Justia Delaware Court of Chancery Opinion Summaries

Allergan, Inc. entered into a settlement with the U.S. Department of Justice pursuant to which Allergan pled guilty to criminal misdemeanor misbranding and paid a total of $600 million in civil and criminal fines. Various specialized plaintiffs' law firms subsequently filed derivative actions in the Court of Chancery and in the California federal court. The California federal court dismissed an amended and consolidated complaint pursuant to Rule 23.1 with prejudice (the "California judgment"). One Stockholder, UFCW Local 1776 & Participating Employers Pension Fund (UFCW) later intervened in the action before the Court of Chancery, and the plaintiffs filed a verified second amended derivative complaint ("the complaint"). The defendants moved to dismiss the complaint. The Court of Chancery denied the defendants' motions, holding (1) the California judgment did not mandate dismissal with prejudice under the doctrine of collateral estoppel; (2) the complaint pled demand futility under Rule 23.1; an (3) the complaint stated a claim under Rule 12(b)(6).View "La. Mun. Police Employees Ret. Sys. v. Pyott" on Justia Law

Bloodhound Technologies, Inc. (Bloodhound) created web-based software applications for healthcare providers. Plaintiffs were five software developers, including Bloodhound's founder, whose work laid the foundation for Bloodhound's success. Plaintiffs all held common stock. Plaintiffs claimed that after Bloodhound raised its initial rounds of venture capital financing, the venture capitalists obtained control of Bloodhound's board of directors, after which the venture capitalists financed the company through self-interested and dilutive stock issuances. Plaintiffs did not learn of the issuances until Bloodhound was sold for $82.5 million. At that point, Plaintiffs discovered their overall equity ownership had been diluted to under one percent. After members of management received transaction bonuses and the preferred stockholders received millions in liquidation preferences, Plaintiffs were left collectively with less than $36,000. Plaintiffs filed this action against Bloodhound's board members who approved the transactions and their affiliated funds, challenging the dilutive transactions, the allocation of $15 million to management, and the fairness of the merger. Defendants moved to dismiss the complaint on a wide range of theories. With limited exceptions, the Court of Chancery denied the motions, holding that Plaintiffs stated claims on many of their theories. View "Carsanaro v. Bloodhound Techs., Inc." on Justia Law

A hedge fund, TPG-Axon, which held a stake in Sandridge Energy, launched a consent solicitation to destagger SandRidge's seven-member board by amending the company's bylaws, to remove all the directors, and to install its own slate. The incumbent board, whose members, along with SandRidge, were the defendants in this action, resisted the consent solicitation and campaigned to convince SandRidge's stockholders not to give consents to TPG. Relevant here was the incumbent board's warning that if the stockholders chose to elect a new board majority, the requirement in SandRidge's note indentures that SandRidge offer to repurchase its existing debt would be triggered and cause a material economic harm. The incumbent board faced this litigation from Plaintiff, a SandRidge stockholder who supported the TPG consent solicitation, arguing that the incumbent board was breaching its fiduciary duties by failing to approve the TPG slate. The Court of Chancery enjoined the incumbent board from soliciting consent revocations or impeding TPG's consent solicitation process in any way because the board lacked any rational, concluding that the incumbent board lacked any rational, good faith justification for its failure to approve the rival slate, and therefore, the equities weighed heavily in favor of the stockholders' right to make an uncoerced choice. View "Kallick v. Sandridge Energy, Inc." on Justia Law

Edgewater Growth Capital Partners (Edgewater), a private equity firm, invested in several businesses and put them together in one company called Pendum. Soon after the merger, Pendum began to fail to comply with the covenants it made to its creditors. Eventually, a majority of the senior debt was purchased by affiliates of H.I.G. Capital (collectively, HIG). By this time, Pendum was insolvent. Pendum was eventually sold at an open auction by HIG. Edgewater filed suit, claiming that the sale process was commercially unreasonable and thus a violation of the Uniform Commercial Code (UCC). The Court of Chancery rejected Edgewater's UCC claim and its other attacks on the sale process and, because Edgewater's claims were primarily motivated by its desire to avoid its $4 million guaranty, held that Edgewater was contractually obligated to pay HIG's attorneys' fees in defending against Edgewater's claims. View "Edgewater Growth Capital Partners LP v. H.I.G. Capital, Inc." on Justia Law

