1508 Search Results

October 17, 2019 |
Webcast: Litigating Article 78 Challenges to Government Action in New York

With New York City and State agencies and government officials—from the Attorney General to the New York State Department of Financial Services to the New York City Department of Buildings—taking a more and more aggressive role in policing virtually every industry operating in New York, it has become critical for regulated industries to understand their legal options in challenging New York State and City agency regulations, executive determinations, and government policies. The primary vehicle for doing so is the Article 78 proceeding, brought in New York State Supreme Court. In this one-hour presentation, two of our most experienced partners in the field of challenging government action in New York—Mylan Denerstein and Akiva Shapiro—provide practical and strategic guidance for the successful prosecution of these sometimes misunderstood summary proceedings. Using real-world examples from their practice, they will discuss the primary strategic issues that you should consider in deciding whether to bring an Article 78 action (versus, for example, a suit in federal court); provide a roadmap for Article 78 actions and keys to success; and discuss the procedural hurdles actors often throw up in defending against these actions, and ways of neutralizing them. The program is beneficial to anyone regulated or affected by actions taken by New York City and State agencies and officials. View Slides (PDF) PANELISTS: Mylan Denerstein is a litigation partner in the New York office of Gibson, Dunn & Crutcher. Ms. Denerstein is Co-Chair of Gibson Dunn’s Public Policy Practice Group and a member of the Crisis Management, White Collar Defense and Investigations, Labor and Employment, Securities Litigation, and Appellate Practice Groups. Ms. Denerstein leads complex litigation and internal investigations, representing companies in their most critical times, typically involving state, municipal, and federal government agencies. Prior to joining Gibson Dunn, Ms. Denerstein served as Counsel to New York State Governor Andrew Cuomo; in a diverse array of legal positions in New York State and City agencies; and as a federal prosecutor and Deputy Chief of the Criminal Division in the U.S. Attorney’s Office for the Southern District of New York. Ms. Denerstein was named to the 2019 list of “Notable Women in Law” by Crain’s New York Business and the 2019 “Law Power 50” list by City & State. Akiva Shapiro is a litigation partner in the New York office of Gibson, Dunn & Crutcher, where he is a member of the Firm’s Appellate and Constitutional Law, Media & Entertainment, Securities Litigation, and Betting & Gaming Practice Groups. Mr. Shapiro’s practice focuses on a broad range of high-stakes constitutional, commercial, and appellate litigation matters, including Article 78, First Amendment, Due Process, and statutory challenges to government actions and regulations. He is regularly engaged in front of New York’s trial courts, federal and state courts of appeal, and the U.S. Supreme Court, and has been named a Super Lawyers New York Metro “Rising Star” in Constitutional Law. MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

October 4, 2019 |
Gibson Dunn Ranked in the 2020 UK Legal 500

The UK Legal 500 2020 ranked Gibson Dunn in 15 practice areas and named seven partners as Leading Lawyers.  The firm was recognized in the following categories: Corporate and Commercial: Corporate Tax Corporate and Commercial: Equity Capital Markets – Mid-Large Cap Corporate and Commercial: EU and Competition Corporate and Commercial: M&A: upper mid-market and premium deals, £500m+ Corporate and Commercial: Private equity: transactions – high-value deals (£250m+) Dispute Resolution: Commercial Litigation Dispute Resolution: International Arbitration Dispute Resolution: Public International Law Human Resources: Employment – Employers Projects, Energy and Natural Resources: Oil and Gas Public Sector: Administrative and Public Law Real Estate: Commercial Property – Hotels and Leisure Real Estate: Commercial Property – Investment Real Estate: Property Finance Risk Advisory: Regulatory Investigations and Corporate Crime The partners named as Leading Lawyers are Sandy Bhogal – Corporate and Commercial: Corporate Tax; Steve Thierbach – Corporate and Commercial: Equity Capital Markets; Ali Nikpay – Corporate and Commercial: EU and Competition; Philip Rocher – Dispute Resolution: Commercial Litigation; Cyrus Benson – Dispute Resolution: International Arbitration; Jeffrey Sullivan – Dispute Resolution: International Arbitration; and Alan Samson – Real Estate: Commercial Property – Investment and Real Estate: Property Finance. Claibourne Harrison has also been named as a Rising Star for Real Estate: Commercial Property – Investment. The guide was published on September 26, 2019. Gibson Dunn’s London office offers full-service English and U.S. law capability, including corporate, finance, dispute resolution, competition/antitrust, real estate, labor and employment, and tax.  Our lawyers advise international corporations, financial institutions, private equity funds and governments on complex and challenging transactions and disputes. Our London corporate practice is at the forefront of cross-border M&A, financing and joint venture transactions, including advising clients seeking to access U.S. and European capital markets.  Team members handle major domestic and multi-jurisdictional commercial cases before English, EU and Commonwealth courts, and have a wealth of experience in taking complex matters to trial.  Gibson Dunn’s London office was founded more than 30 years ago.  Our dynamic team includes many dual-qualified lawyers with extensive language skills.

October 1, 2019 |
Benchmark Litigation US 2020 Gives Top Marks to Gibson Dunn

Benchmark Litigation US recognized Gibson Dunn in eight national litigation practice areas in its 2020 edition and named 67 partners as Litigation Stars and Future Stars across the U.S.  Nationally, the firm received Tier 1 rankings in the Antitrust, Appellate, General Commercial, Intellectual Property, Labor & Employment, Securities and White Collar Crime categories.  The firm also earned the publication’s highest recommendations for its litigation practices in California, New York, Texas and Washington, D.C. The publication also named the firm as one of the “Top 20 Trial Firms” in the nation and named four partners to its annual “Top 100 Trial Lawyers in America” list: Century City partner Wayne Barsky, New York partners Randy Mastro and Orin Snyder, and Washington DC partner Richard Parker.  The rankings were released September 25, 2019.

October 1, 2019 |
Anne Champion and Randy Mastro Named Litigators of the Week

The Am Law Litigation Daily named New York partners Anne Champion and Randy Mastro as its Litigators of the Week [PDF] for successfully persuading a district judge that a foreign arbitration award against Chevron was a sham.  The profile was published on September 27, 2019. Anne Champion is a member of Gibson Dunn’s Transnational Litigation, Environmental Litigation, and Intellectual Property Practice Groups.  She has played a lead role in a wide range of high-stakes litigation matters, including trials. Randy Mastro, Co-Chair of the Firm’s Litigation Practice Group, routinely ranks among the nation’s leading litigators and trial lawyers in surveys of corporate counsel and other practitioners.  He has tried dozens of cases in private practice and as a federal prosecutor, and he has also argued more than 100 appeals in federal and state appellate courts throughout the country.

October 1, 2019 |
Everyone Jump In! All Issuers Will Be Allowed to “Test-the-Waters”

Click for PDF On September 26, 2019, the U.S. Securities and Exchange Commission (the “SEC” or the “Commission”) announced[1] that it has adopted a new rule, Rule 163B[2] under the Securities Act of 1933 (the “Securities Act”), that allows all issuers to “test-the-waters.” This accommodation, which had previously been available only to emerging growth companies (“EGCs”), allows issuers or authorized persons (e.g., underwriters) to engage in discussions with, and provide written offering material to, certain institutional investors prior to, or following, the filing of a registration statement, to determine market interest in potential registered securities offerings. Rule 163B will become effective 60 days after publication in the Federal Register. In connection with the adoption of Rule 163B, Chairman Jay Clayton noted in a public statement[3] that test-the waters communications “have proven to be a popular and cost-effective means for evaluating market interest before incurring the costs associated with an initial public offering.” Chairman Clayton contended that Rule 163B will provide “both Main Street and institutional investors with more opportunities to invest in public companies.” This is consistent with one of the tenets of the SEC’s current Strategic Plan[4] to increase the number of public companies for the benefit of Main Street investors. The SEC initially proposed a new rule allowing all issuers to test-the-waters (the “Proposed Rule”) on February 19, 2019.[5] Under the Proposed Rule, any issuer or authorized person (e.g., an underwriter) would be permitted to engage in oral or written communications with potential investors that the issuer reasonably believes are qualified institutional buyers (“QIBs”), as that term is defined in Rule 144A, or institutional accredited investors (“IAIs”). In the Proposed Rule, the SEC stated that the new rule would “help issuers better assess the demand for and valuation of their securities,” which may in turn “enhance the ability of issuers to conduct successful offerings and lower their cost of capital.” Summary of Rule 163B The key provisions of Rule 163B are outlined below. Rule 163B in the form adopted by the SEC is largely consistent with the Proposed Rule, with few exceptions as noted. The requirements and liability associated with Rule 163B are also generally consistent with Section 5(d) of the Securities Act, which allows EGCs to engage in testing-the-waters. It expands on, and modifies the provisions of, Rule 163, which is available only to well-known seasoned issuers (“WKSIs”). Exemption Allowing Test-the-Waters Communications 163B communications considered “offers.” Test-the-waters communications under Rule 163B will be considered “offers” under Section 2(a)(3) of the Securities Act, and as a result, will still be subject to Section 12(a)(2) liability, as well as the anti-fraud provisions of the Federal securities laws. No filing requirement. In contrast to Rule 163, issuers will not be required to file Rule 163B test-the-waters communications with the SEC or include any special legend on the communication. The SEC noted that it could request copies of test-the-waters communications when reviewing a registration statement, and we would expect offering-related comment letters to include such requests consistent with the current practice. Also, written communications used in reliance on Rule 163B will not constitute free writing prospectuses, and the SEC clarified that Section 5(d) written communications also are not “free writing prospectuses” under Rule 405 and are exempt from the prospectus filing requirement under Rule 424(b). Inconsistency with the registration statement. Information in a test-the-waters communication must not conflict with material information in the related registration statement. In response to commenters’ concerns related to the possibility of having materials in the pre-filing test-the-waters communications that are different from the information in the registration statement, the SEC clarified in the proposing release for Rule 163B that its statement regarding issuers having consistent information in the Rule 163B communications and the registration statement is “intended to provide guidance to issuers” and is not a condition to determine the availability of Rule 163B. The SEC, however, emphasized the importance of not having any material misstatements or omissions in the Rule 163B communications. Regulation FD applies to test-the-waters communications. When providing test-the-waters communications to potential or current investors, issuers subject to Regulation FD must consider whether any information in such communication triggers any obligations under Regulation FD where material nonpublic information needs to be publicly disclosed or shared only on a confidential basis. General solicitation. In response to commenters’ concerns related to the possibility of the Rule 163B communications being viewed as a general solicitation that could disqualify an issuer from conducting a private placement instead of a registered offering, the SEC stated that whether such communications would constitute a general solicitation depends on the facts and circumstances, which issuers must evaluate when contemplating a subsequent private placement. Elimination of “anti-evasion” language in the Proposed Rule. The SEC has removed “anti-evasion” language in the Proposed Rule that would make the rule unavailable for any communication that are “in technical compliance with the rule,” but “is part of a plan or scheme to evade the requirements of the Section 5 of the [Securities] Act.” The SEC noted that this removal was in light of concerns expressed by certain commenters that the anti-evasion language creates more confusion and may deter issuers from using Rule 163B. Scope of Eligible Issuers All issuers—including non-reporting issuers, EGCs, non-EGCs, WKSIs and investment companies (including registered investment companies and business development companies (“BDCs”))—are eligible to rely on Rule 163B. Under Rule 163B as adopted, any issuer, or person authorized to act on behalf of the issuer, is permitted to engage in exempt oral or written communications with qualified potential investors.In a significant expansion from Rule 163, which permitted communications only by the issuer, Rule 163B also applies to communications by “persons authorized to act on behalf of” the issuer, which means that it can be relied on by an issuer’s investment bankers and other advisors. Investor Status Consistent with the Proposed Rule, Rule 163B permits an issuer to engage in pre- and post-filing solicitations of interest with potential investors that are, or that the issuer reasonably believes to be, QIBs or IAIs. A QIB generally is a specified institution that, acting for its own account or the accounts of other QIBs, in the aggregate, owns and invests on a discretionary basis at least $100 million in securities of unaffiliated issuers. An IAI is any institutional investor that is also an accredited investor, as defined in paragraph (a) of Rule 501 of Regulation D. Under Rule 163B, any potential investor solicited must meet, or issuers must reasonably believe that the potential investor meets, the requirements of the rule. Limiting communications to QIBs and IAIs. Despite recommendations from several commenters that the SEC consider expanding the class of eligible investors that may be engaged with in test-the-waters communications, the Commission limited the class of eligible investors to QIBs and IAIs in Rule 163B, which is consistent with the Proposed Rule. Reasonable belief standard. Rule 163B does not specify the steps that an issuer could or must take to establish a reasonable belief regarding investor status or require the issuer to verify investor status. In response to comments regarding this standard, the SEC stated that “by not specifying the steps an issuer could or must take to establish a reasonable belief as to investor status, this approach is intended to provide issuers with the flexibility to use methods that are cost-effective but appropriate in light of the facts and circumstances of each contemplated offering and each potential investor.” Non-Exclusivity of Rule 163B The Commission explicitly stated that Rule 163B is non-exclusive and an issuer is able to rely concurrently on other Securities Act communications rules or exemptions when determining how, when, and what to communicate related to a contemplated securities offering. Use by Investment Companies Issuers that are, or that are considering becoming, registered investment companies or BDCs (collectively, “funds”) are also eligible to engage in test-the-waters communications under Rule 163B. The Commission will not require any different filing, legending, or content requirements for funds’ test-the-waters communications under Rule 163B. Considerations When Using New Rule 163B While the SEC is hopeful that Rule 163B “will allow issuers to consult effectively with investors as they evaluate market interest in a contemplated registered securities offering before incurring the costs associated with such an offering, while maintaining adequate investor protections,” issuers must still be wary of certain restrictions and use the test-the-waters communications with caution. As the SEC emphasized in Rule 163B, issuers must ensure that there are no material misstatements or omissions in any test-the-waters communications. Even though the SEC acknowledged concerns regarding possible inconsistencies between materials in Rule 163B communications and information in the corresponding registration statements, such communications are still subject to Section 12(a)(2) liability, as well as anti-fraud provisions. In addition, given that Rule 163B communications will be subject to the requirements of Regulation FD, issuers that are subject to Regulation FD will need to determine whether Rule 163B communications will trigger Regulation FD’s requirements and whether to share the information only on a confidential basis through a wall-cross approach (subject to possible need for cleansing), similar to current practice in confidentially marketed offerings. _________________________ [1] https://www.sec.gov/news/press-release/2019-188 [2] https://www.sec.gov/rules/final/2019/33-10699.pdf [3] https://www.sec.gov/news/public-statement/clayton-2019-09-26-three-rulemakings [4] For more information on the Strategic Plan, see Gibson, Dunn & Crutcher LLP, “The SEC Adopts Strategic Plan for 2018-2022,” available at http://SecuritiesRegulationMonitor.com/Lists/Posts/Post.aspx?ID=340 [5] For more information on the Proposed Rule, see Gibson, Dunn & Crutcher LLP, “SEC Proposes Long-Awaited Expansion of “Test-the-Waters” to All Issuers – Use With Caution,” available at https://www.securitiesregulationmonitor.com/Lists/Posts/Post.aspx?ID=352 Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact any member of the Gibson Dunn team, the Gibson Dunn lawyer with whom you usually work in the firm’s Capital Markets practice group, or the authors: Andrew L. Fabens – New York (+1 212-351-4034, afabens@gibsondunn.com) Hillary H. Holmes – Houston (+1 346-718-6602, hholmes@gibsondunn.com) Glenn R. Pollner – New York (+1 212-351-2333, gpollner@gibsondunn.com) Jenny J. Choi – New York (+1 212-351-2385, jchoi@gibsondunn.com) Melanie E. Gertz – San Francisco (+1 415-393-8243, mgertz@gibsondunn.com) Please also feel free to contact any of the following practice leaders: Capital Markets Group: Stewart L. McDowell – San Francisco (+1 415-393-8322, smcdowell@gibsondunn.com) Peter W. Wardle – Los Angeles (+1 213-229-7242, pwardle@gibsondunn.com) Andrew L. Fabens – New York (+1 212-351-4034, afabens@gibsondunn.com) Hillary H. Holmes – Houston (+1 346-718-6602, hholmes@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 24, 2019 |
UK Supreme Court Decides Suspending UK Parliament Was Unlawful

