In the recent decision of In re Oxbow Carbon LLC Unitholder Litig., Consol. C.A. No 12447-VCL (Del. Ch. March 13, 2017), Vice Chancellor Laster provides a comprehensive review of pretrial discovery rules before the Delaware Court of Chancery.  This opinion is an excellent roadmap for conducting discovery in Delaware, and contains a treasure-trove of citations, authorities and maxims that would aid any Chancery practitioner.

Several quotes of import from this decision are as follows:

  • “The scope of discovery pursuant to Court of Chancery Rule 26(b) is broad and farreaching . . . .”
  • Relevance “must be viewed liberally,” and discovery into relevant matters should be permitted if there is “any possibility that the discovery will lead to relevant evidence.”
  • When a party objects to providing discovery, “[t]he burden is on the objecting party to show why and in what way the information requested is privileged or otherwise improperly requested.”
  • Generic and formulaic objections “are insufficient.”
  • In short, “[o]bjections should be plain enough and specific enough so that the Court can understand in what way the discovery is] claimed to be objectionable.”
  • Objection to requests as “excessive, overbroad, and unduly burdensome” is insufficient. “The objecting party must show specifically how each discovery request is burdensome or oppressive by submitting affidavits or offering evidence revealing the nature of the burden.”

Consistent with the recent amendments to the Federal Rules of Civil Procedure governing discovery, this decision reinforces the notion that vague, generic and boiler-plate objections to discovery requests will simply not be tolerated by the Court of Chancery.

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 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 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 Court of Chancery Rules require that any petition or complaint be verified under Rule 3(aa), requiring that they “be under oath or affirmation by the party filing such pleading that the matter contained therein insofar as it concerns the party’s act and deed is true, and so far as relates to the act and deed of any other person, is believed by the party to be true.”

The question becomes, how can a party file a complaint in the Court of Chancery if the declarant is not located within the United States and unable to access a notary public to verify the pleading?

The Delaware Uniform Unsworn Foreign Declarations Act, codified as Sections 5351 through 5356 of Title 10 of the Delaware Code, provides a solution.  Under this Act, and with certain exceptions, an unsworn declaration meeting the requirements of the chapter may be used in lieu of a traditional verification required under Rule 3(aa).  Per Section 5356, the unsworn verification must be substantially in the following form:

I declare under penalty of perjury under the law of Delaware that the foregoing is true and correct, and that I am physically located outside the geographic boundaries of the United States, Puerto Rico, the United States Virgin Islands, and any territory or insular possession subject to the jurisdiction of the United States.

The Delaware Court of Chancery has confirmed that an unsworn declaration under this Act may be used to verify complaints and pleadings filed under Chancery Rule 3(aa).  See Bessenyei v. Vermillion, Inc., C.A. No. 7572-VCN (Del. Ch. Nov. 16, 2012).

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 Court of Chancery opinion of Doberstein v. G-P Industries, Inc., C.A. No. 9995-VCP (Del. Ch. Oct. 30, 2015), the Court rejected a claim for piercing the corporate veil.  In analyzing defendant’s motion to dismiss such claim, the Court provided:

To state a veil-piercing claim, the plaintiff must plead facts supporting an inference that the corporation, through its alter-ego, has created a sham entity designed to defraud investors and creditors. Specific facts a court may consider when being asked to disregard the corporate form include: (1) whether the company was adequately capitalized for the undertaking; (2) whether the company was solvent; (3) whether corporate formalities were observed; (4) whether the dominant shareholder siphoned company funds; and (5) whether, in general, the company simply functioned as a facade for the dominant shareholder.

Slip op. at 9 (internal citations and footnotes omitted).

While the Court found that defendant potentially made fraudulent statements pertaining to the underlying substance of the matter, no nexus had been alleged to tie such acts to the “manipulation of the corporate form in order to make veil-piercing justifiable on grounds of equity.”  Accordingly, despite the potential bad faith conduct of the defendant, the Court found that under the above-stated standard, the corporate veil piercing claim was not adequately pled, and thus the count was dismissed.

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 decision of OptimisCorp. v. Waite, et al., C.A. No. 8773-VCP (Del. Ch. Jan. 28, 2015) is a good read for litigants seeking leave of the Court to amend a complaint.  In this decision, plaintiffs requested leave of the court to plead additional co-conspirators to the alleged conspiracy and to impose liability on defendants on a theory of conspiracy or aiding and abetting.

The Court denied plaintiffs’ request for leave given that plaintiffs waited eleven months after the deadline to amend pleadings to request leave.  In addition, the Court held that plaintiffs “were required to provide Defendants fair notice of the nature and scope of their conspiracy claims during the pre-trial proceedings.” (Slip op. at 28).  The failure of plaintiffs to adequately disclose such facts during discovery proved fatal.

