Wednesday, October 19, 2016

Guest Post: Controlling Shareholders and the Geography of MFW-Land*


*The guest post is contributed by Itai Fiegenbaum who teaches corporate law at Tel Aviv University and Ramat Gan College of Law and Business.  

Today's post continues the discussion started by Anne’s informative post regarding the law of controlling stockholders. Anne astutely notes that the MFW “enhanced ratification” framework was rendered in connection with a going private merger. Although I recognize the intuitive appeal, I wish to call into question the impact of MFW’s holding on other manners of controlling shareholder transactions.

Going private transactions differ from going concern transactions in that their successful completion wipes out the minority float. This distinction accelerates stockholders' divergent incentives and raises the possibility for minority stockholder abuse. An unscrupulous controller might structure the transaction in a manner that captures all unlocked value for later private consumption. Going private transactions allow controlling stockholders to shed the restrictions of the public market, thereby evading future retribution by minority stockholders. Policy considerations accordingly call for superior protection of minority stockholders participating in a going private transaction.

Since MFW establishes a procedure for achieving less intrusive judicial review for going private transactions, it stands to reason that this procedure should apply to all transactions involving a controlling stockholder. Indeed, without addressing the distinction between going private and going concern transactions in this context, a fairly recent Chancery Court decision has explicitly opined that the MFW framework applies to all controlling stockholder transactions (In re Ezcorp Inc. Consulting Agreement Derivative Litig., 2016 WL 301245, at *28 (Del. Ch. Jan. 25, 2016)).

In a forthcoming article at the Delaware Journal of Corporate Law, I argue that the borders of "MFW-Land" are not as clear-cut as they appear. The Delaware Supreme Court decision does not create a universally-applicable safe harbor procedure for all manner of controlling stockholder transactions. Two main arguments form the basis of this contention. 

The dual tenets of doctrinal clarity and cohesion underpin the first argument. A careful reading of the MFW decision fails to detect any mention of competing precedent or a general proclamation regarding its applicability to other types of controlling stockholder transactions. MFW is clearly situated on a path of doctrinal evolution of judicial inspection of going private transactions with controlling stockholders. Canons of judicial interpretation counsel against an indirect reversal or modification of established precedent.

Additionally, the theoretical justifications for the MFW decision hold significantly less weight in the going concern context. MFW's doctrinal shift is grounded on the twin pillars representing the competency of independent directors and non-affiliated stockholders. Whatever the validity of these mechanisms in the freeze out context, the legal and financial scholarship does not validate an extension to going concern transactions. Serious flaws hamper the ability of independent directors and non-affiliated stockholders to pass meaningful judgment on going concern transactions. In the final tally, MFW does not produce an all-encompassing framework for all controlling stockholder transactions.


October 19, 2016 in Anne Tucker, Corporate Governance, Corporations, Delaware, M&A | Permalink | Comments (0)

Tuesday, October 18, 2016

The War on Coal is Also a Technology Issue (Despite the Politics)

Last week, I explained that the "War on Coal" Is Really A Competition Issue, with cheap natural gas prices as a major reason coal production and use have declined. Beyond the impact of natural gas on coal jobs, technology is also an issue. Technology is making mining more efficient, but it is making the market harder for coal miners. Following is a chart I created from Energy Information Administration data that shows coal production and employment statistics for 2013 and 2014.

Coal Production Data

  2014 2013 Percent Change
Coal-Producing Number of Mines Production Number of Mines Production Number of Mines Production
State and Region1
Appalachia Total 804 266,979 877 269,672 -8.3 -1
-- Underground 292 193,434 339 188,090 -13.9 2.8
-- Surface 512 73,545 538 81,582 -4.8 -9.9
Powder River Basin (surface) 16 418,156 16 407,567 - 2.6

Coal-Related Employment Data

Coal-Producing Underground Surface Total Underground Surface Total Underground Surface Total
State and Region
Appalachia Total 32,545 12,141 44,686 35,740 14,115 49,855 -8.9 -14 -10.4
Powder River Basin - 6,592 6,592 - 6,635 6,635 - -0.6 -0.6

The data show the coal-production and employment figures for 2013 and 2014.  Surface mining in the Powder River Basin (the highest producing region in the country) increased coal production 2.6% and employment dropped 0.6%, while underground mining production for Appalachia increased 2.8% even though employment dropped 8.9%.  For the United States, overall coal production increased 1.5% between 2013 and 2014, while the number of employees dropped 6.8%. Thus, even as coal production increased modestly, the number of employees holding those jobs declined significantly. 

This doesn't deter politicians from making other claims, though.  As I noted last week, the presidential race has included rhetoric claiming anti-coal regulations are what really hurt coal jobs. And it's not just at the presidential level.  Coal states often feature politicians promising to bring back coal jobs. In my home state of West Virginia, for example, both candidates for governor are making such a promise.  

