On September 19, 2016, Vice Chancellor Travis Laster of the Delaware Court of Chancery denied a fee application submitted by Preferred Spectrum Investments, LLC (“PSI”), a third-party that had funded successful shareholder litigation against Preferred Communication Systems, Inc. (“PCSI”).  Judy v. Preferred Communication Systems, Inc., Consol. C.A. No. 4662-VCL (Del. Ch. Sept. 19, 2016).  In rejecting PSI’s application, the Court held that litigation financiers that are not parties to the action lack standing to seek a fee award under Delaware’s “common benefit doctrine,” and that “parties cannot obtain an equitable fee award when they use litigation in support of a takeover.”

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On August 31, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery granted in part and denied in part a motion to dismiss derivative claims against eleven directors of Duke Energy Corp. (“Duke”).  In re Duke Energy Corp. Derivative Litig., No. 7705-VCG, 2016 WL 4543788 (Del. Ch. Aug. 31, 2016).  The Court made two key rulings: 1) some, but not all, of plaintiffs’ claims were precluded by a prior ruling by a North Carolina court; and 2) for the non-precluded claims, plaintiffs adequately alleged demand futility.  

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On August 31, 2016, Judge Abigail LeGrow, sitting by designation on the Delaware Court of Chancery, held that Pfizer, Inc. (“Pfizer”) did not need to make its books and records available for inspection to a shareholder purportedly investigating whether the board breached its fiduciary duties by failing to comply with applicable accounting standards.  Beatrice Corwin Living Irrevocable Trust v. Pfizer, Inc., C.A. No. 10425-JL (Del. Ch. Aug. 31, 2016).  In rejecting this shareholder demand pursuant to Section 220 of the Delaware General Corporation Law (“DGCL”), the Court found that the shareholder had not shown any “credible basis to infer mismanagement or wrongdoing by the board.”

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On August 24, 2016, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed a shareholder action seeking post-merger damages for breach of fiduciary duty against the directors and officers of C&J Energy Services, Inc..  City of Miami General Employees and Sanitation Employees Retirement Trust v. Jerry M. Comstock Jr., et al., C.A. No. 9980-CB (Del. Ch. August 24, 2016) (“C&J”).  The Court held that allegations that the majority of the board was interested in the transaction during its consideration were insufficient to rebut the business judgment presumption that applied once a majority of shareholders voted to approve the transaction.  The following day, on August 25, 2016, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery dismissed an action brought by former shareholders of Auspex Pharmaceuticals, Inc. for breach of fiduciary duty against the company’s directors and officers, which was also based on a sale of the company that had been overwhelmingly approved by the company’s shareholders.  Larkin v. Shah, C.A. No. 10918-VCS (Del. Ch. Aug. 25, 2016) (“Auspex”).  Both decisions turned on the  application of the Delaware Supreme Court’s decision in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), which held that the business judgment rule applies to a court’s review of a transaction that is approved by a majority of a company’s disinterested and uncoerced stockholders upon a fully informed vote.  

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On August 17, 2016, Judge George H. King of the United States District Court for the Central District of California denied a joint motion to vacate the court’s prior dismissal of a shareholder derivative action so that the court could approve a proposed settlement.  In re CytRx Corp. S’holder Deriv. Litig., 14-6414-GHK-PJW, Dkt. 109 (C.D. Cal. Aug. 17, 2016).  Judge King found no grounds for vacatur and openly questioned whether forum-shopping—specifically, an attempt to avoid the Delaware Court of Chancery’s scrutiny of a proposed settlement—motivated the parties’ attempt to revive the California action.  This ruling highlights the impact of the Chancery Court’s increasing disfavor towards disclosure-only settlements of shareholder actions, and the alertness of other forums to litigants’ efforts to “avoid the glare of the Delaware Chancery Court’s spotlight.” 

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On August 11, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery relied on his own discounted cash flow (“DCF”) analysis to determine the fair value of ISN Software Corp. (“ISN”) in an appraisal action brought by two minority shareholders following the merger of ISN with its wholly-owned subsidiary.  In re ISN Software Corp. Appraisal Litig., C.A. No. 8388-VCG (Del. Ch. Aug. 11, 2016).  In so ruling, the Court rejected not only the valuation advocated by ISN’s expert but also the valuations espoused by the minority shareholders’ experts, noting that “[i]n a competition of experts to see which can generate the greatest judicial skepticism regarding valuation . . . this case, so far, takes the prize.”  

