Timely, brief summaries of cases handed down by the Delaware Court of Chancery and the Delaware Supreme Court.
By Holly Hatfield and Priya Chadha
In In re Appraisal of GoodCents Holdings, Inc., C.A. No. 11723-VCMR, Vice-Chancellor Montgomery-Reeves held that, following a merger, a provision in the target company’s certificate of incorporation only provided preferred stockholders a voting right, not an entitlement to a liquidation preference.
By David Forney & Tami Mack
In Elow v. Express Scripts Holding Company, C.A. No.12721-VCMR and Khandhar v. Express Scripts Holding Company, C.A. No. 12734-VCMR (Del. Ch. May 31, 2017), the Court of Chancery held that plaintiff shareholder Clifford Elow’s (“Elow”) demand to inspect certain books and records of Express Scripts Holding Company (the “Company”) met all statutory requirements and stated a proper purpose, while plaintiff (and purported shareholder) Amitkumar Khandhar’s (“Khandhar”) demand did not. Thus, the Court granted Elow’s Section 220 demand subject to a confidentiality agreement and denied Khandhar’s demand.
By Holly Hatfield and Max E. Kaplan
By letter report dated June 8, 2017, Master of Chancery Morgan T. Zurn recommended dismissal of the complaint in Walker v. Cabo Verde Capital, Inc., C.A. No. 11696-MZ (Del. Ch. June 8, 2017), finding that the plaintiff lacked standing to compel inspection of a non-extant Delaware company’s books and records. Citing recent developments in Delaware law, the Court held that the plaintiff could not satisfy the “stockholder” prerequisite for filing a Section 220 action because all stockholder interest had been previously extinguished by the company’s merger into a foreign corporation.
By Whitney Smith and Dean Brazier
In Mark S. Davis, et al. v. EMSI Holding Company, C.A. No. 12854-VCS (Del. Ch. May 3, 2017) the Delaware Chancery Court granted a motion for summary judgment brought by former officers of the defendant (“EMSI”) seeking advancement of legal fees for their defense in a related action, EMSI Acquisition, Inc. v. Contrarian Funds, LLC, et al., C.A. No. 12648-VCS (Del. Ch. May 3, 2017). In granting the motion, the Court considered whether the plaintiffs had waived or released their right to advancement in the exclusive remedies provision or the seller release provision of the Stock Purchase Agreement (“SPA”) entered into in connection with the sale of EMSI. The Court concluded that the SPA provisions did not waive or release the officers’ right to advancement of defense costs under EMSI’s bylaws and a sufficient nexus existed between the plaintiffs’ role as former officers and the claims in EMSI Acquisition requiring their defense.
By: Scott Waxman and Ernest Simons
In Delaware Acceptance Corporation, CACV of Colorado, LLC and 202 Investments, Inc., v. Estate of Frank C. Metzner, the Court of Chancery removed the executrix of an estate for breaching her fiduciary duty to a creditor of the estate. The case hinged on the authenticity of several documents, which if found to be forged would lead to the dissolution of an LLC and a distribution of its assets. The Court of Chancery found that the executrix was not a credible witness, and, therefore, it could not trust the authenticity of documents that she presented in support of the continued existence of the LLC. Read More
By: Scott Waxman and Michael Bill
In Meyers et al. v. Quiz-Dia LLC et al., No. 9878-VCL (Del. Ch. June 6, 2017), the Court of Chancery, entered a summary judgment in favor of the plaintiffs entitling them to indemnification from Quizmark LLC (“Quizmark”) and QCE Gift Card LLC (“QCE Gift Card”). The Chancery Court also determined that the plaintiffs were not entitled to indemnification from Quiz-Dia LLC (“Quiz-Dia”).
The plaintiffs, Greg MacDonald (“MacDonald”) and Dennis Smyth (“Smyth”), were officers of the principal operating entity of Quiznos, QCE LLC (“OpCo”), and claim to have been officers of all of OpCo’s subsidiaries, including Quizmark, QCE Gift Card, and Quiz-Dia (collectively, the “Subs”). By 2012, various investment funds (the “Funds”) had accumulated substantial positions in OpCo’s debt and OpCo was having difficulty operating its business. This granted the Funds the power to declare a default under OpCo’s loan agreements. To neutralize the threat of default, OpCo entered into a complex restructuring transaction which transferred the ultimate ownership of OpCo and its subsidiaries to the Funds (the “Restructuring”). MacDonald and Smythe left Quiznos shortly thereafter.