As an aside, in the Ohio U.S. Senate race between Rob Portman and Ted Strickland, Sen. Portman has made use of this similar line of attack, claiming that former Ohio and governor and U.S. Representative Strickland "turned his back" on Ohio by not supporting coal jobs. The advertisement, available here, features workers from (at least for a West Virginian) an interesting choice of mine: Rosebud Mining.  (A perceptive former student, Ken Bannon, alerted me to the ad or I would have missed it.)  

People outside of West Virginia may not recall the chemical spill in January 2014 that contaminated the Elk River and left 300,000 West Virginians without drinking water.  As I noted in a post back then, the company that owned the chemical site was Freedom Industries, which listed as its sole owner, Chemstream Holdings, a company owned by J. Clifford Forrest.  Forrest also owns the Pennsylvania company (that also has Ohio operations) Rosebud Mining, which was located at the same address Chemstream Holdings listed for its headquarters. It appears that Portman has a solid lead in the race, and if I were part of the campaign, I'd probably not feature a mining company that had been linked (through an executive) to such a major recent environmental disaster.  

Despite the data (and the economic realities), claims of a war on coal continue. Even where there is some truth to the idea -- recent regulations are not especially coal friendly -- there are simply too many hurdles to overcome for coal employment numbers to go back to prior levels.  One can conceivably win a war on regulations, but technology and the marketplace are far less forgiving. It's time we embrace that reality.  


October 18, 2016 in Current Affairs, Joshua P. Fershee, Law and Economics, Technology | Permalink | Comments (3)

Do Partners Have Actual Authority as a Matter of Status?

    Does a partner have actual authority, simply as a matter of his "partner" status, to bind the partnership to an ordinary business transaction?  On the one hand, RUPA § 401(j) states that "[a] difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners."  That suggests that a partner is not authorized to act absent a majority vote.  On the other hand, RUPA § 301(1) states that "[e]ach partner is an agent of the partnership," and comment 2 states that "[t]he effect of Section 301(1) is to characterize a partner as a general managerial agent having both actual and apparent authority co-extensive in scope with the firm's ordinary business" (emphasis added)).

    The comment to § 301 has always struck me as an odd place for discussing actual authority.  Actual authority is based on a partner's relationship to the other partners and the partnership.  Section 301, however, is in the Article dealing with a partner's relationship to non-partner outsiders.  Section 301(1) in particular is about apparent authority.  What supports the assertion in the comment, therefore, that a partner has ACTUAL authority co-extensive in scope with the firm's ordinary business?


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October 18, 2016 | Permalink | Comments (5)

Monday, October 17, 2016

Research and Writing Question of the Day . . . .

Assume a state trial court issues an opinion in a particular case and the case is not appealed.  Should a legal scholar using the opinion to support or refute a key point (in the text of a written work) characterize the weight or status of the opinion (e.g., noting that it is a trial court opinion and that is has not been appealed)?  Justify your answer.

If the trial court at issue is the Delaware Chancery Court and the opinion addresses matters under the Delaware General Corporation Law, does that alter your answer?  Why?  Why not?

I am having fun considering these issues today in connection with my work on a symposium paper.  I have not yet decided how to handle the specific matter that raises the questions.  Accordingly, it seemed like a good idea at this juncture to share my questions and seek collaboration in answering them . . . .

October 17, 2016 in Corporate Governance, Corporations, Joan Heminway, Research/Scholarhip, Writing | Permalink | Comments (8)

Sunday, October 16, 2016

Colesanti & Eng on Federal Arbitration Act Vacatur in the Second Circuit

The following post comes to us from Prof. J. Scott Colesanti and a former student of his, Karen Eng. Scott is a Professor of Legal Writing at the Maurice A. Deane School of Law at Hofstra University, a former co-editor of this blog, and author of "Legal Writing, All Business."


By J. Scott Colesanti and Karen Eng (October 12, 2016)

  1. Introduction

Late in the summer, New England Patriots quarterback Tom Brady announced that he would not further appeal the discipline imposed against him by the National Football League ("NFL"). That decision ended an 18-month ordeal which highlighted, among other things, the unpredictability of sports league sanctions, in general, and the finality of penalties under NFL Collective Bargaining Agreement ("CBA") Article 46, in particular. This article examines the resulting state of the law in the Second Circuit regarding review of arbitrations under Sections 10(a)(2) and (3) of the Federal Arbitration Act ("F.A.A."), which provided – in part - the means for Brady's appeal.

Continue reading

October 16, 2016 in Stefan J. Padfield | Permalink | Comments (1)

Saturday, October 15, 2016

“I would have written a shorter letter, but I did not have the time.”

That Pascal quote encapsulates why I strongly disagree with Noah Feldman’s Bloomberg column on the new word limits for federal appellate briefs. 

The new rules reduce the number of words in opening briefs by 1,000, and in reply briefs by 500.  Feldman argues that the reduction will cut down billable hours.  He’s wrong; it will do the opposite.

