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Changes in Delaware Law

December 22, 2015

Delaware law continues to play a critical role in today’s challenging and changing business environment.  There have been a number of important Delaware law developments over the past year that Delaware practitioners and their clients need to know about.  Read More. 

Limited Liability Company and Partnership Law.  The Delaware courts have consistently held that express and unambiguous language found in partnership agreements and operating agreements for limited liability companies modifying default fiduciary duties, except for the elimination of the duty to act in good faith, will be enforced.  In light of this consistent line of case law, the Court of Chancery’s decision in In re El Paso Pipeline Partners, L.P. Derivative Litigation, C.A. No. 7141-VCL (Del. Ch. Apr. 20, 2015), raised concern.  In El Paso, the Court awarded damages finding that even where default fiduciary duties have been modified or eliminated, a conflict of interest transaction may still run afoul of the contractual standards set forth in the partnership agreement.  However, in In re Kinder Morgan, Inc. Corporate Reorganization Litigation, C.A. No. 10093-VCL (Del. Ch. Aug. 20, 2015), the Court confirmed that the Delaware courts will continue to enforce the language of partnership and limited liability company agreements as written, including modifications of fiduciary duties.

Employment Law.  The Delaware legislature expanded anti-discrimination protection for employees.  Beginning on December 30, 2015, Delaware employers with four or more employees will be prohibited from discriminating against an employee or an applicant for employment because he or she has been the victim of sexual assault, domestic violence, or stalking.  In addition, Delaware employers are required to make “reasonable accommodations” to an employee who has been such a victim.

Corporate Law.  In Corwin v. KKR Financial Holdings LLC, No. 629, 2014 (Del. Oct. 2, 2015), the Delaware Supreme Court affirmed the Court of Chancery’s ruling that the business judgment standard of review would apply to a merger where “it was approved by a majority of the shares held by disinterested stockholders of KFN in a vote that was fully informed.”  The Delaware Supreme Court noted that a fully informed vote of the disinterested stockholders invokes the business judgment rule standard of review.

Bankruptcy Law.  The United States Bankruptcy Court for the District of Delaware issued an opinion in In re Energy Future Holdings Corp., Case No. 14-10979 (CSS), approving the Debtors’ request to establish a bar date for unmanifested asbestos claims.  The Court noted that the issue before it was whether discharge of unmanifested asbestos claims was consistent with due process.  The Court opined that “[a]lthough the case law reaches disparate conclusions, the weight of the developing authority holds that publication notice may be sufficient to satisfy due process and, thus, would allow for the discharge of [unmanifested asbestos claims].”

Arbitration.  On May 4, 2015, the Delaware Rapid Arbitration Act (the “DRAA”) became effective.  The DRAA offers an alternative to the litigation process, providing companies with the chance to engage in a fast, relatively low-cost dispute resolution process without the burden of extensive discovery.  The DRAA may be particularly beneficial to companies that are in commercial relationships with each other and that seek to avoid a lengthy and public litigation process.

The DRAA provides a simple process for starting an arbitration proceeding, accelerates the arbitration itself to provide a quick resolution, eliminates confirmation proceedings, and allows for challenges directly to the Delaware Supreme Court.  The process is completely voluntary.  All parties must agree to arbitration under the DRAA and select Delaware law to govern the agreement—either in the agreement that forms the basis for the dispute or in a separate agreement.  At least one of the parties to the agreement must be a business entity formed in Delaware or with its principal place of business in Delaware.  The DRAA is not available to resolve consumer disputes.

Arbitrations brought under the DRAA must be completed within 120 days of the arbitrator accepting appointment.  Arbitrability is determined solely by the arbitrator, who also has the authority to grant injunctive and other remedies.  Arbitrators will also have the authority to administer oaths, to compel the attendance of witnesses and production of documents and evidence, to issue subpoenas if provided for by the agreement, and to make rulings, issue orders, or impose sanctions to ensure that the arbitration is resolved in a timely manner.  Challenges to the final award are made directly to the Delaware Supreme Court. 

For more information contact Max McCauley at camcauley@zarwin.com


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