In Acierno v. Goldstein, download file, a case involving adverse possession and related claims, the court made a partial award of attorneys' fees after concluding that replies to interrogatories which were false, and which were not retracted, constituted bad faith, and bad faith is part of the exception to the American Rule regarding the award of attorneys' fees.
In W.L. Gore and Associates, Inc. v. Wu, download file, a TRO had issued, and then the parties stipulated to a Preliminary Injunction Order. Many months later, the defendant determined the the scope of the order was too broad, and filed a Motion to Amend it. The court then required the plaintiff to prove that it was entitled to a preliminary injunction. After trial the PI was granted. This decision involves a Motion to Reargue that decision, In essence, the motion was denied.
Henke v. Trilithic, Inc. , download file. This is an appraisal action under Section 262 of the DGCL. The court found that neither party carried its burden of satisfying the court by a preponderance of the evidence that its expert presented the appropriate valuation. Therefore, the court formulated its own valuation of the shares at issue, although it used the discounted cash flow method, in part, based on one of the experts. The court next determined the appropriate interest to be applied. The case had been filed in 1993 and the court placed most of the blame for the "torpor" in the length of the proceedings on the lack of vigorous prosecution by the plaintiff, but the defendant was not without fault in light of no efforts by the defendant to press for a quicker trial date. Those factors were included in the analysis of the court in determining the prudent investor rate of 6.14% as the rate of pre-judgment interest. Neither party provided evidence of the appropriate frequency of compounding and therefore the court "defaulted" to applying monthly compounding of interest.
The blog called Mercer on Value provides a copy of the transcript of the recent ruling from the bench (that the court reserves the right to edit), regarding a valuation issue between Nextel and Sprint.
In Romero v. Career Education Corporation, download pdf file, the Chancery Court recently denied a motion for reargument and upheld a prior decision, that I wrote about here, which found that the right to demand books and records under Section 220 of the DGCL is not preempted by either the Private Securities Litigation Reform Act of 1995 or the Securities Litigation Uniform Standards Act of 1998 and their restrictions on discovery. Nor is a Section 220 case made moot by a contemporaneous filing of a derivative suit. By comparison see my recent post about the Vesta case, which recently held that there is no conflict with the SEC prerequisites for an annual meeting and the right under the DGCL to demand an annual meeting.
In Mehiel v. Solo Cup Co., download pdf file, the court again addressed the difference between substantive and procedural arbitrability of issues subject to an arbitration agreement, as posted here in a prior decision involving the parties. The court also recited basic principles of contract interpretation in denying a motion for summary judgment which sought to bar an arbitrator from ruling on issues related to purchase price adjustments in a merger agreement that included representations/ warranties and working capital/accounting issues.
A few days ago, the Chancery Court ruled that the DGCL requirement that a company hold an annual shareholders' meeting, was neither in conflict with nor pre-empted by an SEC requirement that audited financial statements be made available prior to the meeting (in light of the company's claim that those statement would not be available for the meeting). New Castle Partners, L.P. v. Vesta Insurance Group, Inc., download pdf file. The Delaware Supreme Court affirmed the Chancery Court's ruling within hours of the decision being appealed, though I do not have a link yet to that decision. At an ABA meeting yesterday in Washington of the Business and Corporate Litigation Committee of the Business Law Section, there was a panel discussion on the current "tension" (according to some) between federal regulations (e.g., Sarbanes Oxley) and state law on corporate governance. Thus, the Vesta case of a few days ago was timely. Chief Justice Myron Steele was on that panel yesterday, and he noted that the affirmance of the Chancery Court in Vesta was an example of how the Federal Law and Delaware Law are both focused on the same goal--though they may approach it in different ways. He referred to Professor Steve Bainbridge's presentation at the recent Annual F.G. Pileggi Distinguished Lecture in Law as an example of someone who recognized that aspect of Delaware corporate law. Alan Beller, SEC Director, Division of Corporate Finance, was on the panel with the Chief Justice at the seminar, and agreed (in his personal capacity, he was quick to emphasize), with the result in the Vesta case.
By coincidence, I also came across yesterday, while at the seminar, a post at a blog called Little Caesar's Daily R & R, referring to an article in The Economist, that described several other instances during the last 100 years where there was a possible threat by the Federal government to "federalize" corporate law, but those predications never (yet) materialized.
UPDATE: Prof. Ribstein posts here with a more scholarly analysis of the Vesta case and links to prior writings of Chief Justice Steele on related issues, as well as links to Ribstein's prior writings on the topic addressed in the Vesta case.
UPDATE II (Nov. 21): Materials made available at the seminar referenced above also included an article, here, that Vice Chancellor Strine recently wrote on a related topic.
UPDATE III (Nov. 22): Professor Bainbridge promises to write more about the issue in the Vesta case.
FINAL UPDATE (Nov. 25): Delaware Supreme Court Order affirming the Chancery Court decision in Vesta, within hours, is available here.
Yesterday, the Delaware Supreme Court placed another nail (perhaps the final nail?) in the coffin of defenses to a claim for advancement of fees. In Homestore, Inc. v. Tafeen, download pdf file, the court rejected defenses of laches, unclean hands, undue financial hardship and several other defenses in light of the company's belief that the officer seeking advancement of fees to defend himself in lawsuits hid assets (to make it unlikely he could ever repay the company if required to do so). The company also argued that the actions for which the former officer was sued were not done in his "official capacity" because he was allegedly enriching himself personally through the behavior for which he was being sued. Bottom line: when based on bylaws or other mandatory advancement provisions, a company may have no defense to a claim for advancement. Under the DGCL, this is a separate and summary proceeding with limited, if any, discovery, and is not subject to the same considerations as a claim for indemnification. (Also separate, though related, is the "third leg of the stool", D & O Insurance.) The public policy behind these decisions, as explained yesterday by Vice Chancellor Noble at the ABA meeting in Washington, D.C., of the Business Law Section's Business and Corporate Litigation Committee, is to encourage qualified people to serve on boards without undue fear of depleting or exposing their personal assets due to the high cost to defend suits in which they are named as a party. One must also keep in mind that "fees on fees" are an entitlement to one who prevails on a claim for advancement of fees. This decision is certain to be a high-water mark on this issue.
Based on the theory that the substantive views of a SCOTUS nominee should be of interest to all lawyers, Professor Bainbridge's post, with a link to the text of a 1985 application/narrative that Judge Alito sent to former Attorney General Edwin Meese includes many articulate expressions of the views of Judge Alito on many topics that will surely come before the court.
The Delaware Supreme Court recent reversed a decision of the Delaware Human Relations Commission and agreed with the actions of a business in refusing entry to a dog. The business, a casino and race track called Dover Downs, refused admission to a dog who accompanied a disabled person (a prospective customer) where that person would not answer questions about the training of the dog or what assistance the dog was capable of providing to the customer who claimed to be disabled. The decision was based on the Delaware Equal Accommodations Law, as well as the Federal Americans with Disabilities Act. Thompson v. Dover Downs, Inc., download pdf file.
A recent Chancery Court decision applied the demand futility analysis in the LLC context and also determined that the conduct of the defendant in the litigation resulted in a waiver of the right to argue that the plaintiff could not proceed derivatively. In any event, the court also found that demand was futile under the facts. However, the derivative claims were subject to an arbitration clause. The decision included an uncommon discussion of those situations, such as equitable estoppel, where a signatory to an arbitration clause may be required to arbitrate with a non-signatory and vice-versa (i.e., in some circumstances, a non-signatory may be required to arbitrate with a signatory to an arbitration clause.) Ishimaru v. Fung, et al., download pdf file.
In Gentile v. Rossette, et al., download pdf file, the Chancery Court discussed the differences between derivative claims and direct claims in connection with a merger where dilution is alleged. The court determined that the claims of dilution were derivative in nature and dismissed those claims on summary judgment. Factual issues prevented summary judgment on the remaining claims involving special consideration granted to the president and chairman, which benefits were not shared by other shareholders in the merger. The court ruled that ratification by ¬? of an independent board was not enough to validate a self-interested transaction. Moreover, ratification by a majority of the minority "independent shareholders" did not validate the transaction due to the inadequate disclosure given to shareholders prior to the vote. Lastly, the court observed that the exculpation defense based on Section 102(b)(7) of the DGCL was unavailing due to issues of good faith and loyalty. Thus, where, as here, there are not merely issues of due care alone, summary judgment based on 102(b(7) is not appropriate .
This is relevant for all those who deal with litigation. With thanks for the link to Robert Ambrogi and Stephen Seckler I provide a link that all lawyers (especially litigators) should find to be useful reading: an article in the Boston Globe here about dealing with difficult people.
The Wall Street Journal (subscription required) today has an editorial with insightful commentary on judicial ethics and SCOTUS nominee, Judge Samuel Alito.
The Delaware Supreme Court affirmed the Chancery Court in ruling that the holder of preferred shares has no absolute right to dividends, in Shintom Co., Ltd. v. Audiovox Corporation, download pdf file. I have a post here that describes in more detail the reasoning in the earlier Chancery Court decision, and its interpretation of DGCL Section 151.
In Christiana Town Center LLC v. New Castle County, download pdf file, Vice Chancellor Noble imposed a stay of proceedings in light of the pendency of a "companion" case involving similar issues and parties, even though it did not involve identical parties, but involved many common issues that the court found would substantially resolve most if not all of the issues now before the court in the present case. Thus, though unusual, the court found that a stay was appropriate and it had power to impose it under the circumstances.
Prof. Bainbridge posts with links on the passing of management guru Peter Drucker, and says that any serious student of the corporation should be familiar with his seminal works.
You are correct that Rome does not fall within the limited scope of this blog, but here is why it appears: Nationally famous corporate scholar and blogger, Steve Bainbridge, has a post here about the HBO series on Rome, and our system of law does owe something to Roman law, plus the Roman Empire, in some ways at least, was one of the high points of Western civilization.
Christine Hurt at the Conglomerate posted a link to Matt Bodie who wrote about a new short article by Jon Macey in the Hofstra Law Review concerning the Chancery Court's August 2005 Disney decision and the role of Delaware in corporate law in the U.S.
I recently wrote a short article in the Delaware Law Weekly , download pdf file, that primarily summarized a recent Chancery Court decision which reiterated the high threshold that must be met if one seeks to have a court overturn the decision of an arbitrator pursuant to a binding arbitration clause. Most cases do not meet that high threshold. As fate would have it, however, shortly after that article was published, Travelers Insurance Company v. Nationwide Insurance Company, download pdf file, was decided and overturned an arbitration decision because the case presented "extraordinary facts which render upholding the arbitration panel's decision contrary to the same public policy which animates the courts' deference toward arbitration. Simply put, the panel's decision was plainly wrong and in opposition to clear statutory mandate." But compare the other recently decided case (after my article also), that found a binding arbitration clause barred statutory proceedings for the dissolution of an LLC, at least until after the arbitrator decided the request for dissolution: Terex Corp. v. STV USA, Inc., download pdf file.
In Davis International LLC v. New Start Corp Group, et al., download pdf file, the Chancery Court stayed the matter pending before it, in favor of a first-filed companion case pending in the U.S. District Court for the District of Delaware involving substantially similar issues. The court discussed at length its reasoning based on the seminal Delaware case of McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co., and its progeny.
A Conference at the University of Maryland on corporate issues and fiduciary duties in connection with companies in the "zone of insolvency", is featuring live blogging today by corporate bloggers: Professors Steve Bainbridge, Larry Ribstein and Gordon Smith.