Click for PDF The UK’s highest court has today ruled (here) that Prime Minister Boris Johnson’s decision to suspend (or “prorogue”) Parliament for five weeks, from September 9, 2019 until October 14, 2019, was unlawful. The Supreme Court, sitting with eleven justices instead of the usual five, unanimously found “that the decision to advise Her Majesty to prorogue Parliament was unlawful because it had the effect of frustrating or preventing the ability of Parliament to carry out its constitutional functions without reasonable justification”. It is a well-established constitutional convention that the Queen is obliged to follow the Prime Minister’s advice. The landmark Supreme Court ruling dealt with two appeals, one from businesswoman Gina Miller and the other from the UK Government. Mrs Miller was appealing a decision of the English Divisional Court that the prorogation was “purely political” and not a matter for the courts. The UK Government was appealing a ruling of Scotland’s Court of Session that the suspension was “unlawful” and had been used to “stymie” Parliament. A link to the full judgment is here. A key question before the Court, therefore, was whether the lawfulness of the Prime Minister’s advice to Her Majesty was “justiciable”, i.e. whether the court had a right to review that decision or whether it was purely a political matter. The Court held that the advice was justiciable: “The courts have exercised a supervisory jurisdiction over the lawfulness of acts of the Government for centuries”. The next question was on the constitutional limits of the power to prorogue. The Court decided that prorogation would be unlawful if it had the effect of “frustrating or preventing, without reasonable justification, the ability of Parliament to carry out its constitutional functions as a legislature and as the body responsible for the supervision of the executive”. The Court stated that it was not concerned with the Prime Minister’s motive; the key concern was whether there was good reason for the Prime Minister to prorogue as he did. The subsequent question related to the effect of the prorogation. The Supreme Court held that the decision to prorogue Parliament prevented Parliament from carrying out its constitutional role of holding the government to account and that, in the “quite exceptional” surrounding circumstances, it is “especially important that he [the Prime Minister] be ready to face the House of Commons.” The Court held that it was “impossible for us to conclude, on the evidence which has been put before us, that there was any reason – let alone a good reason – to advise Her Majesty to prorogue Parliament for five weeks”. The final question was on the legal effect of that finding and what remedies the Court should grant. The Court declared that as the advice was unlawful, the prorogation was unlawful, null and of no effect; Parliament had not been prorogued. The Supreme Court’s judgment further explained that “as Parliament is not prorogued, it is for Parliament to decide what to do next.” Almost immediately after judgment was handed down, it was announced that both the House of Commons and House of Lords will resume sitting tomorrow, Wednesday September 25, 2019. Prime Minister’s Questions – usually scheduled for each Wednesday that Parliament is in session – will not take place due to notice requirements. The UK Government has pledged to “respect” the judgment and the Prime Minister plans to return to the UK from New York, where he is due to address the U.N. General Assembly. Shortly before Parliament was prorogued, a new law was passed requiring the Prime Minister to seek an extension to the current October 31 deadline for the UK to leave the EU unless Parliament agreed otherwise (European Union (Withdrawal) (No. 2) Act 2019). The Government has asserted that this legislation is defective and continues to insist that the UK will leave the EU on October 31, 2019. The Supreme Court’s judgment does not directly affect the position in respect of the October 31 deadline. This client alert was prepared by Patrick Doris, Anne MacPherson, Charlie Geffen, Ali Nikpay and Ryan Whelan in London. We have a working group in London (led by Patrick Doris, Charlie Geffen, Ali Nikpay and Selina Sagayam) addressing Brexit related issues.  Please feel free to contact any member of the working group or any of the other lawyers mentioned below. Ali Nikpay – Antitrust ANikpay@gibsondunn.com Tel: 020 7071 4273 Charlie Geffen – Corporate CGeffen@gibsondunn.com Tel: 020 7071 4225 Sandy Bhogal – Tax SBhogal@gibsondunn.com Tel: 020 7071 4266 Philip Rocher – Litigation PRocher@gibsondunn.com Tel: 020 7071 4202 Jeffrey M. Trinklein – Tax JTrinklein@gibsondunn.com Tel: 020 7071 4224 Patrick Doris – Litigation; Data Protection PDoris@gibsondunn.com Tel:  020 7071 4276 Alan Samson – Real Estate ASamson@gibsondunn.com Tel:  020 7071 4222 Penny Madden QC – Arbitration PMadden@gibsondunn.com Tel:  020 7071 4226 Selina Sagayam – Corporate SSagayam@gibsondunn.com Tel:  020 7071 4263 Thomas M. Budd – Finance TBudd@gibsondunn.com Tel:  020 7071 4234 James A. Cox – Employment; Data Protection JCox@gibsondunn.com Tel: 020 7071 4250 Gregory A. Campbell – Restructuring GCampbell@gibsondunn.com Tel:  020 7071 4236 © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 17, 2019 |
Ronald Mueller and Lori Zyskowski Elected Fellows by American College of Governance Counsel

Washington, D.C. partner Ronald O. Mueller and New York partner Lori Zyskowski were elected as Fellows of the American College of Governance Counsel. The American College of Governance Counsel is a professional, educational, and honorary association of lawyers widely recognized for their achievements in the field of governance. The newly elected fellows were announced in July 2019. Ronald Mueller advises public companies on a broad range of SEC disclosure and regulatory matters, executive and equity-based compensation issues, and corporate governance and compliance issues and practices. He advises some of the largest U.S. public companies on SEC reporting, proxy disclosures and proxy contests, shareholder engagement and shareholder proposals, and Section 16 reporting and compliance. Lori Zyskowski is Co-Chair of the Firm’s Securities Regulation and Corporate Governance Practice Group. She advises clients, including public companies and their boards of directors, on corporate governance and securities disclosure matters, with a focus on Securities and Exchange Commission reporting requirements, proxy statements, annual shareholders meetings, director independence issues, and executive compensation disclosure best practices.

September 13, 2019 |
Stacie Fletcher and Katherine Smith Named Among Americas Rising Stars

Euromoney Legal Media Group named two partners to its 2019 Americas Rising Stars list. Washington D.C. partner Stacie Fletcher was named “Best in Environment,” and Los Angeles partner Katherine Smith was awarded “Best in Labor & Employment.” The awards were announced on September 12, 2019. Stacie Fletcher represents clients in a wide variety of federal and state litigation, including agency enforcement actions, cost recovery cases, and mass tort actions. Katherine Smith has extensive experience representing employers in individual, representative and class action litigation at both the trial court and appellate level. Her practice focuses on high stakes litigation matters such as wage and hour class actions, whistleblower retaliation cases, and executive disputes.

September 10, 2019 |
Litigation Partner Joshua Lerner Joins Gibson Dunn in San Francisco

Gibson, Dunn & Crutcher LLP is pleased to announce that Joshua Lerner has joined the firm as a partner in its San Francisco office.  Lerner, formerly a partner at Durie Tangri, will continue to focus on litigating major complex commercial matters. “Josh will be a terrific addition to the firm,” said Ken Doran, Chairman and Managing Partner of Gibson Dunn.  “He has a well-deserved reputation as an accomplished trial lawyer.  Having spent time in-house and in private practice, Josh brings a pragmatic perspective to the business and legal issues confronting our clients, particularly in the tech sector.  Gibson Dunn has one of the premier litigation platforms in the world, and Josh will add to that strength.” “Josh brings excellent experience representing large multinational technology clients in high-stakes matters,” said Charles J. Stevens, Partner-in-Charge of the San Francisco office.  “He will complement our thriving litigation practice in the Bay Area and firmwide.” “I’m thrilled to join the Gibson Dunn team,” Lerner said.  “Gibson Dunn’s reputation as a litigation powerhouse is well-known, and I’m looking forward to expanding my practice.  I’m also confident that the firm’s collaborative culture will be a natural fit.” About Joshua Lerner Lerner advises leading technology companies on complex commercial litigation.  His practice covers a wide variety of areas, including class actions, intellectual property, trade secrets, breach of contract and founder disputes. Before joining Gibson Dunn, Lerner was a partner at Durie Tangri for 10 years.  From 2006 to 2009, he was in-house at Genentech, serving as a Senior Litigation Counsel.  Prior, he also practiced at Clarence Dyer LLP & Cohen and Keker, Van Nest & Peters LLP.  Over the course of his career, Lerner has taught business torts at University of California, Hastings College of the Law. Lerner received his law degree in 2001 from the University of California, Berkeley, School of Law.

September 9, 2019 |
SEC Staff Announces Significant Changes to Shareholder Proposal No-Action Letter Process

