Justia Business Law Opinion Summaries

Articles Posted in Delaware Court of Chancery
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The plaintiff, a shareholder of Meta Platforms, Inc., sued the company's directors, officers, and controller, alleging that they breached their fiduciary duties by managing the company to generate firm-specific value at the expense of the economy as a whole. The plaintiff argued that under Delaware law, directors owe fiduciary duties to the corporation and its stockholders as diversified equity investors, not just as investors in the specific corporation. The plaintiff proposed that Delaware law should change to adopt a diversified-investor model, particularly for systemically significant corporations.The defendants moved to dismiss the complaint, arguing that they manage Meta under a firm-specific model, as required by Delaware law. The Court of Chancery of the State of Delaware granted the defendants' motion, holding that directors owe firm-specific fiduciary duties. The court found that the plaintiff's argument was not supported by Delaware law, which contemplates a single-firm model where directors owe duties to the stockholders as investors in that specific corporation. The court also rejected the plaintiff's proposal to change Delaware law to adopt a diversified-investor model. The court concluded that the plaintiff had not made a persuasive case for such a change and dismissed the complaint. View "McRitchie v. Zuckerberg" on Justia Law

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In the case of West Palm Beach Firefighters' Pension Fund v. Moelis & Company, the plaintiff, a stockholder of Moelis & Company (the "Company"), challenged the validity of certain provisions in a Stockholder Agreement between the Company and its CEO, Ken Moelis. The agreement gave Moelis extensive pre-approval rights over the Company's board of directors' decisions, the ability to select a majority of board members, and the power to determine the composition of any board committee. The plaintiff argued that these provisions violated Section 141(a) of the Delaware General Corporation Law (DGCL), which mandates that the business and affairs of a corporation be managed by or under the direction of a board of directors, except as otherwise provided in the DGCL or in the corporation's certificate of incorporation.The Court of Chancery of the State of Delaware agreed with the plaintiff, holding that the Pre-Approval Requirements, the Board Composition Provisions, and the Committee Composition Provision in the Stockholder Agreement were facially invalid under Section 141(a) of the DGCL. The court found that these provisions effectively transferred the management of the corporation to Moelis, contrary to Section 141(a). The court reasoned that while Delaware law generally favors private ordering, the ability to contract is subject to the limitations of the DGCL, including Section 141(a). The court emphasized that a provision may be part of a corporation's internal governance arrangement, and thus subject to Section 141(a), even if it appears in a contract other than the corporation's charter or bylaws.However, the court found that certain provisions were not facially invalid, including Moelis’ right to designate a number of directors, the requirement for the Company to nominate Moelis’ designees, and the requirement for the Company to make reasonable efforts to enable Moelis’ designees to be elected and continue to serve. View "West Palm Beach Firefighters' Pension Fund v. Moelis & Company" on Justia Law

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In the Court of Chancery of the State of Delaware, the plaintiffs Dennis Palkon and Herbert Williamson, shareholders of TripAdvisor, Inc. and Liberty TripAdvisor Holdings, Inc., filed a lawsuit against the directors of the companies. The directors had resolved to convert the companies from Delaware corporations into Nevada corporations, a decision approved by controlling stockholder Gregory B. Maffei. The plaintiffs argued that Nevada law offers fewer litigation rights to stockholders and provides greater litigation protections to fiduciaries, alleging that the directors and Maffei approved the conversion to secure these protections for themselves.The defendants moved to dismiss the complaint, arguing that it failed to state a claim on which relief could be granted. The court denied the motion except regarding the plaintiffs' request for injunctive relief. The court held that the conversion constituted a self-interested transaction effectuated by a stockholder controller, and conferred a non-ratable benefit on the stockholder controller and the directors, triggering entire fairness review.The court found it reasonably conceivable that the conversion was not substantively fair, as the stockholders would hold a lesser set of litigation rights after the conversion. It also found it reasonably conceivable that the conversion was not procedurally fair, as the stockholder controller and the board did not implement any procedural protections. The court concluded that the plaintiffs had stated a claim on which relief can be granted. However, the court stated that it would not enjoin the companies from leaving Delaware, as other remedies, including money damages, could be adequate. View "Palkon v. Maffei" on Justia Law

