A California federal court held that a California statute requiring California-based corporations to have a minimum number of directors from designated under-represented groups violates the federal Constitution’s Equal Protection Clause. The decision in Alliance for Fair Board Recruitment v. Weber (E.D. Cal. May 16, 2023) is one of the latest skirmishes in the culture wars raging around diversity and other ESG-related matters. The ruling addresses the same law that a California state court previously invalidated in a decision that is currently on appeal.
Disney Sues Florida Officials for Allegedly Unconstitutional Retaliatory Legislation
Walt Disney Parks and Resorts U.S., Inc. (“Disney”), the owner and operator of the Walt Disney World Resort in Florida, has sued Florida’s Governor and other officials for allegedly launching “a targeted campaign of government retaliation” in response to Disney’s opposition to Florida’s so-called “Don’t Say Gay” law. The Complaint in Walt Disney Parks and Resorts U.S., Inc. v. DeSantis et al., highlights one of the most hotly debated topics in the era of competing ESG and anti-ESG sentiments: to what extent should corporations take public positions on political and social issues that might not directly relate to the companies’ core business operations? Corporate boards of directors should be attuned to and exercise appropriate oversight over these questions, as well as the related issue of corporate political contributions.
Supreme Court Holds that Constitutional Challenges to Administrative Agencies’ Structure Can Be Brought in District Court
The Supreme Court held today that constitutional challenges to administrative agencies’ structure can be brought in federal district court and need not be raised through an administrative proceeding with subsequent appellate review. The decision in Axon Enterprise, Inc. v. Federal Trade Commission (U.S. Apr. 14, 2023) – which involved challenges to two federal agencies’ use of Administrative Law Judges (“ALJs”) for enforcement proceedings – considered only the issue of where such challenges can be brought. The Court did not address substantive questions about whether the ALJ process or the agency structure itself is constitutional – hot topics that could come before the Court in other matters.
Virginia Federal Court Finds Insufficient Connection Between Alleged Misstatements and Issuer of Unsponsored ADRs
A federal district court in Virginia recently held that the federal securities laws can apply to transactions in a foreign issuer’s unsponsored American Depositary Receipts (“ADRs”) that traded over the counter in the United States. However, the court ruled that statements by the foreign issuer’s U.S. subsidiary had not been sufficiently attributed to the foreign parent so that they could be deemed to have been made “in connection with” purchases of the parent’s ADRs.
Current Issues Relating to Silicon Valley Bank Closure
On Friday, March 10, 2023, Silicon Valley Bank (“SVB”) became the largest U.S. lender since the Great Financial Crisis to enter into receivership with the Federal Deposit Insurance Corporation. SVB was a major provider of depository services and liquidity to various investment funds, managers and their related entities through subscription or capital call facilities, net asset value facilities and management company, GP and co-invest lines. The SVB situation is continuing to evolve and we expect to see material developments in the coming days.
For more details on this current development, read the full client alert here.
Fourth Circuit Reverses Mid-Trial Grant of Judgment Against SEC in Insider-Trading Case
On February 23, the U.S. Court of Appeals for the Fourth Circuit reversed a mid-trial grant of judgment as a matter of law against the Securities and Exchange Commission in a jury trial for insider trading. The decision in SEC v. Clark is a reminder that the SEC can meet its burden of proof by presenting merely circumstantial, rather than direct, evidence of insider trading and that a trial court must not weigh evidence, determine witnesses’ credibility, or substitute its judgment for the jury’s in deciding whether to grant a motion for judgment as a matter of law.
Fraud Claims Against Token Issuer Dismissed Based on Disclosures to Accredited Investor
The organizers of an initial coin offering (ICO) recently won dismissal of an investor’s fraud claims by establishing that their public risk disclosures negated the investor’s claims of reliance on alleged misstatements. The project, a video service provider’s ICO, was governed by a purchase agreement called a “Simple Agreement for Future Tokens” (“SAFT”). The plaintiff investor later lost his entire investment as the token collapsed, allegedly due to the provider’s decision to scrap its initial plans for a decentralized platform and move to a permissioned blockchain (and also the provider’s choice to seek additional capital via a “Regulation A” public offering). The New York court found that even if certain representations made by the issuer regarding the prospect of a decentralized network were actionable, the Plaintiff had not plausibly alleged “reasonable reliance” on such representations in signing the SAFT. (Rostami v. Open Props, Inc., No. 22-03326 (S.D.N.Y. Jan. 9, 2023)).
