Fiduciary Duty – Page 6 – Delaware Docket

CHANCERY COURT DISMISSES STOCKHOLDERS’ BREACH OF FIDUCIARY DUTY AND AIDING AND ABETTING CLAIMS RELATING TO STOCK-FOR-STOCK MERGER

Sep 18 2017

In In re MeadWestvaco Stockholders Litigation, the defendants moved to dismiss class action claims brought by stockholders of MeadWestvaco Corporation (the “Company”) for breach of fiduciary duty and aiding and abetting claims relating to the Company’s board of director’s approval of a strategic stock-for-stock merger of equals entered into between the Company and Rock-Tenn Company that closed in 2015. The court held that the complaint did not contain factual allegations sufficient to state a claim against the directors for bad faith in connection with the approval of the merger.

Unclean Hands and Unreasonable Demands — Chancery Court Holds That Plaintiff’s Fiduciary Duty Claims Fail Due to Doctrine of Unclean Hands

Aug 22 2017

By Scott Waxman and Jonathan Miner

In Thomas McKenna, et al., v. David Singer, et al., C.A. No. 11371-VCMR (Del. Ch. July 31, 2017), the Delaware Court of Chancery relied on the doctrine of unclean hands to rule against the McKennas, a father and son team of would-be energy conversion financiers, who brought a claim for breach of fiduciary duties against their business partners, Daniel and David Singer, for alleged misappropriation of a corporate opportunity. The Singers were brothers and co-owned of an energy distribution business conducted through their companies, Singer Energy Group, LLC (“SEG”) and Robison Energy, LLC (“Robison Energy”). The Singers and McKennas formed two entities together, Robison Energy Fund, LLC (“REF”) and Green Energy Companies, LLC (“GEC”), with the intent of using REF and GEC to create a new financing business that would assist in capitalizing the Singers’ existing businesses and would act as an underwriting arm for loans to customers that wanted to finance energy conversion projects performed by Robison Energy. These business and financing plans failed and the Singers turned instead to Westport Capital Partners (“Westport”) for a financing deal in which the McKennas, REF and GEC were ultimately not involved. The McKennas then sued the Singers on the theory that the Singers misappropriated an opportunity that belonged to REF and GEC. The Court found that the McKennas had misrepresented their previous financing work, and such misrepresentations had been integral in inducing the Singers to enter into a business relationship with the McKennas. As such, the McKennas could not now “seek to enforce the fiduciary duties that attached in part because of their misrepresentations.” The Court also considered on the merits the McKennas’ misappropriation claim and determined that it also failed because the opportunity with Westport never belonged to REF and GEC and was an opportunity solely for Robison Energy.

Court of Chancery Holds That Structurally Coercive Stockholder Vote Does Not Ratify Fiduciary Actions Related To Shares Issuance and Proxy Grant To Stockholder

Jul 13 2017

By: Remsen Kinne and Tami Mack

In Sciabacucchi v. Liberty Broadband Corporation, C.A. No. 11418-VCG (Del. Ch. May 31, 2017), the Court of Chancery ruled on a motion to dismiss by defendants Liberty Broadband Corporation (“Liberty”), a stockholder of Charter Communications, Inc. (“Charter”) and officers and directors of Charter. The Court held that facts alleged by plaintiff, a Charter stockholder, supported the inference that a vote by Charter stockholders approving a shares issuance to and voting proxy agreement with Liberty was structurally coercive. The Court determined that since the vote was coercive, it did not ratify actions by Liberty and Charter’s directors and officers claimed by plaintiff to have breached fiduciary duties of loyalty. As a result, the Court held, defendants were not entitled to dismissal of plaintiff’s claims solely on the basis that stockholder vote ratification operated to “cleanse” fiduciary duties breaches.

Delaware Court Of Chancery Ruling Provides a Cautionary Tale for Investment Fund Directors Seeking to Monetize Their Investment

Jun 14 2017

Delaware Court Of Chancery Ruling Provides a Cautionary Tale for Investment Fund Directors Seeking to Monetize Their Investment

By Jill B. Louis and Ernest L. Simons

In The Frederick Hsu Living Trust v. ODN Holding Corp., et al., one of the founders of ODN Holding Corporation (the “Company”) filed suit against the controlling stockholder, the board and certain officers of the Company for cash redemptions of preferred stock allegedly made in violation of statutory and common law instead of using the Company’s cash to maximize the value of the Company for the long term benefit of all stockholders. The Delaware Court of Chancery granted defendants’ motions to dismiss claims of waste and unlawful redemption. However, the Court of Chancery denied defendants’ motions to dismiss claims of breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, and unjust enrichment finding that the allegations of the Plaintiff supported a reasonable inference that the entire fairness standard would apply and that individual defendants may have acted in bad faith.

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.

Chancery Court Interprets Contractual Provisions, the Elimination of Fiduciary Duties and Standard to be Applied for Self-Dealing Transactions under LLC Agreement

Feb 24 2017

By Nicholas I. Froio and Rachel Cheasty Sanders

In CelestialRX Investments, LLC and Krittika Life Sciences, LLC v. Krivulka, et al., C.A. No. 11733-VCG (Del. Ch. Jan. 31, 2017), the Delaware Court of Chancery addressed two preliminary issues before it on motions for partial summary judgment filed by the various defendants. The plaintiffs include CelestialRX Investments, LLC (“CelestialRX”), one of three members of the Delaware limited liability company Akrimax Pharmaceuticals, LLC (“Akrimax”). The defendants include Leonard Mazur and Joseph J. Krivulka (“Krivulka”), the two other members of Akrimax, along with various entities Krivulka controls or in which he has invested. These entities entered into a number of transactions with Akrimax, these transactions being at the heart of this dispute. The Court first considered whether a release agreement dated July 1, 2013 (“Release Agreement”) barred CelestialRX from bringing causes of actions against the defendants which occurred prior to the release. After applying rules of contract interpretation, the Court, in dismissing the motion for partial summary judgment, held that the plaintiff was not a “Releasing Party” as defined in the Release Agreement and thus had not released any claims existing as of July 1, 2013. The Court next considered the extent to which the LLC Agreement of Akrimax and its July 1, 2013 amendment (“Amendment No. 7”) limited or modified fiduciary duties of the members, directors or managers of Akrimax, and what standard of care applied under the LLC Agreement in the context of conflicted transactions.

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.

Chancery Court Invalidates Supermajority Director Removal Bylaw

Jan 30 2017

By: Lisa R. Stark and Taylor B. Bartholomew

In Frechter v. Zier, C.A. No. 12038-VCG (Del. Ch. Jan. 24, 2017), the Delaware Court of Chancery held that a corporation’s bylaw, which purported to require 66 2/3% of the voting power of all of the corporation’s outstanding stock to remove directors, was inconsistent with Section 141(k) of the General Corporation Law of the State of Delaware (the “DGCL”). Section 141(k) of the DGCL provides that, except with respect to corporations having a staggered board or cumulative voting, “[a]ny director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors . . . .” Unlike some other provisions of the DGCL, Section 141(k) does not expressly provide for a default rule that applies “unless otherwise provided in the certificate of incorporation or bylaws.”

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.”

Catagory:Fiduciary Duty