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Etude Cabernet Sauvignon (Oakville) 2004 with duck fried cauliflower "rice"

Dinner tonight was duck fried "rice," with the rice in scare quotes because it was mostly riced cauliflower left over from last night. I started with two Muscovy duck breasts left over from Helen's birthday trifecta weekend. I scored the fat and then marinated for a couple of hours in a mixture of:

• 2 tablespoons Hoisin sauce
• 2 tablespoons soy sauce (I prefer a wheat free tamari sauce)
• 1 tablespoon dark sesame oil
• 1 tablespoon Worcestershire sauce
• 1 tablespoon Mirin
• 1 tablespoon rice wine vinegar
• 1 tablespoon sherry vinegar
• a couple of dashes of Tabasco®

For the last half hour I transferred the duck from the refrigerator to the counter top to let it warm up some. I removed the duck from the marinade, wiped the breasts dry with paper towels, and put them skin side down in a preheated Calphalon Contemporary 12-Inch nonstick skillet over medium high heat until the fat had rendered and the skin was a deep brown. This makes it a lot easier to remove the skin, which I did after allowing the breasts to rest for 10 minutes. I discarded the duck fat because it had picked up a lot of black bits, which was unfortunate. Duck fat is liquid gold in the kitchen. I wiped the pan clean with paper towels and set it aside. After the breasts had rested, I peeled off the skin and diced the meat.

On to the "rice":

• The diced duck meat
• 1 ounce dried shiitake mushrooms (reconstituted by pouring 1-½ cups boiling water over the mushrooms and letting them steep for 30 minutes), drained and then chopped into bite-sized pieces (discard the woody stem centers or save them for stock; if you're making stock, be sure to also strain the soaking liquid through an unbleached coffee filter and save it)
• 1 tablespoon onion flakes rehydrated in a ½ cup warm water and then drained (I was out of onions and didn't feel like running out for one, but I always have dried onion flakes in the pantry for such occasions)
• 1 teaspoon crushed garlic
• 1 teaspoon finely grated ginger
• ½ head of cauliflower, riced
• 1 cup cooked white rice leftover from a meal earlier in the week
• 1 tablespoon freeze-dried chives (in lieu of green onions, which I also didn't feel like running out for, and which I always keep in the pantry for such occasions)
• 1-½ teaspoons chile paste
• ½ cup frozen petite peas
• 1 tablespoon dark sesame oil
• 2 tablespoons soy sauce
• 2 eggs beaten with 1 tablespoon water, a dash of Tabasco®, and a few grinds of black pepper

I preheated the same skillet over medium-high heat and then added just enough olive oil (pure not EVOO) to coat the bottom. In went the duck meat, which was still very rare to sauté for 2-½ minutes. Next in went the mushrooms to sauté for another minute. Next the onion, garlic, and ginger to sauté for 30 seconds. Next into the pan were all of the remaining ingredients except for the eggs. They sautéed for 5 minutes, stirring frequently. At the 5 minute mark, I moved the mixture to the outer edges of the skillet to create about a five-inch diameter opening in the center of the skillet into which I poured the eggs. I scrambled them briefly and then mixed the eggs into the fried "rice." Serve immediately.

I was in the mood for fried "rice" and also in the mood for a Napa Cab, which admittedly is not a pairing I would normally approve (or even admit to making). But damned if it didn't work.

I decanted the Etude about an hour before dinner. It had thrown a lot of light sediment, which made decanting a real pain and ultimately required filtering the last quarter of the bottle through an unbleached coffee filter because it was so mixed with the wine (despite having stood the bottle up for 3 days to settle and very careful handling). Bright ruby color. Good bouquet of blackberry, cassis, tobacco, and mocha java. Ditto the palate with a dash of cedar on the finish. Soft silky tannins and just the right level of acidity. Well balanced. I've got one bottle left in my cellar and I think I'll drink it by the end of 2017. No point in waiting.

