SEC Commissioner Elisse Walter's recent speech on corporate governance before the Society of Corporate Secretaries and Governance Professionals has been published on The Harvard Law School Corporate Governance Blog here.
Prof. Jayne Barnard on The Conglomerate blog writes here about Dante's masterpiece of literature called The Divine Comedy, and in particular her reference to Dante's Inferno and its 9th circle of Hell (the lowest) reserved for those who betray their friends. She uses this as an introduction to the sentencing today of Bernie Madoff, about which I don't plan to write (though she will), but the reference to Dante, and his classic book's relevance today--about 700 years after it was written, is worth noting.
Mark Herrmann, a partner at the Chicago office of the Jones Day firm, and co-author of the popular blog called Drug and Device Law, writes here about his admittedly unscientific analysis of the most recent annual survey by Kevin O'Keefe of blogs and blogging among the AmLaw 200 firms. Regardless of the size of one's firm, it's a useful and fun commentary on whether blogging for lawyers is or is not a worthwhile exercise. Speaking only for myself, and not for my firm, I can provide a few reasons why I think blogging is worth the substantial effort required to do it well, and why I am continuing this effort after more that 4 and one-half years since I started this blog.
In no particular order, blogging the way it is done on this blog, which includes primarily summarizing the key corporate and commercial decisions from Delaware's Supreme Court and Chancery Court, as well as providing related commentary from leading experts, counts among its benefits the following:
We have summarized many Delaware decisions on this blog regarding the issue of advancement of fees for the benefit of officers and directors of companies who have been given that right by either contract or bylaws or corporate charter, as authorized by the Delaware General Corporation Law--and as distinguished from indemnification, which generally is not triggered until after the litigation is concluded, and after potentially millions of dollars in fees have been incurred.
Kevin LaCroix on his highly regarded blog, The D & O Diary, here, provides a current example and analysis regarding the former CEO of Countrywide, who is presumably entitled to advancement by Bank of America, the new owner of Countrywide, contrary to what the average person not well-versed on the topic might initially think based on the mass media's insinuations of the CEO's culpability--which is not terribly relevant at the advancement stage, as compared to the indemnification stage. Thus, hypothetically, an officer accused of embezzlement from his company may be entitled to advancement by that company of the reasonable defense costs of the officer who is defending a suit regarding the alleged embezzlement. Kevin explains why the law may require a result that sounds strange to the average person.
UPDATE: Kevin LaCroix provides a contrasting post here regarding a recent decision (from yesterday), of the U.S. Court of Appeals for the Eleventh Circuit that upheld a trial court ruling that denied advancement rights to former CEO of HealthSouth, Richard Scrushy, (apparently despite Delaware law), as part of a class action settlement on the theory that the public policy in favor of settlements was more important than upholding advancement rights. Now I readily acknowledge that the preceding sentence may be an oversimplification of the court's decision, so I encourage you to read the entire decision and Kevin's insightful and thoughtful summary at the above link. Bottom line: the court gave short shrift to the importance of advancement rights--and the reality that such rights are in many cases the only thing that stands between a person's ability to defend themselves in court and not allowing any meaningful defense whatsoever.
Vice Chancellor Donald F. Parsons, Jr. and Kevin F. Brady have co-authored an article entitled: Privilege Waiver in Federal and State Courts - New Federal Rule 502. This is a key issue for eDiscovery. The article is available here.
The article originally appeared in the May 2009 issue of IN RE: The Journal of the Delaware State Bar Association. Copyright Delaware State Bar Association 2009. All rights reserved. Reprinted with permission.
My first podcast, courtesy of the LexisNexis Corporate & Securities Law Center, is available here. I discuss a few recent Delaware Chancery Court opinions, and this blog in general. For those not familiar with a podcast, it is, in essence, an audio clip that is available for your listening pleasure on the internet or it can be downloaded on devices such as an iPod.
P.S. I was on a family vacation for the last week, but I hope to resume blogging over the next few days.
Scott J. Davis and Michael Torres of the Mayer Brown LLP firm have written a paper titled Directors’ Monetary Liability for Actions or Omissions Not in Good Faith, that is available here on the Harvard Law School Corporate Governance Blog.
The Deal Professor writes here about the Delaware corporate law issues involved in the pending Delaware Chancery Court case relating to PepsiCo's bid for the Pepsi Bottling Co., and in particular whether the bid will be subject to the entire fairness review standard.
Professor J.W. Verret on The Conglomerate blog here, makes limericks out of several leading Delaware court decisions on corporate law for one of the corporate law classes he teaches. It may be a helpful way to remember the principles from those decisions.
Professor Stephen Bainbridge provides scholarly insights about corporate governance here, with quotes from Henry Manne and links to law review articles by the good professor and others, which address the deep thoughts involved in issues such as: director primacy; shareholder rights; takeover defenses (with citations to Revlon's progeny), and whether the stock market is efficient.
Professor Bainbridge provides insights here on the new SEC proxy proposal.
Rees Morrisson on his Law Department Management blog yesterday featured my blog among a list of 15 others that he recommended to his law department readers, here, based on a list compiled by Doug Cornelius.
Today, the Securities Docket site included me here among "15 people that all securities and corporate litigators should follow on Twitter".
Best wishes to everyone for an enjoyable Memorial Day Weekend.
James McRitchie, Publisher of CorpGov.net, has a post here that discusses the SEC's vote of May 20, 2009 on proxy access, and includes commentary regarding "blank votes" which he describes as: "when retail shareowners vote but leave items on their proxy blank, those items are routinely voted by their bank or broker as the subject company's soliciting committee recommends."
Prof. Larry Ribstein comments here about the recent defection of two rainmakers from the Skadden Arps law firm to Kirkland & Ellis as indicative of another "wheel falling off the big law model." His post is thought-provoking for anyone interested in, or impacted by, law firm economics in the current economic maelstrom.
How can these two legal topics be connected when on the surface they seem so disparate? I learned the answer at a seminar I am attending today in Phoenix on the topic of the Second Amendment to the U.S. Constitution. Perhaps this is an unlikely place to find such an answer but at this gathering of scholars and practitioners who are experts in Constitutional Law, based on both the U.S. Constitution and the constitutions of each of the states, I was reminded of a few concepts that permeate and transcend all areas of the law. Extensive source materials were provided today to support the position that many of the most important rights in the U.S. Constitution, such as those in the First and Second Amendment, were considered by the Founders to be inherent human rights that were (are) based on "natural law" . Thus, the U.S. Constituion was merely codifying, in many sections, existing rights as opposed to the government granting those rights.
How does this relate to corporate law? I'll try to keep this pithy. Based on these basic natural rights that we (should) enjoy, a foundation is provided that allows us to fashion our commerce and the laws that govern commerce in a manner that gives private parties the maximum freedom to order their affairs, subject to government regulation (the extent to which is the subject of current debate).
An interesting point made during the seminar today was that there are some otherwise intelligent lawyers and jurists (and others) who are quite passionate about supporting the Bill of Rights in the U.S. Constitution, but some would rather pretend that at least one of those "inconvenient rights" (e.g., the right to self-defense), should not be given the same respect and recognition as, for example, the freedom of speech. There is a lack of intellectual honesty in some of those arguments.
Professor Stephen Bainbridge examines the perennial issue of the federalization of corporate law and the impact on Delaware, in the context of the proposed federal Shareholder Bill of Rights Act of 2009 that Sen. Chuck Schumer is rumored to be introducing soon in the U.S. Senate. Here is the scholarly commentary with ample links to related source material.
As part of an online symposium on The Conglomerate blog, Professor Gordon Smith has a post here about the role of loyalty in corporate law, with links to articles by Prof. Andrew Gold and Prof. Lyman Johnson on the topic.
In addition, Prof. Ronald Colombo on the same blog has a post about the faithful fiduciary here.
Professor Larry Ribstein links to an article on the site called Above the Law and provides his own commentary about some big firms who are firing and de-equitizing partners who are less profitable. Here is the good professor's post about the related issues facing big firms and their partners.
New articles on Delaware corporate law came in today's mail via the current issue of The Delaware Journal of Corporate Law. There are several important articles in the current Volume 34, but there are three in particular that I would like to highlight today:
Delaware and Washington as Corporate Lawmakers by Professor Mark Roe.
What Would Madison Think? The Irony Of The Twists And Turns Of Federalism by E. Norman Veasey (former Delaware Supreme Court Chief Justice)
Professor Bainbridge And The Arrowian Moment: A Review Of The New Corporate Governance In Theory And Practice by Professor Brett H. McDonnell
The prolific Judge Richard Posner has recently written a book called A Failure of Capitalism: The Crisis of '08 and the Descent into Depression, and he is now blogging about it in order to provide updates on the ongoing economic crisis which continues apace. Here is the link.
Even for "non-economists" his post today is not filled with too much economic jargon such that it could be easily understood by the average lawyer. An excerpt follows about one of the reasons he thinks we are in a depression instead of merely a recession:
... it is the unprecedented scope and cost of the government's recovery measures [about $12.8 trillion so far] that mark the current economic crisis as a depression, and no mere recession; for the costs and hence gravity of an economic crisis include not only the loss of output and employment during the acute phase of the crisis but also the costs incurred in trying to put the economy on the road to recovery....
Corporate Law Professor Lyman Johnson's scholarship on the fiduciary duty of corporate officers has been previously highlighted on this blog (e.g., here). Professor Johnson holds joint faculty appointments at Washington and Lee University as well as the University of St. Thomas in Minneapolis. Today he brought to my attention a scholarly exercise that may be of interest to the readers of this blog who seek to keep abreast of the latest developments in corporate law.
Beginning on May 4 and for the next two weeks, The Conglomerate blog will be hosting an online symposium of scholars who will adress the topic of: "Exploring the Connection between Religious Faith and Corporate Law". Academic research has analyzed corporate law from many angles but not systematically from the faith perspective.
Several nationally-prominent corporate law scholars will be participating. Among the contributors to the online colloquium will be Michael Naughton, Director of the Institute for Catholic Social Thought at the University of St. Thomas.
UPDATES: Here is the first post in the above matter. Here is another post. Here is a reference by Professor Bainbridge to the symposium with a link to several of his articles on the topic.
For those who carelessly repeat the rumor that Delaware corporate law is "pro-management" and for those who argue that the recent change in the North Dakota corporate statute offers a superior governance model for shareholders in public companies, Professor Bainbridge has written an article that provides a more nuanced and scholarly analysis. His article was excerpted by The Financial Times, with an introduction, as follows:
[J]ust because North Dakota is appealing to shareholders via strengthened corporate governance and Delaware tends to appeal to management because of its company-friendly policies and bottom line-friendly tax exemptions, doesn’t mean this is a clear-cut shareholder vs management conflict.
University of California law professor Stephen Bainbridge, for instance, offers a nuanced discussion of the subject in relation to the North Dakota/Delaware competition, in the form of this paper. Selected extract (emphasis ours):
Those who believe that state competition results in a race to the bottom believe that Delaware’s corporate statute is skewed to favor the interests of corporate managers rather than those of investors. As the story goes, because it is corporate managers who decide on the state of incorporation, Delaware caters to management, allowing them to exploit shareholders.
An alternative view claims that state competition leads to a race to the top. According to this account, investors will not purchase, or at least not pay as much for, securities of firms incorporated in states that cater excessively to management. Likewise, lenders will not lend to such firms without compensation for the risks posed by management’s lack of accountability. As a result, those firms’ cost of capital will rise, while their earnings will fall. Among other things, such firms thereby become more vulnerable to a hostile takeover and subsequent management purges. Corporate managers therefore have strong incentives to incorporate the business in a state offering rules preferred by investors and, as a result, competition for corporate charters should lead to statutes that maximize shareholder wealth. …
Here is a link to the actual article by Professor Bainbridge, predicting that the North Dakota experiment will fail.
The Harvard Law School Corporate Governance Blog here has a summary and discussion by Joseph McLaughlin from Simpson Thacher & Bartlett LLP, of a recent decision that addresses whether a misrepresentation or omission by one officer or director in an application for D & O coverage, can serve as a basis to exclude coverage for an "innocent" director who did not participate in the failure to complete the application properly. Specifically, the issue involved was: "to what extent one insured’s knowledge of application misrepresentations can be imputed to other insureds with a “prior knowledge” exclusion" in policies.
This is an example of why D & O coverage is not always sufficient protection for directors. Anyone interested in the latest developments in D & O coverage, should read Kevin LaCroix's The D & O Diary .
I am usually very careful not to "go off topic" and thereby divert the attention of my loyal readers from the usual fare that they expect on these pages but in this instance I am linking to two posts from corporate law professor Gordon Smith on his blog called The Conglomerate, here and here, about the recent sensation about Susan Boyle, the unlikely rising star from the U.K. who has an interesting background with a voice that many have described as that of an angel. If you want to be inspired and take a few short minutes to be uplifted by her voice and her story, see the links above, as well as another site here.
UPDATE: The Wall Street Journal's online edition picked-up this post here.
Kevin LaCroix has a post here on his blog, The D & O Diary, that discusses the April 1, 2009 decision here in U.S. v. Nicholas, et al., from the U.S. District Court for the Central District of California, involving what the court found were conflicts of interest and breaches of a lawyer's duty of loyalty due to a firm's representation of Broadcom in a stock options investigation at the same time the firm was also representing the CFO in related litigation. An issue arose about information obtained from the CFO that was disclosed without the consent of the CFO, and whether or not proper "disclosures" were made to the CFO about the potential conflict created by the same firm representing the CFO and the corporation.
This is "must reading" for any lawyer or firm who represents a corporation and whose representation involves an investigation of corporate officers who may or may not think that they too are being represented by the same law firm.
For those readers who observe Good Friday, Easter and/or Passover, you have my prayerful best wishes for these Holy Days.
Professor Bainbridge's recent book on corporate governance, titled: The New Corporate Governance in Theory and Practice was previously highlighted here on this blog. A review of the book was recently penned by Richard Forsten, a Delaware lawyer with the Buchanan Ingersoll firm. His review is available here.
In connection with posting the referenced book review that appears in the current issue of the newsletter of the Delaware State Bar Association, I publish the following footnote:
This article [the book review linked above] originally appeared in the April 2009 issue of IN RE: The Journal of the Delaware State Bar Association, a publication of the Delaware State Bar Association. Copyright © Delaware State Bar Association 2009. All rights reserved. Reprinted with permission.
This is my sixth and final update from the corporate law seminar in New Orleans. The final panel today is titled: "The Role of Counsel in Transactions: Enhanced Ethics and Professionalism".
Members of the panel include Vice Chancellor Donald Parsons of the Delaware Chancery Court as well as several leading corporate practitioners.
[As an aside, this two-day seminar which featured panel members from all over the country, benefited from a majority of the members of the Delaware Supreme Court and a majority of the members of the Delaware Chancery Court participating on various panels, in addition to a very large contingent of Delaware lawyers who practice in the area of corporate litigation.]
This last panel presentation of the day was based on a fact pattern involved in a real Delaware Chancery Court decision called Postorivo, that was summarized on this blog here. There were also several other Chancery Court decisions involving this case, all highlighted here.
