In a brief and short letter opinion of Durham v. Grapetree, LLC, Civil Action No. 2018-0174-SG (Del. Ch. Oct. 8, 2020), Vice Chancellor Glasscock ruled upon a pro se litigant’s books and records demand after it was remanded to the Court of Chancery on appeal.  The plaintiff attached a number of books and records demands made to the defendant LLC, some timely and others untimely.  Initially, the Court granted two of Plaintiff’s demands.  Plaintiff appealed, and the case was remanded, to require that several other timely demands be considered by the Court.

The case is significant in that, on remand, the Court of Chancery revised its fee shifting award.  Fee-shifting is not automatically granted in favor of the prevailing party in a books and records demand action.  Rather, the Court applies the “American Rule”, with each side bearing their own fees and costs, absent a showing of bad faith or other litigation misconduct.  Of course, the Court also has discretion to shift fees if there is a contractual basis to do so.

Here, fee-shifting was permitted under the LLC’s operating agreement.  Initially, the Court granted fees in favor of the defendant LLC, given that plaintiff did not prevail on the majority of the demands he sought. On remand, after the Court considered each of the five demand letters submitted by plaintiff, the Court instead ruled that each side should bear their own fees.

Key Takeaway

This brief letter opinion shows the risk in asserting a books and records demand (let alone multiple demands) when the operative agreement contains a fee-shifting provision.  Even though plaintiff prevailed on some of the demands at trial, fees were initially shifted against him.  On remand, fees were not shifted to either side.  Accordingly, parties should carefully consider fee-shifting provisions when asserting an action to inspect a company’s books and records.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at

Federal Rule of Civil Procedure 30(b)(6) now includes a confer-in-good-faith requirement.  The amendment addresses perceived deficiencies in the Rule 30(b)(6) process, including inadequately prepared witnesses and deficient notices. To address these challenges, the rule makers concluded that requiring lawyers to address such issues in advance will increase clarity and resolution.

The new amendment provides as follows:

Before or promptly after the notice or subpoena is served, the serving party and the organization must confer in good faith about the matters for examination. A subpoena must advise a nonparty organization of its duty to confer with the serving party and to designate each person who will testify.

The amendment to the rule went into effect December 1, 2020.

As the Judicial Conference of the United States’ Committee on Rules of Practice and Procedure stated in its memorandum to the U.S. Supreme Court, the amendment “codifies a best practice and practitioners across the bar support it.”

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at

In a short and pithy letter opinion, the Delaware Court of Chancery granted leave to a party to amend its complaint in a books and records action where plaintiff initially asserted it was a record stockholder, and then amended to state it was a beneficial stockholder.  POSCO Energy Co., Ltd. v. FuelCell Energy, Inc., Civil Action No. 2020-0713-MTZ (Del. Ch. Oct. 22, 2020).

In ruling upon the motion to amend, the Court cited Chancery Rule 15(d), which permits a party to serve a “supplemental pleading setting forth transactions or occurrences or events which have happened since the date of the pleading sought to be supplemented.”

Here, plaintiff filed an initial complaint after serving its books and records demand, asserting that it was a record holder of stock in the corporation.  Defendant asserted otherwise.  Plaintiff then determined it was instead a record holder of stock, served a subsequent demand stating as such, and sought leave to amend to assert a demand as a beneficial holder.

In granting the motion, the Court noted that leave to amend is granted liberally, and no prejudice was suffered by defendant.

Notably, Vice Chancellor Zurn also disapproved of the Rule 11 rhetoric raised by defendant in opposing the motion to amend.  The Court frowned upon defendant “invok[ing] Court of Chancery Rule 11 casually and repeatedly in this matter”, adding “in my view, it is distracting, detrimental to the famed collegiality of the Delaware bar, and counterproductive to the ‘just, speedy and inexpensive determination’ of judicial proceedings to summon Rule 11 in rhetoric.”

Accordingly, the Court granted plaintiff’s motion to amend its complaint to permit it to proceed under its supplemental demand letter.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at

In a prior post, we discussed the standards required to obtain relief under Section 273 of the Delaware General Corporation Law (“DGCL”), i.e. (i) that a Delaware corporation has two 50/50 stockholders, (ii) that the company is engaged in a joint venture, and (iii) the 50/50 stockholders are unable to agree as to whether to discontinue the company.

But upon showing these elements, will the Court automatically grant dissolution of the entity?

