Insights Archive

Morris Nichols partner Patricia O. Vella and associate Elizabeth A. Hecker “present a fascinating analysis of the intersection between antitrust, attorney-client privilege, and Delaware corporate law” in this article on In Re Family Dollar, Inc. Stockholder Litigation, a case involving the long-running takeover battle for Family Dollar Stores, Inc.

In Friedman v. Khosrowshahi, the Delaware Supreme Court affirmed the Court of Chancery’s dismissal of a breach of fiduciary claim relating to an alleged violation of Expedia’s stock incentive plan.

The US District Court for the District of Delaware issued an opinion in Temple-Inland, Inc. v. Cook and order denying, in large part, the State of Delaware’s motion to dismiss a lawsuit challenging, on federal constitutional grounds, Delaware’s methodology for determining unclaimed property liability for periods in which the holder’s records are insufficient to determine the actual amounts due.

The Delaware Supreme Court issued an order affirming a bench ruling and letter opinion of the Court of Chancery precluding an action to contest the validity of a trust under Delaware’s pre-mortem validation statute, 12 Del. C. § 3546.

The past several years have seen the rise of so-called “appraisal arbitrage,” in which entities purchase shares after the announcement of the merger in order to pursue an appraisal claim.  As a result, guidance from the Delaware courts as to the contours of, and valuation methods used in, an appraisal proceeding has become more and more relevant both to lawyers and their clients. In Huff Fund Investment Partnership v. CKx, Inc., the Delaware Supreme Court affirmed the Court of Chancery’s decision concluding that the price paid in a third-party arms’-length merger was the most probative evidence of fair value.

Over the last several years, there has been a rise in so-called “appraisal arbitrage” - funds buying stock of a target company after announcement of a merger in order to pursue appraisal claims. In two recent decisions, Ancestry and BMC, the Delaware Court of Chancery confirmed that there is no requirement that an appraisal petitioner prove that previous owners of the appraisal shares refrained from voting in favor of the merger.

Earlier today, the Delaware General Assembly passed, and Governor Jack Markell signed into law, Senate Bill No. 11, with Senate Amendment No. 2, which implements, in part, the recommendations of a Legislative Task Force established by the Delaware General Assembly last year to review and suggest reforms to Delaware’s Unclaimed Property Program.

In the first judicial opinion to interpret the new statute, Bear Stearns Mortgage Funding Trust 2006-SL1 v. EMC Mortgage LLC, the Delaware Court of Chancery held that Section 8106(c) applies retroactively to contracts entered into before the statute took effect on August 1, 2014.  The Court also provided important guidance regarding claim accrual and the application of Delaware’s borrowing statute.

In an important ruling addressing the scope of Revlon duties and the Delaware courts’ reluctance to “blue pencil” contractual provisions, C&J Energy Services, Inc. v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, the Delaware Supreme Court has reversed a mandatory injunction order issued by the Court of Chancery that (i) required a target to “go-shop” itself (notwithstanding the merger agreement’s “no-shop” provision), and (ii) declared, in advance, that the Court-ordered “go shop” would not constitute a breach of the merger agreement.

This portion of the Bankruptcy Code may serve as a "Trump" card for debtors facing expired collective bargaining agreements.

For reasons of economy in an early-stage investment, venture capitalists and founders often will use forms made available by the National Venture Capital Association (NVCA) as a basis to negotiate the post-investment governance structure of a corporation.  In Salamone v. Gorman, the Delaware Supreme Court interpreted the product of such a negotiation.

In the three days prior to Thanksgiving, the Court of Chancery issued seven written opinions and one oral ruling of importance to transaction planners.  Although each opinion and ruling independently could be the subject of a detailed memorandum, in light of the multiple issues addressed by the Court in a compressed period, we provide a short summary of each.

Under Delaware law, a less-than-majority stockholder may be deemed a controlling stockholder if it “exercises control over the business affairs of the corporation.”  Two recent opinions from the Court of Chancery provide helpful guidance as to how the Court will apply this standard.

Chief Judge Stark provided clarification regarding the new filing and service deadline of 6 p.m., which becomes effective on October 16, 2014.

In an opinion issued earlier this year, the Court of Chancery held RBC Capital Markets, LLC liable to stockholders of Rural/Metro Corporation for aiding and abetting the Rural directors’ breaches of fiduciary duties in connection with the sale of Rural to Warburg Pincus LLC. Last week, the Court issued a subsequent opinion determining the amount of damages suffered by the stockholder class and addressing RBC’s claims for contribution against its former co-defendants, who had previously settled with plaintiffs.

