Westlaw Journal DELAWARE CORPORATE Litigation News and Analysis • Legislation • Regulation • Expert Commentary VOLUME 29, ISSUE 24 / JUNE 8, 2015

PRE-SUIT DEMAND WHAT’S INSIDE PRE-SUIT DEMAND JPMorgan director duty in ‘London Whale’ debacle 9 It’s Wal-Mart shareholder plaintiffs’ last stand already decided, Delaware judge says in Delaware, 8th Circuit Shareholders cannot sue JPMorgan Chase & Co.’s In re Wal-Mart Stores Del. Derivative Litig. (Del. Ch.) directors in Delaware over the “London Whale” rogue trading fiasco because New York judges have already BREACH OF DUTY found in parallel cases that the directors were not 10 CEO siphons Sears’ assets to save self at investors’ negligent, a Chancery Court judge has ruled. expense, suit says Solak v. Lampert (Del. Ch.) Asbestos Workers Local 42 Pension Fund v. Bammann et al., No. 9772, 2015 WL 2455469 (Del. Ch. May 22, 2015). MERGER CHALLENGE In a May 22 revised opinion, Vice Chancellor Sam Glasscock III 11 AOL should hang up on Verizon’s $4.4 billion merger dismissed a pension fund’s derivative suit on the ground that the offer, shareholder says business-judgment rule protected the directors’ decision to bar Williams v. AOL Inc. (Del. Ch.) shareholder suits on behalf of JPMorgan over high-risk trading in complex securities called credit derivatives. BOOKS & RECORDS He said the issue has already been decided by New York state 12 AbbVie investor appeals and federal judges who dismissed two parallel cases after finding dismissal of records suit REUTERS/Mike Theiler over aborted Shire merger that the directors validly exercised their independent business The lawsuits said JPMorgan CEO Jamie judgment when they decided those shareholder actions were not in Dimon, shown here, caused the company to Se. Pa. Transp. Auth. v. hire a team of speculative traders headed AbbVie Inc. (Del.) the company’s best interests. In re JPMorgan Chase & Co. Derivative by London-based Bruno Iksil — the “London Whale” — and pushed them to make huge, CONTINUED ON PAGE 16 high-risk bets on credit derivatives. ADVANCEMENT 13 Judge orders Alpha to pay legal defense for Massey’s ex-CEO COMMENTARY COMMENTARY Blankenship v. Alpha Appalachia Holdings (Del. Ch.) Recent applications El Paso Corp. hit with

MISREPRESENTATION of Daimler v. Bauman $171 million in damages 14 MoneyGram stock offering shrink jurisdiction over for defective related-party belied looming Wal-Mart foreign corporations transaction competition, suit says Iron Workers Dist. Council of Amiad Kushner and Richard Bodnar Transactional specialists Gardner Davis New England Pension Fund v. and Danielle Whitley of Foley & Lardner MoneyGram Int’l (D. Del.) of Lowenstein Sandler LLP provide a comprehensive update on the impact of examine a recent Delaware Chancery ALISON FRANKEL’S ON THE CASE the landmark 2014 U.S. Supreme Court Court opinion and explain how the failures 15 Financial advisers in decision in Daimler AG v. Bauman on of El Paso Corp.’s special committee and Rural Metro appeal: cases involving the personal jurisdiction investment banker cost it $171 million in We’re not M&A gatekeepers of corporations around the nation. a cautionary tale for those considering related-party transactions. SEE PAGE 3 SEE PAGE 5 41737810 TABLE OF CONTENTS Westlaw Journal Delaware Corporate Pre-suit Demand: Asbestos Workers Local 42 Pension Fund v. Bammann Published since November 1986 JPMorgan director duty in ‘London Whale’ debacle already decided, Delaware judge says (Del. Ch.)...... 1 Publisher: Mary Ellen Fox Commentary: By Amiad Kushner, Esq., and Richard Bodnar, Esq., Lowenstein Sandler LLP Executive Editor: Donna M. Higgins Recent applications of Daimler v. Bauman shrink jurisdiction over foreign corporations...... 3 Managing Editor: Phyllis Lipka Skupien, Esq. Commentary: By Gardner Davis, Esq., and Danielle Whitley, Esq., Foley & Lardner Senior Editor: Frank Reynolds El Paso Corp. hit with $171 million in damages for defective related-party transaction...... 5 [email protected]

Managing Desk Editor: Robert W. McSherry Pre-suit Demand: In re Wal-Mart Stores Del. Derivative Litig. It’s Wal-Mart shareholder plaintiffs’ last stand in Delaware, 8th Circuit (Del. Ch.)...... 9 Senior Desk Editor: Jennifer McCreary

Desk Editor: Sydney Pendleton Breach of Duty: Solak v. Lampert CEO siphons Sears’ assets to save self at investors’ expense, suit says (Del. Ch.)...... 10 Graphic Designers: Nancy A. Dubin Ramona Hunter Merger Challenge: Williams v. AOL Inc. AOL should hang up on Verizon’s $4.4 billion merger offer, shareholder says (Del. Ch.)...... 11 Westlaw Journal Delaware Corprate (ISSN 2155-5869) is published biweekly by Books & Records: Se. Pa. Transp. Auth. v. AbbVie Inc. Thomson Reuters. AbbVie investor appeals dismissal of records suit over aborted Shire merger (Del.)...... 12

Thomson Reuters Advancement: Blankenship v. Alpha Appalachia Holdings 175 Strafford Avenue, Suite 140 Judge orders Alpha to pay legal defense for Massey’s ex-CEO (Del. Ch.)...... 13 Wayne, PA 19087 877-595-0449 Misrepresentation: Iron Workers Dist. Council of New England Pension Fund v. MoneyGram Int’l Fax: 800-220-1640 MoneyGram stock offering belied looming Wal-Mart competition, suit says (D. Del.)...... 14 www.westlaw.com Customer service: 800-328-4880 Alison Frankel’s On the Case Financial advisers in Rural Metro appeal: We’re not M&A gatekeepers...... 15 For more information, or to subscribe, please call 800-328-9352 or visit Chancery Court Cases Filed...... 17 west.thomson.com.

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By Amiad Kushner, Esq., and Richard Bodnar, Esq. Lowenstein Sandler LLP

In an era of increasing globalization, it is en banc panel of the 9th U.S. Circuit Court of v. Dollywood Co., the U.S. District Court for not surprising that foreign corporations are Appeals reversed. the Southern District of New York found routinely sued in U.S. courts, even if they The Supreme Court reversed the appeals that it lacked general jurisdiction over three have few if any operations in the forum state. court. The high court stated that in corporations that were not incorporated in Counsel for plaintiffs seeking redress from determining general jurisdiction over a New York and that did not have their principal 2 foreign corporations (as well as counsel for corporation, the proper inquiry was whether place of business in New York. the foreign corporations) would be well- the corporation’s “affiliations with the state Significantly, the court reached this advised to familiarize themselves with the are so continuous and systematic as to render conclusion notwithstanding that one of the U.S. Supreme Court’s January 2014 decision it essentially at home in the forum state.” defendants was registered to do business in in Daimler AG v. Bauman, which limited the The court identified two “paradigm” bases New York and paid taxes in New York. circumstances in which foreign corporations for general jurisdiction over a corporation: The court acknowledged that “[p]rior could be subject to general jurisdiction in its place of incorporation and principal place to Daimler, some courts concluded that 1 U.S. courts. This article reviews a number of of business. Applying those principles, the registering to do business in the state of recent decisions in the (now significant) body court found that the California court lacked New York automatically confers general of case law applying Daimler. general jurisdiction over Daimler because jurisdiction on that person or entity.” In Daimler, the plaintiffs (all residents of (even assuming that MB USA were Daimler’s The court concluded, however, that after Argentina) asserted tort claims against agent), Daimler and MB USA were not Daimler, “the mere fact of [the foreign DaimlerChrysler AG in California federal incorporated in California and did not have corporation] being registered to do business court, alleging that Mercedes-Benz their principal place of business there. is insufficient to confer general jurisdiction in Argentina, a subsidiary of Daimler, assisted Argentine security forces in torturing and killing MB Argentina workers during the The high court identified two “paradigm” bases country’s “Dirty War.” for general jurisdiction over a corporation: its place The plaintiffs contended the California of incorporation and principal place of business. court had general jurisdiction over Daimler because its indirect subsidiary Mercedes- a state that is neither its state of incorporation Benz USA LLC distributed Mercedes vehicles Further, Daimler’s contacts with California or its principal place of business.”3 in California and that MB USA’s contacts were not distinguishable from “every other state in which MB USA’s sales are sizable.” Similarly, in In re M/V MSC Flaminia, the court with California could be imputed to Daimler considered whether a European chemical for jurisdictional purposes. The U.S. District A number of recent decisions applying company and its U.S. affiliate were subject to Court for the Northern District of California Daimler have found that there was no general general jurisdiction in New York.4 Neither of granted Daimler’s motion to dismiss for jurisdiction over a foreign corporation. For these corporations was incorporated in New lack of personal jurisdiction. On appeal, an example, in Chatwal Hotels & Resorts LLC York or had its principal place of business in New York. Further, on an aggregate basis, New York accounted for less than 1 percent of the corporations’ worldwide sales, less than the threshold that the Supreme Court had rejected in Daimler (where the Daimler subsidiary at issue derived over 2 percent of its sales from the forum state). Applying the principles articulated in Daimler, the court found that it lacked general jurisdiction over the defendants. Amiad Kushner (L) is a litigation partner with Lowenstein Sandler LLP in New York, and Richard Bodnar (R) is a litigation associate in the firm’s Roseland, N.J., office.

