Pulieri v. Boardwalk Properties, LLC, C.A. No. 9886-CB (Del. Ch. Feb. 18, 2015).
This Court of Chancery decision provides a primer on specific performance, unjust enrichment, laches and the rule against perpetuities, and also provides another reminder, as if any reminder was needed, that oral agreements are difficult to enforce, especially when the transfer involves real estate valued at several million dollars. Compare generally, Grunstein v. Silva, 2014 WL 4473641 (Del. Ch. Sept. 5, 2014).
Similar to the indeterminacy in corporate litigation often described by corporate law scholars when referring to Delaware, this case is an example of the indeterminacy in commercial litigation, to the extent that the result of applying the law to a specific set of facts is not always predictable with any degree of certainty.
The prerequisites for specific performance are listed at pages 11 and 12 of the slip opinion, but in my view, the application of the law of specific performance to particular circumstances cannot always be easily predicted because, in my view, Chancery will either grant or deny this specific type of equitable relief based on the personal belief of the particular jurist in terms of the opinion of that jurist regarding which side is more able to tug at the equitable heartstrings of the court.
Rule of Evidence 202 regarding judicial notice of pleadings in courts of this state is discussed to the extent of its limited scope. See footnote 24.
The elements of unjust enrichment were discussed but notable is the discussion about why the exception for “inherently unknowable injuries” did not apply to toll the three-year statute of limitations for this claim, which was several years past the statute.
Also noteworthy is the aspect of laches that may require a claim for breach of contract to be brought before the three-year limitation especially when the claim includes a request for specific performance.
Lastly, the always popular “rule against perpetuities” was discussed and applied to bar the enforcement of an agreement for the transfer of real estate that had no end date and could conceivably extend beyond several centuries for its exercise of a particular term. Because of that bar, the court did not address the Statute of Frauds argument.
This short opinion in the ongoing matter of Gore v. Al Jazeera America Holdings I, Inc., C.A. No. 10040-VCG (Del. Ch. Feb. 19, 2015), is notable for its recitation of the standard governing a motion for clarification pursuant to Court of Chancery Rule 59(f). In footnote 1, the Court states that “A motion for clarification may be granted where the Court’s ruling is unclear, and such a motion is treated, procedurally as a motion for reargument under Court of Chancery Rule 59(f).”
Readers of these pages are aware that over 90% of major deals are the subject of litigation challenging various aspects of mergers. Tom Hals of Reuters provides an insightful article about a plaintiff who often appears in many such suits, which make up a large number of the cases that are filed in the Delaware Court of Chancery. The article also features quotes from members of the Delaware bench regarding some of these cases. Recommended reading.
In re Dole Food Co.. Stockholder Litig., No. 8703; In re Appraisal of Dole Food Co., No. 9079, order denying motion for summary judgment filed (Del. Ch. Jan. 21, 2015). The Delaware Court of Chancery is scheduled imminently to hear claims in connection with the going-private transaction of Dole, now that the Delaware Supreme Court denied an interlocutory appeal. This is cutting-edge Delaware corporate litigation regarding the duty of directors related to a change in control, in addition to valuation/appraisal issues. Frank Reynolds penned an article that provides a helpful overview, at this link.
In re Dole Food Co. Stockholder Litigation, No. 8703, trial scheduled (Del. Ch. Feb. 23, 2015); In re Appraisal of Dole Food Co., No. 9079, trial scheduled (Del. Ch. Feb. 23, 2015).
Lewis v. Aimco Properties, L.P., C.A. No. 9934-VCP (Del. Ch. Feb. 10, 2015). This short opinion from the Delaware Court of Chancery is notable for its discussion and rejection of a claim that fiduciary duties were owed in the context of an alternative entity based on the line of cases starting with In Re USACafes, L.P. Litigation, 600 A.2d 43 (Del. Ch. 1991). The USACafes case allowed for the directors of the corporate general partner of a limited partnership to be subject to a fiduciary duty claim by the limited partners of the partnership under certain circumstances when those directors controlled the limited partnership. The Court in this decision determined that the facts of this case did not justify the application of the principles announced in the USACafes case.
This decision also addressed the less noteworthy but perennial issue of substantive arbitrability and found, based on a well-known series of cases, that the arbitrator should decide that issue in this case. Parenthetically, I must add that the steady stream of litigation about the scope of an arbitration clause, and who decides that scope, appears to continue unabated, despite what one might fairly describe as a well-settled, and still growing, long line of Delaware cases on the topic.
