In the recent decision of CapStack Nashville 3 LLC, et al. v. MACC Venture Partners, et al., C.A. No. 2018-0552-SG (Del. Ch. Aug. 16, 2018), the Delaware Court of Chancery declined to enter a temporary restraining order (“TRO”) which would amount to a prior restraint of speech.  Plaintiffs sought a TRO to temporarily enjoin the Defendants from making allegedly defamatory statements about the Plaintiffs to the SEC, investors or other third parties.

The Court recited the well-known standard of a TRO, which requires the moving party to demonstrate: (1) a colorable claim, (2) a likelihood of imminent, irreparable harm if relief is not granted, and (3) that movant will suffer greater hardships if the TRO is not granted than the defendants would suffer if the relief were granted.

The Court found that “Plaintiffs’ request runs afoul of the ‘traditional maxim that equity will not enjoin a libel.'”  Slip op. at 9 (citing Organovo Holdings, Inc. v. Dimitrov, 162 A.3d 115 (Del. Ch. 2017)).  The Court further noted that “[w]hen an injunction against speech is entered before a full trial on the merits, “’it is almost always treated as an unconstitutional prior restraint.’” Slip op. at 10 (citing Mark A. Lemley & Eugene Volokh, Freedom of Speech and Injunctions in Intellectual Property Cases, 48 Duke L.J. 147, 171 (1998)).  Accordingly, the Court denied Plaintiffs’ motion for TRO.

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 ChyronHego Corporation v. Wight, C.A. No. 2017-0548-SG (Del. Ch. July 31, 2018), provides helpful guidance regarding the effectiveness of anti-reliance provisions in a contract.

ChyronHego clarifies that in order for the anti-reliance provision to be effective under Delaware law,

[T]he contract must contain language that, when read together, can be said to add up to a clear anti-reliance clause by which the plaintiff has contractually promised that it did not rely upon statements outside the contract’s four corners in deciding to sign the contract.

Slip op. at 12.  On the other hand, the Court clarified that Standard Integration Clauses without explicit anti-reliance representations, will not relieve a party of its extra-contractual fraudulent representations. Id.

Here, plaintiffs asserted claims of fraud arising from a corporate acquisition, alleging that defendants fraudulently misrepresented the actual condition and value of the company.  Vice Chancellor Glasscock found that the stock purchase agreement (“SPA”) at issue unambiguously barred prior extra-contractual fraud.  This was so given the unambiguous anti-reliance provision contained in the SPA, together with the SPA’s integration clause, exclusive remedies clause, a clause defining excluded liabilities, and an indemnification provision.

As such, the Court dismissed those claims in the complaint alleging extra-contractual fraud in connection with the SPA.

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 highly publicized Dell and DFC Global appraisal opinions issued by the Delaware Supreme Court in 2017 inform that where a company is sold in a clean M&A auction process, with information sufficiently disseminated to potential bidders, the merger price will be given significant weight, leaving it to the trial court to decide just how much weight that should be in this case.  For a review of prior blog posts addressing the Dell and DFC Global decisions, click here and here, respectively.

Since Dell and DFC Global, several Court of Chancery opinions have considered whether to give significant weight to merger price in determining fair value.  These decisions include In re Appraisal of AOL Inc., C.A. No. 11204-VCG (Del. Ch. Feb. 23, 2018), and Verition Partners Master Fund Ltd. v. Aruba Networks Inc.  In the former, Vice Chancellor Glasscock found that the sales process was not “Dell-compliant”, and thus assigned no weight to the deal price.  The latter went the other way, finding that the sales process was sufficiently adequate.

In the recent decision of Blueblade Capital Opportunities v. Norcraft Company, Inc., C.A. No. 11184-VCS (Del. Ch. July 27, 2018), Vice Chancellor Slights found that “the evidence reveals significant flaws in the process leading to the Merger that undermine the reliability of the Merger Price as an indicator of Norcraft’s value.” Slip op. at 3. This is so because the Court found that there was no pre-signing market check, that Norcraft and its advisors “fixated on Norcraft and never broadened their view to other potential partners”, and that Norcraft’s lead negotiator “was at least as focused on securing benefits for himself as he was on securing the best price available for Norcraft.” Id. 

