In Re John Q. Hammons Hotels Inc. Shareholder Litig., C.A. No. 758-CC, Chandler, C. (Del. Ch. Oct. 2, 2009). Plaintiffs brought this class action seeking damages for the allegedly inadequate price paid for the publicly held Class A shares of John Q. Hammons Hotels, Inc. (the “Company”) arising out of a merger of the Company with a third party. Plaintiffs alleged that the consideration paid in the merger to John Hammons, the Company’s controlling stockholder, for his Class B stock unfairly favored him at the expense of the Class A stockholders, and claimed that Hammons and the Company board breached their fiduciary duties. The Court, on cross-motions for summary judgment, held that although the use of procedural protections for the minority shareholders could have resulted in the application of the business judgment rule, the procedures used were not sufficient and therefore the entire fairness standard of review was appropriate. The Court, however, denied the motions for summary judgment as to the fairness of price and fair dealing because of the existence of material factual issues.

In Re NYMEX Shareholder Litig.; Greene v. New York Mercantile Exchange, et al., C.A. Nos. 3621 and 3835, Noble, V.C. (Del. Ch. Sept. 30, 2009). These actions challenged the acquisition of NYMEX Holdings, Inc. by CME Group, Inc. Claims were brought by former shareholders of NYMEX and Class A Members (i.e. “seat holders”) of the NYMEX Exchange, a subsidiary of NYMEX. The Court granted defendants’ motion to dismiss the shareholder breach of fiduciary claims, finding that NYMEX’s 102(b)(7) exculpating provision protected the NYMEX directors from liability for duty of care breaches, that the shareholder plaintiffs did not sufficiently plead a breach of the duty of loyalty claim, and failed to sufficiently support their other breach of fiduciary claims. The Court also dismissed certain derivative claims which were brought as direct claims. The Court further dismissed the Class A Member fiduciary duty claims finding that the NYMEX Defendants did not owe fiduciary duties to the Class A Members. The Court also dismissed the remaining Class A Member claims based on a provision of the NYMEX Exchange bylaws.

City of Westland Police & Fire Retirement System v. Axcelis Technology, Inc., C.A. No. 4473-VCN, Noble, V.C. (Del. Ch. Sept. 28, 2009). The Court dismissed plaintiffs’ action under Section 220 of the General Corporation Law of Delaware for books and records of the defendant company, finding that the plaintiff failed to demonstrate a credible basis from which the Court could infer mismanagement, waste or wrongdoing as required to state a proper demand for books and records. The Court specifically noted as to one of plaintiffs’ claims, that plaintiff must point to something other than a precipitous drop in stock price to be granted Section 220 inspection rights.

Zrii, LLC v. Wellness Acquisition Group, Inc., C.A. No. 4374 – VCP, Parsons, V.C. (Del. Ch. Sept. 21, 2009). Plaintiff, a limited liability company, brought an action against members of the Company’s executive management team and contractors who were distributors of the Company’s products, for, among other matters, breach of contract and breach of fiduciary duty. In this decision, the Court of Chancery considered and granted Plaintiff’s motion for a preliminary injunction. Specifically, the Court found that Plaintiff had shown a reasonable probability of success on its civil conspiracy claim, its fiduciary duty claim, and its claim that defendants breached certain non-solicitation provisions in their contracts with the Company. The Court also found that the Company would suffer irreparable harm if defendants were not enjoined from recruiting the Company’s distributors and that the balance of equities favored Plaintiff. Thus, the Court granted an injunction against defendants for 3 months, enjoining them from disclosing trade secret information and recruiting Company distributors.

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.

Delaware Laws Governing Business Entities The essential resource for legal professionals who need quick and easy access to Delaware’s Annotated Business Statutes.

Even simple businesses like lemonade stands can require a business license. Corporation Service Company (CSC) can help you meet your Business License requirements. Visit www.cscglobal.com or contact a CSC customer representative at 800.927.9800 ext. 5077 to get started.

Are you up to date with your business licenses? Corporation Service Company (CSC) can help ensure that you are. Contact a CSC customer service representative at 800.927.9800 ext. 5077 or visit www.cscglobal.com for more information.

Business licenses are almost always required at municipal levels. Corporation Service Company (CSC) can help you determine your Business License needs. For more information visit www.cscglobal.com or contact a CSC customer service representative at 800.927.9800 ext. 5077.

