Monday, July 7, 2014

Delaware Public Benefit Corporation Count as of 6/30/14

For those interested, the Delaware secretary of state's office informs me that there were 145 Delaware public benefit corporations (PBCs) as of 6/30/14.

I do not recognize the vast majority of the PBCs on the list, but better known PBCs include Method Products and Plum Organics

July 7, 2014 in Business Associations, Delaware, Haskell Murray, Social Enterprise | Permalink | Comments (0)

Friday, June 6, 2014

Karen Valihura Nominated for Open Delaware Supreme Court Position

Today, Delaware governor Jack Markell announced his nomination of Skadden partner Karen Valihura for the open Delaware Supreme Court position.

Delaware Public Media reports:

Gov. Jack Markell is tapping Karen Valihura for a spot on the Delaware Supreme Court.

 

Markell announced his choice of the corporate lawyer Friday afternoon.

 

If confirmed by the state Senate, the 51-year old Valihura will become only the second woman to serve on Delaware’s highest court and will replace retiring Justice Jack Jacobs, who is set to step down June 24th.

 

Valihura is a partner at Skadden, Arps, Slate, Meagher and Flom, LLP, a private Wilmington law firm, where she’s practiced since 1989, dealing with corporate mergers, acquisitions and fraud claims.

 

In a statement, Markell touted Valihura’s record of community service and called her an attorney of “uncommon skill, intelligence and integrity.” 

Read the remainder of the article here.

June 6, 2014 in Delaware, Haskell Murray | Permalink | Comments (0)

Monday, April 14, 2014

Will Delaware Plug the 102(b)(7) Hole?

Delaware, like most states, has a provision in its corporate statutes allowing corporations to limit directors’ liability for breaches of fiduciary duty. Delaware section 102(b)(7) allows corporations to include in their charter “a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages" for certain breaches of fiduciary duty.

A recent Delaware case plows a huge hole through the protection provided by a section 102(b)(7) charter provision. In the Rural Metro case [In Re Rural Metro Corp. Stockholders Litigation, 2014 WL 971718 (Del. Ch. Mar. 7, 2014)], the Delaware Court of Chancery held that a 102(b)(7) provision does not protect against claims that non-directors aided and abetted a duty-of-care violation by directors, even when the directors themselves are protected.

The Chancery Court’s reasoning is sound. Section 102(b)(7), and the associated charter provision, don’t say there’s no breach of fiduciary duty, just that directors aren’t personally liable for damages. The underlying conduct by the directors is still a breach of fiduciary duty, and injunctive relief is still available, just no money damages.Since there’s still a breach of duty, and the statute says nothing about the liability of aiders and abettors, the court concluded that aiders and abettors can still be liable if: (1) the directors breached their fiduciary duties; (2) the third party knew the directors were breaching their fiduciary duties; and (3) the third party participated in the breach.

The court ultimately held that RBC Capital Markets, LLC was liable for aiding and abetting. I can't do justice to the facts in the space available here; I highly recommend a reading of this important opinion.

The real question is whether the Delaware legislature will let this holding stand. The Chancery Court’s statutory reasoning is sound, but that doesn’t mean the result is necessarily good policy. Investment bankers, brokers, accounting firms, and other third party providers, perhaps even lawyers in some cases, are exposed to the risk of liability under this holding. Even if they ultimately win on the merits, as I suspect many will, the litigation itself will be costly. That cost will, of course, be passed on to the corporations using the services of those third parties.

There’s a possible gain associated with that cost, of course: the possible increased deterrence of breaches of fiduciary duty by corporate directors. But the Delaware legislature, in adopting section 102(b)(7), has already decided that other considerations outweigh the deterrent effect of imposing liability on the directors themselves.

Two Legislative Options

Plugging the Rural Metro hole is easy. A simple amendment to 102(b)(7) would do the trick. But how the Delaware legislature chooses to amend the statute (if it does) is important.

One way would be to authorize corporations to include provisions in their charters protecting not only directors, but also people who aid and abet violations by the directors. If that's all the Delaware legislature did, the protection from liability would not be automatic. Companies with 102(b)(7) exculpation provisions would have to amend their charters to protect aiders and abettors.

A simpler, neater solution would make the protection of aiders and abettors automatic. The legislature could just add a sentence at the end of 102(b)(7) providing that aiders and abettors are not liable when the directors themselves are protected from liability. Something like the following would work: “Unless otherwise specified in the certificate of incorporation, no person shall be liable for money damages for aiding and abetting an action protected by such a provision.”  If the legislature did this, no further corporate action would be needed to make this protection effective. Only companies that did not want aiders and abettors protected would have to amend their charters.

Stay tuned to see what, if anything, the Delaware legislature does.

April 14, 2014 in Business Associations, C. Steven Bradford, Corporations, Delaware | Permalink | Comments (0)

Friday, April 11, 2014

Delaware Court of Chancery Mediation

On March 24, the petition for certiorari was denied in the Strine v. Delaware Coalition For Open Government, Inc. case, ending the Delaware Court of Chancery's experiment with arbitration by their sitting judges.  (H/T Brian Quinn). 

