Justia Civil Procedure Opinion Summaries

Since 2010, appellant Mark Spanakos has tried to gain control over and revive Hawk Systems, Inc., a void Delaware corporation, by filing a series of direct and derivative actions in Florida against former Hawk Systems insiders and taking several steps outside of court to establish himself as the Company’s majority stockholder and sole director. Spanakos was successful in his direct Florida litigation, having won a Partial Final Judgment in one action and favorable Summary Judgment rulings in another. Spanakos’s derivative claims in the third Florida action, however, were stayed to allow Spanakos to clarify his standing to pursue those claims. Accordingly, in 2018 Spanakos filed suit in the Delaware Court of Chancery seeking: (1) a declaration that he controlled a majority of the voting shares of Hawk Systems and that he was the validly elected, sole director and officer of Hawk Systems; or (2) in the alternative, an order compelling the company to hold an annual election of directors under 8 Del. C. sections 223(a) and 211(c). Following a trial, briefing, and post-trial argument, the Court of Chancery denied both of Spanakos’s requests for relief, ruling that he had not carried his burden of proof to obtain any of the relief that he sought. On appeal, Spanakos argues that the Court of Chancery abused its discretion when it declined to order a stockholders’ meeting for the election of directors despite the fact that Spanakos satisfied the elements of Section 211. Having reviewed the record on appeal and the court’s opinion below, the Delaware Supreme Court found the Court of Chancery did not abuse its discretion when it declined to compel a stockholders’ meeting given the unique facts of this case. View "Spanakos v. Page, et al." on Justia Law

In 2016, Uber Technologies, Inc. acquired Ottomotto LLC to gain more traction in the autonomous vehicle space, hiring key employees from Google's autonomous vehicle program. Though steps were taken to ensure the former Google employees did not misuse Google's confidential information, it eventually came to light Google's proprietary information had indeed been misused. Uber settled Google's misappropriation claims by issuing additional Uber stock to Google, valued at $245 million. An Uber stockholder and former Uber employee filed suit in the Delaware Court of Chancery against the directors who approved the Otto acquisition. Plaintiff claimed the directors ignored the alleged theft of Google’s intellectual property and failed to investigate pre-closing diligence that would have revealed problems with the transaction. According to plaintiff, the board should not have relied on the CEO’s representations that the transaction had the necessary protections because he and Uber had a history of misusing the intellectual property of others. Defendants responded by moving to dismiss the complaint under Court of Chancery Rule 23.1. As they asserted, the plaintiff first had to make a demand on the board of directors before pursuing litigation on the corporation’s behalf. The Court of Chancery found that a majority of the Uber board of directors could have fairly considered the demand, and dismissed the complaint. The Delaware Supreme Court found, as did the Court of Chancery, that a majority of the board was disinterested because it had no real threat of personal liability due to Uber’s exculpatory charter provision. And a majority of the board was also independent of the one interested director. Therefore, the Supreme COurt affirmed the Court of Chancery's judgment dismissing the complaint with prejudice. View "McElrath v. Kalanick, et al." on Justia Law

Valley National Bank ("VNB") petitioned the Alabama Supreme Court for a writ of mandamus to direct directing the trial court to dismiss a declaratory-judgment action filed against VNB by Jesse Blount, Wilson Blount, and William Blount. William owned a 33% interest in Alabama Utility Services, LLC ("AUS"). William also served as the president of WWJ Corporation, Inc. ("WWJ"), and WWJ managed AUS. Wilson and Jesse, William's sons, owned all the stock of WWJ. In May 2013, William transferred his 33% interest in AUS to WWJ, and WWJ then owned all the interest in AUS. In July 2015, VNB obtained a $905,599.90 judgment against William in an action separate from the underlying action. On August 31, 2015, Asset Management Professionals, LLC, purchased from WWJ all the assets of AUS for $1,600,000. On July 17, 2018, the Blounts filed a declaratory judgment action seeking a judgment declaring "that a) William's transfer of his interest in AUS to WWJ was not fraudulent as to [VNB], b) William was not the alter ego of AUS or WWJ, c) the sale of AUS did not result in a constructive trust in favor of [VNB], and d) the [Blounts] did not engage in a civil conspiracy." VNB filed an action under the Alabama Uniform Fraudulent Transfer Act against the Blounts and others in which it asserted that William had fraudulently transferred assets and sought to pierce the corporate veil of WWJ. After review of the trial court records and documents submitted by the parties, the Alabama Supreme Court determined VNB did not demonstrate a clear legal right to have claims against them dismissed. The court denied the mandamus petition insofar as it sought dismissal of the alter-ego claim and the constructive-trust claim. View "Ex parte Valley National Bank." on Justia Law

