Business Law Prof Blog

Compromise on Reform Bill Lifts Bank Stocks

House and Senate Democrats have reached a compromise on the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The House could approve the bill as soon as this coming Tuesday.  Senate approval is not guaranteed, but there is a strong possibility the bill could be signed into law by July 4.

The Wall Street Journal provides a nice four-part summary here.  The Huffington Post reports bank stocks rose in reaction to the news.  Draw your own conclusions. 

SJP

Yockey on Corporate Governance

Joseph W. Yockey has posted On the Role and Regulation of Private Negotiations in Governance on SSRN with the following abstract:

Developments in corporate law continue to give shareholders greater levels of power over public companies. Instead of using their power to seek changes within firms through such traditional means as proxy contests and litigation, shareholders are increasingly relying on private negotiations with directors as a key component of their governance activities. Regulations enacted in response to the recent financial crisis will likely trigger even more widespread use of negotiations in the years to come.

In this Article, I analyze the legal and policy implications generated by the use of private negotiations as a means of corporate governance. I make two related claims. First, I contend that negotiations provide shareholders and boards with several unique benefits that will often make them a more desirable method for resolving intra-firm differences than traditional means of corporate communication. In this sense, negotiations add value by filling a governance gap. Secondly, however, I argue that board-shareholder negotiations may never realize their full potential in governance due to current restrictions on corporate speech – namely, the SEC’s Regulation FD. The way in which Regulation FD impedes private negotiations stands at odds with many of the SEC’s own policy goals. To address this tension, additional regulatory intervention will be required for negotiations to continue to play a valuable role in governance.

ECC

Rhee on Corporate Social Responsibility

Robert J. Rhee has posted Crisis, Rescue and Corporate Social Responsibility Under American Corporate Law on SSRN with the following abstract:

This chapter discusses the legal issues of rescue and corporate social responsibility during times of public crisis. It analyzes a corporate board’s fiduciary duty related to the management of a public crisis and the provision of aid to government and the public. The thesis is that American corporate law adequately provides corporate boards authority to assume broad principles of corporate social responsibility, and that during a public crisis this authority is specially recognized in the enabling statutes of corporate law and should be broadened even further to pursue the public good in exigent circumstances.

ECC

Dutch Utility "Demerger" Law Violates EU Law

In July 2007, the Dutch enacted an unbundling law to require all integrated utilities companies to separate their operations into two distinct groups: one that handles transmission (grid management) and another for generation and operations. This law is not unlike the Federal Energy Regulatory Commission's Order 888, issued in 1996, which required utilities to separate generation and marketing functions, allow open access to transmission lines, and provided for the recovery of stranded costs. The Hague Court of Appeal just determined that the Dutch law violated EU law. (H/T: Baker McKenzie)

Industry regulation may have value, and (in my opinion) separating generation and transmission functions is worthwhile, but it is rarely as easy it may seem. Especially in infrastructure intensive industries, the transition is extremely complex. The market system that one might choose if starting from scratch is rarely one that can be easily implemented fifty or one hundred years into the process. Just ask anyone who worked in the stranded cost issues related to the unbundling process in the United States.

--Josh Fershee

Reporting Back From the Midwest Corporate Law Scholars Conference

I thoroughly enjoyed the presentations and interactions at the University of Cincinnati School of Law this past Tuesday, and was reminded (among various other things) that I do myself a disservice when I don't regularly check in on Steven Davidoff's blog.  Here's an interesting recent post from David reviewing the vexing problem of regulatory capture.  I have elsewhere suggested that part of the solution may be to make it easier to treat private actors as state actors when their interactions with regulators result in effective capture.

SJP

Our Great Old System

A new study of health care finds that: "Among the seven nations studied—Australia, Canada, Germany, the Netherlands, New Zealand, the United Kingdom, and the United States—the U.S. ranks last overall ...."

But hey, at least our health insurance company CEOs were doing well.

SJP

The Worst Contract You'll Ever Adhere To...

Have you taken a look at your Mets ticket stub lately?  The face of the ticket outright precludes rainchecks for games canceled by weather.  The flip side is riddled with six paragraphs of miniaturized print.  With the assistance of a magnifying glass the seatholder learns - among many other things, and after purchase - that he is prohibited from aiding in the transmission of "any information about the event", that smoking is permitted in designated areas only, that the event date/time are subject to change, that "noisemaking devices" are prohibited, and that he assumes "all risk, danger and injury incidental to the game of baseball" even if occurring in the parking lot.

Upon arrival at CitiField, the ticketholder learns that smoking is outright prohibited, that his ticket may not allow access to certain restaurants, escalators, elevators, and stadium levels, or even attendance at batting practice if he wishes to stand in a seating section within 200 feet of the batter.

