Justia Delaware Supreme Court Opinion Summaries

United Technologies Corp. appealed a Court of Chancery judgment holding that the court did not have the authority to impose a specific condition on a books and records inspection under section 220(c) of the Delaware General Corporation Law (DGCL). United Technologies had sought to restrict the use of any information garnered from an inspection by a shareholder, Lawrence Treppel, to legal action in a Delaware court. The Court of Chancery denied the corporation's request, determining that such a limitation “is not the type of restriction that 220(c) seeks to impose.” On appeal, United Technologies argued that the court did have the authority, under the statute itself and the line of cases interpreting it, to impose the requested limitation, and the court erred by not doing so in this case. The Supreme Court reversed and remanded, finding that the plain text of section 220 provided broad power to the Court of Chancery to condition a books and records inspection. The court erred in determining that it lacked authority under the statute to impose the requested restriction. The Supreme Court remanded the case so that the Court of Chancery could consider in the first instance whether, in its discretion, it should impose such a restriction based on the specific facts in this case. View "United Technologies Corp. v. Treppel" on Justia Law

Plaintiffs City of Miami General Employees and Sanitation Employees Retirement Trust brought a class action on behalf of itself and other stockholders in C&J Energy Services, Inc. (C&J) to enjoin a merger between C&J and a division of its competitor, Nabors Industries Ltd. The proposed transaction was unusual in that C&J, a U.S. corporation, would acquire a subsidiary of Nabors, which was domiciled in Bermuda, but Nabors will retain a majority of the equity in the surviving company. To obtain more favorable tax rates, the surviving entity, C&J Energy Services, Ltd. (New C&J), would be based in Bermuda, and thus subject to lower corporate tax rates than C&J currently paid. To temper Nabors' majority voting control of the surviving company, C&J negotiated for certain protections, including a bye-law guaranteeing that all stockholders would share pro rata in any future sale of New C&J, which could only be repealed by a unanimous stockholder vote. C&J also bargained for a “fiduciary out” if a superior proposal was to emerge during a lengthy passive market check, an unusual request for the buyer in a change of control transaction. Although the Court of Chancery found that the C&J board harbored no conflict of interest and was fully informed about its own company's value, the court determined there was a "plausible" violation of the board's "Revlon" duties because the board did not affirmatively shop the company either before or after signing. On that basis, the Court of Chancery enjoined the stockholder vote for 30 days, despite finding no reason to believe that C&J stockholders would not have a fair opportunity to evaluate the deal for themselves on its economic merits. The Court of Chancery's order also required C&J to shop itself in violation of the merger agreement between C&J and Nabors, which prohibited C&J from soliciting other bids. The Supreme Court held that the preliminary injunction had to be supported by a finding by the Court of Chancery that plaintiffs demonstrated a reasonable probability of success on the merits. The Court of Chancery made no such finding here, and the analysis that it conducted rested on the erroneous proposition that a company selling itself in a change of control transaction is required to shop itself to fulfill its duty to seek the highest immediate value. "To blue-pencil a contract as the Court of Chancery did here is not an appropriate exercise of equitable authority in a preliminary injunction order. That is especially true because the Court of Chancery made no finding that Nabors had aided and abetted any breach of fiduciary duty, and the Court of Chancery could not even find that it was reasonably likely such a breach by C&J's board would be found after trial." Accordingly, the judgment of the Court of Chancery was reversed. View "C&J Energy Services, Inc. v. City of Miami General Employees' Retirement Trust" on Justia Law

