Justia Delaware Court of Chancery Opinion Summaries

A cloud-based real estate services company faced persistent and grave allegations that two top agents, along with several others, drugged and sexually assaulted company agents at events. Reports began surfacing in 2020, including a viral social media post and a memo sent to company executives detailing numerous incidents. Despite these warnings, the board initially terminated one perpetrator but continued paying him, and allowed others implicated to continue working. A whistleblower director raised these issues repeatedly at board meetings and with outside counsel, but the board’s responses were limited to internal investigations led by insiders and did not result in meaningful change. The company only took further action after survivors filed federal anti-trafficking lawsuits in 2023 and the story became public.Prior to the current litigation, federal courts sustained anti-trafficking claims against the company and its leadership, finding sufficient allegations that the leadership benefited from retaining perpetrators due to the company’s revenue-sharing structure. The defendants in this derivative action are not accused of direct misconduct, but of harming the company by allowing and covering up systemic sexual abuse. The plaintiff, a shareholder, alleges the board and certain officers actively covered up abuse and breached their fiduciary duties, and that some board members failed their oversight obligations in the face of numerous red flags.The Delaware Court of Chancery reviewed the defendants’ motions to dismiss. It held that workplace sexual misconduct can constitute a corporate trauma supporting a breach of fiduciary duty claim under Delaware law. The court denied dismissal as to claims against the officer alleged to have benefited from covering up abuse, and against the directors for failing to respond in good faith to clear red flags. However, it granted dismissal of a novel claim seeking to extend oversight duties to a control group of shareholders, declining to make new law in that area. View "Los Angeles City Employees' Retirement System v. Sanford" on Justia Law

A director and former officer of a closely held Delaware corporation engaged in egregious acts of sexual harassment and racist behavior toward two employees. These actions led to the employees’ resignations and prompted successful charges with the Equal Employment Opportunity Commission. The employees then filed lawsuits in the New York state courts, resulting in judgments totaling over $1.8 million against both the director and the corporation, jointly and individually.After these outcomes, the corporation’s other stockholder and director, who also serves as its president, filed a derivative suit in the Delaware Court of Chancery. He alleged that the director’s acts were not only violations of employment law but also constituted a breach of fiduciary duty—specifically, the duty of loyalty. He sought to hold the director liable to the company for the monetary judgments and other losses, arguing that the director’s unlawful, self-interested conduct was per se disloyalty under Delaware law.The Court of Chancery of the State of Delaware first determined that it had personal jurisdiction over the director under Delaware’s director consent statute. The court then addressed demand futility and found that, given the board’s composition and the nature of the alleged conduct, the plaintiff’s ability to proceed depended on whether the complaint stated a viable claim for breach of fiduciary duty. The court concluded that, under Delaware law, interpersonal workplace misconduct—even when unlawful and reprehensible—does not by itself amount to a breach of the duty of loyalty unless it involves the misuse of corporate power as part of the company’s internal affairs. The court reasoned that employment law, not corporate doctrine, provides the remedy for such conduct. Accordingly, the court granted the motion to dismiss and dismissed the complaint with prejudice. View "Brola v. Lundgren" on Justia Law

In 2012, Ogus cofounded the SportTechie website. Bloom volunteered as a writer. Eventually, both quit their other jobs. They formed an LLC with Bloom a 55.5% member, and Ogus a 45.5% member and sole manager. They hired Kaufman. Vintage and Oak View made financial investments. In 2016-2017 Ogus converted SportTechie from an LLC to a Delaware corporation and appointed three directors: Bloom, a Vintage representative, and Bodie, Oak View’s designee. A stockholders agreement gave SportTechie the right to repurchase Ogus’s equity interest if he were terminated. Bloom—SportTechie’s CEO— recommended firing Ogus for poor performance. A quorum of the board authorized the termination of his employment. SportTechie exercised its option to repurchase Ogus’s stock.A chancellor dismissed Ogus's fiduciary duty and fraud claims challenging the stock repurchase and subsequently granted Bodie and Oak View summary judgment on a fraud claim, breach of fiduciary duty claims, an aiding and abetting claim, and a civil conspiracy claim. Those defendants had limited, innocuous roles in the relevant events. Bodie’s decision to sign the consent terminating Ogus is protected by the business judgment rule; there is no evidence of bad faith or self-interest. With no underlying breach of fiduciary duty claim, the aiding and abetting claim against Oak View and the civil conspiracy claim against Oak View and Bodie necessarily fail. As to Bloom and Kaufman, questions of material fact remain, precluding summary judgment on fraud, breach of fiduciary duty, and civil conspiracy claims. View "Ogus v. SportTechie, Inc." on Justia Law

Evans served as CEO and a director of Avande, a privately held Delaware corporation that provides medical claims management services to insurance companies and healthcare organizations. Following Evans’s termination, Avande performed an audit and discovered suspect transactions undertaken by Evans while he was serving as CEO. Avande filed suit, alleging breach of fiduciary duty based on alleged self-dealing transactions and improper expenditures and tortious interference, defamation, and conversion based on acts that Evans allegedly committed after his termination. Evans was found liable for about $65,000 in damages, plus interest. Evans demanded advancement for expenses incurred in connection with the action.The Delaware Chancery court entered judgment in favor of Avande. Avande established that there is no causal link between Evans’s status as a former officer of Avande and the tortious inference and defamation claims; those claims solely concerned Evans’s post-termination conduct. Avande demonstrated that Evans did not succeed but was found liable. View "Evans v. Avande, Inc." on Justia Law

