Justia Business Law Opinion SummariesArticles Posted in Delaware Court of Chancery
United Food & Commercial Workers Union v. Zuckerberg
The Court of Chancery granted Defendants' motion to dismiss this derivative action under Rule 23.1 on the grounds that Plaintiff failed to demand that the Facebook board of directors (the Board) pursue the litigation and did not establish that demand was futile.At the request of Mark Zuckerberg, the Board pursued a reclassification of Facebook's shares, the result of which would be to shift two-thirds of Facebook's economic value to the non-voting stock and enable Zuckerberg to transfer the bulk of his economic ownership in Facebook without giving up voting control. After a lawsuit, the Board withdrew the reclassification. Plaintiff then filed a derivative action against Zuckerberg and Board members that approved the reclassification, claiming that the pursuit of the reclassification constituted a breach of duty and that Facebook was harmed as a result. Plaintiff chose not to make a pre-suit demand. Defendants moved to dismiss the action under Rule 23.1. The Court of Chancery granted the motion, holding that demand was not excused on the grounds that the directors were incapable of making an impartial decision regarding whether to institute such litigation. View "United Food & Commercial Workers Union v. Zuckerberg" on Justia Law
In re Altaba, Inc.
In this litigation in which Altaba, Inc. (the Company) sought dissolution under the framework established by Sections 280 and 281(a) of the Delaware General Corporation Law the Court of Chancery held that the Company may make an interim distribution using its proposed amounts of security on the condition that it reserve funds for lawsuits pending in Canada resulting from data breaches that the Company disclosed in 2016 (the Canadian Actions Claim).As to all but two claims, in which the Company agreed to hold back the full amount of security requested by respective claimants, the Court of Chancery held that there was no obstacle to an interim distribution based on the amounts of security. For two claims, however, the Company sought to hold back less than the full amount of security requested by the claimants. The Court of Chancery held (1) as to the Canadian Actions Claim, if the Company wished to make an interim distribution to its stockholders it must reserve $1.05 billion Canadian; and (2) as to the second claim, the Company made a convincing showing that the amount it proposed to reserve was likely to be sufficient to provide compensation for claims that had not been made known to the Company or that had not yet arisen. View "In re Altaba, Inc." on Justia Law
JUUL Labs, Inc. v. Grove
The Court of Chancery granted Plaintiff JUUL Labs, Inc.'s motion for judgment on the pleadings in this action regarding Defendant Daniel Grove's right to inspect Plaintiff's books and records, holding that Defendant did not waive his right to seek an inspection of books and records under California law but that, under the internal affairs doctrine, Defendant did not have the right to seek an inspection of books and records under California law.Plaintiff was a privately held Delaware corporation with its principal place of business in San Francisco, California. Defendant stated that he might sue Plaintiff in California state court to enforce his right to inspect Plaintiff's books and records under Cal. Corp. Code 1601. Plaintiff filed this action, arguing that Defendant waived his inspection rights and that, to the extent that Defendant did not waive all of his inspection rights, Defendant could not seek inspection under California law. The Court of Chancery held (1) Delaware law governed Plaintiff's internal affairs, and because the scope of Defendant's inspection rights was a matter of internal affairs, Delaware law applied and Defendant could not rely on section 1601 to obtain books and records; and (2) because Defendant did not make a demand for inspection under Delaware law, this decision did not address whether he validly waived his inspection rights. View "JUUL Labs, Inc. v. Grove" on Justia Law
Applied Energetics, Inc. v. Farley
The Court of Chancery granted in part and denied in part the motion for partial summary judgment filed by Applied Energetics, Inc. (the Company) on its claims against George Farley, the Company's former director and principal executive officer, and AnneMarieCo, LLC, holding that Farley lacked authority to issue himself twenty-five million shares and grant himself an annual salary of $150,000 per year but that the Company was not entitled to summary judgment on Farley's counterclaims.The Company asserted several claims based on Farley's actions. Farley filed counterclaims against the Company for breach of contract, for unjust enrichment, and to validate his actions under section 205 of the Delaware General Corporation Law. The Company moved for partial summary judgment. The Court of Chancery granted the motion in part and denied it in part, holding (1) because Farley was the Company's sole remaining director when he issued himself stock and granted himself compensation, Farley's actions were invalid; (2) because the Company had the corporate power to issue shares and compensate its officers and directors Farley's acts could be validated under section 205; (3) the Court had the power to validate Farley's decision to grant himself a salary; and (4) evidence could support Farley's claim for compensation under a theory of quantum merit. View "Applied Energetics, Inc. v. Farley" on Justia Law
Burkhart v. Genworth Financial, Inc.
