Articles Posted in Delaware Supreme Court

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In 2003, Zubin Mehta and Gregory Shalov formed Finger Lakes Capital Partners as an investment vehicle to own several operating companies. Mehta and Shalov contacted Lyrical Partners L.P. to participate in their venture. The parties signed a term sheet covering their overall relationship, as well as topics relating to two specific investments. On the advice of counsel, Finger Lakes held each of its portfolio companies as separate limited liability companies with separate operating agreements. Over the course of a decade, the companies did not perform as expected. Finger Lakes asked Lyrical for additional capital. The parties agreed to allow Lyrical to “clawback” its investment money as added protection for its continued investment in the enterprise. Only one investment performed well and generated a substantial return when it was sold. The others failed or incurred substantial losses. The parties disagreed about how the proceeds from the one profitable investment should have been distributed under the network of agreements governing their business relationship. The Court of Chancery held that the proceeds should have been distributed first in accordance with the operating agreement governing the investment in the profitable portfolio company; the term sheet and clawback agreement would then be applied to reallocate the distribution under their terms. Finger Lakes argued on appeal that the profitable investment entity’s operating agreement superseded the overarching term sheet and clawback agreement; even if the clawback agreement was not superseded, the Court of Chancery applied it incorrectly; Lyrical could not recover its unpaid management fees through a setoff or recoupment; and, the Court of Chancery improperly limited Finger Lakes’ indemnification to expenses incurred until Finger Lakes was awarded a partial judgment on the pleadings, instead of awarding indemnification for all expenses related to these proceedings. With one exception, the Supreme Court affirmed the Court of Chancery’s judgment with respect to that court's interpretation of the operating agreements. The Supreme Court found, however, that the Court of Chancery erred when it held that Lyrical could use setoff or recoupment to recover time-barred management fees. Further, Lyrical could not assert its time-barred claims by way of recoupment because the defensive claims did not arise from the same transaction as Finger Lakes’ claims. View "Finger Lakes Capital Partners, LLC v. Honeoye Lake Acquisition, LLC" on Justia Law

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Appellant Greenville Country Club, through its workers’ compensation carrier, Guard Insurance (“Guard”), appealed a Superior Court Order affirming a decision of the Industrial Accident Board (the “Board”). While working for Greenville Country Club, Jordan Rash suffered injuries to his lumbar spine in two separately compensable work accidents. The first accident occurred in 2009 while the country club was insured by Guard Insurance Group. The second accident occurred in 2012 while the country club was insured by Technology Insurance (“Technology”). In 2014, Rash filed two Petitions to Determine Additional Compensation, one against Guard and one against Technology. After a hearing, the Board determined that the condition at issue was a recurrence of the 2009 work injury and not an aggravation of the 2012 work injury, and concluded that Guard was therefore wholly liable for the additional compensation to Rash. Guard appealed, arguing: (1) the Board failed to properly apply the rule for determining successive carrier liability; and (2) there was no substantial evidence to support the Board’s finding that Rash fully recovered from the 2012 accident or that his ongoing condition was solely caused by the 2009 work accident. After review, the Delaware Supreme Court found no error in the Board’s decision, and that the decision was supported by substantial evidence. Accordingly, the Court affirmed the Board's decision. View "Greenville Country Club (Guard Insurance) v. Greenville Country Club (Technology Insurance)" on Justia Law