When I was in practice, I spent nearly as much time cutting words from briefs as I did doing the initial draft.  Every first draft clocked in at more than the then-limit of 14,000 words; in some cases, I was closer to 21,000 words my first time through.  Only after substantial editing – going over each sentence again and again, and (naturally) taking serious liberties with Bluebook format – was I able to bring briefs within the limit.  (I never went this far, though.)

(Note to Lexis:  You are at a disadvantage relative to Westlaw because your citation format for unpublished cases has more words. I did initial research on Lexis but then translated all citations to Westlaw to bring my word count down.  Rookie mistake, guys.)

For what it’s worth, I think the new limits are a travesty.  Judges often berate attorneys for prolix writing – particularly when they’re drafting complaints, while trying to meet increasingly byzantine pleading standards – and it’s unfair.  Yes, there are extreme cases of bad writing and bad lawyering, but at the end of the day, if lawyers had the talent of Hemingway, they wouldn’t be lawyers, and there’s a certain limit to what can be reasonably demanded.  Judges assume that if word limits are reduced, lawyers will cut the excess verbiage – usually unnecessarily florid language, hyperbole, etc – but there is just no assurance of that; lawyers often ex ante misjudge what is hyperbolic and what is substantive.   The wasted pages are a small price (for clerks) to pay in order to make sure that attorneys can get their arguments heard.  (Especially in light of evidence that word reductions harm appellants more than appellees, which I assume is due to the fact that the appellee has the district court opinion to function as a supplementary brief on its behalf).

Frankly, if there’s a pressing need to reduce judges’ reading load, I recommend jettisoning the reply brief.   Though certainly many plaintiffs make good use of replies, in my experience both as a clerk and in practice, the vast majority of replies did nothing more than repeat arguments in the opening brief, without truly responding to the arguments made in the response brief.  So if something has to be cut, that's what has my vote.

October 15, 2016 in Ann Lipton | Permalink | Comments (1)

Friday, October 14, 2016

DiMatteo on Strategic Contracting

As a professor who moved from a law school to a business school, I remain amazed how little the two legal scholarly worlds overlap. I do, however, think the overlap is increasing somewhat, as more professors move between the two types of schools and the conferences and journals becoming a bit less segregated. That said, I imagine that many of our law professor readers may have missed legal studies professor Larry DiMatteo's (University of Florida, Warrington College of Business) 2010 American Business Law Journal article on strategic contracting. I had not read it until I moved to a business school and met Larry at a legal studies conference. Larry's article is proving useful in my current work, so I thought I would share it here with our readers. Abstract reproduced below:


This paper uses sources taken from the legal literature, as well as literature from strategy and human resource management. It explores Professor Gilson’s noted remark in the Yale Law Journal that “business lawyers serve as transaction cost engineers and this function has the potential for creating value.” This exploration focuses on the strategic use of contract law in gaining a competitive advantage and to create value. It begins by differentiating two frames of the contract paradigm. One is the internal frame in which contract law’s inherent flexibility allows for its use as a source of competitive advantage. The second frame is external since it focuses on the use of the contract paradigm in non-contractual contexts.

The paper examines the use of contract to create value and uses for examples, the commodification of information, licensing and IT outsourcing, and franchising. From there, the paper explores the use of contracts to sustain a competitive advantage (strategic contracting) and to create shared competitive advantages (strategic collaboration). It uses the creation and use of patent pools to illustrate both strategic uses of contract law. The next part focuses on the use of contracts to mitigate uncertainty in business transactions. It explores the strategic use of existing contract doctrines, the use contracts to insure performance and to deter opportunistic behavior, and the use of contracts to develop a preventive legal strategy. This is followed by the examination of contracting for innovation and contracts’ role in creating private governance structures, such as strategic joint venturing.

The final parts explore the use of contract as metaphor in nexus of contact theory in corporate law, psychological contract theory in employment law, and the potential abuse of the freedom of contract paradigm in limited liability company law. The paper then examines strategic responses to regulation by asking whether strategic avoidance or non-compliance to regulations has a place in a company’s legal strategy? The paper concludes by asking how does strategic contracting impact contract law? It answers the question by arguing that contract law change is inevitable due to a feedback loop.

October 14, 2016 in Business Associations, Haskell Murray, Lawyering, Management, Negotiation, Research/Scholarhip | Permalink | Comments (1)

Thursday, October 13, 2016

Wells Fargo as a Teaching Tool on Corporate Governance

Today I used Wells Fargo as a teaching tool in Business Associations. Using this video from the end of September, I discussed the role of the independent directors, the New York Stock Exchange Listing Standards, the importance of the controversy over separate chair and CEO, 8Ks, and other governance principles. This video discussing ex-CEO Stumpf’s “retirement” allowed me to discuss the importance of succession planning, reputational issues, clawbacks and accountability, and potential SEC and DOJ investigations. This video lends itself nicely to a discussion of executive compensation. Finally, this video provides a preview for our discussion next week on whistleblowers, compliance, and the board’s Caremark duties.

