Tuesday, October 22, 2013
Last month, I posted a little blurb on Vice Chancellor Laster's denial of a motion to consolidate based in part entirely on the fact that plaintiffs had captioned the consolidated case "shareholder litigation" and not "stockholder" litigation. The Vice Chancellor's comments were succinct, "Under whose law do you think you are litigating?"
Me? I find that kind of thing entertaining and on the whole not troublesome. Afterall, I remember my brief experience as an associate. In my first drafting project, I used shareholder and stockholder interchangeably. Using the same word all the time seemed so ... boring. Of course, there was a sea of red ink on the document when it came back. OK, lesson learned - consistency in drafting. The next version of the document went up and came back in another sea of red ink! Stockholder, not shareholder.... grumbles among the associate ranks, but okay. In a later assignment, I decided to show how much I learned, so I was consistent and only used 'stockholder'. The joke was on me, though. More red ink ... it's shareholder for California corporations!
What? You've never had an experience like this? I find that odd. Of course you have. Who instructs their associates to draft in any which way they please? No one, that's who.
In any event, the whole tomato/tomahto thing generated a little bit of a kerfluffle in ways that my regular posts of insider trading or LBOs just don't.
My take? This is an internal affair of the State of Delaware. If the courts of Delaware have decided that plaintiffs should caption their litigation "stockholder litigation" and not "shareholder litigation", so be it. Who am I to complain? No substantive rights are affected either way, so let Delaware have its way.
It's not like last month's denial was the first time Vice Chancellor Laster has been tilting at this particular windmill. Last year, he observed in a settlement hearing in Adams Shareholder Litigation:
"Today's hearing is so that I can consider the proposed class action settlement in In re Adams Golf Shareholder Litigation, C.A. No. 7354. I note, for the benefit of everyone who captions these cases, that with the 2010 amendments to the Delaware General Corporation Law, there are no longer any stray references in the DGCL that use the term 'shareholder.' The DGCL uniformly uses the term 'stockholder.' 'Shareholder' is a model act concept, although it did slip in in Section 203 for a few years. And certainly our decisions are not always scrupulous in observing the distinction. Nevertheless, I will humor myself, if no one else, by thinking of this privately as In re Adams Golf Stockholder Litigation."
A check of the Delaware code turns up only one reference to shareholder -- a stray parenthetical reference in the new Section 251(g) (hey, someone get on that!). Otherwise, the word shareholder is nowhere to be found.
What to make of all this? It's not as if stockholders of Delaware corporations lose or are otherwise denied substantive rights if they call themselves shareholders. The two words are, afterall, synonyms in normal parlance. However, if attention to detail is the stock and trade of a transactional lawyer's craft -- and it is, it is -- then it's surprising to me that there might be even the slightest pushback in a demand that we pay attention to detail.
So...tomato, tomahto I guess...but if you are in front of a Delaware court, you better make sure it's stockholder all the same.
Monday, October 14, 2013
The Delaware News Journal (via Delaware Online) handicaps the pick for Chief Justice of the Delaware Supreme Court. Although there are a number of possibles, the News Journal thinks it comes down to a choice between Chancellor Leo Strine and Justice Randy Holland. Of course, a selection of Randy Holland as Chief Justice doesn't preclude elevating Chancellor Strine to the Supreme Court. More and more signs seem to be pointing to Strine at least getting elevated to the Supreme Court. I wonder if he even wants that particular job. I suppose he might. If he does get a nod, then that leaves his seat as Chancellor open. Any takers there?
Friday, September 27, 2013
So...what? You think you know who is going to get nominated to fill Chief Justice Steele's soon to be empty seat? Ha. You know nothing. Want some informed speculation, beyond, "Well, it's Strine, right?" then go here to the Delaware Grapevine. You'll get tidbits like this:
For now, there is no telling who will be next to assume the Supreme Court's center seat.
Within the state's legal circles, it would not be seen as a surprise if all four justices apply. Other names being mentioned are: Leo Strine Jr., the chancellor from the Court of Chancery; Jim Vaughn Jr., the president judge of the Superior Court; and Jan Jurden, a Superior Court judge.