Golly.  I thought these ticket stubs were bad when they attempted to shield club owners from any liability for foul balls proceeding with the G-Force of a comet.  Now the adhesion contracts thereon serve to not only eradicate all responsibility but also to either validate or cloak the class warfare occasioned by costly stadiums that have embarrassingly overestimated demand.  See Ken Belson, "Despite Success at Home, Something's Missing for Mets," NY Times, June 5, 2010 (noting that attendance at CitiField is down 15% this year).                        

As the Orwellian division of fans attending (and astronomical prices for) professional baseball proliferate, perhaps the law needs to catch up.  One thought is to extend New York's 3-day right to cancel to cover tickets purchased online (which often take more than three days to arrive).  Maybe each ticket needs an incorporation by reference clause to a website clearly detailing ALL terms and conditions.  Personally, I'd like to see a creative Federal Reserve come down on the undisclosed parking fees:  Nineteen dollars to park at CitiField is surely just as surprising as a credit card late fee for twenty five. 

---JSC, 6/23/10

A Tesla Stakeholder Request

The New York Times reports that Elon Musk, one of the PayPal founders, is "cash poor," despite his extensive investments. Musk made about $200 million dollars when eBay bought PayPal (he also made about $300 million from interests in another company he sold), but is now living off loans from friends. He is apparently getting by "on $200,000 a month and still flies his private jet." Nice friends. 

Musk is the "Chairman, Product Architect and CEO" of Tesla Motors, the high-end electric sports car company. (I'm a big fan of Tesla's cars, but haven't quite managed to get one.) He has money tied up in the company, and the company's scheduled initial public offering has the company expected to be valued around $1.4 billion.  In addition to Musk's money, the Department of Energy has provided the Tesla $465 million in low-interest loans and requires that Musk maintain 65% ownership of the firm. 

As a taxpayer and, thus, Tesla stakeholder, I would like to make this request:  I would appreciate it if Musk would stop using company funds for his private plane. Once the loan is paid off, it's up to him how he runs the company.  At that point, his shareholders, via their board, can complain if they see fit.  Just ask F. Ross Johnson.   

 --Josh Fershee

A Lost Opportunity for Washington?

In the decades preceding the recent economic crisis, the federal government - often at the urging of the White House - stimulated home ownership through steerage of tax breaks, interest rates, or HUD policies.  Now, as the foreclosure numbers continue at unfathomable highs, intervention by Washington, D.C. seems restrained, at best.

Thus leaving it to the states to fashion remedies for the growing problem of "strategic defaults" (i.e., homeowners simply walking away from mortgages).  Apart from the legal and ethical ramifications of that move, can such a mass response be good for consumers in general?  Banks are pretty good at spreading the cost of credit card fraud to the model consumers; I find it hard to believe that we won't all similarly end up paying for a practice that leaves lending institutions in the undesirable role of negative equity homeowner.  I find it harder to believe that an administration seemingly dedicated to touting the curative powers of big government has yet to propose a meaningful solution to a national foreclosure problem that promises to get worse.

For a discussion of California's debate over legislation aimed at capping foreclosure amounts, see "Battles in California Over Mortgages" in today's New York Times at http://www.nytimes.com/2010/06/22/business/22default.html?ref=business.

--JSC, 6/21/10   

 

Investing in the Gulf

The SEC website has an alert warning investors about stock scams related to the BP's oil disaster in the Gulf: Oil Spill Stock Scams—Don’t Get Cleaned Out by False Cleanup Claims.  It's hard to be surprised that some shady people are trying to cash in on this disaster.  This kind of unfortunate behavior regularly occurs following a tragedy, as it did after Hurricane Katrina, the September 11 attacks, and many others.    

To help avoid such scams, the SEC provides a number of suggestions for potential investors: (1) Investigate before you invest, (2) Find out who sent the message, (3) Find out where the stock trades, (4) Read a company’s SEC filings, and (5) Exercise some skepticism. I certainly can't argue with any of these, but if I were making the list, I think I'd start with the last one.   

--Josh Fershee

D. Daniel Sokol on Mergers

D. Daniel Sokol has posted Antitrust, Institutions, and Merger Control on SSRN with the following abstract:

This article provides a descriptive, analytical overview of the various institutions to better frame the larger institutional interrelations for a comparative institutional analysis. In the next Part it examines mergers as a case study of how one might apply antitrust institutional analysis across these different kinds and levels of antitrust institutions. The Article utilizes both quantitative and qualitative methods based on survey data of antitrust practitioners on merger issues to better understand institutional choice and the decision-making process. The surveys reveal results that run counter to the popular antitrust discourse about the level of merger enforcement under Bush. Slightly more than half of all practitioners surveyed found no change in merger enforcement under Bush in their own practice and the vast majority of the rest found a change in enforcement to be merely at the margins. The Article concludes with observations from the case study and appeals for more theoretical and empirical work in antitrust institutional analysis.

ECC