A recent Delaware Court of Chancery opinion provides a reminder of the limited jurisdiction of Delaware’s court of equity and why not all suits for declaratory judgment satisfy the narrow subject matter jurisdiction of the Court of Chancery.  See Takeda Pharmaceuticals U.S.A., Inc. v. Genentech, Inc., C.A. No. 2018-0384-MTZ (Del. Ch. Mar. 26, 2019).


This case involved an effort to obtain a declaratory judgment that would validate a defense in patent litigation pending in another forum based on a patent license.  The court held that because there was an adequate remedy at law, the court did not have equitable subject matter jurisdiction for a declaratory judgment in this case, and no anti-suit injunction was available either.

Key Takeaways:

  • The court explained that in order for it to entertain a declaratory judgment action, there must be an “actual controversy.”  See footnotes 46 to 47 and accompanying text.  Although the four elements that the court reviews in order to determine whether there is an “actual controversy” were satisfied in this case, the court dismissed the suit without prejudice because it determined that the necessary equitable jurisdiction for making a ruling on a declaratory judgment claim was lacking. 
  • The court provided its reasoning about why an adequate remedy at law deprived it of equitable jurisdiction.  See footnotes 52 to 68 and accompanying text.  The adequate remedy at law in this case was that the license defense was capable of being presented in pending litigation in another forum, and therefore an anti-suit injunction was not available based on the absence of the irreparable harm requirement.
  • Importantly, the Court of Chancery in the instant opinion distinguished a 2013 Delaware Supreme Court decision in National Industries Group v. Carlyle Investment Management, highlighted on these pages, as inapplicable in this matter.  The Court of Chancery distinguished the facts in that case which involved the grant of specific performance to enforce a forum selection clause and to enjoin suits pending in another jurisdiction contrary to the forum selection clause.  The difference between that decision and similar decisions highlighted on these pages involving the enforcement of a forum selection clause, distinguished in this decision, was that it has been well-established in Delaware that forcing someone to litigate in another forum contrary to a forum selection clause satisfies the irreparable harm prerequisite for injunctive relief–a prerequisite not satisfied in this case.
  • In this case, there was no contractual forum selection clause involved, and the request that the Court of Chancery validate a defense to be used in court in another jurisdiction failed to acknowledge that courts often apply the law of jurisdictions other than where the court is sitting.

See generally, the three traditional “buckets” that a case must “fit into” in order to trigger equitable jurisdiction, described at footnotes 42 through 45 and accompanying text.

The Delaware Court of Chancery recently issued an epic decision that serves as a mini-treatise on several topics of importance to corporate and commercial litigators including: (1) interpretation of material adverse change clauses or material adverse effect clauses in merger agreements; and (2) the meaning and application of the phrase “commercially reasonable efforts” or “reasonable best efforts” often found in merger agreements.

The opinion in Akorn, Inc. v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL (Del. Ch. Oct. 1, 2018), will be firmly ensconced in the pantheon of the most notable decisions of Delaware courts and could easily be the subject of a full-length law review article.  But for purposes of a blog post that merely attempts to highlight the key issues addressed by the court, so that interested readers might review the entire opinion if relevant to their practice, I will focus on several key aspects of the decision only.

The Delaware Supreme Court affirmed this decision, as noted on these pages.

Procedural Background:

The procedural context in which this decision was written, was expedited proceedings in which two parties to a merger agreement sought competing rulings on the meaning of the agreement. On the one hand, the seller argued that the merger agreement should be specifically enforced.  The buyer, however, filed a counterclaim that sought a ruling that it properly terminated the merger agreement based in part on the occurrence of a material adverse effect or a material adverse change, as defined in the agreement.  The purchaser prevailed in its argument that it properly terminated the agreement.

Notably, a 5-day trial was held with nearly 2,000 exhibits. A total of 16 witnesses testified, and 54 depositions were lodged.  The trial was held less than 3 months after the complaint was filed.  This 246-page opinion was issued less than one week after the final post-trial briefs and oral argument were completed.

Factual Background:

The detailed facts on which the court’s reasoning and conclusion are based are described in the first 110 pages of this decision. It would be a challenge to do the facts justice in a brief overview, but for purposes of providing the highlights of the legal principles in the case, suffice it to say that the court provided exhaustive detail about each of the factual aspects of the parties’ dispute and why one party sought to enforce the merger agreement and one party successfully argued that it was justified in terminating the merger agreement prior to closing.

Highlights of Legal Principles and Analysis by the Court:

       Material Adverse Change Clauses:

  • In a comprehensive and scholarly analysis, the court surveys the law on Material Adverse Change (“MAC”) provisions or Material Adverse Effect (“MAE”) provisions in merger agreements, including prior cases that discuss them and copious footnotes are provided with reference to specific percentages, for example, that are necessary in determining whether a MAC clause or a MAE clause should be triggered. See pages 117 to 204. The court refers to a MAC clause and a MAE clause as synonymous.
  • This decision is thought to be the first Delaware opinion upholding the termination of a merger agreement due to the occurrence of a MAC/MAE.

