Recent Practice Columns

Barry M. Klayman and Mark E. Felger

Post-Confirmation Examinations Pursuant to Bankruptcy Rule 2004

By Barry M. Klayman and Mark E. Felger |

Bankruptcy Judge Laurie Selber Silverstein has granted the post-confirmation motion of a trustee of trusts created pursuant to the debtors’ plan of reorganization to examine third parties regarding the cause of the debtors’ financial collapse under Federal Rule of Bankruptcy Procedure 2004.

Benyamin S. Ross, Jefferson E. Bell, and Lauren Kole

Claims Involving a Limited Partnership Deal Are Derivative Under 'Tooley' Test

By Benyamin S. Ross, Jefferson E. Bell and Lauren Kole |

The Delaware Supreme Court has reaffirmed the continued applicability of Tooley v. Donaldson, Lufkin & Jenrette, in determining whether a claim is direct or derivative in nature, even when the claim involves a breach of contractual duty owed to a limited partnership.

Edward M. McNally and Patricia A. Winston

When Is a Manager Not Really a Manager?

By Edward M. McNally and Patricia A. Winston |

Under the Delaware Limited Liability Company Act, a non-Delaware resident may be deemed to have consented to being sued in Delaware if she is a “manager” of the LLC. But who, exactly, is such a manager?

Demand Requirement Under Exchange Act §14(a)

By Joseph M. McLaughlin and Yafit Cohn |

In their Corporate Litigation column, Joseph M. McLaughlin and Yafit Cohn, of Simpson Thacher & Bartlett, examine 'In re The Home Depot, Inc. Shareholder Derivative Litigation', which weighed in on a recurring question regarding the demand requirement on which courts have differed: whether pre-suit demand is required for claims alleging a violation of Section 14(a) of the Securities Exchange Act of 1934. 'Home Depot' is the latest in a series of shareholder derivative actions arising from high-profile data breaches to be dismissed in recent years, with the court holding that Delaware's demand requirement applies equally to Section 14(a) claims.

Gary Lipkin

Delaware Chancery Court Strikes Down Fee-Shifting Bylaw

By Gary W. Lipkin, Alexandra Rogin and Justin M. Forcier |

The Delaware Court of Chancery has held that a corporate bylaw ran afoul of 8 Del. C. Section 109(b), where it purported to shift attorney fees and expenses to an unsuccessful stockholder that filed an internal corporate claim outside of the state of Delaware.

P. Clarkson Collins Jr.

Del. Supreme Court Finds Demand Excused and Revives 'Zynga' Derivative Claim

By P. Clarkson Collins Jr. |

The derivative complaint alleged that Zynga's CEO, Chairman and controlling stockholder Mark Pincus, along with certain other top managers and directors were given an exception from the company's standing rule preventing insider sales until three days after an earnings announcement.

Thad A. Davis and Vivek Gopalan

Delaware Supreme Court Affirms Guidance in Advancement Disputes

By Thad A. Davis and Vivek Gopalan |

Companies considering agreements to advance legal costs to directors and officers (commonly known as "advancement provisions") should take note of a recent Delaware Supreme Court decision.

Barry M. Klayman and Mark E. Felger

Turnover Order Cannot Trump Prohibition on Disclosure of ESI by Email Service Provider

By Barry M. Klayman and Mark E. Felger |

In a decision with implications that extend beyond bankruptcy, Bankruptcy Judge Christopher S. Sontchi refused to order an email service provider to turn over the contents of a private email account after the owner of the account evaded service and failed to comply with several discovery orders.

Albert Manwaring of Morris James

Reliance on Extra-Contractual Statements in Fraud Claim

By Albert H. Manwaring IV |

Buyers unhappy with the performance of a company or assets purchased frequently assert claims that the seller fraudulently induced the purchase by providing false information of the value of the company or assets in the sale process.

John Mark Zeberkiewicz and Stephanie Norman

Opinion Underscores Importance of Careful Drafting of Integration Clauses

By Stephanie Norman |

The Delaware Supreme Court has affirmed a Court of Chancery holding that a term sheet setting forth the general parameters of the parties' ongoing relationship was not superseded by an operating agreement later entered into by the parties, despite the inclusion of an integration clause in the operating agreement.

Thomas E. Hanson, Jr.

