Keith Bishop recently blogged this in his “California Corporate & Securities Law” Blog:
Recently, I received a notice from the Delaware Supreme Court informing me that a case in which one of my clients is a party has been called for argument. The notice asked that the enclosed “oral argument scheduling acknowledgment form” be completed and returned. I was immediately struck by the signature block which calls for the signature of the “Argufier or Local Counsel’s Signature”. I must confess that this is the first time in nearly 30 years of legal practice that I’ve come across the word “argufier”. In fact, I could find only one reported decision in any state or federal court that actually uses the word:
My Brothers note that not “a single applicable case” has been cited to the point “that judges performing forming like functions must receive the same salaries.” Here I cannot resist noting — for the amusement and possible enlightenment of readers in other States — that this is a peculiarly hearty old wheeze of Michigan trial courts (Michigan’s magniloquent own, so to speak). True, it is now hoary and shopworn. Yet it remains an occasional favorite of elder argufiers when they have no authority, and no reasoning of their own, with which to impress the wide-eyed attenders of periodic assizes.
Taylor v. Auditor General, 103 N.W.2d 769, 786 (Mich. 1960) (Black, J. Dissenting).
I Do Not Love Thee Dr. Fell
Another word that I sometimes run into is “amote,” which means to remove someone, such as a corporate director, from office. See In Re Burkin, 1 N.Y.2d 570, 572 (1956) (“At common law, stockholders have the traditional inherent power to remove a director for cause which is known as ‘amotion’.”) When I see “amote,” however, I think of love, not the unpleasant business of kicking someone out of office. I think of love because “amote” looks like the etymologically unrelated Latin phrase, “amo te”.
In Latin, “amo te” means “I love you.” Thus, whenever I see the word “amote”, I’m reminded of the story of Dr. Fell who was the Dean of Christ Church, Oxford in the 17th century. The story goes that an errant student had been called into Dr. Fell’s office to face possible expulsion. Dr. Fell offered the student absolution if the student could translate on the spot this epigram from the Roman poet Martial: “Non amo te, Sabidi, nec possum dicere – quare; Hoc tantum possum dicere, non amo te.” The student immediately gained pardon with the following translation:
I do not love thee, Dr Fell,
The reason why I cannot tell;
But this I know, and know full well,
I do not love thee, Dr Fell.
Robert Louis Stevenson makes a brief allusion to Dr. Fell in Chapter 2 of his book, Dr. Jeckyll and Mr. Hyde, and Hannibal Lecter uses the alias “Dr. Fell” in the 2001 film, Hannibal.
As noted in this Davis Polk memo, the U.S. Court of Appeals for the Seventh Circuit recently potentially expanded the extraterritorial reach of the U.S. antitrust laws. Its unanimous en banc decision in Minn-Chem, Inc. v. Agrium Inc. (7th Cir. 2012) may make it easier for the Department of Justice (“DOJ”), the Federal Trade Commission (“FTC”) and private litigants to challenge the conduct of foreign parties in foreign markets under the U.S. antitrust laws. The decision also creates and entrenches several circuit splits regarding the proper interpretation of the Foreign Trade Antitrust Improvements Act of 1982, and thereby increases the likelihood that the Supreme Court will elect to weigh in on these questions.
Last week, PwC released its Mid-Year M&A Outlook, noting that while uncertainty over the global economic environment and volatile equity markets significantly slowed US deal volume earlier in the year, an uptick in activity during the end of the second quarter, in conjunction with an active pipeline, indicates the M&A market is regaining momentum.
Some key highlights from the release include:
– Overall, there were a total of 3,870 transactions and $350 billion in disclosed deal value during the first half of 2012, compared to 4,606 deals and $592 billion in the same period of 2011
– In June alone, total deal value reached $76 billion, the best month for M&A value since October 2011 when deal value totaled $88 billion
– Divestiture activity is on the rise, accounting for nearly 28% of overall deal volume in the first half of 2012
– Private equity buyers accounted for 17% of activity and $46 billion in the first half of 2012
This July-August issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– Proxy Access Proposals: 2012 Review & 2013 Outlook
– M&A Indemnification Provisions: What Drafters May Be Critically Missing
– Private Equity Clubs Today: Keeping It In The Family
– Boilerplate Matters: Severability Clauses
As noted in this Davis Polk memo, the Board of Governors of the Federal Reserve System recently issued supervisory guidance describing a new, optional process for pre-filing staff review of specific aspects of proposed acquisitions or other proposals prior to the formal submission of an application or notice. Here is an excerpt from that memo:
The pre-filing review process is designed particularly for the benefit of infrequent filers, such as individuals, family trusts, private equity firms new to banking investments and community banking organizations, and filers with novel proposals, and is expected to facilitate speedier review of and Board action on final submissions.
