Justia Corporate Compliance Opinion SummariesArticles Posted in Delaware Court of Chancery
In re: The Goldman Sachs Group, Inc. Shareholder Litigation
This matter was before the court on a motion to dismiss, pursuant to Court of Chancery Rule 23.1, for failure to make a pre-suit demand upon the board, and Court of Chancery Rule 12(b)(6) for failure to state a claim. At issue was whether actions taken by certain director defendants fell outside of the fiduciary boundaries existing under Delaware case law - and were therefore subject to judicial oversight - or whether the acts complained of were within those broad boundaries, where a law-trained judge should refrain from acting. The court held that the facts pled in support of allegations that the director defendants violated fiduciary duties in setting compensation levels and failing to oversee the risks created thereby, if true, only supported a conclusion that the directors made poor business decisions. Thus, plaintiffs have failed to allege facts sufficient to state a claim. Consequently, the court need not reach the Rule 12(b)(6) issue. View "In re: The Goldman Sachs Group, Inc. Shareholder Litigation" on Justia Law
PharmAthene, Inc. v. SIGA Technologies, Inc.
This action arose out of a dispute between two companies involved in the development of pharmaceuticals. Plaintiff was a biodefense company engaged in the development and commercialization of medical countermeasures against biological and chemical weapons and defendant was also a biodefense company that concentrated on the discovery and development of oral antiviral and antibacterial drugs to treat, prevent, and complement vaccines for high-threat biowarfare agents. The court rejected plaintiff's claim that defendant breached a binding license agreement, but found that defendant did breach its obligations to negotiate in good faith and that defendant was liable to plaintiff under the doctrine of promissory estoppel. The court rejected defendant's claim that plaintiff breached its obligation to negotiate in good faith. The court denied plaintiff's claims for specific performance of a license agreement with the terms set forth in the time sheet or, alternatively, for a lump sum award of its expectation damages. The court concluded, however, that plaintiff was entitled to share in any profits relied on from the sale of the drug in question, after an adjustment for the upfront payments it likely would have had to make had the parties negotiated in good faith a license agreement in accordance with the terms of the term sheet. In addition, plaintiff was entitled to recover from defendant a portion of the attorneys' fees and expenses plaintiff incurred in pursuing the action. View "PharmAthene, Inc. v. SIGA Technologies, Inc." on Justia Law
ASDC Holdings, et al. v. The Richard J. Malouf 2008 All Smiles Trust, et al.
This action arose from a transaction involving the sale of equity in a Texas-based dental practice management company to a Chicago-based private equity firm. At issue was whether the purchasers' ability to raise the forum selection clause issue in Texas provided them with an adequate remedy at law, undermining the basis for equity jurisdiction, and if not, whether the terms of the forum selection clause were broad enough to reach the Texas claims. The court held that the forum selection clause did not provide purchasers an adequate remedy at law, and therefore, the court had subject matter jurisdiction over their claims. The court also held that the forum selection clause here, which applied to any claims arising under or relating to the transaction, was sufficiently broad in scope that the purchasers were likely to succeed in showing that it provided exclusive jurisdiction in Delaware over the claims brought by the sellers in Texas. Accordingly, the court granted purchasers' motion for preliminary injunction. View "ASDC Holdings, et al. v. The Richard J. Malouf 2008 All Smiles Trust, et al." on Justia Law
Johnston, et al. v. Pedersen, et al.
In this action brought pursuant to 8 Del. C. 225, plaintiffs sought a determination that certain written consents validly removed defendant directors and replaced them with a new slate. Defendant directors contended that they could not be removed or a new slate elected without the consent of a majority of the Series B Preferred Stock. Applying enhanced scrutiny, the court held that defendant directors breached their fiduciary duties when issuing the Series B Preferred Stock where, although they honestly believed they were acting in the best interests of the company, they breached their duty of loyalty by structuring the stock issuance to prevent an insurgent group from waging a successful proxy contest. Therefore, the class provision could not be given effect and the written consents validly elected a new board. View "Johnston, et al. v. Pedersen, et al." on Justia Law
Phillips v. Hove, et al.
This post-trial opinion determined the voting membership of GnB, LLC, a Delaware limited liability company. The parties disputed whether Firehouse Gallery, LLC, a Florida limited liability company, was a voting member of GnB. The parties also disputed whether GnB possessed an exclusive license to use the first-tier, generic domain name candles.com; held an option to purchase candles.com; and owned other assorted domain names relating to the candles business. The court held that Firehouse and plaintiff, who controlled GnB, each held a 50% voting membership interest; GnB owned the exclusive license and option to purchase candles.com and the other domain names; and plaintiff and defendant, the current principal of Firehouse, each breached their fiduciary duty of loyalty to GnB and must account for the profits and personal benefits they received. The court held that defendant was not otherwise liable to GnB or plaintiff. Because all of the litigants engaged in misconduct that could support fee-shifting, the doctrine of unclean hands applied with particular salience. Accordingly, the court held that all parties would bear their own fees and costs. View "Phillips v. Hove, et al." on Justia Law
Showell v. William H. Pusey, Richard H. Hatter and Robert M. Hoyt & Co., LLC
This matter involved the interpretation of a limited liability company operating agreement. Petitioner (Showell) was a member of an accounting firm (Hoyt) and respondents (Pusey and Hatter) were the remaining members of the LLC at the time. In early 2007, Showell "retired" from Hoyt. Showell subsequently asked the court to construe the provisions of the Hoyt Operating Agreement to determine what value, if any, Showell was due for his interest in Hoyt as a consequence of his departure from the company. The court held that Showell was entitled to receive his share of the liquidation value of Hoyt as of the date of his "retirement" from the company. View "Showell v. William H. Pusey, Richard H. Hatter and Robert M. Hoyt & Co., LLC" on Justia Law
Smart Home, Inc. v. Selway, et al.