The factual background that forms the context for the ethical issues addressed was the asset purchase of a business. In that situation, the general rule is that when one purchases a business, one also acquires any "attorney/client privileges" that attach to the business assets, as well as related files (and computers) of the parties. An exception may apply to issues related to the purchase transaction itself.
VC Parsons provided the following overview: Under Delaware law, one can speak to the former employee of an adversary, but with precautions. For example, it must first be determined if that person in represented by counsel. Also, one must first say that one does not want any privileged data, and one must also notify the ex-employee of the nature of the dispute. A description of the matter involved must be explained. The care that must be taken was also addressed in the Delaware decisions of both Monsanto and LaPoint. His Honor also mentioned that if one finds oneself with privileged data that may belong to another party, one must be careful to preserve all applicable rights before proceeding.
Of course, there are also applicable Rules of Professional Conduct that may apply to this situation.
New Federal Rule of Evidence 502 was discussed in the context of a case where there a millions of emails and hundreds of boxes of documents and only two months to do discovery (e.g., in an expedited case). Thus, one might employ a clawback agreement.
This new rule changes the prior rule by providing that if the waiver is inadvertent then there is NO "subject-matter" waiver.
VC Parsons commented on the applicability of this rule to Delaware Chancery Court. While acknowledging the excellent litigation skills of attorneys who practice in that court, His Honor suggested that those same competent lawyers may not be the "most familiar" (my words) with electronic discovery matters.
Part D of new Rule 502 refers to whether an order from a federal court determining that there is no waiver (e.g., in a protective order) may also apply to prevent a waiver of that same matter in any STATE court proceeding.
Three-part test. Waiver will only apply if:
(1) the waiver was intentional; (2) the disclosed and undisclosed communication or information concern the same subject matter; and (3) they ought in fairness be considered together.
Inadvertent disclosure. A disclosure will not operate as a waiver if:
(i) the disclosure is inadvertent;
(ii) the holder of the privilege took reasonable efforts to avoid disclosure; and
(iii) the holder took reasonable steps to rectify the error, including (if applicable) following Fed. R. Civ. Proc. 26(b)(5)(B).
NEW PROPOSED MODEL RULE 1.10
Addresses potential conflicts that arise with lawyers going from one firm to another. Also note that not all states will uniformly recognize or enforce "advance waivers".
This is my fifth update from this corporate law seminar in New Orleans. On this second day, the third panel presentation this morning is titled: "Delaware Developments". The panel members include a member of the Delaware Chancery Court and a few leading Delaware corporate practitioners.
Vice Chancellor Lamb discussed the very recent Delaware Supreme Court decision in Lyondell Chemical Co. v. Ryan, which was recently summarized on this blog.
Among the comments His Honor made about the case, he referred to page 18 of of Supreme Court opinion in Lyondell which describes what must be show in order to establish a violation the duty of care as compared with the duty of loyalty.
He also referred to the part of the Supreme Court's opinion that explained that simply putting a company "in play", does not trigger Revlon duties. Rather, Revlon duties are only triggered when the board decides to sell the company. Revlon applies heightened scrutiny and uses a "range of reasonableness". The Supreme Court also cited approvingly the Chancery Court decision in the Lear case (which was handed down shortly prior to the Chancery Court's decision in Lyondell v. Ryan. The Lear case includes the distinction between a review of the board's activities in connection with a sale, both before as opposed to after the transaction closes.
Contractual Limitations on a Board's Fiduciary Duties
The panel cited to the Chancery Court decision in Grimes v. Donald (1995) that stands for the view that a board should not restrict its duties to manage the corporation. (Compare with the option that the board might want to change its mind on whether to recommend a merger). See also Carmody v. Toll Bros. (1998) prohibiting the "dead hand pill"; and Abercrombie v. Davies (1956) preventing a voting agreement that required board designees to vote as a block.
By contrast, DGCL Section 141 allows certain restrictions to be in the certificate of incorporation--as opposed to having such restrictions in the bylaws which do not allow for as much leeway. See CA, Inc. (recent Delaware Supreme Court case) See also Grimes (upheld an agreement that allowed the CEO to unilaterally decide that his employment was terminated if his powers were restricted); and Cullman (agreement upheld that was in director's role as shareholder and also had fiduciary out). Another case discussed was:
Hokanson v. Petty, 2008 WL 5169633 (Del Ch. 2008). Claim that board breached duty of care and loyalty rejected because court said the agreement involved allowed the board to seek a higher price. Though the claims were time-barred, even so, the board had fulfilled its fiduciary duties by getting the best deal possible in a very distressed situtation.
BUSTED DEALS
The Delaware cases discussed included: IBP v. Tyson (2001) (applying NY law to grant specific performance and finding no trigger of MAE clause); Frontier v. Holly (2005)(staterment of CEO was not a repudiation, so the party that claimed a repudiation of the other was found to be in breach and no MAE established); United Rentals v. Ram Holdings (2007)(summarized on this blog, finding that contract limited remedy to termination fee); Hexion v. Huntsman (2008)(no MAE found, when one party orchestrated an insolvency opinion for merged entity, and specific performance ordered.)
PROPOSED REVISIONS TO THE DELAWARE GENERAL CORPORATION (DGCL)
Dave McBride discussed the changes expected to be made in the next few months to the DGCL by the Delaware Legislature and presumably to be signed by the Governor by this summer.
Gantler v. Stephens, (Del. Supr., Jan. 27, 2009)(previously summarized on this blog). A member of the panel also discussed this recent Delaware Supreme Court case that addressed issues of shareholder ratification and refused to apply the Unocal test, and instead applied the "entire fairness standard" to a board decision to retain control over their bank.
This is my fourth installment of live blogging from the above seminar in New Orleans. The second panel on this second day of this corporate law gathering is titled: "Roles Played and Issued Faced by Financial Advisors in Today's Deals". Among the panel members are Delaware Supreme Court Justice Henry duPont Ridgely as well as leading corporate practitioners and a representative of the SEC.
Justice Ridgely discussed the definition of "independence" of directors according to the Delaware case law, and mentioned that DGCL Section 141 specifically allows directors to rely on reports of experts such as financial advisors. Another panel member suggested however, that there is no requirement that experts be used per se. One panel member emphasized that "at the end of the day" the board needs to make the "business decision" on a particular deal.
Disclosure requirements were discussed and in particular the Delaware Chancery Court's Pure Resources opinion which said that the shareholders are entitled to a "fair summary" (in the proxy statement) of the basis of the fairness opinion on which the board relied. For example, a "fair summary" includes a description of exercises employed by the bankers and their assumptions used, and fair values resulting. However, other Chancery cases, such as Globis, said that one does not need to include so much that it would allow the shareholders to duplicate the same analysis made by the bankers. In addition, if the data was merely "helpful" that does not make it material. However, if there is "partial reference" to a topic, then it needs to be a complete disclosure on that topic. (i.e., not a misleadingly incomplete disclosure).
One panel member noted that the Chancery decision in JCC Holdings stands for a "no quibble" rule. That is, quibbling with the results of the valuation is not a disclosure claim as long as there is a disclosure about what "the banker did" as opposed to what analysis the banker did "not do".
Bottom line: Disclose the "meat" of the banker's analysis so that it is meaningful for the shareholders in making a decision based on the banker's valuation.
Fees paid to bankers: If it is contingent, the entire details of fee must be disclosed, otherwise all the details of the fee are not needed.
Netsmart was a Chancery Court decision that discussed what projections need to be provided to shareholders in a valuation. For example, a shareholder being cashed-out in an LBO would want to see and would need management's projections on which the valuation was based. One key is to determine whether the projections are "reliable". If they are reliable, then they need to be provided (even if determining "reliability" of projections is not always subject to certainty.) Plaintiff must prove reliability if the goal is to enjoin a transaction due to lack of disclosure of projections.
This is the second day of the annual gathering of corporate law types in New Orleans and this is my third update on the seminar. The panel this morning is entitled: " M & A and the Media". Among those on the panel includes reporters from The Wall Street Journal and The New York Times. The panel discussed the need to be aware of what is being said in the blogosphere, as the latest news in often reported there first. The question was asked about why the media (particularly the mainstream press) did not "identify" or "report about" the underlying problems that led to the current economic crisis--before the crash. In my view, the answers to that question from the panel did not satisfactorily address that burning issue.
This is the second live installment from the above 2009 corporate law seminar in New Orleans. Among the other bloggers posting live, see, e.g., here.
As a follow-up to my last post, the panel presentation of this afternoon is entitled:
Public Company M & A in 2009: What to Expect? The moderators are Victor Lewkow and James Morphy, Jr. The panel members include a Vice Chancellor of the Delaware Chancery Court.
MAC clauses were discussed. The member of the Chancery Court on the panel provided his perspective on MAC clauses by suggesting that recently there seem to be less "outs" in contracts, and Delaware strongly supports contract rights. There is a tension between a MAC clause and a "break-up fee" if the deal is not consummated. The "downside" of the position that strongly honors contracts, is that it puts pressure on financing parties when there is no "financing out". A problem develops if the agreement does not allow specific performance and one does not have a deal, then one is only left with the unpalatable option of "chasing" the termination fee.
Ted Mirvis of Wachtell Lipton discussed remedies in the context of merger agreements. Among the many issues he addressed, include the discussion of the different treatment of third party beneficary rights addressed in the Delaware decision in Amirsaleh compared with the New York decision in Con Ed
The Omnicare case was discussed and juxtaposed with the need for "deal certainty". The point was made that the analysis may be different when viewed from an "equitable as opposed to law" lens. In that context, a transcript of a decision by the Delaware Chancery Court in the case of
Optima International of Miami, Inc. v. WCI Steel, Inc., (Lamb, V.C., transcript, June 27, 2008),
was cited for the position that Omnicare is not violated when there is shareholder consent and the controlling shareholder owns less than 50% (and such consent is not prohibited by charter). However, the SEC recently made an interpretation that such consent cannot be used if there is any non-cash consideration requiring an S-4.
I’m blogging live from the 21st Annual Tulane Corporate Law Institute, a two-day seminar on corporate law that brings together scholars, practitioners and judges who want to explain, and to learn about the latest developments in corporate law. There is always a large contingent of Delaware lawyers and judges. I will only be posting about selective and subjective tidbits that I think would be of the most interest to those who read these pages looking for the latest updates in Delaware corporate law. Several others are also blogging this seminar today, e.g., here and here.
One of the morning panels was titled: “Shareholder Activism, Board Governance and the Role of State Law in the Age of Uncertainty.” Moderators of the panel were David Katz of Wachtell Lipton and Faiza Saeed of Cravath, Swaine and Moore.
Among the panel members are Delaware Supreme Court Chief Justice Myron Steele.
The topics addressed by the panel included:
“The Role of Delaware v. ‘Federal’ Corporate Law”.
The Chief Justice suggested that the future role of state law in corporate governance ultimately will be determined by the Federal government. [Note that this is not an official transcript and this post is the result of my notes that may not be a complete summary of the presentation by any panel member.]
His Honor said that Delaware’s approach is to find a balance between accountability and authority, and to allow shareholders and directors to talk about what improvements can be made on an incremental basis. My take on a few other soundbites from His Honor follow:
• His is concerned that the changes at the federal level will be the result of a frenzied race to make some change without the application of thoughtfulness. His preference is to allow the states to continue to lead the change.
• He mentioned a reference to a seminar last week at Notre Dame Law School where a panelist mentioned a federal statute that could be used to impose criminal liability for breach of fiduciary duty. One of the concerns is the lack of consistency in an approach that allows the many federal courts to define fiduciary duty according to 1,300 different federal district judges’ views in applying, potentially, the different definitions from one or more of the 50 states on fiduciary law.
• He said that a board is entitled under Delaware law to consider other constituencies, such as the community impact in a merger context, as long as they document their reasons, even though Delaware does not have a statute like some other states have, that expressly allows a board to consider the community.
• In reply to a question, His Honor expressed his personal hope that before acting too hastily, Congress would consider whether the systemic failure experienced in the financial markets and other sectors of the economic downturn, is due to corporate governance problems or whether it is more a problem of faulty federal regulation--or simply inappropriate, excessive risk-taking.
I am pleased to help to publicize a recent publication by a civil rights expert and friend, Professor Leland Ware. Professor Ware formerly was a trial attorney in the Civil Division of the U.S. Department of Justice and is now the Louis L. Redding Chair and Professor of Law & Public Policy at the University of Delaware.
His most recent publication is titled:
Choosing Equality: Essays and Narratives on the Desegregation Experience
It was edited by both Professor Ware and Professor Robert L. Hayman Jr., of Widener University, with a Foreword by Vice President Joe Biden.
An overview of the book follows:
The Supreme Court’s decision in Brown v. Board of Education has long been heralded as a landmark in the progress of civil rights in the United States. But as the forces opposing affirmative action and supporting resegregation have gained ground in recent years, its legacy has been questioned. Choosing Equality includes contributions that give voice to these concerns, yet it provides a strong challenge to this revisionist interpretation. The book positions the issues in the overall national context while focusing on them in the experience of one state, Delaware, that stands as a microcosm of the larger conflict.
This volume offers not only academic analyses of Delaware’s experience with Brown, set in the broader framework of the debate over its significance at the national level, but also the personal voices of many of the leading participants, from judges and lawyers down to community activists and the students who lived through this important era of the civil rights movement and saw how it changed their future by giving them hope.
Professor Gordon Smith has a post here about a seminar at Notre Dame Law School on the Future of Fiduciary Duties in Corporate Law that was held this past Friday. Delaware Supreme Court Chief Justice Myron Steele was the keynote speaker, and in addition to Professor Smith and the Chief Justice, other luminaries who presented on this key topic included Professor Larry Ribstein of Ideoblog fame, a leading authority on alternative entities.
Blogging may be light over the next week or so.
Chancellor William B. Chandler of the Delaware Court of Chancery is scheduled to speak at a symposium in North Dakota with other corporate law experts. The symposium relates to the North Dakota Publicly Traded Corporations Act and details are here.
One of the editors of the North Dakota Law Review, which is sponsoring the symposium, sent me an email with the following description of the event:
On April 3, 2009, the North Dakota Law Review will hold a live symposium event on the recently enacted, “shareholder friendly,” North Dakota Publicly Traded Corporations Act. The title of this year’s symposium is, “Corporate Governance and Shareholder Rights in a Time of Financial Crisis: How the North Dakota Publicly Traded Corporations Act Changes the Landscape.” Some of our notable speakers include: Chancellor William Chandler of the Delaware Chancery Court, Professor Stephen Bainbridge of the UCLA School of Law, William H. Clark (author of the Act), Professor J. Robert Brown, Jr. of the University of Denver Sturm College of Law, and North Dakota Secretary of State Al Jaeger....
This symposium will serve not only as a forum for the exchange of ideas among prominent scholars and practitioners from the field of corporate governance, but as a place for national practitioners, government and business leaders to discuss the implications of the North Dakota Publicly Traded Corporations Act on corporate governance and shareholder rights.
