Topic: Derivative Claim

Chancery Court Dismisses Derivative Suit Against Blue Bell Officers and Directors

By: Scott E. Waxman and Stephanie S. Liu

In Jack L. Marchand II v. John W. Barnhill, Jr., et al, the Delaware Chancery Court dismissed Plaintiff’s complaint under Court of Chancery Rule 23.1, finding that Plaintiff failed to plead particularized facts that an appeal for board action on the complaint would have been futile or that a majority of the company’s board lacked the independence needed to respond.

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Board’s Lack of Independence from Interested Director Excuses Stockholder Demand as Futile

By: Christopher B. Tillson and J. Tyler Moser

In Sciabacucchi v. Liberty Broadband Corp., et al., C.A. No. 11418-VCG (Del. Ch. July 26, 2018), the Delaware Court of Chancery denied in part a motion to dismiss brought by defendants Liberty Broadband Corporation (“Liberty”), Liberty’s largest stockholder, and the board of directors of Charter Communications, Inc. (“Charter,” and collectively “Defendants”), for failure to plead demand futility.  The Court ruled that the Plaintiff, a stockholder of Charter, pleaded sufficient facts to support a reasonable inference that the influence of Liberty’s largest stockholder would prevent the Charter board of directors from exercising independent and disinterested business judgment when considering a demand to bring a lawsuit on behalf of the corporation.

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Chancery Court Allows Complaint Alleging Waste of Corporate Assets to Move Forward to Discovery as a Result of Extreme Facts

By Annette Becker and Rashida Stevens

In R.A. Feuer on behalf of CBS Corporation v. Sumner M. Redstone (C.A. No. 12575-CB (Del. Ch. April 19, 2018)), R. A. Feuer (“Plaintiff”), a stockholder of CBS Corporation (“CBS”) brought a derivative suit against the directors of CBS Corporation (“Board”) alleging corporate waste, bad faith, and unjust enrichment for compensation in excess of $13 million dollars paid to Sumner Redstone, the controlling stockholder, former executive chairman and chairman emeritus of CBS (“Redstone”).  The payments were made under an extreme set of circumstances that resulted in the claims partially surviving a Rule 23.1 motion to dismiss for failure to make a pre-suit demand on the board and a 12(b)(6) motion to dismiss for failure to state a claim upon which relief could be granted. Read More

Chancery Court Denies In Part Motion to Dismiss Breach of Contract and Breach of Fiduciary Duties Claims

By Shoshannah Katz and Priya Chadha

In Feldman v. Soon-Shiong, et al. (C.A No. 2017-0487-AGB), the Delaware Court of Chancery denied in part and granted in part a motion to dismiss claims involving, among other things, breach of contract and breach of the fiduciary duty of loyalty, following a defendant’s withdrawal of $47 million from a company bank account.

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

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.

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Court of Chancery Holds That Structurally Coercive Stockholder Vote Does Not Ratify Fiduciary Actions Related To Shares Issuance and Proxy Grant To Stockholder

By: Remsen Kinne and Tami Mack

In Sciabacucchi v. Liberty Broadband Corporation, C.A. No. 11418-VCG (Del. Ch. May 31, 2017), the Court of Chancery ruled on a motion to dismiss by defendants Liberty Broadband Corporation (“Liberty”), a stockholder of Charter Communications, Inc. (“Charter”) and officers and directors of Charter.  The Court held that facts alleged by plaintiff, a Charter stockholder, supported the inference that a vote by Charter stockholders approving a shares issuance to and voting proxy agreement with Liberty was structurally coercive.  The Court determined that since the vote was coercive, it did not ratify actions by Liberty and Charter’s directors and officers claimed by plaintiff to have breached fiduciary duties of loyalty.  As a result, the Court held, defendants were not entitled to dismissal of plaintiff’s claims solely on the basis that stockholder vote ratification operated to “cleanse” fiduciary duties breaches.

