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Business enterprises are under pressure the world over to develop and adopt policies that promote social, environmental and governance (“ESG”) goals. Many ESG goals and policies are undoubtably laudable from a societal standpoint. Yet, perhaps surprisingly, legislators and antitrust enforcers in the United States and Europe have raised concerns that conduct associated with industry collaborations (particularly climate-related) could be challenged under antitrust laws.
On July 6, 2022, the Court of Appeals for the Second Circuit decided In Re: Eileen Fogarty, holding that a mortgagee violated the automatic stay imposed when a tenant filed bankruptcy by proceeding with a foreclosure sale that named the same tenant as a defendant. The automatic stay provisions in the Bankruptcy Code are intended to protect debtors by prohibiting any actions or legal proceedings that may dissipate the debtor’s assets or interfere with the orderly administration of the bankruptcy estate.
In early 2022, the ESG ratings industry attracted attention when electric vehicle manufacturer Tesla Inc. was dropped from the S&P 500 ESG Index.
The Commission has published its review of the EU Securitisation Regulation.
The Supreme Court has delivered its long-awaited decision in BTI 2014 LLC v. Sequana S.A.  UKSC 25. It is a significant decision for the law of directors’ duties.
In a decision rendered September 8, 2022, a three-judge panel for the United States Court of Appeals for the Second Circuit (the “Court”) vacated a February, 2021 decision by the United States District Court for the Southern District of New York in favor of the defendant loan managers of certain institutional lenders (the “Loan Managers”), which held that the Loan Managers were not obligated to return an accidental payment by Citibank N.A. (“Citi”) of approximately $500 million. Citi served as administrative agent to the lenders for an $1.8 billion syndicated seven-year loan to Revlon, Inc. (“Revlon”) pursuant to a credit agreement entered into in 2016 (the “2016 Loan”).
On August 29, 2022, the Court of Appeals for the Ninth Circuit held in Ad Hoc Comm. of Holders of Trade Claims vs. Pacific Gas and Elec. Co. (In re PG&E Corp.) that when a debtor is solvent, a creditor may be entitled to receive interest at the contract rate (subject to equitable considerations), rather than at the federal judgment rate.
The UK authorities are taking further steps to bring crypto businesses within the regulatory perimeter. As of 30 August 2022, cryptoasset exchange and custodian wallet providers are required to comply with the reporting obligations implemented by the Office of Financial Sanctions Implementation (“OFSI”).
More than twelve years ago, the Dodd-Frank legislation directed the SEC to issue a rule that requires issuers to provide, among other things, information that shows “the relationship between executive compensation actually paid and the financial performance of the issuer, taking into account any change in the value of the shares of stock and dividends of the issuer and any distributions.” On August 25, the SEC (by a 3-2 vote) issued that rule in final form.
On July 11, 2022, the Alternative Reference Rates Committee (the “ARRC”) published a “Playbook” to assist market participants in transitioning their legacy LIBOR contracts to an alternative rate by June 30, 2023. The Playbook is primarily focused on legacy cash products, which the ARRC estimates will total approximately $5 trillion.
From 15 June 2022, the Office of Financial Sanctions Implementation (“OFSI”) has the power to issue monetary penalties for breaches of financial sanctions on a strict liability basis. The newly-published Guidance sets out how OFSI will apply these civil penalties. Release of the Guidance follows the implementation of the Economic Crime Act in March 2022, the legislation which grants OFSI such powers.
In remarks on March 5, 2022 on PLI’s Corporate Governance webcast, Commissioner Allison Herren Lee of the Securities and Exchange Commission stated that, 20 years after its enactment, it is time to revisit the “unfulfilled mandate” of Section 307 of the Sarbanes-Oxley Act of 2002 and establish minimum standards for lawyers practicing before the Commission.
In a decision that likely will reverberate throughout the administrative state, a three-judge panel of the United States Court of Appeals for the Fifth Circuit recently held in Jarkesy v. Securities and Exchange Commission that the Securities and Exchange Commission’s use of its in-house administrative law judges (“ALJs”) to adjudicate securities fraud actions seeking the imposition of monetary penalties was unconstitutional for three independent reasons.
On April 13, 2022, the Court of Appeals for the Third Circuit ruled in CoFund II LLC v. Hitachi Capital America Corp. that a junior creditor breached a turnover provision in an intercreditor agreement when it applied a senior creditor’s collateral to satisfy the junior creditor’s claims before the senior creditor’s claims had been fully paid. The Third Circuit also affirmed a judgment that awarded the senior creditor damages for the misapplication of such collateral proceeds in violation of the intercreditor agreement’s turnover provision.
The recent English High Court decision of Lombard North Central Plc v European Skyjets Ltd  EWHC 728 (QB) provides some important guidance for lenders and restructuring professionals when communicating with distressed borrowers. Actions will speak louder than words – whether in the form of a “no waiver” provision in a contract or an express reservation of rights – when a court is considering a lender’s response to a borrower’s default on its financing arrangements. While there are no massive surprises to emerge from Foxton J’s decision, the breadth and creativity of some of the arguments advanced by the borrower’s lawyers nonetheless provided the Court with the opportunity to provide additional certainty to market participants.
It is hardly news that ESG investing is a significant aspect of the asset management industry. According to Barron’s, $400 billion was invested in U.S. mutual funds and assets that have an ESG orientation in 2021. However, it remains a challenge for issuers, asset managers, regulators and other industry participants to determine whether a particular business, industry, or product promotes or is harmful to ESG considerations.
