ProfessorBainbridge.com

Sean Griffith on the evolution of merger litigation

Ann Lipton informs us that:

Sean Griffith recently wrote a book chapter explaining how plaintiffs’ merger-related challenges developed over time.  Plaintiffs began by seeking disclosure-only settlements, but after Trulia stamped out the practice in Delaware, plaintiffs began bringing claims in federal court challenging corporate proxies under Rule 14a-9.  And once they got there, they realized they did not have to limit themselves to merger litigation, and began bringing other kinds of proxy-related claims, and eventually these morphed into individual, rather than class, actions.

Ann goes on to ponder DGCL 220 books and records inspections in the M&A context.

Securities regulation implications of coronavirus

TheCorporateCounsel.net has an overview of the implications of the coronavirus outbreak for disclosure and contracts.

The same blog has another post on risk factor disclosures re the outbreak.

An LLC is not a corporation

Josh Fershee links to a new court opinion tackling the terminological confusion all too often associated with LLCs.

An autobiographical Twitter thread

All about me:

1/ I've picked up about 200 new followers this week thanks to that Slate business. So for you new guys here's an introduction: I am often cynical, sarcastic, light-hearted, iconoclastic, or frivolous. I'm serious about my faith, corporate law, wine, cooking, my wife, and my dogs.

— Professor Bainbridge (@ProfBainbridge) February 26, 2020

What to do about chatty woke judges?

Over the weekend Associate Justice Sonia Sotomayor issued a dissent in which she basically accused her 5 more conservative justices of being biased in favor of the Trump administration:

... the Court’s recent behavior on stay applications has benefited one litigant over all others. This Court often permits executions—where the risk of irreparable harm is the loss of life—to proceed, justifying many of those decisions on purported failures “to raise any potentially meritorious claims in a timely manner.” ... Yet the Court’s concerns over quick decisions wither when prodded by the Government in far less compelling circumstances— where the Government itself chose to wait to seek relief, and where its claimed harm is continuation of a 20-year status quo in one State. I fear that this disparity in treatment erodes the fair and balanced decisionmaking process that this Court must strive to protect.

This comes on top, of course, of RBG's routine anti-Trump/Republican political pronouncements. 

Closer to home, the LA Times gave voice to a bunch of 9th Circuit judges who are outraged that Trump has appointed conservatives to their liberal bastion, albeit most of them were either not so outraged as to allow their names to be revealed (or perhaps too lacking in courage), as Josh Blackman points out:

[Article author Maura] Dolan noted that "some" of the judges "declined to discuss their colleagues or inner deliberations." That "some" should have been "all." Why would any judges discuss their "colleagues" or opine on "internal deliberations"?

Alas, some judges "refused to be quoted by name, saying they were not authorized to speak about what goes on behind the scenes." In other words they spoke on background, not for attribution. Judges cannot speak on background. Ever. Generally, when a source says, "I am not authorized to speak publicly," that statement suggests that, given the proper authorization, she could speak publicly. But judges can never speak publicly about internal deliberations. No authorization can be given by any superior authority. Shame on those judges who spoke on background to the press.

 

My Preview of Liu v. SEC

My case brief of Liu v. SEC is now up on the ABA's Supreme Court Preview, but sadly you need a subscription, https://t.co/jdWgQAPEE1 Here's a taste: pic.twitter.com/IhaCyPod4C

— Professor Bainbridge (@ProfBainbridge) February 18, 2020

Delaware's Latest Guidance on Material Adverse Change Clauses

From Fried Frank:

Channel Medsystems, Inc. v. Boston Scientific Corporation (Dec. 18, 2019) is the Delaware Court of Chancery’s first decision issued since the Delaware Supreme Court’s 2018 Akorn decision to evaluate whether an acquiror had a right, under a merger agreement, to terminate a pending acquisition on the grounds that there was a “Material Adverse Effect” or “Material Adverse Change” in the target company. (We use “MAE” and “MAC” interchangeably in this memorandum.) Akorn was the first case in which the Court of Chancery, post-trial, found the existence of an MAE and the first post-trial Delaware decision to find that an acquiror had the right to terminate a merger agreement based on an MAE. In Channel, by contrast, Chancellor Bouchard ruled, after trial, that there was not an MAE and that the acquiror was required to close the merger.

