Here is a list of the top 100 leaders in business ethics as published by a magazine called Ethisphere. Delaware Supreme Court Chief Justice Myron T. Steele is number 2 on the list.
Thanks to Wilmington lawyer, Marcus Montejo, for bringing this to my attention.
Ryan v. Gifford, 2007 WL 4146190 (Del. Ch., Nov. 21, 2007), read opinion here. The Chancery Court's prior decision in the case was summarized here on this blog. The basis of the suit deals with alleged backdating of options. This most recent decision addressed issues of personal jurisdiction over certain defendant officers. The thorough discussion in the opinion could serve as a model answer to a bar exam question on civil procedure issues.
The focus of the court's analysis was the somewhat recent amendment to the Delaware statute relating to personal jurisdiction over officers and directors of Delaware corporations. For many years, section 3114(a) of Title 10 of the Delaware Code has allowed for personal jurisdiction over a director of a Delaware corporation for acts taken by that person in his capacity as a director. In 2004, the statute was amended to allow also for personal jurisdiction over officers of Delaware corporations when the acts for which the officer is being sued were done in that person's capacity as an officer of the corporation. 10 Del. C. Section 3114(b).
Here is the court's overview of the procedural setting and the procedural issues:
When a defendant moves to dismiss a complaint
pursuant to Court of Chancery Rule 12(b)(2), the
plaintiff bears the burden of showing a basis for the
court's exercise of jurisdiction over the defendant.
The court engages in a two-step analysis: the
court must first determine that service of process is
authorized by statute and then must determine that
the exercise of jurisdiction over the nonresident
defendant comports with traditional due process
notions of fair play and substantial justice. In
ruling on a Rule 12(b)(2) motion, the court may
consider the pleadings, affidavits, and any discovery
of record. If, as here, no evidentiary hearing
has been held, plaintiffs need only make a prima
facie showing of personal jurisdiction and
"the record is construed in the light most favorable to
the plaintiff." (emphasis added)(footnotes omitted).
After a comprehensive analysis, the court found, with one exception, that the allegations against the individual defendant officers involved actions that pre-dated the Jan. 1, 2004 effective date of Section 3114(b), which provides for the imposition of personal jurisdiction over officers of Delaware corporations--subject to traditional due process requirements under the U.S. Constitution. See generally, Amaysing Techs. Corp. v. CyberAir Commc'ns., Inc., 2005 WL 578972 at *3 (Del. Ch., Mar. 3, 2005).
In Bernstein v. Tractmanager, Inc., 2007 WL 4179088 (Del. Ch., Nov. 20, 2007), read opinion here, the Chancery Court determined that the bylaws of a corporation that had formerly been an LLC, were not specific enough to provide advancement for claims that arose during the period that the entity was an LLC. The bylaws should have been more clear if that was what the parties had intended. Here is the summary of the case from the court's opinion:
This advancement action arose after the conversion of a limited liability company into a corporation. In that context, the court is asked to determine whether the corporation’s bylaws providing a mandatory right of advancement to its officers and directors should be read to apply equally to the former managers of the LLC, even where the LLC’s operating agreement provided for indemnification but not for mandatory advancement.
The court concludes that the right to indemnification or advancement for claims that arose during the life of the LLC continues to be governed by the terms of the old operating agreement. Thus, to the extent a claim is made against an officer or director of the corporation arising out of actions taken pre-conversion in his or her capacity as an officer or manager of the LLC, he or she has no mandatory right to advancement with respect thereto. While rights created by the LLC’s operating agreement may be enforced against the corporation into which the LLC was converted, the corporation’s bylaws do not govern the rights of former officers or managers of the LLC.
Courtesy of Kevin La Croix of The D & O Diary, here is a thoughtful discussion of derivative cases, with reference to the relative infrequency of derivative suits compared with class action suits, and the reasons for the apparent decline compared to 20 or 30 years ago, with a link to a law review article of November 2007 that includes a case study.
Here is a post on Professor Larry Ribstein's Ideoblog about the problems with a jury deciding a very complex case such as was presented in the Enron trial. The post includes excerpts from post-trial comments by jurors which largely indicate that they did not have a complete grasp of the issues or the law. This is an example, among other things, of why many believe that the Delaware Court of Chancery, which does not have juries, and where cases are decided by the jurists only, is a preferred forum to have complex cases adjudicated.
