In In re GGP Stockholder Litigation, 2022 WL 2815820 (Del. July 19, 2022), an M&A transaction split the merger consideration into two parts: an oversized pre-closing dividend totaling over $9 billion, followed by a nominal post-closing payment of about 31 cents a share. In this case, a majority of the Delaware Supreme Court concluded that divvying up merger consideration in this manner does not defeat a dissenting stockholder’s appraisal rights. The majority held that a pre-closing dividend (at least one dependent upon the consummation of the transaction) is part and parcel of the total “merger consideration,” and therefore will be taken into account when determining the fair value of a stockholder’s shares prior to the transaction. However, the Court added, the proxy materials must be clear that the merger consideration subject to an appraisal action includes not only the post-closing per share payment, but also any pre-closing dividend—no matter how large it might be. Otherwise, a stockholder could (incorrectly) believe that the fair value of her shares will be appraised only after deducting the padded dividend from the value of the company, thus depleting the fair value of her shares and making the pursuit of an appraisal action highly unsavory. Here, the Court held that the proxy statement was less than clear in this regard, and upheld plaintiffs’ breach of fiduciary duty claims on a motion to dismiss. In reaching its decision, the Delaware Supreme Court provides important guidance to practitioners structuring deals with an eye towards diminishing the usual deluge of appraisal actions—shoehorning the lion’s share of merger compensation into a pre-closing dividend will not do the trick, nor can the accompanying proxy materials make that suggestion (no matter how subtly or perhaps unintentionally).

Continue Reading Delaware Supreme Court Holds Novel Pre-Closing Dividend Transaction Structure Does Not Thwart Appraisal Remedy

A recent decision by the U.S. Court of Appeals for the Second Circuit has implications for whistleblowers under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act” or “The Act”). In Hong v. SEC, No. 21-529 (2d Cir. July 21, 2022), the Court held that a person who provides the Securities and Exchange Commission (“SEC”) with information about potential securities laws violations is entitled to receive a whistleblower award under Section 21F of the Securities Exchange Act (15 U.S.C. § 78u-6)if the SEC itself brings a qualifying action, but not when the SEC shares the whistleblower’s information to other agencies who then bring an action in partial reliance upon it. The decision sets definitive limits on the reach of the Dodd-Frank Act’s whistleblower incentives and may affect the calculus for individuals considering whether to risk their personal and professional careers to come forward with information of wrongdoing.

Continue Reading Second Circuit Limits Scope of SEC Whistleblower Incentives

In SEC v. Rio Tinto PLC, No. 21-2042, 2022 U.S. App. LEXIS 19577 (2d Cir. July 15, 2022) (Jacobs, J.), the United States Court of Appeals for the Second Circuit declined to impose “scheme liability” under subsections (a) and (c) of the Securities & Exchange Commission Rule 10b-5 (17 C.F.R. § 240.10b-5) where the challenged conduct amounted solely to the making of a material misstatement or omission. The Rio Tinto decision is noteworthy because it limits the U.S. Supreme Court’s decision in Lorenzo v. SEC, 139 S. Ct. 1094 (2019) (blog article here), which potentially expanded “scheme liability” to defendants who may have been tangentially involved in the issuance of a misleading statement.

Continue Reading Second Circuit Declines to Allow SEC Rule 10b-5 Claim for “Scheme Liability” to Proceed Where the Alleged Misconduct Amounted Only to the Making of Material Misstatements or Omissions 

Federal agencies aggressively pursued enforcement actions in June. At the same time, state and federal regulators continued to recognize the importance of blockchain industry regulation by putting forth significant policy proposals, including proposals that impact cryptocurrency miners, 401k plans, and more.

Continue Reading June 2022 Crypto Enforcement Actions and Regulatory Guidance Roundup

The Department of Justice recently filed a complaint to prevent Booz Allen Hamilton’s $440 million acquisition of “agile and innovative” competitor EverWatch, Inc.[1] Among the notable aspects of the complaint is its definition of the relevant market as a single NSA contract and its assertion that the merger agreement itself constituted a violation of Section 1 of the Sherman Act.

