Section 141(k) Mandatory Prohibition of For-Cause Removal of a Declassified Board

In a blog post written for the Delaware Journal of Corporate Law, DJCL Staff Member Kendra Rodwell discusses the Delaware Court of Chancery ruling that Delaware corporations with provisions in their corporation’s bylaws and charters directly conflicting with Delaware law would be stuck down.  In In re Vaalco Energy Shareholder Litigation, the Court of Chancery was asked to determine whether the Vaalco Energy’s provision that made directors of a non-classified board removable only for cause was valid in light of DJCL section 141(k) that required non-classified boards to be removed without cause.

Read more at http://www.djcl.org/blog.

One of These Things is Not Like the Other: Student Bar Loan Distinguished from Traditionally Nondischargeable Student Loan Debt

In a blog post written for the Delaware Journal of Corporate Law, DJCL Articles Editor Kaitlin E. Maloney analyzes a recent decision from the U.S. Bankruptcy Court for the Eastern District of New York.  In Campbell v. Citibank, the court distinguished a law school graduate’s bar loan from other nondischargeable student loan debt, and ruled that the bar loan was dischargeable in bankruptcy.  Though some believe that this will discourage lending institutions from extending bar loans to law students, Kaitlin argues that is unlikely due to the relatively low risk these loans present to lenders.

Read more at http://www.djcl.org/blog.

Applying Omnicare and Protecting Investors Under § 11 of the ‘33 Act

In a blog post written for the Delaware Journal of Corporate Law, DJCL Senior Staff Member Nicholas D. Picollelli, Jr. discusses how the Second Circuit’s recent decision in Tongue v. Sanofi is the most recent attempt to apply the U.S. Supreme Court’s Omnicare standard regarding § 11 of the Securities Act of 1933. Under specific circumstances, Omnicare expands § 11 liability to include omissions of fact relating to statements of opinion in a registration statement. The Omnicare standard and the Second Circuit’s application present issuers with a unique choice – costly drafting fees or potentially extravagant litigation.

Read more at http://www.djcl.org/blog.

EZCorp Deems Entire Fairness Standard Appropriate When Controlling Shareholder Receives Non-Ratable Benefits

In In re EZCorp, the Court of Chancery grappled with the appropriate standard of review for business transactions between a company and a controlling shareholder.  In a blog post written for the Delaware Journal of Corporate Law, DJCL Senior Staff member Helene Episcopo explains that the court  determined that the entire fairness standard of review was appropriate, and that it declined to apply Aronson beyond the demand futility context.

Read more at http://www.djcl.org/blog.

In Re Trulia, Inc. Stockholder Litigation: End to Disclosure Settlements?

In a blog post written for the Delaware Journal of Corporate Law, DJCL Senior Staff Member Erin Rogers discusses the Court of Chancery’s recent decision in In Re Trulia, Inc. Stockholder Litigation, and the effect decision will have on the future quantity of disclosure settlements and merger related litigation.  She argues that while the heightened standard for disclosure settlements set out in Trulia will certainly decrease the number of disclosure settlements and decrease the amount of merger related litigation, the extent of the decrease will depend on a number of factors discussed in the article.

Read more at http://www.djcl.org/blog.

The Impact of Obergefell on Employee Benefits in Delaware

On June 26, 2015, the landmark U.S. Supreme Court case Obergefell legalized same-sex marriage, but the impact of the decision on businesses and employee benefits has yet to be fully understood. In a blog post written for the Delaware Journal of Corporate Law, 3L Liz Miosi analyzes the implications of Obergefell on two Delaware businesses and how the decision will likely impact their employee benefits plans.

Read more at http://www.djcl.org/blog.

Puerto Rican Debt Crisis: A Proposal to Amend Federal Bankruptcy Law

Puerto Rico owes approximately 72 billion dollars to its creditors. Although the island is a United States territory, it is not considered a state for purposes of filing for Chapter 9 municipal bankruptcy. Although there have been several proposals to try to help Puerto Rico climb out of its debt, without amending the federal bankruptcy law to include Puerto Rico as a state for purposes of Chapter 9, the United States territory will collapse. In a blog written for the Delaware Journal of Corporate Law, DJCL Copy Editor Ashley DiLiberto argues that Puerto Rico deserves equal protection of the laws enjoyed by the several states; to hold otherwise reeks of discrimination and bias to our island brothers and sisters.

Read more at http://www.djcl.org/blog.

2016 Ruby R. Vale Corporate Moot Court Competition

Nugent

From Thursday March 10, 2016 to Sunday March 13, 2016, the Widener University Delaware Law School Moot Court Honor Society hosted the 28th Annual Ruby R. Vale Interscholastic Corporate Competition.  The competition is named for Ruby R. Vale, who lived in Milford, Delaware and practiced law in Philadelphia, specializing in corporation, banking, and insurance law.  It introduces participants to the cutting edge of corporate law, and as Delaware’s only law school, Delaware Law School is in a unique position to draw on the resources and experience of the distinguished Delaware corporate legal community.

Professor Lawrence Hamermesh authored this year’s competition problem, which focused on stockholder appraisal rights and the related, recent cases of Merion Capital LP v. BMC Software, Inc., In re Appraisal of Ancestry.com, and In re Appraisal of Dell Inc.  The issues centered around the question of the appropriate interpretation of the statutory term “stockholder of record,” and its effect on so-called “appraisal arbitrage,” in which purchasers of shares after the record date for voting on a merger seek judicial appraisal of their shares.  Eighteen teams from seventeen schools participated in the competition, which is the only corporate moot court competition in the country. The Ohio State University’s Moritz College of Law took home this year’s title, edging out a team from Mercer University School of Law before a panel comprised of Delaware Supreme Court Justice James T. Vaughn, Jr., Vice Chancellor Sam Glasscock of the Delaware Court of Chancery, and former Delaware Supreme Court Justice Jack B. Jacobs.  The winning team comprised of Patrick Schlembach and Susan Restrepo, who was also the Best Oral Advocate.   Marquette University School of Law won the Best Brief Award.

