Justia Delaware Court of Chancery Opinion Summaries

A Delaware corporation's board of directors recommended reincorporating the corporation as a Nevada corporation through a conversion under Section 266 of the Delaware General Corporation Law (DGCL). The corporation's CEO controls approximately 49% of the voting power, making the conversion likely to receive the necessary majority vote. However, the corporation's certificate of incorporation requires a 66 2/3% supermajority vote to amend or repeal certain provisions. A stockholder argued that the conversion should be subject to this higher voting requirement because it would result in amendments inconsistent with the certificate's protected provisions.The Court of Chancery of the State of Delaware reviewed the case. The plaintiff sought to enjoin the conversion unless the supermajority vote requirement was applied and additional disclosures were made. The defendants argued that the conversion was not subject to the supermajority vote requirement, relying on the doctrine of independent legal significance and relevant case law. Both parties moved for summary judgment.The court concluded that the supermajority vote requirement in the certificate of incorporation did not apply to the conversion under Section 266. The court emphasized that the doctrine of independent legal significance, as established in Warner Communications Inc. v. Chris-Craft Industries, Inc. and subsequent cases, requires clear and express language to extend special voting rights beyond actions taken under Section 242 of the DGCL. The court found that the language in the certificate did not meet this standard and, therefore, the conversion was subject only to the majority vote requirement under Section 266. The court granted the defendants' motion for summary judgment and denied the plaintiff's motion. The court also entered a partial final judgment under Rule 54(b) to allow for an expedited appeal. View "Gunderson v. The Trade Desk, Inc." on Justia Law

A motor vehicle collision occurred in Sussex County, Delaware, involving Joanne Dudsak, a New Jersey resident insured by New Jersey Manufacturers (NJM), and Christopher Koester, a Maryland resident insured by Allstate Insurance Company. NJM paid Personal Injury Protection (PIP) benefits to Dudsak and sought inter-company arbitration in Delaware to recover these costs. Allstate opposed, arguing that NJM's policy, being from New Jersey, did not qualify for arbitration under Delaware law, which requires the vehicle to be registered in Delaware for PIP subrogation rights.The arbitrator ruled in favor of NJM, awarding the full amount and rejecting Allstate's jurisdictional challenge. Allstate then filed a Petition to Vacate the Arbitration Award in the Delaware Chancery Court, arguing that the arbitrator exceeded his authority. NJM moved to dismiss the petition, claiming the issue was moot because Allstate had agreed to tender its policy limits, which would extinguish NJM's subrogation rights under Delaware law.The Delaware Chancery Court denied NJM's Motion to Dismiss, finding that a real dispute remained. The court then addressed the merits of Allstate's Motion for Summary Judgment. The court applied the standard of review under 10 Del. C. §5714(a)(5), which allows vacating an arbitration award if the arbitrated claim was barred by limitation and the objection was raised from the outset. The court found that §2118 of the Delaware PIP statute applies only to vehicles required to be registered in Delaware and does not cover out-of-state policies like NJM's. Consequently, the arbitrator exceeded his authority by accepting jurisdiction over the case. The court granted Allstate's Motion for Summary Judgment, vacating the arbitration award. View "Allstate Insurance Co. v. New Jersey Manufacturers Insurance Co." on Justia Law

Wack Jills USA, Inc., formerly known as Jack Wills, Inc., assigned all its property and assets to SM Financial Services Corporation in August 2019 as part of an assignment for the benefit of creditors (ABC) proceeding. SM Financial, acting as trustee of the JW ABC Trust, sought court approval for final distributions and to close the case. Home Club Realty Trust, a general unsecured creditor, objected to the motion, citing concerns over the handling of certain assets and compliance with statutory requirements.The Court of Chancery of the State of Delaware reviewed the case. The Assignee failed to comply with several statutory requirements under the Delaware ABC Statute, including not filing an affidavit of inventory within 30 days of the assignment, not seeking the court’s appointment of two appraisers, and not filing annual accountings. The Assignee also unilaterally posted a bond without court approval and retained its affiliated law firm, SM Law, as counsel, which raised concerns about the compensation structure and potential conflicts of interest.The court found that the Assignee’s pervasive non-compliance with the ABC Statute and its conduct in managing the assignment estate constituted sufficient cause for removal. The court denied the motion to approve final distributions and close the case, and removed SM Financial as Assignee pursuant to 10 Del. C. § 7386. The court extended the term of the Trust until further order and prohibited any distributions from the Trust without court approval. The bond remains in place and may be subject to further proceedings. View "In re Wack Jills, Inc." on Justia Law

