By Scott Waxman and Zack Sager
In CIM Urban Lending GP, LLC v. Cantor Commercial Real Estate Sponsor, L.P., the Delaware Court of Chancery dismissed a breach of fiduciary duty claim against a general partner of a Delaware limited partnership because there was no independent factual basis for the breach of fiduciary duty claim apart from the plaintiffs’ breach of contract claim.
By Annette Becker and Max E. Kaplan
In Thermopylae Capital Partners, L.P. v. Simbol, Inc. C.A. No. 10619-VGC (Jan. 29, 2016), Vice Chancellor Glasscock granted defendants’ motion to dismiss, with prejudice. After attempting to unravel the allegations in plaintiffs’ pleadings as to a dilution claim, the Court of Chancery held that the complaint’s omission of pertinent facts tested the limits of “reasonable conceivability” by requiring the Court to speculate as the fundamental facts necessary for plaintiffs to prevail—facts available to plaintiffs under Delaware General Corporation Law § 220.
Plaintiffs—stockholders and former management of defendant Simbol, Inc. (“Simbol”)—claimed that Simbol’s board of directors, executives, and certain defendants-stockholders diluted plaintiffs’ shares in the corporation as part of an elaborate “scheme” to usurp corporate control for the benefit of defendants-stockholders Mohr Davidow Ventures (“MDV”) and Itochu Corporation (“Itochu”). By so doing, defendants purportedly breached their fiduciary duties to minority stockholders, causing them direct harm.
By John E. Blair, Jr. and Tony Yerry
In Bonanno v. VTB Holdings, Inc. (C.A. No. 10681-VCN) (Del. Ch. February 8, 2016), Vice Chancellor Noble granted a defendant corporation’s motion to dismiss a plaintiff shareholder’s breach of contract claim, ruling that plaintiff’s redemption claim fell within the scope of a forum selection provision contained in a transaction document signed by plaintiff that required the parties to litigate such disputes in the state courts of New York or the federal courts therein.
The action arose when plaintiff John Bonanno, a shareholder of Voyetra Turtle Beach, Inc. (“VTB”), a predecessor corporation to VTB Holdings, Inc. (“VTBH”), brought a breach of contract claim in the Delaware Court of Chancery against defendant VTBH for failure to redeem his shares after a 2014 strategic merger involving VTBH, which Bonanno claimed qualified as a triggering event for a redemption. VTBH sought dismissal for improper venue based on the forum selection clauses located in various transaction documents previously entered into among the parties, all of which required them to litigate their disputes in either New York state court or the United States District Court for the Southern District of New York. Ultimately, the Delaware Court of Chancery granted VTBH’s motion to dismiss for improper venue, holding that the redemption is a “transaction” that was contemplated in a 2011 Right of First Refusal Agreement (the “2011 ROFR”) between the parties and the 2011 ROFR contained an exclusive New York forum selection clause, which governed Bonanno’s claims as a matter of New York law.
By: Eric Freedman and Makda Goitom
In Doppelt v. Windstream Holdings, Inc., No. 10629-VCN (Del. Ch. Feb. 5, 2016), the Delaware Court of Chancery denied a motion to dismiss claims brought by plaintiff stockholders against a Windstream Holdings Inc.’s board of directors for breach of fiduciary duty, finding that the plaintiffs’ allegations were reasonably conceivable and that the director liability exculpation provision in the corporation’s certificate of incorporation would not clearly preclude liability on the part of the board of directors. The Chancery Court granted defendants’ motion to dismiss as to plaintiffs’ claim for rescission and claim against the corporation for breach of fiduciary duty.
By Scott E. Waxman and Annamarie C. Larson
Plaintiff George Polk served dual roles in relation to RED Parent LLC (the “Company”). Polk was both a manager of the Company and an indirect owner of the Company through his interest in one of the Company’s members. In RED Capital Investment L.P. v. RED Parent LLC, the court held that “[b]ecause Polk made a proper request in his capacity as Manager and stated a proper purpose, and because the requested information is within RED Parent’s control, he is entitled, pursuant to Section 18-305(b), to inspect the requested books and records.”
By David Forney and Eric Taylor
In In Re EZCorp Inc. Consulting Agreement Derivative Litigation, C.A. No. 9962-VCL (Del. Ch. January 25, 2016) (Laster, V.C.) the Delaware Court of Chancery granted in part and denied in part a 12(b)(6) motion to dismiss for failure to state a claim, but at its heart the ruling addressed the proper standard of review in a case alleging self-dealing by a controlling stockholder for “tunneling” cash flow and receiving non-ratable benefits from related-party services agreements. After a detailed and extensive analysis, the court held that the entire fairness standard of review, and not the business judgment standard of review, applied to non-merger business transactions where controlling stockholders can exact non-ratable benefits from the company, regardless of the type of transaction or method of extraction.
