Search results for: rule 1.9

A recent decision of the Delaware Superior Court featured an unusual ruling in Delaware: A motion to disqualify counsel was granted based on a conflict of interest under Rule of Professional Conduct 1.9, relating to prior representation of a client.

Why the Decision is Notable:

Although the facts in the 21-page decision styled Sun Life Assurance Company of Canada v. Wilmington Savings Fund Society, C.A. No. N18C-08-074  PRW-CCLD (Del. Super. Dec. 19, 2019), are somewhat unique, and not likely to be often repeated, the court’s opinion is a useful reference that should be in the toolbox of litigators because it provides copious citations to Delaware court decisions that address the standards applicable to motions to disqualify counsel based on a conflict of interest, as well as reciting the familiar and well-established “high-threshold” that must be met because motions to disqualify counsel are looked upon with disfavor.

This ruling is a reminder that it is not sufficient for purposes of disqualifying counsel that a Rule of Professional Conduct be violated. Rather, for purposes of disqualifying counsel, the conflict must be “so extreme that it calls into question the fairness of the proceeding.” See Slip op. at 4 and accompanying footnotes.  Other cases and articles on these pages dealing with motions to qualify are available via these hyperlinks.

In my latest ethics column for The Bencher, the publication of the American Inns of Court, I highlighted a decision of the U.S. Court of Appeals for the Third Circuit which upheld the refusal to disqualify a law firm based on legal ethics rules 1.9 and 1.10.

In sum, those rules codify the fundamental premise of our system of litigation that the same lawyer cannot represent two parties who are adverse to each other in the same case, even if one is a former client. Specifically, Model Rule 1.9 prohibits a lawyer who has formerly represented a client in a matter from:

“representing another person in the same or substantially related matter in which the person’s interests are materially adverse to the interests of the former client.” 

The intriguing factual twist in this case involved a lawyer representing a party in a pending case who moved to the law firm representing the adverse party while the case was still pending–but once she joined the law firm representing the opposing party, that law firm followed all the necessary procedures to create an ethical wall that prevented her from having any access to that litigation.

Of course, the legal analysis and the detailed facts require a lengthier explanation, but for those interested in this topic the complete article is linked above.

Manning v. Vellardita, C.A. No. 6812-VCG (Del. Ch. March 28, 2012), is an important decision of the Delaware Court of Chancery on legal ethics as applied to non-Delaware attorneys who appear before the Court pro hac vice.

Issues Addressed: Whether lack of complete candor to the Court in a Motion for Admission Pro Hac Vice is a basis to either: (i) disqualify counsel, and/or (ii) revoke the admission pro hac vice. The Court also addressed standards (articulated in this context for the first time), of candor and full disclosure, regarding potential conflicts, that those seeking admission pro hac vice must now follow.

Background

This is a summary proceeding pursuant to DGCL Section 225 (which is limited to the determination of who the valid members of the Board of Directors are, when one or more of those positions are contested.) In this matter, that determination will turn, in part, on whether the Board of ValCom, Inc. approved the terms of a loan which included the pledge of 50 million shares of stock as collateral pending the repayment of the debt. The New York law firm of Shiboleth, LLP represented ValCom in the loan transaction.

The lawyer whom defendants seek to have disqualifed and whose pro hac vice admission they seek also to have revoked (“the Non-Delaware Attorney”), did not include in his motion pro hac vice the fact that he is the head of litigation for the Shiboleth firm. Instead he listed himself on his application for admission pro hac vice merely as being with his own eponymous firm. This Non-Delaware Attorney was admitted pro hac vice to represent the plaintiffs in this matter, but the defendants only found out later by chance about his position at the Shiboleth firm.

Defendants’ Main Argument

In light of the Non-Delaware Attorney being a member of the Shiboleth firm, and the Shiboleth firm having represented ValCom in connection with the disputed loan transaction that is at the core of the present matter, defendants argued that Non-Delaware Attorney should be disqualified due to his violation of Delaware Lawyers’ Rule of Professional Conduct (“DLRPC”) Rule 1.9, regarding “Duties to Former Clients”.

Legal Analysis–Ethics Rules

Rule 1.9(a) prohibits a lawyer from representing a client in a matter adverse to a former client in the same or a “substantially related matter”. Comment 3 to DLRPC Rule 1.9 explains that matters are substantially related if there is “… a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter.” In addition, Rule 1.10 imputes such a conflict of one member of a firm to the other members of that same firm. See generally, my most recent ethics column entitled: The Moral Aspects of a Lawyers’ Fiduciary Duty.