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On August 4, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery awarded counsel to shareholders of an acquired company $50,000 in attorneys’ fees—less than 20 percent of their requested fee award—in a mootness proceeding.  In re Xoom Corp. Stockholder Litig., C.A. No. 11263-VCG (consol.) (Del. Ch. Ct. Aug. 4, 2016).  The Xoom decision signals that despite the Court’s previously expressed openness to awarding attorneys’ fees to plaintiffs’ counsel for securing supplemental disclosures in the mootness context, see In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884, 898-99 (Del. Ch. 2016), that it will still heavily scrutinize the “get” part of the equation—i.e., the benefit of the additional disclosures to shareholders—even when there is no “give” (i.e., a broad class-wide release of claims) against which to weigh it.

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On August 10, 2016, a divided panel of the Seventh Circuit Court of Appeals reversed a district court judge’s approval of a disclosure-only settlement in a putative stockholder class action challenging the acquisition by Walgreen Co. (“Walgreens”) of Alliance Boots Gmbh (“Boots”).  In re Walgreen Co. Stockholder Litig., No. 15-3799 (7th Cir. Aug. 10, 2016).  Writing for the majority, Judge Richard Posner rejected the proposed settlement, which contemplated $370,000 in plaintiffs’ attorneys’ fees in exchange for six additional disclosures to the stockholder class, finding it “inconceivable” that the new disclosures actually benefited the class.

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On July 28, 2016, Vice Chancellor Sam Glasscock III of the Delaware Chancery Court largely denied motions to dismiss a breach of fiduciary suit brought by former minority stockholders of Riverstone National, Inc. (“Riverstone”) against CAS Capital Ltd. (“CAS”), the majority stockholder of Riverstone, the Riverstone board (“Director Defendants”), and, nominally, Riverstone.  In re Riverstone Nat’l, Inc. Stockholder Litig., Consol. C.A. No. 9796-VCG (Del. Ch. July 28, 2016).  The Court applied the entire fairness standard to the merger because plaintiffs alleged that the Director Defendants usurped corporate opportunities and then caused Riverstone to enter into a merger with Greystar Real Estate Partners (“Greystar”) to extinguish said claims (the “Usurpation Claims”).  Applying Delaware’s “reasonably conceivable” pleading standard, the Court held that plaintiffs adequately pleaded a claim for breach of loyalty in connection with the approval of the merger.

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On August 1, 2016, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Chancery Court granted a motion to dismiss “Caremark” claims against directors of Qualcomm, Inc. for failure to plead that demand on the board of directors was futile, finding that the complaint failed to set forth particularized allegations of fact supporting an inference that a majority of the board faced a substantial likelihood of personal liability.  Melbourne Mun. Firefighter’s Pension Trust v. Paul E. Jacobs, et al. and Qualcomm, Inc., C.A. No. 10872, memo. op. (Del. Ch. Aug 1, 2016).  The complaint alleged that directors and officers of Qualcomm consciously disregarded antitrust enforcement actions in several international jurisdictions, ignored red flags regarding the firm’s compliance with international antitrust laws, and failed to remedy its business practices to comply with international antitrust laws, resulting in the imposition of fines and judgments against the company from multiple regulators in a number of jurisdictions, including a $975 million fine issued by the National Development and Reform Commission of the People’s Republic of China. 

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On July 18, 2016, a unanimous panel of the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of a shareholder derivative action against Wynn Resorts, Limited (“Wynn Resorts”) and eleven individuals—including Steve Wynn—who sit or sat on its board of directors.  La. Mun. Police Employees’ Retirement Sys. v. Wynn, __ F. 3d __, No. 14-15695, 2016 WL 3878228, (9th Cir. July 18, 2016).  Its ruling confirmed that the federal courts may dismiss, sua sponte, a “stateless” defendant if necessary to perfect their diversity jurisdiction; that trial court determinations regarding demand futility are reviewed for abuse of discretion in the Ninth Circuit; and that plaintiffs alleging demand futility must plead their case with particularity.   

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On July 19, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed most (but not all) breach of fiduciary duty counterclaims asserted by a sports apparel startup against its former director, Yankees baseball great Derek Jeter.  Jeter v. RevolutionWear, Inc., C.A. No. 11706-VCG (Del. Ch. Ct. Jul. 19, 2016).  The decision highlights that directorial fiduciary duties cannot be expanded by contract.  Specifically, the Court held that Jeter’s alleged contravention of certain marketing-related obligations that were part of his director agreement with the company, RevolutionWear, Inc. (“RWI”), did state a claim for breach of fiduciary duty because such contractual obligations “do not alter the fiduciary obligations of the director” even though they “may give rise to breach-of-contract claims.”  

