Category: Litigation
Sponsor of SB 21, controversial Delaware bill to amend corporate law, speaks out
In an exclusive interview with Law360, the Delaware legislator who was the primary sponsor of the proposed amendments to the Delaware General Corporation Law that have fueled so much debate recently discusses the thinking behind the proposed legislation. As discussed in this PubCo post, in response to much chatter and speculation about companies changing their states of incorporation from Delaware to other states—in other words, concerns about Delaware’s valuable corporate franchise—the Delaware legislature introduced a bill that, if adopted, would effect “sweeping changes” to Delaware’s corporate law. The bill would offer a process for boards to invoke safe harbor protection from litigation over potentially conflicted transactions for directors and controlling stockholders. The bill would also address Delaware’s provisions related to books and records. The impact could be fundamental. But there has been substantial pushback—some of which is quoted in the referenced post—from critics of the bill. In the Law360 interview, Delaware Senate Majority Leader Bryan Townsend defends the bill, citing the “‘urgency of the moment.’” In his analysis, “‘[w]hat seems to be happening here is growing frustration out there in the marketplace as to what people believe to be a departure in predictability’ in Delaware’s courts, ‘at a time when other states are standing up alternative frameworks that people are seriously considering.’” Check out the article!
Acting SEC Chair advocates “cost-effective regulations for every stage of a company’s lifecycle”
Yesterday, Acting SEC Chair Mark Uyeda delivered remarks to the Florida Bar’s 41st Annual Federal Securities Institute and M&A Conference focused on regulatory efforts affecting every stage of a company’s lifecycle. Setting the stage, Uyeda characterized his “first priority” as an effort to “return normalcy” to the SEC after the “stark aberration” of the immediately preceding Administration “from longstanding norms as to what the Commission has historically viewed its legal authority, policy priorities, and use of enforcement.” That means returning the SEC “to its narrow mission to facilitate capital formation, while protecting investors and maintaining fair, orderly, and efficient markets,” and creating “capital markets that facilitate the competitiveness and ingenuity of American industry.” And that effort begins with “enabl[ing] private companies to obtain more capital through cost-effective means,” “enabl[ing] more retail investors to place their capital into private companies,” regulatory actions to “help make IPOs attractive again,” and finally, revisiting the rules governing the disclosure obligations of public companies to reduce complexity and ensure that “smaller companies are not disproportionately burdened as they compete.” Given that Uyeda was previously counsel at the SEC to former Commissioner, now Chair nominee, Paul Atkins, I would guess that there’s a pretty good chance that his views on these topics are largely in sync with those of Atkins and, presumably, we can expect proposals on these topics in the new Administration.
SEC announces new Enforcement unit for cyber and emerging technologies
At the end of last week, the SEC announced the establishment of a new Cyber and Emerging Technologies Unit, designed to replace the current Crypto Assets and Cyber Unit and to complement the work of the newly established Crypto Task Force led by Commissioner Hester Peirce. (Here’s her new statement soliciting public feedback for the new Task Force.) The new CETU, which will be composed of approximately 30 fraud specialists and attorneys across multiple SEC offices, is likely to reflect something of a shift in approach to Enforcement in this area, focusing more on “combatting cyber-related misconduct and protect[ing] retail investors from bad actors in the emerging technologies space.” According to Acting Chair Mark Uyeda, “[i]mportantly, the new unit will also allow the SEC to deploy enforcement resources judiciously….The unit will not only protect investors but will also facilitate capital formation and market efficiency by clearing the way for innovation to grow. It will root out those seeking to misuse innovation to harm investors and diminish confidence in new technologies.”
