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04/07/20

Tile Shop – Defensive Measures

The Court of Chancery, in K-Bar Holdings, LLC v. Robert A. Rucker, et al. and Tile Shop Holdings, Inc., C.A. No. 2019-0892-SG, transcript (Del. Ch. Nov. 8, 2019; filed Dec. 12, 2019), granted a motion to expedite plaintiff’s claim alleging that a publicly company board breached fiduciary duties by failing to take defensive steps while the company’s stock price was depressed, and a stockholder group increase its ownership from 30% to over 40%.

Freshfields discusses the ruling, and its relevance to current depressed market conditions, in Fiduciary Duties During a Time of Volatility.

[UPDATED] ESG

NEW:  Wachtell discusses Environmental, Social, and Governance-related scenario analysis disclosures and the need to take precautions to ensure that such disclosures are not misleading, providing examples of such disclosures in ESG Disclosures and Litigation Concerns.

Schulte Roth & Zabel discusses the EU regulation on Sustainability-Related Disclosures, scheduled to take effect in March 2021, and related legislation that establishes a framework for classifying financial products as “sustainable investments,” in New ESG Disclosure Obligations.

Is Managerial Entrenchment Always Bad and Corporate Social Responsibility Always Good? examines simultaneous adoption of managerial entrenchment and corporate social responsibility governance provisions, finding evidence that in the absence of entrenchment provisions, market discipline reduces managers’ incentives to invest in long-term relationships with stakeholders and increases incentives to spend company resources generously on symbolic CSR activities.

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CA Foreign Corporations

Keith Bishop discusses a provision of the California Corporate Code which provides that contracts conveyances made in the corporation’s name will bind the corporation, noting that the statue purports to apply to “foreign corporations in this state,” but is unclear as to the meaning of that term, in Who Knew? The California General Corporation Law Governs Contracting And Conveyancing By Foreign Corporations.

[UPDATED] NY Registration to do Business

NEW: Shearman & Sterling discusses the U.S. Court of Appeals for the Second Circuit’s decision in Chufen Chen, et al. v. Dunkin’ Brands, Inc., No. 18-3087, opinion (2d Cir. Mar. 31, 2020), finding that registration to do business in New York does no subject a company to general personal jurisdiction in The Second Circuit Holds that New York Business Registration Does Not Constitute Consent to General Personal Jurisdiction.

Sheppard Mullin discusses the U.S. Court of Appeals for the Second Circuit’s decision in Chufen Chen, et al. v. Dunkin’ Brands, Inc., No. 18-3087, opinion (2d Cir. Mar. 31, 2020), finding that registration to do business in New York does no subject a company to general personal jurisdiction in Second Circuit Holds that Registering to do Business in New York Under Section 1301 of the Business Corporation Law Does Not Constitute Consent to General Personal Jurisdiction in New York Courts.

[UPDATED] Chemours – Agreement to Arbitrate

The Delaware Court of Chancery, in The Chemours Co. v. DowDuPont, Inc., et al., C.A. No. 2019-0351-SG, memo. op. (Del. Ch. Mar. 30, 2020), dismissed a spun-off subsidiary’s claims against its former parent’s successor in favor of arbitration, rejecting the subsidiary’s argument that it could not have assented to be bound by the spinoff agreement’s arbitration provisions because it was controlled by its parent.

NEW:  Cleary Gottlieb discuss the decision in Don’t Bite the Hand that Feeds You: Delaware Court of Chancery Holds Spin-Offs Are Not Unconscionable.

The Washington Post discusses the decision in Judge dismisses Chemours lawsuit against DuPont.

Courthouse News Service discusses the decision in DuPont Ducks Suit From Entity Spun Off to Handle Chemical Liabilities.

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[UPDATED] 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.

NEW:  K&L Gates discusses the decision in Caremark Claim Dismissed Due to Inadequate Pleading of Demand Futility.

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

04/06/20

Stockholder Meetings

Delaware Governor John Carney, in a Tenth Modification of the Declaration of a State of Emergency for the State of Delaware Due to a Public Health Threat (Apr. 6, 2020), noting that the Delaware General Corporation Law does not address certain aspects of stockholder meetings implicated by a public health emergency, provides rules governing notice of changes of physical meetings to meetings conducted by remote communications, and adjournment of scheduled meetings.

Cleary Gottlieb discusses adjournment of scheduled stockholder meetings and conversion of scheduled stockholder meetings to virtual meetings, and related notice and procedural requirements under Delaware and New York law in Coronavirus & Postponing/Adjourning Annual Meetings and Coronavirus & Virtual Annual Meetings.

