Month: September 2014

Oklahoma Takes a Stand a Stand in the Battle Over Derivative Fee-Shifting

, and Posted on

Back in May we discussed ATP Tour, Inc. v. Deutscher Tennis Bund a seminal Delaware Supreme Court case that upheld a non-stock corporation’s “loser pays” fee-shifting bylaw.  ATP Tour held that where a Delaware corporation adopts a fee-shifting bylaw, it can recover its fees and costs from any shareholder that brings a derivative lawsuit and loses.  Many commentators have suggested the case would effectively kill derivative actions in Delaware and indeed, since the time of that decision, the Delaware Corporation Law Council has proposed amendments to the Delaware General Corporation Law that would limit its applicability to only non-stock corporations.

Last week the Oklahoma State Legislature went a step further than ATP Tour and amended the Oklahoma General Corporation Act to specifically require fee-shifting for all derivative lawsuits brought in the state, whether against an Oklahoma corporation or not.  Unlike the fee provision in ATP Tour, however, the law also affords derivative plaintiffs the right to recover their fees and costs should they win final judgment.

The difference is likely substantial.  For while the law will potentially chill unmeritorious derivative actions, also known as “strike suits,” it could also provide an incentive for derivative plaintiffs with strong claims.  Where shareholders use the “tools at hand”—including books and records inspection requests—to carefully vet their claims before filing, the promise of a fee recovery could encourage shareholder plaintiffs to bring claims they otherwise might not.

Consider:  in the typical derivative lawsuit, the shareholder plaintiff stands to gain nothing tangible if he or she wins.  Because he or she is suing on behalf of the corporation, any recovery will inure to the corporation itself.   Thus, under the old regime, even if a derivative lawsuit was successful, the plaintiff would receive, at most, any resulting increase in the value of his or her company stock.  Under the new statute, that same plaintiff could stand to receive the not-insubstantial costs of his or her efforts.

Disclosing Merger Negotiations: The Eleventh Circuit Weighs In

Posted on

Corporate merger negotiations are typically conducted under a veil of secrecy, with public disclosure withheld until the end when a definitive agreement has been signed. The fear is that premature disclosure of preliminary merger talks will negatively impact the deal. For example, early disclosure might encourage speculative investment in the target company’s stock, driving up the price and diminishing shareholders’ perception of the offered premium, or even cause potential bidders to be reluctant to make an offer in the first place. In light of these problematic scenarios, courts widely recognize that typically there is no duty to disclose merger negotiations prior to the execution of a definitive merger agreement. See, e.g., Thesling v. Bioenvision, Inc., 374 F. App’x 141, 143 (2d Cir. 2010) (there is “no express duty [that] requires the disclosure of merger negotiations, as opposed to a definitive merger agreement”); Williams v. Dresser Indus., Inc., 120 F.3d 1163, 1174 (11th Cir. 1997) (“In the context of sales of stock while negotiations for merger or acquisitions were pending, courts have found no duty to disclose the negotiations”). READ MORE →

Is Your Bank Stressed Out? OCC Follows Fed on Proposed Stress-Test Changes

Posted on

On September 10, the Office of the Comptroller of the Currency (“OCC”) published proposed revisions to its information collecting regulations related to the Dodd-Frank Act’s “stress test” for large national banks and federal savings associations.

Section 165(i)(2) of the Act requires certain financial institutions, including national banks and federal savings associations that have at least $10 billion in total consolidated assets (“covered institutions”), to conduct annual “stress tests” and report the findings to the Federal Reserve System and the institution’s primary governing regulatory agency. In July, the Fed proposed changes to its stress test rules, including revisions to almost twenty schedules that must be completed by covered institutions with over $50 billion in total consolidated assets, and changes to the institutions’ filing deadlines. The OCC’s proposed revisions would bring its reporting requirements in line with the Fed’s proposed requirements. READ MORE →

The MCDC Initiative: Round One Is Underway

Posted on

3 Minutes to 12:00

The clock will strike on the first self-report deadline under the SEC’s Municipalities Continuing Disclosure Cooperation Initiative (the “MCDC Initiative”) at 12:00 a.m. EST on September 10, 2014.  Under the MCDC Initiative, underwriters and issuers of municipal securities may choose to self-report any potential, materially inaccurate statements relating to prior compliance with continuing disclosure obligations in exchange for a recommendation of “favorable settlement terms.”  Under the terms of the original SEC announcement, the deadline for both underwriters and issuers was September 10.  But the SEC announced a set of modifications to the MCDC Initiative on July 31, 2014, including a shift to a piecemeal approach whereby the deadline for underwriters went unchanged but the deadline for issuers was moved to December 1, 2014.  This decision was admonished in an August 28, 2014 letter from U.S. Representatives Steve Stivers and Krysten Sinema to SEC Chair Mary Jo White, in which they “urge[d] the SEC to extend the self-reporting deadline for dealers to match the deadline for issuers” because there “simply is no justification for separate reporting deadlines.” READ MORE →

Does Being an ‘Expert’ Make You an Expert?

, and Posted on

Matrix

Earlier this month, Judge Victor Marrero of the Southern District of New York issued his opinion certifying a class of buyers of the common stock of a company created by a Chinese reverse merger.  McIntire v. China MediaExpress Holdings, Inc., 2014 U.S. Dist. LEXIS 113446 (S.D.N.Y. Aug. 15, 2014).  In doing so, he rejected defendants’ Daubert motion challenging the qualifications and methodology of plaintiffs’ expert witness on market efficiency, Cynthia Jones, and concluded that the market was efficient enough to support the Basic presumption of reliance and to permit class certification.  READ MORE →