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Bernard Sharfman

The business judgment rule is one of the important principles involved when questions of board and director liability are raised. In the following guest post, Bernard Sharfman, an associate fellow of the R Street Institute and a member of the Journal of Corporation Law’s editorial advisory board, takes a look at the way that the business judgment rule is often presented and understood. Bernie’s guest post is a summary of his longer academic paper on the same topic, which can be found here. This post previously appeared on the Harvard Law School Forum on Corporate Governance and Financial Regulation. I would like to thank Bernie for his willingness to allow me to publish his article on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to publish a guest post. Here is Bernie’s guest post.
Continue Reading Guest Post: The Importance of the Business Judgment Rule

delawareMany readers will recall that just a short time ago companies were actively experimenting to try to incorporate litigation management measures into their corporate bylaws. These efforts led to decisions by Delaware courts upholding both forum selection bylaws (about which refer here) and fee-shifting bylaws (refer here). Delaware’s legislature ultimately addressed these bylaw experimentation efforts by adopting statutory provisions allowing forum selection bylaws but prohibiting fee-shifting bylaws.

Following the enactment of this legislation, the payroll software services firm Paylocity adopted a bylaw provision designating Delaware as the forum for any shareholder disputes and holding any shareholder who filed an action outside Delaware and who did not prevail on the merits liable for the company’s attorneys’ fees. A Paylocity shareholder filed an action in Delaware Chancery Court challenging the bylaw’s fee-shifting provision. In an interesting December 27, 2016 opinion (here), Chancellor Andre Bouchard held that the Paylocity bylaw’s penalty provisions violated the Delaware statutory fee-shifting bylaw prohibitions, but dismissed the claims that company’s board had violated its fiduciary duties in enacting the bylaw.
Continue Reading Del. Court Pans Fee-Shifting Portion of Forum Selection Bylaw

delmapBoth inside and outside the United States, litigation financing has become an increasingly important part of the litigation environment. But litigation financing remains controversial, at least in certain quarters, and questions continue to be asked about whether or not it is proper or even appropriate. In a recent decision in a Delaware lawsuit between Charge Injection Technologies and DuPont, DuPont challenged CIT’s arrangement for financing its participation in the litigation, arguing that the financing agreement violated Delaware’s prohibition against “champerty and maintenance.” In a March 9, 2016 decision (here), Delaware Superior Court Judge Jan R. Jurden rejected the challenge. Judge Jurden’s opinion supports the view that, at least under Delaware, an appropriately structured litigation funding agreement will not be found improper.

While parties and observers undoubtedly will still seek to challenge litigation funding in general and in the context of specific cases, this ruling and related developments suggest that Delaware’s courts will where appropriate condone litigation funding.  
Continue Reading Delaware Court Rejects Challenge to Litigation Funding Arrangement

del1In a January 22, 2016 Delaware Court of Chancery decision that likely will prove to be significant because of the light it sheds on the future of disclosure-only settlements in merger objection lawsuits in Delaware, Chancellor Andre Bouchard rejected the proposed settlement in the litigation arising out of Zillow’s acquisition of Trulia, saying that because the “none of the supplemental disclosures were material or even helpful to Trulia’s stockholder,” the proposed settlement “does not afford them meaningful consideration to warrant providing a claim release.”

In reaching these conclusions, Bouchard reviewed the dynamics that have led to the “proliferation of disclosure settlements” and the problems these kinds of settlements present. Bouchard also offered his perspective on the ways that remedial disclosure assertions in deal litigation could optimally be litigated. At a minimum, Bouchard’s opinion represents a warning to the plaintiffs’ bar that to the extent they continue to pursue disclosure settlements, they can “expect that the Court will be increasingly vigilant in scrutinizing the ‘give’ and the ‘get’ of such settlements to ensure that they are genuinely fair and reasonable to the absent class members.” Chancellor Bouchard’s January 22, 2016 opinion in the Trulia case can be found here.
Continue Reading Delaware Chancellor Rejects Disclosure-Only Settlement, Signals What’s Next for Merger Objection Suits