Click for PDF On September 6, 2019, the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (“SEC”) announced[1] two significant procedural changes for responding to Exchange Act Rule 14a-8 no-action requests that will be applicable beginning with the 2019-2020 shareholder proposal season: Oral Response by Staff: The Staff may now respond orally instead of in writing to shareholder proposal no-action requests.  The Staff’s oral response will inform both the company and the proponent of its position with respect to the company’s asserted Rule 14a-8 basis for exclusion expressed in the no-action request.  The Staff stated that it intends to issue a written response letter to a no-action request “where it believes doing so will provide value such as more broadly applicable guidance about complying with Rule 14a-8.” No Definitive Response by Staff: The Staff may now more frequently decline to state a view on whether or not it concurs that a company may properly exclude a shareholder proposal under Rule 14a-8.  Importantly, the Staff stated that if it declines to state a view on any particular no-action request, the interested parties should not interpret that position as indicating that the proposal must be included in the company’s proxy statement.  Instead, the Staff stated that in these circumstances, the company requesting exclusion may have a valid legal basis to exclude the proposal under Rule 14a-8. In the announcement, the Staff also reiterated that—in the situations described in prior Staff Legal Bulletins[2]—it continues to find an analysis by the board of directors useful when a company seeks to exclude a proposal on grounds of either ordinary business (Rule 14a-8(i)(7)) or economic relevance (Rule 14a-8(i)(5)).  The Staff also noted that parties continue to be able to seek formal, binding adjudication on the merits of Rule 14a-8 issues in court. Background of the Staff’s Announcement Under Rule 14a-8(j), if a company intends to exclude a shareholder proposal from its proxy materials, it must notify the SEC no later than 80 calendar days before it files its definitive proxy statement, and must simultaneously provide the shareholder proponent with a copy of its submission.  The company’s submission must include an explanation of why the company believes that it may exclude the proposal under Rule 14a-8, and the explanation “should, if possible, refer to the most recent applicable authority, such as prior [Staff] letters issued under the rule.”[3]  This mandatory process has evolved into the practice of companies submitting no-action requests that ask the Staff to concur with their view that shareholder proposals are properly excludable under one of the procedural requirements or substantive bases set forth in Rule 14a-8. Rule 14a-8 contemplates that the Staff will respond to these requests.  For example, Rule 14a-8(k) states that a shareholder proponent can respond to a company’s exclusion notice, but states that proponents should make such submissions as quickly as possible so that the Staff “will have time to consider fully your submission before it issues its response.”  In Staff Legal Bulletin No. 14, the Staff stated, “Although we are not required to respond [to a no-action request], we have, as a convenience to both companies and shareholders, engaged in the informal practice of expressing our enforcement position on these submissions through the issuance of no-action responses.  We do this to assist both companies and shareholders in complying with the proxy rules.”[4]  Thus, for the past several decades, the Staff has responded to almost every shareholder proposal no-action request, except in limited situations (discussed below).  Similarly, the Staff has treated Rule 14a-8 no-action requests differently than no-action requests in other contexts by publicly disclosing the Rule 14a-8 no-action requests promptly following submission, whereas most no-action requests not involving Rule 14a-8 are publicly disclosed only after the Staff has responded to the request.[5] Following the 2018-2019 shareholder proposal season, during which the Staff performed the Herculean task of timely responding to hundreds of shareholder proposal no-action requests notwithstanding the month-long partial government shutdown, the Staff stated in a number of forums that it was considering changing its practice of expressing its views in writing in response to every no-action request.  For example, Division of Corporation Finance Director William Hinman was quoted as stating, “Going forward . . . we are going to be thinking about whether every request for a no-action letter need[s] a formal response from us.”[6]  Director Hinman added, “If we don’t think we have something to add, we may not issue a letter.  Something we are thinking about.  We may actively monitor the area and not necessarily give a response.”[7] As a result of these reports, a number of groups met with and/or wrote to the Staff regarding its proposal, raising concerns with the proposed change.[8] Perspectives on the Staff’s Announcement The Staff’s announcement provides few details on how and in what circumstances its new policy will be implemented.  While the full implications of the Staff’s announcement thus are difficult to assess, some initial observations follow. No Immediate Relief for Companies or Proponents: While the number of Rule 14a-8 no-action requests submitted to the Staff has been trending downward,[9] the new procedures may further relieve some of the burdens on the Staff of the shareholder proposal process.  However, they do not appear to lessen the costs and burdens of the shareholder proposal process on companies.  Under Rule 14a-8(j), a company must still notify the Staff if it intends to exclude a shareholder proposal from its proxy statement under Rule 14a-8, and it must still explain why the company believes that it may do so.  Because the Staff’s announcement provides no clear standards on when the Staff will apply its new procedures, companies likely will conclude that they should continue to request no-action relief and fully explain and cite support for their position.  Likewise, shareholder proponents may continue to conclude that it is worthwhile for them to submit responses seeking to refute companies’ positions on the excludability of proposals. Uncertainty over Effect of Staff’s Decisions to Decline to State its Views: The Staff historically has only rarely declined to state its views on a no-action request under Rule 14a-8, typically adopting that position when a proposal topic was subject to pending litigation.[10]  Importantly, the Staff announcement noted that its determination to not state its views on a no-action request does not mean that it disagrees with a company’s analysis or conclusion and that, in fact, the company requesting exclusion may have a valid legal basis to exclude the proposal under Rule 14a-8.  Nevertheless, a company faced with this situation will have the dilemma of determining whether in fact to exclude the proposal.  As noted by the Council of Institutional Investors (“CII”) in its letter to the Staff,[11] the result may be that some companies include proposals in their proxy statements that, in the past, the Staff would have concurred could be excluded.  That result would require all of the company’s shareholders (many of whom already have been overburdened with assessing how to vote on proposals during proxy season) to expend valuable time and resources on such proposals, even though, in CII’s words, “[s]ome of these proposals are likely to be misguided or on trivial issues.”[12]  In considering whether to omit a proposal in such situation, a company will need to consider the potential reaction of its shareholders, the risk of adverse publicity, possible reactions from proxy advisory firms (discussed below), the risk of litigation, and the possibility that including the proposal in its proxy statement will attract more proposals in future years. Response of Proxy Advisors: Both Institutional Shareholder Services (“ISS”) and Glass Lewis have policies under which they may recommend votes against directors if a company excludes a proposal without having received a Staff response or court order agreeing that the proposal is excludable or withdrawal from the proponent.[13]  However, these policies were issued before the Staff’s announcement and statement that their declining to state a view on a no-action request does not mean that a company has failed to state a valid basis to exclude the proposal.  Given concerns that have been expressed over burdens imposed on all shareholders if the Staff’s new policies result in an increase in the number of proposals included in company proxy statements, it will be important to watch whether the proxy advisory firms adopt a more nuanced approach to their analyses of company decisions to omit shareholder proposals when the Staff has declined to state a view, particularly in light of the SEC’s recent interpretive guidance on the applicability of Rule 14a-9 to the firms’ voting recommendations and cautions regarding the fiduciary duties of investment advisors relying on such recommendations.[14] Increased Risk of Litigation and Related Costs: Although Staff no-action letter responses reflect only informal views of the Staff and not binding adjudications, both companies and proponents have tended to defer to the Staff’s views, and litigation under Rule 14a-8 has been rare.[15]  Shareholder proposal litigation is costly (especially compared to the costs of obtaining a no-action letter response), and federal district courts cannot be relied upon to consider and adjudicate shareholder proposal disputes on the expedited schedule required during proxy season.  Nevertheless, it has always been the case, as noted in the Staff’s announcement, that “the parties may seek formal, binding adjudication on the merits of [a Rule 14a-8 interpretive] issue in court.”  The Staff’s announcement increases the risk to both proponents and companies that they may find themselves in court addressing the excludability of a shareholder proposal under Rule 14a-8. Greater Uncertainty in Rule 14a-8 Interpretations: A number of questions remain on the potential impact of the Staff’s new policies on the long-term transparency around and dynamics of the Rule 14a-8 process. For example, the Staff currently maintains two Rule 14a-8-related websites for shareholder proposal no-action requests: one where it posts incoming no-action requests, and one where it posts Staff responses to no-action requests.  The Staff could effectively maintain the same level of transparency as in the past by maintaining this practice and, when it issues an oral response, including some indication on the website where it posts decided no-action letters, indicating the nature of its oral response (Concur, Unable to concur, or No View) and, if it concurs, the basis of its concurrence.  However, the Staff announcement does not indicate whether the Staff intends to inform the company and proponent of the basis of its decision when issuing an oral response to a no-action request that makes multiple exclusion arguments (including, for example, that it concurs with the company on the basis of its Rule 14a-8(i)(7) argument), much less whether it will include some public indication on its website in such instances. Clearly there will be less definitive guidance on the application of Rule 14a-8 when the Staff declines to state a view on whether a proposal may properly be excluded from a company’s proxy statement. Nevertheless, depending on the frequency, context, and disclosure (if any) around the Staff’s determinations not to state a view, we expect that participants will seek to interpret or read meaning into the situation, rightly or wrongly. The Staff announcement indicates that one instance in which the Staff will issue response letters will be to provide “more broadly applicable guidance about complying with Rule 14a-8.” Although the Staff has on occasion used a Rule 14a-8 no-action response to elaborate on its interpretation of the rule, historically the Staff has utilized Staff Legal Bulletins to provide “more broadly applicable guidance” regarding its interpretation of Rule 14a-8.  The Staff’s announcement appears to suggest that it now will more commonly spring guidance on the shareholder proposal community in the middle of the season and in the context of specific factual situations, which may make such guidance harder to apply in other contexts than if the Staff addressed such issues more generally. In light of the foregoing, there is concern that the Staff’s procedural changes will result in companies and proponents being less able to easily or accurately determine the Staff’s views on the applicability of Rule 14a‑8 to a certain proposal.[16] In the absence of any written record, third parties may not know whether a proposal that was challenged in a no-action letter was excluded, and on what grounds, or if the Staff declined to state its position (the Staff’s announcement did not indicate that it would cease to disclose when a no-action request was withdrawn).  If that does occur, over time this may (ironically) result in an increase in the number of shareholder proposals submitted to companies and the number of no-action exclusion requests submitted to the Staff, as proponents and companies have less guidance on when and on what grounds proposals are excludable. Conclusions Although the shareholder proposal landscape is constantly evolving, the Staff’s announcement heralds a more significant shift in the landscape.  Combined with the implications of the SEC’s recent guidance for proxy advisory firms and investment advisers engaged in the proxy voting process,[17] it means that the 2019-2020 shareholder proposal season could be particularly tumultuous.  Moreover, it remains likely that the SEC will propose amendments to Rule 14a-8 in the near future,[18] although any such rules are unlikely to be in effect for much of the 2019-2020 shareholder proposal season.  Nevertheless, shareholder proponents likely will be mindful of these dynamics when evaluating whether to submit novel proposals, and companies should consider now how these changes may bear on their approaches in seeking no-action exclusion of shareholder proposals and engaging with their shareholders in advance of and during the upcoming proxy season. [1]   Available at https://www.sec.gov/corpfin/announcement/announcement-rule-14a-8-no-action-requests. [2]   See, e.g., Staff Legal Bulletin No. 14I (Nov. 1, 2017), available at https://www.sec.gov/interps/legal/cfslb14i.htm, and Staff Legal Bulletin No. 14J (Oct. 23, 2018), available at https://www.sec.gov/corpfin/staff-legal-bulletin-14j-shareholder-proposals. [3]   Rule 14a-8(j)(2)(ii). [4]   Staff Legal Bulletin No. 14, Shareholder Proposals (July 13, 2001), available at https://www.sec.gov/interps/legal/cfslb14.htm.  As stated in the Division of Corporation Finance’s “Informal Procedures Regarding Shareholder Proposals” (Nov. 2, 2011), which in the past the Staff has attached to each of its Rule 14a-8 no-action letter responses, “The Division of Corporation Finance believes that its responsibility with respect to matters arising under Rule 14a-8 [17 C.F.R. § 240.14a-8], as with other matters under the proxy rules, is to aid those who must comply with the rule by offering informal advice and suggestions and to determine, initially, whether or not it may be appropriate in a particular matter to recommend enforcement action to the Commission.”  Available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8-informal-procedures.htm. [5]   See 17 C.F.R. § 200.82 (providing for public availability of materials filed pursuant to Rule 14a-8(d)). [6]   The Deal, “SEC’s Clayton Eyes Tougher Rules for Proxy Firms, Proposals” (July 16, 2019).  See also Bloomberg Law, “SEC May Curb Review of Contested Shareholder Proposals” (July 16, 2019). [7]   Id. [8]   For example, see Council of Institutional Investors, Letter to Staff: SEC Corporation Finance 14a-8 Process (August 12, 2019), available at  https://www.cii.org/files/issues_and_advocacy/correspondence/2019/ August%2012%202019%2020190812%2014a-8%20No-Action%20Process%20letter.pdf. [9]   The following statistics are based on information we have compiled from the SEC’s website and the Institutional Shareholder Services shareholder proposals and voting analytics databases. No-Action Request Statistics   2019* 2018* 2017* Total number of proposals submitted 792 788 827 Total no-action requests submitted 228 256 288 No-action submission rate 29% 32% 35% Staff responses 180 194 242 Exclusions granted 119 (66%) 125 (64%) 189 (78%) Exclusions denied 61 (34%) 69 (36%) 53 (22%) *   Year references are to each year’s shareholder proposal season, which we define to mean the period from October 1 of the preceding year through June 1 of the indicated year.  The number of Staff responses is lower than the number of no-action requests submitted due to withdrawals and also reflects no-action letters submitted late in the season that are responded to after our June 1 measurement date. [10]   See, e.g., Electronic Arts Inc. (avail. May 23, 2008) (“We note that litigation is pending in the United States District Court for the Southern District of New York with respect to EA’s intention to omit the proposal from EA’s proxy materials.  In light of the fact that arguments raised in your letters and that of the proponent are currently before the court in connection with the litigation between EA and the proponent concerning this proposal, in accordance with staff policy, we will not comment on those arguments at this time.  Accordingly, we express no view with respect to EA’s intention to omit the instant proposal from the proxy materials relating to its next annual meeting of security holders.”). [11]   See note 8. [12]   Id. [13]   ISS, U.S. Proxy Voting Research Procedures & Policies (Excluding Compensation-Related) Frequently Asked Questions (Aug. 13, 2018), FAQ 67 (available at https://www.issgovernance.com/file/policy/active/americas/US-Procedures-and-Policies-FAQ.pdf): [U]nder our governance failures policy, ISS will generally recommend a vote against one or more directors (individual directors, certain committee members, or the entire board based on case-specific facts and circumstances), if a company omits from its ballot a properly submitted shareholder proposal when it has not obtained: 1) voluntary withdrawal of the proposal by the proponent; 2) no-action relief from the SEC; or 3) a U.S. District Court ruling that it can exclude the proposal from its ballot. … If the company has taken unilateral steps to implement the proposal, however, the degree to which the proposal is implemented, and any material restrictions added to it, will factor into the assessment. Glass Lewis, 2019 Proxy Paper™ Guidelines, An Overview Of The Glass Lewis Approach To Proxy Advice – United States (2019) (available at https://www.glasslewis.com/wp-content/uploads/2016/11/Guidelines_US.pdf.): In instances where companies have excluded shareholder proposals . . . Glass Lewis will take a case-by-case approach, taking into account the following issues: . . . The company’s overall governance profile, including its overall responsiveness to and engagement with shareholders . . . Glass Lewis will make note of instances where a company has successfully petitioned the SEC to exclude shareholder proposals.  If after review we believe that the exclusion of a shareholder proposal is detrimental to shareholders, we may, in certain very limited circumstances, recommend against members of the governance committee.   [14]   Gibson, Dunn & Crutcher LLP, “SEC Issues New Guidance for Proxy Advisors and Investment Advisers Engaged in the Proxy Voting Process,” available at https://www.gibsondunn.com/sec-issues- new-guidance-for-proxy-advisors-and-investment-advisers-engaged-in-proxy-voting-process/. [15]   But see TransDigm Group Incorporated (avail. Jan. 28, 2019) (New York City Office of the Comptroller commenced litigation over the proposed exclusion of its proposal prior to the Staff issuing its no-action letter response). [16]   Agenda, “SEC Launches ‘Brand New’ Changes to No-Action Process” (Sept. 6, 2019) (quoting the New York City Comptroller and representatives from the Council of Institutional Investors and As You Sow expressing concern with the Staff announcement). [17]   See note 14. [18]   See Commission Elad L. Roisman, “Statement at the Open Meeting on Commission Guidance and Interpretation Regarding Proxy Voting and Proxy Voting Advice” (Aug. 21, 2019), available at https://www.sec.gov/news/public-statement/statement-roisman-082119 (“As our Regulatory Flexibility Agenda notes, in the near future the Commission expects to consider . . . proposed rules to amend the submission and resubmission thresholds for shareholder proposals under Rule 14a-8 under the Exchange Act . . . .”); Gibson Dunn Securities Regulation Monitor, “SEC To Propose Shareholder Proposal and Proxy Advisory Firm Rule Amendments” (May 24, 2019), available at  https://www.securitiesregulationmonitor.com/Lists/Posts/Post.aspx?ID=367. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work in the Securities Regulation and Corporate Governance practice group, or any of the following lawyers: Ronald O. Mueller – Washington, D.C. (+1 202-955-8671, rmueller@gibsondunn.com) Elizabeth Ising – Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com) Lori Zyskowski – New York (+1 212-351-2309, lzyskowski@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 9, 2019 |
Law360 Names Seven Gibson Dunn Lawyers as 2019 Rising Stars

Seven Gibson Dunn lawyers were named among Law360’s Rising Stars for 2019 [PDF], featuring “attorneys under 40 whose legal accomplishments transcend their age.”  The following lawyers were recognized: Washington D.C. partner Chantale Fiebig in Transportation, San Francisco partner Allison Kidd in Real Estate, Washington D.C. associate Andrew Kilberg in Telecommunications, New York associate Sean McFarlane in Sports, New York partner Laura O’Boyle in Securities, Los Angeles partner Katherine Smith in Employment and Century City partner Daniela Stolman in Private Equity. Gibson Dunn was one of three firms with the second most Rising Stars. The list of Rising Stars was published on September 8, 2019.

August 26, 2019 |
Scott Edelman and Michele Maryott Named Among National Law Journal’s 2019 Winning Litigators

The National Law Journal named Century City partner Scott Edelman and Orange County partner Michele Maryott among the 32 lawyers on in its 2019 list of “Winning Litigators,” featuring “star trial litigators” who “took on high-stakes matters and won.” The report was published on August 26, 2019. Scott Edelman has first-chaired numerous jury trials, bench trials and arbitrations, including class actions, taking well over twenty to final verdict or decision. He has a broad background in commercial litigation, including antitrust, class actions, employment, entertainment and intellectual property, real estate and product liability. He is a Fellow of the American College of Trial Lawyers. Michele Maryott’s practice focuses on business litigation, with particular emphasis on employment litigation, class actions and complex commercial disputes. She has litigated a wide range of labor and employment matters. She also represents clients in a wide variety of commercial litigation, including consumer class actions and other disputes involving environmental and toxic torts, acquisition-related disputes, unfair business practices and business torts. As trial counsel, she has obtained numerous defense verdicts as well as multi-million dollar awards on behalf of clients in a variety of industries.

August 23, 2019 |
SEC Issues New Guidance for Proxy Advisors and Investment Advisers Engaged in the Proxy Voting Process