As far as I know, however, sitting judges on the Delaware Court of Chancery still conduct mediation.  A Chancellor or Vice Chancellor does not mediate his own cases, but rather mediates the cases assigned to one of the other four judges on the court (if the parties agree to submit to mediation). 

More information about the Delaware Court of Chancery's mediation process is here.  The benefits of the mediation include:

  • Expertise.  You would be hard pressed to find someone more knowledgable about Delaware corporate law and the merits of a Delaware Court of Chancery case than a sitting Delaware Chancellor or Vice Chancellor. 
  • Relatively Inexpensive.  The fee is only $5,000 a day, for cases that are already on the Chancery docket, which is a decent amount of money, but is dwafted by the legal fees spent in almost all of these cases.  For mediation only cases (cases not already on the docket), there is a $10,000 initial fee and a $5,000 for each additional day.  
  • Confidential.  All mediation proceedings are strictly confidential.

These are many of the same main benefits as the Delaware Court of Chancery arbitration, but, of course, in mediation, the judge is not making a decision, but rather assisting the parties in reaching a voluntary settlement.  

According to Steven Davidoff, in the Strine case, "the federal court found that the arbitration proceedings were effectively a civil trial, with no difference in judges, place or proceeding except the secrecy and the arbitral nature." 

Mediation, however, is quite a bit different than a civil trial.  While the comments of a sitting Chancellor may carry a lot weight with the parties, a mediator does not come to a determination for the party and the parties are able to walk away from the mediation at any time.

In short, judicial mediation carries many of the benefits of judicial arbitration, but the practice of judicial mediation seems to be more difficult to challenge. 

April 11, 2014 in Business Associations, Delaware, Haskell Murray, Negotiation | Permalink | Comments (0)

Friday, March 21, 2014

The Number of Delaware Public Benefit Corporations

Statutory provisions allowing for the formation of Delaware Public Benefit Corporations ("PBCs") went effective August 1, 2013.  According to the latest data I have, 87 PBCs have been formed in Delaware .

While 87 is an extremely small number when compared to the more than 1 million entities formed in Delaware, Delaware has already bested all states that have passed a benefit corporation statute, except for California.  California, which has a 20 month head-start on Delaware, has 139 benefit corporations.

Some states, like New Jersey and South Carolina have been stuck at fewer than 5 benefit corporations for well over a year.

The group of researchers I am working with now estimates that there are about 350 benefit corporations in the U.S. (including PBCs), though the data is relatively difficult to obtain from the secretary of state's offices and obtaining reliable, complete data is even more difficult.

Currently, there are no significant tax benefits (at the state or federal level) for social enterprises (like PBCs and benefit corporations) in the U.S., but the U.K. recently announced 30% tax relief for their social enterprises. (The U.K. social enterprises are a good bit different than those in the U.S.). 

It will be interesting to see if the benefit corporation form increases in popularity or languishes. 

Obviously, if tax breaks were given to benefit corporations in the U.S., popularity would likely rise.  That said, tax breaks would also likely lead to misuse of the form and the need for additional oversight.  (Additional oversight is already in place in the U.K.)

March 21, 2014 in Business Associations, Delaware, Haskell Murray, Social Enterprise | Permalink | Comments (0)

Thursday, March 20, 2014

Bouchard Nominated to Replace Strine as Chancellor

News from Delaware.gov (H/T Broc Romanek):

Governor Markell today announced the nomination of Andre G. Bouchard, widely recognized as one of the country’s premier corporate law practitioners, to serve as the 21st Chancellor of the Court of Chancery. If confirmed by the Delaware Senate, Bouchard would succeed the Honorable Leo E. Strine, Jr., who was sworn in as Chief Justice of the Delaware Supreme Court in February.

Bouchard is a graduate of Boston College and Harvard Law School.  Currently, he is the managing partner of Bouchard Margules & Friedlander, P.A in Wilmington, Delaware. 

Looks like my friends in Delaware accurately predicted this nomination back in January.

March 20, 2014 in Business Associations, Delaware, Haskell Murray | Permalink | Comments (0)

Monday, March 10, 2014

In re Rural Metro Corp: Investment Bankers' Liability for Aiding and Abetting Breaches of Fiduciary Duty

On Friday (March 7, 2014), the Delaware Court Chancery issued Vice Chancellor Laster's 91-page post-trial opinionin In re Rural Metro Corp. S’holders Litig

The decision holds the investment bank defendant, RMC Capital Markets LLC, liable for aiding and abetting breaches of fiduciary duty by the directors.  I have not finished the entire opinion yet, but interested readers can access the full opinion here.

The opinion is sure to be one of the most carefully read Chancery opinions of the year - especially by those in the M&A area - and has already generated a fair bit of commentary.  For now, I will outsource to the following:

March 10, 2014 in Business Associations, Corporations, Delaware, Haskell Murray, Merger & Acquisitions | Permalink | Comments (0)