       Key Treatise Cited:

  • Notable is the court’s reference in footnote 558 to the many Delaware decisions that cite to the Kling and Nugent treatise on M&A agreements and M&A practice as an authoritative source for issues relating to merger agreements, such as MAC/MAE clauses and post-closing indemnification provisions.

       Is Delaware Pro-Sandbagging—or Not?

  • Importantly, the court discusses whether Delaware should be considered a “pro-sandbagging” state as it relates to the enforcement of representations in contracts when one party might know prior to closing that the adverse party’s representations are not accurate. See footnote 756 to 767 and accompanying text. But cf. Eagle Force Holdings LLC v. Campbell, in which the Delaware Supreme Court declined to affirmatively decide the issue, but questioned whether Delaware was a pro-sandbagging state. 187 A.3d 1209, 1236, n. 185 (Del. 2018); id. at 1247 (Strine, C. J. & Vaughn, J., concurring in part, dissenting in part). This case was previously highlighted on these pages.
  • Also noteworthy is a robust explanation, with citations to many authorities, that describe the factors that must be considered to determine when the breach of a contract is material. See pages 208 to 211.

       Commercially Reasonable Efforts and Reasonable Best Efforts:

  • In what may be the most comprehensive analysis in a Delaware decision of the meaning of the phrase “commercially reasonable efforts” and similar phrases such as “reasonable best efforts,” the court discussed the meaning of these contractual standards and their variations, as well as how they should be interpreted and applied. See pages 212 to 220.
  • The court compares the differences, if any, between these similar standards, with citations to treatises, cases and articles that discuss them. See pages 213 and 214, as well as footnotes 788 to 800.
  • See generally Professor Bainbridge’s analysis of this topic with citations to many authorities. (The corporate law scholarship of Professor Stephen Bainbridge is often cited by Delaware courts.)  See also several Delaware decisions highlighted on these pages that also discuss the topic.
  • In its analysis of this topic, the Court of Chancery cites to the Delaware Supreme Court opinion in Williams Companies v. Energy Transfer Equity, L.P., highlighted on these pages. The Delaware high court explained in that decision that it: “did not distinguish between” the two phrases, “commercially reasonable efforts,” and “reasonable best efforts,” but rather the court described those phrases as both imposing “obligations to take all reasonable steps to solve problems and consummate the transaction.” (quoting Williams, 159 A.3d at 272). See also footnote 808, and accompanying text.

Delaware_State_CapitolLegislation is being proposed to ask the Delaware Legislature to limit the ability of corporations to adopt fee-shifting provisions in their charter and bylaws, but to provide additional support for adopting forum selection clauses in those same corporate documents. The proposed legislation is available at this link. A memo describing the policy analysis on which the proposal is based has also been provided by a cross section of Delaware lawyers representing the major constituencies involved, such as shareholders, directors and corporations. Also available is a FAQ with answers to the most likely questions about the proposed bill. (Slight modifications to the proposed legislation were made after this post was published, and I would expect other amendments to be made prior to its final passage.)

Most readers are aware that the Corporation Law Section of the Delaware State Bar Association annually proposes amendments to the Delaware General Corporation Law for the Delaware Legislature to pass, in order to refine the DGCL on a regular basis and to make sure it adapts to changes in the marketplace. My first hand experience is that those “routine” amendments are often passed by the Delaware Legislature “routinely”. This is so because the process works well and has a long track record of benefitting the state. If the proposals for amendments to the DGCL ever backfired on the legislators–as a political matter, not necessarily a legal matter, then the next proposed bill to amend the DGCL would not pass as easily the following year. That risk, however, has not come to pass for many decades, if ever.

The proposed legislation provides that if a charter or bylaw includes a forum selection clause for stockholder disputes, Delaware must be one forum that is selected. If another state is selected as a forum, Delaware must be included as an additional optional forum. Thus, a state other than Delaware cannot be selected as the exclusive forum. This would be a legislative reversal of the First Citizens decision recently decided in Chancery. The legislation does not directly address the validity of forum selection clauses that choose states other than Delaware, but the proposed DGCL amendment does not ban a permissive forum outside of Delaware as long as Delaware is also included as a permissive forum.

The proposed legislation about fee-shifting clauses and forum selection provisions in corporate charters or bylaws may be sui generis in some ways. Most amendments to the DGCL that are presented to the Delaware Legislature are not controversial and pass without debate. This one is different. The proposed legislation linked above is, in part, a result of the ATP case, styled as ATP Tour, Inc. v. Deutscher Tennis Bund, Del. Supr., No. 534, 2013 (May 8, 2014), highlighted here on these pages, in which the Delaware Supreme Court upheld the facial validity of fee-shifting bylaws for a non-stock corporation. Many legal commentators read that decision to apply to stock corporations as well. Not everyone agreed.

Last year, before the June 30 close of the legislature’s term, legislation was proposed to prohibit stock corporations from adopting fee-shifting bylaws. The DuPont Company and other large companies as well as the U.S. Chamber of Commerce opposed the legislation that was proposed last year to limit fee-shifting bylaws. Institutional investors and shareholder-rights groups supported the proposal. Law professors lined up on both sides of the debate. In light of the short amount of time available last year before the close of the legislative session, and the strong lobbies on both sides of the issue, the legislature deferred consideration until the 2015 legislative session.

