Insights Archive

The Delaware Court of Chancery opinion in Obeid v. Hogan addresses the ability of managers of a limited liability company to delegate to non-managers, illustrating the importance of careful drafting in alternative entity governance documents.

This article discuss the availability and specifics of these programs in seven states.

On June 28, 2016, the United States District Court for the District of Delaware issued an opinion in the case of Temple-Inland, Inc. v. Cook, Civ. No. 14-654-GMS, granting in part and denying in part cross motions for summary judgment filed by the State of Delaware (the “State”) and Temple-Inland, Inc. (the “Company”). Significantly, the Court granted the Company’s claims that the State’s audit conduct violates substantive due process rights under the United States Constitution. Declining the State’s invitation to abstain from deciding the case pending a review by a Delaware state court of the statute allowing for the extrapolation and estimation of liability for periods for which a holder lacks records, the Court held that the combined effect of several aspects of the State’s executive actions created a game of “gotcha” which “shocks the conscience.”

Delaware’s House and Senate have recently passed a change to Delaware’s PPLI premium tax that makes Delaware much more competitive with other jurisdictions that have historically attracted virtually all of the PPLI trust planning business.

The Delaware Supreme Court recently issued an important opinion overruling its long-standing decision in Sternberg v. O’Neil, 550 A. 2d 1105 (1988) and holding that the Delaware registration statute does not provide a basis for asserting general personal jurisdiction over foreign corporations in Delaware.

New rules for partnership tax audits (the “New Rules”) were adopted that may require changes to the governing documents of existing and future partnerships, limited liability companies and other entities taxed as partnerships for federal income tax purposes.

In the last quarter of 2015, the Delaware courts issued three opinions and one oral ruling of importance to practitioners advising on private company transactions. Two of the opinions provide insight into the treatment of fraud claims in the acquisition context under Delaware law, especially the element of reliance, and how to successfully disclaim reliance on representations outside the acquisition agreement. 

Instead of debating the merits of the outcome in Rural/Metro, this article begins from that outcome and contains our thoughts on the drafting and implementation of financial advisor engagement letters in a post-Rural/Metro world.

A periodic “heads-up” of legal developments in Delaware relevant to venture and private equity funds.

Judge Kevin Carey provides significant guidance to debtors and landlords calculating rejection damages claims.

Proper drafting and administration can reduce doubt about who’s responsible for a particular matter.

The 2015 amendments to the Delaware General Corporation Law (the “DGCL”)  address important policy topics and make certain technical improvements that should interest practitioners, including changes to the board approvals required to issue stock and changes to Delaware’s statute on ratification of corporate defects.

Practitioners do not need to throw out the carefully crafted partnership agreements used by master limited partnerships because of the recent decision in In re: El Paso Pipeline Partners, LP.

In its last session, the Delaware legislature passed a number of amendments to the Delaware General Corporation Law (“DGCL”) and to three of Delaware’s four “alternative entity” statutes.

The speed with which this legislation passed indicates that Delaware is serious about reforming its Unclaimed Property Program.

The Delaware Court of Chancery in LongPath Capital, LLC v. Ramtron International Corp. relied on the negotiated merger price as the best evidence of “fair value.”

On June 16, 2015, Senate Bill No. 141 was introduced in the Delaware State Senate.

Morris Nichols attorneys Bill Lafferty, John DiTomo and Mac Measly contributed this article on the Delaware Court of Chancery ruling in Healthways II concerning a so-called “dead hand proxy put” provision in a credit agreement.

On June 16, 2015, Senate Bill No. 141 was introduced in the Delaware State Senate.  This bill proposes what may well be the most important statutory changes ever made to the existing Delaware Unclaimed Property Program. 

The way plaintiffs plead direct patent infringement may be about to change.

It is important to consider how the indemnification regime will be enforced against stockholders of the seller corporation in a private corporation acquisition structured as a merger.

Appearing in the Summer 2015 edition, the article outlines a set of “best practices” for understanding and complying with an increasingly complex array of statutes, federal and local rules, U.S. Trustee guidelines, fee auditor requirements, and case-specific orders when filing fee applications.

On May 4, 2015, the Delaware Court of Chancery issued an opinion in Quadrant Structured Products Co. Ltd. v. Vertin that provides important guidance to those counseling distressed Delaware corporations and their stakeholders.

On May 21, 2015, the United States Court of Appeals for the Third Circuit answered the long-asked question of whether structured dismissals are permissible under the Bankruptcy Code with a resounding yes.

In In re Cornerstone Therapeutics Inc. Stockholder Litigation and Leal v. Meeks, the Delaware Supreme Court held that, regardless of the underlying standard of review (including in interested transactions subject to entire fairness review), a claim solely for monetary damages against a facially independent director of a corporation with an exculpatory charter provision will be dismissed unless a plaintiff has alleged facts to support a non-exculpated claim with respect to that director.

Vice Chancellor J. Travis Laster provided important guidance regarding his prior ruling in the same case between Healthways, Inc. and SunTrust Bank.