After a limited liability company and its individual members failed to make payments on a real estate loan, the lender sued. One member, Kenneth Duffus, cross-claimed against a second member, Lee Baker, Jr., alleging breach of contract and tort claims related to the management of the business. Baker counterclaimed against Duffus, also alleging breach of contract and tort claims. After several years of litigation, only the claims by and between Duffus and Baker remained; the superior court granted partial summary judgment to Duffus, finding that the statutes of limitation barred Baker’s counterclaims. A trial jury found against Baker on Duffus’s breach of contract and tort claims, and awarded damages to Duffus. Baker appealed the grant of summary judgment and a number of procedural issues from the trial. Because the Alaska Supreme Court determined it was error to conclude that Baker’s claims were not compulsory counterclaims, thus changing the statutes of limitation analysis, it reversed the superior court’s grant of summary judgment, vacated the judgment, and remanded for a new trial on both Duffus’s cross-claims and Baker’s counterclaims. View "Baker v. Duffus" on Justia Law

Stockholder-plaintiff KT4 Partners LLC appealed the Court of Chancery’s post-trial order granting in part and denying in part KT4’s request to inspect various books and records of appellee Palantir Technologies Inc., a privately held technology company. The Court of Chancery found that KT4 had shown a proper purpose of investigating suspected wrongdoing in three areas: (1) “Palantir’s serial failures to hold annual stockholder meetings”; (2) Palantir’s amendments of its Investors’ Rights Agreement in a way that “eviscerated KT4’s (and other similarly situated stockholders’) contractual information rights after KT4 sought to exercise those rights”; and (3) Palantir’s potential violation of two stockholder agreements by failing to give stockholders notice and the opportunity to exercise their rights of first refusal, co-sale rights, and rights of first offer as to certain stock transactions. The Court ordered Palantir to produce the company’s stock ledger, its list of stockholders, information about the company’s directors and officers, year-end audited financial statements, books and records relating to annual stockholder meetings, books and records relating to any cofounder's sales of Palantir stock. The Court otherwise denied KT4's requests, including a request to inspect emails related to Investors' Rights Agreement amendments. Both sides appealed, but the Delaware Supreme Court was satisfied the Court of Chancery did not abuse its discretion with respect to all but two issues: (1) denying wholesale requests to inspect email relating to the Investors' Rights Agreement; (2) and requests to temper the jurisdictional use restriction imposed by the court. "Given that the court found a credible basis to investigate potential wrongdoing related to the violation of contracts executed in California, governed by California law, and among parties living or based in California, the basis for limiting KT4’s use in litigation of the inspection materials to Delaware and specifically the Court of Chancery was tenuous in the first place, and the court lacked reasonable grounds for denying the limited modifications that KT4 requested." View "KT4 Partners LLC v. Palantir Technologies, Inc." on Justia Law

This case involved questions of how the attorney-client privilege should apply in the context of derivative litigation. The nonprofit corporations involved in this matter were the Pittsburgh History and Landmarks Foundation (“the Foundation”) and its subsidiary, the Landmarks Financial Corporation (“the Corporation”), which managed the Foundation’s endowment. Plaintiffs were five former members of the Boards of Trustees of the Foundation and the Corporation who alleged they were improperly and ineffectively removed from the Boards in an attempt to thwart their oversight of the Foundation’s president, whom they believed was engaging in actions that were improper and not in accord with the Foundation’s mission. The Foundation’s Board created a Governance Task Force to review various practices of the Foundation; the Task Force recommended that both Boards be reduced substantially in number. The Foundation Board approved this recommendation and removed all trustees then serving from both Boards; significantly smaller boards were elected and as a result of these consolidations, and Derivative Plaintiffs lost their seats on the Boards. In accord with standard procedures for bringing a derivative action adopted by the Pennsylvania Supreme Court in Cuker v. Mikalauskas, 692 A.2d 1042 (Pa. 1997). The Supreme Court rejected the Commonwealth Court’s adoption of a qualified attorney-client privilege as set forth in Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), which the Supreme Court viewed as inconsistent with prior Pennsylvania caselaw emphasizing predictability in the application of the attorney-client privilege. However, the Commonwealth Court’s decision not to apply the fiduciary or co-client exceptions to the attorney-client privilege under the facts of this case was affirmed. The matter was remanded for further al court and the Commonwealth Court and remanded the matter to the trial court for further proceedings. View "Pgh History v. Ziegler" on Justia Law

