Justia Corporate Compliance Opinion Summaries
Articles Posted in Business Law
Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd, et al.
The remaining petitioners in this matter were former stockholders of Dell, Inc. who validly exercised their appraisal rights instead of voting for a buyout led by the Company’s founder and CEO, Michael Dell, and affiliates of a private equity firm, Silver Lake Partners (“Silver Lake”). In perfecting their appraisal rights, petitioners acted on their belief that Dell’s shares were worth more than the deal price of $13.75 per share, which was already a 37% premium to the Company’s ninety-day-average unaffected stock price. The Delaware appraisal statute allows stockholders who perfect their appraisal rights to receive “fair value” for their shares as of the merger date instead of the merger consideration. Furthermore, the statute requires the Court of Chancery to assess the “fair value” of such shares and, in doing so, “take into account all relevant factors.” The trial court took into account all the relevant factors presented by the parties in advocating for their view of fair value and arrived at its own determination of fair value. The Delaware Supreme Court found the problem with the trial court’s opinion was not that it failed to take into account the stock price and deal price; the court erred because its reasons for giving that data no weight (and for relying instead exclusively on its own discounted cash flow (“DCF”) analysis to reach a fair value calculation of $17.62) did not follow from the court’s key factual findings and from relevant, accepted financial principles. "[T]he evidence suggests that the market for Dell’s shares was actually efficient and, therefore, likely a possible proxy for fair value. Further, the trial court concluded that several features of management-led buyout (MBO) transactions render the deal prices resulting from such transactions unreliable. But the trial court’s own findings suggest that, even though this was an MBO transaction, these features were largely absent here. Moreover, even if it were not possible to determine the precise amount of that market data’s imperfection, as the Court of Chancery concluded, the trial court’s decision to rely 'exclusively' on its own DCF analysis is based on several assumptions that are not grounded in relevant, accepted financial principles." View "Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd, et al." on Justia Law
In Re Investors Bancorp, Inc. Stockholder Litigation
At issue in this appeal are the limits of the stockholder ratification defense when directors make equity awards to themselves under the general parameters of an equity incentive plan. In the absence of stockholder approval, if a stockholder properly challenges equity incentive plan awards the directors grant to themselves, the directors must prove that the awards are entirely fair to the corporation. But, when the stockholders have approved an equity incentive plan, the affirmative defense of stockholder ratification comes into play. The Court of Chancery has recognized a ratification defense for discretionary plans as long as the plan has “meaningful limits” on the awards directors can make to themselves. Here, the Equity Incentive Plan (“EIP”) approved by the stockholders left it to the discretion of the directors to allocate up to 30% of all option or restricted stock shares available as awards to themselves. Plaintiffs have alleged facts leading to a pleading stage reasonable inference that the directors breached their fiduciary duties by awarding excessive equity awards to themselves under the EIP. The Delaware Supreme Court determined a stockholder ratification defense was not available to dismiss the case, and the directors had to demonstrate the fairness of the awards to the Company. The Court reversed the Court of Chancery’s decision dismissing the complaint and remanded this matter for further proceedings. View "In Re Investors Bancorp, Inc. Stockholder Litigation" on Justia Law
Apple, Inc. v. Superior Court
Apple shareholders filed a consolidated derivative action concerning Apple’s alleged pursuit and enforcement of anticompetitive agreements with other Silicon Valley companies to prohibit the recruitment of each other’s employees. Plaintiffs alleged that certain current and former members of Apple’s board of directors were aware of or tacitly approved of Apple’s practices and breached their fiduciary duties by permitting the illegal agreements over many years. Plaintiffs alleged that the Apple board never disclosed settlements of an earlier action filed by the Department of Justice based on violations of the federal antitrust laws and several federal class action lawsuits brought by employees of Apple and other technology companies. Given each board member’s alleged role in participating in or allowing the illegal agreements, plaintiffs claimed that any demand on Apple's board to institute the derivative action against the individual defendants should be excused as a futile and useless act. The superior court found that an amended complaint adequately alleged demand futility as to the board in place when the original action was filed. The composition of the board of directors had changed in the interim. The court of appeal disagreed. The court was required to assess demand futility as to the board in place when the amended complaint was filed. View "Apple, Inc. v. Superior Court" on Justia Law
Central Laborers’ Pension Fund v. McAfee, Inc.
