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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index2The Delaware District Court recently confirmed the Third Circuit’s long-standing position that there is no individual liability for violations of Title VII of the Civil Rights Act (Title VII), or Title I of the American’s with Disabilities Act (ADA).  The Court extended this interpretation to alleged violations of the state counterparts to Title VII and the ADA; The Delaware Discrimination in Employment Act (DDEA) and the Delaware Persons with Disabilities Employment Protections Act (DEPA).  Leslie Sapienza v. Ronald S. Castellon, et al., C.A. No. 14-974 LPS (March 28, 2016).  Prior to this decision neither the Delaware Courts nor the Third Circuit had specifically addressed this issue.

The Plaintiff filed suit in 2014 against her former employer and its owner, alleging violations of state and federal discrimination law (gender and disability), retaliation under state and federal law, and in 2015 amended her Complaint to allege intentional infliction of emotional distress.  The Court, ruling on a 12(b)(6) motion, dismissed the federal discrimination and retaliation claims, and the emotional distress claim, as untimely.  With respect to the claims against the business under the DDEA and the DEPA the Court declined to dismiss as the factual record lacked evidence of her receipt of a right-to-sue notice from the state agency.

Plaintiff’s claims against the owner rested on the theory that individual liability existed because the business was a “closely-held corporation”.  The Court rejected this argument.  The Delaware Supreme Court has held that federal interpretations of Title VII are “persuasive authority regarding the meaning of the DDEA”.  The Court predicted that the Supreme Court would adopt an identical reasoning with respect to the ADA and the DEPA.  Accordingly, prior Third Circuit rulings that individuals are not liable under either Title VII or the ADA are persuasive that the Supreme Court would conclude that no individual liability exists under either the DDEA or the DEPA, regardless of the entity’s status as a “closely-held corporation”.  This decision clarifies a widely held assumption with respect to individual liability under state discrimination law.

Kevin Fasic, Esquire and Katherine R. Witherspoon, Esquire (With assistance from Law Clerk Meghan T. Bonk)


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Delaware Supreme Court Says Claims Against Insurer for a Bad Faith Failure to Settle 3rd Party Claims Accrue at Time of Excess Judgment

2000px-Seal_of_the_Supreme_Court_of_Delaware.svgThe Delaware Supreme Court recently addressed an issue of first impression: “When does a claim that an insurer acted in bad faith by failing to settle a third-party insurance claim accrue for purposes of the statute of limitations?”  The Superior Court previously concluded that the statute of limitations begins to run at the time of the wrongful act, when the Plaintiff was made aware that her claim would be denied, and thus dismissed Plaintiff’s claims as untimely.  Plaintiff appealed.

Common to the insurance industry are third-party insurance claims.  There are different types of claims within this area of the law, but all share a common characteristic: At one point, the insured held the right to bring a claim against their insurer for one reason or another and the insured assigned away that right to a third-party, generally one who was injured by the insured’s conduct.  The question here is when does the third-party’s right to bring that assigned claim begin to run for the purposes of the statute of limitations?

Arguing on appeal, Plaintiff/Appellant, Connelly, contended that a claim of this type accrues only when the insured suffers a final and non-appealable judgment in excess of policy limits. Plaintiff drew largely on policy arguments to support her position.  If her reasoning is followed, Plaintiff asserted both litigant and judicial resources will be conserved, the insurer and insured can better work together to defend such a suit as an early conflict of interests between the parties can be avoided, and damages, which must be pled in an action for breach of the implied duty to act in good faith, are not available before there is a final excess judgment.

Conversely, State Farm argued that the claim against it for bad-faith failure to settle accrued either when it refused to accept Connelly’s settlement offer or thirty days later when the offer expired.  State Farm primarily cited to case law outside the insurance context to support its position that the statute of limitations begins to run when the act in question occurred. State Farm noted that Plaintiff repeatedly referred to May 10, 2011, the date of the settlement offer, in her complaint as the date when State Farm breached its duty and acted in bad faith in refusing to accept her offer.