Prerequisites for Motion to Disqualify

As previous Delaware decisions have done, the Court in this case expressed its awareness that there is a potential for abuse with motions to disqualify. Thus, the prerequisite for succeeding on a motion to disqualify is more than a showing that there has been a violation of the DLRPC. That is, there must be “clear and convincing evidence establishing a violation of the DLRPC so extreme that it calls into question the fairness or the efficiency of the administration of justice.” See footnote 6. In addition, the Court explained that a non-client third party generally will not have standing to assert such a violation unless that party proves a personal detriment….” See footnote 7. (emphasis in original).

Instructions to Non-Delaware Lawyers Admitted Pro Hac Vice

The Court recognized that the many attorneys from other states who practice before it are among the “finest attorneys in the country” from which Delaware benefits by their skill and expertise. However, the Court emphasized that:

“to maintain the value to this Court of extending the privilege of pro hac vice admission to attorneys from other jurisdictions, it is necessary that those attorneys accorded this privilege are held to a high level of conduct including, importantly, candor with the Court.”

Potential Conflict Must Be Disclosed in Pro Hac Vice Motion

Court of Chancery Rule 170 governs admissions pro hac vice but it does not explicitly require the attorney seeking admission to disclose conflicts under DLRPC Rule 1.9, but now this decision provides a warning that such a duty of disclosure exists, based on the following reasoning:

First: When an attorney seeks pro hac vice admission, a certificate must be submitted to the Court that confirms that the attorney has reviewed, and agrees to be bound by, Delaware rules.

Second: 

A duty of candor dictates that, where a colorable claim of conflict under DLRPC  Rule 1.9 exists, at a minimum facts sufficient to put the Court and opposing counsel on notice should be disclosed in the Rule 170 application.

Third: “The duty of an applicant for admission pro hac vice, however, goes beyond simply not affirmatively attempting to mislead the Court. Here, [the Non-Delaware Attorney] ignored the obvious potential conflict and structured his application in such a way that the conflict was not revealed to the Court and the other parties. [Non-Delaware Attorney] has failed to make the kind of full and candid disclosure this Court expects of attorneys practicing within its jurisdiction.”

See generally, overview of Delaware pro hac vice standards compiled by the former head of the arm of the Delaware Supreme Court that enforces Delaware legal ethics, The Honorable Andrea L. Rocanelli.

Bottom Line

The Court determined that it need not decide whether a conflict exists because the defendants did not meet their burden to show “a violation so extreme that it calls into question the fairness or efficiency of this proceeding.” But because the Court wanted to send a message that such lack of candor would not be condoned, the Court referred this matter to the Office of Disciplinary Counsel in Delaware and the corresponding legal ethics enforcement agency in New York, the home state of the Non-Delaware Attorney, for any action those enforcement agencies deemed appropriate.

A recent decision of the Delaware Court of Chancery serves as a reminder of the high threshold that must be met before a motion to disqualify counsel will be granted–and why such motions are viewed with some skepticism by the court. This ruling also provides a useful guide for corporate and commercial litigators in its description of the various prerequisites for such a motion to be successful, as well as the general principle in Delaware that the trial courts are not the appropriate forum to enforce violations of the Rules of Professional Conduct for Lawyers.

In Dollar Tree Inc. v. Dollar Express LLC, C.A. No. 2017-0411-AGB (Del. Ch. Nov. 21, 2017), the court addressed a motion for disqualification of counsel by an investment bank and the defendant entities who alleged that a local Delaware law firm had represented the investment bank in connection with the challenged transaction.  That same Delaware firm (“the Firm”) represents the plaintiffs in this case alleging wrongdoing regarding the challenged transaction.  The detailed facts are essential in order to grasp a complete understanding of the determinative nuances involved.  But for purposes of this short post, which focuses on the legal principles that can be applied in future cases, I will merely refer to the irreducible minimum essential facts.

Key Facts

The defendants in this case had hired Duff & Phelps to provide a solvency analysis and render an opinion concerning the issuance of a dividend. Duff & Phelps hired the Firm for the limited purpose of advising Duff & Phelps regarding Delaware issues.  The total amount of time billed on the engagement was little more than 12 hours and the Firm’s engagement was limited to advising Duff & Phelps and providing the opinion letter for them regarding the solvency analysis.  Importantly, the Firm represented Duff & Phelps and not the defendant in this action, Dollar Express.