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Viking Pump, Inc. and Warren Pumps, LLC sought to recover under insurance policies issued to a third company, Houdaille Industries, Inc. In the 1980's, Viking and Warren acquired pump manufacturing businesses from Houdaille. As a result, Viking and Warren were confronted with potential liability flowing from personal injury claims made by plaintiffs alleging damages in connection with asbestos exposure claims dating back to when the pump manufacturing businesses were owned by Houdaille. Houdaille had purchased occurrence-based primary and umbrella insurance from Liberty Mutual Insurance Company. Above the Liberty umbrella layer, Houdaille purchased layers of excess insurance. In total, Houdaille purchased 35 excess policies through 20 different carriers (the "Excess Policies"). Viking and Warren sought to fund the liabilities arising from the Houdaille-Era Claims using the comprehensive insurance program originally purchased by Houdaille. The insurance companies that issued the Excess Policies (the "Excess Insurers") contended that Viking and Warren were not entitled to use the Excess Policies to respond to the claims. The Excess Insurers also disputed the extent of any coverage available, particularly with respect to defense costs. The Supreme Court held, after careful consideration of the policies at issue: (1) the Superior Court correctly held that the 1980-1985 Liberty Primary Policies were exhausted; (2) the Superior Court held that 33 of the Excess Policies at issue in this appeal provided coverage to Viking and Warren for their defense costs, with many payments contingent on insurer consent; (3) the Court of Chancery correctly held that there were valid assignments of insurance rights to Warren and Viking under the Excess Policies; (4) the Superior Court was affirmed in part and reversed in part with respect to its determination of the Excess Policies' coverage for defense costs; and (5) the Superior Court erred with respect to the trigger of coverage under the Excess Policies. View "In Re Viking Pump, Inc. and Warren Pumps, LLC Insurance Appeals" on Justia Law

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Joann Enrique appealed the Superior Court’s grant of summary judgment for State Farm Mutual Automobile Insurance Company in an action she brought for bad faith denial of uninsured motorist (“UM”) coverage stemming from a 2005 car accident. In 2005, an uninsured driver crashed into Enrique’s car by improperly turning into her lane. Enrique suffered a fractured rib, trauma to the right knee requiring arthroscopic surgery, trauma to the left knee for which she was a candidate for arthroscopic surgery, abrasions, and soft tissue injuries. Throughout the settlement negotiations and the processing of Enrique’s claim, State Farm personnel expressed concerns about whether Enrique’s knee injuries were caused by pre-existing conditions. The record was unclear as to why there were large lapses in time during the settlement negotiations. While the parties were waiting for the Independent Medical Examiner report, in July 2008, Enrique filed suit against State Farm, seeking benefits up to the $100,000 policy limits, as well as punitive damages against State Farm for bad faith by refusing to pay up to those limits. In support of the bad faith claim, Enrique alleged that State Farm refused to compensate her up to the UM policy limits without any reasonable justification. In October 2008, the Superior Court severed and stayed the bad faith claim pending resolution of the UM damages claim. The parties then stipulated to a partial dismissal of the bad faith claim without prejudice. Due to the continuing impasse, in September 2008 State Farm decided to advance Enrique $25,000, as the parties both agreed the claim was worth at least that much. As trial approached, State Farm offered Enrique another $20,000 to settle the case, for a total of $45,000. Enrique also revised her demand, and as of January 2010, was willing to settle for an additional $65,000, representing a $90,000 demand. The parties could not bridge the gap, and the damages case went to trial in February 2010. The jury returned a $260,000 verdict. State Farm did not seek remittitur, but did appeal on an evidentiary issue. The Delaware Supreme Court affirmed, and State Farm paid the remaining $75,000 of their policy limits, costs and interests. Enrique then pursued her bad faith claim against State Farm, claiming as damages the unpaid $160,000 portion of the jury verdict, prejudgment interest, and punitive damages. The Superior Court granted State Farm summary judgment because Enrique failed to make a prima facie showing of bad faith. The court based its decision on causation issues arising from Enrique’s pre-existing knee problems (which gave State Farm a reasonable basis for its actions), State Farm’s multiple valuations of Enrique’s claim that put it below policy limits, and her failure to offer facts showing State Farm exhibited reckless indifference in handling her claim. Finding no reversible error as to the Superior Court's grant of summary judgment, the Supreme Court affirmed. View "Enrique v. State Farm Mutual Automobile Insurance Co." on Justia Law

