Justia Delaware Supreme Court Opinion Summaries

In 2017, the Delaware Court of Chancery held that Plaintiff Robert Lenois had pled with particularity that the controlling stockholder of Erin Energy Corporation (“Erin” or the “Company”) had acted in bad faith. It further held that Lenois had pled either “very serious claims of bad faith” or “a duty of care claim” against the remainder of Erin’s board in connection with two integrated transactions. In those transactions, the controller allegedly obtained an unfair windfall by selling certain Nigerian oil assets to Erin. The trial court dismissed the derivative claims on standing grounds (i.e., holding that demand was not excused). Lenois appealed that decision. During the pendency of the appeal, Erin voluntarily filed for bankruptcy. The Chapter 7 Trustee obtained the permission of the Bankruptcy Court to pursue, on a direct basis, the claims that had been asserted in the Lenois action in the Court of Chancery. As a result of the bankruptcy proceedings, which vested the Trustee with control over the claims, the Delaware Supreme Court determined that the sole issue on appeal was moot. The case was remanded to the Court of Chancery to resolve two pending motions — a Rule 60(b) motion and the Trustee’s motion pursuant to Rule 25(c) to be substituted for nominal defendant Erin and then realigned as plaintiff (the “Realignment Motion”). The Court of Chancery denied the Rule 60(b) motion and summarily denied the Rule 25(c) motion. Here, the Supreme Court reversed, holding the Court of Chancery should have granted the Trustee’s Substitution and Realignment Motion. View "Lenois v. Lukman" on Justia Law

MAPS Hotel and Resorts One LLC (the “Buyer”) agreed to purchase fifteen hotel properties from AB Stable VIII LLC (the “Seller”) for $5.8 billion. In response to the pandemic and without securing the Buyer’s consent, the Seller made drastic changes to its hotel operations, due in part to the damage the pandemic inflicted on the hospitality industry. The transaction was also plagued by problems with fraudulent deeds covering some of the hotel properties. The Buyer eventually called off the deal, relying on the Seller’s failure to comply with the sale agreement. The Seller sued in the Delaware Court of Chancery to require the Buyer to complete the transaction. The Court of Chancery concluded that the Buyer could terminate the sale agreement because the Seller breached a covenant and a condition in the sale agreement. According to the court, the Seller violated the ordinary course covenant by failing to operate in the ordinary course of its business - closing hotels, laying off or furloughing thousands of employees, and implementing other drastic changes to its business - without the Buyer’s consent. Additionally, a condition requiring title insurance for the hotel properties failed because the title insurers’ commitment letters had a broad exception covering the fraudulent deeds, and the Buyer did not cause the failure. On appeal, the Seller argued it satisfied the Ordinary Course Covenant because the covenant did not preclude it from taking reasonable, industry-standard steps in response to the pandemic; the court’s ruling negated the parties’ allocation of pandemic risk to the Buyer through the Material Adverse Effect provision; and its breach of the notice requirement in the covenant was immaterial. The Seller also claimed the Court of Chancery gave too expansive a reading to the exception in the title insurance condition, or, alternatively, that the court incorrectly found that the Buyer did not contribute materially to its breach. The Delaware Supreme Court affirmed the Court of Chancery’s judgment, finding the court concluded correctly that the Seller’s drastic changes to its hotel operations in response to the COVID-19 pandemic without first obtaining the Buyer’s consent breached the ordinary course covenant and excused the Buyer from closing. Because the Seller’s failure to comply with the ordinary course covenant was dispositive of the appeal, the Supreme Court did not reach whether the Seller also breached the title insurance condition. View "AB Stable VIII LLC v. Maps Hotels and Resorts One LLC" on Justia Law

In 2005, Sweetwater Point, LLC (“Sweetwater”) paid more than $8 million for two parcels of land. Lehman Brothers Holdings, Inc. (“Lehman”) provided a $6 million loan to fund the purchase. Shortly before closing, Sweetwater learned that the State had a claim to a de minimis portion of one of the parcels. Although the State’s claim did not appear in the sellers’ chain of title, Sweetwater decided to go forward with the sale. In 2009, the State filed a lawsuit claiming it had superior title to the entire parcel of land. In May 2017, the Court of Chancery held that the State had superior title to the parcel. Approximately one year later, Sweetwater and Lehman filed separate lawsuits against the sellers. The Superior Court dismissed both actions, holding that the claims were time-barred. Sweetwater and Lehman appealed, arguing that their claims were timely because the statute of limitations did not begin to run until the Court of Chancery held that the State had superior title to the parcel. The Delaware Supreme Court affirmed the Superior Court: the three-year statute of limitations established under 10 Del. C. 8106 applied to each claim. "Each claim accrued at closing, and any tolling of the claims ceased, at the latest, when the State asserted ownership over the land, placing Sweetwater and Lehman on inquiry notice of the injury. That occurred more than three years before Sweetwater and Lehman filed their complaints in the Superior Court. Accordingly, each of the claims filed below is time-barred." View "Lehman Brothers Holdings v. Kee, et al." on Justia Law

