In Food Marketing Institute v. Argus Leader Media, the United States Supreme Court expanded the meaning of “confidential” information exempt from disclosure under Exemption 4 of the Freedom of Information Act (FOIA). In doing so, the Court reversed the decision of the Court of Appeals for the Eighth Circuit and definitively rejected the “competitive harm” requirement adopted by the D.C. Circuit in National Parks & Conservation Assn. v. Morton. Respondent Argus Leader Media filed a FOIA request with the United States Department of Agriculture (USDA), seeking the names and addresses of all retail stores that participate in a federal food stamp program known as SNAP. Argus Leader also sought each store’s annual redemption data from 2005 to 2010. The USDA declined to disclose store-level SNAP data based on Exemption 4 of FOIA, which precludes disclosure of “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” Argus Leader sued the USDA. The district court ordered disclosure based upon the failure to satisfy the “competitive harm” test, which requires a party to establish confidentiality by proving that disclosure is “likely … to cause substantial harm to [its] competitive position.” The Eighth Circuit affirmed the judgment. In...
Tagged: Corporate Governance
Delaware Supreme Court Orders Production of Emails in Response to Section 220 Demand and Refuses to Restrict Knock-On Litigation to Delaware
In KT4 Partners LLC v. Palantir Technologies Inc., the Delaware Supreme Court required a corporation to produce emails in response to a “books and records” demand under 8 Del. C. §220; it also refused to limit any knock-on litigation on the merits to the Delaware Court of Chancery. KT4 is a stockholder in Palantir and received certain rights under a series of Investor Rights Agreements and a First Refusal and Co-Sale Agreement. After a falling out between KT4 and Palantir’s management, Palantir amended the Investor Rights Agreement in ways detrimental to KT4. KT4 responded with a request to inspect Palantir’s “books and records” pursuant to 8 Del. C. §220, which entitles a stockholder to inspect a corporation’s “books and records” if, and to the extent that, the requested inspection “is for a proper purpose.” Palantir refused to comply, and KT4 filed a §220 action in the Delaware Court of Chancery to compel production of the requested documents. The Court of Chancery ruled that KT4 had a statutory “proper purpose” of investigating three areas of potential corporate wrongdoing: 1) Palantir’s failure to hold stockholder meetings, 2) Palantir’s amendment of the Investor Rights Agreement, and 3) Palantir’s potential breach of the Investor...
New Jersey Chancery Division Adopts Watered-Down Trulia Standard and Approves Disclosure-Only Settlement of Merger Litigation
Nearly three years ago, the Delaware Court of Chancery issued its landmark opinion in In re Trulia, Inc. Stockholder Litigation, in which Chancellor Bouchard strongly criticized the use of disclosure-only settlements in class-action merger challenges and subjected such settlements to a heightened level of judicial review. In a disclosure-only settlement the merging parties agree to enhance their disclosures about the challenged merger in exchange for a broad release from a settlement class comprised of their shareholders. According to Chancellor Bouchard, all too often the enhanced disclosures in such settlements provide little, if any, value to the shareholders, while class counsel get large fee awards and the corporations get “deal insurance” because their shareholders have released them and their boards from liability arising from the transaction. Because disclosure-only settlements so rarely give meaningful relief to the shareholders, Chancellor Bouchard held that a court should approve them only if “the supplemental disclosures address a plainly material misrepresentation or omission and the subject matter of the proposed release is narrowly circumscribed.” In the first published New Jersey state court opinion addressing the Trulia standard, the Chancery Division in Strougo v. Ocean Shore Holding Co. followed Trulia in holding that disclosure-only settlements are to be...
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...
The New Jersey Assembly is considering legislation that will require individuals and businesses that own or license personal information about a New Jersey resident to create and maintain a comprehensive information security program (“ISP”). The bill, A-5206, was introduced by Assemblywoman and Deputy Majority Leader Annette Quijano (D-Union) on November 30, 2017, and referred to the Assembly Homeland Security and State Preparedness Committee. If passed, New Jersey would join other states including Massachusetts (see 201 CMR 17.01 to 17.05) and Rhode Island (R.I. Gen. L. § 11-49.3-2), and sector-specific regulatory schemes including the Gramm-Leach-Bliley Act (16 CFR 314), New York Department of Financial Services Cybersecurity Regulation (23 NYCRR 500), and the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) Security Rule (45 CFR 164), that require a written information security program. The bill as currently drafted includes a minimum of 28 data security policies and practices that must be included in any company’s ISP. These include: Designating one or more employees to be in charge of the ISP; Ongoing employee training regarding risks to the security, confidentiality, and integrity of any records containing personal information, and imposing disciplinary measures for violation of ISP rules; Obligating a company to conduct...
Regulations Proposed by NY Department of Financial Services are a Significant Development for Regulated Entities … and Everyone Else
On September 13, 2016, New York Governor Andrew M. Cuomo announced new first-in-the-nation proposed regulations to protect against the ever growing threat of cyber-attacks in the financial services industry. The proposed regulations, to be enforced by the New York State Department of Financial Services, would apply only to an entity regulated by the NY Department of Financial Services – from a multi-national bank to a “mom-and-pop” operation. However, the regulations are important for all companies to review and consider, regardless of their location or scope of operations, because the proposal represents an important step in the ongoing national dialogue about reasonable and necessary cybersecurity standards for all businesses.
The FTC Confirms That Mere Disclosure of Health Information is a “Substantial Injury” Justifying Sanctions for “Unreasonable” Data Security Practices
The Federal Trade Commission (“FTC” or “the Commission”) recently confirmed that disclosure of sensitive consumer data as a result of inappropriate data security practices may be deemed an “unfair act or practice” in violation of the Federal Trade Commission Act (“FTC Act”). This decision is important because the FTC reached this conclusion with no evidence of actual economic or physical harm, or any actual health and safety risks as a result of the disclosure. The Commission’s decision is also notable because it emphasizes the FTC’s expanding reach in the regulation of data security.
In IE Test, LLC v. Carroll, the New Jersey Supreme Court addressed when a limited liability company (LLC) can expel a member under a statute authorizing a member’s disassociation for conduct that has made it “not reasonably practicable to carry on” the LLC’s activities. IE Test had three members, two of whom actively ran the business and drew salaries, and a third who played no role in the LLC’s day-to-day affairs. Before an operating agreement was executed, a dispute arose between the two active members and the passive member over the passive member’s compensation. Consequently, no operating agreement was ever signed. The two active members then sought to judicially disassociate the passive member on the statutory ground that the impasse and absence of an operating agreement made it “not reasonably practicable” that he could continue as a member. The trial court granted summary judgment, expelling the passive member, and the Appellate Division affirmed.
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 Clarifies Reach of Personal Jurisdiction Over Nonresident Directors and Officers of Delaware Corporations Under 10 Del. C. § 3114
The Delaware Supreme Court, in Marc Hazout v. Tsang Mun Ting, No. 353, 2015 (Feb. 26, 2016) (Strine, C.J.), held that the reach of personal jurisdiction under 10 Del. C. § 3114 over nonresident officers and directors of Delaware corporations, contrary to Court of Chancery precedent, is not limited to claims by stockholders against such officers and directors for breach of fiduciary duty. Rather, under the plain language of the statute, a nonresident officer or director of a Delaware corporation, by virtue of accepting and holding office, has consented to personal jurisdiction in Delaware, subject to the requirements of due process, in two classes of cases: (i) “all civil actions or proceedings brought in this State, by or on behalf of, or against such corporation, in which such officer [or director] is a necessary or proper party”; or (ii) “any action or proceeding against such officer [or director] in violation of a duty in such capacity.”