JAKKS Pacific, Inc. v. THQ/JAKKS Pacific, LLC ,et al., C.A. No. 4295-VCL, Lamb, V.C. (Del. Ch. May 6, 2009).
After two joint-adventurers formed a limited liability company to exploit a video game license, the relationship soured, and one member instituted a broad books and records action against the joint venture LLC for the claimed purpose of valuing the venture and investigating wrongdoing. The Court of Chancery denied that request, holding that the plaintiff’s stated purposes were meaningless, highly speculative or unsupported by the facts. There was substantial uncertainty as to whether the underlying license would be renewed, making the books and records request irrelevant as there likely would be nothing left to value. In addition, plaintiff did not have a credible basis to support his suspicion of mismanagement or wrongdoing, as he presented unreliable witnesses to justify his claims. As the plaintiff could not state a proper purpose, his request was denied.

In Re NextMedia Investors, LLC, C.A. No. 4067-VCS, Strine, V.C. (Del. Ch. May 6, 2009). Petitioners, members of respondent limited liability company, sought summary judgment on their petition for judicial dissolution of the LLC and appointment of a liquidating trustee. Petitioners claimed their consent was required to amend the LLC agreement to extend the dissolution date of the LLC, as the agreement required consent from all members adversely affected and the extension of their investment horizon was such an adverse effect. The Court of Chancery granted their motion for summary judgment in part and ordered dissolution because the provision at issue was unambiguous and the Petitioners’ interpretation was reasonable. Any argument as to whether dissolution postponement was actually detrimental to Petitioners was irrelevant, as a change to the lifespan of the entity as proposed clearly altered an economically meaningful contractual term. The Court then denied Petitioners’ request for a liquidating trustee, holding that the company’s board of managers was responsible for liquidation, as it was in the best position to dissolve the entity’s affairs, and it could not be removed from that role without cause. Petitioners could, however, present their case for removal after full discovery and trial.

Nemec v. Shrader, et al., C.A. No. 3878-CC, Chandler, C. (Del. Ch. April 30, 2009). The Court of Chancery dismissed breach of fiduciary claims against defendant directors in connection with a retirement contract entered into between defendant Booz Allen Hamilton Inc. (the “Company”) and the Plaintiffs. Plaintiffs were long-tenured officers considered “founding fathers” of the Company’s modern business. Upon retiring, Plaintiffs’ held shares of stock and a two-year put right to have the Company buy any shares, after which the Company could redeem any shares at book value. Pursuant to the contract governing those stock grants, the Company subsequently bought back Plaintiff’s shares just before selling the Company to a private equity firm for a large premium. As a result of the redemption, the defendant directors added almost $6M to the proceeds they collectively received through the sale transaction. The Court dismissed Plaintiffs’ action because the directors had the bargained-for contractual right to redeem Plaintiffs’ shares and the exercise was not against reasonable business judgment. As such, a contract right does not necessarily create a fiduciary duty. In addition, the Court held that Booz Allen did not breach the implied covenant of good faith and fair dealing on the same general grounds.

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.

Delaware Laws Governing Business Entities The essential resource for legal professionals who need quick and easy access to Delaware’s Annotated Business Statutes

For an affordable price, we will scan, upload, and index your minute books. You can view and access your minute books online by entity, date, or document name. With full disaster recovery, you can be sure that your critical corporate documents are safe with us.

Email us or call us at 800.927.9801 Ext. 3678 to learn more or start today.

With more than just minute books, CSC offers an integrated Entity Management platform and can reduce your compliance costs with our Annual Report Filing and Business License services.

Sutherland v. Sutherland, et al., and Dardanelle Timber, et al., C.A. No. 2399-VCL, Lamb, V.C. (Del. Ch. March 23, 2009). In a case between sibling owners of a close corporation, Plaintiffs brought suit claiming the Defendants caused the corporation to enter into a variety of self-dealing and wasteful transactions. Plaintiffs had been ousted as directors of a subsidiary of the corporation when the Defendants elected themselves to the board. The corporation’s charter contained a provision designed to sterilize director interest when approving self-dealing transactions, but the Court of Chancery held that such provisions only dealt with issues of quorum, and did nothing to sanitize a disloyal transaction. If the Court were to accept Plaintiffs’ interpretation, all interested transactions would be immunized from the entire fairness analysis.

