In In re Investors Bancorp, Inc. Stockholder Litigation, No. 169, 2017, 2017 WL 6374741 (Del. Dec. 13, 2017), the Delaware Supreme Court limited the ability of directors to assert the stockholder ratification defense when facing a challenge to their implementation of equity incentive plans (“EIP”). When properly invoked, the stockholder ratification defense entitles directors to have a court review their conduct under the more deferential business judgment rule standard, rather than the more stringent “entire fairness” standard. The Delaware Supreme Court held that where stockholders approve an EIP containing general parameters that afford directors discretion to determine specific awards, and their exercise of discretion is properly challenged as a breach of fiduciary duty due to alleged self-dealing, a board must prove that its actions were entirely fair to the corporation and its stockholders. This ruling has the important effect of shifting the burden from complainant stockholders to defending directors and subjects their awards of grants to stricter scrutiny.
Continue Reading Delaware Supreme Court Imposes New Limits on Stockholder Ratification Defense In Connection With Equity Incentive Plans

In Frechter v. Zier, C.A. No. 12038-VCG, 2017 WL 345142 (Del. Ch. Jan. 24, 2017) (Glasscock, V.C.), the Delaware Court of Chancery granted plaintiff’s motion for summary judgment on a declaratory relief claim and held that 8 Del. C. § 141(k) prohibits company bylaws from requiring more than a majority vote to remove directors from a company’s board.  The Frechter decision confirms that company bylaws may not impose requirements or implement procedures that conflict with 8 Del. C. § 141(k). 
Continue Reading Delaware Court of Chancery Rejects Bylaw That Required Supermajority Stockholder Vote to Remove Directors in Violation of 8 Del. C. § 141(k)

In AP Services, LLP v. Lobell et. al, No. 651613/2012, 2015 NY Slip Op 31115(U) (N.Y. Sup. Ct. June 19, 2015) (argued Feb. 21, 2014), Justice Friedman, applying Delaware Law, denied a motion to dismiss plaintiff AP Services, LLP’s first cause of action alleging breach of fiduciary duty against the defendants, former directors of Paramount Acquisition Corp., while granting dismissal of the second cause of action against them for allegedly aiding and abetting the breach of fiduciary duty.
Continue Reading Justice Friedman Allows Breach of Fiduciary Duty Claim to Proceed Against Corporate Directors Under Delaware Law

In Justinian Capital SPC v. WestLB AG, etc. et al., 2015 N.Y. Slip Op. 04381 (1st Dep’t May 21, 2015), the Appellate Division affirmed the February 25, 2014 decision of the New York County Supreme Court, Commercial Division (Kornreich, J.), 43 Misc. 3d 598, holding that actual payment for the transfer of rights to a legal claim is required in order to qualify for the champerty doctrine’s safe harbor provision.
Continue Reading Pay to Play: Appellate Division Upholds Ruling that Payment is Required to Qualify for Champerty Safe Harbor Provision

In Hill International, Inc. v. Opportunity Partners L.P., No. 305, 2015, 2015 WL 4035069 (Del. July 2, 2015), the Delaware Supreme Court affirmed the Court of Chancery’s grant of injunctive relief as it recognized the plaintiff stockholder’s — as opposed to defendant corporation’s — interpretation of a bylaw as its plain meaning interpretation.  In so holding, both courts reinforced the importance of clear and precisely drafted corporate charter and bylaw provisions, as well as specifically drafted notices of annual meetings of stockholders.
Continue Reading Delaware Supreme Court Reinforces Importance of Clear and Precise Bylaw Provisions and Specifically Drafted Notices of Annual Meetings