Delaware's Senior U.S. Senator, and U.S. Presidential Candidate, Joe Biden, Jr., had the good fortune of being able to attend a football game this weekend between his alma mater, the University of Delaware, and Northern Iowa University, in Iowa. Hat tip to Celia Cohen of DelawareGrapevine. How is this relevant to this blog? The good senator is also a Delaware lawyer and has a role in the selection process for judges on the U.S. District Court for the District of Delaware (and was former chairman of the Judiciary Committee in the U.S. Senate.) For all the out-of-state readers of this blog, his son, Joe "Beau" Biden, III, is Delaware's Attorney General.
In Szambelak v. Tsipouras, 2007 WL 4179315 (Del. Ch., Nov. 19, 2007), read opinion here, the Chancery Court granted specific performance in a land contract involving the sale of a farm. There are many twists and turns in the factual section of the opinion. In short, the seller did not have an attorney and the use of a "middleman" (not a realtor) added to the confusion. There was a signed agreement but the seller thought that because they had not received the down payment, the contract was not effective. The court found that due to their conduct in furtherance of the agreement, and in light of the non-material aspect of the term that they thought was not complied with, among other reasons, the discretionary remedy of specific performance was appropriate in this case. ( It is notable that the seller was apparently trying to save money by not hiring a lawyer to handle the sale, but in that approach appears to have cost them dearly in the end.)
Here is a short guest post that I was requested to write for The Harvard Law School Corporate Governance Blog as an introduction to my longer discussion of the recent Chancery Court decision in Melzer v. CNET Networks, Inc., here.
In Melzer v. CNET Networks, Inc., 2007 WL 4146237 (Del. Ch., Nov. 21, 2007), read opinion here, the Delaware Chancery Court provides a careful review of the Delaware law relating to a shareholder's right to demand books and records under DGCL Section 220. This is the third part of a trilogy. The prior two decisions in this case are summarized on this blog here and here. (Hat tip and thanks to Delaware lawyer David Finger for sending us the opinion today). This opinion will be especially noted for ruling that the shareholder was entitled to books and records for a period of time prior to the date of stock ownership in order to allow for the detail necessary to plead a sustained and systemic failure of oversight by the board, as described in the famed Caremark case.
First I'll cover an entertaining footnote and then I'll address the meat of the decision. In the concluding sentence of the opinion, after explaining in a comprehensive and scholarly fashion why the defendant company must provide the requested documents, the court used a colorful means of telling the defendant to return to California where the parties were involved in a separate lawsuit (in which the judge had urged the parties to use DGCL Section 220 before amending the complaint in that case). Here is what the last sentence of the opinion stated:
"get 'going, going/back, back/ to Cali, Cali'"
(citing THE NOTORIOUS B.I.G., Going Back to Cali, on LIFE AFTER DEATH (Bad Boy Records 1997)).
As previously noted on these pages, here, in connection with prior summaries of Chancery Court decisions, and on The Wall Street Journal Law Blog, here, the Chancery Court has "spiced up" other scholarly opinions with footnote references to popular music. It makes for fun and entertaining reading in what might otherwise be necessarily sober stuff.
The first footnote in this Chancery opinion is to a front page article in The Wall Street Journal in March 2006 about backdated stock options, which the court notes was the genesis of a large number of lawsuits filed in connection with backdated stock options. In this matter, a derivative suit was initially filed in 2006 in federal court in California. Even though in this case the company admitted to the backdating of options, the federal court dismissed the case on procedural grounds with leave to amend, but also specifically instructed the parties to cooperate to allow the plaintiff shareholder to obtain books and records pursuant to Section 220 of the DGCL (Delaware General Corporation Law -- 8 Del. C. Section 220). When a demand letter proved fruitless, the plaintiff filed the instant lawsuit in Delaware. Compared to the many other Section 220 opinions summarized on this blog, (see, e.g., here, here, here, here and here), this opinion includes among the most succinct overviews of this important "corner" of Delaware corporate litigation, such as prerequisites to successfully pursuing a demand for books and records that are not readily obvious from a reading of the statute.
In addition to the last entertaining footnote, two of my favorite footnotes in this opinion include one that refers to a leading treatise on Delaware corporate law where one will find examples of the "proper purpose" element of a successful Section 220 action. Footnote 18 provides as follows:
See 1 EDWARD P. WELCH, ANDREW J. TUREZYN, & ROBERT SAUNDERS, FOLK ON THE DELAWARE GENERAL CORPORATION LAW § 220.6.3 (supp. 2007-2) (listing well over ten examples of broad categories of proper purposes under section 220).