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On July 15, 2016, Judge Naomi Buchwald of the United States District Court for the Southern District of New York granted partial summary judgment to defendant Cowen & Company, LLC (“Cowen”) on successor liability claims brought by Energy Intelligence Group, Inc. and Energy Intelligence Group (UK) Limited (together, “EIG”).  Energy Intelligence Grp., Inc. v. Cowen & Co., No. 14-cv-03789 (S.D.N.Y. July 15, 2016).  The Court held that the assignment of the assets of Dahlman Rose & Company LLC (“Dahlman”) to Cowen following the acquisition of Dahlman by Cowen’s parent company, Cowen Group, did not create successor liability for alleged copyright infringement by Dahlman.  In so holding, the Court rejected the plaintiffs’ argument that two exceptions to the rule against successor liability for the assignment of assets applied, namely that Cowen had either expressly assumed Dahlman’s tort liability or that the acquisition was a de facto merger.

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On July 8, 2016, Chancellor Andre Bouchard of the Delaware Court of Chancery granted a petition for appraisal of former stockholders of DFC Global Corporation (“DFC”) at a “fair value” of $10.21 per share, rather than the price ($9.50 per share) at which DFC was acquired by a private equity fund in June 2014.  In re Appraisal of DFC Global Corp., C.A. No. 10107-CB (Del. Ch. July 8, 2016).  The judicially-determined appraisal value reflects an equally weighted blend of (1) a discounted cash-flow analysis, (2) a comparable company analysis, and (3) the actual transaction price of the deal. 

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On June 30, 2016, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery dismissed a breach of fiduciary duty action brought by former shareholders of Volcano Corporation against the company’s board of directors and financial advisor. In re Volcano Corp. Stockholder Litig., No. CV 10485-VCMR, 2016 WL 3583704 (Del. Ch. June 30, 2016). The Court held that because a fully informed majority of stockholders had tendered their shares during the first step of a two-step merger, the business judgment rule applied to the board’s decision to approve the merger. 

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On June 24, 2016, Vice Chancellor Sam Glasscock III of the Delaware Chancery Court issued a memorandum opinion denying a request by plaintiff The Williams Companies Inc. (“Williams”) to enjoin defendant Energy Transfer Equity L.P. (“ETE”) from terminating its merger agreement with Williams.  Williams Cos. v. Energy Transfer Equity, L.P., C.A. No. 12168-VCG, memo op. (Del. Ch. June 24, 2016).  Vice Chancellor Glasscock held that ETE was contractually entitled to terminate the merger because a mutual condition precedent—the issuance of a tax opinion by ETE’s counsel, Latham & Watkins LLP (“Latham”), that the transaction should receive tax-free treatment under Section 721(a) of the Internal Revenue Code (the “721 Opinion”)—was not satisfied.  Central to the decision was the Vice Chancellor’s conclusion that Latham’s determination was made in good faith.  Although Williams has appealed the decision, ETE terminated the merger as of June 29, 2016.

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On June 21, 2016, Chancellor Andre G. Bouchard of the Delaware Court of Chancery accepted a custodian’s plan for a judicially ordered sale of a company over the objections of one of the three shareholders of the company, but rejected a proposal to impose expanded non-compete obligations on selling shareholders.  See In re TransPerfect Global, Inc, et al., C.A. Nos. 9700, 10449-CB, Letter Op. (Del. Ch. June 21, 2016).  Specifically, the Court held that the plan “address[ed] the dual goals of maintaining the Company as a going concern and maximizing stockholder value” but that “it would not be appropriate to impose non-competition or non-solicitation restrictions on a selling stockholder as a condition of the sale of the Company absent evidence of wrongdoing.”  

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On June 15, 2016, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed a derivative action against current and former directors of Lululemon Athletica, Inc., finding that plaintiffs’ claims were precluded by a previous dismissal of similar allegations in a New York based action.  Laborers District Council Constr. Indus. Pension Fund v. Bensoussan et al., C.A. No. 11293-CB (Del. Ch. June 14, 2016).

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On June 14, 2016, Judge Jorge Alonso of the United States District Court for the Northern District of Illinois denied the Federal Trade Commission’s (“FTC”) motion for a preliminary injunction against the merger of Advocate Health Care (“Advocate”) and NorthShore University HealthSystem (“NorthShore”), which operate hospitals in Chicago’s northern suburbs. Order, Federal Trade Comm’n v. Advocate Health Care Network, No. 15 C 11473 (N.D. Ill. June 14, 2016), ECF No. 472. The Order held that the FTC failed to show a likelihood that it would succeed on the merits of its antitrust claims.

