by
The Delaware Court of Chancery held that, under 8 Del. C. 202, in order for a stockholder to be bound by stock transfer restrictions that are not "noted conspicuously on the certificate or certificates representing the security," he must have actual knowledge of the restrictions before he acquires the stock. If the stockholder does not have actual knowledge of the stock transfer restrictions at the time he acquires the stock, he can become bound by the stock transfer restrictions after the acquisition of the stock only if he affirmatively assents to the restrictions, either by voting to approve the restrictions or by agreeing to the restrictions. In this case, plaintiff did not have actual knowledge of the restrictions prior to acquiring his stock and the company must produce the requested documents as they are necessary to effectuate the stockholder's stated purpose. View "Henry v. Phixios Holdings, Inc." on Justia Law

by
Norman and Elkin were the only shareholders of USM, a company that acquired and sold rights to radio frequencies. Norman held a minority interest and sought legal relief after he discovered that Elkin had transferred to another company the ownership of several frequencies purchased by USM, that Elkin had treated capital contributions as loans, and that Elkin had paid himself from USM funds without giving Norman any return on his minority investment. Despite two juries agreeing with Norman, verdicts in his favor were overturned. Most of his claims were held to be time-barred after the district court rejected his argument that a state court case he had brought to inspect USM’s books and records under the Delaware Code tolled the statute of limitations. Other claims were eliminated for insufficient evidence. The Third Circuit vacated in part. The district court erred in concluding that tolling of the statute of limitations is categorically inappropriate when a plaintiff has inquiry notice before initiating a books and records action in the Delaware courts and erred in vacating the jury’s award of nominal damages for one of Norman’s breach of contract claims. Norman’s fraud claim was not supported by sufficient proof of damages. View "Norman v. Elkin" on Justia Law

by
MCL 450.4515(1)(e) provided alternative statutes of limitations: one based on the time of discovery of the cause of action and the other based on the time of accrual of the cause of action. Plaintiffs were former employees of defendant ePrize who acquired ownership units in the company. Plaintiffs alleged founder Jeff Linkner orally promised them that their interests in ePrize would never be diluted or subordinated. In its fifth operating agreement, executed in 2009, ePrize stock issued in Series C and Series B Units carried distribution priority over the common units held by plaintiffs. The Operating Agreement further provided that if the company were ever sold, Series C Units would receive the first $68.25 million of any available distribution. In 2012, ePrize sold substantially all of its assets and, pursuant to the Operating Agreement, distributed nearly $100 million in net proceeds to the holders of Series C and Series B Units. Plaintiffs received nothing for their common shares. Plaintiffs thereafter sued, bringing claims for LLC member oppression, breach of contract, and breach of fiduciary duty. The trial court granted defendants’ motion for summary judgment, concluding that the three-year limitation period in MCL 450.4515(1)(e) constituted a statute of limitations, rather than a statute of repose, and that plaintiffs' claims accrued in 2009. The Court of Appeals disagreed, finding plaintiffs’ claims did not accrue until 2012, when ePrize sold substantially all of its assets, because until that sale plaintiffs had not incurred a calculable financial injury and any damage claim before that time would have been “speculative.” Accordingly, the Court concluded that plaintiffs’ claims were timely filed before the expiration of the three-year limitation period. The Michigan Supreme Court agreed with the trial court's reasoning: plaintiffs’ actions for damages under MCL 450.4515(1)(e) were barred by the three-year statute of limitations unless plaintiffs could establish on remand that they were entitled to tolling. View "Frank v. Linkner" on Justia Law

by
After Thomas, a member of the Board of Directors of Applied Medical Corporation, was removed from the Board in January 2012, Applied exercised its right to repurchase shares of its stock issued to Thomas as part of stock incentive plans. Thomas objected to the repurchase price, and in August 2012 Applied filed suit. In June, 2015, the trial court granted summary judgment against Applied. The court of appeal affirmed as to Applied’s fraud-based claims, but reversed as to Applied’s claims based on breach of contract and conversion. A conversion claim may be based on either ownership or the right to possession at the time of conversion. Applied’s fraud claims were barred by the applicable statute of limitations; the court rejected Applied’s argument that those claims, first alleged in 2014, were timely under either the discovery rule or the relation back doctrine. View "Applied Medical Corp. v. Thomas" on Justia Law

