Articles

This article, written by Kenneth A. Rosen and Scott Cargill, discusses the challenges that corporate lawyers may face when balancing their duty to advocate for a client's goals with their ethical obligations to objectively assess established law. The authors use the Delaware Court of Chancery's decision in Bandera Master Fund LP v. Boardwalk Pipeline Partners, LP as a case study to highlight the dangers of losing objectivity and professionalism in the pursuit of a client's financial objectives. In the case, Loews Corporation sought an opinion of counsel allowing it to exercise a buyback option in a transaction involving Boardwalk Pipeline Partners. The court found that the legal opinion was "contrived" and delivered in "bad faith," as it relied on "counterfactual assumptions" to achieve a desired result, despite significant uncertainty in key facts. The court ruled against Loews, stating that its efforts constituted "willful misconduct," and awarded over $690 million in damages to shareholders. The key takeaways from the article emphasize that attorneys should not reach legal conclusions under undue client pressure, should not rely on untrue facts, and must perform adequate diligence. Additionally, when delivering a legal opinion, law firms can make good faith predictions about the future but should not assume future outcomes. The importance of balancing zealous advocacy with adherence to ethical rules, professionalism, and common sense is emphasized. What are your thoughts on the challenges faced by corporate lawyers in maintaining objectivity and professionalism while advocating for their clients' interests?

In Kenneth A. Rosen's discussion, the complexities of administrative claims in Chapter 11 bankruptcy proceedings are explored. While claims arising from goods or services provided to the debtor during bankruptcy hold administrative status, the dynamics change when lenders extend crucial financing in the form of "DIP" (Debtor-in-Possession) loans. Lenders secure a super priority administrative claim, granting them precedence over other administrative claims. Professionals involved in the case often negotiate a "carve out" to prioritize their administrative claims over those of lending institutions, providing a level of protection against the impact of super priority claims. Despite cash flow challenges faced by the debtor, professionals typically receive periodic payments, with 80% of their invoices settled monthly and the remaining 20% every 120 days. However, it is emphasized that guaranteed payment for administrative claims is not assured. Instances of a debtor's estate becoming administratively insolvent are not uncommon, as demonstrated by cases like Toys R Us and Sears. This highlights the importance of a comprehensive understanding of Chapter 11 dynamics for entrepreneurs, emphasizing the need to navigate the intricate financial landscape and strategically safeguard the interests of professionals involved in the proceedings.

In Kenneth A. Rosen's comprehensive checklist, businesses facing financial challenges, whether internally or externally driven, are provided with actionable steps for effective crisis navigation and recovery. Internally, the focus is on assessing and enhancing cash flow, adapting revenue models, addressing debt concerns, managing legal considerations, optimizing cost structures, and strategically approaching product life cycles and customer relationships. Externally, the checklist advises businesses to mitigate supply chain disruptions, secure raw materials, navigate transportation costs, adapt to inflationary trends, manage interest rate risks, monitor consumer habits, plan for import/export challenges, address labor shortages, prepare for natural disasters, evaluate global risks, and establish pandemic response protocols. This thorough guide emphasizes proactive and strategic measures to help businesses not only weather financial distress but also position themselves for sustained recovery.

In his article, "Navigating Nuances: A Comprehensive Approach to Assessing Director Independence in Evolving Corporate Governance," Kenneth A. Rosen highlights a significant shift in the evaluation of director independence. While traditional assessments focused on tangible business relationships, a new emphasis is emerging on the relationships between independent directors and those responsible for their nomination. Rosen emphasizes the crucial role of thorough due diligence for general counsel in this evolving landscape, urging a proactive approach that goes beyond conventional criteria. The article recommends expanding due diligence protocols, enhancing board education, embracing proactivity, and regularly reviewing governance practices to align with changing legal standards. The overarching message is clear: as criteria for director independence evolve, a comprehensive and forward-looking approach is essential for upholding the highest standards of corporate governance.

In "Decoding Director Liability: Unveiling the Complex Realities Beyond Legal Safeguards" by Kenneth A. Rosen, the article delves into the intricate landscape of corporate governance, challenging the assumption that legal protections fully shield board members from liability claims. Rosen explores the Model Business Corporation Act and Delaware law, highlighting the nuanced limitations directors face when relying on information and expert advice. The article emphasizes the need for heightened diligence, urging directors to be inquisitive, especially in transactions with potential insider benefits or significant financial implications. While legal protections provide financial insulation, Rosen underscores the intangible risk of reputational damage. Offering a guide for directors, the article goes beyond legal frameworks, advocating for a culture of caution and thorough scrutiny in the evolving realm of corporate governance.

In "Untangling Consignment Challenges: Lessons from the Sports Authority Bankruptcy," Kenneth A. Rosen dissects the complexities surrounding consignment arrangements, using the Sports Authority Chapter 11 case as a cautionary example for vendors. The article highlights the legal battles that ensued as Sports Authority sought to liquidate consigned goods, emphasizing the crucial need for vendors to understand and adhere to Uniform Commercial Code (UCC) requirements for consignment perfection. Rosen underscores the risks vendors face when engaging in disputes with key consignees, as seen in the Sports Authority case, where vital vendors refused to cooperate, hindering the possibility of a going concern sale. Despite a court ruling in favor of consignors, Rosen advises vendors to remain vigilant and consistently file UCC-1 forms to mitigate subjective risks. The article serves as a practical guide, offering recommendations for vendors to protect their interests and navigate the intricate landscape of consignment arrangements effectively.

Boeing's Board of Directors settled a Caremark claim lawsuit with shareholders for $225 million over the crashes of two 737 Max jetliners. The settlement highlights the consequences of neglecting risk oversight, emphasizing the shared accountability of board members in monitoring "mission critical" safety risks. The Delaware Court of Chancery's decision in the case underscores that directors may be held liable for a sustained failure in exercising oversight, especially regarding safety. The court found Boeing's board failed to prioritize safety during the development of the 737 MAX, leading to the settlement. The case signals a shift in director and officer liability, emphasizing the importance of proactive risk oversight, particularly in industries where safety is paramount.

When a property owner’s general contractor files for Chapter 11 bankruptcy, the owner cannot immediately terminate the contract based on a bankruptcy filing clause, also known as an ipso facto clause. Instead, the owner must apply to the bankruptcy court detailing the damages suffered due to the contractor’s delays and defaults. It’s recommended to seek legal counsel to navigate this process. The aim is to protect the owner’s rights and ensure all actions are within the law.

In this insightful exploration of timely debt collection, Ken A. Rosen draws on the enduring wisdom of the 1992 Barnhill v. Johnson Supreme Court decision, a legal cornerstone cited an impressive 807 times. Rosen illuminates the pivotal role of timing in the often arduous process of debt recovery, underscoring the urgency of proactive measures when sensing a customer's financial vulnerability. The article advocates for swift actions, including personally collecting checks or delegating trusted representatives, along with immediate deposits to preempt potential setbacks. Rosen further emphasizes the practicality of employing overnight couriers, demanding bank checks, or opting for wire transfers to fortify the collection process. By melding legal insight with pragmatic recommendations, Rosen guides businesses in safeguarding their hard-earned collections from unforeseen pitfalls, making this piece a valuable resource in the realm of debt management.