On April 25, 2022, the Consumer Financial Protection Bureau (CFPB) announced plans to revitalize its authority to examine “nonbank” financial companies that pose risks to consumers. Though the CFPB has held this authority since its creation in 2010, the agency has rarely invoked it, leaving it largely “dormant.” The CFPB’s announcement marks a possible reversal of that trend.
On April 29, 2022, the U.S. Court of Appeals for the Third Circuit granted a petition for permission to appeal in Consumer Financial Protection Bureau v. The National Collegiate Master Student Loan Trusts filed by defendants The National Collegiate Student Loan Trusts (the “Trusts”) and certain interveners in the action. The Third Circuit agreed to hear two certified questions from the district court in the appeal: (1) whether, under the Consumer Financial Protection Act (“CFPA”), the Trusts are “covered persons” subject to the CFPB enforcement authority; and (2) whether, after Collins v. Yellen, the CFPB was required to ratify the enforcement action before the three-year statute of limitations ran out.
On April 21, 2022, the U.S. Circuit Court of Appeals for the Seventh Circuit issued a decision interpreting the Bankruptcy Code’s definitions of “statutory lien” and “judicial lien,” holding that a lien imposed by the Chicago Municipal Code was “judicial” rather than “statutory” because it arose partly as the result of a “quasi-judicial” process rather than “solely by force of a statute.”
In an important development, on April 28, 2022, the Securities and Exchange Commission (SEC) commenced an action in the United States District Court for the Eastern District of New York in which it asserted that Vale S.A., a publicly-traded Brazilian mining company and one of the world’s largest iron ore producers, knowingly made false and misleading claims about the safety of its dams in the years leading up to the January 2019 Brumadinho disaster.
On 12 April 2022, the European Banking Authority (the “EBA”) announced the publication of its final draft Regulatory Technical Standards (“RTS”) specifying the requirements for originators, sponsors and original lenders in relation to risk retention. Regulation (EU) 2017/2402, as amended (the “Securitisation Regulation”), established the requirements concerning the retention of a material net economic interest in securitisations and empowered the EBA to prepare draft RTS in this area. There has been a long wait for these final drafts, given the EBA submitted an initial version to the European Commission in July 2018 (the “2018 RTS”), and then consulted on further changes in June 2021.
The New York State Supreme Court, New York County Commercial Division (the “Court”) decided in U.S. Bank, N.A. v. 342 Property LLC, on February 14, 2022, that a mezzanine lender that is not a party to loan documents that evidence a concurrent mortgage loan does not have standing and, therefore, no basis, to preclude a mortgage lender’s motion for summary judgement in a foreclosure action against a mortgage borrower that is an affiliate of a mezzanine borrower.
In the first quarter of 2022, federal appellate courts issued a number of thought-provoking (albeit not monumental) decisions addressing the reach of the federal securities laws and, in some cases, highlighting potentially powerful defenses for litigants.
On March 21, 2022, the U.S. Securities and Exchange Commission (the “SEC”) proposed far-reaching amendments to Regulation S-K and Regulation S-X that would mandate significant additional climate-related disclosures for public companies. A summary of the new disclosure requirements is available in our Clients & Friends Memo dated March 23, 2022. In brief, the proposed rules would require a public company to make significant additional disclosures regarding, among other things, its board and management’s oversight of climate-related risks; its processes for identifying, assessing and managing climate-related risks; and its climate-related targets and goals.
On March 21, 2022, the U.S. Securities and Exchange Commission (the “SEC”) proposed far-reaching amendments to Regulation S-K and Regulation S-X that would mandate significant additional climate-related disclosures. If adopted as proposed, the amendments would impose burdensome requirements on registrants (both in financial terms and in terms of managerial time and attention). Although the SECs proposal made clear that asset-backed securities issuers are not covered by the proposed rules, the SEC indicated that they are continuing to consider whether and how to apply similar regulations to asset-backed securities issuers.
In a recent judgment (Bloomberg LP v ZXC  UKSC 5), the UK Supreme Court confirmed that suspects subject to a criminal investigation are entitled, as a general rule, to a reasonable expectation of privacy regarding information relating to the investigation until they are charged. The ruling is consistent with established principles relating to suspect rights, similar decisions from lower courts and published police guidance.
On March 9, 2022, President Biden issued an Executive Order on Ensuring Responsible Development of Digital Assets (the “Executive Order”) that sets in motion a “whole-of-government” strategy to address the impacts of the rise of digital assets—including cryptocurrencies—on consumers, the economy, national security, and climate change. In so doing, the Executive Order reiterated that “digital mines” create tangible climate risk.
Moscow’s invasion of Ukraine has – as promised by US President Joseph R. Biden and other world leaders – provoked “unprecedented” economic sanctions against Russia. The United States, the United Kingdom, and the European Union, together with other allies and partners, have imposed far-reaching prohibitions on Russia’s largest banks and corporations, sovereign debt, foreign reserves, and some of its wealthiest and most powerful individuals – among them Russian President Vladimir Putin himself.
Climate change-related risks to the U.S. financial system are attracting increasing public attention in recent years and are raising questions about how U.S. financial regulators, including the U.S. Securities and Exchange Commission (the “SEC”), will address such risks. The SEC is on the precipice of issuing a proposed new rule regarding climate risk disclosures by public companies.
Companies are increasing pressure to address environmental, social, and governance (“ESG”) issues. ESG topics have taken center stage in boardrooms, with regulatory agencies, and in the media.
