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.
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.png00Sara B. Brodyhttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngSara B. Brody2022-04-11 08:45:022023-09-08 11:15:29Securities Litigation Against Life Sciences Companies: Eleven Takeaways from 2021
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.
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.
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. (more…)
Companies that have endured a corporate trauma are often faced with a two-headed monster of litigation: first, a federal securities class action, typically alleging that misstatements or omissions inflated the company’s stock price because the company failed adequately to predict, or disclose the likelihood of, the trauma; and, second, stockholder litigation claiming that the company’s directors (and sometimes officers) breached their state-law fiduciary duties in subjecting the company to the costs of defending or settling the securities litigation. In order to avoid (or at least defer unless and until necessary) the expense and distraction of litigating identical or overlapping issues in two or more fora, defendants often have sought a stay, by agreement or motion, of the fiduciary duty litigation, pending at least resolution of a threshold motion to dismiss in federal court. This approach has proven beneficial for all involved because it allows the parties to concentrate their resources in the federal proceeding that will determine whether viable disclosure claims have been alleged; if those claims fail, then there may no longer be any basis to pursue the state-law fiduciary duty claim and all can save the resources of litigating those claims in the meantime. (more…)
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.png00Andrew W. Sternhttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngAndrew W. Stern2022-03-31 09:00:412023-09-08 11:18:10Guarding Its Turf: SPAC-Related Chancery Opinion May Force Companies to Defend Disclosure-Based Claims on Multiple Fronts
Since Corwin v. KKR Financial Holdings LLC, Delaware courts have adhered to the proposition that “when a transaction not subject to the entire fairness standard is approved by a fully informed, uncoerced vote of the disinterested stockholders, the business judgment rule applies.” However, The Delaware Court of Chancery recently issued an opinion (available here) clarifying the application of Corwin to the fiduciary duties of interested directors. The Court declined to dismiss a complaint alleging that the defendant directors’ approval of a merger was a breach of the directors’ duty of loyalty and constituted unjust enrichment. Specifically, the Court rejected the defendant directors’ contention that Corwin “cleansed” the transaction, and, as a consequence, explained that a duty of loyalty analysis was still appropriate. In what follows, we describe this case and offer some important takeaways concerning interested directors. (more…)
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. Velevis2022-03-23 09:01:122023-09-08 11:18:50Corwin Cleanse Clarified: Key Lessons for Interested Directors
On February 14, 2022, Vice Chancellor Lori W. Will issued a post-trial decision affirming the Lee Enterprises, Inc. board of directors’ rejection of a shareholder nomination of directors because, in contravention of Lee’s bylaws, the notice neither was submitted by a stockholder of record, nor utilized the company’s required nominee questionnaire forms. This decision in Strategic Investment Opportunities LLC v. Lee Enterprises, Inc. further underscores the Court of Chancery’s recent decision in Rosenbaum v. CytoDyn, Inc., in which (as this blog previously reported here) the Court upheld a board’s decision to reject a nomination notice for failure to comply with information requirements in the governing bylaws. (more…)
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.png00Alex J. Kaplanhttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngAlex J. Kaplan2022-03-16 09:06:042023-09-08 11:19:53Court to Activists (Again): Follow The Rules Or Suffer The Consequences
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Securities Litigation Against Life Sciences Companies: Eleven Takeaways from 2021
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.
(more…)
Sara B. Brody
San Francisco, Palo Alto
sbrody@sidley.com
Robin E. Wechkin
Seattle
rwechkin@sidley.com
Francesca E. Brody
New York
fbrody@sidley.com
Matthew J. Dolan
Palo Alto
mdolan@sidley.com
Sarah A. Hemmendinger
San Francisco
shemmendinger@sidley.com
Another Section 220 Landmine: Opportunistic Third-Party Challenges to Confidentiality
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.
(more…)
Heather Benzmiller Sultanian
Chicago
hsultanian@sidley.com
Ross O. Kloeber IV
Chicago
rkloeber@sidley.com
Expansive New SEC Rule Proposals Seek to Rewrite the SPAC Playbook
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.
(more…)
Enhanced Scrutiny Contributors
delawarelit@sidley.com
Sidley Perspectives on M&A and Corporate Governance
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. (more…)
Enhanced Scrutiny Contributors
delawarelit@sidley.com
Guarding Its Turf: SPAC-Related Chancery Opinion May Force Companies to Defend Disclosure-Based Claims on Multiple Fronts
Companies that have endured a corporate trauma are often faced with a two-headed monster of litigation: first, a federal securities class action, typically alleging that misstatements or omissions inflated the company’s stock price because the company failed adequately to predict, or disclose the likelihood of, the trauma; and, second, stockholder litigation claiming that the company’s directors (and sometimes officers) breached their state-law fiduciary duties in subjecting the company to the costs of defending or settling the securities litigation. In order to avoid (or at least defer unless and until necessary) the expense and distraction of litigating identical or overlapping issues in two or more fora, defendants often have sought a stay, by agreement or motion, of the fiduciary duty litigation, pending at least resolution of a threshold motion to dismiss in federal court. This approach has proven beneficial for all involved because it allows the parties to concentrate their resources in the federal proceeding that will determine whether viable disclosure claims have been alleged; if those claims fail, then there may no longer be any basis to pursue the state-law fiduciary duty claim and all can save the resources of litigating those claims in the meantime. (more…)
Andrew W. Stern
New York
astern@sidley.com
Corwin Cleanse Clarified: Key Lessons for Interested Directors
Since Corwin v. KKR Financial Holdings LLC, Delaware courts have adhered to the proposition that “when a transaction not subject to the entire fairness standard is approved by a fully informed, uncoerced vote of the disinterested stockholders, the business judgment rule applies.” However, The Delaware Court of Chancery recently issued an opinion (available here) clarifying the application of Corwin to the fiduciary duties of interested directors. The Court declined to dismiss a complaint alleging that the defendant directors’ approval of a merger was a breach of the directors’ duty of loyalty and constituted unjust enrichment. Specifically, the Court rejected the defendant directors’ contention that Corwin “cleansed” the transaction, and, as a consequence, explained that a duty of loyalty analysis was still appropriate. In what follows, we describe this case and offer some important takeaways concerning interested directors. (more…)
Robert S. Velevis
Dallas
rvelevis@sidley.com
Natalie A. Piazza
Dallas
npiazza@sidley.com
Court to Activists (Again): Follow The Rules Or Suffer The Consequences
On February 14, 2022, Vice Chancellor Lori W. Will issued a post-trial decision affirming the Lee Enterprises, Inc. board of directors’ rejection of a shareholder nomination of directors because, in contravention of Lee’s bylaws, the notice neither was submitted by a stockholder of record, nor utilized the company’s required nominee questionnaire forms. This decision in Strategic Investment Opportunities LLC v. Lee Enterprises, Inc. further underscores the Court of Chancery’s recent decision in Rosenbaum v. CytoDyn, Inc., in which (as this blog previously reported here) the Court upheld a board’s decision to reject a nomination notice for failure to comply with information requirements in the governing bylaws. (more…)
Alex J. Kaplan
New York
akaplan@sidley.com
David Moon
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