Tag Archives: Delaware Court of Chancery

Sara Bussiere Selected to Participate in the 2019 Federal Trial Practice Seminar

Wilmington, Delaware – Bayard’s Sara E. Bussiere has been selected as one of eight participants in the 2019 Federal Trial Practice Seminar. The program is sponsored by the United States District Court for the District of Delaware and the Delaware Chapter of the Federal Bar Association. The intensive eight-week instructional program provides lawyers an opportunity to work directly with Judges and experienced practitioners to practice and hone their trial skills.

The program will cover topics including Courtroom Presentation and Demeanor, Opening Statements, Direct Examination, Cross Examination, and Closing Arguments. At the end of the program, the participants will participate in a one-day Mock Trial in front of a jury comprised of Delaware citizens.

Sara E. Bussiere is an associate in Bayard’s Litigation Department. Sara concentrates her practice on corporate and commercial litigation in the Delaware Court of Chancery, Delaware Superior Court, and the United States District Court for the District of Delaware. Sara counsels clients concerning the General Corporation Law of the State of Delaware and Delaware’s alternative entity statutes. Sara has experience in a broad range of corporate matters, including fiduciary duty claims, corporate and alternative entity control disputes, advancement and indemnification claims, trade secret and noncompetition agreement disputes, and other breach of contract claims. Sara also has experience advising corporate entities in receivership or seeking dissolution.

Delaware Supreme Court Precludes Fraudulent Inducement of LLC Agreement and Employment Agreement as Defense in Advancement Proceeding

By Jason Jowers

Recognizing that Delaware LLCs should have the ability to encourage capable individuals to serve in management positions, the LLC Act provides that “a limited liability company may, and shall have the power to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever.” 6 Del. C. § 18-108 (emphases added). The Court of Chancery has repeatedly interpreted this language as granting LLC agreement drafters complete discretion on the issues of whether to grant members or managers indemnification or advancement. This freedom of contract on the issue of advancement raises the question: are typical contractual defenses, such as fraudulent inducement, available in a summary proceeding seeking to enforce a party’s advancement rights? In the recent decision of Trascent Management Consulting, LLC v. Bouri, __A.3d __, 2016 WL 6947014 (Del. Nov. 28, 2016), the Delaware Supreme Court found that a defendant may not avoid advancing fees by arguing that the underlying LLC agreement was fraudulently induced.

First published in Business Law Today, February 2017. Link to article.
Reprinted with permission.

Be Careful What You Ask For: Court of Chancery Finds Corporate Law Governs LLC Based on Drafting of LLC Agreement

By Jason Jowers

It is the policy of the Delaware Limited Li­ability Company Act (LLC Act) “to give the maximum effect to the principle of freedom of contract and to the enforce­ability of limited liability company agree­ments.” Indeed, cases routinely refer to LLCs as “creatures of contract,” given that the LLC Act generally cedes governance of the entity to the terms of the LLC agree­ment, establishing few mandatory provi­sions and normally only providing “gap fillers” where an LLC agreement is silent. But what happens when drafters of LLC agreements use their statutorily granted freedom to adopt a governance structure that is similar to that of a corporation? Does adopting a corporate-style structure also adopt the cor­porate case law interpreting that structure? This article analyzes how the recent case of Obeid v. Hogan, 2016 WL 3356851 (Del. Ch. June 10, 2016) answers these questions. In Obeid, the Delaware Court of Chancery confirmed that a Delaware LLC may adopt a governance structure that looks more like a corporation than a traditional LLC, but it also explained that “[t]he choices that the drafters make have consequences.” By adopting a corporate-style of governance, such as a board of directors, the Court of Chancery will to some extent turn by anal­ogy to Delaware’s case law governing corporate boards of directors.

First published in Business Law Today, September 2016. Link to article.
Reprinted with permission.

