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Ann Lipton

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Ann M. Lipton is a Professor of Law and Laurence W. DeMuth Chair of Business Law at the University of Colorado Law School.  An experienced securities and corporate litigator who has handled class actions involving some of the world’s largest companies, she joined the Tulane Law faculty in 2015 after two years as a visiting assistant professor at Duke University School of Law.

As a scholar, Lipton explores corporate governance, the relationships between corporations and investors, and the role of corporations in society.  Read more.

Yup, we have another opportunity for Elon Musk to make new law.

This time, it comes in the form of an extraordinary proxy statement recommending that shareholders vote to ratify the compensation package that Chancellor McCormick invalidated in Tornetta v. Musk, and that they vote to reincorporate the company in Texas.

There are many many questions raised and I’m sure I’ll be revisiting a bunch of them over the next couple of months, but I’m zeroing in on one in particular: the pay package ratification vote.  Can they really do that?

And hoo boy did this get long, so behind a cut it goes; however, I personally find the most interesting part to be the realpolitik of it all if it ends up in a courtroom, so knowledgeable readers may want to skip to that part at the end.

More under the jump

I’ve frequently posted about omissions liability under the federal securities laws; you can read many of those posts, in reverse chronological order, here, here, and here.  But, here’s the CliffsNotes version of where we are now, after the Supreme Court’s decision today in Macquarie Infrastructure Corp. v. Moab Partners, L. P..

 

Once upon a time, there was a statute, Section 10(b) of the Exchange Act. That statute made it unlawful:

 

To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

The Commission did, in fact, adopt those rules and regulations, in the form of Rule 10b-5, which made it unlawful:

 

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light

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Just posting the obligatory plug of a couple of new things.  First up, I reviewed Stephen Bainbridge’s book, The Profit Motive: Defending Shareholder Value Maximization for the Harvard Law Review.  Here is the abstract:

Professor Stephen Bainbridge’s new book, The Profit Motive: Defending Shareholder Value Maximization, uses the Business Roundtable’s 2019 statement of corporate purpose as a jumping off point to offer a spirited defense of shareholder wealth maximization as the ultimate end of corporate governance. Beginning with an analysis of classroom standards like Dodge v. Ford Motor Co., and continuing through the modern era, Bainbridge argues both that shareholder value maximization is the legal obligation of corporate boards, and that it should in fact be so, partly because of wealth maximization’s prosocial tendencies, but also because of the lack of a viable alternative. Drawing on his decades of work as one of America’s most influential corporate governance theorists, Bainbridge offers up sharp critiques of the kind of enlightened managerialism reflected in the Business Roundtable’s statement, and advocated by academics like Professor Lynn Stout and practitioners like Martin Lipton. Along the way, he also has harsh words for trendy alternatives such as “environmental, social, and governance” (ESG) investing

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Call for Submissions

The Business Lawyer (TBL) is currently accepting submissions for Volume 79, Summer and Fall issues to be published in 2024. TBL is the peer-reviewed scholarly law review and premier publication of the ABA Business Law Section with over 19,000 readers. The Section welcomes article submissions to TBL on topics that advance the development, understanding, and analysis of business law. The Section also welcomes submissions of scholarly articles from legal academics who are looking for a large audience for their scholarship or who wish to adapt their prior research for use by the judiciary and the practicing bar. Pioneering articles originally published in The Business Lawyer have led to significant practice developments, notably in connection with standard practices for legal opinions and audit response letters.

In addition, the Section’s Diversity, Equity and Inclusion Plan encourages a diverse set of viewpoints and backgrounds for TBL authors. The plan includes the widest range of business law practitioners including but not limited to young lawyers, law students, senior lawyers, international lawyers, lawyers of diverse or underrepresented ethnic and racial backgrounds, lawyers with disabilities, LGBTQ2+ lawyers, and women lawyers.

All submissions should be in Word format, double-spaced (including footnotes), accompanied…

It’s the moment we’ve all been waiting for and – the Delaware Supreme Court holds that all conflicted controller transactions require MFW protections to win business judgment review.

It also appears that the special committee must be composed completely of independent directors – none of this, oh, well, one turned out to be conflicted but it didn’t matter much business, which to me actually tightens the standard that I kind of assumed was being employed, and was employed in the Chancery decision in Match itself.

Also, I have previously remarked on the disjunction between requiring MFW for conflicted transactions, but only board independence for considering litigation demands against controlling shareholders.  In my paper, After Corwin: Down the Controlling Shareholder Rabbit Hole, I said:

litigation demands are, in a real sense, different from ordinary conflict transactions. If directors are too conflicted to consider the merits of a transaction, the court evaluates its fairness. By contrast, if directors are too conflicted to consider the merits of bringing litigation, shareholders themselves are permitted to assume control of corporate machinery to bring the action in their stead. For that reason, demand excusal may legitimately be viewed as its own category of problem.

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The Tulane Corporate Law Institute this year was unusually contentious, and that’s because a lot of corporate practitioners – defense side – were unhappy with a number of recent Delaware decisions.

