Delaware Docket | Timely, brief summaries of cases handed down by the Delaware Court of Chancery and the Delaware Supreme Court.

Chancery Court Declines to Expand Gentile Doctrine

Jun 03 2021

By: Scott Waxman and Doug Logan

In Dr. Thomas Markusic et al. v. Michael Blum et al. memorandum opinion 200818, the Delaware Chancery Court (the “Court”) declined to extend the Gentile doctrine. In so doing, the Court held that the counterclaims attempting to rely on it had to be dismissed.

Firefly Space Systems, Inc. (“Original Firefly”) was an aerospace startup founded by Michael Blum, Patrick Joseph King, and Thomas Markusic in late 2013 with the aim of launching small-load rockets into orbit. Counterclaim-Plaintiffs Blum, King, Lauren McCollum, Steven Begleiter, Green Desert N.V., Swing Investments BVBA, Bright Success Capital Ltd., and Wunderkind Space Ltd. (collectively, “Original Firefly Investors”) each owned stock in Original Firefly, with Markusic in the role of CEO and sole board member of Original Firefly at all relevant times.

Delaware Chancery Court reaffirms need for factual particularity in assessing demand futility and granted Defendants’ motion to dismiss

May 28 2021

By: Jessica Pearlman and Mary Nicholas

In a letter opinion, Mark Gottlieb, et al., v. Jonathan Duskin, et al, Civil Action No. 2019-0639-MTZ (Del. Ch. November 20, 2020), the Delaware Court of Chancery granted Defendants’ motion to dismiss Plaintiff’s complaint in its entirety for failure to satisfy, with enough factual particularity, that a demand that the board of directors pursue the corporate claim would have been futile under Rule 23.1.

If a Contract Claim Walks and Talks like a Contract Claim, It is a Contract Claim

May 05 2021

By Scott E. Waxman and Terrina G. LaVallee

In Transdev on Demand, Inc. v. Blackstreet Investment Holdings, LLC, C.A. No. 2019-0912-SG (Del. Ch. 2020), the Delaware Court of Chancery granted in part and denied in part the plaintiff’s motion to dismiss the defendant’s counterclaims. The court denied two counts of the plaintiff’s motion to dismiss because it held it was inappropriate at this pleading stage to determine whether the agreement compelled specific performance and whether a breach of contract claim should have been an indemnification claim. In contrast, the court granted the plaintiff’s motion to dismiss one counterclaim because the defendant attempted to “bootstrap” a claim seeking damages for breach of contract, which was contractually prohibited, to a tort claim for fraud.

Chancery Court Sustains Derivative Action Alleging Caremark Claims

May 04 2021

By Scott Waxman and Claire Suni

In Teamsters Local 443 Health Services & Insurance Plan, et al. v. John G. Chou, et al., C.A. No. 2019-0816-SG (Del. Ch. August 24, 2020), the Delaware Court of Chancery (the “Court”) held that stockholders of AmerisourceBergen Corporation (“ABC”), a pharmaceutical sourcing and distribution company, adequately pled facts supporting the inference that certain ABC officers and directors breached fiduciary duties and acted in bad faith to consciously disregard a variety of red flags of illegal activity in connection with ABC’s packaging and distribution of cancer medications. The Court denied in full the defendants’ motion to dismiss for failure to state a claim for relief.

Chancery Court Finds that Although Alleged Disclosure Deficiency Prevents Application of Corwin, It Is Insufficient to Reasonably Imply Breach of the Duty of Loyalty

Apr 27 2021

By: Michelle R. McCreery, Teresa Teng and Sean P. Boyle

In In re USG Corporation Stockholder Litigation, C.A. No. 2018-0602-SG (Del. Ch. Aug. 31, 2020), the Court of Chancery found that an alleged disclosure deficiency by a corporation’s board that is sufficient to prevent the application of the Corwin defense, alone, is insufficient to reasonably imply bad faith and a breach of the duty of loyalty. Further, the Court found that an allegation that a defendant failed to satisfy Revlon, by itself, is insufficient to plead a breach of the duty of loyalty; a pleading must also reasonably imply that the directors’ failure to satisfy Revlon was due to interestedness or bad faith.

An Insolvent Corporations May Transfer All of its Assets to its Creditors without Stockholder Approval

Apr 01 2021

By: Lisa R. Stark and Marissa Leon

In Stream TV Networks, Inc. v. SeeCubic, Inc., C.A. No. 2020-0310-JTL (Del. Ch. Dec. 8, 2020), the Court of Chancery of the State of Delaware (the “Court”) ruled that all of the assets of an insolvent 3D television technology company, Stream TV Networks Inc. (“Stream”), could be transferred to its secured creditors even though Stream did not seek stockholder approval of the sale under Section 271 of the General Corporation Law of the State of Delaware (the “DGCL”) or its certificate of incorporation. Accordingly, the Court enforced an agreement between Stream and its secured creditors pursuant to which Stream agreed to transfer all of its assets to an affiliate of its two secured creditors.

Music Industry Executive Lawsuit against Record Label Partially Dismissed

Apr 01 2021

By Scott E. Waxman and Marissa Leon

In Todd Moscowitz v. Theory Entertainment LLC (C.A. No. 2019-0780-MTZ), the Court of Chancery of the State of Delaware (the “Court”) narrowed the claims in a lawsuit challenging the buyout of a music industry executive’s ownership interest in a record label he co-founded.