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Under well-established Delaware law, a plaintiff seeking to pursue a shareholder derivative suit on behalf of the corporation must first either (a) make a demand on the company’s board of directors and have such demand wrongfully refused or (b) establish that such a demand would be futile.  Shareholder plaintiffs that opt for the latter approach often claim that the majority of directors who would have been tasked with deciding whether the company should act upon their demands were (or are) unable to reliably exercise their business judgment on the company’s behalf, particularly in cases where the lawsuits would target those same board members.

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Vice Chancellor Laster of the Delaware Chancery Court recently issued an important opinion in In Re: Appraisal of Dell Inc. C.A. No. 9322-VCL (May 31, 2016), holding that merger consideration offered to Dell, Inc’s common stockholders did not reflect the “fair value” of Dell’s shares. The decision will require the company to pay dissenting stockholders a 28% premium as compared to the consideration that was received by stockholders who did not exercise their appraisal rights. The opinion is notable for several reasons, including because the Court declined to accept that the negotiated market price for the deal was the best available indication of the fair value of the company. Instead, the Court challenged the accuracy of prevailing stock market valuations of Dell, and after criticizing several aspects of the sale process, ultimately concluded that neither the stock price nor the price negotiated during the sale process fairly reflected the fair value of the company. 

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Vice Chancellor Laster of the Delaware Chancery Court enjoined certain directors of Cogentix Medical, Inc. from implementing a plan to reduce the size of the Company’s board to defeat a proxy fight.  Pell v. Kill, C.A. No. 12251-VCL (Del. Ch. May 19, 2016).  The opinion’s application of Delaware’s standard for reviewing director action that affects shareholder voting strongly favors protecting stockholder voting rights.

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In a recent Delaware Chancery Court decision, In re Chelsea Therapeutics International Ltd. Stockholders Litigation, C.A. No. 9640-VCG (Del. Ch. May 20, 2016), Vice Chancellor Glasscock explained that the good faith requirement of the duty of loyalty offers an equity judge a “fiduciary out” to the application of the business judgment rule.  According to the Vice Chancellor, the court can consider the presence of “bad faith” in connection with a board decision, even if the directors were disinterested and independent.  But consideration of “bad faith” in this context is relevant only in the rare instance where the nature of the board action cannot be understood to be in the corporate interest.  In this case, the court rejected plaintiffs’ “pursuit of that rare bird,” dismissing the claims brought by representative stockholders.

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On May 24, 2015, the Delaware Supreme Court ruled that former stockholders’ claims against a corporation, under New York or Florida law, for damages allegedly caused by holding already-purchased stock in reliance on purported misrepresentations constitute direct claims.  Citigroup Inc. v. AHW Invest. P’ship, MFS, Inc., No. 614 2015 (“AHW”).  This ruling addressed a certified question from the Second Circuit Court of Appeals, which sought guidance on whether so-called “holder claims” were direct or derivative in nature.  The ruling is most notable because the court expressed reservations about the validity of holder claims under Delaware law, although it did not decide the issue.

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The federal government has enjoyed a recent string of successful challenges to proposed mergers on antitrust grounds.  These have ranged from the blocking of the combination of Staples and Office Depot by the United States District Court for the District of Columbia earlier this month to the abandonment of merger plans by Time Warner Cable and Comcast, as well as Halliburton and Baker Hughes, in the wake of government scrutiny.  But this trend was interrupted when Judge John E. Jones III of the United States District Court for the Middle District of Pennsylvania denied a motion for a preliminary injunction brought by the Federal Trade Commission (“FTC”) and the Pennsylvania Attorney General against the proposed merger of two Harrisburg-area hospital groups.

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The Delaware Chancery in In re Wal-Mart Stores, Inc. Del. Deriv. Litig., C.A. No. 7455-CB (Del. Ch. May 13, 2016) dismissed derivative litigation on issue preclusion grounds after another court dismissed a competing derivative action. 

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The Delaware Chancery in In re Appraisal of Dell Inc., C.A. No. 9322-VCL (Del. Ch. May 11, 2016) considered whether mutual funds who were beneficial owners of Dell shares could pursue an appraisal action in the face of evidence showing that the shares were mistakenly voted in favor of a merger by an intermediary custodial bank.  The court ruled that the petitioners were barred from seeking an appraisal and, in so holding, provided a helpful framework for the burden-shifting analysis for proof of compliance with appraisal statute requirements.

