The Delaware Court of Chancery is a unique legal institution that operates within its own set of jurisdiction guidelines. In a recent case, Delta Eta v. City of Newark, the Court conducted a jurisdictional analysis that shed light on its ability to intervene to prevent abuses of statutory rights.

The plaintiff in the case was seeking an injunction to remedy and reverse the alleged wrongful denial of a conditional use permit application. The legislative authority to enact zoning ordinances has been delegated to counties and municipalities, which can provide for special uses. Cases involving special use permit applications typically raise questions about whether the approval or denial was in compliance with the applicable ordinance or delegating statute.

However, the Court found that the rights asserted by Delta Eta were solely legal in nature, arising from the ordinance and ultimately from the statute. This meant that without a specific grant of statutory jurisdiction, the Court could only hear the case if it fell within its general equity jurisdiction.Equitable rights are rights that are not recognized at common law, such as fiduciary rights and obligations arising in the context of trusts, corporations, guardianships, and the administration of estates. The Court of Chancery has jurisdiction over these types of claims, regardless of the remedy being sought. In this case, the request for injunctive relief did not change the jurisdictional analysis, as the Court held that even if a declaratory judgment was properly available, that would not necessarily entitle the plaintiff to injunctive relief. The Court emphasized that it would only issue injunctive relief in exceptional circumstances, and if a declaratory judgment from the Superior Court was sufficient, the Court lacked jurisdiction to hear the claim.

In conclusion, the Delaware Court of Chancery operates within strict jurisdiction guidelines and can only hear cases that fall within its scope of authority. In the case of Delta Eta, the Court lacked jurisdiction over the plaintiff's claim for a declaratory judgment enforced by an injunction.

The recent court case of Yuga Labs, Inc. v. Ripps, No. CV 22-4355-JFW(JEMx) (C.D. Cal. Dec. 16, 2022) has sparked the interest of both the business and legal communities as it brings to the forefront the intersection of trademark law and NFTs (non-fungible tokens). This case centers around a disagreement between the Plaintiff, who owns the trademark, and the Defendant, who was accused of using the mark to sell their own competing NFTs.

At the heart of the dispute is the Plaintiff's allegation that the Defendant, a "conceptual artist," scammed consumers into purchasing certain NFTs by misusing the Plaintiff's mark. The Plaintiff claims that the Defendant flooded the NFT market with his own copycat NFT collection using the Plaintiff's images and marks, thereby infringing on the Plaintiff's trademark rights.

The Defendant, however, argued that their use of the trademark was protected by the principles of fair use and nominative fair use. The former doctrine allows individuals to use a trademark without permission in certain circumstances, such as for the purpose of commentary or criticism. The latter principle provides that the use of a trademark is permissible if it is necessary to identify the trademarked product or service and does not suggest sponsorship or endorsement by the trademark owner.

Despite these arguments, the court ruled in favor of the Plaintiff, stating that the sale of the NFTs is a commercial act and does not constitute an expressive artistic work protected by the First Amendment, citing the fact that the images at issue were exact copies of the Plaintiff's images. The court also held that the Defendant's use of the mark was not necessary to identify the trademarked product or service and that it suggested sponsorship or endorsement by the trademark owner, thereby infringing on the Plaintiff's trademark rights.

In addition to the trademark issue, the court also denied the Defendant's Motion to Dismiss and Anti-SLAPP Motion, which means that the case will proceed and the issues raised by the Defendant with respect to the Plaintiff's non-trademark causes of action will be addressed in a future motion for summary judgment.

As the NFT market continues to grow and evolve, it is important for all parties involved in the space to stay informed about the latest developments in trademark law and to take the necessary steps to protect their rights and interests. This case serves as a valuable reminder of the importance of trademark law in the NFT space and the need for NFT creators, marketplaces, and collectors to seek the advice of a knowledgeable attorney when necessary.

#NFTs #TrademarkLaw #LegalDisputes #CourtCase #YugaLabsInc #Ripps #ProtectingRights #IntellectualProperty #NonFungibleTokens #Cryptocurrency #Ethereum #FirstAmendment #CommercialAct #Infringement #NominativeFairUse #NFTMarket #BusinessCommunity #LegalCommunity #Creators #Marketplaces #Collectors

Today's decision by the 3rd Circuit regarding the bankruptcy filing of LTL Management, a company created by a "Texas Two-Step" divisive merger, has clarified (to say it lightly) requirements for a debtor to file for bankruptcy protection under the Bankruptcy Code. This decision has far-reaching implications for other companies who may be considering filing for bankruptcy via the two-step.