Interpretation of an LLC Agreement with Respect to the Appointment and Removal of Board Members Is Strictly Based on the Plain Language Contained in the Four Corners of the LLC Agreement

Mar 27 2021

By Scott E. Waxman and Jennifer J. Yeung

Where one fifty-percent owner of a single member LLC wished to remove the existing tiebreaker director, the Delaware Court of Chancery held that he could not do so. A governing LLC agreement’s plain language must be strictly construed; and in this case, it did not provide for unilateral removal of a board member.

Chancery Court Holds that Subsidiary must Advance Legal Fees to Parent Company to Cover Costs from Separate Suit by Subsidiary Against Parent Company

Mar 25 2021

By Scott E. Waxman and Mick G. Pence

In International Rail Partners, LLC v. American Rail Partners, LLC, C.A. No. 2020-0177-PAF (Del. Ch. November 24, 2020) plaintiffs International Rail Partners LLC, Boca Equity Partners LLC, Patriot Equity LLC, and Marino (“Plaintiffs”) and defendant American Rail Partners LLC. (“Company”) both filed motions for judgment on the pleadings. The Delaware Court of Chancery (“Court”) granted the Plaintiffs’ motion that sought advancement of expenses incurred while defending an action filed against them by the Company in the Delaware Superior Court. The Court held that the parties’ Limited Liability Company Agreement (“LLC Agreement”) unambiguously provided that the Company must advance the Plaintiffs’ fees incurred in defending the Superior Court action.

CEO’s Role in Preparation of a Proxy Statement for a Merger Exposes CEO to Duty of Care Claims

Mar 05 2021

By Lisa Stark and Jonathan Shallow

In In Re Baker Hughes Inc. Merger Litig., C.A. No. 2019-0638-AGB (Del. Ch. Oct. 27, 2020), the Delaware Court of Chancery declined to dismiss claims that the CEO of Baker Hughes Incorporated (“Baker Hughes”) breached his fiduciary duty of care by failing to include unaudited financial statements of the oil and gas segment of the General Electric Company (“GE O&G”) in a proxy statement soliciting the stockholder vote on Baker Hughes merger with GE O&G. As a result, the Court found that (1) the stockholder vote was uninformed, and (2) enhanced scrutiny under Revlon, Inc. v. McAndrews & Forbes Hldgs., Inc., 506 A.2d 173 (Del. 1986). (“Revlon”), not the business judgment review under Corwin v. KKR Financial Holdings LLC (125 A.3d 304, 306 (Del. 2015)), applied to its decision whether plaintiffs had adequately pled a predicate breach of fiduciary duty by the Baker Hughes board for purposes of an aiding and abetting claim asserted against General Electric Company (“GE”). At the time of its decision, none of the Baker Hughes directors were named as defendants in the action except for Baker Hughes’ CEO who was named as a defendant in the action solely in his capacity as an officer of Baker Hughes.

DELAWARE COURT OF CHANCERY DENIES MOTIONS TO DISMISS CLAIMS ALLEGING BREACH OF CONTRACT

Mar 05 2021

By Whitney J. Smith and Mehreen Ahmed

In Re WeWork Litigation, C.A. No. 2020-0258-AGB (Del. Ch. Oct. 30, 2020), concerns a transformative transaction involving The We Company, a real estate company specializing in shared workspaces more commonly known as WeWork. Adam Neumann (“Neumann”), the CEO of WeWork, brought a case against both SoftBank Group (“SBG”) and SoftBank Vision Fund (AIV MI) L.P. (“Vision Fund”) for two counts of breach of contract and breach of fiduciary duty as controlling stockholders. SBG and Vision Fund filed partial motions to dismiss the complaint. Vision Fund, but not SBG, sought to dismiss the contract claim against it, whereas, both SBG and Vision Fund sought to dismiss the fiduciary duty claim. In a memorandum opinion, the Delaware Court of Chancery denied Vision Fund’s motion to dismiss the contract claim, except as to one provision, and granted the motion to dismiss the fiduciary duty claim as that claim was duplicative of the contract claims against them.

WHAT’S SELECTED TO HAPPEN IN VEGAS, STAYS IN VEGAS: CHANCERY COURT ENFORCES FORUM SELECTION CLAUSE IN RE-DOMESTICATED NEVADA CORPORATION BYLAWS, DESPITE ALLEGED VIOLATIONS OCCURRING WHILE ENTITY WAS A DELAWARE CORPORATION

Mar 02 2021

By David L. Forney and Lauren McFadden

In Sylebra Capital Partners Master Fund, Ltd., and P Sylebra Ltd. v. Ronald O. Perelman et al., C.A. No. 2019-0843-JRS (Del. Ch. October 9, 2020), Sylebra Capital Partners Master Fund, Limited and P Sylebra Ltd. (together, “Plaintiff”), had sued Scientific Games, a Nevada corporation (“Company”), and its controlling stockholder and members of its Board (“Defendants”) for breaches of fiduciary duty and violations of the Delaware General Corporation Law (“DGCL”). The Company’s Nevada bylaws, however, contained a provision requiring stockholders to bring claims for breach of fiduciary duty in the courts of Clark County, Nevada. The Delaware Court of Chancery (the “Court”) granted Defendants’ motion to dismiss and held that Plaintiff’s claims were subject to the forum selection provision in the bylaws of the Company and must be brought in Nevada courts.