In what is becoming an emerging trend for the Delaware Court of Chancery, the court recently held in Intertek Testing Services NA, Inc. v. Eastman that a sale of business noncompete with a worldwide scope was unenforceable.
In Hyde Park Venture Partners Fund III, L.P. v. FairXchange, LLC,[1] the Delaware Court of Chancery provided a valuable reminder to corporations and their directors and officers that a corporation cannot assert a privilege, such as the attorney-client privilege, against its directors or the investors that appointed those directors in litigation unless one of three exceptions are met: (1) the parties agree by way of contract, such as a confidentiality agreement, that the corporation may assert privilege against certain directors and the investors that appointed that director; (2) the board of directors forms a special committee that excludes the director after which the committee can consult with counsel confidentially and retain the privilege against the director and the investor that appointed the director; or (3) sufficient adversity of interests has arisen and becomes known to the director, thus impacting the director’s ability to rely on corporate counsel for matters where the director or the investor that appointed the director and corporation’s interests are adverse.
In a closely watched case, the Delaware Court of Chancery recently held in a bench ruling in Electrical Workers Pension Fund, Local 103, I.B.E.W. v. Fox Corporation that Fox Corporation’s (Fox) nonvoting stock was not entitled to a class vote under Section 242(b)(2) of the Delaware General Corporation Law (DGCL) in connection with Fox’s proposed amendment to its charter that would insulate Fox officers from monetary liability in certain situations for breaches of the fiduciary duty of care. DGCL Section 242(b)(2) provides the holders of the outstanding shares of a class with a vote upon a proposed charter amendment, whether or not entitled to vote thereon by the charter, if the amendment would, among other things, “alter or change the powers, preferences, or special rights of the shares of such class so as to affect them adversely.”