Business Law Prof Blog

Does a Corporation Have "Personal" Privacy Rights?

The Supreme Court will try to answer that question when it hears the case of FCC v. AT&T.  Prof. Bainbridge is not optimistic that the Court will do a good job of clearing up many of the lingering questions regarding the constitutional rights of corporations.  If you're planning on betting on the outcome, I'd just like to note that the Citizens United majority equated corporations with "associations of citizens" multiple times.

SJP

Foolishly Representing Yourself Is Also Representing a Client

The North Dakota Supreme Court yesterday in a relatively rare spilt decision ruled that an attorney representing himself (pro se) is representing a client for purposes of North Dakota Rule of Professional Conduct 4.2:  Communications with Person Represented by Counsel. Disciplinary Board v. Lucas, 2010 ND 187 (2010). In the opinion, the court settled a split of authority on the issue. That is, there is at least one case holding that an attorney acting pro se is not representing a client when that client is himself for Rule 4.2. Pinsky v. Statewide Grievance Committee, 578 A.2d 1075 (Conn. 1990). 

In Lucas, the context is an attorney litigating a dispute with his condominium association board. The disciplined attorney made several strong statements directly to board members who were represented by counsels.  For example, here are a couple excerpts from two of his letters, as noted in the opinion:  

If we can't resolve our differences soon I will correspond with our owners to advise them of the actions taken by our Board which are contrary to their best interests and I will start two or three new lawsuits. 

. . . .

If the Board continues to encourage and permit [their attorney] to maliciously, vindictively and cruelly litigate and harass me I will have to shift to the same tactics and practices. There are many lawsuits I could bring, and there are internet sites and books on how to be a 'bad neighbor.' I may have to replace Tom as the 'neighbor from hell.'

Two big takeaways, as far as I am concerned.  First, when you send letters like this, it's rare that something good follows.  Threats and hyperbole may work from time to time, but it's rarely, if ever, the best tactic.   

Second, for lawyers in business, take note.  Representing yourself may serve your purposes from time to time, but you need to know that in many (if not most) jurisdictions you could be subject discipline for representing yourself if you continue to communicate with others after they are represented by counsel.

This rule, it seems to me, is right. Plus, despite a constitutional right to take yourself as a client, it does not mean you aren't a fool for doing so.  See, e.g., People v. Watts, 173 Cal. App. 4th 621 (2009) ("We review the entire record de novo to determine whether a defendant validly exercised the constitutional right to have ‘a fool for a client.’").   

--Joshua Fershee

Corporations and Constitutions

I've been struggling for a few years on an issue - how state corporate law interfaces with state and federal constitutional law, namely the Contracts Clause.  The Contracts Clause on the federal level reads "No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility."

In one of the first major Supreme Court cases, Darmouth College v. Woodward, dealt with the interface of the Contract Clause with state corporate law, invalidating the state's changes to the corporate statutes that were contrary to Darmouth College's original corporate grant by George III.

Florida has reserved the right in their corporate statutes that if you create a corporatation in the state of Florida, the state may change the law and you agree to comply.

 

jmm

Another Review of Wall Street - Money Never Sleeps

I wanted to follow up on the earlier review of the sequel to Wall Street.  For me, the original is a special movie, along with OPM being one of the more influential cinematic reasons why I became a corporate and securities lawyer.  So the sequel I believe is a proper topic for this blog.

As Prof. Colesanti pointed out, in the original movie the regulators where the 800 lb gorilla that wasn't on screen, but there precense was felt.  They make their enterance much like Orson Welles in the Third Man late in the film.  And correctly so, in this film at best the regulators are impotent to stop the coming financial crisis.

But I think this is where Oliver Stone gets it wrong.  Like so many others, Oliver Stone suggests that the 2008 financial crisis on which the movie was loosely based was caused by the lack of regulation.  But Stone fails to bring up any reason why the housing bubble existed in the first place - whether you believe it to be the requirements that banks had to lend to subprime borrowers, that housing was the only viable investment after the internet bubble burst, etc.  And then the linkage between the housing market and what the investment banking houses were doing is missing an adequate explantation in the film.  Lastly, Stone makes the underlying assumption that making money was bad.  So the investment banks are hedged. It's a fact of life that some investors take both sides of the market.  Stone's treatment of the subject was a little juvenille.

