Articles Posted in Delaware Supreme Court

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The United States Court of Appeals for the Third Circuit certified a question of Delaware law to the Delaware Supreme Court. The plaintiff-appellants worked on banana plantations in Costa Rica, Ecuador, and Panama at various times in the 1970s and 1980s. The defendants-appellees included United States corporations that manufactured and distributed a pesticide called dibromochloropropane (“DBCP”), and other United States corporations that owned and operated the banana plantations. The plaintiffs alleged they suffered adverse health consequences from exposure to DBCP while working on the banana plantations. In 1993, a putative class action lawsuit was filed in state court in Texas; all plaintiffs to this suit were members of the putative class. Before a decision was made on class certification, defendants impleaded a company partially owned by the State of Israel ​and used its joinder as a basis to remove the case to federal court under the Foreign Sovereign Immunities Act (FSIA). After removal, the case was consolidated with other DBCP-related class actions in the United States District Court for the Southern District of Texas. The cases were consolidated. The Texas District Court granted defendants' motion to dismiss for forum non conveniens. The certified question to the Delaware Court centered on whether a class action's tolling ended when a federal district court dismisses a matter for forum non conveniens and, consequently, denies as moot “all pending motions,” which included the motion for class certification, even where the dismissal incorporated a return jurisdiction clause stating that “the court will resume jurisdiction over the action as if the case had never been dismissed for f.n.c.” If it did not end at that time, when did it end based on the facts specific to this case? The Delaware Court responded the federal district court dismissal in 1995 on grounds of forum non conveniens and consequent denial as moot of “all pending motions,” including the motion for class certification, did not end class action tolling. Class action tolling ended when class action certification was denied in Texas state court on June 3, 2010. View "Marquinez, et al. v. Dow Chemical Company, et al." on Justia Law

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The Court of Chancery initially found that Wal-Mart stockholders who were attempting to prosecute derivative claims in Delaware could no longer do so because a federal court in Arkansas had reached a final judgment on the issue of demand futility first, and the stockholders were adequately represented in that action. But the derivative plaintiffs in Delaware asserted that applying issue preclusion in this context violated their Due Process rights. The Delaware Supreme Court surmised this dispute implicated complex questions regarding the relationship among competing derivative plaintiffs (and whether they may be said to be in “privity” with one another); whether failure to seek board-level company documents renders a derivative plaintiff’s representation inadequate; policies underlying issue preclusion; and Delaware courts’ obligation to respect the judgments of other jurisdictions. The Delaware Chancellor reiterated that, under the present state of the law, the subsequent plaintiffs’ Due Process rights were not violated. Nevertheless, the Chancellor suggested that the Delaware Supreme Court adopt a rule that a judgment in a derivative action could not bind a corporation or other stockholders until the suit has survived a Rule 23.1 motion to dismiss The Chancellor reasoned that such a rule would better protect derivative plaintiffs’ Due Process rights, even when they were adequately represented in the first action. The Delaware Supreme Court declined to adopt the Chancellor’s recommendation and instead, affirmed the Original Opinion granting Defendants’ motion to dismiss because, under the governing federal law, there was no Due Process violation. View "California State Teachers' Retirement System, et al. v. Alvarez, et al." on Justia Law

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Caris Life Sciences, Inc. operated three business units: Caris Diagnostics, TargetNow and Casrisome. The Diagnostics unit was consistently profitable. TargetNow generated revenue but not profits, and Carisome was in the developmental stage. To secure financing for TargetNow and Carisome, Caris sold Caris Diagnostics to Miraca Holdings. The transaction was structured using a "spin/merge" structure: Caris transferred ownership of TargetNow and Carisome to a new subsidiary, then spun off that subsidiary to its stockholders. Owning only Caris Diagnostics, Caris merged with a wholly owned subsidiary of Miraca. Plaintiff Kurt Fox sued on behalf of a class of option holders of Caris. Fox alleged that Caris breached the terms of the Stock Incentive Plan because members of management as Plan Administrator, rather than the Board of Directors, determined how much the option holders would receive. Regardless of who made the determination, the $0.61 per share attributed to the spun off company was not a good faith determination, and resulted from an arbitrary and capricious process. The Court of Chancery found that fair market value was not determined, and the value received by the option holders was not determined in good faith and that the ultimate value per option was determined through a process that was "arbitrary and capricious." Caris appealed, arguing the Court of Chancery erred in arriving at its judgment. Finding no reversible error in the Court of Chancery's judgment, the Delaware Supreme Court affirmed. View "CDX Holdings, Inc. v. Fox" on Justia Law