Intel acquired McAfee, in a cash sale at $48 per share. Plaintiff, a pension fund, on behalf of itself and a class, alleged that McAfee, Intel, and former members of McAfee’s board of directors, consisting of nine outside directors and the former president and CEO, DeWalt (defendants), engaged in an unfair merger process contaminated by conflicts; that DeWalt withheld material information about negotiations from McAfee’s directors, who failed to safeguard the process and approved an undervalued price; and that defendants omitted material information from the merger proxy statement on which McAfee’s shareholders relied in voting for the merger. The trial court, applying Delaware law, granted the defendants summary judgment, finding no triable issue of material fact regarding the individual defendants’ alleged breaches of fiduciary duty, and concomitantly no liability on behalf of the corporation for aiding and abetting. The court of appeal affirmed as to the nine directors and reversed as to DeWalt and the corporations. Plaintiff raised triable issues of material fact related to DeWalt’s apparent nondisclosure of arguably material information about a $50-per-share overture. DeWalt bears the burden under the enhanced scrutiny standard to show that he exercised his fiduciary duties in furtherance of the obligation “to secure the transaction offering the best value reasonably available.” View "Central Laborers' Pension Fund v. McAfee, Inc." on Justia Law
Kahn v. Stern
Plaintiffs alleged insider-trading side deals in connection with the sale of a small aerospace manufacturing company, Kreisler, and insufficient disclosure to stockholders regarding the sales process. Before the sale, Kreisler was offered to dozens of potential acquirers. Several bidders emerged. A fairness opinion was rendered and a special committee ultimately recommended the sale. The transaction was approved by written consent of a majority of the shares outstanding. A block of shares of just over 50 percent executed a stockholder support agreement providing for approval of the transaction, so there was no stockholder vote. An Information Statement was provided to stockholders to permit them to decide whether to seek appraisal. A majority of Kreisler’s board of directors are independent and disinterested, and its charter contains an exculpation provision. The Delaware Court of Chancery dismissed the complaint, finding that even accepting the well-pled allegations as true and drawing all reasonable inferences in the Plaintiff’s favor, the Complaint fails to state a claim on which relief may be granted. View "Kahn v. Stern" on Justia Law
Hanaway v. Parkesburg Group
In 1998, in order to pursue a real estate investment and development project, Lynn and Connie Hanaway, T.R. White, Inc. (“T.R. White”), and several others formed a limited partnership, Sadsbury Associates, L.P. (“Sadsbury”). The Hanaways were among several limited partners of Sadsbury, while T.R. White served as the general partner. In 2002, acting independently from Sadsbury, T.R. White contracted for options to purchase two separate tracts of land. In 2005, prompted by the success of Sadsbury, the partners of Sadsbury formed The Parkesburg Group, LP (“Parkesburg”) in order to implement a new residential development project involving two tracts of land. T.R. White served as Parkesburg’s general partner, and the Hanaways were among several limited partners. Parkesburg’s limited partnership agreement gave T.R. White broad discretion to carry out its duties. Pursuant to the express terms of the agreement, T.R. White, as the general partner, controlled “the business and affairs of the Partnership.” The crux of this dispute concerned Parkesburg’s sale of the land to a newly formed limited partnership, Parke Mansion Partners (“PMP”). The Hanaways filed a six-count complaint against T.R. White, PMP, Parkesburg, and Sadsbury, alleging T.R. White, as general partner, breached Parkesburg’s limited partnership agreement. They viewed the sale of the Parkesburg tracts to PMP as a sham, executed to freeze them out of Parkesburg. The issue presented for the Pennsylvania Supreme Court’s review centered on the applicability of the implied covenant of good faith and fair dealing to a limited partnership agreement formed pursuant to Pennsylvania’s Revised Uniform Limited Partnership Act (“PRULPA”). The Superior Court reversed the trial court’s order, which had granted partial summary judgment in favor of Parkesburg’s general partner and against two of its limited partners. The Supreme Court reversed the Superior Court’s order in relevant part, holding that the implied covenant of good faith and fair dealing was inapplicable to the Pennsylvania limited partnership agreement at issue, which was formed well before the enactment of amendments that codified such a covenant. View "Hanaway v. Parkesburg Group" on Justia Law
Estate of Pedersen v. Gecker
Emerald had an Illinois gaming license to operate in East Dubuque. Emerald operated profitably in 1993 but then struggled to compete with an Iowa casino. By 1996, Emerald had closed the casino and was lobbying for an act that would allow it to relocate. The Board denied Emerald’s license renewal application. While an appeal was pending, 230 ILCS 10/11.2 was enacted, permitting relocation. In 1998, before the enactment, defendants met with Rosemont’s mayor and representatives of Rosemont corporations about moving to Rosemont. After the enactment, the parties memorialized the terms of Emerald’s relocation. Emerald did not disclose the agreements as required by Illinois Gaming Board rules. By October 1999, Emerald had contracts with construction companies and architecture firms but had not disclosed them. Emerald altered its ownership structure; several new “investors” had connections to Rosemont’s mayor and state representative. stock transfers occurred without required Board approval. In 2001, the Board voted to revoke Emerald’s license. Its 15-month investigation was apparently based on a belief that Emerald had associated with organized crime but the denial notice focused on inadequate disclosures. The Board listed five counts but did not list who was responsible for which violation. Illinois courts affirmed the revocation but held that the Board had not proven an association with organized crime. Emerald was forced into bankruptcy. The trustee sued the defendants, asserting breach of contract and breach of fiduciary duty. The district court dismissed the breach‐of‐fiduciary‐duty claim as time-barred. The Shareholder’s Agreement required that shareholders comply with IGB rules; the court held that each defendant had violated at least one rule, calculated damages by valuing Emerald’s license, and held all but one defendant severally liable for the loss. The Seventh Circuit concluded that the defendants should be held jointly and severally liable, but otherwise affirmed. View "Estate of Pedersen v. Gecker" on Justia Law
Henry v. Phixios Holdings, Inc.