Unlike routine amendments to the DGCL, this proposed legislation confronts powerful lobbyists on both sides of the issue. Thus, this proposal may be more akin to typical legislation in which the final version of the bill that is passed is not always similar to the first version of the bill that was introduced. The only certainty about this proposed bill, is that it will generate an enormous amount of commentary and discussion. I would not expect a final outcome until the last day of the session on June 30.

If some legislation is passed that ultimately limits the ability of a corporation to adopt fee-shifting bylaws, an interesting issue will be the impact, if any, that the legislation will have on those companies that already adopted fee-shifting provisions. Generally, there is a prohibition against ex post facto laws. Stay tuned.

SUPPLEMENT: Professor Stephen Bainbridge, one of the nation’s foremost corporate law scholars, has written three commentaries already within the one business day since this proposal surfaced, including links to his prolific scholarship on the topic of fee-shifting and forum selection provisions in corporate organic documents. Each of the following titles is hyperlinked to his corresponding post: An Open Letter to the Delaware Legislature on Fee-Shifting Bylaws; Open Letter to the Delaware Legislature on Forum Selection Bylaws; Delaware Legislative Proposals on Fee-Shifting and Forum Selection Bylaws.

SUPPLEMENT II: Professor Larry Hamermesh, Director of the Institute of Delaware Corporate and Business Law, provides scholarly and insightful analysis on the issue of the potential retroactive impact of the proposed legislation on existing fee-shifting bylaws. If the proposed legislation is passed, this may be one of the first issues litigated.

Justice Henry duPont Ridgely of the Delaware Supreme Court recently authored an article on one of the most timely issues in corporate litigation today: bylaw amendments that include fee-shifting and forum selection clauses.

His Honor prepared the article based on a speech he presented last month at the SMU Corporate Counsel Symposium, and we are grateful that he has allowed us to share a link to his article. In addition, it remains important to add that the SMU Law Review also consented to this posting of Justice Ridgely’s article with the following acknowledgement about the article: Posted with permission from the SMU Law Review and the Southern Methodist University Dedman School of Law. The article will appear in an upcoming issue of the SMU Law Review. The formal title of the article is: “The Evolving Role of Bylaws in Corporate Governance.”

Much has been written in trade publications and in the blogosphere about recent developments involving bylaw amendments, some of which we have linked to on these pages.

Justice Ridgely announced a few days ago that, after 30 years as a member of the Delaware Judiciary, he will be retiring from the bench in January 2015. He has been one of the brightest stars in the constellation of Delaware jurists, which counts many shining lights among its number. Still, the Delaware Bench will be less stellar in his absence. His public service through his exemplary contributions to the administration of justice will remain a standard by which others should be measured.

My article entitled: Directors Given More Authority to Limit Multi-Forum Litigation, appeared in the November/December issue of NACD Directorship, a publication of the National Association of Corporate Directors. This regular short column discusses the recent Court of Chancery decision in City of Providence v. First Citizens Bancshares, Inc., also highlighted on these pages, which addresses one of the leading issues in Delaware corporate litigation today: forum selection bylaws.

ATP Tour, Inc. v. Deutscher Tennis Bund, Del. Supr., No. 534, 2013 (May 8, 2014).

Momentous Issue Addressed:  The Delaware Supreme Court decided certified questions of law from the District of Delaware regarding whether it was consistent with Delaware law for a bylaw provision to provide for shifting attorneys’ fees to an unsuccessful plaintiff pursuing intra-corporate litigation. Short Answer: Such a bylaw provision is generally enforceable.

Potential Widespread Impact: This opinion may embolden directors to make this fee-shifting provision a common feature of corporate bylaws of Delaware companies. It may also be the “magic bullet” that addresses the scourge of shareholder litigation (as seen from the directors’ viewpoint), to the extent it may discourage “less meritorious” intra-corporate litigation. Conceptually, this opinion should be compared to the Chancery decision on forum-selection bylaw provisions, which the Supreme Court never reviewed because the appeal was voluntarily withdrawn.

Brief Overview: The plaintiff in this case is a Delaware non-stock membership corporation that operates a global professional men’s tennis tour.  Its members include professional tennis players and entities that operate professional tennis tournaments.

The bylaws, to which members agreed to be bound, were allowed to be amended from time to time and include a provision that requires members who unsuccessfully sue the corporation to pay reasonable attorneys’ fees incurred in that litigation.  Several of the members sued the corporation and its board in the United States District Court for the District of Delaware alleging both federal antitrust claims and Delaware fiduciary duty claims.  Upon remand from the United States Court of Appeals for the Third Circuit, the District Court was instructed to address the Delaware state law issues regarding the enforceability of the bylaw provision of the non-stock corporation.  The District Court certified those questions to the Delaware Supreme Court.

The Delaware Supreme Court observed that DGCL Sections 114 and 109(b) provide that the provisions of the DGCL apply to non-stock corporations and all references to the stockholders of a corporation are deemed to apply to members of a non-stock corporation.