For the rest of the movie, the acting is less than stellar.  The plot, predictible and thin for an Oliver Stone film.  Charlie Sheen's cameo was wasted.  Even the use of bubbles as a visual element in the film is hackneyed.  The best aspect of the movie was the incidental music.

jmm

SEC Chiefs Past and Present at Fordham

Last night, the Fordham Corporate Law Center sponsored a panel on the history and direction of the SEC.  For roughly 75 minutes, current Commission Chair Mary Schapiro and former chairs Richard Breeden (1989-1993) and Harvey Pitt (2001-2003) spoke on topics such as SEC staffing, penalties, and challenges.  

While guarded in his suggestions, Pitt was pointed in his critiques, noting that the far-reaching Dodd-Frank Act may have "set up" the Commission for a fall.  Likewise, the famed securities litigator and former SEC General Counsel stated that it was unfortunate that Congress stopped short of allowing the Commission to self-fund.  Near the end of his remarks, he cautioned againt investigations proceeding for too long, perhaps a veiled reference to the Mark Cuban case (which shall now proceed on facts over 6 years old).

For his part, Breeden was outspoken and verbose, sharing anecdotes about penalty negotiations and the insider trading case behind the notorious "naked, homeless and without wheels" quote once attributed to the SEC's penalty program.  Breeden took shots at Treasury (which was described as having the luxury of more staff), the enforcement efforts of the States (which were characterized as meddlesome and self-interested), and the powers behind the Basel banking standards (who were only half-jokingly described as having gravely damaged wordlwide banking).  He also candidly opined that "It's a bad day [at SEC Enforcement] when no one gets sued."                 

For her part, the Chair defended SEC structure and hiring, explaining recent efforts at spending more on staff education and vesting greater discretion with Enforcement attorneys (of particular note is the abolition of the SEC's traditional "Branch Chief" position).  Ms. Schapiro explained that the SEC has expanded its comment process, leading to over 2000 comments on the fiduciary standard harmonization alone.  She also addressed the painful aftermath of Dodd-Frank:  The SEC will be forced to make rules or conduct studies over 100 times.  Thus, Ms. Schapiro explained that priorities will delay consideration of any changes to mandatory arbitration while pointing out that, in general, there will be continued "reliance" on the stock exchanges to handle many matters. 

The Panel agreed that the Commission had made a tremendous recovery since the days of late 2008 (when the press was predicting demise).  Conversely, the speakers differed on the import of monetary penalties on corporations, which may primarily penalize present shareholders but without which violations may go unpunished.    

Overall, one couldn't help but feel that the gaps between the standing room only applause were laden with silent recognition of the same obstacles that have plagued the agency from its inception:  Understaffing, shifting priorities, political interference and inter-governmental turf wars.  On a night that may have served primarily to celebrate the Commission's survival, its chief acclaimers (perhaps predictably) sounded entrenched refrains.  Specifically, why pillory efforts at raising net capital standards - wherever proposed - when a large part of the current mess stemmed from leveraged  speculation?   And why decry the "stepping up" of the Treasury when most agree that the alternative was economic Armageddon?  Too often the Panel's quips - while entertaining - served to highlight the diffused data streams, entrenched warfare and questionable policy choices that left the agency marginalized at the outset of the Crisis. 

Likewise, while staff education is a good thing, there still exist so many layman questions on the Dodd-Frank Act.  There certainly would be value in more money on programs designed to demystify the reform on topics ranging from hedge fund participation to derivatives regulation, to the limits of the new Consumer Protection Agency. 

It's encouraging that practitioners, students and academics crowd a conference hall on a weeknight to glean insight into a long lasting contribution of the New Deal.  Concomitantly, it's a bit depressing that in these precarious and stressful times, this agency  - through both its press and its silence - has not much more to offer than its traditional dual mantras of "Give us time" and "If we catch you, you will pay."  Gramm-Leach-Bliley sounded a competitive death knell for firms reluctant to engage in one-stop shopping.  A decade later, the securities industry's chief regulator similarly faces possible irrelevance as a result of failing to recognize investors' needs for quick, one-stop answers to concerns on banking, securities and corporate health.  

