By Amanda Bourgeois

The substantial flexibility afforded by the limited liability company structure has made it an increasingly popular business entity choice.  Indeed, most of the default provisions in the Louisiana Limited Liability Company Law, La. R.S. 12:1301, et seq. (the “La LLC Law”) may be altered or superseded by the articles of organization or operating agreement of the limited liability company.  One such provision that is quite frequently altered or superseded in the operating agreements of many limited liability companies is that of the transfer or assignment of a membership interest in the limited liability company.

Unless the articles of organization or operating agreement of the limited liability company provide otherwise, a membership interest is freely assignable, in whole or in part, under the La LLC Law.[1]  This default provision is often unattractive to members of limited liability companies, especially ones that may be family-owned or formed for a particular joint venture project.  The desire to keep membership in the entity limited to either the current members or certain defined groups of persons drives many members of limited liability companies to include rules and restrictions to limit or prohibit the rights of a member to transfer or assign the membership interest in the limited liability company.  Most transfer restrictions included in a written operating agreement or the articles of organization are not problematic under Louisiana law.  However, members should be aware that restricting a member’s ability to pledge or encumber the membership interests in the limited liability company can be rendered ineffective by certain provisions of the Uniform Commercial Code – Secured Transactions, La. R.S. 10:9-101, et seq. (“UCC Chapter 9”).

Although there are some exceptions, in most cases, an interest in a limited liability company is considered a general intangible under UCC Chapter 9.  As a comparison, in most cases, shares of stock in a corporation are considered a security under UCC Chapter 9.  Under Louisiana law, this classification of general intangible versus security can affect, among other things, the available methods of perfecting the security interest, the determination of priority of competing security interests, and the effectiveness of anti-assignment provisions.

Pursuant to La. R.S. 10:9-408, certain contractual restrictions on the creation and perfection of a security interest of a general intangible are negated and rendered ineffective.  In the context of a limited liability company, Section 9-408 could be used to render ineffective a provision in an operating agreement or articles of incorporation (i) prohibiting a member from pledging or encumbering his or her membership interest or (ii) requiring the prior consent of the limited liability company or the other members thereof to the pledge or encumbrance of membership interests in the limited liability company.

Importantly, although the restrictions under Section 9-408 may permit a lender to take a perfected security interest in limited liability company interests despite contrary provisions in the organizational documents of the limited liability company, it does not necessarily mean that the secured creditor will have the right to enforce the security interest.  Further, it does not otherwise negate the default assignment provisions of the La LLC Law, or any similar provisions in the limited liability company organizational documents, that provide that any assignment of membership interests shall not grant to the assignee full membership rights absent the consent of the other members.  Consequently, absent contrary provisions in the organizational documents of the limited liability company or the unanimous consent in writing of the other members, in the event of a seizure of or foreclosure upon the membership interests, the creditor or any purchaser in a foreclosure sale is treated as an assignee of the membership interest, which only entitles the assigned to a right to receive distributions, share in the profits and losses, and receive allocations of income, gain, loss, deduction, credit or similar items to which the assignor member would otherwise have received.

__________________________________________

[1] It should be noted that even under the default provisions of the La LLC Law, an assignment of a membership interest does not entitle the assignee to become or exercise any rights or powers of a member, such as voting or participating in the management of the business, until such time as the assignee is admitted as a member, which requires the unanimous consent in writing of the other members of the limited liability company pursuant to the La LLC Law.  The assignment does, though, entitle the assignee to receive distributions, share in the profits and losses, and receive allocations of income, gain, loss, deduction, credit or similar items to which the assignor member would otherwise have received.   

 

Louisiana State Capital

By Matthew C. Meiners

Under Louisiana law, workers’ compensation is the exclusive remedy that an employee may assert against his employer or fellow employees for work-related injury, unless he was the victim of an intentional act. That exclusive remedy also extends to statutory employers.

Workers’ compensation legislation was enacted to provide social insurance to compensate victims of industrial accidents, and it reflects a compromise between the competing interests of employers and employees: the employer gives up the defense it would otherwise enjoy in cases where it is not at fault, while the employee surrenders his or her right to full damages, accepting instead a more modest claim for essentials, payable regardless of fault and with a minimum of delay. However, due to the fear that employers would attempt to circumvent that liability by interjecting between themselves and their workers intermediary entities which would fail to meet workers’ compensation obligations, the law provides that some principals are by statute deemed, for purposes of liability for workers’ compensation benefits, the employers of employees of other entities. This is what is known as statutory employment, and it is intended to provide greater assurance of a compensation remedy to injured workers.

