Delaware Supreme Court Says that Minority Stockholder Which Manages Company’s Day-to-Day Affairs is not a “Controlling Stockholder” and Confirms that Mandatory Stockholder Approval of Merger Transaction Compels Application of Business Judgment Rule 0

Delaware Supreme Court Says that Minority Stockholder Which Manages Company’s Day-to-Day Affairs is not a “Controlling Stockholder” and Confirms that Mandatory Stockholder Approval of Merger Transaction Compels Application of Business Judgment Rule

The Delaware Supreme Court’s recent decision in Corwin v. KKR Financial Holdings LLC makes two important points about corporate governance litigation. First, the court rejected the novel argument that an owner of less than 1% of a company’s stock could be considered a “controlling stockholder” because it managed the company’s day-to-day affairs under a management agreement. Second, the court confirmed that when a transaction has been approved by a majority of the company’s disinterested stockholders, the highly deferential business judgment rule should govern any challenges to the transaction, even if the stockholder vote was statutorily required and not voluntary.

Board-Friendly Rales Test Determines Futility of Pre-Suit Demand When Challenged Decision Is Made by a Board Committee Comprised of a Minority of Board Members 0

Board-Friendly Rales Test Determines Futility of Pre-Suit Demand When Challenged Decision Is Made by a Board Committee Comprised of a Minority of Board Members

Delaware courts have two tests for determining when it is futile for a plaintiff in a derivative action to make a pre-suit demand of the corporation’s board of directors under Court of Chancery Rule 23.1. The Aronson v. Lewis test applies when the board which would consider the demand made the business decision challenged in the derivative action. Under that test, demand is futile if (1) there is a reasonable doubt that the directors are disinterested and independent or (2) there is a reasonable doubt that the challenged transaction was otherwise the product of a valid exercise of business judgment.

Foreign Judgment by Confession Issued Without Pre-Judgment Notice Can Be Domesticated in New Jersey 0

Foreign Judgment by Confession Issued Without Pre-Judgment Notice Can Be Domesticated in New Jersey

New Jersey, like many states, is suspicious of judgments by confession and allows them to be issued only if the procedures in R. 4:45-2 are strictly followed. Among those procedures is a requirement that the prospective judgment debtor be given notice of the prospective judgment creditor’s application for entry of judgment and an opportunity to be heard.

Business Organizations Seeking Quick and Inexpensive Resolutions of Business Disputes Need to Know About Delaware’s Rapid Arbitration Act 0

Business Organizations Seeking Quick and Inexpensive Resolutions of Business Disputes Need to Know About Delaware’s Rapid Arbitration Act

Arbitration is supposed to achieve quick, fair, and inexpensive resolutions of business disputes. But, seemingly more often than not, arbitration fails to fulfill its promise due to expensive and time-consuming pre-hearing discovery, lengthy hearings, and spiraling judicial review of arbitral awards. The Delaware Rapid Arbitration Act, which became effective on May 4, 2015, is Delaware’s unique and cutting-edge effort to offer a new brand of arbitration designed to achieve the original promise of quick and efficient justice.

District of New Jersey Stays Pay-For-Delay Cases Pending High Court’s Decision in K-Dur 0

District of New Jersey Stays Pay-For-Delay Cases Pending High Court’s Decision in K-Dur

Defendants in reverse-payment actions pending in the Third Circuit (New Jersey, Pennsylvania, and Delaware) take note: in In re Effexor XR Antitrust Litigation the Honorable Joel A. Pisano, U.S.D.J., of the District of New Jersey has stayed several class-action litigations challenging the legality of certain reverse-payment settlement agreements between Wyeth and generic drug manufacturer Teva Pharmaceuticals, pursuant to which Wyeth allegedly paid Teva to delay its marketing of a generic counterpart to Wyeth’s Effexor XR drug.

Third Circuit Denies Federal Antitrust Standing to Hospitals Purchasing Products Through Distributors Despite Contract Between Manufacturer and Hospitals’ Group Purchasing Organization 0

Third Circuit Denies Federal Antitrust Standing to Hospitals Purchasing Products Through Distributors Despite Contract Between Manufacturer and Hospitals’ Group Purchasing Organization

In In re Hypodermic Products Antitrust Litigation, the Third Circuit once again denied federal antitrust standing to a class of hospitals seeking damages from the manufacturer of hypodermic products because the hospitals paid for and took possession of such products from intermediate distributors and negotiated their final price with the distributors.

New Jersey Appellate Division Limits Application of Parol Evidence Rule in Fraudulent Inducement Cases and Finds that Unsophisticated Fraud Claimant Can Only Be Charged With His Actual Knowledge 0

New Jersey Appellate Division Limits Application of Parol Evidence Rule in Fraudulent Inducement Cases and Finds that Unsophisticated Fraud Claimant Can Only Be Charged With His Actual Knowledge

In a to-be-published opinion in Walid v. Yolanda for Irene Couture, Inc., the New Jersey Appellate Division reaffirmed and clarified the scope of the fraudulent inducement exception to the parol evidence rule. The court also clarified the level of knowledge to be imputed to a contracting party when assessing the reasonableness of that party’s reliance on the alleged misrepresentations.

No Class Certification in Consumer Fraud Case When Lead Plaintiff Seeks to Recant Critical Allegations in Complaint 0

No Class Certification in Consumer Fraud Case When Lead Plaintiff Seeks to Recant Critical Allegations in Complaint

A lead plaintiff in a consumer class action who attempts to recant allegations in her complaint concerning the date she purchased the product at issue places her credibility in issue and, therefore, subjects her claim to unique defenses. Such a plaintiff may not be an adequate class representative under Rule 23(a)(4) and therefore may not be able to certify a class.

Limited Partners May Be Liable for Partnership’s Obligations Under Traditional Veil-Piercing Standards 0

Limited Partners May Be Liable for Partnership’s Obligations Under Traditional Veil-Piercing Standards

In Canter v. Lakewood of Voorhees, the Appellate Division held that limited partners may be liable for their partnership’s obligations under traditional common-law veil-piercing standards, as well as under the circumstances set forth in the limited partnership statute. In a negligence suit against a nursing home and one of its limited partners, the limited partner sought to avoid liability by arguing that limited partners may be liable to third parties for the partnership’s obligations only under the narrow circumstances set forth in the New Jersey Uniform Limited Partnership Law, specifically N.J.S.A 42:2A-27(a) .

Corporate Officers and Employees May Be Liable for Corporation’s Violations of Consumer Fraud Act 0

Corporate Officers and Employees May Be Liable for Corporation’s Violations of Consumer Fraud Act

In Allen v. V and A Bros., Inc., the New Jersey Supreme Court broke new ground under the New Jersey Consumer Fraud Act (“CFA”) by holding that officers and employees of corporations and other businesses can be personally liable under the CFA for the entity’s CFA violations, even when the violations are regulatory in nature and do not require affirmative actions by the corporation’s agents and employees. Indeed “principals” of a corporation will be “broadly liable” for the corporation’s CFA violations.