December 4, 2018

SEC Closed Tomorrow: No Edgar; Open Meeting Cancelled

Here is President Trump’s executive order declaring tomorrow a “national day of mourning” for former President George H.W. Bush, which means that the SEC will be closed. Here’s the SEC’s statement that Edgar is closed. So any filings otherwise required to be made tomorrow will be due instead on Thursday (December 6th) – as the SEC will treat tomorrow as a federal holiday for 8-K purposes, etc. (i.e. not a business day).

Skadden reports that Corp Fin’s Office of Mergers & Acquisitions has confirmed that for purposes of the tender offer rules, tomorrow won’t count as a “business day” (under Exchange Act Rule 14d-1) if such date (i) constitutes the launch date of a 20-business-day offer, or (ii) is the 20th business day of a 20-business-day offer. In each case, an extension of at least one business day would be required. However, Corp Fin will apply an exception for ongoing offers and not require an extension.

In addition, the open Commission meeting to discuss possible changes to quarterly reporting has been cancelled. No word on rescheduling yet. . .

Note the precedent: the SEC issued this press release several days in advance of the national day of mourning held for President Ford in 2007.

D&O: Are You Covered for All Possible #MeToo Claims?

Concerns about sexual harassment have exploded over the past year, and misconduct by corporate officials has proven to be a fertile source of employment law claims, shareholder derivative suits, & securities class actions. This Pepper Hamilton memo reviews the elements of each of these claims, and discusses the coverage issues that companies need to focus on. Here’s an excerpt on D&O coverage:

The prospect of personal liability in the wake of allegations of sexual harassment or failure to monitor workplace conduct, coupled with unassured corporate indemnification and advancement, makes D&O liability insurance an important risk transfer tool that can, at times, become the last line of defense for an individual director or officer.

D&O coverage arising out of the #MeToo movement comes in many forms. For example, some, but not all, public company D&O policies include limited EPL coverage for directors and officers. It is imperative that directors and officers are aware of whether their companies’ D&O policies include EPL coverage. If such coverage is present, it’s vital that directors and officers understand their reporting obligations.

The memo says that questions that companies should ask about #MeToo D&O coverage include:

– What triggers coverage under the D&O policy and what are the reporting obligations?
– What exclusions from the coverage may apply, and can those be narrowed?
– How broad is the coverage for investigations?
– Are the policy limits sufficient?

Mandatory Arbitration: “Thumbs Down” in Delaware?

Until recently, most of the debate over bylaw provisions compelling shareholders to arbitrate securities claims has focused on whether the SEC will remove its existing prohibition on them.  But now, some scholars are saying that even if the SEC signs off, Delaware is unlikely to do the same.

According to the authors of this recent white paper, the problem is that Delaware’s relevant statutory provisions – Sections 102 & 109(b) of the DGCL – aren’t broad enough to authorize bylaw provisions establishing an exclusive forum for securities claims.  Here’s an excerpt:

a bylaw purporting to regulate the litigation of claims under Rule 10b-5 “would not deal with the rights and powers of the plaintiff as a stockholder,” and would therefore not be within even the broad scope of Section 109(b). As the Delaware Court of Chancery has observed, “[a] Rule 10b-5 claim under the federal securities laws is a personal claim akin to a tort claim for fraud. The right to bring a Rule 10b-5 claim is not a property right associated with shares, nor can it be invoked by those who simply hold shares of stock.”

Accordingly, regulation of the venue for (or other aspects of) a claim under Rule 10b-5 is beyond the subject matter scope of the charters and bylaws of Delaware corporations.

Also check out Alison Frankel’s blog for a discussion of several Delaware cases that may test this position in the context of a bylaw requiring plaintiffs to litigate federal claims in federal court.

John Jenkins