Use of Agreed-Upon Search Terms Not Proxy for Gathering All Responsive Info

By Thomas E. Hanson Jr. |

Parties typically seek to narrow the scope of potentially responsive documents by meeting and conferring and reaching agreement on appropriate search terms. The parties next run those search terms against the data collected from the relevant custodians and review the resulting information for responsiveness.

James G. McMillan III

Bouchard Rejects Merger Consideration as an Indicator of Value

By James G. McMillan III |

In several recent statutory appraisal actions, the Delaware Court of Chancery has concluded that the fair value of the corporation was equal to the agreed-upon deal price. However, in one recent appraisal action, Chancellor Andre G. Bouchard rejected the defendant corporation's argument that the merger consideration could be "relied upon by the court to set the appraisal value."

Brett McCartney

Claims That Controlling Stockholder Received Unique Benefits Dismissed

By Brett M. McCartney |

In GAMCO Asset Management v. iHeartMedia, Delaware's Court of Chancery considered claims that a controlling stockholder's liquidity needs created conflicts in otherwise arm's-length transactions with third parties.

Lewis H. Lazarus

Court Dismisses Derivative Claim for Alleged Breach of Oversight Duty

By Lewis H. Lazarus |

The Delaware courts encourage plaintiffs who bring derivative claims in Delaware without making demand on the board of directors to seek books and records under Section 220 of the Delaware General Corporation Law so as to be able to plead facts sufficient to demonstrate that demand is excused. Many claims have been dismissed under Delaware Court of Chancery Rule 23.1 because a plaintiff failed to utilize the "tools at hand" to obtain relevant books and records. When a plaintiff grounds its claim on directors' alleged failure to exercise oversight, however, even receipt of books and records may not enable a plaintiff to plead facts sufficient to demonstrate that the directors knowingly ignored their duties so as to have acted in bad faith. That high standard as articulated by the Delaware Supreme Court in Stone v. Ritter makes a Caremark claim for breach of directors' oversight duties as among the most difficult in corporate law. The Court of Chancery's recent decision in Reiter v. Fairbank, C.A. No. 11693-CB (Del. Ch. Oct. 18), demonstrates that, regardless of the injury allegedly sustained by the subject company, a pleading based on books and records obtained from the company that at best reflects awareness of "yellow flags" is not sufficient to call into question the directors' good faith and hence to excuse demand, thus requiring dismissal of the plaintiff's derivative claim.

What Are 'Commercially Reasonable Efforts' in M&A Transactions?

Two recent rulings out of the Delaware Court of Chancery have highlighted the importance of clearly defining the terms of pre-closing obligations.

Is There a Way to Stop Legal Fee Advancement?

The stated policy reasons for fee advancement make perfect sense. As the Delaware Supreme Court noted, the purposes of advancement are to "promote the desirable end that corporate officials will resist what they consider unjustified suits and claims, secure in the knowledge that their reasonable expenses will be borne by the corporation they have served if they are vindicated," and "encouraging capable women and men to serve as corporate directors and officers, secure in the knowledge that the corporation will absorb the costs of defending their honesty and integrity."

Delaware Appraisal Results Are More Predictable Than They Seem

A stockholder of a Delaware corporation who objects to the price to be paid in a proposed all-cash merger can petition the Court of Chancery to determine the "fair value" of his or her shares, so long as the stockholder has not voted for the merger or accepted the consideration paid in the merger and has complied with certain procedural requirements.

Barry M. Klayman and Mark E. Felger

Bankruptcy Court Holds Class-Action Waiver in Arb Agreement Violates NLRA

By Barry M. Klayman and Mark E. Felger |

U.S. Bankruptcy Judge Brendan Shannon of the District of Delaware recently decided two issues of first impression in this circuit: first, a class-action waiver provision in an arbitration agreement between an employer and an employee violates the National Labor Relations Act (NLRA), and second, an opt-out provision in an arbitration agreement containing a provision that violates the NLRA does not save the arbitration agreement.

P. Clarkson Collins Jr.

Court Relies on Fully Informed Uncoerced Stockholder Vote in 'Revlon' Challenge

By P. Clarkson Collins Jr. |

A recent decision by Vice Chancellor Joseph R. Slights III represents the latest Delaware Court of Chancery decision to rely on the business judgment standard of review to dismiss a Revlon challenge to a cash-out merger.

