Justia Corporate Compliance Opinion Summaries

The case involves a dispute over the validity of certain provisions in a governance agreement between BRP Group, Inc. and its founder. The founder sought to maintain control over the company while selling a significant portion of his equity stake. The agreement stipulated that as long as the founder and his affiliates owned at least 10% of the outstanding shares, the corporation had to obtain the founder's prior written approval before engaging in a list of actions. A stockholder plaintiff challenged three of these pre-approval requirements as invalid.The corporation argued that the plaintiff had waited too long to sue and had implicitly accepted the terms of the agreement by purchasing shares. However, the court rejected these arguments, stating that equitable defenses could not validate void acts. The corporation also claimed that a subsequent agreement, in which the founder agreed to consent to any action approved by an independent committee of directors, rendered the plaintiff's claims moot. The court disagreed, finding that the plaintiff's claims were not moot because the corporation had modified but not eliminated the challenged provisions.On the merits, the court found that the challenged provisions were invalid because they contravened sections of the Delaware General Corporation Law. The court granted the plaintiff's motion for judgment on the pleadings as to those provisions and denied the company's cross motion for judgment on the pleadings to a reciprocal degree. View "Wagner v. BRP Group, Inc." on Justia Law

The plaintiff, a shareholder of Meta Platforms, Inc., sued the company's directors, officers, and controller, alleging that they breached their fiduciary duties by managing the company to generate firm-specific value at the expense of the economy as a whole. The plaintiff argued that under Delaware law, directors owe fiduciary duties to the corporation and its stockholders as diversified equity investors, not just as investors in the specific corporation. The plaintiff proposed that Delaware law should change to adopt a diversified-investor model, particularly for systemically significant corporations.The defendants moved to dismiss the complaint, arguing that they manage Meta under a firm-specific model, as required by Delaware law. The Court of Chancery of the State of Delaware granted the defendants' motion, holding that directors owe firm-specific fiduciary duties. The court found that the plaintiff's argument was not supported by Delaware law, which contemplates a single-firm model where directors owe duties to the stockholders as investors in that specific corporation. The court also rejected the plaintiff's proposal to change Delaware law to adopt a diversified-investor model. The court concluded that the plaintiff had not made a persuasive case for such a change and dismissed the complaint. View "McRitchie v. Zuckerberg" on Justia Law

In the case of West Palm Beach Firefighters' Pension Fund v. Moelis & Company, the plaintiff, a stockholder of Moelis & Company (the "Company"), challenged the validity of certain provisions in a Stockholder Agreement between the Company and its CEO, Ken Moelis. The agreement gave Moelis extensive pre-approval rights over the Company's board of directors' decisions, the ability to select a majority of board members, and the power to determine the composition of any board committee. The plaintiff argued that these provisions violated Section 141(a) of the Delaware General Corporation Law (DGCL), which mandates that the business and affairs of a corporation be managed by or under the direction of a board of directors, except as otherwise provided in the DGCL or in the corporation's certificate of incorporation.The Court of Chancery of the State of Delaware agreed with the plaintiff, holding that the Pre-Approval Requirements, the Board Composition Provisions, and the Committee Composition Provision in the Stockholder Agreement were facially invalid under Section 141(a) of the DGCL. The court found that these provisions effectively transferred the management of the corporation to Moelis, contrary to Section 141(a). The court reasoned that while Delaware law generally favors private ordering, the ability to contract is subject to the limitations of the DGCL, including Section 141(a). The court emphasized that a provision may be part of a corporation's internal governance arrangement, and thus subject to Section 141(a), even if it appears in a contract other than the corporation's charter or bylaws.However, the court found that certain provisions were not facially invalid, including Moelis’ right to designate a number of directors, the requirement for the Company to nominate Moelis’ designees, and the requirement for the Company to make reasonable efforts to enable Moelis’ designees to be elected and continue to serve. View "West Palm Beach Firefighters' Pension Fund v. Moelis & Company" on Justia Law