[UPDATED] MAE/MAC Clauses

NEW:  Fried Frank discusses the possibility that the coronavirus pandemic might constitute a material adverse change or material adverse effect under existing merger or financing agreements, noting that some parties have recently entered agreements that expressly exclude the coronavirus pandemic, and discusses Delaware case law interpreting MAE / MAC clauses in COVID-19 As A Material Adverse Change In M&A Agreements.

$$$ Law360 discusses the possibility that parties to mergers may seek termination by asserting that material adverse effect clauses were triggered by coronavirus in Why Material Adverse Effect Clauses Aren’t Escape Hatches.

Professors Matthew Jennejohn, Julian Nyarko, and Eric Talley forewent learning to paint like Bob Ross and devoted some coronavirus-avoidant downtime to updating their previous  analysis of material adverse change / material adverse event provisions from historical M&A transaction documents (incorrectly described in a prior mention on chanceryblog as an analysis of pending transaction documents) to discern trends in use of terns likely to be triggered by a viral pandemic, to also examine transaction documents for pending deals in A “Majeure” Update on COVID-19 and MAEs.

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[UPDATED] Poison Pills

NEW:  Cleary Gottlieb notes the uniquely threatening nature of current depressed market conditions for unsolicited acquisition or activist agitation, suggesting defensive measured including implementation of “on the shelf” poison pills in Rewriting the Poison Pill Prescription: Consider Active Defenses During COVID-19.

Wachtell, well-known as the creator of the stockholder rights plan popularly known as the “poison pill,” discusses the possible desirability of adopting an “on the shelf” plan in view of recent declines in equity value Rights Plans (“Poison Pills”) in the COVID-19 Environment — On the Shelf and Ready to Go.

Gibson Dunn notes activist accumulation of stakes in publicly traded companies during recent declines in stock prices, and suggests that boards and advisors consider implementation of a stockholder rights plan in Reconsidering Poison Pills.

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[UPDATED] Fiduciary Duties Owed Creditors

NEW:  Keith Bishop discusses fiduciary duties owed creditors under California law in Directorial Duties To Creditors – Getting To The Bottom Of The California Trust Fund Theory.

Wachtell, noting the potential for financial challenges such as liquidity shortages, debt defaults, and revenue declines in the current economic environment, discussed duties that directors owe creditors under Delaware law in Fiduciary Duties in Times of Financial Distress.

D&O Diary’s Kevin LaCroix discusses directors’ fiduciary duties to creditors, which may arise when companies become insolvent, in Cash-Crunched Companies Face Insolvency; Will Directors Face Claims?

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[UPDATED] Skye Mineral – Negative Control

The Delaware Court of Chancery, in Skye Mineral Investors, LLC, et al. v. DXS Capital (US), Ltd., et al. and Skye Mineral Partners, LLC, C.A. No. 2018-0059-JRS, memo. op. (Del. Ch. Feb. 24, 2020), found it conceivable that minority members of an LLC used contractual blocking rights and other means of negative control in a in a scheme to force an LLC subsidiary into bankruptcy and acquire its assets at a fraction of their worth, in breach of fiduciary duties.

NEW:  Morris James discusses the decision in Chancery Allows Fiduciary Duty Claims to Proceed against Minority Members Who Blocked Financings in Order to Bankrupt Company and Facilitate Unfair Asset Purchase.

Fried Frank discusses the decision in Minority Investor “Blocking Rights” May Constitute Control–Skye Mineral.

Stinson discusses the decision in “Sole Discretion” Language in LLC Agreement does not Eliminate Fiduciary Duties.

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[UPDATED] Blue Apron – Federal Forum Selection

The Delaware Delaware Supreme Court, in Matthew B. Salzberg, et al. and Blue Apron Holdings, Inc., et al. v. Matthew Sciabacucchi, No. 346, 2019, opinion (Del. Mar. 18, 2020), reversed the Court of Chancery’s ruling that corporate charter provisions requiring that securities claims under securities claims under the Securities Act of 1933 be asserted only in federal court are invalid, concluding that such provisions are valid under Delaware law.

NEW:  Quinn Emanuel discusses the decision in Delaware Supreme Court Upholds Forum Selection Clause Provisions For Securities Act Claims.

Murtha Cullina discusses the decision in Delaware Supreme Court Validates Charter Provisions Requiring Federal Securities Claims to be Brought in Federal Court.

