A recent Delaware Supreme Court opinion provides a tutorial on the standards imposed on Delaware lawyers when a deponent, who is the lawyer’s client, engages in inappropriate conduct during a deposition. See Shorenstein Hays-Nederland Theaters LLC Appeals, Nos. 596, 2018 and 620, 2018 (Del. Supr. June 20, 2019). My overview of the decision was the focus of my latest legal ethics column for The Bencher, the publication of the American Inns of Court, which appears in the current issue. (I’m now in my 21st year of writing that ethics column for their national publication.)

This is the first decision from Delaware’s High Court on this issue, as compared to the rather abundant guidance that has existed for many years regarding the consequences when lawyers themselves engage in errant conduct during a deposition. A prior Chancery decision from 2015 involving the parties in this case was highlighted on these pages, and provides additional factual background details about the underlying long-running, internecine imbroglio that the court was ruling on–before it addressed the deposition issues.

Bonus Supplemental Materials:

The Delaware Court of Chancery recently had occasion to describe the important norms that lawyers are expected to follow, and the minimum standards of attorney conduct imposed on both Delaware and non-Delaware counsel who enter their appearance in a matter before the Court. See Lendus, LLC v. Goede, C.A. 2018-0233-SG (Del. Ch. Dec. 10, 2018).

This case is noteworthy for a few reasons. In addition to the recitation of basic principles on which the practice of law is based, the decision provides citations to authority and quotable excerpts for use in a brief when issues of attorney conduct arise. The behavior involved in this case was egregious, and it serves as a reminder of the outer limits of conduct that will not be tolerated, for example during depositions and during other interactions among counsel and clients.

This case also serves as a reminder that in Delaware the trial courts do not view themselves–in the first instance–as enforcers of all the rules of professional conduct for lawyers–unless a violation interferes with the administration of justice in the litigation–though they may, as in this case, refer the matter to the Office of Disciplinary Counsel, which is an arm of the Delaware Supreme Court, or the analogous agency in other states when the conduct of an non-Delaware attorney is an issue.

The court begins the opinion by citing another case that exhorts attorneys to: “think twice, three times, four times, perhaps even more” before seeking sanctions against other attorneys for inappropriate conduct. Both parties in this case filed cross-motions for sanctions, but the court found only one of them to be warranted.

The court emphasizes in its introduction that it derives no pleasure in criticizing others because judges understand the “pressures and frustrations of practice.” The court also referred to members of the bench as not being above reproach, with the following phrase: “None of our own eyes being timber-free….” See page 2.

In sum, without dwelling on the embarrassing details, if an attorney’s conduct is truly egregious enough, this decision provides the authority and reasoning to address the problem, especially if that attorney is admitted pro hac vice.

Compare: Recent Chancery decision highlighted on these pages that explained why it was important for lawyers to follow the rules applicable to discovery, as well as abiding by related deadlines.

The Delaware Court of Chancery recently issued a decision that should be required reading for any lawyer that practices before it, whether they be Delaware counsel or non-Delaware counsel admitted pro hac vice, and whether they engage in corporate and commercial litigation or other types of cases before the court.  In the matter styled: In re Examworks Group, Inc. Stockholder Appraisal Litigation, Cons. C.A. No. 12688-VCL (Del. Ch. Feb. 21, 2018), the court explained in a heavily footnoted and scholarly analysis how serious the court regards scheduling orders, pretrial deadlines, discovery obligations, and the importance of properly-prepared and timely-submitted privilege logs.

For the last 13 or so years that this blog has highlighted key decisions from the Delaware Court of Chancery, the purpose has been to provide noteworthy excerpts from important decisions that are of practical application to lawyers who toil in the vineyards of the Delaware courts.

I have intentionally avoided using names of counsel involved in this case, and have focused on the “nuggets” of the court’s ruling that a busy litigator would need to know. I provide bullet points of the most noteworthy statements of law and the principles emphasized in this decision that should be memorized by any practitioner in the Court of Chancery who seeks to avoid the types of penalties that were imposed in this case for the failure to meet deadlines and the failure to fulfill various discovery obligations.

  • The court begins its analysis with the doctrinal underpinning and the public policy rationale for the importance of candor and fair dealing during the discovery process in order to reduce the element of surprise at trial and to insure that a trial decision is the result of a disinterested search for truth from all available evidence.
  • The court reminded parties that scheduling orders are “not merely guidelines but have the same full force and effect as any other court order.” See footnote 39.
  • The court bluntly underscored the rule that a “party that disregards the provisions in a scheduling order that govern discovery is engaging in discovery abuse.”
  • The court remonstrated that: “Discovery abuse has no place in Delaware courts, and the protection of litigants, the public and the bar demands nothing less than Delaware trial courts be diligent and promptly and effectively take corrective action to secure the just, speedy and inexpensive determination of every proceeding before them.” See footnote 41.
  • Importantly, the court interpreted Court of Chancery Rule 37(b)(2), based on Delaware Supreme Court decisions, as generally requiring the mandatory award of fees for discovery abuses unless the failure to comply with discovery obligations was “substantially justified.” See Slip Op. at 15-17.
  • One of the several problems that the court addressed was that the production of documents came many weeks after the discovery deadline, and well after the depositions were taken. The court noted that the offending party neither requested an extension of the deadline from the court nor sought an extension by agreement with the other parties in the case.
  • The court rejected with emphasis the argument that because the receiving party did not “nag” or press for the compliance with the discovery deadline, that there should be no penalty for non-compliance. The court refused to allow the offending party to “shift the obligation for compliance” to the other party.

Two Levels of Consequences for Missed Discovery Deadlines:

  • The court described the first level of consequence for misconduct involved as including the actual prejudice that resulted from the belated production of documents that the company could have used in discovery for depositions and with their experts.
  • The second level of prejudice involves the “degradation of the litigation process.” The court explained that in order for the litigation system to function, the parties must follow the rules.
  • The court’s reasoning on this point deserves a block quote:

“If participants suspect that others are not following the rules, then the process deteriorates. People who follow the rules feel like chumps when others seem to be cutting corners or breaking rules and getting ahead. People who otherwise might not think of pushing limits become more aggressive if they think everyone else is doing it. It is this broader, systemic interest that the Delaware Supreme Court seems to have had in mind when stressing the courts must address discovery abuse not only to protect litigants, but also to protect the public and the bar.” See footnote 57.

  • The foregoing rationale is one of the best articulations of the need for the courts to enforce discovery obligations so that those who don’t follow the rules gain some advantage, and those who do follow the rules feel, in the words of the court, “like chumps.”

Penalties Imposed

  • The penalty that the court imposed for the substantially tardy production of documents was that the offending party that missed the production deadline was required to produce their witnesses again for deposition and pay for the cost of the depositions, or as the court described it, “bear all expenses associated with their late production of documents and the remedy imposed by this decision.” The court listed in an extended description the types of additional efforts that would be included in the fees that the offending party would be responsible for.

