Enhanced Scrutiny Blog Home Page - Enhanced Scrutiny Blog

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

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

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