The recent letter order issued in the case of Kandell, et al. v. Niv, et al., C.A. No. 11812-VCG (Del. Ch. Oct. 14, 2016) illustrates the Court’s disfavor when parties stipulate to expand the word count of a brief on the eve of a briefing deadline.  In order to avoid jeopardizing the briefing schedule, the Court granted the request, but with these words of caution:

Please be aware, however, that a motion to extend the word limit should be brought to the presiding judge’s attention in sufficient time for him to consider the request, accompanied by a statement of good cause.

Accordingly, parties seeking to expand the current word count limitation of 14,000 words for opening and answering briefs, or 8,000 words for replies, should make such request sufficiently in advance with a statement of good cause.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

In the Dell Inc. appraisal action, the Court previously held that the fair value of Dell common stock at the effective time of the merger was $3.87 per share more than the merger price.  For a link to a prior post discussing the decision, click here.  The appraisal statute authorizes a party that has incurred expenses litigating an appraisal to have its expenses, including reasonable attorneys’ fees, allocated pro rata among the shares comprising the appraisal class.

The recent decision of In re Appraisal of Dell Inc., C.A. No. 9322-VCL (Del. Ch. Oct. 17, 2016) provides a useful discussion of the Court of Chancery’s calculation of a fee award in an appraisal case based on the aforementioned benefit conferred to the dissenting stockholders.

The decision discusses when expenses should be deducted from the benefit conferred before calculating the fees, and other issues of import. This opinion will undoubtedly serve as a roadmap for future fee awards granted in appraisal cases.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

In the recent decision of Jay Frechter v. Cryo-Cell International, Inc., Civil Action No. 11915-VCG (Del. Ch. Oct. 7, 2016), the Court of Chancery granted a mootness fee in connection with a lawsuit brought by a stockholder challenging a bylaw provision.  The bylaw provision at issue indicated that directors could be removed “for cause” at a “special meeting” of stockholders.  The plaintiff asserted that under Section 141(k) of the Delaware General Corporation Law, stockholders have the right to remove directors without cause, and thus the provision was unlawful.

After the Plaintiff moved for summary judgment, the Company amended its bylaw to remove the language complained of, mooting the action.  The Court found that the provision at issue was “misleading to stockholders and could have a chilling effect on the exercise of their franchise under Section 141, because providing a procedure to remove directors for cause (and remaining silent as to removal without cause) could indicate to a reasonable stockholder that cause was a requisite for removal.”

The Court considered the Sugarland factors and found that a mootness fee of $50,000 for plaintiff’s counsel was warranted.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

The recent decision of Nguyen v. Barrett, C.A. No. 11511-VCG (Del. Ch. Sept. 28, 2016) provides a useful discussion of pre- and post-close disclosure claims.  The action involved a challenge to a merger agreement, brought pre-close, alleging inadequate price and process, as well as some thirty disclosure violations.  However, in plaintiff’s motion for preliminary injunctive relief, the Plaintiff pursued only his “serious” disclosure violation, involving lack of disclosure of purportedly material financial information. The Court denied the preliminary injunction motion.

The stockholders overwhelmingly chose to tender into the merger, which closed; and Plaintiff moved forward with a claim for damages for breach of duty in regard to two alleged mal-disclosures; one, the financial disclosure claim the Court found not reasonably likely to succeed at the preliminary injunction stage; and a second, involving incentives of the financial advisor, which the Plaintiff plead pre-close but elected not to argue in the motion for preliminary injunctive relief.

Defendants moved to dismiss the complaint, which the Court granted.  The Court distinguished between the standard employed for pre-close and post-close disclosure claims:

In order to sustain a pre-close disclosure claim, heard on a motion for preliminary injunctive relief, a plaintiff must demonstrate “a reasonable likelihood of proving that the alleged omission or misrepresentation is material;” by contrast, when asserting a disclosure claim for damages against directors post-close, a plaintiff must allege facts making it reasonably conceivable that there has been a non-exculpated breach of fiduciary duty by the board in failing to make a material disclosure.

The Court went on to state that: “[t]his Court’s jurisprudence makes clear that it is preferable to bring disclosure claims before closing.” (Slip op. n. 56). Given the more difficult standard applied to post-close disclosure claims, the Court granted the motion to dismiss.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

In the recent opinion of Geier v. Mozido, LLC, C.A. No. 10931-VCS (Del. Ch. Sept. 29, 2016), Vice Chancellor Slights dismissed the complaint because the claims sought therein were previously released due to a previous settlement.  The Court provides a thorough yet concise discussion of the applicable tenets of contract construction relating to the releases at issue.  The Court then interpreted the unambiguous language of the settlement and release language to find that the claims asserted were barred.  The motions to dismiss were therefore granted.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

The Court of Chancery has recently issued a string of decisions, including Kraft v. WisdomTree Investments, Inc. in which it has tightened the application of the equitable defense of laches to make it more likely that a claim brought after the actual or presumptive statute of limitations has expired will be dismissed.

However, in the recent Chancery decision of inTEAM Associates, LLC v. Heartland Payment Systems, Inc., C.A. No. 11523-VCMR (Del. Ch. Sept. 30, 2016), the Court declined to bar claims under the doctrine of laches.  There, Vice Chancellor Montgomery-Reeves adjudicated various breaches of contract, non-competition and non-solicitation claims brought by two Delaware entities, inTEAM Associates, LLC (“inTEAM”) and Heartland Payment Systems, Inc. (“Heartland”).