The Supreme Court found Plaintiff’s reasoning convincing and reversed. Chief Justice Strine, writing for the Court, drew on opinions from sister jurisdictions establishing the majority rule, which is that a bad-faith failure-to-settle claim accrues when the excess judgment becomes final and non-appealable.  The Court also relied on policy from indemnity law to find that Plaintiff’s claims were not time barred.  The Court stated: “Insurance claims are a type of indemnity claim because in both cases, the obligation to cover the indemnified party’s costs arises only once … in the context of a bad-faith suit against an insurer, a final and non-appealable excess judgment [is entered on] the third-party claim.”  Therefore, the Court found indemnity policy rationale applicable to the insurance law context.

The Court adopted Plaintiff’s policy arguments in their entirety, noting the majority rule reduces the possibility of a conflict of interest between the insurer and the insured, saves courts time and the insured litigation costs, damages are available at the proper pleading stage, and protects insurers from bad faith claims for failing to settle even the most frivolous claims if the third-party claimant was willing to settle within the policy limits.  The Court held that “a claim that an insurer acted in bad faith when it refused to settle a third-party insurance claim accrues when an excess judgment against an insured becomes final and non-appealable,” and thus reversed in favor of the Plaintiff.

Read the full opinion here.

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Liquidating Trustee of Coldwater Creek, Inc. et al. Commences Mass Avoidance Action Filings

coldwater-creek-logoMain Case: In re: CWC Liquidation Inc. (f/k/a Coldwater Creek, Inc.) et al.; Bankr. Case No. 14-10867 (BLS)

Plaintiff: Peter Kravitz, as Liquidating Trustee of the CWC Creditors’ Liquidating Trust

On March 15, 2016, Peter Kravitz, as Liquidating Trustee (“Liquidating Trustee”) of the CWC Creditors’ Liquidating Trust filed 74 actions (the “Avoidance Actions”) pursuant to Sections 544, 547, 548 and 550 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).

Case History

Coldwater Creek, Inc. (now CWC Liquidation Inc.) and its seven subsidiaries (collectively, the “Debtors”) operated as a multi-channel retailer that sold women’s apparel, accessories, and home decor through retail stores across the country, their catalog, and their e-commerce website. According to the Declaration of James A. Bell in Support of Voluntary Petitions, First Day Motions, and Applications [Docket No. 2], Coldwater reached a peak revenue of $1.1 billion in 2006, with a successful period of store growth from 198 stores in 2005 to 336 stores in 2007. Beginning in 2007, the economic downturn adversely affected the entire retail industry, including Coldwater, and from 2007 to 2011, the Debtors experienced multiple management changes and strategic shifts that, when combined with the Debtors’ unmet sales expectations, led to significant inventory buildup. From 2011 through 2013, the Debtors attempted a targeted turnaround process that ultimately led to a sale effort that failed due to lack of interest from potential buyers. After months of declining sales and failed out-of-court sales and refinancing processes, the Debtors determined that the best way to maximize value for the benefit of all interested parties was a prompt and orderly wind-down of their business.

On April 11, 2014 (the “Petition Date”), each of the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. On the Petition Date, the Debtors submitted its initial proposed plan of liquidation (the “Liquidation Plan”) with the stated goal of the liquidation and conversion of all of the Debtors’ remaining assets to cash [Docket No. 15]. On September 17, 2014, the Bankruptcy Court entered an order (the “Confirmation Order”) [Docket No. 981] confirming the Modified Third Amended Joint Plan Of Liquidation Of Coldwater Creek Inc. And Its Debtor Affiliates Pursuant To Chapter 11 Of The Bankruptcy Code (the “Plan”). The Plan became effective on September 26, 2014 (the “Effective Date”) [Docket No. 1015].

Part of and in addition to the Liquidation Plan, the Debtors filed a motion seeking to commence rapid chain-wide store closing sales in order to quickly liquidate inventory, furniture, fixtures and equipment, and other assets [Docket No. 13].

The Liquidating Trust and the Avoidance Actions

In accordance with the Liquidation Plan and the Confirmation Order, the Liquidation Trust was established on the Effective Date of the Plan. Also on the Effective Date, as contemplated by the Plan and Confirmation Order, the Debtors and the Liquidating Trustee entered into the CWC Creditors’ Liquidating Trust Agreement (the “Liquidating Trust Agreement”).