Grade: 90

Château Sociando-Mallet (Haut-Médoc) 1986 with rack of lamb and cauliflower "rice"

Stuffed Rack of Lamb

• 1 rack of lamb, frenched
• ~ ⅓ cup sun-dried tomatoes in oil, drained and minced (I like Bella Sun Luci)
• 1 tablespoon basil pesto (I like Seggiano)
• 1 clove garlic, minced

Hold a very sharp paring knife (I use a Calphalon Contemporary 4-1/2-Inch blade, which I sharpen using a Chef's Choice sharpener) horizontally parallel to the lamb meat and insert it to the hilt. Spin the blade to make a tunnel through the meat. Turn the rack around, insert the knife into the other end, and repeat. Push a wooden spoon handle through one end until it comes out the other and spin to widen the tunnel. Combine the tomatoes, pesto, and garlic, and push into the cavity you've created in the lamb. Make sure that your stuffing fills the entire cavity and then sort of press the meat to even out lumps. Season the surface of the meat (top and bottom) with salt and pepper and let rest at room temperature while you make the crust.

• ¼ cup @ raw cashews and slivered almonds
• ~ ⅓ cup sun-dried tomatoes in oil, drained and minced

Combine the nuts in a Cuisinart Mini-Prep and process until they are the size of bread crumbs. Add the tomatoes and process briefly. Smear the top side of the lamb with about a tablespoon of pesto and press the nut mixture into the meat to form a crust. (You may not need all of the nuts).

Preheat the oven to 425° and roast the rack of lamb for 23 minutes for medium-rare. Allow the lamb to rest while preparing the cauliflower, carve into double rib chops, and serve.

Curried Cauliflower "Rice"

I am on something of a Paleo kick these days, so in lieu of the risotto I would usually serve with rack of lamb, I made some cauliflower rice in my new KitchenAid Food Processor Attachment. Take 1 head of cauliflower, trim off any leaves, and cut the florets off the inner core. Discard the core or save it for stock. Chop the florets roughly and put half in the processor. Using pulses, process the cauliflower until it has broken down into rice-size pieces. Repeat with the other half. I reserved half the resulting product for use tomorrow night and used half for tonight's side dish.

• 6 green onions
• ⅓ cup slivered almonds
• 1 teaspoon crushed garlic
• 1 teaspoon finely grated ginger
• 1 teaspoon chili paste
• ½ to 1 teaspoon garam masala (depending on taste)
• 1 teaspoon red curry paste
• ⅓ cup sun-dried tomatoes in oil, drained and chopped
• 1 ounce raisins
• 1 teaspoon dry parsley
• 1-½ teaspoon fish sauce (I have become addicted to Red Boat)
• olive oil
• kosher or sea salt and fresh ground pepper

I did not want the side dish to be really spicy because I planned on serving it with a 30 year old Bordeaux and didn't want the spice to blow the wine out of the water. If you went with a younger, more assertive wine, you could ramp up the spice (a lot). But I wanted warm and mellow, which is what I got.

Chop the green onions, dividing the white (and white-ish) parts from the green. Heat a Calphalon Contemporary 12-Inch nonstick skillet over medium-high heat and then add enough olive oil ("pure" not EVOO) to coat. Add the white part of the green onions and sauté for about a minute. Add the almonds and sauté for about 3 minutes. Add garlic, ginger, chili paste, garam masala, and curry paste and sauté for about 30 seconds. Reduce heat to medium and add the tomatoes, raisins, parsley, and processed cauliflower. Season with salt (just a pinch) and pepper. Cook over medium heat for about 4 minutes. Add fish sauce and cook another minute. Stir in green parts of green onions, taste to see if it needs more salt (it probably won't), and serve immediately.

The Wine

I have two prior notes on this wine. One from 2007 and one from 2013. In 2007, I wrote in part that:

This cru bourgeois from one of Bordeaux's lesser regions could blow a lot of classed growths out of the water. It's the same age as Lindsay Lohan and just about as immature, although not as blowsy, as Ms Lohan. Of course, immaturity at age 21 is a much more desirable characteristic in wine than people. ...

