The Seventh Circuit recently issued an important decision holding that an exclusive forum provision in a company’s bylaws requiring that all derivative actions be brought in Delaware Chancery Court is unenforceable as applied to derivative cases brought under the federal proxy laws. On its face, Seafarers Pension Plan v. Bradway seems to foreclose the use of exclusive forum provisions for claims for which there is exclusive federal jurisdiction. As the Seventh Circuit notes, that would seem to be consistent with both federal proxy fraud law, which forbids contractual waivers of compliance with the law, as well as Delaware state law. But as discussed below, there is reason to believe that the decision may not be the last word on the topic, and, indeed, that it could end up before the U.S. Supreme Court. (more…)
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.png00Jim Ducayethttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngJim Ducayet2022-01-20 08:45:542023-09-08 11:27:53Seventh Circuit Says Delaware Companies May Not Bar The Door To Federal Court For Federal Proxy Fraud Derivative Claims
The Delaware Supreme Court recently affirmed Vice Chancellor Laster’s much talked of AB Stable post-trial decision, holding that the buyer of a $5.8 billion hotel portfolio could terminate the transaction due to, among other things, the seller’s breach of an ordinary course covenant by making operational changes in response to the COVID-19 pandemic. The Supreme Court’s affirmance provides critical guidance for the interpretation and navigation of such provisions, particularly in extraordinary times. (more…)
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.png00Charlotte K. Newellhttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngCharlotte K. Newell2022-01-12 09:03:142023-09-08 11:28:34Extraordinary Times May Still Call for Ordinary Measures: Delaware Supreme Court Affirms Buyer’s Termination of $5.8 Billion Transaction
We previously wroteabout the MultiPlan Corp. SPAC litigation relating to the de-SPAC merger of Churchill Capital Corp. III (“Churchill”) and its target, MultiPlan Corp. On January 3, the Delaware Court of Chancery issued its long-anticipated decisionon the defendants’ motion to dismiss—the first dispositive motion to be briefed and decided in the Delaware courts in the wave of recent SPAC litigation. Below we highlight some key takeaways. (more…)
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.png00James Heyworthhttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngJames Heyworth2022-01-06 08:52:012023-09-08 11:29:12New School SPAC Subject to Old School Rules: Court of Chancery Rejects SPAC Sponsor’s Motion to Dismiss
In her regular column on corporate governance issues, Holly Gregory explores issues that are likely to require board attention in 2022 in an environment of heightened scrutiny of the board’s oversight role. (more…)
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.png00Holly J. Gregoryhttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngHolly J. Gregory2022-01-04 08:45:112023-09-08 11:29:54Board Oversight: Key Focus Areas for 2022
Sidley is pleased to share the December 2021 issue ofSidley 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…)
On December 3, 2021, the Delaware Court of Chancery dismissed an action for books and records under Delaware General Corporation Law Section 220, reiterating that when a plaintiff files such an action, they must currently be a stockholder of the company against whom the Section 220 action is filed.
Specifically, a plaintiff must file a books and records action before a merger agreement becomes effective under its own terms; after the merger becomes effective, a plaintiff typically ceases to be a stockholder in the target company, which also precludes their ability to pursue books and records of that company. Companies facing Section 220 demands in the face of a merger agreement should scrutinize the demanding party’s standing to pursue such records. (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. Kaplan2021-12-21 08:47:332023-09-08 11:31:26Periodic Reminder: Former Stockholders Have No Standing to Pursue Section 220 Demands
Over the past several months, a number of decisions released by the Delaware courts have begun to grapple with the new Zuckerberg three-part demand futility standard announced by the Delaware Supreme Court in September. Many cases spotlight the need to assess demand futility on a director-by-director basis. But at least one recent decision has highlighted another aspect of the test, and instead turns on the need to assess demand futility on a transaction-by-transaction basis. In In re Vaxart, Inc. Stockholder Litigation, Vice Chancellor Fioravanti dismissed several claims from a shareholder derivative suit purportedly filed on behalf of Vaxart, Inc. because the plaintiffs failed to allege that a majority of the directors received a material personal benefit or faced a substantial likelihood of liability from the specific transaction that would have been the subject of the pre-suit demand. (more…)
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Seventh Circuit Says Delaware Companies May Not Bar The Door To Federal Court For Federal Proxy Fraud Derivative Claims
I. Introduction