Click for PDF On August 21, 2019, the Securities and Exchange Commission (the “Commission”) issued new guidance regarding two elements of the proxy voting process[1] that are influenced by proxy advisory firms: proxy voting advice issued by proxy advisors and proxy voting by investment advisers who use that proxy voting advice. The guidance, in the words of Commissioner Elad L. Roisman, “reiterate[s] longstanding Commission rules and positions that remain applicable and very relevant in today’s marketplace.” Notably, the two releases issued by the Commission are not subject to notice and comment and will instead become effective upon publication in the Federal Register. Specifically, the Commission approved issuing both: a Commission interpretation that the provision of proxy voting advice by proxy advisory firms generally constitutes a “solicitation” under federal proxy rules and new Commission guidance about the availability of exemptions from the federal proxy rules and the applicability of the proxy anti-fraud rule to proxy voting advice (the “Proxy Voting Advice Release”);[2] and new Commission guidance intended to facilitate investment advisers’ compliance with the fiduciary duties owed to each client in connection with the exercise of investment advisers’ proxy voting responsibilities, including in connection with their use of proxy advisory firms (the “Proxy Voting Responsibilities Release”[3] and together, the “Releases”). The Commission approved both Releases by a vote of 3-2, with Commissioners Robert J. Jackson, Jr. and Allison Herren Lee dissenting from each Release. In their statements explaining their opposition, Commissioners Jackson and Lee expressed concern that neither was subject to a notice and comment period, which prevented the Commission from fully considering the consequences of the new guidance.[4] Both Commissioners also questioned whether the Releases will increase costs associated with the provision and use of proxy voting advice, and Commissioner Lee expressed concern that greater issuer involvement in the proxy voting recommendation process could “undermine the reliability and independence of voting recommendations.” Background Over the past several years, the Commission and its staff (the “Staff”) have issued statements and held public forums to discuss issues related to voting advice issued by proxy advisory firms and investment advisers’ reliance on that advice. For example, in July 2010, the Commission issued a concept release[5] that sought public comment on, among other topics, the legal status and role of proxy advisory firms.[6] And in June 2014, the staff of the Divisions of Investment Management and Corporation Finance issued Staff Legal Bulletin No. 20 (“SLB 20”),[7] which provided guidance on investment advisers’ responsibilities in voting client proxies and retaining proxy advisory firms and the availability and requirements of two exemptions to the federal proxy rules often relied upon by proxy advisory firms.[8] Subsequently the Staff held a roundtable in November 2018 to provide an opportunity for market participants to engage with the Staff on various aspects of the proxy process (the “2018 Roundtable”).[9] The 2018 Roundtable included panels addressing each of the regulation of proxy advisory firms, proxy voting mechanics and technology, and shareholder proposals. Participants on the proxy advisory firms panel discussed investor advisers’ reliance on voting advice provided by proxy advisory firms, how proxy advisory firms address conflicts of interest and challenges issuers face in correcting factual errors in voting recommendations published by proxy advisory firms.[10] Following the 2018 Roundtable, Chairman Jay Clayton announced that Commissioner Roisman would lead the Commission’s efforts to improve the proxy voting process and infrastructure.[11] In his opening remarks at the Commission’s August 21 meeting, Commissioner Roisman indicated that the Releases were the first of several matters that the Commission may consider in the near future relating to its proxy voting rules.[12] Other matters that Commissioner Roisman mentioned would likely be considered “in the near future” include proposed reforms to the rules addressing proxy advisory firms’ reliance on proxy solicitation exemptions and the rules regarding the thresholds for shareholder proposals announced as part of the Commission’s Spring 2019 Regulatory Flexibility Agenda.[13] Summary of the Proxy Voting Advice Release The Proxy Voting Advice Release, developed by the Commission’s Division of Corporation Finance, addresses two topics: the Commission articulates its view that proxy voting advice provided by proxy advisory firms generally constitutes a “solicitation” subject to the federal proxy roles, and the Commission provides an interpretation and additional guidance on the applicability of the federal proxy rules to proxy voting advice that is designed to influence the voting decisions of a proxy advisory firm’s clients. Proxy Voting Advice Constitutes a Solicitation Under the Federal Proxy Rules As explained in the Proxy Voting Advice Release, under Rule 14a‑1(l) of the Securities Exchange Act of 1934 (the “Exchange Act”), a “solicitation” includes “a communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.” This includes communications seeking to influence the voting of proxies, even if the person issuing the communication does not seek authorization to act as a proxy and may be indifferent to its ultimate outcome. Communications that constitute “solicitations” under Rule 14a‑1(l) are subject to the information and filing requirements of the federal proxy rules. However, Exchange Act Rule 14a-2(b)(1) provides an exemption from the Commission’s information and filing requirements (but not from the anti-fraud rules) for “any solicitation by or on behalf of any person who does not, at any time during such solicitation, seek directly or indirectly, either on its own or another’s behalf, the power to act as a proxy for a security holder and does not furnish or otherwise request, or act on behalf of a person who furnishes or requests, a form of revocation, abstention, consent or authorization.” Based on this background, in the Proxy Voting Advice Release the Commission explains that its interpretation is informed by the purpose, substance and circumstances under which the proxy voting advice is provided. Where a proxy advisory firm markets its expertise in the research and analysis of voting matters to assist a client in making proxy voting decisions by providing voting recommendations, the proxy advisory firm is not “merely performing administrative or ministerial services.” Instead, the Commission believes that providing such proxy voting recommendations constitutes a solicitation because the recommendations are “designed to influence the client’s voting decision.” Importantly, the Commission believes that such recommendations constitute a solicitation even where a proxy advisory firm bases its recommendations on its client’s own tailored voting guidelines or the client ultimately decides not to follow the proxy voting recommendations.[14] The Commission makes clear that its interpretation does not prevent a proxy advisory firm from relying on the exemptions from the federal proxy rules information and filing requirements under Exchange Act Rule 14a-2(b)(1).[15] Nevertheless, the Commission’s interpretation is an important foundational basis for any subsequent regulation of proxy advisory firms that addresses conditions for the availability of Rule 14a-2(b)(1). Proxy Voting Advice Remains Subject to Exchange Act Rule 14a-9 In the second part of the Proxy Voting Advice Release, the Commission emphasizes that even where a proxy advisory firm’s voting advice is otherwise exempt from the information and filing requirements of the federal proxy rules under Exchange Act Rule 14a-2(b)(1), that voting advice remains subject to the anti-fraud provisions of Exchange Act Rule 14a-9. Accordingly, when issuing proxy voting advice, proxy advisory firms may not make materially false or misleading statements or omit material facts that would be required to make the voting advice not misleading. Exchange Act Rule 14a-9 prohibits any solicitation from containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact. In addition, solicitations may not omit any material fact necessary in order to make the solicitation false or misleading. Of particular importance for proxy voting advice based on the research and analysis of proxy advisory firms, Exchange Act Rule 14a-9 also extends to opinions, reasons, recommendations or beliefs that are disclosed as part of a solicitation. Where such opinions, recommendations or similar views are provided, disclosure of the underlying facts, assumptions, limitations and other information may need to be disclosed so that these views do not raise concerns under the rule. Depending on the materiality of the information and the particular circumstances, the Commission indicates that proxy advisory firms may need to disclose additional information to avoid issues under Exchange Act Rule 14a-9, including: an explanation of the firm’s methodology used to formulate its voting advice on a particular matter; non-public information sources and the extent to which the information from these sources differs from the publicly available disclosures; and any material conflicts of interest that arise in connection with providing the proxy voting advice in reasonably sufficient detail so that the client can assess the relevance of those conflicts. Summary of the Proxy Voting Responsibilities Release Developed by the Commission’s Division of Investment Management, the Proxy Voting Responsibilities Release clarifies how an investment adviser’s fiduciary duties to its clients inform the investment adviser’s proxy voting responsibilities, particularly where investment advisers retain proxy advisory firms to assist in some aspect of their proxy voting responsibilities. Under Rule 206(4)-6 of the Investment Advisers Act of 1940, an investment adviser that assumes proxy voting authority must implement policies and procedures that are reasonably designed to ensure it makes voting decisions in the best interest of clients. The Commission reiterates throughout the Proxy Voting Responsibilities Release that proxy voting must be consistent with the investment adviser’s fiduciary duties and in compliance with Rule 206(4)-6. The Proxy Voting Responsibilities Release sets forth six examples of considerations investment advisers should evaluate when discharging their fiduciary duties in connection with proxy voting. The Commission emphasizes that this list of considerations is non-exhaustive, and while its guidance is generally phrased as considerations or actions investment advisers “should” evaluate, the Commission further indicates that these examples are not the only way for investment advisers to discharge their fiduciary duties when voting proxies. 1. Determine the scope of the investment adviser’s proxy voting authority and responsibilities If an investment adviser agrees to assume proxy voting authority, the scope of the voting arrangements should be determined between the investment adviser and each of its clients on an individual basis.  The Commission emphasizes that any proxy voting arrangements must be subject to full and fair disclosure and informed consent. Among the variety of potential approaches to proxy voting arrangements, the Commission provides several examples to which an investment adviser and its client may appropriately agree, including the investment adviser exercising proxy voting authority pursuant to specific parameters designed to serve the best interests of the client based on the client’s individual investment strategy, the investment adviser refraining from exercising proxy voting authority under agreed circumstances or the investment adviser voting only on particular types of proposals based on the client’s express preferences. 2. Demonstrate that the investment adviser is making voting determinations in its clients’ best interests and in accordance with its proxy voting policies and procedures The Commission indicates that investment advisers must at least annually review and document the adequacy of its proxy voting policies and procedures, including whether the policies and procedures are reasonably designed to result in proxy voting in the best interest of the investment adviser’s clients. Because clients often have differing investment objectives and strategies, if an investment adviser has multiple clients then it should consider whether voting all of its clients’ shares under a uniform voting policy is in the best interest of each individual client.  Alternatively, an investment adviser should consider whether it should implement voting policies that are in line with the particular investment strategies and objectives of individual clients.  An investment adviser should also consider whether its voting policy or policies should be tailored to permit or require more detailed analysis for more complex matters, such as a corporate event or a contested director election. In addition, where an investment adviser retains a proxy advisory firm to provide voting advice or execution services, the investment adviser should consider undertaking additional steps to evaluate whether its voting determinations are consistent with its voting policies and in the best interests of its clients. 3. Evaluate any proxy advisory firm in advance of retaining it Before retaining a proxy advisory firm, investment advisers should consider whether the proxy advisory firm has the capacity and competency to adequately analyze the matters for which it is providing voting advice.  The Commission indicates that the scope of the investment adviser’s proxy voting authority and the services for which the proxy advisory firm has been retained should inform the considerations that the investment adviser undertakes. Such consideration could include an assessment of the adequacy and quality of the proxy advisory firm’s staffing, personnel and/or technology.  In addition, investment advisers should consider the proxy advisory firm’s process for obtaining input from issuers and other clients with respect to its voting polices, methodologies and peer group design. 4. Evaluate processes for addressing potential factual errors, incompleteness or methodological weakness in a proxy advisory firm’s analysis An investment adviser should have policies and procedures in place to ensure that its proxy voting decisions are not based on materially inaccurate or incomplete information provided by a proxy advisory firm.  By way of example, the Commission suggests that an investment adviser should consider periodically reviewing its ongoing use of the proxy advisory firm’s research or voting advice, including whether any potential errors, incompleteness or weaknesses materially affected the research or recommendations that the investment adviser relied on. In addition, the Commission indicates that investment advisers should consider the proxy advisory firm’s policies and procedures to obtain current and accurate information, including the firm’s engagement with issuers, efforts to correct identified material deficiencies, disclosure regarding its sources of information and its methodologies for issuing voting advice and the firm’s consideration of facts unique to the issuer or proposal. 5. Adopt policies for evaluating proxy advisory firms’ services Where an investment adviser has retained a proxy advisory firm to assist with its proxy voting responsibilities, the investment adviser should adopt policies and procedures that are designed to evaluate the services of the proxy advisory firm to ensure that votes are cast in the best interests of the investment adviser’s clients. The Commission indicates that investment advisers should consider implementing policies and procedures to identify and evaluate a proxy advisory firm’s conflicts of interest on an on-going basis and evaluate the proxy advisory firm’s “capacity and competency” to provide voting advice and execute votes in accordance with the investment adviser’s instructions. In addition, investment advisers should consider how and when the proxy advisory firm updates its methodologies, guidelines and voting advice. 6. Determine when to exercise proxy voting opportunities An investment adviser is not required to exercise every opportunity to vote in either of two circumstances—where the investment adviser and its client have agreed in advance that the investment adviser’s proxy voting authority is limited under certain circumstances and where the investment adviser and its client have agreed in advance that the investment adviser has authority to cast votes based on the best interests of the client. In both situations, the investment adviser’s action must be in accordance with its prior agreement with its client. Moreover, where an investment adviser may refrain from voting because doing so is in the best interest of its client, the investment adviser should first consider its duty of care to its client in light of the scope of services it has agreed to assume. Practical Considerations Just as the Commission was divided in approving the Releases, reactions to the Releases are likely to vary among participants in the proxy process. For example, public companies may both view the Releases as a positive step and believe that additional Commission action is needed to address the errors, conflicts of interests and other challenges with proxy advisory firms. The Commission was limited in the actions it could take via interpretation and issuing guidance in the Releases. However, the Commission signaled that the Staff is working on proposed rules “to address proxy advisory firms’ reliance on the proxy solicitation exemptions in Exchange Act Rule 14a‑2(b).” Given that the rulemaking process can be time-consuming, the Releases provide helpful immediate guidance heading into the 2020 proxy season. That said, it remains to be seen whether and to what extent the proxy advisory firms and their investment adviser-clients will adjust their practices in response to the Releases. For example, the proxy advisory firms may increase the disclosures included in their reports, particularly when they are relying on debated premises such as studies asserting that certain corporate governance or sustainability actions increase shareholder value. They may also be less willing to rely on information provided either by proponents or activists unless that information has been filed with the Commission. Investment advisers inclined to vote lock-step with proxy advisory firm recommendations may be more willing to engage with companies in advance of voting. Similarly, the Commission’s statements on the application of Rule 14a-9 to proxy advisory firm reports and recommendations[16] may affect various proxy advisory firm practices due to the threat (real or perceived) of public companies commencing litigation against these firms in the event that statements in a proxy advisory firm’s report are viewed as materially false or misleading. For example, it is common to see parties in contested solicitations commence litigation under Rule 14a‑9 challenging the other side’s solicitation materials. It is not hard to envision similar litigation playing out in the future when there are differences of opinion as to whether a proxy advisory report contains information that is either inaccurate or misleading, or where it simply omits information that leaves the disclosed information materially misleading. As a result, proxy advisory firms may change their practices for vetting and issuing their voting recommendation reports; for example, the firms may be more inclined to provide drafts of their reports to public companies in advance of the reports being issued. ________________________ [1]   The two most influential proxy advisory firms are Institutional Shareholder Services (“ISS”) and Glass, Lewis & Co. [2]   Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice, Exchange Act Release No. 34-86721 (Aug. 21, 2019), available at https://www.sec.gov/rules/interp/2019/34-86721.pdf. [3]   Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers, Investment Advisers Act Release No. IA-5325 and Investment Company Act Release No. IC-33605 (Aug. 21, 2019), available at https://www.sec.gov/rules/interp/2019/ia-5325.pdf. [4]   See Commissioner Robert J. Jackson, Jr., “Statement on Proxy-Advisor Guidance” (Aug. 21, 2019), available at https://www.sec.gov/news/public-statement/statement-jackson-082119; Commissioner Allison Herren Lee, “Statement of Commissioner Allison Herren Lee on Proxy Voting and Proxy Solicitation Releases” (Aug. 21, 2019), available at https://www.sec.gov/news/public-statement/statement-lee-082119. [5]   Concept Release on the U.S. Proxy System, Release No. 34-62495, 75 FR 42982 (July 22, 2010), available at https://www.sec.gov/rules/concept/2010/34-62495.pdf. [6]   For additional information on the 2010 concept release, please see our client alert dated July 22, 2010, available at https://www.gibsondunn.com/securities-and-exchange-commission-issues-concept-release-seeking-public-comment-on-u-s-proxy-system/. [7]   Staff Legal Bulletin No. 20 (June 30, 2014), available at http://www.sec.gov/interps/legal/cfslb20.htm. [8]   For additional information regarding SLB 20, please see our client alert dated July 1, 2015, available at https://www.gibsondunn.com/sec-staff-releases-guidance-regarding-proxy-advisory-firms/. [9]   See Securities and Exchange Commission, “Spotlight on Proxy Process” (Nov. 15, 2018), available at https://www.sec.gov/proxy-roundtable-2018. [10]   See Securities and Exchange Commission Webcast Archive, “Roundtable on the Proxy Process” (Nov. 15, 2018), available at https://www.sec.gov/video/webcast-archive-player.shtml?document_id=111518roundtable. [11]   See Chairman Jay Clayton, “Remarks for Telephone Call with SEC Investor Advisory Committee Members” (Feb. 6, 2019), available at https://www.sec.gov/news/public-statement/clayton-remarks-investor-advisory-committee-call-020619. [12]   See Commission Elad L. Roisman, “Statement at the Open Meeting on Commission Guidance and Interpretation Regarding Proxy Voting and Proxy Voting Advice” (Aug. 21, 2019), available at https://www.sec.gov/news/public-statement/statement-roisman-082119. [13]   See Agency Rule List – Spring 2019, available here. [14]   In contrast, ISS previously asked the Commission to confirm that “a registered investment adviser who is contractually obligated to furnish vote recommendations based on client-selected guidelines does not provide ‘unsolicited’ proxy voting advice, and thus is not engaged in a ‘solicitation’ subject to the Exchange Act proxy rules.” Letter from Gary Retelny, President and CEO, ISS, to Brent J. Fields, Secretary, Commission (Nov. 7, 2018), available at https://www.sec.gov/comments/4-725/4725-4629940-176410.pdf. [15]   For additional information regarding the Staff’s views on the availability of such exemptions for proxy advisory firms, please see our client alert regarding SLB 20 dated July 1, 2015, available at https://www.gibsondunn.com/sec-staff-releases-guidance-regarding-proxy-advisory-firms/. [16]   The solicitation exemption in Rule 14a-2(b)(3) explicitly does not also provide an exemption from Rule 14a-9. Thanks to associate Geoffrey Walter in Washington, D.C. for his assistance in the preparation of this client update. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following lawyers: Securities Regulation and Corporate Governance: Elizabeth Ising – Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com) James J. Moloney – Orange County, CA (+ 949-451-4343, jmoloney@gibsondunn.com) Ronald O. Mueller – Washington, D.C. (+1 202-955-8671, rmueller@gibsondunn.com) Brian J. Lane – Washington, D.C. (+1 202-887-3646, blane@gibsondunn.com) Lori Zyskowski – New York (+1 212-351-2309, lzyskowski@gibsondunn.com) Shareholder Activism: Eduardo Gallardo – New York (+1 212-351-3847, egallardo@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

August 16, 2019 |
Delaware Court of Chancery Issues Important Ruling on Validity of Advance Notice Bylaws