Regular readers of this blog know that in my prior life I served as a deputy general counsel and compliance officer for a Fortune 500 Company. Next week when I am out from under all of the midterms I am grading, I will post a more substantive post on the Wells Fargo debacle. I have a lot to say and I imagine that there will be more fodder to come in the next few weeks. In the meantime, check out this related post by co-blogger Anne Tucker.

October 13, 2016 in Anne Tucker, Business Associations, Compliance, Corporate Governance, Corporations, Current Affairs, Ethics, Marcia Narine Weldon, Teaching | Permalink | Comments (0)

Wednesday, October 12, 2016

University of Nebraska College of Law - Chair in International Trade and Finance

Job posting from an e-mail I recently received:


The UNIVERSITY OF NEBRASKA COLLEGE OF LAW invites applications for

lateral candidates for a tenured faculty position to hold the Clayton K. Yeutter Chair at

the College of Law. This chaired faculty position will be one of four faculty members to

form the core of the newly-formed, interdisciplinary Clayton K. Yeutter Institute for

International Trade and Finance. The Institute also will include the Duane Acklie Chair at

the College of Business Associations, the Michael Yanney Chair at the College of

Agricultural Sciences, and the Haggart/Works Professorship for International Trade at the

College of Law. The Yeutter Chair, along with the other three professors, will be

expected to support the work and objectives and ensure the success of the Yeutter

Institute. The Yeutter Chair will teach courses at the College of Law, including

International Finance. Other courses may include Corporate Finance and/or other related

classes pertaining to issues arising in international business and finance. More on the

Yeutter Institute can be found at

endowed-chairs-for-yeutter-institute/ .


Minimum Required Qualifications: J.D Degree or Equivalent; Superior Academic

Record; Outstanding Record of Scholarship in International Finance and/or other areas

related to international business; and Receipt of Tenure at an Accredited Law School.

General information about the Law College is available at Please fill

out the University application, which can be found at, and upload a CV, a cover letter, and a list of

references. The University of Nebraska-Lincoln is committed to a pluralistic campus

community through affirmative action, equal opportunity, work-life balance, and dual

careers. See Review of applications

will begin on November 5, 2016 and continue until the position is filled. If you have

questions, please contact Associate Dean Eric Berger, Chair, Faculty Appointments

Committee, University of Nebraska College of Law, Lincoln, NE 68583-0902, or send an

email to


October 12, 2016 in Financial Markets, Haskell Murray, International Business, International Law, Jobs, Law School | Permalink | Comments (0)

Stockholder Approval and the BJR in the Absence of a Controlling Shareholder

I am preparing to teach the doctrine on controlling shareholders in my corporations class tomorrow, and found the recent Delaware opinions on non-controlling shareholder cleansing votes and the BJR to be helpful illustrations of the law in this area.

In summer 2016, the Delaware Court of Chancery dismissed two post-closing actions alleging a breach of fiduciary duty where there was no controlling shareholder in the public companies, where the stockholder cleaning vote was fully informed, and applied the 2015 Corwin business judgment rule standard.  The cases are City of Miami General Employees’ & Sanitation Employees’ Retirement Trust v. Comstock, C.A. No. 9980-CB,  (Del. Ch. Aug. 24, 2016) (Bouchard, C.) and Larkin v. Shah, C.A. No. 10918-VCS, (Del. Ch. Aug. 25, 2016) (Slights, V.C.), both of which relied upon  Corwin v. KKR Financial Holdings, LLC, 125 A.3d 304 (Del. 2015).  (Fellow BLPB blogger Ann Lipton has written about Corwin here).

The Larkin case clarified that Corwin applies to duty of loyalty claims and will be subject to the deferential business judgment rule in post-closing actions challenging non-controller transactions where informed stockholders have approved the transaction.   The Larkin opinion states that:

(1) when disinterested, fully informed, uncoerced stockholders approve a transaction absent a looming conflicted controller, the irrebuttable business judgment rule applies; (2) there was no looming conflicted controller in this case; and (3) the challenged merger was properly approved by disinterested, uncoerced Auspex stockholders. Under the circumstances, the business judgment rule, irrebuttable in this context, applies. ....The standard of review that guides the court’s determination of whether those duties have been violated defaults to a deferential standard, the business judgment rule, which directs the court to presume the board of directors “acted on an informed basis, in good faith and in the honest belief that the action was taken in the best interests of the company.” In circumstances where the business judgment rule applies, Delaware courts will not overturn a board’s decision unless that decision 'cannot be attributed to any rational business purpose.' This broadly permissive standard reflects Delaware’s traditional reluctance to second-guess the business judgment of disinterested fiduciaries absent some independent cause for doubt.  Larkin at 21-22 (internal citations omitted).