Privilege Logs:

  • Although many prior Chancery decisions have described in detail the importance of privilege logs and the specific components required to be included in privilege logs, as well as the penalty of waiver if the contents of the privilege logs are not sufficient, this opinion provides an additional reminder for those who might not have gotten the message in prior decisions.

For example, the court emphasized that:

  • Producing a timely privilege log is part of a party’s obligation when asserting privilege. The privilege logs must be produced by the same deadline as the date for documents to be produced.
  • The burden of establishing privilege rests on the party asserting it. See footnote 61.
  • The court emphasized that: “An insufficiently supported claim of privilege can result in waiver.” See footnote 63 for cases supporting that well-established statement of Delaware law. Those cited cases also describe the detailed contents that a privilege log must include in order to avoid waiver.
  • The court explained that: “Just as you can’t hit what you can’t see, you can’t challenge what the other side has hasn’t described.” That is, the privilege log must provide sufficient information to enable the adversary to “assess the privilege claim an decide whether to mount a challenge.”
  • The court reiterated Delaware law that: “Producing a privilege log after the discovery cutoff prevents the opposing party from evaluating the log, making timely challenges, and using the resulting documents in discovery. Producing a post-cutoff log has the same effect as not producing a log, which is the same thing as not providing any support for a claim of privilege. Improperly asserting a claim of privilege is no claim of privilege at all.” See footnote 57 (cases collected).

Conclusion:

  • In sum, the court gave the party who did not receive the documents on time leave to conduct supplemental depositions to explore any materials produced after the depositions were taken, or as a result of the penalties imposed by this decision. The court imposed on the offending party the cost of the supplemental depositions of its own representatives, as well as the additional costs of additional efforts incurred as a result of the late production, as more specifically described in the opinion.
  • This opinion should be required reading for anyone who practices before the Delaware Court of Chancery, especially out of state counsel who are admitted pro hac vice, in order to “bring home” the importance that the court places on timely compliance with discovery deadlines and discovery obligations, as well as the severe and costly penalties that the court will impose, on a mandatory basis, if those discovery deadlines and obligations are not complied with properly.

POSTSCRIPT: Several years ago, a Delaware Supreme Court opinion was highlighted on these pages, addressing a related issue of what penalties are appropriate for missing pretrial deadlines. See Christian v. Counseling Resource Associates, Inc., Del. Supr., No.  460, 2011 (Jan. 2, 2013) (revised March 26, 2013).

The Delaware Court of Chancery recently imposed penalties on a non-Delaware attorney for behavior during a deposition that was not in compliance with the applicable Delaware deposition standards. The letter decision in the matter styled In Re: Shawe & Elting LLC, C.A. No. 9661-CB (Del. Ch. Aug. 14, 2015), provides helpful guidance on the types of obstructionist conduct during a deposition that can be the subject of penalties imposed by the court.

Although such behavior during a deposition may be common in some fora, and in my experience is not often penalized even in Delaware, this ruling provides specific guidelines that can be used by those who have the time, money and inclination to seek enforcement of the rules against those who obstruct depositions or interfere with the questioning during a deposition by both subtle and not-so-subtle “cues” to the deponent, such as speaking objections, “questions to the defending attorney”, and the “nuclear option”–instructing the deponent not to answer a question.

Highlights of this useful ruling include the court’s reliance on the following rules:

  • Court of Chancery Rule 30(d)(1) only condones an instruction to a deponent not to answer a question in three instances: (i) to preserve a privilege; (ii) to enforce a limitation on evidence based on an existing direction by the court; or (iii) to present a motion under Rule 30 (d)(3)[e.g., to seek a protective order].
  • Rule 30(d)(2) provides that: “if the court finds … conduct that has frustrated the fair examination of the deponent, it may impose upon the persons responsible an appropriate sanction, including the reasonable costs and attorney’s fees incurred by any party as a result thereof.”

We have previously included on these pages materials that can be used by those who are interested in the standards applicable to depositions in Delaware cases–even when those depositions are taken outside of Delaware, or when they are taken or defended by non-Delaware attorneys, as in this matter, admitted pro hac vice. See, e.g., here and here. In corporate litigation, it remains common for out-of-state attorneys to be admitted pro hac vice and to take or defend depositions in Delaware cases, but when they do so, they are still bound by the Delaware rules.

The sad reality is that parties or their counsel often do not have the time, or the client’s authorization to spend the money needed to file a motion to compel or related motion to “play policeman” when an attorney interferes with the questioning at a deposition–especially when the obstructions are not as clear-cut as they were in the instant case.

This decision was issued on the day after the court’s 106-page decision addressing substantive matters and granting a request for dissolution in this “business divorce” dispute.

James v. National Financial LLC, C.A. No. 8931-VCL (Del. Ch. Dec. 5, 2014).

Why This Decision is Noteworthy: This Delaware Court of Chancery opinion reiterates the important practice guideline that the Court of Chancery does not recognize the concept of “local counsel”.  That is, Chancery will require Delaware counsel serving with out-of-state counsel to have full responsibility for any filings with the court, and also to take an active role in all aspects of discovery.  This is the polar opposite of the view that some have of using local counsel as a mere mail drop or to use local counsel to merely sign whatever out-of-state counsel would like to file.  See, e.g., summary of related standards in an article that we published on this blog. See also Practice Guidelines for Chancery promulgated by the Court.

This decision also features other notable observations about Delaware discovery practice in general.

Background:

This case is a class action filed by a person who obtained a payday loan and was charged an interest rate of over 800%.  The initial loan was for $200 and the cost of the credit was $1,420.  This opinion focuses on discovery issues and failure to comply with discovery orders resulting in the grant of a motion for sanctions.

After an exhaustive description of the multiple failures to comply with prior orders of the court granting motions to compel, as well as inconsistent answers to the same questions and conflicting explanations for failure to comply, the court reviewed the basis for the award of sanctions for discovery abuses pursuant to Court of Chancery Rule 37, including the types of sanctions that a court can impose for violating a discovery order under Rule 37(b)(2).

Highlights of Key Principles:

The court recited several basic discovery “first principles” as announced in Delaware decisions over the years.  For example, a fundamental first principle recited by the court was that:  “Candor and fair-dealing are, or should be, the hallmark of litigation and required attributes of those who resort to the judicial process.  The rules of discovery demand no less.”  (citation omitted.)  See generally, Rule 1 of the Delaware Rules of Professional Conduct.

Among the problems with the discovery responses by the defendant in this case, was the admission that a notarization was provided even though the signatory did not personally appear before the notary.  The court explained that the failure to appear in person before a notary when a signature is notarized makes the notarization invalid.  It also exposes the persons involved to various penalties.  See Slip op. at 24 and footnotes 3 and 4.

