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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 first blogged about this case back when the Supreme Court’s Halliburton Co. v. Erica P. John Fund, Inc. (Halliburton II), 573 U.S. 258 (2014) decision was new, and now we finally have some answers. 

In Halliburton II, the Court held that while securities class action plaintiffs get the benefit of a presumption that any material information – including false information – impacts the price of stock that trades in an efficient market, defendants may, at the class certification stage, attempt to rebut that presumption with evidence that there was no such price impact.

The complicating factor in all of this is that, per Amgen Inc. v. Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455 (2013) and Erica P. John Fund v. Halliburton Co., 563 U.S. 804 (2011) (Halliburton I), defendants cannot rebut that evidence by demonstrating either a lack of materiality or a lack of loss causation.  This, of course, severely ties defendants’ hands, because those are the usual proxies for price impact.  (See prior blog posts for further discussion here and here and here and here.)

The Goldman case has an interesting twist, though.  The basic allegation is that Goldman falsely represented that it behaved with honesty and integrity toward its clients, and its lies were revealed when the SEC filed an enforcement action alleging that Goldman’s transactions involving CDOs were riddled with undisclosed conflicts of interest.  The SEC’s complaint triggered a price drop, and Goldman investors suffered as a result.

Goldman, however, argued it could rebut the presumption of price impact by demonstrating that at multiple times throughout the class period, the media reported on its conflicts, with no market reaction.  Therefore, argued Goldman, it was clear that the initial lies did not impact prices, and the price drop at the end of the class period was not due to the revelation of the truth – all of which was known to the market – but simply due to the SEC’s enforcement action itself.

As I previously argued, much of this was really a disguised attempt to relitigate the materiality of the initial statements, but in a 2018 appeal, the Second Circuit remanded to the district court to give Goldman the opportunity to prove lack of price impact by a preponderance of evidence.  See Ark. Teachers Ret. Sys. v. Goldman Sachs Grp., Inc., 879 F.3d 474 (2d Cir. 2018).  The district court recertified the class, Goldman appealed again, and the Second Circuit’s affirmance, 2-1, issued earlier this week, engages more closely with the substance of Goldman’s argument.

Okay, that sets the stage.  What actually happened here?

(More under the jump)

One of the things that’s fascinated me about this strange time we’re living in is how it’s altered our buying habits.

For sure, some alterations were pretty predictable: more demand for work-from-home tools, computers, sanitizers, and protective gear (certainly, some people seem to have made very accurate forecasts.)

But some of the reports are less intuitive.  For example, lots of people have turned to home baking – either because they have more time or because they don’t/can’t buy in stores – leading to a yeast shortage. (Except, as this Twitterer explains, you can always make your own, a philosophy that many have apparently extended to eggs). 

Other people have figured now’s a good time to care for a pet, emptying out NYC’s shelters.  Or to pretend you’re still in college.

People seeking ways to amuse themselves have turned to jigsaw puzzles and, umm, other things.

On Zoom, nobody can tell if you’re drunk.  (Maybe.)  They definitely can’t tell what you’re wearing from the waist down, though (unless you show them). 

You’ve all heard about the toilet paper shortages, but I appreciated this explanation for them.

And

We just reached the part of my M&A class where I teach The Williams Companies v. Energy Transfer Equity LP, 159 A.3d 264 (Del. 2017).  It’s a difficult case – I try to explain the tax aspects which makes part of it a slog – but I do it anyway because I find both the facts and the opinions endlessly fascinating.

The basic set up is that Energy Transfer Equity (“ETE”) and The Williams Companies (“Williams”) had agreed that Williams would be acquired by ETE for a combination of cash and ETE partnership units.  One condition of closing, however, was that ETE’s tax counsel at Latham would issue an opinion to the effect that the second leg of the deal should be non-taxable under IRS regulations.  The Latham Tax Lawyer did not issue the opinion, ETE refused to close, and Williams sued, alleging that ETE breached the merger agreement by failing to use its best efforts to obtain the opinion.  After a trial in Chancery, VC Glasscock ruled for ETE, and the Delaware Supreme Court affirmed, Strine dissenting.