Two-sided controller transactions (a freeze out merger where a controlling shareholder stands on both sides of the transaction) is covered by the 2014 Kahn v. M & F Worldwide Corp., 88 A.3d 635(Del. 2014) case, which I summarized in an earlier BLPB post here.

To refresh our readers, the controlling shareholder test is a stockholder who owns a majority of stock. Additionally, a stockholder may qualify as a controller if:

Under Delaware law, a stockholder owning less than half of a company’s outstanding shares may nonetheless be deemed a controller where 'the stockholder can exercise actual control over the corporation’s board.'This “actual control” test requires the court to undertake an analysis of whether, despite owning a minority of shares, the alleged controller wields “such formidable voting and managerial power that, as a practical matter, [it is] no differently situated than if [it] had majority voting control.'A controlling stockholder can exist as a sole actor or a control block of “shareholders, each of whom individually cannot exert control over the corporation . . . [but who] are connected in some legally significant way—e.g., by contract, common ownership agreement, or other arrangement—to work together toward a shared goal.' Larkin at 33-34 (internal citations omitted).

Excellent commentary on theLarkin and Comstock cases and their practical implications can be found on the Harvard Law School Forum on Corporate Governance and Financial Regulation, available here.

-Anne Tucker


October 12, 2016 in Ann Lipton, Anne Tucker, Corporate Governance, Corporations, Delaware, M&A, Shareholders | Permalink | Comments (2)

Tuesday, October 11, 2016

The "War on Coal" Is Really A Competition Issue

The Trump-Pence campaign has adopted a common West Virginia criticism of U.S. energy policy under the Obama administration that is known as the "war on coal." This phrase is used to describe the current administration's support for U.S. Environmental Protection Agency (EPA) policies to reduce greenhouse gas emissions (via the proposed Clean Power Plan) and other environmental protections that relate to consumption of fossil fuels, especially coal.  In the vice presidential debate Republican Mike Pence repeated the phrase several times, asserting that the EPA was killing coal jobs, especially in places like West Virginia and Kentucky.  The problem is that regardless of the EPA's goals, it is not environmental regulation that is coal's main challenge.  It is price. 

As Charlie Patton, president of West Virginia-based Appalachian Power explained, "Forget the clean power plan. You cannot build a coal plant that meets existing regulation today that can compete with $5 gas. It just cannot happen."  Cheap natural gas, made available by horizontal drilling and hydraulic fracturing in shale formations, has led to a significant increase in natural gas-fired electric power generation, most of which replaced coal as the fuel of choice. The shale gas boom, which started approximately in 2008, can account for most of this change.  Here's the U.S. electricity generation data by fuel (my chart using Energy Information Administration data) for 2006 to 2015):  

U.S. Electricity Generation, by fuel

Annual Total Coal  Natural Gas Renewables
2006 48.97% 20.09% 2.36%
2007 48.51% 21.57% 2.52%
2008 48.21% 21.43% 3.04%
2009 44.45% 23.31% 3.63%
2010 44.78% 23.94% 4.02%
2011 42.28% 24.72% 4.69%
2012 37.40% 30.29% 5.29%
2013 38.89% 27.66% 6.01%
2014 38.64% 27.52% 6.39%
2015 33.18% 32.66% 6.65%


Note the drop in coal begins modestly in 2008 and drops from 48.21% to 33.18% in 2015. In that time frame, coal lost 15.03% of the market, while natural gas increased 11.23%.  Renewable sources (not including solar and hydropower) increased 3.61% to 6.65% overall. That means that natural gas and renewables picked up 14.84% of the market -- or 98.7% of the market lost by coal. 

Coal production in my home state of West Virginia has declined from the peak of 158 million short tons in 2008 down to 95 million in 2015, with further decline expected for 2016.  And the state is feeling the devastating effect of lost jobs -- West Virginia was the only state in 2015-16 to lose a statistically significant number of jobs.  Tax revenues are down dramatically, and that decline, too, is expected to continue.  The harm to the state of these lost jobs is real, but there is no reasonable governmental policy that could change this decline, even if we wanted it to.  The reality is that natural gas is a cheaper option, it has long-term potential to work alongside renewables, and no energy proposal from any major candidate has suggested a proposal that would help coal take back marketshare from natural gas (despite promises to simply bring back coal jobs).  

Living in West Virginia, a place I love to live, it is easy to want hope.  We need hope, and we need a plan, but that plan has to include educating our workforce and expanding economic opportunities in other industries, not harkening back to another time that will never return. The reality is that the war on coal is not one that can be won. In the end, as a pricing problem, trying to win the war on coal is really trying to win a war on math.  It just can't happen. The numbers don't add up.  


October 11, 2016 in Current Affairs, Joshua P. Fershee, Law and Economics, Legislation | Permalink | Comments (1)

Monday, October 10, 2016

2017 National Business Law Scholars Conference (NBLSC): Call for Papers

National Business Law Scholars Conference (NBLSC)
Thursday & Friday, June 8-9, 2017

Call for Papers

The National Business Law Scholars Conference (NBLSC) will be held on Thursday and Friday, June 8-9, 2017, at the University of Utah S.J. Quinney College of Law. 

