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.

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.

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.

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.

By order dated April 16, 2018, the Delaware Supreme Court has amended Delaware Supreme Court Rule 14(g)(i).  The amendments allow parties to cite to cases in Fastcase, a legal research system that members of the Delaware State Bar Association can access for free.  This is in addition to Westlaw and Lexis, which were already contemplated under Rule 14(g)(i).

A copy of the Delaware Supreme Court’s order adopting the rule change can be found here, and the announcement by the Court can be found here.

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 August 1, 2017, an amendment to Court of Chancery Rule 171(f) will go effective, setting forth word limitations for non-dispositive motions, and letters to the Court.  Under the amendment, motions filed with the Court–excluding those filed under Rules 12, 23, 23.1, 56 and 65, along with pre-trial and post-trial briefs–are subject to a more restrictive word count.  Motions impacted by this rule are to be filed without an opening brief, and may not exceed 3,000 words.  Oppositions likewise may not exceed 3,000 words, and replies shall not exceed 2,000 words.  The word limitation for motions filed under Rules 12, 23, 23.1, 56 and 65, along with pre- and post-trial briefs, remain the same (14,000 for opening and answering briefs, 8,000 for reply briefs).

In addition, the amendment changes the manner in which an attorney certifies compliance with the word count.  The word count must be stated in the signature block of the filed document governed by Rule 171(f), as opposed to filing a separate certification.

Finally, letters to the Court may not exceed 1,000 words. The amendment states that such letters should be used for “logistical and scheduling issues” and not for substantive relief.

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 Delaware Supreme Court decision of Genuine Parts Company v. Cepec, No. 528, 2015 (Apr. 18, 2016), the Delaware High Court issued a landmark ruling, holding that a foreign corporation’s registration to do business in Delaware and related appointment of a registered agent for the acceptance of service of process did not subject the corporation to general jurisdiction in Delaware.

For a more detailed analysis of this decision, please click here to view an article written by my colleague, Leslie B. Spoltore.

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 Honorable Joseph R. Slights, III was formally sworn in as the Court of Chancery’s newest Vice Chancellor on March 28, 2016.  Vice Chancellor Slights replaces former Vice Chancellor John W. Noble, who retired from the bench in February 2016.  Vice Chancellor Slights previously served a 12 year term as a Judge with the Delaware Superior Court.

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.

Delaware, a state often considered an incorporation “mecca” with its favorable tax laws, preeminent business court and unified body of corporate law, has recently enacted a controversial statute that may call the state’s corporation-friendly reputation into question. On June 11, 2015, the Delaware General Assembly approved legislation to effectively prohibit fee shifting bylaw provisions in the context of stockholder litigation related to corporate governance and merger and acquisition transactions. This law effectively thwarts efforts to curb unwarranted and frivolous stockholder litigation. It will also block any attempts to quell the large runaway verdicts in directors and officers (D&O) matters in Delaware.

Will this statute—which will undoubtedly encourage derivative class action lawsuits against corporate management— incentivize companies to reconsider Delaware as the state of their incorporation?

Amendments to the Delaware General Corporation Law

The Delaware fee-shifting bylaw prohibition statute was introduced as SB 75 and passed on June 11, 2015, with an effective date of Aug. 1, 2015. Through the statute, the Delaware General Assembly, among other things, amended the Delaware General Corporation Law (DGCL) (the amendments) to nullify the effectiveness of corporate bylaws that allowed fee-shifting in the context of intra-corporate litigation such as stockholder derivative actions.

Specifically, the statute added a new subsection (f) to Section 102 of the DGCL, which states that the certificate of incorporation “may not contain any provision that would impose liability on a stockholder for the attorney fees or expenses of the corporation or any other party in connection with an internal corporate claim.” Similarly, Section 109(b) of the DGCL has been amended to provide that “[t]he bylaws may not contain any provision that would impose liability on a stockholder for the attorney fees or expenses of the corporation or any other party in connection with an internal corporate claim, as defined in Section 115 of this title.”

The amendments prohibit Delaware stock corporations from imposing liability on a stockholder for attorney fees or expenses pertaining to an “internal corporate claim” in their bylaws or certificate of incorporation. Section 115 of the DGCL defines an “internal corporate claim” as any claim, including those brought on behalf of a corporation, “that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity, or as to which [the DGCL] confers jurisdiction upon the [Delaware] Court of Chancery.”

Exceptions to the Amendments

The statute is not without limits; there are exceptions to the reach of the new legislation. Notably, the amendments do not prohibit the shifting of fees in stockholders’ agreements or other written agreements signed by stockholders. The amendments also do not apply to alternative business entities not governed by the DGCL, such as partnerships, limited partnerships or limited liability companies, as in In re El Paso Pipeline Partners, LP Derivative Litigation, C.A. No. 7141- VCL, n. 38 (Del. Ch. Dec. 2, 2015) (“The [Delaware] LP Act does not contain provisions analogous to Sections 102(f) and 109(b)”). The amendments implicate only Delaware corporations, which are subject to the DGCL.

