Corporate Governance

Yucaipa American Alliance Fund II, LP v. Riggio: The Growing Use of Poison Pills to Preclude a Proxy Contest (The Non-Threat Threat)

Posted on September 08, 2010
As part of the analysis mandated by Unocal, the Chancery Court had to decide whether, in adopting the pill with the particular attributes, the board had in fact confronted a "legitimate threat."  One of the core problems with the threat issue was the fact that Barnes & Noble had a staggered board...

Yucaipa American Alliance Fund II, LP v. Riggio: The Growing Use of Poison Pills to Preclude a Proxy Contest (Overview of the Facts and Law)

Posted on September 07, 2010
This case involves the adoption of a poison pill with a 20% trigger.  As the Chancery Court rightfully concludes, there is no serious argument that a pill triggered by acquisitions above 20% violates Delaware law.  Right or wrong, this is the teaching of Moran and Unocal...

Yucaipa American Alliance Fund II, LP v. Riggio: The Growing Use of Poison Pills to Preclude a Proxy Contest (The Non-Threat Threat)(UNPUBLISHED)

Posted on September 07, 2010
As part of the analysis mandated by Unocal, the Chancery Court had to decide whether, in adopting the pill with the particular attributes, the board had in fact confronted a "legitimate threat."  One of the core problems with the threat issue was the fact that Barnes & Noble had a staggered board...

Yucaipa American Alliance Fund II, LP v. Riggio: The Growing Use of Poison Pills to Preclude a Proxy Contest (Introduction)

Posted on September 06, 2010
In the 1980s, hostile takeover attempts were common.  When boards of target companies resisted, bidders commonly made a hostile tender offer, seeking to purchase at least a majority of the outstanding shares.   Boards of target companies would resist acquisitions through a panoply of colorful defensive tactics...

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The Top 25 Business Blogs: Let the Contest Begin

Posted on September 03, 2010
Each year, LexisNexis honors a select group of blogs that set the online standard for a given industry. The Race to the Bottom had been nominated in the category of Corporate Governance Blogs.  Apparently the final ranking will depend upon a show of support from readers...

The Declining Importance of Delaware

Posted on September 03, 2010
The securities fraud suit brought by the SEC against Citigroup found its way into the news recently when the trial judge refused to approve the proposed settlement negotiated by the parties.  Briefs have been ordered on a number of issues and there could be some shift in the final terms...

Independent Directors, Delaware Law, and Excessive Pleading Standards: London v. Tyrrell (Part 4)

Posted on September 02, 2010
The court attempted to explain the difference in the standards applicable in the context of special litigation committees and demand excusal.   Unlike a board in the pre-suit demand context,  SLC members are not given the benefit of the doubt as to their impartiality and objectivity...

Independent Directors, Delaware Law, and Excessive Pleading Standards: London v. Tyrrell (Part 2)

Posted on September 01, 2010
One of the "independent" directors in the case, Vinter, had family connections to one of the interested directors.  His wife was a cousin.  There was little evidence that the relationship was a close one and, in fact, defendants asserted that "they only occasionally cross paths at large family functions once or twice each year...

Independent Directors, Delaware Law, and Excessive Pleading Standards: London v. Tyrrell (Part 3)

Posted on September 01, 2010
A second director on the special litigation committee, Salvatori, had prior business dealings with one of the allegedly interested directors, Tyrrell.   Salvatori, as the president of another company, had hired Tyrell and promoted him to CFO...

London v. Tyrrell: Questioning the Independence and Good Faith of a Special Litigation Committee

Posted on August 31, 2010
In London v. Tyrrell et al., No. 3321-CC, 2010 Del. Ch. LEXIS 54 (Del. Ch. March 11, 2010), the nominal defendant iGov formed a special litigation committee ('the SLC') that recommended dismissal of the plaintiffs' derivative suit.  The court denied the motion to dismiss because there were material questions of fact regarding: (1) the SLC's independence, (2) the good faith of its investigation, and (3) whether the grounds upon which it recommended dismissal of the lawsuit were reasonable...

Independent Directors, Delaware Law, and Excessive Pleading Standards: London v. Tyrrell (Part 1)

Posted on August 31, 2010
We have been discussing the approach of the stock exchanges with respect to independent directors.  Delaware, unlike the exchanges, does not require boards to have independent directors.  Nonetheless, boards receive considerable legal advantages if they do...

The Commission and Access: The Three Year Holding Period

Posted on August 30, 2010
We will continue to muse over aspects of the access rule (14a-11) just adopted by the Commission.  The weakest part of the access proposal was not the 3% threshold for stock ownership.  That will be a high burden in some companies but it is a reasonable compromise...

The Commission and Access: The Interrelationship with Delaware Law

Posted on August 30, 2010
For now, our last comment is to look at access in the context of developments in Delaware law.  For many companies, access requires a certain amount of organization.  Groups of shareholders will need to put together blocks designed to meet the 3% threshold...

City of Westland Police v. Axcelis: The Erosion of the Credible Evidence Standard (Unfounded Rejection of the Blasius Standard)

Posted on August 27, 2010
While this case inolved the standard for inspection rights, it went much further.  It essentially rendered the board's decision not to accept the letters of resignation unreviewable.   Plaintiff argued that these types of decisions ought to be reviewed under the compelling justification standard set out in Blasius...

City of Westland Police v. Axcelis: The Erosion of the Credible Evidence Standard (One Hand Giveth, One Hand Taketh Away)

Posted on August 27, 2010
The case made it easier for shareholders to meet the pleading requirements for some of the elements under Section 220 when seeking materials used by the board in refusing to accept resignations by defeated directors.  Yet there is no guarantee that in fact shareholders will succeed in obtaining the necessary information...