Smith Anderson discusses the decision in Another Tool in the Toolbox – Delaware Approves “Federal Forum Provisions” For Stockholder Securities Claims.

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Harpoon Therapeutics – Fraudulent Inducement

The Delaware Court of Chancery, in Maverick Therapeutics, Inc., et al. v. Harpoon Therapeutics, Inc., C.A. No. 2019-0002-SG, memo. op. (Del. Ch. Apr. 3, 2020), found that a party to a collaboration agreement with an entity spun off from defendant company demonstrated that defendant fraudulently induced the collaborator to invest in and collaborate with the spun-off entity based on a broad, exclusive transfer of technology to the spun-off entity, even though the agreement transferring technology from defendant to the spun-off entity, to which the collaborator was not a party, unambiguously covered a narrow field of technology.

$$$ Law360 discusses the decision in Chancery Finds Fraud In Cancer Drug Firm’s Spinoff Deal.

DE LLC Certificate of Revival

Farrel Fritz discusses the New York Appellate Division’s decision in Favourite, Ltd., et al. v. Benedetto Cico, et al., No. 11166, opinion (N.Y. App. Mar. 3, 2020), which found that non-managing members of a manager-managed Delaware LLC, who owned more than 50% of the LLC’s membership interests and removed the LLC’s managers, lacked authority to revive the LLC after its certificate of formation was cancelled for failure to designate a new registered agent within 30 days of its former agent’s resignation in Unauthorized Certificate of Revival Dooms Delaware LLC’s Claims Against Former Managing Members.

04/03/20

Lululemon – Termination for Cause

The Delaware Court of Chancery, in David Shabbouei v. Laurent Potdevin, et al. and Lululemon Athletica, Inc., C.A. No. 2018-0847-JRS, memo. op. (Del. Ch. Apr. 2, 2020), dismisses a stockholder derivative action challenging a board’s decision to allow a company’s CEO to resign and receive severance, rather than terminate him for cause following employee complaints of inappropriate conduct, for failure to plead demand, examining individual directors’ likelihood of liability under a duty of oversight theory despite plaintiff’s insistence that it did not plead a Caremarkclaim.

$$$ Law360 discusses the decision in Lululemon Escapes Investor’s Toxic Work Culture Claims.

CA Close Corporation

Keith Bishop discusses the California Court of Appeal’s decision in Aslan Abregov, et al. v. Kevin Lawrence, et al., No. G056629, opinion (Cal. App. Mar. 19, 2020), distinguishing between characteristics of a closely held corporation and a statutory close corporation under California law in Close Corporation Or Simply A Closely Held Corporation?

04/02/20

White House – LLC Buyout Right

The Delaware Court of Chancery, in Kieran Walsh, et al. v. White House Post Productions, LLC, et al., C.A. No. 2019-0419-KSJM, memo. op. (Del. Ch. Mar. 25, 2020), interpreted an LLC Agreement provision giving the LLC a right to buy plaintiffs’ units as a call option that the LLC conceivably exercised, forming a contract it could not terminate.

NEW:  DealLawyers.com discusses the decision in Del. Chancery Says No Turning Back After Buyout Notice.

$$$ Law360 discusses the decision in Visual Effects Co. Share Buyout Suit Kept Alive In Chancery.

04/01/20

Bay Capital – Advance Notice Bylaw

The Delaware Court of Chancery, in Bay Capital Finance, LLC v. Barnes & Noble Education, Inc., et al., C.A. No. 2019-0539-KSJM, memo. op. (Del. Ch. Mar. 30, 2020), granted defendants’ motion for summary judgment that a chairman did not breach fiduciary duties by refusing a non-compliant notice of the nomination of an incumbent slate of board members where evidence showed the full board rejected the notice.

$$$ Law360 discusses the decision in Bay Capital Used ‘Bold-Faced Lie’ In B&N Suit, Chancery Says.

[UPDATED] SourceHOV – Private Company Appraisal

The Delaware Court of Chancery, in Manichaean Capital, LLC, et al. v. SourceHOV Holdings, Inc., C.A. No. 2017-0673-JRS, memo. op. (Del. Ch. Jan. 30, 2020), found the fair value of a private company, in a statutory appraisal proceeding, exceeded the price per share paid in a merger.

NEW:  K&L Gates discusses the decision in In A Section 262 Appraisal Rights Proceeding, Chancery Court Accepts A Modified Version of Petitioners’ Valuation of a Merging Company’s Stock.

Morris James discusses the decision in Chancery Appraisal Decision Illustrates the Importance of Reliable Expert Testimony and Witness Credibility to Fair Value Determinations.