Addy v. Piedmonte, et al., C.A. No. 3571-VCP, Parsons, V.C. (Del. Ch. March 18, 2009). Plaintiff, a sophisticated investor, was induced by Defendants to contribute funds toward an oil and natural gas extraction project and brought suit when Defendants failed to make good on their contractual promises. First, the Court of Chancery denied full integration of an assortment of documents underlying Plaintiff’s investment, justifying that decision by citing (1) conspicuous inconsistencies that supported the conclusion that the documents were not formally or carefully drafted, and (2) the Defendants’ failure to produce certain Note and Note Purchase Documents, contradicting the conclusion that the documents at issue expressed the final intentions of the parties. The Court next ruled on whether a contract can exculpate a contracting party from a claim based on an intentionally false representation of fact. Though the exculpation clause was worded to free the Defendants from responsibility for any false statements of fact represented, it did not clearly disclaim the Plaintiff’s reliance on those representations. As Plaintiff sufficiently alleged that the Defendants knew that certain statements made were false, the Court allowed Plaintiffs’ fraud claims to proceed. In addition, the Court denied Defendants’ motions to dismiss claims of unjust enrichment, breach of contract and promissory estoppel.

AT&T Corp. v. Lillis, et al., No. 490, 2007, Berger, J. (Del. March 9, 2009). Former officers and directors of MediaOne Corporation sought compensation from AT&T for the full value of their stock options. AT&T had admitted many of the substantive allegations, hoping to arbitrate a claim against another party for the same relief, but withdrew its admissions after it lost the arbitration. The Court of Chancery originally relied heavily on AT&T’s admissions in its answer and briefs in ruling against AT&T. Then, after appeal, where the Supreme Court reversed and rewarded with instructions not to consider the admissions, the Court of Chancery reversed itself and ruled that the admissions should not have been considered because they did not relate to the stock option plan at issue. On this appeal, the Supreme Court reversed the Chancery Court’s new determination, holding that the Supreme Court had based its initial reversal on a factual mistake and that the admissions were relevant to the contract at issue and supported a conclusion that the Defendant agreed with the Plaintiff’s position. Although the admissions were no longer legally binding as admissions, withdrawal did not eliminate their probative value as evidence of a disputed material fact. The Defendant’s failure to explain its changed position, which coincided with the adverse arbitration decision, also supported the reasonable inference that the Defendant initially agreed with the Plaintiff’s position on the definition of a key contractual term.

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, LLC.

Delaware Laws Governing Business Entities The essential resource for legal professionals who need quick and easy access to Delaware’s Annotated Business Statutes.

Tracking down your directors in order to deliver time-sensitive information critical for efficient and compliant board meetings can be a daunting task. With CSC® Virtual Boardroom, our electronic boardroom solution, you can eliminate the time and cost of distributing paper copies of documents needed for corporate board meetings, while ensuring that your materials are distributed in a secure and timely manner.

CSC Virtual Boardroom empowers corporate secretaries with an effective
compilation tool to prepare and post all board related events and documents in a web-based platform. Secondly, board participants can view these documents in a secure 24/7 environment.

This boardroom solution is integrated with the CSC entity management system to ensure your boardroom and committee composition is updated as your corporate structure changes ensuring a more effective workflow, communication and decision-making.

Email us or call us at 800.927.9801 Ext. 3678 to learn more about Virtual Boardroom.

Using her firm's Legally Green initiative as a case study, special guest Carolyn Kaplan, Counsel and Chief Sustainability Officer for Nixon Peabody LLP, will present.
Ms. Kaplan will explore case studies of legal departments “going green” and highlight sustainability guidelines that have been developed by the American Bar Association (ABA) and various state bar associations.

Bettina L. Riveros, an Attorney and Director of Product Development for CSC, will also present.
Ms. Riveros will discuss the innovative ways companies can cut costs by managing their litigation and service of process, legal invoices, deals, transactional orders, and entity information - all while eliminating or greatly reducing paper usage.

Register today for this free seminar.

Plaintiffs moved for summary judgment on their request for appointment of a receiver for the New York Chocolate and Confections Company, Inc. (NYCCC). The Court of Chancery denied the motion, holding that the Plaintiffs failed to prove that NYCCC was insolvent because NYCCC maintained a positive assets-to-liabilities ratio and was backed by an Ivory Coast government agency that practically guaranteed forthcoming financial support. As such, appointment of a receiver was denied because NYCCC did not face an “imminent threat of great loss”.