Shortly afterwards, the Firm represented the plaintiff in the instant matter alleging fraudulent transfer claims and illegal distribution claims under 6 Del. C. § 18-607.

Several months after the suit was filed, counsel for the defendant discovered that the Firm had represented Duff & Phelps regarding the solvency analysis and rendered an opinion in connection with the dividend that was being challenged in the instant lawsuit. On the same day that the Firm was asked to withdraw, the Firm implemented an internal ethical wall between those who represented Duff & Phelps and those who were involved in the instant matter — none of whom had been engaged in both representations.

The opinion includes a detailed discussion of the steps that the Firm took to prevent any confidential information from being shared. Through an investigation by its internal IT personnel, the Firm confirmed that none of the Firm’s attorneys who worked on the Duff & Phelps matter accessed information involving the instant litigation matter.

Reasons the Firm Refused to Withdraw:

The reasons the Firm refused to withdraw included the fact that the two matters were not substantially related and that no confidential information from the prior representation was shared with the attorneys involved in the instant matter. The Firm also advised Duff & Phelps that it would not be involved in any examination of Duff & Phelps’ representatives in connection with the current litigation.  Rather, any such examination would be conducted by other counsel.  The Firm also emphasized that it denied the existence of any implied attorney-client relationship between the Firm and the defendants in the instant matter.  Duff & Phelps intervened in the current action to join in a motion to disqualify the Firm.

Applicable Law

Rule 1.9(a) of the Delaware Lawyers’ Rules of Professional Conduct provides that a lawyer who has:  (i) formally represented a client in a matter; (ii) shall not thereafter represent a new client in the same or a substantially related matter; (iii) in which that new client’s interests are materially adverse to the interests of the former client; (iv) unless the former client gives informed consent in writing. There are also impermissible conflicts that cannot be waived.  Conflicts are generally imputed to a lawyer’s entire firm under Rule 1.10(a).

The basis of the unsuccessful motion to disqualify included the following allegations: (1) There was an implied attorney-client relationship between the Firm and the defendants because the Firm received confidential information from Duff & Phelps about the defendants; (2) It would be improper for the Firm to have implicitly advised the defendants on the validity of a transaction that is challenged in the current litigation; (3) The Firm’s participation in this litigation would violate the duty of loyalty owed to Duff & Phelps; and (4) The representation of the plaintiffs in this action by the Firm would require the Firm to discredit the same work it did when it advised Duff & Phelps.

Determination of the Existence of an Implied Attorney-Client Relationship:

The basic test for determining whether contacts between a potential client and a potential lawyer create an attorney-client relationship is whether it would have been reasonable for the client to believe that the attorney was acting on its behalf as counsel. See case cited at footnote 23.  For reasons explained in the opinion, the court concluded that it would not have been reasonable for the defendants to believe that the Firm was acting as their counsel in connection with the Duff & Phelps representation.

For example, the engagement agreement between the Firm and Duff & Phelps limited the representation to Duff & Phelps. In addition, the engagement between Duff & Phelps and the defendants specified that Duff & Phelps would engage their own separate counsel.

Controlling Standard Applied by the Court in Motions to Disqualify:

The controlling factor in a motion to disqualify in Delaware is whether the “challenged conduct prejudices the fairness of the proceedings.” The Delaware Supreme Court in the case styled In Re Appeal of Infotechnology, Inc., made it clear that it is not sufficient for the trial court to find a violation of the Delaware Lawyers’ Rules of Professional Conduct.  By itself that is not sufficient to warrant disqualification of counsel from an action.

Rather, disqualification is appropriate only when the challenged conduct prejudices the fairness of the proceedings. Infotechnology, 582 A.2d 215, 216-17 (Del. 1990).  In Infotechnology, the Supreme Court held that “absent conduct that prejudicially disrupts the proceeding, trial judges have no independent jurisdiction to enforce the Rules of Professional Conduct.” See cases at footnote 33 recognizing that the high threshold for succeeding in such a motion is based in part on the concern that such motions are used as procedural weapons and are often filed for tactical reasons rather than for bona fide concerns.

