Legislative updates

Senate Bill 244, effective August 1, 2020, amends the Statutory Trust Act regarding, other among things, electronic transmissions, transactions, and signatures; registered agents; conversions; divisions; mergers; certifications from the Secretary of State and judicial cancellation.
House Bill 341, effective July 16, 2020 except as noted therein, amends the General Corporation Law regarding name; limitation or elimination of director liability; organization meetings; emergency Bylaws; document form, signature and delivery; registered agent; director and stockholder consents to action; indemnification of officers, directors, employees and agents; stockholder proxies; record date of stockholders; notices to stockholders; merger and consolidation; stockholder appraisal rights; conversion; public benefit corporations; and the report of record search fee.
House Bill 342, effective July 16, 2020, amends the Partnership Law regarding name, registered agent, partnership interest appraisal rights, document execution, record-keeping, conversion, and transfer or continuance.
House Bill 343, effective July 16, 2020, amends the LP law regarding name; registered agent; document form, signature and delivery; partnership interest appraisal rights; transfer or continuance; conversion; division; registered series; admission of limited partners; and record-keeping.
House Bill 344, effective July 16, 2020, amends the LLC law regarding name; registered agent; document form, signature and delivery; LLC interest appraisal rights, transfer or continuance; conversion; division; registered series; admission of members; and record-keeping.
Senate Bill 88, generally effective August 1, 2019, (i) amends the General Corporation Law regarding a variety of topics including organization meetings; electronic documentation, signatures and transmission of documents, notices, consents and demands; registered agent resignations; exceptions to notice to stockholders or members; agreements of merger; revival of exempt corporations; and document ordering fees; and (ii) effective for tax year beginning on January 1, 2019, amends the Corporation Franchise Tax law regarding regulated investment company franchise tax rates.
Senate Bill 89, effective August 1, 2019, amends the LP law regarding a variety of topics including names; name reservation; registered agent resignations; voluntary and judicial cancellation; electronic documentation, signatures and transmission of documents; liability for false statement; protected series of limited partners, general partners, partnership interests or assets; registered series thereof; division of LPs; creation of public benefit LPs; filing and document ordering fees; and administrative cancellation.
Senate Bill 90, effective August 1, 2019, amends the partnership law (including LLPs) regarding definitions; names; registered agent resignations; electronic documentation, signatures and transmission of documents; records maintenance and document ordering fees.
Senate Bill 91, effective August 1, 2019, amends the LLC law regarding a variety of topics including definitions; names; registered agent resignations; electronic documentation, signatures and transmission of documents; protected series of members, managers, limited liability company interests or assets; registered series thereof; division of LLCs; and document ordering fees.

Case summaries

Internal Affairs Doctrine
JUUL Labs, Inc. v. Grove, CA No. 2020-0005, decided August 13, 2020. The Delaware Chancery Court held that a stockholder seeking an inspection of records of a Delaware corporation with its principal place of business in California cannot rely on Sec. 1601 of the California Corporations Code – which grants inspection rights to stockholders of corporations with their principal executive offices in California regardless of the state of incorporation. Under principles articulated by the US and Delaware Supreme Courts, Delaware law governs the internal affairs of its corporations and the scope of a stockholder’s inspection rights is a matter of internal affairs. Therefore, Delaware law applies.
Annual Meeting
Spanakos v. Pate, No. 532, 2019, decided July 31, 2020. The Delaware Supreme Court affirmed the Chancery Court’s denial of a stockholder’s request under Sec. 223 and 211 for a corporation to hold an annual meeting and elect directors, even though the stockholder met the requirements of those sections. Ordering a meeting is in the court’s discretion, and in this case, where the stockholder was involved in litigation in Florida impacting this case, the Chancery Court, by pointing the stockholder back to Florida for that court to clarify its orders, crafted what it believed was the clearest path to obtaining relief in Delaware.
Duty of Disclosure
Dohmen v. Goodman, No. 403,2019, decided June 23, 2020. The Delaware Supreme Court, answering a certified question from the 9th Circuit Court of Appeals, held that under the facts of the dispute, a general partner’s request to a limited partner for a one time capital contribution did not constitute a request for limited partner action such that the general partner had a fiduciary duty of disclosure. And even if the general partner had a fiduciary duty to disclose, the limited partner could not recover compensatory damages without proving reliance and causation.
Caremark Liability
Hughes v. Hu, 2019-0112, decided April 27, 2020. The Delaware Chancery Court held that a stockholder filing a derivative suit had established demand futility where the complaint established the board faced a substantial likelihood of liability under Caremark for failing to establish a system of internal controls over the corporation’s financial reporting. The complaint alleged, among other things, the audit committee met sporadically, failed to address known problems, and relied blindly on management instead of establishing its own system of oversight.
Validity of Stockholder Votes and Consents
Palisades Capital II, LP v. Backer, No. 2019-0931, decided March 26, 2020. The Delaware Chancery Court held that an email sent from a stockholder’s lawyer to the corporation’s counsel requesting counsel take actions to facilitate a stockholder consent to appoint a director was neither a vote nor a valid consent. The General Corporation Law requires a meeting for a vote to be valid and a request to take an action, rather than executing an action, is not a valid consent.
Forum Selection Provisions
Salzberg v. Sciabacucchi, No. 346,2019, decided March 18, 2020. The Delaware Supreme Court upheld the validity of a provision in several Delaware corporations’ certificates of incorporation requiring actions arising under the federal Securities Act of 1933 to be filed in a federal court. The court held that federal forum selection provisions fall within the broad enabling text of Sec. 102(b)(1) of the General Corporation Law and are facially valid, are not against public policy, and advance the goal of Delaware courts to achieve judicial economy and avoid duplicative efforts among courts.
Court of Chancery’s Jurisdiction
Hanna v. Baier, CA No. S12J-03-058, decided January 22, 2020. The Delaware Superior Court held that the Court of Chancery was the proper forum to hear an action to enforce a charging order where the plaintiff claimed certain payments made by the Delaware LLC to the debtor member violated the charging order and where the court had to determine if those transactions were authorized by the LLC Act. In addition, the plaintiff was seeking relief which would require the court to pierce the veil, which the Superior Court cannot do.
Derivative Suit
McElrath v. Kalanick, No. 181, 2019, decided January 13, 2020. The Delaware Supreme Court affirmed the Chancery Court’s dismissal of a derivative suit against a corporation’s board of directors for failure to make a pre-suit demand or allege demand futility. The suit arose out of the board’s approval of a risky acquisition that resulted in the corporation using another company’s proprietary information. The court found that a majority of the directors were independent and disinterested and the complaint failed to allege that the board rubberstamped the flawed transaction or acted in bad faith.

State notices

There are no new notices at this time.