In the case before the Court of Chancery of the State of Delaware, plaintiff and counterclaim-defendant Ted D. Kellner sought to challenge certain bylaws adopted by AIM ImmunoTech Inc., defendant and counterclaim-plaintiff, and its board of directors. Kellner, Deutsch, and Chioini sought to nominate themselves as director candidates for AIM's 2023 annual meeting. Kellner claims that AIM's advance notice bylaws, which were amended in 2023, are invalid and inequitable. He also asserts that the Board's rejection of his nomination notice was improper.The court found that four out of six challenged provisions of AIM's amended bylaws were inequitable and therefore invalid. These provisions were found to be overly broad and ambiguous, effectively obstructing the stockholder franchise and providing the Board with undue discretion to reject a nomination. The court also found that Kellner's notice complied with the remaining, valid bylaws and that AIM's rejection of the notice was therefore improper.The court's decision means that Kellner's nominees must be included on the ballot for AIM's 2023 annual meeting. The four invalid provisions of the bylaws have been struck down and are of no force or effect. The remaining provisions of the bylaws, which were not challenged, stand. In essence, the court found that AIM's board of directors overstepped in its efforts to ward off a proxy contest, and in doing so, it infringed on the rights of stockholders. View "Kellner v. AIM Immunotech Inc., et al." on Justia Law

Evans served as CEO and a director of Avande, a privately held Delaware corporation that provides medical claims management services to insurance companies and healthcare organizations. Following Evans’s termination, Avande performed an audit and discovered suspect transactions undertaken by Evans while he was serving as CEO. Avande filed suit, alleging breach of fiduciary duty based on alleged self-dealing transactions and improper expenditures and tortious interference, defamation, and conversion based on acts that Evans allegedly committed after his termination. Evans was found liable for about $65,000 in damages, plus interest. Evans demanded advancement for expenses incurred in connection with the action.The Delaware Chancery court entered judgment in favor of Avande. Avande established that there is no causal link between Evans’s status as a former officer of Avande and the tortious inference and defamation claims; those claims solely concerned Evans’s post-termination conduct. Avande demonstrated that Evans did not succeed but was found liable. View "Evans v. Avande, Inc." on Justia Law

Plaintiffs alleged insider-trading side deals in connection with the sale of a small aerospace manufacturing company, Kreisler, and insufficient disclosure to stockholders regarding the sales process. Before the sale, Kreisler was offered to dozens of potential acquirers. Several bidders emerged. A fairness opinion was rendered and a special committee ultimately recommended the sale. The transaction was approved by written consent of a majority of the shares outstanding. A block of shares of just over 50 percent executed a stockholder support agreement providing for approval of the transaction, so there was no stockholder vote. An Information Statement was provided to stockholders to permit them to decide whether to seek appraisal. A majority of Kreisler’s board of directors are independent and disinterested, and its charter contains an exculpation provision. The Delaware Court of Chancery dismissed the complaint, finding that even accepting the well-pled allegations as true and drawing all reasonable inferences in the Plaintiff’s favor, the Complaint fails to state a claim on which relief may be granted. View "Kahn v. Stern" on Justia Law

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

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

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

IBM's proposed purchase of Merge Healthcare was supported by a vote of close to 80% of Merge stockholders. Former Merge stockholders sought post-closing damages against the company’s directors for what they alleged was an improper sale process. Merge did not have an exculpation clause in its corporate charter, so its directors have potential liability for acts violating their duty of care, in the context of an allegedly less-than-rigorous sales process. The Delaware Court of Chancery dismissed. Demonstrating such a violation of the duty of care is not trivial: it requires a demonstration of gross negligence, but it is less formidable than showing disloyalty. Regardless of that standard, the uncoerced vote of a majority of disinterested shares in favor of the merger cleansed any such violations, raising the presumption that the directors acted within their proper business judgment. View "In Re Merge Healthcare Inc. Stockholder Litigation" on Justia Law