Saturday, April 5, 2014
As I write this on Friday night (to be posted automatically on Saturday morning, during which time I will be in transit), ILEP's latest symposium, Business Litigation and Regulatory Agency Review in the Era of the Roberts Court, is just concluding (you can see a list of the papers presented here, which I believe will all eventually be published in the Arizona Law review).
The biggest subject for discussion was basically the future of the securities class action - or any kind of business litigation, really - given not only the potential of Halliburton to eliminate or severely restrict securities class actions, but given recent decisions like this one upholding a mandatory arbitration provision unilaterally adopted into a REIT's bylaw.
The final panel, and thus the one freshest in my mind, explored whether states have the ability under the Federal Arbitration Act to limit the power of corporations to impose mandatory arbitration to resolve shareholder disputes. I think that's a really interesting question - whether either states can, as a function of their ability to regulate corporations, flatly forbid the adoption of mandatory arbitration agreements in corporate charters and bylaws, in the same way they otherwise regulate corporate governance matters. The FAA's nondiscrimination provisions only apply to contracts, so states' power in this regard turns on whether regulation of corporate governance and the limits of directorial power counts as a type of contractual regulation, or not. There was also a lot of discussion about whether the fact that directors have fiduciary obligations to shareholders - rather than a mere contractual relationship - gives states more of a regulatory power over their behavior (and their ability to adopt arbitration provisions) than the FAA might otherwise prohibit.
The only real question is how quickly this question gets answered. On the one hand, there seemed to be a sense of the room that it will take time for these issues to bubble up throught the courts - and maybe that's right, especially if multiple states' law has to be interpreted. And of course, the above-linked case arose in the context of the Commonwealth REIT - except the trustees' adoption of the mandatory arbitration bylaw did not, in fact, work out well for them, and may serve as a cautionary tale for corporate directors considering similar actions in the immediate future.
On the other hand, sometimes the law is developed much more quickly than anyone expects - witness the gay marriage cases, which no one would have predicted a few years ago. This immediate decision from the District of Massachusetts upholding the REIT bylaw (and the Maryland decision on which it rests) may be the proverbial camel's nose....