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In In re Montgomery Ward, LLC, 634 F.3d 732 (3d. Cir. 2011), the Court of Appeals for the Third Circuit clarified the principles of res judicata in the context of a bankruptcy proceeding and further defined the scope of 11 U.S.C. § 1111(b). The decision is significant because it is the first appellate decision to determine what constitutes privity for res judicata purposes in the context of a bankruptcy proceeding and also because it held that section 1111(b) transforms non-recourse claims into recourse claims only for distribution purposes. Facts and Procedural History Montgomery Ward, LLC (“Montgomery Ward”) contracted with Jolward Associates Limited Partnership (“Jolward”) to construct a department store, on land Montgomery Ward owned in Illinois that was the planned site to develop a mall. The parties entered into a ground lease and Montgomery Ward transferred a leasehold interest in the land upon which the department store was to be constructed to Jolward.
6 years 9 months ago
The SEC has just extended the deadline for comments in response to its proposed rules directing the national securities exchanges to adopt listing standards regarding the independence of compensation committees and advisers, as required by Dodd-Frank. The original deadline was today, and we had submitted our comments yesterday in anticipation, but commenters now have until May 19, 2011. Our comments generally applaud the SEC for giving the exchanges the flexibility to develop applicable independence considerations. We’ve also made suggestions for technical changes and clarifications, such as that the independence rules for compensation committee members should not apply to committees that are responsible for broad-based plans (e.g., 401(k) plans), that the independence rules for consultants and advisers should not apply to in-house or outside counsel retained by management and that IPOing companies should be permitted a transition period, as they currently have under existing listing standards. The SEC will consider the comments that it receives and will then propose its final rules. Ultimately, it will be up to the exchanges to determine how to implement those rules, subject to SEC approval. Exchanges must have their final listing standards within one year after the SEC publishes its final rules in the Federal Register. Contact Kyoko Takahashi Lin. 
6 years 9 months ago
Today is the deadline for comments in response to the SEC's proposed rules directing the national securities exchanges to adopt listing standards relating to the independence of compensation committees and compensation consultants, as required by Dodd-Frank.. We've submitted our comments, which generally applaud the SEC for giving the exchanges the flexibility to develop applicable independence considerations. We've also made suggestions for technical changes and clarifications, such as that the independence rules for compensation committee members should not apply to committees that are responsible for broad-based plans (e.g., 401(k) plans), that the independence rules for consultants and advisers should not apply to in-house or outside counsel retained by management and that IPOing companies should be permitted a transition period, as they do under existing listing standards. The SEC will consider the comments that it receives and will then propose its final rules. Ultimately, it will be up to the exchanges to determine how to implement those rules, subject to SEC approval. Exchanges must have their final listing standards within one year after the SEC publishes its final rules in the Federal Register. Contact Kyoko Takahashi Lin. View Kyoko's bio.
6 years 9 months ago
Perhaps the onset of warmer weather has made us aware of the approach of July 21st, an auspicious date representing the one-year anniversary of the Dodd-Frank Act and also the statutory deadline for hundreds of provisions in the Act. The SEC doesn’t seem concerned, as it has announced a delay until August for final rulemaking on conflict minerals, resource extraction and mining disclosure, although those rules were required to be issued this month. The deadline to issue whistleblower rules also passed recently with Chairman Schapiro indicating that it’s coming soon. Now Congressman Barney Frank, the Act’s co-author, has publicly stated that the deadlines are not set in stone. According to this article, Mr. Frank remarked, “there is no penalty for not meeting the deadline. There’s no gun at their heads. Nobody gets fired.” Contact Ning Chiu.
6 years 9 months ago
There continue to be multiple areas of legislative activity to repeal or amend certain provisions of Dodd-Frank, including draft legislation to require employees to communicate internally before making whistleblower claims to the SEC. In March House Republicans announced a bill to eliminate the provision to disclose the ratio between the CEO’s compensation and the median annual total of all employees. Recently the AFL-CIO denounced this attempt to “water-down” Dodd-Frank, expressing their belief that this disclosure would have a “profound impact.” on executive compensation. According to their data, the average total compensation for S&P 500 CEOs is now about 343 times that of the average American worker, up from 42 times in 1980. Contact Ning Chiu.
6 years 9 months ago
We’re up to nine failed say-on-pay votes so far for the year. We’ll provide a client communication shortly on the latest state of play in the say-on-pay world, including the reasons reported for the negative votes, and interesting additional soliciting materials filed by companies facing negative ISS recommendations. But we still have a long way to go before we can get the full picture. While the last week in April saw 300 annual meetings held, there will be over 400 alone in the first two weeks of May and 650 in the third week of that month. Contact Ning Chiu.
