In Trascent Management Consulting, LLC v. George Bouri, C.A. No. 10915-VCMR (Del. Ch. Sept. 10, 2018), the Court of Chancery declared a limited liability company agreement unenforceable and rescinded a related employment agreement with the defendant, George Bouri, due to Bouri’s fraudulent and false statements that induced the plaintiff’s principal, Rakesh Kishan, to form Trascent Management Consulting, LLC (“Trascent”), and for Kishan and Trascent to enter into the LLC agreement and the employment agreement with Bouri. In addition, the Court awarded certain attorneys’ fees and costs to Trascent as sanctions for defendant’s continued fraudulent and false statements during the litigation proceedings. Read More
In Full Value Partners, L.P. v. Swiss Helvetia Fund, Inc., et. al., C.A. No. 2017-0303-AGB (Del. Ch. June 7, 2018), the Delaware Court of Chancery granted the plaintiff stockholder’s motion for an award of attorney’s fees under the corporate benefit doctrine because the plaintiff’s claim in the underlying stockholder litigation was meritorious when filed and produced a benefit to the defendant corporation.
In Richard B. Gamberg 2007 Family Trust v. United Restaurant Group, L.P., C.A. No. 10994-VCMR (Del. Ch. January 26, 2018), the Court of Chancery held that limited partner, Richard B. Gamberg 2007 Family Trust (the “Plaintiff”), failed to meet its burden of proof with respect to various claims against United Restaurant Group L.P. (the “Partnership”), Atlantic Coast Dining, Inc. (the “General Partner”), and the directors/shareholders of the General Partner (the “Shareholder Defendants”; together with the Partnership and the General Partner, the “Defendants”), which included a mistake-based reformation claim, among other breach of contract and breach of fiduciary duty claims.
In this case, Vice Chancellor Laster issued a memorandum opinion in Edward M. Weil, et al v. Vereit Operating Partnership, L.P., C.A. No. 2017-0613-JTL, granting partial summary judgment in favor of individual plaintiffs, who served as senior officers and members of the board of directors of Vereit, Inc, (“Vereit”) the sole general partner of Vereit Operating Partnership, L.P. (the “Partnership”). Read More
In Ensing v. Ensing, C.A. No. 12591-VCS (March. 6, 2017), Vice Chancellor Slights entered declaratory judgments in favor of the plaintiff, concluding that the defendant’s actions were null and void as a matter of law. A husband and wife, Dr. Hans Ensing (“Hans”) and Sara Ensing (“Sara”) own and operate a winery and boutique hotel in Italy. The businesses operate indirectly through two Delaware limited liability companies. Prior to the events leading up to this litigation, Sara was a manager and member of one of the entities and, through that entity, was manager of the other. Hans was neither a member nor manager of either entity. When Hans purported to remove Sara and appoint himself as manager of one of the two entities and then engaged in a series of transactions to divest Sara of her interests in the winery and hotel, Sara initiated this action.
In In Re Appraisal of Dell, C.A. No. 9322-VCL (Del. Ch. October 17, 2016), previously discussed here, the law firm representing Dell Inc.’s stockholders in appraisal proceedings challenging the valuation of shares in connection with Dell’s 2013 “go-private” merger was awarded approximately $4 million in advanced expenses and $4 million in attorneys’ fees. The Delaware Court of Chancery held that the amounts were reasonable and that the expenses and fees should be allocated pro rata among the appraisal class. Since this was a case where counsel had incurred significant out-of-pocket expenses, the court held that the approach that best balanced the interests of the attorneys and the class was to deduct reimbursable expenses first, then award a fee based on the net benefit achieved.
In Baker v. Sadiq, C.A. No. 9464-VCL (Del. Ch. August 16, 2016), the Court held that the proper calculation of an attorney’s contingency fee for a derivative action settled using the transitive property is based upon the actual settlement value. Baker concerned fees owed to plaintiff’s counsel (“Counsel”) after the settlement of a derivative action by minority shareholders for misappropriation by the majority shareholder. The settlement of those claims was a buyout of the minority shareholders at a better pro rata value than could be expected from the derivative action. By holding that the appropriate measure of fees is based upon actual cash payments, Plaintiff’s counsel received approximately one ninth of its expected award to be collected from an entity with no assets.
In Narayanan v. Sutherland Global Holdings C.A. No. 11757-VCMR (Del. Ch. July 5, 2016), Vice Chancellor Montgomery-Reeves of the Delaware Chancery Court held, in a post-trial opinion, that the bylaws of Sutherland Global Holdings, Inc. (“Sutherland”) and an indemnification agreement between Sutherland and Plaintiff Muthu Narayanan (“Plaintiff”) are disjunctive and must be read separately, allowing Plaintiff to prevail on his claim for advancement of legal fees and expenses.
In Joel Z. Hyatt and Albert A. Gore, Jr. v. Al Jazeera America Holdings II, LLC and Al Jazeera International (USA) Inc., the Delaware Court of Chancery reviewed a motion for summary judgment in connection with a dispute regarding the advancement of fees for the litigation of various post-merger indemnification claims. The Chancery Court held that the plaintiffs were entitled to advancement for certain claims, but not for others, depending on whether the underlying facts of each claim required the plaintiffs to defend their actions as former officers or directors.
By Eric Feldman and Michael Bill
On a motion for summary judgment in Marino v. Patriot Rail, the Delaware Court of Chancery confirmed, under Section 145 of the Delaware General Corporation Law (the “DGCL), that the advancement rights of officers and directors of a Delaware corporation, acting in their capacity as such, (i) continue after they leave office with respect to actions taken while in office, (ii) cannot be amended or eliminated retroactively unless the source of such rights provides otherwise, and (iii) do not apply to actions taken after an officer or director leaves office.
