In Benihana of Tokyo, Inc. v Benihana, Inc., Vice Chancellor Parsons on February 4, 2005 applied the civil conspiracy basis of jurisdiction over a foreign corporation based on the action taken in Delaware by another corporation that allegedly acted as the agent of the foreign corporation in Delaware.
Continue Reading...This post is based on an article by Francis Pileggi and Bernard Conaway that appeared in The Delaware Law Weekly.
Section 220 of the Delaware General Corporation Law gives a shareholder the right to inspect certain books and records of a corporation, but that right is not without limitations. The right to those books and records oftentimes seems shallow because enforcing that right, if contested, requires a substantial amount of time and money to file a lawsuit under Section 220, engage in limited discovery, and endure a trial that, only if successful, will merely establish your right to certain books and records with limitations imposed for such matters such as confidentiality of the information. A recent decision by the Delaware Chancery Court clarifies the overlap of such a special statutory summary proceeding with the discovery rights which might otherwise be available in a related lawsuit. Khanna v. Covad Communications Group, Inc., 2004 WL 187274 (Del. Ch.). The scope of discovery in a "conventional" lawsuit is much broader than that available in a Section 220 case. Documents obtainable by means of a simple discovery request in a conventional action contrasts with a Section 220 lawsuit; that only if successful after trial, would entitle one to the limited scope of documents available under Section 220.
The independence of a member of the board of directors of a company has always been an important issue under Delaware law, but the issue has gained increasing national importance based on the recent requirements for the New York Stock Exchange and Nasdaq-listed companies, as well as the recent Sarbanes-Oxley Act. In addition to the fact that most NYSE companies are incorporated in Delaware, the issue is critical for purposes of filing a derivative action against a corporation because as a practical matter, if a majority of the board is deemed independent, and presuit demand is required, claims against a corporation may never go to trial.
In Beam v. Stewart, the Delaware Supreme Court on March 31, 2004 analyzed whether presuit demand needed to have been made on the board of directors of Martha Stewart Living Omnimedia, Inc., or whether a majority of the members of that board were independent, and therefore, requiring a presuit demand prior to filing a derivative action against the company.
Continue Reading...In the recent case of Orman v. Cullman, the Court of Chancery on October 20, 2004 denied a claim that the Board of Directors of General Cigar Holdings impermissibly coerced the shareholders to vote for a merger because of a lock-up provision required by the acquiring party. The Court reasoned that the public shareholders had retained full authority to veto the transaction; the Board had negotiated an effective fiduciary out, and any interested third-party was free to purchase the publicly held shares. The issues in this case could easily lend themselves to a law review article, but this is intended as a short summary limited to the Court's decision in this case only.
Continue Reading...On March 18, 2004, United States Supreme Court Justice Antonin Scalia issued a memorandum that explained the reasons why he was denying a motion that he recuse himself. In that memorandum, Justice Scalia clarified the standards of recusal for justices of the United States Supreme Court. Cheney v. United States District Court, 541 U.S. ____(2004).
Some may view the decision as peculiar to the special situation that Members of the United States Supreme Court find themselves in, to the extent that "substitutes" cannot be appointed in the way that happens when a trial judge or members of many other appellate courts recuse themselves.
Continue Reading...In Haley v. Talcott, Del. Ch., No. 098-S (Dec. 16, 2004), the Delaware Chancery Court addressed a relatively uncharted area of LLC law. Namely, forced dissolution of an LLC. The court noted that the statute only provides for forced dissolution in the event of issues with the Operating Agreement--implying that the statute would not apply in the absence of an Operating Agreement. The court referred by analogy to Section 273 of the DGCL that applies to those corporations owned 50/50 by not more than 2 owners. Thus, one reading of this case is that Section 273's prerequisites would need to be satisfied if that section would be applicable by analogy to an LLC.
On July 25, 2002, the United States Congress passed, and on July 30, 2002, President Bush signed, the Sarbanes-Oxley Act of 2002 which is a broad ranging effort to impose additional responsibility and penalties regarding the conduct of officers and directors of public companies, as well as professionals who advise them. Section 307 of the Act created a new rule of professional responsibility for attorneys "appearing and practicing" before the Securities and Exchange Commission ("SEC") "in any way in the representation of" publicly held companies. Supplanting the traditional role of each state to regulate the attorneys in each state, the Act requires the SEC to enact rules within 180 days to set forth "minimum standards of professional conduct for attorneys," including the following two rules:
1)Requiring an attorney to report evidence of a material violation of securities law or breach of fiduciary duty or similar violation by the company or any agent thereof, to the chief legal counsel or the chief executive officer of the company (or the equivalent thereof); and
2)If the counsel or officer does not appropriately respond to the evidence (adopting, as necessary, appropriate remedial measures or sanctions with respect to the violation), requiring the attorney to report the evidence to the audit committee of the board of directors of the issuer or to another committee of the board of directors comprised solely of directors not employed directly or indirectly by the issuer, or to the board of directors.
Continue Reading...In a decision that clarifies the confidentiality and loyalty underpinnings of the conflict of interest principles in Ohio's version of Rule 5-105 of the Code of Professional Responsibility, the United States District Court for the Northern District of Ohio very recently ruled that a law firm would not be disqualified from defending a company in litigation when another office of the same firm represented the plaintiff in an administrative proceeding in an unrelated matter. The court reasoned that: "if the attorney can show that he can represent adverse clients concurrently with equal vigor, without conflict of loyalties and without using confidential information to the detriment of either client," the presumption of a conflict in concurrent adverse representation is rebutted. Pioneer-Standard Electronics, Inc. v. Cap Gemini America, Inc., No. 1:01 CV 2185, at 7 (N.D. Ohio, March 11, 2002).
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