With the close of the United States Supreme Court’s 2016-17 term, we offer this wrap up of the term’s most important business and commercial cases (excluding patent cases): Kindred Nursing Ctrs, L.P. v. Clark: The Supreme Court continued its full-throated support of arbitration agreements, again rejecting a state supreme court’s effort to apply an ostensibly arbitration-neutral rule of law to invalidate an arbitration agreement. In Kindred, the Kentucky Supreme Court held that an arbitration agreement signed by an attorney-in-fact under a broad power of attorney was invalid because the power of attorney did not expressly give the attorney-in-fact the right to waive the principal’s right to a jury trial. According to the Kentucky Supreme Court, to grant an attorney-in-fact the authority to waive a “fundamental constitutional right,” a power of attorney must grant that authority expressly and unambiguously. Because the right to access the courts and the right to a jury trial are such “fundamental constitutional rights” and because the power of attorney did not expressly and unambiguously waive them, the attorney-in-fact was not authorized to agree to arbitrate the principal’s claims, and no enforceable arbitration agreement was created. The Supreme Court found that the Kentucky Supreme Court’s facially arbitration-neutral...
Author: Christopher Walsh
Applying Federal Common Law, Third Circuit Approves Assignment, Without Consideration, of Antitrust Claims from Direct Purchaser to Indirect Purchaser
In a recent precedential opinion in a case of first impression, the Third Circuit held that a written, express assignment of federal antitrust claims is valid even though no consideration is exchanged between the assignee and assignor. In doing so, the Third Circuit revived a putative class action by an indirect purchaser whose complaint had been dismissed by the District of Delaware for lack of standing under Illinois Brick.
In “Spring-Loaded” Options Case, Court Finds Failure to Disclose Board’s “Unclean Heart” Does Not Violate Federal Securities Laws But Allows Common Law Fiduciary Duty Claims to Proceed Against Directors Approving Options
In a far-reaching opinion addressing a host of issues relating to the granting of so-called “spring-loaded” stock options to a corporation’s board of directors, the District of New Jersey dismissed a claim under Section 14(a) of the Exchange Act because federal securities laws do not require the corporation to disclose in its proxy statement that the options were part of a “spring-loading” scheme. But the court allowed common-law breach of fiduciary duty claims to proceed against the directors who served on the board’s compensation committee under the entire-fairness doctrine.
Delaware Supreme Court Says that Minority Stockholder Which Manages Company’s Day-to-Day Affairs is not a “Controlling Stockholder” and Confirms that Mandatory Stockholder Approval of Merger Transaction Compels Application of Business Judgment Rule
The Delaware Supreme Court’s recent decision in Corwin v. KKR Financial Holdings LLC makes two important points about corporate governance litigation. First, the court rejected the novel argument that an owner of less than 1% of a company’s stock could be considered a “controlling stockholder” because it managed the company’s day-to-day affairs under a management agreement. Second, the court confirmed that when a transaction has been approved by a majority of the company’s disinterested stockholders, the highly deferential business judgment rule should govern any challenges to the transaction, even if the stockholder vote was statutorily required and not voluntary.
Board-Friendly Rales Test Determines Futility of Pre-Suit Demand When Challenged Decision Is Made by a Board Committee Comprised of a Minority of Board Members
Delaware courts have two tests for determining when it is futile for a plaintiff in a derivative action to make a pre-suit demand of the corporation’s board of directors under Court of Chancery Rule 23.1. The Aronson v. Lewis test applies when the board which would consider the demand made the business decision challenged in the derivative action. Under that test, demand is futile if (1) there is a reasonable doubt that the directors are disinterested and independent or (2) there is a reasonable doubt that the challenged transaction was otherwise the product of a valid exercise of business judgment.
New Jersey, like many states, is suspicious of judgments by confession and allows them to be issued only if the procedures in R. 4:45-2 are strictly followed. Among those procedures is a requirement that the prospective judgment debtor be given notice of the prospective judgment creditor’s application for entry of judgment and an opportunity to be heard.
Business Organizations Seeking Quick and Inexpensive Resolutions of Business Disputes Need to Know About Delaware’s Rapid Arbitration Act
Arbitration is supposed to achieve quick, fair, and inexpensive resolutions of business disputes. But, seemingly more often than not, arbitration fails to fulfill its promise due to expensive and time-consuming pre-hearing discovery, lengthy hearings, and spiraling judicial review of arbitral awards. The Delaware Rapid Arbitration Act, which became effective on May 4, 2015, is Delaware’s unique and cutting-edge effort to offer a new brand of arbitration designed to achieve the original promise of quick and efficient justice.
Defendants in reverse-payment actions pending in the Third Circuit (New Jersey, Pennsylvania, and Delaware) take note: in In re Effexor XR Antitrust Litigation the Honorable Joel A. Pisano, U.S.D.J., of the District of New Jersey has stayed several class-action litigations challenging the legality of certain reverse-payment settlement agreements between Wyeth and generic drug manufacturer Teva Pharmaceuticals, pursuant to which Wyeth allegedly paid Teva to delay its marketing of a generic counterpart to Wyeth’s Effexor XR drug.
Third Circuit Denies Federal Antitrust Standing to Hospitals Purchasing Products Through Distributors Despite Contract Between Manufacturer and Hospitals’ Group Purchasing Organization
In In re Hypodermic Products Antitrust Litigation, the Third Circuit once again denied federal antitrust standing to a class of hospitals seeking damages from the manufacturer of hypodermic products because the hospitals paid for and took possession of such products from intermediate distributors and negotiated their final price with the distributors.
New Jersey Appellate Division Limits Application of Parol Evidence Rule in Fraudulent Inducement Cases and Finds that Unsophisticated Fraud Claimant Can Only Be Charged With His Actual Knowledge
In a to-be-published opinion in Walid v. Yolanda for Irene Couture, Inc., the New Jersey Appellate Division reaffirmed and clarified the scope of the fraudulent inducement exception to the parol evidence rule. The court also clarified the level of knowledge to be imputed to a contracting party when assessing the reasonableness of that party’s reliance on the alleged misrepresentations.