Justia Delaware Court of Chancery Opinion Summaries

This case involved a challenge to certain issuances of preferred units and convertible debt by a start-up medical products company. The founder, former CEO, and current common member of the company challenged the issuances, claiming they were self-interested transactions designed to benefit the company's directors and venture capital sponsors by unfairly diluting its common members. Defendants moved for summary judgment on all counts. The court found that plaintiff failed to adduce sufficient evidence to support a reasonable inference that defendants' actions in approving the challenged issuances were grossly negligent or reckless. Therefore, the court granted summary judgment to defendants on plaintiff's duty of care claims. As for the duty of loyalty claims, the court found that defendants failed to establish that the transactions were not self-interested or that they warranted protection under the safe harbor provisions of the company's operating agreement. Therefore, the court denied summary judgment on these claims. Finally, because the court found the operating agreement ambiguous on the issue of whether defendants were permitted to authorize additional common units or new series of units without approval by a majority of the common members, the court denied summary judgment on plaintiff's breach of contract claim under Count VI. View "Zimmerman v. Crothall and Adhezion Biomedical LLC" on Justia Law

This was a class action brought on behalf of the common unit holders of a publicly-traded Delaware limited partnership. In March 2011, the partnership agreed to be acquired by an unaffiliated third party at a premium to its common units' trading price. The merger agreement, which governed the transaction, also provided for a separate payment to the general partner to acquire certain partnership interests it held exclusively. The court concluded that defendants' approval of the merger agreement could not constitute a breach of any contractual or fiduciary duty, regardless of whether the conflict committee's approval was effective. The court also found that the disclosures authorized by defendants were not materially misleading. Therefore, plaintiffs could not succeed on their claims under any reasonable conceivable set of circumstances and defendants' motion to dismiss was granted. View "In re K-Sea Transportation Partners L.P. Unitholders Litigation" on Justia Law

This putative class action was before the court on an application for the approval of settlement of the class's claims for, among other things, breaches of fiduciary duty in connection with a merger of two publicly traded Delaware corporations. The target's largest stockholder, which acquired the vast majority of its shares after the challenged transaction was announced, objected to the proposed settlement. In addition, defendants' and plaintiffs' counsel disagreed about the appropriate level of attorneys' fees that should be awarded. The court certified the class under Rules 23(a), (b)(1), and (b)(2) with NOERS as class representative; denied BVF's request to certify the class on only an opt out basis; approved the settlement as fair and reasonable; and awarded attorneys' fees to plaintiffs' counsel in the amount of $1,350,000, inclusive of expenses. View "In re Celera Corp. Shareholder Litigation" on Justia Law

This was an action under 8 Del. C. 291 for the appointment of a receiver for an insolvent, closely held corporation, MHI. MHI intended to transfer all of its assets and liabilities to a newly formed corporation, NewCo, in exchange for 100% of NewCo's stock. Then, NewCo would pay off the federal tax liability of the appraised value of MHI's tangible assets and MHI would dissolve, distributing it's sole asset - NewCo stock - to its shareholders pro rata. Under the proposed transaction, neither NewCo's business nor its capital structure would be any different than MHI's, except for the discharge of a $1.9 million liability. The board and a major holder of nonvoting stock disagreed, however, on how to implement this reorganization. The court concluded that there was exigency in this case and appointed a receiver to ensure that MHI maximized the company's value for its stakeholders by effecting the settlement with the IRS, if possible, and then, making a recommendation as to the disposition, if any, of MHI's remaining assets. View "Badii v. Metropolitan Hospice, Inc." on Justia Law

This action arose out of the merger of American Surgical with merger Sub, a wholly-owned subsidiary of Holdings, which, in turn, was an affiliate of Great Point. Plaintiff brought this purported class action to challenge the merger and alleged that American's Surgical Board and its Control Group breached their fiduciary duties in connection with the merger. Plaintiff also alleged that the Purchasing Entities aided and abetted those breaches of fiduciary duty. The court granted defendants' motion to dismiss Cause of Action IV, which alleged that the Purchasing Entities aided and abetted the breaches of fiduciary duty committed by the members of the Control Group and Board. The court, however, denied the motion to dismiss as to Causes of Action I, II, and III. View "Frank v. Elgamel, et al." on Justia Law

