Justia Business Law Opinion Summaries

This appeal arose from a dispute over a Stock Purchase Agreement (“SPA”) formed between Valley Joist BD Holdings, LLC (“VJ Holdings”) and EBSCO, Industries Inc. (“EBSCO”). In December 2017, EBSCO sold all of its stock in Valley Joist, Inc. to VJ Holdings. After closing, VJ Holdings discovered structural defects in one of the buildings acquired as part of the transaction. In July 2018, VJ Holdings sought indemnification from EBSCO through the procedure outlined in the SPA. Two years after receiving no response to the notice, VJ Holdings filed suit in the Superior Court for breach of contract and fraud in the inducement. The Superior Court granted EBSCO’s motion to dismiss the fraud claim for failure to plead sufficient facts to satisfy Superior Court Civil Rule 9(b). The court also dismissed the breach of contract claim as barred under the SPA’s one-year contractual statute of limitations. VJ Holdings appealed: (1) challenging whether it pled sufficient facts to show pre-closing knowledge of fraud; and (2) challenged whether the Superior Court properly relied on a bootstrapping doctrine to dismiss the fraud claim. The Delaware Supreme Court reversed, finding that the allegations in the complaint, when viewed in the light most favorable to the non-moving party, lead to a reasonable inference that EBSCO knew of the structural defects in the building at the time of closing the SPA, contrary to its representation in the SPA that the building was in good operating condition and repair. As for the bootstrapping argument, the Supreme Court determined the Superior Court did not rely on a bootstrapping doctrine to dismiss the fraud claim. View "Valley Joist BD Holdings, LLC v. EBSCO Industries, Inc." on Justia Law

In 2016, the board of directors of Facebook, Inc. (“Facebook”) voted in favor of a stock reclassification that would allow Mark Zuckerberg, Facebook’s controller, chairman, and chief executive officer, to sell most of his Facebook stock while maintaining voting control of the company. Zuckerberg proposed the Reclassification to allow him and his wife to fulfill a pledge to donate most of their wealth to philanthropic causes. With Zuckerberg casting the deciding votes, Facebook’s stockholders approved the Reclassification. Not long after, numerous stockholders filed lawsuits in the Delaware Court of Chancery, alleging that Facebook’s board of directors violated their fiduciary duties by negotiating and approving a purportedly one-sided deal that put Zuckerberg’s interests ahead of the company’s interests. The trial court consolidated more than a dozen of these lawsuits into a single class action. At Zuckerberg’s request and shortly before trial, Facebook withdrew the Reclassification and mooted the fiduciary-duty class action. Facebook spent more than $20 million defending against the class action and paid plaintiffs’ counsel more than $68 million in attorneys’ fees under the corporate benefit doctrine. Following the settlement, another Facebook stockholder, the United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund (“Tri-State”), filed a derivative complaint, rehashing many of the allegations made in the prior class action but sought compensation for the money Facebook spent in connection with the prior class action. Tri-State pleaded that making a demand on Facebook's board was futile because the board’s negotiation and approval of the Reclassification was not a valid exercise of its business judgment and because a majority of the directors were beholden to Zuckerberg. Facebook and the other defendants moved to dismiss Tri-State’s complaint arguing Tri-State did not make demand or prove that demand was futile. The Court of Chancery dismissed Tri-State's complaint under Rule 23.1. Finding no reversible error in that judgment, the Delaware Supreme Court affirmed dismissal. View "United Food and Commercial Workers Union v. Zuckerberg, et al." on Justia Law

The issue presented from this interlocutory appeal of a Court of Chancery order holding that Appellees/Cross-Appellants, former stockholders of TerraForm Power, Inc. (“TerraForm”), had direct standing to challenge TerraForm’s 2018 private placement of common stock to Appellant/Cross-Appellees Brookfield Asset Management, Inc. and its affiliates, a controlling stockholder, for allegedly inadequate consideration. The trial court held that Plaintiffs did not state direct claims under Tooley v. Donaldson, Lufkin & Jennette, Inc., but did state direct claims predicated on a factual paradigm “strikingly similar” to that of Gentile v. Rossette, and that Gentile was controlling here. Appellants contended Gentile was inconsistent with Tooley, and that the Delaware Supreme Court’s decision in Gentile created confusion in the law and therefore ought to be overruled. Having engaged in a "full and fair presentation and searching inquiry has been made of the justifications for such judicial action," the Supreme Court overruled Gentile. Accordingly, the Court of Chancery's decision was reversed, but not because the Court of Chancery erred, but rather, because the Vice Chancellor correctly applied the law as it existed, recognizing that the claims were exclusively derivative under Tooley, and that he was bound by Gentile. View "Brookfield Asset Management, Inc., v. Rosson" on Justia Law