Or even better, insight like this that might really inform who gets the nod:
All eyes are primarily on Leo Strine Jr., the chancellor on Chancery, and Jan Jurden, a judge on the Superior Court, as the major contenders for chief justice, although the field easily could include any or all of the justices, the presiding judges of other courts and various senior partners, particularly the ones with corporate law practices.
Strine is as aggressively brilliant as Jurden is logistically grounded, his Slytherin to her Gryffindor.
Before they were judges, they did a turn in the political trenches, Strine as the counsel to Tom Carper, when the Democratic senator was the governor, and Jurden as an officer for the New Castle County Democratic Party.
They practiced at firms known as incubators for judges, Strine at Skadden, the out-of-state behemoth, and Jurden at Young Conaway Stargett & Taylor, the homegrown powerhouse.
Strine has been through a cutthroat confirmation war already. Carper wanted to make him a vice chancellor in 1998, but Strine as his counsel was not known for suffering fools, and this attitude was perhaps not the best approach for dealing with the legislature, kind of known as a ship of fools. There were hard feelings.
Strine did get confirmed, but not before Carper agreed to name one senator's son a judge and another senator's nephew a Family Court commissioner.
Jurden had no such trouble when Ruth Ann Minner, the Democratic governor, put her on the bench in 2001. All she had hanging out there were the editorial cartoons drawn by Jack Jurden, her father. Her confirmation went easily.
It's cheaper than getting on the Acela and probably much better informed than what you'll hear in the Club Car.
Monday, September 23, 2013
Kyle Wagner Compton's deep dive into the Delaware Chancery Court turns up another example of Vice Chancellor Laster trying to move mountains - in this case trying to get lawyers to refer to shareholder litigation as stockholder litigation. Vice Chancellor Laster denied a proposed order to consolidate a series of cases into a single case titled " In re Astex ShareholderLitigation" with the following:
"Shareholders litigation? Under what state's corporate law do you believe you are litigating?"
Laster has been trying to change conventions for while now. Students sometime ask what's the difference between shareholder and stockholder. The correct answer is, well, nothing, but...but...corporate law drafting isn't creative writing. To the extent one is looking at the statute, it's probably always better practice to rely on the language of the statute. Laster's effort is a small one to move away from the convention of calling representative litigation in Delaware shareholder litigation. Since the corporate code refers only to stockholders, proper usage should indicate captioning shareholder litigation, stockholder litigation.
Monday, September 9, 2013
Although the vote is not until September 12, Icahn threw in the towel today. From his letter to stockholders:
Well...okay then. What happened to the appraisal threat? I guess that's not going to happen, either?
Saturday, September 7, 2013
Statement from the Governor's office on Chief Justice Steele's retirement ann0uncement:
“A judiciary is only as good as the men and women who serve in it, and quite simply, Chief Justice Steele is as good as they get. In addition to serving as Chief Justice, he has been a Superior Court judge, a Vice Chancellor on our Court of Chancery, and a member of the Supreme Court,” said Gov. Jack Markell (D-Delaware). “He has been a tireless and forceful advocate for our state’s judiciary and indeed, for the entire State of Delaware. It is no secret that Delaware’s judiciary is the finest in the nation. I want to thank Chief Justice Steele for his tireless efforts in building and maintaining a court system that is truly a national model.”
Friday, September 6, 2013
Friday, August 9, 2013
The Deal Professor has a nice run down of the issues in Monday's motion to expedite hearing in Delaware. I just had some thoughts about three possible outcomes on Monday -- now I'm not necessarily predicting any of these outcomes, I am usually pretty bad at that, but because there are a range of possible outcomes and each of them tells us something about how the court is thinking about the substantive issues in the case. I think the range looks something like this:
Worst Case Scenario for Dell Board/Total Icahn Victory: The court hears the arguments and says,"Mr. Icahn, you are totally correct. It has been more than 13 months since the last annual shareholder meeting. Under Section 211(c) upon application by a shareholder - that's you, Mr. Icahn - I can and hereby do order a meeting. Oh, and let's have that meeting right now. Who's present? What business do you want the corporation to entertain?"
