In this blog, Cooley’s Cydney Posner does a nice job of analyzing a recent 7th Circuit case – Greengrass v. International Monetary Systems – that illustrates the potential problems of disclosing the name of an employee in your legal proceedings disclosure. Here’s an excerpt from Cydney’s blog:
Disclosure in SEC filings is usually considered to be protective in most cases, but disclosures regarding litigation can often be something of a mixed bag. For example, disclosures might result in indirectly revealing the company’s assessment of the viability of its own defense or the extent of potential loss, especially under the GAAP requirements. This particular case presents an instance where the disclosure itself triggered further claims because of the nature of the disclosure, the inconsistent presentation and the alleged harm inflicted on the plaintiff, which may or may not ultimately prove to have been retaliatory.
Reading this case, a public company might feel caught between Scylla and Charybdis: what to do if SEC rules require disclosure of the principal parties but the company could face charges of retaliation if it discloses the litigating employees’ identities? Once a case is determined by the company to be material under Item 103, as noted above, that Item requires disclosure of the principal parties, and it seems unfair to impose these consequences on a company that consistently complies with the mandate of the rule. The Court in this case appeared to place a lot of weight on the inconsistencies and the “suspicious” timing of the company’s disclosures, not to mention the incriminating email traffic from members of management. Describing her charges as “meritless” probably didn’t help either; stating instead that the company “denies the charges” or just indicating that the company intends to defend itself vigorously, without more, might have been more palatable.
If the company concludes that a case involving an employee is not material under Item 103, the company might determine that it should still be disclosed under general materiality principles or even on a purely voluntary basis. Neither disclosure would involve specific mandatory requirements, including naming the plaintiff, and, in determining whether to disclose the names of employee-plaintiffs, the company should take into account the risks associated with this case as well as the importance (or lack thereof) to investors of disclosing an employee-plaintiff’s identity. If disclosure is elected, the company should ensure consistency in the nature and extent of that disclosure.
Interestingly, among a number of companies, even for mandatory disclosure under Item 103, there appears to be a practice in class actions to describe the class but not to disclose named plaintiffs. Given the potential adverse consequences to employees resulting from public disclosure of their involvement in cases against their employers, perhaps the SEC might consider interpretive guidance that would allow omission of employee names in these cases. Certainly, from an investor standpoint, as in class actions, the generic description of “employee” or “former employee” would usually provide as much insight into the case as the actual name of the employee-plaintiff.
And here’s a blog about this case from some employment lawyers at Dorsey Whitney entitled “Naming Names in SEC Filings?” – it’s interesting to compare how employment lawyers look at this case and the related disclosure obligations…
Delaware Chancery Rejects Delaware Choice of Law
In this blog, Keith Bishop describes the latest case in the battle of choice of laws. Here’s the intro paragraph:
The public policies of California and Delaware both espouse freedom. Ironically, the freedoms that they espouse are antithetical to each other. California embraces the freedom of people to pursue any lawful and employment of his or her choice. Hence, Section 16600 of the California Business & Professions Code declares, with narrow exceptions, covenants not to compete unenforceable. Delaware, in contrast, embraces the principle of freedom of contract, even with respect to reasonable covenants not to compete. The fundamental antagonism between these freedoms is evidenced by Vice Chancellor Sam Glasscock III’s recent ruling in Ascension Ins. Holdings, LLC v. Underwood, 2015 Del. Ch. LEXIS 19 (Jan. 28, 2015).
Webcast: “Rural/Metro & the Role of Financial Advisors”
Tune in tomorrow for the DealLawyers.com webcast – “Rural/Metro & the Role of Financial Advisors” – to hear Steve Haas of Hunton & Williams, Kevin Miller of Alston & Bird and Blake Rohrbacher of Richards Layton discuss a whole host of topics, including the viability of claims for aiding and abetting breaches of fiduciary duty in connection with M&A transactions as well as the widely-talked about paper from Delaware Chief Justice Leo Strine about “documenting the deal.”
Speaking of Chief Justice Strine, he recently delivered this speech entitled “A Job is Not a Hobby: The Judicial Revival of Corporate Paternalism and its Problematic Implications“…
– Broc Romanek