In a case of first impression, Chief Judge Brendan L. Shannon of the U.S. Bankruptcy Court for the District of Delaware ruled on Dec. 18, 2014, that Delaware corporate law’s “entire fairness” test, which is utilized to evaluate self-dealing transactions, is inapplicable to the Bankruptcy Code’s requirement that a plan be “proposed ... not by any means forbidden by law” under § 1129(a)(3) in connection with a consensual reorganization plan.

In an opinion issued on May 4, 2015, Quadrant Structured Products Co., Ltd. v. Vertin, the Court of Chancery provided important guidance to distressed Delaware corporations and their creditors. 

Two Master’s Final Reports were issued in Mennen v. Wilmington Trust Company on April 24, 2015.

On Apr. 20, 2015, the Court of Chancery issued its opinion after trial in the El Paso Pipeline Partners L.P. derivative litigation.  Plaintiffs challenged a “dropdown” transaction whereby the parent corporation (“Parent”) in a master limited partnership (“MLP”) structure sold interests in two of its subsidiaries to the limited partnership (“El Paso MLP”), and the Court found that the general partner, in engaging in the transaction with Parent, had violated the El Paso MLP limited partnership agreement.

Morris Nichols partner Patricia O. Vella and associate Elizabeth A. Hecker “present a fascinating analysis of the intersection between antitrust, attorney-client privilege, and Delaware corporate law” in this article on In Re Family Dollar, Inc. Stockholder Litigation, a case involving the long-running takeover battle for Family Dollar Stores, Inc.

In Friedman v. Khosrowshahi, the Delaware Supreme Court affirmed the Court of Chancery’s dismissal of a breach of fiduciary claim relating to an alleged violation of Expedia’s stock incentive plan.

The US District Court for the District of Delaware issued an opinion in Temple-Inland, Inc. v. Cook and order denying, in large part, the State of Delaware’s motion to dismiss a lawsuit challenging, on federal constitutional grounds, Delaware’s methodology for determining unclaimed property liability for periods in which the holder’s records are insufficient to determine the actual amounts due.

The Delaware Supreme Court issued an order affirming a bench ruling and letter opinion of the Court of Chancery precluding an action to contest the validity of a trust under Delaware’s pre-mortem validation statute, 12 Del. C. § 3546.

The past several years have seen the rise of so-called “appraisal arbitrage,” in which entities purchase shares after the announcement of the merger in order to pursue an appraisal claim.  As a result, guidance from the Delaware courts as to the contours of, and valuation methods used in, an appraisal proceeding has become more and more relevant both to lawyers and their clients. In Huff Fund Investment Partnership v. CKx, Inc., the Delaware Supreme Court affirmed the Court of Chancery’s decision concluding that the price paid in a third-party arms’-length merger was the most probative evidence of fair value.

Over the last several years, there has been a rise in so-called “appraisal arbitrage” - funds buying stock of a target company after announcement of a merger in order to pursue appraisal claims. In two recent decisions, Ancestry and BMC, the Delaware Court of Chancery confirmed that there is no requirement that an appraisal petitioner prove that previous owners of the appraisal shares refrained from voting in favor of the merger.

Earlier today, the Delaware General Assembly passed, and Governor Jack Markell signed into law, Senate Bill No. 11, with Senate Amendment No. 2, which implements, in part, the recommendations of a Legislative Task Force established by the Delaware General Assembly last year to review and suggest reforms to Delaware’s Unclaimed Property Program.

In the first judicial opinion to interpret the new statute, Bear Stearns Mortgage Funding Trust 2006-SL1 v. EMC Mortgage LLC, the Delaware Court of Chancery held that Section 8106(c) applies retroactively to contracts entered into before the statute took effect on August 1, 2014.  The Court also provided important guidance regarding claim accrual and the application of Delaware’s borrowing statute.

In an important ruling addressing the scope of Revlon duties and the Delaware courts’ reluctance to “blue pencil” contractual provisions, C&J Energy Services, Inc. v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, the Delaware Supreme Court has reversed a mandatory injunction order issued by the Court of Chancery that (i) required a target to “go-shop” itself (notwithstanding the merger agreement’s “no-shop” provision), and (ii) declared, in advance, that the Court-ordered “go shop” would not constitute a breach of the merger agreement.

This portion of the Bankruptcy Code may serve as a "Trump" card for debtors facing expired collective bargaining agreements.

For reasons of economy in an early-stage investment, venture capitalists and founders often will use forms made available by the National Venture Capital Association (NVCA) as a basis to negotiate the post-investment governance structure of a corporation.  In Salamone v. Gorman, the Delaware Supreme Court interpreted the product of such a negotiation.

In the three days prior to Thanksgiving, the Court of Chancery issued seven written opinions and one oral ruling of importance to transaction planners.  Although each opinion and ruling independently could be the subject of a detailed memorandum, in light of the multiple issues addressed by the Court in a compressed period, we provide a short summary of each.

Under Delaware law, a less-than-majority stockholder may be deemed a controlling stockholder if it “exercises control over the business affairs of the corporation.”  Two recent opinions from the Court of Chancery provide helpful guidance as to how the Court will apply this standard.