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Legal News Report 9-25-15
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EPA to road-test cars after Volkswagen emissions scandal
Sep 25, 2015 | USA Today
By Nathan Borney
The Environmental Protection Agency told automakers on Friday that it will begin road tests of all new and used vehicle models to examine emissions claims following the exposure ofVolkswagen's regulation cheating scandal. -
Will crackdown on disclosure-only deals push M&A litigation out of Delaware?
Sep 18, 2015 | Reuters
By Alison Frankel
We have reached a turning point in M&A shareholder litigation in Delaware Chancery Court. -
Ex-Oakland city employee awarded $613,300 in unfair-firing case
Sep 24, 2015 | SFGate
By Rachel Swan
A federal jury awarded a former Oakland city employee $613,302 on Wednesday, finding that former Oakland City Administrator Deanna Santana retaliated against her and unfairly fired her.
Legal News
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EPA to road-test cars after Volkswagen emissions scandal
Sep 25, 2015 | USA Today
By Nathan Borney
The Environmental Protection Agency told automakers on Friday that it will begin road tests of all new and used vehicle models to examine emissions claims following the exposure ofVolkswagen's regulation cheating scandal.
The agency sent a letter to manufacturers notifying them that it will no longer rely exclusively on laboratory testing to validate emissions performance.
EPA also plans to begin testing all light vehicle models already on the road in the U.S. to check for similar violations.
The agency's actions came on the same day Volkswagen's board officially appointed Porsche brand chief Matthias Mueller as the automaker's new CEO. The expected move came after Wednesday's resignation of Martin Winterkorn, who led the company since 2007.
Dealing with fresh EPA scrutiny of light vehicles is only one of Mueller's numerous challenges.
Expunging corruption, handling investigations and fixing cars while ensuring Volkswagen's survival presents a vexing confluence of hurdles for Mueller, who has spent nearly four decades with the German automaker.
"My most urgent task is to win back trust for the Volkswagen Group – by leaving no stone unturned and with maximum transparency, as well as drawing the right conclusions from the current situation," Mueller, 62, said in a statement. "Under my leadership, Volkswagen will do everything it can to develop and implement the most stringent compliance and governance standards in our industry."
The company's most immediate challenge is finding a fix for 11 million vehicles rigged with manipulative software that tricked regulators into believing that vehicles were compliant with emissions regulations. The EPA won't allow the German automaker to sell diesel cars fitted with that software until it's removed.
Meanwhile, the agency is expanding oversight of new and used vehicles from all companies, amid questions about whether other automakers are guilty of similar violations.
"EPA may test or require testing on any vehicle at a designated location, using driving cycles and conditions that may reasonably be expected to be encountered in normal operation and use, for the purposes of investigating a potential defeat device," EPA told automakers in the letter Friday.
The agency warned that the new process could mean it will take longer for automakers to secure certification required to sell new vehicles in the U.S.
"We aren't going to tell them what these tests are," said Christopher Grundler, director of the EPA Office of Transportation and Air Quality, in a conference call with reporters. "They don't need to know."
The EPA received credit for exposing Volkswagen's violations after researchers at the International Council on Clean Transportation and West Virginia University discovered irregularities in the performance of 4-cylinder diesel cars from 2009 through 2015.
But the agency has also received criticism for failing to catch the so-called "defeat device" that fooled regulators for years.
The scandal has severely damaged Volkswagen's reputation, led to the resignation of the automaker's CEO and called into question the future of diesel cars. Several criminal investigations and numerous lawsuits have also followed.
The automaker set aside more than $7 billion to pay for fixes and fines. The episode is expected to trigger a massive recall.
Mueller has spent nearly four decades with the company, most recently leading the Porsche division to earnings growth and previously serving as head of product management of the Audi, Lamborghini and Volkswagen brands.
David Bach, senior associate dean at the Yale School of Management, said the company's misconduct is “so brazen” that a publicity campaign isn’t enough to restore confidence in the automaker.
“The company has to come completely clean — lots of heads have to roll," Bach said. "You probably have to change lots of processes and procedures and then work very hard for many years to regain trust. This is not the kind of thing that you fix with making two or three changes at the top and paying the fine.”
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Will crackdown on disclosure-only deals push M&A litigation out of Delaware?
Sep 18, 2015 | Reuters
By Alison Frankel
We have reached a turning point in M&A shareholder litigation in Delaware Chancery Court.
On Thursday, Vice Chancellor Sam Glasscock issued a written opinion reluctantly approving a settlement in which a class of Riverbed Technologies shareholders challenging Thoma Bravo’s $3.6 billion acquisition of the company granted broad litigation releases in exchange for meager disclosures in proxy materials. As you may recall, Fordham law professor Sean Griffith had formally objected to the settlement, arguing that the additional disclosures didn’t benefit shareholders. Plaintiffs’ lawyers led by Block & Leviton defended the disclosures and asserted that Griffith didn’t have standing because he bought Riverbed shares after the deal was announced, specifically so he could object to a prospective disclosure-only settlement.
Glasscock ruled Griffith did have standing, a boon for the law professor’s announced campaign to object to similar settlements in M&A cases. The judge also agreed the disclosures obtained by plaintiffs’ lawyers weren’t worth much to Riverbed shareholders. He decided to approve the settlement – albeit cutting the deal’s fees for plaintiffs’ lawyers – mostly because when the agreement was negotiated, both sides had a reasonable expectation, based on Delaware precedent, that it would be approved.
