Breach of Contract – Page 5

CHANCERY COURT DISMISSES CASE FOR IMPROPER VENUE AFTER “EXPORTING” CONTRACTUAL FORUM SELECTION CLAUSE FROM AGREEMENT SIGNED BY PLAINTIFF

Feb 19 2016

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.

Chancery Court Grants in Part and Denies in Part Motion to Dismiss in Fraud Dispute

Dec 16 2015

By Eric Feldman and James Parks

On a motion to dismiss in Prairie Capital III, L.P. v. Double E Holding Corp., the Delaware Court of Chancery, granting in part and denying in part the defendant’s motion, re-enforced the importance of bargained-for contractual terms in the context of a dispute over a transaction consummated pursuant to a stock purchase agreement.

The case involves a transaction between two private equity firms, Prairie Capital Partners and Incline Equity Partners. Prairie Capital Partners, through its sponsored funds Prairie Capital III, L.P and Prairie Capital III QP, L.P. (collectively, “Prairie Capital”), owned Double E Parent LLC (the “Company”), a portfolio company, which it sold to Double E Holding Corp., which was an acquisition vehicle formed by Incline Equity Partners III, L.P., which was sponsored by Incline Equity Partners (collectively the “Buyer”). Prairie Capital III L.P. and Prairie Capital III QP, L.P. (the “Sellers”) were the principal sellers, and the Stock Purchase Agreement (the “SPA”) was signed and the transaction closed on April 4, 2012. The SPA established an escrow fund for a limited period of time for the parties’ respective indemnification obligations and included procedures to make a claim against such escrow fund.

Chancery Court Holds That a Limited Partner’s Claims are Dual-Natured and Can Be Pursued After a Related-Party Merger; $171 Million Award to Be Recovered Pro Rata By Unaffiliated Limited Partners

Dec 09 2015

By Scott Waxman and Joshua Haft

The Chancery Court held that a plaintiff’s claim that a general partner was liable for breach of a limited partnership agreement, for which the general partner was previously found liable by the Chancery Court, was best viewed as a dual-natured claim. Dual-natured claims should be viewed as derivative for purposes of Chancery Court Rule 23.1 and the demand doctrine, but should be viewed as direct for purposes of claim termination after a merger that extinguished a limited partnership. Thus, the Chancery Court granted pro-rata recovery of a liability award for breach of a limited partnership agreement to limited partners who were not affiliated with the general partner at the time of the related-party merger that resulted in termination of the limited partnership.

Delaware Chancery Court Denies Creditor Plaintiff’s Breach of Fiduciary Duty, Fraudulent Transfer, and Breach of Covenant Claims

Oct 30 2015

By Scott Waxman and Dotun Obadina

In Quadrant Structured Products Company v. Vertin, plaintiff creditor Quadrant Structured Products Company, Ltd. (“Quadrant”) asserted claims against defendant Athilon Capital Corporation (“Athilon” or the “Company”), challenging transactions made by Athilon in which Athilon purchased securities and notes from Merced Capital, L.P. and its affiliates (together, “Merced”), owners of 100% of the Athilon’s equity and significant amounts of Athilon’s publicly-traded junior and senior notes.[1] Quadrant contended at trial that the repurchase of Merced’s notes breached express covenants in the indenture governing the notes and also violated the implied covenant of good faith and fair dealing. Quadrant also contended that the repurchases of the notes constituted a fraudulent transfer. Finally, relying on its status as a creditor of an insolvent company, Quadrant claimed derivatively that the repurchases of the notes and securities constituted breaches of fiduciary duty by Merced and the individual defendants, who comprised Athilon’s board of directors. The court rejected all of Quadrant’s claims.

Chancery Court Confirms Delaware’s Merger Statutes Inapplicable to Options

Aug 25 2015

By Lisa Stark and Eric Jay

In Kurt Fox v. CDX Holdings, Inc. (f/k/a Caris Life Sciences, Inc.), C.A. No. 8031-VCL (Del. Ch. July 28, 2015), the Delaware Court of Chancery confirmed that Delaware’s merger statutes do not effect a statutory conversion of options at the effective time of a merger. Rather, the treatment of stock options in a merger is governed by the underlying stock option plan, which must be amended in connection with a merger if the treatment of options in the merger differs from the treatment contemplated by the plan. The Court also confirmed that a standard qualification in stock option plans, requiring a corporation’s board of directors to determine the fair market value of the option for purposes of cashing out the options, could not be satisfied by informal board action or a delegation to management or a third party.