Continue reading "Recent Corporate and Alternative Entity Decisions from the Delaware Courts" »

Plaintiff shareholders brought suit against current and former Citigroup directors for breaches of fiduciary duty for failing to properly monitor and manage the risks Citigroup faced from its exposure to subprime assets. Citigroup sustained large losses from its involvement with collateralized debt obligations and, specifically, residential mortgage backed securities. Plaintiffs did not contest that Citigroup had procedures and controls in place to monitor risk, but cite general statements from public documents that reflected the worsening conditions in the financial markets as “red flags” that should have put management on notice of financial danger. The Court, applying the business judgment rule, held that the Plaintiffs did not meet the requirements for pleading demand futility because they failed to plead particularized facts that raised a reasonable doubt that the director defendants acted in good faith. Plaintiffs failed to specify how the board’s oversight mechanisms were inadequate or how the director defendants knew of any inadequacies. Furthermore, the general “red flags” cited were merely conclusory and did not state a claim for relief under the Caremark doctrine. The Court also rejected Plaintiffs’ claims for violation of the directors’ duty to disclose, but allowed a claim of corporate waste regarding executive compensation to proceed. This decision was compared to the Court’s recent holding in American International Group, Inc. Consolidated Derivative Litigation, where it recognized allegations sufficient to support an inference that AIG executives were aware of wrongdoing and failed to exercise reasonable oversight over pervasive fraudulent and criminal conduct. Oversight duties under Delaware law are not designed to subject directors to personal liability for failure to predict the future and to property evaluate business risk.

Beiser v. PMC-Sierra, Inc., C.A. No. 3893-VCL, Lamb, V.C. (Del. Ch. Feb. 26, 2009).

Plaintiff brought suit under 8 Del. C. § 220 for the production of certain books and records while simultaneously serving as the lead plaintiff in a related federal action in which discovery had been stayed pursuant to the Private Securities Litigation Reform Act of 1995 (“PSLRA”). The Court held that Plaintiff did not plead a proper § 220 purpose reasonably related to a stockholder interest where the only use for the requested documents that could be inferred was to assist in the prosecution of the federal action where discovery was stayed under the PSLRA. As the Plaintiff could have filed his § 220 action before filing his federal complaint, the Court dismissed Plaintiff’s § 220 action in order to avoid circumvention of the PSLRA.

Metcap Securities LLC, et al. v. Pearl Senior Care, Inc., et al., C.A. No. 2129-VCN, Noble, V.C. (Del. Ch. Feb. 27, 2009).

The facilitators of an acquisition brought suit to recover a $20 million fee, representing 1% of the $2 billion merger. As negotiations were nearing an end, a last-hour amendment was made to the merger agreement prohibiting brokers’ fees. The Court granted the defendants’ motion for summary judgment on the Plaintiffs’ challenge to the amendment which sought reformation of the merger agreement, holding that the parties present during the late night negotiations had authority to bind the Plaintiffs and such negotiations did not become final until after the challenged amendment. Any conflict of interest on the part of counsel acting on behalf of Plaintiffs was understood and accepted by the Plaintiffs, who were sophisticated parties. However, the Court allowed an unjust enrichment claim pertaining to work done after the final negotiation of the merger documents but before closing to proceed past the summary judgment phase of the litigation, because there was a possibility Defendants knew of the work being performed.

BASF Corp. v. POSM II Properties Partnership, L.P., et al., C.A. No. 3608-VCS, Strine, V.C. (Del. Ch. March 3, 2009).

The Plaintiff corporation sought to withdraw from the Defendant limited partnership and have its limited partnership interest bought out. Plaintiff’s right to withdraw was contractually contingent on Lyondell Chemical Company or any of its affiliates (“Lyondell”) no longer operating the partnership’s Texas petrochemical facility. Lyondell served as the partnership’s general partner and leased the facility at issue from the partnership. Lyondell was bought out by Basell AF S.C.A. in December 2007 and Plaintiff claimed the buy-out triggered its withdrawal rights. The Court granted Defendants’ motion to dismiss because the plain language of the withdrawal provision did not entitle Plaintiff to withdraw simply because Lyondell experienced a change in control. Though Lyondell now had a single owner rather than a large group of public stockholders, it still continued to operate the plant as contemplated by the parties’ contract. The Court similarly rejected Plaintiff’s argument that Lyondell’s parent corporation, Lyondell Basell, now operated the plant instead of Lyondell itself. Plaintiff pled no facts suggesting the parent corporation so disrespected Lyondell’s separate existence that Lyondell’s veil should be pierced.

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.

Delaware Laws Governing Business Entities The essential resource for legal professionals who need quick and easy access to Delaware’s Annotated Business Statutes.

Florida Entities must file their 2008 annual reports electronically on or before May 1, 2009. CSC offers an enhanced Florida E-Filing system to our Registered Agent customers:

* File reports and pay taxes for your Corporations, LPs, LLCs, and Not-for-Profits
* Access FL entity information already on file with CSC
* Prepare and file multiple annual reports simultaneously
* Pay using any one of our 4 easy payment options – electronic check (ACH), credit card,
check, or wire transfer

Start today by logging into www.cscglobal.com and selecting the Florida E-Filing link, or call 866.869.9385 for more information.