Under Louisiana law, there are two bases for finding statutory employment:

First Basis: The existence of a written contract recognizing the principal as the statutory employer. A “principal” is any person who undertakes to execute any work which is a part of his trade, business, or occupation in which he was engaged at the time of the injury, or which he had contracted to perform and contracts with any person for the execution thereof. Such a contractual provision creates a rebuttable presumption of a statutory employer relationship between the principal and the contractor’s employees, whether direct or statutory employees. This presumption may be overcome only by showing that the work is not an integral part of or essential to the ability of the principal to generate that individual principal’s goods, products, or services.

Second Basis: Being a principal in the middle of two contracts, referred to as the “two contract theory.” The two contract theory applies when: (1) the principal enters into a contract with a third party; (2) pursuant to that contract, work must be performed; and (3) in order for the principal to fulfill its contractual obligation to perform the work, the principal enters into a subcontract for all or part of the work performed. The two contract statutory employer status contemplates relationships among at least three entities: a general contractor who has been hired by a third party to perform a specific task, a subcontractor hired by that general contractor, and an employee of the subcontractor.

A statutory employer is liable to pay to any employee employed in the execution of the work or to his dependent, any compensation under the Louisiana Worker’s Compensation Act which the statutory employer would have been liable to pay if the employee had been immediately employed by the statutory employer. In exchange, the statutory employer enjoys the same immunity from tort claims by these employees as is enjoyed by their direct employer. Additionally, when a statutory employer is liable to pay workers’ compensation to its statutory employees, the statutory employer is entitled to indemnity from the direct employer and has a cause of action therefor.

Statutory employer status can provide very valuable protection to companies who contract for work to be performed in Louisiana; however, you should consult your attorney to make sure you meet the legal requirements, and to properly draft the necessary contractual provisions.

 

structure

By Matthew C. Meiners

In targeting a company for purchase, many buyers prefer to purchase the assets of a company, as opposed to the stock (or other equity) of the company because, as a general rule, the buyer of assets in an asset acquisition does not automatically assume the liabilities of the seller.  Accordingly, an asset acquisition generally allows the buyer and seller to select which assets and liabilities will be transferred.  However, in certain circumstances, the buyer can be held responsible for liabilities of the seller if a court determines that certain exceptions are met.  Louisiana courts have been willing to impose liability on asset-sale successors on the following grounds:

  1. The buyer assumed the liabilities;
  2. The transaction was entered into to defraud the seller’s creditors;
  3. The buyer company is a “mere continuation” of the seller company; and
  4. The transaction was “in fact” a merger.

The “mere continuation” exception is probably the most likely to catch a buyer off guard.  Louisiana courts, in considering whether an asset-sale successor is a “mere continuation” of the seller company, have considered the extent to which the buyer company has retained the same employees, supervisory personnel, company name, and physical location as the seller company.  Further, prior business relationships may be considered, as well as the continuity of general business operations and the identity of the business in the eyes of the public.  A threshold requirement to trigger a determination of whether successor liability is applicable under the “mere continuation” exception is that one company must have purchased all or substantially all the assets of another.

If you plan to purchase all or substantially all of the assets of a company, especially if your goal in choosing an asset purchase over a stock purchase is to avoid or minimize your liability for the seller’s liabilities, you should carefully consider the ways in which you could be seen as merely continuing the seller’s business under the factors described above.  You may be signing on for more liability than you anticipate.

Delaware

By David P. Hamm, Jr.

In Sandys v. Pincus, the Delaware Supreme Court reversed a “thoughtful forty-two page opinion” by Chancellor Bouchard that dismissed a derivative action based upon the stockholder’s failure to make pre-suit demand.[1] The court’s opinion can be found here.  The underlying Court of Chancery opinion can be found here.

Expansion of the Rales Test for Demand Futility

The authority of the board of directors to manage the business and affairs of a corporation under Section 141(a) of the Delaware General Corporation Law extends to the board’s authority to decide whether to initiate or refrain from initiating litigation. Thus, pursuant to Court of Chancery Rule 23.1, a plaintiff in a derivative action must “either make a demand upon the board to initiate the litigation or demonstrate that such demand would be futile.”[2]

Delaware courts apply either the Aronson test or the Rales test in determining whether a plaintiff’s demand upon the board would be futile. In general, the Aronson test requires the plaintiff to plead particularized facts that create a reasonable doubt that either “the directors are disinterested and independent” or that “the challenged transaction was otherwise the product of a valid exercise of business judgment.”[3] In general, the Rales test requires the plaintiff to plead particularized facts that create a reasonable doubt that, at the time the complaint was filed, “the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand.”[4] The timing of the inquiry is a chief distinction between the two tests.

