Breach of Fiduciary Duty – Page 11

Chancery Court Permits Limited Partners’ Claims Against General Partners to Proceed Despite Ongoing Bankruptcy of the Partnership

May 11 2017

On a motion to “’confirm the trial schedule,’” Vice Chancellor Glasscock determined that actions brought by the limited partners of a partnership based upon the general partner’s alleged fraud, self interest and breach of the partnership agreement were direct claims and therefore not subject to a stay pursuant to the partnership’s bankruptcy proceeding. Sehoy Energy LP et al. v. Haven Real Estate Group, LLC et al., C.A. No. 12387-VCG (Del. Ch. April 17, 2017), addressed a situation in which the general partner of a limited partnership (and the person controlling the general partner) used funds of the limited partnership to make investments into the business of a personal friend which ultimately resulted in the bankruptcy of the partnership.

Court of Chancery Holds That A Credible Basis to Infer Wrongdoing by One Director is Sufficient to Satisfy Burden of Proof Under Section 220

May 04 2017

By: Remsen Kinne and Tami Mack

In Rodgers v. Cypress Semiconductor Corporation, C.A. No. 2017-0070-AGB (Del. Ch. April 17, 2017), the Court of Chancery held that shareholder plaintiff T.J. Rodgers (“Rodgers”) had established several proper purposes for his demand to inspect certain books and records of Cypress Semiconductor Corporation (the “Company”), along with a credible basis to infer wrongdoing by at least one of the Company’s directors. The Court granted Rodgers’ Section 220 action and directed the parties to meet and submit an order for production of all responsive documents.

Chancery Court Holds That Stockholder Vote on Merger Was Neither Fully-Informed nor Uncoerced

Apr 20 2017

By: Lisa R. Stark and Taylor B. Bartholomew

In In re Saba Software, Inc. Stockholder Litigation, C.A. No. 10697-VCS (Del. Ch. Mar. 31, 2017, revised Apr. 11, 2017), the Delaware Court of Chancery held that the board of Saba Software, Inc. could not invoke the business judgment rule under the Corwin doctrine in response to a fiduciary challenge arising from Saba’s acquisition by Vector Capital Management, L.P. According to the Court, plaintiff pled facts which supported a reasonable inference that the stockholder vote approving the acquisition was neither fully-informed nor uncoerced. The Court also denied defendants’ motion to dismiss plaintiff’s claims that the Saba board breached its duty of loyalty and engaged in acts of bad faith by rushing the sales process, refusing to consider alternatives to the merger and granting itself substantial equity awards.

Court of Chancery Dismisses Derivative Action Against Board of Directors of UPS for Failure to Monitor

Feb 15 2017

By: Michelle McCreery Repp and Joshua Haft

The Court of Chancery granted a motion to dismiss a shareholder derivative action brought against the board of directors of UPS for breach of their fiduciary duty of loyalty in which it was alleged that the board failed to monitor UPS’s compliance with laws governing the transportation and delivery of cigarettes, resulting in the government seeking approximately $180 million in a pending enforcement action against UPS. In ruling on the motion, the Court held that the plaintiffs did not adequately plead facts to support their contention that making a demand on the board of directors to take corrective action or pursue the claim would be futile, which is a prerequisite to a shareholder derivative action.

Delaware Chancery Court Confirms the Invalidity of Fee-Shifting Bylaws for Stock Corporations

Jan 13 2017

By Lisa R. Stark and Taylor B. Bartholomew

In Solak v. Sarowitz, C.A. No. 12299-CB (Del. Ch. Dec. 27, 2016), the Delaware Court of Chancery held that plaintiff stated a claim that a stock corporation’s fee-shifting bylaw was facially invalid under Section 109(b) of the General Corporation Law of the State of Delaware (the “DGCL”). The fee-shifting bylaw purported to apply to a stockholder who sought to litigate claims involving the corporation’s internal corporate governance in a forum other than Delaware in violation of the corporation’s forum-selection bylaw. No stockholder had violated the forum-selection bylaw at the time of the decision, and the plaintiff successfully overcame a ripeness defense. In rendering its decision, the Court of Chancery confirmed that fee-shifting bylaws relating to internal corporate claims are impermissible for stock corporations following the 2015 amendments to the DGCL (the “2015 DGCL Amendments”) which prohibit stock corporations from enacting fee-shifting bylaws or certificate of incorporation provisions, in each case, relating to “internal corporate claims.” Under Section 115 of the DGCL, “internal corporate claims” are claims, including derivative claims, (1) that are “based upon a violation of a duty by a current or former director or officer or stockholder in such capacity” or (2) as to which the DGCL “confers jurisdiction upon the Court of Chancery.”

