Case Law Developments

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When the directors of a public company lose confidence in their chief executive officer and choose to remove him or her, the communication of that message is typically a highly choreographed affair.  A recent decision of the Delaware Supreme Court, sitting en banc in Klaassen v. Allegro Development Corp., provides the opportunity to review some basics of Delaware board process and highlights the need to be careful about both a Delaware law technicality involving the difference between regular and special board meetings, and what should be a more common sense aversion to the use of deception in the choreography. 
Continue Reading Terminating the CEO: Some Practice Tips from the Delaware Supreme Court

It is now clear that, for Delaware companies, a charter or by-law forum selection clause (FSC) is a valid and promising response to the problems posed by multi-jurisdictional disputes involving claims based upon internal corporate affairs (such as M&A litigation and derivative actions).  Three recent rulings by “foreign” courts – each of which granted motions to dismiss based upon an FSC selecting Delaware as the exclusive forum – show that foreign courts will respect and enforce these clauses. 
Continue Reading Forum Selection Clauses in the Foreign Court

(1) The problems posed by multi-jurisdictional disputes involving claims based on internal corporate affairs (such as M&A litigation and derivative actions) are pervasive and profound,

(2) Forum selection clauses (FSCs) offer a promising solution to these problems, and

(3) The efficacy of this solution is materially enhanced by the further adoption of a consent to jurisdiction clause that permits the defendants to enforce the FSC in the chosen forum.[1] 
Continue Reading Further Enhancing the Promise of Forum Selection Clauses Through Stockholder Consent to Jurisdiction: The Edgen Lesson

The multiplicity of cases brought on behalf of the same stockholder group (or as derivative actions) against the same defendants based on the same conduct and asserting the same fiduciary duty claims is now well documented. The benefits of consolidating such litigation in a single forum have also been well established.
Continue Reading Enhancing the Promise of Exclusive Forum Clauses by Having Stockholders Consent to the Jurisdiction of the Selected Forum

In a much anticipated decision, the Delaware Chancery Court upheld on June 25, 2013 the validity of the forum selection bylaws adopted by the boards of directors of FedEx Corporation (“FedEx”) and Chevron Corporation (“Chevron”). Such bylaws provide that stockholders bringing derivative claims or claims alleging breaches of fiduciary duties, arising from the Delaware General Corporate Law (the “DGCL”) or otherwise implicating the internal affairs of the corporation be brought exclusively in Delaware state or federal courts.
Continue Reading Should Your Company Adopt A Forum Selection Bylaw?

Chancellor Leo Strine’s opinion in In re MFW Shareholders Litigation (Del Ch. May 29, 2013) marks the culmination of an effort by the Chancellor, going back to his lengthy dicta in In re Cox Communications Shareholders Litigation (Del Ch. 2005), to arrive at a more unified standard for review of buy-outs of a company’s public float by a controlling stockholder.  The headline conclusion is that, assuming this decision is not reversed by the Delaware Supreme Court on appeal, controlling stockholder buyouts structured as negotiated mergers may now join controlling stockholder buyouts that take the form of unilateral tender offers in having available a theoretical path that permits challenges to be dismissed on pre-trial motions.
Continue Reading Controlling Stockholder “Going Private” Transactions after In Re MFW: Reasons to Be Wary of the Path to the Business Judgment Rule

A recent opinion of the Delaware Chancery Court, Seinfeld v. Slager,[1] addresses the legal standard applicable to directors’ decisions about their own pay under Delaware law, an important topic as to which there is little prior law.  In an opinion by Vice Chancellor Glasscock, the Court held that a derivative claim alleging that directors breached their fiduciary duties by granting themselves excessive compensation survived a motion to dismiss.[2]  In so concluding, the Court also found that the directors’ action did not have the protection of the business judgment rule and was instead subject to “entire fairness” review.
Continue Reading Delaware Case Raises Question About Structuring Director Compensation

In its recent decision regarding the acquisition of El Paso Corporation by Kinder Morgan, Inc.,[1] the Delaware Chancery Court concluded that El Paso’s sale process may have been tainted by conflicts of interest affecting the company’s CEO and financial advisors.  The court nevertheless denied plaintiffs’ request for a preliminary injunction on the grounds that enjoining the deal in the absence of a competing bid would pose a significant risk for El Paso shareholders who would have their own chance to judge the merits of the deal at a shareholder meeting.  The opinion, authored by Chancellor Strine, provides guidance, and simultaneously raises a number of questions, regarding how to approach relationships and interests that risk giving rise to conflict of interest allegations against directors, officers and financial advisors involved in a sale of control.
Continue Reading The El Paso/Kinder Morgan Opinion: Further Delaware Guidance on Sell-side Conflicts

In In re Del Monte Foods Company Shareholders Litigation,* Vice Chancellor Travis Laster preliminarily enjoined a shareholder vote on an acquisition of Del Monte Foods by a group of private equity firms based on a preliminary finding that the sales process was tainted by the misconduct of the company’s investment banker, with the knowing participation of the buyers.  While the company had already mooted the plaintiffs’ disclosure claims through a supplemental proxy statement, the court delayed the vote for a period of 20 days, during which time the “no shop”, break-up fee and matching right provisions of the merger agreement would not apply, in order to enable competing bidders to make proposals.
Continue Reading Lessons of Del Monte Foods For Companies Running (or Considering) a Sale Process

In a May 25, 2010 decision, In re CNX Gas Corporation Shareholders Litigation, the Delaware Chancery Court raised the bar for controlling stockholders seeking to acquire a controlled subsidiary.  Examining a two-step transaction (a unilateral tender offer followed by a short-form merger), the court held that the claims against controlling stockholders in connection with such acquisitions will be entitled to review under the deferential business judgment rule (as opposed to the stricter “entire fairness” standard) only if the offer both (1) is affirmatively recommended by an independent special committee that has been delegated full authority of the board with respect to the offer and (2) contains a satisfactory “majority-of-the-minority” condition.  Contrary to long-standing Delaware Supreme Court precedent, the court also stated that, if these standards were satisfied, a going private transaction structured by a controlling stockholder as a long-form merger should also be subject to review under the business judgment rule.  The decision has important implications for controlling stockholders and their advisors in structuring and carrying out going private transactions.
Continue Reading Delaware Court of Chancery Revisits Standard for Going Private Transactions with Controlling Stockholders