Justia Civil Procedure Opinion Summaries

MAPS Hotel and Resorts One LLC (the “Buyer”) agreed to purchase fifteen hotel properties from AB Stable VIII LLC (the “Seller”) for $5.8 billion. In response to the pandemic and without securing the Buyer’s consent, the Seller made drastic changes to its hotel operations, due in part to the damage the pandemic inflicted on the hospitality industry. The transaction was also plagued by problems with fraudulent deeds covering some of the hotel properties. The Buyer eventually called off the deal, relying on the Seller’s failure to comply with the sale agreement. The Seller sued in the Delaware Court of Chancery to require the Buyer to complete the transaction. The Court of Chancery concluded that the Buyer could terminate the sale agreement because the Seller breached a covenant and a condition in the sale agreement. According to the court, the Seller violated the ordinary course covenant by failing to operate in the ordinary course of its business - closing hotels, laying off or furloughing thousands of employees, and implementing other drastic changes to its business - without the Buyer’s consent. Additionally, a condition requiring title insurance for the hotel properties failed because the title insurers’ commitment letters had a broad exception covering the fraudulent deeds, and the Buyer did not cause the failure. On appeal, the Seller argued it satisfied the Ordinary Course Covenant because the covenant did not preclude it from taking reasonable, industry-standard steps in response to the pandemic; the court’s ruling negated the parties’ allocation of pandemic risk to the Buyer through the Material Adverse Effect provision; and its breach of the notice requirement in the covenant was immaterial. The Seller also claimed the Court of Chancery gave too expansive a reading to the exception in the title insurance condition, or, alternatively, that the court incorrectly found that the Buyer did not contribute materially to its breach. The Delaware Supreme Court affirmed the Court of Chancery’s judgment, finding the court concluded correctly that the Seller’s drastic changes to its hotel operations in response to the COVID-19 pandemic without first obtaining the Buyer’s consent breached the ordinary course covenant and excused the Buyer from closing. Because the Seller’s failure to comply with the ordinary course covenant was dispositive of the appeal, the Supreme Court did not reach whether the Seller also breached the title insurance condition. View "AB Stable VIII LLC v. Maps Hotels and Resorts One LLC" on Justia Law

In 2005, Sweetwater Point, LLC (“Sweetwater”) paid more than $8 million for two parcels of land. Lehman Brothers Holdings, Inc. (“Lehman”) provided a $6 million loan to fund the purchase. Shortly before closing, Sweetwater learned that the State had a claim to a de minimis portion of one of the parcels. Although the State’s claim did not appear in the sellers’ chain of title, Sweetwater decided to go forward with the sale. In 2009, the State filed a lawsuit claiming it had superior title to the entire parcel of land. In May 2017, the Court of Chancery held that the State had superior title to the parcel. Approximately one year later, Sweetwater and Lehman filed separate lawsuits against the sellers. The Superior Court dismissed both actions, holding that the claims were time-barred. Sweetwater and Lehman appealed, arguing that their claims were timely because the statute of limitations did not begin to run until the Court of Chancery held that the State had superior title to the parcel. The Delaware Supreme Court affirmed the Superior Court: the three-year statute of limitations established under 10 Del. C. 8106 applied to each claim. "Each claim accrued at closing, and any tolling of the claims ceased, at the latest, when the State asserted ownership over the land, placing Sweetwater and Lehman on inquiry notice of the injury. That occurred more than three years before Sweetwater and Lehman filed their complaints in the Superior Court. Accordingly, each of the claims filed below is time-barred." View "Lehman Brothers Holdings v. Kee, et al." on Justia Law

