Monday, April 24, 2017

Lawyers and Compliance: Business Entity Clients with Control Persons Who Recklessly Disobey

As a business lawyer in private practice, I found it very frustrating when the principals of business entity clients acted in contravention of my advice.  This didn't happen too often in my 15 years of practice.  But when it did, I always wondered whether I could have stopped the madness by doing something differently in my representation of the client.

Thanks to friend and Wayne State University Law School law professor Peter Henning, who often writes on insider trading and other white collar crime issues for the New York Times DealBook (see, e.g., this recent piece), I had the opportunity to revisit this issue through my research and present that research at a symposium at Wayne Law back in the fall of 2015.  The law review recently published the resulting short article, which I have posted to SSRN.  The abstract is set forth below.

Sometimes, business entity clients and their principals do not seek, accept, or heed the advice of their lawyers. In fact, sometimes, they expressly disregard a lawyer’s instructions on how to proceed. In certain cases, the client expressly rejects the lawyer’s advice. However, some business constituents who take action contrary to the advice of legal counsel may fall out of compliance incrementally over time or signal compliance and yet (paradoxically) act in a noncompliant manner. These seemingly ineffectual varieties of the lawyer/client relationship are frustrating to the lawyer.

This short article aims to explain why representatives of business entities who consider themselves law-abiding and ethical may nevertheless act in contravention of the business’s legal counsel and offers preliminary means of addressing the proffered reasons for these compliance failures. The article does not address willful noncompliance or even willful blindness. Rather, it makes observations about behavior that falls squarely into what the law typically recognizes as recklessness. An apocryphal lawyer-client story relating to insider trading compliance provides foundational context.

The exemplar story derives from things I witnessed in law practice.  Perhaps some of you also have experienced clients or business entity client principals which/who act contrary to your advice in similar ways.  Regardless, you may find this short piece of interest.

April 24, 2017 in Compliance, Conferences, Corporate Governance, Joan Heminway, Lawyering, Securities Regulation | Permalink | Comments (2)

Sunday, April 23, 2017

ICYMI: #corpgov Tweets From the Week (April 23, 2017)

April 23, 2017 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, April 22, 2017

They should have called it “crying wolf”

I’m sure we’ve all been riveted by the colorful activist campaign led by Elliott Management Corp challenging the board of directors at Arconic Inc.  In some tellings, it’s a classic battle over whether companies should focus on immediate returns to shareholders (and whether activist pressure encourages short-term thinking), or whether companies should invest in innovation and research in hopes of a longer-term payoff.

This week, Elliott’s challenge netted it a scalp in the form of the forced resignation of the CEO, Klaus Kleinfeld, for sending a personal letter to the head of Elliott Management that vaguely threatened to reveal some apparently scandalous behavior undertaken during the 2006 World Cup.  While denying that any such behavior occurred, Elliot Management demanded Kleinfeld’s ouster, and the Arconic Board complied.

But the battle rages on.  Earlier this month, Arconic announced that if investors voted to seat Elliott’s board nominees, it could trigger the change-of-control provisions in Arconic’s deferred compensation and retirement plans, thus forcing Arconic to make a $500 million pay out.

Which just prompted this Section 14 lawsuit by an Arconic investor, accusing Arconic of manufacturing “fake news” because there is, in fact, no risk of a change of control.  At which point, I mourn the missed opportunity for a “wolf” reference.

(The plaintiff's argument, by the way, is that a set of directors appointed earlier at Elliott’s urging do not count as part of a new controlling group, and therefore Elliott’s latest nominees constitute only a minority of the board.  The case is City of Atlanta Firefighters’ Pension Fund v. Arconic et al., No. 1:17-cv-02840 (S.D.N.Y.).)

Joking aside, courts have recently looked askance at dead hand proxy puts, even if they do have shareholder value-enhancing effects in the context of loan agreements and bond offerings.  The Arconic situation is a bit more unusual, however, because the obligations are to company employees rather than lenders, and I don’t know whether the same economic effects exist in that context.  The fact that the trust at issue was established for “a select group of management and/or highly compensated employees and former employees” raises the specter – in future cases if not this one – of a new twist on the old golden-parachute-as-takeover-defense.  I am curious to see what courts make of it.

