Posted on March 10, 2009 by Francis G.X. Pileggi

Delaware Supreme Court Affirms Chancery Court in AT & T Case Involving Stock Options

AT & T  Corp. v. Lillis, (Del. Supr., March 9, 2009), read opinion here. In a rare split decision, the Delaware Supreme Court ruled 3-2 to affirm the original decision of the Chancery Court  that was initially reversed by the Supreme Court (also a procedural rarity). 

This case involves an attempt by former officers and directors of MediaOne Corp. (the "Option Holders") to seek compensation from AT & T for the value of their stock options.

The bottom line of this procedurally quirky case is as follows: the Supreme Court originally reversed the Chancery Court and instructed it on remand not to base its decision on certain admissions made by AT & T in its pleadings that were later amended. After remand, the Chancery Court changed its orginal decision and found in favor of AT & T. Now, however, in its second decision, the Supreme Court has reasoned that the Chancery Court was right the first time and thus Delaware's High Court must affirm the original decision of the Chancery Court in favor of the Option Holders. ( Of course, the dissenting Justices in this opinion see it differently.)

The multiple prior decisions in this case have been highlighted here,  with the most recent Chancery Court opinion here, explaining in detail the procedurally unusual posture of this matter. Notably, the prior decision in this case decided by the Supreme Court was a unanimous en banc opinion highlighted here.

This opinion is must reading for any litigator that  needs to address any of the following issues:

  • lasting impact of admissions (if any) in a pleading that is later amended;
  • "the law of the case" doctrine
  • whether legal positions taken in a case have any impact on divining the parties'  intent in a contract at the time the parties entered into that contract
  • "course of conduct" as a contract interpretation principle
  • whether a position taken in a pleading, which is later amended, can be used as "course of conduct" to interpret the intent of the parties in an agreement
  • whether an admission in a pleading, later amended to withdraw the admission, can still be used as "evidence"--as compared to a legal admission. (see FN 17 in the majority opinion and FN 10 in the dissenting opinion)

 

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Posted on November 16, 2008 by Francis G.X. Pileggi

Chancery Rules on Statutory Trust Issues Involving Cargill and Refco

In Cargill, Inc. v. JWH Special Circumstance, LLC, (Del. Ch., Nov. 7, 2008), read opinion here, the Delaware Chancery Court issued a 68-page decision involving a Delaware statutory trust (formerly referred to as a business trust), and found that common law fiduciary duties would apply to a trustee as a "default rule" in light of the agreement among the parties being silent on the issue. Compared to corporate law, there are comparatively fewer Delaware decisions involving trusts created pursuant to statute, thus making this a notable decision for that reason alone. Hat tip to Delaware Business Litigation Report.  

The extensive facts described a deal in which Cargill sold a subsidiary to Refco shortly before Refco filed for bankruptcy, among other problems experienced with that company.  Procedurally, the court denied both a motion to dismiss counterclaims and a motion for judgment on the pleadings based on a complaint that sought a declaratory judgment that no fiduciary duty claims were owed.

The Delaware Statutory Trust Act , which is the basis for the entity involved in this case, is found at 12 Del. C. §§ 3801-3826. From its enactment in 1988 until its amendment in 2002, the Act was called the “Business Trust Act,” and what are now called “statutory trusts” were known as “business trusts.”

Also addressed was the concept upheld in the USA Cafes  line of cases (cited in the court's opinion), that a corporate parent of a general partner that has control over an entity may owe fiduciary duties to that entity.

There are many other important parts of this decision that should be required reading for anyone who prepares statutory trust agreements or who needs to know the latest Delaware law on the duty of trustees.

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