(italics and bold are mine)
The Harvard Law School Corporate Governance Forum posted an article today here about indemnification and advancement which includes a discussion of recent Delaware decisions that address these different but related concepts.
Gina Furia Rubel, Esq., a specialist in public relations for lawyers, wrote an article that appeared today in The National Law Journal here about the use by lawyers of Twitter, one of the newer types of social media. For those who want to be aware of the latest tools available online for connecting with others, including existing clients, it is a very worthwhile article.
UPDATE: The Wall Street Journal online picked up this post here.
Professor Bainbridge provides scholarly commentary here on the recent Chancery Court decision in Citigroup, including a rebuttal to Professor Jay Brown and an analysis of Caremark duties, as well as a discussion of the theoretical and practical underpinning of the Business Judgment Rule.
My prior highlighting of the Citigroup case and a link to the actual opinion is here.
U.S. Supreme Court Justice Clarence Thomas is one of my favorite jurists. I enjoyed reading his autobiography and found its soul-searching, timeless principles to be uplifting. Here is a post from The WSJ Law Blog about one of the rare speeches that he gave recently, and it reminded me why I still think he is a great man.
Professor J.W. Verret of the George Mason University School of Law, and a former law clerk for the Delaware Court of Chancery, has written an article in Forbes, here, arguing that the government bailout of banks, that involves at least partial government ownership, will weaken the banks.
Professor Stephen Bainbridge, the prolific and nationally recognized corporate law scholar, has returned after a hiatus to his widely-read blog, and has a post today here with a link to a brief that he collaborated on regarding the insider trading case against Mark Cuban.
Welcome back, Professor!
A post on The Harvard Law School Corporate Governance Forum (formerly called a Blog instead of a Forum), here, by lawyers at the Delaware law firm of Potter Anderson & Corroon, summarizes the proposed amendments to the Delaware General Corporation Law. As most readers know, the DGCL is updated every year as part of Delaware's effort to finely tune its corporate statutes and to keep them current with developments in our ever-changing world.
UPDATE: The Wall Street Journal's online edition picked up this post here.
Professor Larry Ribstein writes here about Warren Buffett's current Letter to Shareholders, which has many sage insights into issues faced in the current economy that one would expect from the Oracle.
The following information comes to us courtesy of Wilmington lawyer, and e-discovery expert, Kevin Brady, who was a key player in the program described:
Georgetown University Law Center Successfully Completes Inaugural E-Discovery Training Academy
Georgetown University Law Center was the site for the “first-of-its-kind” week-long training academy on electronic discovery law and technology. From February 9 – 13, 2009, Georgetown hosted the first academy for members of the judiciary, in-house and outside counsel, practice and litigation support professionals, IT and system specialists as well as corporate executives to learn about an area of the law that is uniformly misunderstood -- the intersection of law and technology in the context of litigation. According to Georgetown’s Assistant Dean Lawrence Center: “the Academy was designed to focus on the interface between law and technology where many critical decisions are made. The Academy provides an excellent opportunity for professionals to learn about the nexus between law and technology through a mix of technical theory and “hands on” practical demonstration in addition to a review of the substantive and procedural law of discovery of Electronically Stored Information or “ESI.”Academy Program Chair, Robert Eisenberg, Vice President Consulting for Capital Legal Solutions LLC, in Falls Church, Virginia, who had the vision to suggest that Georgetown create such a program, said that “in designing this Academy, we wanted to bring together in one place the “best and brightest” instructors in the world of electronic discovery law and technology to teach the first academy class which was limited to 50 students and we were very fortunate to make that happen.” Topics for the various sessions of the Academy included, among others, technology primers, sessions on the technical issues related to preservation, harvesting, procession and producing electronic information, search tools and filtering methodologies and a practicum on designing and managing an E-Discovery project. At the conclusion of the Academy, Dean Center said that “By all accounts, the Academy was a tremendous success and we are looking forward to another innovative program at Georgetown next year.”
The full brochure is available here.
Professor Larry Ribstein, one of the nation's leading scholars on LLCs, writes here about a recent NY decision that recognizes the right of an LLC member to an accounting--despite no such right being found in NY's LLC statute. The good professor explains why this decision (that relies on another NY decision that also recognized another right not found in the LLC statute), might be a reason why practitioners would prefer Delaware law when it comes to LLCs.
Chancellor William B. Chandler, III of the Delaware Chancery Court has co-authored with one of his former law clerks, a law review article that replies to some critics of Delaware's corporate law. The article is part of a series of law review articles just published in The University of Illinois Law Review, Volume 2009, Number 1. Hat tip to Professor Larry Ribstein who organized the symposium which was the genesis of the articles and who contributed his own article to the same publication that also responds to the same critics from his perspective as one of the nation's leading experts on LLCs and other alternative entities. The good professor's post today entitled "The Mystery of Delaware's Success", here, provides an overview and background of the series of articles in the current issue of the law review.
An excerpt from the introduction to the Chancellor's article follows:
... Chandler and Rickey examine the data provided by Carney and Shepherd and conclude that Delaware’s success is not such a mystery. First, they compare appeal and reversal rates of other jurisdictions with those of Delaware. Their findings do not support Carney and Shepherd’s conclusion that Delaware’s reversal rate is “relatively” high. Next, they consider several of Carney and Shepherd’s qualitative claims of the Model Act’s doctrinal superiority and demonstrate that the Model Act becomes much less certain when applied in realworld cases. Finally, they address Carney and Shepherd’s assertion that Delaware law leads to unnecessary cost and delay in litigation and show that this conclusion is based upon unreliable and incomplete data.
The list of the articles and authors in the current issue of the law review include:
The Mystery of Delaware Law's Continuing Success, William J. Carney and George B. Shepherd
Manufacturing Mystery: A Response To Professors Carney and Shepherd's "The Mystery of Delaware Law's Continuing Success", William B. Chandler III and Anthony A. Rickey
The Uncorporation and Corporate Indeterminacy, Larry E. Ribstein
Delaware's Disclosure: Moving the Line of Federal-State Corporate Regulation, Robert B. Thompson
Bankruptcy Bondage, Margaret Howard
Unconscious Bias and the Limits of Director Independence, Anthony Page
Professor Larry Ribstein, one of nation's foremost experts on LLCs and other alternative entities, has written extensively on the "legal aspects of large law firms". Here is a post he penned today that refers to today's front page story in The Wall Street Journal about some very large and very old law firms that have recently dissolved. The title of this post (and his post) refers to the "coat of arms" of the recently dissolved Heller firm whose Latin motto referred to the famous Elvis still being alive (elvem ipsum etiam vivere) and whether other big firms will share the fate of Elvis and other mortals.
Professor Ribstein cites to some of his scholarly writings on the topic of the legal and ethical issus that impact the running of law firms as a business. A list of some observations from his post that indicate some of the issues that large law firms face but that many businesses do not:
-The major assets can walk
-These firms need lots of debt because of mismatching revenue and expense streams.
-The combination of these two conditions can make the financial condition of even the largest firms tenuous.
-Medium sized firms can’t survive these pressures. Yet client conflicts constrain growth through merger or otherwise.
-Fundamental changes in the law business, such as the long-term decline in Heller’s litigation, are changing the basic business model.
Professor Mark Roe of Harvard Law School posts here about his latest work that addresses the issue of Delaware's "competition" for "corporate business". Professor Roe has written several articles on related topics involving Delaware's role in the corporate world and what factors impact its ability to maintain that position. Professor Roe gave a lecture in Delaware on the topic as I previously wrote about on this blog here.
Professor Larry Ribstein has also written extensively on this topic and here is a reference to his most recent scholarship on the issue, co-authored with Professor Erin O'Hara.
The articles referred to above provide a more scholarly approach to the discussion often entered into with less thoughtfulness about Delaware's status in the world of corporate law.
Professors Larry Ribstein and Erin O'Hara have published a book called: The Law Market that addresses the topic of jurisdictional competition. Professor Ribstein has written extensively on the topic of competition among the states to attract corporations as their domicile for incorporation purposes, and related topics. Coincidentally, Professor Mark Roe also recently published his scholarship on a related issue that we highlighted here.
The description of The Law Market provided by the authors, follows:
Today, a California resident can incorporate her shipping business in Delaware, register her ships in Panama, hire her employees from Hong Kong, place her earnings in an asset-protection trust formed in the Cayman Islands, and enter into a same-sex marriage in Massachusetts or Canada--all the while enjoying the California sunshine and potentially avoiding many facets of the state's laws.
In this book, Erin O'Hara and Larry E. Ribstein explore a new perspective on law, viewing it as a product for which people and firms can shop, regardless of geographic borders. The authors consider the structure and operation of the market this creates, the economic, legal, and political forces influencing it, and the arguments for and against a robust market for law. Through jurisdictional competition, law markets promise to improve our laws and, by establishing certainty, streamline the operation of the legal system. But the law market also limits governments' ability to enforce regulations and protect citizens from harmful activities. Given this tradeoff, O'Hara and Ribstein argue that simple contractual choice-of-law rules can help maximize the benefits of the law market while tempering its social costs. They extend their insights to a wide variety of legal problems, including corporate governance, securities, franchise, trust, property, marriage, living will, surrogacy, and general contract regulations.
The publication called Ethisphere recently announced its list of the top 100 most influential people in business ethics, and among those included was Delaware Supreme Court Chief Justice Myron Steele "for his leadership of the court that charts the course of corporate governance."
Here is a short article about the top 100 list from Law.com
The Wall Street Journal Law Blog has a post here about the bizarre world of civil contempt, and in particular refers to the sad tale of a former lawyer imprisoned just over the Delaware state line in Pennsylvania for the last 14 years due to a "civil contempt" finding.
Here is an article from Law.com that provides an overview of key court rulings during 2008 in the extremely important area of e-discovery (a/k/a EDD).
My annual review of selected key corporate and commercial Delaware decisions in 2008 is here. The Delaware Law Weekly published it in its current issue. (Due to its length, this week only Part I appeared and next week the second half of the article will be published.)
My short reviews for each of the last three years, are available here, here and here.
Last year, I replied to Professor J. Robert Brown's list of the top 5 Delaware cases that, in his view, supported his negative perspective of Delaware law that remains the constant refrain on his blog called: The Race to the Bottom.
My introductory explanation from my rebuttal of last year was as follows:
... I realize that there are many more qualified experts who can rebut the professor's arguments far more persuasively than I, and I am well aware that the Delaware bench certainly does not need my help to defend it. Nor have I been anointed by anyone to take on this role. Nonetheless, having just completed a review of key 2007 Delaware corporate decisions, I offer my own humble rebuttal and a "counter-list" of 5 cases in 2007 that demonstrate that the Delaware courts take shareholder rights and the duties of directors very seriously. If any readers can think of a better "top 5" list, than the one I compiled below, I welcome comments. Here is my top 5 "rebuttal list":
Well, I just finished my 4th annual overview of selected Delaware corporate and commercial cases for 2008, which will be published soon in The Delaware Law Weekly, at which time I will also post it on these pages. I also just saw Professor's Brown list of 5 cases from 2008 that he uses to support his unabashedly unflattering views of Delaware law. Here is his list and here is his introductory post.
My cursory review of the cases I selected below (from the approximately 200 or so that I have summarized on this blog during 2008), is not as scholarly as the good professor's treatment, and I do not have the time (thankfully, due to my busy practice) to engage in extended debate (at least for the next week or so), but until someone else picks up the baton, I offer the following cases to counterbalance the list offered by Professor Brown. I invite others to suggest other cases that they would rather see in my "top 5 list".
In Steel Partners II, L.P. v. Point Blank Solutions, Inc., 2008 WL 3522431 (Aug. 12, 2008), the initial complaint was filed to force the holding of a shareholders meeting (which had not taken place since 2005), pursuant to DGCL Section 211. After a stipulation was entered into for a date to hold the meeting, the defendant moved for leave of court to postpone the date of the meeting by 90 days. The Chancery Court denied the request. The request was based on allegations that the plaintiff and its CEO together own about 40% of the stock and would attempt to install their own directors and then seek to buy the company at the lowest possible price for its own investors. In addition, the postponement was requested due to an alleged conflict that the plaintiff's CEO had with the majority. The court reasoned that the best way to deal with the issues presented was to communicate them to the shareholders and let them decide, based on those facts, who they wanted as directors--instead of further delaying the exercise of the shareholder franchise, which under Delaware law is sacrosanct. The summary of the case on my blog is here.
London v. Tyrrell, 2008 WL 2505435 (Del. Ch., June 24, 2008), read opinion here. This Chancery Court decision explained in detail the reasons why it denied a motion to dismiss a derivative claim based on Chancery Court Rules 9(b), 12(b)(6) and 23.1. The derivative complaint alleged that the defendants caused the company to issue stock options in contravention of an equity incentive plan by setting the exercise price of the issued options at an unfairly low value.After a thorough factual background description, the court emphasized that: “the burden remains on the movant to demonstrate that the plaintiff has not met the requirements of Rules 9(b), 12(b)(6) and 23.1." (see footnote 12). Moreover, the court described in detail the demand futility analysis under the seminal case of Aronson v. Lewis, 473 A.2d 805 (Del. 1984) as well as Rales v. Blasband, 634 A.2d 927 (Del. 1993). The court explained the reasons why it concluded, as succinctly as I have seen it done, that both prongs of the Aronson case were satisfied. Specifically, the plaintiff demonstrated a reasonable doubt that: (1) the directors were interested and independent; or (2) the challenged transaction was otherwise the product of a valid exercise of business judgment.
The first prong was satisfied because the directors had a financial interest in the challenged stock option plan and also because they stood on both sides of the transaction that was challenged. Moreover, the second prong was satisfied because the allegations rebutted the business judgment rule to the extent that the allegations supported an inference that the directors intended to violate the terms of a stockholder approved option plan. The court also dismissed the arguments under Rule 9(b) that there was insufficient particularity regarding fraud allegations which apparently relied on Sections 152 and 157(b) of the DGCL.
UPDATE: The Wall Street Journal online highlighted this post here.
UPDATE II: The Harvard Law School Corporate Governance Blog published this post here.
UPDATE III: Forbes. com highlighted this post here.
Best wishes to all my loyal readers for a happy and healthy New Year!
The last year gave me much to be thankful for, and I hope 2009 is a great one for all of you (and for me).
Kevin LaCroix of The D & O Diary provides a very useful update of the lawsuits that have been filed to date involving the Bernie Madoff ponzi scheme that is estimated to have caused billions of dollars in losses. The defendants include "feeder firms" such as other hedge funds who gave Madoff money--and the accounting firms that audited those feeder firms.
UPDATE: The Wall Street Journal online highlighted this post here.
At the International Corporate Governance Network seminar at the Hotel duPont in Wilmington, Delaware, an extraordinary event took place this morning.
A majority of the members of the Delaware Supreme Court and the Delaware Chancery Court constituted one panel that took questions from the audience of about 300 corporate governance experts from corporate lawyers and related players in the corporate governance arena. Of course, one cannot treat their replies in that forum the same as a formal opinion issued in a real case, but there is no reason that one could not gain insights into the viewpoints of those jurists in connection with the questions asked. So, I give my readers the benefit of my notes on the following Q and A that took place today.
