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As a lawyer who’s practiced for many years on King Street in Wilmington, I’m saddened by the need to depart. For decades, Delaware was known for predictable court outcomes, respect for the judgment of corporate boards, and speedy resolutions. These traits made the state the one-stop shop for major company incorporations—which have brought in more than $1 billion in annual revenue to the state.

Delaware’s legal framework once provided companies with consistency. But no more. Delaware’s Chancery Court in recent years has been rife with unpredictable outcomes. To their credit, lawmakers in Dover have repeatedly tried to rectify the inconsistent outcomes of the once-revered court through ad hoc legislative responses. But companies need a more efficient and sustainable solution than relying on the legislature to

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It’s been recently reported that the White House is looking to wage a full scale war on proxy advisors.  Not only are they being singled out for antitrust probes, but apparently they’re being investigated by CFIUS over their foreign ownership.

Additionally, the White House is looking for ways to issue some kind of securities-law based executive order to curb their influence.

Now, just to state the obvious about why this is all happening, I refer back to a prior blog post:

one cannot help but suspect that companies’ reasons for objecting to proxy advisors is the same as their objection to unions – it’s not conflicts or corruption, it’s that they overcome transactions costs of a disaggregated constituency and facilitate coordination so as to create a countervailing power center.  Managers, in other words, just don’t want to be challenged – by anyone.

But anyway. I keep getting questions about what the White House could actually do.  And I can’t answer that from an antitrust or national security perspective, but I can spitball some ideas from a securities law perspective, though I’m sure the forces gunning for proxy advisors are probably far more creative than I…

Previously, I covered a Nevada Business Court decision applying a common law business judgment rule to Nevada limited liability companies with fiduciary duties. That decision is now being challenged under Nevada’s mandamus procedure. To aid the Nevada Supreme Court in considering the issue, I along with other Nevada business law professors and Nevada business lawyers, filed a request to submit an amicus brief on the importance of the business judgment rule.

The brief contends that Nevada should apply a common law business judgment rule to breach of fiduciary duty claims for Nevada LLCs. We explained that the common law business judgment rule has been a part of American common law for a long time and reviewed the benefits it provides. Most business law professors and business lawyers know the reasons–all standard canon. The business judgment rule lets management take business risks without needing to worry that they will suffer personal liability simply because some business risk does not pan out. Removing it would make managers timid and afraid to do anything different than their peers. Insurance companies would struggle to write policies and price risk if any ordinary business decision could result in liability. We also explained that without the…

I tried posting about something else this week, but there’s a gravitational force, so here’s bonus Tesla content.

Honestly, this is what I find interesting and unexpected:

Schwab Asset Management earlier this week pledged to back the pay proposal after a number of prominent retail shareholders said on social media that they would move funds out of brokerages that voted in opposition.

With the caveat that I am not exactly clear on what assets were involved, this is an interesting conundrum of fiduciary obligation and mutual fund voting.

On the one hand, shouldn’t funds vote the way the investors want? On the other, Tesla stans are not the only investors in the fund, and if Schwab believes the pay package is bad for the fund overall, shouldn’t those other investors be protected?

To wit: when adopting its voting choice program, BlackRock explicitly said it wouldn’t just delegate voting decisions to investors; instead, it had a fiduciary obligation to review the range of choices to decide they were all suitable, which is its justification for giving investors only a limited slate of pass through voting options.

But also – and, again, I’m not sure I’m clear on…

So I guess I wasn’t too far off in my previous post about the Pfizer/Novo Nordisk battle for Metsera; in fact, the case I mentioned was cited in Pfizer’s papers (though of course, Metsera disputes its relevance).

Here’s the thing: the legal ability of Metsera to terminate its deal with Pfizer, and enter into a new agreement, entirely depends on the application of the antitrust laws. Novo’s bid is unquestionably higher; the only difficulty is completion risk, given that it presents greater antitrust hurdles than Pfizer’s bid.

So, in one version of the story, there is no chance that regulators would approve the deal with Novo; therefore, it cannot constitute a superior offer. Moreover, Novo’s proposal to pay Metsera cash up front, skipping antitrust review, is itself a violation of the antitrust laws, and so Metsera cannot claim superiority solely due to that feature.

