Topic: Summary Judgment

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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Words Matter: Chancery Court Holds that Indemnification Provision in Equity Purchase Agreement Does Not Cover Advancement of Expenses for Officer Conduct Unauthorized by the Board

By: Annette Becker and Adrienne Wimberly

In Computer Science Corporation v. Eric Pulier, et al., C.A. No. 11011-CB (Del. Ch. June 27, 2019), the Delaware Court of Chancery denied Plaintiff Computer Sciences Corporation’s (“CSC”) motion for partial summary judgement seeking to recover a portion of funds advanced to a former officer of ServiceMesh, Inc. (an entity CSC had acquired) for legal expenses incurred in defending a separate action. The Court held that based on its interpretation of the plain language of the indemnification provision in the relevant acquisition agreement that the indemnification provision was not broad enough to encompass the advancement of legal expenses in question.

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Chancery Court Denies Dismissal of Breach of Fiduciary Duty Claims after Concluding that Stockholder Vote was Not Informed

By: David Forney and Rachel P. Worth

In In re Tangoe, Inc. Stockholders Litigation, C.A. No. 2017-0650-JRS (Del. Ch. Nov. 20, 2018), the Delaware Court of Chancery denied the director defendants’ motion to dismiss the stockholder plaintiffs’ claim for breach of fiduciary duties on the basis that the stockholder vote approving the transaction was not informed and the defendants were therefore not entitled to business judgment rule deference at the pleading stage. The Court also found that the plaintiffs had adequately pled a breach of the fiduciary duty of loyalty against each of the director defendants, which would not be covered by the exculpatory clause in the company’s certificate of incorporation.

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CHANCERY COURT FINDS THAT LANGUAGE OF LIMITED PARTNERSHIP AGREEMENT GOVERNS WHICH CLAIMS SURVIVE SUMMARY JUDGMENT IN MASTER LIMITED PARTNERSHIP’S RELATED PARTY TRANSACTION

By Scott Waxman and Adrienne Wimberly

In Mesirov v. Enbridge Company, Inc., et al. C.A. No. 11314-VCS (Del. Ch. Aug.29, 2018), the Delaware Chancery Court dismissed five of eight counts alleged with respect to a transaction where Enbridge Energy Company (EEP) repurchased for $1 billion a two-thirds interest in Alberta Clipper Pipelines (AC interest), despite the fact that EEP had sold that same interest years prior for $800 million and the business had steadily declined since such sale.  The dismissals were based primarily upon the language and obligations included in EEP’s limited partnership agreement.

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Some Claims Survive Summary Judgment in the Ebix Shareholder Litigation

By: Josh Gaul and Samira Torshizi

Only a handful of the claims survived summary judgment in the recent order issued by Vice Chancellor Joseph R. Slights III in In re Ebix, Inc. Stockholder Litig.  This was the third major ruling in a five-year-old, repeatedly amended stockholder suit that involved stock incentives, a past acquisition bonus, and allegedly inadequate disclosures.  Of the ten causes of action, the only ones to survive summary judgment were claims for breach of fiduciary duty to disclose material facts that alleged false or misleading disclosures that could have altered deliberations of a reasonable shareholder.

The surviving disputes, which are now headed to trial, concerns three documents that created executive compensation arrangements  in 2009 and 2010: (1) an Acquisition Bonus Agreement (“ABA”) that Ebix, Inc. (“Ebix”) entered into with Chairman and Chief Executive Officer Robin Raina in 2009; (2) a 2010 Stock Incentive Plan (the “2010 Plan”), (3) a proxy statement issued before Ebix’s 2010 annual meeting (the “2010 Proxy Statement”) in which Ebix’s board of directors (“Board”) recommended approval of the 2010 Plan, and (4) the proxy statement issued in 2016 that included the 2016 CEO bonus plan (the “2016 Proxy Statement”).  Read More

DISPUTE OVER PUT RIGHT ILLUSTRATES THE POTENTIAL PITFALLS OF AMBIGUOUS CONTRACT LANGUAGE

By: David Forney and Adam Heyd

In QC Holdings, Inc. v. Allconnect, Inc., C.A. No. 2017-0715-JTL (Del. Ch. August 28, 2018), plaintiff QC Holdings, Inc. (“QC Holdings”), a former stockholder of defendant Allconnect, Inc. (the “Company”), brought a claim against the Company to enforce its right (the “Put Right”) under a Put Agreement to sell its Company shares (the “Put Shares”) to the Company in exchange for $5 million (the “Put Price”).  The Company had refused to pay the Put Price on the basis that it was contractually restricted from doing so on the date required under the Put Agreement, and therefore the Put Right was extinguished and never survived a subsequent merger of the Company when those restrictions arguably lifted. The Delaware Court of Chancery  held that the Company’s arguments would have resulted in an improper forfeiture of QC Holdings’ contractual rights to the Put Price and that the exercise of the Put Right constituted a redemption of the Put Shares prior to the merger and a continuing contractual obligation by the Company to pay the Put Price.  The Court ordered the Company to pay the Put Price to QC Holdings out of an escrow set up at the merger closing for this purpose.