Matthew B. McGuire

'Arctic Glacier' Highlights Conflict Between Two Federal Regulations

By Matthew B. McGuire |

Federal Rule of Bankruptcy Procedure 3021 (FRBP) generally provides that following confirmation of a plan, distributions from a debtor's estate will be made to creditors and security holders of record as of the date the distribution is made unless a different date is selected through a confirmed plan. As the advisory committee noted when drafting the 1997 amendments to FRBP 3021, "it may be impractical for the debtor to determine the holders of record with respect to publicly held securities and also to make distributions to those holders at the same time ... [and as a result] the plan or the order confirming the plan may fix a record date for distributions that is earlier than the date on which distributions commence." Outside of a bankruptcy proceeding, distributions to equity security holders in the secondary securities markets are governed by the FINRA Uniform Practice Code (UPC). The UPC material differs from the FRBP 3021 concept of record date in that it defines two relevant milestone dates when determining the rights of security holders to receive distributions: the "record date" and "ex-dividend date." Under the UPC, the record date is the date established by the issuer of the underlying security (with FINRA approval) for determining which holders of securities are entitled to receive distributions. The ex-dividend date" is the date on and after which the security is traded without a specific dividend or distribution, (see FINRA Uniform Practice Code 11120). As a result, beginning on the ex-dividend date" the underlying security will generally trade at a discount proportional to the amount of the distribution being paid to the holder by the issuer.

Albert H. Manwaring IV

Challenge to a Squeeze-Out Merger Dismissed Under MFW Framework

By Albert H. Manwaring IV |
William Savitt of Wachtell, Lipton, Rosen & Katz. HANDOUT.

Beating the Drum for Full Disclosure

By William Savitt |

Delaware courts have recently weighed in on three of the ­hottest issues in deal law: the standard of review governing controlling-­stockholder buyouts, the power of stockholder approval to preclude fiduciary litigation challenging a completed merger, and the law governing merger disclosure documents. The decisions push merger planners toward greater public disclosure before any stockholder vote on a proposed transaction.

Margaret A. Dale and Mark D. Harris

The Effect of 'Trulia' on Takeover Litigation

By Margaret A. Dale and Mark D. Harris |

In the recent past, these lawsuits were often quickly resolved by means of so-called "disclosure-only" settlements, in which the parties agreed to a broad release of claims against the companies in exchange for limited additional disclosures (often referred to as "supplemental disclosures") regarding the transaction. Shareholders do not receive any direct economic benefit from these types of settlements; the only money that changes hands is a fee paid to the plaintiffs' counsel in exchange for obtaining the supplemental disclosures.

Brett McCartney

Dismissed Dell Appraisal Claimants Settle With Company

By BRETT M. McCARTNEY |

Appraisal litigation has been a topic at the forefront of the minds of many legal practitioners over the past few years. Recently, amendments to Section 262 of Delaware's General Corporation Law went into effect that were effectuated to eliminate de minimis appraisal claims while also allowing companies to make a pre-judgment payment to dissenting stockholders to reduce interest costs in connection with appraisal litigation. The Delaware Court of Chancery authored several opinions concerning appraisal arbitrage and the technical requirements of Section 262. There have even been unique appraisal cases where the court discussed the circumstances surrounding the proposed settlement of only factions of the appraisal class.

Justin M. Forcier

A Comparison of the Superior Court and Chancery Court Rule 26

By Justin M. Forcier |

Anyone who practices in the Delaware Court of Chancery but sometimes finds himself or herself in the Superior Court Complex Commercial Litigation Division (CCLD) should be aware of the subtle differences between Court of Chancery Rule 26 and Superior Court Rule 26 when it comes to what information of a party's expert is discoverable. Two recent rulings from both courts, CIM Urban Lending GP v. Cantor Commercial Real Estate Sponsor, C.A. No. 11060-VCS (Del. Ch. May 19), and Green v. Nemours Foundation, C.A. No. N15C-03-208 (Del. Super. Aug. 17), help to shed light on the topic.

Adam H. Offenhartz, Jefferson E. Bell and Anna Karamigios

Chancery Court: Disclosure Claims Should Be Brought Before Closing

By Adam H. Offenhartz, Jefferson E. Bell and Anna Karamigios |

In a recent ruling, the Delaware Court of Chancery made clear that claims based on allegedly inadequate disclosures brought after a merger closes face an exacting standard on a motion to dismiss. Vice Chancellor Sam Glasscock III in Nguyen v. Barrett, C.A. No. 11511-VCG,rejected the assertion that plaintiffs with a pre-closing disclosure claim can choose to bring the claim post-closing without repercussion—clarifying that the "preferred method for vindicating truly material disclosure claims is to bring them pre-closing, at a time when the court can ensure an informed vote." Glasscock further opined that a rule that disclosure claims "pleaded but not pursued pre-close" are waived would be "salutary."