Other general principles that have broad application and should be of interest to most corporate and commercial litigators include the following:

  • Bylaws of a corporation are presumed to be valid.  In order to be facially valid, the bylaw must be authorized by the DGCL, be consistent with the Certificate of Incorporation, and must not be otherwise prohibited.  See footnotes 12 to 14.
  • Delaware law allows parties to modify the American Rule by contract to obligate the losing party to pay the attorneys’ fees of the prevailing party.  Corporate bylaws are treated as contracts among shareholders and, therefore, the fee-shifting bylaw is facially valid under Delaware law.  See footnotes 17 through 19.  It is not necessary for the corporate charter to specifically or implicitly authorize such a provision.
  • Whether or not a particular bylaw is enforceable, however, must be based on the facts and circumstances in a particular matter.  For example, the Court referred to several cases where amendments to bylaws were deemed unenforceable based on the principle, well-established in Delaware law, that “inequitable action does not become permissible simply because it is legally possible.”  See footnotes 20 through 27.  For example, when a bylaw amendment changed the date of the annual stockholders’ meeting to a month earlier than the date originally scheduled for the purpose of entrenching the incumbent board and obstructing efforts of dissident stockholders to undertake a proxy contest against management, the Delaware Supreme Court found that bylaw amendment to be unenforceable.  See Schnell v. Chris-Craft Industries, 285 A.2d 437, 439 (Del. 1971).
  • Finally, the Court found that members joining before the bylaw provision was adopted are still subject to its provisions.  The DGCL allows a board to amend or repeal bylaws through its directors and if such an amendment is made, the stockholders will be bound by those bylaw amendments adopted unilaterally by the board.  See footnote 38.

Supplement: Frank Reynolds of Thomson Reuters provides an insightful overview of the case.

Updates: Tom Hals provides an update as of July 7 with a list of companies that have adopted fee-shifting bylaws. Also, Holly Gregory of Sidley Austin provides developments on this topic here. A legislative response by Delaware legislators to this opinion by the Delaware Supreme Court has been tabled until the 2015 session of the Delaware General Assembly.

We previously highlighted the Court of Chancery decision that upheld a forum selection provision in corporate bylaws that required certain suits involving the internal affairs of the corporation to be filed in Delaware. Boilermakers Local 154 Retirement Fund v. Chevron Corporation, C.A. No. 7220-CS (Del. Ch. June 25, 2013).
Professor Larry Hamermesh writes about the voluntary dismissal yesterday of the appeal of that decision by the plaintiffs, and likely ramifications of that dismissal regarding this important issue.

UPDATE: The good professor provides an update on his commentary.

RWI Acquisition LLC v. Todd, C.A. No. 6902-VCP (Del. Ch. May 30, 2012).

Issues Addressed

(1) Whether the Court of Chancery had personal jurisdiction over the member of a Delaware LLC; and (2) Whether the Court could or should stay the first-filed Delaware action, sua sponte, in favor of a later-filed related proceeding in New Mexico.

Short Answer

The Court determined that it would stay the Delaware action sua sponte in the interest of “judicial economy, efficiency, and comity,” and the Court also held that Delaware was an improper forum to determine what interest, if any, a non-resident member had in the Delaware LLC.


This case began as a declaratory judgment pursuant to Section 18-111 of the Delaware LLC Act to determine the duties, obligations and liabilities, if any, of a Delaware limited liability company to one of its initial members.  The one-count complaint sought a judicial declaration that the individual defendant, a resident of New Mexico, was no longer a member of the Delaware LLC and did not have any equity or other interests in the Delaware LLC.

The individual defendant, named Todd, filed a motion to dismiss under Court of Chancery Rules 12(b)(2) for lack of personal jurisdiction and 12(b)(3) for improper venue.

The Court concluded that the forum selection clause in the employment agreement of Todd, which paralleled a similar provision in a related stock purchase agreement, precluded the Court from determining what effect, if any, Todd’s termination from a related entity had on his rights in the Delaware LLC.  In addition, the Court determined that it did not have the ability to definitively decide whether Todd continued to hold any interest in the Delaware LLC until a Court in New Mexico determined other related rights.  Thus, on its own initiative the Court stayed this action as a matter of judicial efficiency, and in deference to the apparent intent of the contracting parties to prefer proceedings subsequently filed in New Mexico.

RWI Acquisition LLC (“RWI Del.”) sought a judicial declaration that Todd was no longer a member of RWI Del.  Todd is a New Mexico resident whose only connection with the State of Delaware apparently is his involvement with RWI Del.  RWI Del. was formed in 2007 as the vehicle to effect a substantial investment in a New Mexico corporation that Todd founded in 1974, referred to as RWI – N.M.  The complaint alleges that upon the termination of his employment with RWI – N.M., Todd forfeited his membership interest in RWI Del.  In connection with the investment transaction in 2007, the following agreements were entered into:  (1) The operating agreement of RWI Del.; (2) The stock purchase agreement (“SPA”) memorializing RWI Del.’s purchase of the stock Todd owned in RWI – N.M.  (The SPA had a forum selection clause providing that New Mexico is the “sole and exclusive” forum for any disputes); (3) The subscription agreement by which Todd received units in RWI Del.; (4) A Members’ Agreement which restricted the transfer of units in RWI Del.; (5) The employment agreement between RWI – N.M. and Todd which contained a forum selection clause in favor of the state and federal courts in New Mexico.  These agreements had overlapping references.

