Delaware Docket

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

 

Delaware Court of Chancery holds that directors on a special committee are interested in a going-private merger when the merger effectively extinguishes their personal liability from viable derivative litigation

By: Scott E. Waxman and Chris Fry

In Re AmTrust Financial Services, Inc. Stockholder Litigation, No. 2018-0396AGB (Del. Ch. 2020), George Karfunkel, Leah Karfunkel, and Barry Zyskind, the controlling stockholders of AmTrust Inc. (respectively, the “Controlling Stockholders” and “AmTrust”), teamed up with private equity firm, Stone Point Capital LLC (“Stone Point”), to take AmTrust private through a squeeze-out merger (the “Merger”), which closed in November 2018. Former stockholders (the “Plaintiffs”) challenged the Merger, asserting several claims for breach of fiduciary duty and aiding and abetting against the Controlling Stockholders, Stone Point, and AmTrust’s Board of Directors (the “Board”), among other participants in the Merger (collectively, the “Defendants”). DeCarlo, Gulkowitz, Fisch, and Rivera sat on both the Board and the special committee (the “Special Committee”), which negotiated the Merger and made recommendations to the Board regarding the same. The Delaware Court of Chancery (the “Court”) upheld the claims against the Board finding that the Controlling Stockholders and members of the Special Committee, except Rivera, were, among other issues, interested in the transaction, and therefore the Merger failed to comply with the procedures outlined in controlling precedent to obtain the benefit of a business judgment review, subjecting the Merger to the entire fairness standard of review. 

Read More

out of the fire? the delaware court of chancery dismisses an action for lack of personal jurisdiction

By: Scott E. Waxman and Chris Fry

In Extell DV LLC v. Van A. Hemeyer and Blue Ledge Resort LLC, No. 2019-0683-SG (Del. Ch. 2020), Extell DV LLC, as majority equity-holder on behalf of three subsidiaries (respectively, the “Plaintiff” and the “Subsidiaries” and together, the “Plaintiffs”), brought suit alleging that the minority equity-holder in the Subsidiaries, Blue Ledge Resort LLC, and its principal, Van Hemeyer (respectively, “Blue Ledge” and “Hemeyer” and together, the “Defendants”) usurped a business opportunity of the Subsidiaries by seeking to purchase real property (the “Property”) in violation of the Subsidiaries’ limited liability company agreements (collectively, the “LLC Agreements”).

Read More

COURT OF CHANCERY ANALYZES BOOKS AND RECORDS CLAIM UNDER THE LLC ACT

By: Scott Waxman and Zack Sager

In Riker v. Teucrium Trading, LLC, the Delaware Court of Chancery granted in part and denied in part a member’s demand for books and records under Section 18-305 of the Delaware Limited Liability Company Act (the “LLC Act”).  The Court also denied the member’s request for attorneys’ fees.

Read More

Court Finds Defendants Did Not Breach Fiduciary Duties by Causing Company to Accumulate Cash in Anticipation of Stock Redemption Rather than Investing in Long-Term Growth

By: David L. Forney and Michael C. Payant

In The Frederick Hsu Living Trust v. Oak Hill Capital Partners III, L.P., et al., C.A. No. 12108-VCL (Del. Ch. May 4, 2020), the Delaware Court of Chancery (the “Court”) held that the controlling stockholder, directors, and named officers of ODN Holding Corporation (the “Company”) had not breached their fiduciary duties to the Company when they chose to pursue a cash-accumulation strategy in anticipation of redeeming preferred shares, rather than investing in the Company’s business for long-term growth for the possible benefit of common stockholders.

Read More

Chancery Court Reaffirms Delaware Policy of Broad Section 220 Stockholder Inspection Rights

By: Christopher J. Voss and Zane A. Madden

In Lebanon County Employees’ Retirement Fund and Teamsters Local 443 Health Services & Insurance Plan v. AmerisourceBergen Corp., C.A. No 2019-0527-JTL (Del. Ch. Jan. 13, 2020), the Delaware Court of Chancery (the “Court”) granted the plaintiffs’ demand to inspect the defendant’s books and records.  In so doing, the Court upheld the plaintiffs’ stated justifications for seeking review of the books and records as a proper purpose under Delaware law.

Read More

Court of Chancery Hesitates to Dismiss Lawsuit, Stays Litigation Pending Texas Lawsuit

By: Scott E. Waxman and Marissa Leon

In EnVen Energy Corporation v. David M. Dunwoody, Jr., et al. (C.A. No. 2019-0579-KSJM), the Delaware Court of Chancery (the “Court”) stayed litigation pending the outcome of a separate lawsuit filed in Texas to give deference to a plaintiff’s chosen forum, to avoid wasting judicial resources and to foreclose potential conflicting rulings.

