Duty of Loyalty

News & Analysis as of

Is Disloyalty Its Own Reward?

May a disloyal employee keep the compensation his employer paid him, even while he was betraying his employer’s trust? In a recent case, the Connecticut Supreme Court said “yes, at least in some circumstances.” Here’s the...more

Art Advisors and Duty of Loyalty in Focus Again Over Sale of Basquiat

We reviewed in December an important decision that addressed the duties of loyalty that art advisors may, or may not, owe to their clients in dealing in the art market. That question—of to what extent advisors and...more

A Rare Look Into An Employee’s Duty of Loyalty to the Employer

After nine-plus years of writing about employment law in Connecticut, it’s getting to be pretty rare to find a topic that I haven’t at least touched upon, but here’s one: The Duty of Loyalty. Indeed, a new Connecticut...more

Connecticut Supreme Court Explains Remedies Available to Employers Winning Breach of Duty of Loyalty Claims against Employees

In Wall Systems, Inc. v. Pompa, No. SC19734 (Mar. 7, 2017), the Connecticut Supreme Court explained the legal and equitable remedies available to employers that win breach of duty of loyalty claims against their current or...more

When Does Preparing to Compete Cross the Line?

An employee or former employee who starts preparing to compete with his employer or former may get tripped up in one of two scenarios: (1) breaching a fiduciary duty of loyalty; or (2) running afoul of a noncompete...more

5 Key Takeaways: Survive (and Thrive) a Technology Merger

Kilpatrick Townsend partner Kandace Watson and Ron Zollman, co-chairs of San Diego’s Association of Corporate Counsel (ACC) Technology & Licensing Roundtable, shared advice on pre- and post-merger challenges during their...more

Delaware Court of Chancery Rejects Bylaw That Required Supermajority Stockholder Vote to Remove Directors in Violation of 8 Del....

In Frechter v. Zier, C.A. No. 12038-VCG, 2017 WL 345142 (Del. Ch. Jan. 24, 2017) (Glasscock, V.C.), the Delaware Court of Chancery granted plaintiff’s motion for summary judgment on a declaratory relief claim and held that 8...more

Yahoo! Data Breach Results in Another Lawsuit Against Corporate Directors and Officers

A number of claims have been made against companies’ directors and officers alleging a breach of fiduciary duty for failing to adequately oversee data security programs. To date, the defendants’ oversight of the programs and...more

Yellow Flags Are Not Red Flags: Delaware Court of Chancery Rejects Caremark Claim in Reiter v. Fairbank

In October 2016, the Delaware Court of Chancery rejected a shareholder derivative lawsuit premised on an alleged lack of oversight by the directors of Capital One Financial Corp., Reiter v. Fairbank, C.A. No. 11693-CB, 2016...more

Delaware Law Updates - 2016 Year in Review

Our Delaware Corporate and Alternative Entity Law attorneys closely followed the opinions coming from Delaware’s Supreme Court and Court of Chancery. Our 2016 Year in Review is a collection of brief summaries of selected...more

Choice of Entity and Key Contents of Organization Documents

Five Business Entity Forms: • Corporation • General Partnership • Limited Partnership • Limited Liability Partnership (“LLP”) • Limited Liability Company (“LLC”) Please see full presentation publication...more

Delaying a Bankruptcy for Shareholder Benefit May Benefit the Creditors After All

Equity holders and sponsors be wary - a new arrow may now be available in the quiver of potential causes of action that creditors and trustees can use to maximize their recovery in chapter 11 bankruptcy cases. In a recent...more

An Argument for the Use of Stock Options with Forfeiture Clauses for Breach of Duty of Loyalty

Introduction Jimmy John’s In 2014, Emily Brunner (“Brunner”) and Caitlin Turowski (“Turowski”) filed a complaint in Illinois against the sandwich company, Jimmy John’s, and its franchise affiliates. The complaint was amended...more

Home Depot Evades Shareholder’s Derivative Suit for 2014 Data Breach

Public companies that are proactively working to mitigate “cyber” risks and prepare to respond to potential incidents frequently ask whether a “breach” will lead to litigation, loss of customers, stock price decline, and...more

Home Depot Data Breach Derivative Suit Sent Home

Judge Thomas W. Thrash Jr. of the U.S. District Court of Georgia permanently shelved a derivative suit brought by shareholders of Home Depot. Home Depot is a multinational home improvement retailer. In September, 2014,...more

Shareholders’ Derivative Suit Against Home Depot Dismissed

On November 30, 2016, The Home Depot, Inc. (Home Depot) got a victory in the shareholders’ derivative suit filed against it for its alleged failure to institute necessary controls to secure its data relating to its 2014...more

“Directors’ Decisions Must Be Reasonable, not Perfect” Home Depot’s Shareholder Derivative Litigation Arising from Data Breach...

On November 30, 2016, a federal district court dismissed a shareholder derivative complaint against various current and former directors of Home Depot arising from the well-publicized data breach the company suffered between...more

Court Of Chancery Examines Whether Derivative Demand Was Wrongfully Refused

Even after a board rejects a plaintiff-stockholder’s demand to bring a derivative litigation, the plaintiff may proceed to bring that derivative action if the plaintiff can show the demand was “wrongful.” Having conceded...more

Court Dismisses Derivative Claim for Alleged Breach of Oversight Duty

The Delaware courts encourage plaintiffs who bring derivative claims in Delaware without making demand on the board of directors to seek books and records under Section 220 of the Delaware General Corporation Law so as to be...more

"Two Court of Chancery Deal Litigation Decisions Provide Helpful Guidance"

Chelsea Therapeutics: Post-Closing Bad Faith Claim a ‘Rare Bird’ in Delaware Absent Allegations of Self-Interestedness or Lack of Independence - In In re Chelsea Therapeutics International LTD Stockholders Litigation,...more

Change in How SC Supreme Court Views Conspiracy Claims May be Coming

As our various courts decide cases, we watch to see if there are any trends that seem to be developing or whether a case signals that the courts are beginning to change how they view a particular issue or type of case. We've...more

Challenge to a Squeeze-Out Merger Dismissed Under MFW Framework

In a stockholder challenge to a going-private merger by a controlling stockholder to buy out minority stockholders, the operative standard of review is ordinarily the most rigorous judicial review, entire fairness. To obtain...more

Court Of Chancery Dismisses Post-Closing Claims Under Corwin

Under the recent Corwin decision, a fully-informed vote by uncoerced and disinterested stockholders to approve a merger invokes the business judgment rule and effectively precludes almost any claim the merger was improper. ...more

Delaware District Court Examines An Officer’s Fiduciary Duties When Projecting Revenues

Revenue projections are an inexact science, but they should have some basis in fact. Where they are alleged to be without a basis in reality, and indeed contrary to reality, a court may, as here, find that an officer’s...more

Delaware Chancery Court Finds that Director Defendants Can Not “Merge Their Way Out of” Breach of Fiduciary Claims

On July 28, 2016, the Delaware Chancery Court allowed claims of unfair dealing against the Board of property management company Riverstone National Inc. to survive where the directors facilitated a merger that forestalled a...more

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