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02/19/20

[UPDATED] ESG

NEW:  Wachtell suggests that Environmental, Social, and Governance considerations will increasingly impact M&A activity, discussing their relevance to due diligence and communications regarding transactions, as well as differential concerns between acquirer and target concerns, and the relationship between ESG performance and cost of capital in The Coming Impact of ESG on M&A.

Stewardship and Collective Action: The Australian Experience discusses collective action of investors in promoting corporate stewardship utilizing Australian stewardship codes, and suggests considerations for development of policy guiding investor participation in corporate governance in other jurisdictions.

Eric Scheiner and Jennifer Quinn Broda of Kennedys discuss risks that companies may assume in efforts to satisfy or failure to meet corporate social responsibility objectives having potential implications for D&O insurers and policyholders in Potential D&O Risks Arising from Corporate Social Responsibility.

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Wanu Water – Board Communication with Stockholders

The Delaware Court of Chancery, in Todd O’Gara, et al. v. Sheldon Coleman, et al. [Wanu Water], C.A. No. 2018-0708-KSJM, memo. op. (Del. Ch. Feb. 14, 2020), dismissed breach of fiduciary duty claims alleging that a director acted disloyally based on correspondence between stockholders and the board that was critical of and allegedly disparaged plaintiff controller, finding the correspondence instead reflected concern for the company.

NEW: $$$ Bloomberg Law discusses the decision in Wanu Water Founder Loses Conspiracy Claims Against Board Member.

$$$ Law360 discusses the decision in Ex-Wanu Water CEO’s Conspiracy Suit Tossed In Chancery.

Soteria – Binding Term Sheet

The Delaware Court of Chancery, in Glenn Starkman, et al. v. Christopher O’Rourke and Soteria, LLC, C.A. No. 2018-0901-KSJM, order (Del. Ch. Jan. 14, 2020), found that Term Sheet entered in connection with mediation by a member of the Court under Ct. Ch. R. 174 contained all material terms and was binding on the parties — and that  Rule 174 precluded reliance on evidence of statements made during the mediation as parol evidence.

NEW:  Morris James discusses the decision in Chancery Denies Attempt to Use Mediation Communications to Supplement Mediation Term Sheet.

Francis Pileggi discusses the decision in Chancery Enforces Post-Mediation Term Sheet.

Tesla – Inherent Coercion

The Delaware Court of Chancery, in In re Tesla Motors, Inc. Stockholder Litigation, C.A. No. 12711-VCS (consol.), memo. op. (Del. Ch. Feb. 4, 2020), rejected defendants’ argument that a presumption of inherent coercion cannot apply to a controlling stockholder after discovery, and that evidence of coercion is required to survive a motion to dismiss.

NEW:  Legal Newsline discusses the decision in Tesla shareholder lawsuit against Elon Musk will proceed.

NEW:  Frank Reynolds discusses the decision in Chancery: Tesla investors need only prove Musk had coercive influence ability in SolarCity deal.

DealLawyers.com discusses the decision in Controllers: The Heat is On in Delaware for Minority Shareholders.

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[UPDATED] Occidental Petroleum – Proper Purpose

The Delaware Court of Chancery, in High River Limited Partnership, et al. v. Occidental Petroleum Corp., C.A. No. 2019-0403-JRS, memo. op. (Del. Ch. Nov. 14, 2019), denied inspection of books and records, finding no credible basis to suspect non-exculpated wrongdoing and finding requested records not necessary and essential to for a proxy contest.

NEW:  Akin Gump discusses the decision in Implications for Section 220 ‘Books and Records’ Demands Following High River Limited Partnership.

Bloomberg Law discusses the decision in INSIGHT: Shareholder’s Intention to Start Proxy Fight Not Enough to Inspect Corporate Books.

Fried Frank discusses the decision in Shareholder Activism and Proxy Contests as a “Proper Purpose” for Books and Records Demands.

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02/18/20

[UPDATED] Uber – Demand Futility

The Delaware Supreme Court, in Lenza H. McElrath, III v. Travis Kalanick, et al. and Uber Technologies, Inc., No. 181, 2019, opinion (Del. Jan. 13, 2020), affirmed the Delaware Court of Chancery’s dismissal of shareholder derivative claims challenging an acquisition that exposed acquirer to liability on demand grounds, suggesting that directors “should have done more” to investigate the transaction, but finding a majority disinterested and independent.

