In Skilling v. United States, 2010 WL 2518587 (U.S. Jun. 24, 2010), the United States Supreme Court significantly limited the scope of a criminal statute used frequently by federal prosecutors to criminalize a wide range of behavior by business executives and public officials. The Court held that 18 U.S.C. § 1346, which makes it a federal crime to deprive another of the “intangible right of honest services,” may only be used by prosecutors in cases where the defendant has participated in conduct involving bribery or kickbacks. The justices agreed unanimously that the statute does not apply to cases where the defendant’s conduct merely entails a conflict of interest, self-dealing, breaches of fiduciary duty or unwise business decisions, and that does not include bribery or kickbacks. The Skilling case ends the long running debate between those who perceived this “statute of last resort” as a necessary tool for prosecutors to use in fighting malfeasance by corporate and public officials, and those who contended ambitious and/or unwise prosecutors were abusing the statute to target persons whose behavior may be unpopular, unethical or subject to second-guessing, but was not clearly criminal.
 Continue Reading United States Supreme Court Limits Scope Of Federal Criminal “Honest Services” Fraud Statute

In In re Cutera Securities Litigation, 2010 WL 2595281 (9th Cir. June 30, 2010), the United States Court of Appeals for the Ninth Circuit concluded that the Private Securities Litigation Reform Act’s (“Reform Act”) safe harbor provision, 15 U.S.C. § 78u-5, protects forward-looking statements accompanied by meaningful cautionary language” andforward-looking statements in the absence of meaningful cautionary language not made with “actualknowledge” that the statement was false or materially misleading when made. This decision greatly clarifies the law in the Ninth Circuit. Previously, in dicta, a Ninth Circuit court had suggested that if plaintiffs could prove a sufficiently strong inference that a forward-looking statement made with actual knowledge of its falsity, such a statement would not protected by the safe harbor provision of the Reform Act even if accompanied by meaningful cautionary language. In re Cutera puts this notion to rest. A forward-looking statement that is either accompanied by meaningful cautionary language or is made without actual knowledge of its falsity may not form the basis for a federal securities fraud claim.
 Continue Reading Ninth Circuit Holds That Safe Harbor Provision Of The Reform Act Applies To Forward-Looking Statements Accompanied By Cautionary Language And Forward-Looking Statements Made Without Actual Knowledge Of Falsity

In In re CNX Gas Corp. Shareholders Litigation, C.A. No. 5377-VCL, 2010 WL 2291842 (Del. Ch. May 25, 2010) (Laster, V.C.), the Delaware Court of Chancery held that minority stockholders established a likelihood of success on the merits of their claim challenging the “entire fairness” of a tender offer by a controlling stockholder intended to “freeze-out” minority stockholders.  The court held that the transaction was not entitled to the less onerous “business judgment” standard of review — which would have applied only if the transaction was (1) negotiated and recommended by a special committee of independent directors and (2) conditioned on the affirmative tender of a majority of the minority shares— because, inter alia, the company’s special committee did not recommend the deal. The court nevertheless declined to enjoin the tender offer, holding that the minority stockholders did not demonstrate a risk of irreparable harm. In this decision, Vice Chancellor Laster applied a “unified standard” to controlling stockholder “freeze-out” transactions that differed from the standard applied in other Chancery Court decisions, urging the Delaware Supreme Court to resolve the conflicting approaches.
 Continue Reading Delaware Chancery Court Applies “Unified Standard” For Reviewing Controlling Stockholder Freeze-Outs; Certifies Issue For Interlocutory Appeal To Delaware Supreme Court

In United States v. Deloitte LLP, No. 09-5171, 2010 WL 2572965 (D.C. Cir. Jun. 29, 2010), the United States Court of Appeals for the District of Columbia Circuit held, among other things, that the provision of documents containing attorney work product to a company’s independent auditor does not waive the protection of the work product doctrine. This decision, on a matter of first impression, allows companies to deliver work product to outside accountants that might be relevant to their audit of the company’s financial statements without fear that the materials will automatically be discoverable in subsequent litigation.
 Continue Reading District Of Columbia Circuit Holds That Providing Attorney Work Product To Independent Auditors Does Not Per Se Waive The Protection Of The Work Product Doctrine

In Solis v. Tennessee Commerce Bancorp, Inc., a three-judge panel of the Sixth Circuit recently reversed a lower court’s decision to enforce a preliminary order by the Department of Labor (“DOL” or “Department”) to reinstate an alleged whistleblower under the Sarbanes-Oxley Act of 2002 (“SOX”). The court avoided determining whether it had authority under SOX to enforce preliminary orders, instead deciding the case based on the “balance of harms” test that applies in all cases seeking preliminary injunctive relief.
 Continue Reading Sixth Circuit Skirts Jurisdictional Issue in Denying Reinstatement to Alleged SOX Whistleblower