Much has been written lately about a circuit split on the question whether a company’s forum selection bylaw mandating shareholder derivative lawsuits be brought in Delaware state court trumps a federal lawsuit asserting a derivative claim under Section 14(a) of the Securities Exchange Act of 1934 (which can only be asserted – if at all – in federal court). The Seventh Circuit answered this question “no” while the Ninth Circuit sitting en banc answered “yes,” in both cases over vigorous dissents. Many have speculated that the U.S. Supreme Court may weigh in to resolve this clear circuit split.Continue Reading Bringing an End to “Derivative” Section 14(a) Claims – Without Waiting for the Supreme Court to Weigh In
The Delaware legislature recently amended Delaware’s General Corporation Law (DGCL) to allow corporations to limit the personal liability of corporate officers for money damages for breaches of their fiduciary duty of care. Prior to this amendment, Delaware only allowed for such “exculpation clauses”—which must be set forth in the certificate of incorporation—for corporate directors.
Continue Reading Delaware Extends Exculpation from Personal Liability to Senior Officers
In Stoyas v. Toshiba Corp., a securities class action that has produced a number of notable decisions about the application of the federal securities laws to unsponsored ADRs, the Ninth Circuit recently declined to review the district court’s ruling denying to certify a class. In doing so, the Ninth Circuit let stand the district court’s novel ruling, which found the relevant named plaintiff to be an atypical class representative after determining that it had purchased the unsponsored ADRs in foreign transactions.
Continue Reading Ninth Circuit Denies Class Cert Appeal in Toshiba Securities Litigation Concerning Unsponsored ADRs
In September 2021, the Delaware Supreme Court in United Food and Commercial Workers Union v. Zuckerberg revamped the test for pleading “demand futility” in shareholder derivative suits for the first time in decades. At the same time, the court’s decision reinforces Delaware courts’ increasing focus on the independence of directors, not only when the board is sued in a shareholder derivative action but also in other conflict situations in which independent directors are called on to exercise their business judgment on behalf of the company.
Continue Reading The Delaware Courts’ Evolving View of Director Independence
In Snow Phipps v. KCAKE Acquisition, the Delaware Court of Chancery ordered the buyer (Kohlberg) to close on its $550 million agreement to purchase DecoPac, a cake decorations supplier. In doing so, the court easily rejected the buyer’s claims that the COVID-19 pandemic resulted in a material adverse effect (“MAE”) and that the steps…
On February 26, 2021, the Delaware Court of Chancery (McCormick, V.C.) issued a memorandum opinion in The Williams Companies Stockholder Litigation enjoining a “poison pill” stockholder rights plan adopted by The Williams Companies, Inc. (“Williams”) in the wake of extreme stock price volatility driven by the double whammy of COVID-19 and the Russia-Saudi Arabia oil…
The following post was originally included as part of our recently published memorandum “Selected Issues for Boards of Directors in 2021”.
As the 25th anniversary of the seminal Delaware Court of Chancery decision In re Caremark Int’l Inc. Deriv. Litig. (Caremark) approaches, there has been a notable rise in the number…
Last week, the Delaware Supreme Court affirmed the Delaware Court of Chancery’s decision in Lebanon Cnty. Emps. Ret. Fund v. AmerisourceBergen Corp., a closely watched appeal in which the court clarified the circumstances in which stockholders are entitled to demand books and records to investigate allegations of mismanagement pursuant to Section 220 of the Delaware General Corporation Law. In a decision that will likely continue the recent trend of an increasing number of Section 220 demands being made, particularly in the wake of allegations of corporate wrongdoing, the Delaware Supreme Court ruled that:
Continue Reading Delaware Supreme Court Clarifies Section 220’s “Proper Purpose” Test
Much has been written of late about the growing prevalence of books and records demands by stockholders under Section 220 of the Delaware General Corporation Law, and the increased willingness of Delaware courts to expand the boundaries of stockholders’ inspection rights conferred by that statute. A recent decision from the Delaware Court of Chancery exemplifies this trend and introduces an additional risk that companies should consider when determining how to respond to a Section 220 demand. Specifically, the court’s suggestion that it would consider awarding attorneys’ fees to plaintiffs’ counsel for its costs to litigate the Section 220 action adds a new twist to the already delicate balance that companies must strike when deciding whether (and to what extent) to comply with a stockholder’s Section 220 demand.
Continue Reading Fee-Shifting—A Potential New Tool In Stockholders’ Toolbox When Seeking Books And Records
In a recent decision, the Delaware Court of Chancery found that the board omitted material information from its proxy statement recommending stockholders vote in favor of an all-cash acquisition of the company, and thus “Corwin cleansing” did not apply. Nonetheless, the court dismissed all claims against the directors because the complaint failed to adequately allege that they acted in bad faith, as required by the company’s Section 102(b)(7) exculpation provision. See In re USG Corp. S’holder Litig., Consol. C.A. No. 2018-0602-SG (Del. Ch. Aug. 31, 2020).
This decision provides helpful guidance regarding the kind of information that should be included in a merger proxy statement. It also provides a reminder that Corwin is not the only defense available to directors at the motion to dismiss stage. In particular, Section 102(b)(7) remains a powerful tool to support dismissal of stockholder claims against directors, even in cases where the proxy omits material information and/or the transaction is subject to “Revlon duties.”
Continue Reading Stockholder Claims Dismissed Even After Corwin Defense Fails