NEW:  Morris James discusses the decision in Supreme Court Affirms Dismissal of Uber Derivative Action for Failure to Plead Demand Futility.

Fried Frank discusses the decision in Delaware Supreme Court Decision on Director Independence Suggests to Some a Change in the Court’s Recent Approach– McElrath v. Kalanick.

Wachtell discusses the decision in Core Principles of Exculpation and Director Independence.

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02/17/20

NY De Facto Merger

Farrel Fritz discusses the New York Court of Appeals’ decision in Luciano Bonanni, et al. v. Horizons Investors Corp., et al., No. 2017-06803, opinion (N.Y. App. Jan. 29, 2020), affirming a Trail Court’s finding that an asset sale between an LLC and a PLLC was a de facto merger based on cessation of business by the predecessor and continuity of business operations, management, assets, and personnel by the successor, and that the successor retained the predecessor’s liabilities, in  Bending the Rules of Standing: The De Facto Merger Doctrine.

[UPDATED] Disclosures

NEW:  Reuters reports that a study of corporate disclosures on management of social and environmental risk required under the European Union’s 2018 Non-Financial Reporting Directive revealed “big gaps between many companies’ words and action,” in Sustainability disclosures by European companies generally poor: study.

ESG Performance and Disclosure: A Cross-Country Analysis examines the relationship between ESG factors, disclosure, and financial performance across countries with varying policies imposing ESG disclosure requirements, finding correlation between quantity of disclosures and quality of data, and no relationship between ESG and risk-adjusted returns, but a small effect on volatility.

The U.S. Chamber of Commerce discusses proposed guidelines for Environmental, Social & Governance disclosures in ESG Reporting Best Practices.

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Debt Covenants

Managerial Optimism and Debt Covenants examines the allocation of control between entrepreneurs and investors through debt covenants that transfer control rights to lenders when a company’s financial performance fails to achieve established thresholds as a means of balancing against managerial over-optimism.

[UPDATED] ESG and the Business Roundtable Statement

NEW: Fasken Martineau observes that although the Business Roundtable’s 2019 Statement proposing a shift away from shareholder primacy has been criticized as likely to undermine corporate effectiveness, Canadian corporations have effectively functioned under such a system for some time in Shareholder Governance, “Wall Street” and the View from Canada.

Wachtell’s Martin Lipton discusses the need to prioritize companies’ long-term growth and sustainability, and a framework for corporate governance promoting those priorities in Embracing the New Paradigm.

Wachtell’s Martin Lipton responds to arguments by the Council of Institutional Investors opposing a shift away from shareholder primacy proposed by the Business Roundtable’s 2019 Statement in Wachtell Lipton Discusses Purpose, Stakeholders, ESG, and Sustainable Long-Term Investment.

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[UPDATED] Executive Compensation

NEW:  Willis Towers Watson reports that the use of retention requirements precluding corporate executives from selling equity awarded under incentive plans immediately upon vesting has nearly doubled over the past decade in CEO Stock Incentives Increasingly Tied to Stock Ownership and Retention.

Are CEOs Encouraged to Take Too Much Risk? investigates the relationship between CEO compensation is related to health and safety violations, non-compliance with labor laws, and other workforce-related violations, finding evidence suggesting that CEO risk-taking incentives are positively related to the frequency and the severity of workplace violations.

[UPDATED] NCI Building Systems – Stockholder Control

The Delaware Court of Chancery, in Gary D. Voigt v. James S. Metcalf, et al. and NCI Building Systems, Inc., C.A. No. 2018-0828-JTL, memo. op. (Del. Ch. Feb. 10, 2020), finds it reasonably conceivable that a 35% stockholder exercised effective control through a combination of stock ownership, board appointee rights, blocking rights under a Stockholders Agreement, and other means of influence over the board and management.

NEW:  Tulane Law’s Professor Ann Lipton discusses the decision in Who’s a Controlling Stockholder: Delaware Strikes Again.

