Delaware Docket

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

 

CHANCERY COURT FINDS THAT LANGUAGE IN AN LLC AGREEMENT THAT STATES AN ASSIGNMENT IS “NULL AND VOID” TRUMPS THE COMMON LAW AND RENDERS EQUITABLE DEFENSES INEFFECTIVE

By: Scott Waxman and Calvin Kennedy

In Absalom Absalom Trust f/k/a Anne Deane 2013 Revocable Trust v. Saint Gervais LLC, C.A. No. 2018-0452-TMR (Del. Ch. June 27, 2019), the Court of Chancery found that the transfer of membership interests in an LLC was void, rather than voidable as it ordinarily would be at common law, due to the plain language of the Company’s LLC agreement (the “LLC Agreement”). Further, the Court held that equitable defenses were unavailable to the plaintiff with regards to the transfer because the contractual language of the LLC Agreement trumped common law. Lastly, the Court found that the unambiguous contractual language controlled despite the flexibility of LLCs and the alleged purpose of the provision.

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CHANCERY COURT TRANSFERS CASE DUE TO A LACK OF JURISDICTION

By: Scott E. Waxman and Douglas A. Logan

In Helix Generation LLC v. Transcanada Facility USA, Inc., et al., C.A. No. 2018-0856-SG, the Delaware Court of Chancery transferred a case brought before it because the case could be heard more efficiently in Superior Court. The Court reaffirmed that it is Court of limited jurisdiction and even if Section 111(a) of the Delaware delegated jurisdiction to the Court, that jurisdiction is discretionary.

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SOPHISTICATED PARTY OR NOT, LLC AGREEMENT STILL GOVERNS

By: Scott Waxman and Rich Minice

In Durham v. Grapetree, LLC, Civil Action No. 2018-0174-SG (Del. Ch. June 4, 2019), the Delaware Court of Chancery granted the request made by Grapetree, LLC ( “Grapetree”) to shift its fees incurred in defending this litigation to the mostly unsuccessful plaintiff, Andrew Durham (“Durham”). In shifting Grapetree’s fees under this litigation, the Court reinforced the longstanding principal that Delaware law is contractarian in nature, and that parties shall be held to their bargains regardless of their legal sophistication. The underlying litigation and the Court’s initial findings (the “Books and Records Action”) were previously summarized by this blog here.

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CHANCERY COURT IMPOSES COSTS OF RECEIVERSHIP ON STOCKHOLDER

By: Scott Waxman and Greyson Blue

In Longoria v. Somers and LC Therapeutics, Inc., C.A. No. 2018-0190-JTL (Del. Ch. May 28, 2019), the Delaware Court of Chancery examined its authority to tax the costs of receivership against the stockholder of an insolvent corporation. The Court’s decision highlights an exception to the general principle that stockholders of a properly maintained corporation are not responsible for costs incurred by the corporation and illustrates a scenario where stockholders may be held liable for a corporation’s obligations.

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Chancery Court finds Commission under Sales Agreement was not “Required” such that entry into Sales Agreement Required Additional Approvals

By Scott E. Waxman and Michael C. Payant

In CompoSecure, L.L.C. v. CardUX, LLC f/k/a Affluent Card, LLC, C.A. No. 12524-VCL (Del. Ch. June 5, 2019), the Delaware Court of Chancery (the “Court”) concluded in a Report on Remand from the Delaware Supreme Court that a Sales Agreement (“Agreement”) entered into by CompoSecure, L.L.C. (“CompoSecure”) and CardUX, LLC (“CardUX”) was not subject to the heightened approval requirements contained in the CompoSecure LLC Agreement because the Agreement did not require CompoSecure to expend more than $500,000 in any fiscal year.

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COURT OF CHANCERY HOLDS THAT MEMBER OF LIMITED LIABILITY COMPANY IS ENTITLED TO ADVANCEMENT WHILE DEFENDING A LAWSUIT IN ITS “OFFICIAL CAPACITY”

By Scott E. Waxman and Frank J. Mazzucco

In Freeman Family LLC v. Park Avenue Landing LLC, C.A. No. 2018-0683-TMR (Del. Ch. April 30, 2019), the Delaware Court of Chancery (the “Court”) held that a member of a limited liability company, in defending a lawsuit in its “official capacity” brought by the company’s managing member, was entitled to advancement of litigation expenses under the company’s operating agreement.

