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As stockholders continue to seek expansive books and records collections, and particularly as requests for materials outside “formal” board materials become routine, it is worth reflecting on areas in which Delaware courts have continued to uphold boundaries with respect to Section 220 obligations. In a recent decision announced from the bench, Vice Chancellor Joseph R. Slights III recently offered a reminder of one such area: the non-company email accounts of outside directors.

Section 220/Inspection Rights

All Roads Lead to Fair Price: The Tesla Decision

May 11 2022

Jim Ducayet and Marlow Svatek

The Delaware Chancery Court’s recent post-trial decision in In re Tesla Motors, Inc. Stockholder Litigation, C.A. No. 12711-VCS (April 27, 2022), includes a helpful discussion of the importance of fair price when analyzing a transaction under the entire fairness analysis. There, Tesla stockholders brought claims against members of Tesla’s board of directors and Tesla’s CEO and controlling shareholder Elon Musk related to Tesla’s acquisition of SolarCity Corporation.

Controlling Shareholders; Director Independence and Conflicts; Fairness

More Pushback to Disclosure-Only Settlements

May 09 2022

Matthew J. Dolan

A recent decision from the United States District Court for the Southern District of New York represents a significant further development in extending into federal court the Delaware Chancery Court’s resistance to disclosure-only settlements in the M&A litigation context. Plaintiff stockholders in a M&A target company often file lawsuits challenging disclosures made to them in proxy statements soliciting support for the M&A transaction. Such suits have served as a vehicle for plaintiff lawyers to collect fees when they are “mooted” by the target company making additional disclosures in response to the lawsuit. The cases are very rarely litigated, allowing plaintiff lawyers to collect fees for limited effort and little risk.

M&A

Fate of Board Diversity Requirements In Jeopardy

Apr 26 2022

Jaime Bartlett and Jennifer Lee

Recent efforts by the California Legislature to increase corporate boardroom diversity hit a road bump due to the Los Angeles County Superior Court decision earlier this month in Crest v. Padilla, Case No. 20-STCV-37513, which held that California Corporations Code § 301.4 (“Section 301.4”) is unconstitutional. The statute, ruled the court, poses a “present total and fatal conflict” with the Equal Protection Clause of the California Constitution.

Director Independence and Conflicts

Ten Questions To Ask Before Joining a Public Company Board of Directors

Apr 20 2022

Sara Brody and Jason T. Nichol

Being asked to join the board of directors of a public corporation is an honor. Board membership can be an enriching experience and an avenue for personal and professional growth. However, in an increasingly litigious, regulated and complex public company landscape, director candidates should conduct thoughtful and targeted due diligence on a company and its existing board practices before committing to a role that should be expected to extend over multiple years. The following are ten questions director candidates should ask themselves and the prospective company. The answers to many of these questions can be found in a company’s public disclosures. To demonstrate diligence and an earnestness in learning more about a company, a prospective board candidate may choose to start there before confirming the answers through conversations with current and former directors, senior management or a recruiter.

Best Practices; Charter/Bylaw Provisions and Amendments

Securities Litigation Against Life Sciences Companies: Eleven Takeaways from 2021

Apr 11 2022

Sara Brody, Robin Wechkin, Francesca Brody, Matthew J. Dolan and Sarah Hemmendinger

Securities class actions against life sciences companies are almost always second-order problems. The first-order problem is a business or regulatory setback that, when disclosed by the company or a third party, is followed by a stock price drop. Following the decline, plaintiffs’ class-action attorneys will search the company’s previous public statements in search of inconsistencies between past positive comments and the current negative development. In most cases, plaintiffs’ attorneys will seek to show that any arguable inconsistency amounts to fraud—that is, they will claim that the earlier statement was knowingly or recklessly false or misleading. Where a company makes the challenged statement in a public offering document (that is, a registration statement or prospectus), plaintiffs need only show that the statement was materially false or misleading, not that it was made with scienter, i.e., the requisite state of mind.

COVID-19; Derivative Litigation; Materiality of Disclosures; Misrepresentations and Omissions

Another Section 220 Landmine: Opportunistic Third-Party Challenges to Confidentiality

Apr 07 2022

Heather Benzmiller Sultanian and Ross O. Kloeber IV

Delaware Section 220 corporate books and records inspection demands have long been a precursor to stockholder litigation. Companies often challenge the propriety and scope of inspection demands and, even when companies ultimately produce books and records for inspection, they routinely do so subject to a confidentiality agreement. However, a February 28, 2022 letter decision in In re Lordstown Motors Corp., Stockholder Litigation illustrates how confidentiality agreements may not fully protect the information in those books and records from public disclosure or use in other litigation.

Section 220/Inspection Rights; SPACs

Expansive New SEC Rule Proposals Seek to Rewrite the SPAC Playbook

Apr 05 2022

Enhanced Scrutiny Contributors

On March 30, 2022, the U.S. Securities and Exchange Commission (SEC) issued proposed rules and amendments relating to special purpose acquisition companies (SPACs), shell companies and the use of projections in SEC filings that, if adopted, would significantly rewrite the playbook for SPAC initial public offerings (IPOs) and acquisitions of private operating companies by SPACs (or “de-SPAC” transactions).¹ In particular, the proposed rules (i) would require enhanced disclosures and increase potential liability under the federal securities laws for shell companies (including SPACs), target companies and investment banks participating in de-SPAC transactions, (ii) provide updated guidance regarding the use of projections in all SEC filings and (iii) propose a new safe harbor for SPACs under the Investment Company Act of 1940.

M&A; SPACs

Sidley Perspectives on M&A and Corporate Governance

Apr 04 2022

Enhanced Scrutiny Contributors

Sidley is pleased to share the March 2022 issue of Sidley Perspectives on M&A and Corporate Governance, a quarterly newsletter designed to keep you current on what we consider to be the most important legal developments involving M&A and corporate governance matters.

Best Practices; Corwin; Shareholder Activism; Sidley Perspectives; SPACs

A Recent Reminder For Outside Directors: Your Emails May Be Fair Game