Delaware Supreme Court to Hear Oral Arguments This Week in Qualcomm, C&J Energy Cases


Gavel

The Delaware Supreme Court March 1 will hear oral argument in a shareholder lawsuit alleging that Qualcomm Inc. officers and directors breached their fiduciary duties by inadequately responding to “red flags” that the company was violating international antitrust laws (Melbourne Mun. Firefighters Pension Tr. Fund v. Jacobs, Del., No. 444, 2016, oral argument 3/1/17).

The Delaware Chancery Court in August 2016 dismissed the lawsuit after finding that the plaintiff—the Melbourne Municipal Firefighters & Pension Trust Fund—failed to show the Qualcomm directors acted in bad faith.

Vice Chancellor Tamika Montgomery-Reeves held that the plaintiff shareholder failed to show a pre-suit demand on the San Diego-based company's board to take legal action would have been excused.

Under Delaware law, before investors can sue on a company's behalf, they must ask the company's board to take action. However, they don't have to make a pre-suit demand if they can show that a majority of the directors faced a substantial likelihood of liability arising from the allegations or were otherwise conflicted.

On appeal, the fund claims the lower court misapplied state law by ruling that “the red flags did not ‘rise to the severity’ necessary to ‘implicate an immediate duty to alter a company's culture and business practices.’”

C&J Energy Merger

Also on March 1, the state high court will hear oral argument in a lawsuit challenging C&J Energy Services's $2.86 billion merger with a unit of Nabors Industries Ltd. (City of Miami Gen. Emps. & Sanitation Emps. Ret. Trust v. Comstock, Del., No. 482, 2016, oral argument 3/1/17).

On review is the chancery court's August 2016 dismissal of claims that the board disclosed misleading information about the deal and that the process by which the board considered the merger was tainted.

Chancellor Andre G. Bouchard dismissed the shareholder lawsuit after determining the deferential business judgment standard of review applied. In reaching the ruling, he cited two Delaware Supreme Court decisions that limit judicial review of transactions when they are approved by a fully informed, uncoerced stockholder vote—Corwin v. KKR Fin. Holdings LLC and Singh v. Attenborough.

The court also found that the company was entitled to over $542,000 in damages as a result of the cost of compliance with the preliminary injunction issued earlier in the lawsuit.