CAVEAT: This is NOT a transcript, so if my notes do not accurately reflect the replies of the members of the bench to which they refer, you have been forewarned--but I did the best I could do, to fairly summarize selected parts of what was said in reply to some of the questions. I did not include all the answers to all the questions.
Question: Will the Business Judgment Rule (BJR) change in light of the recent economic crisis?
VC Strine: It will continue to be the foundation of our law but that does not mean that there is a lack of accountability, and as circumstances change, boards must adapt to those changes and, for example, their monitoring function may come into play more prominently. In sum, "there is no free ride" with the BJR.
Question: How can Delaware balance the interests of companies and shareholders with its own interests as a state, when so much of the state's revenue is dependent on those companies?
VC Lamb: Shareholders ultimately decide to come to Delaware or stay here. We try very hard not to favor any party or group, whether it's designated as shareholder or management.
Justice Berger: Any lopsided system that favored management or shareholders would not help either group in the long-run, nor would it help Delaware.
VC Strine: Our corporate law is primarily contractual in nature, as opposed, for example, to environmental law which is mostly regulatory, and has the EPA as the regulatory agency that controls that arena in large part. Unlike the statutes in many statutes, and the EU, the law of Delaware provides many protections and rights for shareholders that balance the rights and duties of management as well.
Chief Justice Steele: It is a mystery why some people think Delaware favors management. The Delaware judiciary takes their own fiduciary duties as judges very seriously and it is unfathomable that a member of the Delaware bench would favor one side or the other--or one group or another.
Question: What role, if any, do the Delaware courts play in recent corporate failures?
VC Strine: Delaware courts very tightly police wrongdoing brought to their attention and, for example, have many times condemned "conflicted transactions". The Delaware courts also jealously protect the shareholder franchise and in many cases have "hammered" companies that interfere with shareholder voting rights.
Justice Ridgely: The Delaware statutes provide specifically for shareholder rights, and include procedures to advance those rights.
Justice Berger: Delaware courts are not averse to considering decisions and viewpoints from other states and countries where appropriate, as we do not think that we have all the answers.
Justice Ridgely: In one recent case involving derivative rights, the Delaware Supreme Court went all the way back to the 1400s to examine the source of the derivative claim in English common law, and much of our law is based on the common law of the U.K.
Question: Can directors be sued due to a failure to monitor too much risk?
VC Parsons: Delaware decisions like Caremark and Stone v. Ritter make it clear that the board has duties to monitor and that has two primary parts: First, there must be a monitoring system in place that is likely to detect problems. Second, that system must provide for a way to deal promptly with problems once detected. Whether they are liable for failure of the foregoing will depend on the specific factual details of the case. One issue that may arise is whether the board understood some of the more esoteric financial instruments that were at the root of some of the recent financial problems.
Professor Larry Ribstein ponders here in a thought-provoking post about the corporate governance implications of a former Treasury Secretary such as Robert Rubin who, as a sophisticated and very highly paid member of the board of Citigroup, Inc., either did not see or did not take action to avoid his company's exposure to the economic tidal wave that led to the recent near-demise of the gargantuan financial institution known in some circles simply as Citi.
Rubin argues in recent articles linked by the good professor above, that he should not be blamed because, at least in part, he should not be expected to have a "granular" understanding of the operations of the company that he was paid about $12 million a year to--at least in part--manage. Should we buy that argument--from a corporate governance perspective?
Professor Stephen Bainbridge, one of the country's foremost scholars of corporate law, and often cited in the decisions of the Delaware courts, has penned a thoughtful post about another law professor who has been mentioned as a potential new ambassador to the Holy See. As the good professor explains in his scholarly fashion:
The Holy See is the universal government of the Catholic Church and operates from the Vatican City State, a sovereign, independent territory .... The Pope is the ruler of both the Vatican City State and the Holy See. The Holy See, as the supreme body of government of the Catholic Church, is a sovereign juridical entity under international law.
The current ambassador to the Holy See is a Harvard Law School professor. The issue in the post arose because the other law professor who has been suggested as a potential new ambassador to the Vatican has been one of the most vocal opponents of key, core positions of the Catholic Church during the recent election of our new president-elect. One commentator has suggested that it might be similar to appointing as the next ambassador to Israel a proponent of Iranian views or kindred folk who do not recognize the right of Israel to exist.
It remains thought-provoking to see the rigorous intellectual analysis that a scholar has brought to bear on corporate governance issues, applied to this intersection of International Law; Church Law; First Amendment rights; diplomacy and "extracurricular activities" of law professors.
The post includes a quote from a Vatican official indicating clear opposition to this "hypothetical nominee." Among the many facets of this fascinating topic, the post concludes with this rhetorical query:
The question then becomes whether it’s good policy to appoint an ambassador you know will offend a host country.
Would you want to offend, or why would you want to offend, the Pope?
His Holiness Pope Benedict XVI
This is intended as short reflection piece, so I'll ask for your indulgence to the extent this is "off topic", but since I am writing this on a Sunday afternoon, a little reflection is in order. Twitter is a free online tool that is increasingly used by "Internet-savvy" lawyers who do business litigation, and others, to keep in touch with other lawyers and friends, as well as clients and family. Some might say it is a natural evolution or logical development for those who blog, as it has been described as "mini-blogging".
There is still much for me to learn about Twitter and how to use it, as I have only begun to become familiar with it, but in the process of learning about it, I thought it would be helpful to share a few links for those who are interested in finding out more about this latest means of leveraging the Internet.
Lawyer Denise Howell, a pioneer blogger, has written a post here that provides a link to Twitter 101 for Lawyers. In keeping with the latest developments on the Internet here is a link to a Twitter song on YouTube. Here is an article with an increasing list of lawyers who use Twitter.
Kevin O'Keefe, guru for lawyers who blog, has written extensively about why lawyers should learn more about Twitter, (e.g., here), and now there is a "top 10" list of rules for those who use Twitter that Kevin recently posted about on Twitter (called a tweet). Kevin predicted correctly many years ago that blogs would be a mainstream "major player" in the legal profession, and so I give his opinion considerable weight when he says that Twitter is more than just a passing fad.
UPDATE: I want to "tie-in" the title to this post better than I did initially, so I bring to your attention the first comment below by a thoughtful reader who has supplied two especially helpful and relevant links that provide a list of "BigLaw lawyers" who use Twitter as well as one that provides a link to "securities counsel" who use Twitter. (click on "comments" below). The point of my post is that Twitter is not limited to those lawyers whose practice is limited to "consumer/retail law" such as domestic relations, but rather, Twitter is being used by those in big firms who might have more of a "wholesale" practice that caters to businesses and others who are not the "typical retail consumer" that one might think of as likely to use the latest Internet-related development in communicating with others.
Kevin LaCroix, the famed author of The D & O Diary, a must-read for those who want to keep abreast of developments in the field of director and officer liability coverage, was on a panel with me at a presentation yesterday that we gave, entitled: Blogging for Lawyers, in connection with a two-day seminar sponsored by The Pennsylvania Bar Institute.
It was a "tough act to follow" for us to be scheduled after Chief Justice Myron Steele of the Delaware Supreme Court gave enlightening presentations on Delaware corporate law in the two sessions that preceded our time slot. The morning started with an individual presentation by the Chief Justice, and then His Honor joined a panel of distinguished lawyers to review recent Delaware decisions.
Here is Kevin's post about our presentation. His post includes his written materials and here are the written materials that I prepared. Kevin's post presents an excellent overview for any lawyer interested in starting a blog.
Professor Bainbridge has written an essay on Delaware's Corporate Opportunity Doctrine. Here is the link to the essay and a short blurb on it.
I just noticed that my blog was listed in the top 100 of Justia.com's Most Popular Blawgs of All Time based on the number of visits to this blog (blawg) from the BlawgSearch search engine and directory listing pages. Here is the list.
Victoria McGrane wrote a timely story yesterday on Politico.com here about the impact on "business friendly Delaware" if Biden wins the VP position. Of course, part of that discussion involves what impact, if any, he would have if he wins, on the ongoing tug-of-war between state and federal control of corporate governance. Victoria McGrane kindly quotes yours truly--but it's still a thought-provoking article anyway, and certainly relevant to this blog.
Interestingly, this is not a political blog, and I limit my posts to law-related topics primarily involving Delaware corporate and commercial law, but for some reason not yet unequivocally clear to me, I am listed by BNN (as indicated by the icon in the right margin of this blog) as one of the "top 20 most influential political blogs in Delaware" in addition to being in the top 20 of other categories of top blogs in Delaware.
POSTSCRIPT: For a sample of the many articles on this topic, here is a post by Prof. Larry Ribstein which also links to some of his scholarly writings on the issue of competition for the regulation of corporate law between "Federal v. Delaware".
Off topic post? Maybe, but here is the point. On the way to the office on this glorious Sunday afternoon, I was listening to the above-referenced opera and thinking about a common translation of its Italian title: "That's the way women are". Like most stereotypes, it paints with a broad brush and does not recognize the individual differences that may swallow the generalities. So the point I want to make is that in most of the decisions summarized on these pages from Delaware's Chancery Court and Supreme Court, one will find a substantial part of the opinions devoted to an exhaustive recitation of the facts--prior to any discussion or application of the legal principles involved. Why does this matter? Because the court can only decide the cases presented to it and the cases presented to it are often factually intensive and the particular factual details of a given case are often determinative. This careful observation often will give the lie to those who try to pigeon-hole Delaware decisions into "pro-management" or some similar tendentious stereotype.
Postscript: Fortunately (in some ways), I have been too busy recently with paying clients to keep up as often as I would prefer with my summaries of recent Delaware cases, but I am hoping to remedy that and catch-up today as well as during this coming week.
The National Law Journal's article today by Marcia Coyle, titled "Delaware Courts in Crosshairs", here, describes the perennial risk that Congress will respond to popular pressure and try to find a federal regulatory solution to the most recent round of problems now facing corporate America. The article quotes several corporate law professors, such as Gordon Smith, who posts about the article here on his blog called The Conglomerate.
Yours truly is also quoted in the article as follows:
Corporate litigator Francis G.X. Pileggi, partner in the Wilmington, Del., office of Philadelphia-based Fox Rothschild, agreed, saying, "I think there are plenty of examples where Delaware courts have taken directors to task for not fulfilling their fiduciary duties. They have to rule on the case in front of them. If the case has facts that allow them to apply the law, they do so."
The title of this post is the title of an article just published by Professor Bainbridge that is a critique of a work that addresses minority shareholder rights in corporations. Here is the link.
The 24th Annual F.G. Pileggi Distinguished Lecture in Law, sponsored by The Delaware Journal of Corporate Law, the lead law review of Delaware's Widener University School of Law, was presented today by Professor Eric Talley, a visiting professor this year at Harvard Law School. Here is a short description of this year's event with a link to a video of the presentation.
The prior 23 Annual Distinguished Pileggi Lecturers have been listed here. My posts about last year's Distinguished Pileggi Lecturer (and reference to the two prior years) is available here. Some background on how the Annual Lecture began is described here.
UPDATE: The Delaware Law Weekly has a story about it here. The Delaware Corporate Litigation Reporter, published by Thompson-West, also has an article about it that they graciously allowed me to reprint on this blog here.
A partial abstract of this year's Distinguished Lecture in Law by Professor Eric Talley, held at the Hotel duPont in Wilmington, Delaware, on October 10, 2008, is as follows:
How Complexity Simplifies Corporate Law, Governance, and Incentives
ABSTRACT:
Complexity makes corporate law and governance both challenging and interesting. Indeed, the modern corporate enterprise must mediate and regulate a vast number of conflicting interests, claims, constituencies and authority relationships. Within the shadowy interstices of these conflicts, coordination and incentive problems tend to propagate and thrive. In many ways, the key challenge of corporate law is that of constructing balance amid the chaos of these competing forces.
Professor Bainbridge comments here on a recent editorial in The Wall Street Journal about the alleged impact that Sen. Biden has had on an apparent influx of asbestos cases in Delaware. I think the WSJ has it wrong as numerous surveys and studies have shown.
Professor B. discusses the potential for the impact on corporate law in Delaware of the "tort bar's" activities as described by the WSJ--even though I think the WSJ's description is way off the mark.
Here is a "Cooperation Proclamation" by The Sedona Conference, regarding the discovery phase of litigation, that also has been signed on to by a number of judges around the country. The Sedona Conference is a "thought leader" on litigation topics, including in the area of electronic discovery (EDD) or the discovery of electronically stored information (ESI). If the discovery phase of litigation was fraught with a lack of cooperation before EDD, the advent of EDD has exacerbated the problem and increased costs exponentially. This proclamation is a noble effort to help those of us in the trenches of litigation.
Professor Bainbridge examines the old(er) Delaware Chancery Court decision of Baron v. Allied Artists Pictures Corp., 337 A.2d 653 (Del. Ch. 1975), app. dismissed, 365 A.2d 136 (Del. 1976), and wonders, here, if the fiduciary duty and business judgment rule issues in the case would be decided the same way today. The court refused to require what. in essence, was arguably a controlling shareholder who had control over the board. to declare a dividend.
Professor Ribstein here and Professor Bainbridge here, discuss the legal issues involved in the three-way dispute between Citibank; Wachovia and Wells Fargo, and whether the Citibank-Wachovia deal can be specifically enforced despite WF's higher later bid.
Although that Citi-Wachovia deal document is not controlled by Delaware law, to the extent that the New York court hearing the case (and apparently applying North Carolina law), refers to Delaware law, the many decisions on specific performance summarized on this blog can be found here.
UPDATE: The Wall Street Journal's "Law Page" picked up my post here. The WSJ's Law Blog has the latest on the three-way imbroglio here, including a consensual "stay" of the pending lawsuits until Wednesday at noon.
Vice Chancellor Leo Strine, Jr. of the Delaware Chancery Court is the subject of a lengthy article published here on The Harvard Law School Corporate Governance Blog. For anyone appearing before His Honor or just interested in learning about his background before he ascended to the bench, as well as a few highlights of his last 10 years on the bench--and more about this leading figure in corporate law, it is must reading.
Here is a thought-provoking post by Professor Bainbridge about the partnership law issues that were raised when a partner at the Orrick firm had the audacity to exercise his personal views which apparently were too politically incorrect for one of his other partners, who found it necessary to send an email around the firm to express his outrage at the firm being affiliated with someone who had politically incorrect views. What ever happened to lawyers who respected diverse viewpoints?
UPDATE: Professor Ribstein addresses here, the partnership law issues raised by Professor B.
The current issue of The Business Lawyer arrived in the mail today and with it the most recent article published by a member of the prolific Delaware Chancery Court. The citation to the article is:
Leo E. Strine, Jr., Breaking the Corporate Governance Logjam in Washington: Some Constructive Thoughts on a Responsible Path Forward, 63 Bus. Law. 1079 (August 2008). The ABA's website makes a copy available online here. Especially in light of the historical trauma on Wall Street in the last week, and the rush to find a solution in Washington, the topic could not be much more timely. As described in the opening footnote, the article is based on speeches given at various corporate law seminars over the past few months.
