Wednesday, January 28, 2015
Over the past few decades, officers have arguably become some of the most important individuals in the corporation. From the implosions of Enron and WorldCom, to the success of companies like Apple and Microsoft, to the Wall Street crisis that sunk the world into near global recession, corporate officers have played a role in each of these storylines and countless (albeit lesser known) others. In spite of the well-publicized scandals, officers continue to be given wide latitude to carry out their role of managing the day-to-day operations of their companies. The primary constraint on this power under state corporate law is the imposition of fiduciary obligations. Fiduciary duties thus play a vital role in checking the considerable power and authority of officers. Fiduciary duties will only affect officer behavior, however, if there is an effective enforcement scheme that holds officers accountable. This Article discusses how the development of corporate doctrine, coupled with the dynamic in today’s corporate management has created impediments and disincentives for the enforcement of officer fiduciary duties. In light of the problematic state of the current enforcement scheme, this Article evaluates possible changes that would alleviate deterrents in the enforcement process. This Article concludes that in order to regulate officer behavior with fiduciary duties, there must be a collective correction to the enforcement mechanisms in place for internal enforcers beginning with reevaluating stockholder derivative litigation burdens.
This is a great article for the arguments advanced and careful observations made. It also provides such a thorough and useful discussion of officers that I plan to add it to a seminar reading list. Professor Shaner's article also earned the top prize at the 2014 George Washington University C-LEAF Junior Faculty Workshop.
Megan Shaner at the University of Oklahoma College of Law first workshoped this paper at George Washington's CLEAF Junior Faculty Workshop last spring.
Monday, January 26, 2015
As some of you know, my beloved cat, Meowth (yes, named after the Pokemon character) has been battling squamous cell carcinoma. Today, he went on to the everlasting life beyond this Earth. This post is dedicated to his memory. Here he is, meowing with me and my daughter a bit over a week ago.
One of the things that we have been blessed with over the years--in Massachusetts and here in Knoxville--is great veterinary medical care. Since The University of Tennessee's College of Veterinary Medicine (CoVM) is located on the West (agricultural) campus in Knoxville, it is a stone's throw from the College of Law, where I teach. We have been assisted in various ways, including with Meowth, by veterinarians and veterinary technicians from the CoVM. The CoVM also boast a veterinary social work program, and we were helped in Meowth's end-of-life care by one of the veterinary social workers in the CoVM program. Many of the local veterinarians were trained at our CoVM. We have worked with several private practice groups in Knoxville.
All this interaction with veterinarians has made me wonder how private veterinary medical practice groups are organized, from a legal entity point of view. (Yeah, I know. I am a true law nerd. I admit that.) My impression (although many practice groups are not very transparent about their form of legal organization) is that many of these practice groups are professional corporations (PCs) or professional limited liability companies (PLLCs). I suppose this makes sense to me.
But it reminds me of a question commonly asked by astute Business Associations students: "Why do professionals form professional business entities, given that the owners of limited liability entities already enjoy protection from liability for the obligations of the entity?" I am sure many of you have been asked this same question. If not, you soon may be.
Friday, January 23, 2015
I recently updated my research chart entitled Corporate Forms of Social Enterprise: Comparing the State Statutes. Always open to suggestions on how to improve the chart.
As the number of corporation-based social enterprise state statutes has grown, the chart has become a bit unwieldy. Previous versions of the chart went state by state, detailing the differences from the Model statute. I think the new format (a short summary chart with details in the footnotes) is better for comparing/contrasting the state statutes, but is still far from perfect. For example, some of the abbreviations used in the summary chart require going to the footnotes for explanation, but it is difficult to remedy that and keep the summary chart short.
Also, here is a link to the latest report of Delaware Public Benefit Corporations ("PBCs"). [This is my first time linking to an outside Excel sheet, but it worked for me by saving to my Desktop and then opening.] The number of Delaware PBCs has grown to 234 entities. This is still tiny in comparison to the more than 1 million total entities in Delaware, but it is still early.