Click for PDF In an important transcript ruling issued this week,[1] the Delaware Court of Chancery upheld the validity and vitality of advance notice bylaw provisions, which govern the timing and disclosure requirements of stockholder nominations of board candidates. The ruling should give further comfort to boards of public corporations in enforcing reasonable and customary safeguards commonly imposed on the critical director nomination process. The recent transcript ruling was issued in connection with the unsolicited efforts by Bay Financial Capital to acquire Barnes & Noble Education, Inc. (BNED). BNED operates physical and virtual bookstores for educational institutions, sells textbooks wholesale, and provides digital educational solutions. BNED was spun off from Barnes & Noble, Inc. in 2015. BNED’s bylaws require that director nominations be submitted by stockholders no earlier than 120 days and no later than 90 days prior to the anniversary date of the prior year’s annual meeting of stockholders. As customary, under BNED’s bylaws a stockholder must be a record holder as of the notice deadline in order to nominate directors. Between February and June 2019, Bay Capital submitted three unsolicited proposals to acquire BNED. The BNED Board rejected all three proposals, primarily for two reasons. First, the Board determined the financial consideration to be inadequate. Second, the Board believed that Bay Capital was not a credible potential acquirer, having doubts of its ability to finance an acquisition of a public company. On June 27, 2019, the last day to submit director nominations for the 2019 annual meeting of stockholder, Bay Capital noticed the nomination of a slate of director candidates. Although the notice was timely, as of June 27 Bay Capital was just a beneficial owner of BNED stock and not a record holder. BNED’s Board of Directors therefore rejected the notice as invalid. Two weeks later, Bay Capital filed a complaint in Delaware Court of Chancery seeking injunctive relief to run its slate of directors at the upcoming annual meeting of stockholders. The Court found that despite being reminded no fewer than four times by its advisor of the record holder requirement set forth in the BNED bylaws, Bay Capital did not acquire shares until three days before the nomination deadline. And when the shares were acquired, it was done through a broker such that there was not sufficient time to get the shares transferred in Bay Capital’s record name. The Court dismissed various arguments advanced by Bay Capital in seeking an injunction, including a purported ambiguity in the BNED bylaws as to the need for the nominating stockholder to be a holder of record at the time it delivered the notice of nomination. Ultimately, the Court noted: “Needless to say, not even Delaware’s strong public policy favoring the stockholder franchise will save Bay Capital from its dilatory conduct. Bay Capital blew the deadline. It then made up excuses for doing so. No record evidence suggests that the company is in any way at fault for that mistake. If this Court required the company to accept the nomination in these circumstances, advance notice requirements would have little meaning under Delaware law.” In light of the continuing prevalence of shareholder activism and hostile takeover activity, public corporations should continuously review their advance notice bylaw with counsel to confirm that they include state-of-the-art guardrails that can ensure an orderly and timely nomination process. And, more importantly, well-informed boards should feel comfortable uniformly enforcing those provisions, and not be intimidated by efforts by activist shareholders and hostile bidders to try to bypass their requirements due to carelessness or ignorance. Gibson Dunn represents Barnes & Noble Education, Inc. in this matter. ________________________    [1]   Bay Capital Finance, LLC v. Barnes & Noble Education, Inc. (August 14, 2019), available here. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, or the following authors: Eduardo Gallardo – New York (+1 212-351-3847, egallardo@gibsondunn.com) Adam H. Offenhartz – New York (+1 212-351-3808, aoffenhartz@gibsondunn.com) Aric H. Wu – New York (+1 212-351-3820, awu@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

