Topic: Breach of Fiduciary Duty

Chancery Court Holds Late Breach of Fiduciary Duty Claim Is Barred By Laches

By: Annette Becker; Pouya Ahmadi; Julia Knitter

In Gallagher Industries, LLC v. William M. Addy, et al., C.A. No. 2018-0106-SG (Del. Ch. May 29, 2020), the Delaware Court of Chancery (the “Court”) held that because Gallagher Industries, LLC (the “Plaintiff”) decided not to pursue an appraisal action following a problematic cash-out merger five years earlier, the Plaintiff’s tolling claim against William M. Addy and Joseph E. Eastin (the “Defendants”) for breach of fiduciary duty for disclosure weaknesses was barred by laches.

Read More

Master in Chancery Dismissive of Fiduciary Seeking Dismissal, Applies Familiar 12(b)(6) Standard

By: Rich Minice and Annette Becker

In Hill et al. v. Myers et al., C.A. No. 2018-0160 (Del. Ch. June 15, 2020), Master in Chancery Selena Molina (“Master”) issued a final report, recommending the Court of Chancery deny defendant’s (decedent’s close friend and confident, and attorney-in-fact during his final years)  motion to dismiss claims of undue influence and breach of fiduciary duty.  The Master determined that the motion to dismiss  brought by family members of the late G. Robert Dickerson, should be denied because the family members provided sufficient factual allegations to support their claims and establish standing. 

Read More

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.

Read More

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.

Read More

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.

Read More

Court of Chancery Analyzes LLC Valuation Reports in Connection With Breach of Fiduciary Duty

By: Scott Waxman and Zack Sager

In Zachman v. Real Time Cloud Services, LLC, the Delaware Court of Chancery analyzed competing expert reports valuing a Delaware limited liability company in connection with a breach of fiduciary duty claim.  The Court also denied motions to exclude a valuation report and for sanctions relating to discovery abuses, and denied the Delaware limited liability company’s counterclaims for conversion and tortious interference with contract.

Read More

ATTEMPT TO SEIZE CONTROL OF A BEVERAGE COMPANY? COURT OF CHANCERY FINDS INSUFFICIENT EVIDENCE OF CIVIL CONSPIRACY

By: C. Cartwright Bibee and Claire Suni

In Todd O’Gara and Wanu Water, Inc. v. Sheldon Coleman, et al., C.A. No. 2018-0708-KSJM (Del. Ch. Feb. 14, 2020), the Delaware Court of Chancery (the “Court”) granted a motion to dismiss claims made in connection with an alleged conspiracy to seize control of a beverage company by certain former directors and current stockholders. The founder and the company itself filed the complaint asserting claims for breach of fiduciary duty, tortious interference with business relations and contract, civil conspiracy, and libel. The Court found that the complaint failed to plead facts satisfying the essential elements of each claim and, furthermore, did not establish personal jurisdiction over certain of the defendants.

Read More

Derivative Suit Dismissed for Failing to Plead Demand Futility

By: Rem Kinne and Zack Sager

In Shabbouei v. Potdevin, C.A. No. 2018-0847-JRS (Del. Ch. Apr. 2, 2020), the Delaware Court of Chancery dismissed a derivative suit against the board of directors (the “Board”) of lululemon athletica inc. (the “Company”) by a Company stockholder (“Plaintiff”) for failing to plead demand futility.  The Court held that Plaintiff did not plead with the requisite particularity that the Board was self-interested in a Separation Agreement with the Company’s CEO Laurent Potdevin (“Potdevin”) negotiated by the Board and that the Board’s decision to settle with, instead of firing, Potdevin for cause was outside the bounds of proper business judgment.

Read More

Delaware Court of Chancery Interprets “Sufficient Particularity” Pleading Standard Under Rule 23.1

By Annette E. Becker and Frank J. Mazzucco

In Robert Elburn v. Robert Albanese et al. and Investors Bancorp, Inc.,C.A. No. 2019-0774-JRS (Del. Ch. Apr. 21, 2020), defendants moved to dismiss a complaint under Court of Chancery Rules 12(b)(6) and 23.1 for failure to state viable claims and failure to plead demand futility.  The Delaware Court of Chancery (the “Court”) interpreted the “sufficient particularity” pleading standard under Rule 23.1, noting that demand futility was pled with sufficient particularity to raise doubt that the board of directors could act impartially in response to a litigation demand.

Read More

WINDFALL OR FAIR? BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT CLAIM SURVIVES MOTION TO DISMISS

By Whitney J. Smith and Mehreen Ahmed

In Gary D.  Voigt v. James S. Metcalf et. al. and NCI Building Systems, Inc., C.A. No. 2018-0828-JTL (Del Ch. Feb. 10, 2020), the court denied defendants’ motion to dismiss, finding that the transaction at issue should be reviewed under the entire fairness standard and that the plaintiff, a stockholder of NCI Building Systems, Inc. (“NCI”), successfully stated claims for breach of fiduciary duty and unjust enrichment against private equity firm Clayton, Dubilier, & Rice (“CD&R”) and most of NCI’s directors in connection with a stock-for-stock merger between NCI and Ply Gem Parent, LLC (“Ply Gem”). The headline issue for the motion to dismiss was whether the plaintiff had pled facts that made it reasonably conceivable that CD&R controlled NCI despite owning less than a majority of NCI’s outstanding shares.

Read More

Chancery Orders Accounting for Payments to Former Director and CEO Affiliate; Rejects Most Breach of Fiduciary Duty Claims

By: Remsen Kinne and Pouya Ahmadi

In Avande, Inc. v. Shawn Evans, C.A. No. 2018-0203-AGB (Del. Ch. Aug. 13, 2019), the Court of Chancery rejected most of the claims brought by Avande, Inc. (“Avande”) against Avande’s former director and chief executive officer (“CEO”) Shawn Evans (“Evans”) other than a claim for breach of fiduciary duty for engaging in self-interested transactions, authorizing improper expenditures and failure to maintain appropriate documentation of expenditures. The Court awarded Avande only $21,817.70 of the more than $5.3 million in damages sought to recover from Evans. The Court held that DC Risk Solutions, Inc. (“DC Risk”), an affiliate of Evans that provided Avande insurance broker services and bookkeeping services, would be liable as an aider and abettor for any damages that are assessed as a result of the accounting ordered by the Court as to payments made to DC Risk.

Read More

Chancery Court Calls Plaintiffs’ Bet by Granting in Part and Denying in Part Partial Motion to Dismiss Breach of Fiduciary Duty Claims in Case Alleging Failure to Disclose Material Facts and Structuring a Transaction for Defendants’ Personal Financial Benefit

By Joanna Diakos and Alidad Vakili

The Delaware Court of Chancery granted in part and denied in part Plaintiff’s partial motion to dismiss, finding that the standard for breach of fiduciary duty was not met as against certain directors and officers of the Company based on allegations they failed to disclose facts relating to a tender offer, but was met as against the directors and one of the officers on allegations that they approved a tender offer where they were expected to receive a personal financial benefit.

Read More

Copyright © 2019, K&L Gates LLP. All Rights Reserved.