The Seventh Circuit recently issued an important decision holding that an exclusive forum provision in a company’s bylaws requiring that all derivative actions be brought in Delaware Chancery Court is unenforceable as applied to derivative cases brought under the federal proxy laws. On its face, Seafarers Pension Plan v. Bradway seems to foreclose the use of exclusive forum provisions for claims for which there is exclusive federal jurisdiction. As the Seventh Circuit notes, that would seem to be consistent with both federal proxy fraud law, which forbids contractual waivers of compliance with the law, as well as Delaware state law. But as discussed below, there is reason to believe that the decision may not be the last word on the topic, and, indeed, that it could end up before the U.S. Supreme Court. (more…)
Jim Ducayet
Chicago
jducayet@sidley.com
Thomas H. Collier
Chicago
tcollier@sidley.com
Extraordinary Times May Still Call for Ordinary Measures: Delaware Supreme Court Affirms Buyer’s Termination of $5.8 Billion Transaction
The Delaware Supreme Court recently affirmed Vice Chancellor Laster’s much talked of AB Stable post-trial decision, holding that the buyer of a $5.8 billion hotel portfolio could terminate the transaction due to, among other things, the seller’s breach of an ordinary course covenant by making operational changes in response to the COVID-19 pandemic. The Supreme Court’s affirmance provides critical guidance for the interpretation and navigation of such provisions, particularly in extraordinary times. (more…)
Charlotte K. Newell
New York
cnewell@sidley.com
Andrew W. Stern
New York
astern@sidley.com
New School SPAC Subject to Old School Rules: Court of Chancery Rejects SPAC Sponsor’s Motion to Dismiss
We previously wrote about the MultiPlan Corp. SPAC litigation relating to the de-SPAC merger of Churchill Capital Corp. III (“Churchill”) and its target, MultiPlan Corp. On January 3, the Delaware Court of Chancery issued its long-anticipated decision on the defendants’ motion to dismiss—the first dispositive motion to be briefed and decided in the Delaware courts in the wave of recent SPAC litigation. Below we highlight some key takeaways. (more…)
James Heyworth
New York
jheyworth@sidley.com
Charlotte K. Newell
New York
cnewell@sidley.com
Julia L. Bensur
Board Oversight: Key Focus Areas for 2022
In her regular column on corporate governance issues, Holly Gregory explores issues that are likely to require board attention in 2022 in an environment of heightened scrutiny of the board’s oversight role. (more…)
Holly J. Gregory
New York
holly.gregory@sidley.com
Sidley Perspectives on M&A and Corporate Governance
Sidley is pleased to share the December 2021 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
Periodic Reminder: Former Stockholders Have No Standing to Pursue Section 220 Demands
On December 3, 2021, the Delaware Court of Chancery dismissed an action for books and records under Delaware General Corporation Law Section 220, reiterating that when a plaintiff files such an action, they must currently be a stockholder of the company against whom the Section 220 action is filed.
Specifically, a plaintiff must file a books and records action before a merger agreement becomes effective under its own terms; after the merger becomes effective, a plaintiff typically ceases to be a stockholder in the target company, which also precludes their ability to pursue books and records of that company. Companies facing Section 220 demands in the face of a merger agreement should scrutinize the demanding party’s standing to pursue such records. (more…)
Alex J. Kaplan
New York
akaplan@sidley.com
Victor M. Flores
The Refined Demand Futility Standard Takes Shape
Over the past several months, a number of decisions released by the Delaware courts have begun to grapple with the new Zuckerberg three-part demand futility standard announced by the Delaware Supreme Court in September. Many cases spotlight the need to assess demand futility on a director-by-director basis. But at least one recent decision has highlighted another aspect of the test, and instead turns on the need to assess demand futility on a transaction-by-transaction basis. In In re Vaxart, Inc. Stockholder Litigation, Vice Chancellor Fioravanti dismissed several claims from a shareholder derivative suit purportedly filed on behalf of Vaxart, Inc. because the plaintiffs failed to allege that a majority of the directors received a material personal benefit or faced a substantial likelihood of liability from the specific transaction that would have been the subject of the pre-suit demand. (more…)
Heather Benzmiller Sultanian
Chicago
hsultanian@sidley.com
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Andrew W. Stern
astern@sidley.com
Charlotte K. Newell
cnewell@sidley.com
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Jim Ducayet
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Yolanda C. Garcia
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James Heyworth
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Alex J. Kaplan
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Jodi E. Lopez
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Jon Muenz
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Ian M. Ross
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Hille R. Sheppard
hsheppard@sidley.com
Heather Benzmiller Sultanian
hsultanian@sidley.com
Robert S. Velevis
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Robin E. Wechkin
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