Recent Delaware Corporate Law Decisions and Amendments to Unclaimed Property/Escheat Laws

October 28, 2010

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 Dollar Thrifty Shareholder Litigation and Forgo v. Health Grades, Inc.: Value Maximization Under Revlon
In two recent decisions, the Delaware Court of Chancery analyzed whether a board of directors satisfied its obligations under Revlon where the board focused primarily on a “single bidder” strategy in seeking to sell the corporation.

eBay Domestic Holdings, Inc. v. Newmark: Court of Chancery Rescinds Private Company’s Poison Pill and Right of First Refusal Agreement; Upholds Staggered Board Amendments

The Delaware Court of Chancery’s decision in eBay Domestic Holdings, Inc. v. Newmark, C.A. No. 3705-CC (Del. Ch. Sept. 9, 2010), provides important insight on the use—and possible limitations—of takeover defense mechanisms in the context of private, closely held corporations.

Aveta Inc. v. Cavallieri: Court of Chancery Holds that Non-Signatories Are Bound By Terms of Purchase Agreement, Including the Forum Selection Clause, and Upholds Irrevocable Authority of Stockholders’ Representative
In Aveta Inc. v. Cavallieri, C.A. No. 5074-VCL (Del. Ch. Sept. 20, 2010), the Court of Chancery held that the contractual process for calculating post-closing adjustments to plaintiff’s purchase price for Preferred Medical Choice Inc. (“PMC”) was binding on all former PMC stockholders.

In re Cogent, Inc. Shareholder Litigation: Court of Chancery Allows Tender Offer to Proceed, Finding that Deal Protection Devices, Including the Use of a Top-Up Option, Were Not Unreasonably Preclusive
In In re Cogent, Inc. Shareholder Litigation, Cons. C.A. No. 5780-VCP (Del. Ch. Oct. 5, 2010), the Delaware Court of Chancery denied plaintiffs’ motion for a preliminary injunction, which sought to enjoin a two-step acquisition in which a third-party acquiror, 3M Company (“3M”), agreed to commence a tender offer for the stock of the target corporation, Cogent, Inc. (“Cogent”), to be followed by a back-end merger at the same tender offer price.

WaveDivision Holdings, LLC v. Millennium Digital Media Systems, L.L.C.: Court of Chancery Makes Clear that a Fiduciary Out Is Not Required so Long as There Was No Breach of Fiduciary Duty When Entering into the Contract
In WaveDivision Holdings, LLC v. Millennium Digital Media Systems, L.L.C., C.A. No. 2993-VCS (Del. Ch. Sept. 17, 2010), the Court of Chancery made clear that if there is no violation of fiduciary duty when entering into an agreement not to solicit other offers, then the company is obligated to honor its commitment.
City of Westland Police & Fire Retirement System v. Axcelis Technologies, Inc.: Delaware Supreme Court Clarifies Section 220 Standard in the Context of a Board-Adopted “Plurality Plus” Governance Policy
In City of Westland Police & Fire Retirement System v. Axcelis Technologies, Inc., No. 594, 2009 (Del. Aug. 11, 2010), the Delaware Supreme Court affirmed the dismissal of a books and records action under 8 Del. C. § 220 (“Section 220”), holding that plaintiff did not meet its evidentiary burden to demonstrate a “proper purpose” to support inspection where a board of directors rejected the resignations of three directors who failed to receive a majority of the votes cast in an uncontested election.
Lambrecht v. O’Neal: Delaware Supreme Court Clarifies Standing Requirements for Maintaining a “Double Derivative” Suit Under Delaware Law
In Lambrecht v. O’Neal, No. 135, 2010, 3 A.3d 277 (Del. Aug. 27, 2010), the Delaware Supreme Court answered a certified question of law submitted by the United States District Court for the Southern District of New York (the “Southern District Court”). In this en banc opinion, the Delaware Supreme Court clarified the standing requirements for maintaining a “double derivative” suit under Delaware law. 
Delaware Amends Unclaimed Property/Escheat Laws
Enacted in July 2010, 77 Del. Laws, c. 417 (the “Act”) represents a significant development in the area of unclaimed property administration in Delaware. The Act has three main components: (1) changes to the procedures related to the manner in which unclaimed property assessments are prosecuted; (2) a declaration that “uninvoiced payables” will not be considered escheatable property; and (3) provisions related to the State Escheator’s power to use estimation techniques to determine unclaimed property liability.

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