The Court of Chancery granted Defendants' motion to dismiss this amended complaint brought by Plaintiff seeking a determination that Defendants - the City of Wilmington, the Wilmington Police Department, and the mayor of the City - breached the collective bargaining agreement between the police union and the City when he was terminated for an alleged violation of the City's resident requirement, holding that this Court lacked subject matter jurisdiction.Specifically, the Court of Chancery held that Plaintiff's claims fell within the grievance procedure and were therefore subject to arbitration, and where Plaintiff did not follow the grievance process that was provided in the collective bargaining agreement, a complete remedy otherwise existed in the form of the grievance process outlined in the agreement. View "Kroll v. City of Wilmington" on Justia Law

The Court of Chancery granted Hightower Holdings, LLC's motion to dismiss this action under Rule 12(b)(3) based on the doctrine of forum non conveniens, holding that Hightower carried its burden to show that it would suffer overwhelming hardship from being forced to litigate this action in Delaware under the circumstances presented.This litigation arose when Scott Holsopple left his employment with Focus Operating, LLC (Focus Sub) and took a job with Hightower Holdings, LLC. Focus Financial Partners, LLC (Focus Parent), the publicly traded parent company of Focus Sub, filed this lawsuit against Holsopple and Hightower. Five days later, Holsopple and Hightower filed an action against Focus Parent in a California court, seeking declarations that restrictive covenants and Delaware-forum and Delaware-law provisions in a unit agreement Holsopple signed when joining Focus Sub were invalid and unenforceable under California law. Focus Parent then filed a second amended complaint asserting, among other things, claims for breach of the Delaware-forum provisions. Hightower moved to dismiss this action under the doctrine of forum non conveniens. Holsopple was subsequently dismissed from the lawsuit. The Court of Chancery granted the motion, holding that, under the circumstances, it would impose overwhelming hardship if Hightower were forced to litigate a less advanced case in this jurisdiction. View "Focus Financial Financial Partners, LLC v. Holsopple" on Justia Law

The Court of Chancery granted Scott Holsopple's motion for dismissal from this case, holding that this Court lacked any basis to assert personal jurisdiction over Holsopple.Holsopple previously worked for Focus Operating, LLC, a subsidiary of Focus Financial Partners, LLC (Focus Parent). During his employment with Focus Operating, Holsopple signed five Unit Agreements, two of which selected the courts of Delaware as the exclusive forum for disputes relating to the Unit Agreements. By signing the agreements, Holsopple because a member of Focus Parent. The two most recent iterations of Focus Parent's operating agreement selected the Courts of Delaware as the exclusive forum for disputes relating to the operating agreements. After Holsopple took a position with Hightower Holdings, LLC, a competitor of Focus Operating, Focus Parent filed this lawsuit alleging, among other things, that Holsopple violated the employment-related provisions in the Unit Agreements and violated the exclusive choice-of-forum provisions by filing a lawsuit in California state court. Holsopple filed a motion to dismiss for lack of personal jurisdiction. After a choice-of-law analysis, the Court of Chancery granted the motion, holding that the Delaware choice-of-forum provisions could not support jurisdiction. View "Focus Financial Financial Partners, LLC v. Holsopple" on Justia Law

An employer terminated an employee, who was represented by a union. The union grieved the termination and, in accordance with a collective bargaining agreement, the matter was submitted to arbitration. An arbitrator ordered the employee reinstated and directed that the employee be credited with benefits that were lost as a result of the termination, including the payment of bonuses for safety and attendance. When the employer did not pay these bonuses to the employee, the union filed an unfair labor practice charge with the Public Employment Relations Board (PERB). The PERB concluded that safety and attendance bonuses were within the language and scope of the arbitrator’s award. The employer appealed, arguing that the PERB substituted its judgment improperly to modify or to interpret an ambiguous, and thus unenforceable, arbitration award. The Court of Chancery affirmed the decision of the PERB, holding that the bonuses were unambiguously awarded and thus fell within the plain language of the arbitration award, and therefore, the PERB’s decision, whether or not entitled to deference in this context, must be sustained. View "State, Del. Transit Corp. v. Amalgamated Transit Union, Local 842" on Justia Law

Petitioner worked as a charge nurse at a facility of the State’s Department of Health and Social Services (DHSS). After an incident with a patient who later died, DHSS concluded that Petitioner should be dismissed for patient neglect, failure to perform a thorough assessment of the patient’s condition, and unprofessional and unacceptable behavior. Petitioner’s employment was governed by a collective bargaining agreement (CBA) between a union and HDSS. After arbitration as prescribed by the CBA, the arbitrator concluded there was just cause for Petitioner’s dismissal. Petitioner brought this action challenging the arbitrator’s decision. The Court of Chancery granted summary judgment in favor of DHSS, holding that the arbitrator (1) correctly held DHSS to its burden to demonstrate good cause for termination in reaching his decision; (2) applied the correct standard of care as to the definition of “neglect”; and (3) necessarily rejected Petitioner’s effort to obtain back pay. View "AFSCME, Council 81, Registered Nurses Unit, Local 2305 v. State, Dep’t of Health & Soc. Servs." on Justia Law

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