In re Frenville: A Critique by the National Bankruptcy Conference's committee on Claims and Distributions
Ralph R. Mabey and Annette W. Jarvis, 42(3): 697–714 (May 1987)
This Article is a critique of In re M. Frenville Co., 744 F.2d 332 (3d Cir. 1984), cert. denied , 469 U.S. 1160 (1985), which holds that a third-party indemnification claim against a debtor in bankruptcy arising out of a lawsuit filed post-petition is not subject to the automatic stay.
Evaluating Recent State Legislation on Director and Officer Liability Limitation and Indemnification
James J. Hanks, Jr., 43(4): 1207–54 (Aug. 1988)
The director liability insurance crisis has precipitated legislation by more than forty states to protect corporate directors from personal liability for money damages. This Article reviews and analyzes this legislation, discusses the principal policy issues involved, and considers the likely effects of the legislation in the future. It also suggests ways that corporations and their counsel can maximize the benefits of the new legislation.
Changes in the Model Business Corporation Act—Amendments Pertaining to Indemnification and Advance for Expenses
committee on Corporate Laws, 49(4): 1823–25 (Aug. 1994)
Proposed amendments to the MBCA dealing with indemnification and advances for expenses were proposed in the February 1994 issue of The Business Lawyer, 49 BUS. LAW. 741 (1994). These amendments were adopted by the committee on Corporate Laws with the changes described in this Report.
Directors and Officers Indemnification and Liability Insurance: An Overview of Legal and Practical Issues
Joseph P. Monteleone and Nicholas J. Conca, 51(3): 573–634 (May 1996)
This Article surveys the law regarding indemnification of corporate directors and officers, highlighting the important provisions of Delaware's indemnification statute, which governs most corporations in the United States. The authors then turn to a discussion of directors and officers liability insurance, including a detailed description of typical policy terms, conditions, and exclusions. The Article closes with an overview of the recent case law regarding the much debated allocation issue.
Internal Investigations and the Defense of Corporations in the Sarbanes-Oxley Era
Robert S. Bennett, Alan Kriegel, Carl S. Rauh, and Charles F. Walker, 62(1): 55–88 (Nov. 2006)
Internal investigations long have been an integral part of the successful defense of corporations against charges of misconduct, as well as an important board and management tool for assessing questionable practices. With the heightened standards of conduct and increased exposure created by Sarbanes-Oxley, this essential instrument for safeguarding corporate interests has become even more crucial in identifying and managing risk in the enforcement arena. This article examines from a practitioner's standpoint when and how internal investigations should be conducted in order to protect the corporation in criminal, civil and administrative proceedings. Particular attention is paid to the issues created by a concurrent government investigation and in dealing with employees and former employees in the course of an investigation. The article also addresses the role of the Audit committee under Sarbanes-Oxley, and the important issue of reporting the findings of the investigation to appropriate corporate officials. The subject of self-reporting by the Company to enforcement authorities is considered as well. In this context, the article explores the SEC's position on crediting self-reporting and cooperation as set forth in the Seaboard report; Department of Justice policy as embodied in the Thompson Memorandum; and the impact of the Federal Sentencing Guidelines for Organizations.
Reassessing the "Consequences" of Consequential Damage Waivers in Acquisition Agreements
Glenn D. West and Sara G. Duran, 63(3): 777–808 (May 2008)
Consequential damage waivers are a frequent part of merger and acquisition agreements involving private company targets. Although these waivers are heavily negotiated, the authors believe that few deal professionals understand the concept of consequential damages and, as a result, the inclusion of such waivers may have an unexpected impact on both buyers and sellers. The authors believe that this Article is the first attempt to define "consequential damages," as well as some of the other terms used as purported synonyms, in the merger and acquisition context. After tracing the historical derivation of the term and its current use by the courts, this Article considers the impact of such waivers in a hypothetical business acquisition and proposes some specific guidelines for the negotiation of these waivers.
Revisiting Consolidated Edison—A Second Look at the Case that Has Many Questioning Traditional Assumptions Regarding the Availability of Shareholder Damages in Public Company Mergers
Ryan D. Thomas and Russell E. Stair, 64(2): 329-358 (February 2009)
In October 2005, the U.S. Court of Appeals for the Second Circuit in Consolidated Edison, Inc. v. Northeast Utilities ("Con Ed") ruled that electric utility company Northeast Utilities ("NU") and its shareholders were not entitled to recover the $1.2 billion merger premium as damages after NU's suitor, Consolidated Edison, refused to complete an acquisition of NU. This case surprised many M&A practitioners who believed that the shareholder premium (or at least some measure of shareholder damages) would be recoverable in a suit against a buyer that wrongfully terminated or breached a merger agreement. If Con Ed proves to have established a general rule precluding the recovery of shareholder damages for a buyer's breach of a merger agreement, the potential consequences to targets in merger transactions would be substantial—shifting the balance of leverage in any MAC, renegotiation, or settlement discussions decidedly to the buyer and effectively making every deal an "option" deal. This ruling, therefore, has left some target counsel struggling to find a way to ensure that the merger agreement allows for the possibility of shareholder damages while also avoiding the adverse consequences of giving shareholders individual enforcement rights as express third-party beneficiaries of the agreement.