In 2012, then-Vice President Joseph Biden donated his Senatorial papers to the University of Delaware. The donation was made pursuant to a gift agreement that placed certain restrictions on the University’s ability to make the Senatorial Papers publicly available. In April 2020, Judicial Watch, Inc. and The Daily Caller News Foundation (“DCNF”) (collectively, “Appellants”) submitted requests under the Delaware Freedom of Information Act (“FOIA”) to access the Papers and any records relevant to or discussing the Papers. The University denied both requests, stating that the Papers were not subject to FOIA because the Papers did not meet the definition of “public records” and because the full Board of Trustees never discussed the Papers. Appellants then filed separate petitions with the Office of the Attorney General of the State of Delaware challenging the University’s denial of their requests. The Deputy Attorney General issued individual opinions to Judicial Watch and DCNF concluding that the University had not violated FOIA because the records Appellants requested were not subject to FOIA. Appellants appealed to the Superior Court, which affirmed the Deputy Attorney General’s opinions. Appellants appealed the Superior Court’s ruling to the Delaware Supreme Court. Having reviewed the briefs, the record on appeal, and after oral argument, the Supreme Court concluded the Superior Court properly interpreted the definition of “public record,” and did not erroneously shift the burden of proof to the Appellants. However, the Court concluded the University failed to carry its burden of justifying its denial of the Appellants’ FOIA requests, based on the record. Furthermore, the Court granted the Superior Court leave to reconsider the request for fees and costs, to the extent it deemed that necessary. Thus, judgment was affirmed in part, reversed in part, and remanded for further proceedings. View "Judicial Watch, Inc. v. University of Delaware" on Justia Law

Verisign, Inc. claimed large net operating loss deductions on its 2015 and 2016 Delaware income tax returns, which reduced its bill to zero in both years. The Division of Revenue reviewed the returns and found that Verisign’s use of net operating losses violated a longstanding, but non-statutory, Division policy. Under the policy, a corporate taxpayer that filed its federal tax returns with a consolidated group was prohibited from claiming a net operating loss deduction in Delaware that exceeded the consolidated net operating loss deduction on the federal return in which it participated. The Division applied the policy, determined that Verisign had underreported its income, and assessed the company $1.7 million in unpaid taxes and fees. After Verisign’s administrative protest of the assessment was denied, it appealed to the Superior Court. The Superior Court held that the policy violated the Uniformity Clause of Article VIII, section 1 of the Delaware Constitution. The Delaware Supreme Court agreed with the Superior Court that the Division’s policy was invalid, but it affirmed on alternate grounds: the policy exceeded the authority granted to the Division by the General Assembly in 30 Del. C. sections 1901– 1903. As a result, the Court declined to reach Verisign’s constitutional claims. View "Director of Revenue v. Verisign, Inc." on Justia Law

In 2001, Lavastone Capital LLC (Lavastone) entered into an agreement with Coventry First LLC (Coventry) to purchase “life settlements” – life-insurance policies sold on the secondary market. One was that of Beverly Berland. Lincoln Financial (Lincoln) issued the policy to Berland in 2006. But Berland did not act alone in acquiring it. A few months before, she approached a business called “Simba.” As Simba pitched it, the transaction allowed clients to “create dollars today by using a paper asset, (a life insurance policy not yet issued from a major insurance carrier insuring your life)” by selling it on the secondary market. Clients did not need to put up any money upfront. Instead, they got nonrecourse loans to finance the transactions, which allowed them to make all necessary payments without tapping into personal funds. The only collateral for the loan was the life-insurance policy itself. Berland agreed to participate in several transactions with Simba, profiting greatly. Lavastone kept the policy in force, paying all relevant premiums to Lincoln Financial. Upon Berland’s death more than seven years later, Lincoln paid Lavastone $5,041,032.06 in death benefits under the policy. In December 2018, Berland’s estate filed a complaint against Lavastone in the District Court, seeking to recover the death benefits that Lavastone received under 18 Del C. 2704(b). In 2020, the parties filed cross-motions for summary judgment. In 2021, the District Court certified the three questions of law to the Delaware Supreme Court. The Supreme Court responded: (1) a death-benefit payment made on a policy that is void ab initio under 18 Del. C. 2704(a) and PHL Variable Insurance Co. v. Price Dawe 2006 Insurance Trust was made “under [a] contract” within the meaning of 18 Del. C. 2704(b); (2) so long as the use of nonrecourse funding did not allow the insured or his or her trust to obtain the policy “without actually paying the premiums” and the insured or his or her trust procured or effected the policy in good faith, for a lawful insurance purpose, and not as a cover for a wagering contract; and (3) an estate could profit under 18 Del. C. 2704(b) where the policy was procured in part by fraud on the part of the decedent and the decedent profited from the previous sale of the policy, if the recipient of the policy benefits cannot establish that it was a victim of the fraud. View "Lavastone Capital LLC v. Estate of Beverly E. Berland" on Justia Law

Appellant Ricardo Castro appealed his convictions on two counts of Drug Dealing and two counts of Conspiracy in the Second Degree. On appeal, he argued: (1) the Superior Court erred by denying his motion for judgment of acquittal on the two Drug Dealing convictions; (2) the Superior Court erred by denying his motion for judgment of acquittal on the two Conspiracy convictions; and (3) the Superior Court erred in not granting his pre-trial motion to suppress wiretap evidence. Finding no reversible error, the Delaware Supreme Court affirmed appellant's convictions. View "Castro v. Delaware" on Justia Law

