Counsel for public companies—it may be time to take another look at your litigation disclosures. A recent federal district court opinion held that one company’s use of the phrase “without merit” to describe ongoing litigation in its public filings could give rise to federal securities fraud claims. The ruling serves as the latest admonition to exercise care in crafting litigation disclosures.
Adam Deming is an associate in the Litigation Department and a member of the firm’s Appellate and Product Liability groups, and Asset Management Litigation team. He focuses on complex commercial litigation in federal and state courts, covering a broad spectrum of business disputes touching on corporate governance, fiduciary obligations, financial services, securities and insolvency. Adam has also represented clients in appeals spanning various areas, including consumer products, life sciences, bankruptcy, labor relations, patent and constitutional law.
Prior to joining Proskauer, Adam served as a law clerk to the Honorable Patty Shwartz on the United States Court of Appeals for the Third Circuit. Adam was also an associate in the New York office of an international law firm. Adam graduated cum laude from the University of Pennsylvania Law School, where he was the managing editor of the Journal of Constitutional Law and an Arthur C. Littleton Fellow instructor in legal writing. Before law school, Adam was a Teach for America Corps Member in New Orleans, Louisiana, where he taught middle school English for three years.
This past year, Proskauer’s private fund litigation blog highlighted a Delaware Chancery case adopting an expansive view in favor of parties seeking information from companies under Section 220 of the Delaware General Corporation Law. The Delaware Supreme Court recently affirmed the Chancery Court’s ruling, providing additional appellate guidance on Section 220 and endorsing limits the Chancery Court set on certain defenses companies may have against such requests.
In Salladay v. Lev, the Delaware Chancery Court elaborated on how early a corporate board must take protective measures to shield a conflicted transaction from entire fairness review.
Salladay involved a motion to dismiss a challenge to a merger agreement based on alleged director conflicts at the target company. The defendants argued that the transaction was approved by an independent committee of directors and a shareholder vote, warranting deferential business judgment review and, in turn, dismissal. The court held that business judgment review was inappropriate because the independent committee only became involved in negotiations after they had begun—too late to “replicate the value-enhancing structure of an arms-length transaction”—and the shareholder vote was not fully informed. Instead, the much stricter standard of entire fairness applied, rather than the more lenient business judgment rule, and therefore dismissal was inappropriate.