The Con Ed case, however, merits a second look. This Article revisits the Con Ed decision and challenges the conclusion of some observers that the court in Con Ed established a general precedent denying the availability of shareholder damages. This Article also discusses how the holding of Con Ed may very well be confined to the facts and the specific language of the merger agreement at issue in the case. Notwithstanding, the uncertainty surrounding how any particular court may approach the issues raised in Con Ed, this Article proposes model contract language that a target might employ to avoid creating a " Con Ed issue" and to minimize the risk of a result that was not intended by the parties.
Contracting to Avoid Extra-Contractual Liability—Can Your Contractual Deal Ever Really Be the "Entire" Deal?
Glenn D. West and W. Benton Lewis, Jr., 64(4): 999–1038 (August 2009)
Although business lawyers frequently incorporate well-defined liability limitations in the written agreements that they negotiate and draft on behalf of their corporate clients, contracting parties that are dissatisfied with the deal embodied in that written agreement often attempt to circumvent those limitations by premising tort-based fraud and negligent misrepresentation claims on the alleged inaccuracy of both purported pre-contractual representations and express, contractual warranties. The mere threat of a fraud or negligent misrepresentation claim can be used as a bargaining chip by a counterparty attempting to avoid the contractual deal that it made. Indeed, fraud and negligent misrepresentation claims have proven to be tough to define, easy to allege, hard to dismiss on a pre-discovery motion, difficult to disprove without expensive and lengthy litigation, and highly susceptible to the erroneous conclusions of judges and juries. This Article traces the historical relationship between contract law and tort law in the context of commercial transactions, outlines the sources, risks, and consequences of extra-contractual liability for transacting parties today, and surveys the approaches that various jurisdictions have adopted regarding the ability of contracting parties to limit their exposure to liability for common law fraud and misrepresentation. In light of the foregoing, the authors propose a series of defensive strategies that business lawyers can employ to try to limit their clients' exposure to tort liability arising from contractual obligations.
Business Successors and the Transpositional Attorney-Client Relationship
Henry Sill Bryans, 64(4): 1039–1086 (August 2009)
This Article focuses on the potential right of a business successor to assert various elements of a predecessor's attorney-client relationship and the implications to practitioners of a successor's ability to do so. An attorney-client relationship that the courts permit to be asserted by a business successor is referred to in the Article as a "transpositional" relationship. The Article examines in what context a successor may (1) enforce the duty of confidentiality of the predecessor's counsel; (2) assert the predecessor's attorney-client privilege; (3) disqualify the predecessor's counsel under the principles of Model Rule 1.9, or its equivalent, on the ground that such counsel should be viewed as the successor's former counsel for purposes of the Rule; and (4) assert a malpractice claim against the predecessor's counsel based exclusively on services provided to the predecessor. The Article concludes with some general observations about the decisions examined, the need of transactional lawyers to be familiar with the principles that courts have relied on, and transaction provisions that might be used to blunt the surprising, and arguably unfair, results that this line of decisions can sometimes produce.
The Enforceability and Effectiveness of Typical Shareholders Agreement Provisions
Corporation Law committee of the Association of the Bar of the City of New York, 65(4): 1153–1204 (August 2010)
That Pesky Little Thing Called Fraud: An Examination of Buyers’ Insistence Upon (and Sellers’ Too Ready Acceptance of ) Undefined “Fraud Carve-Outs” in Acquisition Agreements
Glenn D. West, 69(4): 1049-1080 (August 2014)
In those states that have a high regard for the sanctity of contract, a wellcrafted waiver of reliance provision can effectively eliminate the specter of a buyer’s post-closing fraud claim based upon alleged extra-contractual representations of the seller or its agents. But undefined “fraud carveouts” continue to find their way into acquisition agreements notwithstanding these otherwise well-crafted waiver of reliance provisions. An undefined fraud carve-out threatens to undermine not only the waiver of reliance provision, but also the contractual cap on indemnification that was otherwise stated to be the exclusive remedy for the representations and warranties that were set forth in the contract. Practitioners continue to exhibit a limited appreciation of the many meanings of the term “fraud” and the extent to which a generalized fraud carve-out can potentially expand the universe of claims and remedies that can be brought outside the remedies specifically bargained-for under the parties’ written agreement. Given the frequent insistence upon (and continued acceptance by many of) undefined fraud carve-outs, and recent court decisions that bring the undefined fraud carve-out issue into focus, this article will examine the various (and sometimes surprising) meanings of the term “fraud”, and the resulting danger of generalized fraud carveouts, and will propose some possible responses to the buyer who insists upon including the potentially problematic phrase “except in the case of fraud” as an exception to the exclusive remedy provision of an acquisition agreement.
The Impact of Transaction Size on Highly Negotiated M&A Deal Points
Eric Rauch and Brian Burke, 71(3): 835-848 (Summer 2016)
When negotiating mergers or acquisitions, deal lawyers will often support their position by asserting that it is in accord with the “market” based on published deal points studies. However, as many of these lawyers intuit based on their experience, terms vary across the market based on a number of factors including deal size, a factor that no previously published study has examined or accounted for. This article confirms that intuition by surveying the middle market at deal sizes from several million to several billion dollars and showing, for the first time, that highly negotiated deal points tend to become more seller favorable as transaction value increases. This conclusion is based on a review of five terms (liability cap, liability basket amount and type, sellers’ catchall representations, the “no undisclosed liabilities” representation, and closing conditions) across 849 deals from 2007 to 2015, a sample larger than that used in any previously published deal points study of mergers and acquisitions.