When Deciding Whether to Judicially Dissolve an LLC, the Court May Find the “Purpose” of the LLC to Be Different Than What Is Stated in the LLC Agreement

By Jason Jowers
Although it occurs less often than dissolutions based on deadlock, the Delaware Court of Chancery may also dissolve an LLC “where the defined purpose of the entity was fulfilled or impossible to carry out.” In re Seneca Invs. LLC, 970 A.2d 259, 263 (Del. Ch. 2008). This basis for judicial dissolution begs the question: how is the “purpose” of the entity defined? In the recent case of Meyer Natural Foods LLC v. Duff, 2015 WL 3746283 (Del. Ch. June 4, 2015), the Court of Chancery found that its analysis of an LLC’s purpose should not, necessarily, be limited to what the LLC agreement identified as the purpose. Although the Court acknowledged that a purpose clause is of “primary importance,” it went on to determine that the purpose clause is not the only evidence the Court may consider, even where the purpose clause is unambiguous and the LLC agreement contains an integration clause. In particular, the Court considered other agreements executed by the members of the LLC around the same time as the LLC agreement in determining the purpose of the LLC. This article examines: 1) the pre-Meyer case law limiting the LLC’s purpose to that defined in the LLC agreement; 2) the facts and holdings of Meyer; and 3) the lessons taught and questions raised by Meyer.

First published in Business Law Today, December 2015. Link to article.
Reprinted with permission.

The Increasing Role of Equity in Delaware LLC Litigation

Co-authored by Jason Jowers

This article examines the increasing role of equity in LLC litigation, particularly in cases involving breach of fiduciary duties and requests for dissolution. Both the case law and an amendment to the Delaware LLC Act in recent years demonstrate Delaware’s rejection of a solely contractarian view of LLCs. The recent Delaware Court of Chancery decision of In re Carlisle Etcetera LLC provides new lessons on the subject of equity’s reach. Although the length of equity’s powerful arm into the area of LLC litigation may surprise some practitioners, there is a consistent theme in the case law that may provide comfort: the Court of Chancery normally will only exercise its equitable powers when the parties have left gaps in their operating agreement.

First published in Business Law Today, October 2015. Link to article.
Reprinted with permission.

Failure to Make Capital Contribution Does Not Necessarily Result in Reduction of Interest in LLC or LP

By Jason Jowers

This article addresses the appropriate remedy for the failure of a member of an LLC or partner of an LP to make a required capital contribution. A recent decision by the Delaware Court of Chancery makes clear that, at least in the case of an initial capital contribution, a member’s failure to make the full amount of the contribution does not result in dilution of that member’s interest unless the LLC’s operating agreement so provides. The logic of the Court’s opinion could extend to the appropriate remedy for subsequent capital calls from Delaware LLCs or LPs that go unanswered.

First published in Business Law Today, December 2014. Link to article.
Reprinted with permission.

Inadvertently Waiving Right to Seek Judicial Dissolution of LLC: It is Easier to do than You Think

By Jason Jowers

This article examines the evolution of the Delaware Court of Chancery’s position on waiver of an LLC member’s right to seek judicial dissolution. In particular, the article addresses the Court of Chancery’s recent ruling that a provision in an LLC operating agreement opting-out of all default rights under the Delaware Limited Liability Company Act also waives the right of a member to seek judicial dissolution. Although the Court of Chancery had found in the past that a specific provision in an LLC agreement expressly waiving the members’ right to seek judicial dissolution was enforceable, this was the first time the Court has found that a more general provision opting-out of all default rights also waived the right to judicial dissolution if that right was not then preserved in a specific provision of the LLC agreement.

First published in Business Law Today, January 2014. Link to article.
Reprinted with permission.

The Debate on How to Remedy the Problem of Fast-Filing Plaintiffs in Derivative Actions Continues

By Jason Jowers

In Louisiana Municipal Police Employees’ Retirement System v. Pyott, 46 A.3d 313 (Del. Ch. 2012), the Delaware Court of Chancery issued a controversial decision that attempted to remedy the problem of multiple plaintiffs’ firms rushing to file actions in multiple jurisdictions, without first investigating the claims, immediately following the announcement of a corporate trauma by a Delaware corporation. The Court of Chancery attempted to create a Delaware-centric solution pursuant to which plaintiffs would have to investigate claims through books and records inspection actions filed in Delaware before filing so-called Caremark claims for directors’ breach of oversight responsibility. On April 4, 2013, in Pyott v. Louisiana Municipal Police Employees’ Retirement System, __ A.3d __, 2013 WL 1364695 (Del. 2013), the Delaware Supreme Court reversed. As discussed in my article, however, the Delaware Supreme Court’s opinion raises as many questions as it answers, and continues the debate on how to remedy the problem of fast-filing plaintiffs.

