In the recent decision of In re PLX Technology, Inc. S’holders Litig., Consl. C.A. No. 9880-VCL (Del. Ch. Oct. 16, 2018), the Delaware Court of Chancery found that shareholders of PLX Technology Inc. (“PLX”), a semiconductor firm, failed to prove that breaches of fiduciary duty by its directors caused any damages.

The shareholders brought the suit after PLX announced the proposed sale to a competitor, Avago Technologies Wireless Manufacturing Inc. (“Avago”) at a price of $6.50 per share.  The complaint alleged that the sale process was flawed, stating that Potomac Capital Partners LP (“Potomac”), a 10% shareholder of PLX, pushed for a quick sale that undervalued the company, at a time when PLX was on the cusp of significant improvement.

The claims against two directors of PLX and Avago were previously dismissed, and a settlement was reached with the remaining director defendants before trial. The aiding and abetting claims against Potomac were the remaining claims left to be decided in the instant opinion.

In a lengthy opinion, Vice Chancellor Laster found that while PLX shareholders showed that the company’s directors breached their duty in approving a sale to a competitor in 2015, Potomac did not aid and abet those breaches of fiduciary duties even though it pushed for the deal while not providing transparent information to other investors.

Regarding damages, Vice Chancellor Laster said that the financial projections relied upon by the shareholders’ valuation expert to demonstrate the company was worth $9.82 per share were aggressive and unlikely to be realized, because they anticipated significant revenues from a product line (not yet in existence) that would require PLX to enter a new market.  In addition, PLX had a history of missing its projections.  Citing the Delaware Supreme Court Dell decision, the opinion stated that “The Delaware Supreme Court has cautioned that “[m]anagement’s history of missing its forecasts should . . . give[] the Court of Chancery pause.”  Dell, Inc. v. Magnetar Glob. Event Driven Master Fund Ltd., 177 A.3d 1, 27, n. 129 (Del. 2017).

In relying upon deal price, the opinion cited to recent Delaware Supreme Court rulings, including Dell and DFC Glob. Corp. v. Muirfield Value P’rs., 172 A.3d 346, 362 (Del. 2017), that give significant weight to deal price in an appraisal actions.  Because the Court found that PLX conducted an extensive marketing process both before and after the offer received from Avago that satisfied the High Court’s requirements, plaintiff stockholders were unable to demonstrate damages.

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.

Recently, Governor John Carney nominated Morgan Zurn and Kathaleen McCormick to serve as Vice Chancellors for the Delaware Court of Chancery.  The number of jurists on the Court of Chancery was recently increased by two.  Morgan Zurn presently serves as a Master for the Court of Chancery.  Prior to joining the Court of Chancery, Master Zurn worked as a Deputy Attorney General in the Delaware Department of Justice, in the Consumer Protection Unit.  Kathaleen McCormick is a corporate litigation attorney in Delaware, with a focus on corporate, commercial and alternative entity litigation in the Court of Chancery.  The Delaware Senate plans to consider the nominations during a special session on October 3rd.

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.

Often times in appraisal litigation, the Court of Chancery must make a determination as to whether admit evidence implicating events transpiring after the signing of the merger.  This issue was addressed in the recent decision of In re Appraisal of Jarden Corporation, C.A. No. 12456-VCS (Del. Ch. Sept. 7, 2018).  There, documents relating to Jarden’s post-signing financial performance were at dispute, and the Court directed the parties to address the objections to the same in post-trial briefing.  This decision reflects that the Court will in certain instances entertain post-signing evidence into the record when adjudicating a Section 262 appraisal action.

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 Trascent Management Consulting, Inc. v. Bouri, C.A. No. 10915-VCMR (Del. Ch. Sept. 10, 2018), the Delaware Court of Chancery rescinded an operating agreement of a Delaware limited liability company.  In the 75-page opinion, Vice Chancellor Montgomery Reeves found that defendant George Bouri fraudulently induced the formation of the limited liability company and his employment agreement.  In addition, the Court found that defendant also made false statements during the litigation.

In so ruling, the Court held that Bouri lied in order to induce Trascent to hire him and to give him an equity position in the company, lied about his prior employment experience at Time Warner, and lied about his prior title, salary, and bonus structure.  Bouri had falsely claimed that he voluntarily resigned from Time Warner.  As a result of Bouri’s fraud, the Court rescinded Bouri’s employment agreement and declared the Trascent operating agreement unenforceable by Bouri.

To remedy the misconduct, the Court rescinded the employment agreement and declared the operating agreement unenforceable.  The court also awarded attorneys’ fees and costs as a penalty for defendant’s litigation misconduct, specifically awarding Trascent its attorneys’ fees and costs incurred in bringing the motion for sanctions and 40% of all fees Trascent incurred throughout the litigation.

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 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.