Delaware Docket – Page 36 – Timely, brief summaries of cases handed down by the Delaware Court of Chancery and the Delaware Supreme Court.

Chancery Court Clarifies the Cleansing Power of an Uncoerced and Fully Informed Disinterested Majority Stockholder Vote

Feb 03 2017

In In re Merge Healthcare Inc. Stockholders Litigation, No. 11388-VCG (Del. Ch. Ct. January 30, 2017), the Delaware Court of Chancery granted the defendant directors’ motion to dismiss brought against the plaintiff stockholders, holding that the cleansing effect of an uncoerced and fully informed vote of a majority of disinterested shares shields company directors from liability for alleged fiduciary violations as to an improper merger price and process. The Court found that the business judgment rule applied on review as opposed to the entire fairness standard.

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.”

CHANCERY COURT EXPLAINS STANDING FOR FIDUCIARY CLAIMS WHEN A STOCKHOLDER IS SQUEEZED OUT

Jan 23 2017

By: Holly Hatfield and Michael Bill

In I.A.T.S.E. Local No. One Pension Fund v. General Electric Company, et al., No. 11893-VCG (Del. Ch. Ct. December 6, 2016), the Delaware Court of Chancery, denied defendants’ motion to dismiss and held that a breach of fiduciary duty claim is personal and does not adhere to the stock of the company where the transaction at issue severs the relationship between the stockholder and the entity.

Chancery Court Dismisses Minority Stockholders’ Action Seeking Quasi-Appraisal in United Capital Corp. Buyout

Jan 19 2017

By: Shoshannah Katz and Andrew Gahan

In In re United Capital Corp., Stockholders Litigation, C.A. No. 11619-VCMR (Del. Ch. Jan. 4, 2017), the Delaware Court of Chancery dismissed a suit brought by plaintiff minority stockholders (“Plaintiff”) that sought a quasi-appraisal to remedy alleged breaches of the duty of disclosure in connection with the acquisition of United Capital Corp. (“United Capital” or “Company”) via short-form merger. The Court concluded that Plaintiff had not adequately alleged that any omitted information was material to the decision to seek appraisal and that the duty of disclosure was not violated.

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.”

“Cleansing” the Merger: Stockholder Vote Protects Directors from Class Action Where Plaintiffs Fail to Sufficiently Allege Material Deficiency in Proxy Statement

Jan 11 2017

By: Joanna Diakos Kordalis and Max E. Kaplan

By memorandum-opinion dated January 5, 2017, Chancellor Bouchard granted defendants’ motion to dismiss a putative class action complaint in In re Solera Holdings, Inc. Stockholder Litigation. Specifically, the Court held that absent allegations specifically identifying material deficiencies in the operative disclosure documents, ratification by a majority of disinterested stockholders rendered defendant-directors’ approval of a merger subject to the business judgment rule.

Chancery Court Determines that Merger Price is Fair Value in an Appraisal Proceeding as a Result of a Properly Conducted Sales Process

Dec 28 2016

By: Annette Becker and Makda Goitom

In Merion Capital L.P. v. Lender Processing Services, Inc., No. 9320-VCL (Del. Ch. Dec. 16, 2016), the petitioners, Merion Capital L.P. and Merion Capital II L.P. (together, “Merion” or “Petitioners”), issued a post-trial opinion in an appraisal proceeding arising from the acquisition by merger (the “Merger”) of Lender Processing Services, Inc. (the “Company” or “Respondent”) by Fidelity National Financial, Inc. (“Fidelity”). After a four-day trial, the Chancery Court concluded that the fair value of the Company’s stock at the effective time of the Merger was the merger price as a result of a properly conducted sale process.

Delaware Chancery Court Lacks Personal Jurisdiction Under the LLC Act’s Implied Consent Provision Unless Defendant has “Control” or “Decision-Making” Capability

Dec 21 2016

By Scott E. Waxman and Douglas A. Logan

The Delaware Court of Chancery held that it lacked personal jurisdiction over the defendant because the allegations failed to show that the defendant possessed the necessary “control” or “decision-making” capability required for “material participation” under the Delaware Limited Liability Company Act’s (the “LLC Act”) implied consent provision.

Delaware Chancery Court Refers Issues of Arbitrability to Arbitrator in Officer Indemnification and Advancement Dispute

Dec 20 2016

By: Shoshannah Katz and James Parks

In Meyers, et al. v. Quiz-Dia LLC, et al., C.A. No. 9878-VCL (Del. Ch. Ct. December 2, 2016), the Chancery Court referred the issue of arbitrability with respect to certain indemnification claims made by former officers of the Quiznos family of companies pursuant to their employment agreements to arbitration and stayed the proceedings as to those claims, while refusing to grant a stay of the proceedings with respect to separate claims for indemnification and advancement arising under a range of other agreements.

Delaware Chancery Court Grants Fee and Expense Award in Dell Appraisal Case

Dec 12 2016

By: Naomi R. Ogan and Stephanie S. Liu

In In Re Appraisal of Dell, C.A. No. 9322-VCL (Del. Ch. October 17, 2016), previously discussed here, the law firm representing Dell Inc.’s stockholders in appraisal proceedings challenging the valuation of shares in connection with Dell’s 2013 “go-private” merger was awarded approximately $4 million in advanced expenses and $4 million in attorneys’ fees. The Delaware Court of Chancery held that the amounts were reasonable and that the expenses and fees should be allocated pro rata among the appraisal class. Since this was a case where counsel had incurred significant out-of-pocket expenses, the court held that the approach that best balanced the interests of the attorneys and the class was to deduct reimbursable expenses first, then award a fee based on the net benefit achieved.