In connection with the attempt to terminate Todd for cause, the issue arose about whether or not the new majority owner could exercise its right to purchase the interests of Todd in RWI Del. for a purchase price of “zero,” allegedly based on the terms of one of the parties’ agreements.

Todd’s motion to dismiss was based on the argument that he did not “transact any business in the state” within the meaning of the long-arm statute in Delaware at Section 3104(c) of Title 10 of the Delaware Code, and even if he had, he lacks the minimum contacts necessary for constitutional muster.  He also claimed that he was not a manager and therefore the implied consent provisions of Section 18-109(a) did not apply.

In response, the plaintiff asserts that by co-forming a Delaware LLC, he was transacting business in the state, and that the implied consent statute is sufficient to confer personal jurisdiction because it involves the “business” of the LLC for purposes of Section 18-109(a).


The Court began its analysis by relying on the maxim that Delaware courts “afford great weight to a plaintiff’s choice of forum.  Only extraordinary circumstances can supersede a plaintiff’s right to select its choice of forum.”  See footnote 28.  One notable exception to this rule is the routine deference that Delaware courts give to forum selection clauses.  The Court recognized prior case law that defers to a forum selection clause where the parties use express language that excludes all other courts before which the parties can bring an action, and such a forum selection would support a motion to dismiss under Court of Chancery Rule 12(b)(3).  See Ashall Homes Ltd. v. ROK Entm’t Gp. Inc., 992 A.2d 1239, 1245 (Del. Ch. 2010).  The Ashall case was highlighted on this blog here.

The Court determined that in order to decide the interests of Todd in the Delaware LLC, it would first need to decide, among other things, the rights that Todd had under his employment agreement.  The employment agreement, however, provides that any lawsuit related to that agreement may only be brought in the state or federal courts within the state of New Mexico.  The Court reasoned that it would be contrary to the intent of the parties for the Court of Chancery to resolve issues contrary to that forum selection clause.  Therefore, based on the fact that Delaware is not a proper venue for determining the relevant issues, the Court granted the motion to dismiss on that basis.  See footnotes 49 and 50 and accompanying text.

Decision of Court to Stay Delaware Case Sua Sponte

The Court considered whether it could bifurcate the issues that needed to be decided by a court in New Mexico with issues that were not subject to the forum selection clause.  The Court of Chancery observed that a second-filed action is pending in New Mexico with competent jurisdiction to hear all of the parties’ disputes.

The Court of Chancery therefore raised sua sponte whether the action should be stayed as a matter of judicial efficiency and consistent with the intent of the parties.  See footnote 55.  The Court referred to a prior decision of the Court of Chancery in Ashall Homes in which the Court granted a motion to dismiss for improper venue based on forum selection clauses.  In that case, the Court described the policy reasons for having disputes adjudicated in one court. 

Those policy reasons promoting efficiencies, and avoiding “claims splitting,” animate doctrines such as res judicata and the McWane Doctrine.  The Ashall opinion describes those doctrines as a means to encourage litigants to litigate their disputes in one place and “not force the defendants to unnecessarily expend resources on what would essentially be the same defense in multiple venues.”


The Court in the instant case emphasized that:  the interest of the Court of Chancery “in regulating the internal affairs of Delaware entities does not automatically preclude it from considering obvious inefficiencies and common sense reasons in favor of permitting another competent court to hear an otherwise conventional contract claim.”  In sum, the Court concluded that the first-filed Delaware proceeding should be stayed in the interests of judicial economy, efficiency and comity.

We typically focus on summarizing corporate and commercial decisions of Delaware’s Supreme Court and Court of Chancery, but today we find noteworthy a bevy of new lawsuits just filed in the Delaware Court of Chancery.

These new suits challenge bylaws in several companies that require shareholder suits to be filed exclusively in the Delaware Court of Chancery.  If suits are filed elsewhere, the company threatens to sue those shareholders to recoup fees for breach of the bylaw provision. The challenge is based on the alleged violation of due process rights because there was no mutual consent by the shareholders. The suits were filed by the highly-regarded corporate litigator Michael Hanrahan of the Prickett Jones firm in Wilmington. Among the companies sued by shareholders challenging the exclusive forum bylaw provision, in separate lawsuits, are the following Delaware corporations:

Navistar International Corp., AutoNation, Inc. Chevron Corp., SPX Corp., Superior Energy Services, Inc., Franklin Resources, Inc., Curtiss-Wright Corp., Danaher Corp., and Solutia Inc.

Friend of this blog and well-recognized corporate law expert, Professor Stephen Bainbridge, provides timely comments on these new lawsuits. Thomson Reuter’s Alison Frankel wrote an excellent article about these cases that provides a very helpful overview and also has a link to the actual complaints. Broc Romanek on his site called The Corporate Counsel.net, provides helpful observations on this development.