© 2015 Thomson Reuters JUNE 8, 2015 n VOLUME 29 n ISSUE 24 | 3 CONTINUING IMPACT that the non-stipulating defendants had As the court stated, “any foreign corporation waived their personal jurisdiction defense. transacting business in the state of Missouri The continuing impact of Daimler has also This was a particularly harsh result, since the is required to register with the secretary been highlighted in a number of recent cases stipulating defendants were dismissed. of state,” and “[t]herefore, to extend the in which foreign corporations were held to plaintiff’s reasoning to its natural conclusion, have waived jurisdictional defenses that REGISTERING = JURISDICTION? every foreign corporation transacting became viable after Daimler. It is important business in the state of Missouri would be to note that personal jurisdiction (whether A critical issue brewing as a result of Daimler subject to general jurisdiction here.” The based on general or specific jurisdiction) can is whether registering to do business in court concluded that “Daimler clearly rejects be waived by a party, unlike subject matter a state constitutes consent to personal this proposition.” jurisdiction. jurisdiction. Courts have reached different conclusions on this issue. For example, For example, in Peters v. Peters, the trial court in Novartis Pharmaceuticals Corp. v. Mylan CONCLUSION entered an order in December 2013 (pre- Inc., the court held that defendant Mylan Daimler and its progeny continue to Daimler) requiring nonparty UBS (a Swiss Pharmaceuticals was subject to general significantly affect the law of general entity) to comply with a subpoena served by jurisdiction in Delaware because it registered jurisdiction. Counsel in cases involving the plaintiff.5 UBS objected to the subpoena to do business in Delaware, whereas Mylan foreign corporations sued in U.S. courts on bank secrecy grounds, while conceding Inc. did not register and thus did not consent.8 should carefully consider whether any that the court had general jurisdiction. In Vera v. Republic of Cuba (currently on jurisdictional defenses exist based on Daimler This concession was not surprising because, appeal), the plaintiff judgment creditors and its progeny. Further, foreign corporations prior to Daimler, courts routinely found that a sought the assistance of a number of that may have such defenses should assert party was subject to general jurisdiction in a domestic and foreign banks.9 Several banks them in a timely manner, because otherwise state if it maintained a branch there (and thus WJ including Banco Bilbao Vizcaya Argentina, the defenses may be waived. had a continuous presence).6 One month moved to dismiss for lack of personal after the trial court ordered UBS to comply NOTES jurisdiction. with the subpoena, Daimler came down. 1 Daimler AG v. Bauman, 134 S. Ct. 746 (2014). 2 Chatwal Hotels & Resorts LLC v. Dollywood Counsel in cases involving foreign corporations sued in Co., No. 14-CV-8679 CM, 2015 WL 539460, at *5 U.S. courts should carefully consider whether any jurisdictional (S.D.N.Y. Feb. 6, 2015). 3 Though defendants were found not to be defenses exist based on Daimler and its progeny. subject to general jurisdiction, the court found that it had specific jurisdiction relating to the transactions at issue. Thus, even if under Daimler On appeal, UBS argued for the first time In holding that BBVA consented to general general jurisdiction is lacking based on a that under Daimler the court lacked personal jurisdiction in New York, the court said corporation’s contacts with a forum, the jurisdiction over the bank and therefore could Daimler and its progeny “should not be read corporation is not immune from jurisdiction if not compel compliance with the subpoena. so broadly as to eliminate the necessary the cause of action relates to those contacts. The Appellate Division rejected this regulatory oversight into foreign entities that 4 In re M/V MSC Flaminia, No. 12-CV-8892 SAS, argument. The court held that since UBS did operate within the boundaries of the United 2015 WL 1849714, at *3-4 (S.D.N.Y. Apr. 22, 2015). not contest that it is “essentially at home” in States,” and that “[w]hen corporations receive 5 Peters v. Peters, 127 A.D.3d 656 (N.Y. App. New York, UBS waived its objection based on the benefits of operating in this forum, it is Div., 1st Dep’t 2015). personal jurisdiction. critical that regulators and courts continue 6 Daimler, 134 S. Ct. at 735 n. 18; Sonera Similarly, in Laydon v. Mizuho Bank Ltd. the to have the power to compel information Holding B.V. v. Cukurova Holding A.S., 750 F.3d 221, 224–25 (2d Cir. 2014). plaintiff sued a number of domestic and concerning their activities.” 7 foreign banks in New York federal court.7 The court concluded that “BBVA consented Laydon v. Mizuho Bank Ltd., No. 12 CIV. 3419 GBD, 2015 WL 1499185, at *2 (S.D.N.Y. Mar. 31, The banks moved to dismiss in 2013 (pre- to the necessary regulatory oversight in 2015). Daimler); four of the defendants entered into return for permission to operate in New 8 a stipulation reserving their right to bring York, and is therefore subject to jurisdiction Novartis Pharms. Corp. v. Mylan Inc., No. CV 14-777-RGA, 2015 WL 1246285, at *3 (D. Del. a motion for lack of personal jurisdiction, requiring it to comply with the appropriate Mar. 16, 2015); see also Otsuka Pharm. Co. v. while 10 defendants did not enter into the information subpoenas.” Mylan Inc., No. CIV.A. 14-4508 JBS, 2015 WL stipulation. 1305764, at *10 (D.N.J. Mar. 23, 2015) (applying However, in another recent decision, Neeley v. same logic and finding thatDaimler did not alter Seven months after Daimler was decided, Wyeth LLC, the U.S. District Court for the the standard for finding jurisdiction by consent, the non-stipulating defendants brought Eastern District of Missouri declined to find including by registration). a motion to dismiss for lack of personal general jurisdiction over a foreign corporation 9 Vera v. Republic of Cuba, No. 12 Civ. 1596 (AKH), jurisdiction, citing Daimler. The court held that was registered to do business in Missouri 2015 WL 1244050, at *2 (S.D.N.Y. Mar. 17, 2015). and designated a registered agent in the 10 Neeley v. Wyeth LLC, No. 4:11-CV-00325-JAR, state.10 2015 WL 1456984, at *2-3 (E.D. Mo. Mar. 30, 2015).