The Commission and Access: Shout Out to Some of Those Responsible for Access

Posted on August 26, 2010
We will have a few comments to make on the Access rule just adopted by the Commission.  In reading the 400+ page release, there are plenty of things that will not make access proponents happy.  The 3% threshold when coupled with the three year holding period is excessive...

The Commission and Access: Places Where the Lack of Unanimity on the Commission Strengthened Access

Posted on August 26, 2010
The Commission wrote an access proposal that contained a number of limitations that will limit the effectiveness of the provision.  The 3% ownership threshold coupled with the 3 year holding period are the most restrictive provisions.  But it could have been much worse and, had there been a need to compromise among the five commissioners in order to achieve unanimity, it would have been...

The Commisson and Access: Preempting State Law

Posted on August 26, 2010
As we've noted in the past, federal law is increasingly preempting state law in the area of corporate governance.  Dodd-Frank certainly did so and now acces follows.  While the contents of the proxy statement is a matter of federal law, the Commission went further and took away from the board the authority to exclude nominees, excepting only in circumstances where shareholders lack the authority under state law...

Access and the Commission: Shifting the Burden to State Law

Posted on August 26, 2010
Its always been an anomaly that those opposing access often labeled it as inconsistent with state law.  State law allows any shareholder, irrespective of the number of shares owned, to nominate directors.  In public companies, shareholders did not exercise the authority because of the costs associated with the proxy process...

City of Westland Police v. Axcelis: The Erosion of the Credible Evidence Standard (The Suitability Standard)

Posted on August 25, 2010
In reviewing the lower court decison, the Supreme Court did two things of note.  First, the Court expanded the concept of proper purpose.  Wrongdoing by the board was not necessary.  Plaintiffs did not have to allege an entrenchment purpose...

Access and the Race to the Bottom

Posted on August 25, 2010
The Race to the Bottom submitted a comment on the access proposal, mostly to challenge the contention that access should be left to private ordering.  It has been cited several times in the final Release (a 451 page behemoth).  See notes 40, 443 & 677...

The Arrival of Access

Posted on August 25, 2010
Wow.  The Commission adopted access, a multiple decade struggle.  The release is here.  This is only a beginning but it is a profound shift in this country's approach to corporate governance.  Access is in effect a recognition that the use of "independent" directors nominated by management does not work adequately to protect the interests of shareholders...

City of Westland Police v. Axcelis: The Erosion of the Credible Evidence Standard (Introduction)

Posted on August 24, 2010
The Supreme Court just issued the anticipated opinion in City of Westland Police v. Axcelis.  That was the case where three directors did not receive majority support from shareholders and, under the policy in place, submitted letters of resignation to the board...

City of Westland Police v. Axcelis: The Erosion of the Credible Evidence Standard (The Implications of the Lower Court's Reasoning)

Posted on August 24, 2010
Invoking inspection rights under Section 220 in Delaware involves a two step process.  First, plaintiffs must assert a proper purpose for inspecting the records.  In general, a proper purpose requires some evidence of wrongdoing.  Second, even with a proper purpose, there must be credible evidence supporting the purpose...

Broker Duties and FINRA's Regulatory Notice 10-22

Posted on August 23, 2010
Brokers, in selling securities to customers, have certain duties and obligations.  These were the subject of Regulatory Notice issued by FINRA earlier in the Summer.  Regulatory Notice 10-22 creates no new law but reminds broker-dealers of two things when recommending an investment sold without registration under Regulation D...

SEC Approves Amendments to Municipal Bond Disclosures

Posted on August 23, 2010
Earlier this summer, the Securities and Exchange Commission ("SEC") unanimously approved amendments to the disclosure rules affecting municipal bonds.  The amended rules are intended to provide investors with more complete information regarding the types of securities and events issuers must disclose...

SEC v. Dorozhko: SEC?s Motion for Summary Judgment Granted

Posted on August 23, 2010
The Ukranian hacker insider trading case came to an end earlier this year.  On March 24, 2010, the trial court granted the Securities and Exchange Commission's ('SEC') motion for summary judgment against Oleksandr Dorozhko.  SEC v. Dorozhko, S...

Fleszar v. U.S. Dept. of Labor: Judicial Refusal to Extend Whistleblower Provisions to Non-Profit

Posted on August 21, 2010
SOX provided whistleblower protection to public companies (those registered under Section 12 of the Exchange Act).  In Fleszar v. U.S. Dept. of Labor, 598 F.3d 912 (7th Cir. 2010), plaintiff unsuccessfully tried to extend those protections to the American Medical Association ("AMA"), a nonprofit membership association...

Proxy Access and Continued Efforts at Circumvention

Posted on August 20, 2010
The battle over proxy access is coming to a short term end.  Dodd-Frank settled all remaining legal issues.  The Commission is expected to approve access next week.  For the first time, shareholders will obtain the right to include in the company's proxy statement their nominees for the board of directors...

SEC v. Cuban: SEC's Reply Brief (Insider Trading without a Fiduciary Obligation)

Posted on August 20, 2010
On April 12, 2010, the Securities and Exchange Commission ('SEC') filed a Reply Brief that addresses issues raised by Mark Cuban's ('Cuban') Appellate Brief.  The Northern District of Texas dismissed the original case because the complaint failed to allege Cuban owed a duty to disclose sufficient to constitute deception, as required under Section 10(b) of the Securities Exchange Act...

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