So, the deal itself is complicated but it’s worth explaining.  The actual transaction was to proceed in two steps.  First…

It’s the moment we’ve all been waiting for, and I am sorry to say – I was wrong.

(All right, in my heart, I still believe I was right in my account of existing law, and Salzberg v. Sciabacucchi actually changed the law.  But, if law is just a prediction of what judges will do, then okay, fine, yes, I was wrong.)

As you all know by now, I’ve been blogging about this case, and the issue of litigation-limiting bylaw and charter provisions, for a while, and I’ve written an article, and a book chapter, on the subject.  In this post, I’ll assume the reader’s familiarity with the issue and my prior argument.

Anyway, the basic logic of the decision is illustrated by this figure from the opinion:

In other words, in the Delaware Supreme Court’s view, there are matters of internal affairs that are governed by the state of incorporation, and then there is a slightly larger category of matters that are still “intra-corporate” but not “internal affairs,” and can be governed by a corporation’s charter, and then there are truly external claims that cannot be the subject of a charter provision.  …

Univ. of Idaho (Moscow location) Seeks Tax Visitor

 

The University of Idaho College of Law seeks entry-level or experienced faculty members interested in serving as a full-time, temporary faculty member for the 2020-2021 academic year at its Moscow location. We are specifically hiring for a professor to teach various Tax law courses and, possibly, courses on Estate Planning and/or Wills. For more information and to apply, go here: https://uidaho.peopleadmin.com/postings/28443 Questions can be directed to Associate Dean David Pimentel at dpimentel@uidaho.edu.

 

Univ. of Idaho (Boise location) Seeks Visitor to Direct Entrepreneurship Law Clinic

The University of Idaho College of Law seeks entry-level or experienced faculty members interested in serving as a full-time, temporary faculty member for the 2020-2021 academic year to direct the College’s Entrepreneurship Law Clinic at its Boise location. The Entrepreneurship Law Clinic is devoted to outreach to the startup and small business community in Idaho. For more information and to apply, go here: https://uidaho.peopleadmin.com/postings/28557 Questions can be directed to Associate Dean Wendy Couture at wgcouture@uidaho.edu.

 

Univ. of Idaho (Boise location) Seeks Visitor to Teach IP & Contracts

The University of Idaho College of Law seeks entry-level or experienced faculty members interested in serving …

For the last several weeks, Xerox has been pursuing a takeover over HP.  At first, its overtures were friendly, and more recently it turned hostile (well, sort of hostile).  It has put the campaign on hold in light of the pandemic – it says, because it is unsafe to travel and conduct meetings with shareholders – but before that, it filed a Schedule TO and an S-4 with the details of the offer.  As relevant here, the S-4 explains that Xerox is proposing a tender offer followed by a second-step merger under DGCL 251(h).  Shareholders who do not tender their shares, and thus are merged out, will receive the same consideration as shareholders who tender.  Which is:

Election 1

That said, Xerox plans to pay a total of $27,326,000,706 in cash.  Therefore, if shareholders’ elections would result in a different figure, these elections are capped:

Election 2

In other words, shareholders have a choice of whether they receive stock, cash, or a combination of both, but only up to a point; if too many shareholders select one or the other, Xerox will rebalance.

Which brings us to the right of appraisal.  According to the S-4:

Election 3

So, what’s the law on this?  Delaware provides…

On Thursday and Friday, Tulane hosted its 32nd Annual Corporate Law Institute.  The CLI is a major conference focused on the latest developments in M&A and related topics, and features a variety of speakers drawn from the bench, the bar, and the SEC.

Now, obviously, it’s a tough time to host a large conference – the big question was whether we’d see cancelations – and I’m not in charge of administration so I can’t say what the final numbers were, but from what I could see, attendance looked just fine.

That said, I personally was not able to attend the whole event, but I did go to a few of the panels, and below are my notes from Hot Topics in M&A Practice and Chancellor William T. Allen and His Impact on Delaware Jurisprudence.

