Topic: Release

INDEMNIFICATION PROVIDED FOR SUCCESS ON THE MERITS, EVEN IF ON A TECHNICALITY

By: C.J. Voss and Rich Minice

In Brown v. Rite Aid Corp., C.A. No. 2017-0480-MTZ (Del. Ch. May 24, 2019), the Delaware Court of Chancery granted the motion for partial summary judgment of plaintiff Franklin Brown (“Brown”), entitling Brown to indemnification by defendant Rite Aid Corporation (“Rite Aid”) for legal fees and expenses Brown incurred in proceedings arising out of a corporate fraud and accounting scandal in 2002. The court re-affirmed the principles that mandatory indemnification is dependent strictly on the outcome of the underlying action and that the “indemnitee need not be adjudged innocent in some ethical or moral sense,” a defendant need not pursue victory efficiently, and that indemnification is based on the reason by which a defendant is party to the action.

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CHANCERY COURT FINDS THAT ALLEGATIONS RELATED TO POST-SEPARATION USE OF CONFIDENTIAL INFORMATION LEARNED PRE-SEPARATION WARRANT ADVANCEMENT

By: Scott Waxman and Calvin Kennedy

In Ephrat v. medCPU, Inc., C.A. No. 2018-0852-MTZ (Del. Ch. June 26, 2019), the Court of Chancery found that conduct occurring after Eyal Ephrat and Sonia Ben-Yehuda (together, “Petitioners”) left their positions warrants advancement provided that such conduct was related to Petitioners’ use of confidential information learned in an official capacity with medCPU, Inc. (“medCPU” or the “Company”). However, the Court held that allegations related to Petitioners’ breach of personal contractual obligations do not warrant advancement. Lastly, the Court held that Petitioners did not release their advancement rights by releasing all claims related to their “employment” with the Company.

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YES, WE HAVE NO ESTOPPEL: CHANCERY COURT RULES DERIVATIVE, DISMISSES DILUTED STOCKHOLDERS’ EX-TEXAS MERGER-RELATED CLAIMS

 By Remsen Kinne and Adrienne Wimberly

In Sheldon v. Pinto Technology Ventures, C.A. No. 2017-0838-MTZ (Del. Ch. Jan. 25, 2019), the Delaware Court of Chancery in a Memorandum Opinion granted a motion to dismiss breach of fiduciary duty claims and other allegations brought by the founder and an early stockholder (“Plaintiffs”) of non-party IDEV Technologies, Inc., a Delaware corporation (“IDEV”). The Court found that Plaintiffs’ primary claims were derivative, rejecting Plaintiffs’ assertion that Defendants were judicially estopped by a Texas state court ruling from arguing for that characterization of the claims, and dismissed the complaint for failure to comply with Chancery Court Rule 23.1’s derivative claims demand or demand futility pleading requirements.

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Court of Chancery Upholds Validity of General Release Between Company and Former President, Grants Summary Judgment in Former President’s Favor

By: David Forney and Tami Mack

In Seiden v. Kaneko, C.A. No 9861-VCS (Del. Ch. March 22, 2017), the Court of Chancery held that the general release that Southern China Livestock, Inc. (the “Company”) had entered into with former President Shu Kaneko (“Kaneko”) in exchange for Kaneko’s assistance in recovering certain Company shares was binding and enforceable.  Thus, the Court held that Kaneko had been released from all claims asserted against him by the Company’s receiver (the “Receiver”) and granted summary judgment in Kaneko’s favor.

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Chancery Court Clarifies How the Defense of Release Can Be Raised, Applies the Unocal Test to Allegedly Defensive Board Actions, and Weighs the Materiality of Proxy Statement Omissions

By: Scott E. Waxman and David Valenti

In deciding a motion to dismiss derivative and direct shareholder claims, the Delaware Chancery Court addresses the defense of release, examines whether allegedly defensive board actions trigger the heightened Unocal test, and judges the materiality of proxy statement omissions.  Although the Court made clear that the affirmative defense of release could be considered in a motion to dismiss, it held that Plaintiffs’ claims did not have the “same identical factual predicate” with previously settled federal class litigation. The Court also applied the Unocal test in analyzing whether the alleged adoption of entrenchment measures state a viable claim, and discussed the standard for pleading material omissions to a proxy statement.

In In re Ebix, Inc. Stockholder Litigation, Plaintiff shareholders brought six claims against Ebix, Inc., (“Ebix”) and its board of directors (the “Board”) arising out of several actions taken by the Board in the lead up to a later abandoned merger attempt. Claims I-III challenged several documents that related to executive compensation arrangements made by Ebix and approved by its Board. Claims IV-V challenged several of the Board’s actions as breaches of its fiduciary duties on the grounds that each constituted an improper entrenchment device by the board, including Ebix’s entry into a Director Nomination Agreement (the “DNA”) with a dissenting shareholder and its adoption of a bundle of new bylaws.  In claim VI, Plaintiffs alleged the Board breached its fiduciary duties by issuing a materially misleading and incomplete 2014 Proxy Statement and sought a declaration that the 2014 Annual Shareholders’ Meeting’s actions were invalid.

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