In 2017, a third-party entity acquired Authentix Acquisition Company, Inc. (“Authentix”). The cash from the merger was distributed to the stockholders pursuant to a waterfall provision. The Authentix common stockholders received little to no consideration. A group of common stockholders filed a petition for appraisal to the Court of Chancery under Section 262 of the Delaware General Corporation Law (“DGCL”). Authentix moved to dismiss the petition, arguing that the petitioners had waived their appraisal rights under a stockholders agreement that bound the corporation and all of its stockholders. The Court of Chancery granted the motion to dismiss, holding that the petitioners had agreed to a clear provision requiring that they “refrain” from exercising their appraisal rights with respect to the merger. The court awarded the petitioners equitable interest on the merger consideration and declined to award Authentix pre-judgment interest under a fee-shifting provision. All parties appealed the Court of Chancery’s decisions. Pointing to Delaware’s "strong policy favoring private ordering," Authentix argued stockholders were free to set the terms that will govern their corporation so long as such alteration was not prohibited by statute or otherwise contrary to Delaware law. Authentix contended a waiver of the right to seek appraisal was not prohibited by the DGCL, and was not otherwise contrary to Delaware Law. "As a matter of public policy, there are certain fundamental features of a corporation that are essential to that entity’s identity and cannot be waived." Nonetheless, the Delaware Supreme Court determined the individual right of a stockholder to seek a judicial appraisal was not among those fundamental features that could not be waived. Accordingly, the Court held that Section 262 did not prohibit sophisticated and informed stockholders, who were represented by counsel and had bargaining power, from voluntarily agreeing to waive their appraisal rights in exchange for valuable consideration. Further, the Court found the Court of Chancery did not abuse its discretion by awarding the petitioners equitable interest on the merger consideration; nor did the court abuse its discretion by declining to award Authentix pre-judgment interest under a fee-shifting provision. Accordingly, the Court of Chancery’s judgment was affirmed. View "Manti Holdings, LLC et al. v. Authentix Acquisition Company, Inc." on Justia Law

The two equal stockholders of UIP Companies, Inc. were deadlocked and could not elect new directors. One of the stockholders, Marion Coster, filed suit in the Court of Chancery and requested appointment of a custodian for UIP. In response, the three-person UIP board of directors — composed of the other equal stockholder and board chairman, Steven Schwat, and the two other directors aligned with him— voted to issue a one-third interest in UIP stock to their fellow director, Peter Bonnell, who was also a friend of Schwat and long-time UIP employee (the “Stock Sale”). Coster filed a second action in the Court of Chancery, claiming that the board breached its fiduciary duties by approving the Stock Sale. She asked the court to cancel the Stock Sale. After consolidating the two actions, the Court of Chancery found what was apparent given the timing of the Stock Sale: the conflicted UIP board issued stock to Bonnell to dilute Coster’s UIP interest below 50%, break the stockholder deadlock for electing directors, and end the Custodian Action. Ultimately, however, the court decided not to cancel the Stock Sale. The Delaware Supreme Court reversed the Court of Chancery on the conclusive effect of its entire fairness review and remanded for the court to consider the board’s motivations and purpose for the Stock Sale. "If the board approved the Stock Sale for inequitable reasons, the Court of Chancery should have cancelled the Stock Sale. And if the board, acting in good faith, approved the Stock Sale for the 'primary purpose of thwarting' Coster’s vote to elect directors or reduce her leverage as an equal stockholder, it must 'demonstrat[e] a compelling justification for such action' to withstand judicial scrutiny." View "Coster v. UIP Companies, Inc." on Justia Law