Thursday, January 15, 2015
Greetings from Dublin. Between the Guinness tour, the champagne afternoon tea, and the jet lag, I don’t have the mental energy to do the blog I planned to write with a deep analysis of the AALS conference in DC. I live tweeted for several days and here my top 25 tweets from the conference. I have also added some that I re-tweeted from sessions I did not attend. I apologize for any misspellings and for the potentially misleading title of this post:
Posner: judges ought to give reasons for rulings but shouldn't pretend they're interpreting intention of the statute drafters #AALS2015— Dalie Jimenez (@daliejimenez) January 5, 2015
Studies show that scholars are more productive if they write 15-30 minutes every day- more so if they are accountable for time #AALS2015— Marcia Narine (@mlnarine) January 4, 2015
#AALS2015 Judge Rosenthal-lots of questions are so practical re access to courts that academics haven't focused on them.— Marcia Narine (@mlnarine) January 3, 2015
Next week I will write about the reason I'm in Dublin.
January 15, 2015 in Business Associations, Conferences, Corporate Finance, Corporate Governance, Corporate Personality, Corporations, CSR, Delaware, Financial Markets, Marcia Narine, Securities Regulation, Travel | Permalink | Comments (0)
Monday, January 12, 2015
I recently was afforded the opportunity to draft a short article for the William & Mary Journal of Women and the Law that combines my research on crowd theory (from the crowdfunding space) and my research on women and corporate governance. The opportunity arose out of a celebration of the 20th anniversary of the journal, for which I had been a published author in the past. (The journal published my article on women as investors in the context of securities fraud, Female Investors and Securities Fraud: Is the Reasonable Investor a Woman?, back in 2009.)
I just posted the recently released final version of the 20th anniversary article, entitled Women in the Crowd of Corporate Directors: Following, Walking Alone, and Meaningfully Contributing, to the Social Sciences Research Network. My application of crowd theory to the gender composition of corporate boards of directors in this article does not provide significant new insights on the decision making of female corporate directors. However, it does result in the observation that women on corporate boards may foster the establishment of new board structures and policies that have the potential to favorably impact board decision making. The bottom line? More--and more novel--research still is needed on the presence and contribution of women on corporate boards of directors.
My article represents a brief exploration, but I may well continue my work in this general area. Accordingly, I would be interested in knowing about others doing similar or related research. Let me know in the comments or by email message if you would like to alert me to your relevant research and writing.
Friday, January 9, 2015
There are many Delaware cases from 2014 that are worth reading, but below are three relatively recent Delaware cases that I found worthwhile. I provide the case name, my very short takeaway, and links to the case and additional commentary for those who wish to dive deeper.
In re Zhongpin Inc. Stockholders Litigation, controlling stockholders, decided Nov. 26, 2014. In denying a motion to dismiss, the Delaware Court of Chancery found a reasonable inference that a 17.3% stockholder/CEO could be a “controlling stockholder.” I have not done an exhaustive search on this issue, but this is a lower percentage of ownership for a “controlling stockholder” than I have seen in most cases, though (of course) the analysis is case specific. Additional commentary by Toby Myerson (Paul Weiss).
C.J. Energy Services, Inc. et al v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, M&A/Revlon, decided Dec. 19, 2014. The Delaware Court of Chancery held that “there was a ‘plausible’ violation of the board’s Revlon duties because the board did not affirmatively shop the company either before or after signing.” (pg. 3). The Delaware Court of Chancery enjoined the shareholder vote on the transaction at issue for 30-days and “required [the defendant] to shop itself in violation of the merger agreement . . . which prohibited [the defendant] from soliciting other bids.” Id. In this case, the Delaware Supreme Court reserved, stating that the Court of Chancery did not fulfill the stringent requirements for issuing a mandatory injunction, reminding that there are various ways to satisfy Revlon, and mentioning that this case did not have evidence of “defensive, entrenching motives,” as seen in Revlon and QVC. Note that the 38-page opinion was cranked out in just two days after the case was submitted. The handling of these expedited cases by the Delaware courts is one of the things that make Delaware attractive to corporations. Additional commentary by Brian Quinn (Boston College).