August 15, 2019 |
2019 Mid-Year Securities Litigation Update

Click for PDF The rate of new securities class action filings appears to be stabilizing, but that does not mean 2019 has been lacking in important developments in securities law. This mid-year update highlights what you most need to know in securities litigation trends and developments for the first half of 2019: The Supreme Court decided Lorenzo, holding that, even though Lorenzo did not “make” statements at issue and is thus not subject to enforcement under subsection (b) of Rule 10b-5, the ordinary and dictionary definitions of the words in Rules 10b-5(a) and (c) are sufficiently broad to encompass his conduct, namely disseminating false or misleading information to prospective investors with the intent to defraud. Because the Supreme Court dismissed the writ of certiorari in Emulex as improvidently granted, there remains a circuit split as to whether Section 14(e) of the Exchange Act supports an implied private right of action based on negligent misrepresentations or omissions made in connection with a tender offer. We explain important developments in Delaware courts, including the Court of Chancery’s application of C & J Energy, as well as the Delaware Supreme Court’s (1) application and extension of its recent precedents in appraisal litigation to damages claims, (2) elaboration of its recent holding on MFW’s “up front” requirement, and (3) rare conclusion that a Caremark claim—“possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment”—survived a motion to dismiss. Finally, we continue to monitor significant cases interpreting and applying the Supreme Court’s decisions in Omnicare and Halliburton II. I.   Filing And Settlement Trends New federal securities class action filings in the first six months of 2019 indicate that annual filings are on track to be similar to the number of new cases filed in each of the prior two years. According to a newly released NERA Economic Consulting study (“NERA”), 218 cases were filed in the first half of this year. While there was a relative surge in new cases in the first quarter of the year, this higher level of new cases did not persist in the second quarter. Filing activity in the first half of 2019 indicates a continuation of the shift in the types of cases observed in 2018—an increase in the number of Rule 10b-5, Section 11, or Section 12 cases, and a decrease in the number of merger objection cases. If the filing composition and levels observed in the first half of 2019 are indicative of the pattern for the rest of the year, we will see a 15% increase in Rule 10b-5, Section 11, and Section 12 cases compared to the approximate 1% growth in this category of filings in 2018. On the other hand, merger objection cases filed in 2019 are on pace to be more than 16% lower than similar cases filed in the prior year. While the median settlement values for the first half of 2019 are roughly equivalent to those in 2018 (at $12.0 million, down from $12.70 million in 2018), average settlement values are down over 50% from 2018 (at $33 million, down from $71 million in 2018).  That said, this discrepancy is due predominantly to one settlement in 2018 exceeding $1 billion.  Excluding such outliers, we actually see a slight increase in average settlement values compared to the prior two years. The industry sectors most frequently sued thus far in 2019 continue to be healthcare (22% of all cases filed), tech (20%), and finance (15%). Cases filed against healthcare companies in the first half of 2019 are showing the continuation of a downward trend from a spike in 2016, while cases filed against tech and finance companies are on pace with 2018. A.   Filing Trends Figure 1 below reflects filing rates for the first half of 2019 (all charts courtesy of NERA). So far this year, 218 cases have been filed in federal court, annualizing to 436 cases, which is on pace with the number of filings in 2017 and 2018, and significantly higher than the numbers seen in years prior to 2017. Note that this figure does not include the many class suits filed in state courts or the rising number of state court derivative suits, including many such suits filed in the Delaware Court of Chancery. B.   Mix Of Cases Filed In First Half Of 2019 1.   Filings By Industry Sector As seen in Figure 2 below, the split of non-merger objection class actions filed in the first half of 2019 across industry sectors is fairly consistent with the distribution observed in 2018, with few indications of significant shifts or increases in particular sectors. As in 2018, the Health Technology and Services and the Electronic Technology and Technology Services sectors accounted for over 40% of filings. The two sectors reflecting the largest changes from 2018 thus far are Consumer Durables and Non-Durables (at 9%, up from 6% in 2018) and Consumer and Distribution Services (at 5%, down from 9% in 2018). See Figure 2, infra. 2.   Merger Cases As shown in Figure 3, 83 “merger objection” cases have been filed in federal court in the first half of 2019 —below the pace of 109 cases at this point in 2018. If the 2019 trend continues, the 166 merger objection cases projected to be filed in 2019 will be about 16% fewer than the 198 merger objection cases filed in the prior year. C.   Settlement Trends As Figure 4 shows below, during the first half of 2019, the average settlement declined to $33 million, more than 50% lower than the average in 2018 but higher than the average in 2017. This phenomenon is primarily driven by one settlement in 2018 exceeding $1 billion, heavily skewing the average for that year.  If we limit our analysis to cases with settlements under $1 billion, there is actually a slight increase in the average settlement value in 2019 compared to the prior years. Finally, as Figure 5 shows, the median settlement value for cases was $12 million, which is in line with the median in 2018 and almost double the median value in 2017. II.   What To Watch For In The Supreme Court A.   Lorenzo Affirms That Disseminators Of False Statements May Be Held Liable Under Rules 10b-5(a) And 10b-5(c) Even If Janus Shields Them From Liability Under Rule 10b-5(b) We discussed the Supreme Court’s decision to grant review of Lorenzo v. Securities and Exchange Commission, No. 17-1077, in our 2018 Mid-Year Securities Litigation Update, and our 2018 Year-End Securities Litigation Update. Readers will recall that the question presented in Lorenzo was whether a securities fraud claim premised on a false statement that was not “made” by the defendant can be actionable as a “fraudulent scheme” under Section 17(a)(1) of the Securities Act and Exchange Act Rules 10b-5(a) and 10b-5(c), even though it would not support a claim under Rule 10b-5(b) pursuant to the Court’s ruling in Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011). On March 27, 2019, the Supreme Court affirmed the D.C. Circuit in a 6–2 opinion by Justice Breyer (Justice Kavanaugh took no part in the decision because he participated in the panel decision while a judge on the court of appeals).  The Court held that the ordinary and dictionary definitions of the words in Rules 10b-5(a) and 10b-5(c) are sufficiently broad to encompass Lorenzo’s conduct, namely disseminating false or misleading information to prospective investors with the intent to defraud, even if the disseminator did not “make” the statements and is thus not subject to enforcement under subsection (b) of the Rule.  Lorenzo v. SEC, 587 U.S. ___ (2019), slip op. at 5–7. Underlying the Court’s opinion is the principle that the securities laws and regulations work together as a whole. The Court rejected Lorenzo’s argument that Rule 10b-5 should be read to mean that each provision of the Rule governs different, mutually exclusive spheres of conduct. Under Lorenzo’s reading, he could be liable for false statements only if his conduct violated provisions that specifically refer to such statements, such as Rule 10b-5(b), and could therefore not be liable under other provisions of the Rule, which do not specifically mention misstatements. The Court noted, however, that it has “long recognized considerable overlap among the subsections of the Rule” and related statutory provisions.  Id. at 7–8.  The opinion further noted that Lorenzo’s conduct “would seem a paradigmatic example of securities fraud,” making it difficult for the majority to reconcile Lorenzo’s argument with the basic purpose and congressional intent behind the securities laws.  Id. at 9. The majority also adopted the SEC’s argument that Janus concerned only Rule 10b-5(b), and thus does not operate to shield those who disseminate false or misleading information from scheme liability, even if they do not “make” the statement.  In response to Lorenzo’s contention that imposing primary liability here would weaken the distinction between primary and secondary liability, the Court drew what it characterized as a clear line:  “Those who disseminate false statements with intent to defraud may be held primarily liable under Rules 10b-5(a) and (c),” as well as Section 10(b) of the Exchange Act and Section 17(a)(1) of the Securities Act, “even if they are secondarily liable under Rule 10b-5(b).”  Id. at 10–11.  Finally, the Court identified a flaw in Lorenzo’s suggestion that he should only be held secondarily liable.  Under that theory, someone who disseminated false statements (even if knowingly engaged in fraud) could not be held to have aided and abetted a “maker” of a false statement if the maker did not violate Rule 10b-5(b). That is because the aiding and abetting statute requires that there be a violator to whom the secondary violator provides “substantial assistance.” Id. at 12. And if, under Lorenzo’s theory, the disseminator did not primarily violate other subsections (perhaps because the disseminator lacked the necessary intent), the fraud might go unpunished altogether.  Id. at 12–13. We noted in our 2018 Year-End Securities Litigation Update that Justice Gorsuch appeared accepting of Lorenzo’s positions during the oral argument, and he did join Justice Thomas (the author of Janus) in dissent. The dissent contended that the majority “eviscerate[d]” the distinction drawn in Janus between primary and secondary liability by holding that a person who did not “make” a fraudulent misstatement “can nevertheless be primarily liable for it.” Id. at 1 (Thomas, J., dissenting).  The dissent faulted the Court for holding, in essence, that the more general provisions of other securities laws each “completely subsumes” the provisions that specifically govern false statements, such as Rule 10b-5(b). Id. at 3.  Instead, the dissenters argued that these specific provisions must be operative in false-statement cases, and that the more general provisions should be applied only to cases that do not fall within the purview of these more specific provisions. B.   Pending Certiorari Petitions Regular readers of these updates will recall that we wrote about the Supreme Court’s pending decision in Emulex Corp. v. Varjabedian, No. 18-459, in the 2018 Year-End Securities Litigation Update. In April, the Supreme Court heard oral argument and then dismissed the writ of certiorari as improvidently granted. Emulex Corp. v. Varjabedian, 587 U.S. ___ (2019), slip op. at 1. As is common in such dismissals, the Justices offered no explanation of why they dismissed the case. Therefore, there remains a circuit split as to whether Section 14(e) of the Exchange Act supports an implied private right of action based on negligent misrepresentations or omissions made in connection with a tender offer. There is also at least one notable securities case in which a petition for certiorari is pending. Putnam Investments, LLC v. Brotherston, No. 18-926, an ERISA case, presents the question whether the plaintiff or defendant must prove that an alleged fiduciary breach related to investment option selection caused a loss to participants or the plan. The case also raises the issue of whether the First Circuit correctly held that showing that particular investment options did not perform as well as a set of index funds, selected by the plaintiffs with the benefit of hindsight, suffices as a matter of law to establish “losses to the plan.” The Supreme Court has entered an order requesting the Solicitor General file a brief expressing the views of the United States. The government has not yet filed its brief in this case. We will continue to monitor the petition and provide an update if the Supreme Court grants certiorari. III.   Delaware Developments A.   Delaware Supreme Court Affirms Deal Price Is Best Evidence Of Fair Value In Appraisal, And Of Damages In Entire Fairness Regular readers of these updates will recall that, since our 2017 Year-End Securities Litigation Update, we have been reporting on the significant shift in Delaware appraisal law resulting from the Delaware Supreme Court’s landmark decision in Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., 177 A.3d 1 (Del. 2017), where it directed the Court of Chancery to use market factors to determine the fair value of a company’s stock. In our 2018 Mid-Year Securities Litigation Update, we wrote about the Delaware Court of Chancery’s decision in Verition Partners Master Fund v. Aruba Networks, Inc., where the trial court interpreted Dell as endorsing a company’s unaffected market price and deal price as reliable indicators of fair value under certain circumstances. 2018 WL 2315943, at *1 (Del. Ch. May 21, 2018). In April, however, the Delaware Supreme Court reversed the trial court, clarifying that, although the “unaffected market price” of a seller’s stock “in an efficient market is an important indicator of its economic value that should be given weight” under appropriate circumstances, Dell “did not imply that the market price of a stock was necessarily the best estimate of the stock’s so-called fundamental value at any particular time.” Verition Partners Master Fund v. Aruba Networks, Inc., 210 A.3d 128, 2019 WL 1614026, at *6 (Del. Apr. 16, 2019). Eschewing remand, the Supreme Court instead ordered the trial court to enter judgment awarding deal price less synergies as the company’s “fair value.” Id. at *8–9. Then, in May, the Delaware Supreme Court extended the same market-based deference from the appraisal context to damages claims in its affirmance of In re PLX Technology Inc. Stockholders Litigation, 2018 WL 5018535 (Del. Ch. Oct. 16, 2018), aff’d, 2019 WL 2144476, at *1 (Del. May 16, 2019) (TABLE). Late last year, the Delaware Court of Chancery determined in a post-trial opinion that an activist hedge fund aided and abetted a breach of fiduciary duties by directors in connection with their sale of the target company. 2018 WL 5018535, at *1. This was a pyrrhic victory, however, as the Court of Chancery concluded that the plaintiffs failed to prove their allegation that, had the company remained a stand-alone entity, its value would have exceeded the deal price by more than 50%. Id. at *2. Instead, the Court of Chancery found that “[a] far more persuasive source of valuation evidence is the deal price that resulted from the Company’s sale process.” Id. at *54; see also id. & n.605 (citing Dell, 177 A.3d at 30). In affirming the Court of Chancery’s decision on appeal, the Delaware Supreme Court rejected the plaintiffs’ argument that “the Court of Chancery erred . . . by importing principles from . . . appraisal jurisprudence to give deference to the deal price.” In re PLX Tech. Inc. Stockholders Litig., 2019 WL 2144476, at *1 (Del. May 16, 2019) (TABLE). B.   Joint Valuation Exercise Constitutes Substantive Economic Negotiations Under Flood, Fails MFW’s “Up Front” Requirement In our 2018 Year-End Securities Litigation Update, we reported on the Delaware Supreme Court’s decision in Flood v. Synutra International, Inc., where it held that the element of Kahn v. M & F Worldwide Corp. (“MFW”), 88 A.3d 635, 644 (Del. 2014) that requires a transaction to be conditioned “ab initio” or “up front” on the approval of both a special committee and a majority of the minority stockholders, in turn “require[s] the controller to self-disable before the start of substantive economic negotiations, and to have both the controller and Special Committee bargain under the pressures exerted on both of them by these protections.” Flood v. Synutra Int’l, Inc., 195 A.3d 754, 763 (Del. 2018). In Olenik v. Lodzinski, 208 A.3d 704 (Del. 2019), the Delaware Supreme Court added color to its holding in Flood that “up front” means “before the start of substantive economic negotiations,” Flood, 195 A.3d at 763. In the decision underlying Olenik, the Court of Chancery found that, although the parties to the merger had “worked on the transaction for months” before implementing MFW’s “up front” conditions, those “preliminary discussions” were “entirely exploratory in nature” and “never rose to the level of bargaining.” Olenik, 208 A.3d at 706, 716–17. Disagreeing with and reversing the Court of Chancery, the Delaware Supreme Court held that “preliminary discussions transitioned to substantive economic negotiations when the parties engaged in a joint exercise to value” the merging entities. Id. at 717. In particular, the Delaware Supreme Court found it reasonable to infer that two presentations valuing the target “set the field of play for the economic negotiations to come by fixing the range in which offers and counteroffers might be made.” Id. Thus, the parties could not invoke MFW’s protections because they did not condition the transaction on approval of both a special committee and a majority of the minority stockholders until after these “substantive economic negotiations.” Id. C.   Under C & J Energy, Curative Shopping Process “Cannot Be Granted” To Remedy Deal Subject To Entire Fairness Recently, the Court of Chancery declined to “blue-pencil” a merger agreement resulting from a flawed process based on the Delaware Supreme Court’s decision in C & J Energy Services v. City of Miami General Employees’ & Sanitation Employees’ Retirement Trust, 107 A.3d 1049 (Del. 2014). See FrontFour Capital Grp. LLC v. Traube, 2019 WL 1313408, at *33 (Del. Ch. Mar. 22, 2019). Recall that, in C & J Energy, the Delaware Supreme Court cautioned the Court of Chancery against depriving “adequately informed” stockholders of the “chance to vote on whether to accept the benefits and risks that come with [a flawed] transaction, or to reject the deal,” 107 A.3d at 1070, where (1) “no rival bidder has emerged to complain that it was not given a fair opportunity to bid,” id. at 1073, and (2) a preliminary injunction would “strip an innocent third party [buyer] of its contractual rights while simultaneously binding that party to consummate the transaction,” id. at 1054. In FrontFour, the plaintiff proved that the deal at issue was not entirely fair because conflicted insiders tainted the sale process; the special committee failed to inform itself adequately; standstill agreements prevented third parties from coming forward; and other deal protections prevented an effective post-signing market check, among other things. 2019 WL 1313408, at *32. Nevertheless, the Court of Chancery declined to grant “the most equitable relief” available—“a curative shopping process, devoid of [management] influence, free of any deal protections, plus full disclosures.” Id. at *33. The Court of Chancery reasoned that it had “no discretion” to do so under C & J Energy because the injunction sought would “strip an innocent third party of its contractual rights” under the merger agreement. Id. D.   Delaware Supreme Court Holds Caremark Claim Adequately Pleaded As we reported in our 2017 Year-End Securities Litigation Update, a Caremark claim generally seeks to hold directors personally accountable for damages to a company arising from their failure to properly monitor or oversee the company’s major business activities and compliance programs. On June 19, 2019, the Delaware Supreme Court reversed the Court of Chancery’s dismissal of a derivative suit against key executives and the board of directors of Blue Bell USA, carrying implications for both determinations of director independence and fiduciary duties under Caremark. See Marchand v. Barnhill, 2019 WL 2509617 (Del. June 19, 2019). In its demand futility analysis, the Court held that a combination of a “longstanding business affiliation” and “deep . . . personal ties” cast reasonable doubt on a director’s ability to act impartially. Id. at *2. Notably, the reversal turned on the length and depth of one director’s relationship with the CEO of Blue Bell and his family. Although being “social acquaintances who occasionally have dinner or go to common events” does not per se preclude one’s independence, the current CEO’s father and predecessor had hired, mentored, and quickly promoted the director in question to senior management. Id. at *11. The director maintained a close relationship with the CEO’s family that spanned more than three decades and the family even spearheaded a campaign to name a college building after the director. Id. at *10. This combination of facts persuaded the Court that this director was not independent for demand futility purposes. Id. at *10–11. The Court also held that a board’s failure to implement oversight systems related to a “compliance issue intrinsically critical to the business operation” gives rise to a duty of loyalty claim under Caremark. Id. at *13. The Court concluded that because food safety compliance was critical to the operation of a “single-product food company,” id at *4, neither the Company’s nominal compliance with some applicable regulations, nor management’s discussion of general compliance matters with the board were sufficient to satisfy the board’s oversight responsibilities, id. at *13–14. IV.   Loss Causation Developments The first half of 2019 saw several notable developments regarding loss causation, including continued developments relating to Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014), discussed below in Section VI. Separately, on June 24, 2019, the Supreme Court rejected a petition for a writ of certiorari filed in First Solar, Inc. v. Mineworkers’ Pension Scheme, which we discussed in the 2018 Mid-Year Securities Litigation Update. First Solar involved a perceived ambiguity in prior precedent regarding the correct test for loss causation under the Securities Exchange Act of 1934 (the “Exchange Act”). Readers will recall that the Ninth Circuit held in First Solar that loss causation can be established even when the corrective disclosure did not reveal the alleged fraud on which the securities fraud claim is based. Mineworkers’ Pension Scheme v. First Solar, Inc., 881 F.3d 750, 754 (9th Cir. 2018), cert. denied, No. 18-164, 2019 WL 2570667 (U.S. June 24, 2019). First Solar filed its petition for writ of certiorari in August 2018, arguing that loss causation can be proven only if the market learns of, and reacts to, the underlying fraud. In May 2019, the Solicitor General filed an amicus brief recommending that certiorari be denied, arguing that the Ninth Circuit correctly rejected a “revelation-of-the-fraud” requirement for loss causation, pursuant to which a stock-price drop comes immediately after the revelation of a defendant’s fraud. Following the Ninth Circuit’s decision in First Solar, some courts have found that a plaintiff adequately pleaded loss causation for the purposes of stating a claim under the Exchange Act when the revelation that caused the decline in a company’s stock price could be tracked back to the facts allegedly concealed, thus establishing proximate cause at the pleadings phase. See, e.g., In re Silver Wheaton Corp. Sec. Litig., 2019 WL 1512269, at *14 (C.D. Cal. Mar. 25, 2019) (denying motion to dismiss); Maverick Fund, L.D.C. v. First Solar, Inc., 2018 WL 6181241, at *8–10 (D. Ariz. Nov. 27, 2018) (denying motion to dismiss and finding that plaintiffs had adequately pleaded facts that, if proven, would establish that disclosures related to misstatements were “casually related” to fraudulent scheme). We will continue to monitor these and other developments regarding loss causation. V.   Falsity Of Opinions – Omnicare Update In the first half of 2019, courts continued to define the boundaries of Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015), the case in which the Supreme Court addressed the scope of liability for false opinion statements under Section 11 of the Securities Act. In Omnicare, the Court held that “a sincere statement of pure opinion is not an ‘untrue statement of material fact,’ regardless whether an investor can ultimately prove the belief wrong.” Id. at 1327. Under that standard, opinion statements give rise to liability under only three circumstances: (1) when the speaker does not “actually hold[] the stated belief;” (2) when the statement contains false “embedded statements of fact;” and (3) when the omitted facts “conflict with what a reasonable investor would take from the statement itself.” Id. at 1326–27, 1329. Consistent with past years, Omnicare remains a high bar to pleading the falsity of opinion statements. See, e.g, Plaisance v. Schiller, 2019 WL 1205628, at *11 (S.D. Tex. Mar. 14, 2019) (dismissing complaint that was “[m]issing . . . allegations of fact capable of proving that [the company] did not subjectively believe its audit opinions when they were issued”); Teamsters Local 210 Affiliated Pension Tr. Fund v. Neustar, Inc., 2019 WL 693276, at *5 (E.D. Va. Feb. 19, 2019) (finding that plaintiffs did not “allege facts that create a strong inference that at the time they [made the alleged misstatement], the Defendants could not have reasonably held the opinion” proffered). For example, in Neustar, plaintiffs alleged that defendants’ opinion that a certain transition “would occur by September 30, 2018” was false or misleading. 2019 WL 693276, at *5. Even though defendants were in possession of a “Transition Report, which warned that the transition might not occur” by that date, the court found that “[t]hese statements were far from definitive pronouncements that the transition date would occur later than September 2018.” Id. In addition, courts have continued to flesh out the contours of when a plaintiff has alleged that a company is in possession of sufficient information cutting against its statements to render it liable for an omission. In In re Ocular Therapeutix, Inc. Securities Litigation, the court found that a CEO’s statement that the company “think[s]” it had remedied deficiencies leading to the FDA’s denial of its New Drug Application was inactionable, even where the FDA later rejected the resubmitted application. 2019 WL 1950399, at *8 (D. Mass. Apr. 30, 2019). Not only did the CEO’s language “signal[] to investors that his statement was an opinion and not a guarantee,” but he also cautioned that it was up to the FDA to determine whether or not those deficiencies were corrected. Id. In Securities & Exchange Commission v. Rio Tinto plc, the SEC alleged that Rio Tinto violated securities laws by overstating the valuation of its newly acquired coal business when there had been certain adverse developments concerning the ability to transport coal and the quality of coal in the ground. 2019 WL 1244933, at *9 (S.D.N.Y. Mar. 18, 2019). The court dismissed the claim based on early valuation statements because those statements were opinions that “‘fairly align[ed] with’” information known at the time: namely, the main transportation option had not been entirely rejected, and the SEC did not “allege that Rio Tinto had come to fully appreciate the difficulties” concerning other transportation options and coal reserves by the time of those statements. Id. The SEC has moved to amend its complaint. Gibson Dunn represents Rio Tinto in this and other litigation. This year, courts also weighed in on the question of whether Omnicare applies to claims other than those brought under Section 11. Specifically, a Northern District of California court found that “[t]he Ninth Circuit has only extended Omnicare to Section 10(b) and Rule 10b-5 claims, not to Section 14 claims,” and therefore “decline[d] to extend Omnicare past the Ninth Circuit’s guidance.” Golub v. Gigamon Inc., 372 F. Supp. 3d 1033, 1049 (N.D. Cal. 2019) (citing City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605, 616 (9th Cir. 2017)). Gibson Dunn represents several defendants in that matter. In contrast, the Fourth Circuit applied Omnicare to dismiss a Section 14 claim without any discussion about Omnicare’s limitations, determining that a forward-looking statement was still actionable as an omission. Paradise Wire & Cable Defined Benefit Pension Plan v. Weil, 918 F.3d 312, 322–23 (4th Cir. 2019). Rather, the court emphasized the importance of context when evaluating opinion statements, noting that “words matter” and, as in Paradise Wire, can “render the claim for relief implausible.” Id. at 323. “When the words of a proxy statement, like the ones in this case, . . . contain tailored and specific warnings about the very omissions that are the subject of the allegations, those words render the claim for relief implausible.” Id. Additionally, a District of Delaware court recently declined to apply Omnicare to Section 10(b) claims: “Because the Third Circuit has twice declined to decide that Omnicare applies to Exchange Act claims, the Court is reluctant to decide that issue of first impression in connection with a motion to dismiss.” Lord Abbett Affiliated Fund, Inc. v. Navient Corp., 363 F. Supp. 3d 476, 496 (D. Del. 2019) (citing Jaroslawicz v. M & T Bank Corp., 912 F.3d 96 (3d Cir. 2018); In re Amarin Corp. PLC Sec. Litig., 689 F. App’x 124, 132 n.12 (3d Cir. 2017)). The Southern District of New York also considered whether Omnicare required broad disclosure of attorney-client privileged communications that might bear on whether omitted information rendered an opinion misleading. Pearlstein v. BlackBerry Ltd., 2019 WL 1259382, at *16 (S.D.N.Y. Mar. 19, 2019). In Pearlstein, plaintiffs argued that under Omnicare, a company’s “decision to include a legal opinion in [a] press release waived all attorney-client communications” related to the issuance of that release. Id. at *15. The court noted that Omnicare did not mandate a wholesale waiver, but “[a]t best . . . suggest[ed] that communications specific to a particular subject allegedly omitted or misrepresented within a securities filing may be subject to disclosure and, if the communications happen to be privileged, those communications may be subject to a finding of waiver.” Id. at *16. Accordingly, the company could not insulate itself with the privilege—documents containing relevant factual information were discoverable. However, privilege was not waived over the “side issue” of the company’s legal exposure, including as to documents on the strength and likelihood of any legal claims and “communications conducted solely for purposes of document preservation in connection with anticipated legal claims.” Id. VI.   Courts Continue To Define “Price Impact” Analysis At The Class Certification Stage We are continuing to monitor significant decisions interpreting Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014) (“Halliburton II”), but the one federal circuit court of appeal decision issued in the first half of 2019 did little to resolve outstanding questions regarding what it will mean for securities litigants. Recall that in Halliburton II, the Supreme Court preserved the “fraud-on-the-market” presumption, permitting plaintiffs to maintain the common proof of reliance that is required for class certification in a Rule 10b-5 case, but also permitting defendants to rebut the presumption at the class certification stage with evidence that the alleged misrepresentation did not impact the issuer’s stock price. There are three key questions we have been following in the wake of Halliburton II. First, how should courts reconcile the Supreme Court’s explicit ruling in Halliburton II that direct and indirect evidence of price impact must be considered at the class certification stage, Halliburton II, 573 U.S. at 283, with the Supreme Court’s previous decisions holding that plaintiffs need not prove loss causation or materiality until the merits stage? See Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804, 815 (2011); Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 568 U.S. 455 (2013). Second, what standard of proof must defendants meet to rebut the presumption with evidence of no price impact? Third, what evidence is required to successfully rebut the presumption? As noted in our 2018 Year-End Securities Litigation Update, the Second Circuit addressed the first two questions in Waggoner v. Barclays PLC, 875 F.3d 79 (2d Cir. 2017) (“Barclays”) and Arkansas Teachers Retirement System v. Goldman Sachs Group, Inc., 879 F.3d 474 (2d Cir. 2018) (“Goldman Sachs”). Those decisions remain the most substantive interpretations of Halliburton II. Barclays addressed the standard of proof necessary to rebut the presumption of reliance and held that after a plaintiff establishes the presumption of reliance applies, the defendant bears the burden of persuasion to rebut the presumption by a preponderance of the evidence. This puts the Second Circuit at odds with the Eighth Circuit, which cited Rule 301 of the Federal Rules of Evidence when reversing a trial court’s certification order on price impact grounds, see IBEW Local 98 Pension Fund v. Best Buy Co., 818 F.3d 775, 782 (8th Cir. 2016), because Rule 301 assigns only the burden of production—i.e., producing some evidence—to the party seeking to rebut a presumption, but “does not shift the burden of persuasion, which remains on the party who had it originally.” Fed. R. Evid. 301. Nonetheless, that inconsistency was not enough to persuade the Supreme Court to review the Second Circuit’s decision.  Barclays PLC v. Waggoner, 138 S. Ct. 1702 (Mem.) (2018) (denying writ of certiorari). In Goldman Sachs, the Second Circuit vacated the trial court’s ruling certifying a class and remanded the action, directing that price impact evidence must be analyzed prior to certification, even if price impact “touches” on the issue of materiality.  Goldman Sachs, 879 F.3d at 486. On remand, the district court again certified the class. In re Goldman Sachs Grp. Sec. Litig., 2018 WL 3854757, at *1–2 (S.D.N.Y. Aug. 14, 2018). Plaintiffs argued on remand that because the company’s stock price declined following the announcement of three regulatory actions related to the company’s conflicts of interest, previous misstatements about its conflicts had inflated the company’s stock price.  See id. at *2. Defendants’ experts testified that correction of the alleged misstatements could not have caused the stock price drops, both because thirty-six similar announcements had not impacted the company’s stock price and because alternative news (i.e., news of regulatory investigations), in fact, caused the price drop. Id. at *3. The court found the plaintiffs’ expert’s “link between the news of [the company]’s conflicts and the subsequent stock price declines . . . sufficient,” and defendants’ expert testimony insufficient to “sever” that link. Id. at *4–6. In January, however, the Second Circuit agreed to review Goldman Sachs for a second time.  See Order, Ark. Teachers Ret. Sys. v. Goldman Sachs, Case No. 18-3667 (2d Cir. Jan. 31, 2019) (“Goldman Sachs II”). In Goldman Sachs II, the Second Circuit is poised to address what evidence is sufficient to rebut the presumption and how the analysis is affected by plaintiffs’ assertion that the alleged misstatements’ price impact is evidenced not by a price increase when the alleged misstatement is made, but by a price drop when the alleged misstatements are corrected, known as “price maintenance theory.” Defendants-appellants challenged the district court’s finding in two primary ways. First, they argued that the district court impermissibly extended price maintenance theory. See Brief for Defendants-Appellants, Goldman Sachs II, at 28–52 (2d Cir. Feb. 15, 2019). They reasoned that a price maintenance theory is unsupportable where the alleged corrective disclosures revealed no concrete financial or operational information that had been hidden from the market for the purpose of maintaining the stock price, see id. at 28–40, and where the challenged statements are too general to have induced reliance (and thus impacted the stock’s price), see id. at 40–50. Second, defendants-appellants argued that the district court misapplied the preponderance of the evidence standard by considering plaintiffs-appellees’ allegations as evidence and misconstruing defendants-appellants’ evidence of no price impact. See id. at 53–67. Plaintiffs-appellees responded that defendants-appellants’ price-maintenance arguments are not supported by law and that such arguments regarding the general nature of the statements are, in essence, a materiality challenge in disguise and thus not appropriate at the class certification stage. Brief for Plaintiffs-Appellees, Goldman Sachs II, at 20–30 (2d Cir. Feb. Apr. 19, 2019). Plaintiffs-appellees further argued that the district court did not abuse its discretion in weighing the evidence. Id. at 36–61. Defendants-appellants submitted their reply brief in May, Reply Brief for Defendants-Appellants, Goldman Sachs II (2d Cir. May 3, 2019), and the Second Circuit heard the case in June. Seven amicus briefs were filed in this case, including by the United States Chamber of Commerce and a number of securities law experts supporting defendants-appellants, and by the National Conference on Public Employee Retirement Systems supporting plaintiffs-appellees. Our 2018 Year-End Securities Litigation Update also noted that the Third Circuit was poised to address price impact analysis in Li v. Aeterna Zentaris, Inc. in the coming months. Briefing there invited the Third Circuit to clarify the type of evidence defendants must present, including the burden of proof they must meet, to rebut the presumption of reliance at the class certification stage and whether statistical evidence regarding price impact must meet a 95% confidence threshold. The district court had rejected defendants’ argument that plaintiff’s event study rebutted the presumption, and criticized defendants for not offering their own event study. See Li v. Aeterna Zentaris, Inc., 324 F.R.D. 331, 345 (D.N.J. 2018). With limited analysis, the Third Circuit affirmed, finding that the district court did not abuse its discretion in its consideration of conflicting expert testimony. Vizirgianakis v. Aeterna Zentaris, Inc., 2019 WL 2305491, at *2–3 (3d Cir. May 30, 2019). We will continue to monitor developments in Goldman Sachs II and other cases. The following Gibson Dunn lawyers assisted in the preparation of this client update:  Jefferson Bell, Monica Loseman, Brian Lutz, Mark Perry, Shireen Barday, Lissa Percopo, Lindsey Young, Mark Mixon, Emily Riff, Jason Hilborn, Andrew Bernstein, Alisha Siqueira, Kaylie Springer, and Collin James Vierra. Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, or any of the following members of the Securities Litigation practice group steering committee: Brian M. Lutz – Co-Chair, San Francisco/New York (+1 415-393-8379/+1 212-351-3881, blutz@gibsondunn.com) Robert F. Serio – Co-Chair, New York (+1 212-351-3917, rserio@gibsondunn.com) Meryl L. Young – Co-Chair, Orange County (+1 949-451-4229, myoung@gibsondunn.com) Jefferson Bell – New York (+1 212-351-2395, jbell@gibsondunn.com) Jennifer L. Conn – New York (+1 212-351-4086, jconn@gibsondunn.com) Thad A. Davis – San Francisco (+1 415-393-8251, tadavis@gibsondunn.com) Ethan Dettmer – San Francisco (+1 415-393-8292, edettmer@gibsondunn.com) Barry R. Goldsmith – New York (+1 212-351-2440, bgoldsmith@gibsondunn.com) Mark A. Kirsch – New York (+1 212-351-2662, mkirsch@gibsondunn.com) Gabrielle Levin – New York (+1 212-351-3901, glevin@gibsondunn.com) Monica K. Loseman – Denver (+1 303-298-5784, mloseman@gibsondunn.com) Jason J. Mendro – Washington, D.C. (+1 202-887-3726, jmendro@gibsondunn.com) Alex Mircheff – Los Angeles (+1 213-229-7307, amircheff@gibsondunn.com) Robert C. Walters – Dallas (+1 214-698-3114, rwalters@gibsondunn.com) Aric H. Wu – New York (+1 212-351-3820, awu@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