---JSC, 9/28/10       

SEC Charges: True Facts and Misleading Positive Spin

The SEC announced charges on September 21 against a Minnesota attorney (who left his partnership to run the fund) and two Bay Area fund promoters for misleading investors.  (Complaint here.)

The SEC asserts that, initially, the fund's sole business was to make real estate loans to one business partner.  After that business partner defaulted, the SEC alleges that the defendants continued to raise money, even though they "had no meaningful income" and were instead using the new investor funds to pay their original fund investors.  The defendants raised this money by claiming that they were in a position to take advantage of the real estate market collapse, but the SEC asserts there was no such possibility.  In a statement, the SEC's Chicago Regional Director explained:  "Investors were entitled to know true facts rather than the misleading positive spin that [was] provided."

I don't love the phrasing, but it's an interesting way to frame the case.  It's certainly reasonable that the the SEC would want to ensure investors have access to "true facts" (as opposed to any other kind of facts). And I suppose the SEC is trying to send a message that what might be (in the mind of some business people) justified as "positive spin" can, nonetheless be "misleading" under Rule 10b-5.  I see the point; when we discuss disclosures in my course BA courses, I often borrow Dwight Drake's recommendation (see his book here) to lay out all risk factors for the offering and to "stay clear of bold adjectives."  As he puts it, "You are protecting here, not selling."  

Further, it seems to me that a "misleading positive spin" on the investment implies that the SEC will be taking a hard line on those soliciting investors, expanding beyond just those, for example, who "lied" to investors. The only concern I would have is that "misleading positive spin" also seems to imply an argument that the positive spin was not knowing or reckless.  That is -- positive spin implies that there's some truth there, it's just truth with the best possible framing.  I haven't forgotten that Rule 10b-5 also covers material omissions; I'm just saying it's kind of soft language and might elicit sympathy in some corners. 

Personally, I'd go for something stronger in my statement:  "The investors were entitled to all the necessary facts, not a deliberately misleading set of cherry-picked items designed to hide the realities of the investment."  Just a thought. 

--Joshua Fershee

 

The Sequel to the Best Movie Ever About Rule 10b-5...

...opened this weekend.  While Wall Street II may have disappointed its reviewer at The New York Times (see Joe Nocera's "When Did Gekko Get So Toothless?"), I still have to marvel at any mainstream film that combines industry terms like "margin," "short sellers," and "credit default swap" with such aphorisms as "Money is a jealous mistress."

What is alarming, however, about Oliver Stone's reprise of Gordon Gekko is the complete absence of laws and regulators.  Wall Street I juxtaposed the action with slow but persistent bureaucrats who eventually catch up with young Bud Fox and arrest him for conspiring to violate the Insider Trading and Securities Fraud Enforcement Act (a crime which, if technically impossible, nonetheless reeks of force of law).   

In Wall Street II, while the government occasionally arrives with a bailout checkbook, justice is left to market titans and internecine capitalism.  Concurrently, the economic crisis is blamed on causes  ranging from greedy CEOs to greedy hedge funds, and from greedy real estate brokers to greedy owners of plasma TVs (i.e., we're all to blame).  In that regard, Mr. Stone may have sounded the most fatalistic refrain on the Crisis to date:  Nobody's watching, and we're all Gekko.

Obviously, the legendary filmmaker has a dim view of the protections afforded by the Dodd-Frank Act of 2010.  Conversely, the soundtrack - at each tranche - was upbeat and (I dare say) triple A.

---JSC, 9/27/10        

Resource: The ABA Committee on the State Regulation of Securities

I recently joined the ABA's Committee on the State Regulation of Securities, and was immediately impressed with the materials I received.  I think that if you give the most recent edition of their newsletter, The Blue Sky Bugle, a quick once-over you'll be similarly impressed.

SJP 

Securities Regulation and the Increasing Impact of Macroeconomic Forces on Stock Prices

The Wall Street Journal reported yesterday that macroeconomic forces are driving stock prices to move in a lockstep fashion more than ever, making traditional stock analysis based on an individual company's fundamentals less and less relevant.  If this trend continues, it may raise some interesting securities regulation questions.  For example, should companies be emphasizing the role of macroeconomic forces, and the increasing incidence of lockstep stock price movement, more in their disclosures?  What about event studies?  Should their value be discounted because information that is material about a particular company is less likely to move that company's stock price?  Or, is company-specific information simply less material?