Defendants-Appellants Gary Salamone, Mike Dura and Robert Halder (collectively, the “Management Group”) appealed a Court of Chancery Memorandum Opinion and Order and Final Judgment. This case involved a dispute between two competing sets of stockholders and directors about the composition of the board of Westech Capital Corporation, a financial services holding company headquartered in Austin, Texas. Both parties brought actions in the Court of Chancery pursuant to 8 Del. C. section 225, each contending that their respective slates of directors were the valid board. The heart of the case for both sides was the interpretation of a Voting Agreement signed by the purchasers of Westech Series A Preferred stock in September 2011. According to John Gorman, IV, the founder of the company and its majority stockholder, the Voting Agreement provided for a per share scheme and entitled him to remove and designate new directors, as he attempted to do in 2013. According to the Management Group, the Voting Agreement provided for a per capita scheme. Because Gorman’s attempt to remove and replace directors was not approved by a majority of the (individual) holders of the preferred stock (as opposed to the holders of a majority of shares), they argued that Gorman’s attempts to change the board composition were invalid. Both parties filed section 225 actions. The two cases were consolidated, with Gorman as plaintiff and the Management Group as defendants. The Court of Chancery’s Memorandum Opinion held that one clause of the Voting Agreement set forth a per capita scheme to designate directors, but another contested provision set forth a per share scheme to designate directors. Thus, the Court of Chancery determined that Gorman’s actions were only partially valid, and that the Westech board consisted of two members of the Gorman slate and two members of the Management slate, with three vacant seats. Both parties appealed to the Delaware Supreme Court, arguing that the Court of Chancery’s decision was partially incorrect. The Court did not agree with either side's arguments on appeal and affirmed the Court of Chancery’s ruling that Section 1.2(b) of the Voting Agreement set forth a per share scheme and Section 1.2(c) set forth a per capita scheme. However, the Court concluded that the Court of Chancery erred in holding that the directors designated pursuant to Section 1.2(c) could be removed by the vote of the majority of the shares held by the Key Holders. Instead, under the plain language of Section 1.4(a), the Key Holders, as the “Person[s]” entitled to nominate the Key Holder Designees, are the only “Person[s]” entitled to remove the Key Holder Designees. Put more broadly, the plain language of Section 1.2 and Section 1.4(a) suggests that the designation and removal provisions were intended to be symmetrical. In reaching its conclusions, the Supreme Court held that certain of the Court of Chancery’s factual findings were clearly erroneous. However, these errors were not of sufficient force to affect the Court of Chancery’s overall conclusions regarding Sections 1.2(b) and 1.2(c). Accordingly, the Supreme Court affirmed in part and reversed in part. View "Salamone v. Gorman" on Justia Law

The dispute pending before the United States Court of Appeals for the Second Circuit centered on the effect of a UCC termination statement – a “UCC-3 termination statement” – filed with the Delaware Secretary of State on behalf of General Motors Corporation. That termination statement, by its plain terms, purported to extinguish a security interest on the assets of General Motors held by a syndicate of lenders, including JPMorgan Chase Bank, N.A. But neither JPMorgan nor General Motors subjectively intended to terminate the term loan security interest when General Motors filed the termination statement. General Motors’ counsel for a separate “synthetic lease” financing transaction, Mayer Brown LLP, had inadvertently included the term loan security interest on the termination statement that it filed in the process of unwinding the synthetic lease. According to JPMorgan, no one at General Motors, Mayer Brown, or Simpson Thatcher Bartlett LLP (JPMorgan’s counsel for the synthetic lease transaction) noticed this error, even though individuals at each organization reviewed the filing statement before the termination statement was filed. After General Motors filed for reorganization under Chapter 11 of the Bankruptcy Code, JPMorgan informed the unofficial committee of unsecured creditors that a UCC-3 termination statement relating to the term loan had been inadvertently filed. The Creditors Committee commenced a proceeding against JPMorgan in the United States Bankruptcy Court for the Southern District of New York seeking, among other things, a determination that the filing of the UCC-3 termination statement was effective to terminate the term loan security interest and thus render JPMorgan an unsecured creditor on par with the other General Motors unsecured creditors. JPMorgan contested that argument, asserting that it had not authorized the termination statement releasing the term loan security interest, and that the statement was erroneously filed because no one at General Motors, JPMorgan, or the law firms working on the synthetic lease transaction recognized that the unrelated term loan security interest had been included on the statement. On cross-motions for summary judgment, the Bankruptcy Court found for JPMorgan on various grounds, including that JPMorgan had not empowered Mayer Brown to act as its agent in releasing the term loan security interest in the sense that it had only authorized Mayer Brown to file an accurate termination statement that released security interests properly related to the synthetic lease transaction. The Second Circuit certified a question of Delaware law to the Supreme Court in order to resolve the appeal of this case before it: "Under UCC Article 9(as adopted into Delaware law by Del. Code Ann. tit. 6, art. 9), for a UCC-3 termination statement to effectively extinguish the perfected nature of a UCC-1 financing statement, is it enough that the secured lender review and knowingly approve for filing a UCC-3 purporting to extinguish the perfected security interest, or must the secured lender intend to terminate the particular security interest that is listed on the UCC-3?" The Delaware Supreme Court answered under the assumption that the term "effectively extinguish" as used by the Second Circuit centered on whether reviewing the termination statement and knowingly approving it for filing had the effect specified in section 9-513 of the Delaware’s version of the Uniform Commercial Code (UCC), which is that “the financing statement to which the termination statement relates ceases to be effective." On that assumption, the Delaware Court answered that "the unambiguous provisions of Delaware’s UCC dictate that the answer is that 'it [is] enough that the secured lender review and knowingly approve for filing a UCC-3 purporting to extinguish the perfected security interest.'" Under the Delaware UCC, parties in commerce are entitled to rely upon a filing authorized by a secured lender and assume that the secured lender intends the plain consequences of its filing. View "Official Committee of Unsecured Creditors of Motors Liquidation Co. v. JP Morgan Chase Bank" on Justia Law