GXP Capital, LLC filed two lawsuits against defendants in different federal courts. GXP alleged defendants violated non-disclosure agreements by using confidential information to buy key assets at bargain prices from GXP’s parent company. Those cases were dismissed for lack of personal and subject matter jurisdiction. GXP then filed a third suit in Delaware Superior Court, which stayed the case on forum non conveniens grounds to allow GXP to file the same case in California state court - a forum the court decided had a greater connection to the dispute and was more convenient for the parties. On appeal GXP argued: (1) the Superior Court did not apply the correct forum non conveniens analysis when Delaware was not the first-filed action, the prior-filed lawsuits have been dismissed, and no litigation was pending in another forum; and (2) defendants waived any inconvenience objections in Delaware under the forum selection clause in their non-disclosure agreements. The Delaware Supreme Court affirmed, finding the trial court properly exercised its discretion in this case’s procedural posture to stay the Delaware case in lieu of dismissal when another forum with jurisdiction existed and that forum was the more convenient forum to resolve the dispute. “And certain of the defendants’ consent to non-exclusive jurisdiction in California did not waive their right to object to venue in other jurisdictions, including Delaware.” View "GXP Capital v. Argonaut Manufacturing Services, et al" on Justia Law

In 2014, appellant and cross-appellee LCT Capital, LLC (“LCT”) helped appellee and cross-appellants NGL Energy Partners, LP and NGL Energy Holdings LLC (collectively, “NGL”) acquire TransMontaigne, a refined petroleum products distributor. LCT played an "unusually" valuable role in the transaction. The transaction generated $500 million in value for NGL, more than double the $200 million price that NGL paid to acquire TransMontaigne. NGL’s CEO Mike Krimbill represented on several occasions that LCT would receive an unusually large investment banking fee, but the parties failed to reach an agreement on all of the material terms. After negotiations broke down completely, LCT filed suit seeking compensation for its work under several theories, including quantum meruit and common law fraud. At trial, LCT presented a unitary theory of damages that focused on the value of the services that it provided, measured by the fee that Krimbill proposed for LCT’s work. Nonetheless, the jury verdict sheet had two separate lines for damages awards, one for the quantum meruit claim and another for the fraud claim. The jury found NGL liable for both counts, awarded LCT an amount of quantum meruit damages equal to a standard investment banking fee, and awarded LCT a much larger amount of fraud damages approximately equal to the unusually large fee that Krimbill proposed. Following post-trial briefing, the superior court set aside the jury’s awards and ordered a new trial on damages. LCT and NGL both filed interlocutory appeals of the superior court’s order. On appeal, LCT argued that benefit-of-the-bargain damages were available without an enforceable contract. On cross-appeal, NGL argued the superior court erred by ordering a new trial on damages because the jury’s quantum meruit award fully compensated LCT for its harm. NGL also argued it was entitled to judgment as a matter of law on the fraud claim. Finally, NGL argued the superior court provided the jury with erroneous fraudulent misrepresentation jury instructions. After review, the Delaware Supreme Court found LCT was not entitled to benefit-of-the-bargain damages and that the Superior Court did not abuse its discretion by ordering a new trial on quantum meruit damages. Nonetheless, the Supreme Court also held the superior court abused its discretion by ordering a new trial on fraud damages because LCT did not assert any independent damages to support its fraud claim. Accordingly, the Court affirmed in part and reversed in part the superior court’s judgment. View "LCT Capital, LLC v. NGL Energy Partners LP" on Justia Law