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In the case before the Court of Chancery of the State of Delaware, the plaintiff, West Palm Beach Firefighters' Pension Fund, filed a lawsuit against Moelis & Company on behalf of itself and other Class A stockholders of Moelis & Company. In 2014, Moelis & Company had entered into a stockholders agreement with three entities controlled by its CEO, Ken Moelis. The plaintiff argued that certain provisions in that agreement, which granted expansive rights to Ken Moelis, violated Section 141(a) of the Delaware General Corporation Law (DGCL).The Court found that the plaintiff's claims were not non-justiciable due to the plaintiff both suing too late and too early. The Court rejected the defendant's arguments that the plaintiff waited too long to file the lawsuit under the doctrine of laches, as the plaintiff's challenge to the legality of the provisions in the stockholders agreement was not time-barred. The Court also rejected the defendant's argument that the plaintiff sued too early, stating that the plaintiff could bring a facial challenge to the legality of the provisions in the agreement.The Court denied the defendant's motion for summary judgment on the basis of laches and ripeness. The Court held that the plaintiff's claim was ripe for adjudication and was not barred by the equitable defense of laches. The Court concluded that neither the passing of time nor the act of purchasing shares could validate a provision that is void as a violation of statutory law. The Court's decision is significant in affirming that claims challenging the validity of provisions in a corporate document that are contrary to statutory law are justiciable and cannot be barred by laches or ripeness defenses. The case now continues for further proceedings. View "West Palm Beach Firefighters' Pension Fund v. Moelis & Company" on Justia Law

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In a contractual dispute between Blueacorn PPP, LLC and Paynerd LLC, Paynerdier LLC, Matthew Mandell, and Taylor Hendricksen, the Court of Chancery of the State of Delaware denied the defendants' motion to dismiss Blueacorn's complaint for negligent misrepresentation. The defendants argued that there was no equity jurisdiction because there was no fiduciary or special relationship between the parties, and the relationship was governed by commercial contracts negotiated and performed at arms' length. However, Blueacorn claimed that Pay Nerd had a pecuniary duty to provide accurate information which they breached by supplying false information, and Blueacorn suffered a pecuniary loss due to reliance on that false information.The court found that Blueacorn had sufficiently alleged misrepresentation by claiming that the defendants' false statements were made with the intention of inducing a buyer to form a new company to engage in business with the seller. The court also noted that Blueacorn's claim of negligent misrepresentation had been pled with enough particularity as required by Rule 9(b). However, the court also expressed reservations about whether Blueacorn had pled a pecuniary interest strong enough to invoke equity jurisdiction based on negligent misrepresentation, noting that nearly every party involved in a business contract dispute would have a pecuniary interest in the transaction. Despite this, the court decided not to dismiss the claim at this stage, citing the interest of judicial economy. The court left open the possibility of revisiting the motion to dismiss at the conclusion of the trial. View "Blueacorn PPP, LLC v. Pay Nerd LLC" on Justia Law

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In a dispute between Jonathan H. Paul and Rockpoint Group, LLC, the Delaware Court of Chancery denied Rockpoint's motion to dismiss Count III and granted Paul's cross-motion for partial summary judgement. The case stemmed from a disagreement about how to divide the proceeds from a transaction involving the investment fund complex that Paul co-founded and later left. After Paul's departure, he and his former partners agreed to an amendment to the company’s limited liability agreement, which stipulated Paul would receive a share of the proceeds from certain future transactions. A dispute arose over the calculation of Paul’s share when a qualifying transaction occurred. The court determined that the dispute resolution mechanism in the agreement called for an expert determination, not a plenary arbitration. The court also affirmed that the third amended and restated LLC agreement, not the first, governed the dispute. The court ruled that the appraiser could not consider extrinsic evidence, such as legal arguments and affidavits, presented by Rockpoint in its valuation. The court further directed that Rockpoint's appraisal must be redacted to omit the offending material. View "Paul v. Rockpoint Group, LLC" on Justia Law