This class action arose from a 2011 spin-off/merger transaction pursuant to which Miraca Holdings, Inc. (“Miraca”) acquired CDX Holdings, Inc. (formerly known as Caris Life Sciences, Inc.) (“Caris”) for $725 million (the “Merger”). Immediately prior to the Merger, Caris spun off two of its three subsidiaries to its stockholders (the “Spin-Off”). In the Merger, each share of Caris stock was converted into the right to receive $4.46 in cash. Each option was terminated with the right to receive the difference between $5.07 per share and the exercise price of the option, minus 8% of the total option proceeds, which were held back to fund an escrow account from which Miraca could satisfy indemnification claims brought post-closing.

Chancery Court Dismisses Breach of Fiduciary Duty Claims Against Company and Its Board of Directors Relating to 2014 Recapitalization, But Holds That Contract Claims May Proceed

Jul 16 2015

By Annette Becker and Lauren Garraux

In a July 8, 2015 letter opinion, Vice Chancellor John W. Noble granted in part and denied in part the motion of Capella Holdings, Inc. and Capella Healthcare, Inc. (“Capella” or the “Company”) and five Capella directors (the “Director Defendants”) (collectively, “Defendants”) to dismiss breach of fiduciary duty and breach of contract claims asserted against them by James Thomas Anderson (“Anderson”), a founder and former director and officer of Capella, relating to a 2014 recapitalization of the Company.

Anderson’s counterclaims against Defendants all arise from a recapitalization of Capella which the Director Defendants approved in April 2014. Anderson voted against the recapitalization, which decreased Anderson’s ownership percentage in the Company, as well as that of the minority shareholders, and increased the ownership percentage of affiliates of GTCR Golder Rauner II LLC (“GTCR”), which, upon Capella’s formation, made an equity investment of approximately $206 million in the Company.

Delaware Chancery Court Addresses Alleged Breaches of LLC Agreement

Jul 14 2015

By Scott Waxman and Sophia Lee Shin

NewYork.com Internet Holdings, Inc. v. Entertainment Benefits Group, LLC, et al., involves a dispute between the two owners, each with a 50% interest, of NewYork.com Entertainment Group, LLC (“NYEG” or the “Company”). The plaintiff alleged that the Company’s board (the “Board”) was deadlocked because it had been excluded from all decision-making and sought dissolution, and the defendant counterclaimed for various breaches by the plaintiff of the Company’s operating agreement; the plaintiff then moved to strike the defendant’s counterclaim or dismiss it in its entirety. In this opinion, the court granted in part and denied in part the plaintiff’s motion to strike, and denied in its entirety the plaintiff’s motion to dismiss.

The plaintiff and defendant in this case were the two owners of NYEG. The principals of the plaintiff, NewYork.com Internet Holdings, Inc. (“NYIH”), were the original registrants of the domain name NewYork.com, a website that sells and markets travel and entertainment tickets in New York. The defendant, Entertainment Benefits Group, LLC (“EBG”), is in the business of selling and marketing travel and entertainment tickets.

Delaware Court of Chancery Declines to Dismiss Claims for Breach of Contract and Breach of Fiduciary Duties

Jul 08 2015

By Nick Froio and Zack Sager

In CMS Investment Holdings, LLC v. Castle, the Delaware Court of Chancery declined to dismiss claims for breach of contract, breach of fiduciary duties, aiding and abetting breach of fiduciary duties, and civil conspiracy, among others.

In Castle, the Plaintiff, CMS Investment Holdings, LLC, was a member of, and holder of Class A units in, RP Holdings Group, LLC, a Delaware limited liability company (the “Company”). The business of the Company (i.e., providing non-legal administrative services in connection with mortgage foreclosures) was created by the principal Defendants (i.e., five individuals who practiced law in Colorado and Arkansas). The Defendants held Class B and C units in the Company and ran the business in their various capacities as employees, officers, and managers of the Company. The Plaintiff’s complaint alleged that the Defendants, along with several of their affiliated entities, intentionally failed to make distributions to the Plaintiff, as a Class A unitholder, in favor of the Defendants in violation of the Company’s limited liability company agreement (the “LLC Agreement”). The Plaintiff also alleged that the Defendants purposefully took actions to block the Company from receiving much-needed debt refinancing, facilitated the Company‘s decline into insolvency, secretly negotiated with its creditors, and then, through their affiliated entities, purchased on favorable terms a major part of the Company’s business back from the Company in receivership.

The Plaintiff brought direct claims against the Defendants alleging (1) breach of the LLC Agreement and the implied contractual covenant of good faith and fair dealing, (2) breach of fiduciary duties, (3) aiding and abetting breaches of fiduciary duties, (4) civil conspiracy, and (5) violation of the Delaware Uniform Fraudulent Transfers Act. The Defendants filed a motion to dismiss for failing to state a claim upon which relief could be granted.

