Author: freedman

Court of Chancery Applies New DGCL § 205 to Determine Validity of Defective Corporate Acts

By Eric Freedman and Sophia Lee Shin

In In Re Numoda Corporation Shareholders Litigation, the Court of Chancery exercised its new powers under Delaware General Corporation Law (“DGCL”) § 205, which became effective as of April 1, 2014, to resolve various disputes regarding the capital structures of two related corporations that consistently failed to follow corporate formalities.

In In Re Numoda Corporation Shareholders Litigation, C.A. No. 9163-VCN (Del. Ch. January 30, 2015) (Noble, V.C.) (the “Numoda Shareholders Litigation Decision”), the Delaware Court of Chancery addressed a dispute concerning the capital structures of two corporations, Numoda Corporation (“Numoda Corp.”) and Numoda Technologies, Inc. (“Numoda Tech.”).  The Numoda Shareholders Litigation Decision came on the heels of a decision of the Court of Chancery in a prior related action, Bons v. Schaheen, 2013 WL 6331287 (Del. Ch. Dec. 2, 2013) (the “225 Action”), in which the Court of Chancery refused to recognize several purported stock issuances due to a failure to comply with corporate formalities.  Because DGCL § 204 (Ratification of defective corporate acts and stock) and DGCL § 205 (Proceedings regarding validity of defective corporate acts and stock) became effective on April 1, 2014, after the decision in the 225 Action, the Court in the Numoda Shareholders Litigation Decision used its new statutory powers to untangle the capital structures that had been the subject of the 225 Action.

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DGCL §220 Does Not Limit Court’s Ability to Restrict Shareholder Inspection Rights

By Eric Freedman and Eric Taylor

In an en banc decision, the Delaware Supreme Court reversed a decision of the Delaware Court of Chancery holding that the court lacked the authority to impose a specific restriction on a shareholder’s inspection of a corporation’s books and records under section 220(c) of the Delaware General Corporation Law (the “DGCL”). United Technologies Corp. (“UnitedTechnologies”) had sought to restrict the use of information obtained in an inspection of the company’s books and recordsby its shareholder Lawrence Treppel (“Treppel”). Specifically, United Technologies asked Treppel to sign a confidentiality agreement that would require Treppel to bring any legal action “arising out of” the inspection in a Delaware court. Treppel refused to sign the agreement and filed a section 220 action seeking access to United Technologies’ books and records without any such restriction. United Technologies challenged whether Treppel had a “proper purpose” for the information request (as required by section 220(b) of the DGCL), but also asked the Court of Chancery to use its legal authority under section 220(c) to limit the use of information gained from Treppel’s books and records inspection to action in a Delaware court. Section 220(c) grants the court the discretion to “prescribe any limitations or conditions with respect to [an] inspection,” or award such further relief as the court deems proper.

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Valuation Materials Prepared Pre-litigation by Appraisal Petitioners Are Discoverable

By Eric Freedman and Sophia Lee Shin


On June 11, 2013, Dole Food Company, Inc. (“Dole”) announced that its board had received an unsolicited proposal from David Murdock, Dole’s CEO, Chairman, and controlling stockholder, to purchase all of the outstanding shares of Dole’s common stock for $12 per share. Approximately two months later, Dole and Murdock announced an agreement to take Dole private in a merger at $13.50 per share (the “Merger”). On October 31, 2013, Dole held a special meeting of the stockholders at which the stockholders approved the Merger, and the transaction closed on November 1, 2013.

Hudson Bay Master Fund Ltd. and Hudson Bay Merger Arbitrage Opportunities Master Fund Ltd. (together, “Hudson Bay”) and Ripe Holdings LLC (“Ripe”), as holders of Dole common stock, subsequently sought an appraisal for their shares. Ripe is a special-purpose investment vehicle managed by the affiliates of Fortress Investment Group (“Fortress”).

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