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The Court of Chancery of the State of Delaware has selected the Friedlander Team as lead counsel and the NYC/Oregon Funds as lead plaintiffs in a derivative lawsuit against Fox Corporation. After the 2020 presidential election, Fox News broadcasted statements accusing two voting machine companies of facilitating election fraud, leading to defamation lawsuits against the network. Fox Corporation paid $787.5 million to settle one lawsuit, with another still pending. As a result, various stockholders filed derivative complaints, seeking to shift the losses from the corporation to the directors and officers allegedly responsible for the harm. The court was required to choose between two competing teams of attorneys to lead the consolidated actions. After evaluating the teams according to recently amended Rule 23.1, which identifies factors for consideration when resolving leadership disputes, the court selected the Friedlander Team and the NYC/Oregon Funds. The court noted the deliberate, client-driven process through which these entities were chosen, their resources and expertise, and the legitimacy conferred by the involvement of public officials. View "In re Fox Corporation Derivative Litigation" on Justia Law

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In the case before the Court of Chancery of the State of Delaware, plaintiff and counterclaim-defendant Ted D. Kellner sought to challenge certain bylaws adopted by AIM ImmunoTech Inc., defendant and counterclaim-plaintiff, and its board of directors. Kellner, Deutsch, and Chioini sought to nominate themselves as director candidates for AIM's 2023 annual meeting. Kellner claims that AIM's advance notice bylaws, which were amended in 2023, are invalid and inequitable. He also asserts that the Board's rejection of his nomination notice was improper.The court found that four out of six challenged provisions of AIM's amended bylaws were inequitable and therefore invalid. These provisions were found to be overly broad and ambiguous, effectively obstructing the stockholder franchise and providing the Board with undue discretion to reject a nomination. The court also found that Kellner's notice complied with the remaining, valid bylaws and that AIM's rejection of the notice was therefore improper.The court's decision means that Kellner's nominees must be included on the ballot for AIM's 2023 annual meeting. The four invalid provisions of the bylaws have been struck down and are of no force or effect. The remaining provisions of the bylaws, which were not challenged, stand. In essence, the court found that AIM's board of directors overstepped in its efforts to ward off a proxy contest, and in doing so, it infringed on the rights of stockholders. View "Kellner v. AIM Immunotech Inc., et al." on Justia Law

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In this case before the Court of Chancery of the State of Delaware, Plaintiff Kevin Brown, a former employee of Court Square Capital Management, L.P., sued the company for withholding his carried interest payments, alleging breach of contract. Court Square Capital Management counterclaimed, alleging that Brown had violated non-compete and confidentiality provisions in the company's LLC agreements. The issues in question were whether Brown's conduct in relation to two investment opportunities, Zodiac and Hayward, violated the non-compete provisions, and whether his conduct concerning certain internal memos breached the confidentiality provisions.The court found that Brown did not violate the non-compete provisions. Although the companies in question could be considered as "investment opportunities" as per the LLC agreement, Brown did not acquire any interest in these companies during the prohibited period, and his salary from his new employer, MSD, did not constitute an acquired interest.The court also found that Brown did not breach the confidentiality provisions. Court Square argued that Brown breached these provisions by requesting and receiving internal memos (HUMs) from his former colleague at Court Square. The court, however, found that the information in the HUMs was not confidential as it was widely circulated among private-equity firms and would have been easily accessible to anyone in Brown's position. Furthermore, Brown used these memos solely for formatting purposes and did not use the information for competitive purposes.The court therefore entered judgment in favor of Brown. View "Brown v. Court Square Capital Management, L.P." on Justia Law

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In the case brought before the Court of Chancery of the State of Delaware, Texas Pacific Land Corporation (the "Company") sued Horizon Kinetics LLC, Horizon Kinetics Asset Management LLC, SoftVest Advisors, LLC, and SoftVest, L.P. (collectively, the "Investor Group") over a dispute related to a stockholder vote. The Company alleged that the Investor Group breached a contractual obligation under a stockholders agreement to vote their shares in accordance with the board of directors' recommendation. The recommendation was for a charter amendment to increase the Company’s authorized shares. The Investor Group voted against the amendment, arguing they were not bound to follow the board’s recommendation due to exceptions in the agreement. They also claimed the doctrine of unclean hands barred the Company from enforcing the voting commitment, arguing the Company had disclosed inaccurate information when soliciting stockholder approval. The court found the Investor Group breached the voting commitment and their shares should be deemed to have voted in favor of the amendment. Consequently, the amendment was declared to have been approved. The court dismissed the Investor Group's unclean hands argument, citing their own misconduct in violating the agreement. View "Texas Pacific Land Corporation v. Horizon Kinetics LLC, et al." on Justia Law