6 years 9 months ago
Notwithstanding the proliferation of advance notice bylaws, floor resolutions at annual meetings are fairly unusual. In January, Walden Asset Management and 44 other investors contacted over 30 companies with representation on the Chamber of Commerce board regarding the Chamber’s position on climate change, health care legislation, financial reform and its political spending, noting its intent to introduce resolutions at annual meetings asking boards to initiate a review of the companies’ participation with the Chamber. It appears that Walden embarked on this strategy after determining that the resolution risked being excluded under SEC Rule 14a-8 for being too direct and specific in focus. After discussions with several companies, in early April Walden announced its plans to introduce resolutions at six companies. Contact Ning Chiu.
6 years 10 months ago
Perhaps as another fallout of the financial crisis, Moody's shareholders approved an independent chair proposal with 56% support, a substantial increase from the two prior years which saw votes at more typical levels for this proposal - 33% and 30%. It's been reported that the proponents, Hermes and Laborers International, actively campaigned and cited the financial crisis as a key reason to support the proposal. More than 15 independent chair proposals will be voted on this season. Contact Ning Chiu.
6 years 10 months ago
Last year a Texas judge allowed Apache Corp. to exclude a shareholder proposal from John Chevedden on the basis that his broker statement did not come directly from a “record holder” in DTC, but rather an introducing broker. Consistent with its own precedent, the SEC rejected that line of reasoning in several Rule 14a-8 no-action rulings, including a no-action request from Texas company Kinetic Concepts in March.  A month later the same Texas judge permitted KBR to omit a shareholder proposal following the Apache holding. Immediately thereafter, Kinetic Concepts informed the SEC that they intend to omit Chevedden's proposal by relying on the judge's ruling, noting that the SEC staff has stated previously that the SEC will defer to the courts regarding exclusion of shareholder proposals. Apache had similarly notified the SEC this season, without submitting a no-action request. With three Texas companies omitting Chevedden proposals, activists are urging the SEC to take action to stop the “Texas Secession” and have provided form letters that can be sent to Commissioner Schapiro at the SEC. Contact Ning Chiu. 
6 years 10 months ago
We’ve all engaged in the “what-if” scenarios of close votes on the say-on-pay frequency vote, faced by Green Mountain Coffee Roasters.  The company recommended triennial say-on-pay frequency and received 49.37% for annual and 49.99% triennial.  Talk about close.  Instead of keeping us in suspense as they are legally permitted to do, the company has announced that they will adopt annual frequency and hold another vote next year.  Would more a .01% support that pushed triennial into majority support made a difference to the board?  Contact Ning Chiu.
6 years 11 months ago
Last week House Republicans announced that they are drafting five bills to eliminate or change parts of the Dodd-Frank Act.  One of the five is the elimination of the provision to disclose the ratio between the CEO’s compensation and the median annual total of all employees.  Could this possibly come to fruition?  Unlikely given the hurdles of getting any kind action out of Congress lately, but it’s a space to watch.  The latest SEC timeline aims for proposing and adopting final rules on the pay ratio disclosure in the August-December timeframe.   Contact Ning Chiu. 
6 years 11 months ago
Notable recent support for triennial say-on-pay include Viacom, with insiders controlling about 80%, and Franklin Resources, which barely squeaks in 57% support for triennial even though insiders own approximately 35%.  The tide is starting to turn as more companies recognize that triennial is a long shot without some kind of insider block.  Our data shows 416 large accelerated filers and 188 S&P 500 companies had filed their proxy statements, with 59% of large accelerated filers and 64% of the S&P 500 now recommending for annual say-on-pay. Contact Ning Chiu.
6 years 11 months ago
We were quoted in a recent Compliance Week story (subscription required) on the evolution of the ordinary business exclusion in getting the SEC staff to agree on companies’ no-action requests for Rule 14a-8 shareholder proposal.  The exclusion becomes more elusive over time, but requests that continue to be granted include proposals that the Staff agrees relate to the sale of a company’s products and services, terms of code of conducts and policies, managing marketing and other expenditures and income tax risks.  There are sometimes tough lines to draw, for example, proposals implicating board oversight of risk is not excludable, but if the proposal reaches into how management reviews risk, then it’s excludable. Contact Ning Chiu.
