top 10 business cases from the past year (2014)

“Top 10 Business Law Cases From the Past Year”

Business & Corporate Law Section Annual CLEMay 9, 2014

Wendy Gerwick Couture

THEMES

Idaho statutes re: liens & security interests

Oral agreements

Shareholder purchase or repurchase

Good faith

Clarifying Delaware law

THEMES


Oral agreements


Good faith


X

Farmers Nat’l Bank v. Green River Dairy, LLC, 155 Idaho 853, 318 P.3d 622 (Jan. 24, 2014).

Green River Dairy, LLC

Farmers National

Bank

$$$

perfected security interest


Green River Dairy, LLC

Farmers National

Bank

$$$


Commodities Dealers

§ 45-1802 feed lien

???


§ 45-1802 - An agricultural commodity producer or an agricultural commodity dealer who sells, or delivers under contract or bailment, an agricultural product has a lien on the agricultural product or the proceeds of the sale of the agricultural product as provided in section 45-1804, Idaho Code. The lien created in this chapter may attach regardless of whether the purchaser uses the agricultural product purchased to increase the value of his livestock or whether he uses the agricultural product purchased to maintain the value, health or status of his livestock without actually increasing the value of his agricultural product.



§ 45-1801(1) - “agricultural product” does not include livestock



§ 45-1801(1) - “agricultural product” does not include livestock

Dissent by Justice Jim Jones – Under this reading, the second sentence is superfluous.


2003In re Goedhart, 03.3 IBRC 167 - feed lien does not attach to

livestock

2012District court

decision in this case

2014Supreme Court’s reversal

UNCERTAINTY ?


THEMES


Oral agreements


Good faith


X

KeyBank Nat’l Ass’n v. PAL I, LLC, 155 Idaho 287, 311 P.3d 299 (Oct. 3, 2013).

Tri-Steel

KeyBank

$$$



Inventory, equipment, tools,

parts, supplies, etc.

Tri-Steel

KeyBank

$$$



Inventory, equipment, tools,

parts, supplies, etc.

PAL I, LLC

Money Judgment

• Writ of execution• Levy by sheriif


§ 11-203 - The following procedures shall apply . . . to any claim by a third party that property levied upon is his property or that he has a security interest therein. . . . A third party claimant shall prepare a written claim setting forth the grounds upon which he claims the property, and in the case of a secured party, also stating the dollar amount of the claim. A claim of exemption or third party claim may be filed only if property has been levied upon.

(a) The claim of exemption or third party claim shall be delivered or mailed to the sheriff within fourteen (14) days after the date the sheriff hand delivers or mails the documents required to be served upon the defendant and third parties . . .




§ 38-9-315 – (a) Except as otherwise provided in this chapter and in section 28-2-403(2):

(1) A security interest or agricultural lien continues in collateral notwithstanding sale, lease, license, exchange or other disposition thereof unless the secured party authorized the disposition free of the security interest or agricultural lien; and

(2) A security interest attaches to any identifiable proceeds of collateral.







Under these facts, not an authorized disposition.








Under these facts, KeyBank not estopped under doctrine of “quasi-estoppel” from asserting security interest.








Under these facts, KeyBank not estopped under doctrine of “quasi-estoppel” from asserting security interest.

WARNING: If fail to comply with § 11-203 or to otherwise assert security interest during sheriff’s sale, possibly lose it?

THEMES


Oral agreements


Good faith


X

Silicon Int’l Ore, LLC v. Monsanto Co., 155 Idaho 538, 314 P.3d 593 (Nov. 27, 2013).


Monsanto, Quartzite

Mine Owner

WGI,Mine Operator


Monsanto, Quartzite

Mine Owner

WGI,Mine Operator

SIOSilica Sand Acquiror


Monsanto, Quartzite

Mine Owner

WGI,Mine Operator


Master Agreement

expired


Monsanto, Quartzite

Mine Owner

WGI,Mine Operator


Master Agreement

expired

Alleged verbal

agreement

Alleged verbal agreement

• Monsanto agreed to furnish SIO with agreed-upon quantities of silica sand if processed in safe and environmentally friendly manner.

• SIO could sell the processed sand to third parties, but Monsanto reserved the right to limit the market.

• SIO could extract sand from the quarry.• The agreement would remain in force as long as “mutually

beneficial” to SIO and Monsanto.• The agreement would be “mutually beneficial” as long as

(1) SIO conformed to Monsanto’s environmental, safety, and control regulations; (2) SIO paid Monsanto an agreed-upon royalty; and (3) SIO permitted Monsanto to control the markets in which SIO could sell the sand.