In The Matter of Bermor, Inc., C.A. No. 8401-VCL (Del. Ch. Feb. 9, 2015). This Delaware Court of Chancery opinion is noteworthy for its pithy analysis of a petition to dissolve a deadlocked corporation pursuant to DGCL Section 273, which is a statutory provision that empowers the Court with discretion to dissolve a corporation when it has two 50/50 stockholders who are deadlocked. Many Section 273 cases involve complicated facts and denials of requests for dissolution if the court does not believe the statutory requirements are met. In this case, the general partners of limited partnerships were corporations that were owned 50% each by two individuals. The general partners managed the real estate owned by the LPs. One 50% owner of the corporate general partner wanted liquidity more than the other. They could not agree on how to resolve their different goals for the entities.
This decision provides a succinct and exemplary explanation of the prerequisites of Section 273 and why they were satisfied based on the facts of this case. Must reading for anyone who needs to understand the latest Delaware law on Section 273.
This decision should also win an award for the most succinct Chancery opinion in years. It includes a thorough analysis and cogent reasoning in the fewest number of pages possible. By comparison with typical Chancery decisions that are often 50 pages or more, the length of this decision is the proportionate equivalent of a synopsis–yet it does not lack completeness. In this post-trial opinion, the Court rejected the argument that there was something other than a good faith basis to request dissolution.
Delaware’s Chief Justice, Leo Strine, Jr., has written an article entitled: “Documenting the Deal: How Quality Control and Candor Can Improve Boardroom Decision-Making and Reduce the Litigation Target Zone”.
The Professional Liability Underwriting Society is sponsoring a two-day seminar, with an emphasis on D&O insurance, in New York City on Feb. 4, 2015, which includes a panel entitled:
What’s Hot in Delaware: Recent Decisions Impacting the Boardroom
I will be on the panel covering the above topic that will address new decisions from the Delaware courts that impact corporate governance practices and D&O liability risks. The panel consists of Delaware law experts, insurance counsel and corporate counsel who have many years of experience litigating in the Delaware courts and monitoring Delaware law developments. The panel will discuss not only the current “hot” topics in Delaware law but also the evolving trends that will shape the D&O liability landscape in the years ahead.
About 1,200 attendees were registered.
Why this case is noteworthy: The Court of Chancery provides a must-read primer on privilege and redaction logs – – and penalties for non-compliance – – in a decision on a motion to compel in Mechel Bluestone, Inc. v. James C. Justice Companies, Inc., C.A. No. 9218-VCL (Del. Ch. Dec. 12, 2014). The underlying dispute related to a contingent payment provision of a merger agreement, but an issue arose concerning the adequacy of the plaintiffs’ privilege and redaction logs. The original logs provided no information other than the document date, the privilege asserted and a description of the grounds for asserting the privilege. The entries did not identify the parties to the communication or the attorney involved, and were listed in no particular order. The “players list” provided did not list all of the unique names found in the privilege log, and did not differentiate between attorneys and non-attorneys.
Deficiencies in Logs Produced
After a series of amended privilege and redaction logs were produced, along with amended “players lists,” serious deficiencies still existed: the privilege log lacked information about the author and recipients or did not identify the attorney whose advice was reflected in the document; it contained entries for documents shared with third parties, without explaining their role in providing legal advice; it identified e-mails with attachments, but it was unclear if plaintiff had produced the attachments; the redaction log did not list Bates numbers for documents produced in redacted form; and certain documents were produced that were redacted in their entirety, except for their Bates numbers. Although a fourth amended set of logs were produced, the court still found that some of the claims of privilege had been waived and ordered a special discovery master to address other challenges to the privilege assertions, including those concerning the accuracy of the descriptions.
Requirements for Privilege Logs
The court stressed that senior Delaware attorneys should provide guidance during the privilege assertion process. This is a requirement unwelcome by some but still expected by the court.
The court started its explanation of privilege by noting that the party asserting the privilege bears the burden of establishing that information that is otherwise discoverable is privileged. To provide sufficient facts to show that the identified document is within the privilege, the following items should be identified on the privilege log:
(a) the date of the communication, (b) the parties to the communication (including their names and corporate positions), (c) the names of the attorneys who were parties to the communication, and (d) [a description of] the subject of the communication sufficient to show why the privilege applies, as well as [the issue to which] it pertains . . . . With regard to this last requirement, the privilege log must show sufficient facts as to bring the identified and described document within the narrow confines of the privilege.