Also noteworthy is that the court referred to the recent amendment to Rule 1.1 of the Delaware Rules of Professional Conduct, and Comment 8 thereto, which address the requirement that attorneys maintain familiarity with technological developments in order to maintain technological competence in connection with the practice of law.  The court confirmed that:  “Technological incompetence is not an excuse for discovery misconduct.”

Role of Local Counsel Not Recognized in Court of Chancery:

The court also explained that when forwarding (out-of-state) counsel has been admitted pro hac vice and is taking a lead role in the case, “the Court of Chancery does not recognize the role of purely ‘local counsel.’” See State Line Ventures, LLC v. RBS Citizens, 2009 WL 4723372, at *1 (Del. Ch. Dec. 2, 2009).  Relying on Rule 170 of the Delaware Court of Chancery Rules, the court also emphasized that:  “The admission of an attorney pro hac vice shall not relieve the moving attorney from responsibility to comply with any Rule or order of the Court.”

The court also made clear that Delaware lawyers are “ultimately responsible for the documents they file with the court and serve on the opposing party” and that “our Rules make clear that the Delaware lawyer who appears in an action always remains responsible to the Court for the case and its presentation.  (citing State Line Ventures.)

The court also explained that Delaware counsel “are expected to police the behavior of their out-of-state colleagues and insure that that out-of-state counsel understand the standards expected by Delaware courts.  (This standard is in full recognition of the large number of out-of-state counsel who routinely engage in corporate litigation in Chancery.) See generally recent Delaware Supreme Court decision publicly reprimanding an attorney admitted pro hac vice for failing to comply with a court order.

Delaware Counsel Must Be Involved in Discovery:

Moreover, the court explained that:

the court expects Delaware counsel to play an active role in the discovery process, including in the collection, review and production of documents.  If Delaware counsel does not directly participate in the collection, review and production of documents, then at a minimum Delaware counsel should discuss with co-counsel the court’s expectations.”

Slip op. at 27.

Conclusion:

In granting the motion for sanctions the court ruled that it will be deemed established for purposes of trial that the interest rates charged on the loans were outside of the tolerances set forth in the Federal Truth in Lending Act.  In addition, the court awarded attorneys’ fees for Defendant’s failure to comply with prior court orders.

Noteworthy 2012 Corporate and Commercial Decisions from Delaware’s Supreme Court and Court of Chancery.

By: Francis G.X. Pileggi and Kevin F. Brady.

Introduction

This is the eighth year that we are providing an annual review of key Delaware corporate and commercial decisions. During 2012, we reviewed and summarized over 200 decisions from Delaware’s Supreme Court and Court of Chancery on corporate and commercial issues. (We also provided partial lists of key cases throughout 2012.) Among the decisions with the most far-reaching application and importance during 2012 include those that we are highlighting in this short overview. We are providing links below to the more complete blog summaries, and the actual court rulings, for each of the cases that we highlight below. Prior annual summaries are linked in the right margin of this blog. We welcome comments if readers think we missed a decision that should be included.Photo of the Supreme Court Courthouse in Dover (The Supreme Court’s stately building in Dover is featured in the photo from the Court’s website.)

Top 5 Decisions of 2012

We begin with our selection of the Top Five Cases from 2012. In no particular order, we chose the following decisions as especially noteworthy:

Gatz Properties LLC v. Auriga Capital Corp., No. 148, 2012 (Del. Supr. Nov. 7, 2012) (Per Curiam). Issue Addressed: Delaware’s High Court held that the manager of an LLC violated a contracted-for fiduciary duty that adopted the equitable standard of entire fairness in a conflict of interest transaction between the LLC and its manager. The Supreme Court also declared as dicta, any statements by the trial court that Delaware law imposed default fiduciary duties in the LLC context. Summary available here.

In Americas Mining Corp. v. Theriault, No. 29, 2012 (Del. Aug. 27, 2012), in a 110-page opinion, the Delaware Supreme Court upheld the Court of Chancery’s 100-plus page decision awarding over $2 billion in damages based on a breach of fiduciary duty claim in connection with the sale of a company. Delaware’s High Court also upheld an award of attorneys’ fees in the amount of $300 million. Highlights available here. The trial court decision, styled as In re Southern Peru Copper Corporation Shareholder Derivative Litigation, C.A. No. 961-CS (Del. Ch. Oct. 14, 2011), was highlighted on these pages here and here.

South v. Baker, C.A. No. 7294-VCL (Del. Ch. Sept. 25, 2012). Issues Addressed: This decision is a candidate for inclusion in the pantheon of iconic Delaware Court of Chancery opinions addressing the following issues: (1) When derivative plaintiffs and their counsel will be presumptively found to provide inadequate representation resulting in the complaint’s dismissal with prejudice; (2) When dismissal of one derivative suit will not bar another derivative suit involving the same corporation; (3) When a Caremark claim will be dismissed with prejudice if Section 220 is not used beforehand; and (4) How to successfully allege pre-suit demand futility in connection with making a Caremark claim. Summary available here.

In Re: Encore Energy Partners LP Unitholder Litigation, Cons., C.A. No. 6347-VCP (Del. Ch. Aug. 31, 2012). Issue Presented: Whether the terms of an LP Agreement protected the general partner from claims regarding what would otherwise be a self-interested transaction, without breaching any duty owed to its limited partners? Short Answer: Yes. Summary available here.

Soterion Corp. v. Soteria Mezzanine Corp., C.A. No. 6158-VCN (Del. Ch. Oct. 31, 2012). Why This Case is Noteworthy: This decision addresses for the first time in Delaware the applicable standard to determine when the threat of a lawsuit can be tortious interference with prospective business relationships. This opinion also features the rare instance when attorneys’ fees are assessed based on an exception to the American Rule (as compared with Rule 37 for motions to compel). Summary available here.

Honorable Mention goes to the new Practice Guidelines, discussed below, which the Court of Chancery adopted and which provide comprehensive tips and instructions for both procedural matters and substantive discovery obligations that practitioners must follow if they hope to avoid the wrath of the bench.

We also selected the following additional cases from 2012 that deserve special attention:

Supreme Court Decisions

On December 27, 2012, the Delaware Supreme Court overruled in part and remanded a decision of the Court of Chancery which denied a large investor, BVF Partners L.P. (“BVF”), the right to opt-out of a shareholder class action settlement. In the case of In Re Celera Corp. Shareholder Litigation, No. 212, 2012 (Dec. 27, 2012), the Delaware Supreme Court, en banc, addressed the issue raised on appeal by objector-appellant BVF of the Court of Chancery’s certification of plaintiff/appellee New Orleans Employees’ Retirement System (“NOERS”) as class representative in an action challenging the acquisition of Celera Corporation (“Celera”) by Quest Diagnostics, Inc. (“Quest”). BVF also appealed from the Court of Chancery’s approval of a class action settlement without an opt out right for BVF. This decision is likely to have a significant impact on efforts to bring closure to class action settlements of litigation that involve objectors with substantial holdings. Summary available here.