OK, so that's an extremely low likelihood outcome, the court saves the summary proceeding for the worst of the worst boards. It would be really bad for Dell, but I don't think this is going to happen. the Dell board just isn't bad enough to merit a summary proceeding. Best to ensure against this by making sure Michael Dell and the Silver Lake boys are hanging around the DuPont in Wilmington on Monday. And, better make sure some associate packs a pile of proxies, just in case.
More Pain for Dell/Almost Victory for Icahn: The court hears the arguments and says,"OK, so it's been 13 months since your last meeting, so I am going to order a meeting and that such meeting been held coincident with the special meeting of the shareholders. Yes, yes, counsel, I know I am not required to hold the meetings on the same day and that it might be inconvenient for you. But, I relied on the fact that you had built in procedural protections into the merger agreement the last time you were here. I know, counsel, I know, you weren't required under Delaware law to have majority of unaffiliated shareholders vote in favor, I know all of that. But, I am can order the meeting anytime I want, and I want to order it on the same day as the special meeting. If the shareholders with all their knowledge decide that Mr. Icahn is correct, well, they will vote for him. If not, then not. Good day counsel."
If this is outcome, well then it's pretty clear that the whole changing of the voting rules didn't go over well with Strine who might have felt had because he leaned on all the procedural protections the last time Icahn was in front of him looking for a motion to expedite.
Total Victory Dell/Icahn Loss: The court hears arguments and says,"Why, Mr. Icahn, in all my years of judging, I have never heard a more lucid and compelling argument. You are absolutely correct. I can't help but agree. I am hereby ordering that an annual meeting of the shareholders be held on a date not later than three days after the previously scheduled special shareholder meeting. Is that convenient for you, counsel for Dell?"
"Uh..yes your honor. Very convenient."
"Then, so ordered."
Scheduling the shareholder meeting after the special meeting would bascially be the end of the road for Icahn. Delaware does this kind of thing a lot - hand out Pyhrric victories. If it does so in this case, then it's pretty clear that Strine wasn't all that concerned with the voting changes and the adjournments. It was business judgment all the way, so absent compelling facts or a bona fide comepting bid, let's just get this thing going.
So...we'll see on Monday.
Tuesday, August 6, 2013
Just like that. It's gone. The top-up option has gone the way of the dodo bird. The handwriting has been on the wall for some time (since at least VC Laster's opinion in Olson v EV3), so it's not a surprise. Vice Chancellor Laster described the role of the top-up option in the following way:
The top-up option is a stock option designed to allow the holder to increase its stock ownership to at least 90 percent, the threshold needed to effect a short-form merger under Section 253 of the Delaware General Corporation Law (the “DGCL”), 8 Del. C. § 253. A top-up option typically is granted to the acquirer to facilitate a two-step acquisition in which the acquirer agrees first to commence a tender offer for at least a majority of the target corporation’s common stock, then to consummate a back-end merger at the tender offer price if the tender is successful…
The top-up option speeds deal closure if a majority of the target’s stockholders have endorsed the acquisition by tendering their shares. Once the acquirer closes the first-step tender offer, it owns sufficient shares to approve a long-form merger pursuant to Section 251 of the DGCL, 8 Del. C. § 251. Under the merger agreement governing the two-step acquisition, the parties contractually commit to complete the second-step merger. A long-form merger, however, requires a board resolution and recommendation and a subsequent stockholder vote, among other steps. See id. § 251(b) & (c). When the deal involves a public company, holding the stockholder vote requires preparing a proxy or information statement in compliance with the federal securities law and clearing the Securities and Exchange Commission.
The top-up option accelerates closing by facilitating a short-form merger. Pursuant to Section 253, a parent corporation owning at least 90% of the outstanding shares of each class of stock of the subsidiary entitled to vote may consummate a short form merger by a resolution of the parent board and subsequent filing of a certificate of ownership and merger with the Delaware Secretary of State. See 8 Del. C. § 253(a). This simplified process requires neither subsidiary board action nor a stockholder vote.