Given the Sociando-Mallet's youthfulness, intense fruit, richness, and over-the-top intensity, in a blind tasting I likely would have said it was a 10-year old Napa cabernet. Fans of the austere style of claret likely would regard all that as a fault, but I find this wine to be very fine.

In 2013, I wrote in part that:

Ms. Lohan seemingly has not matured, but the 1986 Chateau Sociando-Mallet has. This bottle's cork was stained almost to the top and the bottle was showing ulllage down to the very bottom of the neck, which was quite worrisome. But all was well. Although it still had dark fruit in plenty (and remained a deep garnet color), this bottle offered many more maturity markers such as smoke, leather, dried fruits, and so on. 

With two bottles left in my cellar, I will not be looking for more at auction. Instead, I'll probably open the next in 2016 and see where we go from there with respect to the last bottle.

It's 2016 and so I opened the penultimate bottle. It showed ullage down to very high shoulder. The deeply stained cork crumbled on opening, which necessitated showing the remanent through into the bottle and then decanting it through a funnel lined with unbleached coffee filters (2 sufficed). Given the considerable sediment, decanting would have been required even if the cork had not disintegrated.

Sadly, this bottle had not rewarded additional aging. It was still healthy, with a surprising amount of tannin and good acidity. It had no faults but it also had few merits. It was pretty one dimensional. Some dark fruit and a dash of cedar, but that was about it. Drinkable. Enjoyable. But not memorable. So I think the final bottle gets drunk in the next year or so. Seemingly, there is nothing to be gained by waiting.

Grade: 85

John Engler versus activist shareholders

Anyone with $2,000 of stock can submit proposals and keep CEOs distracted, writes @BizRoundtable's John Engler: https://t.co/eEMfHTgBEg

— WSJ Editorial Page (@WSJopinion) May 27, 2016

Jayson (Napa Valley) 2009

Dinner tonight was a very simple steak with potatoes, which to my mind is classic Napa Cabernet territory. The 2009 Jayson red wine is a proprietary blend of 72% Cabernet Sauvignon, 20% Merlot, 4% Cabernet Franc, and 4% Malbec. I opened and decanted the Jayson about an hour before dinner, which allowed it plenty of time to open and evolve. A very pretty color shading from purple to ruby. Huge bouquet. Blackcurrant, blackberry, black cherry, vanilla, and nutmeg. On the palate, it was smooth and silky with soft tannins. Perfectly balanced. Most wineries would be proud to have this as their reserve, let alone their second wine. Grade: 93

Tweeting about Citigroup v AHW and the test for direct versus derivative suits

There's a new Delaware decision on the distinction between direct and derivative suits that has me scratching my head a bit. As the Legal Solutions Blog explains (sub may be req'd):

Shareholders who claim Citigroup deceived them into holding on to their stock by misrepresenting its exposure to risky mortgage-backed securities can sue its officers directly, the Delaware Supreme Court said May 24 in response to the 2nd Circuit’s request for an advisory ruling....

Chief Justice Strine’s opinion noted that neither the plaintiffs’ common law fraud claims nor the negligent-representation claims involve fiduciary duty or corporate governance charges or “claims otherwise belonging to the corporation.” 

All of which prompted the following Twitter exchanges:

Delaware justices find allegedly duped Citigroup investors have 'direct' claim https://t.co/DG7E32EZV2 #ThomsonReuters via @Westlaw

— Francis Pileggi, Esq (@fpileggi) May 26, 2016

(1/2) @BenPEdwards @fpileggi Q: A and Corp C have a contract. A is not a director, officer, or otherwise a fiduciary. A breaches contract.

— Stephen Bainbridge (@ProfBainbridge) May 27, 2016

(2/3) @BenPEdwards @fpileggi Can a shareholder of C sue A at all? If so, isn't that derivative? And don't we use Tooley to decide that?

— Stephen Bainbridge (@ProfBainbridge) May 27, 2016

(3/3) @BenPEdwards @fpileggi If we use Tooley to decide direct v derivative in suits against 3rd parties, why not in holder suits? 😕

— Stephen Bainbridge (@ProfBainbridge) May 27, 2016

Thoughts? Comments open.

