December 12, 2014

Do Some Companies Already Have Fee-Shifting Provisions (And Not Know It)?

Here’s a great piece by Professor John Coffee about the state of play with fee-shifting bylaws, which also includes some interesting ideas (also see this related Cooley blog). And this blog by Keith Bishop certainly is thought-provoking. Here’s an excerpt:

Reasonable attorney’s fees may be recovered when authorized by contract. This is because CCP § 1032(b) authorizes awards of costs to the prevailing party (except as otherwise provided by statute). CCP § 1033.5(a) then provides a long list of items constituting “costs”) under Section 1032. One fo these items is attorney’s fees when authorized by contract. Note that these provisions apply in both contract and tort actions so that a contract may provide for recovery of attorney’s in tort as well as contract actions. Civil Code § 1717 provides the authority for recovery of attorney’s fees when an action is on the contract. As most California attorneys should know, Section 1717 basically makes a unilateral attorney’s fee provision bilateral.

In my experience, many contracts include attorney’s fees provisions. In the corporate setting, these include employment agreements, indemnity agreements and compensation plans. These provisions may be very broadly drafted. For example, they may provide for the recovery of attorney’s fees by the prevailing party in litigation arising under or related to the agreement. In the case of an employment agreement, this could reach litigation related to the executive’s performance of that agreement.

Shareholders, of course, are not usually, if ever, parties to these agreements. However, California has found that a third party beneficiary of a contract may be liable for attorney’s fees if (i) there is a sufficient nexus; and (ii) the signatory party prevails. See, e.g., G. Voskanian Constr., Inc. v. Alhambra Unified Sch. Dist., 204 Cal. App. 4th 981 (2012).

Also see this piece by The Activist Investor. Meanwhile, Kevin LaCroix blogs about a letter writing campaign to Delaware legislators by CII & other institutional investors to support legislation that would limit fee-shifting bylaws – and Bob Lamm blogs about how a Senator has written to the SEC Chair so that fee-shifting bylaws are identified as “risk factors” in IPO prospectuses. Also check out this speech by Delaware Supreme Court Justice Ridgely about the role of bylaws in corporate governance…

Insider Trading: Newman Decision Makes It Harder to Bring Cases in 2nd Circuit

In what many are calling a “landmark” case, the Court of Appeals for the Second Circuit issued a long-anticipated decision a few days ago dismissing indictments against two defendants in United States v. Newman. The Court ruled that the government must prove that a remote tippee knows of the personal benefit received by a tipper in exchange for disclosing nonpublic information – and the Court held that the government must prove that the personal benefit is “of some consequence.” In other words, the benefits alleged by the government in United States v. Newman were not sufficient to support a conviction.

We are posting memos about this case in our “Insider Trading” Practice Area. Also scroll down on this Bloomberg View piece for analysis of the decision, including this unusually chastened statement by US Attorney Preet Bharara. And this Reuters article notes the fallout as this decision impacts other investigations…

Speaking of trading, the SEC’s Inspector General reports that the agency still lacks reliable tools to monitor the trading of Staffers, as noted in this Bloomberg article

Cybersecurity: Sleuths Looking for Material Nonpublic Information

As noted in this Cooley blog, a group of hackers is looking for nonpublic information to trade on – not the usual fare of credit card info, etc. The hackers are a sophisticated, native-English-speaking group, designated FIN4, that has targeted almost 100 public companies, primarily healthcare and pharma…

– Broc Romanek