Recent Delaware Corporate Law Decisions

February 1, 2011

Publication| Corporate Transactions| Corporate & Chancery Litigation

In recent months, the Delaware courts have addressed important issues for Delaware corporations and their advisors. The recent amendments to Delaware’s unclaimed property/escheat laws may also be of interest to Delaware corporations and their advisors.

In re Art Technology Group, Inc. Shareholders Litigation and Steinhardt v. Howard-Anderson: Court of Chancery Enjoins Two Transactions Pending Additional Disclosures and Comments on Applicability of Revlon to Mixed Consideration Transaction 
The Court of Chancery in In re Art Technology Group, Inc. Shareholders Litigation, C.A. No. 5955-VCL (Del. Ch. Dec. 20, 2010), enjoined a merger until the target company disclosed to its stockholders additional information about its financial advisor’s prior work for the buyer. In Steinhardt v. Howard-Anderson, C.A. No. 5878-VCL (Del. Ch. Jan. 24, 2011), the Court of Chancery applied the enhanced Revlonstandard of review to a stockholder’s motion to preliminarily enjoin the acquisition of Occam Networks, Inc. (“Occam Networks”) by Calix, Inc. (“Calix”) whereby Occam stockholders would receive cash and stock consideration. Although the Court denied the injunction request based on process grounds, the Court of Chancery enjoined the transaction until additional disclosures are made and the deposition of a managing director of Occam Networks’ financial advisor is taken. 

SV Investment Partners, LLC v. ThoughtWorks, Inc.: Court of Chancery Interprets Redemption Rights of Preferred Stockholder 

Following trial in SV Investment Partners, LLC v. ThoughtWorks, Inc., 7 A.3d 973 (Del. Ch. 2010), the Court of Chancery rejected a preferred stockholder’s argument that the phrase “funds legally available” is equivalent to “surplus” in the context of redemption rights and entered judgment against the preferred stockholder. 

Golden Telecom, Inc. v. Global GT LP and Roam-Tel Partners v. AT&T Mobility Wireless Op. Holdings Inc.: Developments in the Law of Appraisal 
In Golden Telecom, the Supreme Court declined to impose strict requirements on the trial court’s determination of fair value, including deference to merger price or a requirement that the subject company be bound by previously disseminated company-specific data. In AT&T Mobility, the Court of Chancery held that a stockholder has the entire 20-day statutory period to consider whether or not to seek appraisal, and may even revoke a prior waiver of appraisal rights during that period, under certain circumstances. 

Blades v. Wisehart: Court of Chancery Confirms that Strict Adherence to Corporate Formalities Required in Implementing a Stock Split 
In Blades v. Wisehart, 2010 Del. Ch. LEXIS 227 (Del. Ch. Nov. 17, 2010), the Court of Chancery held that a corporation had not validly effectuated a stock split because it had not complied with the requisite corporate formalities, notwithstanding that the corporation’s board and stockholders all had the subjective intent to effectuate the split. 

Scully v. Nighthawk Radiology Holdings, Inc.: Court of Chancery Questions Potential Collusive Forum Shopping in Settlement of Stockholder Litigation 
At a status conference in Scully v. Nighthawk Radiology Holdings, Inc., C.A. No. 5890-VCL, Vice Chancellor Laster stated that there was prima facie evidence of collusive forum shopping in connection with a settlement of multi-jurisdictional, representative litigation challenging the fairness of a merger and announced that he would appoint special counsel to the Court to investigate these issues and possibly to recommend disciplinary action. 
King v. VeriFone Holdings, Inc.: Derivative Plaintiffs May Inspect Books and Records After Filing Derivative Action 
In King v. VeriFone Holdings, Inc., No. 330, 2010 (Del. Jan. 28, 2011), the Delaware Supreme Court reversed the Court of Chancery’s decision that established a bright-line rule barring stockholder-plaintiffs from seeking books and records pursuant to 8Del. C. § 220 (“Section 220”) solely because they filed a derivative action first. The Supreme Court reaffirmed “long-standing Delaware precedent which recognizes that it is a proper purpose under Section 220 to inspect books and records that would aid the plaintiff in pleading demand futility in a to-be-amended complaint in a plenary derivative action, where the earlier-filed plenary complaint was dismissed on demand futility-related grounds without prejudice and with leave to amend.” 
Narrowstep, Inc. v. Onstream Media Corp.: Court of Chancery Relies on United States Supreme Court’s Twombly Motion to Dismiss Standard in Analyzing Failed Merger Claims Against Acquiror 
In Narrowstep, Inc. v. Onstream Media Corp., C.A. No. 5114-VCP (Del. Ch. Dec. 22, 2010), the Court of Chancery, expressly relying on the motion to dismiss standard articulated by the United States Supreme Court in Bell Atlantic v. Twombly, dismissed an implied covenant of good faith and fair dealing claim but refused to dismiss claims for breach of fiduciary duty, fraud and unjust enrichment in connection with the failed merger between Narrowstep Inc. (“Narrowstep”) and Onstream Media Corporation (“Onstream”).  

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