In re: BEA Systems, Inc. Shareholders Litigation, No. 3298-VCL (June 24, 2009), read letter decision here.  A prior Chancery Court decision in this case was summarized here.

 This short 2-page letter decision addressed a request for attorneys’ fees in a case that arose out of the acquisition of BEA Systems by Oracle Corporation. The case was filed in early 2008 but was dismissed by stipulation on grounds of mootness in January of 2009 while reserving jurisdiction to consider this current fee application. The basis for the fee request was that, after the complaint was filed, the company made two changes to is proxy materials to deal with misstatements pointed out in the complaint.. Since the changes were presumably a result of litigation efforts, it was argued that the right to recover fees following the mootness dismissal should be granted based on the line of cases originating with Chrysler v. Dann, 223 A.2d 384, 386-87 (Del. 1966).
The court found, however, that most of the time and costs spent on the litigation produced no benefit, especially in light of the fact that the court had rejected the large majority of claims at an initial hearing on a motion for preliminary injunction. Therefore, recognizing the imprecision involved, the court attributed “one quarter” of the time and costs spent as being attributable to the claims that resulted in the benefit. The court relied on the affidavits of counsel for fees at their normal hourly rate, and “applying a reasonable risk premium of 50%” calculated a fee award, with costs, of  $81,297.
 

Lisa, S.A. v. Juan Jose Gutierrez Mayorga, No. 2571-VCL (Del. Ch., June 22, 2009), read opinion here.

Overview

This Chancery Court decision involves a 1992 sale of shares in a group of family-owned corporations organized under the laws of Guatemala and El Salvador. The plaintiff is a Panamanian corporation. The defendants are a Panamanian corporation, a Barbados corporation and two Delaware corporations. Also named is a Guatemalan national and resident, who is an officer and director.

The court concluded that the Delaware courts lack personal jurisdiction over any of the defendants other than the Delaware entities. Moreover, the court concludes that a number of the counts in the complaint failed to state a claim upon which relief can be granted against either of those Delaware entities and that, in addition, all claims against them must be dismissed on grounds of forum non conveniens.

Legal Analysis

The court discusses the burden that the plaintiff must bear to show a basis for the court’s exercise of jurisdiction over non-resident defendants when a motion to dismiss is filed under Chancery Court Rule 12(b)(2). The court explained that in addition to showing some statutory basis for the assertion of jurisdiction over non-resident defendants, the plaintiff must additionally establish that the exercise of jurisdiction over the non-resident defendants comports with the requirements of the Due Process Clause of the Fourteenth Amendment to the United States Constitution.

In rejecting the request for jurisdictional discovery (see case citation at footnote 19), the court also explained why there was not a basis for jurisdiction under either the general long arm statute at Section 3104 of Title 10 of the Delaware Code, nor was there jurisdiction pursuant to Section 3114 of Title 10 of the Delaware Code that relates to jurisdiction over officers and directors of Delaware corporations.

This decision provides a helpful discussion of the statutory and public policy basis for imposing jurisdiction under Sections 3114 and 3104, and the court explains why neither of those statutes allow for the imposition of jurisdiction in this case and why therefore the motion to dismiss was granted.

Moreover, the court explained that:  “where, as here, Delaware courts have jurisdiction over but a few of the interested parties, and there is a court in another jurisdiction capable of exercising jurisdiction over all of the interested parties, this court has dismissed the action for improper venue.” Parenthetically, the court considered testimony that the plaintiff did not want to use the courts in Guatemala based on alleged corruption in those courts. However, the court observed that the record only referred to alleged corruption in the criminal courts of Guatemala as opposed to the civil courts in that country. Nevertheless, the court concluded that based on forum non conveniens the court reasoned that the case should be dismissed.
 

