The possibility lurking in Dell, Inc. v. Magnetar Glob. Event Driven Master Fund Ltd,  2017 WL 6375829 (Del. Dec. 14, 2017), has now materialized.

For those of you just joining us, in Dell and DFC Glob. Corp. v. Muirfield Value P’rs, L.P., 172 A.3d 346 (Del. 2017), the Delaware Supreme Court threw some cold water on the practice of appraisal arbitrage.  The two decisions suggest that in an appraisal action, courts should not try to conduct their own valuation of a company except in unusual circumstances; instead, where the deal was negotiated appropriately, the deal price itself represents the best evidence of fair value.

That alone would be enough to discourage would-be appraisers, absent evidence of significant dysfunction in the process by which the deal price was reached, but the decisions went further: both contained extensive endorsements of the efficient markets hypothesis and the accuracy of market pricing.   In the context of the opinions themselves, the market price discussions were puzzling, because they played little role in the Court’s actual analysis.  In both cases, the Court ultimately suggested that the deal prices – which were above market price – were appropriate.  At the same time, however, in neither…

Socially responsible investing is all in the news these days, as several large asset managers and advisors have publicly declared commitments, of one kind or another, to pressuring portfolio companies to act in socially responsible ways.

Commenters debate whether these managers genuinely believe social responsibility will improve value at portfolio companies, or whether they are trying to appeal to the preferences of clients who themselves favor socially responsible investing, either as a mechanism for improving value, or, more probably, as a matter of, essentially, “taste.”  If you’re going to invest an index fund, for example, you may as well invest in the one where you believe your dollars will also be used to push for your preferred agenda – even if little is actually being done in that direction.

The reason it’s so difficult to suss out anyone’s exact motive, of course, is that it’s tough to admit – as an asset manager or any kind of institutional investor – that you’re interested in anything other than financial returns.  Not simply because of the publicity you’ll generate, but because it’s not clear how far fiduciary obligations allow fund managers to go in pursuing social goals. 

(This is…

I previously blogged about a split among the circuits regarding the definition of loss causation for the purposes of a Section 10(b) claim.

To quote one of my prior posts:

All circuits agree that loss causation can be shown via “corrective disclosures” – some kind of explicit communication to the market that prior statements were false, followed by a drop in stock price.

However … there has been an alternative theory that plaintiffs can use to show loss causation, even without an explicit corrective disclosure.  The theory is usually described as “materialization of the risk.” It requires the plaintiff to show that the fraud concealed some condition or problem that, when revealed to the market, caused the stock price to drop, even if the market was not made aware that the losses were due to fraud.  For example, a company may report a slowdown in sales, causing its stock price to fall, while concealing the fact that the slowdown was due to an earlier period of channel stuffing.  By the time the channel stuffing is revealed, it may communicate no new information about the company’s prospects, so the stock price remains unmoved.  Under a materialization of the risk theory,

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The Delaware Supreme Court finally issued its decision in Cal. State Teachers Ret. Sys. v. Alvarez, and it appears we don’t have one neat trick for dealing with races to the courthouse in derivative litigation after all.

As I’ve discussed in previous blog posts, Delaware has a substance and procedure problem.  Namely, it uses its own court procedures as supplemental mechanisms to substantively police the behavior of corporate actors, but those procedures don’t apply in non-Delaware forums.  That leaves Delaware vulnerable to being undercut by other states – and encourages an unhealthy race to the courthouse in other jurisdictions. 

As I explained before, in the context of derivative cases, “Delaware’s recommendation that derivative plaintiffs seek books and records before proceeding with their claims simply invites faster filers to sue in other jurisdictions – and invites defendants to seek dismissals against the weakest plaintiffs, which will then act as res judicata against the stronger/more careful ones.” 

That’s what happened in Alvarez.  While the Delaware plaintiffs spent years litigating a books and records request, defendants won a dismissal for failure to plead demand futility against a competing plaintiff group in Arkansas.  The Chancery court then held that the…

Sometimes it feels like I’m on the litigation-limiting-bylaw beat.

To briefly recap, in several prior posts, a law review article, and a forthcoming chapter, I’ve argued that corporate governance documents are not contracts in the traditional sense and thus should not be read to impose contract-like obligations on shareholders (critical for, among other things, the applicability of the Federal Arbitration Act).  I’ve also argued that a corporation’s governing documents cannot impose forum-selection or other limitations on shareholders’ ability to press federal claims or claims that arise under the law of a nonchartering state. 

This is relevant because some companies have gone public with forum selection provisions in their charters purporting to restrict Securities Act claims to federal court.  Snap was one, as I discuss in more detail here; apparently, other companies include Blue Apron, Stitch Fix, and Roku.  The Supreme Court is set to decide this term whether SLUSA requires that Section 11 class actions be brought in federal court, but that’s a separate issue from whether corporations can use private ordering to require that all Section 11 claims be brought in federal court.

Anyhoo, it looks like New Jersey is getting…

Shu-Yi Oei and Diane Ring of Boston College Law School have posted Is New Code Section 199A Really Going to Turn Us All into Independent Contractors? to SSRN.  Here is the abstract:

There has been a lot of interest lately in new IRC Section 199A, the new qualified business income (QBI) deduction that grants passthroughs, including qualifying workers who are independent contractors (and not employees), a deduction equal to 20% of a specially calculated base amount of income. One of the important themes that has arisen is its effect on work and labor markets, and the notion that the new deduction creates an incentive for businesses to shift to independent contractor classification. A question that has been percolating in the press, blogs, and on social media is whether new Section 199A is going to create a big shift in the workplace and cause many workers to be reclassified as independent contractors.

Is this really going to happen? How large an effect will tax have on labor markets and arrangements? We think that predicting and assessing the impact of this new provision is a rather nuanced and complicated question. There is an intersection of incentives, disincentives and risks in play among

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