The text of DGCL Section 273 states that the Court “may” dissolve the corporation and wind up its affairs when the requirements of the statute are met.  Case law has held that when a petitioner has satisfied each of these elements, the Court’s discretion to deny the petition is “sparingly exercised.”  In re McKinney-Ringham Corp., 1998 Del. Ch. LEXIS 34, at *16 (Del. Ch. Feb. 25, 1998).

But other remedies may be granted by the Delaware Court of Chancery.  For example, the Court has interpreted the permissive “may” language of Section 273 to give it authority to grant relief other than dissolution.

For example, in Fulk v. Washington Service Assoc., Inc., C.A. No. 17747-VCJ (Del. Ch. June 21, 2002), the Court of Chancery entered an order granting a custodian’s plan to sell the joint venture to either stockholder, instead of granting dissolution.  In that decision, the Court stated “the statute permits the Court flexibility in deciding how the joint venture should be discontinued[.]”  As demonstrated by Fulk, a sale of one stockholder’s interest to another is not uncommonly granted, especially if the corporation can be continued as a going concern.

Accordingly, the Court in a DGCL Section 273 action has broad discretion to determine the appropriate measure of relief, and may grant relief other than the dissolution of the joint venture under the statute.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at

In the recent decision of Searchlight CST, L.P. v. MediaMath Holdings, Inc., C.A. No. 2020-0652-SG (Del. Ch. Sept. 28, 2020), the Delaware Court of Chancery granted Defendant MediaMath Holdings, Inc.’s (“Defendant”) motion for summary judgment in connection with a contract dispute over a provision limiting the amount of indebtedness Defendant is able to incur.

According to the opinion, Plaintiff Searchlight CST, L.P. (“Plaintiff”) is an investor in the Defendant. In connection with its purchase of preferred stock, it contracted for a limit on the amount of indebtedness that Defendant is able to incur. Defendant is in the process of negotiating a new credit facility.  Plaintiff contends that the Defendant is contractually prohibited from entering the facility without its consent.

Plaintiff moved for a TRO and expedited proceedings of the action, to enjoin Defendant from consummating the transaction at issue.  In response, Defendant moved for summary judgment in its favor.

Upon review of the contract and each side’s interpretation thereof, the Court held that the contract does not require Defendant to obtain the Plaintiff’s consent before entering or borrowing under the proposed credit facility, up to $100 million.

The Court noted that while each side had differing views of the contract language at issue, the language was unambiguous (a point on which the parties agreed), and therefore the Court was able to rule on the language without considering extrinsic evidence.

As the Court noted, “[a] contract is not rendered ambiguous simply because the parties do not agree upon its proper construction. Rather, an ambiguity exists [w]hen the provisions in controversy are fairly susceptible of different interpretations or may have two or more different meanings.”  Slip op. at 18-19 (quoting GMG Capital Investments, LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 780 (Del. 2012)).

Previously, the Court had ruled upon Defendants’ motion to seal the entirety of the upcoming TRO hearing, which the Court summarily denied in a one page ruling.  A recent blog post concerning this ruling can be found here.

Accordingly, the Court granted Defendant’s Motion for Summary Judgment, and ruled that the TRO request is moot.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at

In the recent decision of Rudd v. Brown, et al., C.A. No. 2019-0775-MTZ (Del. Ch. Sept. 11, 2020), the Delaware Court of Chancery granted defendants’ motion to dismiss plaintiffs’ derivative claims in their entirety in light of an exculpatory provision in the corporation’s charter.

Plaintiffs’ derivative claims alleged that the company’s directors breached their fiduciary duties in connection with a $1.6 billion sale of Outerwall Inc., the owner of Redbox.  Among other things, the suit claimed that Outerwall’s directors were motivated to take less than full value after a sizeable stockholder threatened a proxy fight to remove board members if they opposed a quick sale.

The Court ruled that plaintiff failed to adequately show the defendants were conflicted in pursuing the transaction. Vice Chancellor Zurn held that an exculpatory provision in Outerwall’s certificate of incorporation “bars any claims for monetary damages against the director defendants for duty of care violations committed in their capacities as directors.”  Slip op. at 2.

The Court utilized an “enhanced scrutiny” of the acquisition under the Revlon standard, which is an intermediate review standard, established in Revlon v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986). The standard falls between the business judgment review and the “entire fairness” standard.

The Court held that even under Revlon scrutiny, which is less friendly to a company’s directors then the business judgment rule, exculpatory charter provisions nonetheless shield directors from liability because the suit’s claims were “based only on duty of care violations.”  Slip op. at 17.  In light of the exculpatory provision, plaintiffs were required to file a non-exculpated claim, which the Court found they failed to do.

