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CALIFORNIA CORPORATE & SECURITIES LAW

Ouch! Proxy Statement Argues That Resolving Dispute In California Court Was “Costly And Time Consuming”

As Ralph Waldo Emerson once famously told Oliver Wendell Holmes, Jr.: ““Holmes, when you strike at a king, you must kill him.”  For the full story, see The Corporations Code Can Make Suing Your Former Employees Costly.  I was reminded of this advice when reading the following in the proxy statement of a California-based company in favor of adopting a Delaware forum selection bylaw:

As a general matter, the Board is increasingly concerned about recent trends in lawyer-driven shareholder litigation relating to mergers and acquisitions or in connection with other matters submitted for shareholder approval.  Such cases are typically filed in the state court where the defendant company is headquartered or where one or more of the plaintiff shareholders are domiciled, rather than the state where the company is incorporated, thus requiring a court less familiar with the laws of the state of incorporation to interpret and apply those laws.  The Company was subjected to such litigation in 2012 in connection with disclosures regarding an amendment to an equity plan for which approval was being sought from shareholders at our 2012 Annual Meeting of Shareholders.  The California court that heard the dispute was not as familiar with Delaware law regarding such disclosures and related matters as a Delaware court would have been.  Resolving the matter was costly and time consuming and ultimately delayed the Company’s annual meeting, solely to allow for minimal additional disclosures to be provided in connection with the vote on the approval of the equity plan amendment.  The equity plan amendment eventually was approved by the holders of a majority of the votes cast, an outcome the Board believes would have occurred regardless of the additional disclosures made pursuant to the litigation settlement.

According to the proxy statement, shareholder approval was not required to amend the bylaws.  It so happens that the stockholders approved the proposal by a comfortable margin of 219,574,746 votes for, 77,423,423 votes against and 975,025 abstentions (the vote required for stockholder action was the affirmative “for” vote of a majority of shares present in person or represented by proxy and entitled to vote on the proposal).  Approval of the bylaw amendment does not necessarily guarantee that all disputes will be decided in Delaware.  As I’ve pointed out in previous blogs, several provisions of the California General Corporation Law expressly grant shareholders a right to seek redress in the California Superior Court.  See, e.g., Where To Meet? The Answer May Have Surprising Consequences.

Did this whistleblower impede himself?

I have taken issue with the SEC’s enforcement position that a waiver of a whistleblower bounty “impedes” an individual from making a tip.  See A Whistleblower Isn’t Impeded By The Want Of A Reward.  Now, this story by Suzanne Barlyn and Richard Satran for Reuters caused me to question whether a whistleblower violates Rule 21F-17 by refusing to accept an award from the SEC’s program.  According to the article, a former Deutsche bank risk officer turned down an $8.25 million reward on the basis that it should be clawed back from the executives and go to the bank and its stakeholders.

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