Lowenstein Sandler discusses the decision in SourceHOV: Chancery Court Departs From Merger Price Awarding 12% Premium.

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03/31/20

[UPDATED] 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:  K&L Gates discusses the decision in Court of Chancery Finds Deal Price Exceeded Fair Value, But Company Nonetheless Not Entitled to Refund For Prepayment of Deal Price to Dissenting Stockholders.

Fried Frank discusses the decision in Appraisal and Merger Synergies — Right to a Refund on Prepayments.

$$$ Law360 discusses the decision in Practice Points From Panera Appraisal Litigation.

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03/30/20

[UPDATED] Delaware Courts

The Delaware Court of Chancery issued a March 6, 2020 standing order, Standing Order Concerning COVID-19 Precautionary Measures, order (Del. Ch. Mar. 6, 2020), implementing procedural precautions, particularly the use of telephonic rather than live hearings, to help prevent coronavirus transmission.  On March 11, the Delaware Division of Public Health announced the first case of coronavirus infection in the State, and on March 13, the Delaware Supreme Court issued an Order Declaring a Judicial Emergency, order (Del. Mar. 13, 2020) encouraging telephonic proceedings. The Supreme Court subsequently ordered closure of the State Courthouses to the public effective March 23, and provided guidance on modification of procedural rules to facilitate Court function and avoid prejudice. In re COVID-19 Precautionary Measures, order (Del. Mar. 16, 2020). The Courts have established a designated webpage — The Delaware Judiciary Response to Coronavirus Disease (COVID-19) — to publish the latest developments.

NEW:  Law360 discusses the decision in Del. Chancery Is Uniquely Suited For Coronavirus Response.

Seyfarth Shaw discusses the responses of various Courts, including the Delware Court of Chancery, in COVID-19: Business Courts’ Response to the Crisis.

Francis Pileggi discusses closure of Delaware courthouses and postponements of hearings and other deadlines in More Closures in Delaware Due to Pandemic.

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[UPDATED] Intersections – Standard Shifting

The Delaware Court of Chancery, in Lance Salladay v. Bruce L. Lev, et al. [Intersections], C.A. No. 2019-0048-SG, memo. op. (Del. Ch. Feb. 27, 2020), found that appointment of a special committee to consider a controlling stockholder transaction was ineffective for purposes of standard shifting under Alan Kahn, et al. v. M&F Worldwide Corp., et al., No. 334, 2013, opinion (Del. Mar. 14, 2014), where plaintiff alleged that the committee was not constituted before substantive economic discussions, and that stockholder ratification under Robert A. Corwin, et al. v. KKR Financial Holdings, LLC, et al., No. 629, 2014, opinion (Del. Oct. 2, 2015), because the company did not disclose all material information about the transaction to stockholders.

NEW: Pepper Hamilton discusses the decision in Boards of Directors May Be Required to Disclose Reasons Behind Financial Advisor Withdrawal.

NEW:  Hunton Andrews Kurth discusses the decision in Does Special Committee Approval Protect a Transaction Involving a Conflicted Board Majority?

White & Williams discusses the decision in Delaware Chancery Court Holds That a Transaction Involving a Conflicted Board Majority Can Be Cleansed If Appropriate Safeguards Are Implemented.

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[UPDATED] SolarReserve – LLC Dissolution

The Delaware Court of Chancery, in SolarReserve CSP Holdings, LLC v. Tonopah Solar Energy, LLC, et al., C.A. No. 2019-0791-JRS, memo. op. (Del. Ch. Mar. 18, 2020), found that an indirect LLC equityholder that voluntarily traded away a controlling interest in the entity and did not bargain for a contractual dissolution right in the LLC Agreement was not entitled to equitable dissolution.

NEW:  Francis Pileggi discussed the decision in Issue of Equitable Dissolution of LLC Analyzed.

Skadden Arps discusses the decision in Delaware Supreme Court Upholds Validity of Provisions Designating Federal Courts as Exclusive Forum of 1933 Act Claims.

[UPDATED] Neurvana – Contract Application to Non-Signatory

The Delaware Court of Chancery, in Neurvana Medical, LLC v. Balt USA, LLC, et al., C.A. No. 2019-0034-KSJM, memo. op. (Del. Ch. Sept. 18, 2019), found that a non-signatory’s involvement in contract negotiations did not bind it to the contract as a “closely related” party.

