Espinoza v. HP

The Delaware Supreme Court issued its ruling yesterday in Espinoza v. Hurd, a case in which the plaintiff — an HP stockholder — invoked the Delaware corporate inspection statute (DGCL section 220) to inspect a report by Covington & Burling to the HP board evaluating claims of sexual harrassment by CEO Mark Hurd. 

The opinion by Justice Jacobs is very narrow and very careful. In evaluating the Court’s decision affirming the denial of the plaintiff stockholder’s access to the Covington report, it is important to keep in mind, as the Court’s opinion did, that documents reflecting the actual facts bearing on the issue of whether Mr. Hurd should have been dismissed for cause had already been turned over to the plaintiff. The Court also noted, as a factual matter, that the Covington report didn’t directly address the “for cause” termination issue – and that had it done so, the case might have come out differently.

The Court of Chancery had reached the same result, but in reliance on a claim of attorney-client privilege. As against stockholders, however, that privilege is qualified, and will be applied, or not, depending on factors like the strength of the stockholder’s underlying claim and whether the information in question is otherwise available. The lower court’s result may well mirror the Supreme Court’s reasoning – particularly as it relates to the availability of key information from other sources. The major difference between the Supreme Court and the Court of Chancery, however, appears to be on the question of which mode of analysis – entitlement under Section 220 (the Delaware corporate inspection statute) and under attorney-client privilege (a common law issue) – should be applied first. The Supreme Court chose the former, believing that one should decide whether the stockholder is entitled to review the document under the inspection statute, before deciding whether a claim of privilege bars that inspection. It’s a logical preference, although it’s not clear that the result would or should have been any different, and the Supreme Court disavows any pronouncement about how the privilege issue would have been resolved.

I’d like to think that after the Disney/Ovitz litigation, the HP board devoted specific attention to whether the circumstances warranted dismissing Mr. Hurd for cause. If they did, and in light of the ultimate outcome in the Disney case, it will be a tough slog for the plaintiffs in the underlying derivative suits to win a claim against the HP directors.

Precatory proxy access proposals

United States Proxy Exchange has published a model proxy access proposal under revised SEC Rule 14a-8. I am struck by the fact that it’s precatory, not mandatory: even though Delaware law (DGCL Section 112) clearly permits stockholders to adopt such a bylaw themselves, the USPE model only calls for a vote to recommend that someone else — namely, the board of directors — do the deed that the stockholders could do for themselves.

Can someone tell me why an organization whose motto (“Populus Constituit”) means “the people decide” (“people” presumably meaning stockholders) is apparently so reluctant to actually let “the people decide?”

I have a suspicion about the reason: USPE is probably savvy enough to think that a mandatory bylaw proposal won’t get nearly as high a vote as a diluted, precatory proposal. But if that’s the case, however, won’t it be reasonable for boards of directors not to take even a majority vote on a precatory proposal seriously, in the belief that if real bullets had been at stake the stockholders themselves wouldn’t have voted for it? Why the reluctance to actually find out how stockholders would vote on whether to use the powers that they clearly have under state law?

Helen S. Balick Chair in Business Bankruptcy Law

Widener Law School has initiated a search to fill a newly created faculty position: the Helen S. Balick Chair in Business Bankruptcy Law. Without further editorializing, here’s the text of the job posting:

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WIDENER UNIVERSITY SCHOOL OF LAW invites applications for the newly established Helen S. Balick Chair in Business Bankruptcy Law. That Chair honors Judge Balick’s pivotal role in the national development of business bankruptcy proceedings, and is intended to stimulate and coordinate constructive debate on issues germane to business bankruptcy law. It is contemplated that the occupant of the Chair will take advantage of her or his prior experience and scholarship, together with proximity to the Delaware bench and bar, to advance the law school’s contributions to the field of business law through its Institute of Delaware Corporate and Business Law. The Helen S. Balick Chair will hold the following responsibilities:

1. Publishing scholarly articles on the subject of business bankruptcy;
2. Facilitating research relating to business bankruptcy issues;
3. Promoting the teaching and training of students, judges, and practicing lawyers in the business bankruptcy field;
4. Developing print and web-based publications on business bankruptcy topics for use by the local and national bench and bar; and
5. Organizing periodic seminars and symposia on current and important issues in business bankruptcy law and practice.

A record of scholarly achievement is required. Although our search is focused on those working in the field of business bankruptcy law, accomplished scholars in other areas involving business law are invited to apply. Women, members of minority groups, and others whose backgrounds will contribute to the diversity of the faculty are encouraged to apply. Nominations for the Chair are also welcome.

Contact: Lawrence A. Hamermesh, Chair, Balick Chair Search Committee, Widener University School of Law, 4601 Concord Pike, Wilmington, Delaware 19803, lahamermesh@widener.edu.

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