Plaintiff, a former shareholder of XTO, moved for an award of attorneys' fees and expenses following the stipulated dismissal of her derivative action, which was largely mooted by measures taken by XTO's Board shortly after plaintiff's complaint was served. In addition to XTO, the former members of XTO's Board were named as defendants. Plaintiff objected to the fact that the cash bonuses paid to XTO's CEO and four other officers were not tax-deductible because they did not meet the requirements of section 162(m) of the Internal Revenue Code. The court denied the motion because an arguably poor business judgment, without more, did not excuse demand on the Board in a derivative action. View "Freedman v. Adams, et al." on Justia Law

This action arose out of plaintiff Lawrence Ng's sale (the Sale) of a majority of the common stock of plaintiff ODN to plaintiff Oak Hill. Defendant Lawrence Hsu initially filed an action challenging the Sale (the First Delaware Action) and subsequently dismissed the First Delaware Action with prejudice two weeks after it was filed, and no defendant ever appeared in that action. More than 20 months later, Hsu and three other plaintiffs filed another action challenging the Sale (California Action). Three weeks after that, defendants in the California Action filed the current action (Second Delaware Action), seeking, among other things, a declaration that they did not commit certain wrongs alleged in the California Action. Hsu has moved to dismiss, or alternatively, to stay the Second Delaware Action in favor of the California Action. The court denied Hsu's motion but granted his motion to stay the Second Delaware action because the California Action was in its initial stages. Depending on what happened in the California Action, the court might move forward with the Second Delaware Action. View "ODN Holding Corp. v. Hsu" on Justia Law

This action principally challenged the purported removal of Ak-Feel, a Delaware limited liability company, as the sole managing member of Oculus, also a Delaware limited liability company. Section 18-109(a) of the Delaware Limited Liability Company Act (LLC Act), 6 Del. C. 18-109(a), empowered the court to exercise personal jurisdiction over NHA, a New York limited liability company, for purposes of the courts asserting breaches of duty to Oculus. Once jurisdictionally present in Delaware for these claims, NHA was subjected to the court's jurisdiction for the other claims as well, all of which arose out of a common nucleus of operative fact and related to actions NHA took purportedly on behalf of Oculus. The individual defendants, by contrast, have raised sufficient questions about the court's jurisdictional reach to warrant deferring a ruling on the motion pending jurisdictional discovery and further briefing. Therefore, the motion to dismiss was denied. View "Feeley, et al. v. NHAOCG, LLC, et al." on Justia Law

Stockholder plaintiffs sought a preliminary injunction to enjoin a merger between El Paso and Kinder Morgan. The CEO of El Paso undertook sole responsibility for negotiating the sale of El Paso to Kinder Morgan in the merger but did not disclose to El Paso's Board his interest in working with other El Paso managers in making a bid to buy El Paso's exploration and production (E&P) business. Further, the Board and management of El Paso relied in part on advice given by a financial advisor, Goldman Sachs, which owned 19% of Kinder Morgan and controlled two Kinder Morgan board seats. The court concluded that plaintiffs have a reasonable likelihood of success in proving that the merger was tainted by disloyalty. Because, however, there was no other bid on the table and the stockholders of El Paso, as the seller, have a choice whether to turn down the merger themselves, the balance of harms counseled against a preliminary injunction. Although the pursuit of a monetary damages award could not be likely to promise full relief, the record did not instill in the court the confidence to deny, by grant of an injunction, El Paso's stockholders from accepting a transaction that they could find desirable in current market conditions, despite the disturbing behavior that led to its final terms. View "In Re El Paso Corporation Shareholder Litigation" on Justia Law

This derivative action challenged a series of related-party transactions. Defendants moved for judgment on the pleadings, contending that laches barred the bulk of the claims. Defendants were partly right, laches barred the challenges to certain stock options granted in 2004 and 2005. Laches also barred a portion of the challenge to compensation received under certain employment agreements and rent-free sublease. With respect to these claims, the doctrine applied to the extent the compensation was paid and rent-free space provided before March 18, 2008. The doctrine did not apply to the extent that compensation was paid and rent-free space provided on or after March 18, 2008. On a final set of claims, the court granted plaintiffs leave to replead because although the complaint alleged facts sufficient to invoke the doctrine of equitable tolling, the pleading failed to identify when plaintiffs subsequently found out about the self-dealing transactions. View "Buerger, et al. v. Apfel, et al." on Justia Law