The court dismissed the bankruptcy filing of LTL Management on the grounds that it was not filed in good faith. The court found that LTL was formed as a shell company to manage and defend against talc-related claims while insulating Johnson & Johnson's assets. The court noted that LTL was well-funded by Johnson & Johnson, with no signs of financial difficulty, indicating that the bankruptcy filing was premature.

In its ruling, the court emphasized the role that funding from parent companies plays in a subsidiary's ability to file for bankruptcy protection. Johnson & Johnson's funding meant, according to the court, that LTL was not in financial distress at the time of its bankruptcy filing. This rendered the filing unwarranted under prevailing precedent.

This developing decision serves as a reminder of the importance of thoroughly evaluating a company's financial situation before seeking bankruptcy protection. Companies must demonstrate financial distress and an inability to pay their debts to be eligible for protection under the Bankruptcy Code. It is crucial for companies to consider the financial support provided to their subsidiaries and the implications it may have on their ability to seek bankruptcy protection.

#LTLManagement #BankruptcyFiling #Requirements #Debtor #BankruptcyCode #ParentCompanies #FinancialSupport #Subsidiaries #FinancialDistress #CollateralAgreements #LegalImplications

In White Winston Select Asset Funds, LLC et al v. Good Times Restaurants, Inc., No. 19-2092 (Bibas, Circuit Judge, by designation) the United States District Court for the District of Delaware revisited the dispute between White Winston and Good Times over the interpretation of a letter of intent regarding the sale of a chain of drive-thru restaurants. White Winston claimed that Good Times had breached an express or implied term of the letter of intent, leading to the termination of the deal.

The court applied contract interpretation principles to analyze the letter of intent, including the objective manifestation of intent, course of performance, usage of trade, and course of dealing. The court found that the letter of intent was not an enforceable contract, but merely a preliminary agreement outlining the terms and conditions under which a final agreement would be reached.

The court also noted that the letter of intent contained a provision allowing Good Times to terminate the deal at any time for any reason, without liability. Based on this provision, the court concluded that Good Times did not violate an express or implied term of the letter of intent and granted judgment in favor of Good Times on all remaining claims.

This case highlights the importance of careful contract interpretation in determining the enforceability of agreements. It also serves as a reminder to businesses to carefully review and understand the terms and conditions of any agreement before entering into it, to avoid potential disputes and misunderstandings.

Citation: White Winston v. Good Times, United States Circuit Court, January 25, 2023.

#ContractInterpretation #Agreements #BusinessLaw #Litigation #LegalDisputes

The FTX bankruptcy has been a complex and high-profile case in the world of cryptocurrency. The U.S. Trustee, a federal official responsible for overseeing the administration of bankruptcy cases, has argued that an examiner should be appointed in the case to conduct an independent investigation into the affairs of the debtors. However, the debtors themselves have opposed the motion, stating that an examiner's investigation would be unnecessary, costly, and potentially harmful to the estate and the creditors. In this article, we will take a closer look at both sides of the argument to understand why the U.S. Trustee is requesting an examiner and why the debtors are resisting the appointment.

The U.S. Trustee has argued that an examiner is necessary in this case to conduct an independent investigation into the debtors' affairs. The U.S. Trustee has noted that the debtors are facing significant questions about their operations and management leading up to their bankruptcy, as well as potential claims and allegations of misconduct. The U.S. Trustee believes that an examiner would be able to provide valuable insights and information that would assist the creditors and the court in understanding the nature and extent of any potential misconduct, as well as any potential claims that could be brought against the debtors.

The U.S. Trustee has also raised concerns about potential conflicts of interest between the debtors and other interested parties, as well as the possibility of interdebtor claims between the FTX Trading Ltd and Alameda Research. The U.S. Trustee believes that an examiner would be able to identify and address any conflicts of interest, as well as develop the factual record for any potential interdebtor claims.

Finally, the U.S. Trustee has argued that the appointment of an examiner would not be costly or harmful to the estate and the creditors. The U.S. Trustee has noted that the costs of an examiner's investigation would be outweighed by the benefits that it would provide, and that the estate would be able to recover any costs associated with the examiner through the recovery of assets or the assertion of claims against third parties.

The debtors, however, have opposed the motion for the appointment of an examiner, stating that an examiner's investigation would be unnecessary, costly, and potentially harmful to the estate and the creditors.

The debtors have argued that they have already been conducting their own investigations into their affairs leading up to their bankruptcy, as well as cooperating with investigations by the creditors' committee, law enforcement agencies, and Congress. The debtors believe that these investigations have already been able to confirm key facts and that an examiner's investigation would be duplicative and impede the progress of these ongoing investigations.

