We are proud to celebrate three years of the Bernstein Shur Business and Commercial Litigation Newsletter with this 36th edition. This month, we highlight developments in the following areas, which are likely to have an impact on business and commercial litigation: the corporate attorney-client privilege in the merger context, FINRA’s 2014 regulatory priorities, the Supreme Court’s consideration of the fraud-on-the-market securities fraud theory, and a Google-Samsung patent-sharing alliance. We hope you enjoy the newsletter.
In the News:
The Delaware Court of Chancery holds that under Delaware Corporation Law, the surviving corporation in a merger acquires control over the attorney-client privilege of the acquired corporation. Section 259 of the Delaware General Corporation Law provides that, following a merger, “all property, rights, privileges, powers and franchises … shall be thereafter effectually the property of the surviving…corporation as they were of the several…constituent corporations….” Former Chancellor Leo Strine (recently confirmed as Chief Justice of the Delaware Supreme Court) has ruled that the plain meaning of the statute provides that the attorney-client privilege held by the target company before the merger, along with all the other privileges and specified assets of the target company, passes to the surviving company. The opinion did note, however, that merger parties are free to contract otherwise, and permit the privilege from passing to the acquiring corporation. Click here to access the opinion.
Financial Industry Regulation Authority (“FINRA”) announces 2014 regulatory priorities. FINRA is the non-governmental organization that performs financial regulation for American brokerage firms and exchange markets. In its annual priorities letter released this month, FINRA identifies risks and issues that it believes could adversely affect investors and market integrity for the coming year. Among FINRA’s areas of concern are: (i) recidivist brokers; (ii) investment suitability; (iii) conflicts of interest; and (iv) data security. In addition to receiving enhanced regulatory scrutiny and enforcement, these issues are likely to drive private litigation matters, as well. Click here to access the letter.
The U.S. Supreme Court will take up the “fraud on the market” theory in securities fraud cases, which could sharply curtail class action suits. Under the current iteration of the fraud on the market theory, a plaintiff must show a material misstatement or omission, and reliance, but has the benefit of a rebuttable presumption of reliance. This presumption allows class actions to proceed without the need for individualized evidence addressed to each plaintiff’s reliance on the misstatement or omissions at issue. The rationale for the rebuttable presumption is that such misstatements and omissions affect all purchasers equally and are reflected in stock prices. However, in the case Halliburton v. Erica P. John Fund, Inc., the Supreme Court has been asked to overrule the presumption of reliance in the context of a class action based on the fraud on the market theory. If the Court accepts that invitation, it would limit the ability to pursue class action relief for securities fraud under Section 10(b) of the Securities and Exchange Act of 1934 and the SEC’s Rule 10b-5 without individualized proof of reliance for each plaintiff. Read more about the case here and access the briefs for the parties case here.
Google and Samsung Electronics announce an agreement to cross-license their patents. The agreement, which has a ten-year term, will allow the two companies to further collaborate together on technology ventures, while also minimizing disputes addressed to patent infringement. Samsung is a market leader in smart phones that utilize Google’s Android operating system, which directly competes against Apple products. Samsung and Apple are presently embroiled in several patent disputes currently pending on three continents. To read more about the development click here.