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In Swipe Acquisition Corp. v. Krauss, CA No. 2019-0509-PAF, 2021 WL 282642 (Del. Ch. Jan. 28, 2021), the Delaware Court of Chancery held that California public policy prohibited a purported waiver of a contractual party’s right to assert a claim under the California Securities Act by reason of a Delaware choice of law provision in the parties’ stock purchase agreement.  Delaware courts will not enforce a choice of law provision if it would be contrary to a fundamental policy of the state whose law would apply but for the choice of law provision (here, California).  California law prohibits contractual waivers of the California Securities Act unless the party seeking to enforce the waiver can show that it will not diminish the plaintiff’s statutory rights under California law.  The Court held that because the plaintiff could not assert a claim under the Delaware Securities Act (due to a lack of nexus with Delaware), and none of the plaintiff’s other claims would provide the same as or greater rights than its California Securities Act claim, enforcing the choice of law provision would be contrary to California’s public policy.  Swipe Acquisition thus further defines the contours of a party’s ability to waive its rights under the California Securities Act by way of a choice of law provision.
Continue Reading Delaware Court of Chancery Holds that a Contractual Delaware Choice of Law Provision Did Not Waive Plaintiff’s Claim Under the California Securities Act

In Yates v. Municipal Mortgage & Equity, LLC, No. 12-2496 (4th Cir. Mar. 7, 2014), the United States Court of Appeals for the Fourth Circuit affirmed the dismissal of a securities fraud claim under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78(b), against defendant Municipal Mortgage & Equity (“MuniMae”) and its individual officer and director defendants.  The Court held that plaintiffs failed to plead facts sufficient to give rise to a strong inference of defendants’ scienter under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4, et seq.  The Court declined to accept that the inference of scienter offered by plaintiffs — supported by statements from confidential witnesses, presence of red flags, allegations of insider trading and general business incentives — was at least as compelling as the opposing inference of mere negligence that could be drawn from the amended complaint.  Yates is one of the few reported decisions from the Fourth Circuit applying the PSRLA, and it solidly reaffirms the PSLRA’s requirement that a plaintiff plead more than just allegations based upon conjecture and happenstance to satisfy heightened pleading requirements.
Continue Reading Fourth Circuit Affirms Dismissal of Securities Fraud Complaint Where Inference of Scienter Was Not Sufficiently Strong

In American Capital Acquisition Partners, LLC v. LPL Holdings, Inc., CA NO. 9490-VCG, 2014 WL 354496 (Del. Ch. Feb. 3, 2014), the Delaware Court of Chancery applied the implied covenant of good faith and fair dealing to a merger agreement’s contingent purchase price provision.  The court held that under the implied covenant an acquiring entity must refrain from diverting revenue streams from its subsidiary post-merger in a manner that would depress the payment under the contingent purchase price provision.  The court also held, however, that the implied covenant did not require an acquiring entity actively to maximize revenue streams absent the inclusion of a best efforts provision in the merger agreement.  American Capital Acquisition Partners defines the contours of the implied covenant of good faith and fair dealing as applied to an acquiring entity’s actions affecting the application of a contingent purchase price provision in a merger agreement.
Continue Reading Delaware Court of Chancery Applies Implied Covenant of Good Faith and Fair Dealing to Prohibit An Acquiring Entity From Diverting Revenues to Depress Payouts Under a Contingent Purchase Price Provision