In Craig T. Bouchard v. Braidy Industries, Inc., et al., Case No. 2020-0097-KSJM (Del. Ch. Apr. 28, 2020), the Delaware Court of Chancery addressed various motions filed by both Plaintiff and Defendants, including Defendants’ motions to dismiss for lack of personal jurisdiction and failure to state a claim, Plaintiff’s motion for judgment on the pleadings regarding an individual defendant’s defense, and Plaintiff’s motion for summary judgment. Plaintiff Craig Bouchard filed suit against Defendants claiming breach of contract regarding a voting agreement to which Bouchard and each of Defendants are a party. The Court granted the motions to dismiss for lack of personal jurisdiction over Defendants. Further, the Court granted Plaintiff’s motion for judgment on the pleadings regarding the defense of unclean hands asserted by Defendant Braidy Industries, Inc. Lastly, the Court denied Plaintiff’s motion for summary judgment on his breach of contract claim, finding that the factual records needed further development.Read More
In Williams v. Ji, C.A. No. 12729-VCMR (Del. Ch. June 28, 2017), the Delaware Court of Chancery denied Defendants’ motion to dismiss, holding that the option and warrant grants and voting agreements in question were subject to entire fairness and that the Defendant directors had not carried their burden at that stage. The Defendants also moved to stay in favor of an earlier filed case in the Court, but the motion was denied as moot because the earlier filed case had settled.
On August 25, 2014, Vice Chancellor J. Travis Laster denied a stipulated dismissal order involving the payment of a “mootness fee” as part of the settlement of a disclosure claim because it did not comply with the requirements of In re Advanced Mammography Sys., Inc. S’holders Litig., 1996 WL 633409 (Del. Ch. Oct. 30, 1996).
Astex Pharmaceuticals, Inc. (“Astex”) and Otsuka Pharmaceutical Co, Ltd. (“Otsuka”) entered into an Agreement and Plan of Merger. Various stockholder plaintiffs filed lawsuits asserting claims against Astex, its Board of Directors, and Otsuka, and the court certified a class. One claim asserted that Astex’s stockholders lacked sufficient information to make an informed decision about tendering their shares or seeking appraisal. In response, Astex filed a supplemental Schedule 14D-9 containing additional disclosures on October 1, 2013. After the defendants moved for judgment on the pleadings, the named plaintiffs concluded that their remaining claims lacked merit. The parties then submitted a stipulated dismissal order, which included an agreement whereby defendants would pay a mootness fee relating to the disclosure claim. The court denied the proposed dismissal order pending further submission by the parties explaining how they complied, or proposed to comply, with Advanced Mammography.
Advanced Mammography provides that the board may exercise its business judgment to pay a mootness fee, but it is necessary to (i) notify the court and (ii) provide notice to the class and provide an opportunity for the class to be heard. In addition, “in the context of a claim that is acknowledged to be moot and in which no consideration has been paid to the class, it is not appropriate for the court to purport to release any claims of the class.” Id. at *1. Notice to the class allows the class to argue that the case is not moot, but rather that the mootness fee is in fact a buyout; and enables members of the class to object to such use of corporate funds. Id. In this case, the stipulated dismissal order did not provide notice to the class, and as a result, Vice Chancellor Laster denied the proposal and requested that the parties submit a revised order contemplating notice to the class.
In Crothall, et al. v. Zimmerman, et al., the defendants in a derivative suit sought to reverse the Delaware Court of Chancery’s decision awarding attorneys’ fees to counsel for Robert Zimmerman, the plaintiff in the underlying action. Zimmerman, a common unitholder of Adhezion Biomedical, LLC (“Adhezion”), originally brought a derivative suit against the directors and certain investors of Adhezion, claiming that (i) certain financing transactions involving the sale of Adhezion units were substantively unfair, and (ii) the units issued in those transactions were not properly authorized in accordance with Adhezion’s operating agreement. The Chancery Court’s opinion rejected Zimmerman’s claim of substantive unfairness, but agreed that Adhezion’s operating agreement had been violated because the units issued in the financing transactions had been issued without an amendment approved by a separate vote of the common unitholders.
The Chancery Court, however, awarded only nominal damages for the breach of the operating agreement, and, before a final judgment was entered, Zimmerman decided to sell his Adhezion units and abandon the lawsuit, thus rendering his claims moot. As a result, the Chancery Court granted the defendants’ motion to dismiss Zimmerman’s claims. Nevertheless, Zimmerman’s counsel was allowed to intervene in the case, and was ultimately awarded $300,000 in attorneys’ fees, on the theory that Adhezion had realized a corporate benefit from the Chancery Court’s decision that a vote of the common unitholders was required to authorize additional units under the operating agreement.
The defendants, while unable to appeal the Chancery Court’s ruling directly due to the absence of a final judgment, asked the Delaware Supreme Court to re-consider the merits of the Chancery Court’s finding that attorneys’ fees were warranted on the basis of a corporate benefit to Adhezion. The Supreme Court reversed the Chancery Court’s ruling, finding that Zimmerman’s counsel had not created a corporate benefit, and therefore was not entitled to the $300,000 in attorneys’ fees originally awarded by the Chancery Court. Without evaluating the Chancery Court’s substantive reading of the Adhezion operating agreement, the Supreme Court held that when a plaintiff takes action to moot his own claim, as Zimmerman did by selling his units and abandoning his claims before entry of a final judgment after trial, no corporate benefit can be created and therefore no attorneys’ fees should be awarded on that basis. The Supreme Court noted that, while attorneys’ fees have previously been awarded on the basis of mooted claims, those claims were rendered moot by the actions of the defendant, not the plaintiff. In contrast, in this case the Supreme Court refused to award fees on the basis of a claim that even the plaintiff himself had chosen not to pursue.