Under the Plan and the Liquidating Trust Agreement, the Liquidating Trustee was appointed to administer the Liquidating Trust. Among other things, the Liquidation Trustee is authorized to prosecute and resolve Causes of Action (as defined in the Plan) on behalf of and in the name of the Debtors. [See Docket No. 981, Section IV.E].

With the April 14, 2016 statute of limitations looming, the Liquidating Trustee has commenced filing the Avoidance Actions. The substance of the Complaints reviewed thus far is somewhat standard. The Preference Period is identified as between January 11, 2014 and April 10, 2014 (the “Preference Period”). The Liquidating Trustee does assert fraudulent conveyance claims under Section 548 (and under state fraudulent transfer statutes through Section 544(b),) relying solely on the recitation of the statutory language, and seeks the disallowance of claims pursuant to Section 502(d) and (j). In addition to the specific Debtor that made the alleged transfers, the Liquidating Trustee’s Exhibit A attempts to identify check numbers, check amounts, and the clear date, as well as the specific invoice information.

The Honorable Brendan L. Shannon is presiding over the Debtors’ cases.

Prime Clerk, LLC is the claims agent for CWC Liquidation Inc.

ASK LLP and The Rosner Law Group LLP are acting as Counsel to the Liquidating Trustee.

General case information can be found at: and the official ECF docket can be found on Bankruptcy Court’s website at:

R. Grant Dick IV

(302) 984-3867

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The Doctrines of Champerty and Maintenance are Alive and Well in Delaware

Champetry-v1-IBRC-v-Morrissey-2014-IEHC-527Charge Injection Technologies (“CIT”) filed suit against E.I. DuPont de Nemours and Co. (“DuPont”) in December 2007, alleging that DuPont wrongfully used and disclosed CIT’s proprietary and confidential technology.

Several years into litigation, CIT’s funds began to dry up, and, in an effort to continue the litigation, CIT enlisted the help of Burford Capital LLC, a UK company that provides litigation financing.  Initially, Burford declined the invitation, but after a series of events took a second look and decided to finance the litigation.  Both CIT’s and Burford’s Board of Directors approved the financing agreement, which was finalized on June 15, 2015.  Burford then entered into a Forward Purchase Agreement (the “FPA”) with Aloe Investments Limited where Aloe would provide financing in exchange for a percentage of any litigation proceeds and a security interest in CIT’s claim as collateral.

Following the FPA and financing agreement, DuPont filed a motion to dismiss, alleging that the agreements violated Delaware’s prohibition against champerty and maintenance.

The doctrines of champerty and maintenance originated in Medieval England.  Feudal lords and other wealthy individuals (champertors) would obtain a modern day assignment from a less well-off individual for the right to bring suit against one of the champertor’s personal or political opponents.  The champertors would finance and provide counsel (maintainers) and carry on the suit at their own risk.  The champertor would then share in any recovery, which was generally real property – through these efforts the champertors continued to grow wealthy at the expense of their countrymen. The defense of maintenance applies where a third-party intermeddler enters the suit to “stir up” litigation.

Kings were often the target of these efforts and due to that fact, along with a general disinclination toward litigation and third-party intermeddlers, laws against champerty and maintenance emerged.

CIT maintained that the doctrines of champerty and maintenance are dead in Delaware, but President Judge Jurden disagreed and concluded that absent a ruling from the Delaware Supreme Court holding otherwise, the doctrines continue to endure in Delaware.  Under Delaware law, champerty cannot be charged against an assignee where the assignee holds an interest – equitable, legal, or otherwise in the subject matter of the litigation, independent of the assignment.  DuPont argued that the FPA constituted champerty because it provided Burford, a disinterested third-party, with de facto control over the litigation.  CIT argued, and the Court agreed, that the FPA was not champertous because it did not give Burford any right either to direct, control, or settle CIT’s claims against DuPont, the FPA specifically states Aloe is not a party to the litigation, and CIT retains the unfettered right to settle the litigation at any time for any amount. The Court also held that these circumstances do not give rise to a defense of maintenance because Burford did not stir up litigation, control or force CIT to pursue litigation, or control the litigation for the purpose of continuing a frivolous or unwanted lawsuit.  Therefore, Nemours motion to dismiss was denied.