oregonsealAs readers of this blog will recall, Delaware’s courts have held that under Delaware law bylaws designating Delaware’s courts as the exclusive forum for corporate and shareholder disputes are facially valid. Last summer, Delaware’s legislature adopted a statutory provision adding the permissibility of forum selection bylaws to the Delaware Corporations Code. In response to these judicial and legislative developments, many Delaware corporations have adopted forum selection bylaws. But whether these new bylaw provisions will have their intended effects will depend in part on what the courts in other jurisdictions do. If an action in another jurisdiction is permitted to go forward notwithstanding the bylaw specifying Delaware’s courts as the designated forum, the bylaw’s purpose would be frustrated. A recent decision from the Oregon’s highest court suggests that this potentially frustrating outcome is less likely.
Continue Reading Oregon Supreme Court Holds Delaware Corporation’s Forum Selection Bylaw Valid and Enforceable

del1Because the vast majority of U.S. publicly traded companies are incorporated in Delaware, legal developments in Delaware have a particularly important impact on legal standards governing corporate conduct in the U.S. Delaware law is particularly influential with respect to the responsibilities and potential liability exposures of corporate directors. In a series of recent opinions written by Chief Justice Leo E. Strine Jr., the Delaware Supreme Court has, according to an October 22, 2015 memo from the Skadden law firm (here) “reaffirmed Delaware’s deference to the business judgment of disinterested corporate decision-makers and restored important protections for directors that had been weakened by prior court decisions.”
Continue Reading A Trio of Delaware Decisions Reaffirms Corporate Director Protections

del1Under time-honored standards, and as developed over time by Delaware’s court, the business judgment rule is, as is often stated, a “presumption that in making a business decision, the directors of a company have acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the corporation.” However, as discussed in an interesting paper, in more recent times, courts have had to consider these principles in more troubling contexts, such as takeover battles or controlling shareholder transactions. As a result the courts have developed what BYU Law Professor D. Gordon Smith in his August 6, 2015 post on the CLS Blue Sky Blog (here) calls “the Modern Business Judgment Rule.” A longer version of Professor Smith’s paper can be found here.
Continue Reading A Look at the Modern Business Judgement Rule

NevadaAs I noted in a recent post, when the Wall Street Journal has a front-page article asking the question whether Delaware’s claim as the preferred home jurisdiction for many U.S. corporations continues to be warranted, it might be time to wonder whether Delaware’s preeminence might actually be under serious challenge. And if a recent article on Law 360 is any indication, the good citizens of Nevada – or at least one member of its legal bar in particular – are quite sure where U.S. companies should turn next, at least for the resolution of corporate disputes. That is, Nevada.

That’s right, Nevada.

In an August 11, 2015 article entitled “Strike Suit Certainty Remains the Status Quo in Nevada” (here, subscription required), Jeffrey S. Rugg of the Browstein Hyatt Farber Schreck law firm in Las Vegas argues that Nevada provides an advantageous forum compared to Delaware because of the expeditiousness with which Nevada courts resolve M&A-related strike suits. In Delaware, Rugg argues, “the consideration and resolution of strike suits … has become increasingly uncertain and, as a result, expensive,” whereas Nevada “continues to provide all parties with the certainty of consistent application of law and efficient resolution of motions.”
Continue Reading Should Nevada Be the New Preferred Forum? (That’s Right, Nevada.)

del1One feature of the U.S. corporate law environment that always strikes outside observers and new initiates as odd is the predominance on the legal landscape of the law of Delaware. The tiny Eastern seaboard state is the second smallest U.S. state by size; only five states are smaller by population, yet its corporate laws outweigh those of any other state. Over half of the U.S. listed companies are incorporated in Delaware. Nearly two thirds of Fortune 500 companies are organized under the laws of Delaware.

Questions about Delaware’s outsized role in the corporate legal world are nothing new. But when the Wall Street Journal runs a front page article questioning Delaware’s role, it might be time to start wondering of Delaware’s predominance might actually be under challenge.
Continue Reading So Why Should Delaware Corporate Law Predominate?

masseyMost senior corporate executive have a general understanding of the importance to them of their corporate indemnification rights. As discussed here, a related but sometimes even more important corporate benefit is the right to advancement – that is, the right to have their defense fees paid on a contemporaneous basis while legal proceedings against…