This is the eighth meeting of the NBLSC, an annual conference that draws legal scholars from across the United States and around the world.  We welcome all scholarly submissions relating to business law. Junior scholars and those considering entering the legal academy are especially encouraged to participate. 

To submit a presentation, email Professor Eric C. Chaffee at with an abstract or paper by February 17, 2017.  Please title the email “NBLSC Submission – {Your Name}.”  If you would like to attend, but not present, email Professor Chaffee with an email entitled “NBLSC Attendance.”  Please specify in your email whether you are willing to serve as a moderator.  We will respond to submissions with notifications of acceptance shortly after the deadline. We anticipate the conference schedule will be circulated in May. 

Keynote Speaker:

Lynn A. Stout, Distinguished Professor of Corporate & Business Law, Cornell Law School

Plenary Author-Meets-Reader Panel:

Selling Hope, Selling Risk: Corporations, Wall Street, and the Dilemmas of Investor Protection by Donald C. Langevoort, Thomas Aquinas Reynolds Professor of Law, Georgetown Law School


Jill E. Fisch, Perry Golkin Professor of Law, University of Pennsylvania Law School

Steven Davidoff Solomon, Professor of Law, University of California, Berkeley School of Law

Hillary A. Sale, Walter D. Coles Professor of Law, Washington University School of Law

Conference Organizers:

Tony Casey (The University of Chicago Law School)
Eric C. Chaffee (The University of Toledo College of Law)
Steven Davidoff Solomon (University of California, Berkeley School of Law)
Joan Heminway (The University of Tennessee College of Law)
Kristin N. Johnson (Seton Hall University School of Law)
Elizabeth Pollman (Loyola Law School, Los Angeles)
Margaret V. Sachs (University of Georgia School of Law)
Jeff Schwartz (University of Utah S.J. Quinney College of Law)

Please save the date for NBLSC 2018, which will be held Thursday and Friday, June 21-22, at the University of Georgia School of Law

October 10, 2016 in Call for Papers, Conferences, Joan Heminway, Research/Scholarhip | Permalink | Comments (0)

Sunday, October 9, 2016

ICYMI: Tweets From the Week (Oct. 9, 2016)

October 9, 2016 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, October 8, 2016

Pity the Plight of the Active Manager

I am intrigued by this new genre of financial writing that warns (in increasingly apocalyptic terms) that passive investing will lead to increasingly distorted and inefficient markets.

Nevsky Capital, a large hedge fund, noisily shut its doors last year with an investor letter that blamed, among other things, index investing that distorted correlations among stocks.

Sanford C. Bernstein & Co., LLC. recently published a note declaring that passive investing is “worse than Marxism” because at least Marxism allocates capital according to some kind of principle, whereas passive investing allocates capital by the happenstance of inclusion in an index.

And a research analyst recently posted “The Last Active Investor,” a short story that posits a dystopian future in which all market prices are set by a single person performing the world’s only fundamental research.

It’s true that index investing distorts stock prices to some degree, though there has been plenty of pushback to the claim that there’s any real danger of passive investing overtaking the market, especially since the definition of passive investing itself might be somewhat malleable in an age of increasingly sophisticated computerized trading.

But what I’m mostly curious about is what sorts of policy fixes defenders of active investment would recommend.  The Bernstein note is vague on this but apparently objects to government-sponsored initiatives that would favor passive investment of pension funds.  Meanwhile, Steve Johnson writing at the Financial Times proposes that passive investing actually be taxed to subsidize active investing.   And the author of the Last Active Investor does not say so explicitly, but he appears to favor some kind of loosening of insider trading restrictions – at least, that’s what I gather from the part of the story (spoiler alert!) where the Active Investor’s fundamental research is treated as market manipulation.

Of course, it’s somewhat ludicrous to suggest that workers should invest their retirement funds in a less profitable manner so that white collar business analysts can be subsidized in their important price setting work, and it seems to me that if passive investing is to be taxed to subsidize active investing, we probably want to make sure that active investors are keeping their costs down – which probably means some kind of vetting as well as salary and price controls, and … oh no, I think I maybe just endorsed the Marxism theory.

October 8, 2016 in Ann Lipton | Permalink | Comments (0)

Friday, October 7, 2016

Law Review Editors and Recommendations

This post is mainly for our practicing lawyer readers. If I were to venture back to a law firm, I wouldn't ask graduating students for recommendations only from their law professors. Instead, if the student was on law review (as most BigLaw applicants are) I would ask for at least one recommendation from a law professor whose article the student edited. 

First, a law professor has less reason to exaggerate or falsely praise a student at another school. Second, a law professor who has worked on an article with a student gets excellent insight into that student's attention to detail (or lack there of) and attention to deadlines (or lack there of). Third, the law professor/author gets to see the student do work where the rewards are not immediate nor as large as they can be in the studying/grades context. Fourth, the cite checking and editing work done on law review articles is more similar to the work of a junior associate than is (at least a good percentage of) course work. 

