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In re Match Group, Inc. Derivative Litigation Post 4: The Disparity Between Substantive Review of Controller Transactions and Demand Excusal

Ann Lipton observes that:

I have previously remarked on the disjunction between requiring MFW for conflicted transactions, but only board independence for considering litigation demands against controlling shareholders.  In my paper, After Corwin: Down the Controlling Shareholder Rabbit Hole, I said:

litigation demands are, in a real sense, different from ordinary conflict transactions. If directors are too conflicted to consider the merits of a transaction, the court evaluates its fairness. By contrast, if directors are too conflicted to consider the merits of bringing litigation, shareholders themselves are permitted to assume control of corporate machinery to bring the action in their stead. For that reason, demand excusal may legitimately be viewed as its own category of problem.

Reading quickly, it appears the Delaware Supreme Court adopted similar reasoning:

Admittedly, there is a tension in our law in these contexts. But Aronson and our demand review precedent stand apart from the substantive standard of review in controlling stockholder transactions. The distinction is grounded in the board’s statutory authority to control the business and affairs of the corporation, which encompasses the decision whether to pursue litigation. 

In re Match Group, Inc. Derivative Litigation Post 3: Give an Example of a Ratable Transaction

The Match decision’s analysis of Williams v. Geier is helpful:

The defendants rely heavily on Williams v. Geier, where we affirmed the Court of Chancery’s business judgment review of a recapitalization that involved a charter amendment that provided for a form of tenure voting. Under the tenure voting plan, common stockholders would receive ten votes per share, and upon a sale or transfer, each share would revert to one vote per share if held for three years. The controlling stockholder group and corporate officers implemented the recapitalization, which included charter amendments implementing tenure voting. A majority independent board approved the recapitalization. This Court agreed with the Court of Chancery that the standard of review was business judgment.

An important aspect of Williams limits its relevance here. It is correct that the recapitalization involved a controlling stockholder group, a majority independent board approved the act, and the Court ultimately applied business judgment review. It is also correct that the controlling stockholders “reap[ed] a benefit” from the transaction. But the Williams majority also concluded that “no non-pro rata [sic] or disproportionate benefit. . . accrued to the [controlling stockholders] on the face of the Recapitalization, although the dynamics of how the Plan would work in practice had the effect of strengthening the [controlling stockholders’] control.” In other words, the majority, over the dissent’s contrary view, found that “[t]he Recapitalization applied to every stockholder, whether a stockholder was a minority stockholder or part of the majority bloc.” Entire fairness review did not apply because the controlling stockholders received the same benefit as other stockholders.141

141 See Sinclair Oil Corp., 280 A.2d at 720 (“Self-dealing occurs when the parent, by virtue of its domination of the subsidiary, causes the subsidiary to act in such a way that the parent receives something from the subsidiary to the exclusion of, and detriment to, the minority stockholders of the subsidiary.”).

In re Match Group, Inc. Derivative Litigation Post 2: Issues and Holdings

Issues: 1. Does the MFW decision apply outside the context of freeze-out mergers? 2. If so, had IAC and Match satisfied MFW?

Held: 1. Entire fairness is the standard of review in transactions between a controlled corporation and a controlling stockholder when the controlling stockholder receives a non-ratable benefit, but the business judgment rule will apply when: (1) a controlling stockholder conditions the transaction from the start on the approval of both a special committee and a majority of the minority stockholders; (2) the special committee is independent; (3) the special committee is fully empowered; (4) the special committee meets its duty of care; (5) the vote of the minority is informed; and (6) there is no coercion of the minority.

2. The transaction at issue is non-ratable. The structure of the Old IAC shareholders’ investment has changed from one company to two. Presumably, the designers of the transaction think that will eventually create new value for Old IAC shareholders. More important, however, this is more than simply rearranging the deck chairs. Old IAC shareholders are getting an immediate bump that comes at the exense of the Old Match shareholders. Old IAC stockholders received shares in both New IAC and New Match. Old Match minority stockholders received shares in New Match. The New Match minority stockholders now owned common stock in a widely held and highly leveraged corporation, subject to short-term restrictive governance provisions. The New Match minority stockholders also gained an additional 2% of the Match business. IAC stockholders received most of the interest in New Match, as well as shares in a cash-rich corporation with little to no debt, New IAC.

