sealx_2010In a case defended by Cooch and Taylor, the Delaware Superior Court recently ruled on the question of a Limited Liability Company (“LLC”) member’s individual liability for alleged LLC wage debts under Delaware’s Wage Payment and Collection Act (“Act”), 19 Del. C. §§ 1101-1115.  Pursuant to Section 1101(b) of the Act, “the officers of a corporation and any agents having the management thereof who knowingly permit the corporation to violate this chapter shall be deemed to be the employers of the employees of the corporation.”  In effect, the Act allows for a piercing of the corporate form to secure liability for wage debts (and associated penalties, damages, costs and attorney’s fees) against corporate officers and agents who knowingly allow the corporation to violate the Act.

In 2010 the Delaware Court of Common Pleas held that the Act did not allow for individual liability of members, even managing members, of an LLC.  Department of Labor ex rel. Chasanov v. Brady, C.A. No. CPU4-09-8966.  In a detailed opinion, Chief Judge Alex J. Smalls held that Section 1101(b) was unambiguous, and does not refer to LLC’s, which are legally distinguishable from corporations.  Accordingly, the LLC’s debts and obligations are not that of members or managers.

It is interesting to note that the Chasanov case was brought on the plaintiff’s behalf by the Delaware Department of Labor, the state agency tasked with enforcement of the Act (Section 1111).  Despite this adverse ruling, no effort was made to address the issue with the Delaware General Assembly to seek to amend the Act to include LLCs (or any other type of non-corporate entity) within the scope of Section 1101(b).

The Court of Common Pleas decision had limited precedential weight; therefore employment attorneys have been in a quandary as to how the Superior Court, or the Delaware Supreme Court, would rule on this issue.  While the latter question as to the State’s highest court remains unresolved, a recent decision by the Superior Court resolves the initial inquiry.  In Giroux v. Downing Partners, LLC, et al., C.A. No. N15C-11-183 MMJ, the Court was asked to address a situation virtually identical to Chasanov.  Finding the lower Court’s ruling persuasive, the Superior Court ruled that the individual member of the defendant LLCs could not be named as a party under Section 1101(b) and dismissed him as a party to that action.

This decision currently remains subject to possible appeal, and the Delaware Supreme Court has yet to address this issue.  Additionally, it remains to be seen what action, if any, the Delaware General Assembly will take to address this issue.  For the time being, however, members of LLCs cannot be held individually liable for alleged wage debts under the Act.

G. Kevin Fasic, Esquire and Katherine Randolph Witherspoon, Esquire

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In the Age of Internet and Personal Jurisdiction

superior court sealJudge LeGrow of the Delaware Superior Court recently addressed an issue facing courts across the nation: Does one submit themselves to personal jurisdiction within a state based simply on statements made over the World Wide Web?

In the case at bar, UBO Trading v. Terrapinn, Plaintiffs brought a defamation lawsuit against the author of a web-article, the author’s employer, and the website’s “host” for the following post:

Because Jef Rotblut’s trading firm once lost $40 million in about 20 minutes, he highlighted the essential roles of mitigating risk through the software development and testing process.

Being a trading firm, the company’s ability to raise new capital was stifled after the article was released. The author was, at all relevant times, in Illinois and is currently a citizen of Washington DC. The employer is a Delaware corporation and the host is incorporated under the laws of the United Kingdom with its principal place of business in London, England. The author and host moved for dismissal pursuant to Del. Super. Ct. Civ. R. 12(b)(2) based on a lack of personal jurisdiction.    

When a non-resident defendant brings a challenge to personal jurisdiction the court conducts a two-step analysis.  First, the court must consider whether Delaware’s long-arm statute, 10 Del. C. § 3104(c), confers jurisdiction.  If so, the court must then assure that Due Process safeguards are met.

Delaware’s long-arm statute allows for both general and specific jurisdiction over non-resident defendants.  Subsection 3 provides for specific jurisdiction when a person causes injury in the state by an act or omission in the state, while subsection 4 provides for general jurisdiction where the person regularly conducts business within the state.

The question of Due Process was not reached by the Court as Judge Legrow dismissed the author and website host from the litigation without prejudice based on Plaintiffs’ failure to show that personal jurisdiction was proper under Delaware’s long-arm statute.  Under 3104(c)(3), specific jurisdiction failed because the Plaintiffs did not show that the injury was caused by an act within Delaware.  Similarly, under (c)(4), general jurisdiction failed because Plaintiffs did not produce evidence that either the author or the website host regularly conducted business in Delaware.  There was no showing that Defendants sought out Delaware as their market any more than they did the United States as a whole.  Actions such as these are insufficient to establish “regularly conducted business” in the state.