The Infotechnology decision also explained that the burden of proof on a non-client litigant is to prove by clear and convincing evidence:  (1) the existence of a conflict of interest, and (2) how the conflict will prejudice the fairness of the proceedings.  In this case the court did not need to determine whether a standard less than clear and convincing would apply where the moving party is a former client as opposed to a non-client that moved for disqualification.  The court found it unnecessary to decide that issue because of its conclusion that the prejudice that would be caused to the Firm if it were disqualified outweighed any concerns of Duff & Phelps.

Additional Reasoning of the Court:

The court also based its ruling on the following additional reasoning:

  • The Firm implemented an internal ethical screen on the same day that it learned of an issue being raised about its prior representation.
  • The Firm represented to the court in an affidavit that no attorney who has entered his appearance, in this action has ever accessed information about the Duff & Phelps prior representation, and the attorneys involved in that prior representation have no involvement in the present litigation.
  • The Firm represented that it will not examine Duff & Phelps in this matter.
  • Based on the foregoing, the court was comfortable that the fairness of the proceedings has not been prejudiced and that appropriate measures are in place to insure that they will not be prejudiced in the future, citing Rohm & Haas Co. v. Dow Chem. Co., 2009 WL 445609, at *3 (Del. Ch. Feb. 12, 2009) (highlighted on these pages).
  • There was no need to determine whether Rule 1.9(a) was violated, in part because based on Supreme Court authority, the trial court did not have independent power to enforce disciplinary rules regarding attorney conduct when the challenged conduct did not prejudice the fairness of the proceedings.

Takeaway: In addition to providing the applicable standards and criteria for deciding a motion to disqualify counsel, this decision provides a useful and practical reminder of the very high bar that must be satisfied before such a “disfavored” motion will be granted.

In my latest ethics column for The Bencher, the national publication of the American Inns of Court, I highlighted a recent decision by a federal district court in which a law firm was disqualified based on its representation of two adverse subsidiaries of a parent company. The court’s useful application of Rule 1.7 and Rule 1.9 should be of interest to those engaged in corporate and commercial litigation for subsidiaries of large companies, whether in Delaware or elsewhere.

 In the Matter of the Rehabilitation of Indemnity Insurance Corp., C.A. No 8601-VCL (Del. Ch. Feb. 19, 2014). Takeaway: This succinct letter ruling from the Court of Chancery provides one of many examples of why a motion to disqualify counsel based on alleged violations of the Delaware Lawyers’ Rules of Professional Conduct, such as for an alleged conflict of interest based on Rule 1.9, is often a fool’s errand–at least in state court.  Other examples abound. See, e.g., prior examples here and here.

In sum, this decision made quick work of dueling motions based on the high threshold that was not met for such motions. Namely, violation of the rules of professional conduct applicable to lawyers is usually not sufficient, ipso facto, to disqualify a lawyer from representing a party in a pending matter. The same approach does not apply in other courts in other states. The reasoning in Delaware is that the agency of the Delaware Supreme Court known as the Office of Disciplinary Counsel is the proper forum where issues of violations by lawyers of the rules of legal ethics are investigated and enforced–not in the courtroom. In addition, the Court of Chancery is often skeptical of the tactical motives for filing such motions.

Stated another way, a motion to disqualify counsel based on an alleged violation of legal ethics will not prevail in Delaware unless the following standard is satisfied:

“Absent misconduct which taints the proceedings, thereby obstructing the orderly administration of justice, there is no independent right of counsel to challenge another lawyer’s alleged breach of the Rules [of legal ethics] outside of a disciplinary proceeding.” Slip op. at 3 (citation omitted). That is, a violation of the rules of professional conduct does not suffice to disqualify an attorney. Rather, the litigant “must show that the conflict prejudiced the fairness of the proceeding, not merely a violation of the Rules had occurred.” Id. (citation omitted). Clear enough?

Bottom line: Motions to disqualify counsel from representing a client in a pending matter, based on an alleged ethical violation, usually fail in Delaware state courts.

A prior Chancery decision in this case was highlighted on these pages.

Martin v. AtlantiCare, 2011 U.S. Dist. LEXIS 122987 (Oct. 25, 2011 D.N.J.). Read opinion here .

Although this overview is not highlighting a Delaware decision, because the issue addressed is an important one and the Court’s reasoning may be applicable generally in Delaware, we thought this case summary was noteworthy.