This decision demonstrates the significance of an exculpatory provision in a company’s corporate charter.  As reflected herein, even claims subject to the less business-friendly Revlon standard may be subject to dismissal for breach of the fiduciary duty of care.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at

When a Delaware corporation is deadlocked and unable to operate as a result of dissension among its shareholders or directors, or has abandoned its business, what remedies are available to the company’s shareholders under Delaware law? Section 226 of the Delaware General Corporation Law (“DGCL”) squarely addresses this issue.  Under that statute, any shareholder of the corporation may petition the court to appoint a receiver to a deadlocked corporation.  This article will address Section 226 of the DGCL, along with the required showing for the Court to appoint a custodian or a receiver to a Delaware corporation that is deadlocked or has abandoned its business and failed to windup its assets.

Section 226(a) of the DGCL provides that the Court of Chancery may appoint a custodian, or receiver if the corporation is insolvent, when:

(1) At any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or

(2) The business of the corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division; or

(3) The corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets.

Del. C. § 226(a).

Section 226(b) of the DGCL contemplates the potential powers that may be granted to a receiver or custodian appointed under this statute.  Under Section 226(b), a receiver “shall have all the powers and title of a receiver appointed under § 291 of this title”.  By contrast, a custodian “is to continue the business of the corporation and not to liquidate its affairs and distribute its assets, except when the Court shall otherwise order and except in cases arising under paragraph (a)(3) of this section or § 352(a)(2) of this title.”  8 Del. C. § 226(b).

Notably, the appointment of receivers of an insolvent corporation is generally made under Section 291 of the DGCL, given its broader and more permissive provisions.

Below is a brief summary of the inner-workings of Section 226 of the DGCL:

The Circumstances Under Which the Court May Appoint a Custodian or Receiver of a Corporation Under Section 226

• The shareholders are divided such that they cannot elect successors.

• The business of the corporation is suffering or threatened with irreparable injury because the directors are divided such that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division.

• The corporation has abandoned its business and failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets.

The Necessary Showing to Obtain a Custodian When There is Deadlock Among Shareholders

It must be demonstrated that the shareholders of the company are unable to elect successor directors due to deadlock.

The Necessary Showing to Obtain a Custodian When There is Deadlock Among Directors

• The corporation must be suffering or threatened with irreparable injury.

• The injury must result from the inability of the board to obtain the votes necessary to take action as a result of the division of opinion.

• The deadlock of the board must not be one that can be resolved by action of the shareholders.

Who Can Be Appointed as a Custodian or Receiver of a Corporation?

A judicial custodian is often, but not necessarily, a Delaware attorney.  He or she must be impartial and qualified, and will owe fiduciary duties to the corporation upon appointment.

The Scope of Authority Provided to the Custodian or Receiver

The scope of authority granted to the custodian will be determined by the order appointing such custodian.  These orders may be the subject of negotiation among the parties after the Court has determined that a custodian will be appointed.  If the parties cannot reach an agreement on the proposed order, then they may submit competing orders to the Court.

The authority provided to the custodian or receiver may vary based upon the circumstances of the corporation and its business.  Among other things, in the case of corporate deadlock, a custodian may be ordered to continue managing the corporate affairs for a period of time until appropriate measures are taken to resolve the deadlock.

When a receiver is appointed (in the context of an insolvent corporation), or a custodian (in the event that the corporation has abandoned its business under Section 226(a)(3)) such individual may be ordered to marshal the assets of the corporation, collect debts and claims of the corporation, prosecute and defend claims or suits involving the corporation, and take any other actions necessary to wind-up the corporation, consistent with the terms of the order appointing such custodian or receiver.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at

On Friday, September 4, 2020, the Delaware Supreme Court released a plan to restart jury trials in October, 2020, while extending the current judicial emergency an additional 30 days until October 5, 2020.  The Chief Justice likewise issued Administrative Order No. 10 memorializing the same.

According to the notice, the resumption of jury trials will mark a move to a modified Phase 3 of the Delaware Judiciary’s four-phase reopening plan that was released in May by the Courts Reopening Committee.  The move to a modified Phase 3 will also allow court facilities and staffing to increase up to 75 percent capacity and increase the number of people allowed in courtrooms to accommodate jury trials.