April 22, 2017 in Ann Lipton | Permalink | Comments (0)

Friday, April 21, 2017

Priorities, Principles, Politicians, and Professors

In this semester's student mentorship group, we have been discussing personal priorities and principles. The consensus from the students seems to be that this topic is not only useful, but also more difficult than originally envisioned. A number of the students expressed a lack of clarity regarding their own priorities and life principles, but they recognized the need for deep thinking about those things.

Outlining priorities and principles could be a useful exercise for politicians and professors as well. Without a clear understanding of our priorities and principles, we often drift toward our political parties and the visible rewards dangled in front of us.

Regarding both politicians and professors, I am most inspired by those who take stands that do not benefit their party or themselves, but rather make the stand because it is the “right thing” to do. Professors, obviously, have more freedom to seek and speak the truth, but I think that professors' impact will be greater if they stick to their principles regardless of the party in power.

Of course sticking to priorities and principles does not guarantee a good or admirable outcome. One must have “good” priorities and principles. What qualifies as “good” is beyond the scope of this short blog post, but I do think priorities and principles that are selfless (or as selfless as we are capable of being) tend to be good ones.

April 21, 2017 in Business School, Ethics, Haskell Murray, Service, Teaching | Permalink | Comments (0)

Thursday, April 20, 2017

ICYMI: #corpgov SSRN Roundup (April 20, 2017)

April 20, 2017 in Stefan J. Padfield | Permalink | Comments (0)

Wednesday, April 19, 2017

Is Hashtag Activism Finally Changing Corporate Culture?

Ratings behemoth Bill O'Reilly is out of a job at Fox News “after thorough and careful review of the [sexual harassment] allegations” against him by several women. Fox had settled with almost half a dozen women before these allegations came to light, causing advertisers to leave in droves once the media reported on it. According to one article, social media activists played a major role in the loss of dozens of sponsors. Despite the revelations, or perhaps in a show of support, O’Reilly’s ratings actually went up even as advertisers pulled out. Fox terminated O’Reilly-- who had just signed a new contract worth $20 million per year-- the day before its parent company’s board was scheduled to meet to discuss the matter. The employment lawyer in me also wonders if the company was trying to preempt any negligent retention liability, but I digress.

An angry public also took to social media to expose United Airlines' after its ill-fated decision to have a passenger forcibly removed from his seat to make room for crew members. However, despite the estimated 3.5 million impressions on Twitter of #BoycottUnited, the airline will not likely suffer financially in the long term because of its near monopoly on some key routes. United’s stock price nosedived by $800 million right after the disturbing video surfaced, but has rebounded somewhat with EPS beating estimates. Check out Haskell Murray's recent post here for more perspective on United.

Pepsi and supermodel Kendall Jenner also suffered more embarrassment than financial loss after people around the world erupted on social media over an ad that many believed trivialized the Black Lives Matter movement. Pepsi pulled the controversial ad within 24 hours. Some believe that Pepsi may suffer in sales, but I’m not so sure. Ironically, Pepsi’s stock price went up during the scandal and went down after the company apologized.

Pepsi and United both suffered public relations nightmares, but the skeptic in me believes that consumers will ultimately focus on what’s most important to them- convenience, quality, price, and in Pepsi’s case, taste. I recently attended my 25th law school reunion, and all of my colleagues who used a ride sharing app used Uber nowithstanding its well-publicized leadership scandals and the #deleteuber campaign. Indeed, many social media campaigns actually backfire. The #grabyourwallet boycott of Ivanka Trump’s brand raised public awareness but may have actually led to its recent record sales.

Reasonable people can disagree about whether social media campaigns and threats of consumer boycotts actually cause long-standing and permanent changes in corporate culture or policy. There is no doubt, however, that CEOs and PR departments will be working more closely than ever in the age of viral videos and 24-hour worldwide Twitter feeds.

April 19, 2017 in Corporations, CSR, Current Affairs, Employment Law, Ethics, Financial Markets, Marcia Narine Weldon | Permalink | Comments (1)

Tuesday, April 18, 2017

Before CSR, There Was The Trust Bank

Before I became a lawyer, I had the privilege of working with a number of great people at a public relations firm in Los Angeles. That firm was founded by Al Golin, who passed away last week, and by all accounts, he will be missed. Mr. Golin was the PR person behind McDonald's, and it was a very symbiotic relationship.