Accordingly, the Court declined to rely upon deal price, but instead determined fair value by turning to the discounted cash low analysis presented by the parties, and “borrowed the most credible components of each expert’s analysis to conduct [the Court’s] own DCF valuation”.  In so doing, the Court’s DCF valuation yielded a fair value of $26.16 a share, up slightly from the deal price at $25.50 a share.

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.

On July 18, 2018, the Delaware Supreme Court issued an Order to improve attorney work life balance.  The Order requires that each state court in Delaware amend their rules to set forth a 5:00 p.m. ET electronic filing deadline for the majority of filings.  To read an announcement from the Delaware Supreme Court discussing the Order, click here.  [Note: This follows a similar rule by the U.S. District Court of the District of Delaware, which set a filing cutoff of 6:00 p.m. ET.]

The 5:00 p.m. ET filing deadline will apply to all electronic filings in non-expedited cases, except for initial pleadings and notices of appeal.  Expedited cases are not subject to this rule.  The filing deadline will become effective on September 14, 2018.

The Order also recommends that Delaware state courts adopt rules discouraging filing deadlines on Mondays or immediately following a holiday, the issuance of non-expedited opinions after 4:00 p.m. generally or on a Friday afternoon, and the scheduling of oral argument or trials in August, except for expedited matters or where there is an important reason for proceeding at that time.

Carl D. Neff is a lawyer 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 Morrison v. Berry, No. 445, 2017 (Del. July 9, 2018), the Delaware Supreme Court issued an opinion of import in connection with the Corwin doctrine.  In Morrison, the High Court reversed a dismissal by the Delaware Court of Chancery on the grounds that the disclosures at issue did not fully reflect all material facts of the transaction at issue to the company’ stockholders, thus preventing the directors from being afforded the benefit of the Corwin doctrine.

By way of background, in Corwin v. KKR Financial Holdings LLC, No. 629, 2014 (Del. Oct. 2, 2015), the Delaware Supreme Court held that in a merger transaction with a party other than a controlling shareholder, the business judgment standard of review will apply where the voluntary, fully-informed and uncoerced judgment of the majority of the disinterested shareholders to approve the transaction was obtained.  To review a prior blog post discussing this decision, click here.

In Morrison, the complaint alleged, among other things, that the sale process procedure may have been influenced by a founder’s interactions with the private equity buyer, coupled with pressure on the board to approve the transaction.   Aided by documents obtained through a pre-suit Section 220 books and records investigation, plaintiff alleged that the recommendation statement provided to stockholders omitted information that “would have helped the stockholder to reach a materially more accurate assessment of the probative value of the sale process.”  The Supreme Court found the omissions included “troubling facts regarding director behavior,” of the kind that the Corwin court reasoned would prevent ratification if omitted.  The Supreme Court stated that Corwin business judgment review will not apply to stockholder-approved transactions when “partial and elliptical” disclosures leave stockholders less than fully informed.

Key Takeaway:

The Court stated front and center on page one of the memorandum opinion that the decision should serve as a “cautionary reminder to directors and the attorneys who help them craft their disclosures” that disclosures to stockholders must reflect all material facts in order for transaction parties to benefit from the standard established by the Delaware Supreme Court in Corwin.

Carl D. Neff is a lawyer 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.

Effective July 1, 2018, certain amendments to Rule 28, Rule 153 and Rule 170 of the Delaware Court of Chancery Rules will go into effect (redline versions of the Rules are linked).  A summary of these recent rule amendments are provided below:

Rule 28. Persons before whom depositions may be taken. This amendment requires the inclusion of a citation to the applicable statute if a moving party contends that a commission to take an out of‐state deposition is unnecessary.