The debtors have also argued that the appointment of an examiner would be costly and potentially harmful to the estate and the creditors. The debtors have noted that the costs of an examiner's investigation could run into the tens of millions of dollars and that the estate would be unable to recover these costs through the recovery of assets or the assertion of claims against third parties. The debtors have also raised concerns about the cybersecurity risks associated with an examiner's investigation, stating that the more activity and actors there are in their virtual environment, the greater the risk to their assets and sensitive data.

Finally, the debtors have argued that the appointment of an examiner would delay the administration of the case, it is argued that an examiner is not necessary at this stage. They also point out that any investigation by an examiner would be unlikely to be able to add any significant new information or asset recovery that cannot be obtained by the current ongoing investigations. They also argue that an examiner would be costly, and divert resources and attention away from the ongoing investigation and recovery efforts.

In conclusion, the debate over whether to appoint an examiner in the case of FTX Trading Ltd. and Alameda Research highlights the complex considerations that must be taken into account in a bankruptcy case, including the interests of creditors, the ongoing investigations, and the potential costs and risks involved.

#Bankruptcy #Examiner #FTXTrading #AlamedaResearch #BillionLaw #Delaware

The Delaware Chancery Court recently made a landmark decision in a shareholder claim against the former global head of HR at McDonald’s, David Fairhurst. (In re McDonald’s Corp. Stockholder Derivative Litigation, 2021-0324-JTL).

The court ruled that corporate officers can be held liable for breaches of the duty of oversight, in addition to corporate directors. This decision clarifies that corporate officers owe a duty of oversight and that the context-driven application of this duty may differ based on their role within the company.

The shareholders in the case alleged that Fairhurst and former CEO, Stephen Easterbrook, promoted a "party atmosphere" that included alcohol at company events. Additionally, the company faced increasing public scrutiny over alleged sexual harassment and misconduct, leading to multiple EEOC complaints and a strike by workers in ten U.S. cities in 2018. In November 2018, the company’s board received a complaint that at a party for human resources staff, Fairhurst himself committed an act of sexual harassment.

This court decision has important implications for companies and their senior management, as it highlights the importance of preventing misconduct and providing oversight to protect the company and its shareholders' interests. Companies should have clear policies and procedures in place to address and prevent sexual harassment and misconduct and take prompt and effective action when incidents are reported. This decision may serve as a wake-up call for companies to ensure a safe and respectful workplace and for officers and directors to be vigilant in fulfilling their oversight duties.

This ruling could also lead to an increase in shareholder derivative lawsuits against corporate officers for breaches of the duty of oversight in relation to sexual harassment and misconduct. It is important for companies to take note of this ruling and take proactive steps to prevent such incidents from occurring and address them swiftly if they do.

This update is provided by Billion Law, a boutique business law practice that represents entrepreneurs of all stripes.

#ShareholderLawsuit #McDonalds #SexualHarassment #CorporateLiability #DutyOfOversight #CorporateOfficers #WorkplaceMisconduct #CorporateResponsibility #WorkplaceSafety #FiduciaryDuty #Caremark #DGCL #Chancery #BillionLaw

A recent court decision sheds light on the legal standards for a fraudulent inducement claim in the context of a cryptocurrency investment lawsuit. The case, Rostami v. Open Props, Inc., No. 22-CV-3326 (RA) (S.D.N.Y. Jan. 9, 2023), involved a dispute over the Props Token, a blockchain-based digital asset created by defendants Open Props and Props Token, LLC. The plaintiff, an accredited investor, claimed that defendants made false and misleading statements in order to induce him to invest in the Props Token, and that defendants never had any intention of creating a decentralized network for the token as they had promised.

The court ultimately dismissed the fraudulent inducement claim, finding that the plaintiff had not plausibly alleged any false or misleading statements by the defendants. The court noted that the defendants had always represented the Props Token as a security and had made clear in their pre-SAFT whitepapers and SAFT itself that the investment carried significant risks, including regulatory risks, the adoption of blockchain technology and the continued use and adoption of the Ethereum network. The court also found that the plaintiff failed to plead fraudulent intent, as the only factual allegations offered in support of fraudulent intent was the "Regulation A" public offering, which the court determined did not raise an inference of fraud.

The court also dismissed plaintiff's claim for unjust enrichment and breach of the implied covenant of good faith and fair dealing. In dismissing the unjust enrichment claim, the court noted that there was nothing unjust about the plaintiff's investment in Props Tokens, as there was no fraudulent conduct. The court also found that the plaintiff had no justified expectations in any sustained value of his investment given the inherent, publicly disclosed risks of the Props Tokens venture, which supported the dismissal of the breach of the implied covenant of good faith and fair dealing claim.