This case is an important decision for any party to a litigation in that it demonstrates the pitfalls that a litigant should avoid in order to adequately prosecute a case and to ensure that all causes of action and related facts are adequately disclosed.

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 decision of Mechel Bluestone v. James C. Justice Cos., C.A. No. 9218-VCL (Del. Ch. Dec. 12, 2014), the Court of Chancery adjudicated a motion to compel and a request for sanctions in connection with a deficient privilege log.

As a result of various deficiencies in plaintiffs’ privilege log, the Court held that plaintiffs waived the privilege as it relates to documents not adequately described on the logs.  The Court stated that the preparation of privilege logs should involve “senior lawyers who know the applicable standards” and can make “textured judgment calls on a principled basis.”  Slip op. at 14.

This case is a good reminder that the Court expects attorneys to adequately describe documents on privilege logs, otherwise the privilege may be waived.  In addition, senior attorneys must be involved in the process.  As a further reminder, the Court expects Delaware counsel to discuss with forwarding counsel the expectations of the Court of Chancery.  James v. National Financial LLC, C.A. No. 8931-VCL (Del. Ch. Dec. 5, 2014) (discussed 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.

Who Can Bring an Action Under Section 225?
  • Shareholders (both record holders or beneficial holders)
  • Directors (incumbent and putative)
  • Officers (only if his or her own title to office is in dispute)
  • Members of a corporation having no stock
How Quickly Can a Petitioner Expect To Get a Resolution After Filing a Section 225 Action?

Section 225 actions are summary in nature, and thus the Court of Chancery hears such a case on an expedited basis. These cases, depending on the issues raised in them, are heard within two to four months of filing the action.

Is There Any Protection Against Dissipation of Assets by the Incumbent Management While the Case Is Pending?

While a Section 225 case is pending, the parties usually enter into a status quo order that prevents the incumbent director, officer or member of a governing body from taking actions outside the ordinary course of business. Such orders are typically agreed to among the parties prior to appearing before the Court, but sometimes when the parties cannot agree, the Court on its own enters such an order.

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.

If you are a shareholder or director of a Delaware corporation, and you dispute the composition of the company’s board of directors, or the appointment of an officer, you have a remedy under the Delaware General Corporation Law (“DGCL”).  This post will generally discuss such disputes, and the scope of remedies available to such shareholders or directors.

What Mechanism Can a Shareholder or Director Use To Challenge the Propriety of the Composition of a Board of Directors or the Holding of Office by an Officer?

Section 225 under the DGCL provides the means whereby the Court of Chancery can adjudicate an action that challenges an election, appointment, removal or resignation of any director or officer. The purpose of such a suit is to address and resolve the uncertainty that arises when the authority of corporate leaders and, thus the governance of a corporation, is in dispute.

Is a Section 225 Action Limited to Disputes Over the Election of Directors and Officers?

No. In addition to disputes over the election of officers and directors, a Section 225 proceeding can be initiated to address the result of any vote of stockholders or members, such as a disputed stockholder vote over matters other than to the right of a director or officer or member of a governing body to hold office, as well as the right of any person to hold or continue to hold office.

Can Corporate Wrongdoing Be Addressed in a Section 225 Action?

Because of the need to expeditiously determine the outcome of a disputed election, a proceeding under Section 225 is strictly limited to those issues necessary to the determination of the statute’s purpose. Therefore, unless it is necessary to the determination of the proper composition of a board of directors or officers of the company, collateral issues such as breach of fiduciary duties or disputed share ownership will be deemed outside the purview of such an action.

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 January 2012, the Delaware Court of Chancery issued Guidelines to Help Lawyers Practicing in the Court of Chancery, which were discussed and summarized here. In these Guidelines, the Court confirmed that there is no such concept of “local counsel”, and that Delaware counsel are responsible to the Court for the case and its presentation even if out of state (“forwarding counsel”) is involved in the case.

The recent case of James v. National Financial LLC, C.A. No. 8931-VCL (Del. Ch. Dec. 5, 2014) provides a reminder of the importance of Delaware counsel in any Chancery case, and emphasizes the need for Delaware counsel to be involved in the discovery process even if forwarding counsel has primary contact with the client.  At the very minimum, the Court expects Delaware counsel to discuss with forwarding counsel the expectations of the Court of Chancery.

This case is a good read to determine the Court’s expectations of counsel in connection with the discovery process. The Court reiterated the fact that “candor and fair-dealing” are necessary and fundamental principles in the litigation process.

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.