In the case of Tang Capital Partners LP v. Norton, et al., C.A. No. 7476-VCG (Del. Ch. July 12, 2013), the Court of Chancery recently considered whether to grant Plaintiffs’ motion for entry of final judgment, which was filed after a conflicting decision emerged following the Court’s denial of Plaintiffs’ initial motion.
Plaintiffs are noteholders of Savient Pharmaceuticals, Inc.’s (“Savient”) 4.75% convertible senior notes due in 2018 (the “Notes”), which are unsecured and subject to the terms of an indenture (the “Indenture”). Plaintiffs commenced this matter on April 30, 2012, seeking damages and injunctive relief to remedy breaches of fiduciary duty allegedly committed by the directors of Savient. In addition, Plaintiffs also sought the appointment of a receiver to wind up Savient, given Savient’s alleged insolvency.
On July 6, 2012, Savient moved to dismiss the receivership claim. The Court granted the motion to dismiss, finding that the Plaintiffs had contracted away their right to seek receivership through a no-action clause in the Indenture. However, the Court denied Plaintiff’s request for a partial final judgment, because the Court found that Plaintiffs had not timely requested such relief.
Two months prior to Vice Chancellor Glasscock’s issuance of the Memorandum Opinion dismissing Plaintiffs’ receivership claim, Vice Chancellor Laster had decided a similar motion to dismiss in the case styled as Quadrant Structured Products Company, Ltd. v. Vertin, et al., C.A. No. 6990-VCL. In that case, the plaintiff, a creditor of Athilon Capital Corp. (“Athilon”), sued the directors of Athilon for breach of fiduciary duty and waste. Athilon and its directors moved to dismiss the complaint as being barred by a no-action clause in the indenture governing the plaintiff’s notes. The Court dismissed the Complaint, finding that “decisions in Lange and Feldbaum [were] directly on point.”
Quadrant appealed that decision to the Delaware Supreme Court. On February 12, 2013, the Supreme Court issued a mandate to Vice Chancellor Laster asking him to explain his decision to dismiss the case. In its mandate, the Supreme Court noted that the no-action clauses in Lange and Feldbaum, which Vice Chancellor had relied on in dismissing Quadrant, contained slightly different language than the corresponding clause in Quadrant.
Meanwhile, the Defendants moved to dismiss the remaining counts of the Complaint in this action. In the interim between the time of oral argument and the time at which Vice Chancellor Glasscock had planned to issue his Opinion on the Motion to Dismiss the remaining Counts, Vice Chancellor Laster published the Quadrant Report, fulfilling the Supreme Court mandate, which calls the law underlying that Opinion into doubt. In brief, after a comprehensive analysis of both New York and Delaware law, Vice Chancellor Laster reversed his decision and decided that the no-action clause did not bar Quadrant’s claims.
In light of the Quadrant Report, which is now again before the Delaware Supreme Court on appeal, Vice Chancellor Glasscock convened a teleconference with the parties in this case to discuss whether it may be appropriate to consider an interlocutory appeal of the previous Memorandum Opinion which interpreted a no-action clause that is similar to the clause on appeal in Quadrant. In response, the Plaintiffs again moved for Partial Final Judgment, which was opposed by the Defendants.
The Court stated that litigants may not seek to appeal a decision of the Court of Chancery until all claims in the action have been adjudicated. An exception to that rule is found in Court of Chancery Rule 54(b), which provides that appeal of a partial final judgment is appropriate only if “(1) the action involves multiple claims or parties, (2) at least one claim or the rights and liabilities of at least one party has been finally decided, and (3) that there is no just reason for delaying an appeal.” Here, this action involves several claims, only one of which is the subject of this Motion. That claim, for the appointment of a receiver, has been finally decided.
The Court found that there was “just reason for delaying the appeal.” Given the potential change in the landscape of the law as demonstrated by the Quadrant report, combined with the Supreme Court’s mandate requesting the Court in Quadrant to explain its decision, the Court in this case determined that it was appropriate to grant plaintiff’s request. Moreover, the Court found that judicial economy was best served by allowing the Supreme Court to decide two substantially similar issues in conjunction, as both this case and Quadrant relate to no-action clauses in an indenture which are governed by New York law.
This opinion demonstrates the Court’s desire to ensure uniformity of its rulings, along with maintaining judicial economy. Additionally, it underscores the importance that counsel stay abreast of recent developments in case law germane to the issues before the Court.