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…)
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.
Protecting Its “Unwaivable Right to a Jury Trial,” California Waves Goodbye to a Delaware Forum Selection Clause
I. Overview of Enforceability of Forum Selection Clauses
The Delaware Court of Chancery has promoted the use of forum selection clauses in corporate charters since its 2010 opinion In re Revlon Inc. Shareholders Litigation. Three years later, in Boilermakers v. Chevron, the Delaware Court of Chancery ruled that forum selection clauses in corporate bylaws are facially valid for types of shareholder litigation, including derivative claims, fiduciary claims, statutory claims under the Delaware General Corporation Law, and claims regarding internal affairs. In light of these decisions, Delaware forum selection clauses contained in corporate charters or bylaws of the type found facially valid in Boilermakers have been enforced by state courts in many states. But a recent decision from a California appellate court suggests that some California courts may be resistant to such provisions based on California public policy in favor of the right to a jury trial.
Con Ed Uncertainty: Court of Chancery Questions Enforceability of Merger Agreement Provisions Allowing Target to Seek Lost Merger Premium
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.
The First Test Passed: Corporations Are Free To Use Identity-Based Voting, For Now…
In a recent ruling on summary judgment, the court found that Bumble, Inc.’s “identity-based voting” does not violate Sections 212(a) or 151(a) of the Delaware General Corporation Law (the “DGCL”). Colon v. Bumble, Inc., et al., C.A. No. 2022-0824-JTL. However, the court left open for another day the question of whether such a governance structure is equitable.