OptiNose AS and OptiNose, Inc. (collectively, OptiNose) agreed to license its Exhalation Delivery Systems (“EDS”) technology to Currax Pharmaceuticals, LLC. The parties limited the License Agreement to a product which used a powder EDS device to deliver the migraine treatment drug sumatriptan into the nasal cavity. The product covered by the license, a powder EDS device and sumatriptan together, was trade-named ONZETRA(R) XSAIL(R). Currax had a limited right to sell the sumatriptan powder EDS device (the “Product”) in Canada, the United States, and Mexico. OptiNose retained the right to sell EDS devices: (1) with powders and liquids other than sumatriptan around the world; and (2) EDS devices with sumatriptan in every area other than those three countries. OptiNose also gave Currax the “first right” to “prosecute and maintain” certain patents related to the Product, listed in the License Agreement as the Product Patents. During Currax’s prosecution of the ’009 Patent Application, the U.S. Patent and Trademark Office (“USPTO”) rejected claims because they were not “patentably distinct” from the claims in another Product Patent. To overcome the patent office rejection, Currax needed to file a terminal disclaimer over the issued Product Patent. Currax needed a power of attorney from OptiNose to file a terminal disclaimer. OptiNose refused to provide it. Currax filed suit against OptiNose in the Court of Chancery, seeking an order of specific performance requiring OptiNose to grant it a power of attorney. OptiNose counterclaimed for a declaration that the License Agreement did not require it to provide a power of attorney. According to OptiNose, Currax’s right to prosecute Product Patents did not include a power of attorney, and, in any event, Currax could not file a terminal disclaimer without OptiNose’s advance approval, which it had not given. The Court of Chancery granted Currax’s motion for judgment on the pleadings, finding the License Agreement OptiNose to provide a power of attorney to prosecute the ’009 Application. On appeal, the parties focused primarily on OptiNose’s advance approval right, and whether a terminal disclaimer “relate[s] to or characterize[s] the Device component of the Patent or other OptiNose intellectual property.” The Delaware Supreme Court affirmed the Court of Chancery’s judgment that filing a terminal disclaimer in the ’009 Application prosecution was included in the rights OptiNose gave to Currax under the License Agreement. View "Optinose AS v. Currax Pharmaceuticals, LLC" on Justia Law

The issue presented from this interlocutory appeal of a Court of Chancery order holding that Appellees/Cross-Appellants, former stockholders of TerraForm Power, Inc. (“TerraForm”), had direct standing to challenge TerraForm’s 2018 private placement of common stock to Appellant/Cross-Appellees Brookfield Asset Management, Inc. and its affiliates, a controlling stockholder, for allegedly inadequate consideration. The trial court held that Plaintiffs did not state direct claims under Tooley v. Donaldson, Lufkin & Jennette, Inc., but did state direct claims predicated on a factual paradigm “strikingly similar” to that of Gentile v. Rossette, and that Gentile was controlling here. Appellants contended Gentile was inconsistent with Tooley, and that the Delaware Supreme Court’s decision in Gentile created confusion in the law and therefore ought to be overruled. Having engaged in a "full and fair presentation and searching inquiry has been made of the justifications for such judicial action," the Supreme Court overruled Gentile. Accordingly, the Court of Chancery's decision was reversed, but not because the Court of Chancery erred, but rather, because the Vice Chancellor correctly applied the law as it existed, recognizing that the claims were exclusively derivative under Tooley, and that he was bound by Gentile. View "Brookfield Asset Management, Inc., v. Rosson" on Justia Law

