This week I just direct your attention to various items.

First, the NYSE recently proposed a rule change that would exempt closed end funds from the requirement of holding annual shareholder meetings.  Closed-end funds are frequently the subject of activist attacks – here I blogged about a Second Circuit case that struck down a takeover defense measure in a Nuveen fund – so a rule change here would be, you know, significant.  Anyway, here is the link to the comments the SEC has received, and the one I found particularly useful, was by the Working Group on Market Efficiency and Investor Protection in Closed-End Funds, which is a collection of law and business professors.

Second, Project 2025 is all in the news these days as a preview of what a second Trump administration might look like, and it turns out, there are proposals for changes to the federal securities laws.

We have the usual conservative stuff, like, get rid of disclosure requirements pertaining to “social, ideological, political, or ‘human capital’ information that is not material to investors’ financial, economic, or pecuniary risks or returns.”  Obviously, the issue here, unaddressed in the document, is that most commenters would…

And now another Texas District Court has stayed the Department of Labor’s Fiduciary Rule.  You can find the opinion here.  This followed closely on the heels of the first decision.  Both apply the 5th Circuit’s prior precedent from its case striking down its prior attempt at issuing a fiduciary rule in the space.

Special committees in Delaware have an important role for cleansing various kinds of conflicted transactions, everything from negotiating controlling shareholder deals to vetting derivative lawsuits.  There is no rule regarding committee size; the Board can populate a committee with as many or as few people as it wants.

That said, Delaware caselaw suggests that courts will be somewhat suspicious of special committees consisting of only one member.  That member must be “’like Caesar’s wife… above reproach.” Gesoff v. IIC Industries, 902 A.2d 1130 (Del. Ch. 2006).  In Gesoff, VC Lamb stated that a single member special committee would get “a higher level of scrutiny,” and noted that in that case, the special committee member deferred too much to a controlling shareholder – something that might not have happened if a “moderating influence,” via a second member, had been available.

Since then, however, a couple of decisions have blessed the actions of single-member special committees.

And then came the Delaware Supreme Court’s decision in In re Match Group Derivative Litigation, which held that – at least when a corporation attempts to cleanse a controlling shareholder transaction – all special committee members, and not just a majority of…

In an opinion released earlier today, Judge Kernodle of the Eastern District of Texas has stayed the rule from going into effect.  

Although I have not had time to sit and digest it at length, Chevron‘s demise plays a significant role.  Consider this passage:

In reviewing agency action under the APA, “[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority” and should “set aside any [] action inconsistent with the law as they interpret it.” Loper Bright, 144 S. Ct. at 2261, 2273; see also Chamber, 885 F.3d at 369 (“A regulator’s authority is constrained by the authority that Congress delegated it by statute.”). A court should no longer defer to an agency’s interpretation of a statute but should decide for itself “whether the law means what the agency says.” Loper Bright, 144 S. Ct. at 2261 (overruling Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984)).

The Court thus owes no deference to DOL’s interpretation of ERISA, but rather “begins with the text” of the statute—as all courts do. E.g., Ross v. Blake, 578 U.S. 632, 638 (2016); United States v. Lauderdale Cnty., 914 F.3d 960,

…

In November 2021, Hertz authorized a buyback of its stock.  The effect of the buyback to was transform CK Amarillo from a 39% stockholder – who also had board seats – into a 56% stockholder.

Public stockholders of Hertz sued, alleging that the Hertz directors violated their fiduciary duties by transferring control of Hertz to CK Amarillo, without requiring that CK Amarillo pay a control premium.

One critical question was: Is this claim direct or derivative?

Normally, claims arising out of stock buybacks are derivative claims.  And normally, when a stockholder continues to hold shares in the entity, and nothing has changed about those share characteristics, and the stockholder was not asked to vote on anything, claims arising out of corporate action are derivative.  And just recently, the Delaware Supreme Court decided Brookfield Asset Management, Inc. v. Rosson, 261 A.3d 1251 (Del. 2021), where it held that if a company sells new shares to a controlling stockholder on the cheap, the claim is derivative, not direct – overruling Gentile v. Rossette, 906 A.2d 91 99 (Del. 2006), which held the claim is both.

But, as I argued in my paper, The Three Faces of Control, …

This is my second blog post this week because I am procrastinating.

Anyway, a while back I blogged about Kellner v. AIM Immunotech, where VC Will invalidated certain advance notice bylaws that had been amended in the middle of a heated proxy contest.  The difficulty was that the case was heard on an expedited basis, in advance of the shareholder meeting, so that Will could determine if the dissident’s nominees could stand for election.  And the dissident was … not great.  The campaign had been orchestrated by a convicted felon who tried to hide his involvement, and the dissident had submitted some false information in response to the bylaw requests.  At the same time, though, the bylaws had been adopted as a blocking mechanism, and some were unintelligible.  

In that context, Will held that four of the amended bylaws failed enhanced scrutiny, but two could stand.  She concluded that the board had acted with a proper purpose – to obtain information so that it could fairly evaluate a director-nominee – but that several of the onerous bylaw amendments were disproportionate to the threat posed.  With respect to one bylaw, which was unreasonably broad, Will blue penciled it back to…

Andrew Jennings recently created a free tool to generate email alerts for SEC EDGAR filings.  It’s available here.  It’s a nifty website that doesn’t require any login or registration.  You just set up an alert and it’ll send you an email to confirm and manage the alert.  You can even let other people subscribe to your alert if you’re working with a team.

This is pretty useful if you’re tracking a sector and want to get filings sent to you or if you want to monitor all filings of a particular type–say cybersecurity incident 8-Ks.  The alert tool is probably highly useful for in-house counsel to keep tabs on other companies in their sector.