Moreover, for those interested in learning insights into the latest thought-process of at least one member of the Court on important matters of Delaware corporate law, one could spend their time less productively than by reading the foregoing latest articulation, off the bench, by one of the guys who makes the big decisions.
Courtesy of Mark Herrmann on his Drug and Device Law blog, here is an excellent summary and commentary on the new Federal Rule of Evidence 502 that was signed into law by the President a few days ago, and even has application in some manner to state court cases.
The following quote is from the introduction to the post:
This law creates a new evidence rule, Federal Rule of Evidence 502, limiting attorney-client privilege and work product waivers. It applies in "all proceedings commenced after" its enactment date and, "insofar as is just and practicable, in all proceedings pending" on that date.
This is must reading for all those who practice in the area of business litigation. Here is a short blurb I did on it last week.
Prof. Stephen Bainbridge supplements here his post of yesterday (here) in which he provides a short treatise on the Delaware Supreme Court's decision in Revlon, and its progeny. A tasty morsel from his most recent analysis, referring to the recent Ryan decision by Vice Chancellor Noble, is excerpted below:
In my opinion, however, if Noble means to say that every sale of a corporation triggers “Revlon duties” in the sense that enhanced scrutiny applies to the board’s conduct of every sale, I believe he is wrong both as a matter of policy and doctrine. I discussed the policy reasons why I think that’s an error in the earlier post, The Borders of Revlon-land, so here let me focus on doctrine.
POSTSCRIPT: Prof. Steven Davidoff here discusses a potential application of Revlon and related corporate law concepts to the very recent "takeover" of AIG by the federal government.
Prof. Stephen Bainbridge provides a "mini-law review article" here, that examines the Delaware Supreme Court's decision in Revlon v. MacAndrews & Forbes Holdings, 506 A.2d 173 (Del.1985), and its progeny. The scholarly review of cases and commentary also describes, in light of the recent Ryan and Lear decisions of the Delaware Chancery Court, what types of factual situations should--and should not--trigger what is often referred to as "Revlon-duties" when a company is for sale, although even that label is subjected to close scrutiny in the treatment given to the topic.
One of the quotes from the lengthy post (that includes citations to many cases and the professor's own writings), is the following tidbit that I arbitrarily selected:
Once we understand that Revlon is really about dealing with conflicts of interest and director motives, we can begin to define the borders of Revlon-land.
Insurance law expert, Kevin LaCroix, on The D & O Diary, here, provides a lawyerly analysis of the issues raised in the government's $85 billion loan to AIG in return for a right to 79.9% of the company.
Today is Constitution Day in Delaware and I was pleased to be invited to give a presentation at the Delaware Technical and Community College on the recent Heller v. D.C. decision and related topics. Dean of Students, Dr. Regan Hicks-Goldstein, was kind enough to invite me to speak. Dr. David Rudder was also part of the welcoming committee. I was honored that State Senator Margaret Rose Henry was also in attendence.
Here is a short blurb about it in the local paper. I don't often talk about or write about constitutional issues, but it is the foundation for all our laws in this country so it's appropriate to cover it every so often.
From the EDD Update blog, comes a post of interest to most litigators, that I quote in part as follows:
Rule 502 Gets an Invite to the Whitehouse.
Under a proposed federal rule of evidence, disclosure of privileged materials will not be a waiver of the privilege if, among other things, the disclosure is inadvertent.
If this new rule passes, it will make it much easier to perform electronic discovery in light of the huge volumes of data that are now exchanged and the current risk that waiver will occur if something privileged is inadvertently produced. Here is more detail on this important development.
UCLA Law Professor Robert Sander wins this week's "Politically Incorrect Award". I get some contrarian glee from being politically incorrect when I can (and when it does not jeopardize my livelihood). Professor Sander studies the impact of affirmative action on law school graduates. In the course of his research, he sought the statistical results of the bar exam from the California Bar Examiners. However, they did not think--apparently--that his research was sympathetic to their political views, so they denied his request for the information. Here is the story from The Wall Street Journal's Law Blog.
Regardless of what one thinks of affirmative action, it is patently un-American to deny information to a researcher because the researcher's views are not "politically correct".
Directorship magazine has published its second annual list of the most influential people in boardrooms and in corporate governance. Those that made the Top 100 list include:
Delaware Supreme Court Chief Justice Myron Steele; Chancellor William Chandler and Vice Chancellor Leo Strine of the Delaware Chancery Court, as well as Corporate Law Professor Stephen Bainbridge. Of course there are other prominent people on the list but these are the luminaries with the Delaware connection that I noticed in a cursory review. Congratulations to all.
Supplement: A reader who reviewed the list "less cursorily" than I did, was kind enough to point out that former Chief Justice E. Norman Veasey and UD Professor Charles Elson also "made the list". Congrats to all who made the Top 100 this year (i.e., everyone, even if not highlighted here.)
Noted corporate law scholar, Prof. Gordon Smith, who is also a co-founder of The Conglomerate blog, created a blog network for his blog on Facebook. As a regular reader of his blog, I joined his blog network on Facebook and thought that it would be fun to start my own as well. So here is the link to this blog's "group" on Facebook. I invite you to click on the foregoing link and join the group. I am still learning about the benefits of such a group, but it is free and seems like a natural extension for regular readers of a blog.
I am fortunate to have thousands of regular readers of this blog and so it will be interesting to see how many of you join as we both learn the advantages of yet another means to leverage the Internet to keep in touch with larger groups of people. I look forward to your response to this invitation as well as any comments you might have about this new feature.
The Adminstrative Office of the Delaware Courts has published guidelines for use by attorneys working with interpreters in the Delaware court system. Here it is.
Here is an interview of Delaware Supreme Court Chief Justice Myron Steele by Prof. J.W. Verret on The Conglomerate blog. This is must reading for anyone interested in understanding an overview of the theoretical and practical underpinnings of Delaware corporate law as explained by Delaware's top jurist.
UPDATE: The Wall Street Journal's online edition today (Sunday) highlighted this post here.
Stephen Bainbridge, a reknown corporate law professor, chronicles the demonstrable liberal bias of the mainstream press here. His post cites to several studies supporting the position. It was written several months ago--before what is now widely recognized as the unfair attacks on Gov. Palin by the mainstream media, also covered by Professor Bainbridge here.
Prof. Larry Ribstein, a nationally prominent expert on LLCs and other alternative entities, writes here about the announcement yesterday of Gov. Sarah Palin to be the VP running mate for Sen. McCain. This is a blog whose primary focus is Delaware corporate law and I previously blogged about the impact on Delaware corporate law of Sen. Biden's pick as the VP running mate for Sen. Obama here, so it's only fair that I "give equal time to the distaff side".
I will need to do some research to add a link later about her specific projected impact on Delaware corporate law, but to the extent that the Vice President of the United States impacts the whole country, and presides over the U.S. Senate which legislates on corporate law affecting all states, including Delaware, her new (potential) role must have some relevance to this blog.
In closing, I must make a basic observation. Gov. Palin is the mother of five children. My saintly mother, God rest her soul, had seven (7) children--yours truly being the problem middle child. ( I had the best mother anyone could ever have been blessed with--bar none.) Anyone growing up in a large family like I did, knows that mothers of large families are the original masters of "multi-tasking" and by necessity have "executive experience", for example, in needing to make split-second decisions to determine the difference between a true crisis and whining, (or in the case of my mom, by needing to learn quickly how to handle 4 "little ones" at once under the age of 6 all wanting your attention at the same time--while making dinner and washing clothes, etc.)
More Insight: Here is an article from the BLT of The Legal Times about Gov. Palin's support of the Exxon Valdez lawsuit and the her comments on the recent SCOTUS decision on punitive damages in that case.
Supplement: Corporate law professor Christine Hurt provides her comments here. For a lesson in objective analysis that can apply to any argument on almost any topic, here is an article by the reknown cultural analyst Camille Paglia, that addresses the narrowmindedness of some critics who are not being fair or objective in their attacks on Gov. Palin.
Seth B. Tillman and C. Stephen Biglar are the authors of: "Void or Voidable? - Curing Defects in Stock Issuances Under Delaware Law, available on SSRN here.
A partial quote from the abstract summarizing the article follows:
It is not unusual for practitioners reviewing a Delaware corporation's stock records to find omissions or procedural defects raising questions as to the valid authorization of some of the outstanding stock. Examples of such omissions and defects are limitless, but not infrequently found examples include the absence of board resolutions authorizing the issuance of stock shown by the transfer books as having been issued, the absence of evidence that issuances were properly authorized by the requisite votes of the board or, if required, by the stockholders, the absence of evidence that the consideration to have been received by the corporation in exchange for the stock was in fact received, the issuance of more shares than were authorized by the certificate of incorporation at the time, the issuance of stock prior to the filing of the charter amendment or certificate of designations authorizing or creating the stock, and similar procedural and substantive irregularities. Not infrequently, these defects occurred some time ago, and the stock in question may have changed hands multiple times since issuance.
Confronted with such irregularities, most corporate lawyers' first instinct would be to attempt to correct the defect through board and, if necessary, stockholder, ratification of the defective issuance, with the intent of putting the parties in the positions they thought they were in prior to discovering the irregularity. However, Delaware courts have not always viewed defects in stock issuances as being curable by ratification. In a number of leading cases, the Delaware Supreme Court has treated the statutory formalities for the issuance of stock as substantive prerequisites to the validity of the stock being issued, and has determined that failure to comply with such formalities renders the stock in question void. A finding that stock is void means that defects in it cannot be cured, whether by ratification or otherwise. Thus, practitioners finding defects in stock issuances are put in the uncomfortable position of having to make a judgment whether the defect is one that renders the stock void, in which case ratification is not an option, or voidable, in which case ratification is an option. Unfortunately, the decisions issued by the Delaware courts have not afforded certainty in this critical area. Indeed, a recent decision of the Court of Chancery acknowledges that although "Delaware law is replete with cases" discussing the void-voidable distinction, the law as to when and whether a defective stock issuance can be cured "is not as clear as it could be."
This blog is not intended to be overtly political in nature, but U.S. Senator Joe Biden has had a profound and lasting impact on Delaware business litigation at least via his role in the selection of members of the local U.S. District Court (and "Delaware members" of the Third Circuit Court of Appeals), as well as (at least indirectly, one might argue) the selection of judges for the Bankruptcy Court--not to mention his role in federal legislation that increased the number of bankruptcy judges in Delaware, which exceeds the number of active judges on the U.S. District Court bench.
Thus, regardless on one's political inclinations, we must respect the unavoidable realities. Especially in light of the business law decisions by the federal court(s) in Delaware and the ongoing tug of war between the feds and the State of Delaware over who should have greater control over corporate governance, it remains entirely appropriate that we mention on this blog the choice yesterday of Sen. Biden to be the Vice Presidential running mate for Sen. Obama. Here is a local paper's take on the "local boy done good". Of course, if he wins, and becomes VP of the US, the impact on the perennial "feds v. State of Delaware" contest in the area of corporate law could be even greater.
Curiously, even though this is not a political blog per se, for some reason, I have been consistently listed as one of the "top 20" blogs in Delaware, including (without trying) among the top 20 "most influential political blogs." Here is the BNN website (that does the ranking) with the current ranking showing me this week as #14.
Professor Larry Ribstein posits here, in response to Professor Bainbridge's recent commentary on Ryan v. Lyondell, here, that Ryan is among other things another example of "corporate indeterminacy", as compared to the greater certainty that can be achieved via contractual provisions in an LLC context. (See my summary of the Ryan decision here.) Professor Ribstein has written extensively on this topic. An excerpt of his current post follows:
My contribution to the debate, The Uncorporation and Corporate Indeterminacy, argues that corporate indeterminacy is inherent in the regulatory nature of corporate law. By contrast, the law of unincorporated firms, particularly including Delaware's law on this subject, features clear enforcement of customized contracts.
This difference between corporations and uncorporations was demonstrated recently in the Delaware Supreme Court’s Wood v. Baum, which I recently discussed on the Harvard blog. So as I commented on my own blog in response to Ryan:
It’s increasingly looking like the best and maybe only chance for managers to comfortably avoid liability, or at least a messy trial, is in an unincorporated firm.
Professor Stephen Bainbridge muses here about the recent Ryan v. Lyondell decision by the Delaware Chancery Court, summarized here, as well as insights by Professor Gordon Smith (who views the decision as predictable), and suggests that it is time for the Delaware Legislature to revisit DGCL Section 102(b)(7) to, among other things, add greater clarity to this very important provision of the Delaware General Corporation Law.
The recent invasion of Georgia by Russia reminded me of something that we in the U.S. understandably take for granted. Regardless of the unrest occurring in the rest of the world, we have the luxury of contemplating and writing about Delaware corporate law without worrying about other countries encroaching our borders--at least via conventional warfare. Residents of Georgia who are now homeless or running for cover from the Russians are not so fortunate.
It seems that I finally have a good faith basis to pen a law-related post relevant to this blog that warrants the use of a photo of His Holiness Pope Benedict XVI.
As reported recently by the ClassActionBlawg.com here, apparently descendants of The Knights Templar have sued the Supreme Pontiff about alleged confiscation of property that was owned by the secretive group over 700 years ago. Yes, there may be a statute of limitations problem, and as head of state for the sovereign nation referred to as The Holy See and known affectionately as The Vatican, there is also an issue of sovereign immunity. ( Delaware litigation and class actions go together like ham and eggs, so that was my hook.)
As a member of the Knights of Malta, which traces its history, according to some accounts, approximately back to the year 1085, I have an interest in these things and I have finally found a litigation-based reason to post about it on this blog.
Carl Icahn writes here on his eponymous blog about his historic record as a shareholder and his impact on corporate governance as well as on shareholder value. He provides examples of several of his long-term investments to which he attributes a large part of his impressive accumulation of wealth. Regardless of which side of the shareholder activism debate one is on, the post is replete with factual details that inform the discussion.
I am giving a panel presentation in November to the Pennsylvania Business Institute about lawyers who blog. I am honored that Kevin LaCroix of The D & O Diary fame has agreed to also be on the panel.
In the course of preparing for the presentation, I asked Maura Burke, one of our firm's summer associates, to compile statistics about lawyers who blog and the state of the blogosphere in general among U.S. lawyers. I am indebted to her for diligently compiling the interesting data. The memo by Maura Burke can be read here.
During my family vacation next week (the week of August 18), I am not likely to post about any new cases during that week, but I plan to catch up on about a dozen or more cases that I have already done "draft posts" for and that I plan to finalize, but that were not of such great importance that I rushed to post about them when they first came out.
Here is an article from the current issue of The Delaware Law Weekly by Elizabeth Bennett that is the second in a series she is writing about the legal blogosphere in Delaware. The article confirms that at least some members of the Delaware Chancery Court read blogs (which we also know from citations in their opinions to blogs of leading corporate law professors), and we have previously written about some members of the Delaware Supreme Court who also read blogs.