On February 3, 2022, the U.S. Senate Committee on Banking, Housing, and Urban Affairs (the “Committee”) considered President Biden’s nomination of Sarah Bloom Raskin for Vice Chair for Supervision and a Member of the Board of Governors of the Federal Reserve System (the “Federal Reserve”), along with the nominations of Dr. Lisa Cook and Dr. Philip Jefferson to be members of the Board of Governors.
On February 11, 2022, the U.S. District Court for the District of Delaware granted a motion for interlocutory appeal in Consumer Financial Protection Bureau v. The National Collegiate Master Student Loan Trusts filed by defendants The National Collegiate Student Loan Trusts (the “Trusts”) and certain interveners in the action. The district court certified two questions for review by the U.S. Court of Appeals for the Third Circuit: (1) whether, under the Consumer Financial Protection Act (“CFPA”), the Trusts are “covered persons” subject to the CFPB enforcement authority; and (2) whether, after Collins v. Yellen, the CFPB was required to ratify the enforcement action before the three-year statute of limitations ran out.
In anticipation of New York Fashion Week, lawmakers remind us that this season’s haute couture is not the only thing heating up right now. After years of global warming and environmental, social and governance (ESG) topics making headlines, New York lawmakers are taking sustainability to the runway, intent on greening the fashion industry. If passed, New York’s Fashion Sustainability and Social Accountability Act (“Fashion Act”), announced earlier this year, would be the first of its kind in the country in attempting to impose sustainability-related obligations on the biggest brands in fashion.
On 31 January 2020, the UK ceased to be a member of the EU. Following a transition period, EU law ceased to be applicable in the UK with effect from 11 p.m. on 31 December 2020. Directly applicable EU legislation, such as the EU Securitisation Regulation and associated technical standards, was ‘onshored’ into UK domestic law as of that date. Such onshored financial services legislation was subject to changes which reflected, among other things, the changed relationship between the UK and the EU, the replacement of EU authorities and regulators with their UK equivalents, and differing regulatory priorities in the EU and UK.
The asset management industry has been sounding the alarm for some time about the risks and opportunities posed by climate change.
The Office of the Comptroller of the Currency (“OCC”) continues along its cautious course of allowing fintech and digital asset firms into the so-called “regulatory perimeter,” not through any special or novel charter, but through traditional national bank charters. The OCC is working with the other federal banking agencies to address the potential opportunities and risks associated with the growing interest in fintech and crypto issues. This memorandum summarizes some of the recent actions related to fintech issues, the most recent of which is the approval of a full, deposit-taking charter for a fintech lender.
As we note in our companion memorandum, the Office of the Comptroller of the Currency (“OCC”) continues along its cautious course of allowing fintech and digital asset firms into the so-called “regulatory perimeter.” The most recent action along this course is the approval of a full, deposit-taking charter for a fintech lender. The charter approval last week has prompted us to review some of the recent actions by federal prudential regulators related to fintech and digital asset issues. In this memorandum we focus primarily on digital assets, while our companion memo looks more closely at fintech issues.
The Federal Trade Commission (“FTC”) filed suit yesterday to block Lockheed Martin Corporation’s proposed $4.4 billion acquisition of Aerojet Rocketdyne Holdings Inc., announced back in December 2020.
The Federal Trade Commission (“FTC”) has increased the dollar jurisdictional thresholds necessary to trigger the reporting requirements in the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”); the revised thresholds will become effective on February 23, 2022. The FTC also increased the thresholds for interlocking directorates under Section 8 of the Clayton Act, effective as of January 24, 2022. The maximum civil penalty dollar amounts for HSR violations also were increased, effective January 10, 2022.
Federal courts closed out 2021 with a flurry of securities decisions in the month of December. In this update, we discuss two decisions involving claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 based on (i) alleged “channel stuffing”—a company’s practice of shipping excessive product to its distributors, and recognizing revenue at the time of and on such shipments, when it believes the distributors will not be able to sell all such product in the particular period—and (ii) an allegedly over-hyped COVID-19 vaccine candidate.
On January 18, 2022, the Federal Trade Commission (“FTC”) and the Justice Department’s Antitrust Division (“DOJ”) (together, the “Agencies”) jointly announced plans to “review,” “modernize” and “strengthen” horizontal merger enforcement guidelines (“Guidelines”), which may lead to stricter scrutiny of certain deals in the future.
On December 22, 2021, Judge Mary Walrath of the Bankruptcy Court for the District of Delaware held in In re The Hertz Corp. that redemption premiums may potentially qualify as unmatured interest, and that, to the extent that such redemption premiums are unmatured interest on unsecured debt, then creditors would only be entitled to receive the federal judgment rate, not the contractual rate of interest.
The Delaware Chancery Court has issued a decision with major implications for sponsors and directors of Delaware incorporated special purpose acquisition companies (SPACs).
On 24 June 2021, the UK Treasury (“HMT”) launched a call for evidence on the functioning of the UK Securitisation Regulation (“UKSR”). Article 46 of the UKSR required HMT to review the functioning of the legislation in relation to eight specified areas prior to 1 January 2022. In a report published on 13 December 2021 (the “Report”), HMT has given its feedback on the responses received in the call for evidence and set out its general intentions in relation to the eight policy areas specified in Article 46. In addition, the call for evidence sought views on the definition of “institutional investor” in the UKSR as it relates to certain non-UK Alternative Investment Fund Managers (“AIFMs”), the jurisdictional scope of the UKSR and the capital and liquidity treatment of securitisations.