By Gardner Davis, Esq., and Danielle Whitley, Esq. Foley & Lardner

The Delaware Chancery Court recently held owe a fiduciary duty directly to the plaintiff Pickering, Holt & Co., the committee’s El Paso Corp. liable for $171 million because shareholders. Under Delaware law, a finding financial adviser. Vice Chancellor Laster of a defective related-party “dropdown” of bad faith may expose the defendant believed Tudor manipulated its valuation transaction with El Paso’s publicly held directors to personal liability for monetary analysis to present the transaction in a light master limited partnership financing vehicle. damages. that would get the deal approved and enable El Paso didn’t really do anything wrong — This case is different because the plaintiffs it to collect its fee. This case, following in the other than drive too good a deal. The fault are limited partners in the publicly traded wake of the Chancery Court’s Rural/Metro, lies with the special transaction committee MLP. El Paso’s subsidiary is the corporate El Paso, Atheros and Del Monte decisions, and the investment banker representing general partner of the MLP, and the demonstrates heightened concern regarding 1 the MLP. But when the process breaks independent directors approving the conflict investment bankers’ loyalty and objectivity. down, the controller ultimately pays the price. transaction are directors of the corporate Frankly, it’s almost too much to expect that general partner. independent directors will diligently and INTRODUCTION In In re El Paso Pipeline Partners LP, No. 7141, 2015 WL 1815846 (Del. Ch. Apr. 20, 2015), Technically, the directors owe a direct fiduciary duty Vice Chancellor J. Travis Laster issued a under corporate law only to El Paso, as the stinging rebuke of the independent directors, sole shareholder of the corporate general partner. whom he found to have acted in “subjective bad faith” by going against their better judgment and approving a transaction that Technically, the directors owe a direct aggressively meet their responsibilities to they did not believe was in the MLP’s best fiduciary duty under corporate law only to get the best deal possible and simply say no interests. According to Vice Chancellor El Paso, as the sole shareholder of the when their banker works against them and Laster, the independent directors chose to corporate general partner. Therefore, Vice distorts the facts to please the controlling do what the parent wanted rather than what Chancellor Laster could find that the directors parent and maintain an ongoing source of they believed would be best for the MLP. acted in bad faith without exposing them to lucrative work. personal liability for monetary damages. The Chancery Court’s willingness to hold El Paso’s subsidiary, the general partner of BACKGROUND that the independent directors acted in the partnership, will pay the damages in this bad faith — a drastic and unusual finding El Paso Corp., an energy company focused on case under a contract-based claim based on — probably results in part from the unusual the exploration, production and transmission the partnership agreement. procedural context of the case. Most cases of natural gas, sponsored El Paso Pipeline involving directors’ alleged bad faith arise Vice Chancellor Laster rightly placed much Partners, LP, a publicly traded master limited in the corporate context, in which directors of the blame for the failed process on Tudor, partnership, to maximize the market value of its midstream assets and the amount of capital it could raise based on that valuation. El Paso’s midstream assets were governed by long-term capacity agreements that generated stable cash flows. Because the MLP is a pass-through entity for tax purposes, it could distribute the cash to investors in a tax-efficient manner. This built-in tax advantage meant that investors valued the same cash flows more Gardner Davis (L) is a partner in the transactional and securities practice of Foley & Lardner in Jacksonville, Fla. He frequently represents buyers and sellers in M&A transactions and highly at the MLP level than at the El Paso advises boards of directors and special committees in regard to fiduciary-duty issues. He can be corporate level. This enabled the MLP to reached at 904-359-8726 or [email protected]. Danielle Whitley (R) is a partner in the firm’s issue equity at a lower cost of capital than finance and financial institutions and transactional and securities practices. She focuses her practice in the areas of mergers and acquisitions, finance, and general corporate law. She can be reached at El Paso could achieve. 904-359-8789 or [email protected].

© 2015 Thomson Reuters JUNE 8, 2015 n VOLUME 29 n ISSUE 24 | 5 El Paso owned the MLP’s general partner financial adviser. Tudor is a Houston-based At the committee’s first meeting to consider interest, representing a 2 percent economic investment banking boutique that specializes the economics of the proposed deal, Tudor interest, as well as approximately 52 percent in the oil and gas industry. Its standard distributed a presentation to the committee of the publicly traded common units and all engagement letter called for a $500,000 fee that looked like the books from the prior of the incentive distribution rights. El Paso plus expenses, with the entire fee contingent dropdowns. There were subtle differences exercised control over the MLP through the upon the issuance of a fairness opinion. that seemingly were intended to improve general partner. As a practical matter, the the appearance of the current proposal. partnership had no employees of its own, and COMMITTEE FAULTED Tudor modified its presentation of precedent El Paso employees managed and operated Vice Chancellor Laster faulted the transactions to combine all transactions the MLP’s business. committee for repeatedly hiring the same rather than separately break out minority The corporate general partner’s board advisers without considering other firms. acquisitions and control acquisitions, as it was loaded with present and former He expressed a concern that the advisers had done in the past. This approach enabled El Paso executives and Arthur Reichstetter, became compromised by a desire to capture Tudor to raise the transaction multiple ranges who retired after a long and distinguished the continuing deal flow and resulting fees. for the proposed acquisition of a minority investment banking career focused primarily He also implicitly criticized the contingent interest in Elba so that El Paso’s asking price in the energy industry. nature of Tudor’s fee. Reading between the fell within the range. lines, Vice Chancellor Laster would have From time to time, income-producing assets Tudor also played with its discounted preferred that Tudor receive a significant were sold by El Paso to the MLP. Similar cash flow methodology. For the prior portion of its fee in the event that it advised related-party transactions proliferate in the dropdown of 51 percent of Elba, Tudor used against the transaction. oil and gas industry, where professionals call a single DCF projection. For the proposed them dropdowns. 49 percent dropdown, Tudor prepared three different DCF valuations. One had a five- year projection period, one had a 10-year Vice Chancellor Travis Laster rightly placed much projection period and one had a 15-year of the blame for the failed process on Tudor, Pickering, projection period. Holt & Co., the committee’s financial adviser. Tudor calculated the terminal value using four exit multiples rather than three as it had done in the past. It also added a 6x The limited partnership agreement In October of 2010, El Paso proposed that multiple to the mix. Most significantly, Tudor governing the MLP permitted El Paso the MLP acquire El Paso’s 49 percent reduced the upper bound of its discount from to engage in a transaction involving a minority ownership interest in a liquefied 14.5 percent to 12 percent. These changes conflict of interest, like a dropdown, if the natural gas terminal in Elba Island, Georgia, widened the DCF range and moved El Paso’s transaction received “Special Approval.” and a 190-mile pipeline connecting the price toward the center. The MLP’s limited partnership agreement terminal to four major interstate pipelines defined special approval as approval from a for $948 million in cash and debt. Earlier Finally, Tudor modified its valuation conflicts committee comprised of qualified in 2010, the MLP purchased the controlling summary. On the page addressing the members of the board of directors of the 51 percent ownership interest in Elba from Southern asset, where El Paso was asking MLP’s corporate general partner. The only El Paso. The proposal also included an for the lowest multiple, Tudor provided bars contractual requirement for special approval option for the MLP to purchase an additional for all three of its methodologies. Tudor did was that the committee members believed 13 percent of El Paso’s Southern Natural Gas the same on the page addressing Elba and in good faith that the transaction was in the subsidiary, in which the MLP already owned a Southern together, where the lower multiple best interest of the MLP. 16 percent stake. for Southern drove down the multiple El Paso was asking for the transaction as a whole. Each time El Paso proposed a dropdown Upon receiving the proposal, Reichstetter But on the page that addressed Elba by itself, transaction to the MLP, the board of the asked Tudor to consider whether the Tudor only presented bars for its various DCF MLP’s general partner would appoint an weakening LNG market had undermined analyses and did not show its precedent ad hoc committee to consider the specific Elba’s attractiveness and to examine recent transaction or comparable company analysis. transaction. The committee consisted of two LNG transactions. He also followed up retired El Paso executives and Reichstetter. with an email asking Tudor to analyze UNIFYING THEME FOUND Reichstetter always served as chair and did each of the assets individually as well as Vice Chancellor Laster found the unifying all of the bargaining with the parent. on a combined basis. Reichstetter also asked Tudor to consider a new comparable theme of these changes was to make Each time, the committee obtained a acquisition category presenting just the El Paso’s asking price look better. Tudor did marginal improvement in the El Paso’s three recent LNG asset deals and to look at not identify any of these changes for the opening offer and then granted special the MLP’s public market performance since committee, and the committee members did approval. the March acquisition of the 51 percent not notice them. They did not learn of the The committee always hired Akin Gump controlling stake in Elba. changes until the lawsuit challenging the as its legal counsel and Tudor as its transaction approval process.