Especially due to the blogs of leading academics, there is no serious doubt that blogs are at least one mainstream means of keeping up to date on the latest developments in one's practice area. Here is the article of last week written by Elizabeth Bennett that discussed other aspects of the blogoshere in Delaware, including the involvement by many Delaware lawyers (and at least one member of the Delaware bench) with The Harvard Law School Corporate Governance Blog.
At the ABA Annual Meeting today in New York City a panel presentation addressed the ongoing competition between the SEC and the State of Delaware regarding who should take a more prominent role in the arena of corporate governance. The panel was moderated by Wilmington lawyer Rolin Bissell and included Delaware Supreme Court Chief Justice Myron T. Steele as well as Thomas Kim, Chief Counsel and Associate Director, Division of Corporate Finance of the SEC. Also on the panel were representatives from academia as well as the New York Bar and the D.C. Bar.
Mr. Kim is reported to be the person at the SEC who "got the ball rolling" to initate the process to use for the first time the procedure (based on a recent amendment to the Delaware Constitution) that allows the SEC to request a formal opinion by the Delaware Supreme Court on an issue of Delaware law. That procedure resulted in the very expedited landmark opinion by the Delaware Supreme Court last month in CA, Inc. v. AFSCME, summarized here. The Chief Justice referred to the opinion for controlling language but gave a few highlights of the decision, such as the manner in which it carefully strikes a balance between the rights of the shareholders and the duties of the directors as required by DGCL Sections 141 and 109. Put simply, the proposed bylaw in the CA, Inc. case was too broad because it restricted the ability of board members to exercise their fiduciary duties. Chief Justice Steele observed that it was noteworthy that the decision was unanimous, which was important for this first decision sought by the SEC under the new procedure.
Mr, Kim was effusive in his praise of the Delaware Supreme Court's prompt and professional rendering of a scholarly opinion on an extremely expedited timetable, and he said that it provides an excellent precedent for the SEC to call upon Delaware's High Court again in the future to address similar issues.
One panel member suggested that the hoary phrase ''race to the bottom" is now obsolete and that instead of the former so-called competition between the state and the federal government, the CA, Inc. case may mark the start of a metaphorical "walking hand in hand" instead of a race, as the SEC and Delaware, perhaps, are seen by some to be collaborating more closely.
I am at the Annual ABA Meeting in New York City today. I just attended a helpful presentation on the multi-faceted aspects of the attorney/client privilege in the context of shareholder derivative suits and special litigation committees of the board of directors.
Wilmington lawyer Kurt Heyman moderated the panel that included a member of the Delaware Court of Chancery. Many helpful cases were discussed including a very factually specific and detailed Order of the Chancery Court in a case involving AIG which I will try to upload here when I get back to the office. The issue addressed was whether individual directors who were defendants in the suit could have access to data that the defendant corporation claimed were protected by the attorney/client privilege. So too, the issue was addressed of whether derivative shareholders were entitled to obtain similar materials. In Delaware, such Orders (compared to an opinion) can still be cited in briefs, so it would be helpful to have ready access to it.
SUPPLEMENT: Here is the Order of the Chancery Court in the AIG case that allowed the directors access to data that the corporation sought to prevent the disclosure of based on the attorney/client privilege. Here are the program materials presented by Kurt, including highlights of the Order and helpful citations to related cases supporting the conclusions in the Order, and related useful commentary. Many thanks to Kurt Heyman as well as his colleagues Patricia Enerio and Jill Agro for the excellent materials and for allowing me to upload them for this blog post.
Courtesy of the Death By Email Blog, here is a checklist to consider before sending emails.
Courtesy of The Hon. E. Norman Veasey, former Chief Justice of the Delaware Supreme Court, here is an article that was recently published in the Wilmington News Journal on the topic of federalism and corporate law, especially as it relates to the ongoing debate and "tug-of-war" between Delaware preeminence in regulating the internal affairs of corporations and the power of Congress to encroach on that turf.
Chief Justice Veasey takes a historical approach in his article, referring to the competing theories at work at the time of the formation of our Republic and the thought process of the men who formulated our U.S. Constitution. The article is a valuable addition to the scholarship in this area.
UPDATE: Here is Professor Bainbridge's commentary on the article.
Today's mail brought a pleasant surprise in the form of the newest book from Professor Stephen Bainbridge titled: The New Corporate Governance in Theory and Practice. As the author describes it:
My latest book lays out in great detail my "director primacy" approach to understanding corporate governance. It provides a comprehensive overview of the key problems in modern corporate governance, including the relationship of boards to managers and the question of shareholder activism.
I don't have time to do the book justice today with anything approaching a book review, but my initial observation is that it should be consulted by anyone interested in keeping up to date on the topic of corporate governance.
Professor Bainbridge is widely acknowledged as one of the nation's most respected corporate law scholars and certainly among its most prolific. The author explains that the concern that motivated his extensive body of work that culminated in this book was to "understand the existing statutory framework of corporate governance in U.S. law." The text is replete with helpful footnotes to prior writings of the professor and other notable scholars in the field.
Prof. Gordon Smith on his Conglomerate blog provides an insightful analysis of the Delaware corporate law involving staggered/classifed boards under DGCL Section 141 and its application to the pending suit in Delaware Chancery Court recently filed by InBev to obtain a ruling on whether Anheuser-Busch's (A-B's) board of directors (currently in transition from a staggered to a non-classifed board) can be removed without cause by written consent.
Even A-B's CEO seems to be less than certain on the issue, as mentioned recently here.
The good professor also links to an analysis of these Delaware corporate issues (which are the subject of pending Delaware business litigation), by professors Steve Davidoff and Matt Bodie.
Courtesy of Wilmington lawyer Ciro Poppiti, III, Esq., a veteran of the national and international "wine and spirits" industry, I have a tip about a story in today's Wall Street Journal about the CEO of Anheuser-Bush (AB) trying to correct the record in a recent conference call with analysts and investors. This is the link to the article and what follows is the fun excerpt:
...[see the] transcript of [CEO] Busch, speaking after the operator had officially concluded the call:
Wait, wait, wait. Can I make one last statement, please? Can we correct my statement about Director removal and say we will challenge InBev's claim in their law suit that they can remove Director's without cause? I was wrong on that statement, and that is the correct answer. Thank you.
Busch's mea culpa was a reversal to what appeared a rather stunning statement earlier in the call.
An investor asked Busch if his shareholders could replace all the company's directors at their discretion, via a process known as written consent. InBev just filed suit in Delaware, hoping to verify this. Indeed, the whole $46.35 billion takeover drama may turn on this arcane but crucial legal point.
Here is a related post about it today on The Wall Street Journal's Deal Journal.
UPDATE: The Wall Street Journal highlighted my blog post here.
Prof. Larry Ribstein has a post about a symposium he participated in at Suffolk Law School in connection with the 20th Anniversary of the LLC (according to one way to measure it). Here is an enlightening part of the post:
First, for those of you who are unconvinced, LLCs are, in fact, a big deal. For example, [Prof.] Ann Conaway reported on the recent data on Delaware LLCs: 490,000 in all, producing about the same percentage of Delaware's gross revenues as its booming business in big corporations.
Here is a review of specific aspects of Delaware corporate law by Prof. Stephen Bainbridge as applied to recently enacted severance plans by Yahoo in connection with Microsoft's recent takeover attempts, including a discussion of whether those plans should be treated as "dead hand pills". The good professor, one of the leading corporate law scholars in the country, refers to his prior writings as part of his analysis about a likely ruling by the Delaware Chancery Court in a pending lawsuit that raises the issue. Here is a supplemental post.
Prof. Larry Ribstein, one of the nation's leading authorities on LLCs and other alternative entities, writes here on The Harvard Law School Corporate Governance Blog. His introductory paragraphs include the following excerpt:
By uncorporate I mean partnership-type business associations (i.e., general partnerships, limited liability companies and limited partnerships) and the default rules and norms that are associated with these business forms.
One might say that looking at uncorporations moves away from this blog’s focus on publicly held firms. But as I show in my Uncorporating the Large Firm, uncorporations are increasingly important in governing large, publicly held firms. Examples include not only publicly traded partnerships, limited liability companies and real estate investment trusts, but also private equity, venture capital and hedge funds that exercise critical control powers in firms that are large, publicly traded, or both.
All of these firms are characterized by their substitution of discipline and incentives for corporate-type monitoring as ways to control managerial agency costs. Specifically, uncorporations (1) loosen managers’ grip on the firm’s cash through distributions and liquidation rights; and (2) give managers high-powered owner-like incentives. The trade-off is that uncorporations rely much less on high-cost but often ineffective monitoring devices such as fiduciary duties, owner voting and the market for control.
Parenthetically, the good professor links in his foregoing post to one of my recent summaries on the Harvard Corporate Governance Blog about a recent Chancery Court decision involving LLCs, here.
Professor Bainbridge has a post here that reviews recent Delaware decisional law and statutes concerning bylaws. His post is more like a mini-law review article and it includes a scholarly analysis that addresses limitations on who can amend bylaws as well as how they may or may not restrict the board's powers.
Kevin O'Keefe, the nation's leading guru on blogs for lawyers, included a reference to me in a post today about creating an "online presence" here that almost made me blush. The excerpt graciously allowed that:
Francis Pileggi has made himself a brand name in the area of Delaware corporate litigation through his blog. Not only is Pileggi seen on his own blog, but his blog is routinely cited by well known practicing lawyers and law professors who write on corporate law issues. Now through syndication and social media, Francis' content is displayed at the Wall Street Journal, in the news at LinkedIn, at Harvard Law School [online] publications, and in Bloomberg news feeds.
Think in-house counsel and exec's selecting local counsel feel more comfortable calling Pileggi when they see him all over the place online?
Smith v. Van Gorkom, a Delaware Supreme Court decision of seminal importance regarding corporate governance and fiduciary duties, issued in 1985, is the subject of an article with the same name from Prof. Stephen Bainbridge. Here is the good professor's overview of his article:
Smith v. Van Gorkom arguably was the most important corporate law decision of the 20th century. The supreme court of a state widely criticized for allegedly leading the race to the bottom held that directors who make an uninformed decision face substantial personal liability exposure. In so doing, the court breathed new life into the law of fiduciary duties.
For example, Van Gorkom presaged Unocal’s significant expansion of judicial review of corporate takeovers. Indeed, a Van Gorkom-based inquiry into whether the board was fully informed remains a key component of the Unocal methodology. Likewise, Van Gorkom laid the foundation for the subsequent Caremark decision and the resulting expansion of judicial inquiry into whether the board of directors exercised proper oversight of its subordinates. In fact, most of the modern edifice of corporate fiduciary duties rests in some degree on the Van Gorkom decision.
The perception that the decision had significantly increased director liability exposure drove dramatic changes in the D&O liability insurance market. In turn, important legislative initiatives soon followed, including the now nearly universal liability limiting charter provisions authorized by Delaware General Corporation Law § 102(b)(7).
Not surprisingly, the case generated great controversy and, in fact, continues to do so. Did the Trans Union board of directors actually deserve the criticism heaped upon it by the Delaware Supreme Court? Does the Court’s decision actually deserve the criticism heaped upon it by most commentators? This essay provides the back story to this remarkable decision and concludes that the gist of the decision is sound.
UPDATE: Here is a link to this post that appeared today on The Wall Street Journal's Law Blog as part of a compilation of "Most Popular Law Stories From Around the Web".
Kevin LaCroix on his D & O Diary reports here on recent studies that he highlights as follows:
Excessive CEO pay remains a widely perceived marker for poor corporate governance and even for securities litigation risk. But recent scholarly analysis of senior corporate executive compensation suggests that outsized CEO pay may not only indicated weak governance, but may also be associated with company underperformance.
Prof. Ribstein comments here on a recent article by Professor Bainbridge entitled: Investor Activism: Reshaping the Playing Field? Excerpts from Ribstein's overview of the article follow:
In this paper he announces that directors should have less power and that we should have more shareholder activism. Just kidding. Really, here's the abstract:
Shareholders of U.S. corporations historically tended towards rational apathy. Holding small blocks that were unable to affect the outcome of the vote and faced with the considerable costs associated with gathering sufficient information to make an informed decision, they adopted the so-called Wall Street Rule (it was easier to switch than fight). In the last 15 years or so, a growing number of commentators and investor activists have claimed that the rising importance of institutional investors has the potential to reshape the field by empowering shareholders to become active players in corporate governance. This paper situates investor activism in the so-called director primacy theory of corporate governance. In so doing, it demonstrates that the separation of ownership and control typical of U.S. public corporations has significant efficiency benefits. It then argues that shareholder activism threatens to undermine the advantages of director primacy without offering significant countervailing gains. Accordingly, the paper concludes that pending regulatory proposals to expand shareholder governance rights should be viewed with suspicion.
As Steve points out, "institutional investor activism does not solve the principal-agent problem but rather merely relocates its locus." He makes theoretical sense. Moreover, his theory his supported by the fact that we actually observe little effective shareholder activism. The exception is union and pension funds, which proves the rule. As Steve points out, "these are precisely the institutions most likely to use their position to self-deal—i.e., to take a non-pro rata share of the firms assets and earnings—or to otherwise reap private benefits not shared with other investors."
But if we can’t rely on the owners to keep managers honest, how can we make them accountable? Well, I have another idea – the “uncorporation,” including private equity and publicly held partnerships. See my Rise of the Uncorporation. These firms go Steve one better by effectively eliminating outside shareholders.
Most corporate lawyers recognize the name Shannon Pratt as the author of several seminal and widely cited treatises on the valuation of businesses. He is in the process of publishing a new edition of The Lawyer's Business Valuation Handbook, which should be available by the summer. I am flattered to have been requested to write the foreword to the upcoming edition. I am sure that many of my readers have relied on the book and have cited it in their briefs (as I know it has been cited in many court decisions including those of the Delaware Chancery Court).
If you want to share any views of the book that would be appropriate for me to refer to in the foreword, please let me know. Thank you.
Professor Stephen Bainbridge has just published yet another book on corporate law. His most recent publication is entitled: The New Corporate Governance in Theory and Practice
The summary on Amazon.com here (where it can be pre-ordered for delivery in about 6 weeks), describes the book as follows:
Forty years ago, managerialism dominated corporate governance. In both theory and practice, a team of senior managers ran the corporation with little or no interference from other stakeholders. Shareholders were essentially powerless and typically quiescent. Boards of directors were little more than rubber stamps. Today, the corporate governance landscape looks vastly different. The fall-out from the post-Enron scandal and implementation of the Sarbanes-Oxley Act have resulted in shareholder activism becoming more widespread, while many observers call for even greater empowerment. The notion that the board of directors is a mere pawn of top management is increasingly invalid, and as a result, modern boards of directors typically are smaller than their antecedents, meet more often, are more independent from management, own more stock, and have better access to information.
The New Corporate Governance in Theory and Practice offers an interdisciplinary analysis of the emerging board-centered system of corporate governance. It draws on doctrinal legal analysis, behavioral economic insights into how individuals and groups make decisions, the work of new institutional economics on organizational structure, and management studies of corporate governance. Using those tools, Stephen Bainbridge traces the process by which this new corporate governance system emerged, and explores whether such changes are desirable or effective.