The concept of a forum selection clause in a corporate charter was given momentum by the dicta and citations to Delaware decisions and law review articles, in Vice Chancellor Laster’s footnote 8 in his opinion in the case of In Re Revlon, Inc. Shareholders Litigation, Consol. C.A. No. 4578-VCL (Del. Ch. March 16, 2010), read opinion here.

Scholarship on the Topic

Corporate law scholars have written extensively about this topic and we have featured much of that scholarship on these pages. For example, Professor Joseph Grundfest of Stanford, one of the early promoters of the idea of adding a charter provision (as compared with a bylaw provision), with an exclusive forum selection clause for shareholder suits, presented a lecture in Delaware before the Bench and Bar on the issue, as discussed on these pages here . Prof. Steven Davidoff provided insights on the topic here. Ted Mirvis of Wachtell Lipton, who often litigates high-stakes matters in the Delaware Court of Chancery, has also been credited with this particular forum-selection concept, as indicated in his 2007 article available here.

Although Delaware Courts have not squarely decided the issue of a forum selection clause in a bylaw provision, that is not voted on by the shareholders, a California court struck down a provision in a case noted on these pages here. Professor Bainbridge comments on the topic here.  Prof. Brian J.M. Quinn wrote a law review article on the issue, available here.

Our post here  on this topic and related issues, includes commentary by the late, great scholar Prof. Larry Ribstein and others who have addressed the related problems with multi-jurisdictional litigation and the challenges that arise with an apparent increase in the number of non-Delaware courts deciding issues of Delaware corporate law. A ruling on these new cases by the Delaware Court of Chancery, which will likely be appealed to the Delaware Supreme Court, will be a welcome addition to provide a measure of certainty on this cutting edge topic.

Supplement: Corporate attorney Claudia Allen prepared a study of Delaware forum selection clauses in charters and bylaws that is available via a post by Professor Bainbridge here. Delaware litigator Edward Micheletti has written an article on the issues of multi-jurisdictional litigation that these bylaw amendments are attempting to address. Kevin La Croix on his blog called The D & O Diary compiles articles and statistics and related sources on the various issues related to an increase in M& A/Takeover litigation here  including multi-jurisdictional aspects of that litigation here.

The Wilmington News Journal has an article co-authored by Phil Milford that examines average awards of attorneys’ fees in cases challenging deals even when it is not apparent if the shareholders are receiving a quantifiable benefit from the lawsuit.

Noteworthy 2011 Corporate and Commercial Decisions from Delaware’s Supreme Court and Court of Chancery.

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


This is the seventh year that we are providing an annual review of key Delaware corporate and commercial decisions. During 2011, we reviewed and summarized approximately 200 decisions from Delaware’s Supreme Court and Court of Chancery on corporate and commercial issues.  Among the decisions with the most far-reaching application and importance during 2011 include those that we are highlighting in this short overview.  We are providing links 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.

Top Five Cases from 2011

We begin with the Top Five Cases on corporate and commercial law from Delaware for 2011 and we are glad to see that at least four of them have some support from the bench as these were the cases that four Vice Chancellors highlighted as important decisions in a recent panel presentation that they offered in New York City in early November 2011.  Those cases were the following:  In Re: OPENLANE Shareholders Litigation; In Re: Smurfit Stone Container Corp. Shareholder Litigation; In Re: Southern Peru Copper Corp. Shareholder Litigation and Air Products and Chemicals, Inc. v. Airgas Inc., and Kahn v. Kolberg Kravis Roberts & Co., L.P.

In Re: OPENLANE Shareholders Litigation. In what many commentators referred to as a “sign and consent” transaction, in which the majority shareholders and the board of directors had sufficient control to provide the statutorily required consent, the Court of Chancery determined that the Revlon standard was satisfied and fiduciary duties were not breached notwithstanding the Omnicare case and even without customary safeguards such as a fairness opinion. See fuller summary here.

 In Re: Smurfit Stone Container Corp. Shareholder Litigation. The Court of Chancery denied a motion for preliminary injunction and determined that the Revlon standard applied to a merger for which the consideration was split roughly evenly between cash and stock. See fuller summary here.

In Re: Southern Peru Copper Corp. Shareholder Litigation. In what may be the largest award granted in the Court of Chancery’s venerable history, a judgment was entered for $1.2 billion (later amended to $1.3 billion) for breach of fiduciary duties in connection with an interested transaction. With interest, the total is expected to be $2 billion.  The Court later awarded attorneys’ fees of 15% which amounts to $300 million, in this derivative action. See fuller summary here.

Air Products and Chemicals, Inc. v. Airgas Inc. This magnum opus of over 150-pages in length will be the focus of scholarly analysis for many years to come. For purposes of this short blurb, it ended a year-long takeover battle between two determined companies, with the Court of Chancery ruling, among other things, that the target company was not required to pull its poison pill when the board determined that the offer for the company was too low. See fuller summary here.