First published in Business Law Today, May 2013. Link to article.
Reprinted with permission.

Fiduciary Duties of Managers of LLCs: The Status of the Debate in Delaware

Co-authored by Jason Jowers

In Auriga Capital Corporation v. Gatz Properties, LLC, __ A.3d __, 2012 WL 361677 (Del. Ch. Jan. 27, 2012), the Delaware Court of Chancery found that, unless eliminated or restricted in the LLC agreement, managers of LLCs owe default fiduciary duties of loyalty and care. Delaware Chief Justice Myron T. Steele’s writings on the subject off the bench, however, suggest that he would not reach the same conclusion. In their article, Jowers and Lazarus: (1) analyze Chancellor Strine’s opinion in Auriga Capital; (2) summarize Chief Justice Steele’s writings on the topic; and 3) provide key takeaways to practitioners based on the current state of the law.

First published in Business Law Today, February 2012. Link to article.
Reprinted with permission.

Keeping Current: LLC Governance

Co-authored by Jason Jowers

This article examines the Delaware Court of Chancery’s application of the right of inspection of an LLC’s books and records in a recent case. The court has found that the right of inspection may be broader or narrower than that provided by the LLC Act. As discussed more fully in the article, the court’s ruling teaches three key lessons for practitioners. First, although the court found that 6 Del. Code § 18-305, the LLC Act’s right of inspection, might be useful in interpreting an ambiguous inspection provision in an LLC agreement, absent an ambiguity, the plain language of the contract should govern and the court will enforce the parties’ bargain. Second, because the court will enforce the benefit of the bargain, drafters must be precise in drafting language to govern both the right to and procedures for inspection. Third, if the terms governing inspection, such as “reasonable access,” are not defined, the court may rely not only on books and records cases involving the LLC Act but also upon analogous cases applying 8 Del. Code § 220, the Delaware General Corporation Law’s statute permitting shareholders to inspect corporate books and records.

First published in Business Law Today, May/June 2008. Link to article.
Reprinted with permission.

Delaware Court of Chancery Updates New Filing Deadlines

On September 7, 2018, the Court of Chancery ordered that Rule 171(b) be amended to provide that the time for filing briefs is to be governed by newly-added Rule 79.2. Effective September 14, 2018, Rule 79.2 states:

Except for the initial pleadings governed by Rule 7(a) and notices of appeal, all electronic transmissions of documents (including, but not limited to, motions, briefs, appendices and discovery responses) in non-expedited cases must be filed and/or served by 5:00 p.m. Eastern Time in order to be considered timely filed and/or served that day. All electronic transmissions of documents in expedited cases must be filed and/or served before midnight Eastern Time in order to be considered timely filed and/or served that day, unless otherwise agreed to by the parties and so ordered by the Court. For purposes of meeting the filing and/or service deadline set forth herein, expedited cases shall mean any case that is set for expedited treatment by an order of the Court.

The changes ensure that the Court of Chancery Rules conform to the new filing deadlines issued by the Delaware Supreme Court on July 18, 2018 as part of an initiative to improve work life balance for Delaware’s legal professionals. The Court of Chancery Rules can be found here.

 

 

Delaware Supreme Court Prioritizes Work-Life Balance

On July 18, 2018, the Supreme Court of the State of Delaware issued an order adopting recommendations from a report on improving work life balance for Delaware legal professionals. Based on analysis regarding the negative impact of late filing deadlines on the Delaware legal community, the Supreme Court ordered state courts to amend their rules and/or electronic filing policies. Effective September 14, 2018, all electronic filings in non-expedited matters, except for initial pleadings and notices of appeal, must be completed by 5:00 p.m. Eastern. The deadlines for initial pleadings, notices of appeal, and electronic filings in expedited matters are unchanged and must be completed before midnight Eastern except for expedited matters in which the court orders or the parties agree to a different deadline.