Issue
Whether a law firm that employs a disqualified “side-switching” attorney should be disqualified by imputation. “A side-switching attorney is one who formerly represented a client in a matter and subsequently undertakes representation or affiliates herself with a firm that has undertaken representation, of an adversary in a related matter.” (Citation omitted).

A former associate of Eckert Seamans prepared this summary.

Background
The facts of this case focus on an attorney with almost 25 years of experience in litigating employment matters in New Jersey (“Attorney”). Attorney worked for the Morgan Lewis & Bockius firm from November through March of 2010, during which time she dedicated a significant number of hours to representing AtlantiCare – the defendant in a NJ Superior Court matter (that Attorney ultimately had transferred to Federal court). When Attorney left Morgan Lewis, she started working for Costello & Mains, the law firm that was representing the plaintiff in the AtlantiCare matter.

Morgan Lewis and Costello & Mains agreed that Attorney was disqualified from representing the plaintiffs pursuant to Rule of Professional Conduct 1.9; but Defendant AtlantiCare moved to disqualify Attorney’s new firm, Costello & Mains, as well.

Legal Analysis
The District Court spent a great deal of time discussing the facts presented in the parties’ papers, and explained that “[t]he decision whether to disqualify a law firm by imputation is best undertaken on a case-by-case basis, weighing the facts as they exist at the time the motion to disqualify is made.” Since the parties agreed that Attorney was disqualified under Rule 1.9, the Court turned to the issue at hand: whether the disqualification should be imputed to Attorney’s firm under Rule 1.10(c).

To make this determination the Court must assess the three elements of RPC 1.10(c). First, whether LG had primary responsibility for the case while she worked at Morgan [Lewis]. Second, whether [Attorney] was adequately screened upon joining CM. Third, whether timely notice was provided to defendants of LG’s side switching. The Court must conduct a “painstaking analysis of the facts” as to each of these elements.

At the outset, the Court found that Attorney had “primary responsibility” for the AtlantiCare case while she worked at Morgan Lewis, meaning she had “actual participation in the management and direction of the matter at the policy-making level or responsibility at the operational level as manifested by the continuous day-to-day responsibility for litigation or transaction decisions.” See RPC 1.0(h). AtlantiCare argued that Attorney was an integral member of the litigation defense team at Morgan Lewis; that she billed more than the other attorneys on the team combined; and that she was privy to confidential work product during her representation of AtlantiCare. Plaintiffs argued that Attorney’s role in AtlantiCare’s defense was “limited,” and that Attorney was not the “supervising attorney” or “partner in charge” of the matter.

After reviewing the arguments and Attorney’s billing records, the Court held that it was not necessary that Attorney be the “supervising attorney” or “partner in charge” to be the attorney with “primary responsibility” for the matter; it was necessary that Attorney “had a ‘direct,’ ‘substantial’ and ‘meaningful’ role in AtlantiCare’s defense.”

The Court ruminated on the significance of Attorney’s access to AtlantiCare’s privileged documents and communications, and determined that disqualification should not be imputed based solely on Attorney’s review of discovery materials; rather, the Court would consider all the facts surrounding Attorney’s representation of AtlantiCare. Additionally, the Court noted that since NJ requires a law firm’s screening procedures to be in writing. Costello & Mains did not have a written screening procedure, so even if the Court found that Attorney did not have “primary responsibility” for the matter, the disqualification still would have been imputed. Further, the procedures that Costello & Mains implemented were inadequate under NJ law, and the firm would have been disqualified by imputation even if Attorney did not have “primary responsibility” and the screening procedure was in writing.

Lastly, the District Court noted that Attorney’s departure from Costello & Mains did not cure the firm’s imputed disqualification.

Delaware Implications
Both Delaware’s and New Jersey’s Rules of Professional Conduct are based on the ABA’s Model Rules of Professional Conduct. Presumably, the analysis of an imputed disqualification in Delaware would be similar to the analysis in New Jersey: the Court would first consider whether the individual attorney was disqualified under Rule 1.9, and then consider whether the disqualification should be imputed to the firm under Rule 1.10. Disqualification of an attorney is serious business and is not taken lightly in Delaware courts or any other court.

Unlike New Jersey, Delaware does not require screening procedures to be in writing but strongly recommends it. See comments 9 and 10 to Del. Prof. Cond. R. 1.10. For articles on disqualification that cite to Delaware cases, see, e.g., here, here and here.