A ruling last fall by the Delaware Chancery Court has prompted a wave of 8 Del. C. § 220 books and records inspection demands on (and threatened litigation against) Delaware corporations that have entered into credit agreements containing so-called “dead hand proxy put” provisions.  A “dead hand proxy put” provision allows the corporation’s lenders to demand immediate payment of all outstanding debt if, within a specified measuring period, a majority of incumbent board members is replaced in a threatened or actual contested election.  In Pontiac General Employees Retirement System v. Healthways, Inc., C.A. No. 9789-VCL (Del. Ch. Oct. 14, 2014) (transcript ruling), the Court declined to dismiss a breach-of-fiduciary-duty challenge to a “dead hand proxy put,” even where the exercise of the provision was not imminent.  The Court held that the complaint adequately alleged facts showing the provision had caused a present injury to the corporation’s stockholders by deterring a possible stockholder-led proxy contest.  Other than the facts alleged, the ruling left uncertain the attendant circumstances needed to state a mature “dead hand proxy put” claim.  As a result, all public company boards with credit agreements containing “dead hand proxy puts” now face Section 220 books and records inspection demands, and potential litigation.
Continue Reading “Dead Hand Proxy Puts” Garner Increased Stockholder Scrutiny In Delaware

In Quadrant Structured Products Co., Ltd. v. Vertin, C.A. No. 6990-VCL, 2015 WL 2062115 (Del. Ch. May 4, 2015), the Delaware Court of Chancery held that a creditor plaintiff needs only establish that a corporation was insolvent at the time the suit was filed in order to establish standing to sue derivatively on behalf of the corporation.  Creditors do not need to show that the corporation was continuously insolvent throughout the litigation to maintain standing, nor do they need to show that the corporation was “irretrievably insolvent.”  The decision clarifies a murky area of Delaware law regarding creditor-led derivative suits and may further broaden the situations in which creditors can assert derivative breach of fiduciary duty claims.
Continue Reading Delaware Chancery Court Holds that Creditor Plaintiffs in Derivative Suits May Satisfy Standing Requirement by Showing Corporation’s Insolvency at Time of Suit, Regardless of Later Solvency

Two recent decisions, one from the Delaware Court of Chancery and one from the California Court of Appeal, Fourth Appellate District, refused to apply bylaws that impaired a shareholder/member plaintiff’s ability to pursue his or her claims against the corporation where the the relevant bylaw was adopted after the plaintiff’s claims accrued.
Continue Reading California and Delaware Courts Agree: Amendments to Corporate Bylaws Do Not Apply Retroactively to Impair Pursuit of Previously Accrued Claims

In United Technologies Corp. v. Treppel, No. 127, 2014, 2014 Del. LEXIS (Del. Dec. 23, 2014), the Delaware Supreme Court held that the Delaware Court of Chancery is authorized regulate how stockholders use information obtained through books and records inspections under Section 220 of the Delaware General Corporation Law (“Section 220”).  The defendant corporation, in opposing a stockholder’s Section 220 proceeding, had sought to bar the stockholder from using any obtained information in any legal action brought outside of Delaware.  The Vice Chancellor, however, expressed the belief that the Chancery Court lacked the statutory authority to impose such a restriction.  The Delaware Supreme Court reversed and identified the factors the Chancery Court should consider in exercising its discretion to impose the restriction on remand.  United Technologies reaffirms the Chancery Court’s important role in regulating books and records inspections in a manner that avoids inflicting unnecessary costs and burdens on corporations and their stockholders.
Continue Reading Delaware Supreme Court Confirms Chancery Court’s Broad Authority to Impose Use Restrictions on Information Obtained From Section 220 Books and Records Inspections

In Arduini v. Hart, 2014 WL 7156764 (9th Cir. Dec. 17, 2014), the United States Court of Appeals for the Ninth Circuit considered whether the doctrine of issue preclusion prevents a stockholder from relitigating a prior adverse determination concerning demand futility in derivative action brought by a different stockholder.  Applying Nevada law, the Court held that a subsequent stockholder cannot again litigate the issue of demand futility after prior adverse determination of the issue in an earlier derivative action concerning the same alleged wrongful conduct.
Continue Reading Ninth Circuit Holds that Under Nevada Law, a Prior Stockholder’s Litigation of Demand Futility Precludes Another Stockholder From Litigating Demand Futility In a Subsequent Derivative Action