Author: Michael Payant

Chancery Court Dismisses Former LLC Member’s Claims for Alleged Amounts Owed and Breach by Former Co-Members

By: Scott E. Waxman and Michael C. Payant

In Terry L. Menacker v. Overture, L.L.C., et al., C.A. No. 2019-0762-JTL (Del. Ch. Aug. 4, 2020), the Delaware Court of Chancery (the “Court”) considered a motion to dismiss claims by a former member of Overture L.L.C. (the “Company”) concerning a dispute over a buyout payment allegedly due upon his withdrawal as a member, certain other alleged past-due amounts, and an alleged breach of fiduciary duty by former co-members of the Company. The Court dismissed all claims, holding that (i) the Court lacked subject matter jurisdiction over the buyout payment dispute because it was subject to arbitration; (ii) plaintiff’s allegations regarding other amounts owed failed to state claims upon which relief could be granted; and (iii) plaintiff’s claims for breach of duty were derivative claims for which plaintiff lacked standing.

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Chancery Court Holds Under-Manned Board’s Acts Were Invalid but Potentially Susceptible to Validation under DGCL §205

By: Scott E. Waxman and Michael C. Payant

In Applied Energetics, Inc. v. George Farley, et al., C.A. No. 2018-0489-JTL (Del. Ch., Aug. 3, 2020), the Delaware Court of Chancery (the “Court”) considered a motion for partial summary judgment by Applied Energetics, Inc. (the “Company”) relating to actions by George Farley (“Farley”) as sole member of the Company’s board of directors (the “Board”) and compensation committee (the “Committee”). The Court granted summary judgment for the Company that certain actions taken by Farley were invalid for failure of authorization but denied the Company’s motion for summary judgment on other claims, holding (a) that the actions could potentially be validated under §205 of the Delaware General Corporation Law (“DGCL”); and (b) Farley could potentially recover damages for an allegedly-agreed salary or under an unjust enrichment theory.

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Chancery Court Denies Assignor’s Inspection Demand under Real Party in Interest Rule, Prohibits Substitute Plaintiff

By: Scott E. Waxman and Michael C. Payant

In SolarReserve CSP Holdings, LLC v. Tonopah Solar Energy, LLC, C.A. No 2020-0064-JRS (Del. Ch. July 24, 2020), the Delaware Court of Chancery (the “Court”) examined an alleged breach of contract based on the denial of inspection rights to which SolarReserve CSP Holdings, LLC (“SR”) was allegedly entitled under the LLC Agreement (the “LLCA”) of Tonopah Solar Energy, LLC (the “Company”). The Court entered judgment for the Company, finding (i) SR was not a real party in interest under Chancery Court Rule 17 because it had made a complete assignment of its rights under the LLCA, and (ii) the real party in interest assignee was not entitled to inspection rights under the LLCA.

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Chancery Court Looks Past “Sham” Paper Trail to Determine Ownership of Holding Company for Argentina Media Conglomerate

By: Scott E. Waxman and Michael C. Payant

In Carlos Eduardo Lorefice Lynch, et al. v. R Angel Gonzalez Gonzalez, et al., C.A. No. 2019-0356-MTZ (Del. Ch. July 31, 2020), the Delaware Court of Chancery (the “Court”) examined an extensive paper trail purportedly documenting the transfer of majority beneficial ownership in an Argentinian company from a media mogul to his attorney, before holding that the media mogul should nevertheless be deemed the owner of the interest in question, because the documents (i) did not constitute a binding contract for the purported transfer to the attorney, (ii) were fraudulently induced by the attorney, and (iii) were the product of unclean hands such that it would be unjust to grant ownership to the attorney. 

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Oracle Special Litigation Committee Defeats Motion to Compel Production of Protected Work Product

By: Remsen Kinne and Michael C. Payant

In In re Oracle Corporation Derivative Litigation, Consolidated C.A. No. 2017-0337-SG (Del. Ch. July 9, 2020), the Delaware Court of Chancery (the “Court”) determined that a special litigation committee (the “SLC”) of the board of directors (the “Board”) of Oracle Corporation (“Oracle”) had properly asserted work production protection and denied lead plaintiff’s motion to compel production on the basis of (i) sufficient need and unavailability of information, (ii) waiver, or (iii) breach of fiduciary duty by the SLC.

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Chancery Court Declines to Dismiss Breach of Contract, Implied Covenant and Declaratory Judgment Claims Stemming from Termination Purportedly for Cause

By: Scott E. Waxman, Michael C. Payant, and Julia M. Knitter

In William Patrick Sheehan, et al. v. AssuredPartners, Inc., et al., C.A. No. 2019-0333-AML (Del. Ch. May 29, 2020), the Delaware Court of Chancery (the “Court”) granted in part and denied in part a motion to dismiss brought by insurance brokerage firm, AssuredPartners, Inc. (“AP Inc.”), and its private equity backers (collectively, the “Defendants”) finding that plaintiffs’ claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory judgment survived under the minimal pleading standard for a motion to dismiss.