This case serves as a reminder to investors in blockchain-based digital assets that they should be aware of the risks associated with such investments and should not rely solely on marketing materials or promises of future performance. It also highlights the high standard for alleging fraudulent inducement in the context of digital asset investments and the importance of pleading specific factual allegations to support a claim of fraudulent intent.

#FraudulentInducement #PropsToken #BlockchainInvestment #CryptocurrencyLawsuit

As the legal battle over ownership interests in closely held corporation, Numoda Corporation, continues to unfold, the court has made a significant decision in the dispute between an existing shareholder and the transferee of shares pursuant to a family court order. At the heart of the matter is a conflict between a stock transfer agreement (STA) of a predecessor entity to Numoda and a Family Court Order awarding the same shares to Defendant Vurimindi.

The Plaintiff argues that the share transfer to Vurimindi, which arguably complied with the Family Court Order, is unenforceable due to STA provisions requiring ratification by a majority vote of existing stockholders. Vurimindi, on the other hand, asserts his valid ownership interest in Numoda and asserts rights associated with his status as a stockholder through counterclaims.

After careful consideration, the court has determined that Vurimindi’s counterclaims are predicated on his status as a Numoda stockholder, which depends on whether the STA is enforceable, and thus are not ripe unless the STA dispute is resolved. Additionally, the court determined that the STA in question involved Numoda’s predecessor, MCR Systems Inc., a Pennsylvania corporation — meaning the STA dispute should be resolved in Pennsylvania courts.

As a result, the court has decided to stay this action pending resolution of the STA dispute in Pennsylvania court. The court has retained jurisdiction for further action as circumstances may require.

This is a developing story, and we will continue to keep you updated on the latest developments in this legal dispute.

In recent years, the use of Bitcoin and other digital currencies in commercial transactions has become increasingly prevalent. However, as with any new technology or method of conducting business, the use of Bitcoin also brings with it a new set of legal challenges. One such challenge is the issue of fraudulent representations in Bitcoin transactions, as illustrated in the January 23, 2023, opinion in Zaftr, Inc. v. Lawrence, No. 21-2177 (E.D. Pa.).

In this case, Zaftr, a company engaged in the buying and selling of Bitcoin, entered into several agreements with defendants Lawrence, Kirk, and their respective companies, BVFR, LLC and Kirk Law, PLLC, to purchase a large amount of Bitcoin. However, the transaction ultimately failed and Zaftr brought suit against the defendants, alleging, among other things, fraudulent misrepresentation.

The court found that there was sufficient evidence for a jury to conclude that the defendants made various false representations to Zaftr, including about Lawrence's credentials and experience, and about the identity and prior business dealings of the supposed seller of the Bitcoin, "Smith." Additionally, the court found that Zaftr had justifiably relied on these representations, and that it had suffered injury as a result. Thus, the court denied the defendants' motion for summary judgment on Zaftr's fraudulent misrepresentation claim.

The court also found that there was evidence for a jury to conclude that the defendants had acted with a common purpose to commit an unlawful act and cause actual damage, thus surviving the defendants' motion for summary judgment on Zaftr's civil conspiracy claim.

The case highlights the importance of proper due diligence and verification in Bitcoin transactions, particularly in respect to the credibility and trustworthiness of the parties involved. It also underscores the need for businesses and individuals to be aware of the legal risks associated with digital currencies, and to take appropriate steps to prevent fraudulent representations in the cryptocurrency and blockchain industry.

As the cryptocurrency and blockchain industry continues to grow, it is important for businesses and individuals to be aware of the potential for fraudulent representations. There are several steps that can be taken to prevent fraudulent representations in the cryptocurrency and blockchain industry:

• Conduct thorough research: Before making any investments or entering into any agreements, it is important to conduct thorough research on the companies and individuals involved. This includes checking their background, looking for red flags, and verifying any information provided.
• Understand the technology: In order to identify potential fraud, it is important to have a basic understanding of the technology behind cryptocurrency and blockchain. This includes understanding how transactions are recorded, the security measures in place, and the potential vulnerabilities.
• Be skeptical of unrealistic returns: If a company or individual promises unrealistic returns on investment, it is likely to be a scam. Be cautious of any investment opportunity that promises guaranteed or high returns with low risk.
• Use escrow services: When buying or selling cryptocurrency, it is important to use escrow services to ensure that funds are secure and that both parties fulfill their obligations. This can help prevent fraud and reduce the risk of losing funds.
• Report suspicious activity: If you suspect fraudulent activity, it is important to report it to the appropriate authorities. This can help prevent fraud and protect others from falling victim.

