Delaware Docket – Page 34 – Timely, brief summaries of cases handed down by the Delaware Court of Chancery and the Delaware Supreme Court.

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

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 Dismisses All Claims for Breach of Fiduciary Duty, Fraud, and Company Dissolution Brought by Creditor

Apr 28 2017

By: Scott Waxman and H. Corinne Smith

In Steven B. Trusa v. Norman Nepo, et al., Civil Action No. 12071-VCMR, the Delaware Court of Chancery granted defendants’ motion to dismiss, holding that the creditor plaintiff lacked standing to pursue a claim for breach of fiduciary duty and a claim for dissolution of the company, that he failed to state a claim for the remaining assertions, and that the declaratory judgment claim was duplicative.

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 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 considers who should decide whether certain disputes are arbitrable — the court or an arbitrator selected by the parties?

Apr 12 2017

By: John Blair & Ernest Simons

In Greenstar IH Rep, LLC and Gary Segal v. Tutor Perini Corporation, Civil Action No. 12885-VCS (Del. Ch. Ct. February 23, 2017), the Delaware Court of Chancery granted in part and denied in part defendant’s motion for preliminary injunction, holding that the Court lacks subject matter jurisdiction to decide the question of substantive arbitrability when an employment agreement contains a broad arbitration provision that evidences the parties intent to arbitrate arbitrability.

Master in Chancery recommends enjoining a business from using a trade name and mark similar to those already used by another business

Apr 11 2017

By: Scott E. Waxman and Thomas F. Meyer

Master in Chancery Kim E. Ayvazian issued a final report in Ambient Heating & Cooling LLC v. Shepard, Jr., C.A. No. 9596-MA (Del. Ch. March 28, 2017), recommending that the Court of Chancery grant injunctive relief to a Delaware limited liability company seeking to enjoin a Delaware partnership from operating a heating, ventilation, and air conditioning (“HVAC”) business under a name and mark similar to its own.

Court of Chancery Upholds Validity of General Release Between Company and Former President, Grants Summary Judgment in Former President’s Favor

Apr 10 2017

By: David Forney and Tami Mack

In Seiden v. Kaneko, C.A. No 9861-VCS (Del. Ch. March 22, 2017), the Court of Chancery held that the general release that Southern China Livestock, Inc. (the “Company”) had entered into with former President Shu Kaneko (“Kaneko”) in exchange for Kaneko’s assistance in recovering certain Company shares was binding and enforceable. Thus, the Court held that Kaneko had been released from all claims asserted against him by the Company’s receiver (the “Receiver”) and granted summary judgment in Kaneko’s favor.

Chancery Court Rejects Stockholder’s Demand for Books and Records

Apr 05 2017

By: Whitney Smith and Kevin Szu-Tu

In Haque v. Tesla Motors, Inc., C.A. No. 12651-VCS (Feb. 2, 2017), Vice Chancellor Slights declined to compel the defendant, Tesla Motors, Inc. (“Tesla”), to produce certain books and records demanded by Plaintiff stockholder in an action brought under Section 220 of the Delaware General Corporate Law (“Section 220”). Applying well settled Delaware law that a stockholder’s right to inspect books and records under Section 220 is broad but not unlimited, Vice Chancellor Slights denied Plaintiff’s demand, ruling that the Plaintiff failed to demonstrate a credible basis from which the Court could infer wrongdoing.

CHANCERY COURT ISSUES DECLARATORY JUDGMENT REGARDING BOARD AND MEMBER ACTIONS TAKEN IN CONTRAVENTION OF CORPORATION’S BYLAWS

Apr 05 2017

By: Susan A. Apel & Rachel Cheasty Sanders

In Rainbow Mountain, Inc. v. Terry Begeman, C.A. No. 10221-VCMR (Del. Ch. March 23, 2017), the Delaware Court of Chancery issued a declaratory judgment on cross-motions for summary judgment regarding whether pro se defendant, Terry Begeman, was properly removed as a director, member, and officer of plaintiff nonstock corporation Rainbow Mountain, Inc. (“Rainbow Mountain” or the “corporation”). Based on uncontroverted facts, the Court determined that Terry[1] had been properly removed as Secretary, but retained his position as Senior Vice-President, director and member. Under the bylaws, as a “Regular Member” of Rainbow Mountain, Terry had the right to occupy the corporation’s land.