Tornetta v. Musk made headlines because of the colorful personalities involved, but it actually rested on fairly commonplace, well-established Delaware standards of review.  More unsettling, I think, from the corporate bar’s perspective, were decisions like  Sjunde AP-Fonden v. Activision Blizzard (which I blogged about here), Crispo v. Musk (which I blogged about here), and West Palm Beach Firefighters’ Pension Fund v. Moelis & Co. (which I blogged about here), because those cases upset settled expectations of practitioners.  (VC Laster obliquely referred to some of the complaints in his decision denying interlocutory review in TripAdvisor: “Rule 42 does not invite a trial court to consider the level of media attention that a decision has received. That does not mean that the Delaware Supreme Court could not consider it. The justices might conclude that given the media attention and practitioner-driven stormlets over Delaware’s place in the corporate universe, Delaware’s highest court should weigh in. But that is not a consideration that Rule 42 instructs a…

I have literally no idea if this is correct, I’m putting it forward as a set of facts that I think demonstrates the very complicated era we’re in from a corpgov perspective.

Ike Perlmutter was fired from Disney.  It’s very well known that he generally opposed attempts to diversify the MCU.

Nelson Peltz has teamed with Ike Perlmutter in his Disney proxy contest.  Nelson Peltz is a Trump supporter.  He’s also friends with Elon Musk, who has increasingly become a right wing culture warrior.

Disney has long been in the crosshairs of the right.  We all know about the fight with DeSantis and Don’t Say Gay; we also know that a Disney shareholder accused the company of abandoning shareholder value in order to promote a political agenda.

Elon Musk is furious about Disney pulling ads from ex-Twitter, and has openly criticized Disney’s diversity priorities.  He’s even bankrolling a suit by Gina Carano, alleging that Disney discriminated against her due to her conservative politics.

Bill Ackman has also criticized Disney for pulling ads from Twitter, specifically connecting that decision to the proxy fight with Peltz, and arguing that Peltz can right the…

On March 12, Chancellor McCormick issued a revised appraisal opinion in HBK Master Fund v. Pivotal Software, amending her calculations to award the petitioners 44 cents above deal price, rather than 17 cents below, as she had originally.  

But I somehow missed the original opinion, so my first read was the amended one.  Forgive me if this is old hat by now, but it was new to me, so.

The case involved a buyout of Pivotal by its sister company, VMWare, both controlled by Dell Technologies.  That raised the question whether the use of MFW procedures required deference to the deal price, in the same way it does in other kinds of appraisal actions.  Chancellor McCormick held no, because, critically, with a controlling shareholder, there can be no real market test – there are no other potential bidders, and even the shares themselves may trade at a discount to reflect the controller’s ability to extract rents.  Thus, the underpinning of cases like Dell v. Magnetar, 177 A.3d 1 (2017), is absent.

But that’s actually not what stood out to me. 

As is the usual course with these things, Chancellor McCormick began with a standard discussion of the…

Last week, Chancellor McCormick decided Sjunde AP-Fonden v. Activision Blizzard, which held that former shareholders of Activision had stated a claim that Activision’s board failed to comply with DGCL 251(b) when it approved the merger agreement with Microsoft.  The draft agreement that the board reviewed was missing key details, such as consideration, the disclosure letter, and a plan to handle dividend payments between signing and closing.  Those details were obviously filled in later, but the full board never formally approved the revised merger agreement – dividends, for example, were handled by committee.  McCormick held that while a board need not review a formal, final version of the agreement, Section 251(b) requires that they at least review a version that includes essential terms, and plaintiffs had for pleading purposes alleged that the Activision board failed to do so.  Due to the statutory violations, McCormick ultimately concluded, the plaintiffs had stated a claim for unlawful conversion of their shares.

So, here’s the thing.  Of course boards should formally review the essential terms of a merger agreement before declaring the deal’s advisability for statutory purposes.  How could it be otherwise?  But at the same time, it seems, you know, likely, that the…

I had so many choices for what to blog about this week.  The dispute about Donald Trump’s Truth Social SPAC?   Chancellor McCormick’s conclusion that the Activision/Microsoft merger might have violated Delaware law?  VC Laster’s Moelis decision?  Musk’s lawsuit against OpenAI? 

I ultimately decided to go with Moelis and OpenAI because they actually are fundamentally kind of the same thing, and this way I kill two birds with one stone.

So, earlier this week, it seemed like the big business law news was VC Laster’s holding in West Palm Beach Firefighters’ Pension Fund v. Moelis, issued last Friday, invalidating the shareholder agreement that Ken Moelis reached with Moelis & Co. when he took it public, and that allowed him to functionally remain in control of the business even when his voting stake dropped below a majority.  VC Laster held that the contract violated DGCL 141(a), which requires that corporations be managed by their boards of directors.

VC Laster recognized that every time a corporation enters into any kind of contract at all, the board’s choice set becomes more limited, but – using a word that I personally had never heard before and don’t know how to pronounce…