Business Law Prof Blog

"[T]he most significant securities law decision since Basic."

That's what Dean Michael Kaufman and John Wunderlich are saying Erica P. John Fund v. Halliburton Co. has the potential to become (the quote is from Barbara Black's Securities Law Prof Blog, which contains a number of helpful additional links here).

Another potentially related link: Bratton and Wachter on The Political Economy of Fraud on the Market.

SJP

Flowers for Algorithms

In anticipation of the upcoming maternal celebration on Sunday, The New York Times is running an article this morning that highlights the link-war in which the nation's largest online floral retailers are engaging.  Research indicates that people primarily click on the first two-to-three search results posted on Google, therefore creating big incentive for companies (not just florists...) to game the system by buying links, some related to their business and some not, to increase the number of links back to their website and therefore increasing their ranking within the Google algorithm.

Considering that the Mother's Day holiday generates gift-giving at nearly $16 billion/year, it is no wonder that companies are vying for the biggest slice of that pie.  In other news, Marketplace on American Public Media suggests that the average American spends $140 on a Mother's Day gift.  In light of this research and the fact that I only sent my mother a copy of a favorite book of mine, the rest of this post must wait while I go shopping....maybe for flowers.

Happy Mother's Day!

Anne Tucker

A Friday Quiz and a Few Thoughts on Politics

The Pew Research Center has posted a quiz on political typology, available here.  It’s an interesting little quiz.  The quiz provides two options, and you are given the following instructions:

To identify your typology group, select one response from each of the paired statements below.  Even if neither statement is exactly right, choose the response that comes closest to your views.

As I went through the quiz, and number of the options were quite clearly better or more accurate for me than the others.  Those were easy decisions.  There were a few, however, that were either both right, in some significant way to me, or both wrong.  For instance, the quiz asks you to pick one of the following:

• Government regulation of business is necessary to protect the public interest. 
• Government regulation of business usually does more harm than good. 

I find both to be highly accurate statements.  I would add “sometimes” to modify “necessary” in the first one, and I would replace “usually” with “sometimes” in the second, but I can live with both.  So it’s a tough call for me.  

Similarly, the quiz provides this choice:

• This country should do whatever it takes to protect the environment.
• This country has gone too far in its efforts to protect the environment.

I am very fond of the environment, but “whatever it takes” is a little much for me.  I also don't think we have generally gone too far in efforts to protect the environment, but I do think a great number of our environmental policies go too far (usually because they are ineffective or counterproductive).   So this, one, too, was a tough choice for me. 

As I went through the quiz, I noted the ones that were close, and I tried the quiz a few times making changes only to the items that were close calls for me. The results for me ranged the spectrum (though not reaching either end).

The quiz reminded me of a 2005 article from Jonathan Rauch, about the makeup of the U.S. Supreme Court near the Roberts nomination. He explained:

No wonder that partisans on both sides speak as if the millennium is at hand. Conservatives expect, and liberals dread, that a new era of aggressive jurisprudence is soon to begin. "Our hard-won rights will be in jeopardy if [Roberts] is confirmed," warned Kim Gandy, the president of the National Organization for Women, in a statement issued minutes after Bush announced his choice. The Economist paraphrases William Kristol, a conservative pundit and strategist, as arguing that conservatives now "have a chance to implement a judicial revolution that will match their economic and foreign-policy achievements."

Or not. A closer examination reveals a more complicated story. Legally, incremental change seems more likely than revolution, continuity more likely than reversal. Politically, conservatives may be in for a surprise: The more conservative the Court, the more divided the conservatives.

Unfortunately, it seems to me that this nuance, on the left or right, can be witnessed largely in political appointments, and not in our election options. And further, I think many of us are liberal in some ways and conservative in others, and are not just nuanced liberals or conservatives.  

The current political system thus leads to legislation and regulation that tends to skew left or right in a way that is not reflective of what a majority of Americans would like.  For example, another Pew Study (here), found that 87% of those polled favor including a renewable energy mandate in national energy legislation. Further, 66% of the public supports limits on CO2 and other greenhouse gas emissions. Along with that, the poll also found that 68% favor expanding U.S. exploration and development of coal, oil and gas.  Yet not once have we seen energy legislation that reflects all of these things. 