The entire special committee must be independent. Because one of the directors had longstanding economic and personal ties to the chair of IAC, he lacked independence. Accordingly, entire fairness is the standard of review. The case is remanded for a determination of whether it was fair.

In some ways all of this is rather anticlimactic. As Ann Lipton observes:

[Match] doesn't seem to address what I believe have become the real issues: who is a controlling shareholder, and what counts as a conflicted transaction?  That's really what's created much of the difficulty, but resolution must await another day.

In re Match Group, Inc. Derivative Litigation Post 1: The Facts

The Delaware Supreme Court recently decided In re Match Group, Inc. Derivative Litigation, 2024 WL 1449815 (Del. 2024), which addressed a longstanding question of the proper standard of review for transactions involving a controlling shareholder of a corporation. I am grateful to my friend Jeff Lipshaw (Suffolk) who kindly shared his summary of the facts with me and from which I have (with permission) borrowed.

Minority shareholders of Match—an online dating corporation—initiated a class action against the corporation itself, its previous directors, IAC—the former controlling shareholder (an internet and media company), and the former controlling shareholder's chairman. The lawsuit alleged that the controlling shareholder's separation from the corporation via a reverse spin-off was unfair. The Court of Chancery, under Vice Chancellor Morgan T. Zurn, granted the defendants' motion to dismiss. The minority shareholders subsequently appealed the decision.

A standard spin-off, also known as a forward spin-off, entails distributing stock of a subsidiary company to the shareholders of the parent company on a pro rata basis. This transaction effectively segments a portion of the company and allocates it to its current shareholders. Consequently, the subsidiary emerges as an independent entity with its distinct equity structure. Following the spinoff, shareholders possess shares in both entities, and typically, the overall value they hold remains unchanged immediately. Conversely, in a reverse spin-off, the parent company shifts its primary operations to a newly established subsidiary, distributing the subsidiary's stock to its shareholders while retaining any non-primary operations. For instance, in the case of IAC, its primary business was Match, while its non-primary ventures included ANGI Home Services, Vimeo, and other entities.

In the opinion, pre-separation Match Group, Inc. was referred to as “Old Match;” post-separation IAC/InterActiveCorp (now known as Match Group, Inc.) as “New Match;” pre-separation IAC/InterActiveCorp as “Old IAC;” and IAC Holdings Inc. (now known as IAC Inc.) as “New IAC.” I follow those conventions here.

Old IAC was the controlling shareholder of Old Match, a public corporation traded on NASDAQ. Old Match had two classes of stock. The Class A had one vote per share. The Class B had 10 votes per share. The minority shareholders held Class A only. Old IAC held both Class A and B, giving it 98% voting control of Old Match.

Old IAC wanted to split, creating two separate corporations: one that will hold the Match businesses and one that will hold all of OLD IAC’s other businesses.

To effectuate the transaction, Old IAC created a new subsidiary called New IAC, to which it contributed all of the non-dating internet and media businesses held by Old IAC. Old Match disposed of its cash holdings by issuing a cash dividend to its shareholders. The Old Match shareholders received $170 million, while Old IAC received $680 million, which Old IAC then contributed to New IAC.

Old IAC then amended its certificate of corporation to rename itself as Match Group (i.e., New Match, as referred to in the opinion), which will end up after the reverse spin-off. New Match will remain a public corporation but now will only have one class of common.

The next step was a share exchange in which the Old IAC shareholders exchanged their old IAC shares for shares in New Match and in New IAC.  The unusually complicated exchange ratio provision was necessary to take into account the fact that New Match would retain $1.7 billion dollars of Old IAC debt.

The minority Old Match shareholders exchanged their Old Match shares for shares in New Match plus either $3.00 a share or the equivalent in New Match fractional shares.

To complete the reverse spin-off, Old Match was merged into another subsidiary of New Match, which moved all the dating service businesses into New Match.

The net effect is that New Match is now owned by the OLD IAC shareholders and the former minority shareholders of Old Match. New IAC is now owned by the Old IAC shareholders. New Match retained the $1.7 billion in debt. Short-term governance restrictions give New IAC governance rights in New Match. New Match has a right to issue $1.5 billion in new shares that are convertible into New IAC shares, with the proceeds of the share issuance going to New IAC.

A question for users of my Business Associations casebook

I think the new Match Group decision needs to replace Sinclair Oil. But not Zahn. Agreed?

If so, however, do I keep MFW in the section on mergers? And what about Weinberger, should it go? It’s old and largely superseded by the MFW line of cases. But if both Weinberger and MFW go, what cases should the merger section have? What work should that section do?

Business Lawyer Call for Submissions

The Business Lawyer asked me to post their call for submissions:

The Business Lawyer (TBL) is currently accepting submissions for Volume 79, Summer and Fall issues to be published in 2024. TBL is the peer-reviewed scholarly law review and premier publication of the ABA Business Law Section with over 19,000 readers. The Section welcomes article submissions to TBL on topics that advance the development, understanding, and analysis of business law. The Section also welcomes submissions of scholarly articles from legal academics who are looking for a large audience for their scholarship or who wish to adapt their prior research for use by the judiciary and the practicing bar. Pioneering articles originally published in The Business Lawyer have led to significant practice developments, notably in connection with standard practices for legal opinions and audit response letters.

In addition, the Section’s Diversity, Equity and Inclusion Plan encourages a diverse set of viewpoints and backgrounds for TBL authors. The plan includes the widest range of business law practitioners including but not limited to young lawyers, law students, senior lawyers, international lawyers, lawyers of diverse or underrepresented ethnic and racial backgrounds, lawyers with disabilities, LGBTQ2+ lawyers, and women lawyers.

All submissions should be in Word format, double-spaced (including footnotes), accompanied by author contact information, resumes, and an abstract. Manuscripts, including footnotes, ordinarily should not exceed one hundred pages in length (or about 25,000 words). In general, text and footnotes should follow the style and citation format prescribed in The Bluebook: A Uniform System of Citation (21st Edition). In addition, a manuscript will not be considered, and should not be submitted, if it is under consideration for publication elsewhere.

We look forward to reviewing your manuscripts. Please submit them to The Business Lawyer’s Production Manager, Diane Babal, at [email protected]. Direct any questions to [email protected] or 312/988-5507.

Duck Breasts in a Wild Mushroom and Red Wine Sauce with Mixed Rice Mélange

• 2 Pekin Duck breasts 
• 4 ounces shiitake mushrooms, sliced
• big pinch dried thyme
• big pinch dried sage
• 1 tablespoon diced shallot
• 2 cloves garlic minced
• ½ teaspoon Better Than Bouillon Reduced Sodium Organic Roasted Chicken Base
• ½ ounce dried morel mushrooms
• ½ cup red wine

Score the duck breast skin lightly in a diamond pattern. Season duck breasts on both sides with salt and pepper and set aside.

Put the morels in a strainer and rinse throroughly under the tap. Place the mrels in a small bowl and pour 1 cup of boiling water over them. Allow to soak at least 30 minutes.

Heat a 10-inch nonstick skillet over medium-high heat. When hot add the duck breasts skin side down. Reduce heat to medium. Cook skin side down for five minutes. Flip breasts to other side and cook another 4 minutes. Check temperature with an instant read meat thermometer. The breasts are ready when they reach 130°(medium rare). Transfer the breasts to a cutting board and moosely top with aluminum foil. Let rest.

Pour rendered duck fat into a Pyrex custard cup (these are incredibly handy things). Put the skillet back over medium heat. Add 2 teaspoons duck fat. When pan is hot add the shiitakes, season with dried herbs, salt, and pepper, and sauté for 3 minutes. Add shallots and sauté 1 minute. Add garlic and sauté an additional minute.

Carefully pour off ½ cup of the mushroom liquid into another Pyrex cup, avoiding any sediment on the bottom of the bowl. Drain the morels in the strainer, rinse them thoroughly, and add them to the pan.

Sprinkle the mushroom mixture with a couple of shakes of Wondra flour. 

Deglaze the pan with the red wine. Add mushroom liquid and bouillon base. Bring to a boil, reduce heat to medium, and cook 1 minute or until it slightly thickens.

Slice the duck breasts thickly, fan out on the plate, and top with the mushroom sauce.

• 1 ½  cup water
• ⅓ cup red rice
• ⅓ cup black rice
• ⅓ cup wild rice blend
• 1 ounce dried porcini mushrooms, rinsed and cut into bite size pieces
• 1 teaspoon Better Than Bouillon Reduced Sodium Organic Vegetable Base
• teaspoon kosher salt
• pepper
• 1 teaspoon dried Italian parsley
• ½ teaspoon thyme
• big pinch onion powder
• big pinch garlic powder

Just before you start cooking the duck, combine all ingredients in a 4 quart multicooker. Set to pressure cooker for 16 minutes on high. Allow to naturally release until the duck is ready. Taste and adjust salt and pepper if necessary.

We drank a Flowers Pinot Noir (Sonoma Coast) 2020, which made a lovely match. Earthy notes of dried currants, black cherries, and tea echoed many of the flavors in the sauce and rice. It also worked well with the gaminess of the duck.

Laird Superfood decamps from Delaware and heads to Nevada

As someone who coedited Can Delaware Be Dethroned?: Evaluating Delaware's Dominance of Corporate Law, I have been following with interest recent developments that suggest some slight slippage in Delaware's dominance. So has Keith Paul Bishop. Keith reminds us that VC Laster declined to enjoin TripAdvisor's reincorporation in Nevada, although liability claims remain pending, and informs us that Laird Superfood, Inc., has done likewise.

One of the reasons Laird invoked in its proxy statement to justify the move was a claim that "Nevada is more advantageous than Delaware because Nevada has pursued a statute-focused approach that does not depend upon judicial interpretation, supplementation and revision, and is intended to be stable, predictable and more efficient, whereas much of Delaware corporate law still consists of judicial decisions that migrate and develop over time."

Older readers will recall a debate a few years ago about the extent to which Delaware corporate law is indeterminate and whether any such indeterminacy works to Delaware's advantage or disadvantage. Whether or not indeterminacy helps maintain Delaware's dominance, Keith thinks Delaware law's indeterminacy imposes important costs on its users:

One of my primary complaints about Delaware jurisprudence has been that you can read the Delaware General Corporation Law cover to cover and still know very little about Delaware corporate law.  Many extremely important doctrines and standards are the product of case-law and subject to continuous refinement by the Delaware courts.  You will not find "entire fairness", "Caremark duty" or "Revlon duty" in the Delaware General Corporation Law.  While Delaware's judge-made corporate law does evidence a high degree of legal sophistication, it also imposes significant costs on corporations due to the inherent uncertainty engendered by the ever evolving nature of Delaware jurisprudence.  It also encourages litigants to test new theories of liability. 

It's a debate that may reward being revisited.

Miller on "Classical Liberalism and Corporate Law"

Robert Miller has posted to SSRN:

A chapter in the forthcoming Routledge Handbook of Classical Liberalism, this paper evaluates contemporary corporate law, especially Delaware corporate law, from a classical liberal perspective. Beginning with an explanation of the firm as a mode of organizing voluntary cooperative activity among human beings, the chapter explains and compares two views of the corporation: the privilege view, under which incorporation is a concession from the state benefiting the individuals forming the corporation, and the contract view, under which the corporate form involves nothing that could not be achieved by appropriate contracts among individuals if transaction costs were low enough.

Tracing the evolution of corporate law, the chapter argues that corporate enabling statutes enacted in the nineteenth century democratized business organization by making incorporation available to everyone and separated incorporation from the granting of monopoly rights and other objectionable privileges, thus vindicating the contract view of the corporation.

The chapter next considers limited shareholder liability, arguing that it is not a special privilege or concession because there is good reason to believe that, if transaction costs were low enough, parties would agree ex ante to limit the liability of shareholders, with the result that even limited liability comes within the contract view of the corporation.

Turning to the American system of competitive federalism and the preeminence of Delaware corporate law, the chapter explains how, by having multiple enabling statutes for different types of business entities, Delaware can provide one form of organization (the limited liability company) in which parties may agree to virtually any arrangements of their internal affairs that they wish, and another form of organization (the corporation) in which certain rules are mandatory (such as the fiduciary duties of directors), which lessens transaction costs for parties who can invest in such entities with the assurance that rules important to them will apply and cannot be modified.

The chapter then considers the Delaware business judgment rule, with its distinction between the standard of conduct and the standard of review, and the Delaware Supreme Court’s development of a special standard of review applicable to antitakeover devices under Unocal and sales of control under Revlon. In connection with discussing the Environmental, Social and Governance (ESG) movement, the chapter then compares the shareholder model of corporate governance enshrined in Delaware law, which requires directors to manage the corporation for the benefit of the shareholders, and the stakeholder model, in which directors may direct value to other corporate constituencies even when doing so reduces returns to shareholders in the long run. The chapter also briefly considers the federal securities laws.

It concludes that Delaware corporate law comports well with classical liberal principles but the federal securities laws provide some significant points of variance.

Miller, Robert T., Classical Liberalism and Corporate Law (January 31, 2024). Routledge Handbook of Classical Liberalism (Forthcoming), Available at SSRN: https://ssrn.com/abstract=4712591

Cunningham on "Problems with the SEC's Climate Disclosure Proposal"

Larry Cunningham has posted his Congressional testimony to SSRN:

This Congressional testimony, requested by the House Financial Services Committee, identifies the fatal flaws embedded in the SEC's controversial climate disclosure rule proposal. To summarize some primary problems, the proposal:

• disregards evidence that most individual investors buy stocks primarily to save, not to influence climate policy;
• does not address the millions of individual American investors who need the SEC’s protection as they save for education, homes, retirement, and philanthropy; and
• ignores conflicts of interest between large asset managers and their beneficiaries—ordinary Americans—who have different preferences and goals.

In addition, the proposal mandates irrelevant and burdensome disclosures that would harm investors by:

• forcing companies to disclose information about the greenhouse gas emissions of their suppliers, employees, and customers, which is useless to investors;
• making companies report climate impact, not just climate risk, which investors do not need;
• imposing millions of dollars in annual costs on companies with no clear benefit for investors (or the climate);
• compelling the disclosure of information that is inherently speculative and uncertain, as likely to mislead investors as to inform them;
• spurring lawsuits over disclosure adequacy, which wastes resources even when baseless;
• discouraging companies from being publicly traded, which deprives ordinary investors of opportunities and frustrates capital formation; and
• usurping state corporate law and company business judgment, which undermines investor rights and interests.

Furthermore, the Proposal faces legal challenges under:

• the major questions doctrine, as it lacks clear Congressional authorization for its significant policy reach, as suggested in cases since the Proposal was issued, especially West Virginia v. EPA;
• the First Amendment, for compelling company speech on controversial matters; and
• the Administrative Procedure Act, as it solves no problem within the SEC’s mandate, and includes no proper cost-benefit analysis, perils that led another SEC rule to be vacated last month.

Cunningham, Lawrence A., Congressional Testimony: Problems with the SEC's Climate Disclosure Proposal (January 18, 2024). GWU Legal Studies Research Paper No. 2024-12, GWU Law School Public Law Research Paper No. 2024-12, Available at SSRN: https://ssrn.com/abstract=4732968

California versus Delaware on Advancement

From my friend Francis Pileggi:

A recent gem of a short letter ruling from the Delaware Court of Chancery in Goldman v. LBG Real Estate Company LLC, C.A. No. 2023-0426-KSJM (Del. Ch., Feb. 26, 2024), provides important insights, with citations to authority, on three noteworthy topics of widespread relevance to corporate litigators ...

He goes on to offer a bulleted summary. useful.

Guest Post: Every Billionaire Lawyer is a Policy Failure—Ten Ways to Think About the Tornetta Fee Request

Herewith a guest post from Anthony Rickey:

Three law firms filed papers last Friday seeking fees for their victory in rescinding Elon Musk’s $55.8 billion pay package at Tesla.  The law firms—Bernstein Litowitz Berger & Grossman LLP, Friedman Oster & Tejtel PLLC, and Andrews & Springer LLC—want the Court of Chancery to award them 29,402,900 freely tradeable shares of Tesla common stock, along with over $1.12m in expenses.  According to Reuters, this would not only be the largest fee in Delaware history, it may be the largest fee in the history of stockholder litigation, dwarfing the $688 million fee in the Enron securities fraud case.

Some comparative statistics may help to wrap one’s head around this mammoth request.  This is not legal advice:  most of the numbers below are legally irrelevant under the factors that govern Delaware fee awards.  Instead, they offer some amusing perspective on an attempt to make multimillionaires out of attorneys.  (These figures use the $202.64 closing price of Tesla stock on March 1, 2024, the day of Tornetta’s fee application.  The stock fell considerably after the announcement.)

The Basic Figures

1. An award of 29,402,900 shares would be worth $5,958,203,656. The law firms spent 19,499.95 hours on the case, so the stock would be worth $305,549.69 per hour, or a lodestar multiplier of 437.32x to the attorneys’ hourly rates.  That does not include time spent preparing the fee application or to be spent on appeal.  With numbers that high, the appeal won’t move the needle much.
2. The award would amount to $622,022,628.44 for each of the nine shares of Tesla stock owned by plaintiff Richard Tornetta.
3. In comparison, it’s a mere $94.55 for each of the 63,014,339 disinterested shares voted in favor of Musk’s compensation package. The opinions of those shareholders are functionally irrelevant because the Court of Chancery held that the vote was not fully informed.  Under Delaware law, plaintiffs do not need to prove that any stockholder would have changed their mind had they known the supposedly material information, let alone that the vote would have come out differently.
4. The requested fee is 19.6 times larger than the current record in the Delaware Court of Chancery set by the $304,742,604.45 granted to plaintiffs in Americas Mining Corp. v. Theriault.

Compared to the Delaware Economy

5. The fee would be only slightly smaller than the $6.07 billion general fund operating budget proposed by Delaware Governor Carney for FY2025. Alternatively, it represents 6.6% of Delaware’s estimated GDP in 2022.
6. Assuming (unrealistically) that the entire fee were subject to Delaware’s 8.7% corporate income tax, the state would receive $518,363,718.07. For perspective, that is 15.64% of all business tax revenue collected by Delaware in fiscal year 2022.

Compared to Texas

7. Elon Musk has proposed reincorporating Tesla in Texas. By statute, class action fees in Texas are limited to four times lodestar.  Under a similar rule, Tornetta’s attorneys could receive no more than $54,497,851.00. 
8. That would still represent a return of $2,794.77 per hour for each timekeeper. In other words, Texas plaintiffs could have secured a much smaller recovery while still achieving the same net benefit for Tesla stockholders.

Other Entertaining Figures

9. According to Calculator.net, there are 2,974,015 minutes between the time that Tornetta filed his complaint and the Court of Chancery reached its decision. If awarded, Tornetta’s attorneys will collectively earn $2,003.42 per minute between those two events
10. According to Pollstar, Taylor Swift’s “Eras Tour” grossed $1,039,263,762 as of December 2023. The Tornetta attorneys would thus earn 5.7x more than the world’s most successful musical tour.

While I’ve tried to keep these lighthearted, I can’t end without expressing disbelief at this fee application.  Elon Musk’s pay was meant to incentivize him to build a company; the lawyers prosecuted a complaint.  No attorney deserves six figures in compensation per hour, no matter how complex or risky the litigation, and the concept that this level of incentive is necessary to motivate contingency lawyers is incredible.  One can only hope that the Delaware courts channel Dorothy Parker’s perhaps apocryphal comment and do not toss this application aside lightly.  It should be hurled with great force.

New Wave Stockholder Agreements: VC Travis Laster Cites Yours Truly in West Palm Beach Firefighters Pension Fund v. Moelis & Co.

West Palm Beach Firefighters Pension Fund v. Moelis & Co. is a new Delaware Chancery Court opinion by VC Travis Laster. The case involves what VC Laster calls "new wave" stockholder agreements: "The new wave of stockholder agreements does not involve stockholders contracting among themselves to address how they will exercise their stockholder-level rights. The new-wave agreements contain extensive veto rights and other restrictions on corporate action."

These sort of arrangements are very old school in the close corporate context. Think of such corporate law chestnuts as Clark v. Dodge, 269 N.Y. 410, 199 N.E. 641 (1936). I discuss these cases in my book Corporate Law at pp. 528-35. 

What gives the new wave versions their newness is that these purport to apply to public corporations:

Moelis & Company (the “Company”) is a global investment bank. Ken Moelis is its eponymous founder, CEO, and Chairman of the Board. After years of success operating the investment bank as a private entity, Moelis decided to raise capital from the public markets. He created the Company as a new holding company and reorganized the bank’s underlying entity structure. One day before the Company’s shares began trading publicly, Moelis, three of his affiliates, and the Company entered into a stockholder agreement (the “Stockholder Agreement”).

The Stockholder Agreement is a new-wave agreement. Under its terms, the Company’s board of directors (the “Board”) must obtain Moelis’ prior written consent before taking eighteen different categories of action (the “Pre-Approval Requirements”). The Pre-Approval Requirements encompass virtually everything the Board can do. Because of the Pre-Approval Requirements, the Board can only act if Moelis signs off in advance. 

Other provisions in the agreement are intended to ensure Moelis will still be able to select a majority of the board of directors and to populate board committees with Moelis nominees in the same proportion that they represent on the full board.

The statutory provision that comes immediately to mind is DGCL 141(a). As Laster explains: "That provision famously states that 'the business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors, except as may be otherwise provided in this chapter or in its certificate of incorporation.'" Private ordering of the board's functions thus must be effected through the articles of incorporation not in a mere shareholder agreement.

A whopping 132 pages later VC Laster concludes that Section 141(a) trumps most of the provisions of the agreement:

When market practice meets a statute, the statute prevails. Market participants must conform their conduct to legal requirements, not the other way around. Of course, the General Assembly could enact a provision stating what stockholder agreements can do. Unless and until it does, the statute controls.

I note that the MBCA has a statutory provision that allows shareholder agreements sweeping ability to limit board powers. But even if Moelis were incorporated in an MCA state, the statute would not apply. Under the MBCA statute, the agreement must be unanimous with all shareholders being a party to it. Secondly, the agreement is voided by operation of law when the company has a class of stock registered with the SEC. 

Speaking purely in my capacity as a casebook editor, this is yet another example of an important Delaware opinion I would very much like to include in my Business Associations casebook, but that I see no way to edit down to a manageable length--say 20 pages at max.

But I am grateful to VC Laster who cites my work in footnotes 15, 286, 297, 298, and 299.

My good friend and leading Delaware corporate law litigator Francis Pileggi has a new blog post that digs into an earlier decision in the case. As always, he does a brilliant job.

Top Sirloin with Barbecue Butter Sauce and Fried Potatoes, Onions, and Bacon

Steak

I had wanted a flat iron steak for this recipe, but couldn't get one at my store. So I opted for two 1.5" thick top sirloin steak that each weighed about 10 ounces. 

I heavily seasoned both sides of the steak with salt, pepper, and Creole seasoning. I vacuum sealed each steak in its own bag. I let the steak rest in the refrigerator for 1 hour. I set up my sous vide machine, using a stock pot for the water bath. I added the bags to the water bath, set the machine to 134°, and set the time for 75 minutes. 

When the steaks were finished, I set a 10-inch non-stick skillet with 1 tablespoon of bacon fat (see below) over medium-high heat. I removed the steaks from the bags, patted them very dry with paper towels, and added them to the hot pan. I seared the steaks for about a minute per side and transferred them to a cutting board to rest.

Slice against the grain.

Sauce

• 1½ tablespoons beef broth
• 1½ tablespoons Kansas City-style barbecue sauce
• 1 teaspoon butter

Combine all three ingredients in a small bowl. After cooking the steaks, add the sauce ingredients to the still hot skillet. Mix well and let reduce very slightly. Add any juices that collect on the cutting board.

Potatoes

• 4 slices thick cut bacon
• medium red onion
• 1 pound medium Yukon Gold potatoes
• 2 cloves garlic, minced
• salt
• pepper
• Creole seasoning

Cook bacon in a 12-inch non-stick skillet. 

Cut red onion in half. Reserve one half for another use. Slice the other half into 1-inch long thin moons.

Slice potatoes using the 7 mm blade of your v-slicer. 

When bacon is ready, transfer to a paper towel lined plate to drain. When cool, crumble bacon. Reserve.

Transfer 1 tablespoon of bacon fat into a 10 inch skillet and set aside.

Drain remaining bacon fat out of skillet into a glass bowl. Put 4 tablespoons of the fat back into the 12-inch skillet. Put skillet over medium-high heat (I used the 7 setting on my electric stove).

Add onion slices to pan. Salt well and sauté for 2-3 minutes. Add potatoes. Season generously with salt, pepper, and Creole seasoning. Mix well, cover, and reduce heat to medium. Cook a total of approximately 15 minutes, stirring potatoes every few minutes, until lightly browned and tender.

Plate potatoes. Top with steak slices. Top with sauce. Serve a side salad.

 

Wine

We drank a 2021 Ridge Three Valleys (Sonoma County), which is a blend of 65% Zinfandel, 26% Petite Sirah, 5% Syrah, and 4% Alicante Bouschet. Great match. Deep purple. Rich and full bodied. Plums, blackberries, black cherry, and some peppery spice.

 

Seared Tuna with Cold Soba Noodle Salad

Cold Soba Noodle Salad

• 1 tablespoon fish sauce (I like Red Boat)
• 1 tablespoon mirin
• ½ tablespoon soy sauce 
• 1 crushed garlic clove
• ¼ teaspoon grated ginger
• ¼ teaspoon honey
• 5 ounces soba noodles, prepared per package directions
• 5 ounces frozen spinach, prepared per package directions
• 5 radishes, trimmed, rinsed, and dried
• green parts of 3 scallions sliced thinly on the diagonal
• 3 tablespoons wonton strips

To make the dressing, thoroughly whisk together the first six ingredients in a small bowl. Set aside.

Drain soba noodles through a colander or strainer. Rinse with cold water until the noodles are cold. Pat dry with paper towels. Transfer to a mixing bowl.

Drain spinach through a colander or strainer. Rinse with cold water until cold. Put the spinach in middle of a clean kitchen towel or a big wad of paper towels. Squeeze out as a much water as possible. Add to the mixing bowl.

Slice radishes using the 3.5 mm blade of a v-slicer. Add to mixing bowl.

Add scallions to mixing bowl.

Put bowl in the refrigerator until ready to serve. Just before service add dressing to taste. Mix. Top with wonton strips. Divide between plates.

Seared Tuna

• 2 6-ounce tuna steaks
• salt
• pepper
• Cajun seasoning
• sesame seeds
• 1 tablespoon Ponzu sauce
• ½ tablespoon fish sauce 

Pat tuna steaks very dry with paper towels. Spray one side of each tuna steaks with Pam. Season with salt and pepper. Liberally sprinkle with sesame seeds and press into tuna. Flip steaks over and repeat on the other side.

Spray a 12-inch non-stick skillet with Pam. Heat over medium-high heat (I use the 8 setting on the 10 point dial on my electric stove). When the pan is very hot but before Pam starts to burn, add steaks and reduce heat slightly (I use 6). For rare to medium-rare, cook 2 minutes. Flip steaks (trying to avoid knocking off seeds). Cook another 2 minutes. (If the steak is very thin, reduce cooking time by 30 seconds per side. If the steak is very thick, add 30 seconds per side.)

Slice steaks against the grain.

Mix Ponzu and fish sauce. Brush liberally onto cut sides of the steaks.

The Wine

We drank a 2019 Trimbach Gewürztraminer, which is one of my favorite wines for quasi-Asian foods. It's a delicious wine. Bright gold color. Big nose of rose petals, pineapple, nutmeg, and lychee. The palate followed through with the same associations and a medium-long finish.