Delaware Litigation Lawyer & Attorney : Francis G. X. Pileggi : Corporate, Business, Commercial, Delaware Chancery Court

Beal Bank v. WestPoint Int'l, Inc., et al., (Del. Ch., May 30, 2007), read opinion here, is another example, among many cases summarized on this blog, that deals with the intersection of Delaware corporate law and bankruptcy law. This case involves a lender that sought assistance in Chancery Court to vindicate its rights as an alleged shareholder. The lender, Beal Bank, had entered into a Stock Pledge Agreement that allowed it to take shares in the debtor as security upon default. The debtor filed bankruptcy. The automatic stay of Section 362 of Title 11, U.S.C., prevented the enforcement of that Stock Pledge Agreement, which otherwise would have allowed Beal Bank to register the shares in its name. An auction of the debtor took place and the Bankruptcy Court entered a Sale Order authorizing the sale of  substantially all of the debtor's assets. Beal Bank appealed that order to the U.S. District Court, which vacated all portions of the Sale Order that purported to release the lien of Beal Bank and other creditors. While the asset purchase agreement was being litigated, the debtor proceeded with business as they saw fit. The Chancery Court denied a TRO request in connection with a subsequent meeting of directors where Beal Bank was prevented from voting its "pledged shares".

Beal Bank claims in this case that the actions of the debtor's board, after the sale, involved breaches of fiduciary duties because it forced them into a minority position and diluted their value.

The Chancery Court denied the motions to dismiss without prejudice, reasoning that  questions of what rights (e.g., as shareholders) Beal Bank possessed after the Sale Order were best answered by the Bankruptcy Court and/or the District Court . The answers to those questions would determine the status and rights of Beal Bank as a shareholder based on the Sale Order, and therefore, would be determinative of issues the Chancery Court would address , such as the duties that the directors may have owed to Beal Bank and whether Beal Bank had the right to be listed as a record shareholder.

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I try to avoid going "off topic" but the decision today by the U.S Supreme Court  on issues of race, is of such wide-ranging importance, I hope my readers will forgive a short diversion. Courtesy of The Wall Street Journal's Law Blog, here is a quick overview with a link to the 185-page opinion in a Q and A format.  The court ruled that race could not be used as a factor in assigning students to certain schools. Here is a money quote: “The way to stop discrimination on the basis of race is to stop discriminating on the basis of race,” said Chief Justice Roberts.

This is a slight variation on the idea that the remedy for past discrimination is not more discrimination. I also think the statement from Justice Thomas' concurring opinion is notable. In reasoning that the U.S. Constitution does not allow race-based decisionmaking, he wrote: “Indeed, if our history has taught us anything, it has taught us to beware of elites bearing racial theories." The formal caption of the case is: Parents Involved in Community Schools v. Seattle School District No. 1.

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The ISS Proxy Report for the 2007 season, available here, chronicles, among other things, proposals during this proxy season that supported reincorporation in Delaware due to the recent change in the Delaware General Corporation Law (DGCL) allowing for majority voting. An example is the following excerpt of one union's proposal for Convergys, Inc.:

“Our Company is incorporated in Ohio. Ohio law mandates a plurality vote standard for the election of directors. This proposal requests that the Board reincorporate the Company under Delaware state corporate law, which provides that a company's certificate of incorporation or bylaws may specify the number of votes that shall be necessary for the transaction of any business, including the election of directors. Reincorporation would allow the Company's board of directors and its shareholders to take actions to establish a majority vote standard for the election of directors.”  Full text of proposal available here.

Hat tip and thanks for the foregoing links go to J.W. Verret, a law clerk at the Delaware Court of Chancery, who has written a thorough and scholary article on recent developments in majority voting, available here.

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In Kaufman v. Kumar, et al., (Del. Ch., June 8, 2007), read opinion here, the Chancery Court dismissed a complaint, at the request of a Special Litigation Committee, in favor of a first-filed proceeding in federal court in the Eastern District of New York, despite the fact that issues of Delaware law would be decided by that New York court. The court relied on the familiar McWane standard [283 A.2d 281 (Del. 1970)], and also emphasized the procedures in place that allow federal courts to certify questions of Delaware law to the Delaware Supreme Court if they determine they need guidance on Delaware law. See, e.g., Del. Const. art. IV, Section 11(8).

Compare this result with the recent Chancery Court decision summarized here that refused to defer to a proceeding in another state--relying on the internal affairs doctrine-- because of the felt need in that case, based on different facts, that it was important for Delaware courts to decide the different issues in that case that dealt with highly nuanced and important concepts of Delaware corporate law. In re Topps Co. S'hldrs Litig, 2007 WL 1491451 (Del. Ch., May 9, 2007)("Topps I")(see link above for short summary of the differences in that case and copy of  Topps decision--not to be confused with the more recent Topps II decision summarized here).

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In Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955 (2007), read opinion here,  the U.S. Supreme Court recently changed the analysis for federal courts to use in deciding a Motion to Dismiss pursuant to FRCP 12(b)(6) and in light of the notice pleading standard in Rule 8(a)(2). The Delaware Chancery Court  and other Delaware state court rules of civil procedure are based on the federal rules of civil procedure so it will be important to watch to see if any Delaware state court decisions are influenced by this SCOTUS decision.

Thanks to William Jacobs, a summer associate at our firm, for preparing the summary of this case.

This case involved a putative class action suit against Incumbent Local Exchange Carriers (“ILEC’s”) alleging antitrust conspiracy in violation of Section 1 of the Sherman Act .

The United States District Court for the Southern District of New York dismissed the plaintiffs’ complaint for failure to state a claim upon which relief could be granted pursuant to Fed. R. Civ. P. 12(b)(6). The United States Court of Appeals for the Second Circuit reversed and the Supreme Court granted certiorari. 

The U.S. Supreme Court determined that the plaintiffs alleged no facts that made an inappropriate agreement or conspiracy any more plausible than independent business decisions; and since violation of Section 1 requires a “contract, combination, or conspiracy,” the complaint could not survive the motion to dismiss. In making their decision, the Court advanced a new pleading standard. The previous standard, set out in Conley v. Gibson, 355 U.S. 41, 78 (1957), provided that: “a complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief.” Id. 

However, the High Court in Twombly said the “no set of facts” language in the Conley standard has earned its retirement. The Court held that complaints must now state enough facts to make it plausible that the plaintiff is entitled to relief. Put simply, the facts stated in a complaint must make the allegations alleged plausible under  the "new test" announced by the Court as opposed to merely possible as previously would pass muster under Conley. Thus, in this case, the plaintiffs’ complaint needed to allege sufficient facts that, taken as true, suggested that the ILECs conspired to keep upstarts out of their markets. Finding no such facts in the complaint, the Supreme Court reversed the Court of Appeals and dismissed the complaint.   

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Delaware corporate law and bankruptcy law often overlap or intersect, as I have noted in prior posts. (e.g., here).  Steve Jakubowski, the scholarly author of the popular blog of longstanding called  The Bankruptcy Litigation Blog, recently posted here about Delaware and its bankruptcy court, as well as providing a long list of citations to articles as part of his monthly series of "required reading" for those interested in keeping up on the latest developments. Steve's blog itself is must reading for those who need to know about  bankruptcy law.

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In the recent cases of In Re Lear Corporation Shareholders Litigation, 2007 WL 1732588  (Del. Ch., June 15, 2007), read opinion here,  and In Re Topps Company Shareholders Litigation,  2007 WL 1732586 (Del. Ch., June 14, 2007), read opinion here, the Chancery Court granted expedited injunctive relief to put a hold on going private transactions at two separate public companies due to the failure to fully disclose material information to shareholders who were asked to approve the separare transactions. In Lear, Carl Icahn was providing the private equity and in the Topps case, it was a group led by Michael Eisner. Both cases also applied the familiar standard established by the Delaware Supreme Court's decision in Revlon, which required the board to maximize the value received by shareholders when the company was "for sale". (See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d. 173 (Del. 1986)). A prior procedural decision in the Topps case was summarized briefly on this blog here.

Although it is not uncommon in today's market for private equity firms to seek the acquisition of public companies, it appears coincidental that two such transactions were enjoined for somewhat similar reasons by the same vice chancellor with the opinions following each other by one day. 

Both cases include very detailed and thorough and lengthy discussions of the facts and the law.  I commend the reading  of each full opinion at the above links, as time will not permit me to provide a comprehensive treatment at this time.

Update: Here is an analysis of the case by Prof. Larry Hamermesh. Here is a memorandum by the Wachtell Lipton firm with their analysis of the two above cases.

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In Matulich v. Aegis Comm'ns Group, Inc., (Del. Ch., May 31, 2007), read opinion here, the Chancery Court addressed the issue of the number of shares needed to complete a merger under DGCL Sections 251 and/or  253. Also discussed is the right of preferred shareholders to vote as opposed to merely "consenting to a transaction without voting". Basic principles of Delaware corporate law were captured in the following quote:

In general, a merger between a controlling parent and a subsidiary will implicate issues of fiduciary duty, and a parent company and its directors will be liable to minority shareholders unless they can demonstrate the entire fairness of the transaction, including fair price and fair dealing.(7) Under the Supreme Court's ruling in Glassman v. Unocal Exploration Corp., however, a minority shareholder forced out by a short-form merger has no alternative but to seek an appraisal for the shares. (8).

In addition, the difference between statutory interpretation principles and contract interpretation was discussed as well as the rights of shareholders whose  current contact information was not available. In a prior ruling in this case (no cite provided in the opinion),  the court authorized a transaction to go forward despite the inability to contact certain shareholders who were entitled to vote on the transaction, after best efforts were made to contact them.

The court concluded that:

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I will be summarizing a few recent Chancery Court decisions this week, but in the meantime I want to give you the benefit of one view of judicial discretion in the below cartoon, courtesy of Charles Fincher of www.lawcomix.com. Enjoy.

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In Ginsburg v. Philadelphia Stock Exchange, Inc., et al. (Del. Ch., May 31, 2007),  read letter decision here, the Delaware Chancery Court addressed the issue of whether rescission was available as a remedy even if the case was not on an expedited timetable. (Despite the date of the opinion, this letter decision was only posted on the court's website a few days ago). This is one in an ongoing series of letter decisions in this case that involves a complaint that the minority owners of the exchange were diluted in connection with a challenged  transaction. The court recognized in this particular decision that excessive and unnecessary delay may result in the waiver of the right to seek rescission, even if the defendant shows no prejudice from the delay. The court found that despite denying a request early on in this matter for expedited proceedings,  there was no such delay in the plaintiff's "cautious and careful" approach in this case. Thus, the court denied a motion for partial summary judgment that sought a judicial determination that rescission should not be available as an equitable remedy in this case after trial.

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Kevin LaCroix of The D & O Diary  has an excellent post here about a decision of June 8 by Judge Kevin Gross of the U.S. Bankruptcy Court for the District of Delaware that denied the trustee's efforts to use the automatic stay to block  the settlement of a class action against directors and officers of the bankrupt company based on the  Court's conclusion that the proceeds of the policy that would be used for the class action settlement were not property of the corporate bankruptcy estate (as opposed to the policy itself which is often seen as an asset of  the corporation's bankruptcy estate.)  Kevin LaCroix's post of June 17 has a thorough discussion of the details of the case and an analysis of the "wasting" policy, with helpful links to the opinion and  collateral sources. This is an excellent treatment of the overlap between bankruptcy and corporate law on this issue--which is not treated uniformly by the various federal circuits. Hat tip to Adam Savett of Securities Litigation Watch.

UPDATE: See further analysis here by Bob Eisenbach of the Business Bankruptcy Blog.

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Along with some of my partners, I will be presenting a seminar on recent developments in electronic discovery on June 14, 2007. Here is a copy of the invitation (with details) to the free two-hour overview of this topic of great importance to all litigators. Perhaps most enticing for some of my readers: a free cocktail reception afterwards. It is not too late to rsvp.

Even for those who decide at the last minute to attend, just rsvp to me at fpileggi@foxrothschild.com, so we have a head count. Thanks.

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 In Openwave Systems, Inc. v. Harbinger Capital Partners Master Fund I, Ltd., (Del. Ch., May 2007), read opinion here, the Chancery Court denied an attempt by a hedge fund-shareholder to validate the election of its chosen board member pursuant to DGCL Section 225. [ As a summary proceeding, it is notable that the trial took place on March 12 (about 2 months after the complaint was filed), post-trial briefing was completed on March 23, and this opinion was issued less than 2 months later. In addition, the court denied summary judgment in a prior decision summarized here, shortly before trial.]

The centerpiece of the two complaints consolidated in this matter was the "allegation that the provisions of the bylaws relating to the nominations of directors are so confusing as to excuse compliance." The court rejected that theory.

The corporation on the other hand, "relying on those same bylaws...seeks to declare invalid the nomination of the hedge fund's slate of two directors and to validate the reelection of the management's two candidates". The court concluded that: "the incumbent directors were the only properly nominated candidates and, thus, were rightfully reelected."

The main issue about the bylaws was the deadline by which names had to be submitted for proposed nominees to the board. There were two possible deadlines depending on who was reading the bylaws. The court was not surprised by testimony at trial by the hedge fund indicating that the bylaws were   "too confusing to comply with", but what did surprise the court was the lack of evidence of any effort:  "to comply with either deadline and, indeed, [the shareholder] produced no evidence that it even considered the issue of compliance until after both deadlines had passed."

The court also found a good faith basis for the board's decision to reduce the size of the board to eliminate a vacancy. In addition the court rejected a claim as speculative to the extent it alleged that the proxy statement was false and misleading for not mentioning an alleged "plan" to appoint another board member immediately after the election. Lastly, the court denied reciprocal requests for attorneys' fees, finding that the exception to the American Rule did not apply here.

 ASIDE:  Including the Chancery Court's Desimone opinion of a few days ago that is summarized below, I am again "up to date" on summarizing all the key decisions of the Delaware Chancery Court and Delaware Supreme Court  (as published on each court's website), on important issues of corporate and commercial law . I only leave out those opinions that in my view are not announcing any new  rules for  those who focus on business litigation, or do not contain anything of great usefulness for the business litigation practitioner's toolbox .( This includes the matters that the Chancery Court decides on such topics as enforcement  of, or restraining application of, land use regulations [see, e.g., 2007 WL 1584632], and  injunctions to enforce special statutory obligations relating, for example, to school districts' duties to their students [ see, Harden v. Christina School District, 2007 WL 1594297 (Del. Ch., May 31, 2007].) 

Consistent with the focus of this blog, I sometimes include relevant commentary from corporate law professors  and decisions of other courts in Delaware and elsewhere that relate to electronic discovery (that should be of interest to all litigators), as well as legal ethics. On occasion I also include practical decisions on topics such as mechanics' liens as well as opinions that address the overlap between creditors claims in bankruptcy and  Delaware corporate law.

It has been over 2 years since I started  summarizing these cases, and loyal readers have told me that it is a worthwhile resource for them, so I plan to find the time to continue the effort on this blog. Thank you  to those of you who comment.

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in Desimone v. Barrows, (Del. Ch., June 7, 2007), read opinion here, the Chancery Court yesterday dismissed claims against directors in connection with the backdating of options. This 77-page decision would take more time to analyze and write about than I had today to post about it, but fortunately we have the benefit of the scholarly analysis of Professor Larry Ribstein here  (who was also cited by the court in a footnote). Read his post if you want insights into the importance of this case.

SUPPLEMENT: It is noteworthy that in the footnotes of the court's opinion, reference is made to the scholarly writings on the blogs of Professor Ribstein (linked above); Prof. Stephen Bainbridge and Prof. Eric Chiappinelli. Citations to blogs in an important  Chancery Court decision such as this,  is further support for the view that blogs on legal topics have entered the mainstream of legal scholarship, and are a meaningful part of the national dialogue on key legal issues of our day. This is also a good example of the benefit of a thoughtful analysis via a law professor's blog, the day after a seminal case is published, instead of waiting weeks or months for a law review article or trade publications.

SUPPLEMENT II: There is much "good stuff" in this opinion in the way of hard core public policy analysis of Delaware corporate law jurisprudence, but there are also several practical aspects for the corporate litigator's toolbox. Here are just a few. (i) discussion of demand excusal requirement under Rule 23.1 in light of a "non-decision" of the board, pursuant to Rales v. Blasband, 634 A.2d 927 (Del. 1993);  (ii) analysis of the "continuing wrong doctrine" ( to try to reach back in time) in the context of the stock ownership requirement of DGCL Section 327;  and (iii) extensive review of the "good faith" aspect of fiduciary duty  as well as the oversight role of the board (see Caremark), as described in the recent Delaware Supreme Court decision in Stone v. Ritter.  Of course, there is much else to commend the opinion, but those are just a few teasers for now.

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In Metcap Securities LLC v. Pearl Senior Care Inc., 2007 WL 1498989 (Del. Ch., May 2007), read opinion here, the Delaware Chancery Court addressed an issue that arose in connection with a lawyer who described himself (as many do) as a "deal lawyer" purportedly representing several parties in a transaction. The problem in this case developed because after a long negotiating session, shortly before midnight, the principals left the lawyer with signature pages for a document that they thought was nearly complete. There were a team of lawyers from a particular firm, but the only one who remained after midnight to complete the deal made a last minute change to the document that allegedly made it more difficult for the investment banker to collect a fee. One issue that arose was whether that "deal lawyer" had the authority to make that change and whether it was binding on the client. The investment banker (who was not a party to the agreement) sought reformation.

The facts are quite intricate and the parties and non-parties involved in the  suit are numerous. Read the decision at the above link for all the sordid details. I suspect that anyone who considers himself or herself a "deal lawyer" will want to read this opinion as a cautionary tale for, among other things, the dangers that may lurk if one were to describe oneself as a "deal lawyer" without clearly defining what party or parties one is representing and what the scope of that representation is.

 This opinion decided a Motion to Dismiss claims for reformation of a contract, fraud, unjust enrichment and damages under a third-party beneficiary contract theory,  based on Rule 12(b)(6) (failure to state a claim) and Rule 9(b) (failure to plead fraud or mistake with particularity).

Anyone who considers himself to be a “deal lawyer” or “deal counsel” needs to read footnotes 71 and 79 of this opinion.  There the court observed that the definitional contours of the title “deal lawyer” are “without well defined, independent significance, presenting a recurring conundrum.”  (footnote 71.)

In footnote 79, the court expressed its awareness that it is not uncommon for “deal counsel” to represent more than one party and that:  “parties to a transaction and their counsel must be able to rely - - and to act accordingly - - on the negotiating authority generally accorded transactional attorneys.  This is especially true [as here] when the negotiations are ongoing and the principals have abandoned the negotiation field after leaving signature pages.”  However, the court also warned that the conflict presented by the “deal lawyer” representing more than one party created factual issues regarding the actual scope of engagement and would ultimately need to be resolved by the ethical rules that control the conduct of lawyers.

There was an issue about whether the person who described himself as the “deal lawyer” was conflicted based on his apparent representation of several parties in the same deal.  The court determined that when an agent has divided loyalties (such as a conflict), or where the agent’s own interests run adverse to one of the principals, notice to, or knowledge of, an agent will not be considered to be notice to, or knowledge of, both principals.

Regarding the third-party beneficiary claim, an interesting aspect of that analysis that most lawyers are not familiar with is the following: if an intended third-party beneficiary has relied on the terms of an agreement to his detriment, that agreement can not be amended without the consent of that intended third-party beneficiary.  (See footnote 62.)

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In Xpress Management , Inc. v. Hot Wings International, Inc., (Del. Ch., May 30, 2007), read opinion here, the Chancery Court addressed a claim for dissolution of a joint venture pursuant to DGCL Section 273 in light of a prior-filed case in Canada involving similar issues with the same parties. Although under the familiar McWane [263 A.2d 281 (Del. 1970)] standard, the first-filed case is often given preference, the court emphasized that summary proceedings under the DGCL, such as Section 273, are often allowed to proceed as exceptions to the "first-filed" rule, based on the importance of expeditiously handling such cases even where prior-cases among the parties were already pending elsewhere. (see pg. 12). A perhaps determinative factor in the court's opinion to stay this action pending the resolution of the Canadian litigation, is what the court described as the petitioner's efforts to use his superior financial resources to use various litigations for less that honorable purposes, and the decision to use the Delaware courts only after losing twice in the Canadian courts.

