BLT: October 2015



Business & Corporate

Reducing the “Deal Tax”: Delaware’s Recent Scrutiny of Nonmonetary Settlements

The surge in litigation over public company mergers has led to an increase in nonmonetary settlements that yield fee awards for plaintiffs’ counsel, global releases for defendants, and little benefit for stockholders. This article discusses what some have characterized as a “deal tax” on M&A activity and recent decisions in the Delaware Court of Chancery that may reduce the “tax” by increasing scrutiny of nonmonetary settlements, as well as potential implications and consequences of these decisions.

Business & Corporate

The Increasing Role of Equity in Delaware LLC Litigation

Both the case law and an amendment to the Delaware LLC Act in recent years demonstrate Delaware’s rejection of a solely contractarian view of LLCs. The recent Delaware Court of Chancery decision of In re Carlisle Etcetera LLC provides new lessons on the subject of equity’s reach. Although the length of equity’s powerful arm into the area of LLC litigation may surprise some practitioners, there is a consistent theme in the case law that may provide comfort: the Court of Chancery normally will only exercise its equitable powers when the parties have left gaps in their operating agreement.

Business & Corporate

The Latest Significant Delaware Appraisal Decisions and Potential Effects on Appraisal Litigation

The number of post-merger appraisal petitions filed in Delaware has sharply increased in recent years. The Delaware Court of Chancery has handed down a number of appraisal decisions in 2015 that are likely to affect the continued attractiveness and availability of an appraisal arbitrage strategy. These most recent decisions suggest that the success of the appraisal arbitrage strategy likely will hinge on the quality of the sales process for the transaction. Additionally, potential amendments to Delaware’s appraisal statute attempt to ensure that appraisal actions are motivated by a genuine dispute over the fairness of the merger price.

Business & Corporate

The SEC’s Accounting and Internal Control Cases Are Expected to Increase as a Result of its Financial Reporting and Audit Task Force

The SEC’s Financial Reporting and Audit Task Force is expected to have an increasing impact on the SEC’s financial reporting enforcement efforts. Accordingly, public companies should take steps to ensure that they maintain effective internal control over financial reporting as well as disclosure controls and procedures to ensure reliable financial statements and disclosures in their management’s discussion and analysis. In addition, they should ensure that they provide responsive, complete, and accurate answers to any questions that the SEC staff asks.


Business & Corporate

KEEPING CURRENT: FTC Settles Allegations of HSR Act Violation by Activist Investment Fund

The FTC announced a settlement on August 24, 2015, with Third Point Funds for failing to file a notification under the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) in connection with the acquisition of shares in Yahoo! Inc. in 2011. Third Point Funds initially did not file and observe the HSR waiting period because it believed its acquisitions were exempt under the so-called “investment-only” exemption. The settlement provides insight into how the FTC interprets the investment-only exemption, and an important reminder that the HSR Act is a procedural statute for which the lack of competitive effect has no bearing on how the FTC chooses to enforce violations of its reporting requirements.

Business & Corporate

KEEPING CURRENT: The DOJ’s New Focus on Individual Accountability: D&O Insurance Implications

The September 9, 2015, U.S. Department of Justice (DOJ) memorandum to DOJ’s prosecutors and civil litigators makes it clear that the DOJ will be focusing on potentially culpable individuals, not just their corporate employers, when investigating alleged corporate wrongdoing. The memorandum directs that it will not permit the release of “culpable individuals from civil or criminal liability when resolving a matter with a corporation.” It also states that DOJ will focus “on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.”

Business & Corporate

Inside Business Law

The Business Law Section welcomed more than 1,600 attendees from 23 different countries to Chicago, Illinois, September 17–19, for the 2015 Business Law Section Annual Meeting. Those unable to attend the Annual Meeting and those who would like to enjoy even more Annual Meeting programming can access the written materials and audio recordings in the Program Materials Library. Overviews of the five most in-demand CLE programs are presented in this month’s “Inside Business Law.”