My next favorite footnote (coincidentally also the next chronologically), needs to be quoted to get the full flavor. The court recognized some scholarly criticism of the Delaware jurisprudence in Section 220 cases, in connection with citing a Delaware Supreme Court decision regarding pleadings standards, and then in a gentlemanly fashion with surgical precision, the court dissects and rejects the basis for the different academic point of view. (It also is another example of how blogs by law professors are being cited by courts more and more.) Footnote 19 provides as follows:
Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 118 (Del. 2006). Delaware courts have been harshly criticized for this requirement. See, e.g., J. Robert Brown’s Inspection Rights under Delaware Law, http://www.thereacetothebottom.org (Nov. 20, 2007, 6:16 a.m.) (arguing that the Seinfeld decision “illustrates that courts deliberately discourage the use of inspection rights by shareholders, using not the language in the statute but excessive pleading standards”). Such sensationalized criticism may make for an entertaining blog, but it is both unfair and incorrect. First, there is nothing “excessive” about requiring a petitioner to plead the elements of the statute under which he or she petitions the court. Section 220 makes inspection available only for shareholders with a “proper purpose.” If a shareholder could satisfy this burden by conclusorily repeating words previously used to describe a proper purpose, the requirement would be rendered meaningless, and well settled canons of statutory construction prevent such absurd results. Second, as Justice Holland explained in Seinfeld, permitting a single shareholder to hound a corporation with exclusively personal requests for books and records is a waste of corporate resources that engenders no benefit for the shareholders in general. The proper purpose requirement protects against such wealth-reducing outcomes. Finally, the “credible basis” standard is “the lowest possible burden of proof” in Delaware jurisprudence, and this can hardly be characterized as an excessive pleading standard. Seinfeld, 909 A.2d 117 at 123.
This opinion is also replete with footnote references to the opinion of the federal judge in California who specifically instructed the defendant to cooperate in the Section 220 demand in order to allow plaintiff to obtain details necessary to plead demand futility with particularity.
Thus, this Chancery Court opinion also includes useful analysis of the demand futility standards under Aronson v. Lewis and related Delaware cases.
Much more could be written about the gems of Delaware law contained in this opinion, but in keeping with the attempted brevity of blog posts, and in light of this one being longer than usual, I encourage readers to access the first link above and read the whole thing.
This case was so good that I wanted to blog about it before I officially start my Thanksgiving holiday and while my family is sleeping. For students of Delaware corporate law, this opinion issued the day before Thanksgiving was just in time for a "Thanksgiving feast" for the mind. Happy Thanksgiving to all my loyal readers and thanks for visiting these pages.
UPDATE: Here is a characteristically insightful commentary on the case by Prof. Eric Chiappinelli.
UPDATE II: Here is a blurb on the case from The Wall Street Journal Law Blog.
In Reserves Development LLC v. Severn Savings Bank FSB, (Del. Ch., Nov. 9, 2007), read opinion here, the Chancery Court addresses a veritable panoply of claims, in connection with a real estate development joint venture "gone bad". The court ultimately granted a minority of the claims but dismissed the majority of claims made, some of which are noteworthy in light of the infrequency of their treatment. The opinion includes an instructive discussion of the elements needed to be proved in order to successfully allege the following causes of action;
1) unjust enrichment;
2) equitable estoppel;
3) equitable subrogation;
4) third-party beneficiary;
5) unclean hands (applied here to bar remedies sought); and
6) removal of the trustee of a trust.
UPDATE: Here is the court's denial of a Motion for Reargument under Chancery Rule 59(f) in which the court thoroughly explains why the motion should be denied and in the process touches on the key legal issues decided in the original opinion.
Nicastro v. Rudegeair, 2007 WL 4054757 (Del. Ch., Nov. 13, 2007), read opinion here. There are not many decisions on Chancery Court Rule 12(f), which allows for the possibility of the court striking portions of pleadings that are : "... impertinent or scandalous...." So I thought this would be a useful decision to summarize.
Even the court described the allegations involved as "messy and unpleasant" (and summarized them in the "least caustic" manner), but still found that the movant did not demonstrate the necessary prejudice required in order to have his motion to strike granted. In closing the court found that both parties acted inequitably and admonished them to consider the wisdom of spending money and time to battle over a dispute, the proof for which will primarily be offered by the same two parties who are suing each other.
My "night job" writing this blog is made so much easier by being able to simply link to the scholarly writings of corporate law professors who analyze recent selected Delaware cases and who also provide exemplary commentary on various aspects of Delaware corporate law. The series on derivative litigation by Professor Bainbridge recently posted on these pages is an example. Now we have another example. Professor Bainbridge has collected key Delaware cases on the "corporate opportunity" doctrine. Read the whole thing replete with citations at the link below. An extra bonus provides excerpts from the famous Meinhard v. Salmon case. This is more evidence of how blogs are bringing legal scholarship to the hoi polloi. Here is the introductory quote from the good professor's post today:
This post begins the second in a series of experimental posts designed to do “real” scholarship in the blog format. In each series, I take an area of the law where I think I have something to contribute, but to which devoting the time and effort inherent in writing a traditional law review article seems unwarranted. Collectively, the posts constitute a short monograph on the subject. In this series, we will rethink the corporate opportunities doctrine.