By Shoshannah Katz and B. Ashby Hardesty, Jr.
Citing the Chancery Court’s broad discretionary authority to validate defective corporate acts, Vice Chancellor Noble denied a defendant corporation’s motion to dismiss, ruling that it was “reasonably conceivable” that a plaintiff hedge fund could successfully compel the corporation to sell to it approximately $5 million worth of stock, despite the board of directors’ failure to authorize the transaction or to memorialize it in writing.
By: Scott E. Waxman and David Valenti
In deciding a motion to dismiss derivative and direct shareholder claims, the Delaware Chancery Court addresses the defense of release, examines whether allegedly defensive board actions trigger the heightened Unocal test, and judges the materiality of proxy statement omissions. Although the Court made clear that the affirmative defense of release could be considered in a motion to dismiss, it held that Plaintiffs’ claims did not have the “same identical factual predicate” with previously settled federal class litigation. The Court also applied the Unocal test in analyzing whether the alleged adoption of entrenchment measures state a viable claim, and discussed the standard for pleading material omissions to a proxy statement.
In In re Ebix, Inc. Stockholder Litigation, Plaintiff shareholders brought six claims against Ebix, Inc., (“Ebix”) and its board of directors (the “Board”) arising out of several actions taken by the Board in the lead up to a later abandoned merger attempt. Claims I-III challenged several documents that related to executive compensation arrangements made by Ebix and approved by its Board. Claims IV-V challenged several of the Board’s actions as breaches of its fiduciary duties on the grounds that each constituted an improper entrenchment device by the board, including Ebix’s entry into a Director Nomination Agreement (the “DNA”) with a dissenting shareholder and its adoption of a bundle of new bylaws. In claim VI, Plaintiffs alleged the Board breached its fiduciary duties by issuing a materially misleading and incomplete 2014 Proxy Statement and sought a declaration that the 2014 Annual Shareholders’ Meeting’s actions were invalid.
By Lisa Stark and Trevor Belton
In In re Trulia, Inc. Stockholder Litigation, C.A. No. 10020-CB (Del. Ch. Jan. 22, 2016), the Delaware Court of Chancery rejected a proposed disclosure-only settlement because the proposed disclosures were not “plainly” material and the settlement lacked sufficient consideration to warrant the broad release sought by defendants. The court stated that litigants who pursue disclosure-only settlements can expect “increasingly vigilant scrutiny” of the fairness of the “give” and “get” of such settlements. The court also used the opinion to discuss, more broadly, the dynamics that have led to the proliferation of disclosure settlements; focusing mainly on the concern that these settlements rarely yield genuine benefits for stockholders.
This action arose from the acquisition of Trulia, Inc. (“Trulia”) by Zillow, Inc. (“Zillow”) pursuant to a stock-for-stock merger. Following the announcement of the merger, certain Trulia stockholders brought actions in the Court of Chancery, alleging that the Trulia directors breached their fiduciary duties by approving the proposed merger at an unfair exchange rate and by disseminating inadequate disclosures in connection with the solicitation of the stockholder vote on the merger.
By: Megan Wotherspoon and Calvin Kennedy
By letter-order dated January 14, 2016, Vice Chancellor John W. Noble found that a fiduciary’s self-dealing and personal benefit may preclude the approval of a settlement agreement. By this order, the court refused to approve the proposed settlement because of the equity buyback provision made available only to the plaintiff fiduciary.
In Smollar v. Potarazu, the plaintiff Marvin Smollar (“Smollar”) brought a derivative action on behalf of nominal defendant VitalSpring Technologies, Inc. (“VitalSpring”) against defendant Sreedhar Potarazu, VitalSpring’s Chief Executive Officer (“Potarazu”). Following litigation of the matter, a settlement agreement was agreed to between the parties and submitted to the court for approval (the “Settlement Agreement”). In addition to the relief sought on behalf of VitalSpring, the Settlement Agreement granted Smollar, but not other VitalSpring stockholders, the right to sell Smollar’s shares in VitalSpring back to VitalSpring for the same amount he had purchased it fifteen years ago (the “Buyback Provision”). Other VitalSpring stockholders accordingly objected to the Settlement Agreement and argued that Smollar engaged in a form of self-dealing while serving as a fiduciary.
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