Delaware Docket

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

 

MetLife Stockholders Demand Futility Claims Dismissed

By: Scott E. Waxman and Marissa Leon

In the matter of In Re MetLife Inc. Derivative Litigation (Consol. C.A. No. 2019-0452-SG), the Delaware Court of Chancery held that stockholder plaintiffs seeking to hold corporate fiduciaries liable to MetLife, Inc. for failure to adequately oversee the operation of the business failed to plead facts sufficient to imply director liability or otherwise excuse demand under Rule 23.1.

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Chancery Court Enforces Merger Agreement Milestone Payment Despite Time and Cost to Bring Experimental Drug to Market

By: Scott Waxman and Zane Madden

In Shareholder Representative Services LLC v. Shire US Holdings, Inc. and Shire Pharmaceuticals LLC , C.A. No. 2017-0863-KSJM (Del. Ch. October 12, 2020), the Delaware Court of Chancery (the “Court”) held that Shire US Holdings, Inc.’s (together with Shire Pharmaceuticals LLC, “Shire”) failure to initiate Phase III clinical trials for an experimental drug acquired via merger was improper because said failure was due to a series of development delays routine to the pharmaceutical industry and every-day business decisions, in contravention of the language of the merger agreement.

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DIRECT AND DERIVATIVE? CHANCERY COURT CERTIFIES INTERLOCUTORY APPEAL, ASKS SUPREME COURT TO CLARIFY DUAL CHARACTER STOCKHOLDER CLAIMS

By Scott E. Waxman and Cate H. Gelband

In In re Terraform Power, Inc. Stockholders Litigation, C.A. No. 2019-0757-SG (Del. Ch. November 24, 2020), the Delaware Court of Chancery (the “Court”) granted defendants’ Application for Certification of Interlocutory Appeal, giving the Delaware Supreme Court (the “Supreme Court”) an opportunity to clarify its decision in Gentile v. Rossette (“Gentile”) under which stockholders’ claims for a specific type of breach of fiduciary duty can have “dual character” as both derivative and direct. The Court relied on two factors under Delaware Supreme Court Rule 42 (“Rule 42”)—whether consideration of the appeal may end the litigation, and whether review of the appeal may serve considerations of justice—and held that the matter presented “a rare case” in which an interlocutory appeal was justified.

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CHANCERY COURT APPLIES INTERNAL AFFAIRS DOCTRINE TO DECLARATORY ACTION FOR INSPECTION RIGHTS SOUGHT UNDER CALIFORNIA LAW

By: Annette E. Becker and Claire Suni

In Juul Labs, Inc. v. Daniel Grove, C.A. No. 2020-0005-JTL (Del. Ch. August 13, 2020), defendant and e-cigarette maker Juul Labs, Inc. (“Juul”) is a privately held Delaware corporation with its principal place of business in California. The Delaware Court of Chancery (the “Court”) granted in part Juul’s motion for declaratory judgment, which sought confirmation that a stockholder seeking inspection rights was limited to rights and remedies under the Delaware General Corporation Law (“DGCL”), and could not apply California law, among other things. The Court held that inspection rights are a matter of internal affairs under the internal affairs doctrine articulated by the Supreme Court, and thus Delaware law applies.

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MANAGEMENT CANNOT UNILATERALLY PRECLUDE DIRECTORS FROM OBTAINING PRIVILEGED COMMUNICATIONS

By: Rich Minice and Annette Becker

In In re WeWork Litigation, C.A. No. 2020-0258-AGB (Del. Ch. Aug. 21, 2020), a special committee of the board of directors of The We Company (the “Company”) sought to obtain certain privileged communication among management of the Company and its counsel in discovery arising from breach of contract and breach of fiduciary duty case. The Court held that management of a Delaware corporation (“Management”) does not have the authority to unilaterally preclude a director of the corporation from obtaining the corporation’s privileged information, an issue of first impression in the State of Delaware.

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CHANCERY COURT DISMISSES COMPLAINT, HOLDING THAT DIRECTORS WERE NOT CONFLICTED IN APPROVING A MERGER SIMPLY DUE TO THE THREAT OF A LOOMING PROXY CONTEST

By: Lisa Stark and Thomas Meyer

In Rudd v. Brown, et al, C.A. No. 2019-0775 MTZ (Del. Ch. Sept. 11, 2020), the Delaware Court of Chancery (the “Court”) dismissed the plaintiff’s claim that the board members and the chief financial officer of Outerwall, Inc. (the “Company”) disloyally pursued and disclosed a two-step merger, finding that the plaintiff failed to show that the defendants were conflicted, despite the potential that the director defendants would lose their seats in connection with a threatened proxy contest.