I did not meet Mr. Golin, personally, but his vision was definitely part of the firm culture. Early on, his vision of good business was on display. As the New York Times reported:

Before corporate social responsibility and cause-related marketing became fashionable, Mr. Golin was instrumental in creating what he called a trust bank. He encouraged the McDonald’s Corporation to sponsor Ronald McDonald Houses for children with life-threatening illnesses, an All-American High School Marching Band, an All-American High School Basketball Game and the Jerry Lewis Muscular Dystrophy Telethon — all to build good will that could be drawn upon when the company needed public support.

I can't say Mr. Golin is the reason I believe firms can be good corporate citizens without laws requiring them to do so, but I frankly like the idea that firms can compete to be recognized as such. The baseline should be set by law, but the rest is up for the market to determine. Mr. Golin suggested companies should choose to set the bar high. I agree. 

He left a great firm behind, with a lot of good people who certainly follow his advice. May he Rest In Peace. 

April 18, 2017 | Permalink | Comments (0)

Happy Birthday to The Surly Subgroup!

Please join me in celebrating the one-year blogiversary of the Surly Subgroup!   The Surly Subgroup is a tax blog with several contributing tax professors, including my colleague, Shu-Yi Oei (soon to be ex-colleague, sadly, as she will soon be leaving Tulane for Boston College).  If you're interested in tax issues with 'tude, you should check it out!


Cupcake (1)

April 18, 2017 in Ann Lipton | Permalink | Comments (0)

Monday, April 17, 2017

Bonus Post for a Monday: International Haiku Poetry Day

I rarely post twice in one day, but I am making an exception today.  After posting this morning, I learned that today is International Haiku Poetry Day.  I loved Haiku poetry as a kid.  I still love it as an adult.  It has structure--a structure that, in my opinion, encourages both brevity and creativity.

In honor of this special day, I wrote a personal haiku for my Facebook page.

Yoga feeds the soul
And calms the body and mind.
Breathe and move. Repeat.

I am pretty proud of that one, inspired by my Monday night Iyengar practice.  So, I thought I would try my hand at a BLPB haiku.  Here goes.

A new President.
Time to revamp business regs!
Uncertainty reigns.

The inspiration for this haiku is obvious . . . .  :>)

Prefer more humorous verse? I also loved limericks.  So, I checked to see whether there might be an International or National Limerick Day.  Indeed, it appears that we will celebrate limericks on Friday, May 12, 2017.  Hmm . . . .


April 17, 2017 in Current Affairs, Joan Heminway | Permalink | Comments (2)

Visioning the Publicly Held Benefit Corporation

As Haskell earlier announced here at the BLPB, The first U.S. benefit corporation went public back in February--just before publication of my paper from last summer's 8th Annual Berle Symposium (about which I and other BLPB participants contemporaneously wrote here, here, and here).  Although I was able to mark the closing of Laureate Education, Inc.'s public offering in last-minute footnotes, my paper for the symposium treats the publicly held benefit corporation as a future likelihood, rather than a reality.  Now, the actual experiment has begun.  It is time to test the "visioning" in this paper, which I recently posted to SSRN.  Here is the abstract.

Benefit corporations have enjoyed legislative and, to a lesser extent, popular success over the past few years. This article anticipates what recently (at the eve of its publication) became a reality: the advent of a publicly held U.S. benefit corporation — a corporation with public equity holders that is organized under a specialized U.S. state statute requiring corporations to serve both shareholder wealth aims and social or environmental objectives. Specifically, the article undertakes to identify and comment on the structure and function of U.S. benefit corporations and the unique litigation risks to which a publicly held U.S. benefit corporation may be subject. In doing so, the article links the importance of a publicly held benefit corporation's public benefit purpose to litigation risk management from several perspectives. In sum, the distinctive features of the benefit corporation form, taken together with key attendant litigation risks for publicly held U.S. benefit corporations (in each case, as identified in this article), confirm and underscore the key role that corporate purpose plays in benefit corporation law.

