Dealing With Difficult Lawyers and Other Difficult People

RICKPHOTOIMG_0186 (U0129967)One finds difficult personalities more often in lawyers as a group than in the general population as a whole. But there is hope. For the last 10 years or so, a well-respected Delaware lawyer has made an annual presentation with a series of tips on how to deal with difficult lawyers, difficult colleagues, difficult judges, and the like. Richard DiLiberto, Jr., Esq., has graciously agreed to share his outlines in the “difficult person series” for the benefit of our readers. I have known Rick for over 30 years, and I can attest that he is the type of person who “can get along with anyone”, but the tips he provides in the outlines linked below are useful even for those who get along with everyone. We all will encounter, at least once in our careers, someone we cannot avoid and who is difficult to deal with.

The following introduction to Rick’s outline is presented in the context of a trial lawyer’s work, but the tips are equally applicable to interpersonal challenges both outside of the courtroom and outside of one’s job.

The “difficult” trial is one in which counsel is faced with challenges from one, or more of the following:

The Difficult Client;
The Difficult Case;
The Difficult Lawyer;
The Difficult Judge;
The Difficult Witness; and
The Difficult Colleague.

Each raises important practical, legal and professional responsibility issues. In the time allotted, it is impossible to discuss the matter in detail, but outlines regarding each “difficult” person or situation referenced above are attached [via this hyperlink.]

A separate outline devoted to the difficult lawyer is available at this link. I appreciate Rick’s kindness in sharing this valuable information with our friendly readers.

 

 

Chancery Awards $72 Million in Fees for Settlement of Class and Derivative Suit

MoneythIn Re Activision Blizzard, Inc. Stockholder Litigation, Cons. C.A. No. 8885-VCL (Del. Ch. May 20, 2015). This Delaware Court of Chancery opinion refers to the settlement of $275 million in this case as the largest derivative settlement, and awards fees and expenses of $72.5 million to lead counsel. The fee award was based both on the amount of the monetary settlement as well as non-monetary corporate governance benefits. This opinion not only features a high amount of fees awarded in a derivative action, but also provides textbook articulations of important principles of Delaware law applicable to corporate litigation in connection with the settlement of class and derivative actions.  In essence, the facts involve a restructuring that unfairly benefited insiders more than other stockholders as a whole.  Prior Chancery decisions in this matter have been highlighted on these pages. The most efficient way to provide highlights of this 90-page magnum opus is to provide bullet points.

  • The opinion explains the basis for the requirement that the court approve settlements of class and derivative actions. See page 26 (references are to the slip opinion hyperlinked above).
  • A detailed and deep historical and policy analysis of the reasons for derivative actions in general is discussed, as well as the tension arising from DGCL Section 327.
  • The court provides a list of the sections of the DGCL that, by contrast to derivative actions, provide a basis for direct claims by stockholders. See footnote 6.
  • A helpful reminder of a well-established Delaware corporate law principle is noted; namely, that a controlling stockholder can rightly demand a premium for his shares in an amount not shared by other stockholders. See footnote 19.

Fee Awards in Settlement of Class and Derivative Actions

  • The court recites the six factors that are applied to determine the “adequacy of the settlement consideration.” See page 63 and footnote 26.
  • The court discusses the basis for the award of attorneys’ fees under the common benefit doctrine, and recites the Sugarland factors.
  • The Court provides a helpful reference to the percentages applicable to settlements in common fund cases. The court refers to 10% to 15% as a range to apply to a common benefit fund settlement in “early stages”  of the litigation. The court refers to a range of 15% to 25% after there has been discovery and motion practice; and a cap of 33%, for example, for settlements that occur post-trial. See page 77.
  • Also helpful is a reference by way of citations to prior Chancery cases, of the amounts of fee awards granted in connection with non-monetary settlements that resulted in only corporate governance benefits. See footnote 30. [This should be compared to the different percentages applicable to so-called “bump” cases.]

Supplement: California attorney Keith Paul Bishop provides insight on the case at this link.

Chancery Explains Res Judicata, Collateral Estoppel and Acquiescence

Brevan Howard Credit Catalyst Master Fund Limited v. Spanish Broadcasting System, Inc., C.A. No. 9209-VCG (Del. Ch. May 19, 2015). This letter decision explains the nuances and elements of the following principles on which it granted a motion to dismiss:  res judicata, collateral estoppel and acquiescence.  The first two deal with issue preclusion.  Res judicata restricts the same cause of action, whereas collateral estoppel prevents the re-litigation of a factual issue previously adjudicated.

The court recites the five-part test that must be satisfied before res judicata operates to bar a claim.  See n. 9.  The court also provides the four-part test for applying the collateral estoppel doctrine.  See n. 10.  In addition, the court explains the significant differences between the two doctrines.  See n. 11.

