Tag: Breach of Fiduciary Duty

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

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.

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

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.

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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

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.

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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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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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CHANCERY COURT CLARIFIES MFW PROTECTIONS MUST BE IMPLEMENTED PRIOR TO ANY SUBSTANTIVE ECONOMIC NEGOTIATIONS

By: David Forney and Claire Suni

In In re HomeFed Corporation Stockholder Litigation, C.A. No. 2019-0592-AGB (Del. Ch. July 13, 2020), the Delaware Court of Chancery (the “Court”) found that the controlling stockholder of HomeFed Corporation undertook substantive economic negotiations with its minority stockholders in connection with a proposed squeeze-out merger transaction prior to implementing the procedural protections set forth in Kahn v. M&F Worldwide Corp. (“MFW”).   As a result, the Court ruled that the appropriate standard of review for the plaintiff’s claims of breach of fiduciary duty against the controlling stockholder and the board of directors was entire fairness, and not business judgment. The Court further found that two of the company’s directors were not independent and therefore could not avail themselves of exculpatory language in the company’s certificate of incorporation. The Court denied in full the defendants’ motion to dismiss under Rule 12(b)(6) for failure to state a claim for relief.

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CHANCERY COURT RULES ON AGRIBUSINESS SALE FRAUD SUIT

By: Scott E. Waxman and Marissa Leon

In Agspring Holdco, LLC, et al. v. NGP X US Holdings, L.P., et al. (C.A. No. 2019-0567-AGB), the Delaware Court of Chancery (the “Court”) tolled the statute of limitations on claims by the purchaser of an agricultural commodities company and refused to dismiss the majority of fraud and related claims against officers of the company.

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Chancery Court Dismisses Plaintiff’s Claims against Three Former Members of the Board

By: Scott Waxman and Pouya Ahmadi

In Jacob Hasher Hindlin v. Lukasz Gottwald et al., C.A. No. 2019-0586-JRS (Del. Ch. July 22, 2020), the Delaware Court of Chancery (the “Court”) dismissed Plaintiff’s claims against three former members of the board of managers of Core Nutrition, LLC (“Core” or the “Company”) for breach of fiduciary duty and the implied contractual covenant of good faith and fair dealing.

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Chancery Court Holds Late Breach of Fiduciary Duty Claim Is Barred By Laches

By: Annette Becker; Pouya Ahmadi; Julia Knitter

In Gallagher Industries, LLC v. William M. Addy, et al., C.A. No. 2018-0106-SG (Del. Ch. May 29, 2020), the Delaware Court of Chancery (the “Court”) held that because Gallagher Industries, LLC (the “Plaintiff”) decided not to pursue an appraisal action following a problematic cash-out merger five years earlier, the Plaintiff’s tolling claim against William M. Addy and Joseph E. Eastin (the “Defendants”) for breach of fiduciary duty for disclosure weaknesses was barred by laches.

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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.

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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.

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Court of Chancery Defers to Board of Director’s Business Judgment in Response to Stockholder’s Dividend Demand

By: James S. Bruce and Marissa Leon

In Buckley Family Trust v. Charles Patrick McCleary, et al. (C.A. No. 2018-0903-AGB), the Delaware Court of Chancery (the “Court”) granted defendants’ motion to dismiss a stockholder’s claims to compel the company to pay a dividend and also dismissed the stockholder’s claim alleging breach of fiduciary duty of care regarding decisions made by the board of directors of the company.

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