This case came before the Supreme Court on appeal of a jury verdict which found that ev3, Inc., the buyer of Appriva Medical, Inc., breached its contractual obligations to Appriva’s former shareholders, who gave up their shares in the merger. The merger agreement between ev3 and Appriva provided for the bulk of the payments to the Appriva shareholders to be contingent upon the timely accomplishment of certain milestones toward the approval and marketability of a medical device that Appriva was developing. After it became clear that the milestones were not going to be achieved, the former Appriva shareholders sued. At many points during the trial, ev3 attempted to convince the Superior Court that a non-binding letter of intent should not be used to interpret or contradict the clear terms of the merger agreement, but the Superior Court adhered to the contrary view advocated by Appriva. Appriva was permitted to argue to the jury that ev3 not only failed to act in good faith under the agreement, but that it breached a “promise” to honor the Funding Provision contained in the non-binding letter of intent. The jury agreed that ev3 had breached its contractual obligations and determined that ev3 owed Appriva the full amount of the milestone payments, $175 million. On appeal, ev3 argued that the Superior Court erred by permitting Appriva to argue that the Funding Provision in the non-binding letter of intent continued to bind ev3, and also that the non-binding letter of intent modified the “sole discretion” standard set forth in the agreement. After review, the Supreme Court concluded that the Superior Court erred by accepting Appriva’s position that the non-binding Funding Provision within the letter of intent was admissible to affect the meaning of the merger agreement. The case was remanded for further proceedings. View "EV3, Inc. v. Lesh, M.D., et al." on Justia Law

The issue this case presented to the Delaware Supreme Court centered on the circumstances under which an arbitration award could be vacated where it was argued that the arbitrator manifestly disregarded the law. The parties to a corporate acquisition agreed to arbitrate disputes about the acquired company’s balance sheet on the effective date of the transaction. They retained an arbitrator to decide whether a workers' compensation reserve had been calculated correctly. The arbitrator decided, without any analysis, that there would be no adjustment to the balance sheet. The Court of Chancery vacated the arbitrator's decision, finding that the arbitrator did not follow the relevant provision of the parties’ share purchase agreement. But the test for “manifest disregard for the law” was not whether the arbitrator misconstrued the contract (even if the contract language is clear and unambiguous). "To vacate an arbitration award based on 'manifest disregard of the law,' a court must find that the arbitrator consciously chose to ignore a legal principle, or contract term, that is so clear that it is not subject to reasonable debate." Because the record did not support such a finding, the arbitrator’s award was reinstated. View "SPX Corporation v. Garda USA, Inc., et al." on Justia Law

This appeal stemmed from dispute in the Court of Chancery over the membership of the board of directors of Biolase, Inc. The Court of Chancery resolved the dispute by finding that the Biolase board of directors consisted of five directors, including Paul Clark. The Court of Chancery concluded that Clark was appointed to the Biolase board after a previous director, Alexander Arrow, resigned through oral statements at a board meeting. A press release issued by Biolase after the board meeting quoted Federico Pignatelli, Biolase's Chief Executive Officer and Chairman, as saying he was "thrilled" with Clark's appointment to the board. But Pignatelli quickly reversed course when he learned that Clark had aligned himself with a faction of the board that wanted to remove Pignatelli from his position as CEO. Pignatelli argued that because Arrow's resignation at the board meeting was given orally and was not reduced to writing before Clark was appointed to fill the vacancy created by Arrow's resignation, Clark had not been properly appointed to the board under 8 Del. C. section 141(b). Biolase's largest stockholder, appellee Oracle Partners, L.P., brought suit Biolase seeking a declaration that, among other things, Arrow had resigned from the Biolase board and been replaced by Clark at the board meeting. The Court of Chancery rejected the Pignatelli Faction's legal argument and held that section 141(b) was a permissive statute, that a director may resign by an oral statement, and that there was no requirement that a resignation be in writing. Because the Court of Chancery's holding that directors are permitted under section 141(b) to resign by oral statements was not legally erroneous and the Court of Chancery's determination that Arrow resigned at the board meeting was supported by substantial evidence, the Supreme Court affirmed the Court of Chancery's ruling that Clark was properly appointed to the Biolase board of directors. View "Biolase, Inc. v. Oracle Partners, L.P." on Justia Law