SJP

How to Fix the "Broken" Financial System: Stop Trying to Fix It

According to Paul Volcker, the "financial system is broken."  Furthermore, with regard to limits on the abilities of regulators, he says: “Relying on judgment all the time makes for a very heavy burden whether you are regulating an individual institution or whether you are regulating the whole market.” 

He's right on that.  If we like markets (and I think we do), then we need to recognize we can't always regulate (or, for that matter, buy) our way out of some of these messes.  I am now firmly of the mind that we should have a five-year moratorium (minimum) on financial regulation.  This goes both ways -- nothing can be repealed and nothing can be added. 

I am of a mixed mind on the new financial regulations, but since they already passed, I say leave them alone and let the market adjust. Similarly, with regard to Sarbanes-Oxley, regardless of whether one likes it, it's part of the current market, and companies have adjusted to it.  So - leave it all alone. Regulators need to work with what they have, and businesses have to work with what is there.

I happen to think that we have a fairly solid system in place, but there are clearly some inherent potential pitfalls built into that system. I just think those pitfalls are primarily because the financial system is a (relatively) open market.  Markets involves people, which means that at every level (as a consumer, a seller, or a regulator) we are still, as Mr. Volcker puts it, "[r]elying on judgment all the time."  And no matter what we do, that's part of the problem.  

Unless, of course, we're living in The Matrix.  Then, who cares?

--Joshua Fershee

The Business of Food

Some recent headlines:

Corporate Lobbying Is Blocking Food Reforms, Senior UN Official Warns

Voices of Federal Food Safety Scientists and Inspectors: “[S]pecial interests and public officials all too often inhibit the ability of government scientists and inspectors to protect the food supply.”

Egg company knew of salmonella, investigators say: Iowa farm had more than 400 positive results during a two-year period

SJP

Business Associations Meets Employment Law

In my employment law course yesterday, I taught the North Dakota case Earthworks, Inc.v. Sehn (here). I use the case as part of my section on covenants not to compete, and I like it because it also provides a straight-forward opportunity to discuss statutory interpretation. Beyond that, it provides a great opportunity to discuss the need to view cases as a whole and not as topic specific, despite the name of the course or client context in which such cases arise.  That is, just because I was teaching the class in Employment Law, it is not solely an employment law case -- there are other issues, too.  

The non-compete clause in Earthworks arose as part of an agreement through which Earthworks bought Mr. Sehn's 50% stock holdings so that the other 50% owner, Mr. Marquart hold 100% of the remaining stock.  The non-compete agreement provided that Mr. Sehn would not compete with Earthworks in the state of North Dakota for two years.  

The applicable statute on non-compete clauses is as follows:

North Dakota Century Code 9-08-06. In restraint of business void - Exceptions.

Every contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is to that extent void, except:

1. One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business within a specified county, city, or a part of either, so long as the buyer or any person deriving title to the goodwill from the buyer carries on a like business therein.

2. Partners, upon or in anticipation of a dissolution of the partnership, may agree that all or any number of them will not carry on a similar business within the same city where the partnership business has been transacted, or within a specified part thereof.

I provide the students with only the facts, the contract clause at issue, and the statute above to discuss how we might attack the problem.  I start with asking them which statute applies.  Many of my students haven't taken BA, so Marquart and Sehn look like partners to them -- thus a brief discussion of the differences between partners  and corporations.  (Some students noted that it doesn't matter, at least in one sense, because the scope of the non-compete agreement -- the entire state of North Dakota -- violates either paragraph of the statute, which is correct.) 

Next, we discuss the requirements for a valid North Dakota non-compete clause under paragraph 1.  We discuss whether the goodwill was purchased in the sale. Many students say no, again an opportunity to talk about corporate structure and what you get in a stock purchase.  Earthworks argued that goodwill did not need to be mentioned specifically because the sale of goodwill was implicitly part of the transaction.  The court agreed, quoting Bessel v. Bethke, 56 N.D. 1, 215 N.W. 868, 869-870 (1927):

Where one sells his stock he necessarily disposes of his interest in the good will of the business conducted by the corporation to the same extent as he parts with his interest in any other property of the corporation. And where, as in the instant case, he disposes of all his stock and severs his connection with a business that had been in a measure dependent for its success upon his skill or ability and contracts at the same time not to re-engage in the same business within an area permitted by the statute, he has, in fact, sold the good will within the exception, and the contract is valid.