On December 15, 2021, the D.C. Bar hosted a one-hour conversation with Gurbir S. Grewal, the SEC’s new enforcement director. Mr. Grewal spoke about his prosecutorial background and preparedness to lead the agency’s Division of Enforcement, as well as his top priorities.
On December 13, 2021, Judge Stephanos Bibas, visiting judge in the U.S. District Court for the District Delaware from the U.S. Court of Appeals for the Third Circuit, denied a motion to dismiss a lawsuit brought by the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) in Consumer Financial Protection Bureau v. The National Collegiate Master Student Loan Trusts, allowing the enforcement action to proceed directly against The National Collegiate Student Loan Trusts (the “Trusts”).
On November 24, 2021, the U.S. Court of Appeals for the Second Circuit issued a pair of decisions addressing threshold requirements for securities fraud claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5: (i) pleading a material misstatement or omission, and (ii) demonstrating standing to sue as a “purchaser” or “seller” of a security.
The recent IPO for Rivian Automotive Inc., the electric pick-up truck manufacturer whose shares increased 29% on the day following the offering, resulting in an enterprise valuation of more than $86 billion – more than the market values of every other automaker except Tesla, Toyota, and Volkswagen – is evidence that investors may place a significant premium on certain companies that are at the forefront of addressing (and potentially seizing opportunities resulting from) climate change and related sustainability issues.
On October 29, 2021, Judge Laura Taylor Swain, the presiding judge in the Puerto Rico bankruptcy case, ruled that approximately $2 billion in intragovernmental loan claims were subordinated to bonds issued by the Puerto Rico Highway and Transportation Authority (“HTA”) pursuant to an assignment and security agreement. The Court’s opinion provides guidance on several important issues regarding subordination agreements, including the distinction between payment and lien subordination, the importance of including certain provisions in drafting such agreements, and the operation of a tiered subordination structure.
On October 28, 2021, the United States Court of Appeals for the Second Circuit ruled on Melendez v. City of New York, in which the plaintiffs, who are New York City landlords, alleged that certain laws enacted in response to the COVID-19 pandemic were unconstitutional.
On September 20, 2021, in Pirani v. Slack Technologies, Inc., a divided panel of the U.S. Court of Appeals for the Ninth Circuit held that investors who purchase stock in a “direct listing”—in which pre-existing shares are sold to the public without underwriters—may bring claims based on alleged misrepresentations in a registration statement, even if they cannot demonstrate that they acquired registered shares.
The Chancellor of the Exchequer delivered the United Kingdom (“UK”) Autumn Budget for 2021 on 27 October 2021.
The Budget was delivered against the backdrop of the UK’s ongoing recovery from the Covid‑19 pandemic and the evolving relationship between the UK and the rest of the world following Brexit. As with many previous Budgets, eye-catching pieces of good news sit alongside anti-avoidance proposals which – while targeted – cast a slightly cold shadow over the more hopeful items. The same is true in the Autumn Budget 2021, where the positive and potentially game-changing introduction of the new Qualifying Asset Holding Companies regime and helpful changes to the stamp duty treatment of UK securitisation companies are lined up with further measures to be applied to the “willing associates and collaborators” of any offshore promoter of tax avoidance.
On October 21, 2021, the Financial Stability Oversight Council (“FSOC”), established in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act to respond to emerging threats to the stability of the U.S. financial system, released a Report on Climate-Related Financial Risk (the “Report”).
Increasingly, companies are using artificial intelligence to invent new methods and products. But can a named inventor be a non-human machine under the law? That depends on which country’s laws are being applied.
On 6 April 2021, an amendment was introduced to the Civil Procedure Rules 1998 (S.I. 1998/3132) (the “CPR”) at Part 6 concerning service out of the jurisdiction. The change is of interest where at least one or more international businesses/foreign parties (whether EU or non‑EU), otherwise unconnected with the UK, incorporate a choice of court agreement (or “COCA”) in favour of the courts of England & Wales as a means to resolve their contractual disputes. CPR 6.33(2B)(b) now provides that permission of the court is not required to serve out of the jurisdiction a claim where jurisdiction is based on any COCA in favour of the courts of England and Wales. In many cases, this will simplify the procedure for service of international contractual claims on foreign domiciled defendants, by eliminating a preliminary step (i.e. the need to seek permission of the court), which adds cost and delay.
Change is the only constant of late at the Federal Trade Commission (“FTC”). Newly confirmed Chair Lina Khan has wasted no time in using her three-Democrat majority to overhaul the Commission’s merger enforcement practices.
As investors’ calls for greater climate-related corporate accountability grow louder, the “E” in ESG—environmental, social and governance—looms larger than ever, particularly from the perspective of directors facing oversight responsibilities and the challenge of providing adequate disclosure.
In a recent blog post, the Acting Director of the Federal Trade Commission Bureau of Competition announced the reversal of the Federal Trade Commission’s (“FTC”) decades-long position regarding the treatment of debt repayment when determining whether a premerger notification filing under the Hart-Scott-Rodino (“HSR”) Act is required. Effective September 27, 2021, companies and individuals that do not file HSR based on excluding retired debt from the transaction value may face enforcement action.