Both Akorn and Channel involved the discovery, between signing and closing of a merger agreement, that a target company executive, without knowledge of the target, had submitted fraudulent reports to the Food and Drug Administration relating to the company’s products (in Akorn, the target’s key products, and in Channel, the target’s sole product). In Akorn, there was a dramatic decline in the target company’s financial performance and a severe and “durationally significant” loss of its potential future earnings due to the regulatory noncompliance. In Channel, however, before the acquiror sought to terminate the transaction, the FDA had accepted the target’s remediation plan (which indicated that FDA approval of the target’s product was likely); the remediation plan did not appear to involve significant ongoing costs or other effects on the target; and, prior to trial, the FDA approved the product. The Chancellor held that the acquiror had failed to prove, on a quantitative or qualitative basis, that an MAE would be reasonably expected to occur, and thus it did not have a right to terminate the agreement.

Lots more very helpful analysis follows.

The odd underrepresentation of corporate law academics on corporate boards

Larry Cunningham has an interesting (at least for corporate law academics) new article on corporate law professors on corporate boards of directors (or, more precisely, the lack of the same):

... there are no more corporate law professors on public company boards today than in the 1990s. A comparison of directories of corporate law professors with public company board slates shows that at most 20 of today’s roughly 1,000 law professors are on public company boards, about the same as before SOX.

Larry then recounts evidence suggesting that firms would benefit from having corporate law academics on their boards.

From the the cryptozoological wing of the corporate law zoo

Famed Delaware Chancellor William Allen once compared the corporate law doctrine of waste to one of the most famous cryptids:

Absent an allegation of fraud or conflict of interest courts will not review the substance of corporate contracts; the waste theory represents a theoretical exception to the statement very rarely encountered in the world of real transactions. There surely are cases of fraud; of unfair self-dealing and, much more rarely negligence. But rarest of all-and indeed, like Nessie, possibly non-existent-would be the case of disinterested business people making non-fraudulent deals (non-negligently) that meet the legal standard of waste!

Steiner v. Meyerson, CIV. A. 13139, 1995 WL 441999, at *5 (Del. Ch. July 19, 1995)

Vice Chancellor Glasscock has gone him one better:

In the cryptozoological division of equity's menagerie are a number of rarae aves and chimeras—some, perhaps, not so chimerical as once thought. One unusual denizen is on display here. A stockholder brought a purported derivative action, alleging that insiders had structured an acquisition unfair to the corporation. The action withstood a motion to dismiss, and the corporation formed a special litigation committee of the board to evaluate the claim. I then stayed the matter for several months, to allow the special litigation committee, assisted by its own counsel, to consider the cause of action. Ultimately, the special litigation committee found that it was in the corporate interest that the cause of action be pursued, and determined that that asset would best be monetized on behalf of the corporation by allowing the original plaintiff to proceed, derivatively.

In re Oracle Corp. Derivative Litig., CV 2017-0337-SG, 2019 WL 6522297, at *1 (Del. Ch. Dec. 4, 2019)

I've been at the corporate law gig for 36 years as student, practitioner, author, and professor and in all that time I have never encountered a case in which the SLC not only though the suit should go forward but also that it should go forward under plaintiff's control. 

 

Frankly, I would be less surprised to find myself sharing a cab with Bigfoot.

Stakeholder Capitalism

Interesting. Provocative. Worth reading. https://t.co/0c1zU7G5qm

— Professor Bainbridge (@ProfBainbridge) February 13, 2020

Dear Bishop McElroy: Stop misleading your flock. Abortion is different when it comes to making political choices.

Bishop Robert McElroy of San Diego gave a speech entitled “Conscience, Candidates and Discipleship in Voting” in which he posited that:

Frequently in discussions of the application of Catholic social teaching to voting, the question is raised whether one issue has a unique priority among all of the other issues in its claim upon believers in the current election cycle. Some have categorized abortion in that way. Others, climate change. This question deserves deeper scrutiny. ...

Four points should be considered.

1. 1. There is no mandate in universal Catholic social teaching that gives a categorical priority to either of these issues as uniquely determinative of the common good.
   2. The death toll from abortion is more immediate, but the long-term death toll from unchecked climate change is larger and threatens the very future of humanity.
   3. Both abortion and the environment are core life issues in Catholic teaching.
   4. The designation of either of these issues as the preeminent question in Catholic social teaching at this time in the United States will inevitably be hijacked by partisan forces to propose that Catholics have an overriding duty to vote for candidates that espouse that position. Recent electoral history shows this to be a certainty.