Mark Herrmann, a partner at the Chicago office of the Jones Day firm, and co-author of the popular blog called Drug and Device Law, writes here about his admittedly unscientific analysis of the most recent annual survey by Kevin O’Keefe of blogs and blogging among the AmLaw 200 firms.  Regardless of the size of one’s firm, it’s a useful and fun commentary on whether blogging for lawyers is or is not a worthwhile exercise. Speaking only for myself, and not for my firm, I can provide a few reasons why I think blogging is worth the substantial effort required to do it well, and why I am continuing  this effort after more that 4 and one-half years since I started this blog.

In no particular order, blogging the way it is done on this blog, which includes primarily summarizing the key corporate and commercial decisions from Delaware’s Supreme Court and Chancery Court, as well as providing related commentary from leading experts, counts among its benefits the following:

  • Thousands of readers, from all 50 states and over 100 countries, have come to expect prompt summaries on these pages of decisions from Delaware’s Chancery Court and Supreme Court shortly after the opinions are published. Meeting that expectation is one incentive to read and publish highlights of those cases sooner than I otherwise would.
  • Compiling in an easily searchable, convenient and free format, key corporate and commercial Delaware decisions from those courts, has created what some have referred to as an "unofficial online reporter" for the corporate and commercial decisions of those courts. This is also helpful when looking for the proverbial "case that I recently read on a particular topic but cannot remember the name…"
  • In addition to serving as an aid to keeping up to date on the latest developments in this area of the law, it provides an unparalleled means of keeping in touch with existing colleagues and meeting new practitioners in this area. I have strengthened ties and made new contacts with lawyers and judges (and their clerks) who are readers of  this blog and who tell me that they benefit from the service that it provides by making it easier for them to keep updated on the latest decisions from the two courts that are predominately covered on these pages.
  • Others around the world searching on Google for "Delaware corporate litigation" will find this blog as the first result of that search, which leads people to me that I otherwise would not be likely to meet, and often leads to requests for quotes from reporters as well as requests to write articles and present seminars (and inquiries from the occasional client).
  • Leading corporate scholars and practitioners have cited to this blog in their publications, in a favorable manner, which most would agree is a characteristic that belongs in the list of positive descriptions.
  • By routinely reading and summarizing the latest opinions in an organized and searchable format, shortly after they are published, one cannot help but become more familiar with the case law that would otherwise more often be read in a more casual and less retrievable manner. Most readers also make that same common sense conclusion about those who summarize the cases on this blog.
  • Careful readers will have noticed that over the past few months I have not been the only one summarizing the cases on this blog, as was true for the prior four years. Kevin Brady, a well-respected and distinguished Delaware litigator, volunteered several months ago to summarize many of the cases, and I welcome his valuable contributions which have made the blog a better product. The opportunity to collaborate with Kevin to highlight the cases in order to maintain this blog must rank as one of the most enjoyable benefits that this blog has generated.
  • There are other benefits, both tangible and intangible, that continue to justify, for me, the many hours a week spent on this endeavor, but this was intended as a short post and so an all-inclusive list will need to wait for another opportunity. Starting a blog may not be a good idea for all lawyers. It helps if one already has a facility with writing and tends toward an obsessive personality.

UPDATE: Mark Herrmann has an updated post here that chronicles the considerable attention that his original post generated in the blogosphere and elsewhere on this interesting topic.

 Ivize of Milwaukee v. Compex Litigation Support, No. 3158-VCL (June 24, 2009),  read letter decision here.  The recent prior decision of the Chancery Court in this case was summarized here.

 In its prior opinion, the court determined that the Asset Purchase Agreement involved in this case had been breached, and as provided in the agreement, the court awarded the full amount of reasonable attorneys’ fees requested, as entitled to the prevailing party, even though the court rejected the damages theory of the prevailing party. The court reasoned that the expert fees were also to be covered even though the legal argument on which the expert’s report was based was rejected by the court. (See footnote 8 for supporting caselaw). Where as here, there is a fee shifting provision in an agreement entitling the prevailing party to attorneys’ fees, the court still analyzes the reasonableness of fees based on Rule 1.5(a) of the Delaware Lawyers’ Rules of Professional Responsibility, as well as the following factors:

“The time and labor required, the novelty and difficulty of the questions involved, the skill requisite to perform the legal services properly, the fee customarily charged in the locality for similar legal services, the nature and length of the professional relationship with the client, and the experience, the reputation, and ability of the lawyer or lawyers performing the services.” (citing Tafeen v. Homestore, Inc., 2005 WL 789065, at * (Del. Ch. Mar. 29, 2005)).