The court also provides the three prerequisites for applying the doctrine of acquiescence.  See n. 18

Res judicata and collateral estoppel are commonly known concepts but their nuances and their specific prerequisites are not as well known.  The concept of acquiescence is even less well known as a useful defense to bar certain claims in appropriate circumstances.

The elements of acquiescence were recently described by the Delaware Supreme Court (as quoted in this case), as follows:

A claimant has full knowledge of his rights and the material facts and (1) remains inactive for a considerable time; or (2) freely does what amounts to recognition of a complained of act; or (3) acts in a manner inconsistent with the subsequent repudiation, which leads the other party to believe the act has been approved.  For the defense of acquiescence to apply, conscious intent to approve the act is not required, nor is a change of position or resulting prejudice.

Id. (citing Klaassen v. Allegro Dev. Corp., 106 A.3d 1035, 1047 (Del. 2014)).

Another recent Chancery decision in an unrelated case, also applied collateral estoppel to bar claims that had been previously litigated. See Asbestos Workers Local 42 Pension Fund v. Bammann, C.A. No. 9772 (Del. Ch. May 21, 2015).

Delaware Supreme Court Clarifies Law on Dismissal of Claims Against Directors

The Delaware Supreme Court clarified the types of claims against independent directors that are eligible for a motion to dismiss regardless of the standard of review that applies to those claims. In re Cornerstone Therapeutics Inc. Stockholder Litigation, No. 564, 2014; Leal et al. v. Meeks et al., No. 706, 2014, opinion issued (Del. May 14, 2015). Namely, unless a breach of the duty of loyalty is adequately alleged, and if a company has an exculpation provision in its charter, independent directors can seek to have a suit against them dismissed if only money damages are sought. The context of this decision was a controlling shareholder transaction subject to the entire fairness standard. Handout photo of Delaware Chancery Court Judge Leo Strine

In reversing two decisions of the Court of Chancery, combined for appeal, on this crucial topic of corporate litigation, Delaware’s high court provides guidance on an issue that was formerly the subject of disagreement among judges and practitioners alike. The opinion was authored by the Chief Justice, pictured at right.

Frank Reynolds of Thomson Reuters provides a helpful overview of the facts of the case and details about the court’s opinion, notwithstanding quotes in the article from yours truly.

Court of Chancery Subjects Director Compensation Claims to Entire Fairness Test

Calma v. Templeton, C.A. No. 9579-CB (Del. Ch. April 30, 2015). This Delaware Court of Chancery opinion is must reading for anyone advising a board on the procedure to follow for board determinations of compensation for fellow board members to the extent that one hopes to secure the benefits of the deferential business judgment review standard.

In this case, a motion to dismiss was denied, and the entire fairness test was deemed applicable, where decisions on the precise amount and type of director compensation were not properly ratified by stockholders, and the self-interested nature of the compensation decisions awarding compensation to board members made the business judgment rule standard inapplicable.

Also useful is the textbook-like discussion of the Aronson and Rales standards for pre-suit demand analysis.

No Equitable Jurisdiction for Some Declaratory Judgment Actions

The Bancorp Bank v. Cross & Simon LLC, C.A. No. 10299 (Del. Ch. May 8, 2015). This Chancery ruling explains that a declaratory judgment action could be filed in either Chancery or Superior Court, but in order for the Delaware Court of Chancery to have jurisdiction there must be some type of equitable basis for the suit, for example, in the type of relief requested in the declaratory action. Likewise, a claim for specific performance to obtain payment of money seeks a legal remedy that belongs in Superior Court. In this case, the remedy sought was money in an escrow account and the court found there was no basis for equitable jurisdiction.

Chancery Awards Fees for Unfair Process Despite Finding of Fair Price

In Re Nine Systems Corporation Shareholders Litigation, Cons. C.A. No. 3940-VCN (Del. Ch. May 7, 2015). This Delaware Court of Chancery decision on the award of attorneys’ fees is blogworthy in that the basis of the award is a post-trial finding that, after thapplication of the entire fairness standard to a recapitalization that resulted in dilution, the price was fair but the process employed was not. Thus, although no common fund was created, the award of attorneys’ fees was considered by the court to be an appropriate remedy for the breach of fiduciary duties in connection with the unfair process that was described in a 146-page post-trial opinion in this matter. See In re Nine Sys. Corp. S’holders Litig., 2014 Del. Ch. LEXIS 171 (Sept. 4, 2014).

Applying equitable principles based on the court’s inherent power to effectuate equity to remedy a breach of fiduciary duties, and “quasi-Sugarland” factors, the court awarded $2 million in fees, although more than $11 million in fees was incurred. The court had to weigh the amount of fees incurred and sought, with the absence of a monetary benefit to the shareholders, within the context of the amount that potentially was at stake for the shareholders.

