Justia Delaware Supreme Court Opinion Summaries

A stockholder derivative suit was filed alleging that Tesla’s non-employee directors, with the approval of Elon Musk, breached their fiduciary duties by granting themselves excessive stock option compensation between 2017 and 2020. After discovery and mediation, the parties reached a settlement. Under its terms, the directors agreed to return to Tesla a mix of cash, stock, and unexercised stock options, and to forgo future compensation for certain years. The settlement also included various corporate governance reforms.The Court of Chancery of the State of Delaware approved the settlement, rejecting an objector’s arguments regarding the fairness and structure of director contributions and the binding nature of future stockholder approval votes for director compensation. The court valued the benefit to Tesla using the intrinsic value (“in the money” value) of the returned options, along with returned cash and stock, and awarded attorneys’ fees as a percentage of the calculated benefit. Tesla objected to the fee award, arguing that the value of the returned options to the company was far less than their intrinsic value and should instead be measured by the grant date fair value (GDFV), which reflects the accounting benefit to Tesla.The Supreme Court of the State of Delaware affirmed the approval of the settlement but reversed the method used to calculate the attorneys’ fee award. It held that the intrinsic value of the cancelled options should not have been included in determining the monetary benefit to Tesla for purposes of a common fund fee calculation. The Court concluded that, in derivative litigation, unless an investor-level benefit falls within a recognized exception, the benefit to the corporation is controlling. The Supreme Court modified the fee award to reflect only the actual corporate benefit and remanded for any further disputes regarding fees. View "IN RE TESLA, INC. DIRECTOR COMPENSATION STOCKHOLDER LITIGATION" on Justia Law

A man and woman who had been in a relationship for five years were married in a ceremony on a dock, officiated by a minister, with only the groom’s minor son physically present at the ceremony. Two adults had previously signed the marriage license as witnesses, but only one of them was arguably present nearby in a vehicle; the other was definitely absent. After the ceremony, the marriage license was properly filed and accepted by the state. The couple lived as husband and wife until the groom’s unexpected death five months later. Following the death, a dispute arose between the widow and the decedent’s father, who acts as personal representative of the estate, regarding the decedent’s property and home.The decedent’s father sought a declaratory judgment in the Court of Chancery of the State of Delaware, arguing that the widow was not the decedent’s legal spouse because the marriage was not solemnized in the presence of two reputable adult witnesses as required by statute. He contended this failure rendered the marriage void, and sought to prevent the widow from inheriting. The Court of Chancery treated this as a petition for annulment under the Delaware Divorce and Annulment Act, but denied relief, finding that the petitioner lacked standing to seek annulment after the decedent’s death and that minor defects in solemnization do not necessarily void a marriage.On appeal, the Supreme Court of the State of Delaware reviewed the statutory requirements for marriage and found that, despite the absence of one adult witness, the parties had intended a lawful marriage and acted in good faith. The court held that the witness requirement is directory, not mandatory, and the marriage was not void for lack of a witness. The court affirmed the judgment below, holding that the marriage was valid and the petitioner could not seek its annulment. View "Lafon v. Felmlee" on Justia Law

Harman International Industries was acquired by Samsung Electronics in a reverse triangular merger, after which a class of former Harman shareholders filed a federal securities lawsuit alleging that disclosures made in connection with the transaction were misleading and violated Sections 14(a) and 20(a) of the Securities Exchange Act. The shareholders claimed they were deprived of a fully informed vote and the full value of their shares, seeking damages equal to the difference between the merger price and Harman’s true value. The parties settled the suit for $28 million, which was distributed to a class defined as shareholders who held Harman stock at any time during the relevant period, including some who did not receive merger consideration.Harman sought coverage for the $28 million settlement under its Directors and Officers (D&O) insurance policies with Illinois National Insurance Company, Federal Insurance Company, and Berkley Insurance Company. The insurers denied coverage, invoking a “Bump-Up Provision” that excluded settlements representing an effective increase in deal consideration for claims alleging inadequate consideration in an acquisition. Harman sued the insurers for breach of contract in the Delaware Superior Court. After initial motions were denied due to insufficient facts, both sides moved for summary judgment on the applicability of the Bump-Up Provision.The Delaware Superior Court held that the Bump-Up Provision did not exclude coverage because the underlying complaint did not allege inadequate consideration as a viable remedy, and the settlement amount did not represent an effective increase in deal consideration. On appeal, the Supreme Court of Delaware affirmed the Superior Court’s judgment, holding that although the complaint did allege inadequate consideration, the insurers failed to prove the settlement amount effectively increased the deal consideration. Thus, the $28 million settlement was covered under Harman’s policies. View "Illinois National Insurance Company and Federal Insurance Company v. Harman International Industries, Incorporated" on Justia Law