August 15, 2019 |
Gibson Dunn Lawyers Recognized in the Best Lawyers in America® 2020

The Best Lawyers in America® 2020 has recognized 158 Gibson Dunn attorneys in 54 practice areas. Additionally, 48 lawyers were recognized in Best Lawyers International in Belgium, Brazil, France, Germany, Singapore, United Arab Emirates and United Kingdom.

August 13, 2019 |
Getting the Deal Through: Appeals 2019

Washington, D.C. partner Mark Perry and Los Angeles partner Perlette Jura are the contributing editors of “Appeals 2019,” a publication examining Appellate law and procedure between jurisdictions around the globe, published by Getting the Deal Through in June 2019.  Perry and Jura are the authors of the “Global Overview” and the “United States” chapters of the book, and London partners Patrick Doris and Doug Watson and associate Daniel Barnett are the authors of the “United Kingdom” chapter.

August 13, 2019 |
Delaware Bankruptcy Court Rules That Liquidation Trustee Controls the Privilege of Board of Directors’ Special Committee

Click for PDF A Delaware bankruptcy court has held that a special committee’s advisors cannot withhold privileged documents from a liquidation trustee appointed pursuant to a chapter 11 plan. This decision serves as an important reminder that a bankruptcy trustee, including a trustee appointed to manage a liquidating trust established pursuant to a chapter 11 plan, may have exclusive control over a company’s privilege and that executives, board members, and their advisors may be unable to withhold documents from the trustee. Importantly, this decision highlights that even a company’s establishment of a special, independent committee with its own advisors may not be effective in shielding otherwise privileged communications from disclosure. I. Background In In re Old BPSUSH Inc.,[1] a company’s board of directors formed an audit committee (the “Audit Committee”), which investigated questions surrounding senior management’s financial reporting. The Audit Committee retained separate legal counsel, and its legal counsel retained financial advisors.[2] The Audit Committee’s advisors reviewed millions of documents, conducted multiple interviews, and generated a substantial amount of work product.[3] The company subsequently filed bankruptcy.[4] In bankruptcy, the company confirmed a chapter 11 plan that created a liquidation trust and vested the trust with all of the company’s “rights, titles, and interests in any Privileges,” which the plan defined to include “any privilege or immunity” of the company.[5] After the chapter 11 plan was confirmed and a trust was established, the liquidation trustee filed a motion to compel the Audit Committee’s legal and financial advisors to turn over all records related to the investigation.[6] The Audit Committee’s advisors objected to the trustee’s motion, arguing that the Audit Committee “was organized as an independent body, created and governed by a separate charter, with the right and power to engage independent counsel with separate attorney-client privileges and other protections”; therefore, the advisors argued that the liquidation trustee did not acquire the Audit Committee’s privileges.[7] Accordingly, the advisors withheld attorney notes of employee interviews, draft memoranda, the financial advisors’ internal analytics and work papers, and communications/emails with Audit Committee members.[8] II. Bankruptcy Court’s Analysis The Delaware bankruptcy court began its analysis by recognizing the longstanding principle established by the Supreme Court in Commodity Futures Trading Commission v. Weintraub, which held that a “trustee of a corporation in bankruptcy has the power to waive the corporation’s attorney-client privilege with respect to prebankruptcy communications.”[9] The Audit Committee’s advisors attempted to distinguish Weintraub, relying primarily on a Southern District of New York decision in In re BCE West, L.P. In BCE West, the court held, under similar circumstances, that a trustee appointed pursuant to a chapter 11 plan could not access privileged documents held by the advisors of a special committee appointed by the company’s board of directors.[10] The BCE West court reasoned that “[i]t is counterintuitive to think that while the Board permitted the Special Committee to retain its own counsel, the Special Committee would not have the benefit of the attorney-client privilege inherent in that relationship or that the Board of Directors or management, instead of the Special Committee, would have control of such privilege.”[11] Accordingly, the BCE West court determined that the special committee was a “separate and distinct group” from the remainder of the board of directors and that the trustee did not control the privilege.”[12] The Delaware bankruptcy court disagreed with BCE West and instead followed a subsequent Southern District of New York case, Krys v. Paul, Weiss, Rifkind, Wharton, & Garrison LLP (In re China Medical Technologies), which addressed a similar situation and refused to follow BCE West.[13] In China Medical, the court considered whether a foreign representative in a chapter 15 bankruptcy could obtain documents related to an internal investigation conducted by the foreign debtor’s audit committee.[14] The court first determined that an audit committee is not completely separate from the board of directors; rather, it is a committee of the board and a “critical component of [the company’s] management infrastructure.”[15] The court also discussed the policy considerations in Weintraub and that “corporate management is deposed in favor of the trustee, and there is no longer a need to insulate committee-counsel communications from managerial intrusion.”[16] Based on these considerations, the China Medical court rejected BCE West and held that the foreign representative controlled the audit committee’s privilege. The Delaware bankruptcy court agreed with the China Medical court’s reasoning that “it is appropriate to extend the Supreme Court’s analysis in Weintraub and recognize that the trustee appointed as the representative of a corporate debtor controls the privileges belonging to the independent committee established by the corporate debtor.”[17] Accordingly, the court held that the liquidation trustee controlled the Audit Committee’s privileges and that its advisors were required to turn over all documents, communications, and work product, including any “draft factual memoranda and draft legal memoranda,” but excluding the legal advisor’s “firm documents intended for internal law office review and use.”[18] III. Implications of Decision It remains to be seen whether other courts will likewise reject BCE West and instead follow China Medical and Old BPSUSH. Although there does not appear to be much case law specifically addressing the issue, China Medical and Old BPSUSH serve as a warning that a special committee’s documents and communications may very well be discoverable by a trustee (including a trustee of a liquidating trust created pursuant to a chapter 11 plan) and/or company representative in bankruptcy. Therefore, members of a company’s board of directors, special committee, management, and all outside advisors should assume that any communications and work product will be discoverable by and subject to the exclusive control of a trustee if the company ultimately files for bankruptcy. More broadly, Old BPSUSH serves as a reminder, particularly to companies in financial distress, that communications assumed by the parties to be protected by privilege may ultimately be discoverable by a bankruptcy trustee. ______________________    [1]   In re Old BPSUSH Inc., 2019 WL 2563442, at *1 (Bankr. D. Del. June 20, 2019).    [2]   Id.    [3]   Id.    [4]   Id.    [5]   Id. at *4.    [6]   Id. at *1.    [7]   Id. at *2.    [8]   Id. at *8.    [9]   Id. at *4 (quoting Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343, 358 (1985)). [10]   In re BCE W., L.P., 2000 WL 1239117, at *3 (S.D.N.Y. Aug. 31, 2000). [11]   Id. at *2. [12]   Id. [13]   See Krys v. Paul, Weiss, Rifkind, Wharton, & Garrison LLP (In re China Med. Techs.), 539 B.R. 643, 654-55 (S.D.N.Y. 2015). [14]   Id. at 646. [15]   Id. at 655. [16]   Id. at 656. [17]   In re Old BPSUSH Inc., 2019 WL 2563442, at *6. [18]   Id. at *7. The court recognized that an exception applies to “documents intended for internal law office review and use” because lawyers must “be able to set down their thoughts privately in order to assure effective and appropriate representation,” and such documents “are unlikely to be of any significant usefulness to the client or to a successor attorney.” Id. (quoting Sage Realty Corp. v. Proskauer Rose Goetz & Mendelsohn, L.L.P., 91 N.Y.2d 30, 37-38 (1997)). Gibson, Dunn & Crutcher’s lawyers are available to assist with any questions you may have regarding these issues.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Business Restructuring and Reorganization or Securities Regulation and Corporate Governance practice groups, or the following authors: Michael A. Rosenthal – New York (+1 212-351-3969, mrosenthal@gibsondunn.com) Robert B. Little – Dallas (+1 214-698-3260, rlittle@gibsondunn.com) Matthew G. Bouslog – Orange County, CA (+1 949-451-4030, mbouslog@gibsondunn.com) Please also feel free to contact the following practice group leaders: Business Restructuring and Reorganization Group: David M. Feldman – New York (+1 212-351-2366, dfeldman@gibsondunn.com) Robert A. Klyman – Los Angeles (+1 213-229-7562, rklyman@gibsondunn.com) Jeffrey C. Krause – Los Angeles (+1 213-229-7995, jkrause@gibsondunn.com) Michael A. Rosenthal – New York (+1 212-351-3969, mrosenthal@gibsondunn.com) Securities Regulation and Corporate Governance Group: Elizabeth Ising – Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com) James J. Moloney – Orange County, CA (+1 949-451-4343, jmoloney@gibsondunn.com) Lori Zyskowski – New York (+1 212-351-2309, lzyskowski@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

