Direct Claim – Delaware Docket

DIRECT AND DERIVATIVE? CHANCERY COURT CERTIFIES INTERLOCUTORY APPEAL, ASKS SUPREME COURT TO CLARIFY DUAL CHARACTER STOCKHOLDER CLAIMS

Feb 12 2021

In In re Terraform Power, Inc. Stockholders Litigation, C.A. No. 2019-0757-SG (Del. Ch. November 24, 2020), the Delaware Court of Chancery (the “Court”) granted defendants’ Application for Certification of Interlocutory Appeal, giving the Delaware Supreme Court (the “Supreme Court”) an opportunity to clarify its decision in Gentile v. Rossette (“Gentile”) under which stockholders’ claims for a specific type of breach of fiduciary duty can have “dual character” as both derivative and direct. The Court relied on two factors under Delaware Supreme Court Rule 42 (“Rule 42”)—whether consideration of the appeal may end the litigation, and whether review of the appeal may serve considerations of justice—and held that the matter presented “a rare case” in which an interlocutory appeal was justified.

Court of Chancery Addresses Direct-Derivative Suit Distinction In The Context of a Merger Transaction

Aug 05 2020

By: Scott Waxman, Kristin Taylor, and Trevor Kennedy

In Brokerage Jamie Goldenberg Komen Rev Tru v. Breyer, C.A. No. 2018-0773-AGB (Del. Ch. June 26, 2020), the Delaware Court of Chancery (the “Court”) held that the plaintiff shareholder’s (the “Plaintiff”) claims were derivative in nature and that Plaintiff lacked standing to bring such claims. Accordingly, the Court dismissed the complaint for failure to state a claim for relief.

Not quite instantaneous, Holmesian “Bad Men” can win by knowing the law: Plaintiffs who tried to preserve direct and derivative claims in a settlement agreement failed to realize that they had already bargained them away

Dec 27 2019

By: Scott E. Waxman and Chris Fry

In Urdan v. WR Capital Partners, LLC, C.A. No. 2018-0343-JTL (Del. Ch. 2019), the Delaware Court of Chancery (the “Court”) held that Urban and Woodward (the “Plaintiffs”) lost the ability to assert their derivative and direct claims by failing to properly preserve their claims in the stock repurchase agreements and settlement agreement among the Plaintiffs, Energy Efficient Equity, Inc. (the “Company”), and the private equity group that essentially pushed the Plaintiffs out of the Company, WR Capital Partners, LLC, et al., (the “PE Firm”). The Court dismissed the Plaintiffs’ remaining claims for fraud, as the Plaintiffs could not reasonably rely on puffery, and unjust enrichment, as this is more properly a derivative claim dismissed with the direct and derivative claims above.

YES, WE HAVE NO ESTOPPEL: CHANCERY COURT RULES DERIVATIVE, DISMISSES DILUTED STOCKHOLDERS’ EX-TEXAS MERGER-RELATED CLAIMS

Mar 04 2019

By Remsen Kinne and Adrienne Wimberly

In Sheldon v. Pinto Technology Ventures, C.A. No. 2017-0838-MTZ (Del. Ch. Jan. 25, 2019), the Delaware Court of Chancery in a Memorandum Opinion granted a motion to dismiss breach of fiduciary duty claims and other allegations brought by the founder and an early stockholder (“Plaintiffs”) of non-party IDEV Technologies, Inc., a Delaware corporation (“IDEV”). The Court found that Plaintiffs’ primary claims were derivative, rejecting Plaintiffs’ assertion that Defendants were judicially estopped by a Texas state court ruling from arguing for that characterization of the claims, and dismissed the complaint for failure to comply with Chancery Court Rule 23.1’s derivative claims demand or demand futility pleading requirements.

Class Action Dismissed as Demand was Not Excused as Futile; Plaintiff Failed to Allege Facts Sufficient to Establish that a Majority of the Board Faced Substantial Likelihood of Liability for Non-Exculpated Claims

Nov 22 2017

By: Annette Becker and Will Smith

In Lenois, et al. v. Lawal, et al., and Erin Energy Corporation, C.A. No. 11963-VCMR (Del. Ch. November 7, 2017), plaintiff Robert Lenois (“Plaintiff”) on behalf of himself and other stockholders brought a class action for breach of fiduciary duty against controllers and the board of directors of Erin Energy Corporation (“Erin”) for approving what was claimed to be an unfair transaction. The Delaware Court of Chancery dismissed the class action suit under Court of Chancery Rule 23.1, holding that the directors were protected by an exculpatory charter, and Plaintiff failed to meet the heightened pleading standard for demand futility set by the second prong of Aronson v. Lewis, 473 A.2d 805 (Del. 1984). Although Plaintiff pled with particularity that one director acted in bad faith, the complaint did not allege facts sufficient to establish that a majority of the board faced a substantial likelihood of liability for non-exculpated claims.

COURT OF CHANCERY DISMISSES DERIVATIVE BREACH OF FIDUCIARY DUTY CLAIMS FOR FAILURE TO MAKE A PRE-SUIT DEMAND OR DEMONSTRATE DEMAND FUTILITY

Oct 13 2017

By: Annette Becker and Caitlin Velasco

In Chester Cty. Emp. Ret. Fund v. New Residential Inv. Corp., C.A. No. 11058-VCMR (Del. Ch. Oct. 6, 2017), the Delaware Court of Chancery granted the defendants’ motion to dismiss the stockholder plaintiff’s direct and derivative claims for breach of fiduciary duties under the Court of Chancery Rules 23.1 and 12(b)(6), because the plaintiff failed to make a pre-suit demand or demonstrate that doing so would be futile. The Court found that although the facts alleged gave rise to a derivative claim, the plaintiff failed to make a pre-suit demand or plead particularized facts sufficient to raise a reasonable doubt that a majority of the directors on the New Residential Corp. (“New Residential”) board could have exercised their independent and disinterested business judgment in responding to a demand.

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.

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