On September 2, 2021, New York Governor Kathy Hochul signed into law a new moratorium on evictions and foreclosures for residential tenants and small businesses. Recently, in the case Chrysafis v. Marks, the U.S. Supreme Court enjoined the enforcement of the previous residential moratorium in New York (which expired August 31), finding that the tenant’s ability to self-declare financial hardship while precluding a landlord from contesting that declaration violated the landlord’s due process rights. Additionally, in the case Alabama Association of Realtors v. Department of Health and Human Services, the U.S. Supreme Court held that the CDC exceeded its statutory authority in issuing its latest residential eviction moratorium and blocked the enforcement of such moratorium. In response, and citing the rise in cases due to the Delta variant of COVID-19, the New York legislature passed a new moratorium, which expires January 15, 2022.
On August 26, 2021, the U.S. Supreme Court issued an order vacating the Centers for Disease Control and Prevention’s latest eviction moratorium.
On August 3, 2021, the Centers for Disease Control and Prevention issued a new order banning residential evictions in counties where COVID-19 cases are quickly rising.
On August 6, 2021, the Securities and Exchange Commission (“SEC”) issued an order approving proposed rule changes submitted by The Nasdaq Stock Market LLC (“Nasdaq”) to adopt listing rules related to board diversity.
On July 9, 2021, in Karth v. Keryx Biopharmaceuticals, Inc., the U.S. Court of Appeals for the First Circuit affirmed entry of judgment for the defendants in a putative class action asserting violations of Section 10(b) of the Securities Exchange Act of 1934 based on a pharmaceutical company’s alleged understatement of risks associated with its reliance on a single third-party manufacturer for the only drug it produced. In so ruling, the Court invoked a “Grand Canyon” metaphor for a company’s obligation to describe risks as active or imminent, as opposed to theoretical: “one cannot tell a hiker that a mere ditch lies up ahead, if the speaker knows the hiker is actually approaching the precipice of the Grand Canyon.” In this case, however, the Court held that the defendant’s risk disclosures—which stated that it “could experience a loss of revenue” if its supplier failed to perform—were not misleading
This week sees the introduction of significant changes to the rules and regulations governing the marketing of alternative investment funds (“AIFs”) to investors in the Member States of the European Economic Area (the “EEA”) with both the deadline for implementation of the Cross Border Marketing Directive (the “Directive”) and the Cross Border Marketing Regulation (the “Regulation”) coming into force. For the avoidance of doubt, the EEA no longer includes the United Kingdom.
On July 9, 2021, President Biden issued an “Executive Order on Promoting Competition in the American Economy” (the “Order”). The Order responds to what the President characterizes as a “failed experiment” in lax antitrust enforcement that he believes has led to undue concentration of businesses throughout the economy. It appears that the analytically-fuzzy era of “big is bad” may be returning to Washington. In the first week following the Order’s issuance, the federal antitrust enforcement agencies have begun actively gearing up for new enforcement initiatives and wholesale changes in the standards of antitrust review.
On June 30, 2021, President Biden signed a joint resolution of Congress under the Congressional Review Act (“CRA”) to disapprove the OCC’s True Lender Rule. As a result, the True Lender Rule is now repealed.
Last month, the U.S. Courts of Appeals for the Third and Ninth Circuits issued decisions interpreting two significant doctrines affecting federal securities law litigants: (1) American Pipe tolling—a doctrine that suspends (or “tolls”) the running of the statute of limitations applicable to the claims of potential class members while a putative class action is in progress, and (2) the Affiliated Ute presumption of reliance—a substitute at the motion to dismiss and class certification stages for the otherwise required direct proof of reliance in claims asserted under Section 10(b) of the Securities and Exchange Act of 1934 (Exchange Act) involving “primarily a failure to disclose.”
Despite being one of the more well-known doctrines in corporate law, the rule articulated in Blasius—that directors who act with the primary purpose of interfering with a stockholder vote must have a compelling justification for their conduct—has received little attention from the Delaware Supreme Court. Delaware’s highest court has not mentioned the Blasius test in over a decade and has not held that a board’s conduct triggered the Blasius test since 2003.
On June 29, 2021, the Supreme Court denied an application by a group of real estate agents and associations to lift the eviction moratorium issued by the Centers for Disease Control and Prevention (the “CDC”). Originally issued on September 4, 2020, the CDC’s order temporarily banned evictions of residential tenants in an effort to mitigate the spread of COVID-19.
On June 21, 2021, the United States Supreme Court issued a decision in Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, vacating a decision of the Second Circuit that affirmed certification of a securities fraud class action against The Goldman Sachs Group, Inc. The Court directed the Second Circuit to consider the “generic” nature of Goldman’s alleged misrepresentations in assessing whether Goldman had successfully rebutted the fraud on the market presumption of reliance for purposes of plaintiff’s claim under Section 10(b) of the Securities Exchange Act of 1934, and therefore, whether class certification is appropriate.
On June 3, 2021, in Donelson v. Ameriprise Financial Services, Inc., a panel of the U.S. Court of Appeals for the Eighth Circuit ordered class-action allegations in a putative securities fraud class action stricken on the pleadings under Rule 12(f) of the Federal Rules of Civil Procedure, and directed the matter to arbitration. The decision is significant not only for its broad application of an arbitration clause to federal securities fraud claims, but as a rare appellate-level endorsement for striking class allegations under Rule 12(f)—which permits a court to strike from a pleading “an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter”—prior to class discovery and a motion for class certification.
