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Recent Delaware Corporate Law Decisions

October 31, 2011

In recent months, Delaware courts have addressed a number of issues important to Delaware corporations and their advisors. In In re OPENLANE, Inc. Shareholders Litigation, C.A. No. 6849-VCN (Del. Ch. Sept. 30, 2011), the Court of Chancery denied a motion to enjoin preliminarily a merger where the transaction documents did not include a fiduciary-out and the merger itself was effectively locked-up within 24 hours after signing by written consents from the holders of a majority of its stock. InJohnston v. Pedersen, C.A. No. 6567-VCL (Del. Ch. Sept. 23, 2011), the Court of Chancery held that the directors of a Delaware corporation violated their duty of loyalty by designing and issuing a new series of preferred stock in an effort to prevent an insurgent group from replacing the board. In New Jersey Carpenters Pension Fund v. infoGROUP, Inc., C.A. No. 5334-VCN (Del. Ch. Sept. 30, 2011, revised Oct. 6, 2011), the Court of Chancery refused to dismiss a breach of fiduciary duty claim where the plaintiff had adequately pled that the defendant corporation’s founder and largest stockholder dominated an otherwise independent board of directors and forced them to approve a sale of the company at an unfair price in order to provide himself with some much-needed liquidity. In Central Mortgage Co. v. Morgan Stanley Mortgage Capital Holdings LLC, No. 595, 2010 (Del. Aug. 18, 2011), the Delaware Supreme Court declined to address whether the “plausibility” standards set forth inBell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009) should be applied in Delaware, and instead unanimously held that “the governing pleading standard in Delaware to survive a motion to dismiss is reasonable ‘conceivability.’” In Amirsaleh v. Board of Trade, No. 75, 2010 (Del. Aug. 16, 2011), the Delaware Supreme Court reversed an opinion of the Court of Chancery and clarified the requirements that must be followed in order to retract a waiver of a contractual right. In Bank of New York Mellon Trust Co. v. Liberty Media Corp., No. 284, 2011 (Del. Sept. 21, 2011), the Delaware Supreme Court interpreted the terms of a bond indenture under New York law and refused to aggregate a series of asset distributions in determining whether a corporation had transferred “substantially all” of its assets. Finally, in Alta Berkeley VI C.V. v. Omneon, Inc., C.A. No. N10C-11-102 JRS CCLD (Del. Super. July 21, 2011), the Complex Commercial Litigation Division of the Delaware Superior Court – a division that was formed in 2010 to handle complex business disputes that do not fall within the equity jurisdiction of the Court of Chancery – interpreted a corporation’s certificate of incorporation and denied a former preferred stockholder’s claim for a liquidation preference in connection with a merger.

In re OPENLANE, Inc. Shareholders Litigation: Court of Chancery Denies Injunction Motion Where Merger Agreement Lacks Fiduciary Out 
In In re OPENLANE, Inc. Shareholders Litigation, C.A. No. 6849-VCN (Del. Ch. Sept. 30, 2011), the Court of Chancery denied a motion to enjoin preliminarily the merger between OPENLANE, Inc. and KAR Auction Services, Inc. (through its wholly-owned subsidiary, ADESA, Inc.) (“KAR”), even though the merger agreement did not include a fiduciary-out and the transaction was effectively locked-up within 24 hours after signing by written consents from the holders of a majority of its stock.
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Johnston v. Pedersen: Court of Chancery Holds That Directors Violated Their Duty Of Loyalty When Issuing Preferred Stock To Friendly Stockholders
In Johnston v. Pedersen, C.A. No. 6567-VCL (Del. Ch. Sept. 23, 2011), the Court of Chancery held that the directors of a Delaware corporation violated their duty of loyalty when designing and issuing a new series of preferred stock because those directors intentionally “structure[d] the stock issuance to prevent an insurgent group from waging a successful proxy contest.” 
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New Jersey Carpenters Pension Fund v. infoGROUP, Inc.: Court of Chancery Finds Complaint Adequately States Claim that Entire Board Dominated by the Company’s Largest Stockholder
In New Jersey Carpenters Pension Fund v. infoGROUP, Inc., C.A. No. 5334-VCN (Del. Ch. Sept. 30, 2011, revised Oct. 6, 2011), the Court of Chancery refused to dismiss a breach of fiduciary duty claim where the plaintiff had adequately pled that the founder and largest stockholder of defendant infoGROUP, Inc. dominated his fellow directors and forced them to approve a sale of the company at an unfair price in order to provide himself with some much-needed liquidity.
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Central Mortgage Co. v. Morgan Stanley Mortgage Capital Holdings LLC:Delaware Supreme Court Holds that the Governing Pleading Standard in Delaware to Survive a Motion to Dismiss is Reasonable Conceivability
In Central Mortgage Co. v. Morgan Stanley Mortgage Capital Holdings LLC, No. 595, 2010 (Del. Aug. 18, 2011), the Delaware Supreme Court declined to address whether the “plausibility” standards set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009) should be applied in Delaware, and instead unanimously held that until the Delaware Supreme Court “decides otherwise or a change is duly effected through the Civil Rules process, the governing pleading standard in Delaware to survive a motion to dismiss is reasonable ‘conceivability.’”
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Amirsaleh v. Board of Trade: Delaware Supreme Court Emphasizes Requirements for a Waiver of Contractual Rights to be Retracted 
In Amirsaleh v. Board of Trade, No. 75, 2010 (Del. Sept. 12, 2011), the Delaware Supreme Court held that appellee Board of Trade of the City of New York, Inc. (“NYBOT”) had not validly retracted its previous waiver of a contractual deadline by which its members were supposed to elect the form of consideration they would receive in connection with NYBOT’s 2007 merger with Intercontinental Exchange, Inc. (“ICE”).  The Supreme Court therefore reversed a prior decision of the Court of Chancery and remanded the case for proceedings consistent with its opinion. 
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Bank of New York Mellon Trust Co. v. Liberty Media Corp.: Delaware Supreme Court Applies New York Law to “Substantially All” Provision of Indenture and Declines to Aggregate Series of Dispositions 
In Bank of New York Mellon Trust Co. v. Liberty Media Corp., No. 284, 2011 (Del. Sept. 21, 2011), the Delaware Supreme Court held that the split-off of the Capital and Starz business groups (the “Capital Split-off”) following three other major distributions of assets since 2004 did not constitute a transfer of “substantially all” of the assets of Liberty Media Corporation and its wholly owned subsidiary, Liberty Media LLC (together, “Liberty”), under the terms of an indenture. 
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Alta Berkeley VI C.V. v. Omneon, Inc.: Delaware Superior Court’s Complex Commercial Litigation Division Construes Corporation’s Certificate of Incorporation Against Former Preferred Stockholders
In Alta Berkeley VI C.V. v. Omneon, Inc., C.A. No. N10C-11-102 JRS CCLD (Del. Super. July 21, 2011), the Delaware Superior Court’s Complex Commercial Litigation Division denied a claim for a liquidation preference by certain former preferred stockholders of Omneon, Inc. in connection with a merger between Omneon and Harmonic, Inc. 
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