The Court began the September 2014 opinion with the observation that the issue in this case is a long-standing puzzle of Delaware corporate law: when the entire fairness standard applies to a transaction, “to what else are shareholders entitled beyond a fair price?” Although the shareholders may not receive a part of the fees awarded to their attorneys, the theory is that they benefited generally from the efforts that resulted in the court finding that the fiduciaries breached the duties owed to the shareholders.

Chancery Dismisses Claims Based on Pre-Suit Demand Failure

Ryan v. Gursahaney, C.A. No. 9992-VCP (Del. Ch. April 28, 2015). In this Delaware Court of Chancery decision a motion to dismiss is granted due to the failure to make pre-suit demand based on an application of the Aronson principles, as well as the failure to adequately allege the lack of disinterestedness and independence.

Wal-Mart Saga Ends in Delaware; Plaintiff Loses Bid for More Section 220 Documents

As Frank Reynolds of Thomson Reuters reports, the long-running effort of a stockholder to obtain additional documents from Wal-Mart in a Section 220 proceeding appears to have reached a conclusion, though it may still be the subject of second appeal. Frank Reynolds reports that the Court of Chancery ruled from the bench on May 7 that Wal-Mart should not be held in contempt and the plaintiff was not correct in asserting that Wal-Mart failed to comply with the Supreme Court opinion.

Prior posts on these pages have highlighted the Delaware Supreme Court decision ordering Wal-Mart to produce certain documents in response to a Section 220 demand, with exceptions applicable to the attorney-client privilege. Subsequently, the stockholder argued in the Court of Chancery that Wal-Mart did not comply with the ruling of the Supreme Court to the extent that the retailer did not produce all the documents that ruling required.

Delaware decisions have often instructed lawyers to use DGCL Section 220 as one of the “tools at hand” to acquire details and data about potential claims before filing a plenary lawsuit. The saga of the Wal-Mart proceedings involving Section 220, and other cases noted on these pages over the last ten years, support the observation that Section 220 can be a blunt instrument, more akin to a sledgehammer than a scalpel, and utilization of the instrument is often expensive and time-consuming as well as unsatisfying.

Creditor’s Fiduciary Duty Claims Proceed Based on Traditional Insolvency Test

chancerysealQuadrant Structured Products Company, Ltd. v. Vertin, C.A. No. 6990-VCL (Del. Ch. May 4, 2015). This Court of Chancery opinion is destined to be cited as a seminal ruling for its historical and doctrinal analysis of important principles of Delaware corporate law, including the following:

  • The reasons why creditors can pursue derivative claims on behalf of insolvent corporations against corporate officers and directors.
  • The reasons why the traditional balance sheet test is the proper standard for determining when a creditor has standing to bring a derivative claim and why insolvency is only determined at the time of filing, as opposed to the irretrievable insolvency test used for the appointment of a receiver under DGCL § 291. (Compare the statutory standard for insolvency pursuant to the fraudulent conveyance statute.)
  • Basic principles: reviewing the two fundamental fiduciary duties owed by directors of loyalty and care.  In addition to describing the component of loyalty that includes the requirement to act in good faith, which is a condition of the duty of loyalty, the Court also explains what must be shown in order to establish a claim that a director breached the duty of loyalty and failed to act in good faith: for instance, where the fiduciary intentionally acts with a purpose other than that of advancing the best interest of the corporation. See footnotes 21-23.

This pithy opinion, which is of average length by Chancery standards at 45-pages, is in many ways akin to a condensed law review article or a mini-treatise on first principles of Delaware corporate law.  There are many gems in this opinion that make it worth reading in full.  Among them is a reference to the scholarship of Professor Bainbridge that was quoted in a prior Chancery opinion regarding the question of what impact insolvency should have on the ability of directors to rely on the business judgment rule. That is: none.  See footnote 19.

The court traces the history of Delaware corporate law on the topic of insolvency as a basis for appointing a receiver, to the law of New Jersey which Delaware displaced over 100 years ago as the premier U.S. venue for corporations. This decision also features a helpful summary of the duties of directors in the context of insolvency and the rights of creditors in connection with an insolvent corporation. For example:

  • Creditors can never bring direct claims for breach of fiduciary duty.
  • Delaware does not recognize the theory of either deepening insolvency or the zone of insolvency.
  • For purposes of analyzing fiduciary duty claims, the only transition point that affects fiduciary duty analysis is insolvency itself.
  • Directors of an insolvent firm do not owe any particular duty to creditors. Rather, they continue to owe fiduciary duties to the corporation for the benefit of all its residual claimants (the category which includes creditors after the point of insolvency).  Nor do they need to shut down an insolvent firm and marshal its assets for distribution to creditors although they may do so in the exercise of their business judgment if that is the best route to maximize the value of the firm.

Supplement: Professor Bainbridge kindly links to this post and provides a quote and a citation to his scholarship referred to in this opinion. Also, Kevin LaCroix in his  The D&O Diary, provides his typical scholarly analysis, with excellent insights about this case.