Corporate Governance

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In Boilermakers Local 154 Retirement Fund v. Chevron Corp., C.A. No. 7220-CD, 2013 WL 3191981 (Del. Ch. June 25, 2013), the Delaware Court of Chancery dismissed facial challenges to the validity of corporate bylaws that restrict the forum where corporate governance litigation may be brought. The court rejected the argument that the bylaws were statutorily invalid because they went beyond the board’s authority under the Delaware General Corporation Law (“DGCL”). The court also rejected the argument that the bylaws were contractually invalid under The Bremen v. Zapata Offshore Co., 407 U.S. 1 (1972), which holds that unreasonable forum selections clauses are unenforceable. This decision undoubtedly will result in the increased promulgation of such bylaws, greatly limiting (if not eliminating) the risk and cost of identical stockholder suits challenging board actions pursued in multiple jurisdictions.Continue Reading Delaware Court of Chancery Upheld Enforceability of Bylaws with Forum Selection Clauses Unilaterally Adopted by Board of Directors

In In re MFW Shareholder Litigation, C.A. No. 6566-CS, 2013 WL 2436341 (Del. Ch. May 29, 2013), the Delaware Court of Chancery analyzed one of the most important open questions of Delaware corporate law: whether it is possible for majority stockholders to structure a going private transaction to avoid “entire fairness” review by the Court and instead have the transaction be reviewed under the more deferential “business judgment” standard. After carefully considering precedent and scholarly commentary on this issue, the Court of Chancery concluded that majority stockholders sponsoring a going private transaction can obtain “business judgment” review of the transaction if:Continue Reading Delaware Chancery Court Establishes Procedural Framework for Obtaining Business Judgment Review for Going Private Transaction Sponsored By Majority Stockholders

In Greb v. Diamond Int’l Corp., 2013 WL 628328 (Cal. Feb. 21, 2013), the California Supreme Court unequivocally and unanimously laid to rest the assertion that dissolved foreign corporations may be sued in California after the time of the statute of limitations provided by the laws under which the foreign corporations were incorporated. In so holding, the California Supreme Court affirmed the California Court of Appeal for the First District’s dismissal of a personal injury claim against a dissolved Delaware corporation, holding that the claim was filed more than three years after dissolution of the corporation in violation of Delaware General Corporation Law Section 278 [blog article here]. In deciding that the California survival statute did not apply to foreign corporations, the Supreme Court resolved a split among California appellate courts on the interpretation of California Corporations Code Section 2010 (“Section 2010”), which governs the winding-up and survival of dissolved corporations.Continue Reading California Supreme Court Resolves Court of Appeal Split, Holding that Section 2010 of the California Corporations Code — California’s “Survival Statute” — Does Not Apply to Foreign Corporations

In Scheenstra v. California Dairies, Inc., No. F062768, ___ Cal. Rptr. 3d ___, 2013 WL 363148 (Cal. App. 5th Dist. Jan. 30, 2013), the California Court of Appeal, Fifth District, affirmed the judgment of the California Superior Court, Tulare County, that the board of directors of defendant California Dairies, Inc. (“Cal Dairies”), a milk marketing and processing cooperative, had exceeded its discretion when it adopted a quota system that breached its contractual obligations to its members and exceed the grant of power in Cal Dairies’ Bylaws. This decision highlights that a board of director’s discretion under the business judgment rule may be limited by contractual obligations the corporation undertakes with the corporation’s shareholders/members.Continue Reading California Court of Appeal Recognizes That Wide Discretion Granted to a Board of Directors Under the Business Judgment Rule May Be Tempered By a Corporation’s Private Contractual Obligations to Its Shareholders/Members

Most public companies use Broadridge for shareholder voting tasks related to their annual meetings. Due to a new interpretive position being taken by the SEC, Broadridge recently informed its clients of a technical change in its online, mobile and telephonic voting platforms that may adversely affect obtaining favorable shareholder votes, particularly from retail investors.Continue Reading Technical Change by Broadridge May Impact Retail Voting at Upcoming Annual Meetings