Martin Marietta Materials, Inc. v. Vulcan Materials Co., No. 254, 2012 (Del. Supr., July 12, 2012). Our blurb about the Supreme Court’s Order of May 31, 2012 in this case is available here. Highlights of the 138-page Court of Chancery opinion on these pages is available here. Issue Presented: Whether a violation of a confidentiality agreement can be a basis to preclude a hostile tender offer. Short Answer: Yes. The Delaware Supreme Court affirmed the decision of the Delaware Court of Chancery in this expedited appeal. Summary available here.

EMAK Worldwide, Inc. v. Kurz, No. 512, 2011 (Del. Supr., April 17, 2012). Issue Addressed: Whether the Court of Chancery properly granted an interim fee award in a shareholders’ suit which did not produce an immediate monetary benefit. Short Answer: Yes. Summary available here.Cambium Ltd. v. Trilantic Capital Partners, No. 363, 2011 (Del. Supr., Jan. 20, 2012.) This Order of the Delaware Supreme Court applied the recent decision of Delaware’s High Court in the Central Mortgage case in which it clarified that Delaware has not adopted the federal standard for motions to dismiss under Rule of Civil Procedure 12(b)(6) as described in the U.S. Supreme Court’s Twombly and Iqbal decisions, despite the truism that the Delaware Rules of Civil Procedure are generally based on the Federal Rules of Civil Procedure. Highlights available here. A fuller overview is available here. The recent Delaware Supreme Court decision in Central Mortgage taking this position was highlighted here.
 
Court of Chancery Rulings

Shareholder Litigation

Rich v. Fuqi Int’l, Inc., C.A. No. 5653-VCG (Del. Ch. Nov. 5, 2012). Why this opinion is noteworthy: The Delaware Court of Chancery in this summary proceeding reaffirms in this pithy opinion that the Delaware General Corporation Law’s requirement in Section 211 that a shareholders’ meeting must be held annually, will not be suspended due to arguably conflicting provisions of the federal securities laws. That seems counterintuitive in light of the supremacy clause, but the court explains in a scholarly manner why a corporation will not be relieved of its obligation under DGCL Section 211 simply because of federal securities laws or regulations that may also impose certain prerequisites to holding an annual meeting. Summary available here.

In a transcript ruling in Dent v. Ramtron Int’l Corp., C.A. No. 7950-VCP (Del. Ch., November 19, 2012), the Court denied the plaintiff’s motion for a preliminary injunction to enjoin a shareholder vote on a merger between Ramtron and Cypress Semiconductor Corp. Issue Addressed: Whether the Court should preliminarily enjoin a shareholder vote on a merger on allegations that the company’s proxy statement is false and misleading in that the company failed to provide disclosures of financial projections thereby prohibiting the company’s stockholders from making an informed decision on whether to vote in favor of the merger or seek appraisal. (Transcript rulings are often cited in Delaware briefs as persuasive authority.) Summary available here.

Louisiana Municipal Police Employees’ Retirement System v. Lennar Corp., C.A. No. 7314-VCG (Del. Ch. Oct. 5, 2012). Issue Presented: In this summary proceeding, the Court considered whether newspaper articles announcing a federal investigation of the company, together with prior lawsuits that were settled without an admission of fault, satisfy the requisite threshold of “some evidence” to establish a credible basis of wrongdoing needed to allow a books and records demand under DGCL Section 220 to proceed. Short Answer: Not under the facts of this case. Summary available here.

In re Synthes, Inc. S’holder Litig., C.A. No. 6452-CS (Del. Ch. Aug. 17, 2012). Issue Addressed: Whether the controlling stockholder breached its fiduciary duty by refusing to consider an acquisition offer that would have cashed-out all the minority stockholders of Synthes, Inc., but required the controlling stockholder to remain as an investor in Synthes. Short Answer: No. Summary available here.
 
New Jersey Carpenters Pension Fund v. infoGroup, Inc., C.A. No. 5334-VCN (Del. Ch. Aug. 16, 2012). Issue: Can Plaintiff compel the expert report prepared by the company’s counsel for the board in anticipation of litigation? Short Answer: No, based on the facts of this case. Importantly, the Court of Chancery ruled that Rule 26(b)(3) is the standard that applies to determine if a report for the board must be produced as an exception to the work product doctrine—and not the less strenuous standard for board reports in the context of fiduciary litigation when the attorney-client privilege is at issue, in which case the standard used is often traced to Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970). See also, Ryan v. Gifford, 2007 WL 4259557, at *3 n.4 (Del. Ch. Nov. 30, 2007). The Court did not follow the Garner test even though in dictum from a 1993 case the Delaware Supreme Court suggested that the Garner standard would govern the discovery of work product materials. See footnote 17. Summary available here.
 
Keyser v. Curtis, C.A. No. 7109-VCN (Del. Ch. July 31, 2012). Issues Presented: (i) In this summary proceeding, the Court considered whether plaintiffs are entitled to a declaration, pursuant to 8 Del. C. § 225, that they comprise the board of directors of Ark Financial Services, Inc.; (ii) whether one of the signatories to the 2011 Written Consent actually owned the shares he purported to hold; (iii) whether a December 13, 2011 written consent purporting to elect the plaintiffs to the Board was valid; and (iv) whether a December 2010 issuance of Ark super-voting stock to Ark’s then sole Board member was invalid. Short Answers: Yes to (i) though (iv). Summary available here.
 

Gentili v. L.O.M. Med. Int’l, Inc., C.A. No. 7600-VCG (Del. Ch. Aug. 17, 2012). Issue: Whether non-unanimous written consents of shareholders were sufficient to thwart a challenge to the election of directors at an annual meeting? Short answer: No. Summary available here.

In Re: Appraisal of Orchard Enterprises, Inc., C.A. No. 5713-CS (Del. Ch. July 18, 2012). Issue Addressed: In this post-trial decision in an appraisal action arising out of a merger, the Court determined the fair value of the shares, relying on the discounted cash flow method of valuation. Summary available here.

Shocking Technologies, Inc. v. Michael, C. A. No. 7164-VCN (Del. Ch. April 10, 2012). Issue Addressed: Whether the Court of Chancery has the inherent authority to remove a director for breach of fiduciary duty, other than via DGCL Section 225? Short answer: The issue was not directly decided, but based on the facts of this case, the Court was not inclined to exercise such an inherent power, if such a power exists, prior to the expedited trial. Summary available here.

