The 2024 Chambers Global Practice Guide for “Shareholders’ Rights & Shareholder Activism”, with contributions from Kai Liekefett, Derek Zaba, Ram Sachs, and Evan Grosch, is now available. The guide provides an overview of corporate governance and shareholder activism based on the latest legal developments and market trends.
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2024/10/MN-24015-Enhanced-Scrutiny-Blog-Imagery-Refresh_14.jpg606833Kai H.E. Liekefetthttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngKai H.E. Liekefett2024-10-30 11:35:112024-10-30 12:11:36Chambers 2024 Global Practice Guide for Shareholders’ Rights and Shareholder Activism
It may seem obvious that “[e]quity cannot bless th[e] deliberate violation of an explicit statutory prohibition,” but in the recent Delaware Court of Chancery decision, TS Falcon I, LLC v. Golden Mountain Financial Holdings Corp., Vice Chancellor Lori Will reminded us of this maxim in the context of setting record dates for annual stockholders’ meetings. As discussed herein, the court declined to bless the defendants’ deliberate violation of the express language of Section 213(a) of the Delaware General Corporation Law, and further rejected the defendants’ request that the court apply Section 205 to cure this “defective corporate act.”
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.png00Nora L. Brodnitzhttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngNora L. Brodnitz2024-10-24 12:20:492024-10-24 12:20:49Equity Has Its Limits: Chancery Rejects Bid For An “Equitable Eraser”
A recent Delaware decision has demonstrated the limits of the absolute litigation privilege, holding that it did not protect an LLC member from claims that his defamatory statements triggered contractual repurchase rights of his membership interests. Absolute litigation privilege, in Delaware and many other jurisdictions, protects parties from actions for allegedly defamatory statements made during a judicial proceeding that are relevant to the case. While Judge Paul R. Wallace found absolute litigation privilege served an important interest in allowing parties to speak freely once in litigation, those public policy concerns do not always apply when a party is seeking to enforce private contractual rights resulting from the alleged breach of a non-disparagement claim. In so holding, the court demonstrated that Delaware courts will continue to show caution before allowing public policy interests to obviate the obligations in sophisticated parties’ private contracts.
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2024/10/MN-24015-Enhanced-Scrutiny-Blog-Imagery-Refresh_15.jpg606833Ian M. Rosshttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngIan M. Ross2024-10-09 09:02:152024-10-08 15:23:15Watch What You Say: Disparaging Comments May Trigger Contractual Repurchase Rights Even If Shielded From A Defamation Claim
Acquisitions of biotech companies with development-stage drug candidates often include earnout agreements. The buyer pays the seller’s stockholders with cash or stock upfront, and the seller’s stockholders are entitled to additional payments if the drug or drugs in development reach certain milestones, often culminating in FDA approval or commercialization. Achieving those milestones can take many years and requires the buyer to make substantial investments in clinical trials and regulatory approval. Because the right to earnout payments depends to a significant degree on a buyer’s actions in developing the asset, a seller will seek a provision in the acquisition agreement requiring the buyer to use commercially reasonable efforts in drug development.
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.png00Robin E. Wechkinhttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngRobin E. Wechkin2024-10-01 09:03:562024-10-01 10:18:33Words Matter: Different Definitions of “Commercially Reasonable Efforts” Lead to Different Results in Drug-Development Earnout Disputes
Last month, the Delaware Court of Chancery upheld an amendment of a Limited Liability Company agreement through a merger even when it had recently struck down a similar amendment in the same LLC agreement. In Campus Eye Management Holdings, LLC v. E. Bruce DiDonato, OD, Vice Chancellor Will concluded that because the LLC agreement contained no provision explicitly forbidding amendment through merger, the amendment was valid and enforceable. The ruling might not be eye-catching, but it is an important reminder that parties to an LLC agreement, and particularly those with minority power, must have a clear vision into not only the express provisions of the contract but also the implications of any gaps that will be filled by the Delaware Limited Liability Company Act, 6 Del.C. § 18-101, et seq. (the “LLC Act”).
