TransactionalGC Agenda

January 2023

GC Agenda: January 2023

A round-up of major horizon issues for general counsel.


Antitrust Enforcement

Counsel for companies should review the FTC’s November 2022 policy statement summarizing its current views on the scope of its antitrust enforcement authority, and consider whether updates to their clients’ antitrust compliance policies, procedures, and training are warranted.

The expansive new policy statement outlines the key principles the FTC uses in determining whether conduct is an unfair method of competition under Section 5 of the FTC Act, what standards should apply to assessing violations of Section 5, and what types of conduct Section 5 could prohibit, which include a wide variety of conduct that would not be prohibited under current interpretations of the other US antitrust laws, including the Sherman Act and Clayton Act. For example, the policy statement calls out business practices that can often be pro-competitive and are relatively common, including:

  • Loyalty rebates, tying, bundling, and exclusive dealing arrangements that are not now but could later become antitrust law violations because of the actor’s position in the market.
  • Conduct that is not explicitly prohibited by but violates the spirit of the antitrust laws, such as mergers with or acquisitions of a nascent competitor.

Both the FTC and DOJ Antitrust Division have been more aggressive under the Biden administration in enforcing the antitrust laws. While the policy statement is not law, the scope of enforcement authority it describes reflects this trend.

(For a detailed summary of the policy statement, see FTC Expands Scope of FTC Act Section 5 Enforcement on Practical Law; for more on the FTC’s antitrust enforcement under Section 5, see FTC Act Section 5: Overview on Practical Law.)


AAA Commercial Arbitration Rules

Companies that arbitrate commercial disputes before the American Arbitration Association (AAA) should be aware of recent amendments to the Commercial Arbitration Rules and Mediation Procedures applicable to all commercial arbitrations filed on or after September 1, 2022.

The AAA Commercial Arbitration Rules and Mediation Procedures have been in place since 2013. The recent amendments include a global renumbering of the rules, as well as several new provisions, including new rules that provide for:

  • Consolidation of two or more arbitrations.
  • Joinder of additional parties.
  • Confidentiality of the arbitration proceedings.
  • The arbitrators’ authority to interpret their awards.

The amendments also include changes to some of the existing rules, including the monetary thresholds for cases. For example:

  • The monetary threshold triggering application of the rules for large complex cases has changed from $500,000 to $1,000,000.
  • The monetary threshold for a case to presumptively proceed under the expedited procedures has changed from $75,000 to $100,000.

(For more on the AAA commercial arbitration rules, see AAA Arbitration (Commercial Rules): A Step-by-Step Guide on Practical Law; for a collection of resources to assist counsel in preparing for and conducting arbitration under the AAA rules, see AAA Arbitration Toolkit on Practical Law.)

Capital Markets & Corporate Governance

Officer Exculpation

Delaware companies should consider amending their certificates of incorporation to protect officers in light of recent amendments to the Delaware General Corporation Law (DGCL).

The DGCL was amended to allow corporations to adopt provisions eliminating or limiting the personal liability of certain executive officers for monetary damages for breaches of the fiduciary duty of care, other than through derivative claims. Consequently, those forming new corporations should include an officer exculpation provision in their certificates of incorporation. Existing companies should amend their certificates of incorporation to add an officer exculpation provision, a process which requires both board and shareholder approvals.

Reporting companies seeking public shareholder approval should review their annual meeting timelines to ensure that they build in sufficient time to address the amendment, including adding time for:

  • Filing a preliminary proxy statement and potential SEC review (for more information, see Proxy Statements on Practical Law). Additionally, if filing the definitive proxy statement is delayed past the 120th day after the fiscal year end, companies will have to amend their Form 10-K reports to include Part III information that was supposed to have been incorporated by reference.
  • Soliciting approval from shareholders. For 2023, Institutional Shareholder Services will recommend voting on officer exculpation on a case-by-case basis, considering the stated rationale for the proposal, but Glass Lewis will generally recommend voting against these proposals unless the amendment has reasonable provisions and the board provides a compelling rationale for the proposal. Companies should provide persuasive arguments in support of the officer exculpation proposal.

Non-reporting companies considering an initial public offering or a direct listing should amend their certificates of incorporation to include officer exculpation before going public.

Universal Proxy

Companies still considering bylaw amendments in light of the new universal proxy rules should continue to monitor market developments in proxy contests in search of new tactics. For example, some dissidents have acted more quickly than their targets and have claimed the white proxy card. As a result, some companies have amended their bylaws to reserve the white card exclusively for company use.

(For more on universal proxy, see Considerations Regarding Universal Proxy in this issue.)

Commercial Transactions

Ringless Voicemails under the TCPA

The FCC recently issued a Declaratory Ruling and Order (ruling) finding that ringless voicemails, which are messages sent directly to cell phone voicemail inboxes without first triggering a call ringtone, constitute “calls” and are therefore covered by Section 227(b)(1)(A)(iii) of the Telephone Consumer Protection Act (TCPA).