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The ongoing trend of companies in a wide range of industries seeking to grow quickly by acquiring competitors has increasingly been met with government resistance over the past few years.  For example, approximately one year ago, cable and broadband provider Comcast abandoned its plans to acquire Time Warner Cable in the wake of scrutiny from Department of Justice antitrust regulators.  And earlier this month, oilfield-services giants Halliburton and Baker Hughes announced that they would walk away from their $30 billion merger in the face of opposition from antitrust regulators (which requires payment by Halliburton to Baker Hughes of a $3.5 billion breakup fee).  Last week, Judge Emmet Sullivan of the United States District Court for the District of Columbia sided with the Federal Trade Commission (“FTC”) and entered a preliminary injunction blocking the combination of the country’s two largest office supply retailers, Staples and Office Depot, after holding a two-week trial.

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On Friday, May 6, an en banc Delaware Supreme Court affirmed the Delaware Court of Chancery’s dismissal with prejudice of a claim against Merrill Lynch, Pierce, Fenner & Smith (“Merrill Lynch”) for aiding and abetting a breach of fiduciary duty while serving as financial advisor to Zale Corp. (“Zale”) in its sale to Signet Jewelers (“Signet”).  Singh v. Attencorough, No. 645, 2015 (Del. May 6, 2016) (en banc).  The decision has significant implications for (i) the effect of stockholder approval of a merger on the standard of review and (ii) investment banker conflicts. 

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On May 5, 2016, in In the Matter of Kenneth Cole Productions, Inc., Shareholder Litigation, No. 54, 2016 WL 2350133 (N.Y. May 5, 2016), the New York Court of Appeals adopted Delaware’s standard of review of shareholder class actions challenging going-private mergers.  Specifically, New York courts are now required to evaluate board approval of such mergers under the deferential “business judgment rule”—provided certain shareholder-protective conditions are present. 

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In Peter Brinckerhoff v. Enbridge Energy Company, Inc., et al., C.A. No. 11314-VCS, memo. op. (Del. Ch. Apr. 29, 2016), newly appointed Vice Chancellor Slights of the Delaware Chancery Court dismissed class and derivative claims brought by an investor in a master limited partnership, Enbridge Energy Partners, L.P. (the “MLP”), against the general partner, Enbridge Energy Company, Inc., and its controlling parent (together, “Enbridge”), and Enbridge’s affiliates and directors.  This opinion is the latest in a series of Delaware court decisions reinforcing that, under Delaware law, “a limited partnership agreement may eliminate the fiduciary duties owed by the general partner to the partnership and its limited partners in favor of” specifically delineated contractual obligations. 

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On May 5, 2016, the New York Court of Appeals ruled that courts should apply the business judgment rule in shareholder lawsuits challenging going-private mergers, as long as shareholders were adequately protected—a decision that expressly follows the approach of the Delaware Supreme Court in its seminal case, Kahn et al. v. M&F Worldwide, 88 A.3d 635 (Del. 2014) (“MFW”). In the Matter of Kenneth Cole Productions Inc. S’holder Litig., No. 54, 2016 WL 2350133 (N.Y. May 5, 2016) (“KCP”). KCP marks the first time that New York’s highest court determined that the business judgment rule should apply in such situations. 

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A unanimous Delaware Supreme Court criticizes directors’ use of deceptive “Pearl Harbor-like” tactics against another director, even in the name of protecting the company from perceived misconduct.   OptimisCorp v. Waite, No. 523, 2015 (Apr. 25, 2016).

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The Delaware Supreme Court is the latest court to weigh in on the increasingly contentious question of whether a foreign corporation’s compliance with a state’s statutory registration requirements amounts to a broad consent to general personal jurisdiction within that state.  Writing for the majority in a rare 4-1 split decision, Chief Justice Strine held that it would be “unacceptably grasping” in today’s economy to require foreign corporations to acquiesce to Delaware’s exercise of general jurisdiction as a price of doing business in the state.  In so ruling, the Court partially overruled its own decision in Sternberg v. O’Neil, 550 A.2d 1105 (Del. 1988), which held that registering to do business in the state pursuant to 8 Del. C. § 371 and designating an agent for service of process pursuant to 8 Del. C. § 376 amounted to “actual consent” to Delaware’s exercise of general jurisdiction.

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The newest Vice Chancellor on the Chancery Court, Vice Chancellor Joseph R. Slights, will be formally installed by public investiture on Friday, May 13, 2016 and recently tackled the rarely discussed “pecuniary duty” in denying from the bench defendants’ motion to dismiss in Herbert Caskey, MD v. OpKo Health Inc. 

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