Vice Chancellor Zurn’s First Post-Trial Opinion Provides a Cautionary Tale Regarding Private Ordering Under the LLC Act
In her first true Opinion for the Court, In re Coinmint, LLC, Vice Chancellor Zurn delved deeply into the tortured relationship between the two founders (and sole members) of Coinmint, LLC, a bitcoin mining firm, and ultimately held that Delaware’s strong preference for private ordering is not unlimited where the parties fail entirely to follow the formalities set out in the founding documents to which they collectively agreed.
Sometimes the Best Defense Is Just … a Defense
On June 16, 2021, the Delaware Court of Chancery denied the plaintiffs’ motion for partial judgment on the pleadings regarding portions of their declaratory judgment claim filed in Dr. Thomas Markusic, Dr. Maxym Polyakov, et al. v. Michael Blum, Patrick Joseph King, et al. Plaintiffs filed the declaratory judgment action in an attempt to preempt their adversary’s potential claims, and Chancellor McCormick’s rejection of the requested declaratory relief offers a key lesson for litigants contemplating a similar preemptive action.
The Court of Chancery Breaks New Ground in Allowing “Reverse” Veil Piercing
In a matter of first impression, Vice Chancellor Joseph R. Slights III recently concluded in Manichaean Capital, LLC v. Exela Technologies, Inc. that Delaware law permits a claim for “reverse” veil-piercing — that is, going after the assets of a subsidiary as opposed to a parent corporation. The decision provides a limited yet potentially powerful tool for those seeking to enforce judgments in the context of complex corporate structures, particularly where a corporate family has taken steps to limit assets flowing through the subsidiary that is liable. It also provides occasion to remind business entities of the attendant risks of failing to respect corporate separateness and form.
Court of Chancery Provides Reminder That Privilege Is Not Absolute
Last week, Vice Chancellor Joseph R. Slights III issued a ruling in Tornetta v. Musk that serves as a reminder that the corporate attorney-client privilege is not absolute. Deciding a discovery motion in a stockholder derivative suit challenging the 2018 compensation deal for Tesla CEO Elon Musk, the Court ordered the defendants to produce a limited set of documents that reflected communications between Musk and in-house counsel, though it rejected the plaintiff’s request for additional communications between in-house counsel, the Board’s Compensation Committee, and outside advisors. The decision serves as a reminder to company counsel, both internal and external, that their communications may not always be protected from stockholder plaintiffs in shareholder derivative actions.
Section 220 Is Not a Blank Check
The Delaware Court of Chancery recently issued another decision regarding the statutory right to inspection of corporate books and records under Delaware General Corporation Law Section 220. In Melvin Gross v. Biogen Inc., the plaintiff-stockholder was permitted to obtain certain books and records, but the court limited inspection in key respects, and offered words of caution regarding confidentiality agreements. Companies facing Section 220 demands should review this decision and consider its lessons regarding the appropriate scope of inspection.
A Reminder of the Obvious: Lawsuit Built on “Bold-Faced Lie” Does not End Well for Plaintiff
In the course of affirming a Court of Chancery decision in a seemingly routine dispute relating to a stockholder’s ability to nominate a slate of directors, the Delaware Supreme Court underscored the importance of parties’ (and counsel’s) candor with the Court and the potential consequences should the Court conclude it has been misled. (more…)
Back to the Future: New Lines Drawn for Poison Pills
In a tale of what is old is new again, the Delaware Court of Chancery reviewed the propriety of a poison pill — a bulwark of the 1980s takeover era — but in the context of shareholder activism against the backdrop of the COVID-19 pandemic. Vice Chancellor Kathaleen McCormick’s detailed review of the pertinent case law and fact-specific decision to permanently enjoin The Williams Companies, Inc.’s extraordinary 5% poison pill offers a number of lessons for directors considering the adoption or renewal of a similar device. The Williams Cos. S’holder Litig. (Del. Ch. Feb. 26, 2021).
Can Inspection Rights Be Waived? Some Observations on Delaware Law
As recent decisions from the Delaware courts remind us (e.g., Murfey v. WHC Ventures, LLC), Delaware entities often have the ability to negotiate the scope of investors’ right to inspect company books and records—and perhaps even to eliminate those rights. But few corporations, partnerships, or LLCs appear to do so. With the proliferation of books-and-records litigation in recent years, however, more Delaware entities should consider whether opportunities may be available to limit the potential burden of such litigation and whether it would be prudent to explore those opportunities.
Court of Chancery Sheds Light on When Documents Produced Under Section 220 May Remain Confidential
The Delaware Court of Chancery recently showcased its commitment to maintaining open judicial records and proceedings. In a derivative suit predicated on the widely covered Boeing crashes from 2018 and 2019, in which the Complaint featured materials that had been produced pursuant to a books-and-records inspection demand under Section 220 of the Delaware General Corporation Law, the Court rejected all but one of Boeing’s attempts to shield its internal documents from the public spotlight. Most cases, of course, will not be so charged with public interest. Nonetheless, the Court’s analysis should serve as a reminder that keeping information confidential in Delaware courts may be an uphill battle.
Chancery Court Orders Company to Wave Goodbye to Privilege after Seconded Employees Use Other Company Email to Discuss Non-Company Business
The Delaware Court of Chancery decision in In re WeWork Litigation, issued on December 22, 2020, underscores the need for heightened care with respect to corporate communications and the preservation of the attorney-client privilege.