Corporate Counsel Connect collection

July 2016 edition

Robust antitrust enforcement; Proposed amendments to the DGCL; Use of statistical evidence to establish class-wide liability

Robust antitrust enforcement

Companies should be aware that vigorous DOJ and FTC antitrust enforcement is likely to continue for the foreseeable future, based on recent testimony from DOJ antitrust chief Bill Baer and FTC Chairwoman Edith Ramirez before a U.S. Senate subcommittee.

Baer focused his remarks on key areas of DOJ enforcement, including cartel enforcement and merger investigations. He noted that in 2015, the DOJ collected more than $3.6 billion in criminal fines from cartel investigations, nearly three times the amount in 2014. Further, DOJ prosecutions of individuals are also increasing, as are the length of prison sentences, which now average nearly 24 months. Baer also noted that the DOJ continues to actively litigate mergers that it believes harm competition in the midst of historically high levels of merger activity.

Merger challenges are also at high levels at the FTC, which challenged 27 mergers in 2015, including six litigated actions. Ramirez emphasized the FTC’s continued focus on healthcare, including challenges to healthcare provider mergers and anticompetitive behavior in the pharmaceutical industry. Ramirez stated that the FTC’s top priority for conduct-based enforcement is preventing pharmaceutical pay-for-delay settlements. The FTC recently launched an action against Endo Pharmaceuticals Inc. and several generic drug manufacturers for an alleged 2013 pay-for-delay settlement.

This aggressive level of antitrust enforcement is unlikely to abate despite:

Personnel changes at both agencies, including Baer’s planned departure from the Antitrust Division and the recent resignations of FTC Commissioners Joshua Wright and Julie Brill.
Potential changes based on the outcome of the presidential election.

In this environment, companies should ensure that their antitrust compliance programs are effective and carefully consider the antitrust risk of mergers and acquisitions.

For more information on the agencies’ antitrust enforcement priorities, see Legal Update, DOJ and FTC Officials Testify Before Senate on Enforcement Priorities and Accomplishments.

Proposed amendments to the DGCL

The Council of the Corporation Law Section of the Delaware State Bar Association has released its annual slate of proposed amendments to the Delaware General Corporation Law (DGCL).

The amendments include proposed changes to appraisal rights that are almost identical to those proposed by the Council last year, which were never introduced in the Delaware Assembly. The amendments are intended to respond to the rise of the “appraisal arbitrage” tactic, in which hedge funds acquire shares in a merging company for the express purpose of seeking appraisal. The amendments are also intended to relieve judges from being forced to decide between two competing valuation experts, particularly when the market has already established a value for the shares. The amendments would:

Establish a de minimis exception requiring at least $1 million to be at stake for the exercise of appraisal rights against a publicly traded company. The de minimis exception would not apply to short-form mergers.
Allow the target company, at any time before entry of judgment in the appraisal proceedings, to pay an amount of its choosing to the appraisal claimants in order to stop the accrual of any eventual interest.

The amendments also address tender offers by widening the availability of the DGCL Section 251(h) process to buyers and target companies that were previously ineligible. Section 251(h) eliminates the stockholder approval requirement on back-end mergers after tender offers if a majority of the target company’s shares have been tendered into the offer. Under the amended statute, the buyer would be able to count shares being rolled over by existing stockholders into the surviving company toward the statutory minimum of shares that must be tendered.

If signed into law, most of the amendments would become effective on August 1, 2016.

For more information on the proposed amendments, see Legal Update, 2016 DGCL Amendments Proposed on Appraisal Rights, Intermediate-Form Mergers, and Chancery Court Jurisdiction.

Use of statistical evidence to establish class-wide liability

Following a recent U.S. Supreme Court decision, defendants in putative class actions may need to reevaluate how they challenge the use of statistical evidence at the class-certification stage.

In Tyson Foods, Inc. v. Bouaphakeo, the Supreme Court held in a narrow decision that a putative class may use representative or statistical evidence to prove a defendant’s liability on a class-wide basis, if that evidence also could be used by individual class members to establish liability in an individual case.

In this class action arising under the Fair Labor Standards Act of 1938 (FLSA) and state law, the Supreme Court:

Declined to adopt a broad, categorical rule banning the use of statistical evidence in all class actions.
Noted that whether statistical evidence can be used to establish class-wide liability depends on the purpose for which the evidence is introduced, and the elements of the underlying claim.
Concluded that the trial court correctly ruled that the plaintiffs could use statistical evidence to establish the defendant’s liability under the FLSA and related state law, since that same evidence would be used to establish liability to specific plaintiffs.

Many observers had hoped that Tyson Foods would allow the Supreme Court to answer a vexing question facing federal courts, specifically, whether class treatment is possible for damage claims under Rule 23(b)(3) if the class includes uninjured class members. The Supreme Court did not reach this highly anticipated question.

Absent further guidance from the Supreme Court, putative class-action defendants opposing class certification should be prepared to:

Rebut any showing that statistical evidence could be used to prove liability in an individual case.
Continue to challenge the use, reliability, and admissibility of statistical evidence at the class-certification stage under Daubert v. Merrell Dow Pharmaceuticals, now armed with an additional argument that statistical evidence must also address individual liability, instead of the broader concept of liability to a “class.”
Demonstrate that the evidence is statistically inadequate, based on implausible assumptions, or fails to address unique elements of the individual class members.
Continue to oppose the use of any trial plan or damages model that includes the possibility of uninjured class members being a part of the “class.”

About Practical Law

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