In 2017, a third-party entity acquired Authentix Acquisition Company, Inc. (“Authentix”). The cash from the merger was distributed to the stockholders pursuant to a waterfall provision. The Authentix common stockholders received little to no consideration. A group of common stockholders filed a petition for appraisal to the Court of Chancery under Section 262 of the Delaware General Corporation Law (“DGCL”). Authentix moved to dismiss the petition, arguing that the petitioners had waived their appraisal rights under a stockholders agreement that bound the corporation and all of its stockholders. The Court of Chancery granted the motion to dismiss, holding that the petitioners had agreed to a clear provision requiring that they “refrain” from exercising their appraisal rights with respect to the merger. The court awarded the petitioners equitable interest on the merger consideration and declined to award Authentix pre-judgment interest under a fee-shifting provision. All parties appealed the Court of Chancery’s decisions. Pointing to Delaware’s "strong policy favoring private ordering," Authentix argued stockholders were free to set the terms that will govern their corporation so long as such alteration was not prohibited by statute or otherwise contrary to Delaware law. Authentix contended a waiver of the right to seek appraisal was not prohibited by the DGCL, and was not otherwise contrary to Delaware Law. "As a matter of public policy, there are certain fundamental features of a corporation that are essential to that entity’s identity and cannot be waived." Nonetheless, the Delaware Supreme Court determined the individual right of a stockholder to seek a judicial appraisal was not among those fundamental features that could not be waived. Accordingly, the Court held that Section 262 did not prohibit sophisticated and informed stockholders, who were represented by counsel and had bargaining power, from voluntarily agreeing to waive their appraisal rights in exchange for valuable consideration. Further, the Court found the Court of Chancery did not abuse its discretion by awarding the petitioners equitable interest on the merger consideration; nor did the court abuse its discretion by declining to award Authentix pre-judgment interest under a fee-shifting provision. Accordingly, the Court of Chancery’s judgment was affirmed. View "Manti Holdings, LLC et al. v. Authentix Acquisition Company, Inc." on Justia Law

Appellant Joseph Hurley represented Clay Conaway, a former college athlete charged with raping six women. After the case attracted media attention, the Superior Court entered an order prohibiting counsel from making public comments except to the extent permitted under Rule 3.6 of the Delaware Lawyers Rules of Professional Conduct (“DLRPC”). Hurley twice spoke to reporters while the order was in force. The court held that both sets of comments violated the order and found Hurley in civil contempt of court. On appeal, Hurley argued the Superior Court erred by holding that there was a substantial likelihood his comments would materially prejudice pending proceedings. Finding no reversible error, the Delaware Supreme Court upheld the contempt order. View "In re Joseph Hurley, Esq." on Justia Law

The two equal stockholders of UIP Companies, Inc. were deadlocked and could not elect new directors. One of the stockholders, Marion Coster, filed suit in the Court of Chancery and requested appointment of a custodian for UIP. In response, the three-person UIP board of directors — composed of the other equal stockholder and board chairman, Steven Schwat, and the two other directors aligned with him— voted to issue a one-third interest in UIP stock to their fellow director, Peter Bonnell, who was also a friend of Schwat and long-time UIP employee (the “Stock Sale”). Coster filed a second action in the Court of Chancery, claiming that the board breached its fiduciary duties by approving the Stock Sale. She asked the court to cancel the Stock Sale. After consolidating the two actions, the Court of Chancery found what was apparent given the timing of the Stock Sale: the conflicted UIP board issued stock to Bonnell to dilute Coster’s UIP interest below 50%, break the stockholder deadlock for electing directors, and end the Custodian Action. Ultimately, however, the court decided not to cancel the Stock Sale. The Delaware Supreme Court reversed the Court of Chancery on the conclusive effect of its entire fairness review and remanded for the court to consider the board’s motivations and purpose for the Stock Sale. "If the board approved the Stock Sale for inequitable reasons, the Court of Chancery should have cancelled the Stock Sale. And if the board, acting in good faith, approved the Stock Sale for the 'primary purpose of thwarting' Coster’s vote to elect directors or reduce her leverage as an equal stockholder, it must 'demonstrat[e] a compelling justification for such action' to withstand judicial scrutiny." View "Coster v. UIP Companies, Inc." on Justia Law