An integral part of the competition is the Distinguished Scholar Lecture.  The 2016 Distinguished Scholar was Eileen T. Nugent, Esquire, the co-head of Skadden, Arps, Slate, Meagher & Flom’s Global Transactions Practice.  As a mergers and acquisitions partner in the firm’s New York office, she has worked on a wide range of some of the most significant public and private M&A transactions since the mid 1980s.  Ms. Nugent is also the co-author of a well-known M&A treatise and is an adjunct professor at University of Virginia School of Law.

In her lecture entitled Living a Law School Exam Question: Issues Faced by a Practitioner in Applying Selected Provisions of Delaware Jurisprudence in Real Time, Ms. Nugent addressed the need for M&A practitioners to keep abreast of Delaware cases due to their “real time” application in structuring deal transactions.  Specifically, Ms. Nugent discussed the enforceability of fraud and non-reliance provisions as a remedy in acquisition agreements, and reviewed recent case law developments affecting disclosure-based settlements of stockholder class actions.  Ms. Nugent discussed how recent cases in those realms have shaped how buyers and sellers approach the issues when drafting merger agreements and proxy statements, and the perhaps peculiar outcomes they have created going forward, including the possibility that planners will have an incentive to withhold more important information so that it can justify settlement of litigation challenging the deal.

Affordable Care Act Creates Incentives for Small Businesses to Provide Health Benefits

In a blog post for the Delaware Journal of Corporate Law, DJCL Staff Member Samantha Darrow Osborne discusses how the Affordable Care Act’s recent substantial increase in individual penalties has created an incentive for small businesses to partake in offering health benefits to their employees.  She argues that small businesses that offer coverage will receive tax advantages and a generous tax credit, and will attract and retain more qualified employees.

Read more at http://www.djcl.org/blog.

“Adding Ethics to the Fiduciary Relationship”

Rick Alexander

This year’s second installment of the Ruby R. Vale Distinguished Speaker Series was held on February 18, 2016 and featured Frederick H. Alexander. Mr. Alexander is the Head of Legal Policy at B Lab and Counsel to Morris, Nichols, Arsht & Tunnell LLP. His lecture, “Adding Ethics to the Fiduciary Relationship,” discussed the importance of developing rules throughout the governance system that allow corporations to act in a responsible and ethical manner.

It is well established that fiduciaries manage the corporation and act on its behalf for the sole benefit of its investors. To remedy the potential agency problem that may stem from this fiduciary relationship, fiduciary duties were created to mitigate the risk of misappropriation of corporate assets. As Mr. Alexander described it, however, fiduciary duties protect only stockholder interests, while ignoring the interests of all other stakeholders in the governance system, such as employees, customers, and the community. Further, Delaware jurisprudence reinforces this notion, especially by imposing a Revlon duty on directors to perform their fiduciary duties in the service of maximizing the corporation’s sale price. Sale price thus remains the most widely accepted measurement of a corporation’s success.

This creates a “shareholder primacy” paradigm where directors’ only responsibility is to increase profits for the stockholders’ benefit. As a result, any corporate action that benefits employees, customers, or the community must first benefit stockholders to be a valid use of the corporation’s assets. The shareholder primacy paradigm creates several problems, not only for society, but also for investors. First, shareholder primacy restricts management’s ability to pursue a variety of commitments on behalf of the corporation. It is evident that any commitment entered into by the corporation will be contingent upon creating value for shareholders. This creates a trust problem within a corporation, either between the employer and its employees or between the current stockholders and future stockholders. Second, primacy causes negative externalities to be passed from one company to another, which affects universal investors’ diversified interests in the general market. These two problems unite to form the overall problem with shareholder primacy: management’s goal is to obtain as much value as possible, but that is not always the best way to measure a corporation’s worth. Instead, Mr. Alexander argued that a corporation should be measured by its shared real value created when a corporation takes on certain commitments, thereby creating trusting relationships with stakeholders other than just stockholders.

Traditionally, the Delaware General Corporation Law (“DGCL”) mandated that shareholder-elected directors manage the company carefully and loyally pursuant to their fiduciary duties and for the sole purpose of creating shareholder value. However, the DGCL now provides an option for corporations to elect to be a benefit corporation. In addition to creating value for its shareholders, a benefit corporation may also consider the interests of all stakeholders. Under DGCL § 362, a Delaware benefit corporation must operate in a “responsible and sustainable manner.” A “public benefit” is a “positive effect (or reduction of negative effects) on one or more categories of persons, entities, communities or interests (other than stockholders in their capacities as stockholders) including, but not limited to, an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.” Today, thirty-two states have adopted provisions allowing for the option to become a benefit corporation, thus creating a new path for investment channels to follow.

In conclusion, Mr. Alexander emphasized that there is more to be done to encourage corporations to act in a socially responsible way. Because becoming a benefit corporation is still optional, corporations should adopt a set of fiduciary laws that recognize the interests of all stakeholder values and not just stockholder interests. In addition, investors should cease seeking short-term gains and instead invest private capital in avenues that result in positive social gains that benefit all stakeholders. Overall, Mr. Alexander urged that corporations should “stop competing to take and start competing to make.”