Ultimately, this article brings together a number of things I wanted to think and write about, all in one paper.  While many of the observations and conclusions may seem obvious, I found the exploration helpful to my thinking about benefit corporation law and litigation risk management.  Perhaps you will, too . . . .

April 17, 2017 in Anne Tucker, Business Associations, Corporate Governance, Corporations, Current Affairs, Haskell Murray, Joan Heminway, Litigation, Management, Social Enterprise | Permalink | Comments (0)

Sunday, April 16, 2017

ICYMI: #corpgov Tweets From the Week (April 16, 2017)

April 16, 2017 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, April 15, 2017

And now for something completely different about Snap and shareholder rights

So I was looking over Snap’s S-1, and I discovered this:

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for:

  • any derivative action or proceeding brought on our behalf;
  • any action asserting a breach of fiduciary duty;
  • any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; and
  • any action asserting a claim against us that is governed by the internal-affairs doctrine.

Our amended and restated certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.

The first provisions are a fairly unremarkable (these days) set of forum selection clauses, but in that last point, Snap has gone a step further by attempting to control the forum of federal claims in addition to state claims.  In so doing, Snap is obliquely referring to the ongoing dispute about whether SLUSA requires that Section 11 class actions be litigated in federal court, or whether, instead, class actions under Section 11 may be maintained in state court.  The Supreme Court is considering whether to rule on this issue, but Snap has apparently decided to belt-and-suspender it.

I don’t know if this is a common provision in IPO documents these days, but I do hope that if the enforceability of the provision is ever litigated, courts will not blindly assume that such provisions are “contractual” and therefore as binding as any other forum selection provision in an ordinary contract between transacting parties.

I’ve written quite a bit about whether charters and bylaws are contractual, and the enforceability of forum selection provisions.  See Manufactured Consent: The Problem of Arbitration Clauses in Corporate Charters and Bylaws, 104 Geo. L.J. 583 (2016); Limiting Litigation Through Corporate Governance Documents, in Research Handbook on Representative Shareholder Litigation (Sean Griffith et al., eds., forthcoming 2017).  One of the arguments I've repeatedly made is that courts should not simply assume that charters and bylaws may dictate terms about federal claims as they have about state law internal affairs claims. 

Charters and bylaws are not like ordinary contracts; instead, the state of incorporation determines the permissible provisions, the procedures by which they can be amended, the fiduciary duties of managers when invoking these provisions, and the rights and powers of shareholders to influence their content. (For example, states decide whether the clause must appear in the charter, whether shareholders must vote, and whether and under what conditions management may waive these provisions).  States are not positioned to make the appropriate policy determinations when the matter involves a federal, rather than state, regulatory scheme.

Indeed, it is not obvious that Delaware even authorizes the charter provision that Snap has adopted.  In 2015, Delaware amended its law to authorize corporations to adopt charter and bylaw provisions that select Delaware as a forum for internal affairs claims.  See DGCL § 115.   As I have argued previously, that statute (and related Delaware caselaw) should be interpreted to mean that only internal affairs claims, and not other kinds of claims, may be governed by charters and bylaws.  But even if the statute is interpreted to allow corporations broad freedom to dictate the terms on which plaintiffs may bring federal securities claims, as some have suggested, see John C. Coffee, Update on “Loser Pays” Fee Shifting; Stephen M. Bainbridge, Fee-Shifting: Delaware’s Self-Inflicted Wound, 40 Del. J. Corp. L. 851 (2016), the broader point is that there is no reason that Delaware should be deciding these important matters of federal policy.

To be sure, one might argue that this is no different than ordinary contracts – state law, too, determines the rules that govern ordinary contracts, and yet these contracts may contain enforceable forum selection provisions regarding federal rights. 

But that is not quite the same.  We may assume that Congress generally intended to import into federal law certain state law standards regarding contracts and corporate law, but that presumption may be overcome depending on the particular state law in question.  See generally Kamen v. Kemper Financial Services, 500 U.S. 90 (1991).  It is not obvious that Congress intended that state corporate law – including idiosyncratic approaches to shareholder powers within the corporation – would govern forum selection for federal claims, especially since state law did not even grant corporations these powers until 2013.  See Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013).