I suppose, in many ways, this is the trade off for a solid and stable government. But, once in a while, I would still appreciate a government that is both more efficient and more representative of the whole. 

--JPF

Right or Wrong? A pro-business view of consumer arbitration agreements

Last week the U.S. Supreme Court in AT&T Mobility LLC v. Concepcion, ruled that AT&T (and therefore any company) could block class-action suits and force their customers into binding, individual arbitration per the terms of the contract (e.g., a cell phone contract). In an opinion written by Justice Scalia, the Court held that the class waiver language in the arbitration provision was enforceable despite California Supreme Court precedent that invalidated such provisions in consumer contracts of adhesion, like the one at issue in this case. 

The result:  companies are free to fashion enforceable arbitration agreements under the Federal Arbitration Act (FAA) that exclude class-action options irrespective of state law/precedent holding otherwise.

The Court found that the lack of review and risk of uncaught errors with arbitration, while acceptable with individual claims, to be unacceptable in the aggregate without clear consent/intent of the parties. In contracts of adhesion, consent of the parties means intent of the drafters.  Thus, the Court honored the intended scope of the arbitration agreement (i.e., no class proceedings) as written by AT&T.  This case, when combined with the 2010 U.S. Supreme Court case Stolt-Nielsen, which disallowed the imposition of class-arbitration procedures where the agreement was silent as to class options, creates a pro-business view of arbitration provisions in consumer contracts and has the potential to decrease consumer class-actions. 

While this opinion has been lauded for establishing that consent is king with regard to arbitration, that, of course, only really applies to the business-side of the contract, not the consumer.  The consumer has choices-- not enter into the contract, or bring the $30.33 claim individually in arbitration--but are those choices sufficient?  In light of the fact that the AT&T contract contained high consumer arbitration awards (min. of $7500 if favorable) and the cut awarded to plaintiff's lawyers in traditional class-action suits, maybe the answer in this case is yes....but is this the right answer for consumer claims as a whole?  My jury is still out, and I welcome your comments.

Anne Tucker

"Fight of the Century: Keynes vs. Hayek Round Two"

 

SJP

Football Fools and Public Schools

Today is apparently my day to write about competition, or more accurately the lack of competition. Two stories caught my eye:

1. BCS as an Antitrust Violation?

The Justice Department has asked the NCAA to justify the way it chooses a college football champion. Its request notes that “serious questions continue to arise” about whether the current system complies with antitrust laws. Stories are here (New York Times) and here (Wall Street Journal).

I think the Bowl Championship Series is nonsense—a Big Collegiate Scam—and I would prefer a football playoff. But it shouldn’t surprise anyone that a socialist sport like football is anti-competitive.

My personal dislike of the BCS predisposes me to support the government inquiry. But doesn’t the Justice Department have better things to do, bettter ways to spend our tax money, than worry about how college football’s national champion is chosen? It must have run out of insider trading cases to prosecute.

2. Public Schools and Supermarkets

Donald Boudreaux, an economist at George Mason, has an interesting article in the Wall Street Journal comparing public schools to supermarkets, If Supermarkets Were Like Public Schools. I realize that there are many differences between groceries and education, and I’m sure Boudreaux does as well, but it’s a very interesting thought piece.

-Steve Bradford

Buffett/Munger Apply Unocol Standard to Sokol Matter

Many people think Warren Buffett should have been more outraged by David Sokol's trading behavior related to Lubrizol. As I noted last month, I think Buffett knew what he was doing, and he allowed Sokol to sink or swim on his own.  Information from a Dealbook interview -- Buffett Lets the Facts Bury Sokol -- with Warren Buffett and his partner partner Charlie Munger I think confirms that. 

In crafting the initial press release on the matter, which praised Sokol for his service to Berkshire Hathaway, Buffett was measured and calm.  As the Dealbook reports:

“I think we can concede that that press release was not the cleverest press release in the history of the world,” Mr. Munger said. “The facts were complicated, and we didn’t foresee appropriately the natural reaction.”

“But I would argue that you don’t want to make important decisions in anger,” he continued. “You want to display as much ruthlessness as your duty requires, and you do not want to add one single iota because you’re angry.”

This kind of calculated and measured response brings to mind the Unocal standard Delaware courts apply to anti-takeover measures.  When the standard applies, the court adds two questions to the traditional business judgment rule:  (1) Is there a cognizable threat to corporate policy? and (2) Are the defenses adopted proportional to a the perceived threat?

This is exactly the kind of analysis Buffett and Munger appear to have made.  Sokol's behavior clearly posed a threat to the company.  A proportional response warranted a measured response, at least at the outset. That doesn't mean an additional, more extreme, response was not available if the situation dictacted.  As Munger further explained: 

“You can always tell a man to go to hell tomorrow.”

--JPF

 

Final Call for Participants - Midwest Corporate Law Scholars Conference

I am reposting the announcement for The Midwest Corporate Law Scholars Conference (MCLSC) meeting that will be held on Wednesday, June 15th, at The Ohio State University Michael E. Moritz College of Law in Columbus, Ohio.   As one of the conference organizers, I can say that we have received a strong response and currently have over thirty scholars from across the nation registered to attend.  It is not too late to participate; we have extended the deadline for submissions to May 15.  We welcome all on-topic paper submissions and will attempt to provide the opportunity for all submitted papers to be presented.  Junior scholars are particularly encouraged to submit papers, and we will attempt to assign a commentator for each junior paper presented.

This is the second annual meeting of the MCLSC, and we are opening up the meeting to all corporate law scholars from anywhere in the world.  Presentations will start in the morning and end late afternoon. Junior scholars are particularly encouraged to submit papers, and we will attempt to assign a commentator for each junior paper presented.

To submit a presentation, email me at eric.chaffee@notes.udayton.edu with an abstract or paper by May 15, 2011. Please title the email “MCLSC Submission – {Name}”. If you would like to attend, but not present email me with an email entitled “MCLSC Attendance”.  Please specify in your email whether you are willing to serve as a commentator. A conference schedule will be circulated in late May.

Conference Organizers:

Eric C. Chaffee

Barbara Black

Steven M. Davidoff

Pay-to-Play Draft Executive Order

Keeping in line with my recent research interests and the kind introduction provided by your regular blogger, Stefan Padfield, my introductory-post focuses on corporate campaign contributions. 

Late in April it was reported that President Obama was circulating a draft Executive Order (Download Draft Executive Order) meant to enact a small portion of the DISCLOSE Act, a failed election transparency law targeted at corporate contributions.  The DISCLOSE Act, which was just one vote short of a filibuster-proof majority in the Senate last fall, sought among other election transparency measures to prohibit federal contractors from making political donations to federal candidates or parties.  The draft Executive Order takes a more scaled-back approach to this issue and would only require federal contractors to disclose contributions exceeding $5,000 made by it, its offers and directors, and any of its subsidiaries to any federal candidate, party, or independent third-party entity with the intention of making independent expenditures or electioneering communications.  Disclosures would be searchable by the public, and similar to the type of pay-to-play legislation enacted in several states.

The proposed Executive Order encompasses independent expenditures, which the Supreme Court held in Citizens United pose no risk of quid pro quo corruption, but only requires disclosure (not an out-right ban) of such contributions.  Those familiar with Citizens United know that the disclosure requirements involved in that case were upheld.  The proposed Executive Order, therefore, tests the constitutional boundaries of the evolving Supreme Court jurisprudence of corporate campaign finance regulation because it targets disclosure requirements of corporate independent expenditures-- an issue not directly addressed by Citizens United.  It is also worth noting that by including third party donations within its scope, this proposal would arguably capture donations to 501(c)(4) organizations, which are not currently disclosed to the public.  Given that the proposed Executive Order would become effective immediately, and cover donations made within the past 2 years, this Order has potential, if signed, to play a major role in the corporate campaign finance debate that will undoubtedly continue through the 2012 presidential election.  For those interested, this is an issue to watch.

While the White House has been pretty quiet about the proposal, there is some movement on it from advoacy groups.  For example, Public Citizen, drafted a letter to President Obama urging that he sign the proposed Executive Order into law, which, as of May 2nd, had been signed by 22 various election-watch and shareholder advocacy groups including the Center for Corporate Policy, Common Cause, and the Social Equity Group (Download Public Citizen letter).  Of course opposition is also forming, which includes 25+ members of Congress who have sent (or signed onto) letters to President Obama urging that he reconsider the proposed Order and its impact on small businesses, the federal procurement process, and the First Amendment rights of corporations (Download Opposition Letter/ Download Graves Letter).

Future posts will not be this long!

-Anne Tucker

What Do Sokol and Vizzini Have in Common?

So many others have said this better than I will already, but a couple of quotes from Delaware cases keep coming to mind as I think of David Sokol's probable upcoming litigation. Regardless of how the insider trading cases go, Sokol was, in this instance (as Prof. Bainbridge noted), a really bad agent. Here are the quotes:

“[A] cognizable claim is . . .  stated on the common law ground that an agent is under a duty to account for profits obtained personally in connection with transactions related to his or her company.” In re eBay, Inc. Shareholders Litigation, 29 Del. J. Corp. L. 924 (2004) (not reported in A.2d)

“Conduct that does not run afoul of the corporate opportunity doctrine may nonetheless constitute a violation of the broader, and more fundamental, fiduciary duty of loyalty.” Gibralt Capital Corp. v. Smith, 2001 WL 647837, at *9 (Del. Ch. May 8, 2001)

And, in light of the extraordinary efforts of our military and everyday, unexpected heroes, I'm going to go ahead and suggest Mr. Sokol consider rethinking his rhetoric when it comes time for a trial. He says, via his attorney:

At all times he [Sokol] faithfully discharged his fiduciary duties to Berkshire, a company he heroically served and continues to regard with reverence.

With regard to Sokol's view of "heroically," I think I'll look to Inigo Montoya for the words used when he famously explained to Vizzini the meaning of inconceivable, "I do not think it means what you think it means."

--JPF 

 

Welcome Guest Blogger Anne Tucker

We here at the BLPB are very pleased to welcome Prof. Anne Tucker (Georgia State) to the blog for a month of guest blogging.  I will leave a more detailed introduction to her, but you can find her faculty page here.  I asked Anne to guest blog after noticing her recent SSRN posting, Flawed Assumptions: A Corporate Law Analysis of Free Speech and Corporate Personhood in Citizens United.  This past fall, she also helped organize what looks like it was a great symposium on Citizens United at Georgia State.  I'm sure we can look forward to a month of interesting posts from Anne, and I thank her for taking the time to join us.

SJP

The Logic of the Law

Today’s post is in loving memory of Florian Placzek, who graciously allowed me to fall in love with and share his beautiful daughter, in spite of my obvious imperfections. May he rest in peace.

“The life of the law has not been logic,” Holmes said. “It has been experience.” Logic ties the law together; it’s essential to what we know as the rule of law. But the law is so much more than logic.

The law is the love of a father and mother who want to provide for their children after they depart. The law is the hope of a childless couple who want to adopt. The law is the struggle of a laborer to protect his hard-earned pay.

The law is the dream of an immigrant who wants a better world. The law is the fear of a young man who has made a mistake and now faces the criminal justice system. The law is the despair of a young woman involved in an auto accident who can’t pay her hospital bill. The law is the spirit of the entrepreneur with an idea, but little else.

The law is people’s dreams, fears, loves, and ambitions. We lawyers use logic to mold the law to fit people’s needs, but don’t forget what lies beneath the logic. Those people walking through your office door are not just clients. They’re human beings with human needs. Use the law, but meet the needs.

The life of the law may not be logic, but the logic of the law is life.

-Steve Bradford

What's on your Kindle (or similar) wish list?

Here's my current top 5 (most recent add first, etc.):

1. Lynn Stout, Cultivating Conscience: How Good Laws Make Good People

2. Robert Eli Rosen, Lawyers in Corporate Decision-Making

3. Ed Miller, Small Stakes No-Limit Hold'em

4. Amartya Sen, The Idea of Justice

5. Milton Friedman, Capitalism and Freedom: Fortieth Anniversary Edition

SJP