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E-mails Sufficient to Modify Employment Agreement
A New York appellate court recently affirmed a trial court decision which held that a series of e-mails were sufficient to modify an employment agreement. At issue was a provision in the employment agreement that required any modification of the employment agreement to be signed by the employer and the employee. The employee claimed that changes to the terms of his employment were never documented by a re-executed employment agreement or amendment thereto.
Despite the absence of such documentation, the trial court found that e-mails between the employer and employee provided "unqualified acceptance of the modification of the agreement." In this regard, the trial court held that since the e-mails were closed with the names of the parties, they rose to the level of "signed writings" sufficient to affect a modification to the employment agreement.
Stevens v. Publicis, S.A., NYLJ, Apr. 3, 2008, at 33, col. 2
Non-Stockholder Directors Do Not Have Derivative Claim Standing
The Delaware Supreme Court recently ruled that non-stockholder directors do not have standing under Delaware law to assert derivative claims on behalf of the corporations whose boards they serve on. A non-stockholder director of a privately-held Delaware corporation brought a derivative claim alleging that his fellow directors were not exercising independent judgment and were thwarting potential value-maximizing transactions, thus breaching their fiduciary duty to the corporation and its stockholders.
In the lower court, the defendant directors moved to dismiss the complaint for lack of standing to sue. The claimant argued that he should be allowed to bring a derivative suit in his capacity as a fiduciary of the corporation in keeping with Delaware's public policy of allowing individuals to bring claims on behalf of a corporation to remedy breaches of fiduciary duty and protect the corporation. The lower court found for the defendants and held that under Delaware court and case law, a director has no standing to sue derivatively if he is not also a stockholder in the corporation. On appeal to the Delaware Supreme Court, the claimant unsuccessfully argued that as a director, he was in the unique position to observe directorial breaches of fiduciary duty directly and make allegations against the other directors without having to wait for stockholders to do so.
In dicta, the court noted that by statute, New York gives directors standing to sue fellow directors on behalf of their corporation. To date, the Delaware General Assembly has not followed suit.
Scroon v. Smith, No. 554, 2006, 2008 Del. LEXIS 67 (Del. Sup. Ct. Feb. 12, 2008)
U.S. Supreme Court Limits Judicial Review of Arbitration Awards
The U.S. Supreme Court recently held that arbitration awards should receive limited judicial review by courts under the Federal Arbitration Act, even where parties to a private agreement have specified grounds for challenging an arbitration award. In a 6-3 ruling, the Court rejected a claim that the FAA allows for expanded judicial review of an arbitrator's legal errors. The FAA provides that a court must confirm an arbitration award unless it is vacated or modified pursuant to specific grounds set forth in the statute, namely: (i) to vacate an award: corruption, fraud, undue means or a finding that arbitrators were guilty of misconduct or exceeded their powers and (ii) to modify or correct an award: evident material miscalculation, evident material mistake and imperfections in a matter of form not affecting the merits.
The contract at issue, a lease, contained an arbitration clause that required the court to vacate, modify, or correct any award if the arbitrator's conclusions of law were erroneous. The claim was for indemnification of the costs of cleaning up a lease site. The district court vacated an arbitration award in favor of the defendant based on erroneous conclusions of law, but the 9th Circuit reversed, holding that arbitration-judicial review terms that fix the mode of judicial review are unenforceable given the limited grounds set forth in the FAA. The Supreme Court affirmed the 9th Circuit, holding that the FAA's specified grounds for vacatur or modification were exclusive. The claimant argued that the agreement to review for legal error should prevail since arbitration is a creature of contract and the FAA is motivated by a congressional desire to enforce such agreements. The Court rejected this argument, finding that, although there may be a general policy favoring arbitration, the FAA has textual features at odds with enforcing a contract to expand judicial review once the arbitration is over. The Court noted there were alternative ways to challenge arbitration awards apart from the FAA, such as under state law, but the it did not address that point.
Hall Street Associates L.L.C. v. Mattel Inc., 128 S. Ct. 1396 (U.S. Sup. Ct. 2008)
IBM's Suspension from Federal Contracts Highlights Little-Known Government Procurement Rules
In an unusual move, the Federal government recently suspended International Business Machines Corp. from procuring new federal contracts pending an investigation by the Environmental Protection Agency. (The specific acts which led to IBM's suspension were not released by the EPA.) Rarely used and little-known outside of the area of procurement law specialists, the Government-wide Nonprocurement Suspension and Debarment Common Rule (68 Fed. Reg. 66533 (November 26, 2003)) provides for a government-wide system of nonprocurement, debarment and suspension. A person or entity that is suspended under such rule is excluded from all further financial and nonfinancial assistance and benefits under all Federal programs and activities. This suspension, which can be prompted by the action of a single administrative agency, can have a government-wide reciprocal effect.