Yes, a law professor at another school will have limited interaction with that student and usually only virtual interaction. But a lot of legal work is done virtually these days; in practice, there were a number of people I worked with but never met in person. Another challenge is that law review editing is usually done by committee or by a number of students. But, especially if the student is the contact person or the responsible editor, this might show the potential employer whether the applicant can inspired and work well with his/her peers. 

I've worked with a number of law student editors. There are some who I am sure will make excellent employees, and there are others who promise to be problems.

Thinking about this more, and thinking back to my time on law review, I also think hiring committees of law schools might get some special insights by reaching out to student editors of law reviews where the law professor applicant published. 

October 7, 2016 | Permalink | Comments (1)

Thursday, October 6, 2016

Georgetown University Law Center – Graduate Teaching Fellowship, Social Enterprise & Nonprofit Law Clinic

Today, I received the position announcement below from my friend Alicia Plerhoples (Georgetown), who is doing exciting things in the social enterprise and nonprofit areas. This is an excellent opportunity, and I think anyone would be fortunate to work with her and her clinic. 


Georgetown University Law Center –
Graduate Teaching Fellowship, Social Enterprise & Nonprofit Law Clinic

Description of the Clinic

The Social Enterprise & Nonprofit Law Clinic at Georgetown University Law Center offers pro bono corporate and transactional legal services to social enterprises, nonprofit organizations, and select small businesses headquartered in Washington, D.C. and working locally or internationally. Through the Clinic, law students learn to translate theory into practice by engaging in the supervised practice of law for educational credit. The Clinic’s goals are consistent with Georgetown University's long tradition of public service. The Clinic’s goals are to:

  • Teach law students the materials, expectations, strategies, and methods of transactional lawyering, as well as an appreciation for how transactional law can be used in the public interest.

  • Represent social enterprises and nonprofit organizations in corporate and transactional legal matters.

  • Facilitate the growth of social enterprise in the D.C. area.

    The clinic’s local focus not only allows the Clinic to give back to the community it calls home, but also gives students an opportunity to explore and understand the challenges and strengths of the D.C. community beyond the Georgetown Law campus. As D.C. experiences increasing income inequality, it becomes increasingly important for the Clinic to provide legal assistance to organizations that serve and empower vulnerable D.C. communities. Students are taught how to become partners in enterprise for their clients with the understanding that innovative transactional lawyers understand both the legal and non-legal incentive structures that drive business organizations.

    Description of Fellowship

    The two-year fellowship is an ideal position for a transactional lawyer interested in developing teaching and supervisory abilities in a setting that emphasizes a dual commitment—clinical education of law students and transactional law employed in the public interest. The fellow will have several areas of responsibility, with an increasing role as the fellowship progresses. Over the course of the fellowship, the fellow will: (i) supervise students in representing nonprofit organizations and social enterprises on transactional, operational, and corporate governance matters, (ii) share responsibility for teaching seminar sessions, and (iii) share in the administrative and case handling responsibilities of the Clinic. Fellows also participate in a clinical pedagogy seminar and other activities designed to support an interest in clinical teaching and legal education. Successful completion of the fellowship results in the award of an L.L.M. in Advocacy from Georgetown University. The fellowship start date is August 1, 2017 and the fellowship is for two years, ending July 31, 2019.


Applicants must have at least 3 years of post J.D. legal experience. Preference will be given to applicants with experience in a transactional area of practice such as nonprofit law and tax, community economic development law, corporate law, intellectual property, real estate, and finance. Applicants with a strong commitment to economic justice are encouraged to apply. Applicants must be admitted or willing to be admitted to the District of Columbia Bar.

Application Process

To apply, send a resume, an official or unofficial law school transcript, and a detailed letter of interest by December 15, 2016. The letter should be no longer than two pages and address a) why you are interested in this fellowship; b) what you can contribute to the Clinic; c) your experience with transactional matters and/or corporate law; and d) anything else that you consider pertinent. Please address your application to Professor Alicia Plerhoples, Georgetown Law, 600 New Jersey Ave., NW, Suite 434, Washington, D.C. 20001, and email it to Emailed applications are preferred. More information about the clinic can be found at

Teaching fellows receive an annual stipend of approximately $53,500 (estimated 2016 taxable salary), health and dental benefits, and all tuition and fees in the LL.M. program. As full-time students, teaching fellows qualify for deferment of their student loans. In addition, teaching fellows may be eligible for loan repayment assistance from their law schools.

October 6, 2016 in Clinical Education, Haskell Murray, Jobs, Law School, Nonprofits, Social Enterprise | Permalink | Comments (0)

Wednesday, October 5, 2016

Wells Fargo: A case study in corporate governance effectiveness or inefficiency?

