Archive for the ‘Court Cases’ Category

Back-to-Back Court of Appeals Decisions Apply Morrison

Posted by John F. Savarese and George T. Conway III, Wachtell, Lipton, Rosen & Katz, on Tuesday August 19, 2014 at 4:08 pm
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Editor’s Note: John F. Savarese and George Conway are partners in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton firm memorandum by Mr. Savarese and Mr. Conway.

In a one-two punch illustrating the continuing vigor of the presumption against extraterritoriality, the United States Court of Appeals for the Second Circuit, on consecutive days last week, issued important decisions applying Morrison v. National Australia Bank in two disparate but significant contexts under the federal securities laws. Last Thursday, in Liu v. Siemens AG, No. 13-4385-cv (2d Cir. Aug. 14, 2014), the court rejected the extraterritorial application of the whistleblower anti-retaliation provision of the Dodd-Frank Act. And on the very next day, in Parkcentral Global Hub Ltd. v. Porsche Automobil Holdings SE, No. 11-397-cv (2d Cir. Aug. 15, 2014), the court rejected the extraterritorial application of Rule 10b-5 to claims seeking recovery of losses on swap agreements that reference foreign securities.

…continue reading: Back-to-Back Court of Appeals Decisions Apply Morrison

Delaware Court Affirms Order Requiring Production of Privileged Documents

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday August 19, 2014 at 9:16 am
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Editor’s Note: The following post comes to us from Lewis R. Clayton, partner in the Litigation Department and co-chair of the Intellectual Property and ERISA Litigation Groups at Paul, Weiss, Rifkind, Wharton & Garrison LLP, and is based on a Paul Weiss client memorandum. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In Wal-Mart Stores, Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW, the Delaware Supreme Court formally recognized the “Garner doctrine,” an exception to the attorney-client privilege, in connection with a stockholder’s demand for records under Section 220 of the Delaware General Corporation Law, and confirmed that the exception also applies to other stockholder claims. The decision may allow derivative plaintiffs to obtain certain sensitive privileged communications and attorney work-product in cases involving substantial allegations of serious fiduciary misconduct.

…continue reading: Delaware Court Affirms Order Requiring Production of Privileged Documents

2014 Mid-Year Securities Litigation Update

Editor’s Note: The following post comes to us from Jonathan C. Dickey, partner and Co-Chair of the National Securities Litigation Practice Group at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn publication.

It almost goes without saying that the first half of 2014 brought with it the most significant development in securities litigation in decades: the U.S. Supreme Court decided Halliburton Co. v. Erica P. John Fund, Inc.—Halliburton II. In Halliburton II, the Court declined to revisit its earlier decision in Basic v. Levinson, Inc.; plaintiffs may therefore continue to avail themselves of the legal presumption of reliance, a presumption necessary for many class action plaintiffs to achieve class certification. But the Court also reiterated what it said 20 years ago in Basic: the presumption of reliance is rebuttable. And the Court clarified that defendants may now rebut the presumption at the class certification stage with evidence that the alleged misrepresentation did not affect the security’s price, making “price impact” evidence essential to class certification.

…continue reading: 2014 Mid-Year Securities Litigation Update

Make-Whole Provisions Continue to Cause Controversy

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday August 3, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Michael Friedman, Partner in the Banking Group and in the Litigation, Bankruptcy and Restructuring Group at Chapman and Cutler LLP, and is based on a Chapman publication by Mr. Friedman and Craig M. Price.

Given today’s low interest rate environment, the enforceability of make-whole provisions has been the subject of intense litigation as debtors seek to redeem and refinance debt entered into during periods of higher interest rates, and investors seek to maintain their contractual rates of return. This trend has come to the forefront most recently in two separate cases, one filed in Delaware and the other in New York. In Energy Future Holdings, the first-lien and second-lien indenture trustees have each initiated separate adversary proceedings in Delaware bankruptcy court claiming the power company’s plan to redeem and refinance its outstanding debt entitles the respective holders to hundreds of millions of dollars in make-whole payments. [1] Conversely, In MPM Silicones, LLC, it is the debtors that have sought a declaratory judgment from the New York bankruptcy court that, on account of an automatic acceleration upon the bankruptcy filing, no make-whole payment is required to be paid. [2] Given the frequency which make-whole disputes have arisen and the enormous sums at stake, it is important for all investors to understand the various arguments for and against payment of a make-whole premium, and the specific issues to look for when analyzing debt containing make-whole provisions. Despite the various legal arguments that exist, the single most important factor will always be the specific language of the applicable credit agreement or indenture.

…continue reading: Make-Whole Provisions Continue to Cause Controversy

Hedge Funds and Material Nonpublic Information

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday July 31, 2014 at 9:03 am
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Editor’s Note: The following post comes to us from Jon N. Eisenberg, partner in the Government Enforcement practice at K&L Gates LLP, and is based on a K&L Gates publication by Mr. Eisenberg; the complete publication, including footnotes, is available here.

The last thing hedge funds need is another wake up call about the risks of liability for trading on the basis of material nonpublic information. But if they did, a July 17 article in the Wall Street Journal would provide it. According to the article, the SEC is investigating nearly four dozen hedge funds, asset managers and other firms to determine whether they traded on material nonpublic information concerning a change in Medicare reimbursement rates. If so, it appears that the material nonpublic information, if any, may have originated from a staffer on the House Ways and Means Committee, was then communicated to a law firm lobbyist, was further communicated by the lobbyist to a political intelligence firm, and finally, was communicated to clients who traded. According to an April 3, 2013 Wall Street Journal article, the political intelligence firm issued a flash report to clients on April 1, 2013 at 3:42 p.m.—18 minutes before the market closed and 35 minutes before the government announced that the Centers for Medicare and Medicaid Services would increase reimbursements by 3.3%, rather than reduce them 2.3%, as initially proposed. Shares in several large insurance firms rose as much as 6% in the last 18 minutes of trading.

