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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.

I’ve previously lamented the blurring of the lines of corporate and contract law, usually arising in the context of forum selection provisions in bylaws or charters that are treated as indistinguishable from ordinary contracts.  My most recent post on this concerned the dismissal of a Section 11 case against Uber; shortly thereafter, another California court dismissed claims against Dropbox, in a decision which I may or may not discuss in more detail at a later date.

As Kyle Wagner Compton, author of the invaluable Chancery Daily, recently brought to my attention, in Mack v. Rev Worldwide, VC Zurn went in the opposite direction.  The plaintiff, John Mack (yes, that John Mack) argued that he was not bound to the forum selection clauses contained in certain Notes that he held because he had not assented to them.  Zurn held that he had agreed to provisions that allowed the Notes to be amended by a vote of a majority of the noteholders, and he was thus bound by clauses added through that process.  On that holding I express no opinion.  What does grab me, however, is that Zurn supported this decision by reference to the forum selection…

The past few days, I’ve been thinking a lot about the classic case of AP Smith Manufacturing Co. v. Barlow, 98 A.2d 581 (N.J. 1953).

Though it is often invoked as emblematic of the “stakeholder” theory of the corporation, large portions of Barlow read more like a particularly vigorous application of the business judgment rule.  So long as corporate altruism could conceivably benefit the corporation, it will not be second-guessed.  Thus, Barlow held that corporate donations to Princeton University were permissible because, among other things:

[Corporations] now recognize that we are faced with other, though nonetheless vicious, threats from abroad which must be withstood without impairing the vigor of our democratic institutions at home and that otherwise victory will be pyrrhic indeed. More and more they have come to recognize that their salvation rests upon sound economic and social environment which in turn rests in no insignificant part upon free and vigorous nongovernmental institutions of learning….[S]uch expenditures may likewise readily be justified as being for the benefit of the corporation; indeed, if need be the matter may be viewed strictly in terms of actual survival of the corporation in a free enterprise system….

[T]here is now widespread belief throughout

…

I’ve previously written about Shari Redstone and the controversies surrounding Viacom and CBS; this week, VC Slights kindly gave me something new to blog about when he denied defendants’ motion to dismiss shareholder claims associated with the Viacom/CBS merger.

The CliffsNotes version is that due to a dual-class voting structure, Shari Redstone was the controlling shareholder of CBS and Viacom, and for several years fought to combine the two companies.  Her dreams were finally realized in 2019 when the two merged in a stock-for-stock deal.  Former Viacom shareholders sued, alleging that this was a transaction in which a controlling stockholder – Redstone – stood on both sides, and that the deal sold out the Viacom shareholders to benefit CBS and Redstone. 

Normally, of course, deals in which a controlling stockholder has an interest are subject to entire fairness scrutiny unless they are cleansed in the manner prescribed by Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014).  Notwithstanding the failure to employ those protections here, the defendants creatively claimed that business judgment review was appropriate – and moved to dismiss on that basis – arguing that mere presence on both sides does not trigger heightened scrutiny…

I am fascinated by Chancellor Bouchard’s opinions in the WeWork dispute, available here and here.

The backstory: In the wake of WeWork’s collapsed IPO, SoftBank – which was one of WeWork’s significant investors – agreed to buy additional equity from the company, to complete a tender offer for a large amount of WeWork’s outstanding equity, and to lend WeWork $5.05 billion.  It ended up buying the equity and the debt, but the tender offer fell through.  At that point, WeWork – on the authority of the 2-person Special Committee who had negotiated the SoftBank deal – filed suit against SoftBank for breaching its obligations under the contract.  The Board of WeWork – by then consisting of 8 people: the 2 members of the Special Committee, 4 others designated by and obligated to Softbank, and 2 more with SoftBank affiliations – appointed two new, ostensibly independent directors to serve as a new committee to investigate the litigation.  One of the Special Committee members objected to the appointment; the other abstained from the vote.

The new committee was charged with determining whether the Special Committee had authority to sue SoftBank.  To the utter shock of absolutely no one, they concluded that…

I’ve previously discussed the common ownership problem in this space, and it basically comes down to the fact that common ownership – institutional investors who own stock in a broad swath of companies, including competing companies – is a mixed bag.  On the one hand, it may incentivize investors to address systemic risks, like climate change.  On the other, it operates in tension with a corporate governance framework predicated on shareholder wealth maximization, and may incentivize anticompetitive behavior to the extent investors care less about competition within an industry than maximizing profits for the industry as a whole.  And on the third hand, the mere fact that this kind of vast power over our economic system is exercised by only a handful of private players – whether used for good or for ill – may represent a political/democracy problem.

As a result, there have been proposals to break up the power of the largest fund families.  For example, Lucian Bebchuk and Scott Hirst have proposed that fund families be limited to investing in 5% of any particular target company.

