United States: Corporate Law Developments (February 6, 2017): President Trump's Executive Order On U.S. Immigration Policy; Delaware Court Rejects Supermajority Director Removal Bylaw; Ftc Revises Hart-Scott-Rodino Antitrust Improvements Act Thresholds For 2017

This week's corporate law news roundup includes discussions of President Trump's Executive Order (Order) on U.S. immigration policy; the decision of the Delaware Chancery Court that invalidated a corporate bylaw that purported to require a supermajority vote to remove directors; and the release by the Federal Trade Commission (FTC) of its annual revision to the minimum "size of transaction" and "size of person" thresholds requiring pre-merger notification to the FTC, effective for all transactions closing on or after February 27, 2017.

On Friday, January 27, 2017, the Trump administration issued an Executive Order entitled "Protecting the Nation from Terrorist Attacks by Foreign Nationals" and ordered a restriction of entry to citizens of seven predominantly Muslim countries (Iraq, Syria, Sudan, Iran, Somalia, Libya and Yemen). The Department of Homeland Security (DHS) posted an update on Monday, January 30, 2017, that nearly all travelers (except U.S. citizens) traveling on passports from the seven countries will be temporarily suspended from entry into the U.S. The DHS notice also stated that lawful permanent residents (LPRs or green card holders) will be allowed to board U.S.-bound aircraft but will be subject to national security checks and assessed for exceptions to the ban on a case-by-case basis. Since then, a U.S. federal court has ordered that all LPRs be admitted. Below are some of the key implications, consequences and expectations as a result of the Executive Order and actions taken thereafter:

  • only those non-LPRs on diplomatic visas (NATO, the UN, an embassy or a consulate) from the designated countries will be admitted;
  •  all other non-LPRs (visas including B-1/B-2, E, F, L, O, etc.) are barred from entry and their visas have been revoked;
  • initially, there was no guidance regarding dual citizens (e.g., a citizen of Canada and one of the designated countries); on January 30, 2017, however, DHS stated that dual nationals of the UK and one of the designated countries would be exempt from the Executive Order when travelling on a valid U.K. passport and U.S. visa on that U.K. passport or under the Visa Waiver program; since then, the exemption has been expanded and now all dual citizens may travel on visas so long as the visa is not on the passport of one of the seven designated countries;
  • there has been no guidance as to national security checks to which LPRs from one of the designated countries will be subject, but one should expect intrusive questioning (including the checking of internet history, text messages and social media use);
  • because this is an Executive Order with no precedent or guidance, we can expect inconsistent application of the rule by officers at the ports of entry; and
  • although unconfirmed reports have been circulated in the media and social media that this list of countries would be expanded, the U.S. Department of State has confirmed that the travel ban is not being expanded at this time; nonetheless, nationals of non-listed countries (especially predominantly Muslim countries) should expect greater scrutiny, including the checking of internet history, text messages and social media use.

We will keep monitoring this issue and provide updates on further developments on our website. Our Withers advisory is available at http://www.withersworldwide.com/news-publications/president-trumps-us-immigration-policy-implications-and-consequences–2.
In a decision issued by the Delaware Chancery Court on January 24, 2017, the court ruled that Section 141(k) of the Delaware General Corporation Law unambiguously confers on a majority of the stockholders the power to remove directors with or without cause and a bylaw provision requiring a supermajority vote is unlawful. The bylaw in question purported to require a vote of 2/3rds of the outstanding shares to remove a director. In light of the successful ruling, the plaintiff withdrew a second count, alleging that directors had breached their fiduciary duty to stockholders by enacting such a bylaw. This recent decision follows a similar decision reached by the Chancery Court in 2016 in In Re Vaalco Energy, Inc. Stockholder Litigation, in which the court invalidated charter and bylaw provisions that provided that directors were removable only for "cause"; in that case, the Chancery Court held that such a limitation on removing directors was only permissible for companies with classified boards or cumulative voting. For more information on the Frechter v. Zier (Nutrisystem, Inc.) case, see http://courts.delaware.gov/Opinions/Download.aspx?id=251800.

Under U.S. antitrust law, parties to a merger, acquisition of stock or assets or other business combinations meeting certain thresholds must file a pre-merger notification with the U.S. Federal Trade Commission (FTC) and the U.S. Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act (HSR). Such thresholds (a "size of transaction" threshold and a "size of person" threshold) are revised annually. On January 19, 2017, the FTC announced its adjusted merger notification thresholds for 2017. Under the new size-of-person threshold, when the value of a proposed transaction exceeds $80.8 million, but is less than $323 million, the transaction must be reported if (1) one party to the transaction has total assets or net sales of $161.5 million or more and (2) the other party has total assets or net sales of $16.2 million or more. Under the size-of-transaction threshold, all transactions valued in excess of $323 million will be reportable without regard to the size-of-person test. These new 2017 HSR thresholds will become effective for all transactions closing on or after February 27, 2017. For more information, see https://www.ftc.gov/news-events/press-releases/2017/01/ftc-announces-annual-update-size-transaction-thresholds-premerger.

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