The Supreme Court also ordered state trial courts to consider adopting policies disfavoring:

  • Filing due dates on Monday or the day after a holiday in non-expedited matters.
  • The issuance of non-expedited opinions addressing dispositive motions or post-trial relief after 4:00 p.m. as a general matter and after noon on Fridays.
  • The scheduling of oral arguments and trials in August, except in expedited matters or where there is an important reason for proceeding at that time.

The Trial Courts are to consider the remaining recommendations in the report and to adopt practices to improve both the quality of professional practice and the quality of life for Delaware legal professionals. The Trial Courts are to report on their considerations and progress by March 15, 2019.

On August 22, 2018, the Supreme Court amended Supreme Court Rule 10.2 to conform to the July 18 order. Effective September 14, 2018, Rule 10.2(6)(a) is stricken and replaced with:

Except for notices of appeal, all electronic filings in non-expedited cases must be completed by 5:00 p.m. Eastern Time in order to be considered timely filed that day. All notices of appeal and electronic filings in expedited cases must be completed before midnight Eastern Time in order to be considered timely filed that day.

The report supporting the change, Shaping Delaware’s Competitive Edge: A report to the Delaware Judiciary on Improving the Quality of Lawyering in Delaware, was prepared by several members of the Delaware Bar and includes contributions from Stephen B. Brauerman, a director and co-chair of Bayard’s litigation group.

A copy of the order, the order announcement, and the supporting report can be found here.

Delaware Courts Continue to Excel in Business Litigation with the Success of the Complex Commercial Litigation Division of the Superior Court

By: Joseph R. Slights III and Elizabeth A. Powers

Although still in its infancy, the Delaware Superior Court’s Complex Commercial Litigation Division (“CCLD”) has already earned a reputation as a premier business court in keeping with the Delaware judiciary’s tradition of excellence in the resolution of corporate and business controversies. Regarded as an “accent” to the Court of Chancery, the CCLD offers businesses a forum dedicated to the resolution of commercial disputes where equitable jurisdiction is lacking. The CCLD’s collaborative and uniquely flexible approach to the management of complex commercial litigation is a model for what the modern business court should be. Not surprisingly, business litigants have embraced the CCLD, as evidenced by the wide variety of complex commercial disputes that have been filed and adjudicated in this forum. The CCLD continues Delaware’s status as the world’s most respected forum for adjudicating highly complex business disputes.

I. INTRODUCTION

Over its more than two-hundred-year history, Delaware’s Court of Chancery has emerged as the world’s most respected forum for adjudicating highly complex business disputes. But the Court of Chancery’s subject matter jurisdiction is limited; it is a court of equity. Business disputes arising from claims of contractual breach or tortious conduct, where money damages will remedy the wrong, do not sound in equity. Delaware’s general jurisdiction trial court, the Superior Court, is the proper forum to resolve these claims. The Superior Court, however, unlike the Court of Chancery, oversees a broad civil docket comprising, on average, more than four hundred cases per judge, and a felony criminal docket with thousands of cases moving through the system at any one time. Until recently, complex commercial cases in the Superior Court were placed in the civil pipeline along with every other civil case filed in the court. This dynamic frequently resulted in less-than-optimal judicial management of the court’s most demanding civil cases. Delaware business entities wanted and deserved better. The Delaware Superior Court’s Complex Commercial Litigation Division (“CCLD”) was created in 2010 to complement Delaware’s Court of Chancery and to offer businesses a forum dedicated to the resolution of business disputes where wrongs could be righted with legal remedies. In just a few short years, the CCLD has earned a reputation as a premier business court in keeping with the Delaware judiciary’s tradition of excellence in the resolution of corporate and business controversies. Its collaborative and flexible approach to the management of complex litigation is a model for the modern business court. In this article, we will briefly discuss the national “business court” movement for the sake of context. We will then discuss the CCLD’s place within this movement, highlight its unique facilitative approach to judicial case management, and extol the benefits of this approach when addressing the court’s most challenging and resource-dependent cases.

Click here to read the article in its entirety.

**©2015 by the American Bar Association.  Reprinted with permission.  All rights reserved.  This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.