Corporate Securities Law Blog

On Wednesday, March 25, 2009, the Delaware Supreme Court issued an opinion reversing the Chancery Court's decision in Ryan v. Lyondell Chemical Co., 2008 WL 2923427 (Del. Ch. July 29, 2008). We posted about the Chancery Court decision on the Corporate and Securities Law Blog here. In reversing the Chancery Court decision, the Delaware Supreme Court granted summary judgment in favor of Lyondell’s directors and in doing so held that a board of directors determination to adopt a “wait and see” approach in response to an unsolicited takeover bid was subject to the business judgment and that Revlon duties did not apply until the Board began negotiating with the bidder. This case provides important guidance for directors of Delaware corporations in discharging their fiduciary duties in connection with company sales.

An election under section 338(h)(10) of the Internal Revenue Code is often used to characterize the sale of stock of an S corporation as a deemed sale of all of the corporation's assets. A proper federal election under section 338 will be deemed a proper election for California tax purposes, unless the taxpayer separately elects otherwise. The election will trigger corporate-level tax at the current rate of 1.5% on the hypothetical sale of assets arising from the election.

Sweeping changes to the obligations of providers, health plans and their service providers ("business associates") under HIPAA privacy and security rules were included in the American Recovery and Reinvestment Act of 2009. Previously only health plans and providers were covered under HIPAA and subject to the criminal and civil monetary penalties. Effective February 17, 2010, business associates are now directly covered. These new requirements will require amendments to all business associate agreements. Business associates must also draft policies and procedures to implement their obligations under the privacy and security standards. Immediate steps must be taken to prepare for implementation.

In Rubke v. Capitol Bancorp Ltd., 2009 WL 69278 (9th Cir. Jan. 13, 2009), the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of a class action complaint alleging violations of Section 11 of the Securities Act of 1933 and Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 through materially misleading statements and omissions in connection with a tender offer. The Ninth Circuit carefully considered each alleged misleading statement and omission, ultimately determining that none was actionable. The decision in Rubke highlights the types of statements and omissions that would not be viewed as materially misleading when made by a corporation in connection with a tender offer.