Delaware Docket – Page 19 – Timely, brief summaries of cases handed down by the Delaware Court of Chancery and the Delaware Supreme Court.

Court of Chancery Sides with Papa John’s Founder on Books and Records Inspection Demand

May 08 2019

John Schnatter’s falling-out with Papa John’s, the company he founded in the back of his father’s bar in Louisville, Kentucky, has been highly publicized since the dispute began in late 2017. Now, the Delaware Court of Chancery has waded into the fray. In John Schnatter v. Papa John’s International, Inc., C.A. No. 2018-0542-AGB (Del. Ch. Jan. 15, 2019), the Court ruled in favor of Schnatter, granting his demand to inspect four categories of the Company’s books and records, subject to certain limitations and exclusions.

Delaware Court of Chancery Dismisses Derivative Suit in Limited Partnership Context for Failing to Make Demand or Show Demand Futility

Apr 22 2019

By: Scott Waxman and Zack Sager

In Inter-Marketing Group USA, Inc. v. Armstrong, the Delaware Court of Chancery dismissed a derivative suit brought on behalf of a Delaware limited partnership because the plaintiff failed to make demand or show that demand was futile.

INSPECTION RIGHTS ARE NOT GRANTED FOR FISHING EXPEDITIONS

Apr 20 2019

By Scott E. Waxman and Annamarie C. Larson

In David A. Hoeller v. Tempur Sealy International, Inc., C.A. No. 2018-0336-JRS (Del. Ch. February 12, 2019), the Delaware Court of Chancery denied a shareholder’s request to inspect the Company’s books and records, because he failed to provide a credible basis to suspect mismanagement or wrongdoing.

Court Refuses to Reform Contract Failing to Find a Scrivener’s Error

Apr 11 2019

By: Scott E. Waxman and Douglas A. Logan

In, In re 11 West Partners, LLC, the Delaware Court of Chancery (the “Court”) refused to reform a contract with clear language, finding the argument of a scrivener’s error unconvincing. While the Court noted that it found all of the parties’ testimony believable, the Court did not find clear and convincing evidence that a mistake was made in drafting the contract in question.

Stockholder Makes Demand on United Airlines and Encounters Turbulence

Apr 08 2019

By: Joanna Diakos and Tom Sperber

In City of Tamarac Firefighters’ Pension Trust Fund v. Corvi, et. al, C.A. No. 2017-0341-KSJM, the Delaware Chancery Court issued a Memorandum Opinion granting a motion to dismiss under Chancery Rule 23.1 for failing to prove that pre-litigation demand of the Board was wrongfully refused. The City of Tamarac Firefighters’ Pension Trust Fund (“Plaintiff”), a stockholder of United Continental Holdings, Inc., the owner and operator of United Airlines (collectively, “United”), brought derivative claims against United and its board of directors (the “Board”) (collectively with United, “Defendants”) demanding either a claw-back of an allegedly excessive separation compensation award or the rescission of the separation agreement altogether. The Court found that Plaintiff failed to plead particularized facts raising a reasonable doubt that Defendants acted with due care and in good faith in rejecting Plaintiff’s demand.

IN REJECTING DEFENDANTS’ MOTION FOR DISMISSAL, CHANCERY COURT FINDS THAT INDIVIDUAL FIDUCIARY MAY BE HELD LIABLE FOR TRADES THAT AN ASSOCIATED ENTITY OR FUND MAKES

Apr 07 2019

By: Scott E. Waxman and Adrienne Wimberly

In the consolidated stockholder derivative litigation, In re Fitbit, Inc., CA No. 2017-0402-JRS (Del. Ch. Dec. 14, 2018), the Delaware Court of Chancery denied the Defendants’ motion to dismiss Plaintiffs’ insider trading and breach of fiduciary duty claims. The claims stem from alleged insider knowledge of members of Fitbit’s Board of Directors (the Board) and chief financial officer that Fitbit’s PurePulse™ technology was not as accurate as the company claimed. Plaintiffs alleged that members of the Board structured the company’s Initial Public Offering (IPO) and Secondary Offering (together, “the Offerings”) to benefit Fitbit insiders and voted to waive employee lock-up agreements, thereby allowing those insiders, to prematurely sell stock in the Secondary Offering. As a result of their sales, the alleged insiders sold about 6.2 million shares for over $115 million in the IPO and about 9.62 million shares for over $270 million in the Secondary Offering.

