This week we highlight a post by the Harvard Law School Forum on Corporate Governance and Financial Regulation by Akin Gump attorneys. This article discussed how Dell has been planning to eliminate its tracking stock (DVMT) through a merger with a wholly-owned subsidiary that would effectively convert the outstanding DVMT shares into a new class of publicly traded Dell common stock, and the reluctance of many DVMT stockholders to support the proposed exchange.
Akin Gump recently covered two important rulings made in Delaware courts in December that provide critical guidance to corporations and their boards. On December 14, 2007, the Delaware Supreme Court issued its opinion in Dell, Inc. v. Magnetar Global Event Driven Master Fund, Ltd., Case No. 565, 2016, the latest in a series of noteworthy “appraisal arbitrage” cases that made their way through Delaware Chancery Courts in 2017. For the second time in 2017, the court reversed a Chancery Court’s decision to assign little or no weight to deal price in appraisal cases, leaving some confusion as to whether or not deal price should be the default standard absent mitigating factors. Learn more by reading the client alert here.
In a highly anticipated opinion significantly narrowing the first prong of the patent venue statute, 28 U.S.C. § 1400(b), the Supreme Court in TC Heartland LLC v. Kraft Foods Group Brands LLC unanimously held that a domestic corporation sued for patent infringement “resides” only in its “State of incorporation.” The opinion thus wipes away the Federal Circuit’s longstanding rule, established in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), that a domestic corporation’s residence includes all judicial districts in which the corporation is subject to personal jurisdiction.
The fate of “loser plays” fee-shifting bylaw/charter provisions has yet to be finally determined. As previously mentioned in a blog here, fee-shifting language has, however, shown up in a number of ways, both with respect to Delaware and non-Delaware entities, although caution has been urged when considering the adoption of such a provision. After the Delaware Legislature punted the issue to its 2015 session, all eyes have been on Delaware to see what action is recommended and eventually taken there.
As expected, both sides of the argument have weighed heavily into the Delaware battle. Large pension funds as well as the Council of Institutional Investors, among others, have urged the Delaware Legislature to restrict the use of fee-shifting provisions while others, including the U.S. Chamber of Commerce and several large corporations, have advocated in favor of such provisions.
As noted in a prior blog here, some companies have recently adopted fee-shifting provisions (i.e., language providing that a suing stockholder must pay the corporation’s legal fees and expenses if the stockholder does not obtain a judgment that substantially achieves the full remedy sought). Specifically, such provisions have now shown up in the bylaws of some Delaware and non-Delaware corporations, and at least two corporations, Alibaba Group Holding Limited (a Cayman Islands company) and Smart & Final Stores, Inc., have gone public with variations of fee-shifting bylaws in place.
To date, the Securities and Exchange Commission (SEC) has not taken any action with regard to these provisions, even though, in the Alibaba offering, the existence of the fee-shifting provision was arguably not even adequately disclosed. Some pressure is, however, being brought to bear on the SEC. For example, the chair of the SEC was recently asked by Senator Richard Blumenthal (D-CT) to take action. In his correspondence to the SEC, Senator Blumenthal states that the “potential ramifications” of the ATP decision allowing fee-shifting provisions are “immense,” and he goes on to elaborate on those potential ramifications. Senator Blumenthal then urges the SEC to refuse to permit registration statements to move forward for any company that includes such provisions.
As previously discussed here, the Delaware legislature postponed, until it reconvenes in 2015, its consideration of legislation aimed at limiting enforceability of fee-shifting bylaw provisions to non-stock corporations. Despite the advice of most counsel who have publicly written or spoken on the topic to exercise caution in the adoption of fee-shifting bylaw provisions, a few small U.S. companies (some with active disputes) have, in fact, adopted such provisions and Delaware courts have yet to reach the merits of any case calling into question the adoption of such provisions.
The AG Deal Diary team found “The Siren Song of Unlimited Contractual Freedom,” authored by Leo Strine (Chief Justice of Delaware's Supreme Court) and Travis Laster (Vice Chancellor of the Court of Chancery), to be particularly interesting.
In it, the judges explore the contractual freedom accorded to alternative entities (including LLCs and LPs). The judges identify some of the issues that arise in the negotiations between sponsors and investors using an alternative entity, including the lack of arms-length bargaining power, high transaction costs and unpredictability. They then propose a balanced framework for future structures, including standard fiduciary defaults.
If you find time on the long weekend, it is worth a read. Wishing all of our readers a safe and restful holiday weekend. See you in September.
This is a reminder that the changes to the Delaware General Corporation Law, which we discussed in more detail here, went into effect on August 1, 2014.
In addition, a change to the law governing the statute of limitations also went into effect on August 1. Specifically, Title 10 of the Delaware Code was amended by adding a new Section 8106(c), which allows parties to agree to an extension of the statute of limitations for up to 20 years without having to use a sealed instrument, as long as the written contract involves at least $100,000.