…continue reading: Hedge Funds and Material Nonpublic Information

Timely Notice of Merger’s Effective Date Reduces Litigation Risks in Delaware

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday July 26, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Jon E. Abramczyk, Partner and Member of the Corporate and Business Litigation Group at Morris, Nichols, Arsht & Tunnell LLP, and is based on a Morris Nichols publication. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Following a merger (or consolidation), Section 262 of the Delaware General Corporation Law (“DGCL”) requires notice to be sent to any stockholder of record who has demanded appraisal informing that stockholder that the transaction was accomplished. For long-form mergers approved pursuant to a stockholder vote (i.e., under Section 251(c) of the DGCL), Section 262(d)(1) requires notice of the effective date of the merger to be sent within 10 days of the merger becoming effective. For mergers approved pursuant to Sections 228, 251(h), 253 or 267 of the DGCL (e.g., mergers approved by written consent, certain mergers following a tender or exchange offer, short-form mergers between parent and subsidiary corporations and short-form mergers between a non-corporation parent entity and its subsidiary corporation) the notice of the effective date is governed by Section 262(d)(2), which sets its own timing requirements.

…continue reading: Timely Notice of Merger’s Effective Date Reduces Litigation Risks in Delaware

Heightened Activist Attacks on Boards of Directors

Editor’s Note: David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. The following post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, is available here.

This has been called “the heyday of hedge fund activism,” and it is certainly true that today boards of directors must constantly be vigilant to the many and varied ways in which activist investors can approach a target. Commencing a proxy fight long has been an activist tactic, but it is now being used in a different way. Some hedge funds are engaging in proxy fights in order to exercise direct influence or control over the board’s decision-making as opposed to clearing the way for a takeover of the target company or seeking a stock buyback. In some cases, multiple hedge funds acting in parallel purchase enough target shares to hold a voting bloc adequate to elect their director nominees to the board. A recent Delaware case addressed a situation in which a board resisted a threat from hedge funds acting together in this manner. The court determined that a shareholder rights plan, or poison pill, could, in certain circumstances, be an appropriate response. As a general matter, boards of directors facing activist share accumulations and threats of board takeovers can take comfort in this latest affirmation of the respect accorded to an independent board’s informed business judgment.

…continue reading: Heightened Activist Attacks on Boards of Directors

Delaware Court Denies Attorneys’ Fees for Alleged Dodd-Frank Disclosure Deficiencies

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday July 18, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Stewart D. Aaron, partner in the Securities Enforcement and Litigation practice at Arnold & Porter LLP, and is based on an Arnold & Porter publication by Mr. Aaron and Robert C. Azarow. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Under Delaware’s corporate benefit doctrine, a stockholder who presents a meritorious claim to a board of directors may be entitled to attorneys’ fees if the stockholder’s efforts result in the conferring of a corporate benefit. [1] On June 20, 2014, the Delaware Chancery Court considered in Raul v. Astoria Financial Corporation [2] whether attorneys’ fees are warranted under this doctrine when a stockholder identifies potential deficiencies in executive compensation disclosures required by the SEC pursuant to the Dodd-Frank Act “say on pay” provisions. [3] The court held that the alleged omissions at issue failed to demonstrate any breach of the Board of Directors’ fiduciary duties under Delaware law and accordingly the Plaintiff did not present a meritorious demand to the Board. This decision makes clear that the courts will not shift fees to a stockholder (and the stockholder’s law firm) who “has simply done the company a good turn by bringing to the attention of the board an action that it ultimately decides to take.” [4]

…continue reading: Delaware Court Denies Attorneys’ Fees for Alleged Dodd-Frank Disclosure Deficiencies

Court Holds That US Bankruptcy Code Does Not Permit Recovery of Extraterritorial Transfers

Editor’s Note: George T. Conway III is partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton firm memorandum authored by Mr. Conway, Douglas K. Mayer, and Emil A. Kleinhaus.

In a decision that could significantly limit the power of U.S. bankruptcy trustees to challenge cross-border transactions, the United States District Court for the Southern District of New York has held that the trustee overseeing the Madoff liquidation may not recover transfers made by Madoff’s foreign customers to other foreign entities. SIPC v. Bernard L. Madoff Investment Securities LLC, No. 12-mc-115 (S.D.N.Y. July 7, 2014). The court held that recovery of such “purely foreign” transfers would run afoul of the presumption against extraterritoriality reaffirmed by the Supreme Court in Morrison v. National Australia Bank.

…continue reading: Court Holds That US Bankruptcy Code Does Not Permit Recovery of Extraterritorial Transfers

Exclusive Forum Provisions: A New Item for Corporate Governance and M&A Checklists

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday July 14, 2014 at 9:19 am
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Editor’s Note: The following post comes to us from Michael O’Bryan, partner in the Corporate Department at Morrison & Foerster LLP, and is based on a Morrison & Foerster Client Alert by Mr. O’Bryan, Kevin Calia, and James Beha. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Public companies increasingly are adopting “exclusive forum” bylaws and charter provisions that require their stockholders to go to specified courts if they want to make fiduciary duty or other intra-corporate claims against the company and its directors.

Exclusive forum provisions can help companies respond to such litigation more efficiently. Following most public M&A announcements, for example, stockholders file nearly identical claims in multiple jurisdictions, raising the costs required to respond. Buyers also feel the pain, since they typically bear the costs and may even be named in some of the proceedings. Exclusive forum provisions help address the increased costs, while allowing stockholders to bring claims in the specified forum.

…continue reading: Exclusive Forum Provisions: A New Item for Corporate Governance and M&A Checklists

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