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Chancery Court Dismisses Inseparable Fraud Claim Based on Derivative Claims That Former Shareholders Lacked Standing To Maintain

By Scott E. Waxman and Russell E. Deutsch

In In re Massey Energy Company Derivative And Class Action Litigation, C.A. No. 5430-CB (Del. Ch. May 4, 2017), the Chancery Court dismissed both the direct class action claim for “inseparable fraud” and the derivative claim brought by the former shareholders of Massey Energy (“Massey” or the “Corporation”) against the former directors and officers of Massey for breaching their fiduciary duties by causing Massey to operate in willful disregard of safety regulations. The court dismissed the derivative claim holding that the plaintiffs were not continuous shareholders, and therefore lacked standing to bring a derivative claim after Massey merged into Alpha Natural Resources, Inc. (Alpha) in June of 2011. The court dismissed the plaintiffs’ direct claim for “inseparable fraud” claim holding that, though pled as a direct claim, it was, in fact, also a derivative claim that the plaintiffs’ lacked the standing to maintain.

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Chancery Court Dismisses Derivative Claim Over Board’s Defensive Measures Against a Takeover as Stockholder Failed to Plead Specific Facts

By Rem Kinne and Peter Soskin

In Ryan v. Armstrong, et al., C.A. No. 12717-VCG (Del. Ch. May 15, 2017), the Delaware Chancery Court dismissed the derivative action brought by a Plaintiff-shareholder (“Plaintiff”) against specified members of the board of directors (“Defendants”) of nominal defendant The Williams Companies (“Williams”).  Plaintiff brought his claim against the Defendants without first demanding that the board pursue an action following Williams’ decision to allegedly undertake defensive measures against a takeover.  The court granted Defendants’ motion to dismiss holding that Plaintiff failed to plead facts demonstrating that an exception to the demand requirement of Court of Chancery Rule 23.1 applied.

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Failure to Make Demand to the Board of Directors Dooms 50% Owner’s Breach of Fiduciary Duty Claims Against Co-Owner

By: Michelle McCreery Repp and Benjamin Kendall

In Dietrichson v. Knott, C.A. No. 11965-VCMR (Del. Ch. Apr. 19, 2017), the Chancery Court dismissed the entire complaint brought by  one member of a limited liability company against another member for paying himself an unauthorized salary and misappropriating the proceeds of a sale of the company’s assets, concluding that the claims made were derivative rather than direct stockholder claims.  The Court also held that plaintiff’s claims were not “dual-natured” (i.e., having both direct and derivative aspects), because the plaintiff failed to plead that the transaction resulted in both an improper transfer of economic value and voting power from the minority equity holders to the controlling equity holder.

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Chancery Court Dismisses All Claims for Breach of Fiduciary Duty, Fraud, and Company Dissolution Brought by Creditor

By: Scott Waxman and H. Corinne Smith

In Steven B. Trusa v. Norman Nepo, et al., Civil Action No. 12071-VCMR, the Delaware Court of Chancery granted defendants’ motion to dismiss, holding that the creditor plaintiff lacked standing to pursue a claim for breach of fiduciary duty and a claim for dissolution of the company, that he failed to state a claim for the remaining assertions, and that the declaratory judgment claim was duplicative.

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Court of Chancery Explains Demand Futility Pleading Requirements in the Context of Delaware LLCs

By: Scott Waxman and Zack Sager

In LVI Group Investments, LLC v. NCM Group Holdings, LLC, the Court of Chancery of the State of Delaware looked to Delaware corporate law for demand futility pleading requirements in dismissing a derivative claim for breach of fiduciary duties against managers of a Delaware limited liability company (an “LLC”).  In addition, the Court of Chancery analyzed the requirements for a member of an LLC sufficiently to plead a direct claim against managers of the LLC and analyzed the requirements for pleading a claim of fraud.

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Derivative Claims of Improper Demand Refusal for Grossly Negligent Investigations and Bad Faith Must Be Adequately Pled

By: Megan Wotherspoon and Calvin Kennedy

The court found that a board of directors’ decision to refuse demand in connection with a stockholder derivative claim satisfies the business judgment rule if the board’s investigation is reasonable and the board acts in good faith.  By this opinion, the court granted the defendants’ motion to dismiss under Court of Chancery Rule 23.1 in light of plaintiff’s failure to adequately plead improper demand refusal.

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