The Excluded Parties List System, available at www.epls.gov, provides a single, comprehensive list of individuals and firms excluded by Federal government agencies from receiving federal contracts or federally approved subcontracts. Consult the list when entering into business relationships, negotiating contracts and performing diligence for entities that procure or rely on significant government funding.
New Jersey Passes WARN Act
Effective December 20, 2007, the New Jersey Legislature enacted the "Millville Dallas Airmotive Plant Job Loss Notification Act ("NJ WARN")," New Jersey's equivalent to the federal Worker Adjustment Restraining Notification Act ("WARN"). Although both NJ WARN and WARN apply to employers with 100 or more full-time employees and require 60 days written notice prior to a "mass layoff," there are differences.
Unlike WARN, NJ WARN does not provide for any "natural disaster," "business circumstances," or "sale of business" exceptions. NJ WARN requires the disclosure of more information, and that a greater group of recipients receive that information, than under WARN. Furthermore, the penalties imposed by NJ WARN are more severe than those contained in WARN. For example, WARN imposes a penalty of back wages and benefits up to 60 days for every employee who is not given notice (with credit given for any payment made), but NJ WARN provides for a penalty of one week's wages of back pay for every year of service.
New Jersey Expands Discrimination Law to Accommodate Religious Beliefs
On January 13, 2008, New Jersey's Law Against Discrimination was expanded to prohibit an employer from imposing any condition of employment upon an employee that would require him/her to "violate or forego a sincerely held religious practice or religious observance." As a result, an employer may not prohibit an employee from taking leave from work to observe a holy day, such as the Sabbath, unless the employer can show that it is unable to reasonably accommodate the employee's religious observance without "undue hardship" to the employer's business. In situations where an employee takes leave from work for religious observance, the employee must either make up the equivalent amount of time at a mutually convenient time, or designate the time as leave with pay, other than sick leave. The employer may treat any improper absence as leave taken without pay.
Proposed Listing Standards Allow SPACs to List on NYSE
The New York Stock Exchange has proposed rule changes that will allow the listing of special purpose acquisition companies ("SPACs") on the NYSE for the first time. The NYSE would be the second major U.S. exchange to move toward allowing SPAC listings this year. In February 2008, the NASDAQ Stock Market Inc. announced that it expected to receive SEC permission to list SPACs.
The proposed rule will require that SPACs have at least $250 million in total market capitalization, as well as a $200 million public float at the time of initial listing. While no prior operating history would be required, SPACs will have to meet the same distribution criteria as other IPOs (i.e., 400 holders of round lots and 1,100,000 publicly-held shares). Furthermore, all of the NYSE's corporate governance requirements applicable to operating companies will also apply to listed SPACs. SPACs deemed suitable for listing will be subject to certain minimum requirements, including: (i) the issuer must hold at least 90% of the proceeds from the issuer's IPO in a trust account controlled by an independent custodian until consummation of a business combination; (ii) the business combination must be approved by a majority of the issuer's public shareholders at a duly held shareholders meeting; (iii) the right to convert shares of common stock into a pro rata share of the amount then on deposit in the trust account must be made available to each public shareholder voting against the business combination; (iv) the issuer must be prevented from consummating a business combination if public shareholders owning in excess of a certain amount (no higher than 40%) exercise their conversion rights; and (v) the right of the NYSE to commence delisting procedures promptly if the issuer does not consummate its business combination within the time period specified in its constitutive documents or three years, whichever comes first.
The NYSE will consider proposed SPAC listings on a case by case basis, taking into account: (i) track record and experience of management; (ii) management compensation; (iii) percentage of management's equity ownership in the issuer and any restrictions on such persons to sell such stock; (iv) percentage of publicly held shares needed to approve business combination; (v) amount of time permitted to complete the business combination; (vi) percentage of sales proceeds placed in the trust account; and (vii) such other factors as the NYSE deems important with respect to investor protection and the public good.
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Copyright © 2008 Herrick, Feinstein LLP. Corporate Quick Hit is published by Herrick, Feinstein LLP for information purposes only. Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.