Friday, January 2, 2009
Last year, Cadence Innovation LLC and General Motors entered into a contract under which Cadence would provide parts necessary for certain GM cars. AsThe Detroit Free Press reported last week, Cadence filed for bankruptcy in August 2008 and is now in liquidation. GM claims that, under the terms of an earlier financing deal, Cadence is required to turn over some tooling, without which GM would be required to shut down some of its assembly operations. If Cadence does not turn over the tooling, GM claims that it will suffer damages in the millions of dollars per day at each shut-down plant.
The Free Press article is a little unclear, perhaps because readers in and around Detroit are probably better-acquainted with Cadence's plight than is this reader, but it seems that the Bankruptcy Court earlier permitted Chrysler to remove some tooling from Cadence in return for a $4 million payment and a waiver of further claims. I assume that GM feels it is entitled to take its tooling without payment or waiver under the terms of the financing agreement referenced above. Meanwhile, it seems that Cadence employees are desperately seeking a buyer for the company so that at least some of them can be employed in 2009.
Thursday, January 1, 2009
At left, we have SpongeBob, a Nickelodeon character shown in the process of eating Manhattan. Those of you with children may have noticed an annoying scroll covering up SpongeBob's stick legs during yesterday's broadcast. Those of you who get your news from sources other than this blog might have noticed full-page ads in major newspapers (like those shown here and here) encouraging readers to pressure Time-Warner to come to the bargaining table so that Nickelodeon and 18 other Viacom-owned channels would not be removed from Time-Warner's offerings. Those of you who watched one of the Viacom channels recently probably saw this ad.
Well, the campaign seems to have worked. In any case, The Wall Street Journal reports today that Time-Warner and Viacom have reached a new deal. Viacom had been seeking a 12% increase in carriage fees, which would have increased subscriber fees by 23 cents/month. Viacom felt its fee was out of sync with the proportion of viewers it attracted through its package of channels. The details of the deal were not disclosed, but I'm sure many parents are breathing a sigh of relief. In addition, something would have been grossly out of joint if New York cable viewers could not tune in to Jon Stewart and Stephen Colbert.
Wednesday, December 31, 2008
Here is a wholly inadequate trailer for the brilliant Canadian series, "Slings and Arrows."
I cannot begin to tell you how tremendous this series is. Let me put it this way. Today is December 31st. If you are sitting there thinking that you have not made the most of this year; if you are thinking "Look how low I've slunk -- it's New Years Eve and I have nothing better to do than read the Contracts Prof Blog!" -- well this is your chance to make up for it. You can turn your entire year around by simply putting "Slings and Arrows on your Netflix queue. Or, if you are not a Netflix person, you can just watch the series on YouTube. Season I, Episode I can be found here. You have been reading this blog for a reason, and this is it.
Oh, I am obliged to say that there are contract issues in Season 3 (towards the end, and they're not really that important to the plot, but they give me a hook).
Tuesday, December 30, 2008
Santa Fe Industries owned 95% of the stock of the Kirby Lumber Corp. This put Santa Fe over the relevant threshold under Delaware law and thus permitted Santa Fe to avail itself of Delaware's short-form merger statute. Santa Fe offered $125/share to Kirby's minority shareholders. Plaintiffs were Kirby shareholders who thought $125 was a bad deal and that their shares were really worth about five times as much. The only issue before the U.S. Supreme Court was whether plaintiffs could challenge the transaction as a form of securities fraud actionable under SEC Rule 10b-5. The Supreme Court held that it was not.
The Court found that state remedies for breach of fiduciary duty, coupled with the appraisal remedy for shareholders dissatisfied with the offering price in a short-form merger, are adequate. Plaintiffs had alleged only that Santa Fe had breached its fiduciary duties as a majority shareholder by offering an absurdly low price. But Santa Fe had disclosed its methodology for fixing $125 as the share price. Dissatisfied shareholders could pursue appraisal. In short, without allegations of misrepresentations, the Court found no basis for a 10b-5 claim.
Can this case be reconciled with the Court's endorsement of the SEC's misappropriation theory in the insider trading context? The answer to that question and more will have to await a later Limerick, but this Stephen Bainbridge article suggests that the answer is no.
Santa Fe Industries v. Green
Should the federal courts intervene
When a short-form merger's obscene?
No, state law governs here;
Let the state courts declare
What the shareholders take from the scheme.
Monday, December 29, 2008
You may think that the one-week drought in Limericks was a product of the winter holidays, and you might be right. Or it might be an attempt to build up the tension before the following: my last Contracts Limerick!!! Well, it my not be my last, but it's my last for now. I'm not going to do the whole Brett Favre thing ('though 'tis the season). I'm just saying I've run out. Not to worry (or rejoice), I still have enough Business Associations Limericks to last another few months.
Judge Skelly Wright (pictured) has been featured in previous Contracts Limericks. He is known as a friend of the underdog, so when one of the parties is the United States, you might expect Skelly Wright to find for the other party. Not so in Transatlantic Financing Corporation v. United States, a case that plumbed the depths, sounding out the limits of the impracticability doctrine. Transatlantic might have hoped for a safe harbor in Skelly Wright's court, but its progress was impeded; in fact, blockaded by a hostile force: common law precedent.
In October 1956, the U.S. contracted with Transatlantic for a shipment of wheat to be carried by the SS Christos from Galveston to Iran. The parties assumed that the ship would take the most direct route, through the Suez Canal, but by the end of October, the Canal was in a war zone and Egypt blocked it off. The SS Christos would have to circumnavigate Africa in order to get to Iran, which entailed an additional expense of nearly $45,000. Transatlantic asked the U.S. to modify the contract, but the U.S. refused. The SS Christos completed its journey and then Transatlantic sought recovery based on the doctrines of impracticability and quantum meruit.
Skelly Wright noted that since Transatlantic had already been paid under the contract, it could not rely on impracticability, which would have permitted avoidance of the contract if it applied. However, other courts faced with similar facts had already found that the closing of the Suez Canal does not render a shipping contract commercially impracticable. Because the contract had been completed and paid for, Skelly Wright also viewed recovery in quantum meruit as inappropriate.
Transatlantic Financing Corp. v. United States
His passage through Suez foreclosed,
Plaintiff sailed 'round the Horn and supposed
He'd find some utility
But Skelly Wright found he gets hosed.
An inelegant finale, but there it is.