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A recent Court of Chancery decision may signal increased scrutiny of the independence of directors repeatedly placed on boards by activist investors.

On May 26, 2022, Vice Chancellor Laster issued the first installment of a two-part decision denying the motions to dismiss filed in Goldstein v. Denner. The litigation is grounded in the decision made by the board of directors of Bioverativ, Inc. (the “Company”) to merge with Sanofi S.A (“Sanofi”).

Activist Investors; Board Nominees; Fiduciary Duties

The Era of Section 11 Litigation in State Courts Appears To Be Ending

Jun 23 2022

Robin Wechkin

On April 28, 2022, a state appellate court for the first time addressed provisions in a public company’s certification of incorporation that designate federal court as the sole forum for the litigation of Section 11 claims. Wong v. Restoration Robotics, Inc., – Cal. Rptr. 3d –, 2022 WL 1261423. Section 11 of the Securities Act of 1933 gives stock purchasers a claim against stock issuers and a broad range of other defendants for materially false or misleading statements in registration statements.

Charter/Bylaw Provisions and Amendments; Forum/Jurisdiction Issues; Misrepresentations and Omissions

de-SPAC Mergers Facing Increased Scrutiny

Jun 21 2022

Charlotte K. Newell, James Heyworth and Joshua G. DuClos

Over the last year and a half we have seen an increased volume of complaints filed against SPAC boards in the Delaware Court of Chancery, challenging their decisions regarding de-SPAC mergers. In this article, Charlotte Newell, James Heyworth, and Josh DuClos discuss the increased scrutiny.

SPACs

Relearning the ABCs: Delaware Court of Chancery Issues Rulings Making Clear That More Information Is Required in Bankruptcy-Alternative Proceedings

Jun 16 2022

Robert S. Velevis and Charles M. Persons

The Delaware Court of Chancery took the old maxim “justice delayed is justice denied” to heart recently when it denied a request for a stay of proceedings hours after the request had been filed. The ruling from Vice Chancellor Paul A. Fioravanti, Jr. in In re Kidbox.com, Inc., Case No. 2022-0379-PAF, is the latest in a series of rulings from the Delaware Court of Chancery requiring litigants in bankruptcy-alternative proceedings in Delaware to support their petitions for relief with sufficient disclosures and to avoid bare-boned pleadings. These rulings further signal that counsel engaged in bankruptcy-alternative proceedings in Delaware should be prepared for a higher level of scrutiny from the Court of Chancery.

Forum/Jurisdiction Issues; Injunctions

Disinfecting with Sunlight: Vice Chancellor Laster on Attorney Misconduct in M&A Cases

Jun 09 2022

Enhanced Scrutiny Contributors

Vice Chancellor Laster recently delivered a lecture at the University of Iowa College of Law focused on attorney ethics. As followers of this blog know, Vice Chancellor Laster has issued several M&A decisions that feature factual findings regarding attorney conduct. Three of them – the so-called “A-Trilogy” – were the subject of his presentation (AB Stable; Anthem; and Akorn).

Best Practices

Governance Challenges 2022: Legal Considerations For Oversight of Climate-Related Risks

Jun 06 2022

Heather M. Palmer

In the past few years, we have seen a remarkable acceleration in appreciation of the importance of ESG to corporate decision-making, enterprise risk management, and the ability for a corporation to withstand crisis. Companies face a growing set of expectations from employees, customers, investors, and regulators with respect to how they incorporate ESG considerations into business decisions and how they mitigate and disclose risks related to ESG. The thesis is that companies that appropriately manage ESG risks and capitalize on opportunities are more resilient to adversity and perform better financially over the long term.

ESG

“Twice Tested” and Still Fair, and the Ongoing Relevance of Schnell

May 31 2022

James Heyworth and Robert M. Garsson

This blog recently discussed the Delaware Supreme Court’s decision in Coster v. UIP Companies, Inc., wherein the Court held that a stock sale that satisfied the entire fairness standard — the most rigorous in Delaware’s corporate law — should undergo still further review to assess the board’s motivations in approving the sale. The Court reversed the decision of the Court of Chancery, which had assumed that entire fairness was the “end of the road” for judicial review, and instead invoked the seminal 1971 decision in Schnell v. Chris-Craft to explain that “inequitable action does not become permissible merely because it is legally possible.” Under Delaware law, therefore, board actions are “twice tested”: first for legal authorization, and second to determine whether such action was equitable.

Corporate Control; Director Independence and Conflicts; Shareholder Activism

Second California Law Mandating Specific Number of Underrepresented Board Members Struck Down as Unconstitutional

May 23 2022

Wendy M. Lazerson, Katherine A. Roberts and Galit A. Knotz

For the second time, there has been a successful challenge to the constitutionality of California law requiring increased diversity on boards of directors.

On May 13, 2022, Judge Maureen Duffy-Lewis of Los Angeles Superior Court struck down California’s first board diversification law on the heels of an April 1, 2022, ruling by Judge Terry A. Green, also at Los Angeles Superior Court, each holding the respective board diversification law before them (one addressing gender discrimination and the other addressing racial, ethnic, and sexual orientation discrimination, respectively) to be unlawful. While these rulings are unlikely to be the last word on the viability of such statutes, they are the first to address their constitutionality head-on through lengthy, detailed rulings. As such, their reasoning may resonate with judges facing similar challenges in federal court and at the appellate level as well as in jurisdictions outside of California.

Director Independence and Conflicts

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

May 17 2022

Elizabeth Y. Austin and Mark C. Priebe

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

Delaware Chancery Court Examines Independence of Board Members Nominated by Activist Investors