Tag: Fiduciary Duty

Chancery Court Declines to Expand Gentile Doctrine

By: Scott Waxman and Doug Logan

In Dr. Thomas Markusic et al. v. Michael Blum et al. memorandum opinion 200818, the Delaware Chancery Court (the “Court”) declined to extend the Gentile doctrine. In so doing, the Court held that the counterclaims attempting to rely on it had to be dismissed.

Firefly Space Systems, Inc. (“Original Firefly”) was an aerospace startup founded by Michael Blum, Patrick Joseph King, and Thomas Markusic in late 2013 with the aim of launching small-load rockets into orbit. Counterclaim-Plaintiffs Blum, King, Lauren McCollum, Steven Begleiter, Green Desert N.V., Swing Investments BVBA, Bright Success Capital Ltd., and Wunderkind Space Ltd. (collectively, “Original Firefly Investors”) each owned stock in Original Firefly, with Markusic in the role of CEO and sole board member of Original Firefly at all relevant times.

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Chancery Court Sustains Derivative Action Alleging Caremark Claims

By Scott Waxman and Claire Suni

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.

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Delaware Court of Chancery Rejects Business Judgment Rule Protection for Stockholder-Negotiated Redemption

By: Joanna A. Diakos Kordalis and Monica Romero

In In re Dell Tech. Inc. Class V. Stockholders Litig., Consol. C.A. No. 2018-0816-JTL (Del. Ch. Jun. 11, 2020), the Delaware Court of Chancery denied defendants’ motion to dismiss the breach of fiduciary duty claim asserted against them finding that the complaint alleged facts that made it “reasonably conceivable” that the safe harbor established by Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014), would not apply and defendants would not get the benefit of the business judgment rule.

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Chancery Orders Accounting for Payments to Former Director and CEO Affiliate; Rejects Most Breach of Fiduciary Duty Claims

By: Remsen Kinne and Pouya Ahmadi

In Avande, Inc. v. Shawn Evans, C.A. No. 2018-0203-AGB (Del. Ch. Aug. 13, 2019), the Court of Chancery rejected most of the claims brought by Avande, Inc. (“Avande”) against Avande’s former director and chief executive officer (“CEO”) Shawn Evans (“Evans”) other than a claim for breach of fiduciary duty for engaging in self-interested transactions, authorizing improper expenditures and failure to maintain appropriate documentation of expenditures. The Court awarded Avande only $21,817.70 of the more than $5.3 million in damages sought to recover from Evans. The Court held that DC Risk Solutions, Inc. (“DC Risk”), an affiliate of Evans that provided Avande insurance broker services and bookkeeping services, would be liable as an aider and abettor for any damages that are assessed as a result of the accounting ordered by the Court as to payments made to DC Risk.

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Stockholder’s Breach of Fiduciary Duty Claim against Chairman of Barnes & Noble Education, Inc. Dismissed by Delaware Court of Chancery

By: Joanna Diakos and Marissa Leon

In Bay Capital Finance, L.L.C. v. Barnes and Noble Education, Inc. (C.A. No. 2019-0539-KSJM), the Delaware Court of Chancery (the “Court”) enforced a company’s advance notice provision in its bylaws, dismissed a stockholder’s breach of fiduciary claim against a company’s chairman and ordered the stockholder to pay the defendants’ attorneys’ fees as a result of its bad faith litigation conduct.  

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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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COURT OF CHANCERY RULES ON THE APPLICABILITY OF FORUM SELECTION CLAUSES TO NON-SIGNATORIES TO A CONTRACT AND A PLAINTIFF’S BURDEN IN ALLEGING BREACH OF THE “COMMERCIALLY REASONABLE EFFORTS” STANDARD

By: Scott E. Waxman and Teresa Teng

In Neurvana Medical, LLC v. Balt USA, LLC et al., C.A. No. 2019-0034-KSJM (Del. Ch. Sep. 18, 2019), the Delaware Court of Chancery granted a motion to dismiss by a defendant parent company, whose subsidiary entered into a purchase agreement containing a Delaware forum selection clause. The court applied the “closely related” test in finding that the plaintiff failed to allege sufficient facts to show that the non-signatory parent entity was “closely related” to the underlying purchase agreement and as a result, plaintiff could not bind the parent entity to the agreement’s forum selection clause.

In the subsequent Neurvana Medical, LLC v. Balt USA, LLC et al., C.A. No. 2019-0034-KSJM (Del. Ch. Feb. 27, 2020), the court split its decision in granting the motions to dismiss for lack of personal jurisdiction over one of the defendant officers of the purchaser in the transaction, and for failure to state a claim with respect to all but one count of the plaintiff’s complaint. The court denied the motion to dismiss for lack of personal jurisdiction with respect to another officer of the purchaser who had also served as chairman of the board of the seller. The court also denied such defendant’s motion to dismiss on the cause of action of breach of fiduciary duty.

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Out of the money: breach of fiduciary duty claim survives motion to dismiss when the board approved an asset sale that left no consideration for the common unitholders

By: Scott E. Waxman and Chris Fry

In JJS, Ltd., et al., v. Steelpoint CP Holdings, LLC, et al., No. 2019-0072-KSJM (Del. Ch. 2019), the Delaware Court of Chancery (the “Court”) held that John Sarkisian, individually and on behalf of JJS, Ltd. and PPS Investors Ltd., L.P. (together, the “Plaintiffs”) successfully stated a claim for breach of fiduciary duty against a venture capital fund and its appointed board members in approving a transaction for the asset sale of Pro Performance Sports, LLC (the “Company”) where the common unitholders receive no compensation, the board members are under common ownership or employment with the venture capital fund, and one board member received an extraordinary severance package. The Court dismissed the Plaintiffs’ remaining claims, which turned on the interpretation of the voting rights provision of the limited liability company (“LLC”) agreement of the Company, finding that the operative language was not ambiguous and that a careful reading of the agreement would have given Plaintiffs notice of the voting rights mechanics. 

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Settlement Agreement Violates Preferred Stockholder Consent Rights

By: Jill B. Louis and Pouya D. Ahmadi

In PWP Xerion Holdings III LLC v. Red Leaf Resources Inc., C.A. No. 2017-0235-JTL (Del. Ch. Oct. 23, 2019), the Delaware Court of Chancery (the “Court”) granted Xerion Holdings III LLC’s (“Xerion”) motion for partial summary judgement on a breach of contract claim, holding that the Red Leaf Resources, Inc. (“Red Leaf” or the “Company”) breached Xerion’s contractual right to consent as the holder of a majority of the shares of the Company’s Series A preferred stock.

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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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YES, WE HAVE NO ESTOPPEL: CHANCERY COURT RULES DERIVATIVE, DISMISSES DILUTED STOCKHOLDERS’ EX-TEXAS MERGER-RELATED CLAIMS

 By Remsen Kinne and Adrienne Wimberly

In Sheldon v. Pinto Technology Ventures, C.A. No. 2017-0838-MTZ (Del. Ch. Jan. 25, 2019), the Delaware Court of Chancery in a Memorandum Opinion granted a motion to dismiss breach of fiduciary duty claims and other allegations brought by the founder and an early stockholder (“Plaintiffs”) of non-party IDEV Technologies, Inc., a Delaware corporation (“IDEV”). The Court found that Plaintiffs’ primary claims were derivative, rejecting Plaintiffs’ assertion that Defendants were judicially estopped by a Texas state court ruling from arguing for that characterization of the claims, and dismissed the complaint for failure to comply with Chancery Court Rule 23.1’s derivative claims demand or demand futility pleading requirements.

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