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.

Nevada Splits from Delaware, Applies Business Judgment Rule Broadly

One focus of this blog has been identifying trends in other state’s corporate law that compares or contrasts with Delaware’s. Nevada in particular has long been in competition with Delaware as a potential place of incorporation. A new decision by the Nevada Supreme Court may further cement Nevada’s status as a potential competitor to Delaware for certain corporations by demonstrating the difficulty of rebutting the business judgment rule.

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New Chancellor’s First Decision Reaffirms the Robust Protections Afforded to Transactions Following the MFW Roadmap

Last week, newly sworn-in Chancellor McCormick issued her first decision in her new role, Franchi v. Firestone, granting a motion to dismiss a shareholder complaint regarding a going-private transaction with a controlled shareholder. In doing so, the new Chancellor affirmed that the MFW roadmap continues to provide robust protection to such transactions, so long as they meet the formal requirements set out in MFW

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Court of Chancery Provides Reminder That Privilege Is Not Absolute

Last week, Vice Chancellor Joseph R. Slights III issued a ruling in Tornetta v. Musk that serves as a reminder that the corporate attorney-client privilege is not absolute. Deciding a discovery motion in a stockholder derivative suit challenging the 2018 compensation deal for Tesla CEO Elon Musk, the Court ordered the defendants to produce a limited set of documents that reflected communications between Musk and in-house counsel, though it rejected the plaintiff’s request for additional communications between in-house counsel, the Board’s Compensation Committee, and outside advisors. The decision serves as a reminder to company counsel, both internal and external, that their communications may not always be protected from stockholder plaintiffs in shareholder derivative actions.

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Maybe ESG Derivative Cases Aren’t Going to be a Thing After All?

Starting last summer, a series of derivative cases were filed against boards of a number of public companies alleging that the boards failed to create meaningful diversity in their board rooms and amongst the ranks of senior management.  These cases, filed mostly by one law firm and primarily in the Northern District of California, had the markings of becoming a new genre of claim. Two of these cases have now proceeded through their first motion hearing and neither survived intact. Ocegueda v. Zuckerberg et al., No. 20-cv-04444 (the Facebook case) and Lee v. Fisher et al., No. 20-cv-06163 (the Gap case).  Although other cases remain pending and perhaps these two will be refiled, judicial reaction so far suggests that other methods to promote diversity may have greater impact.

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“Chalking Up a Victory for Deal Certainty,” Delaware Court of Chancery Orders That Contested Merger Close

Last Friday, soon-to-be Chancellor McCormick issued a decision in Snow Phipps Group, LLC v. KCake Acquisition, Inc. that ordered the defendant buyers to specifically perform their agreement to acquire DecoPac Holdings, Inc. (“DecoPac” or the Company), which sells cake decorations and technology for use in supermarket bakeries. The 125-page decision, which opens with a quote from the incomparable Julia Child (“A party without cake is just a meeting”), and is rightly described by the Court as a “victory for deal certainty,” offers a detailed analysis of several common contractual provisions in the time of COVID-19. Despite its length, it is a must-read for those interested in the drafting and negotiation of M&A agreements generally, and their operation during the COVID-19 pandemic specifically.

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Section 220 Is Not a Blank Check

The Delaware Court of Chancery recently issued another decision regarding the statutory right to inspection of corporate books and records under Delaware General Corporation Law Section 220. In Melvin Gross v. Biogen Inc., the plaintiff-stockholder was permitted to obtain certain books and records, but the court limited inspection in key respects, and offered words of caution regarding confidentiality agreements. Companies facing Section 220 demands should review this decision and consider its lessons regarding the appropriate scope of inspection.

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SPACs and Delaware Fiduciary Duties

Special purpose acquisition companies, or SPACs, are popular new tools for raising capital that have garnered significant attention and momentum over the past year.  In 2020, 248 SPAC initial public offerings raised over $83 billion in capital—more than quadrupling the number of such offerings from the previous year and eclipsing the amount of capital they raised in 2019 by $69 billion.  The amount and value of such offerings is set to grow exponentially again in 2021; as of April 1, 2021, 298 SPAC initial public offerings raised over $97 billion and an additional 247 SPACs filed for an IPO that had yet to close.

There have been few fully litigated cases relating to SPACs.  Although many of the cases that have been filed have focused on federal securities law, the nature of SPACs and so-called de-SPACing transactions also potentially implicate a host of state law issues, particularly in connection with the fiduciary duties of directors.  This article addresses several issues under Delaware law and how the unique features of SPACs may have an impact on the applicability of those rules.

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A Reminder of the Obvious: Lawsuit Built on “Bold-Faced Lie” Does not End Well for Plaintiff

In the course of affirming a Court of Chancery decision in a seemingly routine dispute relating to a stockholder’s ability to nominate a slate of directors, the Delaware Supreme Court underscored the importance of parties’ (and counsel’s) candor with the Court and the potential consequences should the Court conclude it has been misled.

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Delaware Governor Announces Two Court of Chancery Nominations to Fill Retiring Chancellor Bouchard’s Seat

On April 9, 2021, Delaware Governor John Carney announced a number of judicial nominations, including two nominations to the Court of Chancery:

  • Vice Chancellor Kathaleen McCormick has been nominated to become the next Chancellor of the Court of Chancery, replacing Andre Bouchard who previously announced his retirement, effective April 30, 2021. She will be the first woman to serve in that role.
  • Lori W. Will, a partner at Wilson Sonsini in Delaware, has been nominated to fill McCormick’s seat as a Vice Chancellor.

We wish Chancellor Bouchard well in his retirement and thank him for his service on the Court, and look forward to the tenures of Chancellor McCormick and Vice Chancellor Will.

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