Fraud – Page 2 – Delaware Docket

Court of Chancery Declares LLC Agreement Unenforceable, Rescinds Employment Agreement, and Issues Sanctions Due to Member’s Fraud

Nov 12 2018

In Trascent Management Consulting, LLC v. George Bouri, C.A. No. 10915-VCMR (Del. Ch. Sept. 10, 2018), the Court of Chancery declared a limited liability company agreement unenforceable and rescinded a related employment agreement with the defendant, George Bouri, due to Bouri’s fraudulent and false statements that induced the plaintiff’s principal, Rakesh Kishan, to form Trascent Management Consulting, LLC (“Trascent”), and for Kishan and Trascent to enter into the LLC agreement and the employment agreement with Bouri. In addition, the Court awarded certain attorneys’ fees and costs to Trascent as sanctions for defendant’s continued fraudulent and false statements during the litigation proceedings. Read More

Court of Chancery Dismisses Fraud Claim for Alleged Extra-Contractual Misrepresentations Based on Anti-Reliance Clause

Aug 31 2018

By: Claire S. White and Rachel P. Worth

In ChyronHego Corporation, et al., v. Cliff Wight and CFX Holdings, Inc., C.A. No. 2017-0548-SG (Del. Ch. July 31, 2018), the Delaware Court of Chancery granted the defendants’ motion to dismiss the plaintiffs’ claim for extra-contractual fraud on the basis that the stock purchase agreement contained an effective anti-reliance clause that precluded such claim. The Court found that the anti-reliance clause rebutted the common law fraud element of reliance on any extra-contractual representations, as described further below. At the same time, the Court dismissed the defendants’ motion to dismiss claims for fraud and breaches of express representations and warranties under the stock purchase agreement, finding that the plaintiffs had sufficiently pleaded the elements of these claims.

Court of Chancery Dismisses Breach of Fiduciary Duty Claim as Duplicative of Breach of Contract Claim

By: Scott Waxman and Zack Sager

In MHS Capital LLC v. Goggin, the Delaware Court of Chancery granted a motion to dismiss a breach of fiduciary duty claim against the manager of a Delaware limited liability company because all of the manager’s conduct that could have formed the basis of such claim was covered by the duties of the manager delineated in the limited liability company agreement. The Court also analyzed and dismissed claims for, among other things, fraud, breach of the implied contractual covenant of good faith and fair dealing, unjust enrichment, and misappropriation of trade secrets.

Chancery Court Holds that Express Merger Provisions Prevail Over Alleged Extra-Contractual Misrepresentations

Sep 21 2017

By Josh Gaul and Will Smith

In Sparton Corporation v. Joseph F. O’Neil et al., Civil Action No. 12403-VCMR (Del. Ch. August 9, 2017), the Delaware Court of Chancery granted the defendants’ motion to dismiss in its entirety because the plaintiff failed to state a claim for fraud and breach of contract. Seeking extra-contractual relief from a merger agreement, the plaintiff-buyer claimed, among other losses, $1.8 million in damages caused by the sellers’ misrepresentation of the target company’s working capital. The plaintiff argued that the defendant-sellers’ alleged extra-contractual misrepresentations warranted judicial intervention despite express anti-reliance and exclusive remedy provisions in the merger agreement.

Chancery Court Dismisses Inseparable Fraud Claim Based on Derivative Claims That Former Shareholders Lacked Standing To Maintain

Jun 26 2017

By Scott E. Waxman and Russell E. Deutsch

In In re Massey Energy Company Derivative And Class Action Litigation, C.A. No. 5430-CB (Del. Ch. May 4, 2017), the Chancery Court dismissed both the direct class action claim for “inseparable fraud” and the derivative claim brought by the former shareholders of Massey Energy (“Massey” or the “Corporation”) against the former directors and officers of Massey for breaching their fiduciary duties by causing Massey to operate in willful disregard of safety regulations. The court dismissed the derivative claim holding that the plaintiffs were not continuous shareholders, and therefore lacked standing to bring a derivative claim after Massey merged into Alpha Natural Resources, Inc. (Alpha) in June of 2011. The court dismissed the plaintiffs’ direct claim for “inseparable fraud” claim holding that, though pled as a direct claim, it was, in fact, also a derivative claim that the plaintiffs’ lacked the standing to maintain.

Court of Chancery Explains Demand Futility Pleading Requirements in the Context of Delaware LLCs

Apr 26 2017

By: Scott Waxman and Zack Sager

In LVI Group Investments, LLC v. NCM Group Holdings, LLC, the Court of Chancery of the State of Delaware looked to Delaware corporate law for demand futility pleading requirements in dismissing a derivative claim for breach of fiduciary duties against managers of a Delaware limited liability company (an “LLC”). In addition, the Court of Chancery analyzed the requirements for a member of an LLC sufficiently to plead a direct claim against managers of the LLC and analyzed the requirements for pleading a claim of fraud.

Chancery Court Finds Clear Disclaimer of Reliance on Extra-contractual Statements in Dismissing Buyer’s Fraud Claim; Allows Certain Breach of Contract Claims to Proceed

Dec 12 2016

By: C.J. Voss and H. Corinne Smith

In IAC Search, LLC, v. Conversant LLC (f/k/a ValueClick, Inc.), C.A. No. 11774-CB (Del. Ch. Ct. November 30, 2016) the Chancery Court granted the defendant’s motion to dismiss plaintiff’s fraud claim based on the inclusion of provisions in the purchase agreement that disclaimed reliance on extra-contractual statements that bar plaintiff’s fraud claim. The Court also granted defendant’s motion to dismiss one breach of contract claim, but denied the motion with respect to several other breach of contract claims.

Chancery Court Dismisses Only Certain Counterclaims Against Baseball’s Derek Jeter

Jul 27 2016

By: Merrick Hatcher and Joshua Haft

In a mixed ruling, the Chancery Court denied, in part, baseball legend Derek Jeter’s motion to dismiss claims that he breached his fiduciary duty as a director of undergarment manufacturer RevolutionWear, that he violated the implied covenant of good faith and fair dealing, and that he fraudulently induced a contract with RevolutionWear and fraudulently concealed restrictions in his endorsement contract with Nike that precluded Jeter from fulfilling his promise to allow RevolutionWear to announce his role as a founder, substantial owner, and director.

Chancery Court Finds Non-Reliance Language Insufficient to Bar Extra-Contractual Fraud Claims

Mar 23 2016

By Lisa Stark and Mark Hammes

In FdG Logistics v. A&R Logistics, C.A. No. 9706-CB (Del. Ch. Feb. 23, 2016), the Court of Chancery held that a non-reliance provision contained in a merger agreement was ineffective to bar a buyer’s fraud claims based on extra-contractual statements made during the due diligence and negotiation process because the non-reliance provision was formulated solely as a limitation on the seller’s representations and warranties. According to the Court, for a non-reliance provision to be effective against a buyer, it must be formulated as an affirmative promise by the buyer that it did not rely on any extra-contractual statements made by the seller during the sales process. The decision clarifies the Court of Chancery’s 2015 decision in Prairie Capital III, L.P. v. Double E Holding Corp., C.A. No. 10127-VCL (Del. Ch. Nov. 24, 2015) in which the Court emphasized that “no magic words” are required for a non-reliance provision to be effective.

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.

Catagory:Fraud