I often skim through recent opinions issued in private securities class actions, just to see what the latest issues are and how courts are addressing them.  So this week, I’ll talk about a few that caught my eye.  As the subject line indicates, most of this discussion concerns materiality, but there are some extra issues tossed in.

And yes, this is a very long one, so behind a cut it goes:

Sean Griffith recently wrote a book chapter explaining how plaintiffs’ merger-related challenges developed over time.  Plaintiffs began by seeking disclosure-only settlements, but after Trulia stamped out the practice in Delaware, plaintiffs began bringing claims in federal court challenging corporate proxies under Rule 14a-9.  And once they got there, they realized they did not have to limit themselves to merger litigation, and began bringing other kinds of proxy-related claims, and eventually these morphed into individual, rather than class, actions.

That’s what I thought of when I read the new books and records complaint filed against Facebook in Employees’ Ret. Sys. Of Rhode Island v. Facebook, No. 2020-0085-JRS.

In it, Rhode Island’s pension fund is seeking privileged documents related to Facebook’s $5 billion settlement with the FTC over allegations that it violated a previous FTC settlement regarding its data practices.  Much of the complaint is redacted – the plaintiff received some documents already, just not the privileged ones it is seeking now – but the basic allegation is that, according to news reports, the FTC wanted to charge Mark Zuckerberg personally, but the company refused, and accepted a larger fine to protect him.  The plaintiff now claims that this was the…

Back to a subject near and dear to my heart: The increased pressure on the definition of “controlling stockholder” occasioned by Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304 (Del. 2015) and Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”).  I’ve posted about this on several prior occasions, and written an essay on the subject, so I would be remiss if I didn’t discuss VC Laster’s new ruling in Voigt v. Metcalf.  The facts, as taken from the opinion, are these:

CD&R was a 34.7% blockholder of a publicly-traded corporation called NCI.  In earlier years, CD&R had held as much as 68%.  CD&R had a stockholder agreement that, among other things, guaranteed it a certain number of board seats – but also guaranteed a certain number of seats for the unaffiliated stockholders – guaranteed that its nominees would have seats on key committees, and gave it blocking/consent rights for various board actions, though none were triggered in this case.

In early 2018, three things happened nearly simultaneously: Metcalf, one of the independent/unaffiliated directors of NCI, was elevated to Chair; CD&R acquired a majority stake in a company called New Ply Gem; and Metcalf proposed that NCI acquire New Ply Gem.  To negotiate the deal, Metcalf met with certain NCI directors who were also CD&R representatives/designees.

Eventually, NCI created a Special Committee to evaluate the transaction, and hired Evercore.  Well, actually Metcalf hired Evercore before the committee was even formed, and the Committee was told that Evercore had no conflicts – which was untrue, because Evercore was currently working for another CD&R portfolio company.  The Committee decided to keep NCI’s counsel, Wachtell.

Evercore recommended that New Ply Gem be acquired with NCI stock valued, post-deal, at roughly 1/3 of NCI’s total equity.  This valuation was based on CD&R’s own valuation when it acquired New Ply Gem.  CD&R – via the NCI board members – insisted on closer to a 50/50 split.  The Committee agreed.  The Committee asked for a majority-of-minority voting condition; CD&R refused.  When the deal was announced, NCI’s stock price fell, and of the unaffiliated stockholders, only 55% voted in favor.

After the transaction closed, an NCI stockholder brought a derivative lawsuit and, for our purposes, the critical question was whether CD&R was a controlling shareholder.  If not, the deal was likely cleansed by the shareholder vote – and even if there were disclosure deficiencies (spoiler: there were), plaintiff would have to establish that the Special Committee was interested/dependent on CD&R to succeed on his claim.  But if CD&R was a controlling shareholder, the deal was subject to entire fairness review.

VC Laster concluded that CD&R was a controlling shareholder, and refused to dismiss.

So, what’s notable here?

[More under the jump]