Statute of Frauds§ 28-2-201(1) – contract for the sale of goods for the price of $500 or more




If hybrid contract (with terms re: sale of goods and services), test:“whether the predominant factor, the thrust, the purpose of the agreement is a transaction of sale, with labor incidentally involved”


Alleged verbal agreementX



UNENFORCEABLE





UNENFORCEABLE

“An enforceable contract must contain the essential terms of agreement and not be too vague, indefinite, or uncertain as to those terms.”





UNENFORCEABLE

“An enforceable contract must contain the essential terms of agreement and not be too vague, indefinite, or uncertain as to those terms.”

UNENFORCEABLE


X

Equitable Estoppel Claim

Against Monsanto

YES, equitable estoppel claim can be asserted where the purported agreement does not comply with the Statute of Frauds.



Against Monsanto


BUT, the doctrine of equitable estoppel assumes the existence of a complete agreement that is not unenforceable as vague or incomplete.

X



Against Monsanto



XTortious

Interference Claim Against

WGI

YES, the failure to comply with the Statute of Frauds merely renders a contract voidable, and thus it can still be subject to tortious interference.



Against Monsanto



XTortious

Interference Claim Against

WGI

YES, the failure to comply with the Statute of Frauds merely renders a contract voidable, and thus it can still be subject to tortious interference.

BUT, a party cannot interfere with an agreement that is too vague and uncertain to be enforceable.

X


THEMES


Oral agreements


Good faith


X

X

In re Wayport, Inc. Litigation, 76 A.3d 296 (Del. Ch. May 1, 2013).


No special disclosure

duties



duties

Duty to disclose all

material facts



duties

Duty to disclose all

material factsDuty to disclose

“special facts”


“not aware of any bluebirds of happiness in the Wayport world right now”

June 8, 2007



June 8, 2007 July 2, 2007

learned about the patent sale



June 8, 2007 July 2, 2007

learned about the patent sale

Late Sept. 2007

purchased stock from outside shareholder

DUTY TO UPDATE

FRAUD

THEMES


Oral agreements


Good faith


XX

Blaustein v. Lord Baltimore Capital Corp., 84 A.3d 954 (Del. Jan. 21, 2014).


Nixon v. Blackwell, 626 A.2d 1366 (Del. 1993) – “The tools of good corporate practice are designed to give a purchasing minority stockholder the opportunity to bargain for protection before parting with consideration. It would do violence to normal corporate practice and our corporation law to fashion an ad hoc ruling which would result in a court-imposed stockholder buy-out for which the parties had not contracted.”


Nixon v. Blackwell, 626 A.2d 1366 (Del. 1993) – “The tools of good corporate practice are designed to give a purchasing minority stockholder the opportunity to bargain for protection before parting with consideration. It would do violence to normal corporate practice and our corporation law to fashion an ad hoc ruling which would result in a court-imposed stockholder buy-out for which the parties had not contracted.”

“Under common law, the directors of a closely held corporation have no general fiduciary duty to repurchase the stock of a minority stockholder. An investor must rely on contractual protections if liquidity is a matter of concern. Blaustein has no inherent right to sell her stock to the company at ‘full value,’ or any other price. It follows that she has no right to insist on the formation of an independent board committee to negotiate with her.”


Shareholder Agreement paragraph 7(d):

“Notwithstanding any other provision of this Agreement, the Company may repurchase Shares upon terms and conditions agreeable to the Company and the Shareholder who owns the Shares to be repurchased provided that the repurchase is approved either (i) by a majority, being at least four, of all the Directors of the Company then authorized . . . at a duly called meeting of the Board of Directors or (ii) in writing by Shareholders who, in the aggregate, own of record or beneficially 70% or more of all Shares then issued and outstanding.”


Shareholder Agreement paragraph 7(d):

“Notwithstanding any other provision of this Agreement, the Company may repurchase Shares upon terms and conditions agreeable to the Company and the Shareholder who owns the Shares to be repurchased provided that the repurchase is approved either (i) by a majority, being at least four, of all the Directors of the Company then authorized . . . at a duly called meeting of the Board of Directors or (ii) in writing by Shareholders who, in the aggregate, own of record or beneficially 70% or more of all Shares then issued and outstanding.”

