Rich Minice – Page 2 – Delaware Docket

SOPHISTICATED PARTY OR NOT, LLC AGREEMENT STILL GOVERNS

Jul 10 2019

In Durham v. Grapetree, LLC, Civil Action No. 2018-0174-SG (Del. Ch. June 4, 2019), the Delaware Court of Chancery granted the request made by Grapetree, LLC ( “Grapetree”) to shift its fees incurred in defending this litigation to the mostly unsuccessful plaintiff, Andrew Durham (“Durham”). In shifting Grapetree’s fees under this litigation, the Court reinforced the longstanding principal that Delaware law is contractarian in nature, and that parties shall be held to their bargains regardless of their legal sophistication. The underlying litigation and the Court’s initial findings (the “Books and Records Action”) were previously summarized by this blog here.

CONTRACTUAL AMBIGUITIES FAVOR THE NON-MOVING PARTY AT MOTION TO DISMISS STAGE

May 16 2019

By: Scott Waxman and Rich Minice

In Coyne v. Fusion Healthworks, LLC Civil Action No. 2018-0011-MTZ (Del. Ch. April 30, 2019), the Delaware Court of Chancery denied a motion to dismiss for failure to state a claim (the “Motion”) filed by Fusion Healthworks, LLC (the “LLC”), James Sheehan with his personal medical practice, and Andrew Lietzke, with his personal medical practice (collectively, the “Defendants”). In denying the Motion, the court reiterated the standing principal that, when presented with a contractual ambiguity, dismissal at the motion to dismiss stage is only appropriate “if the defendants’ interpretation [of the ambiguity] is the only reasonable construction as a matter of law.” Coyne highlights the critical nature of competent drafting of LLC Agreements.

NO LOVE LOST IN BOOKS AND RECORDS REQUESTS

Mar 12 2019

By: Scott Waxman and Rich Minice

In Durham v. Grapetree, LLC, Civil Action No. 2018-0174-SG (Del. Ch. January 31, 2019), the Delaware Court of Chancery granted in part and denied in part a suit to compel books and records under Section 18-305 of the Delaware Limited Liability Company Act. Durham is illustrative of the rule that books and records requests are not a proper method to conduct plenary discovery into a business entity or its management, especially if driven by animus, but must be related to a proper purpose established by the requestor in his or her demand on the business.

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

Dec 18 2018

By: Annette Becker & Rich 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.

CONTROLLER BREACHES FIDUCIARY DUTIES BY COERCING ONEROUS FINANCING TERMS

Sep 06 2018

By: Kent Carlson and Rich Minice

In Basho Technologies, Inc. v. Georgetown Basho Investors, LLC, C.A. No. 11802-VCL (Del. Ch. July 6, 2018), the Delaware Court of Chancery reaffirmed the principle that a stockholder with actual control of a corporation violates its fiduciary duties by advancing its own interests to the detriment of the corporation. Applying the entire fairness standard in its decision following trial, the court held that Georgetown Basho Investors, LLC (“Georgetown”), the controlling stockholder of Basho Technologies, Inc. (“Basho”), owed and breached fiduciary duties to Basho as a stockholder with actual-but not majority-control. The court ultimately awarded plaintiffs Earl Gallaher (“Gallaher”) and various investment funds under his control (the “Plaintiff(s)”) damages in the aggregate amount of $20,268,878.

Chancery Court Awards Damages for Breach of Fiduciary Duty Stemming from Director’s Refusal to Sign Self-Help Documents

Jul 16 2018

By: C.J. Voss and Rich Minice

In CertiSign Holding, Inc. v. Sergio Kulikovsky, C.A. No. 12055-VCS, the Court found that Sergio Kulikovsky (“Kulikovsky”), a former director of CertiSign Holding, Inc. (“CertiSign”), had breached his fiduciary duty of loyalty to CertiSign by actively sabotaging corporate self-help efforts in a bid to advance his own personal objectives. The Court also denied Kulikovsky’s counterclaims for judicial validation of certain stock option grants and the assumption by CertiSign of a debt owed to Kulikovsky, and awarded Certisign damages in the amount of $390,455.20 for the “legal fees and expenses incurred by CertiSign in connection with its efforts to remedy its defective capitalization and board issues.”

CONTROLLING STOCKHOLDER CANNOT ADVANCE ITS OWN SELF-INTEREST AT EXPENSE OF MINORITY STOCKHOLDERS

May 25 2018

By: C. J. Voss and Rich Minice

In Carr v. New Enterprise Associates, Inc., C.A. No. 20170381-AGB (Del. Ch. Mar. 26, 2018), the Delaware Court of Chancery, in denying in part and granting in part a motion to dismiss, reaffirmed the principle that a controlling stockholder, when acting outside its capacity as a stockholder, cannot use the corporation to advance the controlling stockholder’s self-interest at the expense of minority stockholders. In the context of defendants’ motion to dismiss, the court found that it was reasonably conceivable that the controlling stockholder of American Cardiac Therapeutics, Inc. (“ACT”) and its conflicted board of directors had breached their duty of loyalty to ACT’s minority stockholders by approving a sale of a warrant to a third party that included an option to acquire ACT, allegedly at an unfairly low price, in order to incentivize the third party to also acquire and invest in the controlling stockholder’s other portfolio companies.

PLAINTIFFS WERE UNABLE TO ROUSE SUPPORT FOR THEIR POSITION THAT A MINORITY STOCKHOLDER WAS A CONTROLLER AND BREACHED FIDUCIARY DUTIES BECAUSE THEY DID NOT PLEAD SUFFICIENT FACTS

Apr 17 2018

By: Annette Becker and Rich Minice

In In re Rouse Properties, Inc. Fiduciary Litigation, C.A. No. 12194-VCS, the George Leon Family Trust and Dr. Robert A Corwin (the “Plaintiffs”) sought to recover damages on behalf of Rouse Properties Inc. (“Rouse”) stockholders, for breach of fiduciary duties and aiding and abetting breaches of fiduciary duties against Brookfield Asset Management Inc. (“Brookfield”) and five Rouse directors individually arising out of a July 2016 merger between two mall real estate holding companies (the “Merger”). The court dismissed all claims finding that Brookfield was not a minority controlling stockholder of Rouse and did not wield undue influence over the board of directors of Rouse in general or during Merger discussions and that the Plaintiffs failed to well plead that the stockholder vote approving the Merger was uninformed or coerced.

CHANCERY COURT HOLDS BUSINESS STRATEGY DISPUTES MAY NOT BE RESOLVED BY APPOINTMENT OF A RECEIVER UNDER SECTION 291

Jan 04 2018

By: Annette Becker and Rich Minice

In, In re: Geneius Biotechnology, Inc., C.A. No. 2017-0297-TMR (Del. Ch. Dec. 8, 2017), the Delaware Court of Chancery denied a minority stockholder’s petition for the appointment of a neutral third-party receiver under Section 291 of the Delaware General Corporation Law (“DGCL”) because the petitioner minority stockholder failed to prove, by clear and convincing evidence, that Geneius Biotechnology, Inc. (“Geneius”) was insolvent. The court held that Section 291 actions are not to be used as a method of resolving business strategy disputes between stockholders and management.

Author:Rich Minice