Delaware Corporate Law Update

Updates on Delaware Corporate Law by Evan O. Williford, Esq., Delaware Corporate Litigation Attorney.

Delaware Courts: New Five P.M. Deadline

The Delaware Supreme Court recently ordered a new 5:00 p.m. deadline for most Delaware state court filings to be considered timely filed that day.  The action follows on the heels of the District Court’s 6:00 p.m. filing deadline, adopted in 2014.  Wise Delaware and out-of-state counsel will carefully consider any necessary measures (such as moving work to the day before) this new deadline will require.

The order comes into effect September 14.  All filings in non-expedited cases before Delaware state courts – except initial pleadings and notices of appeal – must be made before 5:00 p.m. Eastern Time to be considered timely filed that day.

This change comes based on a report recommending this and several other changes to improve work/life balance for lawyers and their staff.  The report noted that this in particular was a “contested” change.  The report recognizes a criticism that the earlier deadline will simply result in more work on the previous day (or night).  However, the report argues that when late filings are “the result of the human tendency to delay until any deadline, especially on the part of those who do not bear the worst consequences of delay, what can result is a dispiriting and unnecessary requirement for litigators and support staff to routinely be in the office late at night to file papers that could have been filed during the business day.”  And in the case of expedited filings, where procrastination may be less of a factor, the deadline remains midnight.

The Supreme Court also ordered Delaware courts to consider other work/life balance policies discouraging (1) deadlines on Mondays or the day after a holiday, (2) court opinions deciding dispositive motions or post-trial relief after noon on Fridays or 4:00 p.m. any other day, and (3) scheduling oral arguments or trials in August.

Delaware and out-of-state counsel would do well to reflect on the changes in workflow that will be necessary to submit the same high-quality, often labor-intensive work product.  As Francis Pileggi notes in his blog, California counsel will need to complete any work on filings several hours before typical close of business there.  And if there is extra work the day before that is not certain to be completed the next day (whether that be from procrastination, miscommunication, or simply the human condition), any overtime/nighttime work will have to be done the night before.

Advertisements

Filed under: Court of Chancery, Delaware Supreme Court, Expedited

Enforcing The Court of Chancery – Bench Warrants

“Court of Chancery” and “bench warrants” are two phrases you don’t often see together.  Perhaps that is a testament to how often they are usually obeyed.  But as a recent case, Deutsch v ZST Digital Networks, Inc., demonstrates, the Court does have the power to issue them in appropriate cases.

Plaintiff brought a books and records case against a Delaware corporation that, through holding companies, did business in China.  The company defaulted, and the Court entered judgment against it.

Directors and senior officers of the corporation, Chinese nationals Bo Zhong and his son Lin Zhong, had a long history of defying and frustrating the Court’s orders.  Plaintiff sought to enforce the default judgment, and the company did not comply.  The Court appointed a receiver who spent years and significant resources attempting to cause the company to comply but was continually frustrated.

Finally, the receiver moved to issue bench warrants to arrest the Zhongs.  They appeared before the Court and raised objections, resulting in this opinion.

The Court first rejected the argument that the Zhongs as non-parties could not be held in contempt.  It noted that an order binds not only the named parties but also those “identified with them in interest, in ‘privity’ with them, represented by them or subject to their control.”  Thus, the order extended to “directors, officers, and employees” of the company, such as the Zhongs.

The Court noted that personal jurisdiction was satisfied under 10 Del. C. § 3114, providing personal jurisdiction over directors of a Delaware corporation.

The Zhongs then made due process arguments against the bench warrants.  The Court ruled that the contempt ruling sought would be civil and not criminal, since the requested arrest would only last until the contemptuous conduct ceased, which meant less process was due.  Even with the lesser requirements for civil contempt, the Court did in part accept the Zhongs’ due process arguments, noting that the receiver sought to hold the Zhongs in contempt of orders which did not identify the Zhongs by name and imposed broad mandates (such as giving the receiver authority over books and records and requiring cooperation) rather than specific demands.

Thus, the Court decided to enter a more specific order directing the Zhongs to take actions that the receiver had identified as being necessary to comply with the Court’s orders.  This would give the Zhongs a final opportunity to comply with the Court’s order and another hearing should noncompliance cause the receiver to move again for the issuance of a bench warrant.

Key Takeaways:

  • The Court of Chancery does have the power to enforce its rulings through bench warrants;
  • The Court can issue warrants as to persons not a party to the lawsuit, even persons not named specifically in the Court order allegedly disobeyed; but
  • Such circumstances may provide fertile grounds for arguments from arrestees including personal jurisdiction and due process.

Filed under: Uncategorized

2018 DGCL Amendments

Every year changes are typically made to the Delaware General Corporation law (the “DGCL”), and this year is no different.  This post will focus on several that seem particularly noteworthy.  The legislature has passed those changes, and they are currently pending approval by the governor.

Market-Out Exception For Intermediate-Form Mergers – Delaware law has long made available an “appraisal” cause of action for certain shareholders to require the Court of Chancery to value their shares under certain circumstances.  Delaware had previously amended that right in “long-form” mergers under 8 Del. C. § 262 by including a “market out” exception.  Under this exception, appraisal rights may not be available for shares that are listed on a national securities exchange or held of record by more than 2,000 holders (which shares the market already arguably values).

This amendment would extend the market-out exception to so-called “intermediate-form” mergers under 8 Del. C. § 251(h).  (In an intermediate-form merger, two companies’ boards approve a merger agreement under which one company offers to buy all of the other company’s voting stock; and enough shares are tendered to the first company that it owns more of the other company’s shares than would be needed to approve the merger, thus making a stockholder vote unnecessary.)

Amendments to Section 204 Governing Ratification – In 2013, the DGCL was amended to add a new provision, 8 Del. C. § 204, which formally allows corporations to ratify certain defective corporate acts and stock.  This most recent amendment would make certain changes to that statute.

First, corporations would be able to use Section 204 even in circumstances in which there is no valid stock outstanding.  (Section 204 generally requires approval by both the board and the stockholders, but in this circumstance only board approval would be required).

Second, Section 204 clarifies that any act or transaction within a corporation’s power under the DGCL would be subject to ratification.  In Nguyen v. View, Inc., the Delaware Court of Chancery had arguably adopted a narrower view, that an act was not within corporate power and therefore could not be ratified if not approved according to the corporation’s organizational documents and the DGCL.  This amendment therefore would clarify that Section 204 has a broader application.

Filed under: Appraisal, Ratification

Principal

Pages

Disclaimer

Delaware Corporate Law Update solely reflect the views of Evan Williford of The Williford Firm, LLP. Its purpose is to provide general information concerning Delaware law; no representation is made about the accuracy of any information contained herein, and it may or may not be updated to reflect subsequent relevant events. This website is not intended to provide legal advice. It does not form any attorney-client relationship and it is not a substitute for one.