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10/28/20

[UPDATED] M&A Litigation

NEW:  Quinn Emanuel discusses legal and practical aspects of lawsuits involving termination of mergers based on the alleged existence of a Material Adverse Change / Material Adverse Event or failure of a target company to operate in the ordinary course of business as a result of the coronavirus pandemic, based on its experience as litigation counsel in several such actions — settled and pending — in the Delaware Court of Chancery in Report from the Front Lines: COVID-19 M&A Litigation in Delaware.

Deallawyers.com discusses recent decisions by the Delaware Court of Chancery finding plaintiffs effectively pled fraudulent inducement in business acquisitions, notwithstanding anti-reliance clauses, based on representations and warranties within the acquisition agreements in M&A Litigation: Contractual Fraud Claims Are The New Black.

Cooley discusses issues that the Delaware Court of Chancery has preliminarily addressed in merger termination lawsuits where the transactions require debt financing in Pandemic-Related Deal Litigation Highlights Buyer Leverage in Transactions Requiring Debt Financing.

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[UPDATED] Institutional Investors

NEW:  Former Chief Justice of the Delaware Supreme Court Leo E. Strine, Jr. offers policy recommendations intended to align the responsibilities of institutional investors with the best interests of investors and stakeholders in sustainable wealth creation and environmental responsibility in The Central Role of Institutional Investor Regulation in Restoring a Fair and Sustainable American Economy.

Corporate Governance Through Exit and Voice presents empirical evidence from the private engagements of a large active UK asset manager suggesting that asset manager derived benefits from monitoring portfolio companies and investment in stewardship, contrary to academic arguments that index funds have little incentive to monitor and engage with portfolio companies.

Reversing the Fortunes of Active Funds observes that passive funds recently surpassed active funds in total assets under management, noting that active funds participate in and bear the costs of monitoring portfolio companies but passive funds to not, the trend will tend to reduce monitoring, and proposes the use of tax mechanisms to help defray active funds’ monitoring costs.

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Facebook – Director Independence

The Delaware Court of Chancery, in United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund v. Mark Zuckerberg, et al. and Facebook, Inc., C.A. No. 2018-0671-JTL, opinion (Del. Ch. Oct. 26, 2020), dismisses derivative claims challenging director defendants’ agreement to support a stock reclassification that would provide nominal defendant’s founder with permanent voting control — a transaction that was abandoned after being challenged in a prior lawsuit — for failure to make demand, finding that directors could believe in good faith that the founder’s permanent control was in the company’s best interests, and rejecting plaintiffs’ argument that directors’ affiliation with venture capital firms overcame Delaware law’s presumption of director independence based on venture firms’ reliance on “deal flow” from the founder. 

Wachtell discusses the decision in Delaware Reaffirms Director Independence Principle in Founder-Led Company.

$$$ Delaware Business Court Insider discusses the decision in Facebook Shareholders Can’t Bypass Board to Pursue $90M Case.

[UPDATED] Swipe Acquisition – Anti-Reliance Clause

The Delaware Court of Chancery, in Swipe Acquisition Corp. v. Peter M. Krauss, et al., C.A. No. 2019-0509-PAF, memo. op. (Del. Ch. Aug. 25, 2020), rules that plaintiff business buyer’s fraud claim against the sellers is not improperly “bootstrapped” and duplicative of their contract claim, because plaintiff alleged knowing contractual misrepresentations and different damages, and not barred by the Purchase Agreement’s anti-reliance provision because it alleges contractual misrepresentations.

NEW: McCarter & English discusses the decision in The Delaware Court of Chancery Finds That Fraud May Serve as an Alternate Source of Recovery for Aggrieved Purchasers.

Francis Pileggi discusses the decision in Must-Read Chancery Decision for Buyers of Businesses Whose Value Depends on Retaining Customer Relationships.

[UPDATED] Swipe Acquisition – Anti-Reliance Clause

The Delaware Court of Chancery, in Swipe Acquisition Corp. v. Peter M. Krauss, et al., C.A. No. 2019-0509-PAF, memo. op. (Del. Ch. Aug. 25, 2020), rules that plaintiff business buyer’s fraud claim against the sellers is not improperly “bootstrapped” and duplicative of their contract claim, because plaintiff alleged knowing contractual misrepresentations and different damages, and not barred by the Purchase Agreement’s anti-reliance provision because it alleges contractual misrepresentations.

NEW: McCarter & English discusses the decision in The Delaware Court of Chancery Finds That Fraud May Serve as an Alternate Source of Recovery for Aggrieved Purchasers.

Francis Pileggi discusses the decision in Must-Read Chancery Decision for Buyers of Businesses Whose Value Depends on Retaining Customer Relationships.

[UPDATED] Outerwall – Director Conflicts

The Delaware Court of Chancery, in Mark Rudd v. Jeffrey J. Brown, et al. [Outerwall], C.A. No. 2019-0775-MTZ, memo. op. (Del. Ch. Sept. 11, 2020), dismissed Revlon and disclosure claims challenging a completed merger, rejecting an argument that director defendants were conflicted by the prospect of losing their seats in a threatened proxy contest.

NEW:  Morris James discusses the decision in Chancery Confirms that, Without More, Threat of Proxy Contest from Activist Investor is Insufficient to Render Director Defendants Conflicted in Sale Transaction.

Hunton Andrews & Kurth discusses the decision in Court Rejects Challenge to M&A Transaction Despite  Activist Pressure.

Frank Reynolds discusses the decision in Chancery finds merger charges against directors can’t penetrate Outerwall’s exculpatory clause.

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10/27/20

[UPDATED] D&O Insurance

NEW:  D&O Diary’s Kevin LaCroix discusses the Delaware Supreme Court’s decision in In re Solera Insurance Coverage Appeals, Nos. 413, 418, 2019, opinion (Del. Oct. 23, 2020), holding that that a statutory appraisal proceeding was not covered by a D&O insurance policy under terms that limited coverage to alleged “violations” of law, in Delaware Supreme Court: Appraisal Action Not a “Securities Claim” and Therefore Not Covered by D&O Insurance.

Wachtell discusses the California Superior Court’s ruling in Onyx Pharmaceuticals Inc. v. Old Republic Insurance Co., et al., C.A. No. 538248, order (Cal. Super. Oct. 1, 2020), finding that a D&O insurance policy’s “bump-up” exclusion permitted excess carriers to disclaim coverage for sums paid to settle a class action against a merger target’s directors challenging the consideration paid stockholders as inadequate in “Bump-Up Exclusion” Bars Coverage of Settlement of Deal Litigation Claims.

D&O Diary’s Kevin LaCroix discusses dynamics of the D&O insurance marketplace and challenges that frustrate insurers’ ability to engage in active loss prevention in Mandating D&O Insurer Rotation? A Critique.

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[UPDATED] Scientific Games – Forum Selection Bylaw

The Delaware Court of Chancery, in Sylebra Capital Partners Master Fund, Ltd., et al. v. Ronald Perelman, et al. [Scientific Games], C.A. No. 2019-0843-JRS, memo. op. (Del. Ch. Oct. 9, 2020), found defendant corporation’s Nevada forum selection bylaw, adopted in connection with the former Delaware corporation’s reincorporation in Nevada, was enforceable against plaintiff who purchased its shares when the company was incorporated in Delaware and could not sell its shares before the forum selection bylaw was adopted.

NEW:  Frank Reynolds discusses the decision in Chancery says it’s the wrong venue for claim that Perelman misused gaming company’s bylaws.

Keith Bishop discusses the decision in Why Are Stockholders Of A Nevada Corporation Invoking The DGCL?

$$$ Law360 discusses the decision in Chancery Says Forum Bylaw Nixes Suit On Perelman ‘Scheme’.

10/26/20

[UPDATED] Mergers & Acquisitions

NEW:  Morrison & Foerster discusses the “important but often overlooked workstream” involved in going private transactions in Negotiating the Private Side of Going Private Transactions.

Gibson Dunn discusses potential benefits of stock-for-stock merger structures that may address challenges that have arisen as a consequence of the coronavirus pandemic such as unavailability of financing and reluctance of lenders to finance transactions involving certain business sectors in Stock-for-Stock Mergers During the Coronavirus (COVID-19) Crisis – A Potential Strategic Solution.

Wyrick Robbins discusses key provisions that are typically negotiated in a definitive merger agreement in connection with Louis Vuitton’s disputed agreement to acquire Tiffany & Co. in Structuring M&A Agreements – Five Lessons from the Tiffany & Co. v. LVMH Affair.

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10/23/20

[UPDATED] Board Diversity

NEW:  Troutman Pepper discusses the recent filing of stockholder derivative actions for alleged breach of fiduciary duty and for proxy solicitation violations under Section 14(a) of the federal Securities Exchange Act based on failure to achieve board diversity and misleading disclosures regarding commitments to diversity in A New Wave of Board Diversity Derivative Litigation.

D&O Diary’s Kevin LaCroix discusses the California Partners Project’s Progress Report on Women’s Representation on California Corporate Boards, which tracks the changes in gender diversity on California boards, in Progress Report on California Public Company Board Gender Diversity Requirements.

Cooley discusses A Progress Report on Women’s Representation on California Corporate Boards, which tracks the changes in gender diversity on California boards since enactment of a state law requiring companies headquartered in California to add women to their boards of directors, citing research purportedly showing that companies with women on their boards outperform companies without them, in New report looks at board gender diversity in California.

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Infrastructure & Energy – Arms-Length Bargaining

The Delaware Court of Chancery, in Mark Jacobs v. Mohsin Y. Meghji, et al. and Infrastructure & Energy Alternatives, Inc., C.A. No. 2019-1022-MTZ, memo. op. (Del. Ch. Oct. 8, 2020), found no reasonable inference that an investor who bargained at arm’s length knowingly participated in directors’ alleged breach of fiduciary duty, regardless of whether the investor knew its proposal was inferior to a competing offer.

Morris James discusses the decision in Court of Chancery Dismisses Claim of Aiding and Abetting Against a Minority Stockholder.

[UPDATED] Mindbody – Fraud on the Board

The Delaware Court of Chancery, in In re Mindbody, Inc. Stockholders Litigation, C.A. No. 2019-0442-KSJM (consol.), memo. op. (Del. Ch. Oct. 2, 2020), found stockholder plaintiffs successfully pled breach of fiduciary duty claims alleging that a merger target’s Chairman and CEO orchestrated an underpriced merger in order to achieve liquidity for himself, rejecting the proposition that such a theory is viable only under circumstances involving a “fire sale.”

NEW:  Goodwin discusses the decision in Delaware Court of Chancery Denies Motion to Dismiss in Shareholder Class Action Lawsuit Related to MindBody Inc.’s Billion Dollar Merger with Vista Equity Partners.

Shearman & Sterling discusses the decision in Delaware Court of Chancery Declines to Dismiss Claims That Officers Tilted Take-Private Sale Process to Favored Buyer.

Troutman Pepper discusses the decision in Fraud on the Board II: Conflicted CEO Tilts Company Sale in PE Firm’s Favor.

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10/22/20

[UPDATED] Stockholder Meetings

NEW:  Back to the Future? Reclaiming Shareholder Democracy Through Virtual Annual Meetings examines stockholder voting turnout and voting outcomes at annual meetings between March and June 2020 in comparison with prior years, noting differences in turnout and approval rates depending on use of hybrid, in-person, telephonic, or interactive video, market capitalization; and proposal topics.