But more fundamentally, as I have explained in the context of arbitration, within the corporate structure, shareholders and directors are not on equal footing.  Shareholder power is sharply limited by legal ground rules that vest directors with broad discretion to take action on behalf of the corporation as they see fit.  The justification for this power differential is that corporate directors are better positioned to make decisions on behalf of the corporation, and that shareholders are too uninformed, selfish, or heterogeneous to be trusted with the power to determine the corporation’s fate.  Such an approach is at odds with the general concept  of “contract,” which is predicated on the assumption that each party is capable of bargaining for his or her self interest, and that welfare across parties is maximized when the parties are permitted to bind themselves to arrangements they believe best for themselves.  Unlike in contract, within the corporation, shareholders are not treated as autonomous arm's length bargainers.  See also Jill E. Fisch, Governance by Contract: The Implications for Corporate Bylaws (California Law Review, forthcoming).  

So, bringing this back to Snap’s articles of incorporation, if courts or the SEC decide that – for reasons of federal policy – it is best for companies and their shareholders that corporations be permitted to select a federal forum for federal securities claims in their charters/bylaws, that’s one thing, and on that point I remain agnostic.  But what they should not do is assume that Snap’s charter is a “contract” that binds the shareholders to a federal forum, in the same manner as a forum selection clause in an ordinary contract between transacting parties.

April 15, 2017 in Ann Lipton | Permalink | Comments (0)

Friday, April 14, 2017

UMKC Administrative Law Symposium - Call for Papers

Presidential Powers and Administrative Law

The UMKC Law Review is pleased to announce a call for papers relating to the executive branch’s scope of power and its impact on administrative law and the lives of real people. Selected papers will be published in the Special Topics Symposium Winter 2018 edition of the UMKC Law Review.

This symposium invites proposals for papers exploring legal and administrative issues around the authority vested in the President of the United States. The constitutional limits on executive action, ethics and accountability in government, the separation of powers, the far-reaching economic and social effects of proposed or anticipated administrative reforms, and other considerations relating to the intersection of executive and administrative authority are all topics under the umbrella of this symposium. We also welcome analysis of the interaction between the executive branch and areas of administrative concern and impact, such as the environment, healthcare, consumer protection, banking regulation, and other areas dependent on agency oversight. The recent proliferation of executive orders and new structural rules, such as the one-in, two-out regulatory policy and possible changes for the organization of the Executive Branch, make the use of executive orders another topic of interest.

Under the new administration, will established tests for judicial deference to executive agencies, such as Chevron deference and the arbitrary and capricious standard, change? Will the administration’s philosophy affect the metric for analyzing regulations’ worth? Will promises of deregulation affect how agencies approach their statutory duties? How will agencies interpret existing ethics laws and regulations? Will the Supreme Court address questions such as the Emoluments Clause, the Take Care Clause, and the Public Trust Doctrine? These questions provide examples of the broad scope of the symposium.

Issue 4 of UMKC Law Review’s 86th Volume will explore these and related topics with the goal of advancing awareness of Presidential power. Articles and essays of all lengths and papers by single authors or multiple authors are invited. Preference will be given to works between 5,000 and 25,000 words. To be accepted for publication in UMKC Law Review, articles must not have been previously published. First drafts are due August 18, 2017, and final papers are due September 1, 2017.

Proposals for papers should be submitted by May 26, 2017 to the attention of Annette Griffin (, Zachary Parker (, and Professor Irma Russell ( Proposals should include the following information: *Name, title and contact information of author *Title of paper *Anticipated length as an article or essay *Abstract or brief description of the topic

Questions may be addressed to Annette Griffin ( or Zachary Parker (

April 14, 2017 in Call for Papers, Conferences, Joan Heminway | Permalink | Comments (0)

United Airlines, the Law, and Company Culture

By now, I am sure virtually all of our readers have heard about the United Airline issue involving the dragging of a passenger off the plane.

If not, you can catch up here, here, and here. And you can watch the viral video here.  

Shortly following the incident, United Airlines stock dropped sharply, losing hundreds of millions of dollars of value. (Of course, it is difficult to tell how much of this drop is related to the incident).