Appellant, Concerned Citizens of the Estates of Fairway Village, was an unincorporated association composed of people who own property in Fairway Village (the “Community”), a planned residential community located in Ocean View, Delaware. Appellants Julius and Peggy Solomon, Edward Leary, Kenneth and Denise Smith, and Terry and Carmela Thornes (collectively, the “Homeowners”) owned properties in the Community and were members of Concerned Citizens of the Estates of Fairway Village. Appellee Fairway Cap, LLC was the Community's developer. Demand for vacant townhomes in the Community was weaker than the developers expected. In the winter of 2016, Fairway Cap, LLC hired a real estate consultant who recommended converting unsold townhome lots into a rental community. Fairway Cap, LLC accepted the advice, secured funding, and began working on the rental properties. Appellee Fairway Village Construction, Inc. was an entity involved in the construction. The Homeowners discovered the plan after seeing an advertisement for “The Reserve at Fairway Village,” a forthcoming rental community. The Homeowners raised various objections to the rental community, including that the proposed units did not conform with existing dwellings and would lower property values. The Town of Ocean View and Fairway Cap, LLC rejected all the objections, concluding that the planned construction complied with the housing code and was allowed under the Community’s governing documents. This appeal presented two questions for the Delaware Supreme Court's review: (1) whether the Court of Chancery erred by holding that the Community’s governing documents allowed the developer to build rental properties; and (2) whether the Court of Chancery erred by awarding damages for a wrongful injunction after releasing the bond posted with the court. Finding no reversible error, the Supreme Court affirmed the Court of Chancery's judgment. View "Concerned Citizens of the Estates of Fairway Village v. Fairway Cap" on Justia Law

The Delaware Department of Finance served an administrative subpoena on AT&T Inc. to produce records relating to a financial audit. AT&T refused to produce all of the requested records. The Department responded by filing a complaint in the Court of Chancery to enforce the subpoena. AT&T defended by claiming, among other things, that the subpoena exceeded the Department’s authority and was overbroad. The Court of Chancery held that, although the Department validly issued the subpoena, AT&T “met its burden to show that the scope of the subpoena is so expansive that enforcement would constitute an abuse” of the court’s process. The court noted that it had offered the Department the opportunity to supplement the record to explain why the subpoena should be enforced as written, but the Department declined the invitation. The court therefore quashed the subpoena in its entirety. The Department appealed the court’s decision. The Delaware Supreme Court affirmed the Court of Chancery’s judgment. Recognizing that the procedural and substantive aspects of administrative subpoena enforcement were issues of first impression in Delaware, the Supreme Court adopted the procedures and substance followed by the federal courts in administrative subpoena enforcement proceedings. Because the Court announced new procedural and substantive standards governing administrative subpoenas, it allowed the Department to serve a new subpoena on AT&T that complied with the guidance in the Court’s opinion. View "Delaware Dept of Finance v. AT&T Inc." on Justia Law

Appellant Wild Meadows MHC, LLC challenged the Superior Court’s dismissal of its petition for a writ of prohibition. The Wild Meadows manufactured home community (the “Community”) owned by Appellant, was located in Dover, Delaware. The Community was governed by the Manufactured Home Owners and Community Owners Act and its subsection commonly known as the Rent Justification Act (the “Act”). Appellee Intervenor/Respondent Wild Meadows Homeowners’ Association (the “HOA”) represented these homeowners. Multiple homeowners rejected Wild Meadows’ rent increase and, through the HOA, filed a petition with the Delaware Manufactured Home Relocation Authority (the “Authority”). The Authority appointed Appellee David J. Weidman, Esquire as the arbitrator under the Act. Before the scheduled arbitration, the HOA requested financial information from Wild Meadows relating to the Community’s recent revenue and costs. Wild Meadows refused to provide this information. The HOA moved to compel discovery and a motion for summary judgment with Weidman. In his initial decision, Weidman granted discovery of any financial documents that Wild Meadows intended to rely upon at arbitration, but he denied the HOA’s motion to compel the production of additional financial documents from Wild Meadows. Determining he could compel discover, Weidman ordered Wild Meadows to submit a proposed confidentiality agreement, and ordered the HOA to submit any comments on the draft. After taking both parties' comments into consideration, Weidman issued a final confidentiality agreement, rejecting many of the changes the HOA proposed. Wild Meadows refused to sign the confidentiality agreement and filed the underlying application for a writ of prohibition in the Superior Court. Wild Meadows argued to the Delaware Supreme Court that the Superior Court erroneously held that the arbitrator appointed under Delaware’s Rent Justification Act had authority to compel discovery and impose a confidentiality agreement upon parties concerning discovery material. Finding no reversible error in the Superior Court's judgment, the Supreme Court affirmed. View "Wild Meadows MHC, LLC v. Weidman" on Justia Law