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CHANCERY COURT FINDS ORAL AGREEMENT TO SETTLE PROXY CONTEST BINDING AND ORDERS SPECIFIC PERFORMANCE OF THE SETTLEMENT AGREEMENT

By Josh Gaul and Caitlin Velasco

In Sarissa Capital Domestic Fund LP, et al. v. Innoviva, Inc., C.A. No. 2017-0309-JRS (Del. Ch. Dec. 8, 2017), the Delaware Court of Chancery ruled in favor of dissident stockholder plaintiffs, Sarissa Capital Domestic Fund LP, et al. (“Sarissa”) of Innoviva, Inc. (“Innoviva”), concluding that Sarissa and Innoviva entered into a binding, oral settlement agreement to resolve a proxy contest prior to Innoviva’s 2017 annual stockholder meeting and specific performance of the settlement agreement was warranted. Read More

Chancery Court Denies Cross-Motions for Partial Summary Judgment Due to Ambiguities in Contract Language of LLC Agreement Governing Joint Venture

By Scott E. Waxman and Rachel Cheasty Sanders

In AM General Holdings LLC v. The Renco Group, Inc., C.A. No. 7639-VCS  and The Renco Group, Inc. v. MacAndrews AMG Holdings LLC, C.A. No. 7668-VCS (Del. Ch. May 17, 2017), the Delaware Court of Chancery denied cross-motions for partial summary judgment after reviewing the LLC Agreement of AM General Holdings LLC, which governs the joint venture relationship between Plaintiff, The Renco Group, Inc. (“Renco”), and Defendant, MacAndrews AMG Holdings LLC (“MacAndrews”), both members of AM General Holdings LLC (the “Company”).  Renco brought suit against MacAndrews alleging that MacAndrews, the managing member of the Company, caused the Company to distribute $72.8 million to MacAndrews in breach of the Company’s LLC Agreement.  Renco contended that, according to the LLC Agreement, the $72.8 million should have been distributed to Renco instead.  Both parties pointed to several provisions of the LLC Agreement governing the distribution at issue, and both parties contended that these provisions were clear and unambiguous.  After reviewing the provisions, however, the Court determined that the provisions were, in fact, ambiguous and thus, the case could not be disposed of through summary judgment proceedings.

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Court of Chancery Denies Cross-Motions for Partial Summary Judgment Pending Further Factual Development in Delaware Master Limited Partnership Unitholder Litigation

By: Scott E. Waxman and James R. Parks

Vice Chancellor Glasscock, by memorandum opinion dated February 28, 2017, dismissed cross-motions for partial summary judgment in a dispute over the issuance of partnership units of Energy Transfer Equity, L.P., a Delaware master limited partnership (“ETE”). The challenged issuance (the “Issuance”) arose out of a contemplated, but never consummated, merger between ETE and The Williams Companies, Inc. (“Williams”), and was designed, according to the defendants, as a tool to improve ETE’s ability to enter into the merger by deferring some of ETE’s obligations to make distributions to its unitholders. The Issuance was intended to accomplish this by having certain unitholders give up their common units, which were entitled to quarterly distributions from ETE, in exchange for convertible units, which received distributions on a different schedule. Not all unitholders, however, were afforded the opportunity to participate in the Issuance and not all of the unitholders given the opportunity to participate chose to do so.

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Delaware Chancery Court Awards Advancement of Fees in Connection with Post-Merger Indemnification Claims

By: Scott E. Waxman and Sophia Lee Shin

In Joel Z. Hyatt and Albert A. Gore, Jr. v. Al Jazeera America Holdings II, LLC and Al Jazeera International (USA) Inc., the Delaware Court of Chancery reviewed a motion for summary judgment in connection with a dispute regarding the advancement of fees for the litigation of various post-merger indemnification claims. The Chancery Court held that the plaintiffs were entitled to advancement for certain claims, but not for others, depending on whether the underlying facts of each claim required the plaintiffs to defend their actions as former officers or directors.

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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

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.

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Chancery Court Interprets Redemption Option Provisions in LLC Agreement in Connection with Judicial Dissolution

By Andrew Skouvakis and Peter C. Seel

In Hampton v. Turner, Vice Chancellor Noble denied a motion for summary judgment in a dispute about whether a limited liability company had properly exercised a redemption option under its operating agreement and tendered the correct purchase price for three members’ limited liability company interests, after such members sought judicial dissolution of the company. In denying summary judgment, Vice Chancellor Noble found that the operating agreement was unambiguous with respect to the application of the redemption option provisions and how those should be interpreted to determine a purchase price.

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