6 | WESTLAW JOURNAL n DELAWARE CORPORATE © 2015 Thomson Reuters The following day, Ronald Kuehn, retired Though it did not present a separate analysis Unfortunately, Vice Chancellor Laster found Chairman of El Paso and a member of the for the Southern and Elba assets to the that the members of the special committee, special committee, shared his thoughts committee, Tudor did the work internally. the investment bankers and the other defense about the proposal with his fellow committee Tudor’s analysis indicated that at best, the witnesses had little to offer to support their members by email. The upshot was that MLP paid the same price on a percentage decision. They had few specific recollections he did not like having the MLP acquire basis for 49 percent of Elba that it previously of the transaction, and they testified instead the balance of Elba; he thought the price paid for control. to what they typically did or generally would was too high and would result in an over- The plaintiff sought to prove at trial that the have done when responding to a proposed 6 concentration of assets in a single class of general partner breached the provision in dropdown. assets. Kuehn provided several reasons for the partnership agreement requiring that THE TIPPING POINT these conclusions. the committee members believe that the At its next meeting, Tudor provided a transaction is in the best interest of the MLP. Vice Chancellor Laster found that the presentation to the committee substantially The contractual standard did not require that number of problems reached a tipping identical in format to the prior presentation the committee make a determination about point. The composite picture that emerged, but with some additional modification. Most the best interests of the common unit holders according to Vice Chancellor Laster, was notably, Tudor changed the exit multiples as a class or prioritize their interests over one in which the committee members it used in its DCF analysis to bring the other constituencies. Nor did the contractual went through the motions.7 They did not proposed transaction price closer to the standard contemplate that a court would subjectively believe that approving the center of the DCF sensitivity. Tudor again review the committee’s decision using an dropdown was in the best interest of the did not identify the change to the committee, objective test, such as reasonableness.2 MLP. They thought the dropdown would and the committee members did not notice the change. When Reichstetter met with the chief “Tudor failed to perform the real work of an advisor financial officer of El Paso to discuss price, to a committee,” the judge said. Reichstetter asked for a 3 percent reduction in the price. The El Paso CFO quickly agreed. For the purpose of trial, the contractual allow the MLP to increase distributions on There is no indication in the record that standard meant that the plaintiff bore the its common units while achieving El Paso’s Reichstetter made the types of arguments burden of proving by a preponderance of goal of raising inexpensive capital. However, that one would expect a motivated bargainer the evidence that the committee members neither factor meant that the transaction was to make. He did not compare the asking price did not hold the necessary subjective belief. in the best interest of the MLP. In this case, to the prior Elba dropdown or point out that Plaintiffs could prove this by showing either the vice chancellor found, notwithstanding Tudor had previously justified a higher price “subjective bad faith” or conduct “motivated the formal transaction documentation to based on the acquisition of control. He did by an actual intent to do harm,” which is the the contrary, the committee did not decide not cite the deterioration of the LNG market, classic concept of “bad faith” addressed in that acquiring the balance of Elba at the and he did not mention Kuehn’s objections to In re Walt Disney World Co.3 Alternatively, price paid in the transaction was in the best the transaction. the plaintiff could establish a lack of the interest of the MLP. In fact, the committee After agreeing on price, the CFO of El Paso necessary actual belief by evidence that never learned enough about the price to came back to Reichstetter to propose the committee members intentionally make that determination. changing the deal to provide that the MLP failed to act in the face of a known duty to Vice Chancellor Laster placed great acquire 15 percent of Southern. act, demonstrating a conscious disregard emphasis on the committee members’ for their duties. This required the court to The committee quickly met twice in three private emails. These emails included the focus on the subjective beliefs of the specific days to consider and approve the revised opinion that the MLP already had an over- directors accused of wrongful conduct.4 deal. Tudor’s presentation valued Elba concentration of assets in the LNG trade and and Southern as a package, while El Paso Vice Chancellor Laster found that the trial that the MLP should not acquire more of valued the assets separately. Tudor had record revealed numerous problems with Elba, as well as substantial doubt regarding 8 previously valued the assets separately, and the transaction. None of these problems, the value of the assets. Reichstetter told Tudor to do so. standing alone, would have supported a Vice Chancellor Laster also placed weight finding that the committee members acted At the final meeting, Tudor opined that the on the fact that the special committee in subjective bad faith. Even a combination of combined transaction, but not its component consciously disregarded what it had the problems would not have been sufficient parts, was fair from a financial point of view. The learned from the prior dropdown, involving to overcome the presumption of good committee never learned what the breakdown 51 percent of Elba, after which the members faith and the testimony of the committee in price was between Elba and Southern. of the committee acknowledged that the members that they acted in good faith. market thought the MLP had paid too much Members of the committee had no idea what Indeed, the transaction could have suffered and decided they would do a better job the the MLP paid for the additional 15 percent from many flaws as long as the committee next time.9 of Southern or how it compared to the prior members reached a rational decision for purchase of Southern. comprehensible reasons.5

© 2015 Thomson Reuters JUNE 8, 2015 n VOLUME 29 n ISSUE 24 | 7 Vice Chancellor Laster concluded, Vice Chancellor Laster also found “Tudor act in good faith. Consequently, the general however, that rather than returning to their manipulated the deal process through partner breached the LP agreement by independent assessments of value, the malfeasance. It is often said that valuation engaging in the dropdown and was assessed committee allowed the price from the spring is more art than science, but this aphorism $171 million in damages plus interest and 51 percent control dropdown to anchor reflects the need for professionals to make costs. their counteroffer. Similarly, the committee case-specific judgments. For the dropdowns, members consciously ignored their own Tudor practiced a different kind of art: the CONCLUSION commitment to examine the transactions crafting of a visually pleasing presentation The El Paso Pipeline decision represents component separately and signed off on designed to make the dropdowns of the another shot across the bow by the Delaware 10 El Paso’s aggregate price. moment look as attractive as possible. This Chancery Court for special committees Moreover, when El Paso proposed to include was a case in which ‘the financial adviser, in the context of controlling shareholder 15 percent of Southern without providing eager for future business … compromises transactions. The opinion highlights the a separate price for the two assets, it was its professional valuation standards to risk that independent directors face where 15 impossible to determine how the deal priced achieve the controller’s unfair objective.’” controlling shareholder management either individually. Despite Reichstetter’s “Tudor manipulated its presentations and the special committee’s professional 16 earlier instructions and the obvious reasons in unprincipled ways to justify the deal.” advisers essentially lull the independent for valuing the components separately, Tudor directors into complacency and acceptance. TUDOR SLAMMED did not analyze the two assets separately for The case shows the need for both vigilance the committee. Vice Chancellor Laster slammed Tudor. in the process and the dangers of just going through the motions and trying to get along Internally, however, Tudor did analyze the “Tudor failed to perform the real work of an with the controlling parent. WJ components separately, and the plaintiffs’ adviser to a committee,” he said. “Instead of expert used Tudor’s internal analysis to helping the committee develop alternatives, NOTES unpack the price. identify arguments, and negotiate with the controller, Tudor sought to make the price 1 In re Rural Metro Corp. S’holders Litig., Because of the experience with the prior 2014 WL 971718 (Del. Ch. Mar 7, 2014); In re that the parent proposed look fair. Tudor’s 51 percent Elba dropdown, the committee El Paso Corp. S’holders Litig., 41 A.3d 432, 439 real client was the deal, and the firm did knew better. They consciously disregarded (Del. Ch. 2012); In re Atheros Commc’ns S’holder what it could to justify the fall dropdown, Litig., 25 A.3d 813, 830-31 (Del. Ch. 2011); In re their own independent and well-considered get to closing, and collect its contingent fee. Del Monte Foods Co. S’holder Litig., 25 A.3d 813, views about value when confronted by the 830-31 (Del. Ch. 2011). Rather than helping the committee bolster El Paso CFO, even after the market had its claim to have acted in good faith, Tudor 2 El Paso Pipeline Partners, 2015 WL 1815846 confirmed their views. They consciously undercut it.”17 at *15 (Del. Ch. Apr. 20, 2015). disregarded their desire for separate 3 In re Walt Disney World Co. Derivative Litig., analysis of the components of the proposed Under the terms of the partnership 906 A.2d 27, 64 (Del. 2006). dropdown, even though it was obvious that agreement, each committee member had 4 separate pricing information was needed. an affirmative duty to conclude that the El Paso Pipeline Partners, 2015 WL 1815846 at *15. “Their actions evidence[d] conscious transaction was “in the best interest of the indifference to their responsibilities to partnership.” Vice Chancellor Laster found 5 Id. at *16. El Paso MLP.”11 that committee members did not do so.18 6 Id. “They viewed El Paso MLP as a controlled 7 Id. at *17. SUBORDINATED WISHES company that existed to benefit Parent 8 Id. Vice Chancellor Laster found that by providing a tax-advantaged source of 9 the committee “subordinated their inexpensive capital,” he said. “They knew that Id. at *19. independently held views to the parent’s the fall dropdown was something the parent 10 Id. at *19. 12 wishes.” Vice Chancellor Laster found wanted, and they deemed it sufficient that 11 Id. at *21. that the committee members “did not want the transaction was accretive for the holders 12 Id. at *17. to acquire the balance of Elba in 2010 and of common units … everyone understood believed subjectively that doing so was not in the routine and expected the transaction to 13 Id. the best interest of MLP.”13 go through with a tweak to the asking price. 14 Id. at *21. No one thought the committee might Vice Chancellor Laster found that Tudor’s 15 Id. at *22 (quoting Gerber v. Enter. Prods. 19 work product further undermined any bargain vigorously or actually say ‘no.’” Holdings LLC, 67 A.3d 400, 420-21 (Del. 2013)). possible confidence in the committee. Vice Vice Chancellor Laster found “the committee 16 Id. Chancellor Laster found that “Tudor’s actions members and Tudor went through the 17 Id. at *24. demonstrated that the firm sought to justify motions, but the substance was lacking.”20 Parent’s asking price and collect its fee. Because the committee members 18 Id. at *25. Tudor’s approach made it all the more likely disregarded their known duty to determine 19 Id. that the Committee practice appeasement that the proposed dropdown was in the 20 Id. as well.”14 best interest of El Paso MLP, they did not