By following these steps, individuals and businesses can take preventative measures to protect themselves from fraudulent representations in the cryptocurrency and blockchain industry.

This week, in Thermo Fisher Scientific PSG Corp. v. Arranta Bio MA, LLC (C.A. No. 2022-0608-NAC), the Delaware Chancery Court was tasked with addressing a motion filed by the defendant, Arranta Bio MA, LLC, requesting relief due to the poor management of the privilege log by the plaintiff, Thermo Fisher Scientific PSG Corporation.

A privilege log is a document that lists all of the documents that a party is withholding from production because they contain privileged information, such as attorney-client communications or attorney work product. The log is intended to provide transparency and help prevent the abuse of privilege claims.

In this case, the court found that the privilege log produced by Thermo Fisher was riddled with errors and inaccuracies. The court found that the log was overly generic and repetitive and that the descriptions of the documents were often misleading. This made it difficult for Arranta to challenge specific entries on the log and effectively review the documents for relevance and privilege.

Furthermore, the court found that in many cases, Thermo Fisher was improperly claiming privilege over non-privileged communications simply because a lawyer was involved in preparing the document. The court emphasized that "the presence of a lawyer does not transform a non-privileged communication into a privileged one."

Thermo Fisher was also found to have overly redacted documents, even in cases where the redacted text did not contain privileged or work-product information. The court emphasized that "communication will be considered privileged only if the legal aspects predominate."

As a result of these issues, the court granted Arranta's motion in part and directed Thermo Fisher to produce certain documents without redaction. The court also held further ruling in abeyance pending additional in-camera review.

This case serves as a reminder of the importance of accurate and thorough privilege logs, as well as the need to properly assert and apply privilege claims. It is also a cautionary tale for parties in litigation to take the time and effort to review and properly describe documents in a privilege log to avoid potential sanctions from the court.

On Friday, in the case of Armijo v. Ozone Networks, Inc., No. 3:22-cv-00112-MMD-CLB, the District Court of Nevada ruled on the dismissal of claims made by the Plaintiff, Armijo, against two defendants, Yuga Labs and Ozone Networks.

The claims made by Armijo included allegations of theft and conversion of unique digital assets known as "non-fungible tokens" or NFTs, as well as claims of negligence and contract.

The Court first addressed the Defendant Yuga Labs's motion to dismiss, finding that the Plaintiff had not met his burden of showing that jurisdiction over Yuga Labs was proper. Specifically, the Court found that Plaintiff had not shown that Yuga Labs had "purposefully availed" itself of Nevada's jurisdiction through its actions with regard to the Bored Apes and Yellow Ape Crypto (BAYC) club, of which Plaintiff was a member. The Court therefore dismissed the action against Yuga Labs without prejudice for lack of personal jurisdiction.

Next, the Court addressed Defendant Ozone Networks's motion to dismiss, and found that the economic loss doctrine barred all of Plaintiff's negligence claims against Ozone Networks. The economic loss doctrine, under Nevada law, bars unintentional tort actions when the Plaintiff seeks to recover "purely economic losses," as opposed to damages involving physical harm to person or property. In this case, the Court found that Plaintiff's alleged damages all amounted to economic losses, including the loss of Plaintiff's NFTs, the loss of his ability to earn future profits from his NFTs, the loss of his commercialization rights for his stolen NFTs, and the loss of his membership in the BAYC club. As a result, the Court dismissed the negligence claims against Ozone Networks with prejudice.

This case is an interesting example of how the legal system is beginning to grapple with the issues surrounding digital assets and their ownership. The court's decision to dismiss the claims against Yuga Labs without prejudice may give Plaintiff an opportunity to refile his claims in a court that has jurisdiction over the defendant. On the other hand, the dismissal of negligence claims against Ozone Networks with prejudice highlights the limitations of traditional tort law in addressing harms arising from digital assets, specifically, the concept of “purely economic losses”. As blockchain technology and digital assets continue to evolve and gain mainstream acceptance, it will be interesting to see how courts and lawmakers adapt to the new challenges that these technologies present.

Yesterday, in Harris v. Harris, 2019-0736 (JTL), the Court of Chancery of Delaware addressed the issue of whether to dismiss the case under the doctrine of forum non conveniens. The defendants, consisting of former directors and officers of a company, argued that the case should be dismissed and transferred to New Jersey, where the company was based and the majority of the parties and events in question occurred.

