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

23 Sep

Public Benefit Corporations and the ESG Movement

Business, Delaware

My colleague, John McCarrick, an expert on director and officer responsibility, recently gave a talk about emerging issues in D&O liability and discussed the impact of the ESG movement. ESG is an acronym for Environmental, Social and (Corporate) Governance. The movement asks business enterprises to extend their purview beyond financial success to address issues of public concern, such as global warming or racial injustice. John was asked by a program participant whether the ESG movement might force more companies to reorganize as public benefit corporations (PBCs). (more…)

02 Sep

Department of Labor Releases Fiduciary Guidance

Business

By: L. Stephen Bowers

On Monday, August 31, 2020, the Employee Benefits Security Administration of the United States Department of Labor (DOL) released a proposed regulation governing the conduct of employee benefit plan fiduciaries (the “Regulation”). Specifically, the Regulation restricts the manner in which fiduciaries of employee benefit plans governed by ERISA exercise shareholder voting rights, including proxy voting power, on securities owned by such plans. (more…)

24 Aug

Move Over California, Delaware Law Applies to Internal Corporate Affairs

Contracts, Delaware, Tax

By: Marc S. Casarino, Lori S. Smith and Jeremy M. Miller

The Delaware Court of Chancery recently made news when it ruled that Delaware law, not California law, applied to a minority shareholder’s request to inspect the books and records of a Delaware corporation with its principal place of business in California. In Juul Labs, Inc. v. Daniel Grove ^[1], the principal substantive issue was whether Daniel Grove (Grove) waived his inspection rights concerning Juul Labs, Inc., a Delaware corporation (Juul Labs), with its principal place of business in San Francisco, California. Grove contended, among other things, that California Corporations Code Section 1601 applied, which expressly permits inspection rights of a corporation with its principal place of business in California, irrespective of the corporation’s domicile. ^[2] Juul Labs argued that Grove allegedly waived his inspection rights under certain private option and investor agreements, the California law is not applicable and Section 220 of the Delaware General Corporation Law applies,^[3] and the exclusive forum selection clause in Juul Labs’ certificate of incorporation must be enforced.

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05 Aug

Successor Liability in the Pandemic Era

COVID-19

By: Thomas B. Fiddler and Morgan S. Birch

If the 2008 recession gives us the ability to predict anything about upcoming trends in commercial litigation, it is that healthy companies, which normally would not be targeted as defendants, will be sued because the primary wrongdoers are judgment proof. Businesses that are owed money from defunct companies are unlikely to accept substantial losses without exploring ways to collect their debt from third parties, whose liability may not be readily apparent. Under the law of most states, there are a variety of legal theories that can be used to potentially recover from third parties. Successor liability is one such theory. (more…)

01 Jul

Businesses Should Strike the Proper Balance Between Their Desire for Management Autonomy With Sensitivity to Social Justice Issues

Business

By: John K. Baker

American business has been preparing to return to normal operations, with some tweaking due to COVID-19-related governmental guidelines, for weeks. Owners, managers and supervisors are being (or should be) trained about enforcing social distancing and the wearing of masks. As we return to the workplace, businesses should also focus on creating a safe and socially-conscious workplace for all employees. The failure to do so puts an employer at risk in the long term. The combination of savvy union organizers and the Black Lives Matter movement is putting the spotlight on injustice and can endanger the viability of an employer who chooses not to strike the proper balance. (more…)

18 Jun

Cannabis Reform Introduced as a Response to the COVID-19 Crisis

Cannabis

By: Christopher Wisniewski and Ryan J. Udell

On May 15, 2020, the House of Representatives passed the Economic Recovery Omnibus Emergency Solutions (HEROES) Act. Coming in at over 1,800 pages, there are sure to be a few surprises tucked into such a massive piece of legislation. One such financial services component is the reintroduction of the Secure and Fair Enforcement (SAFE) Banking Act. Ostensibly, as a response to the COVID-19 crisis, the stated purpose of the SAFE Banking Act is to “increase public safety by ensuring access to financial services to cannabis-related legitimate businesses and service providers and reducing the amount of cash at such businesses.” (more…)

09 Jun

Supreme Court Limits Fiduciary Actions Under ERISA

Business, Labor and Employment

By: L. Stephen Bowers

On June 1, the Supreme Court of the United States decided Thole v. U.S. Bank, National Association, a case involving a breach of fiduciary duty claim under the Employee Retirement Income Security Act (ERISA). In affirming the Eighth Circuit’s decision, the Court determined that Article III of the U.S Constitution does not permit individual participants and beneficiaries to bring such claims against fiduciaries responsible for the investment of assets for defined benefit pension plans.

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09 Jun

From Both Sides Now: Looking at Contracts Through a Post-Pandemic Lens

Contracts

By: Lori S. Smith

A little over a year ago, I wrote a blog post about the danger of relying on precedent. Now, more than ever, clients and their advisors need to revisit contract forms on which they may have been relying for years. While many of us have lived through times that required certain adjustments in how we viewed contractual obligations — recessions, wars, oil embargoes, natural disasters, 9/11 — none of these events had the widespread and long-lasting impact that the current COVID-19 pandemic is having. None of these events shut down the U.S. economy and impacted global supply chains across every industry in the manner we are now experiencing. (more…)

01 Jun

Southern District of New York Reaffirms That Syndicated Bank Loans Are Not Securities

Securities

By: Alexandria E. Kane

On May 22, 2020, Judge Paul G. Gardephe of the Southern District of New York, in Kirschner v. JPMorgan Chase, reaffirmed that syndicated bank loans are not securities. In Kirschner, the plaintiff alleged that a $1.77 billion syndicated bank loan made to Millennium Laboratories LLC (Millennium), a California-based urine testing company and subsequently sold to 70 institutional investors was, in fact, a security — affording it additional protections under the certain state “blue sky” securities laws. The plaintiff alleged that defendants J.P. Morgan Chase Bank, N.A., J.P. Morgan Securities LLC, Citibank, N.A., Citigroup Global Markets, Inc., Bank of Montreal, BMO Capital Markets Corp., SunTrust Bank and SunTrust Robinson Humphrey, Inc., sold debt obligations to the investors but “misrepresented or omitted…material facts in the offering materials they provided and communications they made to Investors regarding the legality of [Millennium’s] sales, marketing, and billing practices” and “the known risks posed by a pending government investigation into the illegality of such practices.” Shortly after the closing of the loan transaction, Millennium lost an important litigation matter that resulted in a $500 million decrease to its valuation and, in addition, entered into a $256 million settlement with the Department of Justice (DOJ) over claims related to alleged healthcare law violations. Within a month of finalizing the DOJ settlement, Millennium defaulted on the loan and filed for bankruptcy. (more…)

13 May

Are We Entering Another “Nuclear Winter” for Venture Capital Financing?

Business, COVID-19, Securities

By: Lori S. Smith and Joshua G. Galante

The U.S. and many other countries are stuck in, or just emerging, from stay-at-home orders that, among countless other consequences, have largely shut down the pipeline for new investment in early stage ventures. According to PitchBook, after a robust investment market in the 4^th quarter of 2019 and 1^st quarter of 2020, the amount of new financings since the pandemic began has fallen off a cliff, with steep declines in both numbers of completed deals and total dollars invested compared to April 2019. To those of us who lived through previous downturns, this change feels a lot like the dot com bust circa 2000 or the “Great Recession” that followed the global financial crisis of 2008 all over again.

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