Recent Delaware Corporate Law Updates

August 6, 2015

Publication| Corporate Transactions| Corporate & Chancery Litigation

Gorman v. Salamone: Court of Chancery Invalidates Bylaw Granting Stockholders the Power to Remove and Replace Officers
In Gorman v. Salamone, C.A. No. 10183-VCN (Del. Ch. July 31, 2015), the Delaware Court of Chancery held that a stockholder-adopted bylaw amendment that purported to grant stockholders the authority to remove corporate officers over the objection of the corporation’s board of directors was invalid under Delaware law. In so holding, the Court found that the amended bylaw, which permitted stockholders to remove and replace officers without cause, would allow stockholders to “make substantive business decisions” for the corporation and thereby “unduly interfere with directors’ management prerogatives” under Section 141(a) of the General Corporation Law of the State of Delaware (the “DGCL”).  

Lazard Technology Partners, LLC v. QinetiQ North America Operations LLC:  Delaware Supreme Court Upholds Rejection of Implied Covenant of Good Faith and Fair Dealing Claims on Contractual Provision Employing an Intent Standard
In Lazard Technology P’rs, LLC v. QinetiQ North America Operations LLC, 114 A.3d 193 (Del. Apr. 23, 2015), the Delaware Supreme Court affirmed the Court of Chancery’s post-trial bench ruling and held that defendant-below did not breach an earn-out provision in a merger agreement or the implied covenant of good faith and fair dealing.

Merlin Partners LP v. AutoInfo, Inc. and In re LongPath Capital, LLC v. Ramtron International Corporation: Court of Chancery Defers to Merger Price in Determining Fair Value     
In two recent post-trial opinions in appraisal cases under 8 Del. C. § 262, the Court of Chancery addressed the importance of merger price and process as well as the reliability of discounted cash flow (DCF) analyses in determining fair value. In Merlin Partners LP v. AutoInfo, Inc., 2015 WL 2069417 (Del. Ch. Apr. 30, 2015), Vice Chancellor Noble found that, where there was an adequate sale and negotiation process conducted at arm’s length and there were no reliable cash flow projections from which to make a DCF analysis nor available alternate valuations, the price received in the merger, $1.05 per share, was the best indication of fair value at the time of the merger.  Two months later, in In re LongPath Capital, LLC v. Ramtron International Corporation, 2015 WL 4540443 (Del. Ch. June 30, 2015), Vice Chancellor Parsons similarly determined that there were no reliable means of appraisal valuation other than the merger price, but also found that the fair value at the time of the merger was $0.03 below the deal price of $3.10 per share after accounting for synergies.
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In re Molycorp, Inc. Shareholder Derivative Litigation: Court of Chancery Dismisses Derivative Action Based on Terms of Registration Rights Agreement
In In re Molycorp, Inc. Shareholder Derivative Litigation, 2015 WL 3454925 (Del. Ch. May 27, 2015), the Court of Chancery granted under Rule 12(b)(6) defendants’ motions to dismiss a derivative complaint that alleged breaches of fiduciary duties, among other claims, in connection with a secondary stock offering that was initiated at the request of Molycorp, Inc.’s private equity investors pursuant to the terms of a Registration Rights Agreement.

Quadrant Structured Products Company, Ltd. v. Vertin: Court of Chancery Holds that Delaware Law Does Not Impose a Continuous Insolvency Requirement for a Creditor to Maintain Derivative Standing
In Quadrant Structured Products Company, Ltd. v. Vertin, 115 A.3d 535 (Del. Ch. May 4, 2015), the Delaware Court of Chancery denied defendants’ motion for summary judgment, held that Delaware law imposes neither a continuous insolvency nor an irretrievable insolvency requirement, and found sufficient evidence in the record to support a reasonable inference that the debtor corporation was insolvent on the date the complaint was filed.  In so holding, the Court provided an in-depth analysis of creditor derivative standing following the Delaware Supreme Court’s decision in N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92 (Del. 2007).  

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