The Delaware Court of Chancery held that, under 8 Del. C. 202, in order for a stockholder to be bound by stock transfer restrictions that are not "noted conspicuously on the certificate or certificates representing the security," he must have actual knowledge of the restrictions before he acquires the stock. If the stockholder does not have actual knowledge of the stock transfer restrictions at the time he acquires the stock, he can become bound by the stock transfer restrictions after the acquisition of the stock only if he affirmatively assents to the restrictions, either by voting to approve the restrictions or by agreeing to the restrictions. In this case, plaintiff did not have actual knowledge of the restrictions prior to acquiring his stock and the company must produce the requested documents as they are necessary to effectuate the stockholder's stated purpose. View "Henry v. Phixios Holdings, Inc." on Justia Law
Norman v. Elkin
Norman and Elkin were the only shareholders of USM, a company that acquired and sold rights to radio frequencies. Norman held a minority interest and sought legal relief after he discovered that Elkin had transferred to another company the ownership of several frequencies purchased by USM, that Elkin had treated capital contributions as loans, and that Elkin had paid himself from USM funds without giving Norman any return on his minority investment. Despite two juries agreeing with Norman, verdicts in his favor were overturned. Most of his claims were held to be time-barred after the district court rejected his argument that a state court case he had brought to inspect USM’s books and records under the Delaware Code tolled the statute of limitations. Other claims were eliminated for insufficient evidence. The Third Circuit vacated in part. The district court erred in concluding that tolling of the statute of limitations is categorically inappropriate when a plaintiff has inquiry notice before initiating a books and records action in the Delaware courts and erred in vacating the jury’s award of nominal damages for one of Norman’s breach of contract claims. Norman’s fraud claim was not supported by sufficient proof of damages. View "Norman v. Elkin" on Justia Law
Frank v. Linkner
MCL 450.4515(1)(e) provided alternative statutes of limitations: one based on the time of discovery of the cause of action and the other based on the time of accrual of the cause of action. Plaintiffs were former employees of defendant ePrize who acquired ownership units in the company. Plaintiffs alleged founder Jeff Linkner orally promised them that their interests in ePrize would never be diluted or subordinated. In its fifth operating agreement, executed in 2009, ePrize stock issued in Series C and Series B Units carried distribution priority over the common units held by plaintiffs. The Operating Agreement further provided that if the company were ever sold, Series C Units would receive the first $68.25 million of any available distribution. In 2012, ePrize sold substantially all of its assets and, pursuant to the Operating Agreement, distributed nearly $100 million in net proceeds to the holders of Series C and Series B Units. Plaintiffs received nothing for their common shares. Plaintiffs thereafter sued, bringing claims for LLC member oppression, breach of contract, and breach of fiduciary duty. The trial court granted defendants’ motion for summary judgment, concluding that the three-year limitation period in MCL 450.4515(1)(e) constituted a statute of limitations, rather than a statute of repose, and that plaintiffs' claims accrued in 2009. The Court of Appeals disagreed, finding plaintiffs’ claims did not accrue until 2012, when ePrize sold substantially all of its assets, because until that sale plaintiffs had not incurred a calculable financial injury and any damage claim before that time would have been “speculative.” Accordingly, the Court concluded that plaintiffs’ claims were timely filed before the expiration of the three-year limitation period. The Michigan Supreme Court agreed with the trial court's reasoning: plaintiffs’ actions for damages under MCL 450.4515(1)(e) were barred by the three-year statute of limitations unless plaintiffs could establish on remand that they were entitled to tolling. View "Frank v. Linkner" on Justia Law