Anne Sherry discusses the decision in Minority stockholder may yet have wielded control.

$$$ Law360 discusses the decision in Chancery Keeps Alive Suit Over $553M CD&R Deal Windfall.

$$$ Bloomberg Law discusses the decision in NCI Building Systems Directors Stuck With Suit Over 2018 Merger.

[UPDATED] Channel Medsystems – MAE / MAC Clauses

The Delaware Court of Chancery, in Channel Medsystems, Inc. v. Boston Scientific Corp., et al., C.A. No. 2018-0673-AGB, memo. op. (Del. Ch. Dec. 18, 2019), found that an acquisition target employee’s fraudulent acts did not constituted a material adverse effect.

NEW: Fried Frank discusses the decision in Delaware Supreme Court Decision on Director Independence Suggests to Some a Change in the Court’s Recent Approach– McElrath v. Kalanick.

$$$ Law360 discusses the decision in Boston Scientific Ruling Clarifies M&A Termination Rights.

Fried Frank discusses the decision in Court of Chancery Confirms that, Post-Akorn, It Will Evaluate MACs Under the Traditional Framework.

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Shire – Contract Claims under a Merger Agreement

The Delaware Court of Chancery, in Fortis Advisors, LLC v. Shire US Holdings, Inc., C.A. No. 2018-0933-JRS, memo. op. (Del. Ch. Feb. 13, 2020), dismisses selling stockholders’ claims asserting information rights under a Merger Agreement as barred on res judicata grounds by a prior ruling seeking contingent compensation under the Agreement, finding the claims arose out of the same transaction.

$$$ Law360 discusses the decision in Fortis Loses 2nd Bid For $425M Post-Merger Drug Payout.

[UPDATED] Facebook – Proper Purpose to Suspect Wrongdoing

The Delaware Court of Chancery, in Southeastern Pennsylvania Transportation Authority, et al. v. Facebook, Inc., C.A. No. 2019-0228-JRS, memo. op. (Del. Ch. Oct. 29, 2019), found that books and records were not necessary to investigate an issue that defendant company stipulated directors did not consider when setting executive compensation.

NEW:  K&L Gates discusses the decision in Books and Records: Court Explains a Failure to Clear the Sometimes Deceptively Challenging Credible Basis Hurdle

Morris James discusses the decision in Chancery Denies Section 220 Bid for Executive Compensation Records Involving Facebook.

Wilson Sonsini discusses the decision in Delaware Court of Chancery Issues Noteworthy Decision Denying Section 220 Demand and Reinforcing Judicial Deference on Executive Compensation Decisions.

[$$$] Bloomberg Law discusses the decision in Case: Executive Compensation/Unjust Enrichment (Del. Ch.).

02/14/20

Esperion – Core Operations Doctrine

The Delaware Court of Chancery, in Hubert Owens v. Tim M. Mayleben, et al. and Esperion Therapeutics, Inc., C.A. No. 12985-VCS, memo. op. (Del. Ch. Feb. 13, 2020), dismissed putative derivative plaintiff’s claims challenging allegedly misleading public statements regarding a drug candidate on demand futility grounds for failing to plead directors faced a substantial likelihood of liability or made intentional misstatements, rejecting application of the “core operations” doctrine under which a court may infer board knowledge of matters relating to a corporation’s core product.

$$$ Law360 discusses the decision in Chancery Drops Suit Over Biopharma Firm’s Cholesterol Drug.

[UPDATED] Climate Change Disclosure

NEW:  Columbia Law School’s Millstein Center discusses demographic and regional differences in directors’ and investors’ expectations around climate-related issues and disclosure and how boards and companies are engaging on climate issues internally and externally in The Results Are in: Global Investor-Director Survey on Climate Risk Management.

Cooley discusses statements by SEC Commissioners regarding the issue of climate disclosure, noting that the debate should be understood in the context of increased investor interest in sustainability disclosure, and challenges created by the absence of common standards for Environmental, Social, & Governance reporting, in SEC debate on climate disclosure regulation gets heated.