The court applied the Cryo-Maid factors, which are a set of guidelines used to determine if a case should be dismissed on the grounds of forum non conveniens. The five factors include: (1) the relative convenience of the parties, (2) the extent to which the controversy depends on issues of Delaware law, (3) the relative ease of access to proof, (4) the availability of compulsory process for witnesses, and (5) all other practical problems that would make the trial easy, expeditious, and inexpensive.

The court found that the first factor, the relative convenience of the parties, weighed slightly in favor of dismissing the case. However, the second factor, the extent to which the controversy depends on issues of Delaware law, weighed heavily in favor of the court retaining jurisdiction. This is because the principal claim in the case, a challenge to a merger, was governed by Delaware law.

The third factor, the relative ease of access to proof, was found to be in equipoise, as the defendants failed to identify specific evidence that could not be produced in Delaware. The fourth factor, the availability of compulsory process for witnesses, also weighed marginally in favor of New Jersey.

The final factor, all other practical problems that would make the trial easy, expeditious, and inexpensive, was also considered. The court noted that a significant amount of time and resources had already been invested in the case, and dismissing it would result in duplication of effort and an extended timeline for resolution.

In conclusion, the court denied the motion to dismiss the case under the doctrine of forum non conveniens, stating that the defendants failed to establish overwhelming hardship from litigating in Delaware, which would have required the Cryo-Maid factors to favor dismissal heavily and decisively.

The Court of Chancery of the State of Delaware recently issued a letter decision in the case of In re: Dissolution of T&S Hardwoods KD, LLC (C.A. No. 2022-0782-MTZ). The case involved a dispute between a lumber supplier, T&S Hardwoods, Inc., and a lumber wholesale distributor, Robinson Lumber Company, Inc., over the dissolution of their joint venture, T&S Hardwoods KD LLC.

The limited liability company (LLC) was formed in 2016 with T&S providing a steady lumber supply for RLC to resell, and the venture providing T&S with financing between when it cut the lumber and when the end customers paid their invoices. However, the relationship between the two parties soured, leading to allegations of deadlock, inability to function, and lack of any equitable exit mechanism. As a result, T&S filed for dissolution of the LLC.

The Court denied Respondents' motion to dismiss and consolidated the case with Robinson Lumber Company, Inc. v. Lawrence N. Thompson, III, et al. (C.A. No. 2022-0423-MTZ). In the letter decision, the Court noted that under Section 18-802 of the Delaware LLC Act, dissolution may be decreed "whenever it is not reasonably practicable to carry on the business in conformity with a limited liability company agreement." The Court found that T&S's allegations of deadlock, inability to function, and lack of any equitable exit mechanism stated a claim for dissolution.

The case highlights the importance of clear and effective governance mechanisms in LLCs, as well as the potential consequences of deadlock and dysfunction among members. It also serves as a reminder of the judicial remedy of dissolution as a limited but available option for LLCs that can no longer function in conformity with their operating agreement.

For more information on LLC dissolution and best practices for protecting your business, check out the Delaware LLC Act (https://corp.delaware.gov/llc/) and these articles from Forbes (https://www.forbes.com/sites/jimwestergren/2019/06/19/avoiding-deadlock-in-a-limited-liability-company/?sh=6b9f84db2c2b) and Inc. (https://www.inc.com/joseph-lucas/how-to-avoid-deadlock-in-your-llc-or-corporation.html) on avoiding deadlock in a LLC or corporation.

In a recent letter opinion, Vice Chancellor Lori W. Will addressed the issue of pre-judgment interest in the long-running case of Edward Deane et al. v. Robert J. Maginn, Jr. The case, which resulted in a $25 million damages award to New Media II-B, LLC, faced additional disputes concerning the interest calculations on these damages. The court had previously ruled on the damages but had not fully addressed the interest component, leading to further submissions from the parties involved.

Vice Chancellor Will concluded that pre-judgment interest should not be applied before the issuance of the court's Opinion on November 1, 2022. She reasoned that the awarded damages were based on the appreciated value of the securities at trial, and applying pre-judgment interest from the time of the wrongdoing would result in double counting. Additionally, since the plaintiffs were not deprived of their own funds, pre-judgment interest would not serve its intended compensatory purpose.

However, the court ruled that pre-judgment interest should begin accruing from the date of the Opinion. This decision was based on the notion that Maginn retained funds that should be distributed to New Media II-B’s members, thus entitling them to interest for the period they were deprived of these funds. The legal rate of interest was set at 5% over the Federal Discount Rate, compounded quarterly.

