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Recent Delaware Corporate Law Updates

December 2, 2013

Activision Blizzard¸ Inc. v. Hayes:  Delaware Supreme Court Holds that Corporation’s Purchase of its Own Stock Is Not a “Business Combination” Requiring Stockholder Approval Under Certificate of Incorporation
In Activision Blizzard, Inc. v. Hayes, No. 497, 2013 (Del. Nov. 15, 2013), the Delaware Supreme Court addressed the question of whether the purchase by Activision Blizzard, Inc. (“Activision”) of shares of its own stock, as well as net operating loss carryforwards (“NOLs”), from Vivendi, S.A. (“Vivendi”) constituted a “merger, business combination or similar transaction” under Activision’s amended certificate of incorporation and, as a result, required the approval of stockholders.  The Court held that, despite its form as the combination of two entities, the transaction at issue did not require the approval of stockholders.  “Indeed,” observed the Court, “it is the opposite of a business combination.  Two companies will be separating their business connection.”
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Viacom International, Inc. v. Winshall:  Delaware Supreme Court Reaffirms Judicial Deference to Arbitrator’s Decisions on Procedural Arbitrability
In Viacom International, Inc. v. Winshall, 72 A.3d 78 (Del. 2013), the Delaware Supreme Court affirmed the Court of Chancery’s decision to uphold an arbitration determination resolving a dispute between Viacom International, Inc. (“Viacom”) and the stockholders of Harmonix Music Systems, Inc. (“Harmonix”).  The disagreement concerned an “Earn-Out” payment provision adopted under the 2006 Agreement and Plan of Merger (“Merger Agreement”) between the two companies.  The Court held that the arbitrator’s decision to exclude evidence that was not identified in Viacom’s initial submission, supporting its argument that there should be an inventory write-down, did not constitute misconduct, and that the arbitrability of the inventory write-down dispute was an issue for the arbitrator to decide.
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In re Morton’s Restaurant Group, Inc. S’holders Litig.:  Alleged Controlling Stockholder Fits Within Safe Harbor by Sharing Control Premium Pro Rata With Minority Stockholders in Third-Party Deal     
In In re Morton’s Restaurant Group, Inc. Shareholders Litigation, 74 A.3d 656 (Del. Ch. 2013), the Court of Chancery granted the director defendants’ motion to dismiss, reasoning that the plaintiffs’ complaint was “devoid of . . . well-pled facts compromising the independence of a supermajority of the board, challenging the adequacy of the board’s market check, or suggesting that any bidder received favoritism,” and also failed to “plead any facts supporting a rational inference of a conflict of interest” on the part of Morton’s largest stockholder or any director.
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In re BioClinica:  Court of Chancery Dismisses Claims that Well-Shopped Transaction Supported by Allegedly “Weak” Fairness Opinion Constituted Breach of Fiduciary Duty
In In re BioClinica, Inc. Shareholder Litigation, 2013 WL 5631233 (Del. Ch. Oct. 16, 2013), Vice Chancellor Glasscock of the Delaware Court of Chancery held that plaintiffs’ amended complaint failed to state a claim against the directors of BioClinica, Inc. (“BioClinica”) for breaches of fiduciary duty, and against JLL Partners, Inc., BioCore Holdings, Inc. and BC Acquisition Corp. (collectively, “JLL”) for aiding and abetting.
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Klaassen v. Allegro Development Corp.:  Court of Chancery Upholds Removal of CEO and Determines Composition of Board of Directors
In Klaassen v. Allegro Development Corporation, 2013 WL 5739680 (Del. Ch. Oct. 11, 2013), Eldon Klaassen, the former CEO of Allegro Development Corporation (“Allegro”), brought an action under Section 225 of the Delaware General Corporation Law, requesting that the Court of Chancery declare that he: (1) was still the CEO of Allegro, (2) had validly removed two of Allegro’s directors and appointed their replacements, and (3) had validly filled a preexisting director vacancy.  Klaassen claimed that his removal as CEO of Allegro by the board of directors (the “Board”) was void.  If he was indeed still CEO, he had the power to remove directors and appoint new ones under Allegro’s governing documents.  In a post-trial opinion, the Court of Chancery found that Klaassen was barred from challenging his removal as CEO by the equitable doctrines of laches and acquiescence.  Regarding his changes to the Board, the Court of Chancery determined that Klaassen did succeed in removing one director and filling the preexisting vacancy on the Allegro Board, but that he did not remove the second director and new CEO, nor validly appoint a replacement for the removed director.
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Delaware Coalition for Open Government, Inc. v. Strine, et al.:  Third Circuit Holds Court of Chancery's Confidential Arbitration Program Unconstitutional
In Delaware Coalition for Open Government, Inc. v. Strine, et al., the United States Court of Appeals for the Third Circuit considered whether the District Court for the District of Delaware correctly ruled that confidential arbitration proceedings conducted by members of the Delaware Court of Chancery under 10 Del. C. § 349 must be open to the public under the First Amendment to the Constitution of the United States.  In a divided decision in which each member of the panel wrote a separate opinion, the Third Circuit held that there is a First Amendment right of access to Chancery arbitrations.
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Boilermakers Local 154 Retirement Fund, et al. v. Chevron Corp., et al. and IClub Inv. P’ship v. FedEx Corp., et al.:  Appeal of Forum Selection Bylaw Decision Voluntarily Dismissed
In June 2013, the Court of Chancery held in Boilermakers Local 154 Retirement Fund, et al. v. Chevron Corp., et al., and IClub Inv. P’ship v. FedEx Corp., et al., 73 A.3d 934 (Del. Ch. 2013), that a board of directors, if granted authority by the certificate of incorporation to adopt bylaws, has the power under the Delaware General Corporation Law to adopt a bylaw requiring litigation relating to the corporation’s internal affairs to be conducted exclusively in the Delaware courts, and that such a bylaw may become part of the binding agreement between a corporation and its stockholders, even if the stockholders do not vote to approve the bylaw. 
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