Express Scripts, Inc. v. Crawford, (Del. Ch., Jan. 25, 2007), read opinion here. This Chancery Court letter opinion denies a Motion to Disqualify that was filed based on Rule 1.9  of the Delaware Lawyers’ Rules of Professional Conduct. The court explains the policy reasons behind the rule and the need to compare: (i)  what confidential information was disclosed by the former client, with  (ii) the potential prejudice to the opposing party in the current case due to disqualification of his counsel. Weighing against the movant here was its delay in bringing the motion (in the context of expedited litigation) and the prejudice that would befall the party whose counsel would be disqualified–although the court cited to other Delaware cases that disqualified attorneys on the eve of trial.

In Hendry v. Hendry, download file, Vice Chancellor Parsons denied a motion by the defendant to disqualify plaintiff’s counsel in light of a claim that the law firm for the plaintiff had represented the defendant in the past, and thus, it was alleged, Rule 1.9 of the Delaware Lawyers’ Rules of Professional Conduct regarding the duty of loyalty to former clients was violated.
Relying on prior decisions of the court, and a case styled Sanchez-Caza v. Estate of Whetstone, 2002 WL 2087922 (Del. Super.), the court reasoned that even assuming, without deciding, that Rule 1.9 was violated, based on the facts presented, there was no impact on the fairness or integrity of the pending legal proceedings. In addition, this case had been pending for several years, and the court also found that disqualification at this stage would unfairly prejudice the plaintiff. Although it was not necessary for its decision, the court noted that a Rule 1.9 analysis requires that the former representation be “substantially related” to the current matter, and that the former attorney would have likely received confidential data from the former client that could be used against the former client in the current proceeding.
In closing, the court also ruled on an unrelated motion to quash a supboena under Chancery Court Rule 45, and found that technical defects in the form of the subpoena were not sufficient to quash a subpoena, but that in any event, motions to quash must be filed on a timely basis.

For the last 15 years, I have published a list of key corporate and commercial decisions by the Delaware Supreme Court and Court of Chancery on these pages. On a few occasions, I have published a Mid-Year Review of those cases. This year, veteran reporter and court watcher Jeff Montgomery of Law360 published such a review this month, and quoted your truly about the import of a few of those decisions. The link is here and the article is copied below.

Top Delaware Cases Of 2020: A Midyear Report
By Jeff Montgomery

Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change.

Law360 (July 2, 2020, 4:11 PM EDT) — Despite the pandemic, the first half of 2020 saw epic judicial gear-shifting but no real slowdown in Delaware’s key business courts, with new Chancery Court complaints actually picking up and important corporate and commercial law decisions regularly emerging from remotely conducted proceedings.

Movement was a little slower in the state Supreme Court and U.S. District Court, where new complaints slowed or held steady and arguments were generally handled differently, but both venues released rulings that were felt far beyond the 2,000 square miles of the First State.

COVID-19 Plan: Keep Socially Distant and Carry On

Delaware Chief Justice Collins J. Seitz declared a COVID-19 judicial emergency on March 13, closing courthouses to the public days later and limiting court activities to essential matters. Workarounds soon followed that limited physical public interaction at all levels of the state’s court system by turning to teleconference, videoconference and internet conference technologies that were already in use or being explored.

By May 29, a four-phase court reopening plan developed by a systemwide court committee emerged, with  limited public access to courthouses resuming on June 15 during Phase 2. Although the use of courtrooms was permitted to resume, initial Phase 2 rules included tight restrictions on the number of individuals allowed inside, with remote proceedings still the norm and jury trials remaining on hold until the start of the next phase, which has yet to be announced.

“The Court of Chancery and the Supreme Court seem to have adjusted pretty well to the constraints,” said Lawrence A. Hamermesh, professor emeritus at Widener University Delaware Law School. “Of course, being able to process cases without a jury is a big advantage under the circumstances.”

As the eventful first half of 2020 came to a close, many looked back on:

Matthew B. Salzburg et al. v. Matthew Sciabacucchi

In March, Justice Karen L. Valihura and a unanimous state Supreme Court broadened the scope of Delaware chartered company affairs that can be handled in federal court, reversing Vice Chancellor J. Travis Laster’s ruling that state corporation law prohibits companies from adopting federal forum selection provisions for Securities Act litigation.

Instead, the justices found a category of “intra-corporate” matters, including those involving Section 11 of the Securities Act of 1933, that also can be kept out of state courts if companies choose.