Cleary Gottlieb reports that the SEC chose not to include specific disclosure requirements on climate change or other Environmental, Social, & Governance issues in proposed amendments to Management Discussion and Analysis regulations in SEC Maintains the Status Quo on Climate Change Disclosures.

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[UPDATED] ESG & Standardization

NEW:  Lene Powell discusses the European Securities and Markets Authority’s Strategy on Sustainable Finance, which proposes to embed Environmental, Social, and Governance factors in its work relating to transparency, risk analysis, investing, and convergence of national practices on taxonomy and supervision of ESG factors in ESMA lays out strategy on ESG factors.

Wachtell discusses the World Economic Forum’s draft of a proposed standardized Environmental, Social, and Governance  disclosure framework — Toward Common Metrics and Consistent Reporting of Sustainable Value Creation — in Accelerating ESG Disclosure — World Economic Forum Task Force.

Wachtell discusses State Street’s announcement of its intent to take voting action against board members at companies that lag in Environmental, Social, & Governance performance in Wachtell Lipton Discusses State Street’s Voting Push on Financially Material ESG Matters.

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AmerisourceBergen – Investigation of Wrongdoing Certified

The Delaware Court of Chancery, in Lebanon County Employees’ Retirement Fund v. AmerisourceBergen Corp., C.A. No. 2019-0527-JTL, memo. op. (Del. Ch. Jan. 13, 2020), found stockholders entitled to inspection of corporate books and records, relating to defendant pharmaceutical distributor’s monitoring of opioid shipments, for purposes of investigating possible wrongdoing, irrespective of whether the possible wrongdoing would support claims that were actionable or subject to indemnification. The Court certified interlocutory appeal of the prior decision in Lebanon County Employees’ Retirement Fund, et al. v. AmerisourceBergen Corp., C.A. No. 2019-0527-JTL, order (Del. Ch. Feb. 12, 2020).

NEW:  Reuters discusses the certification decision in Dela. judge okays Supreme Court review of controversial books-and-records decision.

Drag-Along Rights

Kramer Levin discusses concerns regarding the enforcement of drag-along rights in Stockholder Agreements or similar contracts in view of the Delaware Court of Chancery’s decision in The Court in Manti Holdings, LLC v. Authentix Acquisition Co., Inc., C.A. No. 2017-0887-SG, memo. op. (Del. Ch. Aug 14, 2019), which found that stockholders contractually waived their right to seek appraisal, in Protecting Drag-Along Rights in Private Equity Deals.

[UPDATED] Board Diversity

NEWS:  Cooley reports findings that California’s California’s SB 826 board gender diversity statute has led to significant gains in board diversity, and discusses other states that have introduced similar legislation in Will other states follow California in adopting board gender diversity mandates?

Reuters reports Goldman Sachs’ announcement that from June 30, it will only help take companies having at least one diverse member company, citing superior performance of such companies after going public, in Goldman Sachs to companies: Hire at least one woman director if you want to go public.

Spencer Stuart discusses key takeaways from the 2019 U.S. Spencer Stuart Board Index finding that boards have increasingly added new directors with diversity of gender, age, race/ethnicity and professional backgrounds, but that board turnover remains low, with new directors representing only 8% of all S&P 500 directors. 2019 U.S. Spencer Stuart Board Index.

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[UPDATED] Saba – Advance Notice Bylaw

The Delaware Supreme Court, in BlackRock Credit Allocation Income Trust, et al. v. Saba Capital Master Fund, Ltd., No. 297, 2019, opinion (Del. Jan. 13, 2020), found that a company board submitted voluminous requests for additional information from director candidates nominated to oppose incumbents that exceeded the scope of supplemental information requests authorized by advance notice bylaw, but nominees were not excused from submitting their responses by the deadline imposed by the bylaw.

NEW:  Morris James discusses the decision in Delaware Supreme Court Finds That Stockholder Failed to Satisfy Unambiguous Requirements of Advance Notice Bylaw.

Goodmans discusses the decision and its implications under Canadian law in Advance Notice By-Laws — A Canadian Shield.

Bass, Berry, & Sims discusses the decision in Advance Notice Bylaw Provisions Upheld by Delaware Supreme Court.

