The filing of any action, even one that is quickly settled or dismissed, nevertheless poses a risk of exposing a party’s nonpublic information to public view. Many are familiar with efforts to maintain confidentiality at the outset of a litigation, including through a well-crafted confidentiality order. But a recent Delaware Court of Chancery decision reminds us that parties must reinforce those efforts after final disposition of the case or risk the exposure of previously sealed material.
Last year, applying a 2019 Delaware Supreme Court opinion admonishing that there is no presumption of confidentiality in Section 220 productions, the Delaware Court of Chancery refused to treat certain financial information produced in connection with a books and records action as confidential. See A Reminder that in Books and Records, Nonpublic Does Not Always Mean Confidential. Recently the Delaware Supreme Court affirmed that decision, clarifying the standard the court should apply when evaluating confidential treatment.
Companies are facing more attacks on their information systems. And, as their cyber risk skyrockets, the SEC has stepped in with new regulations, telling businesses what to disclose about these incidents — and requiring detailed disclosures on cyber risk management more broadly. With the deadline for compliance fast approaching, businesses are scrambling to mitigate their legal risk and comply with regulations that some say may be an overreach.
The Delaware Court of Chancery’s recent opinion in Cygnus Opportunity Fund LLC et al. v. Washington Prime Group LLC et al. presents a veritable grab bag of potential blog posts, from a suggestion that an officer of an Limited Liability Company could be contractually bound by an LLC Agreement he never signed to the interesting interplay (and potential conflict) between an officer’s duty of obedience to the LLC’s board and the officer’s duty of disclosure to investors. The focus here — and we believe chief among the thorny issues addressed in Cygnus — is the Court of Chancery’s decision to sustain a claim for breach of the implied covenant of good faith and fair dealing with respect to an issue that the LLC Agreement expressly addressed. What makes it even more fascinating is the tone of the Opinion: Vice Chancellor Laster evidently came to an early conclusion that, taking the allegations as true for purposes of a pleading motion, there was some inherent unfairness in the Defendants’ conduct that needed to be set right. Left unclear is the impact of this decision, assuming it is not disturbed on appeal, on Delaware’s long-standing deference to parties’ agreements and, in particular, limitations of duties, in the LLC context. In any event, the Opinion should serve as a cautionary tale for companies considering converting to an LLC form through a non-consensual bankruptcy process.
Sidley is pleased to share the September 2023 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.
In a recent ruling on summary judgment, the court found that Bumble, Inc.’s “identity-based voting” does not violate Sections 212(a) or 151(a) of the Delaware General Corporation Law (the “DGCL”). Colon v. Bumble, Inc., et al., C.A. No. 2022-0824-JTL. However, the court left open for another day the question of whether such a governance structure is equitable.
Previously this blog has discussed the importance of procedural compliance with various transaction structures when the transaction involves controlling or interested parties (see an example here). For instance, in Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”), the Delaware Supreme Court held that compliance with certain process elements enables deferential business judgment review of decisions regarding interested transactions with controlling parties (see here for a helpful discussion about MFW protections). Delaware courts have since expanded the role of MFW-like process protections in various contexts, thus demonstrating that adequate decisionmaking procedures are a central prerequisite to business judgment deference when controllers or interested parties are involved in contemplated transactions.