Plaintiff alleged that defendant had a personal bank account at Fulton Financial Corporation (Fulton), of which his wife could be a joint holder. Plaintiff sought a temporary restraining order enjoining both defendant and his wife from using the funds or removing them from Fulton, pending a final disposition of its claim that the funds were wrongfully removed by defendant from plaintiff's account. The court held that while the complaint stated a colorable claim, the court was unpersuaded that irreparable harm would result absent the entry of a restraining order, ex parte. The court also held that where, as here, the plaintiff sought to freeze the funds of an account legally held, not only by the alleged wrongdoer but jointly by an innocent third party, a request for ex parte action raised concerns of due process. Therefore, since plaintiff failed to show that irreparable harm would occur absent entry of a temporary restraining order ex parte, the court deferred decision on the restraining order request pending service and an opportunity for defendant to be heard. View "Smart Home, Inc. v. Selway, et al." on Justia Law
Achaian, Inc. v. Leemon Family LLC, et al.
This case stemmed from a dispute between Omniglow, LLC's three members (Leemon, Holland, and Achaian). At issue was whether one member of a Delaware limited liability company could assign its entire membership interest, including that interest's voting rights, to another existing member, notwithstanding the fact that the limited liability company agreement required the affirmative consent of all of the members upon the admission of a new member, or, must the existing member assignee be readmitted with respect to each additional interest it acquired after its initial admission as a member. The court held that the answer depended in the first instance on the specific provisions governing the transferability of Interests in Omniglow's LLC Agreement. When Omniglow's LLC Agreement was read as a whole, as it must be, it allowed an existing Member to transfer its entire Membership Interest, including voting rights, to another existing Member without obtaining the other Members' consent. Thus, Holland's assignment of its 30% Interest to an existing member, Achaian, was effective to vest all of the rights associated with that Interest in Achaian, and Omniglow now had two coequal 50% Members. View "Achaian, Inc. v. Leemon Family LLC, et al." on Justia Law
Paige Capital Mgmt., LLC, et al. v. Lerner Master Fund, LLC et al.
This case stemmed from a dispute between a hedge fund manager and the hedge fund's seed investor. The central issue was contractual and involved whether the hedge fund manager could use the Gate Provision in the Partnership Agreement to lock up the seed investor. The court held that the hedge fund manager's refusal to honor the withdrawal request and return the seed investor's capital in full was a violation of the Seeder Agreement and a breach of contract. The court held that, in the alternative, even if the Gates were potentially applicable, it was a breach of fiduciary duty for the hedge fund manager to use the Gates solely for a selfish reason. Therefore, the court ordered the immediate return to the seed investor of all of its capital and awarded interest to compensate it for the delay. The court also disposed of several other claims raised by the hedge fund manager and the seed investor. View "Paige Capital Mgmt., LLC, et al. v. Lerner Master Fund, LLC et al." on Justia Law
The Bank of New York Mellon v. Commerzbank Capital Funding Trust II, et al.
This case arose when Commerzbank agreed to acquire Dresdner Bank in September 2008. As part of the deal, Commerzbank also acquired Dresdner Bank's trust preferred structures, and holders of Dresdner's trust preferred securities received distributions in both 2009 and 2010. Plaintiff claimed that paying those distributions "pushed," or required Commerzbank to make distributions on, a class of its owned preferred securities in which plaintiff had an interest, and, by the complaint, plaintiff asked the court to enforce that alleged obligation. Plaintiff also sought specific performance of a support agreement that was argued to require the elevation of the liquidation preference of Commerzbank's trust preferred securities in response to a restructuring of one class of the Dresdner securities. The parties filed cross-motions for summary judgment. The court held, among other things, that because the DresCap Trust Certificates did not qualify as either Parity Securities, defendants were entitled to judgment in their favor as a matter of law regarding plaintiff's claim under the Pusher Provision. The court also held that because DresCap Trust Certificates did not qualify as either Parity Securities or Junior Securities, Section 6 of the Support Undertaking was not triggered by amendment of the DresCap Trust IV Certificates. Accordingly, defendants were entitled to judgment in their favor as a matter of law regarding plaintiff's claim that the amendment of the DresCap Trust IV Certificates required defendants to amend the Trusted Preferred Securities. View "The Bank of New York Mellon v. Commerzbank Capital Funding Trust II, et al." on Justia Law