Recent Corporate and Alternative Entity Decisions
Olson v. Halvorsen, et al., C.A. No. 1884-VCL, Lamb, V.C. (Del. Ch. Oct. 22, 2008). The Chancery Court, in granting summary judgment to the defendant partners of a hedge fund, held that the Statute of Frauds applies to LLC operating agreements, an issue that had never before been addressed by the Court. The Court stated that (1) an oral LLC agreement provision or multiple provisions that cannot possibly be performed within one year are unenforceable, and (2) provisions of an oral LLC agreement that could possibly be performed within one year will remain enforceable. Here, the plaintiff argued that an “earnout” provision could be performed within a year, but the Court found it unenforceable because it called for payments of the LLC income over multiple years, as well as other requirements of the LLC partners that the Court believed could not be performed within one year.
Comet Systems, Inc., et al. v. MIVA, Inc., C.A. No. 2793-VCL, Lamb, V.C. (Del. Ch. Oct. 22, 2008). In calculating an earnout as part of a merger agreement, the Court found that an employee bonus plan which paid out solely in the event of an acquisition or similar event was not the same as other bonuses to employees and thus constituted a “one time non-recurring” expense as stated in the agreement, and therefore should have been excluded from the merger agreement revenue performance calculation. The shareholders were therefore granted summary judgment, and paid the proper amount as re-calculated under the revenue goal of the agreement. Also, the Court ruled that the defendant owed the plaintiffs interest on the original payment because they failed to pay the amount in a reasonable amount of time (i.e. 90 days), where the right to payment vested in March of 2005 and payment did not occur until June of 2006.
HDS Investment Holding, Inc. v. The Home Depot, Inc., C.A. No. 3968-CC, Chandler, C. (Del. Ch. Oct. 17, 2008). In addressing several motions to dismiss, the Court narrowly interpreted an arbitration provision under New York law which gave an independent auditor the authority to arbitrate issues regarding post-closing purchase price adjustments. The Court found that the disputes regarding (1) the reimbursement of bonus and retention payments, (2) payment of cash left in deposits of the purchased corporation, and (3) whether the auditor could review the revised closing statement even though it was given the allotted time in the agreement, were all beyond the scope of the arbitration provision, and therefore for the Court to decide. The Court noted that it would not try to decide what the applicable amount for the purchase would be, since that fell within the arbitration clause. Finally, under Delaware law, the Court granted the plaintiff’s motion for a preliminary injunction enjoining arbitration until the resolution of the contractual claims before the Court.
Noe, et al. v. Kropf, et al., C.A. No. 4050-CC, Chandler, C. (Del. Ch. Oct. 15, 2008). The Court granted motions to intervene and to vacate an order to expedite proceedings by a contested stockholder in an action where the plaintiffs alleged that shares of the subject corporation, AmeriStar Network, were not validly issued, and that all actions by the defendants were void as matter of law under 8 Del. C. §§ 225 and 227. The Court reasoned that the stockholder could intervene because it had standing and a right to intervene under Chancery Court Rule 24(a), since the stockholder would be protecting its own interest by defending the actions of the contested board, and its actions were not otherwise represented because the defendant directors failed to appear.
In the Matter of Dow Chem. Int’l Inc. of Delaware, C.A. No. 3972-CC, Chandler, C. (Del. Ch. Oct. 14, 2008). The Court denied an application to appoint a receiver, where the petitioner was an attorney representing a group of plaintiffs seeking to pursue tort litigation against the corporation. The Court reasoned that 8 Del. C. § 278 did not apply because (1) the action did not meet the three-year window for suits against dissolved corporations since the corporation dissolved in 1988, and (2) the discretion granted the Chancery Court to continue corporate existence beyond the three-year period is only for the purpose of resolving pending litigation or disposing of remaining assets and the corporation here had no assets. Also, the Court held that 8 Del.C. § 279 only applies to shareholders and creditors when there are remaining assets.
Summaries prepared by The Delaware Counsel Group LLP® and submitted by Elissa Optsbaum Habbart, Esq.
If you would like to review a complete copy of the decisions or have any questions regarding this article, please contact The Delaware Counsel Group, LLP® by calling 302.576.9600. This article should not be relied upon as legal advice. Copyright © 2008 The Delaware Counsel Group, LLP.
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