The Role of Mutual Fund Directors
Tune into Mutual Fund Minute here, as Jay Baris, a partner in Sidley’s Investment Funds group, takes a nostalgic look at the long and winding regulatory road of fund board culture, with a reminder that history is always an important guide to understanding the present.
You Might Think Your Arbitration Is Confidential…But, In Delaware, The Court Will Decide
Practitioners rely on ostensibly ironclad provisions of protective orders to withhold documents or portions thereof from public view. And that is particularly so in arbitrations, which are generally private proceedings. But a recent Delaware Court of Chancery opinion issued by Vice Chancellor Paul A. Fioravanti, Jr. serves as a reminder that practitioners should be mindful that rules of the court regarding confidentiality may differ from arbitration rules or even stipulated confidentiality agreements among arbitration parties.
Delaware Supreme Court Confirms That “and” Is a Word of Many Meanings
Last year we explained how a word as common as the conjunction “and” could be subject to different interpretations in a contract. See Grammarian’s Delight: It Depends On What The Meaning Of ‘And’ Is. The Delaware Supreme Court recently affirmed Vice-Chancellor Glasscock’s construction of the word “and” given the “range of possible interpretations” that courts have endorsed for the word—a good reminder for parties to exercise care when drafting agreements.
Court of Chancery Dismisses Director Oversight Claims Related to Mission Critical Risk
In a March 1, 2023 opinion (In re McDonald’s Corp. Stockholder Derivative Litig., C.A. No. 2021-0324-JTL), the Delaware Court of Chancery dismissed duty of oversight claims against director defendants and provided helpful guidance on “mission critical” risks, the “gross negligence” standard under the business judgment rule, and redactions in productions of books and records under DGCL Section 220, including the potential that a motion to dismiss relying on overly redacted documents from a 220 production could be converted to a motion for summary judgment by the court. The court also entered an order on the same day, granting the defendants’ Rule 23.1 motion and dismissing the action in its entirety, including claims against the company’s former Global Chief People Officer. The court had previously denied a motion to dismiss those claims under Rule 12(b)(6) on January 25, 2023, as discussed further here, underscoring the important role of Rule 23.1 in derivative cases.
Where Caremark Meets Park: A New Era of Regulatory Compliance and Criminal Liability
In a recent post on PharmExec.com, Paul Kalb (a co-founder of Sidley’s Global Life Science practice) and Coleen Klasmeier (a former partner who co-led Sidley’s Food, Drug and Medical Device practice) discuss how the intersection of the Caremark and Park doctrines impact life science companies, particularly when it comes to regulatory compliance and the liability of company officials.
Delaware Court of Chancery Addresses Officer Oversight Obligations
In a January 25, 2023 opinion (In re McDonald’s Corp. Stockholder Derivative Litig., C.A. No. 2021-0324-JTL), the Delaware Court of Chancery clarified that corporate officers’ fiduciary duties encompass a duty of oversight. As with directors, the duty of oversight requires that officers: (1) make a good faith effort to put in place reasonable information systems to generate the information necessary to address risks and report upward to higher level officers or the board; and (2) not consciously ignore red flags indicating that the company may suffer harm. The Court of Chancery also clarified that officers will not be held liable for violations of the duty of oversight unless they are shown to have acted in bad faith, as opposed to mere gross negligence.
Procedure Prevails When Applying MFW Framework to Interested Merger
The Delaware Court of Chancery recently issued an opinion that reminds controlling stockholders they can successfully implement a going private merger even when a competing bidder makes an offer that is substantially higher than that offered by the controlling stockholder. The court dismissed a lawsuit brought by former Eidos Therapeutics, Inc. stockholders against Bridgebio Pharma, Inc. and three of its directors over a merger in which Bridgebio, as Eidos’s controlling stockholder, acquired the remaining minority shares of Eidos stock. Smart Loc. Unions & Councils Pension Fund v. BridgeBio Pharma, Inc., No. 2021-1030-PAF, 2022 WL 17986515 (Del. Ch. Dec. 29, 2022).
ISS and Glass Lewis Proxy Voting Policy Updates for the 2023 Proxy Season
Proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis & Co. (Glass Lewis) have updated their proxy voting policies for shareholder meetings held on or after February 1, 2023 (ISS) or January 1, 2023 (Glass Lewis). This Sidley Update summarizes the changes in proxy voting policies that apply to U.S. companies and provides some practical considerations.
Coordinated Contempt Leads to Unprecedented Remedy
The Delaware Court of Chancery (the Court) recently issued an unprecedented order to divest shares in a Delaware corporation. In In re Stream TV Networks, Inc. Omnibus Agreement Litigations, Vice Chancellor Laster found that the divested parties acted in contempt to circumvent a prior decision of the Court and, as a remedy, invoked a rule allowing the Court to reassign ownership of any real or personal property within the jurisdiction of the Court. The decision is a reminder to Delaware litigants of the broad authority of the Court and its willingness to issue “extraordinary remedies” to ensure a fair and equitable result.
Delaware Reminds LLCs: Breaking Up Is Hard to Do
In In re: Dissolution of Doehler Dry Ingredient Solutions, LLC (Sept. 15, 2022), the Delaware Court of Chancery recently restated the high bar for a claim for judicial dissolution to succeed. Following his removal by written consent, a minority member and former manager of a Delaware limited liability company brought a claim for judicial dissolution of the entity. The former manager alleged that judicial dissolution was warranted due to alleged breaches of the company’s operating agreement, a potential voting deadlock on important matters, and alleged breaches of fiduciary duties.