CHANCERY COURT DENIES MOTION TO PERFECT SERVICE FOR SERVICE ON DISSOLVED LIMITED LIABILITY COMPANY

Apr 07 2019

By: Scott Waxman and Greyson Blue

In Tratado de Libre Commercio, LLC v. Splitcast Technology, LLC, C.A. No. 2019-0014-JRS (Del. Ch. Mar. 6, 2019), the Delaware Court of Chancery examined the requirements for perfecting service upon a dissolved limited liability company (“LLC”). In ruling that Tratado de Libre Commercio, LLC (“Tratado”) had failed to perfect service of process on a dissolved entity, Splitcast Technology LLC (“Splitcast”), the Court highlighted its broad authority to establish service of process requirements under Court of Chancery Rule 4(d)(7) (“Rule 4(d)(7)”) in claims against defunct entities. The Court’s decision both illustrates the scope of its authority and confirms its willingness to hold that court-mandated standards for delivering service upon defunct corporations also apply in the context of defunct LLCs.

Fiduciary Duty Claim Against Selling Company CEO Survives Motion to Dismiss with Aiding and Abetting Claim Missing the Mark

Apr 03 2019

By: Annette Becker and Michael Payant

In In re Xura, Inc. Stockholder Litigation (C.A. No. 12698-VCS), the Delaware Court of Chancery (the “Court”) denied a motion to dismiss brought by defendants Phillippe Tartavull (“Tartavull”) and Siris Capital Group (“Siris”, and collectively with Tartavull, the “Defendants”) in a case filed by Obsidian Management LLC (“Obsidian” or “Plaintiff”) for breach of fiduciary duty in connection with the sale of Xura, Inc. (“Xura”) to a Siris affiliate. The Court held that Plaintiff pled a viable breach of fiduciary duty claim against Tartavull as CEO of Xura. The Court granted a motion to dismiss as to an aiding and abetting claim brought against Siris holding that Plaintiff failed to plead a viable claim.

Know Thyself: Self-Awareness in Corporate Valuations

Apr 02 2019

By: Annette Becker and Kristen Berry

In Kendall Hoyd and Silver Spur Capital Partners, LP v. Trussway Holdings, LLC (C.A. No. 2017-0260-SG), the Delaware Court of Chancery (the “Court“) addressed the perennial challenges related to corporate valuations. The central question involved the determination of a corporation’s proper price-per-share in the context of an appraisal action arising from the conversion of a corporation into an LLC by merger. The Court rejected the use of “comparable companies” and “precedent transaction” analyses, defaulting to the use of discounted cash flow (DCF) analyses in the formulation of its corporate valuation.

CHANCERY COURT DISMISSES STOCKHOLDER CLAIM FOR BREACH OF FIDUCIARY DUTY, DESPITE BOARD’S INACCURATE DISCLOSURES

Apr 01 2019

By: Holly Hatfield and Adam Heyd

In Steven H. Busch v. Edward J. Richardson et. al. and Richardson Electronics, Ltd., C.A. No. 2017-0868-AGB (Del. Ch. November 14, 2018), the Delaware Court of Chancery (the “Court”) dismissed a plaintiff’s stockholder suit against certain board members of Richardson Electronics Ltd. (the “Company”) for breach of fiduciary duty. The Court found that the Company’s board (the “Board”) exercised valid business judgment in rejecting the plaintiff’s demand to unwind certain Company transactions, despite the Board’s failure to disclose certain related party transactions to the plaintiff and other stockholders.