United Technologies Corp. v. Lawrence Treppel, books and records, decided Dec. 23, 2014. The Delaware Supreme Court reversed the Delaware Court of Chancery’s holding that the Court of Chancery did not have authority to restrict documents produced in a books and records inspection to use only in cases filed in Delaware courts. The Delaware Supreme Court remanded to the Delaware Court of Chancery to decide whether the Court of Chancery will exercise its discretion to so restrict the use of the information obtained in the books and records inspection. In this case, United Technologies insisted that Treppel sign a confidentiality agreement when he sought to inspect books and records, which is fairly common, but the confidentiality agreement also limited the forum, of any claim brought using the information inspected, to Delaware courts. At the time of the inspection request, United Technologies did not have a forum selection clause in its bylaws, but it later adopted one. As the broader forum selection debates continue, it will be interesting to see how the Delaware Court of Chancery handles this case in the books and records context, especially because the Delaware Court of Chancery has been encouraging plaintiffs to use the “tools at hand,” such as books and records requests, before filing derivative lawsuits. Beyond the substance, one remarkable thing about this decision is that Chief Justice Leo Strine authored an opinion that was only 14 pages. When he was on the Court of Chancery he would author 100+ page opinions with some regularity. Granted, the Court of Chancery is a trial court and their opinions tend to be a good bit longer than the Delaware Supreme Court opinions, regardless of the judge. Additional commentary by Celia Taylor (Denver Law).
For reading beyond these three cases, former Delaware Supreme Court Justice Jack Jacobs comments on two additional recent Delaware cases here (M&A related).
A few weeks ago, I described to you a really special extracurricular project undertaken by one of my students, Brandon Whiteley, now an alum, this past year. The project? Proposing and securing legislative passage of Invest Tennessee, a Tennessee state securities law exemption for intrastate offerings that incorporates key features of crowdfunding. The legislation became effective on January 1.
In that first post, I described the project and Brandon's observations on the legislative process. This post highlights his description of the influences on the bill that became law. Here they are, with a few slight edits (and hyperlink inserts) from me.
Wednesday, January 7, 2015
I had very limited time at AALS this year (unfortunately) but I still walked away with some great ideas (and a chance to say hello to a few, but not enough, friendly faces). I am borrowing from many ideas shared in the panel cited below, as well as a few of my own. As many of you prepare to teach BA/Corporations for the spring (or making notes on how to do it next time), here are a few fun new resources to help illustrate common concepts:
- HBO's The Newsroom. A hostile takeover, negotiations with a white knight-- all sorts of corporate drama unfolded on HBO's Season 3 of The Newsroom. I couldn't find clips on youtube, but episode recaps (like this) are available and provide a good reference point/story line/hypo/exam problem for class.
- Related, for those of you who teach or encourage the use of Bloomberg services, the Bloomberg terminal was even featured prominently in the season.
- This American Life-- Wake Up Now Act 2 (Dec. 26, 2014). This brief radio segment/podcast tells the story of two investors trying to reduce the pay of a company CEO. The segment discusses board of director elections, board duties, board functions and set up some large questions about whether or not shareholders are the owners of the corporation and their profit maximization is the ultimate goal for a company. This could be followed with Lynn Stout's 2012 NYT Dealbook article proposing the opposite view.
- HBO's Silicon Valley. For all things tech, start up, entrepreneurship and basic corporate formation, clips (you will want to find something without all of the swears, I suspect) and episode recaps from this popular show illustrate concepts and connect with students. Again, great for discussion, hypos, and exam fact patterns.
- The Shark Tank!. I have to thank Christyne Vachon at UD for this idea. There are tons of clips on youtube and most offer the opportunity to talk about investors bringing different things to the table, how to apportion control, etc. Here is an episode involving patent issues. I think that I am going to open my experiential Unincorporated/Drafting class with a Shark Tank clip on Monday.
- Start Up Podcasts. These 30-minute episodes cover a wide range of topics. Here is one podcast on how to value a small business. At a minimum, I will post some of these to my course website this spring. (Thank you Andrew Haile at Elon for this recommendation.).
- Planet Money. The podcasts are a great resource, but what I love is the Planet Money Twitter page because it is a great way to digest daily news, current events and topical developments that may be incorporated into your class.
- Wall Street Journal--TWEETS. (that felt like an oxymoron to write). Aside from the obvious, I find the Twitter feed to be the most useful way to use/monitor the WSJ. I will admit it, I don't "read" it every day, but this is my proxy.