But the vice chancellor said that shouldn’t be anyone’s expectation going forward. His written opinion is the culmination of a summer of discontent for Chancery Court judges evaluating disclosure-only M&A settlements. At back-to-back hearings on the same day in July, Vice Chancellors Travis Laster and John Noble declined to approve settlements granting sweeping releases to defendants in exchange for disclosures of little consequence to shareholders. Then Chancellor Andre Bouchard, in a series of hearings, confirmed that Chancery Court is going to give “more scrutiny on some of the give and the get of these things.”
After musing from the bench about his “concern that a lot of the stuff that has been occurring historically is very fluffy,” and warning that “everybody would be well-advised to make sure you have got something real before you package one of these up and bring it in to the court,” Bouchard approved a disclosure-only settlement in Assad v. World Energy Solutions on Aug. 20. He also approved a disclosure-only deal in In re TW Telecom Stockholder Litigation, though he said he almost hadn’t because of his “high degree of skepticism that there’s much ‘there’ there” in most of these settlements.
On Wednesday, the chancellor finally declined to approval a settlement, instead asking lawyers for both shareholders and defendants in In re Trulia Stockholder Litigation for additional briefing on the standard for evaluating the materiality of the disclosures plaintiffs’ lawyers obtained and on the scope of the releases they agreed to. “We’re talking about the underbelly of settlements,” Bouchard said. “It’s easy to go back to ‘it’s standard,’ and I’m not faulting you for that … But then again, when I started practicing, very few people sued on every deal, and we never dealt with the kind of volume of this stuff that we see nowadays. And it just can’t be that this is socially useful.”
Fordham professor and Riverbed objector Griffith said the Riverbed written opinion crystallized the message Chancery judges have been sending from the bench all summer: The days of reflexive approval for disclosure-only settlements (and accompanying lawyers’ fees of several hundred thousand dollars) are over. “Once they clear the pipeline, they are going to do something different going forward,” Griffith said.
But what?
That question is of obvious consequence for plaintiffs’ lawyers, some of whom have made a very nice living from disclosure-only settlements. They’ve had willing partners on the other side, though. For defendants, as Vice-Chancellor Noble said at a hearing in July in which he reserved approval for a settlement in In re InterMune Stockholder Litigation, these settlements are a cheap form of “deal insurance.” For just the cost of some additional disclosures and fees for plaintiffs’ lawyers, defendants have been able to buy releases from any shareholder claims arising from the challenged deals.
Defendants remain inflexible about the scope of those releases, according to what plaintiffs’ lawyer Brian Long of Rigrodsky & Long told Chancellor Bouchard at the Trulia hearing. “Since all of this has been happening, since some of the closer scrutiny, we have been in discussions – I don’t want to say constant, but it’s pretty frequent discussions” about broad releases, he said. “And there is some movement, but there’s a real hesitancy, a real reluctance on the part of defendants’ counsel, to give this up just on their own volition.”
If Delaware won’t approve settlements with these “intergalactic” releases, might corporations prefer litigating in a forum where they can still buy cheap deal insurance? Corporations fought hard to tame multijurisdictional M&A shareholder litigation through forum selection clauses in charters and bylaws. Most of those provisions, at least for Delaware corporations that have adopted them, require shareholders to litigate in Delaware. It’s up to defendants to enforce the provisions, though, so if corporations decide they can’t get what they want from Chancery Court, they could presumably choose not to move to dismiss shareholder M&A suits in other jurisdictions where they can obtain broad releases in exchange for just disclosures and fees for plaintiffs’ lawyers.
I ran that hypothesis past a couple of very wise corporate defense lawyers. They were of the mind that Chancery Court judges are aware of that possibility – and are going to give defendants a reason to continue funneling cases to Delaware. Chancery Court can do that by becoming more aggressive about dismissing unfounded M&A class actions early and being stingier about expediting dubious cases.
Delaware judges have been saying since the M&A litigation boom began that they will reward plaintiffs’ lawyers who bring strong cases, as we saw most recently in Laster’s $148.2 million judgment against Dole’s CEO and former general counsel. But if they want defendants to keep exercising forum selection clauses, they have to be willing to discourage shareholder firms from pursuing dubious cases. In the long run, plaintiffs’ lawyers won’t sink money into litigation that doesn’t pay.
The Court of Chancery seems determined to end deal tax M&A litigation. It has taken the first step by warning both sides that these wink-and-a-nod settlements will no longer pass muster. But if the court wants to continue to be the venue of corporate choice, it has to give forum-controlling defendants a reason to stay in Delaware.
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Ex-Oakland city employee awarded $613,300 in unfair-firing case
Sep 24, 2015 | SFGate
By Rachel Swan
A federal jury awarded a former Oakland city employee $613,302 on Wednesday, finding that former Oakland City Administrator Deanna Santana retaliated against her and unfairly fired her.
Daryelle LaWanna Preston was Oakland’s employee relations director until she was terminated by Santana in October 2013, after repeatedly butting heads with the former city administrator over alleged misconduct in City Hall.
At the crux of the case was a dispute in February 2012, when Preston refused to sign documents that would have bolstered the city’s case against Councilwoman Desley Brooks, who allegedly violated city hiring rules and improperly signed off on receipts for music equipment at the Rainbow Teen Center in East Oakland.ADVERTISING
Preston claimed she had been asked to “falsify” official reports about the teen center as part of the effort to target Brooks. The allegations became a flash point at a July 2013 council meeting, in which the other council members considered censuring Brooks.
Instead, the council voted to censure itself.
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