It was a case noteworthy in part for the characterization of opposing positions as “nonsense on stilts” by former Chancellor William B. Chandler III, now of Wilson Sonsini Goodrich & Rosati PC, during winning arguments before the justices. Chandler’s firm represented Blue Apron, Roku and StitchFix, the companies challenging the forum ruling.

Francis G.X. Pileggi of Lewis Brisbois LLP, author of Delaware Corporate & Commercial Litigation Blog, said it was the first Supreme Court finding that a Delaware company’s bylaws can require some claims to be filed in federal court.

“The ramifications of that have not yet been fully felt, because there are certain variations on that decision that are not quite predictable in terms of how the court will rule,” Pileggi said. “Whether that same reasoning would apply to arbitration provisions is an open question in some circles.”

Hamermesh tagged the Blue Apron decision as a major ruling, noting that its reach could extend beyond venue choices to arbitration and limits on class actions, shifting of fees or rights under federal law. Interpretation of the decision in federal districts across the country remains unsettled, however.

“I’ve now seen a couple federal cases elsewhere that have tossed shareholder complaints asserting federal securities claims (even ones that can’t be brought in state court) based on Blue Apron and a forum selection bylaw,” Hamermesh said in an email. “The interesting question to me is how aggressive companies will be in adopting this sort of bylaw, and in regard to what range of federal claims.”

The case is Matthew B. Salzburg et al. v. Matthew Sciabacucchi, case number 346,2019, in the Supreme Court of the State of Delaware.

Dell Technologies Inc. Class V Stockholders Litigation

A court finding of “several recognized forms of coercion” tripped up Dell Technologies’ hopes of escaping a stockholder suit in June, with Vice Chancellor Laster refusing to dismiss a class complaint that stockholders came up at least $6 billion short when the tech company lined up a $24 billion stock swap deal. Any of the coercive acts, the court noted, were enough to deny business judgment deference in the suit. The remaining defendants are Dell, controlling shareholder Silver Lake Group LLC and four Dell directors.

In his 94-page opinion, the vice chancellor laid out a sort of Field Guide to Corporate Breaches, detailing a range of coercive conduct and ways in which it could circumvent or undermine requirements for independent special committee approvals and and majority of the minority shareholder votes.

Afterward, the vice chancellor’s opinion zeroed in on the company’s conduct, pointing to a brute-force species of coercion in the tech company’s plan to eliminate a costly class of stock that was supposed to track the value of cloud computing company VMWare, but in practice consistently came up short.

According to the stockholders, Dell and the directors threatened to pursue a forced conversion of their VMWare stock to Dell “Class C” common stock by a straight board vote, without negotiation or purportedly independent evaluation and with Dell founder Michael Dell having the independent power to trigger the move. The forced conversion, however, would have shrugged off customary corporate attempts to “cleanse” a troubled deal by relying on an independent committee of company directors to assess conflicts under precedents set in the Delaware Supreme Court’s 2014 Kahn v. M & F Worldwide Corp. decision, often referred to as MFW, and cases that followed.

While Dell did go with a special board committee, the vice chancellor found in his June decision that both directors on the panel were themselves “hopelessly conflicted” to begin with. They recommended approval of the deal in an hour after the company advised that it had bypassed the committee and lined up backing from a sizable block of stockholders in advance of a required approval by a majority of unconflicted “minority” investors.

Ex-Chancellor Chandler, who did not have a role in the Dell case, said that the vice chancellor’s decision affirmed that an “MFW special committee cannot be passive but has to be engaged throughout the process” while “stockholders play a separate and distinct role” in strategies to cleanse potentially conflicted deals.

Chandler said the Dell opinion also may figure prominently in a case now before Chancellor Andre G. Bouchard over the breakup of WeWork’s $3 billion acquisition by Japan’s SoftBank Group Corp.

The case is In re: Dell Technologies Inc. Class V Stockholders Litigation, case number 2018-0816, in the Court of Chancery of the State of Delaware.

Consumer Financial Protection Bureau v. The National Collegiate Master Student Trust

On May 31, a long-stalled, 2017 settlement of claims against a $15 billion student loan management and investment enterprise got tipped into a ditch, with Delaware federal Judge Maryellen Noreika finding that attorneys for the National Collegiate Master Student Trust lacked authority to sign a $22 million consent decree with the Consumer Financial Protection Bureau.