Special thanks to the participants in the Agency, Partnership & the Law's panel on Bringing Numbers into Basic and Advanced Business Associations Courses: How and Why to Teach Accounting, Finance, and Tax
Moderator: Jeffrey M. Lipshaw, Suffolk University Law School
Lawrence A. Cunningham, The George Washington University Law School
Andrew J. Haile, Elon University School of Law
Usha R. Rodrigues, University of Georgia School of Law
Christyne Vachon, University of North Dakota School of Law
Eric C. Chaffee, University of Toledo College of Law
Franklin A. Gevurtz, University of the Pacific, McGeorge School of Law
And Happy New Year BLPB Readers!
Tuesday, January 6, 2015
Over at The Conglomerate, Usha Rodrigues says, "Larry Ribstein was wrong." Usha argues that she's right to teach LLCs at the end of the course, and Larry was of the mind that LLCs should play a more prominent role in the business entities course.
For my teaching, I'm with Larry on this, though I am also of the mind that Usha (and other teachers) may have different goals, so taking another tack is not wrong. I'm pretty sure we're all better teachers when we are true to ourselves and our thinking. For me, anyway, I am, without a doubt, at my worst in the classroom (and probably out) when I try to mimic someone else.
So here's how Usha explains her thinking:
I don't leave LLCs til the end of the semester because I think they're unimportant. It's because the cases are so damn thin. It's still such a new form, I just don't see much there there. Most of them wind up being trial courts who read the statute in completely stupid ways. Blech.
So I teach corporations and partnerships emphasizing fiduciary duty, default vs. mandatory rules, and the importance of the code. In fact, one semester I confess that I would ask a question and then intone, "Look to the code!" so often I felt like a Tolkien refugee. By the time I get to the LLCs cases, which are pretty basic, the class is ready for my message: the LLC is a new form. When dealing with something new, judges look both to the organizational statutes and to the organizational forms they know as they shape the law. Plus the LLC is such an interesting mix between the corporate and partnership form, it just makes sense to get through them both before diving in.
It's hard to argue with Usha's rationale. Like Larry, she's smart, and this is a reasonable take. For me, though, it doesn't work toward my goals, so I have a different point of view. I think it's more in line with where Larry was coming from, though I admit I don't know.
Here's why: I want students (and lawyers and courts) to treat LLCs as unique entities. Leaving them to the end of the course reinforces the idea that LLCs are hybrid entities the combine partnerships and corporations. I just don't think that's the right way to think about LLCs.
Certainly, it is true that LLCs share characteristics of partnerships and corporations. But partnerships and corporations can have similarities, too. We can, for example, refer back to the partnership case of Meinhard v. Salmon when discussing corporate fiduciary duties and corporate opportunity.
In my experience, teaching LLCs at the end of the course seemed to frame the LLC as an entity that is just pulling from partnership or corporate law. As such, it seemed the students were thinking that the real challenge for LLCs was figuring out whether to pull from partnership law or corporate law for an analogy. Part of the reason for that, I think, is that so many of the LLCs cases seem to think so, too. See, e.g., Flahive. As Usha would say, "Blech."
The LLC is prominent enough in today's world that I think it warrants a more prominent role in the introductory business organizations course. If we don't bring the LLCs more to the fore, we allow courts to continue to misconstrue the entity form, in part because we aren't giving students the tools they need to ensure courts understand the unique nature of the LLC.
I figure Usha can get students where she needs to on this regardless of how she teaches business associations. She is a lot smarter than I am. Given my goals and how I think about the LLC, though, I'll keep starting my class with an introduction to LLC formation, and I'll keep teaching LLC cases and issues throughout the semester.
Monday, January 5, 2015
I just left the Association of American Law Schools annual meeting this morning. I came back to a flat tire at the airport, but let's not dwell on that . . . . The conference was a good one, as these zoo-like mega conferences go.
I presented at the conference as part of a panel that focused on teaching courses and topics at the intersection of animals and the law. (Thanks for the plug, Stefan!) Yes, although it is a little known fact, I do teach courses involving animals and the law. Regrettably, it is a somewhat rare thing for me, since I always have to teach these courses as an overload. However, I also am the faculty advisor to our campus chapter of the Student Animal Legal Defense Fund and UT Pro Bono's Animal Law Project (which compiled and annually updates a Tennessee statutory resource used by animal control and other law enforcement officers, as well as other animal-focused professionals, in the State of Tennessee). In addition, I coach our National Animal Law Competitions team. These non-classroom activities give me ample time to teach in different ways . . . .