8 | WESTLAW JOURNAL n DELAWARE CORPORATE © 2015 Thomson Reuters PRE-SUIT DEMAND the time to gather ammunition to increase the chances that it would not suffer the fate It’s Wal-Mart shareholder plaintiffs’ of the Arkansas suit, but their 2012 records last stand in Delaware, 8th Circuit suit took far longer than they expected. They chose one of the pension funds Dissident Wal-Mart shareholders in Delaware and Arkansas have one last whose suits had been combined in their consolidated litigation to file a related chance to get a green light to press their charges that the discount retailer’s books-and-records action, employing the directors disloyally ignored red-flag reports of a Mexican subsidiary’s systemic right of shareholders in Delaware-chartered bribery of government officials. companies such as Wal-Mart to demand to inspect company records to confirm In re Wal-Mart Stores Inc. Delaware suspicions of wrongdoing. Derivative Litigation, No. 7455, 2015 WL Records inspection actions are usually 2441451 (Del. Ch. May 20, 2015). comparatively short, simple suits used to Cottrell et al. v. Duke et al., No. 15-1869, force companies to comply with requests for appellant’s statement of issues filed (8th documents. Cir. May 12, 2015). However, as both plaintiff shareholders and The two sets of investor plaintiffs must high-profile corporate defendants have convince their respective courts that Wal- recognized the value of the ammunition a Mart’s directors lacked the independence records suit could garner, those actions have and objectivity to fairly decide whether REUTERS/Edgard Garrido involved substantially more time, lawyers, shareholder litigation over an alleged complex issues, appeals and cost. The shareholders who filed their derivative executive whitewash of the so-called Wal- suit in Arkansas ,where Wal-Mart is based, That was the case in the pension fund’s Mex scandal was in the parent company’s said they had enough proof that the directors records suit, which ran for more than three best interests. were too biased to fairly review the charges, years, bounced between the Chancery Court One set of plaintiffs will try to persuade but the judge disagreed and dismissed their and Delaware Supreme Court, and prompted the chief judge of Delaware’s Chancery suit in March. In re Wal-Mart Stores S’holder the plaintiffs to seek sanctions against Court that they have now gathered enough Derivative Litig., No. 12-4041, 2015 WL Wal-Mart for allegedly dragging its feet to documents to prove that the directors were 1470184 (W.D. Ark. Mar. 31, 2015). favor the Arkansas action. unfit to make that decision and that the derivative suit should therefore be allowed to go forward. Following a May 20 Chancery Court hearing, Another set will argue to the 8th U.S. Circuit Chancellor Andre Bouchard ordered the two sides Court of Appeals that a federal judge in to brief and then argue that collateral estoppel issue, Arkansas wrongly tossed their parallel action on behalf of the company for lack of evidence. and the requirements of pre-suit demand.

PASSING THE TEST They have asked the 8th Circuit to revive By the time Chancellor Andre G. Bouchard If both sets of plaintiffs are unsuccessful, their charges. Cottrell et al. v. Duke et al., ruled in May that the plaintiffs had all the their suits will die because of their failure to No. 15-1869 notice of appeal filed (8th Cir. documents that the state high court had pass a preliminary hurdle for all shareholders Apr. 28, 2015). ordered Wal-Mart to produce, the faster- who sue on behalf of their company. In a statement of issues filed May 12, plaintiff paced Arkansas action had already gone to court and had been dismissed. Ind. Elec. The “pre-suit demand” test requires John Cottrell, on behalf of several groups of Workers Pension Trust Fund IBEW v. Wal-Mart derivative plaintiffs to first ask the directors Arkansas shareholders, said the trial court Stores Inc., No. 7779, 2015 WL 2150668 (Del. — as managers of the company — to review judge misapplied the law that requires Ch. May 7, 2015). their charges and take action to remedy plaintiffs to make a pre-suit demand, alleged wrongs. setting the standard of proof too high. The Since the Arkansas derivative plaintiffs had plaintiffs’ opening brief is due June 17. been the first to champion the cause of But all the Wal-Mart shareholder plaintiffs the shareholders over Wal-Mart’s alleged skipped that step and cannot survive a ON HOLD mishandling of the Wal-Mex debacle, the motion to dismiss unless they can prove the Delaware judge could say those Arkansas directors did not properly investigate the The Delaware shareholders agreed to put plaintiffs failed on behalf of all shareholders charges or were too involved in the alleged their derivative suit on hold while they took and bar the Chancery Court suit. wrongdoing to be objective.

© 2015 Thomson Reuters JUNE 8, 2015 n VOLUME 29 n ISSUE 24 | 9 NO SLAM DUNK Wal-Mart had asked him to find that the gamesmanship of the defense made it dismissal of the Arkansas suit barred any difficult to get justice for the shareholders. Following a May 20 hearing, Chancellor other shareholder from suing on behalf of WJ Bouchard ordered the two sides to brief and the company over the Wal-Mart directors’ then argue that collateral estoppel issue, Attorneys: handling of the Wal-Mex debacle. Plaintiffs: Stuart M. Grant, Michael J. Barry, and the requirements of pre-suit demand, Nathan A. Cook and Bernard C. Devieux, Grant & at an upcoming hearing on the effect of the The pension fund’s lead attorney, Stuart Eisenhofer, Wilmington, Del. Grant of Grant & Eisenhofer, told Reuters Arkansas ruling. Defendants: Stephen C. Norman, Potter, columnist Alison Frankel that the negligence He denied Wal-Mart’s request for what Anderson & Corroon, Wilmington of the Arkansas plaintiffs — who rushed to amounted to a slam-dunk ruling that would the courthouse without enough evidence Related Court Document: end the Delaware suit. May 20 order: 2015 WL 2441451 to survive a dismissal motion — and the

BREACH OF DUTY with annual losses increasing to nearly $1.7 billion by 2014, and the financial outlook CEO siphons Sears’ assets to save self continues to worsen, Solak says. at investors’ expense, suit says Worse still, Solak complains, Sears’ board of directors has not received a fairness A Sears Holding Corp. investor is asking Delaware’s Chancery Court to stop opinion or other vital information on the proposed real estate deal, which the struggling retailer’s controlling shareholder/CEO from “siphoning off” effectively forces those shareholders with one of its few remaining valuable assets — its real estate — in an unfair sale sufficient means “to buy into a transaction to a company he controls. blindfolded” or be “short-changed for Sears’ best properties.” Solak v. Lampert et al., No. 11081, complaint According to the complaint, when Lampert A call to Sears Holdings’ media relations filed (Del. Ch. May 29, 2015). acquired control of Sears in 2005, he department seeking comment on the combined the company with the troubled Shareholder John Solak’s suit, filed on behalf litigation was not returned. of Sears, Roebuck & Co.’s’ parent company, Kmart Holding Corp. — which he also The Illinois-based Sears is chartered in says CEO Edward S. Lampert, “faced with controlled — and presided over “a disaster Delaware, giving Solak standing to sue in the dwindling options to keep the failing retailer for the company.” Chancery Court. afloat,” plans to protect his investment at “With defendant Lampert as chairman, shareholders’ expense. the company has gone through four The suit accuses Lampert and seven directors of breaching their duty to put the Lampert — who is also Sears’ board chairman CEOs, severely underinvested in its stores, shareholders’ interests first in any change- and majority stockholder — has proposed a experienced same-store sales declines for of-control situation. Instead, they “presided self-dealing transaction that will transfer the six straight years and, by 2012, saw annual over one of the greatest destructions of bulk of the company’s most valuable real losses near $1 billion,” the suit says. stockholder value in recent corporate estate to Seritage Growth Properties, which Lampert was appointed CEO in 2013, but his history,” the complaint says. he controls, “while leaving Sears saddled asset sales, store closures and cost-cutting with debt, few valuable assets and renting have not arrested Sears’ “monumental fall,” Under Delaware law, the real estate the space it formerly owned,” the complaint transaction should be examined under the says. harsh light of the “entire fairness” standard because the CEO stands on both sides of the Unless the Chancery Court enjoins the sale, deal and failed to take any steps to ensure Solak says, Sears’ minority shareholders will fairness to shareholders, the suit says. be left with a stark choice: Participate in an “opaque” offering of rights to the property Solak asks the court to enjoin the transaction assets they already own or pass on the and hold the defendants accountable for transaction and lose ownership to Sears’ last any economic damages resulting from their monetized asset. actions. WJ Solak’s suit claims the deal will result in the Attorneys: Plaintiff: Peter B. Andrews and Craig J. Springer, sale of 235 of the company’s best properties Andrews & Springer, Wilmington, Del. in exchange for a “paltry” cash payment of REUTERS/Peter Morgan The suit says that when Edward S. Lampert, shown here in 2004, Related Court Document: $2.5 billion and also put the company on the acquired control of Sears the following year, he combined the Complaint: 2015 WL 3491785 hook for $150 million a year in rent. company with the troubled Kmart Holding Corp. — which he also controlled — and presided over “a disaster for the company.”

AOL Inc.’s directors disloyally accepted an “inadequate” $4.4 billion merger offer with “onerous” restrictions from Verizon Communications that opportunistically takes advantage of a temporary dip in AOL’s stock price, according to a shareholder suit in the Delaware Chancery Court.

