The resolution of corporate law disputes has a significant impact on the stockholders, directors, officers, and employees of companies around the world. With more than 60% of the Fortune 500 incorporated in Delaware, decisions of the state’s courts have a direct impact on leading companies worldwide and greatly influence the law of other jurisdictions. The Enhanced Scrutiny blog provides timely updates and thoughtful analysis on M&A and corporate governance matters from the Delaware courts and, on occasion, from other jurisdictions.

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.

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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.

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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.

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A Delaware Section 220 Checklist: Seven Cases Every Practitioner Should Know

As regular readers know, this blog sometimes takes a break from recent developments to reflect on bedrock decisions and key principles of which all practitioners should be aware. This post highlights decisions that have shaped legal practice concerning Section 220 of the Delaware General Corporate Law, which allows stockholders to inspect corporate books and records under certain circumstances. Counsel sending or receiving a Section 220 demand would be wise to review these seven decisions.

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Best Practices for Minute-Taking: Three Lessons from Recent Caremark Decisions

As has been frequently noted on this page, the Delaware Supreme Court’s landmark 2019 decision, Marchand v. Barnhill, marked the beginning of a series of cases in which Delaware courts refused to dismiss shareholder derivative actions alleging oversight breaches—so-called Caremark claims, which are often quoted as “possibly the most difficult theory in corporat[e] law” on which to bring a successful lawsuit. Typically following a books and records demand, these cases shine a spotlight not only on the oversight that boards perform, but also on the manner in which that oversight is documented in a company’s formal records. This post reviews, from a corporate record-keeping perspective, themes drawn from a selection of recent cases in which Delaware courts permitted cases to proceed on Caremark theories and implications for best practices in light of these themes.

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Intent Matters: Delaware Court Limits Discovery in Appraisal Action Where Petitioners’ Sole Intent Was to Investigate Potential Breach of Fiduciary Claim

The Delaware Court of Chancery recently issued an opinion making a narrow but key distinction in appraisal proceedings: the petitioners’ underlying intent in filing a Section 262 action matters. The court held that petitioners should not be allowed to obtain full discovery where the sole purpose in bringing the appraisal proceeding is to investigate potential wrongdoing. In this case, such intent was determined from Petitioners’ de minimis financial stake in the company.

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Litigation Trends in Delaware and How Businesses and Boards Can Mitigate Risk

New structures, new rules? Delaware’s Chancery Court provides guidance on disclosure, conflicts, and risk allocation. We take a look at the latest Delaware rulings and what they say about SPAC directors’ fiduciary duty, as well as COVID’s effect on M&A deals, and how corporations and boards can mitigate their liability. Join host and Sidley partner, Sam Gandhi, as he speaks with two of the firm’s thought leaders on these subjects — Jim Ducayet and Charlotte Newell.

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The Disclosure Process Defense to Securities Fraud Claims, Part II: Protecting the Attorney-Client Privilege

This article addresses potential privilege issues that arise from the integral role that in-house counsel typically plays in a company’s disclosure process.

When faced with allegations of securities fraud, a defendant’s reliance on a robust and well-functioning disclosure process can be a powerful tool to negate scienter, i.e., fraudulent intent. Part one of this article discussed the theory behind the disclosure process defense as well as key prophylactic steps that can be taken to strengthen the defense for when it is needed. This Part Two addresses potential privilege issues that arise from the integral role that in-house counsel typically plays in a company’s disclosure process. First, it distinguishes the superficially similar advice of counsel defense, which requires waiver of the attorney-client privilege. Then it identifies important steps that corporate counsel can take to protect the privilege when a disclosure process defense is asserted.

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The Disclosure Process Defense to Securities Fraud Claims, Part I: Key Steps for Litigation Preparedness

One of the most effective—but underutilized—defenses against claim a of securities fraud is a disclosure process defense: that the defendants reasonably relied on a robust process for drafting, reviewing, and approving the public disclosures at issue.

It will come as no surprise to corporate counsel that public companies should be prepared to face allegations of securities fraud. Private securities class actions are filed after nearly any sharp stock-price decline, and government enforcement actions are on the rise and are increasingly aggressive. One of the most effective—but underutilized—defenses against such claims is a disclosure process defense: that the defendants reasonably relied on a robust process for drafting, reviewing, and approving the public disclosures at issue.

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