This post introduces the problem and then summarizes the relevant Delaware law.
Here is a link to the whole post. Great stuff for those interested in this area.
A complaint was filed yesterday in Chancery Court by the above named parties regarding a "deal gone bad" as reported here on The Wall Street Journal Law Blog. The comments below The WSJ Blog post have links to the actual complaint.
UPDATE: Here is a press release about a separate class action filed against United, claiming that they should have disclosed sooner their awareness that Cerberus expressed reservations about closing the deal. Hat tip: Kevin LaCroix of The D & O Diary.
Christina Manor Civic Association v. Gullo, (Del. Ch., Nov. 2, 2007), read opinion here. This case is an indication of the "backyard type disputes" that some might not be aware that the Court of Chancery deals with, in addition to the multi-billion dollar corporate disputes that get the most press. This decision enforced deed restrictions that required prior approval by the homeowner association before new additions or garages were built. Despite arguments that the restrictions on the types of garages that could be built in this (older) housing development were arbitrary and did not lend themselves to objective application (e.g., there was no specification on size), the court found them enforceable, and rejected defenses of estoppel and waiver. The court reasoned that the homeowner built the garage at her own risk, knowing that she did not obtain the requisite prior approval and therefore, the court ordered the 40' by 30' garage removed.
In Hildreth v. Castle Dental Centers, Inc., (Del. Supr., Nov. 15, 2007), read opinion here, the Delaware Supreme Court affirmed the Chancery Court ruling in an action contesting the appraisal of preferred shares in a merger. This case did not involve the typical valuation issues in an appraisal case. The plaintiff agreed on the total merger price. The dispute was based on the fact that preferred shares, that were convertible into common shares, were treated as if they were already converted, even though the corporation failed to authorize a sufficient number of common shares necessary to cover the full number of preferred shares that could be converted into common. The plaintiff wanted the merger price to be divided only among the total of authorized shares--as opposed to the number of convertible preferred shares that exceeded the total number of authorized shares.
Delaware's high court based its reasoning on two key points. First, despite the failure to have adequate common shares, like other contracts, the failure of one part of a contract does not invalidate the whole contract. In addition, it was not alleged that the issuance did not comply with DGCL Section 151. Thus, the court rejected the argument that the preferred shares were void. Second, the court determined that there are many ways to value preferred shares and the method used by the merger agreement was permissible.
From Professor Bainbridge:
This is the fourth in a series of posts that collectively constitute a short monograph on the role of the demand requirement in derivative litigation. In this post, we turn to the policy question of when the board should be able to take control of a shareholder-initiated derivative lawsuit.The Zapata court correctly identified the basic issue: If the corporation can consistently defeat bona fide derivative actions through procedural devices, much of the derivative suit’s supposed utility in punishing and deterring managerial misconduct will evaporate. On the other hand, the underlying cause of action belongs to the corporation and the corporation should be able to rid itself of nonmeritorious or even harmful litigation. (footnote omitted.)
Read the whole discussion, with citations, at the above link. Parts I, II and III of this series can be accessed here. This 4-part series is must reading for anyone who wants a "quick refresher course" or an overview, with citations to the seminal cases, of this important area of corporate litigation. The good professor's "blog version of a monograph" is an excellent example of how blogs by law professors are making scholarly insights on complicated areas of the law more available to the practicing bar (and the bench) than was formerly the case via law reviews or treatises.
For the same reason that "court watchers" in Delaware should be aware of the gubernatorial campaign, as I have explained previously on these pages, it is relevant to observe in passing that although the Delaware Senate (which approves judges appointed by the Governor), is expected to remain dominated by Democrats, the majority party in the Delaware House of Representatives, controlled by Republicans since 1982, will be "in play" as they say, in the November 2008 elections. Celia Cohen, a veteran political commentator in Delaware, and author of the online political publication called DelawareGrapevine, has an unparalleled summary here, of the "races to watch" in '08 that may impact which party controls the state house after the '08 elections.