The parties were directed to draft a final order reflecting this decision, with the expectation that the case could finally be brought to a close. Vice Chancellor Will expressed hope that this resolution would end the litigation phase and allow for the distribution of funds as intended, ensuring that the plaintiffs receive fair compensation for the delay in justice.

In a significant ruling in the case of Wells Fargo Bank, N.A. v. Equiniti Trust Company, the Court has addressed whether Wells Fargo’s claim for contractual indemnification against Equiniti is barred by the doctrine of issue preclusion. Issue preclusion, or collateral estoppel, prevents the re-litigation of issues that have already been resolved in a previous proceeding. Equiniti argued that Wells Fargo’s indemnification claim should be precluded because the issues had been fully litigated and decided in a prior Texas action. However, the Court found otherwise.

Magistrate Judge Fallon, whose recommendations the Court adopted, determined that issue preclusion did not apply in this case. For issue preclusion to be relevant, the issue in question must have been actually litigated and essential to the final judgment in the prior action. The Court noted that Equiniti failed to prove that the issue of its alleged negligence, central to Wells Fargo’s indemnification claim, had been decided in the Texas case. The findings in the Texas court were limited to Wells Fargo's obligations to Occidental Petroleum Corp. and did not comprehensively address Equiniti’s liability or conduct.

Equiniti’s reliance on statements from the Texas court’s order on attorneys’ fees was insufficient to establish issue preclusion. The Court pointed out that while the Texas court mentioned Equiniti’s conduct briefly in the context of attorney fees, it did not make any substantive rulings on Equiniti's negligence. The primary focus of the Texas court was on Wells Fargo’s contractual breach with Occidental, explicitly noting that Wells Fargo's allegations of Equiniti's negligence were irrelevant to determining the breach. Thus, the Texas court did not make any conclusive findings on Equiniti’s conduct that could preclude re-litigation.

Additionally, the Court emphasized that the Texas action did not provide a final adjudication on the merits of Wells Fargo's third-party claims against Equiniti. Wells Fargo’s third-party complaint in the Texas action was dismissed for lack of personal jurisdiction, not on substantive grounds. As such, the issue of Equiniti’s alleged negligence had not been fully and fairly litigated or essential to a final judgment in the prior case—a key requirement for issue preclusion.

Ultimately, the Court agreed with Magistrate Judge Fallon that Equiniti’s motion to dismiss Count VI based on issue preclusion should be denied. The Court concluded that Wells Fargo is not barred from seeking indemnification in this action because the Texas court did not address Equiniti's alleged negligence in a manner that would preclude re-litigation of that issue in the current case. This ruling allows Wells Fargo's claim for contractual indemnification to proceed, marking a pivotal moment in the ongoing litigation between Wells Fargo and Equiniti Trust Company.

In a recent decision, the Delaware Chancery Court dismissed Count II of the complaint filed by Trifecta Multimedia Holdings Inc. against WCG Clinical Services LLC. The Company alleged that WCG breached the implied covenant of good faith and fair dealing by deliberately hindering the Company's ability to achieve certain revenue milestones. However, the court found that the claim did not meet the necessary legal standards to proceed.

The Delaware Supreme Court has established that the implied covenant is a fundamental aspect of all contracts, used to address unforeseen developments or gaps that neither party anticipated. It requires proof that one party acted arbitrarily or unreasonably, thereby frustrating the other party's reasonable expectations from the contract. In this case, the court emphasized that to plead an implied covenant claim successfully, the plaintiff must show a specific implied contractual obligation, its breach by the defendant, and resulting damages.

In examining the case, the court first sought to determine if there was a contractual gap that needed to be filled by the implied covenant. The court found that the contract explicitly covered the issue, thereby negating the need for an implied term. Additionally, the court noted that the plaintiff's claim failed because the requested term was explicitly discussed and rejected during negotiations. The rejection was not because of disagreement on the obligation, but because WCG's lawyer believed Delaware law already incorporated the obligation through the implied covenant.

The court also considered whether the pled facts supported an alternative legal theory, such as fraud. However, the plaintiffs did not provide sufficient evidence to suggest that WCG's attorneys knowingly made false statements about the implied covenant. Consequently, the court concluded that Count II did not state a claim for which relief could be granted and dismissed the claim. This ruling underscores the importance of clearly established contractual terms and the limits of the implied covenant in addressing unanticipated issues within a contract.

In a recent ruling, United States District Judge Jennifer L. Hall dismissed Thomas Love's case against New Castle County and associated defendants due to insufficient service of process. The dismissal followed a motion by the defendants, which the court granted after finding that Love failed to serve the defendants within the required time frame and did not show good cause for the delay.