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The United States Court of Appeals for the Eleventh Circuit certified a question of law arising out of an appeal of a decision by the United States District Court for the Southern District of Florida to the Delaware Supreme Court. Paulson Advantage Plus, L.P. (the “Investment Fund”) was a Delaware limited partnership that invested in corporate securities. Paulson Advisers, LLC, a Delaware limited liability company, and Paulson & Co., a Delaware corporation (the Investment Fund Managers) were the general partners and managers of the Investment Fund. One of the Investment Fund’s limited partners was HedgeForum Paulson Advantage Plus, LLC, (the “Feeder Fund”). The Feeder Fund was managed and sponsored by Citigroup Alternative Investments, LLC. AMACAR CPO, Inc. was the Feeder Fund’s managing member. Along with other investors, Plaintiff-appellant Hugh Culverhouse was a member of the Feeder Fund, not a limited partner in the Investment Fund. Culverhouse filed a putative class action against the Investment Fund Managers in the United States District Court for the Southern District of Florida. The first amended complaint alleged that between 2007 and 2011, the Investment Fund invested about $800 million in a Chinese forestry company. Following another investment firm’s report claiming that the forestry company had overstated its timber holdings and engaged in questionable related-party transactions, the Investment Fund sold its holdings for about a $460 million loss. On appeal of the dismissal for lack of standing, the United States Court of Appeals for the Eleventh Circuit determined that resolution of the appeal depended on an unsettled issue of Delaware law. The Eleventh Circuit posited the question to the Delaware Supreme Court on whether the diminution in the value of a limited liability company, serving as a feeder fund in a limited partnership, provides a basis for an investor’s direct suit against the general partners when the company and the partnership allocated losses to investors’ individual capital accounts and did not issue transferrable shares and losses were shared by investors in proportion to their investments. The Delaware Court answered in the negative. View "Culverhouse v. Paulson & Co., Inc." on Justia Law

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The plaintiffs both have policies with State Farm Mutual Automobile Insurance Company and both submitted claims that State Farm failed to pay within the statutory thirty-day period. The plaintiffs earlier alleged that State Farm had failed to make the required statutory interest payments to them and other claimants whose PIP claims had not been processed within thirty days. When that theory did not pan out and they faced summary judgment, the plaintiffs reformulated their pursuit of class-wide relief by proposing to file an amended complaint seeking a declaratory judgment from the Superior Court that State Farm must process all PIP claims within thirty days. The Superior Court denied the motion for leave to amend, reasoning that amending the complaint would be futile because no case or controversy existed because the plaintiffs had been paid the required statutory interest. The court then granted summary judgment to State Farm. In this appeal, the plaintiffs alleged that the Superior Court was wrong to dismiss their claim, arguing that they have a ripe disagreement with State Farm over its failure to comply invariably with the thirty-day deadline set forth in 21 Del. C. 2118B(c). After review, the Supreme Court affirmed the Superior Court, but on a somewhat different ground. The plaintiffs were correct that absent declaratory (or injunctive) relief, it may be that they and other class members will have a claim in the future processed by State Farm in more than thirty days. But, the Court agreed with the Superior Court that the amended complaint is futile because as plainly written, section 2118B(c) did not impose an invariable standard that every PIP claim must be processed within thirty days and, in fact, contemplated that will not be the case by establishing a statutory consequence for the failure to do so. View "Clark v. State Farm Mutual Automobile Insurance Co." on Justia Law