The Aronson test has been criticized over the years and exceptions to the application of the Aronson test have been created in several contexts. Three such exceptions were outlined in Rales as follows:

“A court should not apply the Aronson test for demand futility where the board that would be considering the demand did not make a business decision which is being challenged in the derivative suit. This situation would arise in three principal scenarios: (1) where a business decision was made by the board of a company, but a majority of the directors making the decision have been replaced; (2) where the subject of the derivative suit is not a business decision of the board; and (3) where . . . the decision being challenged was made by the board of a different corporation.”[5]

Chancellor Bouchard’s application of the Rales test to the plaintiff’s Brophy and Caremark claims do not result in the expansion of the test’s application. However, the Chancellor’s application of the Rales test in the context of the plaintiff’s claim that the board breached its fiduciary duties by approving the secondary offering in question (the “Secondary Offering Claim”) does constitute an expansion of the Rales test. The novelty of the test’s application is acknowledged by Chancellor Bouchard as follows:

“In identifying these three scenarios, the Court [in Rales] included a qualification that they were the ‘principal’ scenarios where Aronson would not apply, implying that there could be other scenarios. In my opinion, this case presents such a scenario.”[6]

The Chancellor set forth the following facts in support of his application of Rales to the Secondary Offering Claim:

  1. A majority of the board that approved the secondary offering “had a personal financial interest in the transaction such that they may have received an unfair benefit and the transaction may be subjected to entire fairness review.”[7]
  2. A majority of the board was not changed from the time the secondary offering was approved to the time the complaint was filed. Thus, the “principal scenario” set forth by the Court in Rales did not find application.
  3. The board composition changed from the time the secondary offering was approved to the time the complaint was filed to the extent that a majority of directors derived no personal financial benefit from the secondary offering.

These facts led Chancellor Bouchard to conclude that the demand futility inquiry should be focused solely upon the board that existed at the time the complaint was filed (as required by Rales) rather than the board that existed at the time the second offering was approved (as required by the second prong of Aronson).

The application of the Rales test was also supported by the Chancellor’s position that it “functionally covers the same ground as the Aronson test” and “investigates the same sources of potential partiality that Aronson would examine.”[8]  The Chancellor further reasoned that the Rales test “provides a cleaner, more straightforward formulation to probe the core issue in the demand futility analysis for each board member who would be considering plaintiff’s demand.”[9]

Although the Delaware Supreme Court did not expressly adopted Chancellor Bouchard’s expansion of the Rales test, it did implicitly do so by utilizing the test in its analysis: “On appeal, neither party contests the applicability of the Rales standard employed by the Court of Chancery. Therefore, we use it in our analysis to determine whether the Court of Chancery erred in finding that a majority of the board was independent for pleading stage purposes.”[10]

As a result, the Delaware Supreme Court has, at least implicitly, expanded the application of the Rales test in the demand futility context.

Particularized Facts Providing Grounds of Reversal

While the Delaware Supreme Court implicitly approved of Chancellor Bouchard’s utilization of the Rales test, it expressly reversed his application of same.  The reversal was based upon “particularized facts” that created a reasonable doubt as to the impartiality of three directors (Ellen Siminoff, William Gordon, and John Doerr).

The Delaware Supreme Court reversed Chancellor Bouchard’s independence determination as to Ellen Siminoff based upon the particularized fact that she and her husband co-own an airplane with Mark Pincus (the controller). Despite the fact that the plaintiff simply characterized the co-ownership of the airplane as a business relationship, the court saw more there and concluded that the co-ownership of the plane was “suggestive of an extremely intimate personal friendship” and created “a reasonable doubt that she [could] impartially consider a demand adverse to his [Pincus’] interests.”[11] While admittedly limited to the facts of this case, the Delaware Supreme Court’s analysis on this point arguably lowers the level of proof needed to show demand futility.