“The implied covenant of good faith and fair dealing cannot be employed to impose new contract terms that could have been bargained for but were not.”


Blaustein v. Lord Baltimore Capital Corp., No. 6685–VCN, 2013 WL 1810956 (Del.Ch. Apr. 30, 2013).

“Susan's predicament is not enviable, but she must live with the Shareholders' Agreement for which she bargained. She had an opportunity to negotiate specific buyout terms. Her attorneys were sophisticated and well-regarded. The Court cannot read into the Shareholders' Agreement obvious terms that she did not secure during the bargaining process. Nor can the Court, on these facts, utilize fiduciary principles to help her case.”

THEMES


Oral agreements


Good faith


XX

Delaware LLC Act – Effective August 1, 20136 Del. Code § 18-1104

In any case not provided for in this chapter, the rules of law and equity, including the rules of law and equity relating to fiduciary duties and the law merchant, shall govern.

Delaware LLC Act6 Del. Code § 18-1101(c)To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement, the member's or manager's or other person's duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement; provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing.

Delaware Rev. Unif. LP Act6 Del. Code § 17-1101(c)To the extent that, at law or in equity, a partner or other person has duties (including fiduciary duties) to a limited partnership or to another partner or to another person that is a party to or is otherwise bound by a partnership agreement, the partner's or other person's duties may be expanded or restricted or eliminated by provisions in the partnership agreement; provided that the partnership agreement may not eliminate the implied contractual covenant of good faith and fair dealing.

Delaware LLC Act6 Del. Code § 18-1101(c)To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement, the member's or manager's or other person's duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement; provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing.

GOOD FAITH

Delaware Rev. Unif. LP Act6 Del. Code § 17-1101(c)To the extent that, at law or in equity, a partner or other person has duties (including fiduciary duties) to a limited partnership or to another partner or to another person that is a party to or is otherwise bound by a partnership agreement, the partner's or other person's duties may be expanded or restricted or eliminated by provisions in the partnership agreement; provided that the partnership agreement may not eliminate the implied contractual covenant of good faith and fair dealing.

GOOD FAITH

Fiduciary Duty of Loyalty (including

good faith)

Contractual Duty of Good

Faith

Implied Duty of Good Faith & Fair Dealing

GOOD FAITH


good faith)


Faith


Can be eliminated or supplanted.

GOOD FAITH


good faith)


Faith



How is good faith defined?

DV Realty v. Policemen’s Annuity, 75 A.3d 101 (Del. Aug. 26, 2013).

LPA § 3.10(a)(ii)

Both General Partners (and only both, not either General Partner individually) may be removed without Cause by an affirmative vote or consent of the Limited Partners holding in excess of 75% of the [Limited] Partnership Interests then held by all Limited Partners; provided that consenting Limited Partners in good faith determine that such removal is necessary for the best interest of the [Limited] Partnership.


• If defined in LP Agreement as defined.

• If undefined ???




Court of Chancery, drawing from UCC § 1-201, held that “good faith” means “honesty in fact and the observance of reasonable commercial standards of fair dealing.”




Court of Chancery, drawing from UCC § 1-201, held that “good faith” means “honesty in fact and the observance of reasonable commercial standards of fair dealing.”

Delaware Supreme Court:Not “good faith” if “so beyond the bounds of reasonable judgment that it seems essentially inexplicable on any ground other than bad faith.”

GOOD FAITH


good faith)


Faith



• As defined.• If undefined, subjective

inquiry into whether “so far beyond the bounds of reasonable judgment.” DV Realty

GOOD FAITH


good faith)


Faith





Can “safe harbors” conclusively establish

good faith?

Can “safe harbors” conclusively establish

good faith?

Gerber v. Enter. Prods. Holdings, LLC, 67 A.3d 400 (Del. June 10, 2013).


LPA 7.9(b) – “Whenever the General Partner . . . takes any other action, or any of its Affiliates causes it to do so, in its capacity as the general partner of the Partnership . . . then, . . . the General Partner, or such Affiliates causing it to do so, shall . . . take such other action in good faith.”

Implied contractual duty of good faith and fair dealing




Safe Harbor 2 – Precludes judicial review of any conflict of interest transaction if approved by “Special Approval.”

Safe Harbor 1 – Conclusive presumption that General Partner acts in good faith if in reliance on investment banker’s opinion.






X






X Requires that a party “refrain from arbitrary and unreasonable conduct which has the effect of preventing the other party to a contract from receiving the fruits of its bargain”

GOOD FAITH


good faith)


Faith





• Safe harbors can insulate from liability.

GOOD FAITH


good faith)


Faith






• Presumptive “good faith” provisions don’t insulate.

GOOD FAITH


good faith)


Faith






• Presumptive “good faith” provisions don’t insulate.

• Implied duty applies to conduct pursuant to safe harbor


“Express contractual provisions always supersede the implied covenant, but even the most carefully drafted agreement will harbor residual nooks and crannies for the implied covenant to fill. In those situations, what is ‘arbitrary’ or ‘unreasonable’—or conversely ‘reasonable’– depends on the parties’ original contractual expectations, not a ‘free-flowing’ duty applied at the time of the wrong.”


THEMES


Oral agreements


Good faith

Clarifying Delaware lawXX

SIGA Techs., Inc. v. Pharmathene, Inc., 67 A.3d 330 (Del. May 24, 2013).

SIGA Pharmathene


SIGA PharmatheneLicense term sheet“Non-binding”Unsigned


SIGA PharmatheneLicense term sheet“Non-binding”Unsigned

Merger AgreementBridge Financing Agreement

Upon termination of the merger, “SIGA and Pharmathene will negotiate in good faith with the intention of executing a definitive License Agreement in accordance with the terms set forth in the License Agreement Term Sheet attached as Exhibit C.”


The parties were obligated to negotiate in good faith with the intention of executing a definitive License Agreement with economic terms substantially similar to the terms of the term sheet.



Bad faith implies the “conscious doing of a wrong because of dishonest purpose or moral obliquity”




• If the parties have an agreement to negotiate in good faith• Based on a preliminary agreement that contains certain

major terms but leaves other terms open for further negotiation

• And the trial court makes a factual finding that the parties would have reached an agreement but for the defendant’s bad faith negotiations




• If the parties have an agreement to negotiate in good faith• Based on a preliminary agreement that contains certain

major terms but leaves other terms open for further negotiation

• And the trial court makes a factual finding that the parties would have reached an agreement but for the defendant’s bad faith negotiations

Expectation damages are available!!!

THEMES


Oral agreements


Good faith

Clarifying Delaware lawX

Klaassen v. Allegro Dev., No. 583, 2014 WL 996375, (Del. Mar. 14, 2014).


NO ADVANCE NOTICE OF AGENDA

“It is settled Delaware law that corporate directors are not required to be given notice of regular board meetings.”




“It follows that there is no default requirement that directors be given advance notice of specific agenda items to be addressed at a regular board meeting.”





DECEPTIVE TACTICS

“Our courts do not approve the use of deception as a means by which to conduct a Delaware corporation’s affairs, and nothing in this Opinion should be read to suggest otherwise.”





DECEPTIVE TACTICS

“Our courts do not approve the use of deception as a means by which to conduct a Delaware corporation’s affairs, and nothing in this Opinion should be read to suggest otherwise.”

BUT, this is an equitable claim, thus rendering actions voidable rather than void, and subject to equitable defenses.

THEMES


Oral agreements


Good faith

Clarifying Delaware lawX

In re Hecla Mining Co. Deriv. Shareholder Litig., No. 2:12-CV-97-REB, 2014 WL 689036 (D. Idaho Feb. 20, 2014).


If alleged that directors made a conscious business decision in breach of fiduciary duty

Aronson test: A plaintiff must plead sufficient facts to raise a reasonable doubt that(1) That the directors are disinterested and independentOR(2) That the challenged transaction was the product of a valid exercise of business judgment.



If alleged that directors violated their oversight duties

Aronson test: A plaintiff must plead sufficient facts to raise a reasonable doubt:• That the directors are

disinterested and independent

OR• That the challenged

transaction was the product of a valid exercise of business judgment.

Rales test: A plaintiff must plead sufficient facts to raise a reasonable doubt:• That the board of directors could

have properly exercised its independent and disinterested business judgment in responding to a demand.



If alleged that directors violated their oversight duties

Aronson test: A plaintiff must plead sufficient facts to raise a reasonable doubt:• That the directors are

disinterested and independent

OR• That the challenged

transaction was the product of a valid exercise of business judgment.

Rales test: A plaintiff must plead sufficient facts to raise a reasonable doubt:• That the board of directors could

have properly exercised its independent and disinterested business judgment in responding to a demand.

One way: Show that a majority of the board faces a sufficiently substantial threat of personal liability.

Thank you!

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