In re Delphi Financial Group Shareholder Litigation, Cons. C.A. No. 7144 -VCG (Del. Ch. Mar. 6, 2012). This is the third Delaware Court of Chancery decision in as many weeks that denied injunctive relief, in an expedited opinion, in response to a challenged transaction–despite criticism in two of the cases, of the process and the players, but ultimately leaving it up to the shareholders to decide whether to accept offers of a substantial premium to sell their shares. Summary available here. See In Re El Paso, summarized here, and In Re Micromet, summarized here.

In Re El Paso Corporation Shareholder Litigation, Consol. C. A. No. 6949-CS (Del. Ch. Feb. 29, 2012). Chancellor Strine denied the stockholder plaintiffs request for a preliminary injunction to enjoin a merger between El Paso Corporation and Kinder Morgan, Inc. While the Court in a 33-page opinion, severely criticized the actions of a number of the players, in the end the Chancellor decided to give the shareholders of El Paso the opportunity to decide for themselves if they liked the price being offered to them. Summary available here. The Court’s opinion in this matter marks the second time in the span of only a few months that the Delaware Court of Chancery has strongly criticized Goldman Sachs for conflict of interest issues in multi-billion dollar transactions. The most recent high-profile criticism was in the Court of Chancery’s 100-plus page decision in the Southern Peru Copper case highlighted on these pages here. Our LexisNexis videocast on this opinion is available here.

Dweck v. Nasser, C. A. No. 1353-VCL (Del. Ch. Jan. 18, 2012), found that Dweck, the former CEO, a director and 30% stockholder in Kids International Corporation (“Kids”), and Kevin Taxin, Kids’ President, breached their fiduciary duties of loyalty to Kids by establishing competing companies that usurped Kids’ corporate opportunities and converted Kids’ resources. The Court also imposed liability on an officer of the company for approving the reimbursement with company funds of the personal expenses of his superior. Summary available here.

Steinhardt v. Howard-Anderson, C.A. No. 5878-VCL (Del. Ch. Jan. 6, 2012). Issue Addressed: This opinion addressed the issue of whether representative plaintiffs in a putative class action should be in sanctioned for trading on the basis of confidential information obtained in the litigation. The motion was granted. Summary available here.

Paul v. China MediaExpress Holding, Inc., C.A. No. 6570-VCP (Del. Ch. Jan. 5, 2012). Issues Addressed: (1) Whether a Section 220 case should be stayed pending the outcome of a related federal securities suit; and (2) Whether the shareholder in this case established a proper purpose to inspect books and records under DGCL Section 220. Short Answer: (1) Based on a three-part test as applied to the facts of this case, the Court refused to stay this action in favor of a pending related federal securities suit, even though a motion to stay was also pending in the federal court. (2) In this post-trial opinion, the Court determined that the shareholder established a proper purpose and was entitled to the documents necessary to investigate that proper purpose. Summary available here.

LLC and Other Alternative Entity Litigation

In Feeley v. NHAOCG, LLC , C.A. No. 7304-VCL (Del. Ch. Nov. 28, 2012)(“Feeley IV“), the Delaware Court of Chancery addressed–for the first time since the recent Delaware Supreme Court decision in Gatz Properties v. Auriga Capital, highlighted on these pages here, the issue of default fiduciary duties in the LLC context. (This is the fourth Chancery ruling that we have posted about in the Feeley case.) Highlights available here.

New Media Holding Co., LLC v. Brown, C.A. No. 7516-CS (Del. Ch. Nov. 14, 2012). Issue addressed: Does Delaware have jurisdiction over the manager of a limited liability partnership (LLP) accused of breach of fiduciary duty claims, based on acts taken in the course of his work for the LLP, absent acts taken in Delaware in furtherance of the alleged wrongdoing? Short answer: No. Summary available here.

Feeley v. NHAOCG, LLC, (“Feeley II”), C.A. No. 7304-VCL (Del. Ch. Oct. 12, 2012). This is the second of four Chancery rulings in this case that we highlighted on these pages in 2012. What this case is about: This Delaware Court of Chancery opinion addresses a dispute regarding management and control of an LLC based on an interpretation of the LLC agreement, and deserves extra attention because it is the first opinion to apply DGCL Section 144 to the LLC context. Summary available here.

Policemen’s Annuity and Benefit Fund of Chicago v. DV Realty Advisors LLC, C.A. No. 7204-VCN (Del. Ch. Aug. 16, 2012). Issue Addressed: How to define “good faith” for purposes of a limited partnership agreement that required a good faith determination for removal of a general partner. Short Answer: The Court compared the common law definitions of good faith in the fiduciary context as compared to contract law, and also referred to the definition in the Uniform Commercial Code. See Slip op. at 33 and 34, and footnote 101. Summary available here.

In Re K-Sea Transportation Partners LP Unitholders Litigation, C.A. No. 6301-VCP (Del. Ch. April 4, 2012). The prior Chancery decision in this case was highlighted on these pages here. Issues Addressed: The issues addressed by the Court of Chancery in this matter were whether the fiduciary duty claims and the contractual claims were barred by the provisions in the limited partnership agreement, including whether a provision in the agreement that established a presumption of good faith barred claims for breach of the implied covenant of good faith and fair dealing. Summary available here.

Matthew v. Laudamiel, C.A. No. 5957-VCN (Del. Ch. Feb. 21, 2012). Apparently no prior Delaware law directly addressed the issue of whether the dissolution and cancellation of an LLC transformed derivative claims into direct claims held proportionately by the members of the LLC. The Court concluded that, after the filing of the certificate of cancellation, such claims must be brought in the name of the LLC by a trustee or a receiver appointed under 6 Del. C. Section 18-805, or directly by the LLC, or derivatively by its members after reviving the LLC by obtaining a revocation of its certificate of cancellation. Summary available here.

Gerber v. Enterprise Products Holdings, LLC, et al., C.A. No. 5989-VCN (Del. Ch., Jan. 6, 2012). Issue Addressed: This decision speaks to the limitations imposed by 6 Del. C. § 17-1101 on Delaware courts to address sanctionable conduct by partners and members of alternate entities that have contracted away their fiduciary duties. Summary available here.

Rulings Regarding Practice, Procedure and Jurisdictional Issues (including attorneys’ fees as exception to the American Rule)

Duff v. Innovative Discovery LLC, C.A. No. 7599-VCP (Del. Ch. Dec. 7, 2012).

Issues Addressed: The Court of Chancery addressed the following issues in this opinion: (1) Whether a forum selection clause providing for “sole” jurisdiction in California courts should be honored when a conflicting forum selection clause in a related agreement provided for jurisdiction in Delaware courts; (2) Whether 6 Del. C. § 18-111 provided a basis for equitable jurisdiction when the agreement that gave the Court of Chancery jurisdiction only provided for money damages; (3) Whether reformation as a remedy will be allowed when the complaint did not specifically request reformation but provided notice of the elements of that form of relief.