By Shoshannah Katz and Tom Sperber
In Francis M. Ford (VMware Inc.) v. VMware Inc. C.A. No. 11714-VCL (Del. Ch. May 2, 2017), the Delaware Court of Chancery granted defendants’ motion to dismiss the plaintiff’s complaint in full for failing to state a claim upon which relief can be granted. Francis M. Ford (“Plaintiff”) alleged breaches of fiduciary duty against VMware Inc. (“VMware”), EMC Corp. (“EMC”), Denali Holding Co. (“Denali”), Dell Inc. (“Dell”), Universal Acquisition Co. (“Universal”), and several directors of these companies. Plaintiff was a minority stockholder of VMware prior to a merger between EMC, VMware’s controlling stockholder, and Denali that closed in September 2016. The Court held that Plaintiff failed to allege that the parties to the merger breached any fiduciary duties to the VMware stockholders or that the parties otherwise bound VMware to unfair terms. The Court also found that the restructuring of VMware prior to the merger was subject to the business judgment rule, and that Plaintiff failed to sufficiently plead that Denali’s issuance of a tracking stock reflecting the performance of VMware’s stock price was a misappropriation or a wrongful dilution.
By Eric E. Freedman and H. Corinne Smith
In In Re Appraisal of SWS Group, Inc., C.A. No. 10554-VCG (Del. Ch. May 20, 2017), the Delaware Court of Chancery, applying discounted cash flow analysis in a statutory appraisal proceeding, determined that the fair value of the stock of SWS Group, Inc. (“SWS”) at the time of its January 2015 merger was $6.38 per share. SWS stockholders had received a mix of cash and stock worth $6.92 per share in the merger transaction. As a result, the valuation determined by the Court in the appraisal proceeding represented a significant discount from the price paid in the merger.
By Scott E. Waxman and Rachel Cheasty Sanders
In AM General Holdings LLC v. The Renco Group, Inc., C.A. No. 7639-VCS and The Renco Group, Inc. v. MacAndrews AMG Holdings LLC, C.A. No. 7668-VCS (Del. Ch. May 17, 2017), the Delaware Court of Chancery denied cross-motions for partial summary judgment after reviewing the LLC Agreement of AM General Holdings LLC, which governs the joint venture relationship between Plaintiff, The Renco Group, Inc. (“Renco”), and Defendant, MacAndrews AMG Holdings LLC (“MacAndrews”), both members of AM General Holdings LLC (the “Company”). Renco brought suit against MacAndrews alleging that MacAndrews, the managing member of the Company, caused the Company to distribute $72.8 million to MacAndrews in breach of the Company’s LLC Agreement. Renco contended that, according to the LLC Agreement, the $72.8 million should have been distributed to Renco instead. Both parties pointed to several provisions of the LLC Agreement governing the distribution at issue, and both parties contended that these provisions were clear and unambiguous. After reviewing the provisions, however, the Court determined that the provisions were, in fact, ambiguous and thus, the case could not be disposed of through summary judgment proceedings.
By Scott E. Waxman and Uri S. Segelman
In In re Cyan, Inc. Stockholders Litigation, C.A. No. 11027-CB (May 11, 2017), the Delaware Court of Chancery dismissed Cyan, Inc. stockholders’ complaint alleging breach of duty by Cyan’s board in merging with Ciena Corp., holding that the plaintiffs had failed to plead sufficient facts to support a reasonable inference that a majority of Cyan’s board was interested in the transaction or acted in bad faith so as to sustain a non-exculpated claim for breach of fiduciary duty. In so doing, the court further denied plaintiffs’ claim for equitable relief of quasi-appraisal, holding that since such relief is typically awarded to redress disclosure deficiencies that are the product of a fiduciary breach, and given that plaintiffs failed to identify any material misrepresentation or omission from Cyan, or to allege any other viable claim for a fiduciary breach, there was no basis to impose a quasi-appraisal remedy.
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