Judge LeGrow was sympathetic to Plaintiffs’ argument that this holding will require them to litigate in different jurisdictions with the possibility of inconsistent results and assuredly higher costs; however, such an argument cannot overcome constitutional requirements in establishing personal jurisdiction.

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Court of Chancery Denies Stockholder Books and Records Request

chancerysealIn a Memorandum Opinion issued August 31, 2016, Judge LeGrow, sitting as a Vice Chancellor by designation pursuant to Del. Const. art. IV, § 13(2), denied a shareholder demand for the inspection of books and records related to $69 million in overseas revenue that Pfizer did not report as part of its Repatriation Tax.

Pursuant to Section 220 of the Delaware General Corporation Law (“DGCL”), a stockholder may inspect a corporation’s books and records if the demand meets form and manner requirements and inspection is made for a “proper purpose.”  Presently, the issue turned on whether Plaintiff identified a proper purpose for the demand. A proper purpose is “reasonably related to such person’s interest as a stockholder.”

Plaintiff’s two stated purposes are investigating mismanagement and valuing shares, undoubtedly proper purposes for inspection under DGCL.  Plaintiff’s intent behind the demand was to investigate whether Pfizer’s Board (the “BOD”) failed to assure compliance with generally accepted accounting principles (“GAAP”) by failing to report Pfizer’s deferred Repatriation Tax liability, a task it said was “not practicable.”  The not practicable standard excuses a corporation from reporting its deferred Repatriation Tax liability, notwithstanding its failure to indefinitely reinvest the money overseas.

The BOD’s Alleged Mismanagement

Under Plaintiff’s claim, generally referred to as a Caremark claim, Plaintiff must establish “a sustained and systematic failure of the board to exercise oversight…” such as a failure to implement a reporting system or the failure to respond to red flags. A credible basis to infer that management was engaged in wrongdoing it not enough – some evidence that the BOD failed to implement a reporting system or ignored red flags is necessary.

Here, Plaintiff’s claim failed.  The Court found that Plaintiff did not address the reporting system, any red flags, or that the BOD was aware or should have been aware of any problems.  Instead, Plaintiff erroneously focused on whether or not the accounting was practicable.  Additionally Plaintiff did not address the BOD’s reliance on the system or KPMG, Pfizer’s outside accounting firm, whom stated its belief that Pfizer’s financial statements were consistent with GAAP.  Therefore, Plaintiff did not articulate any credible basis to support a finding of the BOD’s sustained and systematic failure to exercise oversight.

Valuation Concerns

In order to make a books and records demand for the purposes of valuing shares, the proponent of the demand must show a present need for valuation and why documents available to the public are insufficient to satisfy the demand’s stated purpose.

The Court noted that Plaintiff failed to show how deferred Repatriation Tax liability would affect the price of Pfizer’s shares, the only non-public information Plaintiff sought.  Thus the information was not necessary to value Pfizer’s shares.

Judge LeGrow found that “Section 220 strikes the appropriate balance between the right of a stockholder to obtain information and the rights of directors to manage the business of the corporation without undue interference from stockholders” and denied Plaintiff’s demand.

Read the full opinion here.

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Cooch and Taylor Gains Membership in ACA International — the Association of Credit and Collection Professionals

aca-tm-member-colorCooch and Taylor is pleased to announce that it has become a member of ACA International — the Association of Credit and Collection Professionals.  Founded in 1939, ACA brings together third-party collection agencies, law firms, asset buying companies, creditors and vendor affiliates, representing more than 230,000 industry employees.  ACA establishes ethical standards, produces a wide variety of products, services and publications, and articulates the value of the credit and collection industry to businesses, policymakers and consumers.  For more information about ACA International, visit:

Cooch and Taylor believes its ACA membership will further strengthen its practice in regularly defending commercial entities against claims brought under the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA).

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Chancellor Bouchard sanctions party for “unusually deplorable behavior”

AndyBouchardIn a fifty-eight page Opinion issued today, Chancellor Bouchard analyzed and ultimately granted a motion to shift attorneys’ fees due to a party’s bad faith litigation tactics.  Given the demanding standard of establishing “clear evidence” that a party acted in bad faith, the Chancellor discussed at length the extensive evidence that proved to His Honor that the accused party had in fact “acted in bad faith vexatiously during the course of this litigation.”

The Chancellor found clear evidence that the party acted in bad faith in the following, troubling ways: “(1) by intentionally attempting to destroy information on his laptop computer after the Court had entered an order requiring him to provide the laptop for forensic discovery, (2) by, at a minimum, recklessly failing to safeguard evidence on his phone, which he regularly used to exchange text messages with employees and which was an important source for discovery, and (3) by repeatedly lying under oath to conceal aspects of his secret extraction of information from Elting’s hard drive and the deletion of information from his laptop.”

To remedy these egregious violations, the Chancellor shifted a significant portion of the abused party’s attorneys’ fees.  The Court shifted 100% of her fees’ incurred in prosecuting the sanctions motion, including the likely extensive fees paid to a forensic computer expert.  The Court also shifted 33% of all of her fees incurred from the date of the first instance of the bad faith litigation.  Given that this matter went to trial and given the extensive record created regarding the sanctions motion, the amount of fees to be shifted is likely to be substantial.

The Chancellor’s full Opinion in the matter of In re: Shawe & Elting LLC, et al. is available here.

Blake A. Bennett

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Vice Chancellor Cites Homer Simpson and Moe Szyslak

vlcsnap-2013-01-31-04h56m50s146In a typically colorful and engaging written decision from Vice Chancellor Glasscock, His Honor cited two of the most famous residents of the fictional town of Springfield: Moe Szyslak and Homer Simpson.  The Memorandum Opinion in Walker, et al. v. Williams (9667-VCG) decides a dispute between neighbors regarding one’s construction and use of what the Vice Chancellor refers to as an “auto tinkerer’s Taj Majal.”  The plaintiffs argued that the building at issue and the defendant’s use of the building violated County codes and constituted a nuisance.

The first step in resolving the dispute required the Vice Chancellor to decide how to refer to the building in question.  The plaintiffs referred to it as “the garage,” which the Vice Chancellor believed was likely done to equate it to a commercial garage.  The defendant, however, referred to the building as his “man-cave.”  This nomenclature dispute led to footnote 6 of the Vice Chancellor’s opinion:

Perhaps Williams, like Moe Szyslak, finds “garage” effete and Frenchfied:

Moe: The “garage”? Hey fellas, the “garage”! Well, ooh la di da, Mr. French Man.
Homer: Well what do you call it?
Moe: A car hole!

See The Simpsons, The Springfield Connection (Fox television broadcast May 7, 1995).

Legal scholars interested in confirming the accuracy of that citation can revisit that scene courtesy of Youtube: here.

In the end, the Vice Chancellor concluded that the “Shop” did not constitute a nuisance but did find that the defendant and his guests had been overburdening an easement across plaintiffs’ property.

The Court’s Opinion is available: here.

Blake A. Bennett



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Here’s the key takeaway from the Delaware Supreme Court’s opinion affirming the Superior Court’s grant of summary judgment in Enrique v. State Farm:

“[Plaintiff] would have us invoke a hindsight presumption that the failure to offer policy limits or seek remittitur after a verdict in excess of those limits constitutes bad faith. No such presumption exists. Further, such a presumption would ignore the reality of valuing personal injury claims: putting a dollar value on general damages and pain and suffering is inherently subjective.”

Plaintiff was involved in a car accident and exhausted PIP benefits.  She sought UM benefits in excess of her policy limits (huh?) and negotiation ensued.  A number of people…adjusters, attorneys, managers…had a difficult time agreeing on the value of her claim due to pre-existing injuries.  Plaintiff rejected all settlement offers and went to trial and got an above policy limit verdict.  State Farm paid policy limits and Plaintiff proceeded with her bad faith claim (which had been stayed) and the Superior Court granted State Farm’s motion for summary judgment.

As the Court summarized:

“Without more, rational differences in claim valuations do not lead to an inference of bad faith. Here, the record shows that State Farm and Enrique had different views of the value of the claim; State Farm sought advice from two attorneys, attempted to reach a settlement with Enrique, and failed. State Farm had bases for its claim valuations, and there is no evidence that creates an inference that those reasons were pretextual. State Farm thus was not “clearly without any reasonable justification” for its valuations.”

Insurance companies are not charities and like any business, must make smart business decisions.  Read the full opinion here.

Chris Lee

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Vice Chancellor Glasscock Addresses Novel Question Regarding Demand Futility

chancerysealOn May 31, 2016, Vice Chancellor Glasscock issued an interesting Opinion addressing the question of which composition of a board of directors is relevant to the Court’s demand futility analysis where the board’s composition changes in between the time a derivative complaint is filed and served upon the defendants.

In the case at bar, the Plaintiff filed a purported derivative action on May 7, 2015.  Just four days (2 business days) later, the board’s composition dramatically changed.  The last factual wrinkle being that the defendants were not served with the complaint until May 27, 2015.  It was under these factual circumstances, that the Vice Chancellor needed to determine which board he should be considering when evaluating whether the plaintiff adequately alleged demand futility.