Importantly, however, the court did not agree that all of the “expenses” were covered because the agreement that entitled the prevailing party to attorneys’ fees only specified that “costs” associated with the litigation would be covered. The problem with that language in the agreement is that the terms “costs” and “expenses” have distinct meanings under Delaware law. The definition of “costs” under Court of Chancery Rule 54 and under Delaware caselaw interpreting agreements between parties has been held to exclude items such as “photocopying, transcripts, travel expense and computer research.” (citing Comrie v. Enterasys Networks, Inc. 2004 WL 936505, at * 4 (Del. Ch. Apr. 27, 2004)).

On the other hand “expenses” has a definition that is recognized in Delaware to be much broader. One lesson that can be learned from this case is that when drafting agreements that are intended to “shift fees and expenses,” if the prevailing party hopes to be covered for costs and expenses if she prevails, then the agreement should not be limited to reimbursement of merely "fees and costs" alone, but rather the term "expenses" should be used as well as a more inclusive description.

 

In Re American International Group, Inc., Consolidated Derivative Litigation;  American International Group, Inc. v. Greenberg, Del. Ch., No. 769-VCS (June 17, 2009), read opinion here.

A recent prior decision by the Chancery Court in this case was highlighted here.  That decision  was over 100-pages long. So by comparison, this 40-page decision might be considered relatively brief.

Issues Addressed

In this decision granting a Motion to Dismiss, the Chancery Court in this derivative suit brought on behalf of American International Group, Inc. addressed the following question:

May AIG sue its co-conspirators for the harm that AIG suffered as a result of the two alleged, illegal conspiracies involving AIG and those third-party conspirators?

Answer: No

The first conspiracy allegedly involved AIG engaging in an illegal bid-rigging conspiracy to carve up the market for certain insurance contracts and this conspiracy also allegedly involved the insurance broker Marsh & McLennan and the insurer ACE, Limited. A second alleged conspiracy involved General Re Corporation which allegedly involved writing fake insurance contracts for Gen Re so that AIG could inflate its loss reserves and make AIG thus appear healthier than it actually was and inflating AIG’s stock price.

Procedural History

In the prior recent decision linked above, the Chancery Court found that the plaintiffs had stated well plead breach of fiduciary duty claims against certain AIG officers who were allegedly involved in the conspiracies at issue in this motion as well as other illegal activities. See In Re: Am. Int’l Group, Inc., 965 A.2d 763, 799 (Del. Ch., 2009) (“AIG I”). In that decision, the Chancery Court allowed AIG to sue its own directors, officers and employees for the damage they caused to AIG by having the corporation engage in illegal acts. The court summarized its prior ruling in this case thusly:

In an earlier opinion in this action, this court addressed the motions to dismiss brought by PricewaterhouseCoopers and several former-AIG officers and employers. 5

In that previous decision, this court held that the Complaint survived dismissal as against challenge by insider defendants Hank Greenberg, Edward Matthews, and Thomas Tizzio and that the Complaint stated well-pled claims of breach of fiduciary duty against those defendants. 6  The Complaint also adequately alleged fraud and conspiracy claims against Tizzio. 7

By contrast, this court held that New York law governed the claims against AIG’s auditor, PricewaterhouseCoopers, and that New York law’s approach to the doctrine of in pari delicto barred AIG from recovering against PricewaterhouseCoopers. That holding was driven by the court’s choice of law analysis and did not reflect whether AIG could have maintained such a suit under Delaware law.