In another version of the story – the version that Metsera tells in its briefing to the Delaware Court of Chancery – Metsera was initially concerned about antitrust risk, which is why it accepted Pfizer’s bid over Novo’s higher one, but Novo has since been consulting with regulators and now is more confident there is…

Back to the bottomless well…

I’ve previously commented on the items up for a shareholder vote next week, Mike Levin and I recorded a Shareholder Primacy podcast about it, and I also spoke about it on Fordham’s Bite Sized Business Law podcast. The proposal that really has my attention is Proposal 3, which would amend Tesla’s 2019 stock compensation plan to do two things: First, to create a reserve of shares for the board to award Elon Musk to replace his 2018 pay package, if the Delaware Supreme Court affirms Chancellor McCormick’s rescission of that package. And second, to authorize Tesla shares to pay other employees, just as part of a normal stock compensation plan. One thing I highlighted on the Shareholder Primacy podcast – and has become a focus of objection by multiple shareholders – is that these two very different proposals are bundled together in a single vote to amend the 2019 compensation plan. That is, if you want to allow Tesla to pay its employees in stock, but you don’t want to restore Elon Musk’s 2018 pay package, there isn’t an option for that; you can have both, or neither.

Is that ……

Here is Novo Nordisk’s bid for Metsera. Because the deal requires prolonged regulatory clearance, Novo will buy nonvoting convertible shares from Metsera, with the cash to be paid as a dividend to Metsera’s shareholders now. Since the convertibles are nonvoting, no regulatory preclearance is required, and cash gets to Metsera right away. Before NN can convert to voting and take over the company, it has to obtain regulatory clearance.

Which sounds fine except for how this looks a lot like what DOJ called an evasion of antitrust law just a few years ago with Toshiba and Canon.

Here, the parties might argue that this structure is not solely to evade preclearance, as it was there – it’s also to give assurances to Metsera in the context of a contested takeover battle, and meet contractual requirements to qualify as a superior offer. 

Maybe that wins the day but it’s why, I guess, Pfizer says this is an “illusory” offer and Metsera may not terminate the current agreement.

If I’m getting this wrong, though, someone let me know so I can edit/delete and bury my shame. (Commenting doesn’t seem to work well here but feel free to email).

Although not much time has passed since I put out updated tables for Nevada and Texas on October 9, I’ve found another four reincorporations to Nevada recently, so I’ve updated these tables below. In the interest of making this readable, I’ve dropped the tables at the bottom and covered the stated rationales at the top.

The four recent firms announcing moves or attempts to move to Nevada include: (1) Oblong, Inc.; (2) HWH International Inc.; (3) Twin Vee PowerCats, Co.; and (4) Digital Brands Group, Inc. In terms of market capitalization, these are all nano-cap firms with market capitalizations under $50 million. Digital Brands Group is larger than the remainder combined with a market capitalization of roughly $38 million. This is a group where cost concerns about franchise taxes may be more material.

The stated rationales cover franchise tax costs, litigation risk environments, transaction planning, books and records actions, and potential D&O savings. As I am reading more of these proxies, I’m also beginning to develop concerns that not every firm reincorporating to Nevada has consulted with a Nevada lawyer about Nevada law. I’ve added some mild finger wagging to try to help.

Before discussing these, I want to drop…

Look, I get why courts are hesitant to allow securities fraud plaintiffs to state a claim based on false pretensions to corporate “ethics.” Courts fear this would cast too wide a net; Matt Levine’s “everything is securities fraud” would become literally true if any kind of corporate misconduct rendered an ethical code “false,” such that the code itself becomes a violation of Section 10(b). And that, as I have previously written, erodes the line between state law governance claims, and federal law fraud claims.

Still, I find it maddening when courts choose to dismiss these kinds of claims on the ground that ethical codes must be puffery because they are required by regulators. For example, the court in Andropolis v. Red Robin Gourmet Burgers, Inc., 505 F. Supp. 2d 662 (D. Colo. 2007), “A company’s essentially mandatory adoption of a code of ethics simply does not imply that all of its directors and officers are following that code of ethics. In fact, the mandatory nature of the adoption of such a code makes clear that all public companies—whether run by crooks or angels—will adopt just such a code.”

May I make the radical suggestion that the fact that…