Penalty for Failure to Produce Compliant Logs: Waiver
Because Mechel’s amended logs were still so deficient that they failed to meet that standard, the court deemed the privilege waived as to certain categories of documents, including entries with no pertinent information, documents re-designated as ‘non-responsive,’ those shared with third parties, and those that failed to identify any parties from the ‘players list.’ Other challenges to privilege assertions were referred to a special discovery master.
This is the tenth year that we are providing our annual review of the key corporate and commercial decisions from Delaware’s Supreme Court and Court of Chancery. This year we decided to pick only the top five among the more than 200 or so opinions that we highlighted. We encourage readers to suggest cases that should be added (or deleted) from this list. Reasonable people may differ on our selections, and we could have added many more important decisions if we did not limit the list this year to five. Prior annual summaries are linked in the right margin of this blog. A revised version of this summary appeared as an article for the ABA publication called Business Law Today.
(The Supreme Court’s stately building in Dover is featured in the photo from the Court’s website.) Hyperlinks below lead to both a fuller synopsis and each slip opinion.
C&J Energy Services, Inc. v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, Del. Supr., No. 655/657, 2014 (Dec. 19, 2014). This Delaware Supreme Court opinion is noteworthy because it clarifies the version of fiduciary duties known as the Revlon standard that apply to a board of directors when they are selling their company, or there is a change in control. A shorthand reference for this opinion is that: a formal auction is not required to satisfy the Revlon standard. It also features a rare reversal of the Court of Chancery, and clarifies the standard that Chancery must follow when granting a mandatory injunction.
ATP Tour, Inc. v. Deutscher Tennis Bund, Del. Supr., No. 534, 2013 (May 8, 2014). The Delaware Supreme Court decided certified questions of law from the District of Delaware regarding whether it was consistent with Delaware law for a bylaw provision to provide for shifting attorneys’ fees to an unsuccessful plaintiff pursuing intra-corporate litigation. Short Answer: Such a bylaw provision is generally enforceable subject to equitable exceptions. This opinion has generated copious commentary among academics and others. Legislation addressing the issues in this opinion is expected to be considered in the Delaware Legislature during its 2015 session that ends in June.
Wal-Mart Stores, Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW, Del. Supr., No. 614, 2013 (July 23, 2014). This Delaware Supreme Court en banc opinion requires Wal-Mart to produce documents about an alleged bribery scandal involving their Mexican subsidiary. Even though the initial focus of this case was on DGCL Section 220 and what documents a stockholder of Wal-Mart could demand, the most noteworthy aspect of this decision is that for the first time the Delaware Supreme Court directly addressed and recognized an exception to the rule that documents protected by the attorney/client privilege do not need to be produced. It is referred to as the Garner exception after a case of that name from the Fifth Circuit.
In this case, the Delaware high court ruled that the well-established attorney/client privilege does not apply to bar production, or the privilege is subject to an exception, if a stockholder needs the otherwise inaccessible information to sue a director for breach of fiduciary duty. A similar analysis was applied to documents otherwise protected by the work-product doctrine. This opinion will have lasting importance for corporate and commercial litigators regarding this topic.
Kahn v. M & F Worldwide Corp., Del. Supr., No. 334, 2013 (March 14, 2014). The Delaware Supreme Court affirmed the Court of Chancery’s decision granting summary judgment to the defendants under the business judgment standard of review (and not the entire fairness standard) where the controlling stockholder, MacAndrews & Forbes, conditioned its offer upon the MFW Board agreeing, ab initio, to two procedural protections: approval by both a Special Committee and by a majority of the minority stockholders.
In Re Rural Metro Corporation Stockholder Litigation, C.A. No. 6350-VCL (Del. Ch. Mar. 7, 2014). The Court of Chancery found RBC Capital Markets LLC liable for aiding and abetting the breach of fiduciary duties of directors by advising simultaneously Rural/Metro Corp. on the value of the company in connection with a sale to Warburg Pincus LLC, while other bankers at RBC were pitching their services to Warburg in an effort to gain fees by helping Warburg finance the same deal. In a subsequent opinion, substantial damages were assessed against RBC.
SUPPLEMENT: We are thrilled and honored that the venerable Professor Stephen Bainbridge, one of the nation’s top corporate law scholars and a favorite of Delaware courts and this blog, has graciously linked to this post on his blog, along with a very flattering description. It doesn’t get much better than this for someone who makes his living practicing corporate litigation.