The Chancery Court has consistently ruled that top-up options as described above are permissible because at least in part once the acquirer has sufficient shares to approve a long-form back end merger it's not a question of if the merger will occur, but when. So long as the acquirer merger agreement does not permit the dilution of remaining shares for appraisal purposes, the top-up option is unremarkable. Of course, there was the slightly complicated top-up option math that made top-up options fun for exams and tripping up junior associates (hint - you have to add the newly issued shares into the numerator and the denominator...).
All that is gone now that DGCL Sec 251(h) has gone into effect. Sec. 251(h) eliminates the requirement for a shareholder vote in a back end merger following a tender offer if the acquirer is able to obtain control through the tender offer. Here's the new 251(h):
(h) Notwithstanding the requirements of subsection (c) of this section, unless expressly required by its certificate of incorporation, no vote of stockholders of a constituent corporation whose shares are listed on a national securities exchange or held of record by more than 2,000 holders immediately prior to the execution of the agreement of merger by such constituent corporation shall be necessary to authorize a merger if:
(1) The agreement of merger, which must be entered into on or after August 1, 2013, expressly provides that such merger shall be governed by this subsection and shall be effected as soon as practicable following the consummation of the offer referred to in paragraph (h)(2) of this section;
(2) A corporation consummates a tender or exchange offer for any and all of the outstanding stock of such constituent corporation on the terms provided in such agreement of merger that, absent this subsection, would be entitled to vote on the adoption or rejection of the agreement of merger;
(3) Following the consummation of such offer, the consummating corporation owns at least such percentage of the stock, and of each class or series thereof, of such constituent corporation that, absent this subsection, would be required to adopt the agreement of merger by this chapter and by the certificate of incorporation of such constituent corporation;
(4) At the time such constituent corporation's board of directors approves the agreement of merger, no other party to such agreement is an "interested stockholder" (as defined in § 203(c) of this title) of such constituent corporation;
(5) The corporation consummating the offer described in paragraph (h)(2) of this section merges with or into such constituent corporation pursuant to such agreement; and
(6) The outstanding shares of each class or series of stock of the constituent corporation not to be canceled in the merger are to be converted in such merger into, or into the right to receive, the same amount and kind of cash, property, rights or securities paid for shares of such class or series of stock of such constituent corporation upon consummation of the offer referred to in paragraph (h)(2) of this section.
If an agreement of merger is adopted without the vote of stockholders of a corporation pursuant to this subsection, the secretary or assistant secretary of the surviving corporation shall certify on the agreement that the agreement has been adopted pursuant to this subsection and that the conditions specified in this subsection (other than the condition listed in paragraph (h)(5) of this section) have been satisfied; provided that such certification on the agreement shall not be required if a certificate of merger is filed in lieu of filing the agreement. The agreement so adopted and certified shall then be filed and shall become effective, in accordance with § 103 of this title. Such filing shall constitute a representation by the person who executes the agreement that the facts stated in the certificate remain true immediately prior to such filing.
Oh, sure. It doesn't actually say the top-up option is no more. It doesn't have to. It just makes the top-up irrelevant. Like the dodo bird.
Tuesday, June 25, 2013
So, I'm already on record about what I think is next. So, forum selection bylaws that restrict litigation to the state of incorporation are helpful for managing the issue of multiforum litigation, which in recent years has become a real waste of resources. But, it's a very tricky - and perhaps impossible - balance.
The hard part of the balance involves arbitration. I'm already on record with respect to my opinions on the Delaware arbitration procedure (here and here), which I think goes too far. The forum selection bylaw, I think, may further open the door to widespread adoption of arbitration provisions in bylaws. If widespread adoption of arbitration includes confidential resolution of disputes and a restriction on the ability of shareholders to bring class actions, then that may be the beginning of the end of Delaware's position as corporate law leader - the end of Delaware's franchise. Seem extreme? Well certainly it won't happen overnight. It will be a long-term degradation of Delaware's competitive position and lowering barriers to entry for other states.
We'll see in 10 years. I've put down my marker.