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02/12/20

[UPDATED] Shareholder Primacy, Employee Board Representation

NEW:  Long-Term Stock Exchange’s Michelle Greene summarizes concerns that have led to current sentiment questioning the “shareholder primacy” doctrine and proposing corporate consideration of stakeholder interests, and proposed strategies for stakeholder engagement and involvement, particularly of employees, in corporate governance in Let’s Get Concrete About Stakeholder Capitalism.

Glass Lewis discusses employee participation in corporate strategy and decision-making through ownership of company stock and representation on the board of directors, with examples of those practices in Germany, in Worker Participation: Employee Ownership and Representation.

Worker Representation on U.S. Corporate Boards advocates inclusion of employee representatives on corporate boards of directors, proposes reforms, and discusses considerations for implementation of employee board representation.

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Universal Demand

How Shareholder Rights Affect Firms’ Financing Decisions examines the relationship between firm capital structure and Universal Demand laws requiring stockholders to make demand on boards before filing derivative lawsuits, finding a shift from equity to debt financing after passage of Universal Demand laws, attributed to lower stock market liquidity and more severe agency conflicts between shareholders and managers.

[UPDATED] AmerisourceBergen – Investigate Wrongdoing

The Delaware Court of Chancery, in Lebanon County Employees’ Retirement Fund v. AmerisourceBergen Corp., C.A. No. 2019-0527-JTL, memo. op. (Del. Ch. Jan. 13, 2020), found stockholders entitled to inspection of corporate books and records, relating to defendant pharmaceutical distributor’s monitoring of opioid shipments, for purposes of investigating possible wrongdoing, irrespective of whether the possible wrongdoing would support claims that were actionable or subject to indemnification.

NEW:  Morris James discusses the decision in Chancery Further Explains the “Proper Purpose” Requirement for Section 220 Demands.

DealLawyers.com discusses the decision in Books & Records: Del. Chancery Decision Broadens Inspection Rights.

Lowenstein Sandler discusses the decision in Delaware Chancery: Investors Are Entitled to Inspection Rights, Which May Include a Deposition

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[UPDATED] Oracle – Special Litigation Committee

The Delaware Court of Chancery, in In re Oracle Corp. Derivative Litigation, C.A. No. 2017-0337-SG, memo. op. (Del. Ch. Dec. 4, 2019), where a Special Litigation Committee determined that it would be in Oracle’s best interest to allow plaintiff to pursue its derivative claims in litigation, found commonality of interests between plaintiff, the company, and the Committee supported plaintiff’s entitlement to the company’s privileged documents, to the extent provided to and relied upon by the Committee.

NEW:  Simpson Thacher discusses the decision in Stockholder Derivative Litigation Update.

Legal Newsline discusses the decision in Delaware court determines which documents should be produced to plaintiff in ongoing Oracle litigation.

Morris James discussed the decision in Chancery Addresses Discovery and Privilege Implications of Oracle Special Litigation Committee’s Decision to Defer to Stockholder-Plaintiff’s Prosecution of Derivative Claims.

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02/11/20

CEO Visibility

CEO Networks and Shareholder Litigation investigates the relationship between CEO network power and influence and securities class action lawsuits, finding suits against firms with better connected CEOs are more often brought by institutional plaintiffs and less likely to be frivolous, and more connected CEOs more often leave firms (willingly or unwillingly), and board representation by independent directors increases following the suit.

02/10/20

Panera – Fair Value in Appraisal

The Delaware Court of Chancery, in In re Appraisal of Panera Bread Co., C.A. No. 2017-0593-MTZ (consol.), memo. op. (Del. Ch. Jan. 31, 2020), found the fair value of a company, in a statutory appraisal proceeding, equal to the price paid in a merger minus synergies, but found that the company was not obligated under the Delaware appraisal statute to refund prepayment to petitioners that exceeded fair value.

NEW:  Sullivan & Cromwell discusses the decision in Delaware Chancery Court Considers Panera Deal Price in Appraisal Suit.

NEW: $$$ Bloomberg Law discusses the decision in Panera Share Value Fair in $7.5 Billion Sale: Delaware Judge.

