Justia Business Law Opinion Summaries

Trascent Management Consulting, LLC hired a top executive, George Bouri, giving him part ownership, naming him Managing Principal, and naming him as a member of the Board of Managers of Trascent with responsibility for human resources, IT, and finance. Bouri occupied these positions for about sixteen months. When Trascent terminated Bouri and sued him, for among other things, violating his employment agreement, Bouri sought advancement to defend himself in accordance with the plain language of both his employment agreement and Trascent’s LLC agreement. Belatedly in the process of defending Bouri’s motion for summary judgment, Trascent argued that the same employment contract on which many of its claims against Bouri were premised was induced by fraud and that Bouri could not receive advancement because the employment agreement was thereby invalid (and presumably that he would not have become a member of Trascent’s board, and thus be entitled to advancement, under the LLC agreement absent that contract). The Court of Chancery rejected that defense to advancement, relying on the plain language of the agreements, which required that advancement be provided until a court made a final, nonappealable determination that indemnification was not required, and on the summary nature of the proceedings under 6 Del. C. sec. 18-108 (the LLC analogue to 8 Del. C. sec. 145). Trascent appealed, arguing the Court of Chancery erred in that ruling. Finding no reversible error after its review, the Delaware Supreme Court affirmed the Court of Chancery's judgment. View "Transcent Management Consulting, LLC v. Bouri" on Justia Law

In 2003, Zubin Mehta and Gregory Shalov formed Finger Lakes Capital Partners as an investment vehicle to own several operating companies. Mehta and Shalov contacted Lyrical Partners L.P. to participate in their venture. The parties signed a term sheet covering their overall relationship, as well as topics relating to two specific investments. On the advice of counsel, Finger Lakes held each of its portfolio companies as separate limited liability companies with separate operating agreements. Over the course of a decade, the companies did not perform as expected. Finger Lakes asked Lyrical for additional capital. The parties agreed to allow Lyrical to “clawback” its investment money as added protection for its continued investment in the enterprise. Only one investment performed well and generated a substantial return when it was sold. The others failed or incurred substantial losses. The parties disagreed about how the proceeds from the one profitable investment should have been distributed under the network of agreements governing their business relationship. The Court of Chancery held that the proceeds should have been distributed first in accordance with the operating agreement governing the investment in the profitable portfolio company; the term sheet and clawback agreement would then be applied to reallocate the distribution under their terms. Finger Lakes argued on appeal that the profitable investment entity’s operating agreement superseded the overarching term sheet and clawback agreement; even if the clawback agreement was not superseded, the Court of Chancery applied it incorrectly; Lyrical could not recover its unpaid management fees through a setoff or recoupment; and, the Court of Chancery improperly limited Finger Lakes’ indemnification to expenses incurred until Finger Lakes was awarded a partial judgment on the pleadings, instead of awarding indemnification for all expenses related to these proceedings. With one exception, the Supreme Court affirmed the Court of Chancery’s judgment with respect to that court's interpretation of the operating agreements. The Supreme Court found, however, that the Court of Chancery erred when it held that Lyrical could use setoff or recoupment to recover time-barred management fees. Further, Lyrical could not assert its time-barred claims by way of recoupment because the defensive claims did not arise from the same transaction as Finger Lakes’ claims. View "Finger Lakes Capital Partners, LLC v. Honeoye Lake Acquisition, LLC" on Justia Law

