25 October 2018 - Events
by Jeanne R. Solomon and Sheri M. Yano This week's Corporate news roundup includes information regarding the Delaware Court of Chancery addressing LLC delegation authority, the SEC's 2nd largest whistleblower award and amendments to the TSCA: DELAWARE COURT OF CHANCERY ADDRESSES LLC DELEGATION AUTHORITY In early June 2016, a Delaware court found that the board of directors of a board-managed LLC lacked the authority to delegate to a non-manager the power to act as a special litigation committee, and the managers of a manager-managed LLC whose operating agreement included restraints on delegation similarly lacked such authority to delegate. The court found that the LLCs' respective operating agreements were designed to recreate a Delaware corporation's governance structure and stated that the LLC's business and affairs would be managed under the direction of its directors or managers. The court refused to apply Delaware Limited Liability Company Act Section 18-407, which gives members and managers the broad authority to delegate managerial powers. The court reasoned that, by embracing a Delaware corporation's governance structure, the operating agreements imported the Delaware General Corporation Law principles restricting delegation of the board's core governance functions. The court also found that the particular manager-managed LLC's operating agreement distinguished between “ordinary course of business” matters and more significant matters, which demonstrated the relevant LLC's intent to prevent delegation to the managers of more significant matters that were outside of the ordinary course of business. In light of this holding, LLCs should revisit operating agreement delegation provisions to ensure that their governance structure will not unintentionally restrict their boards' or managers' ability to delegate authority to non-managers. For more information on the Obeid v. Hogan case, click here. SEC ANNOUNCES SECOND LARGEST WHISTLEBLOWER AWARD In June 2016, the SEC announced that it had made its second largest whistleblower award in its whistleblower program's five-year history. A former employee received a $17 million award for providing a detailed tip that substantially advanced the SEC's investigation and ultimate enforcement action. The largest award was a $30 million award in September 2014. For more information, click here. TOXIC SUBSTANCES CONTROL ACT AMENDED On June 22, 2016, President Obama signed into law amendments to the Toxic Substances Control Act that are expected to impact multiple industries. The TSCA regulates the management and use of chemicals. Under the TSCA as amended, the EPA will review and prioritize all chemicals in active commerce. Chemicals that are classified as a high-priority will undergo a risk-based assessment to evaluate the chemical's impact on human health and the environment and to determine whether the chemical presents an unreasonable risk. The EPA will maintain an inventory of chemicals in commerce, and will have the power to require testing without a consent agreement. With a few exceptions, the EPA also will be able to preempt state laws regulating chemicals that present an unreasonable risk, and states may not regulate chemicals while the EPA is conducting its risk-based assessment of a chemical. For additional information on the “Frank R. Lautenberg Chemical Safety for the 21st Century Act,” click here. To subscribe to our weekly Corporate e-newsletter and receive future news updates, please click here. If you would like to read up on previously published Corporate-related news, please visit our e-newsletter archive by clicking here.