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Court Relies on Canons of Construction to find LLC Agreement Consent Right Inapplicable to Contemplated Sale of Subsidiary Stock

By: Scott E. Waxman and Michael C. Payant

In AM General Holdings LLC v. The Renco Group, Inc., et al., CA. No. 7639 and The Renco Group, Inc. v. MacAndrews AMG Holdings, LLC, et al., C.A. No. 7668-VCS (Del. Ch. June 26, 2020), the Delaware Court of Chancery (the “Court”) considered the latest dispute in a nearly decade-long litigation between The Renco Group, Inc. (“Renco”) and MacAndrews AMG Holdings LLC (“MacAndrews”), regarding interpretation of the Limited Liability Company Agreement (the “Agreement”) for AM General Holdings LLC (“Holdco”). Relying on canons of construction, the Court determined the Agreement did not provide Renco a consent right with respect to a contemplated subsidiary sale, and granted MacAndrews’ motion for judgment on the pleadings.

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Court Finds Defendants Did Not Breach Fiduciary Duties by Causing Company to Accumulate Cash in Anticipation of Stock Redemption Rather than Investing in Long-Term Growth

By: David L. Forney and Michael C. Payant

In The Frederick Hsu Living Trust v. Oak Hill Capital Partners III, L.P., et al., C.A. No. 12108-VCL (Del. Ch. May 4, 2020), the Delaware Court of Chancery (the “Court”) held that the controlling stockholder, directors, and named officers of ODN Holding Corporation (the “Company”) had not breached their fiduciary duties to the Company when they chose to pursue a cash-accumulation strategy in anticipation of redeeming preferred shares, rather than investing in the Company’s business for long-term growth for the possible benefit of common stockholders.

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Chancery Court Declines to Dismiss Derivative Claims for Audit Committee Oversight Failure and Unjust Enrichment

By: Remsen Kinne and Michael C. Payant

In William Hughes, Jr. v. Xiaoming Hu, et al., C.A. No. 2019-0112-JTL (Del. Ch. April 27, 2020), the Delaware Court of Chancery (the “Court”) held that stockholder plaintiff’s failure to make a demand on the board of directors (the “Board”) was excused and therefore denied defendants’ motions to dismiss under Court of Chancery Rules 23.1 and 12(b)(6) derivative claims brought by plaintiff on behalf of Kandi Technologies Group, Inc., a public Delaware corporation based in China (the “Company”).  The derivative claims alleged that the Board, acting through its Audit Committee (the “Committee”), breached fiduciary duties by failing to implement effective oversight of the Company’s disclosure and financial information reporting controls and procedures and that as a result Company officers were unjustly enriched.

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Court Holds Trustee did Not Abuse Discretion in Rejecting Competing Acquisition Proposal for Liquidated Entity’s Assets

By: Scott E. Waxman and Michael C. Payant

In Acela Investments LLC, et al. v. Raymond DiFalco and Manish Shah, C.A. No. 2018-0558-AGB, (Del. Ch. April 27, 2020), the Delaware Court of Chancery (the “Court”) granted a motion by the liquidating trustee (the “Trustee”) to sell substantially all of the assets of Inspirion Delivery Services, LLC (“IDS” or the “Company”) after determining the Trustee had not abused his discretion in declining to consider a competing eleventh-hour proposal that failed to comply with bid requirements.

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Alleged Scheme to Exercise Partnership Agreement Call Right at Unfair Price Supports Breach, Tortious Interference Claims

By: Scott E. Waxman and Michael C. Payant

In In re CVR Refining, LP Unitholder Litigation, C.A. No. 2019-0062-KSJM (Del. Ch. Jan. 31, 2020), the Delaware Court of Chancery (the “Court”) concluded plaintiffs had pleaded reasonably conceivable breach of partnership agreement and tortious interference with contract claims in connection with an alleged scheme by defendants to exercise a contractual call right and buy out minority partnership unitholders at artificially depressed prices. The Court granted in part and denied in part defendants’ motion to dismiss.

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Chancery Court finds Commission under Sales Agreement was not “Required” such that entry into Sales Agreement Required Additional Approvals

By Scott E. Waxman and Michael C. Payant

In CompoSecure, L.L.C. v. CardUX, LLC f/k/a Affluent Card, LLC, C.A. No. 12524-VCL (Del. Ch. June 5, 2019), the Delaware Court of Chancery (the “Court”) concluded in a Report on Remand from the Delaware Supreme Court that a Sales Agreement (“Agreement”) entered into by CompoSecure, L.L.C. (“CompoSecure”) and CardUX, LLC (“CardUX”) was not subject to the heightened approval requirements contained in the CompoSecure LLC Agreement because the Agreement did not require CompoSecure to expend more than $500,000 in any fiscal year.

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