Court of Chancery Announces Rule Changes, New Discovery Guidelines

On December 4, 2012, the Court of Chancery announced (here) that it is updating Rules 26, 30, 34 and 45 regarding discovery effective January 1, 2013, “to account for modern discovery demands” regarding electronically stored information (“ESI”) and to “bring the Court’s rules in line with current practice.” The Court also announced that it is expanding its Guidelines for Practitioners, originally released in January 2012, to include guidelines regarding discovery and in particular, ESI (the “Discovery Guidelines”). The Practice Guidelines published by the Court of Chancery are entitled: “Guidelines to Help Lawyers Practicing in the Court of Chancery“. They are a quite formidable 28 pages (after a 3-page index.) Kevin Brady, a member of the Court’s Rules Committee, provided a helpful overview of the 28-page Guidelines on these pages here.

Bessenyei v. Vermillion, Inc., C.A. No. 7572-VCN (Del. Ch. Nov. 16, 2012). Issues Addressed: (1) Whether a notarized signature signed in the absence of a notary results in an invalid verification; and (2) Whether knowingly presenting an improperly notarized verification is a basis to dismiss the complaint under Delaware Court of Chancery Rule 41(b). Short Answers: (1) Yes; and (2) Under the circumstances, dismissal of the complaint is appropriate. Summary available here.

In another Delaware “first in the nation,” Vice Chancellor Laster of the Court of Chancery on October 15, 2012, in EORHB, Inc. v. HOA Holdings LLC (C.A. No. 7409-VCL) ordered the parties to “show cause” why computer assisted review should not be used for discovery of electronically stored information (“ESI”) in that matter. After a hearing on a motion for partial summary judgment and a motion to dismiss a counterclaim, Vice Chancellor Laster, sua sponte, raised the issue of computer assisted review in discovery for the balance of the case, saying: “[t]his seems to me to be an ideal non-expedited case in which the parties would benefit from using predictive coding. I would like you all, if you do not want to use predictive coding, to show cause why this is not a case where predictive coding is the way to go.” Transcript at 66.

Coughlin v. South Canaan Cellular Investments LLC, C.A. No. 7202-VCL (Del. Ch. July 6, 2012). Issue Addressed: Whether bad faith exception to American Rule applied to impose attorneys’ fees for litigation tactics. Short Answer: Yes. Summary available here.

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. Summary available here.

Advancement and Indemnification Claims

Feeley v. NHAOCG, LLC, (“Feeley III“), is a transcript ruling in a pending Chancery case involving issues that relate to a contest for control, and which has thus far generated two opinions, highlighted on these pages here and here. A transcript of an oral argument in this case has recently been made available, regarding a claim in the case that, as of the date of this transcript, had not yet been the subject of an opinion by the court, but the transcript at pages 66 to 79, reveals “practice tips” about the mechanics of submitting bills in connection with a claim for advancement of legal fees for applicable officers or managers. ( We have often explained on these pages that transcripts of rulings in the Delaware Court of Chancery are often cited in briefs as valid authority).

Danenberg v. Fitracks, C.A. No. 6454-VCL (Del. Ch. Mar. 5, 2012), addressed important issues of advancement and indemnification and established a protocol for resolving the amount of fees payable pursuant to the grant of advancement rights. Summary available here.

Hermelin v. K-V Pharmaceutical Company, C.A. No. 6936-VCG (Del. Ch., Feb. 7, 2012). Issues Addressed: The Court of Chancery addressed an issue of first impression in Delaware regarding: “what evidence is relevant to an inquiry into whether an indemnitee acted in good faith for the purposes of permissive indemnification” under DGCL §§145(a) and (b). The Court also addressed: (1) Whether the former CEO is entitled to mandatory indemnification as a matter of law; (2) Whether additional discovery is required to determine whether the former CEO acted in good faith (in which case he would be entitled to statutorily permissive indemnification pursuant to his rights under an indemnification agreement.) Summary available here.

Request for Appointment of Receiver

Badii v. Metropolitan Hospice Inc., C.A. No. 6192-VCP (March 12, 2012), involves a post-trial decision on an action under 8 Del. C. § 291 for the appointment of a receiver for an insolvent, closely held corporation, Metropolitan Hospice, Inc. (“MHI”) which owed, among other things, approximately $2 million to the IRS for back taxes, penalties, and interest. Summary available here.

BonusPractitioners’ Guide with Practice Tips for non-Delaware Lawyers using “local counsel” in Delaware

Supplement: Professor Bainbridge graciously describes our annual review as a “must read”. The Columbia Law School’s new blog on corporate law, called The CLS Blue Sky Blog, reprinted our annual summary on the first day of the blog’s unveiling.

The Court of Chancery hosted a seminar for practitioners on December 7, 2012 in Wilmington, in order to explain its recently promulgated Practice Guidelines as well as recent amendments to the rules governing confidentiality and electronic discovery.

N.B. In August 2021, the Court updated the Guidelines.

The materials discussed and distributed are “must reading” for both lawyers practicing in the Court and those out-of-state counsel (and their clients) who want to be familiar with the very detailed requirements of the very specific, high standards that the Court expects counsel and parties appearing before it to uphold. The Court also provides sample forms that will be provided below as links in this post, for such things as outlines for collecting electronic documents (ESI) and sample scheduling orders.

The Practice Guidelines published by the Court of Chancery are entitled: “Guidelines to Help Lawyers Practicing in the Court of Chancery“. They are a quite formidable 28 pages (after a 3-page index.) Kevin Brady, a member of the Court’s Rules Committee, provided a helpful overview of the discovery aspects of the Guidelines on these pages here.

The Guidelines address matters from the mundane to the sublime. For example, the proper attire in the Court is addressed, as is the use of conference rooms in the Courthouse to have lunch delivered during a trial. Detailed guidance is given for the special nuances applicable to discovery for expedited cases such as for a preliminary injunction, as well as the confounding but critical aspects of correctly preparing a privilege log. Among the tips provided by the Court are to limit cross-motion briefing to four sets of briefs, and not to file a “retaliatory” motion to compel on the same issue so as to get the last brief filed.

The following samples and outlines are provided from the Court’s website. Especially noteworthy is the Court’s provision of a sample stipulation for a “clawback or quick-peek” order that may be appropriate when large volumes of documents need to be produced in an expedited manner and there is not sufficient time to review each document for privileged or confidential material:

Also necessary for practitioners to know is the new Rule 5.1 (superseding Rule 5(g) as of Jan. 1, 2013), which governs filings with the Court of confidential documents (formerly referred to as filings under seal). Kevin Brady, a member of the Court’s Rules Committee, previously highlighted the new Rule 5.1 here. The actual redlined amendments to Rules 26, 30, 34, and 45 are available here.