In a derivative action on behalf of Hewlett-Packard Company, plaintiff accused certain HP directors of committing waste and breaching the duty of care in connection with the August 2010 termination of then-CEO, Hurd. Plaintiff contends that Hurd was not entitled to, and did not deserve, any severance upon his termination but that the directors granted Hurd a severance package estimated to be worth $40 million or more. Plaintiff also challenged the lack of a long term CEO succession plan as a breach of the directors’ duty of care. The chancellor dismissed. Under Rule 23.1, a stockholder must either make a demand on the board to instigate the legal action that the stockholder seeks to bring on the corporation’s behalf or allege with particularity why such a demand is excused. Plaintiff did not to make a presuit demand and did not adequately allege a basis to excuse presuit demand.View "Zucker v. Andreessen" on Justia Law

Respondent was a former corporation that for several decade was involved in the business of plastering and spray insulating. Due to the nature of its business, Respondent had been subject to hundreds of asbestos-related tort suits. The corporation dissolved in 1999. Petitioners subsequently filed an action seeking the appointment of a receiver for Respondent based on the perceived existence of undistributed assets in the form of liability insurance coverage. After examining Delaware's corporate scheme of dissolution, the Court of Chancery granted Respondent's motion for summary judgment, holding (1) Respondent was not amenable to asbestos-related tort suits commenced more than ten years after its dissolution; and (2) consequently, under the circumstances, the insurance contracts were valueless, and therefore, the appointment of a receiver was unnecessary. View "In re Krafft-Murphy Co., Inc." on Justia Law

This case addressed the allegations of a minority unitholder in a privately held medical device company. The unitholder, the former CEO of the company, became a minority stakeholder after accepting investments in the company in exchange for units after he sold some of his own units. After the board of directors caused the company to enter into several financing transactions, the unitholder filed this action against the board. The unitholder alleged (1) the transactions were in breach of the company's operating agreement, and by undertaking the transactions, the directors also breached their fiduciary duties, and (2) certain unitholders breached fiduciary duties and they and their affiliates aided and abetted the directors' breach of fiduciary duties. The court of chancery held (1) the directors exceeded their authority in engaging in the financing transactions, but they did not breach the fiduciary duties they owed thereunder when they engaged in the transactions; and (2) the directors' breach caused no damage and all defendants were entitled to indemnification notwithstanding the directors' breach of the company's operating agreement. View "Zimmerman v. Crothall" on Justia Law

A stockholder of Republic, a Delaware corporation that engages in waste hauling and waste disposal, filed a derivative suit based on Republic’s compensation decisions: that a payment to O’Connor was made without consideration and was, therefore, wasteful; that an incentive payment to O’Connor was wasteful because it was not tax-deductible and rendered Republic’s compensation plan not tax-deductible; that Directors paid themselves excessive compensation; that Directors breached their duty of loyalty and wasted corporate assets by awarding a certain type of stock option; and that Directors improperly awarded employee bonuses because the requirements of the bonus scheme under which the bonuses were awarded were not met. The chancellor dismissed all but the claim arising from the board’s granting itself stock awards.View "Frank David Seinfeld v. Donald W. Slager, et al." on Justia Law

Plaintiff, both individually and as the trustee of several trusts that she directed, asserted claims against defendants arising out of her decision to invest in Lord Baltimore. Defendants moved to dismiss all of the claims asserted against them. The court held that defendants' motion to dismiss was granted, except to plaintiff's claim that there was an implied covenant in the Shareholders' Agreement requiring that repurchase proposals be presented to and considered by the Board, which was not dismissed. View "Blaustein v. Lord Baltimore Capital Corp." on Justia Law

This was a declaratory judgment action under 6 Del. C. 111 to determine the duties, obligations, and liabilities, if any, of a Delaware limited liability company to one of its initial members. The court concluded that a clear forum selection clause in Todd's employment agreement with RWI (N.M.), which closely paralleled a similar provision in a related Stock Purchase Agreement (SPA), precluded the court from determining what effect, if any, Todd's termination from RWI (N.M.) had upon, at least, a subset of RWI (Del.) units he previously held. As a result, the court lacked the ability to determine definitely whether Todd continued to hold any interest in RWI (Del.), at least until a court in New Mexico resolved Todd's ownership of this subset of units. Therefore, the court stayed the action as a matter of judicial efficiency and in deference to the apparent intent of the contracting parties in favor of the proceedings pending in New Mexico.View "RWI Acquisition LLC v. Todd" on Justia Law