The ruling was issued in response to a petition from telemarketer All About the Message, LLC (AAM). AAM argued that its ringless voicemail messages are not calls under the TCPA because its proprietary software creates a landline-to-landline session directly to the telephone company’s voicemail server without charging the subscriber or appearing as a received call on a bill. The FCC received thousands of comments on the petition, almost all opposed AAM’s position. In response to this opposition, AAM sought to withdraw its requests for clarification. The FCC acted on its own motion to issue the ruling. The FCC did not specify whether this ruling can be applied retroactively but denied AAM’s request for a retroactive waiver.

Notwithstanding court rulings over the past few years limiting the TCPA’s definition of an automatic dialing system, the reach of the statute remains broad. Companies should:

  • Ensure that third-party telemarketers obtain prior express consent (in writing) from consumers before leaving ringless voicemails on a wireless line using an artificial or pre-recorded voice.
  • Not rely on a third-party telemarketer’s representation that a ringless voicemail or any other technology falls outside of the TCPA’s reach.
  • Consult counsel before adopting any new technology to contact consumers.

(For more on the TCPA, see Telephone Consumer Protection Act (TCPA): Overview on Practical Law; for a model consent form that companies can use to comply with the TCPA’s prior express written consent requirements, with explanatory notes and drafting tips, see Telephone Consumer Protection Act (TCPA) Prior Express Written Consent Form on Practical Law.)


NY Fed Digital Currency Projects

The Federal Reserve Bank of New York’s New York Innovation Center (NYIC) recently released updates on several digital currency projects underway involving distributed ledger technology (DLT).

Project Cedar is a multi-phase research effort to develop a technical framework for a theoretical US wholesale central bank digital currency (wCBDC) in the Federal Reserve context. Phase one of the project investigated the prospective application of a DLT, specifically blockchain, to improve the speed, cost, and access to foreign exchange (FX) spot transactions.

FX spot trades are among the most common wholesale cross-border transactions. Generally, an FX spot transaction settles in approximately two days, which exposes counterparties to settlement, counterparty, and credit risk. According to a recent NYIC report, phase one of Project Cedar simulated wholesale FX spot transactions and showed that blockchain-enabled cross-border payments result in:

  • Faster payments. On average, transactions on the blockchain-enabled distributed ledger system settled under 15 seconds.
  • Atomic settlement. The risk to counterparties is reduced when both sides of the simulated transaction were settled either simultaneously or not at all.
  • Safe and accessible transactions.

The NYIC also announced a collaboration with several private sector banking organizations in a proof-of-concept project to explore the feasibility of an interoperable network of central bank wholesale digital money and commercial bank digital money operating on a shared multi-entity distributed ledger. The 12-week project will test the technical feasibility, legal viability, and business applicability of DLT to settle liabilities of regulated financial institutions through the transfer of central bank liabilities.

(For more on these digital currency projects, see Federal Reserve Bank of New York Issues Report on First Phase of US Wholesale Central Bank Digital Currency (wCBDC) and Federal Reserve Bank of New York Announces Project with US Banks Exploring DLT Settlement Platform and Collaboration with MAS on wCBDC on Practical Law.)

Health Care

Unprofessional and Disruptive Physicians

Given the unprecedented health care workforce shortages, counsel should work closely with the governing boards of hospitals and health care systems and their medical executive and peer review committees to develop policies addressing unprofessional or disruptive physician behavior, which can contribute to diminished employee morale and increased absences and attrition.

Physicians who engage in unprofessional, non-collegial, or disruptive behavior can significantly compromise the quality and safety of patient care. As part of their patient care oversight function, health care governing boards must ensure the competency of all physicians providing services to the facility’s patients, including their behavioral fitness. Counsel should assist governing boards in:

  • Complying with related requirements for accreditation, Medicare Conditions of Participation, and institutional codes of conduct.
  • Adopting medical staff bylaws and rules and regulations that clearly set out behavioral expectations to ensure high standards of patient care and promote a professional practice and work environment.

Governing boards should also establish a medical staff wellness committee or similar body authorized to receive, review, and act on reports of disruptive behavior. The committee should:

  • Clearly describe the physician behaviors that will not be tolerated or that will prompt intervention and potential reporting to the National Practitioner Data Bank and the relevant state licensing authority.
  • Disclose any relevant conflicts of interest and establish procedural safeguards that protect due process and the confidentiality of both the physician and the individuals reporting disruptive behavior.

The committee should take care to differentiate disruptive physicians from those who may be impaired, disabled, or in need of supportive or rehabilitative services to enable them to continue practicing medicine. The Americans with Disabilities Act may afford these physicians additional protections.

