Justia Delaware Court of Chancery Opinion Summaries

A holding company (Company) whose equity was solely owned by Defendant owned forty-three percent of M&F Worldwide (MFW). Company offered to purchase the rest of the corporation's equity in a going private merger. The merger was conditioned on both independent committee approval and a majority-of-the-minority vote. A special committee was formed, which picked its own legal and financial advisors. After the committee successfully negotiated with Company to raise its bid by $1 per share, the merger was approved by the majority of the stockholders unaffiliated with the controlling stockholder (the minority stockholders). Company, Defendant, and other directors of MFW were sued by stockholders, who alleged that the merger was unfair. The Court of Chancery granted Defendants' motion for summary judgment, holding that when a controlling stockholder merger has, from the time of the controller's first overture, been subject to (i) negotiation and approval by a special committee of independent directors empowered to say no, and (ii) approval by an uncoerced, fully informed vote of majority of the minority investors, the business judgment rule standard of review applies, under which the Court was required to dismiss the challenge to the merger in this case. View "In re MFW S'holders Litig." on Justia Law

The board of directors of Primedia, Inc. adopted a resolution approving a merger agreement among Primedia, TPG Capital, and TPG's wholly owned acquisition subsidiaries. Primedia's majority stockholder, KKR, approved the merger agreement. At the time the transaction closed, Linda Kahn and a co-plaintiff were litigating a derivative action on Primedia's behalf, alleging that KKR traded on inside information when it purchased shares of Primedia's preferred stock and seeking disgorgement of KKR's profits under Brophy v. Cities Service Co. In this class action, Kahn and her co-plaintiff alleged that the terms of the merger were unfair because the Primedia directors failed to obtain any value for the Brophy claim. Specifically, they argued that the merger conferred a special benefit on KKR because KKR knew it was highly unlikely that any acquirer would pursue the Brophy claim. Plaintiffs also challenged a provision in the merger agreement limiting the Primedia board's ability to change its recommendation that stockholders vote in favor of the merger. The Court of Chancery (1) dismissed Defendants' motion to dismiss as to the fairness claim because Plaintiffs had standing to pursue the claim and pled a reasonably conceivable theory; and (2) otherwise granted the motion. View "In re Primedia, Inc. S'holders Litig." on Justia Law

The plaintiffs sued for damages arising out of their sales of stock in Wayport, Inc. After the defendants' motion to dismiss in part was granted, the litigation proceeded to trial against the remaining defendants on claims for breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, common law fraud, and equitable fraud. The court of chancery (1) entered judgment in favor of plaintiff Brett Stewart and against defendant Trellis Partners Opportunity Fund in the amount of $470,000; and (2) otherwise entered judgment against the plaintiffs and in favor of the defendants. View "In re Wayport, Inc." on Justia Law

Plaintiff, a stockholder, made a demand to Defendant corporation, asking the corporation to prosecute claims against its officers and directors for violating their Caremark duties. The individual Defendants failed to respond to the demand over the next two years and allegedly took actions making a meaningful response to the demand unlikely. Plaintiff subsequently brought this action, alleging breaches of fiduciary duty under Caremark. Defendants moved to dismiss the complaint under Court of Chancery Rule 23.1 because the corporation had not yet rejected Plaintiff's demand. Additionally, the corporation moved to dismiss for failure to state a claim and moved to dismiss or stay the case under the McWane doctrine in favor of several prior-filed cases in New York. The Court of Chancery (1) denied the Rule 23.1 motion, as Plaintiff pled particularized facts that raised a reasonable doubt that the corporation acted in good faith in response to the demand; (2) denied the motion to dismiss, as Plaintiff pled facts from which could be inferred that the corporation's directors knew its internal controls were deficient yet failed to act; and (3) denied the motion to dismiss under the McWane doctrine because it was unlikely New York courts had personal jurisdiction over Defendants. View "Rich v. Chong" on Justia Law

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

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

When the original developer of Plantations created the subdivision in 1986, it retained a 4.3-acre Recreation Area, including a pool, tennis courts, and a gym. Plantations residents and the general public use the facilities for a fee. The developer failed to reserve an express easement to the public road. Owners of the Recreation Area and customers of the health facility must use land owned by the Associations, which own and maintain Plantations’ common areas, for access. A new owner of the recreation facility was unable to reach agreement with the Associations concerning access and parking and sought to establish that an easement exists in its favor over the roads of the Associations and for use of a parking lot adjacent to the Recreation Area and that it is under no obligation to contribute to the upkeep of the property over which it claims an easement, relying on a Declaration of Covenants. The Declaration is poorly drafted and unclear. The Chancellor held that the owner has established an easement to use the private roadways of Plantations in connection with its business, but failed to demonstrate an easement for parking. The question of maintenance obligations awaits further factual development.View "Sandie, LLC v. The Plantations Owners Ass'n, Inc.,." on Justia Law