“Cleansing” the Merger: Stockholder Vote Protects Directors from Class Action Where Plaintiffs Fail to Sufficiently Allege Material Deficiency in Proxy Statement

Jan 11 2017

By: Joanna Diakos Kordalis and Max E. Kaplan

By memorandum-opinion dated January 5, 2017, Chancellor Bouchard granted defendants’ motion to dismiss a putative class action complaint in In re Solera Holdings, Inc. Stockholder Litigation. Specifically, the Court held that absent allegations specifically identifying material deficiencies in the operative disclosure documents, ratification by a majority of disinterested stockholders rendered defendant-directors’ approval of a merger subject to the business judgment rule.

REVLON AND UNOCAL ENHANCED SCRUTINY REJECTED FOR DISSOLUTION PLAN

Nov 05 2016

By Kevin P. Stichter and Nathan Harrill

In Huff Energy Fund v. Gershen, C.A. No. 11116-VCS, the Delaware Court of Chancery dismissed a stockholder’s challenge to the board of director’s decision to dissolve the company following an asset sale. The Court ruled that the enhanced scrutiny standards of Revlon and Unocal do not supplant the business judgment rule in the context of a company’s decision to dissolve.

CHANCERY COURT DISMISSES POST-CLOSING DISCLOSURE CLAIMS AGAINST DIRECTORS OF MILLENNIAL MEDIA, INC.

Nov 01 2016

By Merrick Hatcher and Andrew Lloyd

In An Nguyen v. Michael G. Barrett, et al., C.A. No. 11511-VCG (Del. Ch. Sept. 28, 2016), Vice Chancellor Glasscock granted defendants’ motion to dismiss claims brought by a stockholder against members of the board of directors of Millennial Media, Inc., a Delaware corporation (“Millennial”), finding that plaintiff’s allegations failed to state a non-exculpated claim of breach of fiduciary duty with respect to alleged disclosure violations in connection with Millennial Media’s acquisition by AOL, Inc. (“AOL”). Read More

Delaware Chancery Court Dismisses Revlon Claims Based on Fully Informed, Uncoerced Stockholder Vote

Oct 25 2016

By Lisa Stark and Jonathan Miner

In In Re OM Group, Inc. Stockholder Litigation, C.A. No. 11216-VCS (Del. Ch. Oct. 12, 2016), the Delaware Court of Chancery dismissed Revlon claims, on the basis that the challenged merger had been approved by a disinterested, uncoerced and fully-informed majority vote of the target’s stockholders and therefore the business judgment rule applied.

DELAWARE CHANCERY COURT APPLIES MFW FRAMEWORK TO DISMISS SUIT BY MINORITY STOCKHOLDERS IN CONNECTION WITH SQUEEZE-OUT MERGER

Oct 25 2016

By Annette Becker and Joseph Phelps

In In re Books-A-Million, Inc. Stockholders Litigation, No. 11343-VCL (Del. Ch. Oct. 10, 2016), the plaintiffs, minority stockholders of Books-A-Million, Inc. (the “Company”), alleged that the Company’s directors, controlling stockholders and several of its officers breached their fiduciary duties in connection with a squeeze-out merger effected by the controlling stockholders in 2015 to take the Company private. The Court of Chancery held that the plaintiffs failed to plead facts to take the transaction outside the six-pronged framework approved by the Delaware Supreme Court in Kahn v. M&F Worldwide Corp., 88 A.3d 635 (2014) (“MFW”), and, consequently, the business judgment rule, rather than the entire fairness test, applied in reviewing the merger. Upon application of the business judgment rule, the Court dismissed the case.

Catagory:Breach of Fiduciary Duty