Of greater import, the Delaware Supreme Court reversed Chancellor Bouchard’s independence determination as to William Gordon and John Doerr based upon particularized facts that evidenced “a mutually beneficial network of ongoing business relations” between several of the directors.[12] Gordon and Doerr are both partners at Kleiner Perkins Caufield & Byers, a venture capital firm. Kleiner Perkins owns 9.2% of Zynga, Inc.’s stock, invested in a company co-founded by Pincus’ wife, and has an equity position in a company where another Zynga director, Reid Hoffman, is both a shareholder and director.

The court’s analysis on this point has potentially significant implications given the realities of the venture capital landscape. However, such implications can be qualified by the fact that William Gordon and John Doerr did not qualify as independent directors under the NASDAQ Listing Rules.[13] The import of this fact for the court is clearly seen by the following dicta: “[T]o have a derivative suit dismissed on demand excusal grounds because of the presumptive independence of directors whose own colleagues will not accord them the appellation of independence creates a cognitive dissonance that our jurisprudence should not ignore.”[14]

Conclusion

In sum, Sandys arguably expands the application of the Rales test and provides the representative plaintiff bar with a lower threshold for demonstrating demand futility. While limited to the facts of the case, the court’s analysis should be considered when making internal determinations as to the independence of directors.

_________

[1] Sandys v. Pincus, No. 157, 2016, 2016 WL 7094027 (Del. Dec. 5, 2016) (Valihura, J., dissenting).

[2] Sandys v. Pincus, No. CV 9512-CB, 2016 WL 769999, at *6 (Del. Ch. Feb. 29, 2016), rev’d, No. 157, 2016, 2016 WL 7094027 (Del. Dec. 5, 2016).

[3] Id. (quoting Aronson v. Lewis, 473 A.2d 805, 814 (Del.1984).

[4] Id. (quoting Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993).5. Rales v. Blasband, 634 A.2d 927, 933–34 (Del. 1993) (emphasis added).

[6] Id. at *12.

[7] Id.

[8] Id.

[9] Id. at *13.

[10] Sandys, 2016 WL 7094027, at *3.

[11] Id. at *1.

[12] Id. at *5.

[13] See NASDAQ Marketplace Rule 5605(a)(2).

[14] Sandys, 2016 WL 7094027, at *5.

 

compass

By David P. Hamm, Jr.

Helping sellers navigate the uncertain horizon of post-closing indemnification claims is a crucial part of a deal lawyer’s job on the sell-side of any M&A transaction. According to a relatively recent study by Shareholder Representative Services (the “2013 SRS Study”), approximately 67% of private M&A transactions have “material post-closing issues.”[1]  While post-closing liability exposure is industry and deal specific, the empirical data presented by the 2013 SRS Study provides crucial insight for the deal lawyer tasked with helping her client navigate these uncertain waters. A copy of the full 2013 SRS Study can be found here.

2013 SRS Study Sample

The 2013 SRS Study is based upon claims made against escrow holdback funds for 420 private-target acquisitions that closed between 2007 and 2013. There were approximately 700 such claims made in connection with the analyzed acquisitions. Each of these claims was sorted by its type and size.

As the saying goes, a picture is worth a thousand words. To that end, two key graphics contained in the 2013 SRS Study are set forth below that highlight several of the study’s insights.

Breakdown of Claims in General

hamm pic

As the graphic above shows, roughly 400 of the 700 post-closing claims within the 2013 SRS Study Sample were related to alleged breaches of representations and warranties. The graphic below illustrates the representations and warranties that are most frequently the subjects of indemnification claims.

Breakdown of R&W Claims

hamm pic 2

This chart is the most valuable chart in the entire 2013 SRS Study as it provides a solid basis for clear counsel to sell-side clients in the M&A context. It also shows the particular representations and warranties that should be focused upon prior to closing to minimize post-closing claims.

Conclusion

The 2013 SRS Study enables the M&A lawyer to take the abstract notion of post-closing liability exposure and convert it into a discussion of empirical data. Again, while post-closing liability exposure is industry and deal specific, the 2013 SRS Study provides helpful market data that can help inform clients and prevent post-closing claims.

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[1] https://www.srsacquiom.com/files/2013escrowstudy.pdf

stock

By David P. Hamm, Jr.