Among other determinations, Judge Noreika concluded that National Collegiate counsel McCarter & English LLP had no clearance to sign the deal with the CFPB. Only Wilmington Trust, the “owner trustee” for the National Collegiate funds, had the authority, with the deal also needing the support of note insurer Ambac Assurance Corp.

The decision threw the case into a round of briefings on motions to dismiss filed by investors in notes collateralized by the student loans acquired by National Collegiate. Businesses that service the loans also opposed the consent agreement.

Representatives of the administrators, insurers, trustees and servicers for the 15 National Collegiate Student Loan trusts involved have argued that the owners, controlled by affiliates of Donald Uderitz’s Vantage Capital Group, accepted the consent decree in an effort to regain control of assets, litigation rights and retention agreements. Opponents say those rights and powers belong to the noteholders, indenture trustee and affiliates until the notes are paid back.

In limbo, meanwhile, are student borrowers, some of whom have argued and sued for years over claims of improper and inadequately documented efforts to collect on unsupported default claims.

Separate litigation is pending in Chancery Court on related disputes.

The case is Consumer Financial Protection Bureau v. the National Collegiate Master Student Loan Trust et al., case number 1:17-cv-01323, in the U.S. District Court for the District of Delaware.

AmerisourceBergen v. Lebanon County Employees’ Retirement Fund et al.

In April, Delaware’s Supreme Court upheld a finding that drug wholesaler AmerisourceBergen Corp. had to turn over to stockholders books and records that it had previously released to investors in a federal stockholder action despite holding back against the state parties.

The decision came in an appeal of a Chancery Court conclusion that withholding of the same documents in the state case smacked of “plaintiff shopping” — giving an advantage to a potentially weaker plaintiff while holding back the stronger or more experienced ones.

The investors’ demand for books and records in Chancery Court and the derivative suit in Delaware federal court both focused on AmerisourceBergen’s allegedly costly and deadly failures in the distribution, control and oversight of opioids.

Pileggi, who has written extensively on disputes and decisions involving the Delaware General Corporation Law’s “Section 220” provisions for investor access to books and records, said the AmerisourceBergen action was among the most important on the topic in recent years.

The decision, Pileggi said, appeared to politely signal that “there are a lot of Section 220 decisions that have strayed” from the language of the law.

The case is AmerisourceBergen v. Lebanon County Employees’ Retirement Fund et al., case number 60 of 2020, in the Supreme Court of the State of Delaware.

In re: Tesla Motors Inc. Stockholder Litigation

In February, Vice Chancellor Joseph R. Slights III released a decision that put a stockholder challenge to Elon Musk’s $2.6 billion merger of Tesla Inc. and SolarCity Corp. on track for one of the first major in-court Chancery Court trials since the COVID-19 crisis barred in-person arguments.

The vice chancellor rejected a partial summary judgment motion filed by investors and a dismissal motion sought by Musk for all but a valuation claim. Musk, who founded Tesla and co-founded SolarCity, was accused of orchestrating a deeply conflicted deal to bail out the rooftop solar company.

The suit, slimmed down since six Tesla directors agreed to an insurer-paid $60 million settlement, is now scheduled to be argued starting July 27, with one week in court and a second week of arguments via videoconference.

The case is In re: Tesla Motors Inc. Stockholder Litigation, case number 12711, in the Court of Chancery of the State of Delaware.

Forescout Technologies Inc. v. Ferrari Group Holdings LP

One week before the Tesla trial begins, Vice Chancellor Sam Glasscock III is scheduled to convene an expedited trial, to be streamed live via YouTube, in a pandemic-related merger breach case filed by cybersecurity firm Forescout Technologies Inc. on May 19.

In the suit, Forescout accused Ferrari Group Holdings LP, a deal affiliate of private equity firm Advent International, of attempting to walk away from its agreed-to $1.9 million acquisition of Forescout.

Although Forescout argued that Advent’s refusal to close was one of the latest examples of COVID-19 cold feet, and an unsupportable reason for breaching the deal, Advent said in counterclaims that Forescout’s business had fallen “off a cliff” since the merger pact was signed, creating a material adverse effect allowing Advent’s exit.

The case is Forescout Technologies Inc. v. Ferrari Group Holdings LP and Ferrari Merger Sub Inc., case number 2020-0385, in the Court of Chancery for the state of Delaware.

–Editing by Jill Coffey.