Academic journal article Fordham Journal of Corporate & Financial Law

Welcome and Introductory Remarks

Academic journal article Fordham Journal of Corporate & Financial Law

Welcome and Introductory Remarks

Article excerpt


Frederick H. Alexander ii

Morris, Nichols, Arsht & Tunnell LLP

Chris Cernich iii

Institutional Shareholder Services

Mark Lebovitch iv

Bernstein Litowitz Berger & Grossman LLP

Norman M. Monhai v

Rosenthal, Monhait & Goddess, P.A.

Andrew J. Pincus vi

Mayer Brown LLP

SEAN GRIFFITH: Well, I am just going to start us, because we have so much to discuss in so little time. I want to welcome everyone to the Fifteenth Annual Albert A. DeStefano Lecture on Corporate, Securities, and Financial Law, where half of the time we do a lecture and half of the time we do a panel presentation. I am just delighted to have the distinguished panelists that we have tonight. We have so many of us that I am not going to go through the introduction of each of my fellow panelists individually, but I will let you know that all that information appears in the program, and that we have many distinguished jurists and policymakers, in one way or another, to talk about an important issue in corporate law that is happening in Delaware.

What I want to do is set it up with a little bit of the backstory. Then, I want to get out of the way, and let these guys explain and duke it out. Here is the backstory. On May 8, 2014, the Delaware Supreme Court announced a surprise decision in a litigation involving the American Tennis Professional Federation versus Deutscher Tennis Bund ("ATP").' It was a certified question to the Delaware Supreme Court. The question was: can this fee-shifting provision that this private, non-stock corporation has adopted in its bylaws be enforced to shift the cost of intraorganizational litigation to the plaintiffs? The answer was yes because bylaws are a contract, which we will talk about on the panel.

The ink was not dry on the opinion before a number of prominent corporate law firms had sent memos to their clients and friends recommending that they consider adopting fee-shifting bylaws in the context of big public corporations. A number of companies started to go down that road. We are pausing to ask why that happened. The answer is that intracorporate litigation has turned into something of an epidemic in Delaware, especially with regard to M&A litigation.

I will give you a couple of statistics for mergers and acquisitions: 98% of deals attract lawsuits, 70% of those lawsuits settle, 94% of those settlements are for non-pecuniary relief where there is no relief to the plaintiff class, and 80% of those settlements are disclosure-only settlements, the type of settlement where the only relief is additional supplemental disclosures in the proxy statement or other disclosure documents. The other 14% of those settlements were for additional amendments to the merger agreement, like the reduction of a termination fee. There is non-pecuniary relief to the plaintiff class, but every single one of them results in pecuniary relief to the lawyers involved, on both defense and plaintiff side. So, 98% of deals seems like more deals than something is wrong with and that seems a little bit crazy.

Corporations are thinking they are going to adopt a fee-shifting bylaw to solve this problem, and lo and behold, ATP gives them permission to do so. Delaware corporations are thinking about moving to the English rule, which is the loser pays rule, of course, with regard to fees. Fees are shifted to the losing party in litigation. Within two weeks of that, the Delaware Corporate Law Council, a group that we are going to hear about more today because we have three distinguished members of that Council on our panel, recommended a rule change to the Delaware General Corporation Law that would have banned fee-shifting bylaws.2

ATP comes out stating that fee-shifting bylaws are okay and the Delaware Council, which recommends changes to the Delaware statute, comes out and says, "No, we are going to adopt a rule that says feeshifting is not okay." Their proposed ban on fee-shifting was introduced to the Delaware Senate on June 3, 2014, with the idea that it was going to become effective on August 1, 2014. …

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