On May 25, 2021, the U.S. Department of Justice (“DOJ”) unsealed an indictment charging two Austrian citizens, Peter Weinzierl (“Weinzierl”) and Alexander Waldstein (“Waldstein”), for their roles in a scheme to launder hundreds of millions of dollars through the U.S. financial system on behalf of the Brazilian construction conglomerate, Odebrecht S.A. (“Odebrecht”). The indictment alleges that Weinzierl and Waldstein helped Odebrecht funnel money to offshore accounts to pay bribes to government officials in Brazil, Panama, and Mexico.
On May 10, 2021, in SEC v. Morrone, a panel of the U.S. Court of Appeals for the First Circuit held that the federal securities laws apply to securities transactions as long as “irrevocable liability”—the point at which parties become legally bound to carry out the transaction—occurs in the United States. The Court thus joined the Ninth Circuit in rejecting the Second Circuit’s more defendant-friendly approach to extraterritoriality, under which a defendant may avoid liability by showing that the claims “are so predominantly foreign as to be impermissibly extraterritorial.” Until the Supreme Court resolves this circuit split, plaintiffs asserting securities claims involving foreign transactions likely will steer clear of the Second Circuit, opting for circuits that have rejected such fact-intensive defenses.
On May 20, 2021, the Illinois Supreme Court finally put to rest a long-simmering challenge to the validity of around $14 billion of Illinois general obligation bonds. The Supreme Court unanimously affirmed, albeit on different grounds, a trial court’s August 2019 order denying a petition by a prominent political activist to file a lawsuit challenging those bonds. In affirming the trial court’s decision, the Supreme Court also reversed an intermediate appellate court’s August 2020 decision permitting the challenge to go forward.
On May 11, the Senate voted 52-47 (with three Republicans joining 49 Democrats) to pass a joint resolution under the Congressional Review Act (“CRA”) to disapprove of (i.e., rescind) the Office of Comptroller of the Currency’s final rule relating to “National Banks and Federal Savings Associations as Lenders” (the so-called “True Lender Rule”).
Until the last month, the market in the U.S. for special purpose acquisition company (“SPAC”) IPOs has been booming. For example, in the first three months of 2021, there were 298 IPOs of U.S. SPACs, which raised in aggregate $87.07 billion. That booming market has not included the UK, where during the same period, there were no SPAC IPOs.
On May 6, 2021, Vice Chancellor Zurn of the Delaware Court of Chancery issued a 200-page decision denying a motion to dismiss in In re Pattern Energy Group Inc. Stockholders Litigation, a class action challenging the $6.1 billion go-private, all-cash sale of Pattern Energy Group Inc. (“Pattern Energy” or the “Company”) to Canada Pension Plan Investment Board (“Canada Pension”). The transaction was narrowly approved by 52% of the Pattern Energy stockholders on March 10, 2020, with both ISS and Glass Lewis recommending stockholders vote against the sale. The sale closed on March 16, 2020.
The United States District Court for the Southern District of New York (the “Court”) decided in Gap Inc. v. Ponte Gadea N.Y. LLC on March 8, 2021, that a retail tenant will not be able to use the COVID-19 pandemic as an excuse for not making rent payments under multiple legal theories.
In an extraordinary, perhaps unprecedented, action, parties to a proposed deal that had been under investigation for about nine months closed the transaction almost immediately upon expiration of the Hart-Scott-Rodino (“HSR”) waiting period—which had been extended four times by mutual agreement of the parties and the Federal Trade Commission (“FTC”)—leading to public recriminations among the sitting FTC Commissioners for botching what could have been a successful settlement agreement with substantial divestitures that instead ended in a “mess.”
The UK’s National Security and Investment Act 2021 received Royal Assent on 29 April 2021 and is expected to “commence” at the end of 2021, with retrospective application to transactions occurring since 12 November 2020. The Act provides the UK Government with the statutory power to review and potentially block or unwind M&A transactions based on national security. Investments over 25% in businesses within 17 specified sensitive sectors will be void unless notified and approved. The Secretary of State will have broad powers to review other transactions posing a national security concern for up to 5 years after closing, while parties to those transactions will have the right to make a voluntary notification (reducing the period within which the transactions may be reviewed to 6 months).
On May 5, 2021, the United States District Court for the District of Columbia (“DC Court”) vacated a nationwide eviction moratorium order issued by the Centers for Disease Control (“CDC”) to help mitigate the spread of COVID-19 in Alabama Association of Realtors, et al. v. United States Department of Health and Human Services, et al. (the “Decision”). The DC Court found that the CDC exceeded its authority in issuing such moratorium on nationwide evictions of rental properties and that the CDC Order should be set aside. The Decision was immediately appealed by the Justice Department on behalf of the CDC and the ruling has been stayed pending such appeal.
On May 5, 2021, New York Governor Andrew Cuomo signed a bill that extends the moratorium on evictions and foreclosures for residential tenants and small businesses to August 31, 2021. The previous moratorium expired May 1, 2021.
On April 23, 2021, in Ford v. TD Ameritrade Holding Corp., a panel of the U.S. Court of Appeals for the Eighth Circuit reversed a district court order certifying a class action alleging that TD Ameritrade committed securities fraud by failing to comply with the duty of best execution in executing customer orders. The decision deals a blow to securities class actions based on violations of a broker’s best execution obligation and highlights the difficulties investors face in certifying securities fraud claims outside a typical disclosure-based stock-drop case.
