Derivative Claim – Page 3 – Delaware Docket

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

Apr 26 2017

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.

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

Feb 07 2017

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.

Chancery Court Dismisses Derivative Breach of Fiduciary Duty Claims as Improperly Pled and the Requests for Declaratory Judgment as Not Ripe

Oct 14 2016

By: Annette Becker and Makda Goitom

In Chester County Employees’ Retirement Fund v. New Residential Investment Corp., No. 11058-VCMR (Del. Ch. Oct. 7, 2016), the Court of Chancery granted the motion to dismiss brought by defendants (the members of the board of directors of New Residential Corp. (“New Residential”), its manager, the manager’s owner, and its controlling stockholder: (i) for an improperly pled derivative claim (with leave to replead) brought against the defendants for breach of fiduciary duty by the plaintiff, a stockholder of New Residential, (ii) for plaintiff’s failure to sufficiently plead futility in demanding that the board of New Residential bring the derivative suit, and (iii) as to declaratory judgments sought by plaintiff with respect to the Defendants’ liability under certain documents as not being ripe (with leave to replead).

Chancery Court Denies Motions for Summary Judgment in Case Brought by Minority Stockholders against Controlling Stockholders for Diversion of Equity as a Result of Breach of Duties

Mar 11 2016

By Whitney Smith and Kevin Szu-Tu

In Fotta v. Morgan, C.A. No. 8230-VCG (Feb. 29, 2016), Vice Chancellor Glasscock denied cross motions for summary judgment and granted a motion to dismiss for failure to comply with Rule 23.1. After determining that factual issues remained as to causes of action brought by certain stockholders of First Orion Corp. for waste, breach of fiduciary duty, and statutory claims, the Court of Chancery was unable to determine whether a significant creditor to nominal defendant First Orion Corp. used its control over the board of directors to divert equity to itself in breach of duties owed to the common stockholders.

Chancery Court Holds That a Limited Partner’s Claims are Dual-Natured and Can Be Pursued After a Related-Party Merger; $171 Million Award to Be Recovered Pro Rata By Unaffiliated Limited Partners

Dec 09 2015

By Scott Waxman and Joshua Haft

The Chancery Court held that a plaintiff’s claim that a general partner was liable for breach of a limited partnership agreement, for which the general partner was previously found liable by the Chancery Court, was best viewed as a dual-natured claim. Dual-natured claims should be viewed as derivative for purposes of Chancery Court Rule 23.1 and the demand doctrine, but should be viewed as direct for purposes of claim termination after a merger that extinguished a limited partnership. Thus, the Chancery Court granted pro-rata recovery of a liability award for breach of a limited partnership agreement to limited partners who were not affiliated with the general partner at the time of the related-party merger that resulted in termination of the limited partnership.

Delaware Chancery Court Denies Creditor Plaintiff’s Breach of Fiduciary Duty, Fraudulent Transfer, and Breach of Covenant Claims

Oct 30 2015

By Scott Waxman and Dotun Obadina

In Quadrant Structured Products Company v. Vertin, plaintiff creditor Quadrant Structured Products Company, Ltd. (“Quadrant”) asserted claims against defendant Athilon Capital Corporation (“Athilon” or the “Company”), challenging transactions made by Athilon in which Athilon purchased securities and notes from Merced Capital, L.P. and its affiliates (together, “Merced”), owners of 100% of the Athilon’s equity and significant amounts of Athilon’s publicly-traded junior and senior notes.[1] Quadrant contended at trial that the repurchase of Merced’s notes breached express covenants in the indenture governing the notes and also violated the implied covenant of good faith and fair dealing. Quadrant also contended that the repurchases of the notes constituted a fraudulent transfer. Finally, relying on its status as a creditor of an insolvent company, Quadrant claimed derivatively that the repurchases of the notes and securities constituted breaches of fiduciary duty by Merced and the individual defendants, who comprised Athilon’s board of directors. The court rejected all of Quadrant’s claims.

Delaware Chancery Court Dismisses Claims Involving a Related Party Transaction with a Controlling Stockholder under Court of Chancery Rules 23.1 and 12(b)(6)

Aug 04 2015

By Kristy Harlan and Stephanie S. Liu

In Teamsters Union 25 Health Services & Insurance Plan v. Baiera, et al, a stockholder of Orbitz Worldwide, Inc. challenged the fairness of the terms of a five-year services agreement that Orbitz entered into with a group of entities affiliated with Travelport Limited, a controlling shareholder of Orbitz when the agreement was negotiated and signed. The plaintiff asserted four derivative claims challenging the services agreement and a separate putative class claim for breach of fiduciary duty against Orbitz’s directors for allegedly violating the rules of the New York Stock Exchange (NYSE). Defendants moved to dismiss plaintiff’s claims under Court of Chancery Rule 23.1 for failure to make a demand or to adequately plead demand is excused and under Court of Chancery Rule 12(b)(6) for failure to state a claim upon which relief may be granted. The Delaware Court of Chancery concluded that demand was not excused as to any of plaintiff’s derivative claims and that it was not reasonably conceivable that the plaintiff could establish that Orbitz’s directors caused Orbitz to violate the NYSE Rules. Thus, the Court granted Defendants’ motion to dismiss the derivative claims under Rule 23.1 and the NYSE-related claim under Rule 12(b)(6).

