TheCorporateCounsel.net

Congrats to Felicia Kung for being named as the new head of Corp Fin’s Office of Rulemaking. She takes over for Betsy Murphy, who recently became the SEC’s Secretary. Felicia has been on the Staff for many years, toiling in Corp Fin’s Office of International Corporation Finance as Senior Special Counsel (ie. #2) to Paul Dudek for the past seven years. She’ll be a great asset during a time of intense rulemaking.

“Hear, hear” to the promotion of Jamie Brigagliano as Deputy Director of the Division of Trading and Markets. Great guy and great choice…

Podcast on Delaware’s Proposed Legislation

Recently, I blogged about new proposed amendments to the Delaware General Corporation Law. Yesterday, I caught up with John Grossbauer of Potter Anderson for this podcast, in which John provides some analysis of the new bill, including:

– How do the proposed DGCL changes address proxy access and reimbursement bylaws?
– What about authorization to separate record dates for notice and voting at shareholder meetings do?
– Any other noteworthy proposals?

California and the “Delaware Carve-Out”

Keith Bishop reports on this development: A few weeks ago, the 9th Circuit Court of Appeals – in Madden v. Cowen & Company – delivered an opinion regarding a lawsuit filed in California state court by 63 shareholders against an investment banking firm. The suit alleged that the investment banking firm misled the plaintiffs in connection with the sale of their shares in a closely held California corporation (St. Joseph) to a publicly traded Delaware corporation (FPA Medical Management) that went bankrupt shortly after the sale. The plaintiffs’ suit was removed to federal court pursuant to the Securities Litigation Uniform Standards Act of 1998. The federal district court denied the plaintiffs’ motion to remand the case back to state court and granted the defendant’s motion to dismiss.

On appeal, the 9th Circuit concluded that the suit fell within the so-called “Delaware Carve-Out” that preserves certain actions based on the statutory or common law of the state in which the issuer is incorporated if certain conditions are met. 15 U.S.C. Sec. 77p(d). In this case, the issuer of the shares sold by the plaintiffs, St. Joseph, had been incorporated in California.

Thus, it is somewhat ironic that the Delaware Carve-Out was being applied to a California corporation. The defendant argued that the Delaware Carve-Out applied only to the acquiring company (in this case, FPA, a Delaware corporation) because it was the issuer of the covered security. The 9th Circuit rejected this argument finding that the issuer in the Delaware Carve-out refers to the corporation that is the issuer of the securities described in the carve-out and was not limited to the issuer of a “covered security”.

The 9th Circuit also addressed the defendant’s argument that it did not act on behalf of the issuer because it was not an officer, director or employee of the issuer (referring to the Private Securities Litigation Reform Act of 1995) which defines the phrase “person acting on behalf of an issuer”. The 9th Circuit rejected this argument as well.

Accordingly, the court found that the Delaware Carve-Out applied and the case should be remanded to state court. The case is significant because it adopts an expansive reading of the Delaware Carve-Out and opens the door to more state court suits involving issuers and persons acting on their behalf who are not the issuers of covered securities.

Implementing the New Cross-Border Rules

We just posted the DealLawyers.com transcript for our recent webcast: “Implementing the New Cross-Border Rules.”

– Broc Romanek