Here is Part III of a series by Professor Stephen Bainbridge on the demand requirement in derivative litigation. Parts I and II are available at this link. The first part dealt with the analysis applied to determine when demand is excused and when it is not. Part II dealt with the situation where demand is not excused. Part III addresses the situation where demand is excused and the company still tries to wrest control of the litigation via a Special Litigation Committee. Great stuff for anyone interested in this area of corporate litigation.
UPDATE: Here is a recent decision by a trial court in Delaware County, Pennsylvania, in LeMenestrel v. Warden, applying the ALI Principles related to the independence of a Special Litigation Committee and rejecting the claim that the SLC was not independent because it was "attorney-controlled". Hat tip to Francis J. Catania of Media, Delaware County, PA.
Here is an Order from Chancellor William Chandler decreeing that for the reasons set forth in the Order, the captions on pleadings for all cases filed in Chancery Court shall omit any reference to a particular county, but rather shall only state at the top: "IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE".
Even though there are only 3 counties in Delaware, the reasons for this new procedural Order include the fact that all case assignments are made on a statewide basis, making it unnecessary to differentiate between where a party or its counsel is located within the state. In addition, as of December 3, 2007 the entire Chancery Court docket will be electronic.
The Race To The Bottom blog is devoted to corporate law issues, but here is a post they just did that refers to an online service that allegedly determines the level of education needed to understand certain blogs and other websites. The level that is assigned starts at "high school" level and goes up to "genius" level. They categorized this blog at the genius level. Go figure. (If you read the post at the above link, you will see that they shorten the name of this blog to: "Delaware Litigation Blog".)
Seidensticker v. The Gasparilla Inn, 2007 WL 4054473 (Del. Ch., Nov. 8, 2007), read opinion here. See summary on this blog of prior decision in this case here. In this latest decision, the Chancery Court construed and applied a very recent Delaware Supreme Court decision, in Appriva Shareholder Litigation Company LLC v. EV3, Inc., summarized here, as a basis to reject any retreat from an objective theory of contract law in Delaware.
Compare a summary here of a very recent Chancery Court decision that recited a litany of key Delaware contract law principles.
West Willow-Bay Court LLC. v. Robino Bay Court Plaza LLC, 2007 WL 3317551 (Del. Ch., Nov. 2, 2007), read opinion here. The Chancery Court in this decision upheld a bedrock principle of Delaware contract law: the court will uphold agreements entered into by sophisticated parties and will refuse to modify them or admit extrinsic evidence to interpret them, when the terms of an agreement are clear, notwithstanding the existence, with the passing of time, of hardship or burdensomeness that might have been avoided in hindsight.
In this case involving real estate agreements that required one party to obtain the consent of a third-party (which could not be obtained), on cross-motions for summary judgment, the court determined that there was a breach but that it was not an appropriate case for specific performance, which is a discretionary remedy, and that a separate proceeding would be needed to prove damages.
I try to avoid long block quotes, but here are a few practical excerpts from the opinion that are akin to a "mini-treatise" on contract law, and that I expect to refer back to often:
The goal of contract interpretation is to ascertain the shared intention of the parties. [FN79] Contracts must be construed as a whole. [FN80] Where contract language is "clear and unambiguous," the ordinary and usual meaning of the chosen words will generally establish the parties' intent. [FN81] The presumption that the parties are bound by the language of the agreement they negotiated applies with even greater force when the parties are sophisticated entities that have engaged in arms-length negotiations. [FN82] Only where contract language is ambiguous will a court consider extrinsic evidence in interpreting an agreement, [FN83] and a court will not disturb a bargain because, in retrospect, it appears to have been a poor one. [FN84]FN79.E.I. du Pont de Nemours & Co. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del.1985).
FN80.Nw. Nat'l Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43 (Del.1996). "[T]he meaning which arises from a particular portion of an agreement cannot control the meaning of the entire agreement where such inference runs counter to the agreement's overall scheme or plan." Shell Oil Co., 498 A.2d at 1113.
FN81. Delaware adheres to the objective theory of contracts, under which it is presumed that contract language governs in the absence of ambiguity. Progressive Int'l Corp. v. E.I. du Pont de Nemours & Co., 2002 WL 1558382, at *7 (Del. Ch. July 9, 2002). Under the objective theory of contract, " 'intent does not invite a tour through [a party's] cranium, with [the party] as the guide.' " Id. (quoting E. ALLAN FARNSWORTH, CONTRACTS § 3.6 (2d ed.2000)).