Plaintiff Teamsters Union 25 Health Services & Insurance Plan (“Plaintiff”) has been a stockholder of Orbitz Worldwide, Inc. (“Orbitz”), an online travel company, at all relevant times with respect to its claims. Nominal Defendant. The Travelport Defendants (“Travelport”), which were majority owned by Defendant Blackstone Group LP (“Blackstone”), are group of entities affiliated with Travelport Limited, which provides transaction processing services to travel companies. The other defendants included Orbitz’s board of directors when the company entered into the New Agreement (the “Agreement Board”), Orbtiz’s board of directors when Plaintiff initiated this action (the “Demand Board”), and Orbitz’s current board of directors (“Current Board”).

Chancery Court Dismisses Derivative Lawsuit against GM Directors Relating to Recalled Ignition Switches, Finding That Plaintiffs Failed to Show Demand Futility

Jul 10 2015

By Scott Waxman and Lauren Garraux

In a June 26, 2015 Memorandum Opinion, Vice Chancellor Sam Glasscock III dismissed a derivative complaint filed by stockholders of General Motors (“GM”) relating to defective ignition switches that led to the recall of approximately 13 million GM vehicles beginning in February 2014. According to Vice Chancellor Glasscock, Plaintiffs failed to adequately plead bad faith on the part of the GM directors named as defendants in the lawsuit and, therefore, failed to show demand futility under Chancery Rule 23.1.

The general facts underlying this derivative lawsuit have been widely publicized and relate to GM’s recall of approximately 13 million vehicles for issues with the vehicles’ ignition switch, which caused a vehicle’s engine and electrical system to shut off, disabling power steering and power brakes and causing the vehicle’s airbags to not deploy in the event of a crash.

Delaware Court of Chancery Dismisses Shareholder Derivative Action Against Interested Directors Following Secondary Offering

Jun 05 2015

By Annette Becker and Mark Hammes

In In re Molycorp, Inc. Shareholder Derivative Litigation, the Delaware Court of Chancery dismissed claims brought against director representatives of private equity investors for breach of fiduciary duties, aiding and abetting, and unjust enrichment for failure to state a claim. The Court held that the private equity investors along with certain directors exercised their contractual rights to sell their stock in Molycorp Inc. a publicly traded corporation (“Molycorp”) in a secondary offering and the directors were under no obligation to delay such a demand registration during a time in which Molycorp was experiencing a cash shortfall.

Molycorp was engaged in the production and sale of rare earth oxides. Before Molycorp’s July 2010 IPO, three initial private equity investors (PEIs) negotiated a Registration Rights Agreement. The agreement secured the PEIs right to demand that Molycorp register their shares in a secondary offering. The results of the July 2010 IPO did not yield the funds expected, and a secondary offering of Molycorp shares in February 2011 left the company still short on cash. A potential loan from the Department of Energy fell through, and potential financing arrangements with two other companies looked increasingly unlikely. In May 2011, the PEIs exercised their demand registration rights, and the offering was held in June 2011. Due to a recent spike in the price of rare earth oxides, the PEIs (and several directors appointed by the PEIs) sold their shares in the resulting June offering at an inflated value. In September 2011, the rare earth oxide bubble burst. Subsequent efforts by Molycorp to make up for its cash shortfall by issuing convertible notes left it with inadequate funds to implement its planned production increase. As a result Molycorp missed out on potential profits from the rare earth element bubble.

Tossed Out With The Weeds – Delaware Chancery Court Dismisses Derivative Action Alleging Breaches of Fiduciary Duty by DuPont Directors and Officers

May 18 2015

By Holly Vance and Jonathan Miner

In Ironworkers v. Andreotti, Vice Chancellor Glasscock of the Delaware Chancery Court granted DuPont’s motion to dismiss for plaintiff’s failure to properly state a derivative action claim. In reaching its decision, the Court affirmed that the business judgment rule is the standard of review used in derivative actions where the plaintiff has made a demand of the board of directors and the board declined such demand.

Beginning in 2002 DuPont began to develop genetically modified corn and soybean seeds to compete with Monsanto’s “Roundup Ready” seeds, which have the ability to survive application herbicides, including Monsanto’s own Roundup herbicide. DuPont referred to the product it was developing as “GAT”. During this same time period, DuPont was also licensing the Roundup Ready gene trait from Monsanto. DuPont encountered setbacks in field testing of GAT and as a result began experiments in combining GAT together with the Roundup Ready gene trait. The relationship between DuPont and Monsanto deteriorated as DuPont attempted to develop its GAT products, and in May 2009 Monsanto brought suit against DuPont for breaches of the license agreement for the Roundup Ready gene trait, patent infringement and other related claims. In July 2012 a jury found in favor of Monsanto and awarded it $1.2 billion in damages. DuPont began steps to appeal the decision and began negotiating a settlement with Monsanto. On March 25, 2013 DuPont and Monsanto entered into a settlement agreement that was structured as a new license agreement and included royalty payments to Monsanto of $1.75 billion over 10 years for the rights to use the patent for the Roundup Ready gene trait.

Catagory:Derivative Claim