The CEO of United Airlines' first public statement was tone deaf at best. He wrote, "I apologize for having to re-accommodate these customers" when better terms would have been "unacceptable" and "immediate corrective procedures." There is not evidence that they "had" to remove passengers; they removed passengers because they wanted to transport some of their employees on that flight. The internal e-mail to the corporation's employees was no better, calling the passenger "disruptive and belligerent."

My social media feeds, which include many lawyers and legal academics, are full of debate over whether United Airlines acted within the bounds of the law and their terms & conditions. While this is an interesting discussion, I think it is largely beside the point in this case. Regardless of whether United Airlines was legally correct, they surely could have handled the situation better (by offering more money for volunteers to go on a later flight, by explaining the terms of the deal better, by having their employees transported in another plane, etc.)

United Airlines is already paying a heavy public relations price. One thinks they would have learned from the United Airlines Breaks Guitars incident that went viral a few years ago and which I use in my negotiation classes every year.

After this incident, I just kept thinking how unlikely it would be for something like this to happen at Southwest Airlines. Southwest Airlines has a famously great company culture. See here, here, and here. Their employees always treat me significantly better than any other airline employee I have dealt with on my travel. Southwest Airlines is not perfect--I don't love their odd boarding procedure, for example---but they do strive to treat their consumers and their own employees extremely well, not just as poorly as the law will allow.

Southwest Airlines' company culture has also translated to remarkably reliable profits. Perhaps United needs to take notes.

Note: This appears to detail the rights of passengers who are denied boarding (up to $1,350) that many in the media are citing, though one can wonder whether this applies since the passenger in question had already boarded.

April 14, 2017 in Business Associations, CSR, Current Affairs, Haskell Murray | Permalink | Comments (1)

Thursday, April 13, 2017

ICYMI: #corpgov SSRN Roundup (April 13, 2017)

April 13, 2017 in Stefan J. Padfield | Permalink | Comments (0)

Tuesday, April 11, 2017

Why Do So Many People Assume States Can Disregard Series LLCs?

The Uniform Law Commission is in the process of considering the Limited Liability Company Protected Series Act (f/k/a Series of Unincorporated Business Entities Act), and the final reading is schedule to take place in July 2017.  (Draft is here.) I have been discussing the challenges of Series LLCs with a variety of folks, and it strikes me that a consistent theme about the Series LLC is a concern about asset protection between each LLC in there Series. That is, there is concern that some courts may disregard the separateness of each LLC in the Series and treat the entire Series as a single entity.  I share this concern, but it strikes me that it is a rather outlandish concern that a court would do so without some significant level of fraud or other injustice to warrant whatever the state version of veil piercing would mandate. 

One source goes so far as to state: 

Case law has not been developed on Series LLCs yet, and there is much fear in the professional world that the assets may not be as protected as when the entity is formed. What is clear is that the “corporate formalities” must be carefully followed, such that:

  1. Separate books and records should be maintained for each series;

  2. Creditors need to be made specifically aware of the separate existence of each series; and

  3. The assets of each must be unambiguously identified as belonging to that series.

I don't consider these corporate formalities as at all, given that we're talking about an LLC, but it's true that any Series LLC would be well served to follow the entity formalities we'd expect of any entity seeking to protect limited liability.  Perhaps because the Series LLC as an entity is new, there is a need for heightened vigilance, but I am of the mind these kinds of measures are proper for all entities, if one wants to reduce the likelihood of veil piercing, enterprise liability, or other agency/guarantor concerns.  

Another source warns of the risks of the Series LLC:

The biggest problem with series LLCs is that many states (including California) don’t have series legislation and may choose to ignore the laws of the state where the series was created. That’s because you’re subject to their rules when doing business in their state. The example of the attitude of the California Franchise Tax Board applies to fees, but liability protection is also an issue. Since series LLCs are so new they’ve never been tested by courts, even in the states that permit them. That means there’s no guarantee that limited liability protection will be extended to each series until every state rules on the subject. It’s hard to see how a court would choose to grant this kind of protection inside one entity, and only time will tell if courts will do this. But do you want this type of uncertainty when you are trying to protect your assets?