Rule 153. Receiver to notify creditors. The amendments stated in Rule 153 reflect the current procedure, under which the receiver is responsible for sending notice to creditors of an entity under receivership.

Rule 170. Attorneys. The amendments reference the Statement of Principles of Lawyer Conduct to the Principles of Professionalism for Delaware Lawyers.

Carl D. Neff is a lawyer 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 Edinburgh Holdings, Inc. v. Education Affiliates, Inc., C.A. No. 2017-0500-JRS (Del. Ch. June 6, 2018), the Delaware Court of Chancery considered whether claims for breach of contract, breach of fiduciary duty and the implied covenant of good faith and fair dealing could be brought in relation to the same conduct.

Background

In Edinburgh, the dispute arose from the sale of a proprietary education business.  The Asset Purchase Agreement (“APA”) provided for earnout payments to the seller based upon the acquired business achieving certain revenue targets following the closing.  The buyer refused to make the final annual payment, which led to the instant litigation.

Defendants moved to dismiss, asserting, among other things, that certain claims brought by plaintiff were duplicative.  Namely, defendants argued that the claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and for breach of fiduciary duty, all related to the same conduct and thus subject to dismissal.

Analysis

Vice Chancellor Slights noted that a breach of contract claim and a breach of fiduciary duty claim cannot both be asserted for the same conduct, unless “there is an independent basis for fiduciary claims arising from the same general events….” In making this determination, the Court “inquires whether the fiduciary duty claims depend on additional facts as well, are broader in scope, and involve different considerations in terms of potential remedy.”  See Slip op. at 38.  In other words:

Generally, Delaware “[c]ourts will dismiss [a] breach of fiduciary duty claim where [it] overlap[s] completely [with a breach of contract claim] and arise[s] from the same underlying conduct or nucleus of operative facts” as the breach of contract claim.

In addition, the Vice Chancellor discussed whether breach of contract and implied covenant of good faith and fair dealing claims can be asserted at the same time.  The Court took note of Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 539 (Del. 2011), which held that “[a] party may maintain a claim for breach of the implied covenant of good faith and fair dealing only if the factual allegations underlying the implied covenant claim differ from those underlying an accompanying breach of contract claim”.  Slip op. at 21, n. 84.  This is so because “[t]he implied covenant is available only where the terms to be implied are missing from the contract; ‘cannot be invoked to override the express terms of a contract.'”  Slip op. at 21 (citations omitted).

Here, the Court granted defendants’ motion to dismiss in part because it found that the above-referenced claims were improperly duplicative.  The Court determined that plaintiff’s breach of contract claims encompassed the misconduct alleged in the breach of fiduciary duty claim and the implied covenant claim, and thus dismissed the latter two claims.

Carl D. Neff is a lawyer 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.

View of buildings along 11th Street at sunset in downtown Wilmington, DelawareFox Rothschild is pleased to announce that, effective June 11, it will merge with Shaw Fishman Glantz & Towbin LLC, a 23-attorney firm with robust practices in bankruptcy, commercial litigation and real estate. The merger with the Chicago-based firm will also deepen Fox’s capabilities in Wilmington, with the addition of counsel Johnna Darby and partner Tom Horan.

Johnna Darby, Counsel, Fox Rothschild LLPJohnna Darby represents businesses of various sizes and in various contexts, including formation guidance, contract review, corporate governance and business and commercial disputes pending in federal and state courts. Skilled at negotiating resolutions and litigating cases for clients, she is adept at knowing when to do one, the other, or both, and uses these skills to advise clients regarding a clear path forward.

In addition, Johnna’s work takes her into bankruptcy court. There she has represented creditors, an official committee of unsecured creditors, and other interested parties. Johnna has also represented a liquidating trustee in numerous preference actions. She also has had the pleasure of assisting out-of-state counsel with their representations by serving as Delaware counsel.