In this case, a special purpose acquisition company (SPAC), Hennessy Capital Acquisition Corp. IV, was formed in 2018 with the goal of merging with a private operating company. In 2019, Hennessy completed its initial public offering (IPO), selling units that included shares of common stock and redeemable warrants. In 2020, Hennessy entered into a merger agreement with Canoo Holdings Ltd., an electric vehicle start-up. The merger was approved by Hennessy's stockholders and closed in December 2020.In the months following the merger, Canoo's new board decided to de-emphasize the company's subscription model and engineering services business line. This decision was announced in March 2021, causing Canoo's stock price to drop. The plaintiff, a Canoo stockholder, filed a lawsuit alleging that Hennessy's sponsor and directors breached their fiduciary duties by failing to disclose changes to Canoo's business model prior to the merger.The Court of Chancery of the State of Delaware dismissed the plaintiff's claims. The court found that the plaintiff failed to provide sufficient evidence to support the claim that Hennessy's directors knew or should have known about the changes to Canoo's business model before the merger closed. The court also dismissed the plaintiff's unjust enrichment and aiding and abetting claims, as they were based on the same insufficiently supported allegations. View "In Re Hennessy Capital Acquisition Corp. IV Stockholder Litigation" on Justia Law

The case involves a dispute over the funding of Delaware's public schools. The plaintiffs, non-profit organizations with an interest in Delaware's schools, filed a lawsuit in 2018, alleging that the state's public schools were not providing an adequate education for students from low-income households, students with disabilities, and students whose first language is not English. They argued that one of the problems was a broken system for funding the schools, which relied on property taxes. The plaintiffs contended that the three counties in Delaware were using decades-old property valuations, which violated state law and the state constitution.The case was initially heard in the Court of Chancery of the State of Delaware. During discovery, the plaintiffs served requests for admission to the counties, asking them to admit that their decades-old assessments resulted in a lack of uniformity in property taxes and violated state law. The counties denied these requests. At trial, the court found in favor of the plaintiffs, ruling that the counties' assessments violated state law and the state constitution. The court also found that the plaintiffs had proved the facts that were the subject of the requests for admission that the counties had denied.The plaintiffs then requested an award of expenses under Court of Chancery Rule 37(c), which allows the court to order a party to pay the expenses that another party incurred in proving a fact that should have been admitted. The court granted the plaintiffs' request, awarding them expenses of $337,224, which included attorneys’ fees and out-of-pocket costs. Each county was ordered to pay a prorated share of $112,408. View "In re Delaware Public Schools Litigation" on Justia Law

The case involves William J. Brown, the former CEO of Matterport, Inc., a technology company that creates 3D digital representations of physical spaces. Brown held almost 1.4 million shares of Matterport stock. In 2021, Matterport became a public company through a merger transaction. Bylaws adopted in connection with the merger included transfer restrictions thought to apply to all legacy Matterport stockholders, including Brown. Brown challenged the lockup in court as illegal and inequitable.In the lower courts, Brown argued that his shares were excluded from the lockup. The court agreed, ruling that the restriction applied only to public Matterport shares held “immediately following” the close of the merger. The court held that Brown never held lockup shares and was free to trade. Brown then sold his shares for total proceeds of approximately $80 million.In the Court of Chancery of the State of Delaware, Brown pursued a recovery of losses caused by his inability to sell sooner. He sought damages under the highest intermediate price method. The court concluded that Brown was entitled to damages, but declined to award them using the highest intermediate price. Instead, the court measured Brown’s damages using the average price of Matterport stock during a reasonable time that Brown would have traded if able. Brown’s net damages were approximately $79 million. View "Brown v. Matterport, Inc." on Justia Law

The case involves a dispute over the validity of certain provisions in a governance agreement between BRP Group, Inc. and its founder. The founder sought to maintain control over the company while selling a significant portion of his equity stake. The agreement stipulated that as long as the founder and his affiliates owned at least 10% of the outstanding shares, the corporation had to obtain the founder's prior written approval before engaging in a list of actions. A stockholder plaintiff challenged three of these pre-approval requirements as invalid.The corporation argued that the plaintiff had waited too long to sue and had implicitly accepted the terms of the agreement by purchasing shares. However, the court rejected these arguments, stating that equitable defenses could not validate void acts. The corporation also claimed that a subsequent agreement, in which the founder agreed to consent to any action approved by an independent committee of directors, rendered the plaintiff's claims moot. The court disagreed, finding that the plaintiff's claims were not moot because the corporation had modified but not eliminated the challenged provisions.On the merits, the court found that the challenged provisions were invalid because they contravened sections of the Delaware General Corporation Law. The court granted the plaintiff's motion for judgment on the pleadings as to those provisions and denied the company's cross motion for judgment on the pleadings to a reciprocal degree. View "Wagner v. BRP Group, Inc." on Justia Law