On April 16, 2021, in In re Bibox Group Holdings Ltd. Securities Litigation, Judge Denise Cote of the U.S. District Court for the Southern District of New York dismissed a putative class action alleging registration violations under securities laws against a cryptocurrency issuer and exchange, holding that the plaintiff lacked standing to assert class claims based on crypto-assets he did not purchase and did not timely file suit.
On March 31, 2021, the U.S. Bankruptcy Court for the District of Kansas held in In re Fencepost Productions Inc. that even though an assignment of voting rights provision in a subordination agreement was not enforceable in a bankruptcy proceeding, a subordinated creditor nevertheless was barred from participating in proceedings related to a chapter 11 plan and disclosure statement on the basis that the subordinated creditor lacked prudential standing.
On 18 March 2021, the Department for Business, Energy & Industrial Strategy launched a consultation on its proposals for wide-ranging reforms to modernise the UK’s audit and corporate governance regime. The reforms proposed in the consultation would implement the recommendations of three previous independent reviews commissioned in the wake of a series of large-scale company failures, such as Carillion, Thomas Cook and BHS, which have been laid at the door of poor internal governance and external review at those companies.
On March 26, 2021, Judge Maryellen Noreika of the U.S. District Court for the District of Delaware dismissed a lawsuit brought by the Consumer Financial Protection Bureau (“CFPB”) in Consumer Financial Protection Bureau v. The National Collegiate Master Student Loan Trusts, finding, inter alia, that the CFPB’s suit was constitutionally defective due to the CFPB’s untimely attempt to ratify the prosecution of the litigation in the wake of the Supreme Court’s decision in Seila Law LLC v. Consumer Financial Protection Bureau.
If 2020 was the “year of the SPAC,” 2021 may be the year of SPAC litigation. SPACs—Special Purpose Acquisition Companies—are publicly traded companies launched as vehicles to raise capital to acquire a target company. Often called blank-check companies, SPACs are companies in which shareholders buy shares without knowing which company the SPAC will target and acquire. Investors place their faith in the sponsor: the entity or management team that forms the SPAC.
On March 29, the United States Supreme Court heard oral argument in Goldman Sachs Group, Inc., et al. v. Arkansas Teacher Retirement System, et al., No. 20-222. The closely-watched case raises a host of important issues concerning the substantive and procedural requirements for certifying a securities fraud class action.
On 26 March 2021, the European Supervisory Authorities (the “ESAs”) published a Joint Opinion (the “Opinion”) on the jurisdictional scope of the obligations of the non-EU parties to securitisations under the Regulation (EU) 2017/2402 (the “EU Securitisation Regulation”). References in this memo to articles refer to articles of the EU Securitisation Regulation.
Following months of uncertainty, on Christmas Eve a Brexit agreement was finally reached between the United Kingdom (“UK”) and the European Union (“EU”). The European Union (Future Relationship) Act 2020 (the “Act”) received Royal Assent on 30 December 2020. While the agreement signalled an early Christmas present for many, for others it failed to offer the certainty that they long hoped such an arrangement would provide. One of the areas on which the Act fails to offer much guidance is money laundering and terrorist financing.
The Federal Trade Commission (“FTC”) announced today a multilateral working group to share best practices and build a new approach to pharmaceutical mergers. Initiated by the FTC, the working group will include the Canadian Competition Bureau, the European Commission Directorate General for Competition, the UK’s Competition and Markets Authority, the Antitrust Division of the U.S. Department of Justice, and Offices of the State Attorneys General.
In December, New York Governor Andrew Cuomo signed the COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020, which provided a moratorium on residential eviction and foreclosure proceedings until May 1, 2021
Further to our Clients & Friends Memo of 22 June 2020, the Sustainability Taxonomy Regulation (2020/852) (the “Regulation”) was published in the Official Journal on 22 June 2020 and entered into force on 12 July 2020. The Regulation established an EU-wide framework for classifying economic activity as environmentally sustainable and aims at (1) reducing “greenwashing”, where financial products are marketed as environmentally sustainable without sufficient factual basis for their claims and (2) improving the efficiency of private investment in sustainable projects.
On February 25, 2021, the United States District Court in the Eastern District of Texas (“Texas Court”) granted summary judgment in favor of the plaintiffs in Lauren Terkel et al. v. Centers for Disease Control and Prevention et al., holding that a nationwide eviction moratorium issued by the Centers for Disease Control and Prevention (“CDC”) to mitigate the spread of COVID-19 exceeded the constitutional authority granted to the CDC.
In November 2020, the UK launched a review of its Listing Rules, led by Lord Jonathan Hill, with a specific goal to recommend changes that would improve the UK’s competitiveness as a global listing centre, particularly for high growth and “new economy” businesses. On 3 March 2021, the report, containing 15 recommendations, was published.
On January 29, 2021, Vice Chancellor Laster of the Delaware Court of Chancery refused to dismiss a shareholder class action stemming from the 2019, $2.2 billion sale of Presidio, Inc., an IT solutions provider specializing in digital infrastructure and cloud and security solutions, to BC Partners Advisors L.P. (“BCP”), a private-equity firm. In Firefighters’ Pension System of the City of Kansas City v. Presidio, Inc., a shareholder of Presidio filed suit against Presidio’s CEO, its board of directors, Apollo Global Management LLC (Presidio’s controlling shareholder, owning approximately 42% of its outstanding common stock), LionTree Advisors, LLC (financial advisor to both Presidio and Apollo), and the acquiror, BCP.