I will not rehash all of my remarks from the panel presentation here. In fact, I want to make a very limited point in this post. While my calling to legal issues involving non-human animals is rooted in large part in being the "animal mom" of a rescue dog and rescue cat, I also participate in educational efforts in this area because I see it as my professional responsibility as a lawyer--and in particular, as a business lawyer.
Friday, January 2, 2015
To the extent you will be attending the Association of American Law Schools Annual Meeting in DC, here are a couple of panel recommendations that come with the added benefit of meeting a BLPB blogger in person:
1. Keeping it Current: Animal Law Examples Across the Curriculum (01/03/2015, 5:15-6:30 pm)
Moderator: Katherine M. Hessler, Lewis and Clark
Speaker: Susan J. Hankin, Maryland
Speaker: Joan M. Heminway, Tennessee
Speaker: Courtney G. Lee, McGeorge
Speaker: Kristen A. Stilt, Harvard
2. The Role of Corporate Personality Theory in Regulating Corporations (1/5/2015, 2:00-3:00 pm)
Moderator: Stefan Padfield, Akron
Speaker: Margaret Blair, Vanderbilt
Speaker: Elizabeth Pollman, Loyola
Speaker: Lisa Fairfax, George Washington
Speaker: David Yosifon, Santa Clara
PS--For more information on the day-long program of the AALS Section on Socio-Economics on Monday, Jan. 5, as well as the day-long Annual Meeting of the Society of Socio-Economists on Tuesday, Jan. 6, go here.
Thursday, January 1, 2015
Happy New Year.
Starting Saturday morning (or maybe tomorrow night), I'll be live tweeting from the Association of American Law Schools (AALS) conference. Because I teach both civil procedure and business associations, my tweets will largely relate to those sessions as well as sessions for new law professors.
Next Thursday I will summarize the high points of the conference, at least from my perspective.
My twitter handle is @mlnarine and the AALS hashtag is #AALS2015. If you're at the conference and a blog reader, please say hello.
Tuesday, December 30, 2014
I continue to document how courts (and lawyers) continue to conflate (and thus confuse) LLCs and corporations, so I did a quick look at some recent cases to see if anything of interest was recently filed. Sure enough, there are more than few references to "limited liability corporations" (when the court meant "limited liability companies." That's annoying, but not especially interesting at this point.
One case did grab my eye, though, because because of the way the court lays out and resolves the plaintiffs' claim. The case is McKee v. Whitman & Meyers, LLC, 13-CV-793-JTC, 2014 WL 7272748 (W.D.N.Y. Dec. 18, 2014). In McKee, theplaintiff filed a complaint claiming several violations of the Fair Debt Collection Practices Act against defendants Whitman & Meyers, LLC and Joseph M. Goho, who failed to appear and defend this action, leading to a default judgment. After the default judgment was entered, defense counsel finally responded.
This case has all sorts of good lessons. Lesson 1: don't forget that all named parties matter. Get this:
Defense counsel admits that he was under the mistaken assumption that default was to be taken against the corporate entity only. See Item 17. However, default was entered as to both the corporate and individual defendants on July 3, 2014 (Item 9). Defense counsel did not move to vacate the default and in fact did not respond in any way until the default judgment was entered on September 17, 2014. Item 12. Even then, the defense motion was framed as one for an extension of time in which to file an answer (Item 14), rather than a motion to vacate the default or default judgment. Inexplicably, in his papers, defense counsel states that a default judgment has not been entered. See Item 17. Since good cause is to be construed generously and doubts resolved in favor of the defaulting party, see Enron Oil Corp., 10 F.3d at 96, the court will accept the explanation of defense counsel as evidence of a careless lack of attention to procedural detail rather than an egregious and willful default on the part of defendant Goho [the individual and apparent owner of the LLC].
This week I received the notice below from Professor Jason Gordon. Professor Gordon is a legal studies and management professor at Georgia Gwinnett College, School of Business. As explained below, he is offering copies of two entrepreneurship books that he thought might be useful to BLPB readers.