 In addition, the court cited prior Delaware cases that supported a denial of relief under Section 273 when dissolution was sought perhaps in order to allow one party to usurp a corporate opportunity that would not otherwise be available to one of the parties if the corporation were not dissolved  [query if the same reasoning could be used under other dissolution statutes].

Here is a key quote from the opinion:

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Prof. Larry Ribstein just published a "must read" short article here on the Harvard Corporate Governance Blog with insightful commentary on the recent Delaware Supreme Court decision in North American Catholic  Educational Foundation, Inc. v. Gheewalla , summarized here on this blog.   Here is the good professor's own summary of his post.

For anyone interested in the intersection of Delaware corporate law and the zone of insolvency, his analysis and the links he provides to related sources and writings on the topic, should be read by anyone who wants to know the latest thinking on the issues related to the duties of directors of insolvent companies and the rights of creditors against those directors. Coincidentally and parenthetically, I posted here earlier this week, an analysis by one of my bankruptcy partners, Dan Astin, on the contrast between recent federal court decisions in Delaware on the topic of  "deepening insolvency"  and the most recent Delaware Chancery Court decision on the issue.

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Courtesy of my bankruptcy partner, Dan Astin, and associate Carl Neff, is a short blurb below about recent decisions in the U.S. District Court for the District of Delaware, and the Bankruptcy Court for the District of Delaware that address claims for "deepening insolvency". It might  be respectfully suggested that one of the decisions is not obviously consistent with the recent Chancery Court decision in Trenwick, that some thought sounded the death knell for deepening insolvency as a cause of action. (See summary and commentary  here and  here on this blog regarding the Trenwick decision). Below is their guest post. Thanks to both of you.

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The United States District Court for the District of Delaware recently rendered a decision in which it denied a motion to dismiss and allowed a claim for deepening insolvency to proceed. Buckley v. O’Hanlon, 2007 WL 956947 (D. Del. 2007), read opinion here.

Although our local federal court cited the Chancery Court's 2006 opinion in Trenwick,  which held that Delaware law does not recognize deepening insolvency as a direct claim against officers and directors, Trenwick America Litigation Trust v. Ernst & Young, L.L.P., 906 A.2d 168 (Del. Ch. 2006), the court in Buckley did not appear to distinguish Trenwick.

Instead, the court in Buckley ruled  that:

The U.S. Bankruptcy Court for the District of Delaware predicted that, in the absence of an opinion by the Delaware Supreme Court and given the Third Circuit's analysis in Official Committee of Unsecured Creditors v. R.F. Lafferty & Co., Delaware law would likely recognize a claim for deepening insolvency. In re Oakwood Homes Corp., 340 B.R. 510, 531 (Bankr.D.Del.2006). Although the elements of such a claim have yet to be enunciated, the Third Circuit acknowledged such a claim when a plaintiff alleges "fraudulent expansion of corporate debt and prolongation of corporate life." Official Committee of Unsecured Creditors v. R.F. Lafferty & Co., 267 F.3d 340, 347 (3d Cir.2001).

Buckley v. O’Hanlon, 2007 WL 956947, at *7 (emphasis added).

By comparison, our local bankruptcy court recently acknowledged in the case of  In Re Radnor Holdings Corp., 335 B.R. 820 (Bankr. D.Del., Nov. 17, 2006)(read opinion here), when explaining why the complaint in that case did not include a count for "deepening insolvency", the  "recent rejection of such a cause of action under Delaware law." Id. at 842 (citing Trenwick and also In re CitX Corp., 448 F.3d 672 (3rd Cir. 2006)(which rejected deepening insolvency as a theory of damages.))

