Recent Delaware Corporate Law Decisions and 2010 Amendments to the DGCL
May 3, 2010
The New Revlon: Court of Chancery Guidance Regarding Pursuit of Stockholder Litigation
In In re Revlon, Inc. Shareholders Litigation, Consol. C.A. No. 4578-VCL (Del. Ch. Mar. 16, 2010), the Court of Chancery replaced lead representative plaintiffs and their counsel after concluding that the plaintiffs and their counsel failed to litigate the case adequately and exaggerated their litigation efforts in filings submitted to the Court. Read More >>
Fiduciary Duties to Preferred Stockholders in a Merger: LC Capital Master Fund, Ltd. v. James
In LC Capital Master Fund, Ltd. v. James, C.A. No. 5214-VCS (Del. Ch. Mar. 8, 2010), the Court of Chancery denied a preferred stockholder’s motion to enjoin the acquisition of QuadraMed Corporation by affiliates of Francisco Partners II, L.P., holding that the directors fulfilled the limited fiduciary duties owed to the preferred stockholders in approving the merger which cashed out the preferred stockholders at a price based upon the conversion rate of the preferred stock to common stock. Read More >>
2010 Amendments to the DGCL: Nonstock Corporations, Short Form Mergers, Indemnification and Other Changes
The General Corporation Law of the State of Delaware (the “DGCL”) has long contained provisions for both corporations authorized to issue capital stock and corporations not authorized to issue capital stock (commonly known as nonstock corporations). Among the proposed 2010 amendments is a comprehensive revision of the DGCL intended to make consistent the DGCL’s application to nonstock corporations. The 2010 amendments to the DGCL also address other topics as well, including short-form mergers and indemnification. Read More >>
The Implied Covenant of Good Faith and Fair Dealing: Nemec v. Shrader
In Nemec v. Shrader, Nos. 305, 2009 & 309, 2009 (Del. Apr. 6, 2010), the Delaware Supreme Court, in a 3-2 split decision, affirmed the dismissal of a complaint by former officers against Booz, Allen & Hamilton Inc. and its board of directors for failure to state a claim, holding that the directors did not breach either express or implied contractual obligations or fiduciary duties when they redeemed the plaintiffs’ stock at a price substantially lower than would have been applicable as the result of a not-yet consummated transaction, because the relevant Officers Stock Rights Plan expressly authorized the timing and price of the redemption and because the contractual obligations established in the Stock Plan superseded the fiduciary duties that might otherwise have applied to the redemption. Read More >>
Insider Trading Fiduciary Duty Claims: Pfeiffer v. Toll
In Pfeiffer v. Toll, C.A. No. 4140-VCL (Del. Ch. Mar. 3, 2010), the Court of Chancery reaffirmed the right of a Delaware corporation, under Brophy v. Cities Service Co., 70 A.2d 5 (Del. Ch. 1949), to recover from its fiduciaries for harm caused by insider trading, explicitly rejecting the defendants’ position that Brophy’s holding was both outdated and inconsistent with the current federal insider trading regime.
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Preferred Stockholder Consent Rights: Fletcher International, Ltd. v. ION Geophysical Corp.
In Fletcher International, Ltd. v. ION Geophysical Corp., C.A. No. 5109-VCP (Del. Ch. Mar. 24, 2010), the Court of Chancery held that a company’s issuance of a promissory note convertible into common stock likely violated the contractual right of the company’s preferred stockholder to consent to the issuance of “any security,” but declined to issue a preliminary injunction based on the balance of hardships.
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Special Litigation Committee Investigations: London v. Tyrell
In London v. Tyrell, C.A. No. 3321-CC (Del. Ch. Mar. 11, 2010), the Court of Chancery denied a special litigation committee’s motion to dismiss, finding that there were material questions of fact regarding the SLC’s independence and the reasonableness and good faith of its investigation. Read More >>