Kahn v. Kolberg Kravis Roberts & Co., L.P.  This Delaware Supreme Court decision reversed and remanded an opinion by the Court of Chancery interpreting “a Brophy claim as explained in Pfeiffer.”  The issue before the Court was whether a stockholder had to show that the company had suffered actual harm before  bringing  a breach of loyalty claim that a fiduciary improperly used the company’s material, non-public information (a Brophy claim).  The Supreme Court rejected that part of the Chancery’s decision in Pfeiffer v. Toll which requires a showing of actual harm to the company.  See fuller summary here.

We also selected the following additional noteworthy cases:

Shareholder Litigation

In Re: John Q. Hammons Hotels, Inc. Shareholder Litigation.  Despite the application of the entire fairness standard, the Court concluded that the merger price was entirely fair, the process leading to the transaction was fair, that there was no breach of fiduciary duty, and therefore no claims for aiding and abetting fiduciary duty.  See fuller summary here.

Reis v. Hazelett Strip-Casting Corp.  The Court applied an entire fairness analysis and held that the attempt to cash out minority shareholders via a reverse split was neither the result of a fair process nor did it involve a fair price.  See fuller summary here.

In re: Del Monte Foods Co. Shareholders Litigation. This first of three rulings enjoined a shareholder vote on a premium LBO transaction and the buyers’ deal protection devices.  The Court also held that the advice that the target board received from a financial advisor (who also did work on the deal for the bidder) was so conflicted as to give rise to a likelihood of a breach of fiduciary duty and the Court indicated that the financial advisory firm could face monetary damages due to aiding and abetting the potential breach.  See fuller summary here.

In re: Massey Energy Company Derivative and Class Action Litigation.  The Court declined to enjoin a proposed merger.  The Court noted that the derivative claims that the plaintiffs argued were not being fairly valued as part of the merger, would become assets of the surviving corporation.  The Court reasoned in part that the shareholders should decide for themselves whether to exchange their status as Massey stockholders for a chance to receive value from a third party in an arms-length merger.  See fuller summary here.

Frank v. Elgamal.  This decision exemplifies the different approach taken by different members of the Court in connection with an application for interim fees in a class action.  (Compare the different approach in the Del Monte case.)  See fuller summary here.

Krieger v. Wesco Financial Corp.  This decision determined that holders of common stock were not entitled to appraisal rights under Section 262 when they had the option of electing to receive consideration in the form of publicly traded shares of the acquiring company.  See fuller summary here.

In re: The Goldman Sachs Group, Inc. Shareholder Litigation.  In this first corporate opinion by Vice Chancellor Glasscock, the Court dismissed a derivative action brought against Goldman’s current and former directors based on a failure to make a pre-suit demand.  At issue was Goldman’s allegedly excessive compensation structure.  See fuller summary here.

Contested Director Elections

Genger v. TR Investors, LLC.  In this opinion, the Delaware Supreme Court addresses electronic discovery issues and contested elections for directors involving DGCL Section 225. See fuller summary here.

Johnston v. Pedersen.  This opinion determined that directors breached their fiduciary duties when issuing additional stock and as a result were not entitled to vote in connection with the removal of the incumbent board and the election of the new directors.  See fuller summary here.

Section 220 Cases

King v. VeriFone Holdings, Inc. This Delaware Supreme Court ruling reversed a Chancery decision that found a lack of proper purpose in a suit by a shareholder seeking books and records pursuant to Section 220.  Delaware’s High Court explained that it remains preferable to file Section 220 suits for books and records prior to filing a derivative suit, but holding that such a chronology is not, per se, a fatal flaw in a Section 220 action.  See fuller summary here.

Espinoza v. Hewlett Packard Co. This affirmance of Chancery’s denial of a §220 claim was based on the requested report to the board being protected by the attorney/client privilege.  (This is one of several decisions in this matter.) See fuller summary here.

Graulich v. Dell., Inc.  This is a Section 220 case in which Chancery denied a request for books and records due to the underlying claims being barred by a previous release and due to the shareholder not owning the shares during the period of time for which he was requesting documents.  See fuller summary here.

Alternative Entity Cases

CML V, LLC v. Bax.  This Delaware Supreme Court decision determined that creditors of an insolvent LLC are not given standing by the Delaware LLC Act to pursue derivative claims unlike the analogous situation in the corporate context.  See fuller summary here.

Sanders v. Ohmite Holding, LLC.  This decision clarified the rights of a member of an LLC that demanded books and records of an LLC.  The Court determined that pursuant to Section 18-305 of the Delaware LLC Act a member may seek records for a period prior to becoming a member of the LLC.  See fuller summary here.

Achaian, Inc. v. Leemon Family LLC.  This opinion addressed the transferability of interests of a member of an LLC and specifically whether one member of a Delaware LLC may assign its entire membership interests, including voting rights, to another existing member, notwithstanding the provision in an agreement that requires the consent of all members upon the admission of a new member.  See fuller summary here.

