Corporate Securities Law Blog

The American Recovery and Reinvestment Act of 2009 ("ARRA"), which President Obama signed into law on February 17, 2009, created a federal subsidy of the premiums payable by certain terminated employees for continuation coverage provided under employer-sponsored group health plans pursuant to the requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (also known as "COBRA"). The premium subsidy and new notification requirements under COBRA that apply to employers and plan administrators as a result of this legislation are summarized below.

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Tax Act of 2009 ("ARRTA").  ARRTA contains significant potential Federal income tax relief for businesses.  Some of the more important provisions are summarized in the remainder of this article.

In Comedy Club v. Improv West Associates the Ninth Circuit held that an in-term covenant not to compete (a covenant that continues during the term of a contract or relationship) in a Trademark License agreement was overbroad, but enforced a more limited version of the covenant.  The Court held that while there is no exception in California's law against non-competition agreements for in-term covenants not to compete, they may be valid, at least in the context of a "franchise like" agreement.

In Pfeffer v. Redstone, 2009 WL 188887 (Del. Jan. 23, 2009), the Delaware Supreme Court confirmed a Chancery Court holding that under Delaware law the heightened scrutiny of “entire fairness “ is not imposed on controlling shareholders, that make non-coercive tender or exchange offers to minority shareholders.  The case arose out of the Viacom's spin off of Blockbuster.  The plaintiffs alleged that Sumner Redstone and the other directors of Viacom and Blockbuster (as well as parent companies) breached duties of disclosure, care and loyalty in connection with a tender offer and related special dividend.  The court rejected the application of “entire fairness” scrutiny to defendants’ Rule 12(b)(6) motion due to the non-coercive nature of Viacom’s proposed tender offer.  The court went on to find that the complaint failed to adequately plead disclosure violations, despite actual misstatements and omissions by defendants, because plaintiffs failed to adequately plead the materiality of those misstatements and omissions.

The Delaware Supreme Court's recent decision in Gantler v. Stephens, No. 132, 2008 (January 27, 2009), confirms that officers of Delaware corporations have the same fiduciary duties of loyalty and care as directors. This has important implications for non-director officers of Delaware corporations, in particular because, as the Court points out in a footnote, there is at present no statutory authorization for the exculpation of officers for monetary liability for breach of their duty of care. The Court also holds that a statutorily required shareholder vote, such as for the approval of a merger, does not constitute ratification of breaches of fiduciary duties. Delaware companies now need to revisit their internal processes and indemnification and insurance arrangements to be sure that their corporate officers are protected.

In Zucco Partners, LLC v. Digimarc Corp., 2009 WL 311070 (9th Cir. Feb. 10, 2009), the United States Court of Appeals for the Ninth Circuit reaffirmed that when pleading a claim for securities fraud under the Private Securities Litigation Reform Act of 1995 (the “Reform Act”), plaintiffs are bound by prior Ninth Circuit authority that requires them to plead particularized facts giving rise to a strong inference that defendants knew, or were deliberately reckless in not knowing, that their statements were false when made.  The viability of the Ninth Circuit’s particularity requirement has been the subject of much debate since the Supreme Court’s decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007).  In Tellabs, the Court held that, in order to survive dismissal, plaintiffs must plead an inference of scienter that is “cogent and at least as compelling as any opposing inference of nonfraudulent intent.”  [See blog article on Tellabs.]  In South Ferry LP, No. 2 v. Killinger, 542 F.3d 776 (9th Cir. 2008), a panel of the Ninth Circuit suggested in dicta that Tellabs’ holistic analysis may have superseded the Ninth Circuit’s particularity requirement.  [See blog article on South Ferry.]  That same term, however, two other panels confirmed that the earlier cases governing scienter were controlling.  See Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049 (9th Cir. 2008) [blog article on Metzler]; Glazer Capital Management, LP v. Magistri, 549 F.3d 736 (9th Cir. 2008) [blog article on Glazer].  Now, with its most thorough decision to date on this issue, the Zucco court appears to have definitively resolved this question in favor of particularity, holding clearly that “Tellabs does not materially alter the particularity requirements for scienter claims established in our previous decisions.”