Corporate lobbying expenditures are not an agency problem, but are (usually) profit maximizing

So finds a new study. Hutchens, Michelle and Rego, Sonja O. and Sheneman, Amy Genson, Influencing Profits: The Differential Impact of Lobbying on Corporate Stock Returns (April 29, 2016). Available at SSRN: http://ssrn.com/abstract=2779697 :

Prior research provides mixed evidence on whether corporate lobbying activities increase or decrease shareholder value. In this study we use detailed data on corporate lobbying expenditures to investigate which factors influence the returns to corporate lobbying activities. Specifically, we examine whether the returns vary by lobbying issue (e.g., tax-, defense-, or healthcare-related), by the severity of agency problems, by the lobbying approach employed, and by the potential benefits to be gained lobbying. Our results suggest that although the association between abnormal stock returns and total lobbying expenditures is generally positive and significant, the returns to lobbying vary substantially depending on the issue being lobbied. While investors expect lobbying on tax-, defense-, trade-, and federal budget-related issues to generate significant economic benefits for firms, they expect the returns to environment-related lobbying to actually decrease shareholder value. We also provide evidence that the returns to lobbying are more positive for firms with low free cash flows, for firms that adopt a relational approach to lobbying, and for firms with the largest potential benefits to be gained from lobbying. Overall, our research suggests that corporate lobbying activities represent strategic political investments that generate future economic benefits, not agency problems as asserted by some prior studies.

These results enhance the case for applying the business judgment rule when shareholders challenge lobbying expenses and campaign contributions and rebuts the argument for disclosure to shareholders of such spending.

Corporate governance may be good at regulating conflicts of interest but not externalities

In a post on the emissions scandal that's worth reading for lots of reasons, John Armour makes a point that I think undermines the basic premise of progressive corporate law insofar as it seeks to use corporate law to influence corporate governance to regulate the externalities created by corporate conduct:

What also emerges starkly from the VW affair is the importance of distinguishing between agency costs and externalities in discussions of corporate governance. Conflicts of interest between managers and shareholders are an agency cost. But so too are conflicts of interest between employees and shareholders. Harm caused to the environment, or any other interest external to the corporation, however, is an externality. Simply because a company’s structure is designed—as codetermination does in Germany—to minimise agency costs between shareholders and employees—does not necessarily imply that it will be less problematic in terms of externalities. Corporate conduct that harms the environment but leads to corporate growth benefits both investors and employees.

 

The intersection of forum selection bylaws and books and records litigation

Ann Lipton has a very interesting post on the strategic uses of the titular legal rules.

Rakoff reversed ... again

WSJ Law Blog reports:

U.S. District Judge Jed Rakoff has been reversed again.

The Second U.S. Circuit Court of Appeals in New York on Monday threw out a civil-fraud verdict against Bank of America Corp. involving the bank’s Countrywide unit, tossing a $1.27 billion penalty along with it. ...

The decision comes two years after the same appeals court ruled that Judge Rakoff had abused his discretion in blocking a fraud settlement between the Securities and Exchange Commission and Citigroup Inc. ...

Last year, a unanimous Second Circuit panel also reversed Judge Rakoff’s holding that a New York state law banning surcharges on credit card purchases was unconstitutional.

This is what happens when your jurisprudence is based on what will please the NY Times editorial board.

The trouble with LIBOR litigation

Alison Frankel reports that:

Common sense has prevailed at the 2nd U.S. Circuit Court of Appeals in litigation over an alleged conspiracy among 16 global banks to manipulate the London Interbank Offered Rate (Libor), a key interest rate benchmark. The appeals court held Monday that price-fixing collusion among competitors is a violation of antitrust law, even if it takes place in the context of an ostensibly cooperative rate-setting process.