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This litigation arose from the construction of a "Johnny Janosik" furniture store in Laurel. The Plaintiff-appellant LTL Acres Limited Partnership (LTL) was the owner of the Janosik Building. Defendant-appellee Butler Manufacturing Company (Butler) provided pre-engineered components which were used to build the roof and exterior walls. Defendant-appellee Dryvit Systems, Inc. (Dryvit) supplied a product used on the exterior finish of the walls, to protect and seal them. Dryvit warranted its product for ten years from the "date of substantial completion of the project." The building was completed in 2006. Unfortunately, the building had issues with water infiltration from the beginning. By February 2012, cladding began to crack and buckle. The water infiltration and delamination persisted through 2013 despite attempts to fix the issues. LTL brought this action in 2013, alleging breach of warranty, breach of contract, and negligence claims against Butler; and breach of warranty and breach of contract claims against Dryvit. The Superior Court granted summary judgment to both Butler and Dryvit on the grounds that the actions against both were barred by the applicable statute of limitations. It held that the action against Butler was barred by 10 Del. C. sec. 8127,which is a six year statute of limitations relating to alleged defective construction of an improvement to real property. After review, the Supreme Court concluded that summary judgment in favor of Butler was proper. The Superior Court ruled that LTL’s action against Dryvit was barred by a four year statute of limitations set forth in 6 Del. C. sec. 2-725. Dryvit gave LTL a ten year express warranty. The Superior Court described the warranty as a “repair and replacement warranty” and reasoned that such a warranty cannot be one that extended to future performance. It therefore concluded that the statute of limitations for an action on the warranty expired not later than four years after the Dryvit product was tendered and applied to the building; that is, not later than four years after 2006. The Supreme Court concluded that grant of summary judgment in favor of Dryvit was inappropriate, and had to be reversed. The case was remanded for further proceedings. View "LTL Acres Limited Partnership v. Butler Manufacturing Co." on Justia Law

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In the first appeal, the Supreme Court upheld the Court of Chancery’s finding that SIGA Technologies, Inc. in bad faith breached its contractual obligation to negotiate a license agreement consistent with the parties’ license agreement term sheet, known throughout this litigation as the “LATS.” The Supreme Court also held that where parties have agreed to negotiate in good faith, and would have reached an agreement but for the defendant’s bad faith conduct during the negotiations, the plaintiff could recover contract expectation damages, so long as the plaintiff can prove damages with reasonable certainty. Because the Court of Chancery ruled out expectation damages in its first decision, the case was remanded for consideration of damages to SIGA ("SIGA I”). On remand, the Court of Chancery reevaluated the evidence, and held that PharmAthene, Inc. met its burden of proving with reasonable certainty expectation damages and awarded PharmAthene $113 million. The parties once again appealed to the Supreme Court. SIGA raised two claims of error in this appeal: (1) the Court of Chancery was not free to reconsider its prior holding that lump-sum expectation damages were too speculative; and (2) if reconsideration was permitted, the expectation damages awarded following remand were too speculative. After careful consideration of SIGA’s arguments, the Supreme Court found that the law of the case doctrine did not preclude the Court of Chancery from reconsidering its earlier determination that lump-sum expectation damages were too speculative. The Court also found that the court did not abuse its discretion when it awarded PharmAthene lump-sum expectation damages, and its factual findings supporting its new damages determination were not clearly erroneous. Accordingly, the Court affirmed the judgment of the Court of Chancery. View "SIGA Technologies, Inc. v. PharmAthene" on Justia Law

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The issue this case presented to the Delaware Supreme Court centered on the circumstances under which an arbitration award could be vacated where it was argued that the arbitrator manifestly disregarded the law. The parties to a corporate acquisition agreed to arbitrate disputes about the acquired company’s balance sheet on the effective date of the transaction. They retained an arbitrator to decide whether a workers' compensation reserve had been calculated correctly. The arbitrator decided, without any analysis, that there would be no adjustment to the balance sheet. The Court of Chancery vacated the arbitrator's decision, finding that the arbitrator did not follow the relevant provision of the parties’ share purchase agreement. But the test for “manifest disregard for the law” was not whether the arbitrator misconstrued the contract (even if the contract language is clear and unambiguous). "To vacate an arbitration award based on 'manifest disregard of the law,' a court must find that the arbitrator consciously chose to ignore a legal principle, or contract term, that is so clear that it is not subject to reasonable debate." Because the record did not support such a finding, the arbitrator’s award was reinstated. View "SPX Corporation v. Garda USA, Inc., et al." on Justia Law