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.png00James Heyworthhttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngJames Heyworth2024-09-24 09:03:142024-09-23 11:46:05Eye Doctor With Blind Spot Loses LLC Manager Position
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2023/05/MN-18360_Updated-Enhanced-Scrutiny-Blog-imagery_833x606_11.jpg606833Elizabeth Y. Austinhttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngElizabeth Y. Austin2024-09-12 10:01:362024-09-12 10:07:49The Dog That Didn’t Bark: Court of Chancery Decision Reaffirms the Strength of the Demand Futility Standard
A recent decision from the Delaware Court of Chancery, Gurney-Goldman v. Goldman, C. A. 2023-1124-JTL (July 12, 2024), addressed a matter of first impression: What is the power of an estate’s executor to exercise an LLC member’s corporate governance rights after that member dies or becomes disabled? The case reveals a tension between the “pick your partner” principle behind much of Delaware LLC law (members choose to enter into an agreement with the other members, and not their executors) and a policy of fairness to that member who has died or suffered a disability. After evaluating the relevant statutes, Vice Chancellor Laster reasoned that, under the default rule, the executor has seemingly broad power characterized as “a proper purpose, defined as the settlement of the estate or the administration of property.” But the decision also makes clear that parties to an LLC agreement are free to contractually define “the member rights that the executor can potentially exercise.” As the decision succinctly put it: “Let a thousand contractarian flowers bloom.”
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.png00Robert S. Velevishttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngRobert S. Velevis2024-09-05 09:07:002024-08-26 12:20:16(Fear) the Reaper, LLC: Court of Chancery Clarifies LLC Governance Rights Upon Member Death
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Chambers 2024 Global Practice Guide for Shareholders’ Rights and Shareholder Activism
The 2024 Chambers Global Practice Guide for “Shareholders’ Rights & Shareholder Activism”, with contributions from Kai Liekefett, Derek Zaba, Ram Sachs, and Evan Grosch, is now available. The guide provides an overview of corporate governance and shareholder activism based on the latest legal developments and market trends.
(more…)
Kai H.E. Liekefett
New York
kliekefett@sidley.com
Derek Zaba
Palo Alto, New York
dzaba@sidley.com
Ram Sachs
San Francisco
ram.sachs@sidley.com
Evan Grosch
Houston
egrosch@sidley.com
Equity Has Its Limits: Chancery Rejects Bid For An “Equitable Eraser”
It may seem obvious that “[e]quity cannot bless th[e] deliberate violation of an explicit statutory prohibition,” but in the recent Delaware Court of Chancery decision, TS Falcon I, LLC v. Golden Mountain Financial Holdings Corp., Vice Chancellor Lori Will reminded us of this maxim in the context of setting record dates for annual stockholders’ meetings. As discussed herein, the court declined to bless the defendants’ deliberate violation of the express language of Section 213(a) of the Delaware General Corporation Law, and further rejected the defendants’ request that the court apply Section 205 to cure this “defective corporate act.”
(more…)
Nora L. Brodnitz
New York
nbrodnitz@sidley.com
Alex J. Kaplan
New York
akaplan@sidley.com
Watch What You Say: Disparaging Comments May Trigger Contractual Repurchase Rights Even If Shielded From A Defamation Claim
A recent Delaware decision has demonstrated the limits of the absolute litigation privilege, holding that it did not protect an LLC member from claims that his defamatory statements triggered contractual repurchase rights of his membership interests. Absolute litigation privilege, in Delaware and many other jurisdictions, protects parties from actions for allegedly defamatory statements made during a judicial proceeding that are relevant to the case. While Judge Paul R. Wallace found absolute litigation privilege served an important interest in allowing parties to speak freely once in litigation, those public policy concerns do not always apply when a party is seeking to enforce private contractual rights resulting from the alleged breach of a non-disparagement claim. In so holding, the court demonstrated that Delaware courts will continue to show caution before allowing public policy interests to obviate the obligations in sophisticated parties’ private contracts.