Similar to the prior order, per Administrative Order No. 10, all Delaware Courts are authorized to continue to utilize audiovisual devices at their facilities and remotely to conduct proceedings, with the exception of jury trials.  Moreover, the suspension of requirements for sworn affidavits, verifications, oaths or affidavits filed in the Delaware Courts, as set forth under Administrative Order No. 3, remains in effect.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at

In a short, one-page order, the Court of Chancery denied a motion by defendants to seal the entirety of an upcoming TRO hearing, in the case of Searchlight CST, L.P. v. MediaMath Holdings, Inc., C.A. No. 2020-0652-SG (Del. Ch. Aug. 24, 2020).  Vice Chancellor Glasscock ruled that the “Court does not conduct public hearings under seal”, referring to the concept as “oxymoronic.”  However, to the extent that information disclosed at the hearing is subject to confidential treatment under Rule 5.1 of the Rules of the Court of Chancery, the order provides that the public may be excused from such portion of the hearing.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at

In a matter of first impression, the Delaware Court of Chancery ruled that management of a Delaware corporation may not preclude a director from obtaining privileged information of the company.  The decision was handed down yesterday by Chancellor Bouchard in the ongoing WeWork litigation, styled as In re WeWork Litigation, C.A. No. 2020-0258-AGB (Del. Ch. Aug. 21, 2020).

The procedural history of this action is worth noting.  The lawsuit was filed by The We Company (“Company”) in April 2020, at the direction of its Special Committee, against SoftBank Group Corp. and SoftBank Vision Fund (AIV M1) L.P., alleging that defendants breached contractual obligations owed to the Company to use reasonable best efforts to purchase up to $3 billion of the Company’s stock in a tender offer.

A new committee of the Company’s board of directors consisting of two temporary directors was then formed on May 29, 2020 (the “New Committee”), after the putative controlling stockholder of the Company and SoftBank asked the Company’s board to confirm that the Special Committee did not have authority to bring the litigation on behalf of the Company.  Under the direction of the New Committee, the company then brought a motion under Court of Chancery Rule 41(a) for leave to voluntarily dismiss the complaint filed in the action.

In response, the Special Committee sought access to the Company’s privileged information relating to the circumstances under which the New Committee was established and how it may have been influenced by the Company’s management (“Management”), the Chief Executive Officer of which was chosen by SoftBank.  The Special Committee does not seek privileged information between the New Committee and its counsel.

In opposing the requested discovery, Management referred the Court to competing letters written to the board regarding the SoftBank contract litigation, which, according to Management, demonstrated that the special committee had shown “adversity” to the Company, and should thus be blocked from viewing these privileged communications.

In its analysis, the Court noted that although “a director’s right to information is essentially unfettered in nature”, there are “three recognized limitations on a director’s ability to access privileged information”:

  1. The existence of an ex ante agreement among the contracting parties;
  2. A board may appoint a special committee, which would be free to retain separate counsel, and communications with separate counsel would be protected as necessary for the special committee to conduct its ongoing work; or
  3. To the extent there is sufficient adversity between a director and the corporation “such that the director would no longer have a reasonable expectation that he was a client of the board’s counsel.”

Slip op. at 15-16 (quoting Kalisman v. Friedman, 2013 WL 1668205, at *4-*5 (Del. Ch.).

The Court disagreed, stating that the letters reflect a dispute between the Special Committee and SoftBank, both of which contend that the other is motivated by self-interest, and not a dispute between the Special Committee and the Company.

Chancellor Bouchard then turned to the more fundamental question raised by the dispute: whether or not adversity exists, “does management have the authority to unilaterally preclude a director of the corporation from obtaining the corporation’s
privileged information?”  Slip op. at 18.

The Court found that management did not have such authority.  The Court stated that “[i]t is a “cardinal precept” of Delaware law that “the business and affairs of a corporation . . . shall be managed by or under the direction of a board of directors . . . .”, and that, “[i]n claiming the right to shield Company privileged information from the entire Board, Management turns these bedrock principles of Delaware law on their head.”  Id. at 19 (citations omitted).

As stated by Chancellor Bouchard:

To summarize, this decision holds, under basic principles of Delaware law, that directors of a Delaware corporation are presumptively entitled to obtain the corporation’s privileged information as a joint client of the corporation and any curtailment of that right cannot be imposed unilaterally by corporate management untethered from the oversight and ultimate authority of the corporation’s board of directors.

As such, Chancellor Bouchard held that the Special Committee was entitled to receive the privileged documentation of the Company that it had requested.

Key Takeaway

This decision holds, as a matter of first impression, that management of a Delaware corporation (as compared to the board) lacks authority to unilaterally deprive the board of privileged communications of the corporation, while reiterating familiar notions that a board oversees management, and a director’s right to corporate information, including privileged information, is very broad in scope.  This decision is an important read for any litigant or counsel involved in disputes over privilege between company management and the board or special committee appointed by the board.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at