In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) for adopting regulations required by section 952 of the Reform Act, the Securities and Exchange Commission (the “SEC”) on June 20, 2012 issued a press release and published final rules (Release No. 33-9330) (the “Final Rules”) for compensation committee and compensation adviser independence requirements.Continue Reading SEC Adopts New Rules Calling For Greater Independence Standards For Compensation Committees And Their Advisers

In Hermelin v. K-V Pharmaceutical Co., C.A. No. 6936-VCG, 2012 WL 395826 (Del. Ch. Feb. 7, 2012), the Delaware Court of Chancery considered whether the former chief executive officer (“CEO”) of a pharmaceutical company, against whom several regulatory and criminal actions had been brought, had been successful “on the merits or otherwise” such that he was entitled to mandatory indemnification under Section 145 of the Delaware General Corporation Law (“DGCL”) and/or under his indemnification agreement with the corporation. The court concluded that the CEO, who had pled guilty to certain criminal charges and was subjected to stiff regulatory penalties, had been successful (and thus entitled to indemnification) in only one of four underlying suits at issue. This decision provides guidance to corporate officers regarding their indemnification rights under Delaware law.Continue Reading Delaware Chancery Court Clarifies When Corporate Officers and Directors are Entitled to Mandatory Indemnification Under DGCL § 145

Building on months of momentum in Congress, on March 8, 2012, the U.S. House of Representatives passed the Jumpstart Our Business Startups (JOBS) Act by a bi-partisan vote of 390-23. A similar bill, S. 1933, has been introduced in the Senate and may be voted on this month. The JOBS Act is intended to address the sharp decline in U.S. public offerings during the last decade and to facilitate capital raising by smaller companies. The provisions of the JOBS Act will, if enacted, represent a watershed change to the laws and regulations governing capital raising for private companies and would create a limited, temporary and scaled regulatory compliance pathway, referred to as an “IPO on-ramp,” for companies going public and newly public companies. The IPO on-ramp is designed to reduce the costs and uncertainties of accessing public capital.Continue Reading The March Towards Meaningful Reform for Small and Emerging Growth Companies Moves Forward – House Passes Measures to Open Private Capital Raising and Facilitate an On-Ramp of New IPOs

By William Manierre

As of January 1, 2012, two new subtypes of traditional business corporations may be organized under the California Corporations Code – benefit corporations (§§14600-14631) and flexible purpose corporations (§§2500-3503). Both free their directors from having to manage strictly for the economic benefit of shareholders, enabling them to address social objectives such as preserving the environment, promoting the interests of the underserved and improving human health. Patagonia, the outdoor apparel company, became California’s first benefit corporation on January 3rd. It remains to be seen whether the new corporate forms will be popular entity choices, whether they will be effective in promoting socially desirable goals, and whether unexpected problems will arise for early adopters as a result of their untested nature. While these types of entities are new, and as a result certain tax issues associated with their use may be unclear, there does not appear to be any obvious tax benefit to the use of either structure.Continue Reading California’s New Entities: Benefit Corporations and Flexible Purpose Corporations

On January 25, 2012, the New York Stock Exchange issued an Information Memo to its member organizations stating that effective immediately, brokers may not vote on corporate governance proposals supported by company management without instructions from their clients. NYSE’s rules affect the voting of all shares held in “street name” by NYSE member organizations, regardless of whether the vote is for an issuer listed on the NYSE. This new position follows a recent regulatory and legislative trend disfavoring discretionary broker voting. The notification is a significant departure from historical practice where brokers used their discretion to cast votes on behalf of “street name” shareholders who fail to provide voting instructions with respect to what were previously viewed as “routine” matters. The NYSE’s new position will affect the voting dynamics for company-supported governance proposals, including those that companies may put forward this proxy season to avoid shareholder proposals on similar matters.Continue Reading Public Company Control Alert: NYSE Acts to Further Limit Broker Votes on Specified Corporate Governance Proposals