Again, perhaps valid, but the idea that a state would simply ignore a properly created entity formed in another state is an outrageous proposition, in my mind.  If a state sees fit to define an entity, and such an entity is properly formed, that should be sufficient to follow the entity rules.  That might be different if a state were to write a law that specifically disallows certain kinds of entity structures. (I'd likely have a problem with that, too, but on the merits of such a law.)  And some laws clearly change the analysis, like bankruptcy. But to simply disregard another state's entity structure if the business is properly operating? That's not right.  

Anyway, I agree with those who are cautious about the relative limited liability protections of the Series LLC, especially outside of the eight(?) states that have such laws (Delaware, Nevada, Illinois, Iowa, Oklahoma, Tennessee, Texas and Utah). But I do find it disturbing that so many people are comfortable with the idea that courts would (and perhaps should) be so inherently skeptical of a structure chosen by a state legislature that the court would disregard the concept completely.  I am all for requiring entities to be clear which entity is to bound (and I think those doing business with those entities should seek guarantees, co-signers, or other assurances where they want them).  Courts allowing plaintiffs to expand limited liability beyond a Series entity to include other entities, based only on the use of the Series structure, is different. Like haphazard veil piercing, such decisions run the risk of incentivizing careless or ambiguous drafting and give creditors a chance to pursue a windfall in the form of an un-negotiated guarantee. 

As I often remind my students, to argue against the concept of limited liability is a very different thing than arguing that the current law allows one to disregard an entity in a particular circumstance. One asks, "What should be?,"  while the other asks, "What is?"  And to dislike the idea of a Series LLC is very different than suggesting a Series LLC law is invalid.  There, the former says what the law should be,"  while the latter says that what is, is not.  


April 11, 2017 in Corporations, Delaware, Joshua P. Fershee, LLCs, Unincorporated Entities | Permalink | Comments (1)

Monday, April 10, 2017

Editing Etiquette 101

After I published last week's post, I heard from a few of you in person and by email.  You expressed support and sympathy.  And you had stories of your own.  Those communications motivate this post.

There are, in my view, rules of etiquette that apply to editing academic and professional work for publication.  It seems that I am not the only one who holds this view.  With articles and posts titled, e.g., Editing Etiquette and Editor Etiquette, a number of others in the writing and editing biz have ideas on how editors should behave in their interactions with writers.  And my key observations about best practices in law review, law journal, and law textbook editing echo theirs.  Here are my "Top Three" rules of editing etiquette for law publications.

  1. Always show the author where changes to the text have been made.  This typically means sending the author a blacklined version of the work.  Once the give-and-take of the editorial process is under way, the backline should indicate whether changes suggested by the author have been accepted and where new changes suggested by the editor have been implemented/added.  Recently, a law review sent me a backline that was made from a clean draft and showed all of the changes made on the document as changes made by the editor (when, in fact, some were changes requested by me that the editor had transferred to the clean draft).  Since I wanted to ensure that the changes I had suggested were, in fact, made, I had to locate the marked draft I had last sent to the law review and compare it to the blackline sent to me by the law review.  Here's what I advised the law review editor:

    "Although the backline was somewhat helpful, . . . it didn’t show which of the changes adopted were mine and which were yours since you made all of the changes on a clean draft. To know which of the changes were mine, I needed to look at yet a third draft, which makes the review more complex. Just a thought for the future—that making your edits on the draft that the author has marked up, rather than on a clean draft, facilitates author review. Admittedly, I still am concerned that I missed something that I need to review more carefully in the changes you made."

  2. When making changes to the wording in the text, strive to retain the author's voice and explain the reason for any change made.  I once had a law review staff member change the word "everyman" to another word that had but a small fraction of the same meaning.  The reason for the change was never offered. I wrote back and patiently explained that the word choice was quite purposeful and pointed--expressing my specific intention to reference "an ordinary individual with whom the . . . reader is supposed to be able to identify easily."  The original wording was restored. But my time in editing (and earlier theirs) had been wasted.