Jurisdictional or Procedural Issues

Central Mortgage Co. v. Morgan Stanley Mortgage Capital Holdings LLC.  In this decision, a Delaware Supreme Court determined that Delaware would not follow the standards for a motion to dismiss under Rule 12(b)(6) announced by the U.S. Supreme Court in the Twombly or Iqbal opinions.  See fuller summary here.

Hamilton Partners, LP v. Englard.  This decision addressed the issue of personal jurisdiction over directors and interlocking entities, as well as demand futility in the context of a double derivative shareholders suit.  (Although this was decided at the end of 2010, it was important enough to include in this list as it was issued after our deadline for our compilation last year). See fuller summary here.

Encite LLC v. Soni.  This decision rejected a request for an extension of a deadline for submitting expert reports because the Court did not approve an amendment to the Scheduling Order.  See fuller summary here.

Whittington v. Dragon Group.  In this latest iteration of multiple decisions in this long-running saga, the Court examines the doctrine of claim preclusion, issue preclusion and judicial estoppel.  See fuller summary here.

In re: K-Sea Transportation Partners, L.P. Unitholders Litigation.  This decision provides a useful recitation of the standard used in Chancery for deciding whether to grant a motion to expedite proceedings, and it also reviews language in a limited partnership agreement which arguably was an effective waiver of traditional fiduciary duties as allowed by the LP statute.  See fuller summary here.

Sagarra Inversiones, S.L. v. Cemento Portland Valderrivas, S.A.  This ruling determined that the standard of “irreparable harm” granting injunctive relief was not satisfied based on the financial condition of the defendant which was “not poor enough” to convince the Court that a money judgment would not make the plaintiff whole.  (This is one of several decisions in this matter.) See fuller summary here.

ASDC Holdings LLC v. The Richard J. Malauf 2008 All Smiles Grantor Retained Annuity Trust.  This decision discussed the enforceability of forum selection clauses and in particular when those clauses will be enforced despite a related case being filed first in another forum.  See fuller summary here.

Gerber v. ECE Holdings LLC.  This decision discusses the difference between a motion to supplement and a motion to amend a complaint.  See fuller summary here.


Fuhlendorf v. Isilon Systems, Inc.  This decision addresses the advancement of fees incurred by officers and directors sued in connection with their corporate roles.  The specific issue in this case was whether the corporation should pay for all of the costs of a Special Master appointed to review the interim application for fees.  The case also discusses the common procedure employed to review disputed monthly legal bills in advancement cases.  See fuller summary here.

Receiver or Dissolution

Pope Investments LLC v. Benda Pharmaceutical Inc.  This decision rejected the application for the appointment of a receiver on the grounds that while the plaintiff demonstrated that the defendant was insolvent, the plaintiff failed to show that “special circumstances existed which would warrant the appointment of a receiver.”  See fuller summary here.

Stephen Mizel Roth IRA v. Laurus U.S. Fund, L.P.  This decision rejected a request to dissolve a limited partnership and refused to appoint a receiver in the context of an investment fund that was in liquidation mode but was not dissolved, nor was it winding-up as that term is used in the statute.  See fuller summary here.

Legal Ethics

BAE Systems Information and Electronics Systems Integration, Inc. v. Lockheed Martin Corp.  This opinion addresses Delaware Lawyers’ Rule of Professional Conduct 3.4(b) and discusses those situations in which a fact witness may be compensated for the “lost time” away from his “day job” suffered while testifying.  See fuller summary here.

Judy v. Preferred Communications Systems, Inc.  This decision addresses the issue of legal ethics involved in determining whether an attorney may assert a retaining lien over the documents of a former or delinquent client.   See fuller summary here.

Common Law v. Statutory Claims

Overdrive, Inc. v. Baker & Taylor, Inc.  In this last formal decision  by Chancellor Chandler, the Court discussed how the Delaware Uniform Trade Secrets Act displaces conflicting tort and other common law claims that are grounded in the same facts which would support the statutory misappropriation of trade secret claims.  See fuller summary here.

Damages for Breach of Agreement to Negotiate in Good Faith

PharmAthene, Inc. v. SIGA Technologies, Inc. This Court of Chancery decision awarded damages for breach of a contractual obligation to negotiate in good faith and fashioned an equitable remedy that required the sharing of profits from the production of a product that the defendant failed to negotiate the license of in good faith. There are several decisions involving contract law by the Court of Chancery in this matter, the most recent ruling denying a motion for reargument. See fuller summary of the most recent decision here.


On a final note, the last week of 2011 saw the sudden and sad passing of one of the nation’s foremost experts on alternative entities, Professor Larry Ribstein, who was often cited in opinions of the Delaware Courts. He coined the word “uncorporations” to refer to alternative entities and was the author of many treatises, law review articles and other publications on uncorporations, jurisdictional competition, the business of law firms and related topics involving the intersections of law and business. He was an iconic figure in the law, and the legal profession is better because of his many contributions.


UPDATE: The Harvard Law School Corporate Governance Blog published this post here. The NACD’s Directorship.com site kindly published this article as a lead story on Jan. 5, 2012, available here. Professor Stephen Bainbridge graciously commented on this summary in his post available here. Professor Joshua Fershee on the Business Law Prof  Blog linked to this summary with kind references here.