Finally, in that decision, this court held that it did not have personal jurisdiction over certain AIG officers and employees who had allegedly engaged in improper behavior before 10 Del. C. § 3114 was broadened to cover certain corporate officers.
Because none of the acts relevant to the illegal conduct pled in the Complaint occurred in Delaware and none of those defendants was a Delaware resident, this court could not exercise jurisdiction over them.

I now address the motions to dismiss brought by the third parties who allegedly conspired with AIG to commit illegal acts. The relevant allegations in the Complaint center on two separate courses of illegal conduct: the Fake Reinsurance Conspiracy and the Bid-Rigging Conspiracy. (some footnotes omitted).

5 See generally AIG I, 965 A.2d 763.
6 Id. at 799.
7 Id. at 807

In that prior ruling, Chancery Court did not need to address the doctrine of in pari delicto as a bar to suing third-party co-conspirators because “the doctrine does not have force in a suit by a corporation against its own officers and employees. When a corporation sues insiders for their faithless behavior in causing the corporation to break the law, there is no logical reason why the corporation cannot recover. . . . To hold otherwise would be to let fiduciaries immunize themselves through their own wrongful, disloyal acts.”

Thus, the court explained that the instant motion presented a related, but separate, question: “To what extent may a corporation like AIG recover from its co-conspirators for the damage the corporation suffered due to its own illegal conduct?”

Legal Analysis

In this decision, the Chancery Court determines that AIG may not seek an accounting for the damages it suffered as a result of its engagement in two illegal conspiracies from the third-party co-conspirators.

The court recognized that the issue in this case is governed by the doctrine of in pari delicto, the primary purpose of which is to prevent courts from the unproductive determination of apportioning fault between or among wrongdoers. The court engages in a scholarly and lengthy analysis of the public policy underpinnings of the in pari delicto doctrine, reaching back to Anglo-Saxon jurisprudence and venerable treatises on equity from the 19th century.

For anyone interested in all of the contours and public policy reasons behind the in pari delicto doctrine and its exceptions, this opinion is must reading.

The court provides thorough reasoning for the conclusion that AIG should not be permitted to sue its co-conspirators. However, the court also makes it clear that the plaintiffs have already benefited from one exception to the doctrine as follows: “It is generally accepted that a derivative suit may be asserted by an innocent stockholder on behalf of a corporation against corporate fiduciaries who knowingly caused the corporation to commit illegal acts and, as a result, cause the corporation to suffer harm.” (citing In Re HealthSouth Corp. S’holders Litig., Inc., 845 A.2d 1096, 1107 (Del. Ch. 2003)) (“It is because corporations must act through living fiduciaries such as Scrushy that the application of the in pari delicto doctrine has been rejected in situations when corporate fiduciaries seek to avoid responsibility for their own conduct vis-a-vis their corporations.”)

The court explained that the best approach is to apply the doctrine to prevent claims is as follows:

“[When] a corporation like AIG is alleged to have engaged in concerted illegal activity with third parties for that corporation’s own benefit, that corporation may not recover against its third party co-conspirators. This does not leave stockholders without a remedy. Within each corporate family, stockholders may use derivative suits to seek relief from their corporation’s own faithless fiduciaries for the harms suffered by their corporation. But the boundaries for recovery matter; they make stockholders and managers realize that the corporation will not be able to shift the costs of its own illegal conduct to third parties. This encourages the adoption and implementation of effective law compliance and monitoring programs, and it protects the judiciary from having to insure the ‘fair and equitable’ distribution of the gains and losses of concerted illegal activity.”

 In re Nat’l City Corp. S’holders Litig., No. 4123-CC (Del. Ch. June 5, 2009), read decision here.

 In this short letter decision, the Chancellor discusses the public policy reasons behind Chancery Court Rule 5(g) which deals with those situations when a document filed with the court may be placed “under seal.” This letter decision involved a request by certain news organizations for access to documents filed under seal and the court explained in this case the interface between the public policy reasons between Rule 5(g) and the general practice of making filings with the court available to the public.