On October 2, 2014, the United States District Court for the District of Delaware issued a standing order, effective October 16, 2014, further revising section (F) of its Revised Administrative Procedures Governing Filing and Service by Electronic Means to reflect a new filing and service deadline of 6:00 p.m. Eastern Time. “Aside from initial pleadings, all electronic transmissions of documents (including, but not limited to, motions, briefs, appendices, and discovery responses) must be completed by 6:00 p.m. Eastern Time, in order to be considered timely filed and served that day.” (Revision to Electronic Case Filing Policies and Procedures, Section (F), Oct. 2, 2014).

In several notable decisions, Delaware courts have allowed claims against officers to proceed and, in those decisions, discussed the potential liability that officers may face and offered certain practical suggestions for limiting the risk of liability faced by officers.

The Delaware Supreme Court recently issued an order denying an interlocutory appeal of the opinion of Delaware Court of Chancery (the “Chancery Court”) in IMO Daniel Kloiber Trust U/A/D December 20, 2012 (“Kloiber”).

Master LeGrow of the Delaware Court of Chancery (the “Court”) issued a draft report (the “Draft Report”) granting a defendant’s motion for summary judgment upholding the enforceability of a spendthrift clause under Delaware’s spendthrift statute, Section 3536 of Title 12 of the Delaware Code (“Section 3536”). The Draft Report is notable because it is a strong confirmation of the protections available to beneficiaries of third-party spendthrift trusts under Section 3536 and the Court refused to create a public policy exception to Section 3536 for a tort claimant who was a family member of the plaintiffs and who allegedly persistently engaged in a course of conduct that breached his fiduciary duties resulting in millions of dollars of damages for plaintiffs.

The recent Delaware Court of Chancery decision in In re Nine Systems Corporation Shareholders Litigation is especially instructive for private company directors, investors, and the law­yers who advise them.

In In re Nine Systems Corp. Shareholders Litigation, the Court of Chancery held that a control group of stockholders and their director designees breached their fiduciary duties in approving a recapitalization of Nine Systems Corporation because the recapitalization was the result of an unfair process, even though it was accomplished at a fair price.

Section 251(h) of the Delaware General Corporation Law (the “DGCL”) took effect just over a year ago. That statute was designed effectively to permit a simultaneous closing of the front-end tender or exchange offer and back-end merger in a two-step transaction if certain preconditions - notably, that a sufficient number of shares are tendered in the offer - are satisfied. In this report, we survey some of our observations on the use of Section 251(h) over the past year, both generally and with respect to specific merger provisions, and discuss statutory amendments to Section 251(h) that took effect August 1, 2014 (the “2014 Amendments”).

The 2014 amendments to the Delaware General Corporation Law (the DGCL) implement relatively minor, but important, improvements to existing provisions.

Look-back on the use of new Section 251(h) of the Delaware General Corporation Law, which was designed to permit a simultaneous closing of the front-end tender offer or exchange offer and back-end merger in a two-step transaction.

On February 24, 2014, RF Micro Devices, Inc. and TriQuint Semiconductor Inc. announced a merger agreement under which the companies agreed to an all-stock “merger of equals.” Following the merger’s announcement, five lawsuits on behalf of TriQuint’s stockholders were filed: three of those lawsuits were filed in the Delaware Court of Chancery and two lawsuits were filed in Oregon state court.

Delaware has furthered its general policy of giving maximum effect to the principle of freedom of contract and to the enforceability of contracts in accordance with their terms by passing legislation that authorizes a statute of limitations of up to 20 years for breach of contract claims. Delaware is the first state to adopt a statute of limitations of this length for breach of contract claims.

The Delaware Court of Chancery recently issued a ruling that serves as an important reminder that following a merger, timely notice of the merger's effective date must be sent to any stockholder of record who has demanded appraisal. Failing to do so creates additional litigation risk in a M&A environment already charged with an increasing number of stockholder appraisal demands.

The District of Delaware initiated a Patent Study Group (“PSG”) in January 2014 to address the District’s impressive patent caseload and to improve overall efficiency in patent litigation. On June 17, 2014, Judge Stark formally adopted Revised Procedures for Managing Patent Cases, which will be implemented in all non-ANDA patent cases assigned to him filed on or after July 1, 2014.

On May 13, 2014, the Intellectual Property Section of the Delaware Chapter of the Federal Bar Association hosted a CLE program featuring Chief Judge Randall Rader and Judge Timothy B. Dyk of the Federal Circuit, Judge Kent A. Jordan of the Third Circuit Court of Appeals, Judges Sue L. Robinson, Leonard P. Stark, and Richard G. Andrews of the District of Delaware, Chief Judge Leonard E. Davis of the Eastern District of Texas, and Magistrate Judge Paul S. Grewal of the Northern District of California.

In ATP Tour, Inc. v. Deutscher Tennis Bund, issued on May 8, 2014, the Delaware Supreme Court upheld the facial validity of a bylaw requiring an unsuccessful plaintiff in corporate litigation to reimburse the corporation for its litigation expenses if the plaintiff fails to obtain a judgment on the merits of its claim.