Williams v. AOL Inc. et al., No. 11049, Both AOL, a global media technology complaint filed (Del. Ch. May 20, 2015). company spun off from Time Warner Inc. in Plaintiff Richard Williams’ breach-of-duty 2009, and Verizon, a broadband and wireless class action asks the court to put Verizon’s communications company formed after the $50-a-share offer — and the terms that go breakup of AT&T Corp., are based in New with it — on hold while the AOL directors York but incorporated in Delaware, giving search for a better bid. shareholders standing to sue there. He says the AOL board has a duty to shop for No one at AOL was immediately available to a better offer with fewer restrictions than the comment on the lawsuit. ones Verizon has demanded in its merger, Company CEO and Chairman Tim Armstrong announced May 12. issued a statement about the merger on the AOL website May 12. AOL merger provisions “The visions of Verizon and AOL are shared; the companies have existing successful • A $150.2 million termination fee partnerships, and we are excited to work that AOL or its buyer would owe with the team at Verizon to create the next Verizon if the merger was canceled. generation of media through mobile and • A strict “no solicitation” clause video,” he said.

that prohibits AOL from contacting Williams’ suit claims the AOL board “failed REUTERS/Brendan McDermid other prospective buyers. to secure a fair price for the company, The suit claims CEO and Chairman Tim Armstrong, shown here, and eight AOL directors disloyally accepted Verizon’s terms and • A matching-rights clause that either for the intrinsic value of its assets or timing to the detriment of the shareholders. notifies Verizon of any competing the value of the company’s assets to Verizon,” putting their personal interests ahead of bid and gives it access to the other and that the directors disloyally accepted the shareholders’, who will suffer irreparable bidder’s offer information so that it Verizon’s terms and timing to the detriment injury unless the court enjoins the merger. could easily meet or top it. of the shareholders. WJ AOL has been reporting strong growth in Attorneys: recent quarters and, despite a temporary “These deal-protection provisions unreason- Plaintiff: Seth D. Rigrodsky, Brian D. Long, price dip, would have provided shareholders ably restrain the company’s ability to solicit Gina M. Serra and Jeremy J. Riley, Rigrodsky & with robust returns on their investment if the Long, Wilmington, Del. or engage in negotiations with any third company remained independent, the suit party regarding a proposal to acquire all or Related Court Document: says. a significant interest in the company,” the Complaint: 2015 WL 2450635 The suit claims Armstrong and eight AOL complaint says. See Document Section B (P. 41) for the complaint. directors violated their fiduciary duties by

A dissident AbbVie Inc. shareholder has asked Delaware’s high court to reinstate its demand to investigate the decision-making process behind the drugmaker’s ill-fated and costly attempt to get a corporate tax break via a $55 billion “inversion merger” with Ireland-based Shire Plc.

Southeastern Pennsylvania Transportation Shareholder James Rizzolo, whose records deter American companies from acquiring Authority v. AbbVie Inc., No. 239, 2015, action was combined with SEPTA’s, did not foreign competitors to avoid domestic taxes, notice of appeal filed (Del. May 13, 2015). join in the appeal. according to the suits. The appeal was filed by the Southeastern Their suits alleged that AbbVie wrongly By May 20, 2014, proposed federal legislation Pennsylvania Transportation Authority, one rebuffed their rights as shareholders to that could have blocked the corporate benefit of two shareholder plaintiffs that sought examine the Delaware-chartered company’s of inversion mergers loomed on the horizon, access to AbbVie’s records to confirm correspondence and documents for evidence and plans for such deals quickly withered their suspicions that the directors cost the of mismanagement by directors who pushed even though it was never enacted. company more than $1.6 billion by rushing the Shire merger. SEPTA’s suit said AbbVie’s directors should into a deal with a slim chance of success. have seen those dark clouds before July A Delaware Chancery Court judge AbbVie’s tax rate for 2016 2014 when the Shire deal was signed and dismissed the books-and-records suit in reportedly would have thought twice about binding the company to April. Vice Chancellor Sam Glasscock III a transaction that would require a $1.6 billion found that although AbbVie had to pay dropped from about payment if the deal fell through. Shire a $1.6 billion breakup fee when the 22 percent to roughly The AbbVie directors canceled the merger U.S. Department of the Treasury effectively 13 percent if the merger Oct. 20. closed the so-called tax-inversion loophole had been consummated. AbbVie hoped to use, “evaluating risk is One of the likely focal points of the appeal is the raison d’etre of a corporate director.” the standard of proof required for a books- and-records action. Se. Pa. Transp. Auth. v. AbbVie Inc., No. 10374; In a so-called inversion merger, a larger Rizzolo v. AbbVie Inc., No. 10408, 2015 WL U.S.-chartered company is poured into a Vice Chancellor Glasscock’s opinion noted 1753033 (Del. Ch. Apr. 15, 2015) (see Westlaw smaller foreign-based company, thereby that even though the standard of proof for a Journal Delaware Corporate, Vol. 29, Iss. 21, changing its official address to a country with books-and-records action is lower than what 29 No. 21 WJDEC 4). a significantly lower corporate tax rate. is required for a breach-of-duty derivative suit, the plaintiffs here failed to meet even But the Southeastern Pennsylvania Trans- AbbVie’s tax rate for 2016 reportedly would that lower standard. WJ portation Authority, an institutional investor, have dropped from about 22 percent to argues that AbbVie would not have had to roughly 13 percent if the merger had been Attorneys: Plaintiff-appellant: Pamela S. Tikellis, Robert J. pay the billion-dollar bill if the directors had consummated. Kriner Jr., Matthew T. Arvizu and Scott M. Tucker, properly evaluated the risks as required by However, U.S. Treasury Department Chimicles & Tikellis, Wilmington, Del. their fiduciary duty. officials, alarmed over the possible drop Defendant-appellee: Lisa A. Schmidt and J. Scott in tax revenues, vowed to take action to Pritchard, Richards, Layton & Finger, Wilmington

(Reuters) – Alpha Natural Resources Inc. must pay for the legal defense of Donald Blankenship, who is facing a criminal trial over a coal mining disaster in 2010, when he headed Alpha’s Massey Energy Co. business, a Delaware judge ruled May 28.

Blankenship v. Alpha Appalachia Holdings which killed 29 people. It was the worst U.S. Blankenship, who was chief executive officer Inc. et al., No. 10610, 2015 WL 3408255 mine disaster in four decades. from 2000 to 2010, has pleaded not guilty (Del. Ch. May 28, 2015). In February, Massey refused to continue to violating federal safety laws. If convicted, Blankenship was indicted in November for paying Blankenship’s defense costs, arguing he could face a total of 31 years in prison. his role in the explosion at Massey’s Upper he was no longer entitled to the benefit after Blankenship is accused of conspiring to tip Big Branch mine in West Virginia in 2010, he was indicted, according to court records. off workers about inspections so they could cover up violations. The indictment also said that after the explosion, he misled the U.S. Securities and Exchange Commission about U.S. judge rejects bid by Massey ex-CEO Massey’s safety practices. to drop mine blast charges Andre Bouchard, a judge on Delaware’s Court of Chancery, ruled in favor of Blankenship (Reuters) – A federal judge has denied nine motions to dismiss charges and rejected the company’s reading of its against former Massey Energy Chief Executive Officer Don Blankenship charter and other agreements. Blankenship related to a 2010 mine explosion in West Virginia that killed 29 people. said his unpaid fees totaled $5.8 million as of April, according to the ruling. United States v. Blankenship, No. 5:14-cr-00244, 2015 WL 3506054 (S.D. W. Va. Alpha said in a statement it is reviewing the June 3, 2015). ruling. Blankenship faces three felony counts for allegedly ignoring hundreds of safety violations Blankenship retired in December 2010 as at the Upper Big Branch mine and conspiring to cover up violations. The blast was the CEO and chairman. A month later Massey worst U.S. mine disaster in four decades. agreed to be acquired by Alpha Natural Blankenship’s attorneys had sought to have charges dismissed. They said a conspiracy Resources Inc. of Bristol, Va., for about charge was so broadly argued that it could cover the correction of safety violations. $7 billion. Alpha has not been accused of U.S. District Judge Irene Berger of West Virginia’s Southern District rejected the motions wrongdoing. June 3. Massey and Alpha are both incorporated in Of the bid to toss the conspiracy charge, she wrote that Blankenship’s “argument that Delaware. WJ he only corrected violations, and thus, his alleged acts were not criminal, borders on the (Reporting by Tom Hals) absurd.” Related Court Document: Blankenship, who led Massey from 2000 to 2010, pleaded not guilty in 2014 and is free Opinion: 2015 WL 3408255 on a $5 million cash bond. U.S. Magistrate Judge R. Clarke VanDervort granted an order June 3 allowing Blankenship to attend a race car event in Ohio on June 5 and June 6 in which his son is a contestant. Blankenship faces a maximum 31 years in prison if convicted on all charges. Massey Energy was purchased in 2011 by Alpha Natural Resources Inc. for about $7 billion. Blankenship’s trial is scheduled to start July 13. His lawyers have requested a delay until January, saying they needed more time to prepare. WJ (Reporting by Elizabeth Daley in Pittsburgh; editing by Ian Simpson and Mohammad Zargham)

