Tag: Chancery Court Rule 12(b)(6)

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

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.

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Court of Chancery Applies Entire Fairness Standard to PennyMac’s Reorganization Transaction

By: Annette Becker and Marissa Leon

In Robert Garfield v. BlackRock Mortgage Ventures, LLC, et al (the “Defendants”) (C.A. No. 2018-9017-KSJM), the Court of Chancery denied a motion to dismiss claims of breach of fiduciary duties filed by Robert Garfield (the “Plaintiff”), an investor that claims a reorganization of Private National Mortgage Acceptance Company, LLC (“PennyMac, LLC”) was unfair to certain stockholders.  The Court of Chancery found that the complaint stated a claim when evaluated under the entire fairness standard of review where stockholders constituting a “control group” stood to benefit from the transaction.

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CHANCERY COURT FINDS PLAINTIFF’S CLAIMS OF FRAUD, BREACH OF FIDUCIARY DUTY, AND RELATED CLAIMS, PASS MUSTER UNDER 12(b)(6)

By: Scott E. Waxman and Douglas A. Logan

In Simon Ogus v. SportTechie, Inc., memorandum opinion 200131, C.A. No. 2018-0869-AGB, the Delaware Court of Chancery (the “Court”), generally held that Simon Ogus (the “Plaintiff”), pled sufficiently claims for fraud, breach of fiduciary duty, aiding and abetting, civil conspiracy and breach of contract against  Oak View Group, LLC (“Oak View”) and individuals Taylor Bloom, Francesca Bodie, Daniel Kaufman (each a “Defendant” and together the “Defendants”). The claims stemmed from the Plaintiff’s termination and subsequent forced sale of shares in SportTechie, Inc. (“SportTechie or the “Company”), and the Court allowed most of the Plaintiff’s claims to survive the 12(b)(6) motion but dismissed a small number as well.

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CHANCERY COURT FINDS THAT RES JUDICATA BARS PLAINTIFF’S DEMAND FOR INFORMATION RIGHTS UNDER MERGER AGREEMENT

By: Annette Becker and Caitlin Velasco

In the Memorandum Opinion, Fortis Advisors LLC v. Shire US Holdings, Inc., No. 2018-0933-JRS (Del. Ch. Feb. 13, 2020), the Court of Chancery granted Shire US Holdings, Inc.’s motion to dismiss under the doctrine of res judicata because the breach of contract claim brought by Fortis Advisors LLC arises from the same transaction that was the subject of a prior action (the “2016 Action”) between the parties, Fortis Advisors LLC v. Shire US Holdings, Inc., No. 12147-VCS (Del. Ch. Aug. 9, 2017).

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In a Reckless Re-price, Results are not Realized

By David L. Forney and Tom Sperber

In Howland v. Kumar, C.A. no. 2018-0804-KSJM, the Delaware Chancery Court issued a Memorandum Opinion under Chancery Rule 12(b)(6) denying a motion to dismiss claims of breach of fiduciary duty and unjust enrichment on the basis that the defendants repriced stock options that they held immediately prior to making a public announcement that was sure to increase the stock price.  The Court also ruled under Chancery Rule 23.1 that the plaintiff adequately plead demand excusal. Thomas S. Howland, Jr. (“Plaintiff”), a stockholder of Anixa Biosciences, Inc. (“Anixa”), brought two derivative claims against Anixa and its directors and officers. The Anixa board of directors consisted of Chairman, President, and CEO Amit Kumar (“Kumar”), Lewis H. Titterton, Jr. (“Titterton”), Arnold M. Baskies (“Baskies”), John Monahan (“Monahan”), and David Cavalier (“Cavalier”). The officers included Kumar, John A. Roop (“Roop”), Michael J. Catelani (“Catelani”) and Anthony Campisi (“Campisi”, collectively, “Individual Defendants,” and, collectively with Anixa, “Defendants”).

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IN REJECTING DEFENDANTS’ MOTION FOR DISMISSAL, CHANCERY COURT FINDS THAT INDIVIDUAL FIDUCIARY MAY BE HELD LIABLE FOR TRADES THAT AN ASSOCIATED ENTITY OR FUND MAKES

By: Scott E. Waxman and Adrienne Wimberly

In the consolidated stockholder derivative litigation, In re Fitbit, Inc., CA No. 2017-0402-JRS (Del. Ch. Dec. 14, 2018), the Delaware Court of Chancery denied the Defendants’ motion to dismiss Plaintiffs’ insider trading and breach of fiduciary duty claims. The claims stem from alleged insider knowledge of members of Fitbit’s Board of Directors (the Board) and chief financial officer that Fitbit’s PurePulse™ technology was not as accurate as the company claimed. Plaintiffs alleged that members of the Board structured the company’s Initial Public Offering (IPO) and Secondary Offering (together, “the Offerings”) to benefit Fitbit insiders and voted to waive employee lock-up agreements, thereby allowing those insiders, to prematurely sell stock in the Secondary Offering. As a result of their sales, the alleged insiders sold about 6.2 million shares for over $115 million in the IPO and about 9.62 million shares for over $270 million in the Secondary Offering.

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A Conflicted Controller Transaction Survives a Motion to Dismiss

By: Lisa R. Stark and Samira F. Torshizi

In In re Hansen Medical, Inc. Stockholders Litigation, C.A. No. 12316-VCMR (Del. Ch. June 18, 2018), the Delaware Court of Chancery found that plaintiffs had stated a reasonably conceivable claim that the acquisition of Hansen Medical, Inc. (“Hansen”) by Auris Surgical Robotics, Inc. (“Auris”) should be reviewed under the entire fairness standard of review because the transaction involved a controlling stockholder group which extracted benefits from the transaction not shared with the minority. The Court denied motions to dismiss filed by the alleged control group and Hansen’s directors and officers.

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Court of Chancery Dismisses Fraud Claim for Alleged Extra-Contractual Misrepresentations Based on Anti-Reliance Clause

By: Claire S. White and Rachel P. Worth

In ChyronHego Corporation, et al., v. Cliff Wight and CFX Holdings, Inc., C.A. No. 2017-0548-SG (Del. Ch. July 31, 2018), the Delaware Court of Chancery granted the defendants’ motion to dismiss the plaintiffs’ claim for extra-contractual fraud on the basis that the stock purchase agreement contained an effective anti-reliance clause that precluded such claim. The Court found that the anti-reliance clause rebutted the common law fraud element of reliance on any extra-contractual representations, as described further below.  At the same time, the Court dismissed the defendants’ motion to dismiss claims for fraud and breaches of express representations and warranties under the stock purchase agreement, finding that the plaintiffs had sufficiently pleaded the elements of these claims.

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

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

Court of Chancery Holds That Plaintiff Failed to Meet Burden of Proof With Respect to Mistake-Based Reformation Claim

By: Scott Waxman and Tami Mack

In Richard B. Gamberg 2007 Family Trust v. United Restaurant Group, L.P., C.A. No. 10994-VCMR (Del. Ch. January 26, 2018), the Court of Chancery held that limited partner, Richard B. Gamberg 2007 Family Trust (the “Plaintiff”), failed to meet its burden of proof with respect to various claims against United Restaurant Group L.P. (the “Partnership”), Atlantic Coast Dining, Inc. (the “General Partner”), and the directors/shareholders of the General Partner (the “Shareholder Defendants”; together with the Partnership and the General Partner, the “Defendants”), which included a mistake-based reformation claim, among other breach of contract and breach of fiduciary duty claims.

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