Mayer Brown discusses implications of the coronavirus pandemic, including the likelihood that companies may wish to use virtual stockholder meetings in 2021, proxy disclosures regarding the effects of the pandemic, and other likely proxy disclosure issues for which companies may wish to begin preparation in 2021 Proxy and Annual Report Season: Time to Prepare.

Skadden suggests, given uncertainty to the ongoing consequences of the coronavirus pandemic in 2021, that companies begin to consider and plan for effective use of virtual stockholder meetings in the 2021 in Planning Ahead: Virtual Shareholder Meetings in the 2021 Proxy Season.

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10/21/20

Altaba – Liability Reserves in Dissolution

The Delaware Court of Chancery, in In re Altaba, Inc., C.A. No. 2020-0413-JTL, opinion (Del. Ch. Oct. 19, 2020), ruled that a dissolved corporation may obtain Court approval for an interim distribution of assets to stockholders on a showing, analogous to that required for summary judgment, of sufficient reserves to satisfy creditor claims.

$$$ Law360 discusses the decision in Altaba Must Reserve $800M For Canadian Data Breach Claims.

[UPDATED] Appraisal

NEW:  Cadwalader discusses recent Delaware appraisal case law affirming reliance on market evidence, including deal price or unaffected market price, as best evidence of fair value in Delaware Supreme Court Reaffirms Primacy of Market Evidence in Determining Fair Value in Appraisal Proceedings.

Alpha Financial Experts’ Makoto Ikeya discusses trends in appraisal decisions in Delaware and Japan in Appraisal Litigation in Japanese and Delaware Courts — Trends of Decisions on the Fair Price.

$$$ Law360 discusses the treatment of size premiums when valuing companies under recent Delaware appraisal decisions in It’s Time For Valuation Experts To Let Go Of The Size Premium.

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[UPDATED] Sahara – Custody & Control of Records

The Delaware Court of Chancery, in Avery L. Woods v. Sahara Enterprises, Inc., C.A. No. 2020-0153-JTL, memo. op. (Del. Ch. July 22, 2020) — an action seeking inspection of corporate books and records action — rejects defendant holding company’s argument that it cannot produce records because it is managed by a sister entity, finding the position supports plaintiff’s purpose of inspection to investigate possible wrongdoing because it allows a reasonable inference that defendant’s board abdicated its duties to another entity.

NEW:  K&L Gates discusses the decision in Delaware Court of Chancery Finds Valuation of Stock Alone is Sufficient to Support Books and Records Request.

Appraisal Rights Litigation Blog discusses the decision in Books and Records (Del.): Valuing Private Shares is a Proper Purpose.

Morris James discusses the decision in Chancery Addresses Burdens for Valuation-Related Books-and-Records Inspections, While Finding Defendant’s Asserted Lack of Records Supported Mismanagement-Related Inspection.

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10/20/20

[UPDATED] Delaware General Corporation Law & Business Entity Statutes

NEW:  Morris Nichols discusses amendments to the Delaware General Corporation Law, the Delaware Limited Liability Company Act, the Delaware Revised Uniform Limited Partnership Act, and the Delaware Revised Uniform Partnership Act that became effective in July 2020 in 2020 Amendments to Delaware’s General Corporation Law and Alternative Entity Statutes.

Sullivan & Cromwell discusses 2020 amendments to the Delaware General Corporation Law in Amendments to Delaware’s General Corporation Law.

Cooley discusses recent amendments to the Delaware General Corporation Law relating to public business corporations and indemnification of corporate officers in Delaware bill to update emergency powers, revise PBC provisions and amend indemnification provisions signed into law.

