Naming a registered investment company will become more challenging now that the Securities and Exchange Commission has significantly broadened the scope of the rule governing fund names. Moreover, the SEC estimates that when the Names Rule goes into effect, three out of four registered funds will be subject to the new requirements.
Following a bench trial, the Delaware Court of Chancery recently denied a company director’s advancement of legal fees in connection with an alleged investigation into that director’s conduct. This is a double-rarity of sorts. Advancement disputes rarely go to trial, and advancement is rarely denied. As befits a post-trial ruling, unique facts resulted in a unique result.
Vice Chancellor Sam Glasscock III recently declined to grant a motion to dismiss in Paul Capital Advisors, L.L.C. et al. v. Holland, 2023 WL 5551017, C.A. No. 2022-0167-SG (Del. Aug. 29, 2023) (“Paul Capital”), which involved claims arising out of an intricate set of transactions intended to monetize certain illiquid assets. In sustaining the claims, the Court of Chancery colorfully outlined the challenges of deciphering a highly complex, “monkey’s fist of contracts” without accompanying provisions describing the purpose for such complexity in the first place, and encouraged practitioners to instead choose the path of simplicity.
In an October 31, 2023 decision sure to spook practitioners, the Court of Chancery called into doubt the enforceability of “Con Ed provisions.” Con Ed provisions, so-named for the 2005 Second Circuit decision prohibiting stockholders from pursuing a $1.2 billion merger premium damages claim, create a path for the target’s recovery of lost merger premium if the buyer breaches and a deal fails.
Resolving an issue that had split the trial courts in New York (and has also divided state courts across the country), the First Department ruled yesterday that the PSLRA discovery stay applies in state court. In Camelot Event Driven Fund et al. v. Morgan Stanley & Co. et al, Case No. 2023-03270, 2023 WL 7198938 (1st Dep’t Nov. 2, 2023), the court stated that “the plain language of the statute demonstrates” that the discovery stay provision applies to “any private action, whether brought in state or federal court.”
While there are limits to a stockholder’s right to inspect books and records under Section 220 of the Delaware General Corporation Law or other sections allowing inspection—and corporations can negotiate the scope of inspection—there are also limits to how vigorously a corporation can resist a stockholder’s inspection demand, particularly when it does not present novel legal issues. Two recent fee-shifting decisions issued by Vice Chancellor Zurn provide a cautionary reminder of those limits, which were previously set out by the Court of Chancery in opinions such as Pettry v. Gilead Scis. Inc. (2020), Marilyn Abrams Living Trust v. Pope Invs. Inc. (2017), and McGowan v. Empress Entm’t (2000). The unmistakable message: if the right to inspection is clear, a defendant should think twice about a blanket opposition, unless the defendant does not mind paying the plaintiff’s legal fees in the end.
Litigants before the Delaware Court of Chancery appreciate that the court scrutinizes its jurisdiction as a court of equity. One recent example, Buescher v. Landsea Homes Corp., focused on two questions. First, whether an alternative claim for specific performance can support equity jurisdiction when it is duplicative of a statutory claim for declaratory judgment. Second, whether a cause of action for negligent misrepresentation (a form of equitable fraud) can establish jurisdiction when the court believes such a claim to be unviable and likely merely a pretext for jurisdiction. Not surprisingly, the court concluded no to both questions. But it did so in the context of claims to an escrow fund established through an M&A transaction that may be surprising to some practitioners.