By Michael Nordskog, Senior Content Writer, Westlaw Daily Briefing MoneyGram International Inc. and its underwriters issued false statements prior to a 2014 public stock offering by failing to disclose Wal-Mart’s pending launch of its own money-transfer service, according to a shareholder suit filed WESTLAW JOURNAL in Delaware federal court. DERIVATIVES Iron Workers District Council of New England Pension Fund v. MoneyGram International Inc., No. 15-cv-402, notice of removal filed (D. Del. May 19, 2015). Losses stemming from On May 19, MoneyGram removed the suit, complex derivatives originally filed in Delaware state court in April by plaintiff Iron Workers District Council investments linked to of New England Pension Fund, to the U.S. subprime mortgages and District Court for the District of Delaware. other debt instruments In addition to MoneyGram, top company have led to a number of officials and controlling shareholder Thomas H. to the complaint. The suit says the offering major lawsuits across the Lee Partners LP, the suit names as defendants raised more than $147 million for the selling shareholders. nation involving billions six financial services companies involved in underwriting the public offering. Offering documents preceding the sale of dollars and many new disclosed MoneyGram’s intention to reduce important legal issues. This MONEY TRANSFER SERVICES costs and enhance efficiencies through the newsletter reviews cutting- Dallas-based MoneyGram, a Delaware- previously announced restructuring, but did edge cases, informing chartered corporation, serves “unbanked” not say the imminent launch of Wal-Mart’s you of the most crucial or “underbanked” customers by providing competing service was the reason behind the initiative, the suit says. developments in derivatives money transfer, bill payment and money litigation nationwide. order services, according to the complaint. Instead, the documents characterized the The suit says the company earns most of Wal-Mart product as “merely a possibility,” You’ll receive detailed, the suit says. continual coverage of its revenues by providing money transfer services through a network of retail agents, Two weeks after the secondary offering litigation involving fiduciary of which Wal-Mart is the largest. closed, Wal-Mart announced that its money- duties, mortgage-backed MoneyGram renewed its partnership transfer service would launch in late April securities, collateralized agreement with the retail giant in October 2014, according to the complaint. debt obligations, swaps, 2012, subject to a new provision allowing On this news, MoneyGram’s share price fell options, futures, and Wal-Mart to eventually launch a competing 30 percent in the next two days’ trading to hedge funds. service, the suit says. $12.80 per share, “well below the $16.50 In February 2014, MoneyGram told investors offering price,” the suit says. it knew of no definitive plans for the Wal-Mart The plaintiff alleges violations of the launch while also reporting strong quarterly registration statement requirements earnings and a global restructuring initiative, Sections 11, 12(a)(2) and 15 of the Securities the suit says. Act, 15 U.S.C.A. §§ 77k, 771 and 77o. The suit seeks compensatory damages on SECONDARY STOCK OFFERING behalf of parties who acquired MoneyGram MoneyGram issued 9.2 million shares of stock pursuant or traceable to the 2014 Call your West representative for more information common stock in a March 2014 secondary offering. WJ about our print and online subscription packages, public offering of securities held by THL or call 800.328.9352 to subscribe. Related Court Document: and affiliates of Goldman, Sachs & Co., one Notice of removal: 2015 WL 2437309 of the underwriter defendants, according

By Alison Frankel (Reuters) – According to the trade group for the securities industry, Vice Chancellor Travis Laster of Delaware Chancery Court tagged financial advisers with responsibilities that aren’t rightfully theirs in his 2014 decision holding Royal Bank of Canada liable for aiding and abetting a breach of duty by the board of the ambulance company Rural Metro.

Vice Chancellor Laster said RBC and other duties is outside the specialized knowledge RBC also said the theory underlying the financial advisers should act as “gatekeepers” of financial advisers. Put simply: The board’s ruling — that it didn’t disclose its conflicting in M&A transactions, helping to keep board lawyers provide legal advice as to how interest in financing the Rural Metro buyout members from tainting the deal. In re Rural to fulfill a fiduciary duty, and its financial or a buyout of the company’s biggest rival — Metro Corp. Stockholders Litig., 88 A.3d 54 advisers provide financial advice.” didn’t make sense: RBC said the board was (Del. Ch. 2014). And unless the Delaware Supreme Court aware of its financing interests and hired a But the Securities Industry and Financial restricts the risk Vice Chancellor Laster’s second financial adviser to be sure the sale Markets Association, in an amicus brief in Rural Metro decision imposes on financial process wasn’t tainted. RBC’s Delaware Supreme Court appeal of advisers, SIFMA contends, the judge’s It also said the sale price was sound because Vice Chancellor Laster’s $76 million ruling, “fundamental misreading” of bankers’ M&A no topping bid emerged. “The trial court argues financial advisers “are not qualified or role is going to be a big problem. had quibbles (albeit expressed with heated even legally permitted to play that role.” RBC SIFMA’s brief was filed May 26, a week after rhetoric) with the timing and manner of the Capital Mkts. v. Jervis, No. 140, 2015, amicus RBC’s lawyers at Potter Anderson & Corroon sale process. But that does not render the brief filed (Del. May 26, 2015). and Milbank Tweed Hadley & McCloy filed process deficient,” the bank brief said. SIFMA’s lawyers at Sidley Austin expressly the bank’s opening brief. Both RBC and SIFMA — but, tellingly, not the distinguished between a board’s bankers RBC’s arguments are tied closely to the facts corporate directors’ group — claimed Vice and its lawyers. “Financial advisers are not of Rural Metro’s 2011 private equity buyout Chancellor Laster made yet another mistake in a position to monitor, let alone direct or and the ensuing shareholder litigation over in allocating liability. control, the actions of the board, nor to make the deal. The bank said, for instance, that Rural Metro’s charter includes an exculpatory demands of it for information or access,” the Vice Chancellor Laster applied the wrong provision that bars shareholders from brief said. standard of review to the Rural Metro board’s collecting money damages from directors “It is the board’s counsel (internal or external) actions, which he subjected to enhanced who breach their duty of care. Because of that — not their financial advisers — who advise scrutiny instead of deferring to directors’ provision, the judge found, board members it on how to discharge its fiduciary duties business judgment. (RBC got support on were not jointly liable for the breach. although even they cannot ultimately control this point from the National Association SIFMA and the bank argue that his holding the board’s actions. One cannot aid and of Corporate Directors, whose counsel at unfairly shifts risk onto financial advisers, abet that which is out of one’s control or Gibson Dunn & Crutcher argued that Vice which, as a result, will be reluctant to advise outside the scope of one’s knowledge and Chancellor Laster committed a cascade of “any board that even appears to be at risk of the proper discharge of directors’ fiduciary legal errors in his evaluation of the board’s breaching its duty,” the RBC brief said. sale process.) That outcome would undermine the whole policy justification for provisions insulating directors from damages, the bank and SIFMA said. Rural Metro shareholders will, of course, have plenty to say about all of this when their Alison Frankel updates her blog, “On the Case,” multiple times throughout each day on WestlawNext Practitioner Insights. A founding lawyers at Robbins Geller Rudman & Dowd editor of Litigation Daily, she has covered big-ticket litigation for more file a response, due in July. The case will go than 20 years. Frankel’s work has appeared in The New York Times, before the Delaware justices in September. Newsday, The American Lawyer and several other national publications. She is also the author of “Double Eagle: The Epic Story of the World’s WJ Most Valuable Coin.”