Lewis H. Lazarus

Court Applies 'Corwin' and Upholds Board's Adoption of Dissolution Plan

By Lewis H. Lazarus |

The Delaware Court of Chancery's well-reasoned decision in The Huff Energy Fund v. Gershen, C.A. No. 11116-VCS (Del. Ch. Sept. 29), illustrates the care by which a Delaware court will examine the potential contractual and fiduciary duties at issue when a board adopts a plan of dissolution following a sale of a significant portion of its assets.

Barry M. Klayman and Mark E. Felger

Vendor's Reclamation Rights Survive Lien of Post-Petition DIP Loan

By Barry M. Klayman and Mark E. Felger |

In In re Reichhold Holdings US, Inc., Case No. 14-12237 (MFW) (Bankr. Del., Aug. 24), Bankruptcy Judge Mary F. Walrath upheld the validity of a vendor's administrative claim for its reclamation rights under Section 546(c) of the Bankruptcy Code as against a post-petition DIP lender.

Edward M. McNally

Do Funders Deserve Benefit Fees?

By Edward M. McNally |

The business of third-party funding of litigation is said to be rapidly growing. Typically, the entity putting up the money (a funder) signs a contract with a plaintiff to pay the costs of a lawsuit in return for a percentage of any recovery.

James G. McMillan III

How Can Plaintiffs Support Disclosure Claims in Merger Cases Post-'Corwin'?

By James G. McMillan III |

In the now-familiar case, Corwin v. KKR Financial Holdings, 125 A.3d 304, 305-06 (Del. 2015), the Delaware Supreme Court affirmed the Court of Chancery's holding "that the business judgment rule is invoked as the appropriate standard of review for a post-closing damages action when a merger that is not subject to the entire fairness standard of review has been approved by a fully informed, uncoerced majority of the disinterested stockholders."

Peter B. Ladig

Pleading Tortious Interference With Prospective Business Relations Claim

By Peter B. Ladig |

A recent Delaware Court of Chancery decision covers many familiar aspects of Delaware law, but also addresses ground less traveled.

Travis J. Ferguson

Chancery Extends Role of Statutory Defenses in Section 220 Demand Actions

By Travis J. Ferguson |

The Delaware Court of Chancery has held that there was no credible basis to infer a potential Caremark claim for breach of fiduciary duty for failure to exercise oversight where the stockholder's only identified use of corporate books and records was to investigate mismanagement or wrongdoing to evaluate potential litigation and the board's actions ultimately would be "fully protected" by 8 Del. C. Section 141(e).

Michael M. Farhang and Andrew M. Roach

Special Interests at Stake When Dealing with Distressed Insurers

By Michael M. Farhang and Andrew M. Roach |

While most attorneys are familiar with the automatic litigation stay under Section 362 of the federal Bankruptcy Code, few may be aware of the different procedures for pursuing claims against distressed insurers.

P. Clarkson Collins Jr.

Del. Forum Non Conveniens Doctrine Doesn't Depend on Adequate Alternative Forum

By P. Clarkson Collins Jr. |


Corporations sued in Delaware and subject to jurisdiction here sometimes employ the doctrine of forum non conveniens (FNC) to seek dismissal of the litigation if defending here would create an overwhelming hardship. In a recent decision from Delaware's Superior Court,

Albert H. Manwaring IV

Court Relies on DCF Valuation to Appraise Private Company

By Albert H. Manwaring IV |

In an appraisal proceeding under Section 262 of the Delaware General Corporation Law, the Delaware Court of Chancery determines the "fair value" of a company's "shares exclusive of any element arising from the accomplishment or expectation of the merger."

Clarifying the Meaning of 'Stockholder' for a Section 220 Action

By Jack Jacobs and S. Patrick Kelly |

In a decision with facts egregious enough to justify two references to the definition of "chutzpah," Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery provided helpful guidance on how to establish and refute "stockholder" status for purposes of bringing an action to inspect corporate books and records.

Thomas E. Hanson, Jr.