In In re Books-A-Million, Inc. Stockholders Litigation, the Delaware Court of Chancery dismissed a suit by minority stockholders (the “Plaintiffs”) alleging that several fiduciaries breached their duties in connection with a squeeze-out merger (the “Merger”) through which the controlling stockholders of Books-A-Million, Inc. (the “Company”) took the Company private.[1]  The decision, authored by Vice Chancellor J. Travis Laster, provides additional guidance regarding the utilization of the business judgment rule in the context of controller buyout.

The MFW Requirements

The default standard of review in the context of a controller buyout is the entire fairness test.[2]  However, the business judgment rule serves as the operative standard of review if the six requirements set forth by the Delaware Supreme Court in Kahn v. M&F Worldwide Corp. (the “MFW Requirements”) are satisfied, namely:

“(i) the controller conditions the procession of the transaction on the approval of both a Special Committee and a majority of the minority stockholders; (ii) the Special Committee is independent [and disinterested]; (iii) the Special Committee is empowered to freely select its own advisors and to say no definitely; (iv) the Special Committee meets its duty of care in negotiating a fair price; (v) the vote of the minority is informed; and (vi) there is no coercion of the minority.”[3]

Bad Faith and the Second MFW Requirement

In Books-A-Million, the court concluded that all of the MFW Requirements were satisfied. In so doing, the court shed significant light on the second MFW Requirement; namely, that the Special Committee be independent and disinterested.[4]  The most significant contribution of the case was the court’s treatment of the plaintiffs’ allegation of bad faith as a basis for their claim that the second MFW Requirement had not been satisfied. The court acknowledged the novelty of the plaintiffs’ claim by stating the following:

“It is not immediately clear how an argument regarding bad faith fits within the M&F Worldwide framework. The Delaware Supreme Court did not discuss whether a plaintiff could seek to call into question the independence of a director by contending that although appearing independent, the director did not in fact act independently for the benefit of the stockholders but rather in pursuit of some other interest, such as to benefit the controlling stockholder.”[5]

The heart of the plaintiffs’ bad faith claim was the fact that a third-party offer existed that was greater than the controller offer. The third party offer was $0.96 more per share. The court summarized the plaintiffs’ argument as follows: “The Complaint contends that it is not rational for a director to take a lower priced offer when a comparable, higher priced offer is available. Because no one rationally would do that, the plaintiffs contend that the independent directors must have had some ulterior motive for not pursuing [the third party offer].”[6]

In rejecting the plaintiffs’ argument, the court quoted extensively from Chancellor Allen’s analysis in Mendel v. Carroll.[7]  In Carroll, Chancellor Allen distinguished a third-party offer and a controller offer on the grounds of a control premium:

“The fundamental difference between these two possible transactions arises from the fact that the Carroll Family [the controller] already in fact had a committed block of controlling stock. Financial markets in widely traded corporate stock accord a premium to a block of stock that can assure corporate control.”[8]

The court in Books-A-Million applied the control premium concept as follows in relation to the relative levels of the third-party and controller offers:

“On the facts alleged, one can reasonably infer that Party Y’s [the third party] offer was higher because Party Y was seeking to acquire control and that the Anderson Family’s [the controller] offer was lower because it took into account the family’s existing control over the Company.”[9]

In a footnote, the court cited several sources establishing recognized control premiums and signaled that control premiums falling outside of an acceptable range could potentially give rise to an inference that a company’s fiduciary duties acted in bad faith. [10]

Application of the Business Judgment Rule

Given the satisfaction of each of the MFW Requirements, the court utilized the business judgment rule as the operative standard of review. The utilization of the business judgment rule, as is typically the case, was the death knell for the plaintiffs. The court went so far as to say that: “It is not possible to infer that no rational person acting in good faith could have thought the Merger was fair to the minority. The only possible inference is that many rational people, including the members of the Committee and the numerous minority stockholders, thought the Merger was fair to the minority.”[11]

Conclusion

While Books-A-Million is helpful on several points, the case breaks new ground on the treatment of a bad faith claim within the MFW Framework.  Controllers and their counsel should take note of the importance of any control premium falling within the acceptable range cited by the court; namely, from 30% to 50%. Any premium in excess of the range cited could potentially expose a corporation’s fiduciaries to an allegation of bad faith, thereby triggering the entire fairness test as the operative standard of review.

____________________________

[1] C.A. No. 11343-VCL, slip. op. (Del. Ch. Oct. 10, 2016, available here.

[2]  Id. at 16 (citing Kahn v. Tremont Corp., 694 A.2d 422, 428 (Del. 1997)).

[3]  88 A.3d 635, 645 (Del. 2014).