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[UPDATED] New York Business Entity Law

NEW:  Farrel Fritz discusses the New York Supreme Court’s decision in Rena Pachter v. David Winiarsky, et al., No. 502779/20, opinion (N.Y. Sup. Oct. 13, 2020), dismissing a 50% LLC member’s claim for statutory dissolution of the LLC but finding that plaintiff stated a claim for common law dissolution that had not previously been recognized by a New York Court, and suggests that the ruling may permit LLC owners to work around the challenging requirements for statutory dissolution under New York’s LLC law in First-Impression Decision Recognizes a Cause of Action for Common-Law LLC Dissolution.

Farrel Fritz discusses the New York Appellate Division’s decision in Daniel Shatz v. Douglas Chertok, et al., No. 10972, opinion (N.Y. App. Feb. 27, 2020), finding that a manager-managed LLC Agreement providing the manager “sole and absolute discretion” in decision-making did not defeat a non-managing member’s breach of fiduciary duty claim alleging that a managing member exercised discretion in bad faith in When an LLC Manager’s “Sole and Absolute Discretion” is Neither Sole Nor Absolute.

Farrell Fritz discusses New York case law governing the enforceability of oral agreements concerning the rights of owners different types of business entities in Enforceability of Oral Operating, Shareholder, and Partnership Agreements.

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10/19/20

[UPDATED] Coty – De Facto Control

The Delaware Court of Chancery, in In re Coty, Inc. Stockholder Litigation, C.A. No. 2019-0336-AGB (consol.), memo. op. (Del. Ch. Aug. 17, 2020), declined to dismiss stockholder breach of fiduciary duty claims challenging a tender off through which a 40% stockholder increased its ownership to 60%, rejecting the argument that plaintiff’s assertion that defendant was a de facto controller before it increased its stake precluded harm to minority holders when defendant obtained a majority of the company’s stock.

NEW:  Fried Frank discusses the decision in Acquisition of Majority Ownership May Constitute a “Benefit”.

Morris James discusses the decision in Chancery Upholds Class Claims Alleging Breaches of Fiduciary Duty in Alleged Controlling Stockholder’s Tender Offer.

Shearman & Sterling discusses the decision in Delaware Court of Chancery Denies Motion to Dismiss Claims Regarding Alleged Controller’s Tender Offer as the “Abstention Principle” is “Not Absolute” and a De Facto Controller May Obtain Additional Benefits From Mathematical Control.

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10/16/20

[UPDATED] Limited Liability Companies

NEW: Patton Sullivan Brodehl discusses “buyout” provisions in LLC operating agreements that allow the LLC or its remaining members to buy the membership interest of a departing member, and case law addressing points of unclarity in such provisions in About That LLC Buyout . . . .

LLC Default Rules Are Hazardous to Member Liquidity discusses a shift in default LLC rules from partnership law toward corporate law, arguing that removal of liquidity rights and limitations on member remedies have led entrepreneurs to unintentionally lock themselves into perpetual entities and imposed costly obstacles to enforcing their rights.

The Kentucky Business Entity Law blog and Creighton University’s Professor Joshua Fershée spar over a proposed “overt disclosure” requirement for eliminating the fiduciary duty of loyalty in an LLC Agreement in Respectfully, I Dissent: Dean Fershee and Elimination of Fiduciary Duties; Dissent Duly Noted: LLCs, Private Ordering, and Ample Notice; and Agreeing to Disagree.

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[UPDATED] Synapse – Private Company Appraisal

The Court of Chancery, in William Richard Kruse v. Synapse Wireless, Inc., C.A. No. 12392-VCS, memo. op. (Del. Ch. July 14, 2020), determined the fair value of a private company in an appraisal proceeding following a squeeze-out merger, based on a discounted cash flow model with limited adjustments, finding no reliable market-based indicators of value.

NEW:  K&L Gates discusses the decision in Delaware Chancery Court Parses Valuation Methods in Battle of the Experts.

Morris James discusses the decision in Chancery Values Non-Public Company with No Reliable Market-Based Data Using Discounted Cash Flow Analysis.

DealLawyers.com discusses the decision in Appraisal: Chancery Applies DCF to Determine Squeeze-Out Fair Value.

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