We know from citations to his publications in their opinions that members of both the Delaware Supreme Court and the Delaware Chancery Court read the corporate law writings of Professor Bainbridge, and he has appeared at seminars on the same panel as members of the Delaware bench. Anyone interested in the latest developments in corporate law should read this most recent magnum opus by one of the nation's leading authorities on corporate governance.
Prof. Bainbridge analyzes here the applicable standard under Delaware corporate law that would apply to the defensive measures taken by Yahoo to spurn the advances of Microsoft. He explains why the case of Blasius v. Atlas Corp. would not apply. Blasius imposes a heightened standard of review when the shareholder franchise is interfered with by the board. Yahoo amended its bylaws in reply to Microsoft's bid so that the date by which nominations for board members had to be submitted was delayed until 10 days after the announcement of the annual meeting (which has not been announced yet.) Professor B. explains that the Delaware Supreme Court's decision in Stroud v. Grace supports the argument that the standard announced in Delaware Supreme Court opinion in Unocal, and not the Blasius standard, should apply in the "Microhoo" situation where the primary purpose in any changes that impacted the shareholder franchise was related to a defense to a takeover attempt.
Prof. Ribstein has also provided several insightful posts on the situation, e.g., here.
Although not nearly as scholarly as the good professors, I was quoted here by the San Francisco Chronicle in an article in today's edition that addressed the same issues about the standards that would apply to Yahoo's actions (or inactions).
The Delaware Chancery Court issued a clarification yesterday to lawyers in order to clarify that passwords for eFilings of pleadings and other submissions with the Court are only to be used by Delaware lawyers and shall not be "lent to" (my words) or shared with non-Delaware lawyers, nor shall non-Delaware lawyers be added to the "electronic service list" through which those who eFile documents with the court are sent notice of eFilings by other lawyers in the case.
Here is the text of the short admonition that was emailed to Delaware lawyers yesterday. This, of course, is of great practical importance to any lawyer who serves as local counsel for the large number of out-of-state lawyers from around the country who practice in Chancery Court.
An all-day seminar yesterday at Widener University Law School featured leading members of the judiciary as well as practitioners and academics who proposed changes to Delaware corporate law on (or about) the 40th anniversary of the last major overhaul of the Delaware General Corporation Law in 1967 (although minor updates have been made each year since then.) Unlike most other jurisdictions, Delaware recognizes practitioners and academics from other states as being well-versed enough about Delaware law that their opinions are respected in terms of their suggestions for changes in our law. Indeed, the last major revision in 1967 of the DGCL was done under the scholarly direction of University of Virginia Law Professor Ernest Folk.
Here is a post I did recently on the current issue of the Delaware Lawyer magazine which contains articles with many suggested changes by several of the panel members at yesterday's seminar.
Here is a list of the topics covered at yesterday's seminar along with the panel members' names and an overview of the purpose of the seminar.
I am attempting to provide a link to the materials because the volume of topics addressed is too much to cover in a blog post, but among the suggestions I though most notable were those made by Ted Mirvis of the Wachtell Lipton firm in New York, who proposed 2 changes to the DGCL as follows (and I am only paraphrasing):
1. All claims related to the DGCL or regarding fiduciary duties, shall be brought in the Delaware Chancery Court; and
2. Rulings regarding the exercise by directors of their fiduciary duties in change of control cases should be contextual only and should not be the subject of a per se rule.
Professor Faith Stevelman Kahn of New York Law School suggested that for policy reasons, a mandatory forum selection clause would not be advisable--even if permissible by applicable law to do so. Professor Elizabeth Nowicki of Tulane University Law School argued that Section 102(b)(7) should be "gutted" (my word) in order to give directors a negative incentive (or in her words, "fear of punishment") that would scare them into better observance of their duties.
During a luncheon speech, Vice Chancellor Leo Strine, Jr. provided insights during a 40-minute presentation that I cannot do justice to in the short space appropriate to this forum, but one nugget I wrote down in my notes (and this is only a paraphrase that runs the risk of being taken out of context), is his suggestion that even though Congress has the authority to increase their regulation of corporate governance, they should not engage in "selective intervention" into the corporate governance arena while still leaving the hard work to the states of enforcing fiduciary duties on a case-by-case basis.
Many other luminaries offered suggestions about how to change the DGCL to keep up with the global competition in the 21st Century, and I hope to add more details about the symposium later.
On May 5th, Widener University School of Law in collaboration with Corporation Service Company (CSC) will be hosting a one day, interactive symposium which looks at The Delaware General Corporation Law (DGCL) in the 21st Century. The symposium aims to provide a forum to generate the best current thinking on how the DGCL needs to be modified to respond to or anticipate changes in markets and technology as the century unfolds. This event will take place on the Wilmington, Delaware campus of Widener Law and will be broadcast live via video webcast.
The symposium will include four panel discussions (The DGCL and Takeovers; Stockholder Litigation Under the DGCL; Stockholders in Corporate Governance; and What We Can Learn from Other Statutory Schemes) and a keynote address by Vice Chancellor Leo E. Strine, Jr.
(Note: keynote address will occur at lunch, which will not be video webcast) Each panel discussion will be followed by an open Q&A session where both in-person attendees and webcast participants will be able to share comments and pose questions.
For those interested in more details, here is a link to registration and related information.
Here is a link via the Harvard Corporate Governance Law Blog to a memo by the Wachtell Lipton firm that provides wide-ranging suggestions to directors based on Delaware fiduciary duty case law, along with practical commentary that in some respects is akin to business advice on best practices for boards of directors to follow.
Professor Timothy Glynn of Seton Hall University highlights here on the Race to the Bottom blog, a new article he has written that examines the internal affairs doctrine, and in particular the 2005 decision of the Delaware Supreme Court called Vantage Point Venture Partners 1996 v. Examen, Inc., 871 A.2d 1108 (Del. 2005). (Here is a link to summaries on this blog of both the Chancery Court's decision in the foregoing case as well as a link to the Delaware Supreme Court's opinion affirming, as cited above.)
He discusses the broader implications of the doctrine in the context of the "tug of war" between and among Delaware and the federal government--and other states--for preeminence in the governance of corporate law issues. This is a topic that has been the subject of many posts on this blog, including links to the writings of several other professors who have written on the topic. See, e.g., here.
A veritable treasure trove arrived in today's mail inside the current issue of the Delaware Lawyer magazine. The issue is devoted to a re-examination of the Delaware General Corporation Law (DGCL) by assorted luminaries from Delaware as well as those from New York and elsewhere who spend more time in Delaware Chancery Court fighting about the nuances and meaning of the DGCL than many Delaware lawyers do.
Here is the Table of Contents that lists the articles. Several argue for proposed changes to the DGCL and other articles assert that the status quo is just fine. They are short articles that are easy, quick reading, but nevertheless this publication is "must reading" for anyone interested in: where the DGCL has been, where it is now, and where it is heading.
Although it was not easy to pick one, if I had to choose my favorite among the articles, it would be the one by legal legend R. Franklin Balotti, and co-authored by Donald A. Bussard and Thomas A. Uebler. The concluding paragraph indicates the important and far-reaching theme of this short piece, as follows:
"Unless a court must determine the validity of a self-dealing transaction before it considers a director's equitable conduct and potential liability, [DGCL Section] 144 should not be considered when determining director liability. Until the General Assembly instructs otherwise, Section 144 should be limited to the purpose expressed by Professor Folk 40 years ago--validation of self-dealing transactions."
The current issue was edited by Vice Chancellor Leo Strine, Jr. of the Delaware Chancery Court. Among the articles is a transcript of a recent conversation among those who worked with Professor Folk on the 1967 revisions of the DGCL, and who provide insights into the reasons behind the revisions. The articles in the current issue of the magazine, in one sense, serve a purpose similar to what occurred in Delaware during the "Summer of Love", to the extent that many of the leading lights of the corporate bar have explained how they think the DGCL should be updated and revised to keep up with the current developments--in a major way, as opposed to the updates that are made each and every year to the DGCL in a manner that is not considered akin to a complete overhaul.
Here is a recent, related post that describes background materials in connection with the 1967 revision of the DGCL that is made available by Prof. Larry Hamermesh at the Widener University Law School.
Here is a link to the Delaware Bar Foundation's website. The Foundation publishes the Delaware Lawyer and at least in the past has eventually made the articles available online on their site, but they have not allowed me to post the articles here. I have been told--but have not verified myself--that the articles will eventually be available via Westlaw and Lexis.
Prof. Larry Ribstein has literally "written the book" on LLCs and other "alternative forms of entities" and has also written many articles on the topic, in his role as one the nation's leading authorities on LLCs and other non-corporate forms of entities. He comments on his Ideoblog here about proposed revisions to the uniform laws relating to LLCs. The introduction to his post provides that:
I have already written on the incredibly misguided Revised Uniform Limited Liability Company Act. In my analysis of the law, I note that the Act "threaten[s] to impose substantial risks and costs on limited liability companies. . .that there is little reason for states to adopt the Act, and that practitioners should be wary about advising clients to form under it."
...
As misguided and as harmful as the "uniform" law is, many state legislatures do need some sort of model because they lack the resources to draft state-of-the-art statutes. They can use the more sophisticated statutes, including those of Delaware, Colorado, Georgia, and Virginia. But they may need guidance picking particular provisions from these statutes.
Anyone serious about keeping up to date on the latest developments in the law of LLCs, needs to read the whole post above and the links provided therein to other original sources and writings on the topic.
As a follow-up to my posts from yesterday, this is my last post from the two-day seminar at the Tulane Corporate Law Institute. One of the benefits for the 250 attendees at this New Orleans venue, is the further clarification and direction for corporate practitioners provided by members of the Delaware Chancery Court and Delaware Supreme Court who are on the panels at this seminar along with other leading lawyers from around the country who labor in the vineyards of Delaware corporate governance. Remember that these comments by members of the judiciary are "off the record" and do not represent the official position of the courts on which they sit, but nevertheless for those who need to understand the formal opinions of these courts, such commentary is akin to manna from heaven.
One other "added value" of the seminar is the intangible positive impact from the interaction "on a personal level, without discussing cases" of the members of the judiciary who attend, with the lawyers from around the country who often appear before the Delaware courts. Some of the "Delaware-bashing" commentators who criticize judges who participate in scholarly colloquia or write and participate in the development of the law outside of their judicial opinions, miss at least one point. There is a demonstrable increase in professionalism and efficiency when lawyers and judges gather outside the courtroom on a personal level and get to know each other on a collegial basis. This interaction, on a human level, makes it easier and more enjoyable to work with people, even if they are lawyers on opposite sides of a case.
Former Chancellor William Allen, who is now a professor at New York University Law School and also on the faculty of their Stern School of Business, was on a panel this morning and gave his perspective of Delaware corporate law about 20 years ago, prior to 1985. At that time, former Chancellor Allen explained, things were much simpler and there were two basic principles that governed the analysis of director conduct, for example, in the context of mergers and acquisitions. The two basic governing principles were: (i) the fiduciary duty concept that any self dealing by directors or controlling shareholders would be subject to a much higher level of scrutiny and a shifting of the burden of proof; and (ii) the Business Judgment Rule that provides that the court will not second-guess a board's decision if the circumstances justify the presumption that their decision was made on an informed basis, in good faith and in the best interests of the company. Then, if 1985, came the decisions in Van Gorkom, Unocal and Revlon, which heralded a much more nuanced and multi-layered range of standards to review directors' actions.
Chief Justice Myron Steele of the Delaware Supreme Court was also on a panel this morning and his "off the record" remarks were also illuminating. He reminded those gathered that for purposes of corporate governance (as compared with LLCs, for example), there are three bedrock principles that are fundamental: (i) the Delaware General Corporation Law which provides at Section 141(e) that the directors manage the corporation; (ii) the shareholder franchise is sacrosanct (my word) and will be vigorously protected; and (iii) all cases are factually-based, and the facts cannot be separated from the decision of the courts. He also remarked that practitioners found it helpful when the members of the judiciary present at seminars and shed light on less clear areas of the law--for the benefit of lawyers--and other judges-- who need to know what that law is so that they can advise their clients on what the law is and what standards judges will use to decide issues presented to them. Another panel discussed MAC clauses, and one of the members of the Chancery Court suggested that in the current environment it was likely that there would be more "deal certainty" which of course will impact the price of the particular deal.
As a follow-up to the prior post earlier today from the Tulane corporate law seminar, Vice Chancellor Leo Strine, Jr., from Delaware's Chancery Court, is on the panel this afternoon along with other leading practitioners, discussing recent Delaware cases that address the duty of the board under Delaware law in the context of the sale process for a company.
Here are a few comments from His Honor to help one in applying recent Chancery Court cases on the topic. For example, he said that one key is for the board to demonstrate that the sale process is fair to the highest bidder because, in part, the analysis regarding whether one's fiduciary duty has been fulfilled is "inherently contextual" and necessarily factually based, as opposed to lending itself to per se, bright line rules, which are the purposes of statutes, as opposed to the role of a court of equity. See, e.g., a law review article by Professor Rock, in which he describes the role of Delaware courts in formulating corporate law as, in part, writing heavily fact-based decisions as "morality tales" or parables if you will, as opposed to bright line rules: Saints and Sinners: How Does Delaware Corporate Law Work?, 44 UCLA L. Rev. 1009.
His Honor also commented that the minutes of board meetings should have attached the reports of financial advisors that are making presentations to the board to clarify what the board considered in these matters. ( That is only a paraphrase and since I am in sitting in the back of a very large seminar hall, do not take this as a transcript of the statements in the seminar). Here is what The Wall Street Journal's Deal Journal blog had to say today about some of His Honor's comments at the seminar this afternoon.
Famed Delaware corporate litigator Gil Sparks reviewed several recent decisions of the Delaware Chancery Court from the last year (all of which have been highlighted on this blog--see search function in margin), such as: Ryan v Gifford (Feb. 6, 2007); Tyson Foods (Feb. 2007); Desimone v. Barrows (not finding a problem with the stock options involved); Weiss v. Swanson; Conrad v. Blank; Jana Master Fund v. CNET; Mercier v. Inter-Tel; Gantler v. Stephens (board decision ok'd per business judgment rule, not to pursue third-party offer and instead board pursued plan to reclassify shares and privatize); Territory of Virgin Islands v. Goldman Sachs (claims time-barred that disputed proceeds from dissolution of company); Ryan v. Gifford (Nov. 07 and Jan. 08)(example of how attorney/client privilege was waived due to overly broad distribution of report by attorneys for Special Litigation Committee.)
I notice that many others are covering this corporate law event at Tulane today on the Internet. See, e.g., WSJ's Deal Journal; The New York Times' DealBook and Delaware Business Litigation Report.
SEC Commissioner Paul Atkins gave a luncheon presentation to the assemblage of lawyers and judges. He talked about recent proposals suggested by the Treasury for reviewing the regulatory framework of financial markets, and he cautioned against knee-jerk reactions to quotidian issues as opposed to taking a long-term approach after careful study. He noted the CIFIUS review system in place to protect the national security interests of the country from foreign investment. He also addressed the materiality aspects of disclosure obligations and that the standard is the view of the "reasonable investor" as opposed to just any investor. He said that when the SEC examines the materiality standard, it should focus on the basics from the viewpoint of the reasonable investor. In reviewing Commissioner Atkins' background it was interesting to note that before becoming a lawyer, he obtained a Ph.D. in the "hard sciences" and was an astrophysicist before delving into the metaphysical aspects of the law.
