The Chancery Court recently issued 2 decisions in the following cases: Prestancia Management Group, Inc. v. Virginia Heritage Foundation, II LLC, et al. and Mae Jean Rosser v. New Valley Corporation, et al. Both cases are available on the Chancery Court website.
The Prestancia decision provides a useful primer on the limited scope of the court’s subject matter jurisdiction. The court
ultimately dismissed the complaint due to a lack of equitable jurisdiction. In the course of interpreting an agreement, the court ruled that the declaratory judgment sought by the plaintiff was not seeking equitable relief. Reformation was also sought, and although it is an equitable remedy appropriately employed where the contract or instrument reflecting an agreement or transaction does not express the actual intent of the parties, the facts in this case did not support such a remedy. The court also analyzed the claim made for rescission. It was observed by the court that most lawyers are unaware that rescission can be both a remedy available in the “law courts” as well as the courts of equity. Equitable rescission, otherwise known as cancellation, is a form of remedy which, in addition to a judicial declaration that a contract is invalid, also requires additional equitable relief beyond simply the award of money that can be provided by the courts at law.
The plaintiff also sought to impose a constructive trust based on a fiduciary relationship. The court reviewed the special circumstances which must be present to establish a fiduciary relationship other than in the clearly recognized positions (e.g., trustee); such as confidence reposed by one side, and domination and influence exercised by the other. The court did not find the basis for a fiduciary relationship to exist and therefore denied that claim, leaving no additional claim that would allow for the equitable jurisdiction of the court. The court noted in conclusion that Delaware courts generally give effect to the terms of a private agreement designating Delaware as the judicial forum, although there are some exceptions not applicable here. Nonetheless, parties cannot by contract confer subject matter jurisdiction on the Chancery Court.
May Jean Rosser v. New Valley Corporation, et al. was a class action complaint, decided on a Motion for Summary Judgment, based on a claim of whether adequate disclosure was made to holders of Class B Preferred Stock when they were solicited to approve an internal recapitalization. The plaintiff previously survived a Motion to Dismiss her challenges to disclosures in the Proxy Statement.
The court reviewed the standards for summary judgment and the obligation of the party opposing summary judgment to put forth some evidence. The court observed that a plaintiff must present either direct or circumstantial evidence to support the elements of the claim and a motion will be granted against a plaintiff who fails to make a showing to establish the existence of an element essential to the plaintiff’s case and on which the plaintiff will bear the burden of proof at trial. However, once the moving party presents evidence that, if undisputed, would entitle it to summary judgment, the burden then shifts to the opposing party to dispute the facts by affidavit or proof of similar weight.
The court reviewed the requirements imposed on fiduciaries in order to meet their disclosure obligations. The court noted that material information is omitted if “there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. Therefore, in order to allege a proper breach of a duty of disclosure claim, plaintiffs must establish a substantial likelihood, that under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable stockholder.” Plaintiff recognized however, that if the disinterested holders of stock were fully and fairly informed, that approval by fully informed . . . disinterested stockholders under Section 144(a)(2) of the DGCL, would permit invocation of the business judgment rule and would limit judicial review to issues of gift or waste with the burden of proof upon the party attacking the transaction.
In sum, the court found that the disclosures were sufficient and that the plaintiff failed to make a showing of “some evidence” to support her claim, thereby not allowing the court to draw any inference in her favor. The court found no issue of fact requiring a trial, thereby entitling defendants to summary judgment.