The 2nd Circuit’s 61-page opinion, written by Judge Dennis Jacobs for a panel that also included Judges Reena Raggi and Gerard Lynch, vacated a controversial 2013 decision in which U.S. District Judge Naomi Reice Buchwald of Manhattan tossed classwide antitrust claims because the Libor rate-setting process is collaborative, not competitive. The ruling revives the banks’ exposure to potentially billions of dollars in damages from investors who say they were victimized by artificial Libor rates.

As I noted in an article on LIBOR:

Because a wide range of commercial loans and residential mortgages were set by reference to LIBOR, artificially low LIBOR rates benefitted borrowers who paid less on their loans than they would have in an honest market at the expense of banks who were not fully com- pensated for the risks they were bearing. [On the other hand,] artificially low LIBOR rates resulted in losses for many investors, “such as mutual funds that invest in mortgages and certain hedge funds that use derivative contracts tied to LIBOR.”

The trouble with litigation is that only the folks who were hurt are represented in the case. From a societal perspective, however, their losses were mitigated by the benefit to borrowers. But the judicial system is ill-suited to take that into account.

Kim on "Inside Lawyers: Friends or Gatekeepers?"

My friend and UCLAW colleague Sung Hui Kim has posted a short essay at Harvard's corporate law blog on the role of inside lawyers within the corporation:

What, if any, obligations to the corporate entity should inside lawyers have to disrupt the material misconduct of their client representatives (to wit: senior managers, including the CEO)? Should inside lawyers conduct themselves as if they are “close friends” of senior managers or is there another, more appropriate model that would facilitate good corporate governance? To what extent should an inside lawyer think of herself as a “gatekeeper”—defined as a “private intermediary who can prevent harm to the securities markets by disrupting the misconduct of his/her client representatives? Would the imposition of somegatekeeping obligations ultimately backfire by foreclosing access to critical information about corporate misconduct? These controversial questions are, at least partially, addressed in my article, Inside Lawyers: Friends or Gatekeepers? 84 Fordham L. Rev. 1867 (2016), the fifth article of mine on the subject of gatekeeping.

Using the GM ignition switch scandal as my point of departure, I answer the most vocal criticisms of my work and address prior mischaracterizations. Although the focal point of the paper is the particular reform that I proposed back in 2005, the primary goal of this article is not so much to defend my proposal (indeed, I believe that I prepared an adequate defense in the 2005 paper) but (i) to discuss fundamental empirical disagreements between those who support affirmative legal/professional obligations on lawyers to stop material corporate misconduct and those who oppose them and (ii) to critique the common, if not prevailing, assumption that our legal system is best served if the corporate in-house lawyer conducts his/her relationships with senior corporate managers according to the “lawyer as friend” model. ...

The full paper is available for download here.

Advance Notice Bylaws: Who Decides?

In an earlier post, I posed this hypothetical:

Facts: Target company has a bylaw permitting shareholders to nominate directors. Target company also has an advance notice bylaw that, inter alia, requires that potential nominees fill out a questionnaire that “include[s] all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest.” Activist shareholder informed company it intended to nominate directors and provided answers to the required questionnaire. The target board determined that the answers were inadequate and refused to include the nominees on the proxy statement/card. Activist sues. Court determines that Maryland law requires that it review the board decision under the business judgment rule and holds that plaintiff has failed to show bad faith or uninformed decision, so BJR applies.

It's loosely based on Ashford Hospitality Prime v Sessa Capital, about which the WSJ's Moneybag blog wrote:

The other lesson comes in Sessa Capital’s monthslong battle for control of Ashford, a $300 million market-cap owner of high-end hotels. Sessa, a first-time activist, nominated directors for a majority of the board. It argued that a termination fee owed to Ashford’s external manager — whose chief executive is also Ashford’s CEO — was keeping the company from pursuing a sale that might benefit stockholders.

Ashford sued Sessa, saying the fund hadn’t complied with Ashford’s rules for director nominations. Those rules require anyone seeking board seats to, among other things, “describe any plans or proposals” that would result in a sale of the company or any other major corporate pivot.

