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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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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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 4th quarter of 2019 and 1st 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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By: Ryan Udell, Shane Heskin and Gwenn Barney
The Environmental Protection Agency (EPA) announced in a memo released on Thursday, March 26, 2020 that it will relax its enforcement of environmental legal obligations under certain circumstances during the COVID-19 pandemic.
Applicable retroactively to March 13, 2020, the EPA will use enforcement discretion in specific situations where a company or governmental entity is unable to comply with an obligation usually required by the EPA due to the consequences of the COVID-19 pandemic, if the company takes certain steps to mitigate and document its noncompliance. This enforcement discretion only applies to civil violations of environmental legal obligations and explicitly does not extend to any criminal violations or conditions of probation in criminal sentences, activities that are carried out under Superfund and RCRA Corrective Action enforcement instruments or imports.
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By: Lori Smith and Patrick Devine
Increasingly, M&A transactions are using representation and warranty insurance (RWI) to bridge the gap between a buyer’s desire for adequate recourse to recover damages arising out of breach of representations in the purchase agreement and a seller’s desire to minimize post-closing risk and holdbacks or purchase price escrows traditionally used as the means to satisfy such obligations. When it works, RWI provides a significant benefit to both parties: it mitigates the buyer’s risk in the event that the seller’s representations and warranties prove untrue, and it permits the seller to reduce the portion of the purchase price that it would otherwise have to leave in escrow to cover future claims for breach of those representations and warranties. However, as the coronavirus pandemic ravages the global economy, insurers are now expressly adding COVID-19 exclusions to their RWI policies. If RWI insurers decline coverage for these losses, the allocation of risk in the representations and warranties (and related indemnity provisions) will be more critical than the parties contemplated when they negotiated the transaction documents.
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By: Jeremy Miller and Ryan Udell
A little more than one year ago, Taking Care of Business wrote about California’s adoption of a law, Senate Bill No. 826 (the California Statute), requiring gender-based diversity in the board room. A year later, the California Statute has been met with both enthusiasm and some criticism, including other states taking steps to enact, as well as enacting, similar laws and at least two lawsuits being filed in California opposing the California Statute.
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By: Jay Shapiro and Patrick Devine
On December 30, 2019, the Second Circuit issued its landmark decision in United States v. Blaszczak,[1] which widened the berth for federal prosecution of insider trading activities under Title 18 of the United States Code. The court ruled that, unlike Title 15 securities fraud convictions, federal wire fraud and Title 18 securities fraud convictions do not require any proof that an insider received a personal benefit in exchange for the material, nonpublic information that he or she disclosed.[2]
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This post was originally published by Michael Verrill at The Sharp Financial Group.
After years or even decades at the helm of a business, all business leaders must eventually pass the torch to someone else. For business leaders who are also parents, the “someone else” is very often a son or daughter. Unfortunately, despite the idealistic image many mothers and fathers have of passing their business on to a daughter or son, the reality of planning a business succession strategy is far more complicated.
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By: Marc Casarino, Lori Smith and Ryan Udell
It is a basic precept of Delaware corporate law that a corporation is managed by its board of directors. One of the board’s key managerial functions is the determination of executive compensation levels – a decision typically entitled to great judicial deference. When the board’s decision as to executive incentive compensation is submitted to stockholders for approval, and such stockholder approval is given, the decision is entitled to even greater deference. However, in Tornetta v. Musk, et al., C.A. No. 2018-0408-JRS, decided September 20, 2019, The Court of Chancery highlights an important exception to the general rule when the recipient of the compensation package is also a controlling stockholder.
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By: John McCarrick, Lori Smith, Ryan Udell and Sedgwick Jeanite
In this post, we summarize some of the highlights from AIG’s recently published Mergers and Acquisitions 2018 Claims Report, and include our own observations on the role that Representations and Warranties Insurance (R&W Insurance) is increasingly playing in M&A transactions. (more…)