Wednesday, June 12, 2013
The Corporate Counsel just published an interview with Chancellor Strine. Some of it is Delaware boosterism - no surprise. But, there are a number of useful tidbits. First, Strine gives examples of what he believes are the two most important issues before his court recently. These won't come as a big surprise to those of you paying attention: 1) don't ask-don't waive provisions; and 2) Caremark liability for directors of US incorporated, foreign headquartered firms. He remains shocked (as am I, frankly) that people would agree to be directors at a distance of business in a country where they don't speak the language.
Another interesting comment - and this is full of irony - turns out Chancellor Strine doesn't think very highly of arbitration -- it's expensive and slow!
...Arbitration is increasingly more expensive than litigation, with some arbitrators charging more than leading M&A lawyers. It’s also often as slow. Worst of all are disputes that bounce between the two, where parties can’t resolve underlying issues, such as whether the matter is arbitrable in the first place.
So the principal advantages of being a Delaware entity are access to efficient dispute resolution services and the ability to rely upon guidance from our corporate law and precedent. Both are important, but the first has become increasingly important in light of the priority placed on business relationships.
Yes. I agree. Just go to court...
Monday, June 3, 2013
[Updated] Here are a handful of law firm memos on the MFW Shareholders Litigation (in which the Delaware Court of Chancery held that the Business Judgment Rule applied to a freeze-out merger that was conditioned on the approval of both an independent Special Committee and a Majority-of-the-Minority stockholder Vote). Brian discussed the same case here.
Thursday, May 30, 2013
NetSpend: Interesting Insights on Revlon Process, “Don’t Ask, Don’t Waive” Standstills & Fairness Opinions
The Delaware Chancery court's recent decision in Koehler v. NetSpend Holdings Inc. is worth a read for deal planners. Vice Chancellor Glasscock criticized the board's Revlon process, stating:
The Plaintiff has demonstrated that a reasonable likelihood exists that the sales process undertaken by the NetSpend Board—which included lack of a pre-agreement market canvass, negotiation with a single potential purchaser, reliance on a weak fairness opinion, agreement to forgo a post-agreement market check, and agreement to deal protection devices including, most significantly, a don’t-ask-don’t-waive provision—was not designed to produce the best price for the stockholders.
Nevertheless, in line with other recent Delaware decisions where the courts have been reluctant to enjoin a deal when there are no other potential bidders, the court denied plaintiff's motion to enjoin the deal. Still, Vice Chancellor Glassock's criticism of the fairness opinion provided by the company's financial advisor and the board's use of a DADW provision should give sellers some guidance for future deals.
For more info, take a look at this memorandum by Sullivan & Cromwell.
Monday, May 20, 2013
Friday, May 17, 2013
As I noted yesterday, the Delaware Coalition for Open Government and the Chancery Court were before a panel of the Third Circuit arguing the merits of Delaware's arbitration procedure. Tom Hals of Reuters was there and he thinks the Chancery Court scored some points. I've said it before and I still believe it: if the arbitration procedure survives, someone will look back in 10 years or so and shake their head. It's still a bad idea for Delaware and Delaware's franchise.
Thursday, May 16, 2013
The question of the constitutionality of Delaware's Chancery arbitration program is before the Third Circuit today. I think my position on this program is pretty clear -- I'm for openness. See here for past posts on the topic. I've got a paper appearing in Spring 2013 issue of the Cardozo Journal of Conflict Resolution arguing more or less the same thing.
We'll see what the panel thinks.
Tuesday, April 30, 2013
Thinking about it now, it turns out that the 2011 settlement approval of In re Sauer Danfoss Shareholder Litig is an important case. Why? Did it set out any special new points in the law? No. But it did one thing of real value for the courts. In Appendix A to the opinion, it set out a chart of recent settlements with identification of the work accomplished by plaintiffs counsel, the benefit achieved, and the fee approved by the court. It's a price list. And, like a price list, the Delaware courts are now regularly referring to it when they are reviewing requests for attorneys fees in disclosure only cases. I suppose that's a good thing. The downside? Well, now Vice Chancellor Laster has to remember to update the appendix every now and again!