The case involves an underlying action that took place in a California court between Patriot Rail Company LLC (the “Company”) and Sierra Railroad Company (“Sierra”) which ended in favor of Sierra. Sierra moved to amend the judgment to add, among others, Gary Marino, the former Chairman, President and CEO of the Company, as a judgment debtor (the “Post-Judgment Motion”). The Company existed as a Delaware corporation until May 1, 2013, when it converted to a Delaware limited liability company. Prior to the time of such conversion, on June 18, 2012, the Company, which was partially owned indirectly by Marino, had been sold to a third party and Marino resigned from all of his positions with the Company. Marino asked the Company to advance the fees and expenses that he would incur to oppose Sierra’s Post-Judgment Motion, but the Company denied the request. Marino subsequently commenced this action seeking the advancements of attorneys’ fees and expenses; the Company answered, and the parties cross-moved for summary judgment. As the Company was a Delaware corporation during the time that Marino was an officer and director of it, and the conversion did not affect the obligations or liabilities of the Company arising prior to its conversion, the organizational documents of the Company during the time in which it was a Delaware corporation and the DGCL were relevant to the advancement issues.
The Company’s certificate of incorporation stated: “This Corporation shall indemnify and shall advance expenses on behalf of its officers and directors to the fullest extent permitted by law in existence either now or hereafter.” Marino and the Company disagreed as to whether this language continued to cover Marino after he ceased being an officer or director of the Company against claims arising during his service. Marino contended, and the Court agreed, that Marino remained covered for claims challenging the propriety of his actions taken while he was serving as an officer and director of the Company. The Court looked at Section 145 of the DGCL—Delaware’s indemnification and advancement statute—because the Company’s certificate of incorporation contemplated advancement “to the fullest extent permitted by law.” The Court paid particular attention to (i) Section 145(e), which authorizes advancements, (ii) Section 145(j), which addresses the extent to which a covered person’s indemnification and advancement rights continue after the person leaves their position, and (iii) Section 145(f), which restricts a corporation’s ability to alter the rights after a person has served in reliance upon them.
After looking at the statutory history of Section 145 and prior precedent, the Court determined that Section 145 allows a corporation to grant mandatory advancement rights to directors and officers that provide coverage conditioned solely on an undertaking (Section 145(e)). The granted rights continue to provide coverage for actions taken by individuals during their service, even after the individuals have ceased to serve, unless the governing provision clearly states otherwise (Section 145(j)). And, unless the governing provision provides otherwise, the granted rights cannot be altered or eliminated retroactively with respect to prior actions, after a director or officer has already exposed themselves to potential suit by acting on the corporation’s behalf (Section 145(f)). The Court noted that this structure is set up to “encourage capable men [and women] to serve as corporate directors” as they will be “secure in the knowledge that expenses incurred by them in upholding their honesty and integrity as directors will be borne by the corporation they serve.”
Thus, when Marino agreed to serve in a covered capacity, Marino became “entitled to receive mandatory indemnification and advancements to the fullest extent of Delaware law” as part of the consideration offered to him by the Company and was entitled to advancement for covered claims. The Court therefore found that Marino was entitled to receive advancement in the Sierra Post-Judgment Motion for actions taken by Marino during his service and in his capacity as a director or officer of the Company.
However, certain of the claims made by Sierra in the Post-Judgment Motion related to actions taken by Marino after he ceased serving as a director and officer of the Company and taken on behalf of himself or other entities which he directly or indirectly controlled. The Court found that Marino was not entitled to advancement with respect to any such claims.
In In re Trulia, Inc. Stockholder Litigation, C.A. No. 10020-CB (Del. Ch. Jan. 22, 2016), the Delaware Court of Chancery rejected a proposed disclosure-only settlement because the proposed disclosures were not “plainly” material and the settlement lacked sufficient consideration to warrant the broad release sought by defendants. The court stated that litigants who pursue disclosure-only settlements can expect “increasingly vigilant scrutiny” of the fairness of the “give” and “get” of such settlements. The court also used the opinion to discuss, more broadly, the dynamics that have led to the proliferation of disclosure settlements; focusing mainly on the concern that these settlements rarely yield genuine benefits for stockholders.
This action arose from the acquisition of Trulia, Inc. (“Trulia”) by Zillow, Inc. (“Zillow”) pursuant to a stock-for-stock merger. Following the announcement of the merger, certain Trulia stockholders brought actions in the Court of Chancery, alleging that the Trulia directors breached their fiduciary duties by approving the proposed merger at an unfair exchange rate and by disseminating inadequate disclosures in connection with the solicitation of the stockholder vote on the merger.
In Konstantino v. AngioScore, Inc. v. Quattro Vascular PTE Ltd, et al., the Delaware Court of Chancery reviewed a motion to dismiss filed by three Singapore entity defendants seeking dismissal of a third party claim brought by AngioScore, Inc. (“AngioScore”) for lack of personal jurisdiction and by the Singapore entity defendants and a Delaware entity defendant for failure to state a claim for contribution and tortious interference with contract in connection with the manufacture and sale of a competing product. The Court of Chancery denied the third party defendants’ motion in part, holding that the Court had personal jurisdiction over the three Singapore entity defendants under the conspiracy theory of jurisdiction, and that AngioScore stated a claim for contribution from all of the third party defendants, and granted the motion in part, holding that AngioScore had not stated a claim for tortious interference with contract.