NEW:  K&L Gates discusses the decision in Court of Chancery Rules on the Applicability of Forum Selection Clauses to Non-Signatories to a Contract and a Plaintiff’s Burden in Alleging Breach of the “Commercially Reasonable Efforts” Standard.

Sheppard Mullin discusses the decision in Delaware Update: Court of Chancery Declines to Bind a Non-signatory Parent Corporation to Forum Selection Clause.

Morris James discusses the decision in Court of Chancery Clarifies a Plaintiff’s Ability to Bind a Non-Signatory to a Forum Selection Provision.

[UPDATED] 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.

NEW:  K&L Gates discusses the decision in Chancery Court Finds That Res Judicata Bars Plaintiff’s Demand For Information Rights Under Merger Agreement.

Morris James discusses the decision in Chancery Holds That Res Judicata Precludes Plaintiff’s Claim for Information Rights Under Merger Agreement.

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

Energy Transfer – Best Efforts

The Delaware Supreme Court, in The Williams Companies, Inc. v. Energy Transfer Equity, LP, et al., No. 330, 2016, opinion (Del. Mar. 23, 2017), affirmed the Court of Chancery’s ruling that a Limited Partnership did not breach a merger agreement by failing to use best efforts to obtain an opinion of counsel that the transaction would not be taxable.

Tulane Law’s Professor Ann Lipton discusses the decision in Williams v. ETE: My favorite underrated merger case.

[UPDATED] Dole Foods – D&O Insurance

The Delaware Superior Court, in Arch Insurance Co., et al. v. David H. Murdock, et al., C.A. No. N16C-01-104-EMD-CCLD, memo. op. (Del. Super. Jan. 17, 2020), addresses allocation of covered loss under D&O insurance policies where insurers and policyholders cannot agree on a fair and proper allocation.

NEW: $$$ Law360 discusses the decision in Delaware Dole Ruling Will Guide Allocation In D&O Policies.

The D&O Diary’s Kevin LaCroix discusses the decision in Delaware Court Rules “Larger Settlement Rule” Governs D&O Insurance Allocation.

Wiley discusses the decision in Delaware Adopts Larger Settlement Rule.

[UPDATED] Duty of Oversight

NEW:  Kaplan & Walker discusses recent Delaware decisions addressing board oversight of compliance systems, noting the particular need of attention in high-risk and highly-regulated industries in Insights from the Delaware courts on board oversight of compliance programs

Sheppard Mullin discusses recent Delaware caselaw involving the duty of oversight, noting directors’ obligations to inform themselves of fundamental business issues impacted by the coronavirus pandemic in  COVID-19 Directors’ Duties of Oversight: Reporting and Monitoring.

Akerman discusses recent Delaware case law and trends in federal regulation involving oversight of legal, ethical, and reputational risks, illustrating that boards can be held legally accountable for oversight failures.

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CA Director Advisors

Keith Bishop discusses California case law supporting the rule that advisors of individual directors may attend board meetings at the discretion of the board, as contrasted with commentary regarding Delaware law, which suggests that directors should generally be permitted to have advisors present for board meetings to assist with their discharge of fiduciary  duties in Can Directors Bring Their Personal Advisors To Board Meetings?

Stockholder Proposals

Bulldog Investors describes a purported “scheme” of business trusts successfully requesting no action letters from the SEC finding some basis to exclude stockholder proposals to those subject to stockholder ratification, noting that a corporation could rely on that authority to support a bylaw limiting proposals stockholder may vote on to those submitted by the board or  required by statute in Can a Public Company Effectively Opt Out of Rule 14a-8?

[UPDATED] Appraisal Rights

NEW:  Sutter Securities discusses “market exception” / “market-out” in 38 state appraisal statutes that deny appraisal rights to stockholders of public companies in The “Market Exception” in Appraisal Statutes.

Tulane’s Professor Ann Lipton discusses proposed terms of Xerox’s proposed takeover of Hewlett Packard under 8 Del. C. § 251(h) via tender offer followed by second-step merger pursuant to which stockholders would under various contingent circumstances either be permitted to choose ore required to receive consideration in cash, stock, or both, noting that Delaware’s appraisal statute does not clearly provide stockholders with appraisal rights under the various scenarios because it lacks a coherent statutory scheme  in In these uncertain times, we can take comfort in normalcy: Appraisal law makes no sense.

Lowenstein Sandler excerpts commentary regarding Delaware appraisal law from Sullivan & Cromwell’s M&A Hot Topics January 14, 2020 (discussing various topics) in Law Firm Recaps the “Post-Aruba” Appraisal Landscape.

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