[4]  The plaintiffs did not contest the satisfaction of the third, fifth, and six MFW Requirements. The court’s analysis in the context of the first and fourth MFW Requirements do not advance any new ground and, therefore, are not discussed in this brief article.

[5]  Books-A-Million, C.A. No. 11343-VCL, slip op. at 23.

[6]  Id. at 25-26.

[7]  651 A.3d 297 (Del. Ch. 1994).

[8]  Id. at 304.

[9]  Books-A-Million, C.A. No. 11343-VCL, slip op. at 34.

[10]  Id. at 35 & n.16.

[11]  Id. at 42.

 

 

other-agreements

By Dean P. Cazenave

When lenders and borrowers want to modify the terms of an existing loan agreement, and the modifications are extensive and will affect many provisions of the agreement, the lender’s lawyer will often choose to draft an “amended and restated agreement” in order to document those modifications. A single amended and restated agreement will often be easier to read than would be the original agreement and a separate amendment (or a series of separate amendments). When they do so for a secured financing, the parties almost always intend that the collateral that secured the original loan agreement continue to secure the obligations under the amended and restated credit agreement;, as a result of a recent decision by the U.S. Court of Appeals for the Sixth Circuit, it is important that the document clearly states that it is not intended as a novation of the obligations under the original loan agreement.

Recently, in Bash v. Textron Financial Corporation (In re Fair Finance Company), 834 F.3d 651 (6th Cir. 2016), the U.S. Court of Appeals for the Sixth Circuit reversed a determination of the District Court for the Northern District of Ohio that an amended and restated loan agreement did not constitute a novation of the original loan agreement. In so doing, the court held, in largely reversing the dismissal of an adversary proceeding arising out of a Chapter 7 bankruptcy case, that the amended and restated loan agreement may actually have constituted (or at least it is ambiguous as to whether it constituted) a novation of the original loan agreement. If the amended and restated loan agreement did in fact constitute a novation, the security interests granted pursuant to the original loan agreement would have terminated at the time that the parties entered into the amended and restated loan agreement. The circuit court, after reversing the district court’s determination, remanded the question to the lower court for further proceedings.

The district court had rejected the novation argument, but the Sixth Circuit reversed, finding that the following provisions of the amended and restated loan agreement created a question of fact as to whether it was the parties’ intent to wholly replace and extinguish (i.e. novate) the original loan agreement and the security interest granted thereunder:

  • The statement that the restated loan agreement was for “valuable consideration, the receipt and sufficiency of which are hereby acknowledged”;
  • The language that the restated loan agreement “constitutes the entire agreement of Borrowers and Lender relative to the subject matter” thereof and would “supersede any and all prior oral or written agreements relating to the subject matter”; and
  • The re-grant of the security interest under the restated loan agreement.

It is cause for concern that all of the provisions the Sixth Circuit found were evidence of a novation in In re Fair Finance Company are regularly found in amended and restated loan documents throughout the broader loan market.

Significantly, the Sixth Circuit distinguished this case from In re TOUSA, Inc., where a district court ruled that the execution of an amended and restated agreement did not constitute a novation. The amended and restated agreement in TOUSA contained an explicit statement that the parties intended that the security interest and liens granted in the original security agreement would continue in full force and effect. The district court in TOUSA explained that notwithstanding the general language in the amended and restated agreement that all prior agreements were being restated in their entirety, the specific terms the parties agreed to must be given effect.

While one may question the sufficiency of the evidence that the Court relied on in finding that the parties may have intended to effect a novation, the lesson that a lawyer drafting an amended and restated financing agreement should draw from this decision is the importance of clearly and expressly stating the parties’ intent that the amended and restated agreement not constitute a novation. When drafting an amended and restated financing agreement, a lawyer should include an express statement that the agreement is not intended to constitute a novation or a termination of the obligations under the original agreement, and in the context of a secured financing, that the security interests created pursuant to the original agreement are intended to continue and to secure the obligations under the amended and restated agreement.

Accessibility computer icon

By Price Barker, Brian Carnie, and Michael Lowe

Disability access lawsuits have become a cottage industry and they have found their way into Louisiana, Texas and Arkansas.  Most are brought by the serial litigants working with same law firm.  These plaintiffs visit a business for the primary purpose of discovering an Americans with Disabilities Act (ADA) accessibility violation and then file a federal court lawsuit without giving the property owner, tenant or business advance notice of their complaint or an opportunity to fix the problems.