FN82. It should be noted that both parties' are sophisticated entities and their agents are sophisticated businesspersons. They both have had extensive experience in real estate development and both have had ample access to counsel. It is a basic principle of contract law that a person is bound by the terms of a contract he signs, even if he has not read the agreement or is otherwise unaware of its terms. See Graham v. State Farm Mut. Auto. Ins. Co., 565 A.2d 908, 913 (Del.1989); see also Pellaton, 592 A.2d 473 (Del.1991) (enforcing contract terms despite the signing party's assertion that he did not read the document before signing). Thus, Robino's suggestion that Stortini executed the Second Amendment without having first scrutinized its terms is unavailing. Also, that Stortini executed the agreement without the advice of counsel is of little moment: there is no general requirement that contracts be executed under the guidance of counsel, especially when the signor is a sophisticated businessperson like Stortini.
FN83.E.g., NAMA Holdings v. World Mkt. Ctr. Venture, LLC, 2007 WL 2088851, at *6 (Del. Ch. July 20, 2007).
The Delaware Supreme Court has declared that if a contract "is clear and unambiguous on its face," a court may not consult extrinsic evidence in interpreting its provisions. Pellaton, 592 A.2d at 478 (emphasis added). In a similar vein, but employing slightly different words, this Court has stated,
When the language of a contract is plain and unambiguous, binding effect should be given to its evident meaning. Only where there are ambiguities may a court look to collateral circumstances; otherwise, only the language of the contract itself is considered in determining the intentions of the parties.
Majkowski v. Am. Imaging Mgmt. Servs., LLC, 913 A.2d 572, 581 (Del. Ch.2006) (emphasis added). Hence, in determining whether to turn to extrinsic evidence, Delaware courts are to decide at the outset whether or not the contract language is "clear and unambiguous" or "plain and unambiguous." Although this language seems to suggest two inquiries--first, whether the language is "clear" or "plain," and second, whether the language is "unambiguous"--the terms of art "clear and unambiguous" and "plain and unambiguous" collapse into a single query centering on "ambiguity" alone. See, e.g., Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del.1997) ("If a contract is unambiguous, extrinsic evidence may not be used to interpret the intent of the parties, to vary the terms of the contract or to create an ambiguity."); City Investing Co. Liquidating Trust v. Cont'l Cas. Co., 624 A.2d 1191, 1198 (Del.1993) ("If a writing is plain and clear on its face, i.e., its language conveys an unmistakable meaning, the writing itself is the sole source for gaining an understanding of intent. However, if the words of the agreement can only be known through an appreciation of the context and circumstances in which they were used a court is not free to disregard extrinsic evidence of what the parties intended. In that situation the language used by the parties is subject to different meanings and is, thus, ambiguous, or more precisely, not reflective of the parties shared intent. " (internal citations and quotations omitted) (emphasis added)); Rhone-Poulenc Basic Chem. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195-96 (Del.1992) ("Absent some ambiguity, Delaware courts will not destroy or twist [contract] language under the guise of construing it."); Carlson v. Hallinan, 925 A.2d 506, 527 (Del. Ch.2006) ("A court may only resort to extrinsic evidence to ascertain the meaning of the contract if it is ambiguous."); Progressive Int'l Corp., 2002 WL 1558382, at *7 ("[T]he language of a contract governs when no ambiguity exists."); E. ALLAN FARNSWORTH, CONTRACTS § 7.12, at 465 (4th ed.2004) (using "clear" and "ambiguous" as antonyms); Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts §§ 30:4-30:7, at 37-92 (4th ed.1999) (discussing ambiguity alone as the criterion to be employed in determining whether or not it is proper for a court to consult extrinsic evidence).
Naturally, "[t]here may be occasions where it is appropriate for the trial court to consider some undisputed background facts to place the contractual provision in its historical setting without violating this principle." Eagle Indus., Inc., 702 A.2d at 1233 n. 7. "But the trial court must be careful in entertaining background facts to avoid encroaching on the basic principles [concerning extrinsic evidence] set forth herein." Id. A fair reading of a contract requires an understanding of the context, but that factual background cannot be allowed to serve as a substitute for extrinsic evidence and thereby divert appropriate attention from the words employed by the parties.FN84.See, e.g., Fed. Sav. & Loan Ins. Corp. v. Grand Forks Bldg. & Loan Ass'n, 85 F.Supp. 248, 252 (D.N.D.1949) ("[The] Court has no authority to re-make or revamp an executed contract, nor to indulge in any artificial or unreal construction in order to relieve the defendant of the seeming burdens of its contract.").