Local Counsel Guidelines, with an overview of relevant caselaw, including references for those admitted pro hac vice, have been compiled on these pages here, for those many lawyers from outside Delaware who collaborate on Delaware cases with Delaware counsel.

One “takeaway” from these extensive “rules of the road” for practice in the Delaware Court of Chancery is that “those not familiar with these somewhat Byzantine and intricate procedural expectations” should not file or litigate a case in Chancery unless they are prepared to meet these expectations (and their client can pay for the extra work these guidelines require–which assume that the economics of the case justify the first-class lawyering that these guidelines demand.) Stated another way, if a case does not have a minimum threshold of value, meaning a fairly substantial amount of money is in dispute, the requirements for litigating in this Court make it cost-prohibitive for “smaller” cases.

Lake Treasure Holdings Ltd. v. Foundry Hill GP, No. 6546-VCL (Del. Ch. Sept. 11, 2012).

Why this case is noteworthy: This ruling provides practical insight into the logistical realities of discovery practice in the Delaware Court of Chancery and the gravitas required from out-of-state attorneys who may not be familiar with the seriousness with which the court treats this aspect of litigation that in some states is not given great importance.

Procedural Background: The procedural context of this case is a motion to compel discovery. The case involves a failed business relationship and a plaintiff who is trying to salvage his investment or determine if anything is salvageable from it.

Practical Insights

Regular readers will know that transcript rulings are often cited in this court as valid authority. This ruling provides several reminders why non-Delaware lawyers who practice in Chancery need to be prepared to justify objections to discovery requests, and explain to the court their failure to reply fully and promptly to discovery requests. Attorney’s fees are routinely shifted to the party losing the motion to compel. It is not uncommon or unprecedented for the fees incurred, and awarded, after full briefing and oral argument, on a motion to compel, to exceed $25,000 to $40,000. See, e.g., cases highlighted here and here.

The court referred to the Chancery decision in the Aveta, Inc. v. Bengoa case, highlighted here, for guidance if a dispute arose about the amount of fees. The Aveta case was one of three cases in as many months that, by coincidence, each separately imposed fees of $700,000 as penalties, (one of which, highlighted here, was for discovery deficiencies.) Recent Chancery cases have explained the Delaware “pizza principle”, regarding disputes over the exact amount of fees awarded, as noted in cases reviewed here and here.

Highlights of Ruling

  • The court will make Delaware counsel responsible for the failures of non-Delaware counsel who are admitted pro hac vice. This is a well-settled principle in Delaware. See Transcript (linked above) at 23.
  • The court specifically reviewed several common objections to the discovery requested, which the court referred to as mere “noise” and not valid objections. For example:
  •  (i) An objection was made alleging that the discovery requests were unduly burdensome as “they seek information already in the custody or control” of the requesting party. Among the reasons the court rejected this objection is that it would require the objector to be a psychic to know everything the other party had.  Tr. at 20-21.
  • (ii) An objection was made to requests “to the extent they purport to impose obligations beyond those established by the Rules of Civil Procedure”.  Among other reasons the court rejected this objection is because it does not explain what, if any, documents are being withheld on this basis. Tr. at 21-22
  • (iii) The court expressed displeasure with “general objections, all of which were meaningless”, followed by: “Notwithstanding the foregoing specific objections”, of which the only one was relevance. The court explained that the refusal to provide information on this basis was not appropriate. Tr. at 26
  • (iv) If an objection to production is based on the assertion that something is a “public record” it is necessary to specify exactly what is not being produced. Tr. 28-29
  • (v) Likewise, if an objection is made based on a document “being equally available” to the other side, one must specify what those documents are, which are not being produced. Tr. 29-30.
  • Finally, in the case of documents that are confidential, that is no excuse for non-production. Even for those documents that may be true trade secrets, the routine procedure in Chancery is for both a protective order to be entered and a restriction for “attorneys’ eyes only”. Tr. at 42

SUPPLEMENT: By way of comparison, and perhaps as an indication of how unpredictable the outcome of motions to compel can sometimes be, the same member of the court in another unrelated case did not shift fees in connection with ruling on a motion to compel, in World Market Center Venture, LLC v. NAMA Holdings, LLC, C.A. No. 5131 (Del. Ch.  Sept. 4, 2012). In the NAMA case, the court was displeased with both parties and perhaps because both parties were equally at fault, the court did not assess attorneys’ fees. The transcript linked above is helpful for gaining an insight into what the court regards as meaningless and obfuscating discovery objections.  See, e.g., transcript at 16 and 21-22. The court instructed the parties to: spend more time doing meet and confer, avoid gamesmanship with evasive objections, and refrain from what the court referred to as “urinary escalations” in the context of discovery instransigence. Id. at 51. Prior Chancery decisions in the NAMA case that provide background are available on these pages here.

The following key Delaware corporate and commercial decisions from the first four months of 2012 are a follow-up to our summary of the key decisions that we featured from 2011. We highlight on these pages all the corporate and commercial opinions from Delaware’s Supreme Court and Court of Chancery, and we have chosen the following 2012 rulings as being especially noteworthy, as the month of April comes to a close. Comments are welcome if readers think we missed a decision that should be included in this list.Photo of the Supreme Court Courthouse in Dover
Supreme Court Decisions

EMAK Worldwide, Inc. v. Kurz, No. 512, 2011 (Del. Supr., April 17, 2012).  Issue Addressed: Whether the Court of Chancery properly granted an interim fee award in a shareholders’ suit which did not produce an immediate monetary benefit. Short Answer: Yes. Summary available here.  (The Supreme Court’s stately building in Dover is featured at right.)

Cambium Ltd. v. Trilantic Capital Partners, No. 363, 2011 (Del. Supr., Jan. 20, 2012. This Order of the Delaware Supreme Court applied the recent decision of Delaware’s High Court in the Central Mortgage case in which it clarified that Delaware has not adopted the federal standard for motions to dismiss under Rule of Civil Procedure 12(b)(6) as described in the U.S. Supreme Court’s Twombly and Iqbal decisions, despite the truism that the Delaware Rules of Civil Procedure are generally based on the Federal Rules of Civil Procedure. A fuller overview is available here. The recent Delaware Supreme Court decision in Central Mortgage taking this position was highlighted here.

Court of Chancery Rulings

Shocking Technologies, Inc. v. MichaelC. A. No. 7164-VCN (Del. Ch. April 10, 2012). Issue Addressed: Whether the Court of Chancery has the inherent authority to remove a director for breach of fiduciary duty, other than via DGCL Section 225? Short answer:  The issue was not directly decided, but based on the facts of this case, the Court was not inclined to exercise such an inherent power, if such a power exists, prior to the expedited trial. Summary available here.

