I previously posted about disputes over bump up exclusions in D&O insurance contracts, which exclude from insurance coverage claims that shareholders of a merger target should have received more consideration for their shares. As I argued, the purpose of the exclusion is to ensure that the cost of the acquisition isn’t offloaded on to the insurer. 

One of the cases I mentioned in that post, Harman Int’l Indus. Inc. v. Ill. Nat’l Ins. Co., was just affirmed by the Delaware Supreme Court, and the reasoning interests me.

In this case, Harman International was acquired by Samsung Electronics, and shareholders sued under Section 14(a), which prohibits false proxy statements, and Section 20(a), which adds joint and several liability to control persons – the substantive claim was Section 14(a).  Shareholders argued that, due to false statements in the proxy, they were induced to vote in favor of a merger at a lowball price.

Eventually, the case settled for $28 million, and when the defendants sought insurance coverage, the insurer claimed the settlement was subject to the bump up exclusion.  On appeal, the Delaware Court disagreed.

According to the court, the insurance contract had two clauses, both of which had to…

So, the Delaware Supreme Court came out with its long-awaited decision in Moelis & Co. v. West Palm Beach Firefighters’ Pension Fund and as far as I can tell, it holds that a contract is a charter if you wait long enough.

So, the issue here is, Moelis went public with this overweening shareholder agreement in place in 2014 granting Ken Moelis various governance rights. A shareholder bought stock shortly after the IPO, but waited nine years to sue claiming that the agreement was categorically illegal under Delaware law (which, you may have heard, has since been amended). I genuinely, honestly, get the idea that this long after the IPO there might be reliance interests in this governance arrangement, but the Delaware Supreme Court’s manner of expressing such an idea is … weird.

Doctrinally, the legal issue is whether a contract that usurps board authority is (was) “void” or “voidable.” What is the difference? A voidable contract is one that a party has the option of rejecting, but also the option of accepting. A void contract simply cannot be enforced, at all – it is legally impermissible. So, for example, a voidable contract might be one that corporate…

In November, I was privileged to deliver the inaugural Tamar Frankel Lecture at Boston University Law School. Professor Frankel is a trailblazer in corporate governance and fiduciary law, and it was wonderful to see that this lecture series has been established in her name.

Below is the text of my remarks on November 24:

Edit: Now there’s video – this is the Youtube link.

So, I want to begin by adding my voice to the chorus of praise for Professor Frankel’s work.  She is a legend in this field, and I cannot tell you how honored I am to have been invited to kick off this series.

You know, the school advertised this lecture on LinkedIn, and her former students flooded the comments section with praise, a lot of which was words to the effect of, she somehow made securitization interesting!

Which is funny but for real, for those of us in the business space, it’s very much what we aspire to.  What I will aspire to in this talk!

Which is called Corporate Governance Authoritarianism, and I’ll kick it off by pointing to this slide.

I’ve only got like two slides, by the way, so you’re…

Where we last left off, a couple of companies had adopted forum selection bylaws purporting to shunt all derivative actions to the Delaware Court of Chancery – intending, I will swear with my last breath – to capture state law fiduciary claims.  When they got hit with the relatively-uncommon federal law Exchange Act derivative claims (under Section 14(a)), they celebrated their fortune and sought to enforce the bylaws against those, as well, even though Chancery has no jurisdiction over Exchange Act claims, which would, of course, mean just immediate dismissal.

They lost in the Seventh Circuit, but prevailed in the Ninth, which ultimately resulted in Delaware passing a new statute prohibiting forum selection bylaws from denying access to any court in the state of Delaware with jurisdiction to hear the claim at all – a law that is currently working mischief on the SEC’s attempt to encourage the use of arbitration in order to break securities class actions.

Anyhoo, the latest on this concerns a pair of securities actions filed in the Northern District of California against Block, alleging that the board failed to ensure compliance with various anti-money laundering statutes and things of that nature.  (Neither…

A couple of months ago, I posted about the case of Cannon v. Romeo Systems, where the CEO and sole director of a startup failed to notice an edit in a stock warrant that ultimately guaranteed the holder far more shares in his company than he had expected, with disastrous consequences. Mostly, it’s a tale of sloppiness; he signed a contract without reviewing it for changes, and then – when warned by KPMG of discrepancies between his own cap table and the terms of the warrant – ignored it. Negligent, perhaps, but understandable.

Unfortunately, as the case continues, our CEO seems to have … learned very little.

The CEO is appealing the decision, and under Delaware law, if he wants to stay the judgment, he has to post security for the full amount awarded to the plaintiff, which is over $27 million. He petitioned to be permitted to post not in cash, but in private company stock – a completely different private company than the one in the original dispute, and one for which he also serves as Chair and CEO. But, of course, in order to use private company stock, he had to provide evidence of its value. …

Recently, Walmart shifted its listing from the New York Stock Exchange to the NASDAQ.  The move, apparently, had nothing to do with the formal policies of the exchanges, and everything to do with the fact that the NASDAQ is associated with tech stocks.  Walmart is trying to sell itself as a tech company, and part of that effort involves actually shifting exchanges.

To some extent, the benefits of this move rely on an assumption of market inefficiency, i.e., the well known phenomenon where stocks trade differently depending on index inclusion; Walmart is betting that if it’s added to the NASDAQ 100, it will trade like the rest of the index.

But it’s also an exercise in branding.  Walmart, I gather, hopes for an image revitalization; it’s signaling a business model, and a commitment to a digital business strategy, and it hopes investors will share that vision.

I’ve been thinking that, in the wake of the chartering wars, state of incorporation may serve a similar function.  I’ve previously posted that Texas has adopted an anti-woke approach to corporate governance, and I think for most firms, that’s not a particularly desirable stance; they’d much rather, at least, choose Nevada…