 

SinoMab BioScience Limited v. Immunomedics, Inc., No. 2471-VCS (Del. Ch., June 16, 2009), read opinion here.

Overview

This 50-page Chancery Court decision addresses in great detail the intellectual property rights involved in patent disputes between a biopharmaceutical company and its former employee. I will merely highlight the issues addressed in this case because the court applies New Jersey law to all the legal issues and thus the core of this decision is outside the scope of this blog which of course is obsessed with Delaware corporate and commercial law. This opinion reads in some respects like a science textbook and discusses in excruciating detail the minutiae of the scientific aspects of the patent dispute including such things as DNA sequence and other very technical scientific terminology and processes regarding the biotechnology involved. The main reason why I include this case, however cursorily, is because it is an indication of the types of intellectual property and patent related disputes that the Chancery Court handles.

Issues Addressed

The issues that were decided based on New Jersey law should be of interest generally to any business that employs highly trained and highly educated individuals who develop patents or other intellectual property during the course of their employment. The issues discussed and decided by the Delaware Chancery Court, applying New Jersey law, include the following: (i) the enforceability of restrictive covenants; (ii) misappropriation of trade secrets; (iii) implied covenant of good faith and fair dealing; (iv) the law of unfair competition.

Of great interest to most employers who attempt to confirm their ownership of intellectual property developed by their employees, will be the court’s finding in this case that:  a very sophisticated biotechnology patentable discovery was developed after the employee left the company–despite a presumption, pursuant to a written agreement, that any patent developed within one year after the termination of employment belonged to the employer.

UPDATE: Here is a two-page letter decision of July 10, 2009 that decides the amount of fees awarded for defending only one of the claims in the case–that was abandoned in June 2007 (two years prior to this recent opinion.) The court granted fees of 20% of the fees incurred up until that point of the abandoned claim.
 

Holley Enterprises, Inc. v. The City of Wilmington, No. 4619-VCS (Del. Ch. June 5, 2009), read letter decision here.

This short Chancery Court letter decision provides a useful summary of the standard that must be satisfied before a temporary restraining order is granted–an important instrument to have in the toolbox of the those who handle business litigation in Delaware. The temporary retraining order (TRO) was requested in this case by an unsuccessful bidder for a City contract. The statutory argument revolved around the determination of the “lowest responsible bidder” to whom the City contract was awarded.

The letter opinion discusses the prerequisites for a TRO and why they were not satisfied in this case. The court also provides a practical discussion of the statutory standard for a “lowest responsible bidder” and the discretion that governmental agencies have in determining who satisfies that statutory standard. Also of practical usefulness to Delaware contractors at both the City, County and State level are citations to authority that describe the very broad range of discretion that governmental agencies have in awarding a bid. See cases cited at footnote 9. In this particular case, the contractor involved was the subject of an indictment based on allegations in connection with public contracts in Delaware, Pennsylvania and New Jersey. Thecourt explained why this was relevant under the circumstances of this case.

In addition to reciting prior decisions that explain why courts are reluctant to second guess the decisions of governmental agencies in awarding contracts, in this particular case the court interpreted the City code as giving the City discretion to consider factors that were not expressly included in the City code when determining who a responsible bidder was. The court gives the government agency, and in this case the City, broad leeway in making these decisions and will not overturn them unless they are deemed to be arbitrary or capricious.

Arbitrary and capricious is generally equated with unreasonable or irrational behavior and is not the result of a deliberative process, and is in disregard of the facts and circumstances. The court reasoned that the decision of the City in this situation was neither arbitrary nor capricious in denying the bid award to the plaintiff.

In sum, the TRO request was denied because the contractor was unlikely to succeed on the merits and the harm to the contractor by denying the TRO would be minimal compared to the risk that the City would suffer and the harm to public safety, as well as the prejudice to contractors already awarded related contracts if the court were to grant the TRO. .