Chancery Court Rule 12(b)(6) – Page 5

CHANCERY COURT DISMISSES BREACH OF CONTRACT CLAIM DUE TO PLAINTIFF’S FAILURE TO PROFFER A REASONABLE CONSTRUCTION OF MERGER AGREEMENT PROVISION

Sep 22 2017

By: Christopher H. Cunningham and Joseph Phelps

In Fortis Advisors LLC v. Shire US Holdings, Inc., No. 12147-VCS (Del. Ch. Aug. 9, 2017), the plaintiff, Fortis Advisors LLC, which was acting as representative (the “Representative”) for the former stockholders of SARcode Bioscience Inc., a private biopharmaceutical company (the “Target”), pursuant to a merger agreement, alleged that the acquiror Shire US Holdings, Inc., a Delaware subsidiary of a global biopharmaceutical company (the “Acquiror”), breached the provisions of a merger agreement by refusing to pay certain milestone payments that were due. The Court of Chancery granted the Acquiror’s motion to dismiss for failure to state a breach of contract claim, concluding that, while the Acquiror’s interpretation of the operative provision at issue was reasonable based on its plain and unambiguous language, the Representative failed to proffer a competing reasonable construction of such provision and thus the Court was required to grant the motion to dismiss.

CHANCERY COURT DENIES MOTION TO DISMISS AND ALLOWS DERIVATIVE SUIT AGAINST BOARD MEMBERS TO CONTINUE

Aug 30 2017

By: Whitney J. Smith and Michael Bill

In H&N Management Group, Inc. & Aff Cos Frozen Money Purchase Plan v. Robert M. Couch et al., No. 12847-VCMR (Del. Ch. Ct. August 1, 2017), the Court of Chancery denied defendants’ motion to dismiss and held that plaintiffs sufficiently alleged a reason to doubt that the board of AGNC Investment Corp (the “Company”) was adequately informed when approving (i) subsequent renewals of a management agreement between the Company and American Capital Mortgage Management, LLC (the “Manager”) as well as (ii) the acquisition of the Manager for a price of $562 million.

Court of Chancery Denies Motion To Dismiss Claim Alleging Breach of Fiduciary Duty Involving Option Grants to Directors and Voting Agreement

Aug 17 2017

By: Cartwright Bibee and Ernest Simons

In Williams v. Ji, C.A. No. 12729-VCMR (Del. Ch. June 28, 2017), the Delaware Court of Chancery denied Defendants’ motion to dismiss, holding that the option and warrant grants and voting agreements in question were subject to entire fairness and that the Defendant directors had not carried their burden at that stage. The Defendants also moved to stay in favor of an earlier filed case in the Court, but the motion was denied as moot because the earlier filed case had settled.

CHOICE OF LAW PROVISION IN STOCKHOLDERS’ AGREEMENT INSUFFICIENT TO CREATE PERSONAL JURISDICTION OVER DELAWARE CORPORATION’S FORMER CEO

Aug 15 2017

By Shoshannah D. Katz and Max E. Kaplan

By order dated August 4, 2017, Vice Chancellor Slights dismissed the complaint seeking to enforce non-compete and non-solicitation provisions in a stockholders’ agreement in EBP Lifestyle Brands Holdings, Inc. v. Boulbain, C.A. No. 2017-0269-JRS (Del. Ch. Aug. 4, 2017), finding that the Delaware Chancery Court lacked personal jurisdiction over the defendant. Specifically, the Court held that defendant’s execution of a stockholders’ agreement governed by Delaware law and concerning a Delaware corporation was insufficient to satisfy the statutory and constitutional requirements to establish personal jurisdiction over an individual not resident or transacting business in Delaware.

Even Languorous Litigation Must Abide Rule 12(b)(6), Chancery Court Holds

Aug 04 2017

By: Scott E. Waxman and Will Smith

In Beach to Bay Real Estate Center LLC et al. v. Beach to Bay Realtors Inc. et al., Civil Action No. 10007-VCG (Del. Ch. July 10, 2017), the Delaware Court of Chancery granted in part the defendants’ motion to dismiss because the plaintiffs’ alleged only conclusory facts in support of their claims for breach of fiduciary duty and constructive trust. The court also dismissed the plaintiffs’ claim for breach of implied contract based on an oral LLC operating agreement, a theory of recovery that was in tension with the sole written document proffered by the plaintiffs and the plaintiffs’ own allegations about the parties’ obligations to the LLC.

Court of Chancery Dismisses Complaint Seeking to Enforce a Stockholder’s Section 220 Demand to Inspect the Books and Records of Fannie Mae on Issue Preclusion Grounds

Jul 24 2017

By: David L. Forney and David Valenti

In Pagliara v. Federal National Mortgage Association, C.A. No. 12105-VCMR (Del. Ch. May 31, 2017) the Court of Chancery dismissed a complaint brought by a preferred stockholder of Federal National Mortgage Association (“Fanny Mae”) seeking to enforce his rights under Section 220 of the Delaware General Corporation Law to obtain documents (“Section 220 Demand”) to investigate certain actions of Fannie Mae on issue preclusion grounds. The Court of Chancery ruled that a prior judgment of the Eastern District of Virginia was preclusive on the dispositive issue of whether Fannie Mae stockholders retained the right to obtain the corporate books and records of Fannie Mae under the Housing and Economic Recovery Act of 2008 (the “HERA”).

Court of Chancery Denies Motion to Dismiss Claim Alleging that General Partner Breached Contractual Duty of Good Faith

Jul 17 2017

By: Scott Waxman and Zack Sager

In Morris vs. Spectra Energy Partners (DE) GP, LP, the Court of Chancery of the State of Delaware found that a limited partner adequately pled that the general partner of a master limited partnership breached its contractual duty to act in good faith in connection with a conflicted transaction between the master limited partnership and the indirect parent of the general partner. The Court also dismissed claims for breach of the implied contractual covenant of good faith and fair dealing and tortious interference with a partnership agreement.

Failure to Make Demand to the Board of Directors Dooms 50% Owner’s Breach of Fiduciary Duty Claims Against Co-Owner

May 19 2017

By: Michelle McCreery Repp and Benjamin Kendall

In Dietrichson v. Knott, C.A. No. 11965-VCMR (Del. Ch. Apr. 19, 2017), the Chancery Court dismissed the entire complaint brought by one member of a limited liability company against another member for paying himself an unauthorized salary and misappropriating the proceeds of a sale of the company’s assets, concluding that the claims made were derivative rather than direct stockholder claims. The Court also held that plaintiff’s claims were not “dual-natured” (i.e., having both direct and derivative aspects), because the plaintiff failed to plead that the transaction resulted in both an improper transfer of economic value and voting power from the minority equity holders to the controlling equity holder.

“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.

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.

Catagory:Chancery Court Rule 12(b)(6)