January 25, 2013
Governing Law Clauses
For many years, lawyers with too much time on their hands have debated whether there is a difference in effect between these two governing law clauses:
"This contract shall be governed by New York law."
"This contract shall be governed by New York law, without regard to conflict-of-laws principles."
Some believe that the first clause, which does not address conflict-of-laws rules, requires application of New York’s conflict-of-laws principles. As a result a court might apply the substantive law of a jurisdiction other than New York--despite the clear intent of the provision.
As this client alert from Shearman & Sterling notes, the debate is finally over. Now we can all get back to arguing about the permissibility of splitting infinitives.
January 24, 2013
Demand ... refused
For all you law students out there who are mystified by the procedural niceties of derivative litigation (actually, I should include a pile of politicians and media types in this group as well), AIG has filed a copy of its demand refusal with the SEC. It's right here. You'll also find a copy of the plaintiff's demand letter that kicked this whole thing off. I'll probably be using these materials in the future when I next walk through derivative litigation.
What does the filing tell us? Well, after plaintiffs filed their demand that the board took its time and didn't rush its decision with respect to the litigation. When it took up the litigation, it had informed itself of the issues and decided that pursuing Starr's claims in any form wouldn't be in the best interests of the corporation. That's pretty straightforward.
I-Banker Liability in M&A
For those of you paying attention to the back and forth related to the H-P/Autonomy acquisition, the question of the potential liability of advisors has popped up more than a couple of times. How could H-P's advisors (investment bankers, lawyers, and accountants) let slip by the alleged accounting fraud that caused H-P to write down more than $5 billion? Close on the heels of that question is whether the advisors should face any liability for not picking up on the fact that Autonomy might not be a good candidate for an acquisition.
Well, for a partial answer as to the liability exposure of M&A advisors when the transaction goes wrong look no further than Baker v. Goldman Sachs, just decided by a jury in federal district court in Boston. There, the founders with Goldman's assistance sold their company, Dragon Systems to Belgium-based Lernout & Hauspie for $580 million in L&H stock. Not long after the transaction closed, fraud at the acquirer was discovered and the acquirer quickly went bankrupt leaving Dragon stockholders holding worthless stock.
Having lost everything, including their tech company, founders Janet and Jim Baker sued Goldman for allegedly failing in its duties to them, their clients, when it brokered the deal. Here's the original complaint (Baker v Goldman) - filed in state court and then removed to federal district court. The jury heard the evidence and the arguments in this case and found that Goldman had not breached any duties to the Bakers.
If H-P is thinking about going after its advisors for its ill-fated Autonomy deal, it will have to be more successful than the Bakers were in convincing a jury that M&A advisors should bear liability for a deal gone wrong.
January 22, 2013
Cardozo Delaware arbitration panel
If you are in NYC on February 7, I'd encourage you to stop by Cardozo for its panel on the Delaware arbitration procedure. They have assembled a great panel, including David Finger, counsel for the Delawaree Coalition for Open Government. Mark your calendars!
H-P's Last Chance
The WSJ has a fascinating behind the scenes look at how H-P's acquisition of Autonomy went down. It's a must read for anyone who thinks about acquisitions. Issues were raised in diligence related to potential accounting irregularities but they never made up to the board level. Had they, would that have been enough to slow down the train. The internal dynamics driving H-P to make this acquisition suggest that perhaps not. That's part of what makes acquisitions so interesting. All rational analysis aside, sometimes large transactions pick up their own momentum and they become difficult - if not impossible - for those close to it to stop.
January 21, 2013
Insider trading update
MoFo has published its annual insider trading update. It's a 52 page overview of everything there is to know in insider trading developments over the past year.