Here are links to details about a dispute between Sovereign Bank and its largest shareholder, Relational Investors, in connection with Relational's efforts to put 2 of its designees on the board, as well as other differences between the bank and its largest shareholder. I am not sure, yet, if there is a way that this dispute might end up in the Delaware courts, but it is still an interesting corporate governance dispute to watch unfold. See a recent press release and news report here and here.
UPDATE: Here is a link to an update on the story.
Prof. Ribstein posts here about a paper he has written and which he will discuss at a seminar tomorrow that will address the fiduciary duties of directors in the zone of insolvency.
Two recent Chancery Court cases deal with the interpretation of 2 very different types of agreements.
In Chrin v. Ibrix Inc.,download file, the court interprets a dispute about a Stock Purchase Agreement, and applied the key contract principle of implied duty of good faith and fair dealing as well as the truism that parol evidence will not be allowed if the contract terms are clear.
In the somewhat (one would hope) unusual case called In The Matter of: The Purported Last Will and Testament of Arlington J. Wiltbank, Sr.,download file, the court found that undue influence by a son in connection with the preparation of his infirm father's Last Will, was a basis to render void that document, and as a result the estate was shared equally with all the children of the decedent as opposed to the entire estate being enjoyed by only the one son who was successfully accused of undue influence.
The presumption of the Business Judgment Rule (BJR) was not rebutted and breach of fiduciary duty claims were thus defeated in Blackmore Partners, L.P. v. Link Energy, LLC,download pdf file. In this case Vice Chancellor Lamb granted summary judgment in favor of defendants based on the failure to overcome the presumptions of the Business Judgment Rule for claims of breaches of fiduciary duties arising out of the sale of assets at a price likely to yield zero value to the equity owners of the selling company. The case includes a discussion of the duties of directors where the company is in the "zone of insolvency" as well as three tests that are used to determine insolvency for those purposes. The court distinguished the case of Orban v. Field , which held that when a transaction favors one corporate constituency over another the board loses, at least initially, the cloak of the business judgment protection. In the Orban case, the board did not simply make a business decision that hurt shareholders while repaying creditors but it engaged in an elaborate maneuver in which the defendant company intentionally diluted a major shareholder to a position where he was powerless to stop a merger favored by the directors (citing 1997 Del. Ch. LEXIS at * 28-29). In the instant case, the court found that the corporate action may have left the equity holders with little residual value but the action did not take place primarily for the purpose of "depriving a shareholder of effective enjoyment of a right conferred by law." Thus, the court found that the enhanced scrutiny announced in Orban did not apply because there was no specter of management entrenchment here. Rather, although there was a duty recognized to creditors based on the insolvency of the company, the transaction involving the sale of assets, which primarily involved the assumption of substantial debt, was the best deal that the board could make under the circumstances. The court also discussed the case of Cooke v. Oolie which involved a potential conflict where the defendants were both shareholders and creditors and there was a tension between the duty to obtain the highest value for the shareholders and at the same time addressing their duties to creditors. The court found that the plaintiffs bore the burden of showing an actual conflict. The court found Cooke inapplicable because in the current case despite a clear duty owed to creditors, no conflict was established. In the present case the court found that the business judgment rule still insulated the board decision because a majority of the directors approving the transaction remained disinterested. In addition, the independent board also insulated itself by appointing a special committee made up entirely of independent directors that also approved the transaction. Nor did the court find any secret or subversive communications between interested directors that troubled the court in the case of In Re: Freeport - McMoRan- Sulfur, Inc. The court also dismissed the plaintiff's claims of a violation of the breach of the duty of care because the claim was precluded by operation of a provision in the charter that exculpated directors from any awards for damages for violation of due care. The court did not find any bad faith that would vitiate that provision. Nor did it find any gross negligence that would be required to establish a violation of due care.
Although the court recognized that "subjective bad faith of directors can be inferred from corporate actions which are so egregious as to be afforded no presumption of business judgment protection", the court found no basis to draw an inference of bad faith or waste in this case--thus finding an insufficient rebuttal to the presumption that the directors were acting in a good faith exercise of their fiduciary duties.
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