Caris Life Sciences, Inc. operated three business units: Caris Diagnostics, TargetNow and Casrisome. The Diagnostics unit was consistently profitable. TargetNow generated revenue but not profits, and Carisome was in the developmental stage. To secure financing for TargetNow and Carisome, Caris sold Caris Diagnostics to Miraca Holdings. The transaction was structured using a "spin/merge" structure: Caris transferred ownership of TargetNow and Carisome to a new subsidiary, then spun off that subsidiary to its stockholders. Owning only Caris Diagnostics, Caris merged with a wholly owned subsidiary of Miraca. Plaintiff Kurt Fox sued on behalf of a class of option holders of Caris. Fox alleged that Caris breached the terms of the Stock Incentive Plan because members of management as Plan Administrator, rather than the Board of Directors, determined how much the option holders would receive. Regardless of who made the determination, the $0.61 per share attributed to the spun off company was not a good faith determination, and resulted from an arbitrary and capricious process. The Court of Chancery found that fair market value was not determined, and the value received by the option holders was not determined in good faith and that the ultimate value per option was determined through a process that was "arbitrary and capricious." Caris appealed, arguing the Court of Chancery erred in arriving at its judgment. Finding no reversible error in the Court of Chancery's judgment, the Delaware Supreme Court affirmed. View "CDX Holdings, Inc. v. Fox" on Justia Law

The plaintiffs were all affiliates of Arthur and Angela Williams, who owned stock in Citigroup. The defendants were Citigroup and eight of its officers and directors. In 1998, Citicorp and Travelers Group, Inc. merged, forming Citigroup. At that point, Arthur Williams's shares in Travelers Group were converted into 17.6 million shares of Citigroup common stock, which were valued at the time of the merger at $35 per share. In 2007, the Williamses had these shares transferred into AHW Investment Partnership, MFS Inc., and seven grantor-retained annuity trusts, all of which the Williamses controlled. In 2007, the Williamses sold one million shares at $55 per share. But, the Williamses halted their plan to sell all of their Citigroup stock because, based on Citigroup's filings and financial statements, they concluded that there was little downside to retaining their remaining 16.6 million shares. The Williamses allegedly held those shares for the next twenty-two months, finally selling them in March 2009 for $3.09 per share. After selling their 16.6 million shares, the Williamses sued Citigroup in the U.S. District Court for the Southern District of New York, arguing that their decision not to sell all of their shares in May 2007, and their similar decisions to hold on at least three later dates, were due to Citigroup‘s failure to disclose accurate information about its true financial condition from 2007 to 2009. The Second Circuit certified a question of Delaware law to the Delaware Supreme Court arising from an appeal of a New York District Court decision. The Second Circuit asked whether the claims of a plaintiff against a corporate defendant alleging damages based on the plaintiff‘s continuing to hold the corporation's stock in reliance on the defendant's misstatements as the stock diminished in value properly brought as direct or derivative claims. The Delaware Court answered: the holder claims in this action were direct. "This is because under the laws governing those claims [(]those of either New York or Florida[)] the claims belong to the stockholder who allegedly relied on the corporation's misstatements to her detriment. Under those state laws, the holder claims are not derivative because they are personal to the stockholder and do not belong to the corporation itself." View "Citigroup Inc., et al. v. AHW Investment Partnership, MFS, Inc., et al." on Justia Law

In this case, a large Georgia corporation that properly registered to do business in Delaware was sued in Delaware over claims having nothing to do with its activities in Delaware. Adhering to the interpretation given to Delaware's registration statutes, the Superior Court held that, notwithstanding the U.S. Supreme Court's decision in "Daimler AG v. Bauman," the foreign corporation consented to Delaware's general jurisdiction merely by registering to do business in Delaware. After review, the Delaware Supreme Court concluded that after "Daimler," it was "not tenable to read Delaware's registration statutes" in the same way as the Superior Court did in "Sternberg v. O'Neil … Delaware cannot exercise general jurisdiction over it consistent with principles of due process. Furthermore, the plaintiffs concede that they cannot establish specific jurisdiction over the nonresident defendant under the long-arm statute or principles of due process. Therefore, the plaintiffs' claim must be dismissed for lack of personal jurisdiction. Accordingly, we reverse the Superior Court‘s judgment." View "Genuine Parts Co. v. Cepec, et al." on Justia Law