Finally, we talk about the outcome of the case.  The court upheld the clause, but restricted the scope to the county as required by statute.  This gave us a chance to discuss the policy implications of rewriting the clause to repair the faulty portion (thus providing a legal result closer to what the parties seem to have negotiated) as opposed to the equally reasonable possible result of throwing out the entire non-compete provision because it violated the statute on its face.  (Note also that the latter becomes even more reasonable, in my view, given that both parties were "represented by an attorney."  Oops.) 

A lot of students seem to really enjoy seeing the overlap of their various course subjects and find it more exciting and realistic.  Some students, though, probably find the overlap between courses and topics frustrating.  I just hope this group of students still appreciate that real cases are not employment law cases, or civil procedure cases, or business associations cases -- they are client problems that those clients hire lawyers to address.

--Joshua Fershee

My Bio - Joel McTague

As Stefan indicated yesterday, I'll be guest blogging over the course of the next few weeks on Wednesdays.  His post pointed to my bio, so rather than bore you with a bunch of facts about me, I'll share my goal for the next few weeks.  So often in business law, we tend to concentrate on Delaware or MBCA states and ignore the other state law developments.  My goal is to bring some of those local flavors back to discussion to compare it to what we normally hear what the Court of Chancellory is doing, as well as potentially discuss some of the more esoteric areas of corporate law.

jmm

Olmstead

The Florida Supreme Court recently issued the Olmstead v. Federal Trade Commission case.  The case's holding is that F.S. 608.433 (4) allows a court to order a debtor to surrender "all right, title, and interest" in the debtor's single-member LLC to satisfy an outstanding judgment, unlike many other states where the sole remedy is a charging order.  Although the case was based on a single-member LLC, the Court's rationale could extend to multi-member LLCs as well.

This case is probably the death knell for single-member LLCs in Florida until the Florida legislature fixes the sole remedy issue.  Also, because this is a case of first impression in the United States under this type of wording of the statute, it may be precedential to other jurisdictions with similar wording. 

Maybe it's coincidental, but the IRS also issued their proposed regulations on the tax treatment of the Series LLC (available in other jurisdictions including Delaware where the sole remedy is a charging lien), which may be a good alternative.

JMM

Business Judgment Rule

In the first case of its kind that I'm aware of, a Florida court has held that the business judgment rule standards are different for different types of businesses.  In Hollywood Towers Condominium Association v. Hampton, a Florida appellate court said that the business judgement rules as it applies to condominium associations is "...courts must give deference to a condominium association's decision if that decision is within the scope of the association's authority and it is reasonable - that is, not arbitrary, capricious, or in bad faith". 

Under the business judgment rule in Florida for all other corporations, a director is protected under the business judgment rule unless the plaintiff also shows that the director's breach of his duties constitutes a knowing criminal violation, a transaction involving self-dealing, willful misconduct, recklessness, or an act/ omission committed in bad faith or maliciously. F.S. 607.0831.

If the case is not appealled or if appealled, upheald by the Florida Supreme Court, this lower standard for a business judgment rule may open the floodgates on condominium litigations.

jmm

Civil Discourse, Professionalism, and Blogging

At the risk of being late to the game and adding my two cents to the million dollar pot already created by some real heavy hitters, here's my take last week's blog explosion.  A blogger last week at Truth on the Market made a very personal explanation of the reasons he opposed President Obama’s tax plan that would raise taxes on those earning more than $250,000 annually. He explained his issues using specific and candid examples of his family finances to underscore where his money goes and why he (and others similarly situated) should not be deemed “super rich.” The blogosphere went nuts, and led to some thoughtful comments combined with many outrageous and very personal attacks (including threats) that led the blogger to stop posting completing. (Incidentally, I have decided to avoid naming the blogger because I respect his decision, at this point, to opt out.)  