Read More

Chancery Court Rules on Fraud Claims and Breach of Fiduciary Duty Claim against a Solar Project Fund and its Manager

By: Scott E. Waxman and Marissa Leon

In HOMF II Investment Corp., et al v. Joaquin Altenberg, et al. (C.A. No. 2017-0293-JTL), the Delaware Chancery Court (the “Court”) ruled in favor of the plaintiffs on a breach of fiduciary duty claim, in favor of the defendant on a fraud in the inducement claim due to the plaintiffs’ failure to give defendant procedural notice and in favor of the defendant on plaintiff’s second claim of fraud due to the plaintiffs’ failure to prove fraud while operating a fund.

Read More

CHANCERY COURT DECLINES TO MOVE BOOKS AND RECORDS DISPUTE TO NEW YORK DESPITE NEW YORK VENUE CLAUSE IN LLC AGREEMENT

By: Scott Waxman and Claire Suni

In Joseph Stanco v. Rallye Motors Holding LLC, C.A.  No. 2019-0751-SG (Del. Ch. Dec. 23, 2019), a former managing member of a Delaware limited liability company (“LLC”) brought an action to compel inspection of the company’s books and records in the Delaware Court of Chancery (the “Court”).  The company moved to dismiss the action on the basis that (i) its LLC Agreement designated New York as the venue for dispute resolution and (ii) a different plaintiff was simultaneously pursuing a similar action with respect to the same documents in New York.  The Court was not persuaded by either of the company’s arguments and denied its motion to dismiss.

Read More

Delaware Court of Chancery Imposes Charging Order on Distributions Related to Defendant’s LLC Membership Interest

By: Scott E. Waxman and Serena M. Hamann

In GFM ELCM Fund L.P. et al. v. ELCM HCRE GP LLC et al., C.A. No. 2018-0840-SG (Del. Ch. May 18, 2020), the Delaware Court of Chancery issued a Temporary Restraining Order (“TRO”) and imposed an Interim Charging Order on the limited liability company interest of an individual defendant and ordered that any distributions related to the defendant’s membership interest be made directly to the Plaintiffs in satisfaction of amounts due.

Read More

Chancery Court Declines to Dismiss Derivative Claims for Audit Committee Oversight Failure and Unjust Enrichment

By: Remsen Kinne and Michael C. Payant

In William Hughes, Jr. v. Xiaoming Hu, et al., C.A. No. 2019-0112-JTL (Del. Ch. April 27, 2020), the Delaware Court of Chancery (the “Court”) held that stockholder plaintiff’s failure to make a demand on the board of directors (the “Board”) was excused and therefore denied defendants’ motions to dismiss under Court of Chancery Rules 23.1 and 12(b)(6) derivative claims brought by plaintiff on behalf of Kandi Technologies Group, Inc., a public Delaware corporation based in China (the “Company”).  The derivative claims alleged that the Board, acting through its Audit Committee (the “Committee”), breached fiduciary duties by failing to implement effective oversight of the Company’s disclosure and financial information reporting controls and procedures and that as a result Company officers were unjustly enriched.

Read More

Chancery Court Rules that LLC Unit Buyout Provision Operated As a Call Option

By Scott Waxman and Priya Chadha

In Kieran Walsh et al. v. White House Post Productions, LLC, et al., C.A. No. 2019-0419-KSJM (March 25, 2020), Plaintiffs Kieran Walsh and Francis Devlin brought claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and specific performance following a dispute with Defendant Carbon Visual Effects, LLC (the “Company”) regarding a buyout provision in the Company’s LLC Agreement.  On a motion to dismiss, Vice Chancellor McCormick held that the buyout provision operated as a call option, requiring Defendants to purchase Plaintiffs’ LLC units once it exercised its option by noticing its intent to purchase them.

Read More

COURT OF CHANCERY DECIDES MOTIONS TO DISMISS, MOTION FOR SUMMARY JUDGMENT, AND MOTION FOR JUDGMENT ON THE PLEADINGS WHEN PLAINTIFF SUES STOCKHOLDERS AND DIRECTORS OF THE COMPANY HE FOUNDED

By:  David L. Forney and Rachel Cheasty Sanders

In Craig T. Bouchard v. Braidy Industries, Inc., et al., Case No. 2020-0097-KSJM (Del. Ch. Apr. 28, 2020), the Delaware Court of Chancery addressed various motions filed by both Plaintiff and Defendants, including Defendants’ motions to dismiss for lack of personal jurisdiction and failure to state a claim, Plaintiff’s motion for judgment on the pleadings regarding an individual defendant’s defense, and Plaintiff’s motion for summary judgment.  Plaintiff Craig Bouchard filed suit against Defendants claiming breach of contract regarding a voting agreement to which Bouchard and each of Defendants are a party.  The Court granted the motions to dismiss for lack of personal jurisdiction over Defendants.  Further, the Court granted Plaintiff’s motion for judgment on the pleadings regarding the defense of unclean hands asserted by Defendant Braidy Industries, Inc.  Lastly, the Court denied Plaintiff’s motion for summary judgment on his breach of contract claim, finding that the factual records needed further development. 

Read More

Copyright © 2019, K&L Gates LLP. All Rights Reserved.