Recent Delaware Corporate Law Decisions and Amendments to Delaware’s General Corporation Law

September 5, 2012

Publication| Corporate Transactions| Corporate & Chancery Litigation

In re Appraisal of Orchard Enterprises, Inc.: Court of Chancery Declines to Give Liquidation Preference of Preferred Stock Effect in Appraisal of Common Stock
In In re Appraisal of Orchard Enterprises, Inc., 2012 WL 2923305 (Del. Ch. July 18, 2012), the Court of Chancery, in a post-trial decision, determined that the petitioners, certain common stockholders of The Orchard Enterprises, Inc. (“Orchard”), were entitled to $4.67 per share, rather than the $2.05 per share they received in a going-private transaction.

Louisiana Municipal Police Employees’ Ret. Sys. v. Pyott: Court of Chancery Holds that Dismissal on Demand Futility Grounds Is Not Entitled to Preclusive Effect in an Action Filed by a Different Stockholder Plaintiff
In Louisiana Municipal Police Employees’ Ret. Sys. v. Pyott, 46 A.3d 313 (Del. Ch. 2012), the Court of Chancery held that a federal court’s decision to dismiss derivative litigation for failure to plead demand futility adequately under Rule 23.1 did not preclude relitigation of that same issue in another case involving a different stockholder plaintiff.  The defendants have appealed the Court’s ruling, and that appeal remains pending.

Zucker v. Andreessen: Court of Chancery Dismisses Complaint Challenging Hewlett-Packard CEO’s Severance Package and the Board’s Failure to Plan for CEO Succession        
In Zucker v. Andreessen, 2012 WL 2366448 (Del. Ch. June 21, 2012), the Court of Chancery applied the heightened pleading burden under Court of Chancery Rule 23.1 and dismissed a derivative complaint for failure properly to allege demand futility.
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Keyser v. Curtis: Sole Director’s Issuance of Super-Voting Preferred Stock to Himself Fails Entire Fairness Review
In a summary proceeding under Section 225 of the Delaware General Corporation Law, the Court of Chancery in Keyser v. Curtis, 2012 WL 3115453 (Del. Ch. July 31, 2012), applied the entire fairness test to a sole director’s effort to prevent stockholders from electing a new board by issuing a new series of preferred stock with powerful voting rights to himself for one cent per share, held that the issuance was not entirely fair, and determined that the newly issued stock could not be counted in determining whether the plaintiff-stockholders had delivered sufficient written consents to elect a new board. 

In re Synthes, Inc. S’holder Litig.: Court of Chancery Holds that the Business Judgment Rule Applies Where Controlling Stockholder Receives Pro Rata Share of Merger Consideration
In In re Synthes, Inc. Shareholder Litigation, 2012 WL 3594293 (Del. Ch. Aug. 17, 2012), the Court of Chancery dismissed an amended class action complaint alleging that Synthes, Inc.’s (“Synthes”) chairman and controlling shareholder Hansjoerg Wyss (“Wyss”) and its board of directors (the “Board”) breached their fiduciary duties by approving a merger with Johnson & Johnson (“J&J”).  Significantly, the Court rejected the plaintiffs’ claim that Wyss had conflicts of interest with the minority stockholders that required application of the entire fairness standard, holding that the business judgment rule applied because Wyss would receive pro rata treatment with the minority stockholders.

Martin Marietta Materials, Inc. v. Vulcan Materials Co.: Delaware Supreme Court Affirms Four-Month Delay of Hostile Exchange Offer Based on Violations of Confidentiality Agreements
In Martin Marietta Materials, Inc. v. Vulcan Materials Co., 2012 WL 2783101 (Del. July 12, 2012), the Delaware Supreme Court affirmed the Court of Chancery’s decision enjoining Martin Marietta Materials, Inc. (“Martin”) from taking any action in connection with its hostile takeover bid for Vulcan Materials Co. (“Vulcan”), including proceeding with its exchange offer and prosecuting its proxy contest, for a period of four months, in order to remedy Martin’s breach of two confidentiality agreements between the companies.
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2012 Amendments to the General Corporation Law of the State of Delaware
Legislation amending the General Corporation Law of the State of Delaware (the “DGCL”) was adopted by the Delaware General Assembly and was signed by the Governor of the State of Delaware on June 29, 2012.  Most of the amendments to the DGCL became effective on August 1, 2012, while the remaining amendments will become effective on August 1, 2013.  The DGCL amendments are designed to keep Delaware law current and address issues raised by practitioners, the judiciary and legislators with respect to the current language or interpretation of the DGCL.

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