OptiNose AS and OptiNose, Inc. (collectively, OptiNose) agreed to license its Exhalation Delivery Systems (“EDS”) technology to Currax Pharmaceuticals, LLC. The parties limited the License Agreement to a product which used a powder EDS device to deliver the migraine treatment drug sumatriptan into the nasal cavity. The product covered by the license, a powder EDS device and sumatriptan together, was trade-named ONZETRA(R) XSAIL(R). Currax had a limited right to sell the sumatriptan powder EDS device (the “Product”) in Canada, the United States, and Mexico. OptiNose retained the right to sell EDS devices: (1) with powders and liquids other than sumatriptan around the world; and (2) EDS devices with sumatriptan in every area other than those three countries. OptiNose also gave Currax the “first right” to “prosecute and maintain” certain patents related to the Product, listed in the License Agreement as the Product Patents. During Currax’s prosecution of the ’009 Patent Application, the U.S. Patent and Trademark Office (“USPTO”) rejected claims because they were not “patentably distinct” from the claims in another Product Patent. To overcome the patent office rejection, Currax needed to file a terminal disclaimer over the issued Product Patent. Currax needed a power of attorney from OptiNose to file a terminal disclaimer. OptiNose refused to provide it. Currax filed suit against OptiNose in the Court of Chancery, seeking an order of specific performance requiring OptiNose to grant it a power of attorney. OptiNose counterclaimed for a declaration that the License Agreement did not require it to provide a power of attorney. According to OptiNose, Currax’s right to prosecute Product Patents did not include a power of attorney, and, in any event, Currax could not file a terminal disclaimer without OptiNose’s advance approval, which it had not given. The Court of Chancery granted Currax’s motion for judgment on the pleadings, finding the License Agreement OptiNose to provide a power of attorney to prosecute the ’009 Application. On appeal, the parties focused primarily on OptiNose’s advance approval right, and whether a terminal disclaimer “relate[s] to or characterize[s] the Device component of the Patent or other OptiNose intellectual property.” The Delaware Supreme Court affirmed the Court of Chancery’s judgment that filing a terminal disclaimer in the ’009 Application prosecution was included in the rights OptiNose gave to Currax under the License Agreement. View "Optinose AS v. Currax Pharmaceuticals, LLC" on Justia Law

A father appealed a Family Court order denying a Petition for Parental Visitation. Father Bryce Wilcox had been imprisoned since his son (“C.R.”) was two. C.R.’s mother, Marissa LaClaire (“Mother”) did not permit telephone contact between Father and C.R., and has withheld all letters Father has sent C.R. In denying Father’s Visitation Petition, the Family Court declined to order any change in this status quo, and ordered Mother to keep letters Father sent to C.R. should C.R. ever desire to read them. The Family Court justified the rejection of his petition based on the lack of relationship between Father and C.R. and Mother’s testimony that Father’s contact with C.R. would impair C.R.’s emotional development. On appeal, father argued: (1) the Family Court erred when it denied his request for contact with his son by telephone and mail because there was insufficient evidence that such contact would significantly impair C.R.’s emotional development; and (2) the Family Court erred when it justified that denial based upon a lack of relationship between Father and C.R. when that lack of relationship was a result of Mother and the Family Court not permitting Father to have contact with his son since August 2015. The Delaware Supreme Court determined Father's arguments had merit: (1) Mother did not argue Father’s requested contact by telephone and mail would place C.R. in any physical danger, and the only support in the record for impairment to C.R.’s emotional development was Mother’s speculative lay opinion; and (2) the Family Court’s decision overlooked the Supreme Court's prior opinion involving these same parties wherein the Court addressed Mother’s successful effort to block contact with Father. As a result, the Family Court’s decision lacked substantial evidence in the record to support it, was not the product of an orderly and logical process, and was thus reversed. View "Wilcox v. LaClaire" on Justia Law

On April 5, 2021, Michael Capriglione was elected to a two-year term as a Commissioner of the Town of Newport. On the eve of his swearing-in ceremony, the Attorney General, on behalf of the State of Delaware, petitioned for a writ of quo warranto contending that Capriglione was prohibited from serving as a Commissioner because he had been convicted of misdemeanor official misconduct for actions he took as Newport’s police chief in 2018. That offense, the State argued, was a disqualifying “infamous crime” under Art. II, sec. 21 of the Delaware Constitution. The Superior Court stayed Capriglione’s swearing in to resolve this question and eventually held that he was constitutionally barred from holding public office. The Delaware Supreme Court considered Capriglione’s appeal on an expedited basis, hearing oral argument on July 14, 2021. On July 16, the Supreme Court issued an order reversing the Superior Court and allowing Capriglione to take the oath of office. In this opinion, the Court explained its reasons for doing so: under Section 21, only felonies can be disqualifying “infamous” crimes. View "Capriglione v. Delaware, et al." on Justia Law