by
Plaintiffs Peter Brinckerhoff and his trust, were long-term investors in Enbridge Energy Partners, L.P. (“EEP”), a Delaware master limited partnership (“MLP”). A benefit under Delaware law of this business structure was the ability to eliminate common law duties in favor of contractual ones, thereby restricting disputes to the four corners of the limited partnership agreement (“LPA”). This was not the first lawsuit between Brinckerhoff and the Enbridge MLP entities over a conflicted transaction. In 2009, Brinckerhoff filed suit against most of the same defendants in the current dispute, and challenged a transaction between the sponsor and the limited partnership. Enbridge, Inc. (“Enbridge”), the ultimate parent entity that controlled EEP’s general partner, Enbridge Energy Company, Inc. (“EEP GP”), proposed a joint venture agreement (“JVA”) between EEP and Enbridge. Brinckerhoff contested the fairness of the transaction on a number of grounds. After several rounds in the Court of Chancery leading to the dismissal of his claims, and a trip to the Delaware Supreme Court, Brinckerhoff eventually came up short when the Court of Chancery’s ruling that he had waived his claims for reformation and rescission of the transaction by failing to assert them first in the Court of Chancery was affirmed. A dispute over the Clipper project would again go before the Court of Chancery. In 2014, Enbridge proposed that EEP repurchase Enbridge’s interest in the Alberta Clipper project excluding the expansion rights that were part of the earlier transaction. As part of the billion dollar transaction, EEP would issue to Enbridge a new class of EEP partnership securities, repay outstanding loans made by EEP GP to EEP, and, amend the LPA to effect a “Special Tax Allocation” whereby the public investors would be allocated items of gross income that would otherwise be allocated to EEP GP. According to Brinckerhoff, the Special Tax Allocation unfairly benefited Enbridge by reducing its tax obligations by hundreds of millions of dollars while increasing the taxes of the public investors, thereby undermining the investor’s long-term tax advantages in their MLP investment. The Court of Chancery did its best to reconcile earlier decisions interpreting the same or a similar LPA, and ended up dismissing the complaint. On appeal, Brinckerhoff challenged the reasonableness of the Court of Chancery’s interpretation of the LPA. The Supreme Court agreed with the defendants that the Special Tax Allocation did not breach Sections 5.2(c) and 15.3(b) governing new unit issuance and tax allocations. But, the Court found that the Court of Chancery erred when it held that other “good faith” provisions of the LPA “modified” Section 6.6(e)’s specific requirement that the Alberta Clipper transaction be “fair and reasonable to the Partnership.” View "Brinckerhoff v. Enbridge Energy Company, Inc., et al." on Justia Law

by
Plaintiffs, who purchased EveryWare securities in 2013-2014, alleged a “pump and dump” scheme by EveryWare’s principal shareholders and officers to inflate the price of EveryWare shares and then sell their EveryWare shares before prices plummeted. They claim that EveryWare’s CEO released EveryWare’s financial projections for 2013, despite actually knowing those projections to be false and misleading and, months later, told investors, with the intent to deceive, manipulate, or defraud, that EveryWare was on track to meet its projections and that when EveryWare offered a portion of its shares to investors in September 2013, and submitted a registration statement and a prospectus in connection with that offering, EveryWare’s underwriters and directors signed documents, incorporating EveryWare’s financial projections and failing to disclose material downward trends in the business. The Sixth Circuit affirmed dismissal of plaintiffs’ claims under the Securities Exchange Act of 1934 and the Securities Act of 1933. The Exchange Act claims failed because plaintiffs did not allege particularized facts giving rise to a strong inference that defendants acted with the requisite scienter; the Securities Act claims failed because plaintiffs did not allege any well-pleaded material statement or omission in the registration statement or the prospectus. View "IBEW Local No. 58 Annuity Fund v. EveryWare Global, Inc." on Justia Law