Olagues is a self-proclaimed stock options expert, traveling the country to file pro se claims under section 16(b) of the Securities and Exchange Act of 1934, which permits a shareholder to bring an insider trading action to disgorge “short-swing” profits that an insider obtained improperly. Any recovery goes only to the company. In one such suit, the district court granted a motion to strike Olagues’ complaint and dismiss the action, stating Olagues, as a pro se litigant, could not pursue a section 16(b) claim on behalf of TimkenSteel because he would be representing the interests of the company. The Sixth Circuit affirmed that Olagues cannot proceed pro se but remanded to give Olagues the opportunity to retain counsel and file an amended complaint with counsel. View "Olagues v. Timken" on Justia Law

Guadalupe Ontiveros, as minority shareholder in Omega Electric, Inc. (Omega), sued majority shareholder Kent Constable, his wife Karen, and Omega, asserting direct and derivative claims arising from a dispute over management of Omega and its assets. In response to Ontiveros's claim of involuntary dissolution of Omega, Appellants filed a motion to stay proceedings and appoint appraisers to fix the value of Ontiveros's stock. The superior court granted the motion, staying the action. Ontiveros then tried to dismiss his claim for involuntary dissolution without prejudice, but the court clerk would not accept his filing because the matter had been stayed. Ontiveros thus filed a motion, asking the court to revoke its order granting Appellants' motion, or in the alternative, to reconsider and then vacate the order. The court treated that motion as a motion for leave to file a dismissal with prejudice under Code of Civil Procedure section 581 (e), granted the motion, and allowed Ontiveros to dismiss his cause of action for involuntary dissolution of Omega. Without the existence of that claim, the court found no basis on which to stay the action and order an appraisal of the stock. As such, the court lifted the stay, terminating the procedure. Appellants appealed, contending the court abused its discretion in granting Ontiveros's motion. In addition, Appellants argued the trial court improperly interpreted section 2000 in granting the motion. Ontiveros countered by arguing the trial court's order was not appealable. The Court of Appeal determined Appellants presented an appealable issue, and was persuaded the trial court abused its discretion here: the superior court relied upon that code section as a mechanism to lift the stay and terminate the section 2000 special proceeding, misapplying the law. Consequently, the trial court's order was reversed. View "Ontiveros v. Constable" on Justia Law

In March 2016, soon after The Fresh Market (the “Company”) announced plans to go private, the Company publicly filed certain required disclosures under the federal securities laws. Given that the transaction involved a tender offer, the required disclosures included a Solicitation/Recommendation Statement on Schedule 14D-9 which articulated the Board’s reasons for recommending that stockholders accept the tender offer from an entity controlled by private equity firm Apollo Global Management LLC (“Apollo”) for $28.5 in cash per share. Apollo publicly filed a Schedule TO, which included its own narrative of the background to the transaction. The 14D-9 incorporated Apollo’s Schedule TO by reference. After reading these disclosures, as the tender offer was still pending, plaintiff-stockholder Elizabeth Morrison suspected the Company’s directors had breached their fiduciary duties in the course of the sale process, and she sought Company books and records pursuant to Section 220 of the Delaware General Corporation Law. The Company denied her request, and the tender offer closed as scheduled on April 21 with 68.2% of outstanding shares validly tendered. This case calls into question the integrity of a stockholder vote purported to qualify for “cleansing” pursuant to Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304 (Del. 2015). In reversing the Court of Chancery's judgment in favor of the Company, the Delaware Supreme Court held "'partial and elliptical disclosures' cannot facilitate the protection of the business judgment rule under the Corwin doctrine." View "Morrison, et al. v. Berry, et al." on Justia Law

Google agreed with competitors, such as Apple, not to initiate contact to recruit each others' employees. In 2010, the Department of Justice filed a civil antitrust action, alleging that the agreements illegally diminished competition for tech employees, denying them job opportunities and suppressing wages. On the same day, the companies entered into a stipulated judgment, admitting no liability but agreeing to an injunction prohibiting the "no cold call" arrangements. Google posted a statement online announcing the settlement and denying any wrongdoing, with a link to a Department of Justice press release, describing the settlement terms. There was widespread media coverage. In 2011, class action lawsuits were filed against the companies by employees who alleged that the cold calling restrictions had caused them wage losses. A consolidated action sought over $3 billion in damages on behalf of more than 100,000 employees. A derivative suit, filed by shareholders in 2014, claimed that the company suffered financial losses resulting from the antitrust and class action suits and that the agreements harmed the company’s reputation and stifled innovation. Based on a three-year statute of limitations, the trial court dismissed. The court of appeal affirmed, finding the suit untimely because plaintiffs should have been aware of the facts giving rise to their claims by at least the time of the Department of Justice antitrust action in 2010. View "Police Retirement System of St. Louis v. Page" on Justia Law