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WITHDRAWN LIMITED PARTNER IS NOT ALLOWED TO INSPECT BOOKS AND RECORDS

By Scott E. Waxman and Annamarie C. Larson

In Harry Greenhouse v. Polychain Fund I LP and Polychain 2030, LLC, C.A. No. 2018-0214-JRS (Del. Ch. May 29, 2019), the Delaware Court of Chancery held that a withdrawn limited partner no longer retains an equity interest in the partnership and therefore is not entitled to inspect the partnership’s books and records.

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Court of Chancery Grants Summary Judgment For Dissolution of Limited Liability Company Where Two Minority Members Failed To Purchase The Majority Member’s Limited Liability Interest, As Required By The Operating Agreement

By: Scott Waxman and Caitlin Velasco

In Terramar Retail Centers, LLC v. Marion #2-Seaport Trust U/A/D/ June 21, 2002, Civil Action No. 12875-VCL (Del. Ch. May 22, 2019), Terramar Retail Centers, LLC (“Terramar”), the manager and 50% member of Seaport Village Operating Company, LLC, a Delaware limited liability company (the “Company”), filed an action, seeking a declaration that it may dissolve the Company and sell its assets, and that Terramar appropriately determined the allocation of the sale proceeds. The Delaware Court of Chancery held that Terramar appropriately exercised its dissolution right under the Company’s operating agreement, because the fair market value and purchase price proposed by Terramar reflected its honest opinion and Terramar did not negotiate in bad faith. The Court further held that Terramar’s waterfall determination was correct because a settlement release and the statute of limitations barred the counterclaims raised, and Terramar did not breach its contractual obligations or fiduciary duties. The Court ruled in favor of Terramar on all claims, supporting Terramar’s ability to dissolve the Company, sell its assets, and distribute the proceeds in accordance with Terramar’s allocation of the sale proceeds.

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Chancery Court Requires all Sellers to be Joined to a Rescission Claim Relating to Merger Agreement; Allows Unjust Enrichment Claim to Proceed

By David Forney and Mark Hammes

In Shareholder Representative Services LLC v. RSI Holdco, LLC, C.A. No. 2018-0517-KSJM (Del. Ch. May 22, 2019), the Court of Chancery held that the buyer could not seek remedy outside of the scope of a merger agreement from the sellers’ representative without bringing in all sellers as parties to the action because the representative’s authority was limited to matters relating to or arising under the four corners of that agreement.  The Court also denied the representative’s motion to dismiss the buyer’s unjust enrichment claim because the buyer properly alleged that the contract arose from sellers’ wrongdoing.

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It’s Not What You Thought You Signed That Counts: Chancery Court Rejects Plaintiffs’ Claims For Breach of Contract Plaintiffs Thought They Had Made

By: Remsen Kinne and Alidad Vakili

In Concerned Citizens of the Estates of Fairway Village, et al, v. Fairway Cap, LLC and Fairway Village Construction Inc., C.A. No. 2017-0924-JRS (Del. Ch. March 6, 2019), homeowners resident in Fairway Village, a residential planned community (“Plaintiffs”) claimed that plans and actions taken by one of the community’s developers, defendant Fairway Cap, LLC (“Fairway Cap”), to construct, own and lease townhouse condominiums in the community for use as rental apartments breached contractual provisions of Fairway Village’s governing documents. In its verdict for defendants, the Court of Chancery (the “Court”) rejected those claims, and concluded that Plaintiffs failed to prove a breach of contract and denied Plaintiffs’ motion for summary judgment.

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Chancery Court Enforces Privileged Communications Provision to Protect Seller Following Merger

By David Forney and Mark Hammes

In Shareholder Representative Services LLC v. RSI Holdco, LLC, C.A. No. 2018-0517-KSJM (Del Ch. May 29, 2019) the Court of Chancery held that a privileged communications provision in a merger agreement protected the pre-merger communications between the seller and the seller’s legal counsel in spite of the buyer’s insistence that the privilege had transferred in the merger or had been waived.

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CHANCERY COURT APPLIES AND AFFIRMS DELAWARE’S CORPORATE OPPORTUNITY DOCTRINE

By Annette Becker and Frank Mazzucco

In Personal Touch Holding Corp. v. Felix Glaubach, C.A. No. 11199-CB (Del. Ch. February 25, 2019), the Delaware Court of Chancery (the “Court”) found that, by personally pursuing and closing a real estate acquisition in which his employer was also interested, a corporate officer and director had, under Delaware’s corporate opportunity doctrine, breached his fiduciary duty of loyalty. 

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