January 5, 2016

Be More Than Careful: How Your Phone Calls, Etc. Can Wind Up Being Cited in Litigation

Here’s something from the “ Blog” that I recently posted: Occasionally, you hear that people have received advice to be especially careful about emails so “don’t put it in an email, give him/her a call.” Often the advice is couched in terms of “avoid putting anything in an email that you would be embarrassed to read about on the front page of the Wall Street Journal. Make a call instead.” That advice is insufficient given what often happens in litigation. According to a recent WSJ article regarding pending M&A litigation, it’s alleged that: “[employee of buyer] later testified that [employee of target’s financial advisor] called him and said “we should not email on this.”

And then consider this quote from a recent Delaware Chancery Court opinion:

“On the evening of March 24, [employee of buyer] summarized the situation in an email [to other employees of the buyer]: I have spoken to a number of bankers on our side (for advice) and theirs (for back-channel feedback). There are definitely two other offers as we suspected, both say they need another week of work but the company’s bankers think it is more like 2-3 weeks. Sounds like both are higher but again not a knock-out, I haven’t been able to get more specific info than that.”

Things to bear in mind include:

1. Any advice, if given by one transaction participant to another participant or their representatives, is discoverable. Even if you don’t disclose it, the other person may – and you should assume likely will.

2. While not necessarily wrongful, there can be lots of innocent and/or perfectly valid reasons for making the suggestion to talk rather than exchange email (e.g., to avoid ambiguity or misinterpretation or because time is of the essence) – plaintiffs will likely allege that the person making the suggestion was trying to hide something damaging.

3. Just because you speak with someone and don’t put it in an email doesn’t ensure that the substance of the conversation will not be memorialized in writing – and be discoverable. Even if you don’t put it in an email, the person you talk to may.

The bottom line is: while it is not always possible to avoid saying, doing or writing things that are potentially vague, ambiguous or subject to misinterpretation, and sometimes back-channel communications are authorized for purposes of seeking a bump in price from the buyer, you should not assume that it’s okay to say something so long as you don’t put it in an email. The better advice is to try to “avoid saying, doing or putting anything in an email that you would be embarrassed to read about on the front page of the Wall Street Journal.”

Related-Party Transactions: SEC Approves NYSE’s Exemptions from Shareholder Approval

Cooley’s Cydney Posner’s blog provides the long history behind the SEC’s approval of the NYSE proposal to exempt certain related-party transactions from shareholder approval requirements – despite concerns of the SEC’s Investor Advocate…

SEC Commissioner Aguilar Bids Farewell

On the heels of SEC Commissioner Gallagher issuing a brief farewell statement, Commissioner Aguilar has now issued a lengthy one too. I don’t recall Commissioners doing this in the past. In his statement, Aguilar summarizes the changes in the SEC & in the law during his tenure, lists his accomplishments and notes some “unfinished business.” And this is on top of his recent list of tips for incoming Commissioners.

Can you think back and wonder what you would write for every job you left…

Broc Romanek