Articles Posted in Delaware Court of Chancery

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In this consolidated class action, former stockholders of Martha Stewart Living Omnimedia, Inc. (MSLO) brought claims against Martha Stewart, MSLO’s former controlling stockholder and namesake, for breach of fiduciary duty and against Sequential Brands Group, Inc., (Sequential), a third-party buyer, for aiding and abetting that breach. The claims arose from a transaction whereby MSLO was acquired by Sequential in a merger. At issue was whether Stewart leveraged her position as controlling stockholder to secure greater consideration for herself than was paid to the other stockholders as a result of the merger. Stewart and the Sequential defendants brought motions to dismiss. The Court of Chancery granted the motions, holding that the complaint failed to state a claim for breach of fiduciary duty against Stewart, and therefore, the court need not reach the question of whether the complaint adequately pleaded the other elements of aiding and abetting a breach of fiduciary duty. View "In re Martha Stewart Living Omnimedia, Inc. Stockholder Litigation" on Justia Law

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The Delaware Court of Chancery granted in part a motion for summary judgment in a breach of contract dispute regarding Duffield's involvement in the design of a wastewater treatment system. The court granted the motion as to Count I against defendants Don Lockwood and John Stanton, holding them jointly and severally liable for the total amount of $82,153.17 plus pre- and post-judgment interest; imposed a constructive trust over the assets transferred to defendants, ordered a full accounting of the proceeds of the distributions, and ordered disgorgement of any profits or proceeds from the transfers; denied the motion as it related to Count I claims against Pamala Stanton; and held that the motion for rule to show cause was moot. View "Duffield Associates, Inc. v. Lockwood Brothers, LLC" on Justia Law

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The Delaware Court of Chancery held that, under 8 Del. C. 202, in order for a stockholder to be bound by stock transfer restrictions that are not "noted conspicuously on the certificate or certificates representing the security," he must have actual knowledge of the restrictions before he acquires the stock. If the stockholder does not have actual knowledge of the stock transfer restrictions at the time he acquires the stock, he can become bound by the stock transfer restrictions after the acquisition of the stock only if he affirmatively assents to the restrictions, either by voting to approve the restrictions or by agreeing to the restrictions. In this case, plaintiff did not have actual knowledge of the restrictions prior to acquiring his stock and the company must produce the requested documents as they are necessary to effectuate the stockholder's stated purpose. View "Henry v. Phixios Holdings, Inc." on Justia Law

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This dispute arose from the winding-down of a limited liability company formed as a real estate sales venture between two realtors. The Delaware Court of Chancery granted in part and denied in part defendants' partial motion to dismiss. The court dismissed with respect to the breach of fiduciary duty count because non-conclusory allegations in support of a relationship creating such a duty were lacking on the face of the complaint; denied the motion to dismiss with respect to the breach of an implied contract/estoppel claim because promissory estoppel was adequately alleged; and dismissed with respect to the constructive trust claim because it was waived. View "Beach to Bay Real Estate Center LLC v. Beach to Bay Realtors Inc." on Justia Law

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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