...Contract liability is strict liability. It is an accepted maxim that pacta sunt servanda, contracts are to be kept. The obligor is therefore liable in damages for breach of contract even if he is without fault and even if circumstances have made the contract more burdensome or less desirable than he had anticipated.... The obligor who does not wish to undertake so extensive an obligation may contract for a lesser one by using one of a variety of common clauses: he may agree only to use his "best efforts"; he may restrict his obligation to his output or requirements; he may reserve a right to cancel the contract; he may use a flexible pricing arrangement such as a "cost plus" term; he may insert a force majeure clause; or he may limit his damages for breach. [FN94]
FN94. Restatement (Second) of Contracts ch. 11 introductory cmt. (emphasis added).
...A party is not discharged from the binding language of a contract simply because its obligation under that language turns out to be difficult or burdensome. [FN102] Robino agreed, without any qualification, to secure Value City's consent, and it cannot look to the Court for relief from that obligation. "[I]t is not for some judge to substitute his subjective view of what makes sense for the terms accepted by the parties." [FN103]
FN101.See Superior Vision Servs., Inc. v. ReliaStar Life Ins. Co., 2006 WL 2521426, at *6 (Del. Ch. Aug. 25, 2006) ("A court should not read a reasonableness requirement into a contract entered into by two sophisticated parties. It is imperative that contracting parties know that a court will enforce a contract's clear terms and will not judicially alter their bargain, so courts do not tramp/trump the freedom of contract lightly.") (quotations and footnotes omitted). See also supra note 84.
FN102.See Safe Harbor Fishing Club v. Safe Harbor Realty Co., 107 A.2d 635, 638 (Del. Ch.1953) ("Courts cannot alter contracts merely because they work a hardship. A contract is not invalid, nor is the obligor therein in any manner discharged from its binding effect, because it turns out to be difficult or burdensome to perform.").
FN103.Matria Healthcare, Inc. v. Coral SR LLC, 2007 WL 763303, at *1 (Del. Ch. Mar. 1, 2007). Robino invokes Horizon Personal Commc'n, Inc. v. Sprint Co., 2006 WL 2337592 (Del. Ch. Aug. 4, 2006), in which the Court, applying Kansas law, observed that it would not rigidly construe the terms of a contract so as to "make[ ] performance impossible and produce [ ] an absurd result." Id. at *21. The result here is not absurd if one accepts Stortini's view, later proven to be mistaken, that obtaining Value City's consent would not be a problem. Additionally, Robino may have anticipated that, because Value City's consent could not be "unreasonably withheld" under the Value City Lease, it would not be difficult to obtain.
Prof. David Skeel has written a law review article on the seminal Delaware Supreme Court decision of Aronson v. Lewis, the starting point for most modern analysis of shareholder derivative litigation, at least on a procedural level in terms of demand excusal. Here is an excerpt of the article from Prof. Bainbridge.
In Wallace v. Wood, 2007 WL 3331530 (Del. Ch., Oct. 31, 2007) , read opinion here, the Chancery Court granted a motion to dismiss a derivative case that had been inactive for about 6 years. The Chancery Court is known for bringing cases to trial in lightening speed, and (when necessary in extreme circumstances) holding emergency hearings--and making decisions--within hours of a complaint being filed. It also often takes a "gentlemenly approach" to scheduling and expects the attorneys to agree on briefing schedules, for example, as opposed to the court imposing them. This is a case where the court's patience for allowing counsel to set the schedule met its limit under Rule 41(e).
In what now appears to be a (mostly) monthly event, on the first Saturday of each month, I have been interviewed on a Wilmington radion station, 1450 WILM AM, , and asked to highlight important decisions from the Delaware Chancery Court and Delaware Supreme Court that I summarize on my blog. We are going to skip December, so the next radio interview is scheduled for Saturday, Jan. 5, 2008 at 10:15a.m.
Here is an excellent overview of the demand requirement in derivative cases by Professor Bainbridge, in what he describes as the first in a series of scholarly writings that he will do on his blog, instead of the more cumbersome process of preparing a law review article. This is a superb example of the important role that blogs are playing in legal scholarship.
Courtesy of Prof. Larry Ribstein, here is his post with a link to a video of a recent symposium he organized on "The Mystery of Delaware Law's Success", previously highlighted here. The panel included luminaries such as Chancellor William Chandler of the Delaware Chancery Court.
Here is a post on the Morris James' Business Litigation Report that summarizes two recent transcripts from bench rulings in which Vice Chancellor Strine made abundantly clear that he will not tolerate "speaking objections" during depositions. These violations of both the Delaware Chancery Court Rules and Delaware custom in deposition practice, are not always uniformly addressed in the same way by all members of the judiciary, but the transcripts and the order linked at the above post provide no room for doubt about how at least one member of the Chancery Court will deal with such abuses of deposition practice. ( I have written articles and given seminars on this topic. Here is a link to one of my more recent articles about this issue.)
