sale process. The Court held that the plaintiff stockholders adequately pled their claims against the defendants to avoid dismissal of claims.

Russian Interference and Data Privacy: Facebook Stockholders Demand Section 220 Inspection to Investigate Wrongdoing of Board and Senior Management

Jul 31 2019

By: Scott Waxman and Adrienne Wimberly

In In re Facebook, Inc., C.A. No. 2018-0661-JRS (Del Ch. May 30, 2019), the Delaware Court of Chancery granted a Section 220 demand for inspection of Facebook’s books and records, (the “Demand”) for the purpose of investigating potential wrongdoing on the part of the company’s Board of Directors (the “Board”). The consolidated action comes on the heels of news that the data of over 50 million Facebook users were poached by British political consulting firm, Cambridge Analytica and used to influence the 2016 Presidential Election. In April 2018, Plaintiff, Construction and General Building Laborers’ Local No. 79 General Fund (“Local No. 79”), a Facebook stockholder since 2015, served its initial Section 220 Demand. After receiving about 1,700 pages of significantly redacted books and records, Local No. 79 filed the present action to compel production which was consolidated with two similar Section 220 demands. After holding a paper record trial in March 2019, the Court ruled in favor of the Plaintiffs with some limitations on the scope of the demand.

COURT OF CHANCERY FINDS NO SECTION 220 ISSUE WHERE STOCKHOLDER’S AND ITS COUNSELS’ PURPOSES FOR DEMAND ALIGN

Jul 23 2019

By: Megan A. Wotherspoon and Rachel Cheasty Sanders

In Inter-Local Pension Fund GCC/IBT v. Calgon Carbon Corp., C.A. No. 2017-0910-MTZ (Del. Ch. Jan. 25, 2019), the Delaware Court of Chancery enforced an institutional stockholder’s demand for books and records under Title 8, Section 220 of the Delaware General Corporation Law (“Section 220”). The Court found that the stockholder’s affidavit affirming the demand in substantially final form, although not in exact final form, did not violate Section 220’s “under oath” requirements where the only change between the versions was the addition of a signature and the date. The Court also found that the stockholder’s demand was not lawyer-driven under Wilkinson v. A. Schulman, Inc., C.A. No. 2017-0138-VCL (Del. Ch. Nov. 13, 2017), where the stockholder’s goals of the demand and the purposes stated in the lawyer-drafted demand were not fundamentally misaligned, even where the stockholder’s representative could not articulate all the legal nuances of such purposes in deposition testimony.

COURT OF CHANCERY DENIES APPLICATION FOR CERTIFICATION OF INTERLOCUTORY APPEAL AFTER RULING THAT JUDICIAL DISSOLUTION OF THE LIMITED LIABILITY COMPANY IS WARRANTED

Jul 23 2019

By: Scott Waxman and Rachel Cheasty Sanders

In Acela Investments LLC v. Raymond DiFalco, Case No. 2018-0558-AGB (Del. Ch. June 28, 2019), the Delaware Court of Chancery addressed an application for certification of an interlocutory appeal of the Court’s decision in the underlying case (the “Memorandum Opinion”) and a motion for stay pending appeal.

Chancery Court Interprets the Computer Fraud and Abuse Act

Jul 18 2019

By: Scott E. Waxman and Stephanie S. Liu

In AlixPartners, LLP v. Benichou, (C.A. No. 2018-0600-KSJM (Del. Ch. May 10, 2019)), the Court of Chancery decided, as a matter of first impression, that the federal Computer Fraud and Abuse Act (“CFAA”) narrowly provides a cause of action in Delaware for unauthorized computer access or unauthorized access to information; it does not cover incidents involving misuse of information that was obtained through authorized access.

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