© 2015 Thomson Reuters JUNE 8, 2015 n VOLUME 29 n ISSUE 24 | 15 ‘London Whale’ A credit derivative is an exotic security that CONTINUED FROM PAGE 1 essentially bets on the future fortunes of other stocks. Litig., No. 12 Civ. 03878, 2014 WL 1297824 Iksil was later dubbed the “London Whale” (S.D.N.Y. Mar. 31, 2014); Wandel v. Dimon, for the size of his ill-fated bets. No. 651830/12, order issued (N.Y. Sup. Ct., N.Y. Cnty. Feb. 3, 2014). According to the vice chancellor’s opinion, JPMorgan in 2013 entered into consent The vice chancellor said those two judges orders with various federal regulators that found insufficient proof that the JPMorgan resulted more than $1 billion in fines. directors lacked the independence or objectivity to decide what legal actions to The issue in the derivative actions, however, take in response to $6.3 billion in trading concerned only whether JPMorgan’s losses and more than $1 billion in fines by directors and officers negligently failed in federal regulators. their fiduciary duty to manage the company WestlaW Journal bankruptcy Since the New York judges found no reason to question the directors’ decisions, and no new issues have been presented in the Delaware case, the vice chancellor said he must defer to them. this reporter offers comprehensive coverage of Since both the New York and Delaware and steer it away from illegal activity, Vice significant issues in both actions were brought derivatively, the Chancellor Glasscock said. business and consumer plaintiffs were required to first ask the He noted that, in response to shareholder bankruptcy proceedings. board of directors — as the company’s demands for litigation against the rogue managers — to review their proposed suits the editors track dock- trading unit and those who supervised it, and decide whether they should proceed. the board had created a review committee ets, summarizing recent Since the New York and Delaware plaintiffs of three independent directors who retained developments and their skipped that step, they were required to show separate counsel and conducted an eight- implications for the debtor, that the directors were unfit to judge the month review. shareholder suit, but the New York judges its creditors, officers and The committee report recommended reforms found that those plaintiffs failed to do that, but not litigation and did not find negligence directors, employees, and and they dismissed the suits. on the part of the officers and directors, the other parties. this reporter Those rulings apply to parallel actions in vice chancellor said. covers a wide range of top- other states, and there is no reason to delve Since the New York judges found no reason to ics regarding business and into a comparison of those with the Delaware question the directors’ decisions, and no new suit, Vice Chancellor Glasscock said in his issues have been presented in the Delaware consumer bankruptcies opinion. case, the vice chancellor said he must defer and includes analysis of the The Delaware and New York suits were to the New York rulings and dismiss the most noteworthy case law part of a tsunami of litigation triggered by pension fund’s action. WJ and legislation. Important JPMorgan’s announcements in May and Attorneys: July 2012 that trading of exotic credit Plaintiff: Carmella P. Keener and P. Bradford litigation documents are derivatives caused losses that could top deLeeuw, Rosenthal, Monhait & Goddess, Wilmington, Del.; Stewart L. Cohen, Robert L. also included. $7 billion and would force the company to Pratter, Jacob A. Goldberg and Alessandra C. restate its 2012 financials. Phillips, Cohn, Placitella & Roth, Philadelphia Like the other suits, the New York and Defendants: Gregory P. Williams, Catherine G. Delaware shareholder derivative actions Dearlove and Christopher H. Lyons, Richards, Layton & Finger, Wilmington; Richard C. claimed that JPMorgan CEO Jamie Dimon Pepperman II and George R. Painter IV, Sullivan & caused the company to hire a team of Cromwell, New York speculative traders headed by London- Related Court Document: based Bruno Iksil and pushed them to make Opinion: 2015 WL 2455469 Call your West representative for more information huge, high-risk bets on credit derivatives. about our print and online subscription packages, See Document Section A (P. 21) for the opinion. or call 800.328.9352 to subscribe.

CAPTION CASE # WESTLAW # NATURE OF ACTION DATE ATTORNEY

1. Van Wie v. DVW Capital 11083 N/A Breach of duty June 2, 2015 Rudolph Koch 2. Borchardt v. SFX Entertainment 11082 2015 WL 3454355 Breach of duty May 29, 2015 Seth Rigrodsky 3. Solak v. Lampert 11081 2015 WL 3491785 Breach of duty May 29, 2015 Peter Andrews 4. Rein v. Natale 11073 2015 WL 3491750 Breach of duty May 28, 2015 Theodore Kittila 5. Taylor v. Taylor 11071 2015 WL 3491746 Close corporation issues May 28, 2015 Andrew Cordo 6. Kassis v. Cyan 11069 2015 WL 3491742 Breach of duty May 27, 2015 Brian Long 7. TVGLT v. Ann 11067 2015 WL 3417991 Breach of duty May 27, 2015 Seth Rigrodsky 8. Bronfeld v. Borderfree 11063 2015 WL 3417988 Breach of duty May 26, 2015 Seth Rigrodsky 9. CDBPFPF v. Dentsply International 11056 2015 WL 3382133 Books & records May 21, 2015 Michael Hanrahan 10. CCERF v. New Residential 11058 2015 WL 3382142 Breach of duty May 22, 2015 Paul Fioravanti Jr. 11. Williams v. AOL 11049 2015 WL 2450635 Breach of duty May 20, 2015 Seth Rigrodsky 12. Bonfe v. Kinner 11048 2015 WL 2450630 Breach of duty May 20, 2015 Theodore Kittila 13. Wiggins v. FedEx 11041 2015 WL 2450631 Books & records May 19, 2015 Neal Belgam

NEWS IN BRIEF

HELICOPTER SERVICES FIRM LIED ABOUT CONTRACT to dismiss Brian Robb’s lawsuit, filed in the U.S. District Court for the SITUATION BEFORE IPO, SUIT SAYS Western District of Pennsylvania, EMC and its executives argue the suit A Canada-based helicopter services provider and its top executives fails to allege facts showing their statements were materially false or failed to disclose that one of its largest customers stopped payments misleading. The for-profit company operates post-secondary education on its contracts months before the company’s initial public offering, providers under the names The Art Institutes, Argosy University, Brown a federal lawsuit says. The proposed class-action complaint filed Mackie Colleges and South University. According to Robb’s complaint, against CHC Group by shareholder Errol Rudman in the U.S. District EMC misrepresented to investors its revenue, job placement numbers, Court for the Southern District of New York says the company violated admission statistics, and loan and grant programs. The company says federal securities laws by misrepresenting the contract situation to its the suit should be dismissed because the allegedly false statements investors. CHC — one of the world’s largest commercial helicopter are too vague to be actionable. operators — mainly runs flights to offshore oil rigs and flies search- Robb v. Education Management Corp. et al., No. 14-CV-01287, and-rescue and emergency medical missions. Prior to its IPO on memorandum in support of motion to dismiss filed (W.D. Pa. July 9, 2014, CHC said its contract with Brazilian state-run oil company May 18, 2015). Petrobras accounted for 14 percent of its revenues, the suit says. The Related Court Document: company announced the next day, however, that Petrobras had not Memorandum in support of motion to dismiss: 2015 WL 2373433 made payments on its contract since April 2013. CHC’s share price subsequently fell 12 percent on the news to $7.63 per share. SEC HIRES NEW DEPUTY DIRECTOR OF MUNICIPAL Rudman et al. v. CHC Group Ltd. et al., No. 15-CV-3773, complaint SECURITIES OFFICE filed (S.D.N.Y. May 15, 2015). The Securities and Exchange Commission announced May 20 that it Related Court Document: has hired Rebecca J. Olsen as deputy director for the agency’s Office of Complaint: 2015 WL 2275276 Municipal Securities. Olsen had been serving as chief counsel for the FOR-PROFIT EDUCATION COMPANY URGES DISMISSAL office since April 2014. The Office of Municipal Securities is tasked with OF SHAREHOLDER SUIT administering SEC rules involving broker-dealers, investors, municipal advisers and municipal securities issuers. It also advises the SEC on Education Management Corp. and its officers and directors say a municipal securities policy matters, enforcement issues, rulemaking lawsuit accusing the company of inflating its stock price in violation and the agency’s municipal adviser registration program. Olsen joined of federal securities laws by misrepresenting its financial outlook the SEC in 2013. She spent the previous 10 years as a private attorney should be thrown out. In a memorandum in support of their motion practicing municipal securities law at Ballard Spahr LLP.

Asbestos Workers Local 42 Pension Fund v. Bammann et al., No. 9772, 2015 WL 2455469 (Del. Ch. May 22, 2015)...... 1 Document Section A...... 21

Blankenship v. Alpha Appalachia Holdings Inc. et al., No. 10610, 2015 WL 3408255 (Del. Ch. May 28, 2015)...... 13

Cottrell et al. v. Duke et al., No. 15-1869, appellant’s statement of issues filed(8th Cir. May 12, 2015)...... 9

In re Wal-Mart Stores Inc. Delaware Derivative Litigation, No. 7455, 2015 WL 2441451 (Del. Ch. May 20, 2015)...... 9

Iron Workers District Council of New England Pension Fund v. MoneyGram International Inc., No. 15-cv-402, notice of removal filed (D. Del. May 19, 2015)...... 14

Robb v. Education Management Corp. et al., No. 14-CV-01287, memorandum in support of motion to dismiss filed (W.D. Pa. May 18, 2015)...... 17

Rudman et al. v. CHC Group Ltd. et al., No. 15-CV-3773, complaint filed (S.D.N.Y. May 15, 2015)...... 17

Solak v. Lampert et al., No. 11081, complaint filed (Del. Ch. May 29, 2015)...... 10

Southeastern Pennsylvania Transportation Authority v. AbbVie Inc., No. 239, 2015, notice of appeal filed (Del. May 13, 2015)...... 12

United States v. Blankenship, No. 5:14-cr-00244, 2015 WL 3506054 (S.D. W. Va. June 3, 2015)...... 13

Williams v. AOL Inc. et al., No. 11049, complaint filed (Del. Ch. May 20, 2015)...... 11 Document Section B...... 41