July 29, 2019 |
Delaware Supreme Court Revisits Oversight Liability

Click for PDF In a recent decision applying the famous Caremark doctrine, the Delaware Supreme Court confirmed several important legal principles that we expect will play a central role in the future of derivative litigation and that serve as important reminders for boards of directors in performing their oversight responsibilities.  In particular, the Delaware Supreme Court held that a claim for breach of the duty of loyalty is stated where the allegations plead that “a board has undertaken no efforts to make sure it is informed of a compliance issue intrinsically critical to the company’s business operation.”[1] Although the case addressed extreme facts that will have no application to most mature corporations, the plaintiffs’ bar can be expected to attempt to weaponize the decision.  With all the benefits that hindsight provides, derivative plaintiffs will more frequently contend that a board lacked procedures to monitor “central compliance risks” that were “essential and mission critical.”[2]  The Supreme Court’s decision reinforces that directors need to implement controls that enable them to monitor the most serious sources of risk, and may even caution in favor of a special discussion each year around critical risks. The Decision Marchand involved problems at Blue Bell Creameries USA, Inc., “a monoline company that makes a single product—ice cream.”[3] After several years of food-safety issues known by management, the company suffered a listeria outbreak. This outbreak led to a product recall, a complete operational shutdown, the layoff of one-third of employees, and three deaths.[4] The operational shutdown, in turn, caused the company to accept a dilutive investment to meet its liquidity needs.[5] After obtaining books and records, a stockholder sued derivatively alleging breach of fiduciary duties under Caremark.[6] That theory requires sufficiently pleading that “the directors utterly failed to implement any reporting or information system or controls” or “having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of the risks or problems requiring their attention.”[7] The plaintiff, though, chose not to make a demand on the board before suing on behalf of the company, so he was subject to the burden of pleading that making a demand would have been futile. In an effort to do so, he tried to allege that a majority of the board was not independent because it could not act impartially in considering a demand and that the directors also faced liability under Caremark. The Delaware Court of Chancery rejected both arguments, holding that the plaintiff came up one director short on his independence theory and that the plaintiff failed to plead liability under Caremark.[8] The Delaware Supreme Court reversed both holdings.[9] On independence, Chief Justice Strine continued his instruction from Delaware County Employees Retirement Fund v. Sanchez, 124 A.3d 1017 (Del. 2015) and Sandys v. Pincus, 152 A.3d 124 (Del. 2016) that Delaware law “cannot ignore the social nature of humans or that they are motivated by things other than money, such as love, friendship, and collegiality.”[10] “[D]eep and long-standing friendships are meaningful to human beings,” the Chief Justice reasoned, and “any realistic consideration of the question of independence must give weight to these important relationships and their natural effect on the ability of parties to act impartially towards each other.”[11] The director at issue, although recently retired from his role as CFO at the company, owed his “successful career” of 28 years at the company to the family of the CEO whom the director would be asked to sue.[12] And that family “spearheaded” an effort to donate to a local college that resulted in the college naming a new facility after the director.[13] These facts “support[ed] a pleading-stage inference” that the director could not act independently.[14] This was so despite the director’s previously voting against the CEO on whether to split the company’s CEO and Chairman position. Although the Court of Chancery reasoned that this militated against holding that the director was not independent, the Delaware Supreme Court held it was irrelevant to the demand futility analysis.[15] Voting to sue someone, the Supreme Court explained, is “materially different” than voting on corporate-governance issues.[16] The Supreme Court thus held that the number of directors incapable of acting impartially was sufficient to excuse demand. On Caremark liability, the Court focused on the first prong of the Caremark test: whether the board had made any effort to implement a reporting system. It explained that a director “must make a good faith effort” to oversee the company’s operations. “Fail[ing] to make that effort constitutes a breach of the duty of loyalty”[17] and can expose a director to liability. To meet this standard, the board must “try”[18] “to put in place a reasonable system of monitoring and reporting about the corporation’s central compliance risks.”[19] For Blue Bell, food safety was “essential and mission critical”[20] and “the obviously most central consumer safety and legal compliance issue facing the company.”[21] Despite its importance, the complaint contained sufficient facts to infer that no system of board-level compliance monitoring and reporting over food safety existed at the company. For example: “no board committee that addressed food safety existed”; “no regular process or protocols that required management to keep the board apprised of food safety compliance practices, risks, or reports existed”; “no schedule for the board to consider on a regular basis, such as quarterly or biannually, any key food safety risks existed”; “during a key period leading up to the deaths of three customers, management received reports that contained what could be considered red, or at least yellow, flags, and the board minutes of the relevant period revealed no evidence that these were disclosed to the board”; “the board was given certain favorable information about food safety by management, but was not given important reports that presented a much different picture”; and “the board meetings [we]re devoid of any suggestion that there was any regular discussion of food safety issues.”[22] These shortcomings convinced the Delaware Supreme Court that the plaintiff had pleaded sufficient allegations that Blue Bell’s “board ha[d] undertaken no efforts to make sure it [wa]s informed of a compliance issue intrinsically critical to the company’s business operation.” Id. at 33. So the Court could infer that the board “ha[d] not made the good faith effort that Caremark requires.”[23] That management “regularly reported” to the board on “operational issues” was insufficient to demonstrate that the board had made a good faith effort to put in place a reasonable system of monitoring and reporting about Blue Bell’s central compliance risks.[24] So, too, was “the fact that Blue Bell nominally complied with FDA regulations.”[25] Neither of these facts showed that “the board implemented a system to monitor food safety at the board level.”[26] In light of these facts, the Supreme Court held that the plaintiff met his “onerous pleading burden” and was entitled to discovery to prove out his Caremark claim.[27] Key Takeaways Independence: Close Personal Ties Increase Litigation Risk Directors should be aware that the greater the level of close personal or business relationships amongst themselves, management, and even each other’s families, the greater risk they face of being held incapable of exercising their business judgment in a demand futility analysis, even in circumstances where they have plainly demonstrated independent or dissenting judgment on corporate-governance matters. Caremark Increased Litigation Risk over Compliance Efforts Derivative Litigation. Although Caremark claims will remain “the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment,”[28] we expect an increase in attempted derivative litigation over a purported lack of board-level monitoring systems for specific risks as plaintiffs try to shoehorn as many standard business and non-business risks as possible into Marchand’s “essential and mission critical” risk category. Whereas to date many Caremark claims have focused on the second prong of the standard—alleging that a board consciously failed to monitor or oversee the operation of its reporting system or controls and by ignoring red flags disabled themselves from being informed of risks or problems requiring their attention—Marchand likely will focus plaintiffs on the first prong: whether in particular areas a board failed to implement any reporting or information system or controls. The plaintiffs’ bar is bound to focus on the full array of corporate risks, including many that are not correctly characterized as “central compliance risks” for most companies. These areas could range from risks disclosed in the company’s SEC filings to cultural issues, like harassment or bullying, and more broader environmental, social, and governance (“ESG”) issues. Books and Records Litigation. Similarly, we expect a rise in Section 220 books and records demands seeking to investigate a board’s specific oversight of central compliance risks. Assessing Central Compliance Risks Marchand does not change the core principle that a company’s board of directors is responsible for seeing that the company has systems in place to provide the board with information that is sufficient to allow directors to perform their oversight responsibilities. This includes information about major risks facing the company. The Delaware Supreme Court emphasized in Marchand that these systems can be “context- and industry-specific approaches tailored to . . . companies’ business and resources.”[29] Accordingly, boards have wide latitude in designing systems that work for them. In light of this, boards should be comfortable that they understand the “central compliance risks” facing their companies. They should satisfy themselves that they are receiving, on an appropriate schedule, reports from management and elsewhere on these central risks and what management is doing to manage those risks. In recent years, many boards have devoted significant time to thinking about how best to allocate responsibility for risk oversight at the board level. Boards should be comfortable that there is adequate coverage, among the full board and its committees, of the major compliance and other risks facing the corporation, and that the full board is receiving appropriate reports from responsible committees, as well as from management. They also should periodically evaluate the most effective methods for monitoring “essential and mission critical” risk to their companies, even where these risks do not relate directly to operational issues, and whether the current committee structure, charters, and meeting schedules are appropriate. These efforts, reports, and discussions should be documented. Boards should establish systems so that management provides them with an adequate picture of compliance risks. In Marchand, although management received many reports about food-safety issues, “this information never made its way to the board.”[30] Boards should remain mindful of the second prong in Caremark by overseeing the company’s response when they are informed of risks or problems requiring their attention. When reporting systems or other developments demonstrate that risks are becoming manifest, directors should assess whether a need exists to implement a heightened system of monitoring, such as setting additional meetings and requiring additional reports from management about the steps the company is taking to address the risk. Boards should hesitate to leave the response entirely to management. Documenting the Board’s Work Minutes of board meetings, and board materials, should not just reflect the “good news.” Instead, they should demonstrate that the board received appropriate information about issues and challenges facing the company, and that the board spent time discussing those issues and challenges. The goal should be to create a balanced record demonstrating diligent oversight by the board, while recognizing that those minutes could be produced in litigation. ________________________    [1]   Marchand v. Barnhill, No. 533, 2018, slip op. at 33 (Del. June 18, 2019).    [2]   Id. at 36.    [3]   Id. at 5.    [4]   Id. at 1.    [5]   Id.    [6]   Id. at 19.    [7]   Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006).    [8]   Marchand, No. 533, 2018, slip op. at 20-23.    [9]   Id. at 3. [10]   Id. at 25. [11]   Id. at 28. [12]   Id. at 26. [13]   Id. [14]   Id. at 29. [15]   Id. at 27. [16]   Id. [17]   Id. at 37. [18]   Id. at 30. [19]   Id. at 36 (emphasis added). [20]   Id. [21]   Id. at 37. [22]   Id. at 32-33. [23]   Id. [24]   Id. at 35-36. [25]   Id. at 34. [26]   Id. [27]   Id. at 37. [28]   Stone v. Ritter, 911 A.2d 362, 372 (Del. 2006). [29]   Marchand, No. 533, 2018, slip op. at 30. [30]   Id. at 12. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. For further information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Securities Litigation or Securities Regulation and Corporate Governance practice groups, or the authors in Washington, D.C.: Securities Litigation Group: Andrew S. Tulumello (+1 202-955-8657, atulumello@gibsondunn.com) Jason J. Mendro (+1 202-887-3726, jmendro@gibsondunn.com) Jason H. Hilborn (+1 202-955-8276, jhilborn@gibsondunn.com) Securities Regulation and Corporate Governance Group: Elizabeth Ising (+1 202-955-8287, eising@gibsondunn.com) Ronald O. Mueller (+1 202-955-8671, rmueller@gibsondunn.com) Gillian McPhee (+1 202-955-8201, gmcphee@gibsondunn.com) Please also feel free to contact any of the following leaders of the Securities Litigation group: Brian M. Lutz – Co-Chair, San Francisco/New York (+1 415-393-8379/+1 212-351-3881, blutz@gibsondunn.com) Robert F. Serio – Co-Chair, New York (+1 212-351-3917, rserio@gibsondunn.com) Meryl L. Young – Co-Chair, Orange County (+1 949-451-4229, myoung@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

July 26, 2019 |
New UK Prime Minister – what has happened?

Click for PDF Boris Johnson has won the Conservative leadership race and is the new Prime Minister of the UK. Having been supported by a majority of Conservative MPs, this week the former mayor of London won a 66% share (92,153 votes) in the ballot of Conservative party members. Although there is some criticism of the fact that the new Prime Minister has been elected by such a narrow constituency, it is the case that most political parties in the UK now select their leaders by way of a members ballot. As things stand, the UK is due to leave the European Union (EU) at 23:00 GMT on 31 October 2019. Boris Johnson’s new Cabinet, and the 17 related departures, has set a new tone of determination to leave the EU by that date with or without a deal – “no ifs or buts”. Although only 12 of the 31 members of the new Cabinet originally voted to leave the EU, these “Brexiteer” MPs now dominate the senior Cabinet positions. The newly elected President of the European Commission, Ursula von der Leyen, has however indicated she is willing to support another extension to Brexit talks. In Parliament the Conservatives govern in alliance with the Northern Irish DUP and can only stay in power with the support of the House of Commons. Following defections earlier in the year and the recent suspension of a Conservative MP facing criminal charges, the Government now has an overall working majority of only two MPs (and if, as expected, the Conservatives lose a by-election on 1 August, the Government’s working majority will fall to one). A number of the members of Prime Minister May’s Government who resigned before Boris Johnson took office have made it clear that they will do everything they can to prevent the UK leaving without a deal including voting against the Government. There is therefore a heightened prospect of a general election. This theory is supported by the appointment as Special Adviser to the Prime Minister of political strategist Dominic Cummings who was the chief architect of the campaign to leave the EU in 2016. There has been some debate about whether the new Prime Minister would prorogue Parliament (effectively suspending it) to prevent it stopping a no deal Brexit. That would undoubtedly trigger a constitutional crisis but, despite the rhetoric, it feels like an unlikely outcome. Indeed Parliament recently passed a vote to block that happening. It is difficult to tell where the mood of the House of Commons is today compared to earlier in the year when Prime Minister May’s deal was voted down three times. Since then both the Conservative and Labour parties suffered significant losses in the EU election in May. The new Brexit Party which campaigned to leave made significant gains, as did the Liberal Democrats who have a clear policy to remain in the EU. The opinion polls suggest that, if an election was called today, no party would gain overall control of the House of Commons. It is just possible, however, that some MPs on both sides of the House who previously voted against the May deal would now support something similar, particularly to avoid a no-deal exit from the EU. It may be the case that Boris Johnson, who led the campaign to leave the EU, is the last chance those supporting Brexit have to get Brexit through Parliament. If he fails then either a second referendum or a general election will probably follow. It is not clear what the result of a second referendum would be but it is likely that Labour, the Liberal Democrats and the SNP would all campaign to remain. The EU has consistently said that it will not reopen Prime Minister May’s Withdrawal Agreement although the non-binding political declaration is open to negotiation. The so-called “Irish backstop” remains the most contentious issue. The backstop is intended to guarantee no hard border between Ireland and Northern Ireland but Boris Johnson is concerned it could “trap” the UK in a customs union with the EU. Boris Johnson claims that technology and “trusted trader schemes” means that checks can be made without the need for a hard border. Others, including the EU, remain to be convinced. Parliament has now gone into recess until 3 September 2019 and then, mid-September, there will be another Parliamentary break for the two week party conference season. The Conservative Party Conference on 29 September – a month before the UK’s scheduled exit from the EU – will be a key political moment for the new Prime Minister to report back to the party supporters who elected him. Finally, it is not clear what “no deal” really means. Even if the UK leaves without adopting the current Withdrawal Agreement, it is likely that a series of “mini deals” would be put in place to cover security, air traffic control, etc. A new trading agreement would then still need to be negotiated to establish the ongoing EU-UK relationship. And the issue of the Northern Irish border will still need to be resolved. This client alert was prepared by Charlie Geffen, Ali Nikpay and Anne MacPherson in London. We have a working group in London (led by Patrick Doris, Charlie Geffen, Ali Nikpay and Selina Sagayam) addressing Brexit related issues.  Please feel free to contact any member of the working group or any of the other lawyers mentioned below. Ali Nikpay – Antitrust ANikpay@gibsondunn.com Tel: 020 7071 4273 Charlie Geffen – Corporate CGeffen@gibsondunn.com Tel: 020 7071 4225 Sandy Bhogal – Tax SBhogal@gibsondunn.com Tel: 020 7071 4266 Philip Rocher – Litigation PRocher@gibsondunn.com Tel: 020 7071 4202 Jeffrey M. Trinklein – Tax JTrinklein@gibsondunn.com Tel: 020 7071 4224 Patrick Doris – Litigation; Data Protection PDoris@gibsondunn.com Tel:  020 7071 4276 Alan Samson – Real Estate ASamson@gibsondunn.com Tel:  020 7071 4222 Penny Madden QC – Arbitration PMadden@gibsondunn.com Tel:  020 7071 4226 Selina Sagayam – Corporate SSagayam@gibsondunn.com Tel:  020 7071 4263 Thomas M. Budd – Finance TBudd@gibsondunn.com Tel:  020 7071 4234 James A. Cox – Employment; Data Protection JCox@gibsondunn.com Tel: 020 7071 4250 Gregory A. Campbell – Restructuring GCampbell@gibsondunn.com Tel:  020 7071 4236 © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.