Executive Order deletes “independent” from “independent regulatory agencies”
On Tuesday, the President signed a new Executive Order claiming that “independent” federal regulatory agencies, such as the SEC, shouldn’t really be so independent after all. Rather, the Order contends, they all should be operating under the President’s authority and supervision. According to the Administration’s fact sheet, these independent agencies need to be “reined in”: These “so-called independent agencies…have exercised enormous power over the American people without Presidential oversight.” They issue rules and regulations, the fact sheet contends, “that cost billions of dollars and implicate some of the most controversial policy matters, and they do so without the review of the democratically elected President. They also spend American tax dollars and set priorities without consulting the President, while setting their own performance standards. Now they will no longer impose rules on the American people without oversight or accountability.”
New Delaware bill would offer safe harbor for conflicted transactions—will it convince companies to stay put in Delaware?
As discussed earlier this month, there has been a lot of chatter and speculation recently about companies changing their states of incorporation from Delaware to other states. In an interview with Business Insider, the new Governor of Delaware acknowledged that the state remained a “‘competitive environment’” and that “his state needed to take challenge seriously,” including addressing “issues such as the balance of shareholder and management rights….I think within the coming weeks, you’re going to see some things rolled out that will help move our state forward and bring us into 2025 and beyond to make sure we’re protecting and growing the corporate franchise.” A new bill designed to take up that challenge in a significant way—Senate Bill 21—was introduced in Delaware on Monday and is awaiting consideration by the Judiciary Committee. In essence, the bill would offer a process for boards to invoke safe harbor protection from litigation over potentially conflicted transactions for directors and controlling stockholders. The bill would also address Delaware’s provisions related to books and records. The impact could be fundamental.
Acting SEC Chair seeks a pause in SEC climate disclosure rule litigation
Yesterday, Acting SEC Chair Mark Uyeda issued a statement advising that he is requesting that the Court presiding over the SEC’s climate disclosure rule litigation not “schedule the case for argument” in order to allow time for the SEC to rethink its position. As you may know, a number of challenges to the climate disclosure rule were consolidated as State of Iowa v. SEC in the Eighth Circuit, where briefs in the case have been filed. However, for reasons explained in the Statement, Uyeda believes that the “rule is deeply flawed and could inflict significant harm on the capital markets and our economy.” As such, he said, the positions taken in the SEC’s briefs defending the SEC’s adoption of the rule are not reflective of his views. He believes that these views, particularly his concern that the SEC had no authority to adopt the rule, together with “the recent change in the composition of the Commission, and the recent Presidential Memorandum regarding a Regulatory Freeze, bear on the conduct of this litigation.” As a result, he maintains that “the Court and the parties should be notified of these changes.” Accordingly, he has directed the SEC staff to “notify the Court of the changed circumstances and request that the Court not schedule the case for argument to provide time for the Commission to deliberate and determine the appropriate next steps in these cases. The Commission will promptly notify the Court of its determination about its positions in the litigation.” Commissioner Caroline Crenshaw voiced her dissent, contending that what has really changed here has been “politics and not substance.” Does Uyeda’s move sound the death knell for the SEC’s climate disclosure rule?
Cooley Alert: Delaware Supreme Court Holds Business Judgment Review Applies to TripAdvisor’s Decision to Reincorporate
There’s been a lot of noise in the media recently about some well-known companies deciding to change, or at least considering changing, their states of incorporation from Delaware to Texas, Nevada or another state. According to the WSJ, “[a]bout two-thirds of S&P 500 companies—regardless of where they are actually based—are incorporated in Delaware, largely because the tiny state has specialized courts that handle business matters and stacks of legal precedents for addressing disputes.” However, the WSJ continued, “[e]xecutives and controlling shareholders of public companies have long expressed frustration with the Delaware Court of Chancery, which has become home to a thriving shareholder plaintiffs’ bar.” To entice companies to reincorporate elsewhere, some states have made special efforts to establish “dedicated business courts, including four since 2019.” However, it remains to be seen whether, in the absence of Delaware’s legal expertise addressing business issues and the volume of important precedents that help to bolster predictability, these other states can match the influence of the Delaware courts. Nevertheless, in an interview with Business Insider, the new Governor of Delaware said that the state remained a “‘competitive environment’” and that “his state needed to take challenge seriously,” including addressing “issues such as the balance of shareholder and management rights….I think within the coming weeks, you’re going to see some things rolled out that will help move our state forward and bring us into 2025 and beyond to make sure we’re protecting and growing the corporate franchise….It certainly beats going to Vegas and rolling the dice.” As discussed in this excellent new Cooley Alert, Delaware Supreme Court Reverses Chancery Court, Holds Business Judgment Review Applicable to TripAdvisor’s Decision to Reincorporate in Nevada, from our Commercial Litigation Group and Securities Litigation + Enforcement Groups, the Delaware Supreme Court has just injected into the mix a new decision that could factor into the decision-making process for Delaware companies considering reincorporation in other states.