Contrary to Bishop McElroy, I believe abortion is of preeminent importance. I draw here on St. John Paul II's encyclical Evangelim Vitae, in which he wrote that:

Among all the crimes which can be committed against life, procured abortion has characteristics making it particularly serious and deplorable. The Second Vatican Council defines abortion, together with infanticide, as an "unspeakable crime". ...

Christian Tradition-as the Declaration issued by the Congregation for the Doctrine of the Faith points out so well-is clear and unanimous, from the beginning up to our own day, in describing abortion as a particularly grave moral disorder.

Consider also John Paul II's apostolic exhortation Christifideles Laici:

The common outcry, which is justly made on behalf of human rights—for example, the right to health, to home, to work, to family, to culture—is false and illusory if the right to life, the most basic and fundamental right and the condition for all other personal rights, is not defended with maximum determination.

In the United States, the USCCB's Forming Consciences for Faithful Citizenship: A Call to Political Responsibility states:

The threat of abortion remains our preeminent priority because it directly attacks life itself, because it takes place within the sanctuary of the family, and because of the number of lives destroyed.

To be sure they go on to counsel that one "cannot dismiss or ignore other serious threats to human life and dignity such as racism, the environmental crisis, poverty and the death penalty," but that doesn't mean that any of them have displaced abortion as the Church's preeminent priority.

Given that clear teaching, I do not understand how Bishop McElroy in good conscience can claim to the contrary. 

Let's give proxy advisory reforms a sunset provision

I concur with Professors Yoon-Ho Alex Lee, Matthew Spitzer and Eric Talley who endorse the SEC's proposed regulation of proxy advisory services with an important caveat:

In our own scholarship, we have advanced the analytic argument that these difficulties need not place a prohibitive roadblock in the way of new financial regulations. To the contrary, they often represent an opportunity for regulatory experimentation—i.e., the embrace of new regimes on a provisional basis, and the concomitant value of information and learning that comes from such experimentation. Moreover, we are of the view that the added wisdom that comes through regulatory learning—along with the value of the “real option” to decide whether to retain the provisional rules—constitute unappreciated benefits in the calculus of cost-benefit analysis (“CBA”). ...

... if the proposed rule were characterized as provisional (and subject to an express sunset provision), the Commission would benefit in three concrete ways:

• First, including a sunset will allow the Commission to tally as an additional benefit the “option value” associated with a provisional rule. In other words, given the high degree of uncertainty concerning the effects of the proposed rule, the Commission can legitimately recognize expected benefits of information generated from the provisional rule change simply by including a sunset provision.[7]
• Second, the provisional period will allow the Commission to gather data from the industry so that, upon sunset, the Commission will be much better equipped to move forward with a more permanent version (and possibly a better version) of its rule with reliable empirical data.
• Finally, in the case that the rule’s critics prove correct in their fears about the rule’s prohibitive costs, the sunset provision would allow the Commission a more seamless path to repealing the rule.

On the basis of the foregoing analysis, we are of the opinion that the Commission’s proposal is a promising one as measured through a regulatory experimentation lens.

Yours truly cited by Delaware Chancery Court in the Panera Bread Company Appraisal case

From Vice Chancellor Zurn's opinion:

The board of directors “has the sole power to negotiate the terms on which the merger will take place and to arrive at a definitive merger agreement embodying its decisions as to those matters.”⁴³⁴

⁴³⁴ Stephen M. Bainbridge, Mergers and Acquisitions 56 (2d ed. 2009) (citing 8 Del. C. § 251(b)); accord 8 Del. C. § 141 (“The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors ....”).

IN RE APPRAISAL OF PANERA BREAD COMPANY, CV 2017-0593-MTZ, 2020 WL 506684, at *25 (Del. Ch. Jan. 31, 2020).

The preponderance of the evidence shows that the board directed Shaich’s negotiations and “arrive[d] at a definitive merger agreement embodying its decisions as to th[ose] matters.”⁴⁶³

⁴⁶³ Bainbridge, supra note 434, at 56.

Id. at *26.