That’s not what’s on the table, however.

In two new releases, the FTC has proposed reinterpreting…

In 2018, a securities class action was filed against Allergan, alleging that the company concealed risks associated with breast implants.  Boston Retirement System was appointed lead plaintiff, and the case survived a motion to dismiss.  The court refused to certify the class, however, because of perceived misconduct by lead counsel Pomerantz.  See In re Allergan PLC Sec. Litig., 2020 WL 5796763 (S.D.N.Y. Sept. 29, 2020).

Specifically, Judge McMahon held that Pomerantz had defied her original order appointing it as lead counsel by taking on another firm – Thornton – as a kind of shadow co-lead counsel.  When Pomerantz was appointed, McMahon specifically rejected its request to name Thornton as co-lead because, in her words, “the involvement of multiple firms tends to inflate legal fees.”  Despite her order, well:

Thornton has not only remained involved in this litigation, albeit under the rubric of “additional counsel,” but that it has effectively played the role of co-lead counsel – to the point that BRS’ corporate representative has testified under oath that Thornton’s responsibilities did not change at all in response to the lead plaintiff order. It is clear that Thornton has been fully involved in every aspect of this case to date.

…

That’s right – it’s the moment we’ve all been waiting for.  The Court has granted cert in Goldman Sachs v. Arkansas Teachers Retirement System.  (Oh, I think there was some other stuff about not throwing out 20 million presidential votes in four states).

In any event, here are the questions presented by the petition:

(1) Whether a defendant in a securities class action may rebut the presumption of classwide reliance recognized in Basic Inc. v. Levinson by pointing to the generic nature of the alleged misstatements in showing that the statements had no impact on the price of the security, even though that evidence is also relevant to the substantive element of materiality; and (2) whether a defendant seeking to rebut the Basic presumption has only a burden of production or also the ultimate burden of persuasion.

I may or may not have more to say later but for those interested, my blog post about the Second Circuit opinion is here, and you can read all of the cert briefing here.

Several weeks ago, I posted about VC Laster’s opinion in the busted Anthem-Cigna merger.  Ever since then, I continued to mull the case and – in particular – I had questions about what might happen if the Cigna shareholders sued Cigna’s management over the deal’s failure.  I planned to post about it as a hypothetical thought experiment, but then – what ho! – the Cigna shareholders did in fact file such a lawsuit – though, as I explain below, not quite the one I was contemplating. 

Anyhoo, now I am finally getting around to posting my thoughts, though I’m almost hesitant to do so because I’m afraid the answer to my questions may be really obvious and I’m simply splattering my ignorance over the internet, but, well, that’s what blogging is for, so, here goes.

It all starts with Laster’s conclusions after the Anthem-Cigna trial. He found that Cigna’s CEO, David Cordani, intentionally tried to sink the deal by refusing to honor Cigna’s commitments under the merger agreement.  And Cordani did so not out of concern for Cigna’s stockholders, but because he was resentful of not being chosen to lead to the combined entity.  For example, after an agreement…

This holiday weekend, I continue my blog series on the March of Litigation Limits in Corporate Constitutive Documents (most recent prior posts here, here, and here – and those link back to earlier entries).

In Salzberg v. Sciabacucchi, 227 A.3d 102 (Del. 2020), the Delaware Supreme Court held that corporate charters may contain provisions selecting federal courts as the forum for Securities Act/Section 11 claims under the federal securities laws.  That, of course, raised the question whether non-Delaware courts would treat these provisions as enforceable.

We have two rulings on that so far: In September, there was Wong v. Restoration Robotics, Case No. 18CIV02609 (Cal. Sup. Ct. Sept. 1, 2020), and then, earlier this month, we got In re Uber Technologies Securities Litigation, Case No. CGC19579544 (Nov. 16, 2020) (more details on the Uber case available at Kevin LaCroix’s blog post).

Both courts, correctly in my view, recognized that the enforceability, or not, of these provisions is not a matter of internal affairs and is therefore not governed by Delaware law.  Instead, both applied California law.  After that, both courts examined California contract doctrine and concluded that the provisions were not unconscionable…

On November 6, I had the privilege of participating in Case Western Reserve Law School’s George A. Leet Business Law Symposium, “Equity Holdings in the Three Index Funds: Anti-Competitive Effects, Fiduciary Duties and Environmental, Social and Governance Issues.”  The agenda for the full symposium is here; I spoke on the first panel, “Fiduciary Obligations of Index Fund Managers,” alongside Jill Fisch, Darren Rosenblum, and Bernard Sharfman (moderated by Anat Beck).  The entire symposium is now online at YouTube, so you can watch and, in particular, admire the care I took with my Zoom background: