In Case You Missed It - Interesting Items for Corporate Counsel (Cumulative) - March 13, 2014


  1. The U.S. Supreme Court recently ruled in Lawson v. FMR LLC that the whistleblower provisions of the Sarbanes-Oxley Act protect employees who work for contractors and subcontractors of public companies and not just employees of the public company itself. At issue was the meaning of the phrase: “No [public] company . . . or any . . . contractor [or] subcontractor . . . of such company, may [retaliate] . . against an employee . . . because of [whistleblowing activity].” In its holding, the Court rejected the argument that the language was simply to prevent a public company from hiring a hatchet man, like George Clooney’s character in “Up in the Air,” to implement the retaliation. See here. Your cynical view that we, perhaps like the Court, have superfluously included a reference to George Clooney to increase our internet readership is noted.
  2. The U.S. Supreme Court also recently decided Chadbourne & Parke LLP v. Troice, in which it held that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) does not bar a state-law claim that the defendants misrepresented that uncovered securities were backed by covered securities. See here. (SLUSA generally precludes state class actions alleging misrepresentations in connection with the purchase or sale of a covered security.)
  3. To complete the hat trick, because we so rarely get to write about U.S. Supreme Court cases involving securities law, we note the Supreme Court also heard oral arguments in Halliburton Co. v. Erica P. John Fund and will soon decide the fate of the fraud on the market presumption of reliance in federal securities class actions. That presumption allows plaintiffs to seek to certify a class without showing that each shareholder relied on alleged misrepresentations. An exhaustive review of the issues, in three parts, is available here. Additional commentary and a summary of the theory is here.
  4. And, for the four bagger, we note that the U.S. Supreme Court has also granted certiorari to hear Indiana State District Council of Laborers v. Omnicare, a case that should reconcile appellate court splits on whether lawsuits under Section 11 of the 1933 Act require allegations that an issuer knew its statements were false in addition to allegations that the statements were actually false. (In other words, is lying required?) Commentary is here.
  5. Because this month’s alert is almost entirely about judicial action, we feel compelled to provide a link to a description of 2013 Delaware corporate law decisions and how they might guide corporate action in 2014, here.
  6. Only three non-judicial items caught our eye this month:
    • A somewhat depressing article, at least for those who work on IPOs, about the death of small IPOs is here. The study attributes the decline to diminished investor demand, a reasonable reaction to the imbalance of risks and rewards associated with microcap investing. The study reveals that only 55% of microcap companies (initial market cap of less than $75 million) remain listed five years after an initial IPO compared to 61.3% for mid-cap and 67.1% for large-cap companies. Microcap companies most frequently exit public markets through voluntary or involuntary delisting, compared to more exits through acquisition for larger companies, and the microcaps that remain public fail to grow significantly. From this perspective, making an IPO easier, or even alternatives like the pending Regulation A+ process, might not be helpful because the primary culprit is simply microcap company lack of success.
    • Deloitte’s Audit Committee Brief on the 2013 COSO Framework is here and on the new era in audit committee reporting is here.
    • Warren Buffet’s letter to shareholders, which some describe as “folksy,” or at least as folksy as one can be when discussing how the intrinsic value of a share is much higher than its $134,973 book value, is available here. For sure, the letter is at least plain spoken. On the other hand, Buffet does give valuable folksy tips, including suggesting flying to Kansas City and driving to Omaha for the annual shareholder meeting to save money, an itinerary that includes competing against him in a newspaper-throwing contest, an exhortation to buy ketchup bottles with his picture rather than the (obviously heavily discounted) bottles with Charlie Munger’s picture, an invitation to take advantage of “Crazy Warren” discounts while he clerks at Borsheims, and an in-your-face challenge to get the giant root beer float at Piccolo’s because only sissies get the small one. And it works for him.

This update is a publication of Stoel Rives LLP for the benefit and information of our clients and friends. This update is not legal advice or a legal opinion on specific facts or circumstances. The contents are intended for informational purposes only. Copyright 2014.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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