Whenever new corporate governance terms are developed that function to diminish shareholder power – like arbitration provisions, or forum selection, or loser-pays – concern develops among (at least some) investors that these terms will become the norm.  It’s not about one company that does or doesn’t adopt the term; it’s about the fear that several companies will adopt them, and eventually it will become standard, so that shareholders will not be able to exert discipline by avoiding companies with the disfavored provision.

In other words, companies will behave as though they’re in a cartel when selecting these terms, and they’ll be able to do it because they can easily coordinate with each other.  There are a limited set of underwriters and white shoe law firms that will advise them, and those entities will propagate the new development throughout the system.  Cf. Elisabeth de Fontenay, Law Firm Selection and the Value of Transactional Lawyering, 41 J. Corp. Law 393 (2015) (explaining the value-added by elite law firms – knowledge of the latest in deal technology); Roberta Romano & Sarath Sanga, The Private Ordering Solution to Multiforum Shareholder Litigation  (finding that law firm advice is behind the adoption of forum-selection clauses…

Today, the Delaware Supreme Court issued its much-awaited decision in DFC Global Corp. v. Muirfield Value Partners, LP, et al., regarding the proper role of the deal price when determining fair value in a corporate appraisal action.  In an opinion by Chief Justice Strine, the court rejected calls for a bright-line rule deferring to the price, but emphasized that market pricing is generally the best evidence of value.  In one passage that struck me as curious, the court held that the purpose of an appraisal action is not to award dissenters the very highest price their shares could command, but to “make sure that they receive fair compensation for their shares in the sense that it reflects what they deserve to receive based on what would fairly be given to them in an arm’s-length transaction.”  Which, you know, sounds an awful lot like deal price.  And not a whole lot like valuing a company “as a going concern, rather than its value to a third party as an acquisition,” In re Petsmart, 2017 WL 2303599 (Del. Ch. May 26, 2017), which is how appraisal has previously been described.

I will leave it to others to analyze the implications…

I’ve previously posted about the problem of multiforum litigation, and how it’s very much in Delaware’s interest to figure out a way to keep cases flowing to its courts.  In particular, 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.   As VC Laster put it during a hearing in Avi Wagner v. Third Avenue Management, LLC, “The defendants want to get out of litigation, and the best way to do it is to fight the weak plaintiff . . . [T]hey have the plaintiff they want and the allegations they want….  This whole system of multi-forum litigation … creates a lot of systemic dysfunction. It’s certainly true that things should be resolved in one forum and at one time, but it doesn’t follow from that … that they should necessarily be followed under a system that incentivizes the filing of a fast complaint by a weak plaintiff so that defendants have the high ground.” (May 20, 2016).

Delaware’s latest proposal to…

So Michael Piwowar inspired a bit of heartburn in the plaintiffs’ bar this week when, during a speech to the Heritage Foundation, he encouraged corporations to add mandatory arbitration provisions in their charters prior to an IPO. This is a subject on which I’ve frequently posted, but since it’s in the news again I can’t let it go by without comment.

Mandatory arbitration is an idea that terrifies plaintiffs’ attorneys because arbitration clauses typically come with a class action waiver, and that could sound the death-knell for federal securities litigation.  Moreover, because the Supreme Court has interpreted the Federal Arbitration Act to bar most attempts at regulating contracts to arbitrate, see, e.g., AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the fear is that once an arbitration clause makes it into the corporate governance documents, it’s pretty much game over.  The plaintiffs’ bar has long taken comfort in the fact that (at least until now) the SEC has taken the position that such provisions are impermissible, which is exactly why Piwowar’s remarks raised concern.  Delaware, of course, recently amended its corporation law to prohibit the use of mandatory arbitration clauses in corporate charters and bylaws, see Del.

Could this be the beginning of the end for the event study in Section 10(b) class certification?

Yes, I’m probably overstating, but still, the Second Circuit’s opinion in In re Petrobras Securities, 2017 WL 2883874 (2d Cir. July 7, 2017), definitely takes a step in that direction.

As a recap, a private plaintiff alleging fraud claims under Section 10(b) of the Exchange Act must demonstrate that he or she “relied” on the defendant’s false statements.  In Basic Inc. v. Levinson, 485 U. S. 224 (1988), the Supreme Court held that reliance could be demonstrated via the fraud on the market doctrine – namely, the presumption that in an open and developed market, any material, public misstatement is likely to have impacted the market price of the security.  The fraud on the market doctrine is what allows Section 10(b) claims to be brought as class actions, since it eliminates the need for plaintiffs to demonstrate reliance on an individual basis.  Since Basic, then, battle has been joined between plaintiffs and defendants regarding what counts as an “open and developed” market for class certification purposes.

In recent years, it has become de rigueur for plaintiffs to use an event…

As most readers of this blog are likely aware, Hobby Lobby is in the news again.

Hobby Lobby is a privately-held corporation that runs a chain of arts and crafts stores.  Its shareholders consist of members of the Green family, who also manage the corporation on a day to day basis.  The Greens are religious Christians, and Hobby Lobby’s statement of purpose declares that the company will be run in accordance with biblical principles.

When Hobby Lobby last made the news, it had just won its case in the Supreme Court, Burwell v. Hobby Lobby Stores.  The Greens argued, successfully, that the Affordable Care Act impermissibly burdened their religious beliefs by requiring that Hobby Lobby provide birth control coverage to its employees.  The difficulty with this argument, from a corporate law perspective, is that it draws no distinction between burdens placed on Greens in their personal capacities, and burdens placed on the Hobby Lobby corporation itself.  (The Supreme Court opinion did little to clarify the matter, which is why I use it in my class as part of my introduction to business law).

Now the company making headlines again, for smuggling ancient artifacts out of Iraq.

[More under the jump]

On Monday, the Supreme Court decided Public Employees’ Retirement System v. ANZ Securities Inc.  The case resolved a critical issue of class action administration that was left hanging after the Supreme Court dismissed an earlier-granted petition in a similar case (see my earlier posts on the subject).

In American Pipe & Construction Co. v. Utah, 414 U. S. 538 (1974), the Supreme Court held that the filing of a class action tolls the statute of limitations for all members of the putative class.  That way, if individual members wish to opt out and pursue their claims individually, or if the class is not certified and they are forced to file their own complaints, they are free to do so without fear of a limitations period that may have expired years earlier.  The rule has long been thought of as a practical necessity for the administration of class actions.  After all, class actions change over time – claims are dropped, class definitions are narrowed, class counsel may pursue remedies and settlements that don’t satisfy all class members.  If individual class members were not assured that they could file their own claims if any of these events occurred, they…