In 2006, Michael and Connie Jo Zimmerman obtained two separate commercial loans from Eagle National Bank, the predecessor in interest to Customers Bank. The Zimmermans later defaulted on these loans and entered into a forbearance agreement. In addition to the Forbearance Agreement, the Zimmermans each executed a Disclosure for the Confession of Judgment acknowledging that a Confession of Judgment provision in the Forbearance Agreement had been called to their attention, that they understood that the provision permitted Customers Bank to enter judgment against them without notice or opportunity for a hearing, and that the waiver of the right to notice and a hearing was knowing, intelligent, and voluntary. The Forbearance Agreement also provided that all notices, requests, demands, and other communications were to be sent to the Zimmermans at an address in Dover, Delaware with a copy sent to their attorney. Based on the Warrant of Attorney to Confess Judgment in the Forbearance Agreement, Customers Bank filed a complaint seeking the entry of a judgment by confession against the Zimmermans. The Zimmermans opposed the entry of a judgment by confession and a hearing was held where the Zimmermans argued, among other things, that at the time the Forbearance Agreement was executed they were residents of Florida and that Customers Bank had not complied with the requirements for entry of judgment by confession against a non-resident under Rule 58.1. The Zimmermans also argued that they did not knowingly, intelligently, and voluntarily waive their right to notice and a hearing before judgment could be entered against them. After deliberation, the superior court found the Zimmermans’ waiver of their right to notice and a hearing had been knowing, intelligent, and voluntary, and entered judgment by confession against the Zimmermans. The Zimmermans appealed. Finding no reversible error, the Supreme Court affirmed. View "Crothall, et al. v. Zimmerman, et al." on Justia Law

In 2007, Marisco Superholdco, LLC and Marisco Superholdco Notes Corp. issued notes ("Superholdco Notes") through a private placement under an indenture between the Issuer and Wells Fargo Bank, N.A., as Trustee. In 2010, as part of a financial restructuring, the Issuer proposed amendments to the Indenture that were approved by a majority of the Superholdco noteholders. Appellees GS Mezzanine Partners 2009, L.P. and GS Mezzanine Partners V, L.P., who owned a majority of the Superholdco Notes, voted in favor of the amendments. Appellants Caspian Alpha Long Credit Fund L.P., Caspian Select Master Fund, LTD., Caspian Capital Partners, L.P., and Mariner LDC were Superholdco noteholders who sued, alleging they were injured by the amendments to the Indenture. GS Mezzanine moved to dismiss the claims against it under Court of Chancery Rule 12(b)(6), and the Court of Chancery granted that motion, finding that Section 6.06 of the Indenture could not reasonably have been read to provide Caspian with a basis to sue GS Mezzanine for voting to approve amendments to the Indenture. On appeal, Caspian argued that the Court of Chancery erred in its decision. Finding no reversible error, the Supreme Court affirmed the Court of Chancery’s dismissal of the claims Caspian brought against GS Mezzanine. View "Caspian Alpha Long Credit, Fund, L.P., et al. v. GS Mezzanine Partners 2006, L.P., et al." on Justia Law

ATP Tour, Inc. (ATP) operates a global professional men’s tennis tour. Its members include professional men’s tennis players and entities that own and operate professional men’s tennis tournaments. Two of those entities are Deutscher Tennis Bund (DTB) and Qatar Tennis Federation. ATP is governed by a seven-member board of directors, of which three are elected by the tournament owners, three are elected by the player members, and the seventh directorship is held by ATP’s chairman and president. In 2007, ATP’s board voted to change the Tour schedule and format. Under the board’s “Brave New World” plan, the Hamburg tournament, which the Federations owned and operated, was downgraded from the highest tier of tournaments to the second highest tier, and was moved from the spring season to the summer season. Displeased by these changes, the Federations sued ATP and six of its board members in the United States District Court for the District of Delaware, alleging both federal antitrust claims and Delaware fiduciary duty claims. After a ten-day jury trial, the District Court granted ATP’s and the director defendants’ motion for judgment as a matter of law on all of the fiduciary duty claims, and also on the antitrust claims brought against the director defendants. The jury then found in favor of ATP on the remaining antitrust claims. Four questions of Delaware law were certified to the Supreme Court from the U.S. District Court for the District of Delaware when the Federations appealed. The questions centered on the validity of a fee-shifting provision in a Delaware non-stock corporation’s bylaws. The provision, which the directors adopted pursuant to their charter-delegated power to unilaterally amend the bylaws, shifts attorneys’ fees and costs to unsuccessful plaintiffs in intra-corporate litigation. The federal court found that the bylaw provision’s validity was an open question under Delaware law and asked under what circumstances such a provision was valid and enforceable. Although the Delaware Supreme Court could not directly address the bylaw at issue, it held that fee-shifting provisions in a non-stock corporation’s bylaws could be valid and enforceable under Delaware law. In addition, bylaws normally apply to all members of a non-stock corporation regardless of whether the bylaw was adopted before or after the member in question became a member. View "ATP Tour, Inc., et al. v. Deutscher Tennis Bund, et al." on Justia Law