  3. Justify for the author any requests for additional footnotes or citations.  I have had law review editors and staff ask me for citational support for topic sentences that introduce or summarize the contents of the paragraph; same for conclusion sentences including similar content.  I also have had editors and staff request citations for my unique contributions--e.g., observations on the law or extant literature.  (Yes, I know that these are often hard to identify . . . . But just ask!)  After last week's post, one of you offered: "I kept cutting footnotes and they kept adding them back. Very frustrating."

I will spare you all the additional details.  I think you can see where these ideas are headed. I will end with a helpful thought that one of you shared with me--a thought that I and others here on the BLPB have shared in the past when writing about the law review editorial process: "I try to think of my exchanges with law review editors as part of my teaching job, aiming to show them how to edit properly and deal with 'clients' (if you will) . . . ." The publication process will work out just fine in the end if we can embrace those teaching moments and remember that we all are working toward the same objective: a quality, published piece of scholarship. 

April 10, 2017 in Joan Heminway, Law Reviews | Permalink | Comments (0)

Sunday, April 9, 2017

ICYMI: #corpgov Tweets From the Week (April 9, 2017)

April 9, 2017 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, April 8, 2017

What I learned at Harvard Law School (reunion edition)

I had planned to post about the intersection of business and CSR in light of the Pepsi/Kendall Jenner debacle and the Bill O'Reilly sponsorship flap, but I will save that for next week. For the last two days, I've been at my 25th anniversary reunion. I protested every year at HLS due to the lack of faculty diversity, and I also didn't believe that I had learned a lot that prepared me for the real world, and thus had mixed emotions about coming back.

 HLS turns 200 this year, and Dean Martha Minow is stepping down because she actually misses full time teaching and scholarship. She raised some fascinating statistics about the incoming class that all of us in the profession should think about as we teach and work with the next generation of lawyers. Of course, Harvard is at the cutting edge, but schools at every tier should try to follow HLS' lead where possible. 

Eighty percent  of  the incoming class didn't come straight from college. Twenty-five percent have  four or more years of work experience, which means that these are students who didn't just default into law school. They made a considered choice and their work experience adds to the richness of discussion. The class hails  from 20 countries and  speaks 52 languages. Hundreds of them volunteered legal and language skills for immigrants after the travel ban. 

Over fifty percent of the incoming class is made up of women for the first time in history. Fourty-four percent are people  of color. Eighty percent  of students are on financial aid. The schools spends $9 million in loan forgiveness  so tthat students can work in public service.

Dean Minow has also made sure to focus on globalization and real world issues. Every 1L takes international or comparative  law and problem solving workshops where they must work in groups. More than half of faculty appointments have been to women since she's been here. 80% of students are doing clinical work. In perhaps the most surprising statistic, HLS is the second larger  producer of CEOs in the US after Harvard Business School. HLS is also the first law school to establish social entrepreneurship fund. The law, business, and medical schools are collaborating like never before.

A number of law grads have become entrepreneurs and discussed how their legal education hurt or helped them. I've tweeted from some of those sessions at @mlnarine on Twitter. I'm gratified to see how much the school is now focusing on technology and entrepreneurship, but I fear my alma mater is in the minority.  I focus on skills development in all of my classes, including the doctrinal courses but it's hard to balance those real world skills with the need to cover theory and bar-tested subjects.  I am definitely leaving Cambridge with a lot to think about in terms of my teaching and mentoring in the future. How do you integrate business skills, global issues, and  technology in the classroom? What do you wish you had learned as a student? Comment below or email me at 

April 8, 2017 | Permalink | Comments (0)

Friday, April 7, 2017

Toughness and the Barkley Marathons


Today’s topic does not have a direct connection to business law, but I do think toughness is important to students, professors, and lawyers. And the Barkleys Marathon is all about toughness, and maybe insanity. So indulge me. I have been thinking about the race, which happened this past weekend, all week. My wife said I wasn't allowed to talk about the Barkley Marathons anymore, so I am going to write about it here.

If you have not seen the documentary on Netflix entitled The Barkley Marathons: The Race that Eats its Young, watch it. See the documentary's trailers here and here. See more about the race here.

I will save you from this overlong, mostly unrelated post with a page break, but if you are interested, you can proceed and read below.

Continue reading

April 7, 2017 in Current Affairs, Haskell Murray, Teaching | Permalink | Comments (0)