This litigation arose from the construction of a "Johnny Janosik" furniture store in Laurel. The Plaintiff-appellant LTL Acres Limited Partnership (LTL) was the owner of the Janosik Building. Defendant-appellee Butler Manufacturing Company (Butler) provided pre-engineered components which were used to build the roof and exterior walls. Defendant-appellee Dryvit Systems, Inc. (Dryvit) supplied a product used on the exterior finish of the walls, to protect and seal them. Dryvit warranted its product for ten years from the "date of substantial completion of the project." The building was completed in 2006. Unfortunately, the building had issues with water infiltration from the beginning. By February 2012, cladding began to crack and buckle. The water infiltration and delamination persisted through 2013 despite attempts to fix the issues. LTL brought this action in 2013, alleging breach of warranty, breach of contract, and negligence claims against Butler; and breach of warranty and breach of contract claims against Dryvit. The Superior Court granted summary judgment to both Butler and Dryvit on the grounds that the actions against both were barred by the applicable statute of limitations. It held that the action against Butler was barred by 10 Del. C. sec. 8127,which is a six year statute of limitations relating to alleged defective construction of an improvement to real property. After review, the Supreme Court concluded that summary judgment in favor of Butler was proper. The Superior Court ruled that LTL’s action against Dryvit was barred by a four year statute of limitations set forth in 6 Del. C. sec. 2-725. Dryvit gave LTL a ten year express warranty. The Superior Court described the warranty as a “repair and replacement warranty” and reasoned that such a warranty cannot be one that extended to future performance. It therefore concluded that the statute of limitations for an action on the warranty expired not later than four years after the Dryvit product was tendered and applied to the building; that is, not later than four years after 2006. The Supreme Court concluded that grant of summary judgment in favor of Dryvit was inappropriate, and had to be reversed. The case was remanded for further proceedings. View "LTL Acres Limited Partnership v. Butler Manufacturing Co." on Justia Law

Canadian resident Marc Hazout was the President, CEO, Principal Financial and Accounting Officer, and a director of a Delaware corporation, Silver Dragon Resources, Inc. He was sued for acts taken in his official capacity on behalf of the corporation based in Canada. As alleged in the complaint, Hazout was the lead negotiator for Silver Dragon in negotiating a capital infusion from a group of affiliated investors including Tsang Mun Ting and other residents of Hong Kong. That capital infusion when consummated would have required a change of control of Silver Dragon from Hazout and certain others to Tsang and his fellow investors, who would have achieved the right to control Silver Dragon‘s board. Hazout and two other Silver Dragon directors signed the agreement, but a fourth refused. Rather than return $1 million to Tsang, however, Hazout not only caused Silver Dragon to keep it, but also had Silver Dragon send $750,000 of it to Travellers International, Inc., a corporation that Hazout controlled. Tsang therefore brought this suit in the Superior Court of Delaware against Silver Dragon, Hazout, and Travellers for unjust enrichment, fraud, and fraudulent transfer in violation of the Delaware Uniform Fraudulent Transfer Act. Hazout moved to dismiss on the ground that there was no basis for the exercise of personal jurisdiction over him in Delaware because Tsang was not suing Hazout as a stockholder of Silver Dragon for breach of any fiduciary or other duty owed to Silver Dragon as an entity or Tsang as a stockholder. The Superior Court disagreed and found Delaware law provided a proper basis for personal jurisdiction. The Delaware Supreme Court accepted a certified interlocutory appeal on the personal jurisdiction question from the Superior Court and affirmed: “there is no rational argument that the terms of [10 Del C. sec.] 3114(b) are not satisfied.” View "Hazout v. Ting" on Justia Law