by
Philip Shawe and his mother, Shirley Shawe, filed an interlocutory appeal of an August 13, 2015 Chancery Court opinion and July 18, 2016 order appointing a custodian to sell TransPerfect Global, Inc., a Delaware corporation. After a six-day trial the Court issued an opinion concluding that the “warring factions” were hopelessly deadlocked as stockholders and directors. The court carefully considered three alternatives to address the dysfunction and deadlock, and in the end decided that the circumstances of the case required the appointment of a custodian to sell the company. On appeal, the Shawes did not challenge the Court’s factual findings; instead, Philip Shawe claimed for the first time on appeal that the court exceeded its statutory authority when it ordered the custodian to sell a solvent company. Alternatively, Shawe contended that less drastic measures were available to address the deadlock. Shirley Shawe argued for the first time on appeal that the custodian’s sale of the company might result in an unconstitutional taking of her one share of TransPerfect Global stock. The Supreme Court disagreed with the Shawes and affirmed the Chancery Court’s judgment. View "Shawe v. Elting" on Justia Law

by
Richard, Father, Mother, and sister (Kathryn) formed the family Corporation in 1990. Under its articles of incorporation and bylaws, each family member served as a lifetime director. Mother died in 2000. In 2010, the remaining family members elected Phyllis to a three-year term on the board. Father died in 2010. Phyllis’s term expired in 2013. Under Indiana Code 23-17-12-3, a nonprofit corporation must be governed at all times by at least three directors. Richard claimed that when Phyllis’s term expired, the Corporation was no longer lawfully constituted and the two remaining board members could not act on the Corporation’s behalf or exercise corporate powers. Indiana law provides that when a nonprofit director’s term expires without further action by the board: “the director continues to serve until … a successor is elected, designated, or appointed and qualifies.” That language is reflected in the Corporation’s bylaws and the 2010 resolution appointing Phyllis to the board. Kathryn and Phyllis voted in 2013 to elect Phyllis to a second term. The board then took several actions over Richard’s objections, including authorizing gifts to Saint Francis (on whose board Kathryn also serves) and electing Kathryn’s son as a fourth board member. Richard filed suit, as an individual and derivatively. The Seventh Circuit affirmed dismissal. Under Indiana law, only a shareholder or member of a corporation may bring a derivative action on the corporation’s behalf. Richard is neither a shareholder nor a member. The Corporation’s articles of incorporation provide that it “shall have no members.” Richard’s purported individual claims for money judgment belong to the Corporation and his other individual claims failed on their merits. View "Doermer v. Callen" on Justia Law

by
The three underlying legal actions, involving breach of contract, breach of fiduciary duty, stock valuation, bankruptcy, and appeals, took place in Illinois. Plaintiffs, including attorneys involved in the underlying actions, sought to indemnification in post-trial proceedings. Defendant is a Delaware corporation with offices in Illinois. The Delaware Court of Chancery awarded plaintiffs $79,540.14 for pursuing the post-trial action and $241,492.50 for the Illinois proceedings, plus 20% of the expenses they incurred enforcing their indemnification right through this proceeding. The court cited the corporations’ bylaws, under which the plaintiffs are entitled to mandatory if indemnification would be permitted under the Delaware General Corporation Law and Section 145(a) of that law. View "Dore v. Sweports Ltd." on Justia Law

by
A 16-count complaint alleged conspiracy to funnel valuable pharmaceutical interests away from an entity in which the Plaintiff, CelestialRX, LLC, is a member. The claims include allegedly improper self-dealing by two members of a three-member LLC. On motions to dismiss and for summary judgment, the Delaware Chancery Court rejected a claim that plaintiffs had contractually released certain claims and analyzed the LLC agreement to conclude that good faith—a subjective standard, applies separately to both the transaction and to the conflicted party’s analysis of whether it is “fair and reasonable,” but must be read consistently with the purpose of specific standards, which is to permit conflicted transactions in certain circumstances. The court urged the parties to mediate the dispute. View "CelestialRX Investments, LLC.v. Krivulka" on Justia Law