Wednesday, April 10, 2013
The challenge to Chevron's forum selection bylaw is before Chancellor Strine today. Here's the complaint. I've blogged about these challenges before (here). Although, I have advocated for forum selection provisions in corporate charters, forum selection bylaws are easier to adopt. In part the ease of adoption exaplains why a number of firms put them in place in recent years. The ease of their adoptino is, however, their biggest weakness. In a challenge before a federal district court in California (Galaviz v Berg), the judge ruled that forum selection provisions adopted as bylaws lacked "sufficient indicia of consent." This wouldn't be a problem with forum selection provisions adopted at charter provisions.
Although other boards have dropped their bylaws in the face of legal challenges, Chevron has stuck to its guns. Today we will get some sense whether the Delaware courts agree with the California federal court about the sufficiency of a bylaw for the purpose of narrowing possible forums. Looks like the plaintiffs are hoping that the recent Delaware Supreme Court opinion in Pyott v La. Mun. will be enough to keep Chancellor Strine in line. Maybe.
Tuesday, April 9, 2013
There has been a back and forth between the Chancery Court and the Delaware Supreme Court about whether there are default fiduciary duties for LLCs. The Chancery Court takes the position that there are default fiduciary duties, though you may contract around them. The Supreme Court on the other hand take a more extreme, contractualist position. The Chief Justice's position is that there are no default duties because the LLC form is a creature of contract. If parties to an LLC have not contracted for fiduciary duties, then the Supreme Court will not enforce them upon the parties.
It was over this topic that Chief Justice Steele recently called out Chancellor Strine for straying from the question before the court and moving out of his lane. The judicial dust up got some attention at the recent Tulane gathering.
Now, it looks like the Delaware legislature will be stepping in to resolve this little dust up and guess who is going to win? That's right, sanity prevails. There are going to be default fiduciary duties for LLCs. According to Pepper Hamilton:
On March 20, 2013, legislation proposing to amend the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101, et. seq. (DLLCA) was submitted to the Corporation Law Section of the Delaware State Bar Association. If the proposed legislation is enacted, the amendments, in addition to implementing certain technical changes, would confirm that LLC managers owe fiduciary duties where the LLC agreement is silent.
Expect to see this legislation enacted by the end of the summer. Advantage Strine.
Friday, March 22, 2013
Sounds like the judicial fireworks are flying in Tulane (note to self: go next year). At a panel discussion Chief Justice Myron Steele apparently continued his crusade to get the Chancery Court to shut up (via WSJ Deal Journal:
“Every time they open their mouth they make the law,” Steele said Thursday, discussing how he would love to get that idea into the heads of judges. Steele said it was inappropriate to force lawyers to read transcripts in order to determine the law.
Steele didn’t name names.
But we know. It's funny. The Supreme Court would like the Chancery Court to say less and only speak through its opinions and only on issues that are directly before the court. All of this other stuff is just dicta. It forces lawyers to read transcript hearings and search speeches for hints at what the law is. As an aside - if the court were really worried about closing off access to knowledge of the state of the law, it would reconsider its Chancery Arbitration procedures. Just saying.
Anyway, those things that Steele thinks are bugs, are considered features by the Chancery Court. In a paper (forthcoming in W&L Law Review) by Vice Chancellor Donald Parsons and his former clerk Jason Tyler, the authors point to dicta and judicial asides as an important component of the law making/dealmaking function of Delaware law:
To give just one small example of the organic nature of this process, in December 2011, Vice Chancellor Laster issued an opinion in In re Compellent Technologies. In dicta, he questioned the wording of a provision of a merger agreement requiring the target company’s board to give notice to the acquirer if any subsequent, superior offers arose. The Vice Chancellor did not question the general validity of this relatively common information rights provision, just the particular verbiage used to express it in the merger agreement at issue in that case. Less than two months later, another case—In re Micromet—challenged a merger agreement containing a nearly identical provision, except for a revision in the language the court had questioned in Compellent. The court in Micromet found the revised provision unobjectionable. More important than the outcomes of those two cases, however, is what one reasonably can infer from their facts and sequence. Apparently, within a matter of weeks, transactional attorneys had read the Compellent opinion and advised their clients accordingly in connection with a later transaction that, when challenged, survived judicial scrutiny.
So, it's a bit of a judicial tug of war that will no doubt continue to play out.