Articles Posted in Delaware Court of Chancery

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Plaintiffs filed an amended stockholder derivative complaint alleging that the Qualcomm Inc. board’s knowing disregard for “red flags” resulted in violations of the Foreign Corrupt Practices Act and a U.S. Securities and Exchange Commission cease-and-desist order. Defendants filed a motion to dismiss under County of Chancery Rule 23.1 for failure to make a demand or allege that demand would be futile. The Court of Chancery granted Defendants’ motion to dismiss under Rule 23.1, holding that the complaint failed to allege demand futility as to count one for breach of fiduciary duty claim for improper oversight, count two for waste against the individual defendants, and count three for unjust enrichment against the individual defendants. View "In re Qualcomm Inc. FCPA Stockholder Derivative Litigation" on Justia Law

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At dispute in this case was whether Plaintiff, a preferred stockholder of Federal National Mortgage Association (Fannie Mae), had a right to inspect Fannie Mae’s books and records. The Court of Chancery granted Fannie Mae’s motion to dismiss under Court of Chancery Rule 12(b)(6) for failure to state a claim because a previous judgment from the Eastern District of Virginia was preclusive on the issue of whether section 4617(b)(2)(A)(i) of the Housing and Economic Recovery Act of 2008 (HERA) transferred the stockholder right to seek books and records to the Federal Housing Finance Agency (FHFA). View "Pagliara v. Federal National Mortgage Association" on Justia Law

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The operative complaint in this case stemmed from the 2010 explosion that occurred at Massey Energy Company’s Upper Big Branch coal mine in West Virginia and asserted two claims against fourteen former Massey directors and officers for breach of fiduciary duties. The disaster led to Massey entering into a merger agreement with Alpha Natural Resources, Inc. in 2011. Plaintiffs moved for a preliminary injunction against the proposed merger, but the motion for preliminary injunction was denied. The Massey-Alpha merger subsequently closed, and for the next five years the action was stayed. In 2016, the Court of Chancery was asked to decide motions to dismiss filed by Defendants. The Court of Chancery dismissed both claims, (1) Plaintiffs’ putative derivative claim must be dismissed because Plaintiffs lost standing to pursue the claim under Delaware law that stockholders of Delaware corporations who transfer their shares as a result of a merger lose standing to litigate the derivative claims; and (2) Plaintiffs’ putative direct claim must be dismissed because it is, in reality, a derivative claim. View "In re Massey Energy Co. Derivative & Class Action Litigation" on Justia Law

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T.J. Rodgers served on Cypress Semiconductor Corporation a demand to inspect certain books and records under 8 Del. C. 220. Rodgers founded Cypress, served as its president and CEO for thirty-four years, and beneficially owned approximately 2.35 percent of Cypress’ outstanding common stock. Rodgers asserted that his primary purpose for seeking inspection of the demanded materials was to investigate possible mismanagement. Cypress agreed to provide Rodgers certain requested materials but otherwise denied the demand. Rodgers then filed a complaint to compel the production of the books and records requested in his demand. The Court of Chancery entered judgment in Rodgers’ favor, holding that Rodgers established a proper purpose for his demand. View "T.J. Rodgers v. Cypress Semiconductor Corp." on Justia Law

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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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This appeal concerned the 2015 annual meeting of stockholders held by Preferred Communications Systems, Inc. (PCSI). In advance of the meeting, five members of the Preferred Investors Association (the Association) signed a letter distributed to PCSI’s investors that stated their opposing to the reelection of the incumbent members of PCSI’s the board of directors. Three of the incumbent directors lost their seats. These former directors brought suit against the Association and the members who signed the letter, alleging defamation. Defendants moved to dismiss the claim for failure to state a claim. The Court of Chancery granted the motion as to a subset of statements made in the letter, holding (1) Delaware’s anti-SLAPP statute does not apply; (2) Plaintiffs are limited-purpose public figures; and (3) it is reasonably conceivable that a subset of the letter’s statements were defamatory and made with actual malice. View "Agar v. Judy" on Justia Law

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At issue in this case was a bylaw adopted by Paylocity Holding Corporation purporting to shift to a stockholder who files an internal corporate claim outside of Delaware without the company’s consent attorneys’ fees and expenses incurred by the company in connection with the claim if the stockholder does not achieve the full remedy sought. Here, a Paylocity stockholder sought a declaration that the bylaw was invalid under Sections 109(b) and 102(b)(6) of the Delaware General Corporation Law. Defendants moved to dismiss the complaint as unripe and for failure to state a claim for relief. The Court of Chancery held (1) Plaintiff’s claims are ripe for review; (2) Plaintiff’s challenge under Section 109(b) states a claim for relief; and (3) Plaintiff’s remaining two claims are dismissed because Plaintiff did not demonstrate that the bylaw violates Section 102(b)(6) and because Plaintiff failed to state a claim for relief with regard to these claims. View "Solak v. Paylocity Holding Corp." on Justia Law

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The beneficial owner of a Delaware statutory trust sought to inspect certain of the trust’s books and records. The trust denied the beneficial owner’s request, asserting that the form of the request and the motivations underlying the request were improper. The beneficial owner filed a complaint asserting both a contractual demand and a statutory demand. The Court of Chancery granted the beneficial owner’s motion for summary judgment, holding that the beneficial owner was entitled to inspect, examine, and copy the requested information under its contractual demand. View "Grand Acquisition, LLC v. Passco Indian Springs DST" on Justia Law