Members of the Delaware Chancery Court and the Delaware Supreme Court as well as leading corporate law practitioners from Delaware and around the country are here in New Orleans at the Tulane University Law School's 20th Annual Corporate Law Institute . I will be blogging live during the seminar today and tomorrow. The panel this morning is discussing the duty under Delaware law to disclose material information in connection with a merger vote, both independent of, and in light of, any possibly applicable SEC duties of disclosure.
The recent Delaware Chancery Court decision in the BEA, from the bench, was discussed by Vice Chancellor Lamb. He noted that the issue presented at the preliminary injunction hearing was whether it was enough to present the street estimates and the base line estimates. The issue presented was whether the high and low sensitivity analysis needed to be disclosed. This data was not disclosed and was not considered reliable by the management, and VC Lamb held that that data was not material based on the record before him in a preliminary injunction motion setting. This decision from the bench in March 2008 was in the context of a strained credit market which puts heightened pressures on consummating a deal.
Brian Breheny, Deputy Director of the SEC's Division of Corporation Finance, addressed the overlap between SEC rules and the state law duty in Delaware that can force an annual meeting even if the company does not have its updated financial information prepared as required by SEC rules. See, e.g., Vesta decision by Vice Chancellor Lamb on this issue and the Delaware Supreme Court's decision in the Skeen case.
The SEC's Breheny commented on this situation by recognizing the tension between the SEC rule and the Delaware state law on holding an annual shareholders' meeting, even if the necessary financial data is not available, and he said that the company should call his office in that situation and ask for a special "exemption" which the SEC has given in the past in these situations.
The enforceability of Standstill Agreements was discussed. Although they are generally enforceable, the Topps decision by Vice Chancellor Strine was reviewed as an example of such an agreement which was not upheld in light of Revlon duties. James Morphy of Sullivan and Cromwell, a member of one of the panels, said that his view of the case is that the antitrust condition of the Standstill Agreement was only used as an excuse not to entertain a higher bid, and that was one reason the agreement was not upheld.
More updates to come as the seminar continues.
Here is a report by Prof. Gordon Smith on his Conglomerate blog about the privatization of Delaware's Chancery Court--but remember that today is April Fools Day. I forgot that when I commented on the post today on Professor Bainbridge's blog where he announced that he was just appointed by President Bush as the newest SEC commissioner. Remember: today is April Fools Day.
Willam Allen is the former Chancellor of the Delaware Court of Chancery, and is now the Director, NYU Center for Law & Business, Professor of Law and Clinical Professor of Business at New York University Law School. Professor Bainbridge highlights here, and provides a link to a new law review article the former Chancellor penned on modern corporate governance and Delaware corporate law. The good professor introduces the article in this way:
In a paper entitled Modern Corporate Governance and the Erosion of the Business Judgment Rule in Delaware Corporate Law, former Delaware Chancellor William Allen tackles two subjects near to my heart: (1) the role of the board of directors and (2) the centrality of the business judgment rule to corporate law.
A few months ago I was selected by Lexis/Nexis to have this blog included among their "top commercial blogs" for a new commercial law "homepage/portal" they created. Here is the link (see the drop-down menu at the bottom of the page at the foregoing link.) I added it to my blogroll a few months ago, but I decided to add this post about it when I realized what exalted company I found myself in when I looked at the other 12 or so blogs listed. (e.g.,The Harvard Law School Corporate Governance Blog which recently added me to their short blogroll.)
Kevin O'Keefe, the nation's leading expert on blogs for lawyers--and others--provides here his updated review of blogging amid the AmLaw 200 (the country's 200 largest firms). Changes since his last survey in August 2007 show that just over 25% of the group's firms (including my firm) generate a total of 110 blogs. I noticed from the survey that 30 of those blogs are not "firm-sponsored". This is an increase from the 56/74 ratio of only 6 months ago. That is a very important statistic for me, since my firm is pressuring me to make this Delaware Corporate and Commercial Litigation Blog that you are now reading into a "firm-sponsored blog" and we are in negotiations about what that will mean in terms of the "public face" of this blog though I will remain the sole author and I will retain editorial control over the substantive content--which will continue to focus on summaries of key business litigation opinions primarily from Delaware's Chancery Court and Supreme Court, as it has for the three years that my blog has been online. Stay tuned.
UPDATE: For those interested in blogging, here is a recent post by Kevin O'Keefe in which he describes the group he has created on LinkedIn for those who blog and those who want to learn more about blogging.
Occupying an intriguing intersection among corporate law, constitutional law and religion, is the article by Julie Marie Baworowsky of Notre Dame Law School that appears at Notre Dame Law Review, Vol. 83, No. 4, 2008. Here is the abstract:
Should corporate religious expression receive protection under the Fourteenth Amendment's Due Process Clause and under the First Amendment's Speech Clause?
The article is available on SSRN here.
What a great place for a seminar. Bill Bratton on the Conglomerate blog posts here about a corporate governance seminar on the Italian island of Sardinia, held in Cagliari, and hosted by the University of Cagliari, Vanderbilt University and the University of Amsterdam. The panel featured several leading U.S. corporate law professors.
In honor of Good Friday there will be no blog postings today.
Also, a note to readers: I will be out of the office for the next week, so blogging will be lighter than usual over the next week or so.
Prof. Gordon Smith comments here on the "fire sale"(?) at $2 per share of Bear Stearns on Sunday night to JP Morgan, with apparent pressure from the U.S. Treasury Department and the Federal Reserve Bank [despite statements days earlier that the value of the stock was much, much higher], and the application to the situation of Delaware corporate law. For example, did the Bear Stearns board of directors meet their Revlon duties to get the highest price? Also, if they were insolvent, did the directors fulfill their duties to creditors (some observers said that the only other option was bankruptcy). The good professor cites to a Delaware Chancery Court case that applied the Business Judgment Rule to an apparently similar situation where a board was forced to choose between bankruptcy or another unpalatable option. See Odyssey Partners, L.P. v. Fleming Companies, Inc., 735 A.2d 386 (Del. Ch. 1999).
Prof. Larry Ribstein also comments on the situation here, citing to his prior writings on the issues.
Kevin LaCroix comments here on the inevitable lawsuits that have already been filed v. Bear Stearns.
UPDATE: In light of the recent increase in the price of Bear Stearns' stock and JP Morgan's stock, Prof. Smith updates his analysis here, with reference to the Delaware decisions in both Quickturn and Omnicare, wondering aloud how, if at all, the Fed's pressure and involvement to get the deal done would impact the legal analysis by a Delaware court of the applicable fiduciary duties of the Bear Stearns' board.
UPDATE II: Here is another update from Prof. Gordon Smith, including a link to his interview by the WSJ Law Blog (the comments to which are in parts entertaining and educational.)
UPDATE III: Here is an update on NYT's Dealbook blog that indicates a possible drafting error in the agreement by JP Morgan's lawyers, regarding JP Morgan's duty to guarantee Bear Stearn's liabilities forever, and that might be one reason JP Morgan quintupled its offer to $10 per share (which in part will allow them to correct this term in the agreement, as well as "save" the deal in light of pending shareholder suits and recent threats by some to force a bankruptcy.) Prof. Smith has more on the guarantee issue here.
UPDATE IV: Prof. Larry Ribstein discusses applicable Delaware case law to the updated facts here, and Prof. Bainbridge discusses same here, including reference to updates by Prof. Smith.
The current issue of the ABA magazine Business Law Today features an article (starting on the back page) on the recent Delaware Chancery Court decision in Sample v. Morgan that I co-authored with Danielle Blount, an associate in our Wilmington office. The article is available here. My prior blog summary of the case and a link to the whole decision is available here. The decision has attracted a fair amount of attention for establishing what may be the high water mark for finding personal jurisdiction over a non-Delaware lawyer for his role in advising a Delaware corporation's management.
Here is a video clip of a presentation by Prof. Stephen Bainbridge (linked from his blog), on a recent panel moderated by Vice Chancellor Leo Strine, Jr. of the Delaware Chancery Court, in connection with Penn’s Institute of Law and Economics’ Chancery Court Program. This issue involves whether the federal government, or the states, or any forum, should address the concerns in some circles about whether allegedly excessive executive compensation needs to be regulated and/or if shareholders should have more say in the matter. The bill on this topic that recently passed the House is specifically discussed.
We have written periodically on these pages about the tension between the dominance in corporate law that Delaware enjoys and the risk that Federal law will continue to encroach on the field of corporate governance moreso than it has in the past. Here is an article in today's Wilmington News Journal that discusses the topic from various angles. Professor Mark Roe of Harvard Law School, who was quoted in the article, gave a speech on the topic a few months ago that is highlighted here. Much has been written on this issue by many people. Here, for example, is a discussion by Prof. Larry Ribstein about the international aspects of the matter. Here is one of Prof. Stephen Bainbridge's posts on the topic.
UPDATE: The Wall Street Journal Law Blog picked up on the article here.
UPDATE II: Here is Prof. Ribstein's reply to The WSJ Law Blog post.
Here is a post by Mark Herrmann and James Beck on their blog called Drug and Device Law about their views on lawyers at big firms who have their own blogs. This is a topic I have written on before and that I could fill volumes on, but for now I will defer to the widely-read and wildly popular Messrs. Herrmann and Beck. I think every firm approaches blogs a little differently, but as partners at 2 of the largest law firms in the world, their views deserve attention.
UPDATE: Here is the view on the issue by the blog called Adam Smith, Esq.
Here is an update of the Qualcomm e-discovery matter that we have been following, courtesy of the Electronic Discovery Law Blog. What a bloody mess. Qualcomm just paid over $8 million in penalties imposed by the court for failing to provide e-mails during discovery. It gets worse. In what must be every lawyer's nightmare, the court imposed a whole list of protracted and Procrustean and draconian penalties on the hapless lawyers who were in any way involved in the emails not being produced. Qualcomm thought by not appealing the penalty and paying it promptly, the matter would be over, but as the link above indicates, the opposing party still wants more blood. Here is a prior summary of the matter with links to the opinion imposing the penalties.
This case should be enough of an incentive to learn the acronyms ESI (electronically stored information) and EDD (electronic data discovery).
One corporate law professor argues that the landmark Delaware Chancery Court decision in 1996 of In Re Caremark, describing a director's duty of oversight, was "dead upon enunciation" and it is, in practice, a Potemkin Village that never actually results in liability in light of the common "opt in" provision of DGCL Section 102(b)(7) that protects directors against claims that they violated their duty of care. Here is the commentary by Prof. Harry Gerla on The Race to the Bottom blog in a post entitled: Caremark: The Failed Revolution. He asserts that no Delaware court decision has found liability based on Caremark. But see the recent Chancery Court decision in Araneta, available here, that was interpreted by the nationally-prominent corporate law professor Gordon Smith as finding liability based on Caremark principles. Here is Prof. Smith's post on the case.
Prof. Eric Chiappinelli also offers his analysis here and similary reads Araneta as finding liability based on a Caremark claim which he describes as the basis for the liability of the two beholden directors for not monitoring the third director (and majority shareholder)--describing their breach of good faith for intentionally not taking action to fulfill their duties as a breach of the duty of loyalty.
Prof. Bainbridge discusses Araneta here at the tail end of his analysis of the recent Delaware Supreme Court's decision in Stone v. Ritter, and how it interfaces with the Supreme Court's decision to make oversight claims a la Caremark, into a breach of the fiduciary duty of loyalty as opposed to the duty of care--which he thinks is part of the court's inclination to gut DGCL section 102(b)(7).
Here is a "corporate cartoon" depicting the holding in Araneta. (It is wonderful to have an artist who helps to explain decisions involving Delaware corporate litigation through cartoons.) Also, see generally, Sample v. Morgan, (Del. Ch., Jan. 2007), a Chancery Court decision excoriating some directors for being "unwitting and uninformed accomplices" in an entrenchment scheme by other directors, available here.
UPDATE: I am flattered that the reknowned corporate law expert, Professor Stephen Bainbridge, has linked here to this post on his blog. That makes for a great day in my world.
UPDATE II: Here is an assessment of the Delaware Chancery Court's opinion in Caremark by Prof. Brett McDonnell that is more supportive of the merits and policy of the decision than the first post linked at the beginning of this entry.
Delaware lawyers Seth Barrett Tillman and Stephen Bigler recently wrote a scholarly article that addresses the issue under Delaware law of stock issuances that may suffer from some infirmity such as lack of complete compliance with all necessary corporate formalities, and whether such a stock issuance is void or merely voidable. Here is the link. This is one of the few areas of Delaware corporate law that is not as fully developed in the case law as one might think. The authors suggest the best approaches for the corporate lawyer or corporate litigator who must deal with this situation. A prior article co-authored by Seth Tillman was previously posted on here.
I summarized here a recent Chancery Court decision that discussed the distinction between void and voidable stock.
Depositions in Delaware are subject to rules of practice and procedure that are materially different in form and substance to what I have observed in many other states. Both the Delaware Chancery Court and the Delaware Supreme Court enforce the rules relating to deposition practice and take it very seriously.
In a seminar last week, Delaware lawyers C. Malcolm Cochran, IV and Norman Monhait joined with Vice Chancellor John Noble of the Chancery Court, on a panel that described the highlights of the "Delaware way" of taking and defending depositions.
Here are the materials that they have graciously agreed to share with us. These materials include cases and rules that any lawyer taking depositions in a Delaware proceeding should be familiar with if they want to avoid the wrath of the court and if they do not want their wallet lightened from the costs they might need to pay for not following the proper procedures and practices in this important aspect of Delaware litigation. The panel supplemented the materials linked above with a Chancery Court case that penalized an attorney by making him pay for the opposing side's attorneys' fees for a deposition in which the defending attorney improperly interrupted and interfered with the deponent's answers. The Court emphasized that it "will not tolerate a lawyer supplanting a witness in a deposition". In Re Fuqua Industries, Inc. Shareholder Litigation, 752 A.2d 126, 135-36 (Del. Ch. 1999).
Many lawyers from around the country engage in Delaware litigation via pro hac vice admissions. (For our non-lawyer readers, that means they are not licensed in Delaware but obtain court approval to handle a particular case with the assistance of a local Delaware lawyer.)
Here are excellent seminar materials that I plan to send to those out-of-state lawyers for whom I serve as local counsel when I move their admission pro hac vice because more often than not the Delaware customs and practices are not the same as in other states, and the Delaware courts and the Office of Disciplinary Counsel take the enforcement of Delaware rules and procedures very seriously (as they should.) The linked materials provide a very useful summary of the "traps for the unwary" as well as highlights of the standards that non-Delaware lawyers need to maintain when they are admitted to a case pro hac vice.
Thanks are due to Andrea Rocanelli, Chief Disciplinary Counsel of Delaware for allowing these materials to be posted on this blog.