Sessa claimed it didn’t have any such plans. But the judge found Sessa had discussed a “gameplan” for a sale of the company and changes to Ashford’s bylaws, and he blocked the fund from moving forward with its board nominees. “In light of the evidence … [Ashford's] board could rationally believe the Sessa candidates had plans they refused to disclose in their questionnaires and thus were ineligible,” Judge David Godbey of the U.S. District Court in Dallas wrote in a decision last week.

The opinion makes two basic moves: (1) the determination of whether the advance notice bylaw was satisfied is one for the board of directors to make and (2) under Maryland law the only available standard of review is the business judgment rule.

As I read the opinion, the second point is clearly correct. Maryland by statute has clearly rejected the Delaware line of cases imposing more intrusive standards of review on decisions of this sort. Indeed, if the case had been decided under Delaware law, it seems clear to me that it would have come out differently. But why?

Mohsen Manesh commented on the earlier post:

Chancellor Allen's reasoning in Blasius v. Atlas suggests that this decision should not be left to the board (i.e. no BJR), but should instead be decided by the courts: "[T]he ordinary considerations to which the business judgment rule originally responded are simply not present in the shareholder voting context.That is, a decision by the board to act for the primary purpose of preventing the effectiveness of a shareholder vote inevitably involves the question who, as between the principal and the agent, has authority with respect to a matter of internal corporate governance.... A board's decision to act to prevent the shareholders from creating a majority of new board positions and filling them does not involve the exercise of the corporation's power over its property, or with respect to its rights or obligations; rather, it involves allocation, between shareholders as a class and the board, of effective power with respect to governance of the corporation.... Action designed principally to interfere with the effectiveness of a vote inevitably involves a conflict between the board and a shareholder majority. Judicial review of such action involves a determination of the legal and equitable obligations of an agent towards his principal. This is not, in my opinion, a question that a court may leave to the agent finally to decide so long as he does so honestly and competently; that is, it may not be left to the agent's business judgment."

Initially that struck me as probably correct.

Christian Walker--a lawyer who's a longtime reader of the blog--wrote via email to suggest an alternative way of solving the problem, however, which I am now persuaded is actually the correct way of approaching the problem:

I have not researched this particular issue, but I believe that the answer for Delaware purposes is that you do not get BJR deference.  In the first instance, of course, the board or company will control the decision.  But if challenged, the decision will be reviewed based on contract principles, with no deference being given to the board’s interpretation.  I believe the Opportunity Partners v. Hill decisions and order (attached) generally address the issue.

In Opportunity Partners L.P. v. Hill Intern., Inc., 2015 WL 3582350 (2015), VA Travis Laster wrote that:

“The bylaws of a Delaware corporation constitute part of a binding broader contract among the directors, officers, and stockholders formed within the statutory framework of the [Delaware General Corporation Law].” Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934, 939 (Del. Ch. 2013). Accordingly, “bylaws are interpreted using contractual principles.” Id. at 957. The “ ‘plain, common, or normal meaning of language will be given to the words of a contract unless the circumstances show that in a particular case a special meaning should be attached to them.’ ” Nationwide Emerging Managers, LLC v. Northpointe Hldgs., LLC, 112 A.3d 878, 895 n.65 (Del. 2015) (quoting 11 SAMUEL WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS § 32:3 (4th ed.) (2014)).

In the subsequent opinion in Opportunity Partners L.P. v. Hill Intern., Inc., 2015 WL 3765353 (2015), VC Laster further observed that:

The Company also asserts that the Injunction Order “runs contrary to the Company's own interpretation and its consistent prior practice, as well as the fundamental purposes served by advanced notice bylaws.” Taking these points in reverse order, the Injunction Order did not defeat the “fundamental purposes served by advanced notice bylaws.” The purpose of an advanced notice bylaw is to give a company advance notice of matters to be considered at a meeting of stockholders so that the Company is not surprised by a proposal from the floor. See Openwave Sys. Inc. v. Harbinger Capital Partners Master Fund I, Ltd., 924 A.2d 228, 239 (Del. Ch. 2007). That purpose has been served. Nor, as I understand Delaware's approach to contract interpretation, is past practice or one side's unilateral interpretation controlling. See id. Moreover, if a bylaw is ambiguous, “doubt is resolved in favor of the stockholders' electoral rights.” Id.

