On March 28, 2024, the Council of the Corporation Law Section of the Delaware State Bar Association (“DSBA”) issued proposed amendments to the Delaware General Corporation Law (“DGCL”), which, if signed into law, would become effective on August 1, 2024. One of the proposed amendment stems from Crispo v. Musk, C.A. No 2022-0666-KSJM, 2023 WL 7154477 (Del. Ch. Oct. 31, 2023), in which a Twitter stockholder alleged that Elon Musk and related entities breached fiduciaries duties as a controller and violated the Twitter/Musk merger agreement (until Elon Musk decided to close the merger anyway). In this case, the Delaware Court of Chancery addressed the enforceability of “lost-premium damages” provisions, which provides that stockholders can recover lost premium damages when buyer is in breach.Continue Reading Lost-Premium Damages under Merger Agreement – Proposed Amendment to the DGCL in Light of Crispo vs. Musk

Is your M&A target a manufacturing company with automated production, a consumer products business with online sales and marketing or an education company that creates content for students? The increasing use and development of artificial intelligence (“AI”) systems and products, particularly generative AI, has created risks for businesses using such tools. AI plays a role in many industries and businesses whose products and services are not themselves AI. In the context of a M&A transaction, it is important to identify and allocate responsibility for these risks. Risks of AI may include: infringement (including through use of training data as well as outputs), confidentiality, IP ownership and protection (including limits on protection of IP generated by AI), regulatory (e.g., privacy, recent AI related legislation), and other risks arising from use such as indemnity obligations or managing contractor use of AI.Continue Reading M&A Transactions: Drafting AI Representations and Warranties for Non-AI Companies

On April 23, 2024, the Federal Trade Commission (the “FTC”) voted 3-2 to issue its final rule (“Final Rule”) banning employers from imposing noncompete clauses on their workers, approving the final rule in a special Open Commission Meeting. Continue Reading FTC Votes to Ban Noncompete Agreements

In Macquarie Infrastructure Corp. v. Moab Partners, No. 22-1165, 2024 WL 1588706 (U.S. Apr. 12, 2024) (“MIC”), the United States Supreme Court (Sotomayor, J.) held unanimously that “pure omissions” in a Securities and Exchange Commission (“SEC”) filing do not support liability under SEC Rule 10b-5(b). The Court ruled that the failure to make a required disclosure can give rise to a Rule 10b-5(b) claim only if the non-disclosure renders affirmative “statements made” misleading. Put differently, if a company elects to speak, it must tell the whole truth (or at least “information necessary to ensure that the [affirmative] statements made are clear and complete”); but a company’s silence on an issue is not securities fraud under Rule 10b-5(b), even if the company is otherwise duty-bound to disclose.Continue Reading Supreme Court Holds “Pure Omissions” Are Not Actionable Under Rule 10b-5(b)

Over the last several years, the Securities and Exchange Commission (“SEC”) has been laser-focused on the use of so-called “off-channel communications” in the financial services industry. On the theory that employees’ use of personal devices and platforms (such as WhatsApp) to communicate about business violates the “books and records” requirements applicable to financial institutions, the regulator has conducted intrusive and extensive investigations. To respond to the SEC, many companies have required employees to have their personal cell phones copied and reviewed. Continue Reading What Private Equity Firms Need to Know About the Ongoing SEC Investigation of “Off-Channel” Communications

Beginning on January 1, 2024, the Corporate Transparency Act (the “CTA”) requires each domestic and foreign entity that qualifies as a “reporting company” to file a Beneficial Ownership Information Report (“BOIR”) with the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”), which discloses information about the reporting company, the reporting company’s beneficial owners, and the individuals who prepared and filed the formation/registration documents of the reporting company with the Secretary of State (if formed/registered on or after January 1, 2024).Continue Reading The Corporate Transparency Act: Which Business Entities are Impacted and What is Required

In Ap-Fonden v. Activision Blizzard, Inc., C.A. No. 2022-1001-KSJM, 2024 WL 863290 (Del. Ch. Feb. 29, 2024), the Delaware Court of Chancery (McCormick, C.) declined to dismiss a claim alleging that the Board of Directors of defendant Activision Blizzard, Inc. (“Activision”) violated Section 251(b) of the Delaware General Corporation Law (the “DGCL”) by approving a draft merger agreement between Activision and Microsoft, Inc. (“Microsoft”) that was not sufficiently final. The Court held that to comply with Section 251(b), the version of a merger agreement the board must consider and approve need not be “execution ready” but must be “essentially complete.” Practitioners should pay close attention to the Court’s holdings here as it may vary from what some consider customary market practice.Continue Reading Delaware Court of Chancery Puts Practitioners on Notice Regarding Voting Formalities Around Merger Agreements

In Palkon v. Maffei, C.A. No. 2023-0449-JTL, 2024 Del. Ch. LEXIS 48 (Del. Ch. Feb. 20, 2024) (Laster, V.C.) the Delaware Court of Chancery considered whether a controlling stockholder’s approval of transactions reincorporating two Delaware corporations in Nevada is subject to entire fairness review where there was a lack of procedural protections that would give the approval of the transactions the patina of arms-length bargaining. Because the stockholders’ derivative complaint contained allegations that (if true) established that the disputed transactions adversely affected investor protections, the Court of Chancery applied the inherently-factual “entire fairness” standard of review and denied the defendants’ motion to dismiss.Continue Reading Delaware Corporations Must Employ Procedural Safeguards When Approving a Reincorporation that Could Benefit a Controlling Stockholder to Avoid Entire Fairness Standard of Review

In Murray v. UBS Securities, LLC, 601 U. S. ____, 2024 WL 478566 (2024), the United States Supreme Court (Sotomayor, J.) held that whistleblowers do not need to prove their employer acted with “retaliatory intent” to be protected under the Sarbanes-Oxley Act. Instead, all whistleblower plaintiffs need to prove is that their protected activity was a “contributing factor” in the employer’s unfavorable personnel action. The decision establishes a lower burden of proof for whistleblowers alleging retaliation and, conversely, reaffirms a greater burden on employers who must demonstrate the absence of retaliation under the heightened “clear and convincing” evidentiary standard in order to prevail.Continue Reading United States Supreme Court Endorses Low Burden of Proof for Whistleblowers

In Cantor Fitzgerald, L.P. v. Ainslie, No. 162, 2023, 2024 WL 315193 (Del. Jan. 29, 2024), the Delaware Supreme Court held enforceable a “forfeiture for competition” provision in a limited partnership agreement, upholding “the freedom of contract” and enforcing “as a matter of fundamental public policy the voluntary agreements of sophisticated parties.” Given Delaware’s recent shift from its typically non-compete friendly stance, the Delaware Supreme Court’s ruling is beneficial for employers.Continue Reading Delaware Supreme Court Enforces Forfeiture for Competition Provision in Partnership Agreement

1. Higher Jurisdictional Thresholds For HSR Filings

On January 22, 2024, the Federal Trade Commission announced revised, higher thresholds for premerger filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). The jurisdictional thresholds are revised annually, based on the change in Gross National Product (GNP).Continue Reading Higher Jurisdictional and Filing Fees Thresholds for HSR Act Premerger Notifications and Interlocking Directorates Announced