Glaxo Group Limited and Human Genome Sciences, Inc. (collectively, “GSK”) owned patents covering Benlysta, a lupus treatment drug. GSK filed a patent application with the United States Patent and Trademark Office (“PTO”) claiming a method for treating lupus. Biogen Idec MA Inc. (“Biogen”) held an issued patent covering a similar method for treating lupus. When parties dispute who was first to discover an invention, the PTO declares an interference. Rather than suffer the delay and uncertainty of an interference proceeding, the parties agreed to settle their differences through a patent license and settlement agreement (“Agreement”). GSK ended up with its issued patent. The PTO cancelled Biogen’s patent, and Biogen received upfront and milestone payments and ongoing royalties for Benlysta sales. Under the Agreement GSK agreed to make royalty payments to Biogen until the expiration of the last “Valid Claim” of certain patents, including the lupus treatment patent. The Agreement defined a Valid Claim as an unexpired patent claim that has not, among other things, been “disclaimed” by GSK. GSK paid Biogen royalties on Benlysta sales. After Biogen assigned the Agreement to DRIT LP - an entity that purchased intellectual property royalty streams - GSK filed a statutory disclaimer that disclaimed the patent and all its claims. GSK notified DRIT that there were no longer any Valid Claims under the Agreement and stopped paying royalties on Benlysta sales. DRIT sued GSK in the Superior Court for breach of contract and breach of the implied covenant of good faith and fair dealing for failing to pay royalties under the Agreement. The court dismissed DRIT’s breach of contract claim but allowed the implied covenant claim to go to a jury trial. The jury found for DRIT, and the court awarded damages. On appeal, GSK argued the superior court should have granted it judgment as a matter of law on the implied covenant claim. On cross-appeal, DRIT claimed that, if the Court reversed the jury verdict on the implied covenant claim, it should reverse the superior court’s ruling dismissing the breach of contract claim. The Delaware Supreme Court found the superior court properly dismissed DRIT’s breach of contract claim, but should have granted GSK judgment as a matter of law on the implied covenant claim. Thus, the superior court's judgment was reversed. View "Glaxo Group Limited, et al. v. DRIT LP" on Justia Law

United BioSource LLC (“UBC”), a subsidiary of Express Scripts, Inc. (“ESI”) agreed to sell three of UBC’s pharmaceutical research and development businesses to Bracket Holding Corp. (“Bracket”), a holding company formed by Parthenon Capital Partners, LP (“Parthenon”). In August 2013, Bracket and UBC signed a $187 million securities purchase agreement (“SPA”). Except for claims involving deliberate fraud and certain fundamental representations, Bracket agreed to limit its remedy for breach of the SPA’s representations and warranties to an insurance policy (the “R&W Policy”) purchased to cover these claims. After closing, Bracket claimed that ESI and UBC engaged in fraud by inflating the revenue and working capital of one of the divisions of the acquired companies. In an arbitration proceeding Bracket recovered $13 million under the R&W Policy for breach of the SPA’s representations and warranties. Bracket then sued ESI and UBC for fraud in Delaware superior court. A jury awarded Bracket over $82 million. The parties appealed the jury verdict and judgment. After review, the Delaware Supreme Court found one issue dispositive: the SPA provided unambiguously that, except in the case of deliberate fraud and certain fundamental representations, Bracket could only recover up to the R&W Policy’s limits for breaches of the representations and warranties. Over ESI’s objection, however, the superior court instructed the jury that it could find for Bracket not only for deliberate fraud, but also for recklessness. "A deliberate state of mind is a different kettle of fish than a reckless one." The Supreme Court determined the superior court’s erroneous jury instruction was not harmless: it violated a key provision of the SPA and how the parties allocated risk in the transaction. The Supreme Court therefore reversed the superior court’s judgment and remanded for a new trial. View "Express Scripts, Inc. v. Bracket Holdings Corp" on Justia Law

In 2010, Appellants Meso Scale Diagnostics, LLC and Meso Scale Technologies, LLC (collectively “Meso”) filed suit in Delaware against Appellee entities Roche Diagnostics GmbH, Roche Diagnostics Corp., Roche Holding Ltd., IGEN LS LLC, Lilli Acquisition Corp., IGEN International, Inc., and Bioveris Corp. (collectively “Roche”), all of which were affiliates or subsidiaries of the F. Hoffmann -- La Roche, Ltd. family of pharmaceutical and diagnostics companies. Meso alleged two counts of breach of contract. Roche prevailed at trial, and the Delaware Supreme Court affirmed the judgment in 2014. Then in 2019, Meso brought a new action asking the court to reopen the case, vacate the judgment entered after trial, and order a new trial. Meso alleged that the Vice Chancellor who decided its case four years earlier had an undisclosed disabling conflict, namely, that Roche’s counsel had been simultaneously representing him in an unrelated federal suit challenging the constitutionality of Delaware’s law providing for confidential business arbitration in the Court of Chancery (“Section 349”). In that federal litigation, which ended in 2014, the Chancellor and Vice Chancellors of the Court of Chancery, as the parties responsible for implementing the challenged statute, were nominal defendants. The Court of Chancery denied relief and dismissed the action. Meso appealed. Finding no reversible error, the Delaware Supreme Court affirmed dismissal. View "Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH" on Justia Law