Now we are seeing a growing trend of “drive by” or “Google” disability access lawsuits.  The tag “drive-by” lawsuit came about due to accusations in many of these cases that either the plaintiff, or their lawyer, simply drove by the business, observed an alleged violation, and then filed suit.  The tag “Google lawsuit” arose from the belief of several business owners who have been sued that the ADA violations (such as the failure to have a lift seat at a hotel swimming pool) were discovered using Google earth.  In “drive-by” or “Google” lawsuits, the plaintiff almost always seeks attorneys’ fees, expert witness fees, and other litigation costs, as well as other concessions from the business they have sued.  Under federal law, business owners often have to pay both sets of attorneys’ fees, and if they do not settle, or make the corrections to their property demanded in the suit, it may end up costing them many thousands of dollars more, leading to accusations that these suits are simply money-making ventures for the plaintiff bar.

The ADA was passed by Congress in 1990.  Every private business in the United States open to the public must comply with the ADA.  This includes restaurants, bars, convenience stores, hospitals, hotels, shopping centers, and other retail locations.  The accessibility requirements of the ADA are very specific, and extensive.  There are thousands of requirements to be found in the 275-page ADA manual, which has specific requirements for things such as the slope and length of wheelchair ramps, the location and signage for handicap parking spots, and the height and location of door handles, sinks, toilets, and grab rails.

ADA access litigation is not limited to parking lots, sidewalks, restrooms and other alleged physical barriers in a “brick and mortar” establishment.  A growing number of lawsuits are being filed claiming that the business’ Web site does not provide adequate accessibility to the visually or hearing impaired.  Since 2010, the United States Department of Justice (DOJ) has delayed issuing specific regulatory guidance directly addressing the accessibility standards for commercial Web sites.  That does not mean that businesses do not have to try to comply with the general requirements of the ADA, nor does it prevent DOJ enforcement or suits by private plaintiffs.

Numerous ADA access lawsuits have been filed in federal court in Shreveport.  One of the recently filed claims is a class-action filed by a registered sex offender against a local municipality, claiming that the office where he is required to register as a sex offender is now violating the ADA by not providing him with a sign language interpreter.

So what should a business owner do to avoid this expensive headache?  A good starting point is to make your business an unattractive target.  Visit your location to see if there are any obvious ADA violations that would catch the attention of a “drive-by” plaintiff.  For example, look for un-ramped entrance steps, poorly maintained routes from handicap parking spaces to the entrance, handicap parking spaces with no access aisle, and observe the slope of your handicap parking spaces.  If you can see a slope, it is probably non-compliant.  And if you can see the slope, you can bet the plaintiff driving by will too.

 

Merger Dictionary Definition Word Combine Companies Businesses

By Linda Perez Clark

Recent cases have highlighted the importance of seller contractually protecting and retaining ownership over communications that, pre-closing, are subject to the attorney-client privilege.  The absence of such language in a merger or asset/stock purchase agreement can lead a court to conclude that such communications are owned by the buyer/surviving corporation.

Such was the result in Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 80 A.3d 155 (Del. Ch. 2013), where more than a year post-closing, after the buyer sued the seller for allegedly fraudulently inducing buyer to enter into the merger, the seller asserted ownership over pre-merger privileged communications maintained on the surviving corporation’s computer system.

The court ruled in the buyer’s favor, and held that the surviving corporation owns and controls such communications, noting that the seller had not been proactive in either protecting the communications from seller’s access, or contractually preserving ownership.   The court specifically noted that under Delaware law, all property, rights, privileges, etc. become property of the surviving corporation (the same is true under Louisiana law, LSA-R.S. 12:1-1107);  a contrary result can only be achieved by contractual agreement.

Accordingly, a clause addressing ownership and control over such communications, and proactively protecting them from disclosure, is critical.

 

LouisianaPaddleboatStamp

By G. Trippe Hawthorne and Mallory McKnight Fuller

Click here to review a Practice Note explaining how to enforce arbitral awards in the state and federal courts in Louisiana.  This Note explains the procedure for confirming an arbitration award in Louisiana, and the grounds on which a party may challenge enforcement under Louisiana and federal law, including the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the Federal Arbitration Act (FAA), and the Louisiana Binding Arbitration Law (BAL). This Note also briefly explains the procedure for vacating, modifying, or correcting an arbitral award in Louisiana.