2021 – Page 2 – Delaware Docket

Produce those documents; Conflict allegations sufficient to merit inspection of books and records under Section 220 of the DGCL.

Jun 26 2021

By: Joanna A. Diakos and Kara Maynard Guio

In Alexandria Venture Inv. LLC et al. v. Verseau Therapeutics, Inc., C.A. No. 2020-0593-PAF (Del. Ch. Dec. 18, 2020), the Delaware Court of Chancery (the “Court”) granted plaintiff stockholder’s motion seeking to compel inspection of certain books and records of Verseau Therapeutics pursuant to Section 220 of the Delaware General Corporation Law (“DGCL”). The Court ruled that the stockholders met the low threshold necessary to establish a credible basis for believing that corporate wrongdoing had occurred. While disagreements with management decisions are insufficient to meet this burden, evidence of a conflict of interest in making management decisions is sufficient.

NOT RIGHT NOW: DELAWARE COURT OF CHANCERY DISMISSES SECTION 220(C) COMPLAINT TO COMPEL INSPECTION OF CORPORATION’S BOOKS

Jun 03 2021

By: David Forney and Harsha Garikapati

In MaD Investors GRMD, LLC and MaD Investors GRPA, LLC, v. GR Companies, Inc., C.A. No. 2020-0589-MTZ (Del. Ch. October 28, 2020), the Delaware Court of Chancery (the “Court”) held on an issue of first impression that a Delaware corporation has until midnight on the fifth business day after being served with a Section 220 demand to inspect books and records (a “Demand”) to respond to that Demand.

MaD Investors GRMD, LLC and MaD Investors GRPA, LLC (collectively, the “Plaintiffs”) are stockholders of GR Companies, Inc. (the “Company” or “Defendant”). In July 2020, Plaintiffs sent a Demand to compel inspection of the Company’s books and records. A week later, Plaintiffs filed a Verified Complaint against Defendant (the “Complaint”) with the Court, asking it to compel Defendant to open its books and records for inspection by Plaintiffs. In early August, the Company filed a motion to dismiss (the “Motion to Dismiss”) asserting Plaintiffs failed to comply with the 8 Del. C. § 220 requirement to wait a full five business days after the Company’s receipt of the demand to file suit.

Chancery Court Declines to Expand Gentile Doctrine

Jun 03 2021

By: Scott Waxman and Doug Logan

In Dr. Thomas Markusic et al. v. Michael Blum et al. memorandum opinion 200818, the Delaware Chancery Court (the “Court”) declined to extend the Gentile doctrine. In so doing, the Court held that the counterclaims attempting to rely on it had to be dismissed.

Firefly Space Systems, Inc. (“Original Firefly”) was an aerospace startup founded by Michael Blum, Patrick Joseph King, and Thomas Markusic in late 2013 with the aim of launching small-load rockets into orbit. Counterclaim-Plaintiffs Blum, King, Lauren McCollum, Steven Begleiter, Green Desert N.V., Swing Investments BVBA, Bright Success Capital Ltd., and Wunderkind Space Ltd. (collectively, “Original Firefly Investors”) each owned stock in Original Firefly, with Markusic in the role of CEO and sole board member of Original Firefly at all relevant times.

Delaware Chancery Court reaffirms need for factual particularity in assessing demand futility and granted Defendants’ motion to dismiss

May 28 2021

By: Jessica Pearlman and Mary Nicholas

In a letter opinion, Mark Gottlieb, et al., v. Jonathan Duskin, et al, Civil Action No. 2019-0639-MTZ (Del. Ch. November 20, 2020), the Delaware Court of Chancery granted Defendants’ motion to dismiss Plaintiff’s complaint in its entirety for failure to satisfy, with enough factual particularity, that a demand that the board of directors pursue the corporate claim would have been futile under Rule 23.1.