6 years 11 months ago
We did so well with our sound bites in our last interview that we were again quoted by Compliance Week (subscription required) on another Rule 14a-8 story, this time on substantial implementation.  It’s easy to show the SEC that you’ve substantially implemented a request to, for example, declassify your board.  But if the proposal asks for any kind of report with a specified list of “asks”, then it’s much harder if not nearly impossible to show that your report on the same subject already complies. Contact Ning Chiu.
6 years 11 months ago
While ISS voting recommendation reports for companies are not “public”, sometimes additional soliciting materials filed by a company are informative.  On March 2nd, Disney filed its first communication indicating that the ISS recommendation to vote against its say-on-pay proposal is based on the disclosure of excise tax gross-ups that was granted in January 2010, and the compensation committee has since then adopted a policy that prohibits excise tax gross-ups in any future agreements (including any material amendments).  It’s tough to battle ISS recommendations, as on March 18th, Disney filed another communication indicating that the company has amended four employment agreements to remove excise tax gross-ups entirely.  Contact Ning Chiu.
6 years 11 months ago
You can’t talk about governance these days without someone bringing up “shareholder engagement,” so it’s not surprising that there is now a study on the subject.  This ISS and IRRC study claims to be first ever benchmarking about engagement, polling 335 issuers and 161 investors, divided between asset owners and asset managers.  Highlights from the study: 50% of issuers, 53% of asset owners and 64% of asset manager report doing more on engagement than they have in the past 87% of issuers, 62% of asset owners and 70% of asset managers report that they’ve had at least one shareholder engagement in the past year In what the study dubs a “barbell effect”, investors either talk to a lot of companies or no one.  28% of asset owners and 34% of asset managers report talking to ten or more companies, but at the same time 45% of asset owners and 43% of asset managers report talking to none.  No surprise that all sides claim that the biggest impediments to engagement is the lack of resources and staffing. Contact Ning Chiu.
6 years 11 months ago
The SEC staff issued a surprising CDI recently.  Seems that the biographies of directors who are not standing for re-election are required to be disclosed under both Item 401(a) and Item 401(e) of Regulation S-K, if not technically in the proxy statement, then in the Form 10-K.  Why investors would be interested in the bios of directors who won’t be continuing is a bit of a mystery.  And for those of you who have asked – Item 401(a) only applies to your current directors.  If they resigned before your published your proxy statement, you don’t have to worry about their biographies. Contact Ning Chiu.
6 years 11 months ago
The SEC just issued a proposal to clarify that there will be no changes to the “beneficial ownership” rules for security-based swaps.  The concern was that language in the Dodd-Frank Act implied that if the SEC failed to enact new beneficial ownership rules for reporting security-based swaps by July 16, 2011, the SEC’s existing rules relating to derivatives reporting would no longer apply.  Yesterday’s proposal will dispel that notion (assuming the rule is made effective before July 16) by preserving the status quo for now.  Although this clarification is intended as a stopgap measure— the SEC is under pressure to reexamine its sections 13 and 16 rules in light of perceived abuses— I expect any rethink of sections 13 and 16 will be delayed by the overwhelming rule-making agenda arising out of Dodd-Frank.  Here’s the Davis Polk memo on the proposal.   Contact Phillip Mills.
6 years 11 months ago
Here’s the Davis Polk memo we released today concerning the Chancery Court’s refusal to order dismantling of the Airgas poison pill.  What’s instructive about the case, I think, is not that it creates new law (it doesn't) but that it underscores the importance of a detailed process and documented strategic thinking.  I've heard some directors already say that it vindicates a “just say no” approach, but I think this paints with too broad a brush.  As usual, the Chancery Court’s analysis here is highly fact-specific and grounded in the court’s intuitive sense that the directors here really were acting in good faith.  It certainly helped, by the way, that the directors that Airgas itself had nominated to the board were aligned with the balance of the board.   Contact Bill Kelly.  
7 years 5 days ago
Here’s our newsflash on the Chancery Court’s much publicized opinion enjoining the Del Monte buyout vote and deal protections due to alleged financial advisor conflicts and misconduct.  Even though Vice Chancellor Laster found that the board appeared to have acted in good faith, he ultimately holds the board responsible for oversight failures and finds that the sponsors probably “aided and abetted” the financial advisor’s misconduct.  Although this case does not create new law (like the earlier TOYS “R” US decision, it clearly admits of the permissibility of a target financial advisor participating in buy-side financing, in the appropriate circumstances), I think it highlights the importance of target boards evaluating the risk/benefit calculus and implementing appropriate procedures when deciding to permit their financial advisor to participate in buy-side financing. Contact Phillip Mills.
7 years 6 days ago