Insights: The Delaware Edition

Skadden Publication

This issue covers important, developing areas of Delaware corporation law and deal litigation, including two recent Court of Chancery opinions discussing Caremark claims, Delaware's expansion of plaintiffs' rights in Section 220 lawsuits, the Delaware Supreme Court's guidance about directors’ and officers’ liability insurance coverage, and Vice Chancellor Laster's notable opinion in Presidio.

Presidio Shines Light on Key Delaware Deal Litigation Trends and Topics
The Delaware Court of Chancery's recent decision in Firefighters’ Pension System of the City of Kansas City, Missouri Trust v. Presidio, Inc. is notable for the stockholder plaintiff’s allegation of an undisclosed “tip” from the financial advisor to the buyer that purportedly allowed the buyer to strategically increase and structure its offer and close the deal. The opinion discusses (i) the applicable standard of review for the sale of a controlled company to a third party, and the applicability of the “Synthes safe harbor”; (ii) potential liability for financial advisors premised on a “fraud-on-the-board” theory; and (iii) the continuing trend of breach of fiduciary duty claims against officers, who are not protected by exculpation provisions in a corporation’s certificate of incorporation.

Delaware Courts Expand Plaintiffs’ Rights in Section 220 Cases
The rise in Section 220 demands and related lawsuits has resulted in several recent opinions that continue a trend in favor of greater access for stockholders to corporate books and records. These decisions will likely impact how companies respond to Section 220 demands, the types of defenses that can be raised in response to Section 220 lawsuits, and how companies maintain their books and records.

Caremark Update: Delaware Court of Chancery Dismisses Two ‘Oversight’ Derivative Actions Arising From Government Investigations
The Delaware Court of Chancery recently issued two opinions that dismissed stockholder derivative claims for breach of directors’ oversight duties — so-called Caremark claims — despite ongoing government investigations into the subject companies. The exacting standard to plead a Caremark claim did not change. Rather, the decisions reiterated that the mere presence of these government investigations may not suffice to sustain a claim on the pleadings. 

Delaware Supreme Court Provides Guidance Regarding D&O Liability Insurance Coverage
The Delaware Supreme Court has issued two decisions over the past year that provide important guidance about directors’ and officers’ liability insurance coverage. In RSUI Indemnity Company v. Murdock, the court affirmed decisions holding that losses due to the fraudulent actions of a Delaware corporation's director or officer are insurable under Delaware law. In In re Solera Insurance Coverage Appeals, the court reversed a lower court's ruling, holding instead that an appraisal action was not a “Securities Claim” — and therefore, not a covered claim — under the at-issue D&O policy.