If a Contract Claim Walks and Talks like a Contract Claim, It is a Contract Claim

May 05 2021

By Scott E. Waxman and Terrina G. LaVallee

In Transdev on Demand, Inc. v. Blackstreet Investment Holdings, LLC, C.A. No. 2019-0912-SG (Del. Ch. 2020), the Delaware Court of Chancery granted in part and denied in part the plaintiff’s motion to dismiss the defendant’s counterclaims. The court denied two counts of the plaintiff’s motion to dismiss because it held it was inappropriate at this pleading stage to determine whether the agreement compelled specific performance and whether a breach of contract claim should have been an indemnification claim. In contrast, the court granted the plaintiff’s motion to dismiss one counterclaim because the defendant attempted to “bootstrap” a claim seeking damages for breach of contract, which was contractually prohibited, to a tort claim for fraud.

Chancery Court Sustains Derivative Action Alleging Caremark Claims

May 04 2021

By Scott Waxman and Claire Suni

In Teamsters Local 443 Health Services & Insurance Plan, et al. v. John G. Chou, et al., C.A. No. 2019-0816-SG (Del. Ch. August 24, 2020), the Delaware Court of Chancery (the “Court”) held that stockholders of AmerisourceBergen Corporation (“ABC”), a pharmaceutical sourcing and distribution company, adequately pled facts supporting the inference that certain ABC officers and directors breached fiduciary duties and acted in bad faith to consciously disregard a variety of red flags of illegal activity in connection with ABC’s packaging and distribution of cancer medications. The Court denied in full the defendants’ motion to dismiss for failure to state a claim for relief.

Chancery Court Finds that Although Alleged Disclosure Deficiency Prevents Application of Corwin, It Is Insufficient to Reasonably Imply Breach of the Duty of Loyalty

Apr 27 2021

By: Michelle R. McCreery, Teresa Teng and Sean P. Boyle

In In re USG Corporation Stockholder Litigation, C.A. No. 2018-0602-SG (Del. Ch. Aug. 31, 2020), the Court of Chancery found that an alleged disclosure deficiency by a corporation’s board that is sufficient to prevent the application of the Corwin defense, alone, is insufficient to reasonably imply bad faith and a breach of the duty of loyalty. Further, the Court found that an allegation that a defendant failed to satisfy Revlon, by itself, is insufficient to plead a breach of the duty of loyalty; a pleading must also reasonably imply that the directors’ failure to satisfy Revlon was due to interestedness or bad faith.

An Insolvent Corporations May Transfer All of its Assets to its Creditors without Stockholder Approval

Apr 01 2021

By: Lisa R. Stark and Marissa Leon

In Stream TV Networks, Inc. v. SeeCubic, Inc., C.A. No. 2020-0310-JTL (Del. Ch. Dec. 8, 2020), the Court of Chancery of the State of Delaware (the “Court”) ruled that all of the assets of an insolvent 3D television technology company, Stream TV Networks Inc. (“Stream”), could be transferred to its secured creditors even though Stream did not seek stockholder approval of the sale under Section 271 of the General Corporation Law of the State of Delaware (the “DGCL”) or its certificate of incorporation. Accordingly, the Court enforced an agreement between Stream and its secured creditors pursuant to which Stream agreed to transfer all of its assets to an affiliate of its two secured creditors.

Music Industry Executive Lawsuit against Record Label Partially Dismissed

Apr 01 2021

By Scott E. Waxman and Marissa Leon

In Todd Moscowitz v. Theory Entertainment LLC (C.A. No. 2019-0780-MTZ), the Court of Chancery of the State of Delaware (the “Court”) narrowed the claims in a lawsuit challenging the buyout of a music industry executive’s ownership interest in a record label he co-founded.

Interpretation of an LLC Agreement with Respect to the Appointment and Removal of Board Members Is Strictly Based on the Plain Language Contained in the Four Corners of the LLC Agreement

Mar 27 2021

By Scott E. Waxman and Jennifer J. Yeung

Where one fifty-percent owner of a single member LLC wished to remove the existing tiebreaker director, the Delaware Court of Chancery held that he could not do so. A governing LLC agreement’s plain language must be strictly construed; and in this case, it did not provide for unilateral removal of a board member.

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