The United States Court of Appeals for the Eleventh Circuit certified a question of law arising out of an appeal of a decision by the United States District Court for the Southern District of Florida to the Delaware Supreme Court. Paulson Advantage Plus, L.P. (the “Investment Fund”) was a Delaware limited partnership that invested in corporate securities. Paulson Advisers, LLC, a Delaware limited liability company, and Paulson & Co., a Delaware corporation (the Investment Fund Managers) were the general partners and managers of the Investment Fund. One of the Investment Fund’s limited partners was HedgeForum Paulson Advantage Plus, LLC, (the “Feeder Fund”). The Feeder Fund was managed and sponsored by Citigroup Alternative Investments, LLC. AMACAR CPO, Inc. was the Feeder Fund’s managing member. Along with other investors, Plaintiff-appellant Hugh Culverhouse was a member of the Feeder Fund, not a limited partner in the Investment Fund. Culverhouse filed a putative class action against the Investment Fund Managers in the United States District Court for the Southern District of Florida. The first amended complaint alleged that between 2007 and 2011, the Investment Fund invested about $800 million in a Chinese forestry company. Following another investment firm’s report claiming that the forestry company had overstated its timber holdings and engaged in questionable related-party transactions, the Investment Fund sold its holdings for about a $460 million loss. On appeal of the dismissal for lack of standing, the United States Court of Appeals for the Eleventh Circuit determined that resolution of the appeal depended on an unsettled issue of Delaware law. The Eleventh Circuit posited the question to the Delaware Supreme Court on whether the diminution in the value of a limited liability company, serving as a feeder fund in a limited partnership, provides a basis for an investor’s direct suit against the general partners when the company and the partnership allocated losses to investors’ individual capital accounts and did not issue transferrable shares and losses were shared by investors in proportion to their investments. The Delaware Court answered in the negative. View "Culverhouse v. Paulson & Co., Inc." on Justia Law

In the first appeal, the Supreme Court upheld the Court of Chancery’s finding that SIGA Technologies, Inc. in bad faith breached its contractual obligation to negotiate a license agreement consistent with the parties’ license agreement term sheet, known throughout this litigation as the “LATS.” The Supreme Court also held that where parties have agreed to negotiate in good faith, and would have reached an agreement but for the defendant’s bad faith conduct during the negotiations, the plaintiff could recover contract expectation damages, so long as the plaintiff can prove damages with reasonable certainty. Because the Court of Chancery ruled out expectation damages in its first decision, the case was remanded for consideration of damages to SIGA ("SIGA I”). On remand, the Court of Chancery reevaluated the evidence, and held that PharmAthene, Inc. met its burden of proving with reasonable certainty expectation damages and awarded PharmAthene $113 million. The parties once again appealed to the Supreme Court. SIGA raised two claims of error in this appeal: (1) the Court of Chancery was not free to reconsider its prior holding that lump-sum expectation damages were too speculative; and (2) if reconsideration was permitted, the expectation damages awarded following remand were too speculative. After careful consideration of SIGA’s arguments, the Supreme Court found that the law of the case doctrine did not preclude the Court of Chancery from reconsidering its earlier determination that lump-sum expectation damages were too speculative. The Court also found that the court did not abuse its discretion when it awarded PharmAthene lump-sum expectation damages, and its factual findings supporting its new damages determination were not clearly erroneous. Accordingly, the Court affirmed the judgment of the Court of Chancery. View "SIGA Technologies, Inc. v. PharmAthene" on Justia Law

The Court of Chancery issued four opinions which were appealed to the Delaware Supreme Court. In sum, the appeal and cross-appeal in this case centered on the Chancery Court’s final judgment finding that RBC Capital Markets, LLC aided and abetted breaches of fiduciary duty by former directors of Rural/Metro Corporation ("Rural" or the "Company") in connection with the sale of the Company to an affiliate of Warburg Pincus LLC, a private equity firm. RBC raised six issues on appeal, namely: (1) whether the trial court erred by holding that the board of directors breached its duty of care under an enhanced scrutiny standard; (2) whether the trial court erred by holding that the board of directors violated its fiduciary duty of disclosure by making material misstatements and omissions in Rural’s proxy statement, dated May 26, 2011; (3) whether the trial court erred by finding that RBC aided and abetted breaches of fiduciary duty by the board of directors; (4) whether the trial court erred by finding that the board of directors’ conduct proximately caused damages; (5) whether the trial court erred in applying the Delaware Uniform Contribution Among Tortfeasors Act ("DUCATA"); and (6) whether the trial court erred in calculating damages. After careful consideration of each of RBC’s arguments on appeal, the Supreme Court found no reversible error and affirmed the "principal legal holdings" of the Court of Chancery. View "RBC Capital Markets, LLC v. Jervis" on Justia Law