Taking Care of Business – Emerging legal issues impacting the business community.

05 Feb

When the Main Course Will Be Shrinking Pie, It’s Always Best to Plan the Meal Early

I was on a flight one time when the pilot announced a delay to check a mechanical issue. He said it was probably nothing, but “we always prefer to be down here wishing we were up there, than up there wishing we were down here.” It stayed with me. Of late there has been much chatter about the global economy and whether the tea leaves are predicting a correction or worse in our economy at home. So much so, that I wonder if the iconic phrase “winter is coming” will be worn out before the final season of Game of Thrones even begins. Maybe what we are experiencing is just uncertainty before the next big growth spurt. But like our pilot, wouldn’t we all be better off if we prepared for a recession that never comes rather than finding ourselves unprepared for one that does? (more…)

30 Jan

Delaware Chancery Court Disfavors “Sue First, Ask Questions Later” Approach to a Books and Records Demand

By: Marc Casarino

Section 220 of the Delaware General Corporation Law entitles a stockholder of a corporation to inspect a corporation’s books and records. Section 220 requests are subject to specific technical requirements, one of which is that the inspection must be for a proper purpose. The investigation of suspected mismanagement and wrongdoing by corporate fiduciaries is generally considered to be a proper purpose for an inspection. The inspection may not, however, be a substitute for discovery in pending litigation. (more…)

22 Jan

Third Circuit Affirms Six-Figure Award Against Employees in FLSA Case

By: George Morrison

A recent Third Circuit Court of Appeals decision serves as an important reminder for “prevailing parties,” even employers in wage and hour matters, to seek certain costs incurred as part of litigation.

In Camesi, et al. v. University of Pittsburgh Medical Center (UPMC), et al., the Third Circuit Court of Appeals recently affirmed the Western District of Pennsylvania’s decision to award UPMC over $300,000 in costs in a collective Fair Labor Standards Act matter filed by four employees. The employees’ underlying claims related to an alleged failure to pay wages, due to a policy that automatically deducted time for meal breaks. (more…)

21 Jan

SEC Adopts New Hedging Disclosure Rules

By: Jamie Wang

On December 18, 2018, the Securities and Exchange Commission (SEC) announced that it had approved and adopted final rules requiring public companies to disclose, in proxy or information statements for election of directors, any of their policies and practices regarding the ability of the company’s employees, officers and directors to engage in certain hedging transactions with respect to the company’s equity securities. The final rules implement provisions of Section 14(j) of the Securities Exchange Act of 1934, which was added pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The effective date of the new rules is 30 days after publication in the federal register. As noted in the release of the final rules, the new requirements are intended to provide shareholders with information, at the time that they are asked to elect directors, about whether employees, officers or directors may engage in transactions that could reduce the extent to which their equity holdings and equity compensation are aligned with shareholders’ interests.

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17 Jan

Delaware Chancery Court Orders Papa John’s to Deliver Materials Responsive to a Director’s Books and Records Demand

By: Marc Casarino

On January 15, 2019, the Delaware Court of Chancery ruled that Papa John’s International, Inc. must allow its director John Schnatter access to materials responsive to his demand pursuant to the books and records inspection statute, 8 Del. C. § 220, subject to certain restrictions on use of the materials.^[1] Schnatter is Papa John’s founder, its largest stockholder and a director on its board. Until recently, he served as the company’s Chairman of the Board, CEO and spokesman. He resigned as Chairman and CEO following much publicized reports of his commentary on the NFL’s handling of player protests and his use of a racially charged term during a company training session. His spokesman role was terminated following recommendations by a special committee comprised of his fellow board members.
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21 Dec

Delaware Chancery Court Invalidates Charter Provisions Requiring Federal Forum Selection for Claims Under The Securities Act Of 1933

By: Marc Casarino

On December 19, 2018, The Delaware Court of Chancery held in Sciabacucchi v. Salzberg ^[1] that Delaware corporations cannot use charter or bylaw provisions to mandate that claims under the Securities Act of 1933 (‘33 Act) must be pursued in federal court. Such federal forum selection provisions have become a frequent component of corporate constitutive documents. This largely has been in response to increasing pursuit of state court actions asserting ‘33 Act claims and particularly after the Supreme Court’s decision in Cyan, Inc. v. Beaver County Employees Retirement Fund ^[2] – which clarified that ‘33 Act claims may be pursued in either state or federal court.

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17 Dec

A Focus on Variable Interest Entities

By: Howard Jiang

Since the Enron debacle, the Financial Accounting Standards Board (FASB) has paid a lot of attention to the types of entities that were used by Enron to avoid its financial reporting obligations. The FASB released Accounting Rule Bulletin No. 51 (ARB 51) and later FASB Interpretation No.46, as revised (FIN46(R)) to shed more light on Variable Interest Entities (VIE) in which an investor has control of a company that is not based on ownership of a majority of the voting interests and the factors that trigger financial consolidation obligations.

ARB 51 requires that an enterprise’s consolidated financial statements include all subsidiaries in which an enterprise has a controlling financial interest. That rule had historically been applied to circumstances in which an enterprise had control through holding a majority voting interest. However, the financial structuring engaged in by Enron and other entities of that era revealed a weakness in focusing solely on majority voting control as there are other situations in which a party could have a controlling financial interests but not control the majority of the voting interests or in which the equity investors do not bear the actual financial risk.

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Delaware Chancery Court Declines to Apply <i>Zapata</i>-Like Analysis to Deceptive Conduct Affiliated With an Independent Board

30 Nov

Delaware Chancery Court Declines to Apply Zapata-Like Analysis to Deceptive Conduct Affiliated With an Independent Board

By: Marc Casarino and Lori Smith

In Busch v. Richardson Electronics, Ltd.,^[1] the Delaware Court of Chancery held that a board of director’s decision not to pursue litigation on behalf of the corporation did not require the heightened two-step demand futility analysis developed in Zapata v. Maldonado^[2] because the board was not disqualified by lack of independence from making a valid business decision regarding the litigation. Although deference to the business judgment of an independent and disinterested board is not a controversial concept, the path to its decision in this case required the court to address the unique issue of whether a board’s alleged pre-litigation deception of a stockholder should trigger a Zapata-like analysis of the board’s post-litigation decision-making. The court affirmed that Zapata applies only in the limited circumstance where a disqualified board uses an independent committee to cleanse the board’s decision to not pursue litigation, and refused to expand a Zapata-like analysis to alleged deceptive conduct affiliated with an independent board. (more…)

28 Nov

Insight and Analysis of California’s New Gender-Specific Board Requirements

By: Jeremy Miller

California Governor Jerry Brown recently signed legislation requiring all publicly-held domestic corporations and publicly-held foreign corporations headquartered within the state to comply with certain minimum gender-based requirements related to the composition of their board of directors. The new law could be viewed as a step in the right direction to advance gender equality at the highest levels of management, but is not without both proponents and opponents. (more…)

12 Nov

Delaware Chancery Court Provides Guidance on Prior Material Breach and Set-Offs

By: Lori Smith and Melissa Nott Davis

The Delaware Chancery Court recently reaffirmed several important contract interpretation principles in Post Holdings, Inc. v. NPE Seller Rep LLC, Civil Action No. 2017-0772-AGB. The case highlights the fact that a party claiming its contractual obligations were excused by a material breach by the other party may not seek or continue to receive any benefits under the contract after the alleged material breach. The court also clarified set-off rights under a stock purchase agreement. (more…)

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