(more…)
Ian M. Ross
Miami
iross@sidley.com
Words Matter: Different Definitions of “Commercially Reasonable Efforts” Lead to Different Results in Drug-Development Earnout Disputes
Acquisitions of biotech companies with development-stage drug candidates often include earnout agreements. The buyer pays the seller’s stockholders with cash or stock upfront, and the seller’s stockholders are entitled to additional payments if the drug or drugs in development reach certain milestones, often culminating in FDA approval or commercialization. Achieving those milestones can take many years and requires the buyer to make substantial investments in clinical trials and regulatory approval. Because the right to earnout payments depends to a significant degree on a buyer’s actions in developing the asset, a seller will seek a provision in the acquisition agreement requiring the buyer to use commercially reasonable efforts in drug development.
(more…)
Robin E. Wechkin
Seattle
rwechkin@sidley.com
Eye Doctor With Blind Spot Loses LLC Manager Position
Last month, the Delaware Court of Chancery upheld an amendment of a Limited Liability Company agreement through a merger even when it had recently struck down a similar amendment in the same LLC agreement. In Campus Eye Management Holdings, LLC v. E. Bruce DiDonato, OD, Vice Chancellor Will concluded that because the LLC agreement contained no provision explicitly forbidding amendment through merger, the amendment was valid and enforceable. The ruling might not be eye-catching, but it is an important reminder that parties to an LLC agreement, and particularly those with minority power, must have a clear vision into not only the express provisions of the contract but also the implications of any gaps that will be filled by the Delaware Limited Liability Company Act, 6 Del.C. § 18-101, et seq. (the “LLC Act”).
(more…)
James Heyworth
New York
jheyworth@sidley.com
Alexandra Bieler
New York
abieler@sidley.com
The Dog That Didn’t Bark: Court of Chancery Decision Reaffirms the Strength of the Demand Futility Standard
In July, in Vladimir Gusinsky Revocable Tr. v. Hayes, No. CV 2022‑1124‑MTZ (July 23, 2024), Vice Chancellor Zurn issued an opinion reiterating the high bar a plaintiff must overcome to excuse demand.
(more…)
Elizabeth Y. Austin
Chicago
laustin@sidley.com
William J. Lawrence
Chicago
bill.lawrence@sidley.com
(Fear) the Reaper, LLC: Court of Chancery Clarifies LLC Governance Rights Upon Member Death
A recent decision from the Delaware Court of Chancery, Gurney-Goldman v. Goldman, C. A. 2023-1124-JTL (July 12, 2024), addressed a matter of first impression: What is the power of an estate’s executor to exercise an LLC member’s corporate governance rights after that member dies or becomes disabled? The case reveals a tension between the “pick your partner” principle behind much of Delaware LLC law (members choose to enter into an agreement with the other members, and not their executors) and a policy of fairness to that member who has died or suffered a disability. After evaluating the relevant statutes, Vice Chancellor Laster reasoned that, under the default rule, the executor has seemingly broad power characterized as “a proper purpose, defined as the settlement of the estate or the administration of property.” But the decision also makes clear that parties to an LLC agreement are free to contractually define “the member rights that the executor can potentially exercise.” As the decision succinctly put it: “Let a thousand contractarian flowers bloom.”
(more…)
Robert S. Velevis
Dallas
rvelevis@sidley.com
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Andrew W. Stern
astern@sidley.com
Charlotte K. Newell
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Elizabeth Y. Austin
laustin@sidley.com
Jaime A. Bartlett
jbartlett@sidley.com
Jim Ducayet
jducayet@sidley.com
Yolanda C. Garcia
ygarcia@sidley.com
James Heyworth
jheyworth@sidley.com
Alex J. Kaplan
ajkaplan@sidley.com
Jodi E. Lopez
jlopez@sidley.com
Jon Muenz
jmuenz@sidley.com
Ian M. Ross
iross@sidley.com
Hille R. Sheppard
hsheppard@sidley.com
Heather Benzmiller Sultanian
hsultanian@sidley.com
Robert S. Velevis
rvelevis@sidley.com
Robin E. Wechkin
rwechkin@sidley.com