Read the full opinion here.

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Delaware Supreme Court Answers Certified Question Distinguishing Direct and Derivative Claims

2000px-Seal_of_the_Supreme_Court_of_Delaware.svgThe Delaware Supreme Court recently answered the following certified question from the United States Court of Appeals for the Eleventh Circuit, in the matter of Culverhouse v. Paulson & Co.:

“Does the diminution in the value of a limited liability company, which serves as a feeder fund in a limited partnership, provide a basis for an investor’s direct suit against the general partners when the company and the partnership allocate losses to investors’ individual capital accounts and do not issue transferrable shares and losses are shared by investors in proportion to their investments?”

The question before the Court boiled down to whether the claims brought by Culverhouse were direct or derivative. Confusion surrounding the issue arose from the 11th Circuit’s attempt to rectify the Delaware Supreme Court’s prior holding in Tooley v. Donaldson, Lufkin & Jenrette and the Court of Chancery’s holding in Anglo American Security Fund, L.P. v. S.R. Global International Fund, L.P.

The Supreme Court in Tooley established a two-part test to determine if a claim is direct or derivative. For a claim to be direct, the plaintiff must show: (1) that he or she suffered a harm individually (not a harm to the corporation); and (2) recovery or any other form of relief can be had by the individual.

In Anglo, which preceded Tooley by six months, the plaintiffs were limited partners in an investment fund and the defendants were the general partner and the fund’s auditor. The limited partners sought to bring direct claims against the general partner arising from the general partner’s allegedly improper withdrawal of over $22,000,000 from the fund. The Court of Chancery denied the general partner’s motion to dismiss and found that the former limited partners stated direct diminution of value claims. The Chancellor concluded that:

Due to the structure and operation of the Fund, whenever the value of the Fund is reduced, the injury accrues irrevocably and almost immediately to the current partners but will not harm those who later become partners. Although other types of injuries could harm the Fund as an entity in ways that appropriately could be challenged in a derivative action, injuries that result in a direct reduction of the Fund’s assets will effect an almost immediate reduction in the capital accounts of each of the existing partners. Such losses confer only a fleeting injury to the Fund, one that is immediately and irrevocably passed through to the partners.

Characterizing the plaintiffs’ claims as derivative would thus have the perverse effect of denying standing (and therefore recovery) to parties who were actually injured by the challenged transactions while granting ultimate recovery (and therefore a windfall) to parties who were not. This result is antithetical to the first purpose of derivative litigation identified in Cencom, does nothing to further the gatekeeping functions of derivative litigation requirements, and, in the words of Vice Chancellor Steele, “makes no sense.” I hold that the plaintiffs’ claims related to Sloane’s February 18, 2000, withdrawal are direct claims.

The 11th Circuit found Anglo informative for the case at bar due to the similarities in the structure of the funds.

The Delaware Supreme Court, however, distinguished Anglo from the case at bar based on the nature of the investment. In Anglo, the investors did not use a feeder fund, they had a direct relationship with the investment fund and its manager. In contrast, Culverhouse only had a legal relationship with the feeder fund, not the investment fund.

The purpose of a feeder fund is to allow investors who do not meet the requirements of the investment fund to aggregate their investments and invest in the investment fund. Each fund has its own agreements, and for the court to undermine these agreements would place a veil of uncertainty over the corporate world. Because of the nature of business in Delaware, “Delaware courts take corporate form and corporate formalities very seriously.”

Here, the investment fund managers owed fiduciary duties to the investors who invested directly in the investment fund. Culverhouse chose to invest directly in the feeder fund, which in turn invested in the investment fund; Culverhouse did not invest directly in the investment fund. The alleged harm stemming from the investment fund losses at issue would not be suffered by Culverhouse in the first instance, nor would Culverhouse receive the benefit of any recovery in the first instance. Therefore, Culverhouse’s claims fail under both prongs of the Tooley test, and Culverhouse’s claims are derivative.

The full opinion can be read here.

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