The entities each own K-12 school meal management software.  inTEAM‘s predecessor, School Link Technologies, Inc. (“SL-Tech”), and Heartland entered into a transaction in which Heartland bought substantially all of SL-Tech’s assets.  The transaction was detailed in three agreements that were executed together and work in tandem.  These agreements contain various non-competition, non-solicitation, exclusivity, and cross-marketing and support obligations.

As an affirmative defense, Heartland among other things asserted that laches barred recovery by inTEAM.  Heartland asserted that inTEAM unnecessarily delayed in bringing the suit by waiting 9 months after the alleged misconduct to file its action.  However, the Court noted that inTEAM submitted a letter to Heartland two months prior to commencing suit, notifying Heartland of its breach.  The Court did not find that the 7-month delay was prejudicial to Heartland.

The Court also noted that if the alleged injury is Heartland’s investment in a particular relationship to compete with inTEAM, Heartland engaged in that behavior before inTEAM knew about the breach. To the extent that Heartland has incurred some cost by investing further in a competitive relationship after finding out about inTEAM‘s objections, it did so at its own risk, as it was on notice of its possible violation.

In sum, the Court held that inTEAM did not breach any of its contractual obligations, but that Heartland breached its noncompetition and exclusivity obligations, and inTEAM‘s chief executive officer breached certain of his non-solicitation provisions. The Court further found that no affirmative defense excused any of the breaches.

This decision demonstrates the limitation of the application of laches.  To defeat a claim based upon this affirmative defense, when it is brought within the applicable statute of limitations, a legitimate showing of prejudice will be required.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

The Court of Chancery recently denied a fee award to a litigation funding firm in the decision of Judy v. Preferred Communication Systems, Inc., C.A. No. 4662-VCL (Del. Ch. Sept. 19, 2016).  There, Vice Chancellor Laster denied an equitable fee award on multiple grounds:

  1. Movant gratuitously financed the litigation brought by plaintiff, and as a voluntary financier, movant cannot seek an equitable fee award;
  2. Movant financed plaintiff’s attempt to take over the company, and case law has held that a movant cannot obtain an equitable fee award under such circumstances;
  3. Movant cannot establish the necessary causal connection between its litigation financing and the value of the licenses; and
  4. Movant cannot recover a quantum meruit award, and in any event cannot recover all of the expenses it has claimed.  Movant cannot recover the amounts it spent to hire lawyers for individuals to pursue personal claims against the company or for lawyers to appear before the FCC and take positions adverse to the Company. Nor can PSI recover the myriad of ordinary business expenses that it has included in its petition.

Accordingly, the Court denied movant’s fee application.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

The Court of Chancery recently ruled on a request for interlocutory appeal as it related to the Court’s rulings on spoliation issues.  In the decision of Chrome Systems, Inc. v. Autodata Solutions, Inc., et al., C.A. No. 11808-VCG (Del. Ch. Sept. 21, 2016), Vice Chancellor Glasscock declined to certify the interlocutory appeal.

Plaintiff brought the case alleging that defendants improperly dissolved a joint venture of the parties.  By previous bench ruling, the Court found that the parties contractually agreed to arbitrate the dispute, excluding injunctive relief.  The Court retained jurisdiction in the event the arbitrator found that certain issues were non-arbitrable.  Otherwise the arbitration moved forward on an expedited path.

The Plaintiff asked this Court to hold a hearing on, and use the contempt power to redress, the Defendants’ alleged spoliation (over which the Court reserved jurisdiction as well). By bench ruling on March 10, 2016, the Court exercised its discretion to hear only that evidence of spoliation or litigation misconduct occurring after the litigation was filed, which has the potential to have worked a fraud on the Court.  The Court found that other evidence of misconduct should be presented to the arbitrator, who will be able to avoid prejudice to the Plaintiff resulting from any spoliation by the Defendants.

Plaintiff proceeded to pursue an interlocutory appeal and request to certify that appeal, in that it wanted to present all pre- and post-litigation evidence of spoilation. The Court found that certification is inappropriate.  In doing so, the Court provided (while citing Supreme Court Rule 42(b)(ii)):

As Supreme Court Rule 42 makes clear, interlocutory appeal is an extraordinary remedy, which “should be exceptional, not routine, because [such appeals] disrupt the normal procession of litigation, cause delay, and can threaten to exhaust scarce party and judicial resources.” Before certifying an appeal, I must determine that an interlocutory appeal would bring “substantial benefits that will outweigh the certain costs that accompany” such an appeal.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

In a recent Court of Chancery appraisal decision, In re ISN Software Appraisal Litigation, C.A. No. 8388-VCG (Del. Ch. Aug. 11), Vice Chancellor Glasscock relied upon the discounted cash flow (DCF) valuation method to value an entity whose stock was not traded publicly, lacked historical sales of its stock that were reliable indicators of fair value, and for which no comparable company evaluations existed.

The Court started its valuation analysis using the DCF framework of the expert of ISN Software Corp. because his valuation used the standard five-year cash flow projection period, which the Court had found appropriate. After making adjustments for inputs where the parties diverged, the court subsequently concluded that $98,783 per share, which far exceeded the merger consideration of $38,317 per share, was the fair value of ISN Software as of the date of the merger.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Directors of companies generally have broad and unfettered rights to inspect the corporate records in order to fulfill their fiduciary duties owed to the company and its stockholders.  However, that right is not without limits.  When the company can demonstrate that the director sought inspection to compete or harm the company, the Court will deny inspection rights.  That is precisely the ruling in the recent decision of Bizzari v. Suburban Waste Services Inc., C.A. No. 10709-JL (Del. Ch. Aug. 30, 2016).

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.