In addition, amended Section 114(b)(2) of the DGCL specifies that the prohibition of fee-shifting provisions in a certificate of incorporation or bylaws do not apply to Delaware non-stock corporations. This exception ensured that the rationale of the Delaware Supreme Court, in its May 2014 decision ATP Tour v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014), would not be disturbed. In ATP Tour, the high court answered questions of law certified to it from the U.S. District Court for the District of Delaware, and held that fee-shifting provisions in a Delaware non-stock corporation’s bylaws are not per se invalid. There, ATP Tour’s bylaws provided that if a member brought an action against it but did not obtain a judgment on the merits that “substantially achieved” the remedy sought, the member would be required to reimburse ATP Tour for all of its attorneys’ fees, costs and expenses. ATP Tour was then sued for antitrust violations and breach of fiduciary duty. The company and its directors prevailed and moved to recover fees and costs under the amended bylaws.

Following the Supreme Court’s ruling in ATP Tour, there was uncertainty and speculation as to whether the decision would apply to Delaware stock corporations as well, including public companies. The amendments clarified the issue, providing for a distinction between stock and non-stock corporations in terms of the enforceability of fee-shifting provisions.

Finally, nothing in the amendments to the DGCL would serve to prevent Delaware courts from issuing sanctions or shifting fees under the bad-faith exception to the American rule that otherwise requires each party to pay their own attorneys’ fees. However, if the Delaware General Assembly had permitted fee-shifting, it would have resulted in the courts’ having a greater arsenal to defeat frivolous stockholder actions.

Impact of the Amendments

To date, there are no Delaware cases interpreting or applying the amendments to the DGCL. At this juncture, just months removed from the Aug. 1, 2015 effective date, it is too early to tell what effect, if any, the amendments will have on either: decisions of corporations to incorporate or remain in Delaware; or corporate management of Delaware corporations that are subject to the reach of the statute (i.e., stock corporations).

Clearly, the exceptions to the statute are not insignificant, as the amendments have no bearing upon alternative entities or nonstock corporations, which are free to enact fee-shifting provisions in their governing documents. Thus, it would be prudent for Delaware entities, concerned with the potential for intra-corporate litigation, to consider the use of alternative entities where possible and appropriate should they choose to implement fee-shifting provisions in their governing documents.

Ultimately, however, it will not be possible or practical for many corporations, such as publicly traded companies for example, to change their internal structures simply to avoid the implication of these amendments. It will remain to be seen the extent to which other jurisdictions, which are constantly competing with Delaware to acquire corporate charters, will enact legislation expressly allowing for fee-shifting in the bylaws of stock corporations in order to attract such entities. Were this to be the case, the Delaware General Assembly would be wise to consider whether the gains from limiting the liability of corporate stockholders and promoting intra-corporate lawsuits outweigh the potential for the perception of Delaware as a corporation friendly state to be called into question, and the unintended consequences resulting therefrom. In this vein, the Delaware Court of Chancery recently rendered an opinion of import rejecting “disclosure settlements,” in which supplemental disclosures are exchanged for broad releases to company management, as in In re Trulia Inc. Stockholder Litigation, C.A. No. 10020-CB, slip op. At 19 (Del. Ch. Jan. 22, 2016) (“Given … the mounting evidence that supplemental disclosures rarely yield genuine benefits for stockholders … the court’s historical predisposition toward approving disclosure settlements needs to be reexamined.”)

Given the recent massive settlement awards approved by the Delaware Court of Chancery over the past several years—including the $275 million stockholder derivative settlement of In re Activision Blizzard, Inc. Stockholder Litigation, Cons. C.A. No. 8885- VCL (Del. Ch. May 20, 2015), and the $154 million stockholder derivative settlement of In re Freeport-McMoRan Copper and Gold Inc. Derivative Litigation, C. A. No. 8154-VCN (Del. Ch.)—coupled with the recent amendments nullifying bylaw fee-shifting, directors and officers of Delaware stock corporations must continue to understand the risks of potential litigation in connection with any merger, transaction, or other stockholder dispute, and seek adequate legal representation to minimize the potential for intra-corporate litigation.

Reprinted with permission from the February 23, 2016, edition of The Legal Intelligencer © 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877.257.3382 –reprints@alm.com or visit www.almreprints.com.

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 March 2, 2016, the Court of Chancery announced the appointment of Morgan Zurn as a Master in Chancery.  The Masters adjudicate cases assigned to them by the Court and play an important administrative role in ensuring that the Court handles its case load in a timely manner, particularly in the sensitive areas of trusts and estates and guardianships.

Ms. Zurn previously served as a Deputy Attorney General at the Delaware Department of Justice, since 2009. During her tenure with the Attorney General’s Office, Ms. Zurn worked in the Consumer Protection Unit and most recently with the Appeals Unit.

To review a press release issued by the Court on this appointment, click here.

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.