Bad Faith | Delaware Docket

Chancery Court Sustains Derivative Action Alleging Caremark Claims

May 04 2021

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.

ATTEMPT TO SEIZE CONTROL OF A BEVERAGE COMPANY? COURT OF CHANCERY FINDS INSUFFICIENT EVIDENCE OF CIVIL CONSPIRACY

May 15 2020

By: C. Cartwright Bibee and Claire Suni

In Todd O’Gara and Wanu Water, Inc. v. Sheldon Coleman, et al., C.A. No. 2018-0708-KSJM (Del. Ch. Feb. 14, 2020), the Delaware Court of Chancery (the “Court”) granted a motion to dismiss claims made in connection with an alleged conspiracy to seize control of a beverage company by certain former directors and current stockholders. The founder and the company itself filed the complaint asserting claims for breach of fiduciary duty, tortious interference with business relations and contract, civil conspiracy, and libel. The Court found that the complaint failed to plead facts satisfying the essential elements of each claim and, furthermore, did not establish personal jurisdiction over certain of the defendants.

Chancery Court Dismisses Uber Derivative Suit for Failure to Make Demand or Plead Demand Futility

Oct 23 2019

By Annette Becker and Will Smith

In McElrath v. Kalanick, C.A. No. 2017-0888-SG (Ch. Del. April 1, 2019), the Delaware Court of Chancery (the “Court”) dismissed a derivative suit brought by a stockholder of Uber Technologies, Inc. (“Uber”) for damages arising from its acquisition of Ottomotto, LLC (“Otto”), an autonomous vehicle technology company. Plaintiff did not make demand on the defendant board of directors of Uber (the “Board”) for action prior to pursuing litigation. The Court dismissed the derivative suit finding that a majority of the Board that would have evaluated a demand was disinterested and independent, and therefore, had plaintiff made demand of the Board, such a demand would not have been futile.

Court of Chancery Dismisses Derivative Suit for Failure to Demonstrate Demand Futility because Plaintiff Failed to Allege Particularized Facts

Jul 19 2018

By: Charles Carter and Caitlin Velasco

In Steinberg on behalf of Hortonworks, Inc. v. Bearden, C.A. No. 2017-0286-AGB (Del. Ch. May 30, 2018), the Delaware Court of Chancery granted the defendants’ motion to dismiss the stockholder plaintiff’s derivative claims for breach of fiduciary duties under Court of Chancery Rule 23.1, because the plaintiff failed to make a pre-suit demand or demonstrate that doing so would be futile. The Court found that the plaintiff failed to plead particularized facts sufficient to raise reasonable doubt that a majority of the directors on the Hortonworks, Inc. board could have exercised their independent and disinterested business judgment in responding to a pre-suit demand. Read More

Class Action Dismissed as Demand was Not Excused as Futile; Plaintiff Failed to Allege Facts Sufficient to Establish that a Majority of the Board Faced Substantial Likelihood of Liability for Non-Exculpated Claims

Nov 22 2017

By: Annette Becker and Will Smith

In Lenois, et al. v. Lawal, et al., and Erin Energy Corporation, C.A. No. 11963-VCMR (Del. Ch. November 7, 2017), plaintiff Robert Lenois (“Plaintiff”) on behalf of himself and other stockholders brought a class action for breach of fiduciary duty against controllers and the board of directors of Erin Energy Corporation (“Erin”) for approving what was claimed to be an unfair transaction. The Delaware Court of Chancery dismissed the class action suit under Court of Chancery Rule 23.1, holding that the directors were protected by an exculpatory charter, and Plaintiff failed to meet the heightened pleading standard for demand futility set by the second prong of Aronson v. Lewis, 473 A.2d 805 (Del. 1984). Although Plaintiff pled with particularity that one director acted in bad faith, the complaint did not allege facts sufficient to establish that a majority of the board faced a substantial likelihood of liability for non-exculpated claims.

COURT OF CHANCERY DISMISSES DERIVATIVE BREACH OF FIDUCIARY DUTY CLAIMS FOR FAILURE TO MAKE A PRE-SUIT DEMAND OR DEMONSTRATE DEMAND FUTILITY

Oct 13 2017

By: Annette Becker and Caitlin Velasco

In Chester Cty. Emp. Ret. Fund v. New Residential Inv. Corp., C.A. No. 11058-VCMR (Del. Ch. Oct. 6, 2017), the Delaware Court of Chancery granted the defendants’ motion to dismiss the stockholder plaintiff’s direct and derivative claims for breach of fiduciary duties under the Court of Chancery Rules 23.1 and 12(b)(6), because the plaintiff failed to make a pre-suit demand or demonstrate that doing so would be futile. The Court found that although the facts alleged gave rise to a derivative claim, the plaintiff failed to make a pre-suit demand or plead particularized facts sufficient to raise a reasonable doubt that a majority of the directors on the New Residential Corp. (“New Residential”) board could have exercised their independent and disinterested business judgment in responding to a demand.

Chancery Court Dismisses Breach of Duty Claim and Denies Quasi-Appraisal Relief Sought by Stockholders after Merger

Jun 27 2017

By Scott E. Waxman and Uri S. Segelman

In In re Cyan, Inc. Stockholders Litigation, C.A. No. 11027-CB (May 11, 2017), the Delaware Court of Chancery dismissed Cyan, Inc. stockholders’ complaint alleging breach of duty by Cyan’s board in merging with Ciena Corp., holding that the plaintiffs had failed to plead sufficient facts to support a reasonable inference that a majority of Cyan’s board was interested in the transaction or acted in bad faith so as to sustain a non-exculpated claim for breach of fiduciary duty. In so doing, the court further denied plaintiffs’ claim for equitable relief of quasi-appraisal, holding that since such relief is typically awarded to redress disclosure deficiencies that are the product of a fiduciary breach, and given that plaintiffs failed to identify any material misrepresentation or omission from Cyan, or to allege any other viable claim for a fiduciary breach, there was no basis to impose a quasi-appraisal remedy.

Directors’ Failure to Consider Speculative Projections in Recommending Tender Offer to Stockholders Insufficient to Plead a Claim for Breach of the Duty of Loyalty Based on Bad Faith

Jun 22 2016

By: Michelle McCreer y Repp and Benjamin Ken dall

In In re Chelsea Therapeutics International Ltd. Stockholders Litigation, Consol. C.A. No. 9640-VCG (Del. Ch. May 20, 2016), the Delaware Chancery Court held that Plaintiffs, who alleged bad faith on the part of corporate directors based on a failure to adequately take into account speculative financial projections in evaluating the adequateness of an acquisition offer, had failed to state a claim on which relief could be granted.

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