Most of this blog's readers are accustomed to the capacious authority of the Delaware Chancery Court to dispense equitable remedies, but the above cases remind us that the bankruptcy court is also vested with equitable powers. For example, the Radnor case, supra, at 838 to 840,  explains the drastic remedy of equitable subordination (based, for example, on inequitable conduct of a creditor), and how that remedy differs from recharacterization of debt (for example, when debt should be treated as equity.) See generally,  In re American Business Financial Services, Inc., 360 B.R. 74 (Bankr. D.Del., Feb. 13, 2007), read opinion here, which upheld a claim that a fiduciary relationship existed--to the extent it survived a motion to dismiss, where the bankruptcy trustee alleged a fiduciary relationship between the  bankruptcy trustee and the consulting firm--and its principal--whom the trustee thought were acting in his best interests.

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 The focus of this blog is Delaware corporate and commercial law, primarily from the Delaware Court of Chancery and Delaware Supreme Court. Also included periodically are similar cases of import from other courts in Delaware, as well as related commentary and decisions of interest to business litigators.

 My practice here is to summarize the above described key Delaware cases as they are published. Althought the following cases from the last month or so were worth summarizing, they were not important enough to post earlier. Also, in order to "catch up", due to the recent press of business for paying clients, I am summarizing the following 3 cases together for convenience only.

Crescent-Mach I Partnership, L.P. v. Turner, 2007 WL 1342263 (Del. Ch. May 2, 2007), read opinion here. This is an appraisal action that also included fiduciary duty claims regarding a merger. Both cases were tried together. Especially noteworthy is footnote 64 of the Court’s opinion where the court makes an honest assessment of its limitations in appraisal actions. The court dismissed the fiduciary duty claims and after careful and thorough analysis determined the appraised value to be $32.31 per share compared with the $25.00 per share merger price.

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MBKS Company Limited v. Reddy, 2007 WL 1310185 (Del. Ch., April 30, 2007), read opinion here. This case dealt with the difference between “void” and “voidable” stock in connection with problems that arose regarding the issuance of stock. See DGCL Sections 152, 153 and 242. The Court also addressed the requirement of written amendments to the Certificate of Incorporation in order to “cancel” existing shares.

UPDATE: This Reddy case discusses the 2004 amendment to DGCL Section 152 that expands the definition of adequate consideration for the issuance of shares to include "any benefit to the corporation".  However, the court did not directly address, and I am not aware of any cases that have yet directly addressed, the adequacy of consideration that was formerly described as infirm under the old version of the statute, but that is not prohibited under the current version of the statute.

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NAMA Holdings LLC v. Related World Market Center LLC, 2007 WL  1500027 (Del. Ch. April 27, 2007), read opinion here.This case dealt with a Delaware Limited Liability Company that was a third-party beneficiary to, and sued to enforce terms in, an Operating Agreement which was for its benefit but to which it was not a party. The Court determined that because the disputes at issue did not come with ambit of the arbitration language of the applicable agreement and because the LLC could not be equitably bound to the arbitration provisions, the LLC was permitted to press its contractual claims in the Chancery Court. See also footnote 15: motion to dismiss based on an arbitration clause goes to the court's subject matter jurisdiction and is properly reviewed under Court of Chancery Rule 12(b)(1).

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In the Matter of Transamerica Airlines, 2007 WL 1555734 (Del. Ch., May 25, 2007), read opinion here. This Chancery Court opinion involves the analysis and enforceability,  pursuant to Delaware's Uniform Foreign Money-Judgments Recognition Act , of a judgment obtained in the country of Nigeria.  The court conducted a thorough review of the issues in this litigation that started in Nigeria more than a generation ago, and found the judgment enforceable.

 A very useful tip for the Delaware Chancery Court practitioner that can be taken from this opinion is the discussion of Chancery Court Rule 56(e) which addresses the prerequisites for affidavits that are submitted in support of a summary judgment motion. Here there were two cross-motions for summary judgment pursuant to Rule 56(h), however the court struck portions of one of the affidavits that was not based on personal knowledge, and portions of which would not be admissible in evidence as required by Rule 56(e).

Here  is a summary on this blog of a prior procedural decision by the Chancery Court in this case that also discusses the extensive factual and procedural background in more detail.

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Prof. Bainbridge comments here, with links to the comments of others, on the securities law case of Stoneridge v. Scientific-Atlanta now pending before the U.S. Supreme Court.

( I have been out of town most of this week, but I hope to catch up on my blogging this weekend.)

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