Articles Posted in Corporate Compliance

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The three underlying legal actions, involving breach of contract, breach of fiduciary duty, stock valuation, bankruptcy, and appeals, took place in Illinois. Plaintiffs, including attorneys involved in the underlying actions, sought to indemnification in post-trial proceedings. Defendant is a Delaware corporation with offices in Illinois. The Delaware Court of Chancery awarded plaintiffs $79,540.14 for pursuing the post-trial action and $241,492.50 for the Illinois proceedings, plus 20% of the expenses they incurred enforcing their indemnification right through this proceeding. The court cited the corporations’ bylaws, under which the plaintiffs are entitled to mandatory if indemnification would be permitted under the Delaware General Corporation Law and Section 145(a) of that law. View "Dore v. Sweports Ltd." on Justia Law

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A 16-count complaint alleged conspiracy to funnel valuable pharmaceutical interests away from an entity in which the Plaintiff, CelestialRX, LLC, is a member. The claims include allegedly improper self-dealing by two members of a three-member LLC. On motions to dismiss and for summary judgment, the Delaware Chancery Court rejected a claim that plaintiffs had contractually released certain claims and analyzed the LLC agreement to conclude that good faith—a subjective standard, applies separately to both the transaction and to the conflicted party’s analysis of whether it is “fair and reasonable,” but must be read consistently with the purpose of specific standards, which is to permit conflicted transactions in certain circumstances. The court urged the parties to mediate the dispute. View "CelestialRX Investments, LLC.v. Krivulka" on Justia Law

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IBM's proposed purchase of Merge Healthcare was supported by a vote of close to 80% of Merge stockholders. Former Merge stockholders sought post-closing damages against the company’s directors for what they alleged was an improper sale process. Merge did not have an exculpation clause in its corporate charter, so its directors have potential liability for acts violating their duty of care, in the context of an allegedly less-than-rigorous sales process. The Delaware Court of Chancery dismissed. Demonstrating such a violation of the duty of care is not trivial: it requires a demonstration of gross negligence, but it is less formidable than showing disloyalty. Regardless of that standard, the uncoerced vote of a majority of disinterested shares in favor of the merger cleansed any such violations, raising the presumption that the directors acted within their proper business judgment. View "In Re Merge Healthcare Inc. Stockholder Litigation" on Justia Law

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Plaintiffs Costantini, Jr. and Kahn sought indemnification for their fees and costs in underlying litigation involving Swiss Farm. The court concluded that Costantini was entitled to indemnification under Article 14 of the Operating Agreement because he was a manager of Swiss Farm and was sued by Swiss Farm in that capacity and prevailed. However, the court concluded that, although Kahn was sued for breach of fiduciary duty and prevailed, he was not a member of the Board of Managers, an officer, an employee or an agent of the company and, therefore, was not entitled to indemnification under the Operating Agreement. Accordingly, the court granted in part and denied in part plaintiffs' motion for judgment on the pleadings. View "Costantini, et al. v. Swiss Farm Stores Acquisition LLC" on Justia Law

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Trusts that owned fifty percent of the common stock of nominal defendant IMS alleged that two of the company's three most senior officers mismanaged the company in breach of their fiduciary duties. Trusts moved to compel IMS to produce the senior officers' work email accounts. The senior officers asserted the attorney-client privilege but did not invoke the work product doctrine. The court concluded that the In re Asia Global Crossing, Ltd. factors weighed in favor of production, absent a statutory override that could alter the common law result. Because IMS conducted its business in Maryland, the federal government and the State of Maryland were the sovereigns whose laws IMS must follow when dealing with its employees' email. The Federal Wiretap Act, 18 U.S.C. 2510 et seq.; the Federal Store Communications Act, 18 U.S.C. 2701; the Maryland Wiretap Act, Md. Code, Cts. & Jud. Proc. 10-401 to 10-414; and the Maryland Stored Communications Act, Md. Code, Cts. & Jud. Proc. 10-4A-01 to 10-4A-08, did not change the common law privilege analysis. Accordingly, the court granted the motion to compel. View "In re Info. Mgmt. Servs., Inc. Derivative Litigation" on Justia Law

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Plaintiffs brought a derivative action on behalf of China Automotive alleging breaches of fiduciary duty, insider trading, and unjust enrichment against five members of China Automotive's Board. The court concluded that because plaintiffs have not alleged particularized facts showing that any of Defendants Richardson, Tung, or Xu were interested, not independent, or facing a substantial threat of personal liability at the time the derivative Complaint was filed, these three directors were entitled to consider demand. Therefore, under Court of Chancery Rule 23.1, demand was not excused. The court rejected plaintiffs' remaining claims under Rule 23.1 and dismissed as to plaintiffs with prejudice. View "In re: China Automotive Systems Inc. Derivative Litigation" on Justia Law

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R&D, a member of the Joint Venture, brought a books and records action under 6 Del. C. 18-305 and the Joint Venture's limited liability company agreement, seeking two categories of books and records that were in the possession and control of Investment Services. At issue was whether the court had jurisdiction over Investment Services, an Indiana corporation, under either Delaware's long-arm statute or its Limited Liability Company Act, 6 Del. C. ch. 18. The court concluded that R&D had not met its burden of making a prima facie showing of a statutory basis for personal jurisdiction over Investment Services under either Delaware's long-arm statute or Section 18-109 of the LLC Act. Therefore, R&D's claim against Investment Services must be dismissed under Rule 12(b)(2) for lack of personal jurisdiction. The court also concluded that the court did have jurisdiction over HDG Properties because of its contractual consent; R&D failed to allege any "reasonably conceivable" collection of facts upon which it could prevail against other HDG Defendants; and R&D's inspection claims against these HDG Defendants must be dismissed under Rule 12(b)(6). Accordingly, the motion to dismiss was granted as to all of the HDG Defendants. View "Florida R&D Fund Investors, LLC v. Florida BOCA/Deerfield R&D Investors, LLC, et al." on Justia Law

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Plaintiffs are holders of Savient’s 4.75% convertible senior notes due in 2018, which are unsecured and subject to the terms of an indenture. Collectively, Plaintiffs own a face value of $48,709,000, approximately 40% of the outstanding Notes. Defendants are members of Savient’s board of directors USBNA serves as trustee for the Indenture governing the Notes. Following dismal sales of its new drug, KRYSTEXXA, Savient’s Board approved a financing transaction to exchange some existing unsecured Notes for new senior secured notes with a later maturity date. Through the Exchange, Savient exchanged around $108 million in Notes, raised around $44 million in new capital, and issued additional SSDNs with a face value of approximately $63 million. Like the Notes, the SSDNs are subject to an indenture for which USBNA serves as trustee. Plaintiffs sought a declaration that Savient was insolvent and brought derivative claims alleging waste and breach of fiduciary duty in connection with the Exchange Transaction; alleged breach of fiduciary duty and waste claims in connection with the Board’s approval of retention awards for certain Savient executives. The chancellor dismissed the receivership claim for lack of standing and granted a declaration that an Event of Default has not occurred.View "Tang Capital Partners LP, v. Norton" on Justia Law

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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

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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