2018 – Page 4 – Delaware Docket

Court of Chancery Dismisses Fraud Claim for Alleged Extra-Contractual Misrepresentations Based on Anti-Reliance Clause

Aug 31 2018

In ChyronHego Corporation, et al., v. Cliff Wight and CFX Holdings, Inc., C.A. No. 2017-0548-SG (Del. Ch. July 31, 2018), the Delaware Court of Chancery granted the defendants’ motion to dismiss the plaintiffs’ claim for extra-contractual fraud on the basis that the stock purchase agreement contained an effective anti-reliance clause that precluded such claim. The Court found that the anti-reliance clause rebutted the common law fraud element of reliance on any extra-contractual representations, as described further below. At the same time, the Court dismissed the defendants’ motion to dismiss claims for fraud and breaches of express representations and warranties under the stock purchase agreement, finding that the plaintiffs had sufficiently pleaded the elements of these claims.

CHANCERY COURT FINDS TRANSACTION STRUCTURE CAN TRIGGER PRESUMPTIONS OF BUSINESS JUDGMENT DEFERENCE AT PLEADING STAGE

Aug 30 2018

Nicholas Oleinik…v. Frank A. Lodzinski, et al., and Earthstone Energy,…

By: Carty Bibee and Samantha Beatty

In Olenik v. Lodzinski, C.A. No. 2017-0414-JRS (Del. Ch. July 20, 2018), the Court of Chancery, in a motion to dismiss, found that Earthstone Energy, Inc.’s (“Earthstone”) decision to employ the framework laid out in Kahn v. M&F Worldwide, Corp., 88 A.3d 635 (Del. 2014) (“MFW”) in structuring a transaction secured the benefit of the business judgment rule for its fiduciaries, even at the pleadings stage. The Court found that where the Plaintiff failed to plead waste, or facts which the Court could reasonably conceive as waste, the Plaintiff’s claim that officers and the controlling stockholder breached their fiduciary duties by approving an unfair transaction as interested parties, must be dismissed.

MEMBER ENTITLED TO FAIR VALUE OF INTEREST UPON FORCED WITHDRAWAL

Aug 29 2018

By Scott E. Waxman and Annamarie C. Larson

In Domain Associates, L.L.C. et al. v. Nimesh S. Shah (C.A. No. 12921-VCL), Vice Chancellor Lastor held that, in the absence of clear language in the limited liability company agreement, a withdrawn member of a venture capital fund’s management company is entitled to the fair value of his or her member interest, not simply the amount of the member’s capital account.

Chancery Court Denies Motion to Dismiss a Breach of Contract Claim Based on Language in Limited Partnership Agreement

Aug 27 2018

By: Scott E. Waxman and Stephanie S. Liu

In Ms. Mary Giddings Wenske, et al. v. Blue Bell Creameries, Inc., et al., the Delaware Chancery Court denied Defendants’ motion to dismiss a breach of contract claim, finding that Plaintiffs had pled a set of facts that allow a reasonable inference that Defendants breached the standards set forth in its partnership agreement.

CHANCERY COURT GRANTS MOTION TO DISMISS RELATING TO ALLEGED BREACH OF FIDUCIARY DUTIES BY DIRECTORS OF A DISSOLVED CORPORATION

Aug 27 2018

By: Scott E. Waxman and Joseph Phelps

In Akrout v. Jarkoy, No. 2017-0473-JRS (Del. Ch. July 10, 2018), the plaintiff Nabil Akrout sought a declaration that the dissolution of Intelligent Security Systems International, Inc., Delaware corporation (“ISSI”), was void, and alleged that three individual director-defendants had breached their fiduciary duties to him by failing to apprise him of ISSI’s dissolution and financial condition. Akrout also alleged that the dissolution deprived him of accrued salary and dividends.

CHANCERY COURT GRANTS CERTAIN BOOKS AND RECORDS DEMANDS BY MINORITY STOCKHOLDER RELATED TO A MERGER AND VALUATION OF UNDERLYING ASSETS

Aug 24 2018

By: Jessica Pearlman and Adam Heyd

In Mudrick Capital Management, L.P. v. Globalstar, Inc., C.A. No. 218-0351-TMR (Del. Ch. July 30, 2018), plaintiff Mudrick Capital Management L.P. (“Mudrick Capital”), a minority stockholder of defendant Globalstar, Inc. (the “Company”), brought a demand under Section 220 of the Delaware General Corporate Law (“Section 220”) to inspect certain communications and documents relating to the Company’s proposed merger with Thermo Acquisitions, Inc. (“Thermo”). The Delaware Court of Chancery granted Mudrick Capital’s demand for certain emails, communications and valuation materials relating to the merger, and denied Mudrick Capital’s demand for certain internal draft materials.

