Monthly Archives: December 2017

Designing Cost-Effective Litigation Through Contract Structure

Cathy Hwang is Associate Professor of Law at the University of Utah S.J. Quinney College of Law; and Matthew Jennejohn is Robert W. Barker Professor of Law at Brigham Young University, J. Reuben Clark Law School. This post is based on their recent paper.

Complex contract structures are well understood by practitioners, but they are almost entirely overlooked by scholars. In our new paper Deal Structure, we argue that contract drafters can use contract structure to their advantage. Careful crafting of contract structure can nudge courts toward interpretive methods that lower litigation costs.


Analysis of Two-Step Merger With Uninformed Stockholder Consent

Scott A. Barshay is a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul, Weiss publication by Mr. Barshay, Ariel Deckelbaum, Ross Fieldston, Justin Hamill, Stephen Lamb, and Jeffrey Marell, and is part of the Delaware law series; links to other posts in the series are available here.

Recently in van der Fluit v. Yates, the Delaware Court of Chancery dismissed fiduciary duty claims brought against the board of Opower, Inc. in connection with the company’s acquisition by Oracle Corporation, even though the court concluded that the defendants were not entitled to the irrebuttable presumptions of the business judgment rule under Corwin due to the shareholder tender offer not being fully informed. Applying the familiar Revlon standard post-closing, the court concluded that the board nevertheless acted reasonably and did not commit a non-exculpated breach of fiduciary duty in connection with the transaction, despite, among other things, allegations that that the two-week market check was rushed.


Analysis of 2018 Revenue Recognition Rules

Steve Seelig is Senior Regulatory Advisor and Steve Kline is Senior Compensation Consultant at Willis Towers Watson. This post is based on a Willis Towers Watson publication by Mr. Seelig and Mr. Kline.

While the potential for tax reform dominates the headlines, we note that significant new accounting rules are nearly upon us and need to command our attention. A newly converged revenue recognition standard that the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued on May 28, 2014 generally becomes effective in 2018 (i.e., for U.S. companies, annual reporting periods beginning after December 15, 2017). This raises some important considerations for compensation professionals.


Delaware Supreme Court Again Speaks to Market Evidence in Appraisal: Dell

Theodore N. Mirvis and William Savitt are partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton publication by Mr. Mirvis, Mr. Savitt, and Ryan A. McLeod, and is part of the Delaware law series; links to other posts in the series are available here.

The Delaware Supreme Court yesterday issued its decision in the “long-running appraisal saga” arising out of Dell’s 2013 go-private transaction, reversing the ruling below and reaffirming the primacy of market evidence in determining fair value. Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., No. 565, 2016 (Del. Dec. 14, 2017) (en banc).

Although the management-led Dell buyout resulted from a process the trial court acknowledged was robust, open, and offered stockholders a 37% premium over the trailing 90-day average stock price, the Court of Chancery’s post-trial ruling appraised the company’s value almost four dollars over and nearly 30% higher than the merger consideration. In so doing, the trial court relied exclusively on its own discounted cash flow valuation model, giving no weight to the market evidence. The trial court rejected such evidence because it believed there was a “valuation gap” between Dell’s market value and its intrinsic value due to “investor myopia”; because it found that Dell’s process focused on financial, rather than strategic, bidders driven by desired internal rates of return; and because it considered management-led buyouts to suffer from “problems” that undermine the reliability of the merger price.


Revised FCPA Corporate Enforcement Policy

Gary DiBianco and Jocelyn E. Strauber are partners and Daniel B. Weinstein is an associate at Skadden, Arps, Slate, Meagher and Flom LLP. This post is based on a Skadden publication by the above authors, Mitchell S. Ettinger, Warren Feldman, Keith D. Krakaur, David Meister, and Warren T. Allen II.

In a speech [November 29, 2017] at the 34th International Conference on the Foreign Corrupt Practices Act, U.S. Deputy Attorney General Rod Rosenstein announced the Department of Justice’s (DOJ) revised Foreign Corrupt Practices Act (FCPA) Corporate Enforcement Policy. He explained that the revised policy is based on the DOJ’s determination that the FCPA Pilot Program in place for the last 18 months was a “step forward” in fighting corporate crime but also could be improved in certain respects. The revised policy, while similar in many respects to the Pilot Program, seems designed to further encourage voluntary disclosures of FCPA-related misconduct, including by conferring a presumption in favor of a declination for those companies that meet the revised policy’s requirements.


Analysis of Wells Fargo Shareholder Litigation

Brad S. Karp is partner and chairman at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul, Weiss publication by Mr. Karp, Susanna BuergelAndrew EhrlichAudra SolowayDaniel Kramer, and Charles Davidow.