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In 2006, Michael and Connie Jo Zimmerman obtained two separate commercial loans from Eagle National Bank, the predecessor in interest to Customers Bank. The Zimmermans later defaulted on these loans and entered into a forbearance agreement. In addition to the Forbearance Agreement, the Zimmermans each executed a Disclosure for the Confession of Judgment acknowledging that a Confession of Judgment provision in the Forbearance Agreement had been called to their attention, that they understood that the provision permitted Customers Bank to enter judgment against them without notice or opportunity for a hearing, and that the waiver of the right to notice and a hearing was knowing, intelligent, and voluntary. The Forbearance Agreement also provided that all notices, requests, demands, and other communications were to be sent to the Zimmermans at an address in Dover, Delaware with a copy sent to their attorney. Based on the Warrant of Attorney to Confess Judgment in the Forbearance Agreement, Customers Bank filed a complaint seeking the entry of a judgment by confession against the Zimmermans. The Zimmermans opposed the entry of a judgment by confession and a hearing was held where the Zimmermans argued, among other things, that at the time the Forbearance Agreement was executed they were residents of Florida and that Customers Bank had not complied with the requirements for entry of judgment by confession against a non-resident under Rule 58.1. The Zimmermans also argued that they did not knowingly, intelligently, and voluntarily waive their right to notice and a hearing before judgment could be entered against them. After deliberation, the superior court found the Zimmermans’ waiver of their right to notice and a hearing had been knowing, intelligent, and voluntary, and entered judgment by confession against the Zimmermans. The Zimmermans appealed. Finding no reversible error, the Supreme Court affirmed. View "Crothall, et al. v. Zimmerman, et al." on Justia Law

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The issue this case presented to the Delaware Supreme Court centered on whether coverage existed under certain management liability insurance policies. A bankruptcy trust sought a determination that those insurance policies covered potential future expenses and liabilities that might have arisen out of pre-bankruptcy wrongful acts allegedly committed by the insured debtor company’s directors and officers. XL Specialty Insurance Company and certain excess insurance carriers, appealed a Superior Court order denying their motion to dismiss the action. They claimed that the plaintiff-appellee, WMI Liquidating Trust lacked standing to prosecute its coverage claims, and, that the dispute did not present a ripe "actual controversy" susceptible of adjudication. Because the Supreme Court held that the Trust’s complaint must be dismissed on ripeness grounds, it did not reach the issue of standing. The parties’ dispute was not ripe because it has not yet assumed a concrete or final form. View "XL Specialty Insurance Co., et al. v. WMI Liquidating Trust" on Justia Law

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ATP Tour, Inc. (ATP) operates a global professional men’s tennis tour. Its members include professional men’s tennis players and entities that own and operate professional men’s tennis tournaments. Two of those entities are Deutscher Tennis Bund (DTB) and Qatar Tennis Federation. ATP is governed by a seven-member board of directors, of which three are elected by the tournament owners, three are elected by the player members, and the seventh directorship is held by ATP’s chairman and president. In 2007, ATP’s board voted to change the Tour schedule and format. Under the board’s “Brave New World” plan, the Hamburg tournament, which the Federations owned and operated, was downgraded from the highest tier of tournaments to the second highest tier, and was moved from the spring season to the summer season. Displeased by these changes, the Federations sued ATP and six of its board members in the United States District Court for the District of Delaware, alleging both federal antitrust claims and Delaware fiduciary duty claims. After a ten-day jury trial, the District Court granted ATP’s and the director defendants’ motion for judgment as a matter of law on all of the fiduciary duty claims, and also on the antitrust claims brought against the director defendants. The jury then found in favor of ATP on the remaining antitrust claims. Four questions of Delaware law were certified to the Supreme Court from the U.S. District Court for the District of Delaware when the Federations appealed. The questions centered on the validity of a fee-shifting provision in a Delaware non-stock corporation’s bylaws. The provision, which the directors adopted pursuant to their charter-delegated power to unilaterally amend the bylaws, shifts attorneys’ fees and costs to unsuccessful plaintiffs in intra-corporate litigation. The federal court found that the bylaw provision’s validity was an open question under Delaware law and asked under what circumstances such a provision was valid and enforceable. Although the Delaware Supreme Court could not directly address the bylaw at issue, it held that fee-shifting provisions in a non-stock corporation’s bylaws could be valid and enforceable under Delaware law. In addition, bylaws normally apply to all members of a non-stock corporation regardless of whether the bylaw was adopted before or after the member in question became a member. View "ATP Tour, Inc., et al. v. Deutscher Tennis Bund, et al." on Justia Law