In Re K-Sea Transportation Partners LP Unitholders Litigation, C.A. No. 6301-VCP (Del. Ch. April 4, 2012). The prior Chancery decision in this case was highlighted on these pages here. Issues Addressed: The issues addressed by the Court of Chancery in this matter were whether the fiduciary duty claims and the contractual claims were barred by the provisions in the limited partnership agreement, including whether a provision in the agreement that established a presumption of good faith barred claims for breach of the implied covenant of good faith and fair dealing. Summary available here.

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. Summary available here.

Badii v. Metropolitan Hospice Inc., C.A. No. 6192-VCP (March 12, 2012), involves a post-trial decision on an action under 8 Del. C. § 291 for the appointment of a receiver for an insolvent, closely held corporation, Metropolitan Hospice, Inc. (“MHI”) which owed, among other things, approximately $2 million to the IRS for back taxes, penalties, and interest. Summary available here.

In re Delphi Financial Group Shareholder Litigation, Cons. C.A. No. 7144 -VCG (Del. Ch. Mar. 6, 2012). This is the third Delaware Court of Chancery decision in as many weeks that denied injunctive relief, in an expedited opinion, in response to a challenged transaction–despite criticism in two of the cases, of the process and the players, but ultimately leaving it up to the shareholders to decide whether to accept offers of a substantial premium to sell their shares. Summary available here. See In Re El Paso, summarized here, and In Re Micromet, summarized here.

In Re El Paso Corporation Shareholder Litigation, Consol. C. A. No. 6949-CS (Del. Ch. Feb. 29, 2012). Chancellor Strine denied the stockholder plaintiffs request for a preliminary injunction to enjoin a merger between El Paso Corporation and Kinder Morgan, Inc. While the Court in a 33-page opinion, severely criticized the actions of a number of the players, in the end the Chancellor decided to give the shareholders of El Paso the opportunity to decide for themselves if they liked the price being offered to them. Summary available here. The Court’s opinion in this matter marks the second time in the span of only a few months that the Delaware Court of Chancery has strongly criticized Goldman Sachs for conflict of interest issues in multi-billion dollar transactions. The most recent high-profile criticism was in the Court of Chancery’s 100-plus page decision in the Southern Peru Copper case highlighted on these pages here. Our LexisNexis videocast on this opinion is available here.

Danenberg v. Fitracks, C.A. No. 6454-VCL (Del. Ch. Mar. 5, 2012), addressed important issues of advancement and indemnification and established a protocol for resolving the amount of fees payable pursuant to the grant of advancement rights. Summary available here.

Matthew v. Laudamiel, C.A. No. 5957-VCN (Del. Ch. Feb. 21, 2012). Apparently no prior Delaware law directly addressed the issue of whether the dissolution and cancellation of an LLC transformed derivative claims into direct claims held proportionately by the members of the LLC. The Court concluded that, after the filing of the certificate of cancellation, such claims must be brought in the name of the LLC by a trustee or a receiver appointed under 6 Del. C. Section 18-805, or directly by the LLC, or derivatively by its members after reviving the LLC by obtaining a revocation of its certificate of cancellation. Summary available here.

Hermelin v. K-V Pharmaceutical Company, C.A. No. 6936-VCG (Del. Ch., Feb. 7, 2012). Issues Addressed: The Court of Chancery addressed an issue of first impression in Delaware regarding: “what evidence is relevant to an inquiry into whether an indemnitee acted in good faith for the purposes of permissive indemnification” under DGCL §§145(a) and (b). The Court also addressed: (1) Whether the former CEO is entitled to mandatory indemnification as a matter of law; (2) Whether additional discovery is required to determine whether the former CEO acted in good faith (in which case he would be entitled to statutorily permissive indemnification pursuant to his rights under an indemnification agreement.) Summary available here.

Auriga Capital Corp. v. Gatz Properties LLC, C.A. No. 4390-CS (Del. Ch., Jan. 27, 2012). What this Case is About and Why it is Important: This case establishes a high-water mark in terms of providing the most comprehensive explanation, based on legislative history and a review of Delaware cases, to explain why the default standard in the LLC context is that fiduciary duty principles will apply to managers of an LLC unless those duties are expressly and clearly limited or eliminated in an LLC agreement. Summary available here.

Dweck v. Nasser, C. A. No. 1353-VCL (Del. Ch. Jan. 18, 2012), found that Dweck, the former CEO, a director and 30% stockholder in Kids International Corporation (“Kids”), and Kevin Taxin, Kids’ President, breached their fiduciary duties of loyalty to Kids by establishing competing companies that usurped Kids’ corporate opportunities and converted Kids’ resources. The Court also imposed liability on an officer of the company for approving the reimbursement with company funds of the personal expenses of his superior. Summary available here.

Steinhardt v. Howard-Anderson, C.A. No. 5878-VCL (Del. Ch. Jan. 6, 2012). Issue Addressed: This opinion addressed the issue of whether representative plaintiffs in a putative class action should be in sanctioned for trading on the basis of confidential information obtained in the litigation. The motion was granted. Summary available here.

Gerber v. Enterprise Products Holdings, LLC, et al., C.A. No. 5989-VCN (Del. Ch., Jan. 6, 2012). Issue Addressed: This decision speaks to the limitations imposed by 6 Del. C. § 17-1101 on Delaware courts to address sanctionable conduct by partners and members of alternate entities that have contracted away their fiduciary duties. Summary available here.

Paul v. China MediaExpress Holding, Inc., C.A. No. 6570-VCP (Del. Ch. Jan. 5, 2012). Issues Addressed: (1) Whether a Section 220 case should be stayed pending the outcome of a related federal securities suit; and (2) Whether the shareholder in this case established a proper purpose to inspect books and records under DGCL Section 220. Short Answer: (1) Based on a three-part test as applied to the facts of this case, the Court refused to stay this action in favor of a pending related federal securities suit, even though a motion to stay was also pending in the federal court. (2) In this post-trial opinion, the Court determined that the shareholder established a proper purpose and was entitled to the documents necessary to investigate that proper purpose. Summary available here.

Bonus

An important development during the first 4 months of 2012 was the promulgation by the Court of Chancery of its inaugural Practice Guidelines, highlighted here.

Supplement

The Delaware State Bar Association’s annual seminar on Developments in Corporate and Alternative Entity Law will be presented in Wilmington on May 22 as described in more detail on these pages here.

Postscript: Professor Bainbridge kindly linked to this post on his blog.

Courtesy of LexisNexis and their Corporate and Securities Practice page comes a videocast in which Steve Berstler of LexisNexis tapes yours truly in a short clip that discusses the recent Delaware Chancery decision in Manning v. Vellardita, highlighted on these pages, which addresses a motion to disqualify counsel based on an argument that the movant failed to disclose in his motion for admission pro hac vice that he was a member of a firm that had represented a party adverse to his client.