The plaintiff, a shareholder of Meta Platforms, Inc., sued the company's directors, officers, and controller, alleging that they breached their fiduciary duties by managing the company to generate firm-specific value at the expense of the economy as a whole. The plaintiff argued that under Delaware law, directors owe fiduciary duties to the corporation and its stockholders as diversified equity investors, not just as investors in the specific corporation. The plaintiff proposed that Delaware law should change to adopt a diversified-investor model, particularly for systemically significant corporations.The defendants moved to dismiss the complaint, arguing that they manage Meta under a firm-specific model, as required by Delaware law. The Court of Chancery of the State of Delaware granted the defendants' motion, holding that directors owe firm-specific fiduciary duties. The court found that the plaintiff's argument was not supported by Delaware law, which contemplates a single-firm model where directors owe duties to the stockholders as investors in that specific corporation. The court also rejected the plaintiff's proposal to change Delaware law to adopt a diversified-investor model. The court concluded that the plaintiff had not made a persuasive case for such a change and dismissed the complaint. View "McRitchie v. Zuckerberg" on Justia Law

In the case of West Palm Beach Firefighters' Pension Fund v. Moelis & Company, the plaintiff, a stockholder of Moelis & Company (the "Company"), challenged the validity of certain provisions in a Stockholder Agreement between the Company and its CEO, Ken Moelis. The agreement gave Moelis extensive pre-approval rights over the Company's board of directors' decisions, the ability to select a majority of board members, and the power to determine the composition of any board committee. The plaintiff argued that these provisions violated Section 141(a) of the Delaware General Corporation Law (DGCL), which mandates that the business and affairs of a corporation be managed by or under the direction of a board of directors, except as otherwise provided in the DGCL or in the corporation's certificate of incorporation.The Court of Chancery of the State of Delaware agreed with the plaintiff, holding that the Pre-Approval Requirements, the Board Composition Provisions, and the Committee Composition Provision in the Stockholder Agreement were facially invalid under Section 141(a) of the DGCL. The court found that these provisions effectively transferred the management of the corporation to Moelis, contrary to Section 141(a). The court reasoned that while Delaware law generally favors private ordering, the ability to contract is subject to the limitations of the DGCL, including Section 141(a). The court emphasized that a provision may be part of a corporation's internal governance arrangement, and thus subject to Section 141(a), even if it appears in a contract other than the corporation's charter or bylaws.However, the court found that certain provisions were not facially invalid, including Moelis’ right to designate a number of directors, the requirement for the Company to nominate Moelis’ designees, and the requirement for the Company to make reasonable efforts to enable Moelis’ designees to be elected and continue to serve. View "West Palm Beach Firefighters' Pension Fund v. Moelis & Company" on Justia Law

In the Court of Chancery of the State of Delaware, the plaintiffs Dennis Palkon and Herbert Williamson, shareholders of TripAdvisor, Inc. and Liberty TripAdvisor Holdings, Inc., filed a lawsuit against the directors of the companies. The directors had resolved to convert the companies from Delaware corporations into Nevada corporations, a decision approved by controlling stockholder Gregory B. Maffei. The plaintiffs argued that Nevada law offers fewer litigation rights to stockholders and provides greater litigation protections to fiduciaries, alleging that the directors and Maffei approved the conversion to secure these protections for themselves.The defendants moved to dismiss the complaint, arguing that it failed to state a claim on which relief could be granted. The court denied the motion except regarding the plaintiffs' request for injunctive relief. The court held that the conversion constituted a self-interested transaction effectuated by a stockholder controller, and conferred a non-ratable benefit on the stockholder controller and the directors, triggering entire fairness review.The court found it reasonably conceivable that the conversion was not substantively fair, as the stockholders would hold a lesser set of litigation rights after the conversion. It also found it reasonably conceivable that the conversion was not procedurally fair, as the stockholder controller and the board did not implement any procedural protections. The court concluded that the plaintiffs had stated a claim on which relief can be granted. However, the court stated that it would not enjoin the companies from leaving Delaware, as other remedies, including money damages, could be adequate. View "Palkon v. Maffei" on Justia Law