Chancery Court Finds Breach of Fiduciary Duties in Insurance Business Gone Awry

Aug 20 2018

By: Scott Waxman and Will Grossenbacher

In Triple H Family L.P. v. Jerry Neal , C.A. No. 12294-VCMR (Del. Ch. July 31, 2018), the Delaware Court of Chancery held that the member-manager of Omni Insurance Group, LLC (“Omni”) breached his fiduciary duties to the company when he misled Omni’s largest customer about lapses in the customer’s insurance coverage. Additionally, the court held that although the other member of Omni owed fiduciary duties to Omni as a de facto manager, that member did not breach his fiduciary duties when he directed business away from Omni after the parties had already agreed to dissolve. Finally, the court held that judicial dissolution of Omni was not required because the members had previously agreed to dissolve Omni, and, as such, all that was required was a winding-up of Omni’s business. Read More

Chancery Court Finds That Stockholders Have Standing For Direct Suit Relating To Unique Claims For Breach Of Fiduciary Duties

Aug 20 2018

By: David L. Forney and Calvin D. Kennedy

In In re Straight Path Communications Inc. Consol. S’holder Litig., C.A. No. 2017-0486-SG (Del. Ch. June 25, 2018), the Court of Chancery, denied a motion to dismiss, finding that the transfer of an indemnification claim to the controller of a company was “sufficiently intertwined” with the company’s sale for the stockholders to make the Plaintiff’s claim a direct claim instead of a derivative claim. The Court stated that when a controller uses his control to extract a special benefit in a sale, at the expense of the consideration to the stockholders, both the injury and the recovery run directly in favor of the former stockholders. The Court also found that, the controller’s actions related to the purchase of the indemnification claim and other assets from the company for “a manifestly unfair price” were sufficient to state a viable claim for breach of fiduciary duties.

Chancery Court Rules that Investing in Competing Businesses Does Not Constitute Misappropriation of Trade Secrets When Permitted by Governing Documents

Jul 20 2018

By: Jessica Pearlman and Corinne Smith

In Alarm.com Holdings, Inc. v. ABS Capital Partners, Inc., et al. (C.A. No. 2017-0583-JTL (Del. Ch. June 15, 2018), plaintiff Alarm.com, Inc. (“Alarm”) brought suit against defendants ABS Capital Partners, Inc., ABS Partners V, LLC, and ABS Partners VII, LLC (collectively “ABS”) asserting: (1) the misappropriation of trade secrets under the Delaware Uniform Trade Secrets Act (“DUTSA”), and (2) common law misappropriation of confidential information. Both claims related to ABS’s investments and board appointments in both Alarm and one of its direct competitors. The Delaware Court of Chancery dismissed both claims for failure to state a claim pursuant to Court of Chancery Rule 12(b)(6), ruling that (1) it was not reasonably conceivable that ABS engaged in misappropriation under DUTSA, and (2) DUTSA preempts Alarm’s common law claim because it is based on the same wrongful conduct as its trade secret claim. Read More

Court of Chancery Dismisses Derivative Suit for Failure to Demonstrate Demand Futility because Plaintiff Failed to Allege Particularized Facts

Jul 19 2018

By: Charles Carter and Caitlin Velasco

In Steinberg on behalf of Hortonworks, Inc. v. Bearden, C.A. No. 2017-0286-AGB (Del. Ch. May 30, 2018), the Delaware Court of Chancery granted the defendants’ motion to dismiss the stockholder plaintiff’s derivative claims for breach of fiduciary duties under Court of Chancery Rule 23.1, because the plaintiff failed to make a pre-suit demand or demonstrate that doing so would be futile. The Court found that the plaintiff failed to plead particularized facts sufficient to raise reasonable doubt that a majority of the directors on the Hortonworks, Inc. board could have exercised their independent and disinterested business judgment in responding to a pre-suit demand. Read More

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