The guidance introduces a formal process, including guidelines for appropriate subjects of inquiry and a review period of up to 60 days, for pre-filing feedback from Board and Federal Reserve Bank staff on potential issues raised by a proposed acquisition or other proposal. Although the guidance indicates that brief phone conversations and “limited e-mail correspondence” will not be deemed to trigger this pre-filing process, it suggests that any request for review of substantive written materials related to a proposal (other than individuals’ biographical and financial information for the purposes of background checks) would do so.
On May 31st, the Delaware Supreme Court entered an order affirming the May 4, 2012 decision of the Delaware Court of Chancery to temporarily enjoin Martin Marietta Materials from pursuing a hostile bid against Vulcan Materials Co. due to its use of confidential information in launching its hostile bid and its disclosure of confidential information in public filings and communications with the press and investors, all in breach of two confidentiality agreements between the parties. On July 10th, the Delaware Supreme Court issued a formal opinion explaining its decision. Notably, unlike the Court of Chancery, the Supreme Court based its decision entirely on the textual provisions of the confidentiality agreements at issue and did not resort to extrinsic evidence. Read more in this memo…
Here are some interesting thoughts from Kevin Miller of Alston & Bird:
Recently, the NY Times published a provocative article regarding pending litigation against Goldman Sachs arising out of GS’s role as financial advisor to Dragon Systems in connection with the sale of Dragon Systems to Lernout & Hauspie in a stock for stock transaction in June 2000. The alleged facts as described in the NY Times article and a federal court decision on a motion to dismiss plaintiffs’ claims are taken from plaintiffs’ complaint – which for purposes of defendant’s motion to dismiss, are generally assumed to be true – and do not reflect judicial determinations of fact after a full trial.
Here are selected slides summarizing a 2009 decision – Baker v. Goldman Sachs – on a motion to dismiss plaintiffs’ claims as well as certain takeaways from that decision (see also John Jenkins’ blog about this case).
Questions to consider include:
1. If L&H’s auditors were fooled after expending substantially greater time and resources auditing L&H’s financial statements, should a third party’s financial advisor with more limited access have liability for failing to uncover financial fraud?
2. If two years earlier GS (or according to the 2009 decision, it’s client GE) had signed a CA in connection with its evaluation of a potential principal investment in L&H and that CA prohibited GS (or GE and its representatives) from using the information it obtained for any purpose other than their evaluation of a potential principal investment in L&H, was that GS team legally permitted to disclose the confidential information it obtained and the views it formed thereon to the GS M&A team advising Dragon Systems or, directly or indirectly, to Dragon Systems itself two years later?
In addition to the takeaways in the slides, some financial advisors have added language along the lines of the underlined last sentence below following more typical language in their engagement letters to emphasize that their financial advisory services do not include performing financial diligence on behalf of their clients:
“[Financial advisor] will rely upon and assume the accuracy and completeness of all financial and other information furnished by or discussed with the Company, any other party to the proposed Transaction and their respective representatives, or available from public sources, and [financial advisor] does not assume responsibility for the accuracy or completeness of any such information. It is understood and agreed that [financial advisor] will not and will have no obligation to verify such information or to conduct any independent evaluation or appraisal of the assets or liabilities of the Company, any other party to the proposed Transaction or any other party and [financial advisor] will assume that any financial projections or forecasts (including cost savings and synergies) that may be furnished by or discussed with the Company or any other party to the proposed Transaction or their respective representatives have been reasonably prepared and reflect the best then currently available estimates and judgments of the Company’s or such other party’s management. The Company understands that [financial advisor] is not a legal, accounting or tax expert and is not undertaking to provide any legal, accounting or tax advice in connection with the proposed Transaction. [Financial advisor]’s role in reviewing any information is limited solely to such review as it deems necessary for purposes of its analysis and advice and shall not be on behalf of the Company.“
See also the 7th Circuit’s 2008 decision in HA-LO:
“CSFB followed the norm in this business–more to the point, it followed the rules in its contract with HA-LO–and relied on management’s numbers. It told HA-LO to hire someone to check those numbers. Separating number-creation from number-evaluation is not illegal and may make business sense. The division of labor between number verifiers (Ernst & Young) and number crunchers (CSFB) is not to be sneezed at; the division of labor has large benefits for an economy, as it allows specialists to do what they are best at . . . . This suit is nothing but an attempt to find a deep pocket to reimburse Investors for the costs of managers’ blunders. But CSFB did not write an insurance policy against managers’ errors of business judgment. Compelling investment banks to provide business-risks insurance as part of a fairness opinion would just make investors worse off, as that would increase the price of each opinion. Investors would pay ex ante for any benefit received ex post–and the bar would pocket a substantial portion of the transfer payments.” HA2003 Liquidating Trust v. Credit Suisse Securities (USA) LLC, 517 F.3d 454 (7th Cir. 2008)
In the distant past, agreements were reached and performed contemporaneously. Our ancestors would meet, negotiate an exchange of meat for hides, and be on their way. Without writing, most deal making was necessarily consigned to exist only in the eternal present. Of course, it was possible to make oral promises, but these created significant problems of proof. Did the other party make a promise? If so, what exactly did she promise? Writing allowed for agreements to be memorialized and thus to have future effect. While the law continued to recognize oral agreements, statutes of fraud typically allowed for the enforcement of only inconsequential agreements. Sir William Blackstone in his Commentaries on the Laws of England distinguished between covenants and promises: “A promise is in the nature of a verbal covenant, and wants nothing but the solemnity of writing and sealing to make it absolutely the same.” (Book III, ch. 9).
Times have changed. As the California Court of Appeal has observed:
Today the stakes are much higher and negotiations are much more complex. Deals are rarely made in a single negotiating session. Rather, they are the product of a gradual process in which agreements are reached piecemeal on a variety of issues in a series of face-to-face meetings, telephone calls, e-mails and letters involving corporate officers, lawyers, bankers, accountants, architects, engineers and others.
Copeland v. Baskin Robbins U.S.A., 96 Cal. App. 4th 1251, 1262 (2002). As deal making has become more complex, parties often create term sheets and letters of intent as both a memorial and guide. As a memorial, a letter of intent evidences the terms on which the parties have agreed so far. As a guide, it identifies lacunae that must be filled by future agreement. Because parties can expend considerable resources in a negotiation, the enforceability of letters of intent has become a subject of litigation.
In some situations, a party may sue for breach of contract. However, the incomplete nature of letters of intent is likely to lead to grief because it is “still the general rule that where any of the essential elements of a promise are reserved for the future agreement of both parties, no legal obligation arises ‘until such future agreement is made.'” Copeland at 1256 (quoting City of Los Angeles v. Superior Court, 51 Cal.2d 423, 433 (1959). A party may also try to sue on the basis that the letter of intent constitutes an “agreement to agree”. These attempts are likely to be unavailing because numerous California courts have held that there is no remedy for breach of an agreement to agree. Copeland at 1256.
In Copeland, the Court of Appeal identified a third way by holding that parties could enter into an enforceable agreement to negotiate a contract. In doing so, the court distinguished agreements to agree by explaining that a contract to negotiate is performed even though the parties do not ultimately reach an agreement. A party doesn’t breach a contract to negotiate by failing to agree but by failing to negotiate or to negotiate in good faith.
On July 5th, the Code Committee of the Takeover Panel published three consultation papers inviting comments on proposed amendments to the Takeover Code. The first paper sets out the Code Committee’s proposals for amendments to the provisions of the Code which relate to profit forecasts, merger benefits statements and material changes in information previously published during an offer period. The second paper examines certain issues relating to pension scheme trustees and sets out the Code Committee’s proposals to extend the provisions of the Code that apply to employee representatives to apply also to the trustees of the offeree company’s pension schemes. The third paper is concerned with the companies to which the Code applies and principally deals with the Code Committee’s proposal to remove the residency test from the rules that determine the application of the Code.
We have posted the survey results regarding typical practices for company executives and HSR filing fees, repeated below:
1. Does your company require executives to comply with HSR filing requirements upon acquiring company shares:
– Yes, and they have been for a while – 39%
– Yes, but only recently because of this enforcement action – 16%
– No – 45%
2. If the answer to #1 above is “yes,” who pays the HSR filing fee:
– Executive with no reimbursement by the company – 40%
– Executive with full reimbursement by the company – 20%
– Executive with partial reimbursement by the company – 0%
– Company – 40%
3. If the executive pays HSR filing fee but is partially reimbursed by the company, in what manner is the reimbursement:
– Specified percentage – 0%
– Specified dollar amount – 50%
– Specified Formula – 50%