In Lehman Brothers Bank FSB v. State Bank Commissioner, (Del. Supr., Nov. 7, 2007), read opinion here, the Delaware Supreme Court, in a 43-page decision (that includes a thorough analysis of the factual and legal issues that I will not be discussing in this short blurb), upheld the Delaware franchise tax imposed on banks. Its analysis included a discussion of the Commerce Clause and Due Process Clause of the U.S. Constitution. This is a very important decision on many levels and I hope to supplement this short summary in the near future.
In Reeder v. Wagner, (Del. Ch., Nov. 1, 2007), read letter decision here, the Chancery Court determined that it did not have equity jurisdiction over this Declaratory Judgment action, and thus transferred the case to Superior Court. (For non-Delaware readers of this blog, Superior Court is the trial court of general jurisdiction.) In reviewing the complaint, the court observed that it did not contain any of the following conventional bases for equity jurisdiction:
"... either a claim arising out of an equitable relationship or a well pleaded demand for relief that is exclusively equitable in nature."
Professor Bainbridge provides commentary here with links to other articles that discuss the applicability of the Sarbanes-Oxley Act (SOX) to non-public corporations, even if only done as a voluntary effort to apply best practices. He cites to other articles that argue against the applicability of SOX to private companies.
I have previously explained why court watchers in Delaware or students of the Delaware courts should be interested in who resides in the Governor's Mansion. Here is expert insight into Delaware's gubernatorial race by Celia Cohen at her online publication called Delawaregrapevine.
In Solow v. Aspect Resources, LLC, 2007 WL 3256944 (Del. Ch., Oct. 30, 2007), read opinion here, the Chancery Court granted a motion to compel a third-party to comply with a subpoena to produce documents related to the litigation that it was not (yet) a party in. This letter opinion is a treasure trove of sorts for practical application of several rules applicable to third-party discovery. For example, the court not only grants the motion to compel as seeking allowable discovery under Rule 26(b)(1), in light of no undue burden and based on the reasonable scope of the request, but it also refuses to order the party seeking discovery to pay more than copying and shipping costs in light of the responding party failing to establish that it would incur "significant expenses" as required under Rule 45(c)(2)(b).
Lastly, the court refuses to order costs and fees resulting from the need to file a motion, finding that the opposition to the motion was "neither vexatious nor frivolous" and that it was "substantially justified".
Prof. Robert Miller discusses here a mathematical approach to analyzing "material adverse effect" (MAE) clauses, such as the one now being litigated in the pending Chancery Court case involving Sallie Mae. Hat tip: Professor Bainbridge.
Prof. Stephen Bainbridge and Prof. J. Robert Brown discuss the practical business impact (or not) from a corporate governance perspective, of having a diverse board of directors.
The Chancery Court decision of In re CheckFree Corporation Shareholders Litig., Del. Ch., (Nov. 1, 2007), read opinion here, distinguishes the Netsmart case, summarized here, and rejected an attempt to enjoin a merger due to a claim that more proxy disclosure was needed. Here is a short summary of the case courtesy of the Harvard Corporate Governance Blog.
Courtesy of Wilmington lawyer James Hughes, Jr. and his colleagues at the firm of Young, Conaway, Stargatt & Taylor, is the Fall 2007 issue of their firm's Delaware Transactional & Corporate Law Update, which includes practical and insightful commentary on recent changes to the Delaware Limited Liability Company Act and the Limited Partnership Act. Here is the electronic version. Especially noteworthy in my view was their excellent discussion of the change to Section 18-201(d) providing that an LLC shall have an LLC agreement. Morever, an amendment to Section 18-101(7) provides that if an LLC agreement is not entered into, it will be implied in the absence of an oral or written LLC agreement.
This post is in the category of important issues in our society that should be of interest to all lawyers who are concerned about the rules and norms that govern societal behavior. Here is an article from a local newspaper about a diversity training program at a local university--but I am not sure if it is an actual, truthful account or not. Nonetheless, it could serve as the basis for a day-long discussion of contemporary issues of free speech and other important rights. I have made inquiries to find out whether it is an actual transcript, but in the meantime, I invite comments from readers, regardless of whether it is a spoof or an actual transcript of the event.
UPDATE: Here is a link to another article that makes the university appear to be backpedaling.
UPDATE II: Here and here are articles that suggest that there is more to it. The first link in this update quotes from a 1941 U.S. Supreme Court decision that notes the constitutional prohibition against public officials or others prescribing what shall be orthodox in matters of opinion.