Fight Between Two Chemical Giants Continues: Akzo Nobel’s Claim of IP Misappropriation against Dow Chemical Survives Motion to Dismiss

Jun 17 2015

By Holly Vance and Stephanie S. Liu

In Akzo Nobel Coatings, Inc. v. The Dow Chemical Company, the Delaware Court of Chancery decided a dispute between two chemical companies that were parties to a joint development agreement. Akzo Nobel Coatings Inc. (“Akzo”) alleged, among other things, that The Dow Chemical Company, doing business as Dow Advanced Materials (“Dow”), wrongfully misappropriated intellectual property that belonged in part or in whole to Akzo and breached their joint development agreement. Dow moved to dismiss pursuant to Court of Chancery Rule 12(b)(6). The Court granted the motion in part and denied in part. Specifically, Akzo’s claims for declaratory judgment and breach of contract survived, but its alternative claims for breach of the implied covenant of good faith and fair dealing, conversion, and unjust enrichment were dismissed.

Akzo specializes in the design, manufacture, and sale of various chemical coatings, including protective coatings for food and beverage packaging and containers. Dow develops, manufactures, and sells polymeric materials, products, and technologies, including those suitable for use in coatings for food and beverage containers. In January of 2010, the parties executed a Joint Development Agreement (“JDA”) to combine the parties’ respective areas of expertise in pursuit of the development of new protective coatings for metal food and beverage packaging containers. Depending on the resulting invention, any given project under the JDA could either be wholly owned by one of the two parties or jointly owned. Dow terminated the JDA in October of 2011, and then communicated to Akzo in May of 2012 that it intended to file two patent applications relating to potential JDA inventions. In June of 2013, Akzo filed its complaint, asserting claims for: (1) a declaratory judgment regarding Akzo’s ownership rights under the JDA; (2) breach of contract and a permanent and mandatory injunction against Dow; (3) breach of the implied covenant of good faith and fair dealing; (4) conversion; and (5) unjust enrichment. The Court reviewed the complaint under the reasonable “conceivability” standard, the governing pleading standard in Delaware to survive a motion to dismiss, which asks whether there is a “possibility” of recovery.

Delaware Court of Chancery Holds That Collateral Estoppel Bars Claims By Other Preferred Stockholders

Jun 04 2015

By Annette Becker and Mark Hammes

In Brevan Howard Credit Catalyst Master Fund Limited, et al. v. Spanish Broadcasting System, Inc., the Delaware Court of Chancery considered the latest judicial iteration of rights of holders of preferred stock in Spanish Broadcasting System, Inc. (“SBS”) in which the plaintiffs sought damages as a result of SBS incurring indebtedness following the non-payment of dividends to the preferred stockholders without their consent. The Chancery Court granted defendant SBS’s motion to dismiss on the grounds that collateral estoppel and res judicata barred the plaintiffs from re-litigating issues previously decided in Lehman Brothers Holdings, Inc. v. Spanish Broadcasting System, Inc. against those in privity with the plaintiffs finding that the plaintiffs acquiesced to the non-payment of dividends. The Court dismissed the majority of the plaintiffs’ claims.

By way of background, in Lehman Brothers Holdings, Inc. v. Spanish Broadcasting System, Inc., a prior case involving similar claims brought by other preferred stockholders of SBS, such plaintiffs claimed that the non-payment of dividends to the preferred stockholders led to the occurrence of a voting right trigger event after which SBS incurred indebtedness in violation of the preferred stockholders’ contractual rights, the Court of Chancery granted a motion for summary judgment brought by SBS, holding that the defense of acquiescence as to the non-payment of dividends defeated those preferred stockholders’ claims. The Certificate of Designation of SBS (“Certificate”) setting forth the rights, privileges and preferences of the SBS preferred stock provided that dividends on the preferred stock were payable quarterly, and that if such dividends were not paid for four consecutive quarters, a voting rights trigger permitted the holders of 10% of the outstanding preferred stock to call a special meeting and elect additional directors. The Certificate also prohibited SBS from incurring additional debt after such a triggering event. According to the plaintiffs, a triggering event had occurred in April 2010, while additional debt was incurred in 2011 and 2012. None of the preferred stockholders called a special meeting to elect additional directors. Plaintiffs in this suit brought suit (1) seeking a declaration that a voting rights triggering event had occurred, (2) for breach of contract for incurring the debt, (3) seeking to exercise repurchase rights under the Certificate, and (4) breach of the covenant of good faith and fair dealing.

Catagory:Breach of Contract