Tag: Choice of Law

Sealing the Deal

The following post comes to us from Frederick H. Alexander, Chair of the Executive Committee and partner in the Delaware Corporate Law Counseling Group at Morris, Nichols, Arsht & Tunnell LLP, and is based on a Morris Nichols publication by Melissa A. DiVincenzo. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In many jurisdictions, a statute of limitations may not be extended by contract. [1] Delaware follows this rule, so its three-year statute of limitations for contract claims generally may not be extended. [2] Moreover, under Delaware’s borrowing statute, contract claims arising outside of Delaware but litigated in a Delaware court are subject to the shorter of that three-year period or the time established by the jurisdiction where the cause of action arose. [3] Notwithstanding these default rules, the statutory limitations period can be reduced by contract. [4] While many private company acquisition agreements do in fact shorten the statute of limitations for many breaches of certain representations and warranties by providing that such representations and warranties “survive” for a shorter period, it is also often the case that buyers want certain representations and indemnification obligations to “survive” longer, and in some cases, beyond the statutory period. [5] In order to achieve such a result, parties may, under Delaware law, use a so-called “specialty” contract, i.e., a contract that is entered into under seal, which will be subject to a twenty-year limitations period. [6]


Can Attorneys Be Award-Seeking SEC Whistleblowers?

Lawrence A. West is a partner focusing on securities-related enforcement maters at Latham & Watkins LLP. This post is based on a Latham & Watkins primer by Mr. West, Abigail E. Raish and Eric R. Swibel; the full publication, including endnotes and chart of Relevant Rules of the Fifty States and the District of Columbia, is available here.

The following post comes to us from Jason Y. Pratt, member of the Real Estate Practice Group at Shearman & Sterling LLP. This post is on a Shearman & Sterling client publication by Mr. Pratt and Mehran Massih.This is a primer on attorneys as award-seeking SEC whistleblowers. It digests the relevant law and explains how it applies in real situations. That law includes the SEC attorney conduct and whistleblower award rules and each state’s ethics rules applicable to attorney disclosure. Fully assessing a particular situation will often require referring to the relevant rules for each state that might come into play for a particular lawyer in a particular situation. We therefore include information about choice of law and a chart summarizing the relevant rules in each of 51 US jurisdictions.

Our hope is that with this primer close at hand, attorneys and companies will not only be equipped to spot issues and apply the law, but will also understand how limited the circumstances are that will allow a lawyer to disclose confidential information to the SEC without client consent and seek a monetary award. This is true even though the SEC has expanded the circumstances allowing disclosure beyond those recognized in many states.

We will end with steps companies can take to deal with risks related to attorneys who are actual or would-be whistleblowers.


Putting Stockholders First, Not the First-Filed Complaint

The following post comes to us from Leo E. Strine, Jr., Senior Fellow for the Harvard Program on Corporate Governance and Austin Wakeman Scott Lecturer at Harvard Law School, Lawrence A. Hamermesh, Ruby R. Vale Professor of Corporate and Business Law at Widener University School of Law, and Matthew Jennejohn, an associate at Shearman & Sterling, LLP.

The prevalence of settlements in class and derivative litigation challenging mergers and acquisitions in which the only payment is to plaintiffs’ attorneys suggests potential systemic dysfunction arising from the increased frequency of parallel litigation in multiple state courts. After examining possible explanations for that dysfunction, and the historical development of doctrines limiting parallel state court litigation — the doctrine of forum non conveniens and the “first-filed” doctrine — this paper suggests that those doctrines should be revised to better address shareholder class and derivative litigation. Revisions to the doctrine of forum non conveniens should continue the historical trend, deemphasizing fortuitous and increasingly irrelevant geographic considerations, and should place greater emphasis on voluntary choice of law and the development of precedential guidance by the courts of the state responsible for supplying the chosen law. The “first-filed” rule should be replaced in shareholder representative litigation by meaningful consideration of affected parties’ interests and judicial efficiency.

Putting Stockholders First responds to the observation that in 2011, only 5% of settlements of shareholder litigation challenging mergers and acquisitions involved an additional payout to stockholders, 84% of such settlements were based on additional disclosure only, but all of such settlements involved payment of fees for plaintiffs’ attorneys. These figures reflect a significant change from 1999 to 2000, when 52% of suits filed on behalf of shareholders produced a financial benefit for the class, and only 10% of settlements were “disclosure-only.”


The Corporate Shareholder’s Vote and Its Political Economy

Mark Roe is the David Berg Professor of Law at Harvard Law School, where he teaches bankruptcy and corporate law. Work from the Program on Corporate Governance about shareholder voting includes Private Ordering and the Proxy Access Debate by Bebchuk and Hirst; more posts about proxy access are available here. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

At the Columbia Law School conference on the Delaware Chancery Court this November, I summarized my recent working paper The Corporate Shareholder’s Vote and Its Political Economy, in Delaware and in Washington. I discuss this paper below. Related work includes Delaware’s Competition, Delaware’s Politics, and Delaware and Washington as Corporate Lawmakers.

Shareholder power to effectively nominate, contest, and elect the company’s board of directors became core to the corporate governance reform agenda in the past decade, as corporate scandal and financial stress put business failures and scandals into headlines and onto policymakers’ agendas. As is well known to corporate analysts, the incentive structure in corporate elections typically keeps shareholders passive, and incumbent boards largely control the electoral process, usually nominating and electing themselves or their chosen successors. Contested corporate elections are exceedingly rare. But shareholder power to directly place their nomination for a majority of the board in the company-paid-for voting documents, as the SEC has pushed toward, could revolutionize American corporate governance by sharply shifting authority away from insiders, boards, and corporate managements. During the past decade, the SEC proposed, withdrew, and then promulgated rules that would shift the control of some corporate election machinery, to elect a minority of the board, away from insiders and into shareholders’ hands. Then, in July 2011, the D.C. Circuit Court of Appeals struck down the most aggressive of the SEC’s rules.


Designating Delaware as the Exclusive Jurisdiction for Intra-Corporate Disputes

Charles Nathan is Of Counsel at Latham & Watkins LLP and is co-chair of the firm’s Corporate Governance Task Force. This post is based on a Latham & Watkins Corporate Governance Commentary by Mr. Nathan, Laurie Smilan, Michele Kyrouz, Timothy FitzSimons and Derrick Farrell, and relates in part to the recent decision in In re Revlon, Inc. Shareholders Litig., which is available here. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

As with real estate acquisitions, where intra-corporate disputes are concerned, the key to optimal results is “location, location and location.” [1] The Delaware Chancery Court is widely regarded as the country’s preeminent business court, with experienced jurists who have deep understanding of Delaware corporate law and long standing precedent regarding corporations’ governance. Indeed, the enabling, practical approach of Delaware law, the extensive body of judicial precedent and the expertise and business savvy of the Delaware Court of Chancery are the reasons that most companies choose to incorporate in Delaware in the first place.

Unfortunately, plaintiffs’ lawyers often file cases against Delaware companies under Delaware law in jurisdictions other than Delaware. Often, this is because plaintiffs’ lawyers, particularly those with weak cases, hope that other, less experienced judges will misapply Delaware law, that the greater uncertainty of the outcome will increase the settlement value of the litigation [2] or that courts outside of Delaware are less likely to limit or reduce plaintiffs’ attorneys’ fee awards. [3]