From a content perspective, I often disagreed with the blogger, and I disagreed with much of his post that led to the explosion. However, I very much appreciated the post, and we all lose when what could be a productive discourse leads simply to people spewing bile and vitriol. It's one thing for people to tell someone they're wrong or misguided or even dumb; it's quite another to threaten and mock them.    

The personal and specific way in which the blogger explained his reasoning offered much to the debate. His post offered a clear and candid explanation of his position, which should have allowed for a real discussion of issues rather than simply providing the traditional forum for a rhetoric-slinging contest. (Not to imply that the original post didn't have it's own bit of rhetoric.) In the end, though, it mostly did neither. It’s too bad, too, because I think it had the chance to lead to a very honest discussion of the goals and objectives behind the tax plan, in addition to the methods of achieving those goals. There is value in understanding where others are coming from, even if we can’t quite get there ourselves.

I have friends of varying views of politics and economics, although (not surprisingly) we usually tend to share similar core values. The difference is often either the method to address our key issues or the priority we assign to those values we share. As a country, I think this describes us more often than we often recognize. Not everyone who is against the health care bill is against people having health care and not everyone who supports regulations on businesses is against business. Sometimes we just disagree (passionately) about how best to provide everyone good quality health care or improve the economy.

And I thought that was the point. We should be talking, debating and prodding to find the better options. That doesn’t mean we won’t think someone else is misguided, smug and pompous, or just plain wrong in the process, but we should still value the discussion, and each other, enough to keep things civil.

I, for one, am trying to engage more discussions of hot button issues (rather than less) in my classes. It’s often easier to avoid some of the thorny issues, but I think I would be failing part of my mission if I didn’t give my students a chance to discuss difficult issues in a learning environment. It’s simply not fair to turn them out into practice without giving them the opportunity to process and respond to those with whom they might adamantly disagree. It’s something they will see regularly, in the office, in court or the boardroom, and on the internet. From my experience, the vast majority of people can handle it, especially when they know the rules.

I now have a great example of how not to act, but the cost was simply too high.

--Joshua Fershee

On Bailouts, Lehman, and History

The lingering economic crisis has resurrected questions on the level of government involvement necessary to sustain the economy.  In particular, the issue of Lehman's demise (against the backdrop of the rescue of AIG and others) has garnered additional attention, with a Reuters piece in the NY Times positing yesterday that a package of $25 billion in shareholder warrants (to offset $25 billion in losses) could have saved the 121-year old Wall Street giant.  See "Are 'Bail-Ins' The Answer?", NY Times (Sept. 20, 2010).

But it would seem that a prerequisite to macro-economists, regulators, and creditors embracing maverick solutions in the future is a thorough understanding of what happened in the recent past.  Much light has been shed on the tumultuous fall of 2008 by a range of economic reporters seeking to reconstruct events at locales ranging from boardrooms to corporate jets to government offices.  That prose has supported the notion that the government "let" Lehman fail.

For example, in The Sellout, Charles Gasparino recounts Treasury's stance against rescuing Lehman ("I'm being called 'Mr. Bailout'" - Treasury Secretary Henry Paulson) and contemporaneous view at the Federal Reserve that government assistance was still feasible ("We could have done something if Lehman had a buyer," according to "one senior Fed official").

Meanwhile, In Fed We Trust by David Wessel details the unsuccessful offer by the Lehman CEO to the New York Fed to save the day by splitting the firm into salvageable halves, "if only the government would come up with $4 billion."  Mr. Wessel's version reiterates the government's dependence on a private sector solution but adds the following:

Despite all of Paulson's assertions, {Tim} Geithner, {Ben} Bernanke, and  {Fed official Kevin} Warsh all expected the Treasury to endorse a Bear Stearns-style loan by the Fed if Barclays and the Wall Street firms couldn't come up with enough money.  The numbers kept changing, but in the end, other Wall Street firms and the government would have to come up with roughly $10 billion to close a gap that would remain if Barclays did the deal.  The eight firms agreed to pitch in about $4 billion basically to protect themselves from the consequences of a Lehman bankruptcy.             