On October 4, 2017, in In re Wells Fargo & Company Shareholder Derivative Litigation, which concerns alleged sales practices at Wells Fargo that have received wide attention, Judge Jon S. Tigar of the Northern District of California substantially denied Defendant Officers and Directors’ motions to dismiss the complaint. Judge Tigar had previously granted in part and denied in part nominal Defendant Wells Fargo’s motion to dismiss the complaint. Notably, the Court’s October 4th order took a somewhat broad read of the complaint’s allegations concerning the directors’ knowledge of the alleged sales practices that support Plaintiffs’ Section 10(b) and Rule 10b-5 claims, as well as its claims under Section 14(a). While the Court’s approach could influence how future courts evaluate the adequacy of Plaintiffs’ pleading of such claims, the allegations with respect to Wells Fargo may be sufficiently unique that this opinion may well be limited to its unusual facts. Nevertheless, the opinion is a stark reminder to directors that they must be especially sensitive when allegations of misconduct on the part of management come to their attention, particularly when those allegations surface in multiple forms.


Holder Claims: Potential Causes of Action in Delaware and Beyond?

Edward T. McDermott is a partner at McCarter & English LLP. This post is based on his recent article, published in Volume 41 of the Delaware Journal of Corporate Law, and is part of the Delaware law series; links to other posts in the series are available here.

This article addresses an unsettled legal issue in the securities law of Delaware and numerous other states: the viability of holder claims, i.e., common law claims by persons who alleged that they had been misled into holding rather than selling their securities investments and then saw the market price of those securities decline after the disclosure of information correcting the misstatement made to them. The investors then allege that that they suffered damages because they were deprived of the opportunity to secure the earlier, higher price.

In Citigroup, Inc. v. AHW Investment Partnership, 140 A.3d 1125(Del. 2015), Chief Justice Strine, speaking for a unanimous Delaware Supreme Court, discussed holder claims. However, to the disappointment of many, the court did not address directly their legal cognizability.


Weekly Roundup: December 8-14, 2017

More from:

This roundup contains a collection of the posts published on the Forum during the week of December 8-14, 2017.

Analysis of Statutory Appraisal Cases

Audit Committee Disclosure Trends in Proxy Statements

Do Professional Norms in the Banking Industry Favor Risk-taking?

Leverage, CEO Risk-Taking Incentives, and Bank Failure During the 2007-2010 Financial Crisis

Representations and Warranties Insurance in M&A Transactions

Executives in Politics

Critical Update Needed: Cybersecurity Expertise in the Boardroom

SEC Appoints New Chairman and Board Members to PCAOB

Reexamining Staggered Boards and Shareholder Value

Shaped by Their Daughters: Executives, Female Socialization, and Corporate Social Responsibility

Developments in Section 220 Litigation

Court of Chancery Dismisses Challenge to Stock Reclassification

William Savitt and Ryan A. McLeod are partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton publication by Mr. Savitt, Mr. McLeod, and Anitha Reddy. This post is part of the Delaware law series; links to other posts in the series are available here.

The Delaware Court of Chancery held this week that approval by a committee of independent directors and the informed vote of minority stockholders insulated from review a transaction that created and distributed new classes of low-vote stock designed to preserve the voting power of a controlling stockholder. IRA Trust FBO Bobbie Ahmed v. Crane, C.A. No. 12742-CB (Del. Ch. Dec. 11, 2017).

The case concerned the reclassification of the capital structure of NRG Yield, Inc. Since its formation, Yield has been controlled by NRG Energy, and Yield has consistently disclosed to its public investors that Energy would maintain this controlling interest. But Energy’s voting power declined as Yield issued new equity to make acquisitions and, by early 2015, Energy estimated that it could fall below a majority position in less than a year. Energy proposed that Yield create and issue pro rata new classes of stock with de minimis voting rights that could be used for future acquisitions without diluting Energy’s control position. The proposal was conditioned on approval by a special committee and a majority-of-the-minority vote, both of which were obtained.


Developments in Section 220 Litigation

Sarah T. Runnells Martin is counsel and Michelle L. Davis is an associate at Skadden, Arps, Slate, Meagher and Flom LLP. This post is based on a Skadden publication by Ms. Martin and Ms. Davis and is part of the Delaware law series; links to other posts in the series are available here.

Since its issuance in 2015, the Delaware Supreme Court’s decision in Corwin v. KKR Financial Holdings LLC [1] has been routinely applied, in appropriate circumstances, to dismiss post-closing deal litigation. However, Corwin‘s applicability remained untested in certain areas, such as stockholder demands to inspect books and records under 8 Del. C. § 220 relating to transactions to which Corwin could arguably apply. Recently, in Salberg v. Genworth Financial, Inc., [2] the Delaware Court of Chancery answered the question of Corwin‘s applicability in such demands in the context of discussing the Garner doctrine, which is based on a 1970 U.S. Court of Appeals for the Fifth Circuit case [3] and permits a stockholder plaintiff to obtain privileged documents in certain circumstances under a showing of good cause.


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