The United States, along with the United Kingdom and European Union, has increasingly wielded economic sanctions against major commercial actors and financial transactions, sometimes roiling global markets in the process. It is now common for sanctions to target not only rogue regimes, terrorists, and drug traffickers, but also major corporations that are deeply integrated into international financial markets – including derivatives markets. For evidence of this trend, one need look no further than the November 12, 2020 Executive Order (“E.O.”) “on Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies.” The Order prohibits transactions by U.S. persons in the securities of identified Communist Chinese military companies (“CCMCs”), including “any securities that are derivative of, or are designed to provide investment exposure to such securities.”
On February 16, 2021, the United States District Court in the Southern District of New York (the “Court”) issued a decision In Re Citibank August 11, 2020 Wire Transfers that upheld the “discharge for value” doctrine and ruled that certain lenders (the “Defendants”) were entitled to retain funds erroneously sent by the administrative agent (the “Plaintiff”) under a credit facility to which the Defendants were a party.
After three years of uncertainty over the Serious Fraud Office’s (“SFO”) powers to obtain documents located overseas, the UK Supreme Court has clarified the extraterritorial effect of the legislation facilitating that power domestically. The Supreme Court held that KBR, Inc., the U.S. engineering, procurement and construction company, was not required to provide the SFO with documents that were located overseas during a criminal investigation into its UK subsidiary, KBR Ltd.
Assembly Bill A3139 was introduced by Assembly Member Harvey Epstein on January 22, 2021. The bill is currently in committee but, if enacted, it will amend New York’s Real Property Law and Tax Law to require the recording of mezzanine debt and preferred equity investments and subject it to the mortgage recording tax. These amendments will force borrowers and lenders to reconsider the economic costs of mezzanine financing.
For the first time since 2010, the Federal Trade Commission (“FTC”) has decreased the dollar jurisdictional thresholds necessary to trigger the reporting requirements in the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”); the revised thresholds were published in the Federal Register on February 2, 2021, and will become effective on March 4, 2021.
The First Circuit’s recent decision in New Hampshire Lottery Commission v. Rosen holds that the Wire Act’s prohibitions on interstate activity apply only to sports betting, and not to all types of bets and wagers, such as online lotteries, poker, and other gaming for dollars. State lotteries and non-sports betting vendors cheered the decision, but for the sports betting industry, the decision is disappointing because their business still potentially runs afoul of federal law.
In December 2020, as part of the larger National Defense Authorization Act, the Corporate Transparency Act (the “Act”) was enacted. The Act requires that anonymous shell companies, most notably limited liability companies and partnerships, disclose their ultimate beneficial ownership and control in an effort to combat corruption, money laundering and financing of terrorism, among other things, in the United States.
On January 19, 2021, the Consumer Financial Protection Bureau (CFPB or Bureau) published a special edition of its Supervisory Highlights focused on its COVID-19 Prioritized Assessments. As Cadwalader previously wrote, the CFPB announced in July 2020 that it had sent targeted information requests to supervised financial institutions regarding the consumer risks posed by the pandemic, including how institutions were implementing the special borrower protections under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
On January 14, 2021, the U.S. Supreme Court issued an opinion addressing a split among circuit courts on whether an entity violates Section 362(a)(3) of the Bankruptcy Code’s automatic stay provision by passively retaining possession of a debtor’s property after a bankruptcy petition is filed. Section 362(a)(3) prohibits “any act . . . to exercise control over property” of the bankruptcy estate.
On January 1, 2021, Congress enacted the Anti-Money Laundering Act of 2020 (the “Act”). As part of the National Defense Authorization Act for Fiscal Year 2021, the Act creates a broad range of new anti-money laundering (“AML”) obligations for banks and other financial institutions, certain private investment structures, and even federal regulators.
The Department of Justice’s Antitrust Division (“DOJ”) announced that, on January 5, 2021, a federal grand jury returned a two-count indictment charging Surgical Care Affiliates LLC and its related entity (together, “SCA”), which own and operate outpatient medical care centers across the country, for agreeing with competitors not to solicit senior-level employees.
During the COVID-19 pandemic, New York State courts have granted a number of preliminary injunctions enjoining UCC foreclosures for a period of time. For example, in D2 Mark LLC vs. Orei VI Investments LLC and Shelbourne BRF LLC, Shelbourne 677 LLC v. SR 677 BWAY LLC, the courts found that elements of the UCC foreclosures were not commercially reasonable as a result of the pandemic and temporarily prevented the UCC foreclosures. However, not all borrowers have had the same success with preliminary injunctions.
Since declaring a State of Emergency on March 7, 2020 in response to the COVID-19 pandemic, New York Governor Andrew Cuomo has issued a number of Executive Orders providing protections for both commercial and residential tenants and mortgagors. On March 20, 2020, Governor Cuomo issued Executive Order 202.8 prohibiting the enforcement of an eviction of any residential or commercial tenant or a foreclosure of any residential or commercial property for period of ninety days. Most recently, Executive Order 202.66 extended the residential moratorium through January 1, 2021, and Executive Order 202.81 extended the commercial moratorium through January 31, 2021.
Congress opened 2021 by overturning one of President Trump’s vetoes for the first time. By large bipartisan majorities, the House and Senate overturned a presidential veto and enacted the 2021 National Defense Authorization Act (“NDAA”). Tucked away in the $740.5 billion defense bill were provisions granting the U.S. Securities and Exchange Commission (“SEC”) statutory authority to seek disgorgement in federal court and providing a 10-year statute of limitations for that remedy.