On April 13, 2014, the Corporation Law Section of the Delaware State Bar Association was provided with proposed amendments to the Delaware General Corporation Law (the “DGCL”).  On the same day, the Commercial Law Section of the DSBA was provided with a proposed revision to Delaware’s contractual statute of limitations that may have a significant effect on corporate practice.

Morris Nichols maintains a Cumulative Survey of Delaware case law relating to alternative entities that is updated annually, organized by subject area and includes most cases that address significant alternative entity issues.

In a February 12, 2014 decision, the Court of Chancery held that a petitioner in an appraisal proceeding could not be compelled to accept “prepayment” of an appraisal award in order to stop the accrual of interest on the amount prepaid. The holding is significant because the default statutory interest rate on an appraisal award (5% over the Federal Reserve discount rate) may be viewed as very favorable by stockholders considering whether to bring appraisal claims.

Michael Houghton and Walter Tuthill, Morris Nichols Commercial Law Counseling Group partners, served as co-authors of the revised Bureau of National Affairs (BNA) Corporate Practice Series Portfolio: Unclaimed Property.

Morris Nichols partners Andy Johnston and Mark Hurd are coauthors of the Bloomberg BNA Corporate Practice series Portfolio, Special Committees of Independent Directors.

The country’s leading trust jurisdictions have been experiencing enormous growth in recent years from two sources: the creation of new trusts and the migration of existing trusts to take advantage of more favorable administrative laws.  It’s become commonplace to optimize planning through careful jurisdiction selection, migrating an existing trust to an advantageous jurisdiction and modifying the trust to capitalize on the new administrative laws, including converting it to a directed trust to accomplish specific objectives.

Morris Nichols’ “Delaware Alert: A Third Circuit Panel Strikes Down the Court of Chancery’s Confidential Arbitrations” was featured on the Harvard Law School Forum on Corporate Governance and Financial Regulation on Nov. 8, 2013.

John P. DiTomo, Morris Nichols Corporate and Business Litigation Group member, authored “The U.S. Court of Appeals for the Third Circuit Strikes Down Delaware’s Confidential Arbitration Program,” published in the November 2013 State Corner section of Insights: The Corporate & Securities Law Advisor (Vol. 27, No. 11).

Louis Hering, Morris Nichols Commercial Law Counseling Group partner, and Melissa DiVincenzo, Morris Nichols Delaware Corporate Law Counseling Group partner, co-authored 2013 Amendments to Delaware's General Corporation Law and Alternative Entity Statutes appearing in the July 19, 2013 edition of Corporate Accountability Report, a publication of Bloomberg BNA.

Rick Alexander, James Honaker, and Daniel Matthews authored “Forum Selection Bylaws: Where We Are and Where We Go from Here,” published in the July 2013 Securities Litigation section of Insights: The Corporate & Securities Advisor (Vol. 27, No. 7).

Tarik Haskins, partner in the Morris Nichols Delaware Commercial Law Counseling Group, authored “Exit Stage Left: Getting Out of Your Limited Liability Company” featured in the July 2013 Edition of Business Law Today, a publication of the ABA's Business Law Section.

Patricia O. Vella, Morris Nichols Delaware Corporate Law Counseling Group partner, co-authored “Confidentiality and Standstill Agreements: Recent Delaware Law Developments” featured in the May 22, 2013 edition of The Review of Securities & Commodities Regulation.

Jeff Wolters authored “Breacher Beware: Contract Damages in Delaware M&A Decisions” appearing in the Delaware Insider section of the April 2013 issue of the ABA’s Business Law Today.

Trusts, Estates & Tax Group partner Todd Flubacher authored “Trust Merger: What’s Good for the Goose Is Good for the Gander” featured in the Spring 2013 edition of Delaware Banker.

Louis Hering, Morris Nichols Commercial Law Counseling Group partner, and Melissa DiVincenzo, Morris Nichols Delaware Corporate Law Counseling Group partner, co-authored “Considerations for Contractual Provisions Extending Statutes of Limitations” presented at the 2013 Working Group on Legal Opinions Spring Seminar in New York City, May 14, 2013.

Jeff Wolters, Morris Nichols Corporate Law Counseling Group partner, and Mike Houghton, Morris Nichols Unclaimed Property Law Counseling Group partner, co-authored Liability Exposure for Delaware Incorporated Companies - The Risk of an Escheat Audit and Delaware’s New Voluntary Disclosure Program to Avoid Penalties  appearing in the April 2013 issue of TerraLex Connections.

David A. Harris, Louis G. Hering, “2013 Summary of Delaware Case Law Relating to Alternative Entities,” 2013 Annual Meeting of ABA, Section of Business Law (Feb. 1, 2013)