House of Cards by William Cohan tells a tale culminating in the refusal by the Fed to guarantee a portion of Lehman's assets:

The Barclays [bailout] deal required the blessing of the Financial Services Authority in London - the UK equivalent of the SEC.  So Paulson spoke with his UK counterpart, Alistair Darling, the Chancellor of the Exchequer, and to the FSA.  He then summoned McDade, Lehman's president...and told him...'Deal's off.  The FSA has turned it down.'  The FSA would not comment on its decision, but the reasons given...ranged from 'the overall size of the potential exposure'...to the fact that 'the FSA was looking for some kind of a cap to avoid a UK contagion, and the Fed had just said, "No assistance for Lehman."'          

Strikingly Mr. Bernanke recently told Congress that the Federal Reserve could not have prevented the Lehman bankruptcy in September 2008, while acknowledging that he may have without intention "supported this myth that we did have a way of saving Lehman."  See Sewell Chan, "Bernanke Says He Failed to See Financial Flaws," NY Times (Sept. 2, 2010).

Perhaps the primary lessons are that "government rescue" is eye in the beholder, and that economies have become so global as to elevate regulators everywhere.  Others may cite to the need for caution in press statements (and testimony before Congress), or the overall futility of poring over embers after a fire.  To me, the salient moral is that, despite election year rhetoric on bailouts and socialism, even intervention by the mighty Federal Government is conditioned upon the good faith cooperation of the private sector.  In these complicated times of internecine capitalism, such should serve as a guidepost for measures ranging from billion dollar bailouts all the way down to brokerage rules requiring internal enforcement.  And the Lehman disaster - whatever its proverbial last straw - must serve as a haunting reminder of what happens when both the regulators and the regulated fall victim to fears as ephemeral as public perception, or as indefensible as ideological intransigence.       

--JSC, 9/21/10     

Welcome Guest Blogger Joel McTague

I'm pleased to welcom Joel McTague to the BLPB.  He'll be guest blogging on Wednesdays for the next 30 days or so.  As usual, I'll leave the more detailed introduction to him.  In the meantime, you can view his bio here.

SJP

Conference Announcement: Fiduciary Duties in Closely Held Firms 35 Years after Wilkes v. Springside Nursing Home

Eric Gouvin, my friend from Western New England College School of Law, sent me the following conference announcement:

On Friday, October 15, the Western New England College Law and Business Center for Advancing Entrepreneurship will present a truly outstanding program examining fiduciary duties in closely held businesses.

In 1975, the Massachusetts Supreme Judicial Court decided the case of Donahue v. Rodd Electrotype, holding that shareholders in closely held corporations owe each other fiduciary duties similar to those owed by partners to each other.  The following year, the Court decided Wilkes v. Springside Nursing Home, Inc. to further refine that idea.  In the 35 years since those decisions, the law of business organizations and the law of fiduciary duties have evolved significantly.

This conference features leading scholars of business organization law discussing the impact of those cases in on the development of the law.  We will also have the lawyers who argued the Wilkes case on hand to provide the backstory on the case.

You may register for the event by contacting Ms. Jackee Gadson at (413) 796-2030 or by sending an email to lawandbusiness@wnec.edu .  Registration is $30 and includes lunch and refreshments.  For more information visit: www.wnec.edu/lawandbusiness

The schedule for the event looks terrific.  If you plan to be in New England in October, I would definitely recommend attending.

ECC

Lawsuits and Public Relations at Goldman

So Goldman takes another PR hit, as a reports come of a discrimination lawsuit (pdf) filed by three female plaintiffs.  The complaint alleges, among other things, that women have been paid less and promoted less, and that Goldman has a culture designed to promote men and devalue women in the work place.  The complaint also alleges a less-than-flattering description of a co-ed, company-sponsored trip to the strip club followed by an outright sexual attack.

As is to be expected, Goldman denies the claims.  The WSJ Deal Journal reports:

Goldman Sachs spokesman Lucas Van Praag said in a statement:

“We believe this suit is without merit. People are critical to our business, and we make extraordinary efforts to recruit, develop and retain outstanding women professionals.”

Okay, but how is the first statement linked to the second?  So such things can never happen because your business "needs people?"    Beyond that, this statement begs the question: "So how do you treat those you deem to be less-than-outstanding women professionals?"  

I would think, given the year that Goldman has had from a pubic relations perspective, that they could do better.  Then again, maybe they don't care that much.  

--Joshua Fershee