The Wells Fargo headlines--fresh from a congressional testimony, a spiraling stock price, and a CEO with $41M less dollars to his name-- raise the question of whether this is a case study of corporate governance effectiveness or inefficiency. That the wrong doing (opening an estimated 2M unauthorized customer accounts to manipulate sales figures) was eventually unearthed, employees fired and bonus pay revoked may give some folks confidence in the oversight and accountability structures set up by corporate governance. Michael Hiltzit at the LA Times writes a scathing review of the CEO and the Board of Directors failed oversight on this issue.  

The implicit defense raised by Stumpf’s defenders is that the consumer ripoff at the center of the scandal was, in context, trivial — look at how much Wells Fargo has grown under this management. But that’s a reductionist argument. One reason that the scandal looks trivial is that no major executive has been disciplined; so how big could it be? This only underscores the downside of letting executives off scot-free — it makes major failings look minor. The answer is to start threatening the bosses with losing their jobs, or going to jail, and they’ll start to take things seriously. 

Hiltzit and others are calling for the resignation of  Wells Fargo Chairman and CEO John G. Stumpf. 

Whats your vote?  Is the call for resignation an empty symbolism or a necessary consequence of governance?

Anne Tucker

October 5, 2016 in Anne Tucker, Corporate Governance, Current Affairs, Financial Markets | Permalink | Comments (1)

Tuesday, October 4, 2016

Veil Piercing Virgin Island LLCs (Not Corporations)

Here we go again: 

Plaintiff seeks to collect the outstanding balance owed from Defendant Healthcare Enterprises, L.L.C. d/b/a Princesse Pharmacy and Defendant Octavio RX, Enterprises, L.L.C., d/b/a Christian's Pharmacy & Medical Supplies (collectively “Corporate Defendants”) as well as Defendant Christian. (Dkt. No. 13 at 3). Plaintiff alleges that Corporate Defendants “are shell corporations or alter egos of [Defendant] Christian, owner of the different establishments known as Princesse Pharmacy, [and] Christian's Pharmacy & Medical Supplies.”
Cesar Castillo, INC. v. Healthcare Enterprises, L.L.C., CV 2012-108, 2016 WL 5660437, at *1 (D.V.I. Sept. 27, 2016). 
So, the "Corporate Defendants" are actually formed as a limited liability company (LLC).  As so often happens, the court get this wrong. This is one of the challenges that come from veil piercing law that treats all such cases a "piercing the corporate veil" instead of "piercing the entity veil" or piecing the veil of limited liability."  The court ultimately dismisses the veiling piercing claim as to Christian individually because there were no factual allegations in the complaint sufficient to support veil piercing.  I would have dismissed it for making an impossible assertion.  Following is the from th complaint: 
The defendants Octavio Rx Enterprises, LLC and Healthcare Enterprises, LLC are shell corporations or alter egos of Gerard Christian, owner of the different establishments known as Princesse Pharmacy, Christian’s Pharmacy & Medical Supplies.
These are LLCs, which cannot be "shell corporations." We're done.  Furthermore, it's not at all clear that the Virgin Islands recognize veil piercing for LLCs. I admit, they almost certainly do, as even when statutes don't mention veil piercing, courts usually adopt it. Still, it would be nice for someone to cite the authority that extend veil piercing to LLCs or state that they are extending the doctrine.  Instead, even the defendant assumes the veil piercing option exists, stating," [A] court will permit the plaintiff to pierce the corporate veil only when it determines that the corporation is 'little more than a legal fiction.' Pearson v. Component Technology Corp., 247 F.3d 471, 485 (3rd Cir.2001)." 
This is a case where the complaint gets wrong the entity type, and which then means it messes up how the entity should be analyzed. The defendant's counsel doesn't hold the plaintiff accountable. And the court allows it all.  I think the court did get the outcome right, at least.
The thing is, though, if even one of these parties got it right, the whole thing probably ends up right. It's obviously going to be a long road to get this right, but for the record, I am willing to fly to the Virgin Islands to help out.  

October 4, 2016 in Corporations, Joshua P. Fershee, LLCs | Permalink | Comments (0)

Monday, October 3, 2016

SLR Online - Salman v. United States: Changing the Course of Insider Trading Law?

The Stanford Law Review Online has just released a series of essays on Salman v. United States, scheduled for oral argument on Wednesday.  I plan to blog more about the Salman case as/if I can find time this week, but I wanted you to have this link right away--first thing this morning.  The essays are a veritable insider trading feast and are written by some of the most thoughtful scholars in the area: Jill Fisch, Don Langevoort, Jonathan Macey, Donna Nagy, and Adam Pritchard.  There's something in at least one of the essays for almost everyone out there.

October 3, 2016 in Joan Heminway, Securities Regulation | Permalink | Comments (0)

Sunday, October 2, 2016

ICYMI: Tweets From the Week (Oct. 2, 2016)

October 2, 2016 in Stefan J. Padfield | Permalink | Comments (0)