Thomas Love filed his lawsuit on January 5, 2022, but did not serve the defendants within the 90-day window mandated by Federal Rule of Civil Procedure 4(m). Despite being granted an extension to respond to the defendants' motion to dismiss, Love did not demonstrate that proper service had been effectuated within the allotted time, nor did he provide a sufficient reason for the failure. The court emphasized that Love’s counsel acknowledged no attempts were made to serve the defendants within the required period.

The court conducted a two-step inquiry to determine whether to grant an extension for service. First, it assessed whether there was good cause for Love's failure to serve the defendants on time. Finding no valid justification, the court then considered whether a discretionary extension was warranted. While factors such as the lack of prejudice to the defendants and the potential bar from refiling due to the statute of limitations were considered, the court ultimately decided against extending the service time. The court noted Love's lack of diligence and failure to properly address service deficiencies despite being notified of them in 2022.

As a result, Judge Hall concluded that the time for service of process should not be extended, leading to the dismissal of Love's complaint without prejudice. This decision underscores the importance of adhering to procedural rules and timelines in litigation, as well as the need for plaintiffs to act diligently in prosecuting their claims. The case was closed following this ruling, highlighting the critical role of proper service in the judicial process.

In a recent decision, the District Court granted Longford Capital Fund III, LP's motion to compel arbitration in the case brought by Arigna Technology Limited. The court also denied Arigna's motion to enjoin arbitration as moot, effectively pausing the case until an arbitrator resolves the question of arbitrability of the plaintiff's claims.

The dispute centers around two agreements: the Engagement Agreement between Arigna and Susman Godfrey L.L.P., and the Funding Agreement between Susman and Longford. Both agreements contain arbitration clauses, but they differ in their specifics, such as governing laws and arbitration locations. Despite Arigna's contention that Longford, as a non-signatory, could not enforce the Engagement Agreement’s arbitration clause, the court found otherwise. The court determined that the agreements were part of a single transaction and that Longford, as a third-party beneficiary, could enforce the arbitration provision.

Under the Federal Arbitration Act, agreements to arbitrate are generally enforceable unless it is clear that the arbitration clause does not cover the dispute at issue. In this case, the court found that the Engagement Agreement delegated the issue of arbitrability to the arbitrator. This means that any disputes about whether the arbitration agreement applies to the current controversy must be decided by an arbitrator rather than the court. The court's decision reflects a strong federal policy favoring arbitration and the enforcement of arbitration agreements.

As a result of this ruling, the court stayed the proceedings pending the arbitrator's decision on arbitrability. This decision underscores the importance of carefully drafted arbitration clauses and the potential for non-signatory parties to enforce arbitration agreements under certain circumstances. For Arigna Technology and Longford Capital Fund III, the next steps in their legal battle will unfold in the arbitration forum as stipulated in their contractual agreements.

In a recent decision, the Delaware Chancery Court denied a motion to dismiss a breach of fiduciary duty claim brought by Maric Healthcare, LLC and Texas Treatment Services, LLC against Jacob Guerrero. The court applied well-established standards for such motions, accepting all well-pleaded factual allegations as true and drawing all reasonable inferences in favor of the non-moving party. The court found that the plaintiffs had sufficiently pled their case, allowing the claim to proceed.

For a breach of fiduciary duty claim to survive a Rule 12(b)(6) motion to dismiss, the complaint must adequately allege the existence of a fiduciary duty and its breach. The court noted that under Delaware law, managers of limited liability companies (LLCs) owe fiduciary duties similar to those owed by corporate directors. The LLC Agreement in this case did not eliminate these duties; rather, it explicitly stated that the manager, Guerrero, was subject to fiduciary duties akin to those of a corporate officer or director. This satisfied the first requirement for the breach of fiduciary duty claim.

The plaintiffs also needed to demonstrate that Guerrero committed an unfair, fraudulent, or wrongful act. They alleged that Guerrero solicited TTS's patients while still employed, a claim supported by various facts, including the temporal proximity between Guerrero's termination and the alleged patient poaching. The court found these allegations sufficient to make it reasonably conceivable that Guerrero breached his fiduciary duty, drawing reasonable inferences in the plaintiffs' favor as required at this stage of the proceedings.

Despite Guerrero’s arguments that the allegations were not specific enough and were based on information and belief, the court ruled that the plaintiffs had met the notice pleading standard. This standard does not demand overly detailed facts but requires enough information to put the defendant on notice of the claims against him. Thus, the court rejected Guerrero’s motion to dismiss, allowing the breach of fiduciary duty claim to move forward, underscoring the plaintiffs' right to pursue their allegations in court.