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Can’t Have It Both Ways: Court Grants Grupo México’s 12(b)(2) Motion To Dismiss for Lack of Personal Jurisdiction

By Joanna Diakos and Ian Edwards

In Lacey v. Mota-Velasco, et al. (C.A. No. 2019-0312-SG), the Delaware Court of Chancery (the “Court”) dismissed Grupo México S.A.B, de C.V (“Grupo México”) from a derivative lawsuit filed by a stockholder of Southern Copper Corporation (“Southern Copper”) on the grounds that the Court lacked personal jurisdiction over Mexico-based Grupo México.

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Court of Chancery Allows for Interim Distribution to Stockholders of Altaba, Inc., with Some Conditions

By Scott E. Waxman and B. Ashby Hardesty, Jr.

In In re Altaba, Inc., C.A. No. 2020-0413-JTL, Vice Chancellor Laster authorized Altaba, Inc. (the “Company”), a company pursuing dissolution under Sections 280 and 281(a) of the Delaware General Corporation Law (the “DGCL”), to make an interim distribution to its stockholders, on the condition that it reserved funds for lawsuits pending in Canada resulting from data breaches that the Company disclosed in 2016 (the “Canadian Actions Claim”). Vice Chancellor Laster also allowed the Company to hold back less than the full amount of security requested by Carsten Rosenow, an individual who filed a breach of privacy lawsuit against the Company (the “Rosenow Claim”).

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DELAWARE COURT OF CHANCERY DENIES MOTIONS TO DISMISS CLAIMS ALLEGING BREACHES OF FIDUCIARY DUTY IN ALLEGED CONTROLLING STOCKHOLDER TENDER OFFER

By: David Forney and Caitlin Velasco

In In Re Coty Inc. Stockholder Litigation, C.A. No. 2019-0336-AGB (Del. Ch. Aug. 17, 2020), the Delaware Court of Chancery (the “Court”) denied a Rule 12(b)(6) motion to dismiss claims brought by stockholders (the “Plaintiffs”) of Coty Inc. (“Coty”) against its directors and de facto controlling stockholder, JAB Holding Company S.à.r.l. and its affiliates (“JAB”), over JAB’s 2019 partial tender offer, whereby it increased its ownership stake in Coty from 40% to 60%. The Plaintiffs alleged that JAB opportunistically timed and priced the tender offer so that it undervalued Coty and structured the tender offer in a coercive manner.

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Court Dismisses Contractual Claims for Advancement and Indemnification

By: Scott E. Waxman and Marissa Leon

In Nathan Brick v. The Retrofit Source, LLC, et al. (C.A. No. 2020-0254-KSJM), the Court of Chancery in the State of Delaware (the “Court”) dismissed claims for advancement and indemnification by a former officer of an automobile lighting products supplier.

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CHANCERY COURT FINDS EXCUSABLE NEGLECT AND VACATES DEFAULT JUDGMENT

By: Joanna Diakos and Greyson Blue

In James Rivest v. Hauppauge Digital, Inc., C.A. No. 2019-0848-PWG (Del. Ch. Aug. 3, 2020), the Delaware Court of Chancery examined the circumstances in which the Court will set aside a default judgment under Court of Chancery Rule 60(b)(1). The Court’s decision illustrates the context in which a party’s failure to timely respond may warrant relief from a previously issued court order. It also highlights the Court’s willingness to consider the unique challenges imposed by the COVID-19 pandemic in exercising its discretion.

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Delaware Court of Chancery Finds Valuation of Stock Alone is Sufficient to Support Books and Records Request

By: Joanna A. Diakos Kordalis and Serena Hamann

In Avery L. Woods Trust v. Sahara Enterprises, Inc., C.A. No. 2020-0153-JTL (Del. Ch. July 22, 2020), the Delaware Court of Chancery (the “Court”) granted an inspection of books and records to Avery L. Woods (“Woods”), the trustee of the Avery L. Woods Trust (the “Trust” ) finding that the Trust’s stock valuation and investigation of possible mismanagement reasons for inspection sufficient and proper.

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