A publicly traded investment banking corporation entered into a stockholders agreement with an entity controlled by its founder in 2014, contemporaneous with its initial public offering. The agreement granted the founder’s entity extensive governance rights, including restrictions on board actions and control over board and committee composition, provided certain ownership and other conditions remained met. These arrangements and the founder’s control were disclosed in the company’s IPO prospectus and subsequent public filings. Nearly nine years later, a Class A stockholder filed suit seeking a declaratory judgment that key provisions of the stockholders agreement were facially invalid under Section 141(a) of the Delaware General Corporation Law, which vests management authority in the board of directors unless otherwise provided in the certificate of incorporation.The Court of Chancery of the State of Delaware denied the company’s time-bar and laches defenses, holding that if the challenged provisions violated Section 141(a), they were void rather than voidable, and therefore not subject to equitable defenses like laches. The court further reasoned that the alleged statutory violation was ongoing, so the claim was not untimely even though it was brought many years after the agreement was executed. The court proceeded to find that several provisions of the stockholders agreement facially violated Section 141(a), declared them void and unenforceable, and later awarded attorney fees to the plaintiff.On appeal, the Supreme Court of the State of Delaware reversed. It held that to the extent the challenged provisions conflicted with Section 141(a), they were voidable—not void—and thus subject to equitable defenses, including laches. The Supreme Court concluded that the plaintiff’s claim accrued when the agreement was executed in 2014, that the delay in bringing suit was unreasonable, and that the claim was barred by laches. The Supreme Court vacated the declaratory judgment and fee award, declining to reach the merits of the facial validity of the agreement’s provisions. View "Moelis & Company v. West Palm Beach Firefighters' Pension Fund" on Justia Law

Four individuals, including Ronald Suber, were engaged in stealing catalytic converters from vehicles. During one theft, police were alerted and pursued the suspects. Anna Hurst was apprehended and confessed, while Suber and others escaped. Soon after, Suber expressed anger over Hurst’s arrest. Suber and another accomplice, Tori Balfour, met Hurst and Brian May at a convenience store. Surveillance footage confirmed their meeting, and Balfour testified that Suber accused Hurst and May of talking to police. Later, in a cornfield, Balfour claimed Suber shot Hurst and fired at May. Suber allegedly disposed of evidence and returned to his cousin’s house. May, wounded, sought help from a local resident, and Hurst’s body was found in the cornfield. DNA and ballistic evidence were collected, but the murder weapon was not recovered.The Superior Court of the State of Delaware held a jury trial where Balfour testified against Suber after receiving a plea deal. May did not appear for trial. The prosecution elicited testimony from detectives suggesting that May identified Suber as the shooter in a photo lineup, although May was unavailable for cross-examination. The defense did not object to this testimony. The jury found Suber guilty of first-degree murder and related charges, and he was sentenced to life imprisonment plus additional time.The Supreme Court of the State of Delaware reviewed Suber's appeal, focusing on the use of indirect hearsay evidence that implicated Suber as the shooter through May’s supposed identification without direct testimony. The State conceded that this violated Suber’s constitutional confrontation rights. Applying the plain error standard, the Supreme Court determined the error was prejudicial to Suber’s substantial rights and undermined the fairness of the trial, given the central role of the indirect hearsay in corroborating the accomplice’s testimony. The Supreme Court vacated Suber’s convictions and remanded the case for further proceedings. View "Suber v. State" on Justia Law

Johnson & Johnson acquired Auris Health, a medical robotics company, in a transaction where Auris’s shareholders could earn up to $2.35 billion in additional payments if certain regulatory and sales milestones were met for Auris’s surgical devices. These milestones required Johnson & Johnson to use “commercially reasonable efforts,” defined by the contract as efforts comparable to those used for its own priority devices. All regulatory milestones were expressly conditioned on achieving specific FDA “510(k) premarket notification” approvals. After none of the milestones were met, Fortis Advisors, representing Auris’s former shareholders, sued, alleging that Johnson & Johnson failed to meet its efforts obligations and fraudulently induced Auris into accepting a contingent payment for one milestone by misrepresenting its likelihood.The Delaware Court of Chancery held a trial and found largely in Fortis’s favor. The court ruled that Johnson & Johnson breached the contract by not applying the required level of effort to Auris’s iPlatform system and acted with the intent to avoid earnout payments. For the first milestone, the court relied on the implied covenant of good faith and fair dealing to require Johnson & Johnson to pursue an alternate FDA pathway when the original 510(k) process became unavailable. The court also found that Johnson & Johnson fraudulently induced Auris to accept a contingent payment for the Monarch lung ablation milestone by portraying its achievement as almost certain, despite knowing of a recent patient death and an ongoing FDA investigation.On appeal, the Supreme Court of Delaware agreed with Johnson & Johnson regarding the implied covenant, holding that the merger agreement did not contain a contractual gap and that the risk of an unavailable 510(k) pathway was foreseeable and allocated by the contract. The court reversed the Chancery’s ruling that Johnson & Johnson was required to pursue an alternative regulatory pathway for the first milestone and vacated the related damages. The Supreme Court otherwise affirmed the findings on breach of contract for the remaining milestones, upheld the damages calculation for those, and affirmed the fraud finding and the conclusion that the contract did not bar extra-contractual fraud claims. The case was remanded for recalculation of damages consistent with this opinion. View "Johnson & Johnson v. Fortis Advisors LLC" on Justia Law

In June 2023, Kenneth Swanson was subject to multiple outstanding arrest warrants and was suspected by police of selling crack cocaine in Wilmington, Delaware. Acting on a tip from a confidential informant, police surveilled Swanson and observed what appeared to be a hand-to-hand drug transaction. After stopping Swanson’s vehicle at a gas station, officers arrested him and conducted a search, which resulted in the discovery of a plastic bag containing cocaine hidden in his pants. Laboratory analysis confirmed the substance was cocaine.Swanson was indicted by a grand jury in the Superior Court of the State of Delaware on several charges, but ultimately tried only for possession of cocaine in a Tier 3 quantity. He waived his right to a jury trial, and the bench trial proceeded with the State presenting video and testimony from the arresting officers. Swanson did not file any pretrial motions to suppress the evidence nor object to its admission during trial. The court found him guilty of the possession charge and, after declaring him a habitual offender, sentenced him to ten years of incarceration, suspended after six years.On appeal to the Supreme Court of the State of Delaware, Swanson argued for the first time that the search violated his Fourth Amendment rights and that the evidence should have been suppressed. The Supreme Court of Delaware held that under Superior Court Criminal Rule 12, motions to suppress must be made prior to trial and failure to do so constitutes waiver, absent good cause. Because Swanson did not file a suppression motion or show cause for his failure, the Court declined to review his Fourth Amendment claim and affirmed his conviction. The Court clarified that plain-error review does not apply to unpreserved suppression issues except in limited circumstances, such as when the basis for suppression arises too late or is confined to the four corners of a warrant. View "Swanson v. State" on Justia Law

Blue Beach Bungalows DE, LLC sought to purchase Pine Haven, a manufactured home and RV community in Delaware, from its longtime owner. After entering a purchase agreement in March 2022, Blue Beach sent numerous letters to residents, informing them of changing tenancy statuses, threatening eviction, police action, and property destruction, and imposing shifting deadlines to vacate. These aggressive tactics prompted complaints to the Delaware Department of Justice (DOJ), which initiated an administrative enforcement action against Blue Beach for violations including the Consumer Fraud Act (CFA), alleging false or misleading statements regarding the nature of residents’ living arrangements and improper rent solicitations.After a four-day hearing, the administrative Hearing Officer largely ruled in favor of the DOJ, penalizing Blue Beach over $700,000 for statutory violations. Blue Beach appealed to the Superior Court of the State of Delaware, which affirmed some violations and vacated others. The Superior Court held the CFA applied to communications made after the underlying transaction and found the CFA constitutional, rejecting Blue Beach’s arguments about the right to a jury trial. The DOJ cross-appealed the vacation of certain penalties.The Supreme Court of Delaware reviewed the case. It held that the plain language of the CFA does not apply to post-transaction communications, reversing the Superior Court on that issue. The Court affirmed the Superior Court’s finding that the CFA is constitutional and does not violate Delaware’s jury trial right, because the statutory cause of action is not sufficiently analogous to common law fraud. The Court declined to address the DOJ’s cross-appeal, finding those issues moot in light of its holding on the CFA’s scope. The case was affirmed in part, reversed in part, and remanded for further proceedings consistent with the Supreme Court’s opinion. View "Blue Beach Bungalows DE, LLC v. Department of Justice Consumer Protection Unit" on Justia Law

In 2018, the board of a major clean-energy vehicle company approved a substantial equity compensation plan for its CEO, contingent on achieving a series of ambitious market capitalization and operational milestones. The plan granted the CEO the right to purchase significant company stock if these milestones were met. A company shareholder filed a derivative suit, alleging that the CEO, as a controlling stockholder, had improperly influenced the board to secure excessive compensation. The shareholder also claimed failures in disclosure to stockholders who later approved the plan.The Court of Chancery of the State of Delaware held a five-day trial. It found that the CEO exercised transaction-specific control despite not holding a majority of voting power. Concluding that the CEO and the board had breached their fiduciary duties, the court applied the “entire fairness” standard and ordered rescission of the CEO’s compensation package. After this decision, the board resubmitted the compensation plan to the stockholders with new disclosures, and a majority of disinterested stockholders approved it in a second vote. The board then requested that the court revise its prior judgment, but the Court of Chancery refused, maintaining rescission and awarding the plaintiff’s counsel substantial fees.On appeal, the Supreme Court of the State of Delaware reviewed whether rescission was a proper remedy. The Supreme Court held that rescission was improper because it could not restore all parties to their positions before the transaction, given the CEO’s six years of performance under the plan. The Court reversed the rescission remedy, reinstated the compensation plan, and awarded the plaintiff nominal damages. The Supreme Court further ruled that the plaintiff’s attorneys were entitled to fees based on the reasonable value of their services. View "In re Tesla, Inc. Derivative Litigation" on Justia Law

Law enforcement received anonymous tips in 2021 and 2022 alleging that a Wilmington resident was selling drugs and possessing firearms at his home, which also operated as an unlicensed barbershop. The tips included specific details about the individual’s activities and identifying information. After receiving the July 2022 tip, police corroborated aspects of the information through surveillance, database checks, and two traffic stops involving individuals seen leaving the residence—one was found with marijuana allegedly purchased from the suspect and another fled from police after acting suspiciously. Based on this investigation, police obtained and executed a search warrant, recovering drugs, cash, and a firearm. The individual, a previously convicted felon, was indicted on drug and firearm charges, including possession of a firearm by a person prohibited.The Superior Court of the State of Delaware denied the defendant’s motion to suppress the evidence, finding that the affidavit supporting the search warrant established probable cause through the combination of the July 2022 tip and corroborating police investigation. At trial, a police officer referred to information from the National Crime Information Center (NCIC) identifying the recovered firearm as stolen. The defense did not object to this testimony. The defendant was convicted of multiple offenses, including firearm and drug charges, and sentenced to seventeen years of incarceration.On appeal to the Supreme Court of the State of Delaware, the defendant raised claims of hearsay and Confrontation Clause violations due to the NCIC testimony, challenged the denial of his suppression motion, and argued that the statute prohibiting felons from possessing firearms was unconstitutional. The Supreme Court applied plain error review to most issues because they were not raised below, and affirmed the convictions. The Court held that there was no plain error in admitting the NCIC evidence, that the search warrant was supported by probable cause, and that the firearm prohibition statute was not plainly unconstitutional, either on its face or as applied to the defendant. The judgment of the Superior Court was affirmed. View "Johns v. State" on Justia Law