In the end, the Vice Chancellor determined that demand futility should be reviewed with respect to the “new” board that was in place on May 11.  The Vice Chancellor found it compelling that the change in the board’s composition was both planned in advance and well publicized.  His Honor also found it relevant that, even if Plaintiff had served the “old” board with a demand on May 7, that board would not have had adequate time to evaluate any demand.  Finally, the Vice Chancellor also found it persuasive that the Complaint was not served until May 27 – on the “new” board.

The Court’s opinion is available here.

Blake A. Bennett


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Delaware Wal-Mart Derivative Action Precluded by Prior Arkansas Dismissal

AndyBouchardChancellor Bouchard, today, dismissed the matter of In re Wal-Mart Stores Inc. Delaware Derivative Litigation.  The Chancellor held that the plaintiffs’ claims were precluded by a prior dismissal of a similar derivative action filed in Arkansas.  Despite the fact that the Arkansas plaintiffs filed their action based solely upon publicly available information and did not first seek to examine the company’s books and records to uncover supporting evidence of wrongdoing, the Chancellor concluded that the Arkansas plaintiffs were nonetheless “adequate representatives” under Arkansas law.

The Delaware plaintiffs, in contrast, fought vigorously to attain books and records from the company to be able to file a far better supported derivative complaint.  Those efforts included an appeal to the Delaware Supreme Court.  It appears difficult to impossible to dispute that the Delaware plaintiffs were better derivative representatives of the company, but the Chancellor still concluded that the law required him to dismiss the Delaware action.

Given the history of this action, it seems inevitable that the Delaware plaintiffs will appeal to the Delaware Supreme Court.

The Chancellor’s opinion can be found here.

Blake A. Bennett


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Nobody likes reading warranty language, but as it turns out, that language actually matters.  In LTL Acres L.P. v. Dryvit Systems, Inc., the Delaware Supreme Court overturned a grant of summary judgment in favor of Dryvit Systems, Inc. on statute of limitations grounds.

As quick backstory, LTL was building a furniture store downstate in 2005 and contracted with a subcontractor to install a Dryvit exterior surface.  The Dryvit had a 10 year warranty with the following relevant language:

DRYVIT . . . hereby warrants for a period of ten (10) years from the date of substantial completion of the project that the Exterior Insulation and, Finish System materials manufacture and sold by Dryvit, including the insulation board, adhesive, basecoat, mesh and finish shall be free from defects in the manufacture of the materials and will not, as a result of such defects, when installed in accordance with the current published Dryvit Specifications, within said period of 10 years, under normal weather conditions and excluding unusual air pollution, lose their bond, peel, flake or chip, and further that the finish will be fade resistant, except for specially produced colors, and will be water resistant so long as the surface integrity is retained . . . . . . . The sole responsibility and liability of Dryvit under this warranty shall be to provide labor and materials necessary to repair or replace the Dryvit materials described herein shown to be defective during the warranty period, and only for the materials warranted hereunder.

By 2012, the Dryvit exterior was beginning to fail and ultimately, LTL brought suit for breach of warranty.  The Delaware Superior Court granted Dryvit’s motion for summary judgment on the basis that LTL’s claims were barred by the 4 year statute of limitations found in 6 Del. C. § 2-725, which governs the statute of limitations in contracts for sale.  The Superior Court found that the statute began to run on the day the Dryvit was delivered to the building side in 2005, and therefore, had completely run by the time suit was filed in 2013.

Justice Vaughn, writing for the Court, determined that the relevant question was whether “Dryvit’s ten year warranty explicitly extends to the future performance of the materials supplied or merely promises to repair or replace defective materials.”  The Court held that “a limitation on remedy is not dispositive on the issue of whether a warranty is a promise to repair or replace; or a warranty of future performance.”

The Court continued:

The language of the warranty must be examined to determine if it explicitly, that is, plainly, warrants future performance. To be explicit, the warranty must be unambiguous, and will normally “indicate that the manufacturer is warranting the future performance of the goods for a specified period of time.”17 A provision limiting the remedy to repair or replacement is not dispositive, by itself, in determining whether the warranty extends to future performance.

The word “will,” as used in the warranty, refers to the future and creates an explicit warranty that the Dryvit materials will perform for the ten year period. 19 We do not mean to imply that the word “will” must be used to make a warranty one extending to future performance, but in this case we need not look beyond the use of the phrases “will not . . . lose their bond,” “will be fade resistant,” and “will be water resistant” to conclude that this warranty explicitly extends to future performance and that discovery of a breach must await future performance. Therefore, the Superior Court erred in rejecting LTL’s contention that the Dryvit warranty explicitly extended to future performance and finding that any alleged breach occurred when the product was delivered. Any alleged breach occurred when it was or should have been discovered.

The language in your warranty matters for purposes of the statute of limitation, so be sure you read it!  You can read the entire opinion here.

Chris Lee

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