Delaware Court of Chancery Says It’s Game Over on Massive Fees for “Miniscule” Work

Last month, in an oral ruling likely to bring great joy to the Delaware defense bar, Vice Chancellor Zurn issued an atypical “Statement of the Court” in Garfield v. Getaround that swiftly rejected an $850,000 fee request in a derivative action.  Plaintiff sought the fee for its  efforts in prompting Defendant Getaround Inc. to make changes to its voting structure.  Calling attention to the slew of similar actions by stockholders following Garfield v. Boxed, Vice Chancellor Zurn said the “game is over” for attorneys’ “making a literal fortune off of a minuscule number of hours of work.”

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Voting Commitments Matter and Will Be Enforced: Delaware Supreme Court Affirms Chancery Decision Holding Activist Stockholders to Their Bargain

When companies settle proxy contests with activist stockholders, the activists generally give up stockholder-level influence in exchange for board-level influence.  In a typical agreement in this setting, activists gain board seats in exchange for a commitment to vote their shares with the board’s recommendation on proposals put to stockholders.  Activists also agree to standstill periods in which they refrain from taking actions opposed to the board, and from increasing their holdings above a specified cap.

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On the Efficacy of Litigating Post-Employment Disputes in Delaware (Reciprocity Is a Two-Way Street)

Last November, Vice Chancellor J. Travis Laster issued an Opinion in Sunder Energy, LLC v. Jackson denying a company’s application for a preliminary injunction against a former employee based on restrictive covenants embedded in that employee’s Incentive Units. The Court held that the company could not enforce the covenants because the company’s Managers breached their fiduciary duties in the creation of those covenants, and because the covenants themselves are “overly broad” and “unreasonable.” The Court noted, for example, that covenants in this residential solar panel sales company’s Incentive Units could theoretically have indefinitely prevented the former employee’s daughter from door-to-door sales of Girl Scout cookies. (more…)

Delaware Court of Chancery’s Chilly Response to Activision Blizzard Casts Doubt on Common M&A Practices

On February 29, 2024, the Delaware Court of Chancery issued an opinion in Sjunde AP-Fonden v. Activision Blizzard questioning a number of common practices for target companies in a merger, including the process for obtaining board approval of a merger agreement and the contents of the notice of the stockholders’ meeting to approve the merger agreement, and allowing a challenge to the validity of the subject merger to proceed.  It is an important read for all involved in M&A and will undoubtedly have an impact on market practice.

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A Reminder of Board Primacy: Delaware Court of Chancery Invalidates Stockholder Agreement Provisions Encroaching on Board-Level Decisions

On February 23, 2024, the Delaware Court of Chancery issued an opinion in West Palm Beach Firefighters’ Pension Fund v. Moelis & Co. invalidating certain stockholder agreement provisions that gave a significant stockholder broad pre-approval rights over corporate actions. The opinion serves as a reminder of the contours of board authority under DGCL Section 141(a) and how contractual agreements may “improperly constrain a board’s authority.” It remains to be seen if the decision will be appealed, but at present, it should be evaluated by parties considering contractual provisions that may directly or indirectly limit director decision-making.

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“A Bad Bull”: Chancery Court Rejects Plaintiffs’ Fee Application in Oracle Derivative Litigation

Plaintiffs’ bid for a US$5 million mootness fee in In re Oracle Corp. Derivative Litigation, C.A. No. 2017-0337-SG was denied by Vice Chancellor Glasscock, who noted that “not even great counsel can wring significant stockholder value from litigation over an essentially loyal and careful sales process.”

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“Bad Things Can Happen to Corporations” – But Officers Cannot Be Liable Absent Bad Faith

In Segway, Inc. v. Cai, the Delaware Court of Chancery dismissed one of the increasingly common breach of fiduciary duty cases brought against corporate officers after last year’s seminal McDonald’s decision, which clarified that officers owe a duty of oversight just as directors do. No doubt reassuringly for those officers, Vice Chancellor Will corrected the “misimpression that an oversight claim pursued against an officer is easier to plead than one against a director.” The opinion definitively confirms that “bad faith remains a necessary predicate to any Caremark claim.”

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Meet the Team

<a target=‘_blank’ href="https://www.sidley.com/en/people/s/stern-andrew-w">Andrew W. Stern</a>

Andrew W. Stern

New York
<a target=‘_blank’ href="https://www.sidley.com/en/people/n/newell-charlotte-k">Charlotte K. Newell</a>

Charlotte K. Newell

New York
<a target=‘_blank’ href="https://www.sidley.com/en/people/a/austin-elizabeth-y">Elizabeth Y. Austin</a>

Elizabeth Y. Austin

Chicago
<a target=‘_blank’ href="https://www.sidley.com/en/people/b/bartlett-jaime-a">Jaime A. Bartlett</a>

Jaime A. Bartlett

San Francisco
<a target=‘_blank’ href="https://www.sidley.com/en/people/d/ducayet-james-w">Jim Ducayet</a>

Jim Ducayet

Chicago
<a target=‘_blank’ href="https://www.sidley.com/en/people/g/garcia-yolanda-c">Yolanda C. Garcia</a>

Yolanda C. Garcia

Dallas
<a target=‘_blank’ href="https://www.sidley.com/en/people/h/heyworth-james">James Heyworth</a>

James Heyworth

New York
<a target=‘_blank’ href="https://www.sidley.com/en/people/k/kaplan-alex-j">Alex J. Kaplan</a>

Alex J. Kaplan

New York
<a target=‘_blank’ href="https://www.sidley.com/en/people/l/lopez-jodi-e">Jodi E. Lopez</a>

Jodi E. Lopez

Los Angeles
<a target=‘_blank’ href="https://www.sidley.com/en/people/m/muenz-jon">Jon Muenz</a>

Jon Muenz

New York

<a target=‘_blank’ href="https://www.sidley.com/en/people/r/ross-ian-m">Ian M. Ross</a>

Ian M. Ross

Miami
<a target=‘_blank’ href="https://www.sidley.com/en/people/s/sheppard-hille-r">Hille R. Sheppard</a>

Hille R. Sheppard

Chicago
<a target=‘_blank’ href="https://www.sidley.com/en/people/s/sultanian-heather">Heather Benzmiller Sultanian</a>

Heather Benzmiller Sultanian

Chicago
<a target=‘_blank’ href="https://www.sidley.com/en/people/v/velevis-robert-s">Robert S. Velevis</a>

Robert S. Velevis

Dallas
<a target=‘_blank’ href="https://www.sidley.com/en/people/w/wechkin-robin-e">Robin E. Wechkin</a>

Robin E. Wechkin

Seattle

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