(For more on disruptive physician behavior, see Addressing Unprofessional or Disruptive Physician Behavior on Practical Law; for more on accommodations under the ADA, see Disability Discrimination Under the ADA on Practical Law.)

Labor & Employment

Associational Discrimination Claims

Employers should be aware of the increase in associational discrimination claims, which are claims by employees who are not members of a protected class but who have relationships with protected persons, particularly in the wake of the COVID-19 pandemic and recent EEOC guidance and appellate decisions.

Claims of associational discrimination arise when an employee alleges disparate treatment or harassment:

  • Because of their association with or marriage to someone of a different race.
  • Because the employee has a relative or an associate with a disability.
  • Because the employee cares for minor children.
  • In retaliation for protected activity by another individual related to or associated with the employee.

The most common associational discrimination claims are disparate treatment claims under the Americans with Disabilities Act. It is difficult to bring an associational discrimination claim based on traditional sex discrimination because many employees are associated with members of the opposite sex. However, due to the US Supreme Court’s recent holding that sex discrimination includes discrimination based on sexual orientation under Title VII, employers are seeing an increase in Title VII associational discrimination claims related to claims of sex and gender identity or expression.

Discriminatory conduct can be costly and disruptive to the workplace. To avoid claims of associational discrimination, employers should:

  • Adopt and maintain current, comprehensive, and accessible Equal Employment Opportunity and Diversity, Equity, and Inclusion policies that expressly include provisions regarding associational discrimination and retaliation.
  • Educate and train managers and employees on how to avoid making employment decisions based on assumptions and stereotypes, while reinforcing the employer’s commitment to maintaining a discrimination-free workplace.

(For more on discrimination generally, see Discrimination: Overview on Practical Law; for more on discrimination prevention, see Discrimination Prevention Training: Best Practices Checklist on Practical Law.)


Insider Trading of NFTs

The Southern District of New York recently denied a motion to dismiss an indictment in an action involving the purchase and sale of non-fungible tokens (NFTs), a type of digital asset. This decision signals the government’s and the courts’ willingness to apply insider trading theories to non-traditional cases that do not involve securities or commodities.

In United States v. Chastain, the DOJ brought wire fraud and money laundering charges against Chastain, a former product manager for Ozone Networks, Inc. d/b/a OpenSea, an online marketplace for NFTs. The DOJ alleged that Chastain purchased dozens of NFTs shortly before OpenSea featured them on its homepage and then sold them for a profit. OpenSea kept the identity of the NFT it selected to feature on its homepage confidential until it was featured.

Chastain moved to dismiss the indictment on the grounds that, among other things, an insider trading charge requires the trading of securities or commodities. The district court denied the motion, noting that the DOJ did not charge Chastain with insider trading under Section 10(b) of the Securities Exchange Act of 1934 and its implementing regulation, Rule 10b-5. Rather, the DOJ charged him with wire fraud in violation of 18 U.S.C. § 1343, which is not limited to securities or commodities.

(For more on insider trading and wire fraud, see Defending Against Insider Trading Claims and Mail and Wire Fraud Under 18 U.S.C. §§ 1341, 1343, and 1346 on Practical Law.)

Real Estate

Leasing to a Cannabis Business

As the number of states legalizing cannabis for medical and recreational use continues to rise, property owners should consider the potential risks associated with leasing space to a cannabis business.

Because cannabis remains federally illegal, property owners who lease space to a cannabis business face risks including:

  • The loss of the owner’s property, rent, and other assets because of forfeiture to the federal government.
  • Environmental issues arising from the storage and disposal of cannabis.
  • Financing and insurance issues from leasing space for an illegal use.

Before entering into a lease with a cannabis business, property owners should:

  • Determine whether cannabis, including the particular use of cannabis the tenant proposes, is legal in the state in which the premises is located. For example, some states have legalized cannabis for medical use only, while others have done so for both medical and recreational use.
  • Understand the requirements for the tenant to obtain its license to operate a cannabis business at the premises and the property owner’s role in obtaining that license.
  • Tailor the lease to address the unique legal challenges stemming from federal prohibition that a standard commercial lease may not adequately address. In particular:
    • avoid inadvertent breaches;
    • protect the landlord’s rights; and
    • promote enforceability of the lease and avoid having a tenant in a litigation assert illegality as an affirmative defense.

(For a model rider that property owners can use to add specific cannabis-related provisions to commercial lease agreements, with explanatory notes and drafting tips, see Cannabis Rider for Medical/Recreational Use (Commercial Lease)(Pro-Landlord) on Practical Law; for a collection of resources on legal issues in the US arising out of the possession, sale, cultivation, and trade of cannabis and cannabis-related products, see Cannabis Toolkit on Practical Law.)

GC Agenda Interviewees