Thomas Horan, Partner, Fox Rothschild LLPTom Horan is experienced in a wide range of bankruptcy matters, focusing his national practice on the representation of debtors and official unsecured creditors committees in complex Chapter 11 proceedings. In addition to his work on behalf of debtors and official committees of unsecured creditors, Tom regularly represents secured creditors, trustees, unsecured creditors, and debtor-in-possession lenders.

Tom also represents clients in preference and fraudulent transfer proceedings. Beyond his extensive Chapter 11 experience, he frequently provides opinion letters on commercial transactions and represents parties in matters before the State of Delaware’s Court of Chancery and Superior Court.

Over the past several years, Fox Rothschild has grown its national footprint significantly. The firm opened in Minneapolis in 2016, welcoming more than 80 attorneys via a merger with Oppenheimer Wolff & Donnelly LLP. In May of 2017, Fox launched a Seattle office through a merger with 39-attorney law firm Riddell Williams LLP.

On May 21, 2018, the Delaware Court of Chancery denied Petitioners’ motion for reargument in the Aruba Networks appraisal litigation, styled as Verition Partners Master Fund Ltd. v. Aruba Networks Inc., C.A. No. 11448-VCL (Del. Ch. May 21, 2018).  In the Court’s post-trial memorandum opinion, dated February 15, 2018, Vice Chancellor Laster issued a ruling, setting the stock’s fair value at Aruba’s thirty-day average unaffected market price, which was $17.13 per share, which was significantly below the merger price of $24.67.

In denying Petitioner’s motion for reargument, the Vice Chancellor defended the reasoning of the post-trial memorandum opinion, with provided a further discussion of DFC Global and Dell.  In the original Aruba Networks opinion, Vice Chancellor Laster determined that an efficient market existed for the target’s shares, given the following factors: (i) the presence of a significant amount of stockholders, (ii) the absence of a controlling stockholder, (iii) fulsome trading volume for the target’s stock, (iv) the broad dissemination of information about the target to the market, and (v) that the Court found that the target’s sale process had been robust.  The Court also noted that the transaction was an arm’s-length merger.

In light of the above, the Court determined that the transaction was “Dell-compliant” and therefore market-based indicators would provide the best evidence of fair value. Of note, Vice Chancellor Laster found that both the deal price and the unaffected stock price constituted probative evidence of fair value.  However, the Court elected to rely upon the unaffected stock price, in light of synergies that the parties expected the transaction to generate.  The Court found that the unaffected stock price reflected “the collective judgment of the many based on all the publicly available information … and the value of its shares.” (Slip op., at 120.)  Vice Chancellor Laster observed that using the deal price and subtracting synergies would involve judgment and introduce a likelihood of error in the calculation.

Key Takeaway:  Consistent with DFC Global and Dell, Aruba Networks reinforces the notion that the Court may look to the deal price in an arm’s-length merger as part of a robust sale process in determining fair value.  But Aruba Networks also lends support for reliance upon the target’s unaffected stock price in determining fair value, to the detriment of the petitioner given the disparity between deal price and stock price.  Appraisal petitioners beware.

Carl D. Neff is a lawyer 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 Paul Morris v. Spectra Energy Partners (DE) GP, LP et al., C.A. No. 12110-VCG (Del. Ch. May 7, 2018) provides a helpful analysis of the attorney-client privilege in Delaware and certain exceptions thereto.  In this master limited partnership dispute, plaintiff asserted that the general partner’s conflicts committee acted in bad faith by knowingly approving a transfer of assets for approximately $500 million less than they were worth.

A discovery dispute arose as to whether emails between counsel for the general partner’s conflicts committee, and the members of that committee and its financial advisor, were privileged.  The Court considered the “at issue” and the Garner exceptions to the attorney-client privilege, the latter of which was set forth in Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970).  This pithy letter opinion provides a helpful primer on the applicability of these exceptions.

Carl D. Neff is a lawyer 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.