In Eric Gilmore v. Turvo, Inc., C.A. No. 2019-0472-JRS, the Delaware Court of Chancery denied a director’s Motion to Compel seeking attorney-client privileged communications between Turvo Inc.’s (“Turvo”) Preferred Directors, officers, or employees and an outside law firm. The general rule in Delaware is that all directors are within the umbrella of privilege between the Board and its counsel and, as a result, a Delaware corporation cannot assert privilege to deny a director access to legal advice furnished to the board during the director’s tenure. The communications in question took place before the Board meeting where the Preferred Directors removed plaintiff as CEO and retained the outside law firm as counsel to the Board. Plaintiff argued that, even though the Board had longstanding counsel, the outside law firm’s advice was being furnished to the Board prior to the formal engagement of the outside law firm by Turvo and therefore Plaintiff was entitled to the communications. The Court disagreed, holding that there was no basis to conclude that outside counsel had been retained by the Board before the meeting because there had been no act by the Board to hire the firm before the meeting. The Court found that any advice provided by outside counsel prior to being engaged by Turvo was in connection with its representation of one specific Preferred Stockholder of Turvo and the director it had appointed. As a result, Plaintiff was an outsider to the relationship and had no right to pierce it.
The Court’s ruling is a reminder to Delaware corporations of the weight the Court of Chancery will place on Board actions and engagement formalities in determining the availability of privilege in Board communications.
A link to the full case is below.
Wagner Hicks attorney Sean C. Wagner recently presented to a group of healthcare industry entrepreneurs at an event in Washington, D.C., during which he led a discussion on the importance of corporate formation, organization, and governance. During his presentation, Mr. Wagner highlighted common, preventable reasons for partnership disputes and the potentially disastrous consequences these disputes can have on otherwise successful businesses.
On July 25, 2019, New York Governor Cuomo signed the Stop Hacks and Improve Electronic Data Security Act (SHIELD Act) into law. The law amends the existing data breach notification law and adds new cybersecurity requirements. The SHIELD Act takes effect in March 2020.
The United States Patent and Trademark Office (USPTO) recently announced a new rule requiring all foreign-domiciled trademark applicants, registrants, and parties to Trademark Trial and Appeal Board proceedings to be represented by an attorney who is licensed in the United States. The requirement applies to parties whose permanent legal residence or principal place of business is outside the United States. The new rule also requires all U.S.-licensed attorneys to confirm they are an active member in good standing of their bar and to provide their bar membership information. Under Secretary of Commerce for Intellectual Property and Director of the USPTO, Andrei Iancu believes that “This rule is a significant step in combatting fraudulent submissions.” The new rule goes into effect on August 3, 2019.
In a recent opinion, the Delaware Court of Chancery held that a party to a merger agreement properly terminated the merger agreement when its counterparty failed to extend the merger deadline by providing the required notice. In Vintage Rodeo Parent, LLC v. Rent-a-Center, Inc., two parties to the merger agreement negotiated a provision providing that the merger must be completed within an initial six-month deadline or either party could terminate the merger agreement at will and receive a termination fee. The merger agreement granted each party the unilateral right to extend the merger deadline upon written notice of extension to its counterparty prior to the deadline.
In recent opinions, courts have demonstrated a willingness to significantly narrow the applicability of the North Carolina Unfair and Deceptive Trade Practices Act, N.C. Gen. Stat. 75-1.1, et seq.(NCUDTPA), in the context of business disputes by broadly interpreting the applicability of the securities exemption. Like its name suggests, the securities exemption excludes securities transactions from the scope of the NCUDTPA. A recent federal court decision in Robichaud v. Engage2Excel, Inc.,et al., Case No. 5:18-CV-00086-GCM, 2019 WL 2076561 (W.D.N.C. May 10, 2019), indicates that the scope of the securities exemption is broad. The case involved allegations that, following a merger, the defendants withheld the plaintiff’s portion of the merger proceeds because plaintiff, who owned a competing business in the same industry, refused to agree to non-competition, non-solicitation, and non-disparagement provisions. The defendants moved to dismiss the NCUDTPA claim, arguing that the claim should be dismissed pursuant to the securities exemption, because the case arose from a complex securities transaction. In response, the plaintiff argued that the securities transaction was not the focus of the NCUDTPA claim, pointing out that the offensive conduct was the unfair competition in the form of refusing to pay plaintiff his portion of the merger proceeds unless he agreed not to compete with defendants. After finding that the unfair and deceptive conduct was inextricably intertwined with a securities transaction, the Court dismissed plaintiff’s NCUDTPA claim.
In a post-trial memorandum opinion, the Court of Chancery held that a fully executed warrant agreement between an early employee and her employer did not reflect a meeting of the minds and therefore there was no valid contract. Significant to the Court’s decision was the limited contemporaneous evidence that existed related to the negotiations surrounding the contract. The Court held that the only contemporaneous evidence of any real value was the drafts of the warrant agreement. Those drafts, and the evidence presented at trial revealed that towards the end stage of negotiations the company sent a draft version of the warrant agreement to plaintiff, plaintiff made edits to the draft including removing or diluting certain restrictive covenants contained therein, plaintiff then signed the edited version and sent it to the company for execution without addressing the fact that she had made the edits, and the company believing the version of the warrant agreement that was returned was the same as the version it had sent to plaintiff, failed to notice plaintiff’s edits and signed the agreement. The Court held that, despite the agreement being fully executed, there was credible and convincing evidence that the parties were not operating on the same page and that the company’s representatives believed they were signing the version of the agreement that they had sent to plaintiff, not a version that was edited by plaintiff. As a result, the Court held that there was no meeting of the minds and that the proffered warrant agreement was invalid.