In this class action complaint brought under the Delaware Uniform Fraudulent Transfer Act (DUFTA) alleging that Genworth Life Insurance Company (GLIC) engaged in both actual and constructive fraudulent transfers the Court of Chancery granted in part and denied in part GLIC's motion to dismiss, holding that Plaintiffs' attempts to reverse some of GLIC's dividends were time barred.Plaintiffs, a class of insureds who held long-term care insurance policies and insurance agents who alleged that they were entitled to commission payments for selling such payments, alleged that on the brink of its failure, GLIC's owners engaged in an intentional plan to syphon off GLIC's assets. In their class action complaint Plaintiffs asked the Court of Chancery to restore to GLIC the value of the assets that were syphoned away from 2012 to 2014. In response, Defendants filed a motion to dismiss. The Court of Chancery granted the motion in part and denied it in part, holding (1) any challenge to the $395 million in dividends GLIC paid from 2012 to 2014 was untimely under 6 Del. C. 1309; and (2) Plaintiffs had standing to bring this lawsuit. View "Burkhart v. Genworth Financial, Inc." on Justia Law
Daugherty v. Dondero
The Court of Chancery granted Defendants' motion to dismiss two counts arising from the dilution of Plaintiff's equity and voting interests under Court of Chancery Rule 12(b)(6), holding that the complaint failed to state a claim.Plaintiff owned common stock of NexBank Capital, Inc. Plaintiff filed this complaint alleging that NexBank's board of directors and their trusts comprised a control group with concomitant fiduciary obligations to the minority stockholders of NexBank. Plaintiff took issue with 2016 and 2017 stock offerings that were allegedly offered at a discounted price to participants and alleged that his equity and voting interests were diluted because of the stock offerings. Count I claimed that the defendants breached their fiduciary duties and controllers, and Count II claimed that NexBank board members named as defendants breached their fiduciary duties as directors. The Court of Chancery held that the complaint failed to state a claim under Gentile v. Rossette, 906 A.2d 91 (Del. 2006), as to either stock offering and thus dismissed the complaint. View "Daugherty v. Dondero" on Justia Law
Tornetta v. Musk
The Court of Chancery denied Defendants' motion to dismiss breach of fiduciary duty claims brought by a Tesla, Inc. stockholder against Telsa's chief executive officer, Elon Musk, and members of Tesla's board of directors regarding a stockholder vote approving an incentive-based compensation plan for Musk, holding that, on the pled facts, it was reasonably conceivable that the award was unfair.After approving the award, the Board submitted the award to Tesla's stockholders for approval. The stockholders approved the award, after which Tesla implemented the award. Thereafter, Plaintiff brought direct and derivative claims against Musk and members of the Board alleging that the award was excessive and the product of breaches of fiduciary duty. Defendants moved to dismiss the complaint. The Court of Chancery denied the motion, holding (1) entire fairness is the standard by which the award must be reviewed; and (2) under the circumstances of this case, Defendants' motion to dismiss the breach of fiduciary duty claims must be denied. View "Tornetta v. Musk" on Justia Law
Wenske v. Blue Bell Creameries, Inc.
In this derivative action, the Court of Appeals denied a motion to stay claims brought by Blue Bell Creameries, LLP (the Partnership) against Blue Bell Creameries, Inc. (BBGP), holding that the motion was not proper because it was brought by a special litigation committee with no authority to bring it.This action arose from BBGP's alleged failure to operate the Partnership in compliance with the governing standards set forth in the Partnership's limited partnership agreement. Plaintiffs brought claims against the Blue Bell entities after a listeria outbreak infected scores of Blue Bell customers and Blue Bell's operations underwent a temporary shutdown. After the Court denied Defendants' motion to dismiss Plaintiffs' showcase breach of contract claim against BBGP, the lone general partner, BBGP's board of directors formed a special litigation committee to "manage and control" the Partnership's claims against BBGP. The special litigation committee then moved to stay this derivative action to allow it time to conduct an investigation and make a determination. The Court of Chancery denied the request, holding that because BBGP was not fit to decide how to manage the Partnership's claims against Defendants, its special litigation committee, as agent, was likewise disabled. View "Wenske v. Blue Bell Creameries, Inc." on Justia Law
Preston Hollow Capital LLC v. Nuveen LLC
The Court of Chancery held that it was without jurisdiction to address Plaintiff's claim seeking equitable relief for alleged common-law slander on the basis that equity will not enjoin a libel.Plaintiff brought this complaint against Defendants, business competitors, alleging tortious interference with prospective business relations and common-law defamation. As to the defamation claim, Plaintiff sought to enjoin future defamatory utterances. Defendants filed a motion to dismiss. The Court of Chancery granted the motion to dismiss the defamation count, subject to transfer to the superior court, holding that, under this Court's precedent, equity in general will not enjoin future defamation, and no exception to the general rule applies in this case. View "Preston Hollow Capital LLC v. Nuveen LLC" on Justia Law
Jimenez v. Palacios
In this case disputing who comprised the boards of directors of the nominal defendants the Court of Chancery treated Defendants' motion for judgment on the pleadings as one for summary judgment and granted Plaintiffs an opportunity to submit an affidavit identifying disputed facts foreclosing summary judgment in Defendants' favor, holding that the consents appointing the directors were not appropriately considered on a motion for judgment on the pleadings.After the National Assembly of Venezuela declared the presidency of Nicolas Maduro illegitimate it appointed Jan Guaido as Interim President. When Guaido assumed office his government appointed a new board of directors to govern Petroleos de Venezuela S.A. (PDVSA), Venezuela's state-owned oil company. Guaido's newly appointed directors reconstituted the boards of directors of the nominal defendants - Delaware entities owned by PDVSA. Plaintiffs, who previously served as directors of the nominal defendants, sought a declaration that they comprised the rightful boards of the nominal defendants. The directors appointed by Guaido's PDVSA board counterclaimed. All parties cross-moved for judgment on the pleadings. The Court of Chancery accepted as binding the United States President's recognition of the Guaido government and assumed the validity of the Guaido government's appointments to the PDVSA board but stayed the motions to permit Plaintiffs to submit an affidavit under Ct. Ch. R. 56(e). View "Jimenez v. Palacios" on Justia Law