Company's Position Taken in Bankruptcy Voids Noncompete Obligations

By Thomas E. Hanson Jr. |

A recent Delaware Court of Chancery decision highlights the importance of coordinating the positions taken in different legal proceedings.

Barry M. Klayman and Mark E. Felger

Post-Confirmation Noncore Claim Defeats Bankruptcy Court Jurisdiction

By Barry M. Klayman and Mark E. Felger |

Bankruptcy Judge Mary F. Walrath found in a recent case that she lacked jurisdiction over claims for breach of fiduciary duty brought by a liquidating trustee against former managers and officers of Chapter 11 debtors.

Brett McCartney

Advancement Rights of Present and Future Officers Under LLC Agreement

By Brett M. McCartney |

Advancement and indemnification rights are vital in attracting the best and brightest individuals to serve as managers of Delaware entities.

Isaac Greaney and Daniel Gimmel

Attempted Spoliation Translates Into Fee-Shifting

By Isaac Greaney, Daniel Gimmel and Justin Avellar |

Late on New Year's Eve 2013, Philip Shawe broke into the office of his business partner, Elizabeth Elting, removed her hard drive, instructed an employee to image the hard drive, and then returned the hard drive to Elting's office after concealing any evidence that it had been taken.

Lewis H. Lazarus

Court: Derivative Claims Allowed to Be Asserted as Part of Merger Attack

By Lewis H. Lazarus |

It is well-settled under Delaware law that in a merger a stockholder loses standing to assert a purely derivative claim.

Allison L. Land and Lisa P. Ogust

Amendments to DGCL Limit Appraisal Proceedings

By Allison L. Land and Lisa P. Ogust |

In recent years, there has been a notable rise in the number of appraisal proceedings initiated in response to merger transactions.

Stephane S. Habelow

Court Clarifies Pleading Standards for 'Caremark' Claim

By Stephanie S. Habelow |

The Delaware Court of Chancery has clarified the pleading requisites for stating a Caremark claim.

Richard Birns, Benyamin Ross and Andria Montoya

Fiduciary Duties, Reverse Endorsements and Fundraising in 'Jeter'

By Richard Birns, Benyamin Ross and Andria Montoya |

Contracts between a corporation and a director can give rise to certain difficulties in managing expectations of a director's obligations and responsibilities.

Edward M. McNally

Are Appraisal Cases to Decline?

By Edward M. McNally |

Among the most discussed issues in corporate law today is whether appraisal actions should be curtailed.

Barry M. Klayman and Mark E. Felger

Bankruptcy Judge Allows Filing of Class-Based Proof of Claim

By Barry M. Klayman and Mark E. Felger |

In In re Pacific Sunwear of California, Case No. 16-10882 (LSS) (Bankr. D. Del. June 22, 2016), U.S. Bankruptcy Judge Laurie Selber Silverstein of the District of Delaware granted a motion for leave to file a class proof of claim. In so doing, she rejected an argument by the debtors that class claims are impermissible in bankruptcy cases.

Peter B. Ladig

How to Determine Whether the Statute of Limitations or Laches Applies

By Peter B. Ladig |

Lawyers who practice in the Delaware Court of Chancery probably can recite the shorthand rule that, for most claims, the Court of Chancery will decide whether a claim is filed too late by application of the statute of limitations by analogy.

James H.S. Levine, Joanna J. Cline, Douglas D. Herrmann and Christopher B. Chuff

Court Rules That Separate Instruments Grant Separate Advancement Rights

By James H.S. Levine, Joanna J. Cline, Douglas D. Herrmann and Christopher B. Chuff |

Advancement of legal expenses is a frequent subject of litigation in the Delaware Court of Chancery.

P. Clarkson Collins Jr.

Fair Value in Arm's-Length Third-Party Transactions

By P. Clarkson Collins Jr. |

With the rise of appraisal arbitrage, an increasing number of appraisal petitions and an increase in the size of appraisal classes, corporate practitioners have closely followed recent appraisal decisions in the Delaware Court of Chancery.

Rebecca L. Butcher

Chancery Court Elaborates Stance on Demand Futility Dismissals

By Rebecca L. Butcher |

In two recent decisions, the Delaware Court of Chancery has addressed the preclusive effect of a dismissal for failure to adequately plead demand futility under Rule 23.1 from another jurisdiction on a pending stockholder complaint in Delaware.