In Chamber of Commerce v. CARB, Federal District Court dismisses two claims challenging California’s climate disclosure laws
As we’ve pointed out before, given the prevailing views on climate disclosure among folks in the new Administration, including the nominee for SEC Chair—and all that portends for the SEC’s climate disclosure regulation—the States may, in many ways, take on much larger significance. Case in point: California’s climate disclosure laws and the ongoing litigation challenges there. In January last year, the U.S. and California Chambers of Commerce, the American Farm Bureau Federation and others filed a complaint (and in February, an amended complaint) against two executives of the California Air Resources Board and the California Attorney General challenging these two California laws. The lawsuit seeks declaratory relief that the two laws are void because they violate the First Amendment, are precluded under the Supremacy Clause by the Clean Air Act, and are invalid under the Constitution’s limitations on extraterritorial regulation, particularly under the dormant Commerce Clause. The litigation also seeks injunctive relief to prevent CARB from taking any action to enforce these two laws. (See this PubCo post.) California then filed a motion to dismiss the second and third causes of action in the amended complaint for lack of subject matter jurisdiction (Rule 12b-1) and failure to state a claim (Rule 12b-6). Interestingly, however, the motion did not seek dismissal of Plaintiffs’ First Amendment claim (except as to the Attorney General, whom the motion sought to exclude altogether on the basis of sovereign immunity), even though California asserted that Plaintiffs’ First Amendment challenge was “legally flawed.” Plaintiffs then moved for summary judgment on the First Amendment claim, and California moved to deny that motion or to defer it, enabling the parties to conduct discovery. In November of last year, in this Order, the Federal District Court for the Central District of California denied Plaintiffs’ motion to dismiss as to that first claim (violation of the First Amendment) and granted California’s motion to deny or defer the motion for summary judgment. (See this PubCo post.) Now, in Chamber of Commerce v. California Air Resources Board, the Court has issued an Order granting California’s motion to dismiss and dismissing Plaintiffs’ second and third causes of action under the Supremacy Clause and dormant Commerce Clause (as invalid extraterritorial regulation). Stay tuned.
Under the new Administration, will Enforcement have a lighter touch?
Reuters is reporting exclusively that, according to its sources, under the new Administration, some Enforcement staff at the SEC “have been told they need to seek permission from the politically appointed leadership before formally launching probes,” marking a “change in procedure that could slow down investigations.” According to Reuters, some Enforcement staff have recently “been told that they will need to seek the Commission’s approval for all formal orders of investigation, which are required to issue subpoenas for testimony or documents.” Previously, Reuters reported, authority to formally launch investigations had been delegated to Enforcement directors or other senior staff, including even supervising attorneys; during the first term of the current Administration, the “SEC required approval by its two enforcement [co-]directors to formally launch probes.” However, the article indicates, Enforcement staff may still conduct informal investigations, including requesting information. The article indicates that Reuters was unable to determine whether these new instructions were the result of a formal SEC vote to “revoke the delegation of that authority, or who ordered the change.” Reuters suggested that “the change does not necessarily mean fewer investigations will be launched, but it means the Commissioners are taking more control over enforcement earlier in the process.” Reuters speculates that the move might reflect an effort to end the “weaponization” of government. Or, perhaps this move might also presage a “lighter touch” by SEC Enforcement under the new Administration?
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