Continue Reading DOJ Sues to Block Merger Between Booz Allen Hamilton and EverWatch Based on Antitrust Concerns Relating to Single-Contract Market

In Fowler v. Golden Pacific Bancorp, Inc., 2022 Cal. App. LEXIS 548 (Cal. App. June 23, 2022), the California Court of Appeal, Third Appellate District (Krause, J.), reinforced the near absolute right of directors of a California corporation to inspect their company’s books and records pursuant to Section 1602 of the California Corporations Code. The Court clarified that these rights hold even when the director has a conflict of interest or is involved in litigation with the corporation. Generally, directors may be denied access to books and records only in the most extreme cases, such as when evidence shows the director intends to abuse his or her rights under Section 1602 to violate fiduciary duties or commit a tort against the company.

Continue Reading California Court of Appeal Reaffirms Broad Inspection Rights Accorded to Directors Under Section 1602 of the California Corporations Code

Since President Biden’s July 2021 direction to the Federal Trade Commission (“FTC”) to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility,” the FTC has ratcheted up its scrutiny of and investigations into non-compete agreements and other restrictive covenants. Now, the FTC has expanded beyond post-employment restrictive covenants to tackle “sale of business” non-competes. Most recently, the FTC voted in favor of a deal-changing proposed order against ARKO Corp. related to its 2021 acquisition of sixty fuel outlets from Corrigan Oil Company.

Continue Reading Buyer (and Seller) Beware: The FTC Is Coming for Your M&A Non-Competes

Technology solutions for the transfer, storage and management of electronic files and other digital content is vitally important for organizations to meet compliance obligations, ensure adequate data security and to administer company data generally.  Companies that provide solutions in this space – including in managed file transfer (MFT), file transfer protocol (FTP), cloud content storage and management and file sync-share, among others – are therefore very attractive targets for buyers in the “software-as-a-service” space.  Given that these businesses are charged with safeguarding their client’s precious data, however, there are unique issues in doing deals involving these types of businesses, which both potential buyers and sellers must be aware of.

Continue Reading Buying and Selling a File Management, Storage and Transfer Business

In May, we saw a slower month for crypto enforcement actions by state and federal regulators. See our March 2022 Crypto Enforcement Actions Roundup blog here where we discuss the regulatory guidance and jurisdiction of federal and state agencies to enforce these matters.

Continue Reading May 2022 Crypto Enforcement Actions and Regulatory Guidance Roundup

In Sirott v. Superior Court, 2022 Cal. App. LEXIS 389 (Cal. App. May 5, 2022), the First Appellate District of the California Court of Appeal (Humes, J.) analyzed the ownership requirements a plaintiff must satisfy to pursue derivative claims on behalf of a limited liability company.  Under California Corporations Code § 17709.02 (“Section 17709.02”), a putative derivative plaintiff must show both “contemporaneous” and “continuous” ownership to proceed with a derivative lawsuit.  Subject to certain statutorily defined exceptions, the contemporaneous ownership prerequisite requires the plaintiff to plead that it was a member of the limited liability company at the time of the transaction or any part of the transaction of which the plaintiff complains took place.  The continuous ownership requirement, in turn, obligates the plaintiff to remain a member of the limited liability company through the conclusion of the litigation.  In Sirott, the plaintiff’s derivative claims were properly ordered dismissed because the plaintiff lacked standing after it lost its interest in the limited liability company—i.e., the real party in interest with respect to the derivative claims.    

Continue Reading California Court of Appeal Clarifies that a Derivative Plaintiff Must Demonstrate Both “Contemporaneous” and “Continuous” Ownership to Maintain a Derivative Suit on Behalf of a Limited Liability Company