Anne Sherry discusses the decision in No refund for Panera after paying dissenters more than fair value.

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[UPDATED] Delaware Corporate Law

NEW:  Wilkie Farr discusses developments in Delaware M&A litigation over the past year in  Delaware M&A and Shareholder Litigation Review — Lessons from 2019.

Skadden discusses significant developments in Delaware corporate law over the last year in Key Developments in Delaware Corporation Law.

Wilson Sonsini discusses significant developments in Delaware corporate law over the past year in 2019 Delaware Corporate Law And Litigation Year In Review.

[UPDATED] Board Governance

NEW:  Ernst & Young discusses insights from its Strategy and Innovation Board Summit the summit for directors in Leading Boards Rethinking Strategy and Enabling Innovation.

NEW: Weil Gotshal discusses a framework for board self-assessment in Strengthening the Board’s Effectiveness in 2020: A Framework for Board Evaluations.

NEW: The National Association of Corporate Directors provides an overview of overview of business and governance issues likely to demand board focus in the coming year in 2020 Governance Outlook: Projections On Emerging Board Matters.

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NY LLC and LP Successors in Interest

Farrell Fritz discusses the New York Supreme Court’s decision in Lois Weinstein v. RAS Property Management, LLC, et al., No. 653735/19, opinion (N.Y. Sup. Feb. 5, 2020), finding that a successor in interest to a deceased limited partner succeeds to the decedent’s economic rights but not partner status for purposes of derivative standing in Death of Limited Partner Disarms Derivative Action.

Harbor Diversified – Corporate Benefit

The Delaware Court of Chancery, in Dr. Travis Martin v. Richard Bartlett, et al. and Harbor Diversified, Inc., C.A. No. 2018-0762-SG, memo. op. (Del. Ch. Feb. 5, 2020), found a stockholder was not entitled to an attorneys’ fees award for purported benefits incidentally obtained in litigation brought in pursuit of its own self-interested purpose of seeking a buy-out of his stock.

Francis Pileggi discusses the decision in – Chancery Denies Attorneys’ Fees for Successful Suit to Compel Annual Meeting.

Dual Class Stock

Cleary Gottlieb discusses the UK’s consideration of changes to Listing Rules designed to encourage high-growth companies to list on the Premium Segment of the London Stock Exchange catering to dual-class stock structures in London’s Premium Segment and High-growth Companies: Return of the Dual-class Structure?

[UPDATED] Federal Forum Selection

NEW:  Amending the Delaware Corporate Code by Going to Court: Some Thoughts on Sciabacucchi v. Salzberg argues that Delaware statutory law governing corporate charter provisions and bylaws should not be interpreted in light of the internal affairs doctrine, but amend the statute to expressly provide that it applies only to powers of stockholders that arise under Delaware law.

Professor Joseph A. Grundfest discusses the recent appeal from Matthew Sciabacucchi v. Matthew B. Salzberg, et al. and Blue Apron Holdings, Inc., et al., C.A. No. 2017-0931-JTL, memo. op. (Del. Ch. Dec. 19, 2018), which found charter provisions requiring that claims under the Securities Act of 1933 be brought in Federal Court impermissible under Delaware law, arguing why the provisions should be upheld in “If I Agreed With You, We’d Both Be Wrong:” Section 11 Claims as “Internal Corporate Claims” Under DGCL 115.

Cooley discusses the recent appeal from Matthew Sciabacucchi v. Matthew B. Salzberg, et al. and Blue Apron Holdings, Inc., et al., C.A. No. 2017-0931-JTL, memo. op. (Del. Ch. Dec. 19, 2018), which found charter provisions requiring that disclosure claims under the Securities Act of 1933 be brought in Federal Court impermissible under Delaware law in Will the Delaware Supreme Court revive exclusive federal forum provisions for ’33 Act claims?

02/07/20

Fiduciary Self-Dealing

Self-Dealing in a Comparative Light discusses the “strict” fiduciary self-dealing rule precluding self-dealing by directors, prevalent in the UK, and the “flexible” rule that permits self-dealing if fair to the corporation and stockholders, adopted in the US, suggesting that application of various cleansing devices results in substantive similarity in operation.

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