MAJOR LEGAL TRENDS FOR 2016 JEGI Media & Technology Conference Robert Dickey January 14, 2016 2015 Morgan, Lewis & Bockius LLP
IT S CARNIVAL TIME! 2015 Morgan, Lewis & Bockius LLP
Disclaimers of Reliance Where we started: Anvil Holding Corp. v. Iron Acquisition Company (Del. Ch. May 17, 2013) disclaimers of reliance must be specific to be effective. TransDigm Inc. v. Alcoa Global Fasteners, Inc. (Del. Ch. May 29, 2013) disclaimers of reliance alone are insufficient to prevent claims of fraudulent concealment. 3
Prairie Capital III, L.P. v. Double E Holding Corp. (Del. Ch. Nov. 24, 2015) The new development: During lengthy sale process, it became apparent that target company was going to miss sales forecasts provided to buyer. CEO and CFO falsified financial statements to make it appear that the forecasts had been achieved. Buyer sued for fraud based on extracontractual statements made by CEO and CFO. Purchase agreement contained a disclaimer of reliance clause that would not have satisfied the requirements of Anvil Holding or TransDigm. 4
Prairie Capital III, L.P. v. Double E Holding Corp. (Del Ch. Nov. 24, 2015) (cont d) What happened? Court adopted a common sense approach. Irrelevant if disclaimer is phrased negatively or positively. Did not allow buyer to reframe a claim for misrepresentation as a claim for omission to state the truth. Will Delaware Supreme Court resolve split between Vice Chancellor Laster and the now-retired Vice Chancellor Parsons? Stay tuned! 5
Earnout Disputes Where we started: Winshall v. Viacom International Inc. (Del. 2013) where agreement is silent, implied covenant of good faith and fair dealing cannot be used to impose an affirmative obligation on buyer to operate acquired business in a manner intended to maximize the earnout payment to sellers. 6
Lazard Technology Partners v. Qinetiq North America Operations LLC (Del. Apr. 23, 2015) Purchase agreement prohibited buyer from taking action to divert or defer revenue with the intent of reducing or limiting the earnout payment. Sellers argued that the clause should be read also to prohibit conduct that buyer knew would have the effect of compromising the ability to achieve the earnout targets. Court disagreed and refused to use the implied covenant of good faith and fair dealing to supplant the express contractual standard. 7
Fortis Advisors LLC v. Dialog Semiconductor PLC (Del. Ch. Jan. 30, 2015) Merger agreement contained detailed covenant regarding the post-closing operation of business, including with respect to R&D, headcount and pricing. Sellers argued that the implied covenant of good faith and fair dealing should apply and create a general obligation to maximize the earnout payment. Court disagreed, holding that no gaps existed in the covenant from which the court could imply an additional contractual term. 8
Minority Stockholder Squeezeouts Where we started: General trend of increasing judicial skepticism of traditional disclosure only settlements Kahn v. M&F Worldwide Corp. (Del. March 14, 2014) squeezeout of minority stockholders by majority stockholders gets reviewed under deferential business judgment rule if deal is conditioned from outset on approval by a fully functioning special committee and a majority-of-theminority vote. 9
In re Dole Food Co., Inc. Stockholder Litigation (Del. Ch. Aug. 27, 2015) The new development: Majority stockholder, who was also chairman and CEO, took company private in transaction structured to follow M&F Worldwide. At trial, court found that majority stockholder and his COO and General Counsel worked in months preceding deal to depress stock price. During deal process, the majority stockholder and the COO undermined the special committee process by supplying the committee with misinformation. 10
In re Dole Food Co., Inc. Stockholder Litigation (Del. Ch. Aug. 27, 2015) (cont d) At trial, majority stockholder and COO argued no harm, no foul because price was reasonable and deal was approved by a majority of the minority stockholders. Court disagreed, holding that the M&F Worldwide conditions must be adhered to not just in form, but also in substance. Required majority stockholder and COO to pay $148 million in damages. 11
Cybersecurity and Data Privacy Do the work before you have a problem EU General Data Protection Regulation and Data Protection Directive 12
HAPPY MARDI GRAS! 2015 Morgan, Lewis & Bockius LLP
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