With the close of the United States Supreme Court’s 2017-18 term, we offer this wrap-up, focusing on decisions of special interest from the business and commercial perspective (excluding patent cases): In a much talked-about decision in the antitrust field, the Court held in Ohio v. American Express Co. that American Express’s anti-steering provisions in its merchant contracts, which generally preclude merchants from encouraging customers to use credit cards other than American Express, are not anticompetitive and therefore do not violate Section 1 of the Sherman Act. In so holding, the Court found that credit card networks are two-sided transaction platforms, one side being the merchant and the other side being the merchant’s customer. Thus, when assessing whether the anti-steering agreements are anticompetitive, the effects on both sides of the platform must be considered. The plaintiffs’ proof that American Express had increased its merchant fees over a period of time was insufficient to show an anticompetitive effect because it neglected the customer side of the platform, where consumers have received the benefit of ever-increasing rewards from credit card companies and other improvements in services that those higher merchant fees enable. Bringing an end to a fight that New Jersey had been waging...
Author: Christopher Walsh
Delaware Chancery Court Rejects Appraisal Rights for Stockholders Who Relinquish Control of their Corporation Through Merger Involving a Special Merger Subsidiary
Delaware law generally grants appraisal rights to shareholders of corporations involved in statutory mergers or consolidations. But, what are the rights of shareholders when control of their corporation is relinquished through a merger between a specially-created merger subsidiary and another corporation? According to Chancellor Bouchard’s recent opinion, the shareholders have no appraisal rights because they do not own shares in a “constituent corporation in the merger.” Chancellor Bouchard also found that the shareholders are not entitled to appraisal rights because they will retain their shares in the parent corporation in the contemplated transaction. Dr. Pepper Snapple Group, Inc., a publicly-traded corporation, and Keurig Green Mountain, Inc., a privately-held corporation, wanted to combine their businesses. They therefore agreed to a so-called reverse triangular merger, pursuant to which (1) Dr. Pepper will create a new subsidiary, (2) that subsidiary will be merged into Keurig’s owner, Maple Parent Holdings Corp., and (3) Maple Parent will become a wholly-owned subsidiary of Dr. Pepper. In addition, Maple Parent will pay a $9 billion dividend to Dr. Pepper and receive enough shares in Dr. Pepper to give it a controlling 87% share of Dr. Pepper’s common stock. Maple Parent’s $9 billion payment to Dr. Pepper will...
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...
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.