On appeal, the Supreme Court of Delaware affirmed. Hill International, Inc. v. Opportunity Partners L.P., 119 A.3d 30 (2015):

The bylaws of a Delaware corporation constitute part of a binding broader contract among the directors, officers and stockholders formed within the statutory framework of the Delaware General Corporation Law. Because corporate charters and bylaws are contracts, our rules of contract interpretation apply.

In sum, under Delaware law the question before the court would be: Did the board of directors breach the bylaw? That question would be resolved by the court applying basic contract law principles. As a result, under Delaware law,  the determination of whether the advance notice bylaw was satisfied is not one for the board of directors to make and, accordingly, the board would not be entitled to business judgment review. Indeed, because contract law would control--rather than corporate law fiduciary duties--Blasius would not come into play either.

To be sure, as Keith Paul Bishop notes, many advance notice bylaws try to vest the determination of whether a nomination is proper in the board. He cites an example, which provides that (his emphasis): 

Except as otherwise required by law, each of the Board or the chairman of the meeting shall have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in Section 6(a)(ii) above. If any proposed nomination or other business is not in compliance, then, except as otherwise required by law, the chairman of the meeting shall have the power to declare that such nomination shall be disregarded or that such other business shall not be transacted. 

A quick Westlaw search turned up no law on point, but I doubt whether such language would preclude judicial review to determine whether the Board or Chairman's use of that power was a breach of the bylaw as a matter of contract law.

On the facts of this case, accordingly, I believe a Delaware court would hold that the question of whether the activist had adequately “describe[d] any plans or proposals” that would result in a sale of the company would be decided by applying contract law principles of interpretation to determine what the language requires.

As for Maryland law, there are a few cases that refer to the bylaws as being contractual, but none of them strike me as dispositive.

There are some other interesting wrinkles in the case that would raise some interesting fiduciary duty issues in Delaware (unlike Maryland where they've apparently been gutted), especially the "proxy penalty" the court notes in passing (more than half the market cap is paid to the outside adviser, controlled by the CEO, upon shareholder election of directors that incumbents don't approve). Surely that would invoke Blasius!

Funding mass tort litigation

Interesting article by Alison Frankel on the growing phenomenon.

The Professor is Stumped: Today's Corporate Law Question

When an incumbent board of directors claims that a potential proxy insurgent has failed to comply with an advance notice bylaw, who decides whether the bylaw has been satisfied? The board (subject to judicial review and, if so, under what standard) or does the court make an independent determination?

Facts: Target company has a bylaw permitting shareholders to nominate directors. Target company also has an advance notice bylaw that, inter alia, requires that potential nominees fill out a questionnaire that “include[s] all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest.” Activist shareholder informed company it intended to nominate directors and provided answers to the required questionnaire. The target board determined that the answers were inadequate and refused to include the nominees on the proxy statement/card. Activist sues. Court determines that Maryland law requires that it review the board decision under the business judgment rule and holds that plaintiff has failed to show bad faith or uninformed decision, so BJR applies.

It seems to me that if the court is correct that Maryland law limits review to BJR (and it looks like it does) and that the advance notice issue is one for the board (that's the issue on which I am uncertain) the decision is correct.

Thoughts? Comments open.

Ridge Lytton Springs (Dry Creek Valley) 2010

Dinner tonight was short ribs in pomegranate juice and a sweet potato gratin from Paleo Perfected. The Lytton Springs was a nice complement. It's still a big, firm wine with a potent tannic and acidic structure to support much longer aging than one normally associates with Zinfandel. Despite having thrown a moderate amount of sediment it is still an incredibly deep purplish ruby. Good complex bouquet of blackberry, blackcurrant, star anise, and pepper. Ditto the palate with an herbal element on the finish. I suspect the next time I try it, the grade will go up. Right now, however, since it's still developing I'll give it an 89.