I recently published two texts entitled Business Plans for Growth-Based Ventures and Understanding Business Entities for Entrepreneurs and Managers. These books are designed for use by clinical law professors and as a supplement in entrepreneurship courses. The second text concerns entity selection considerations, but includes entity funding and conversion considerations and specific considerations for startup ventures.
The texts also contain supplemental electronic material available for free at TheBusinessProfessor.com.
If any of you would like a free copy of either text in Amazon e-book format, please send me your email address at jgordon10 [at] ggc [dot] edu.
A preview of the Business Plans E-Book is available here.
A preview of the Business Entities E-Book is available here.
Monday, December 22, 2014
Effective as of January 1. 2015, Tennessee will allow Tennessee corporations to engage in intrastate offerings of securities to Tennessee residents over the internet without registration. The new law, adopted earlier this year, is the direct result of a law-student-led movement. The key student leader was one of my students, and he kept me informed about the effort as it moved along. (I was called upon for advice and commentary from time to time, but the bill is all their work.)
In my experience, this kind of effort--a student-initiated, non-credit, extracurricular engagement in business law reform--is almost unheard of. I was intrigued by the enterprise and impressed by its success. As a result, I asked the student leader, Brandon Whiteley, now an alumnus, to send me some of his perceptions about drafting and proposing the bill and getting it passed.
This is the first in a series of three posts that feature Brandon's observations on the legislative process, the key influences on the bill, and the importance of communication. This post highlights his commentary on the legislative process (which I have edited minimally with his consent). I think you'll agree that his wisdom and humor both shine through in this first installment (as well as the others). His organizational capabilities also are evident throughout.
Friday, December 19, 2014
This week I had nice conversations with Brad Edmondson (Author of Ice Cream Social: The Struggle for the Soul of Ben & Jerry’s) and Michael Pirron (CEO of ImpactMakers, a certified benefit corporation).*
Both conversations turned to a topic that has been on my mind recently – that of social businesses that are acquired by large conglomerates that do not seem to have a similar mission.
A few of the parent/sub relationships that spring to mind (or that were discussed) include:
- Campbell Soup / Plum Organics
- Coca-Cola / Honest Tea
- Colgate-Palmolive / Tom’s of Maine
- Clorox / Burt’s Bees
- Group Danone / Stonyfield Farm
- Unilever / Ben & Jerry’s
I may update this list from time to time, so feel free to suggest additions in the comments.
At The Guardian, Kyle Westaway argues that Burt Bees worked from within Clorox to make the entire company more sustainable. Similarly, some argue that Unilever has become more sustainable after (and maybe because of) their acquisition of Ben & Jerry’s.
I have heard others argue that social businesses like Burt's Bees and Ben & Jerry’s “sold out,” and that the acquiring large conglomerates tend to cut many socially beneficial initiatives. The conglomerates, these folks argue, are only doing enough for society to keep the customer goodwill and the resulting profits.
While each acquisition is different, I imagine both sides of the argument can find some support in the facts.
As someone interested in corporate governance, I hope to explore the governance issues involved when a conglomerate owns a social subsidiary in future articles. In Ben & Jerry’s case, I know they put a number of interesting clauses into the acquisition agreement, such as restricting certain action by Unilever regarding employees and local operations (for a period of time) and establishing an independent (and I believe self-perpetuating) board of directors for Ben & Jerry’s. I am still investigating exactly how much power the Ben & Jerry’s board of directors has, and Unilever did eventually lay off some Ben & Jerry’s employees and close some local plants. In addition, Unilever and Ben & Jerry’s have not always agreed and have taken different, public stances on issues like GMO labeling. But Unilever has become a champion of sustainability among larger companies.
Personally, I am not sure whether social businesses will tend to have more impact as independent businesses or as social subsidiaries of larger companies – and it may be impossible to generalize – but I will continue to watch future acquisitions and development in this area with interest.
* My co-bloggers Joan Heminway and Marcia Narine may remember Michael Pirron from a Regent Law symposium they spoke at on social enterprise law. That was a fun conference and it was good to catch up with Micheal and hear how much his company has grown in the past year and a half.
In each of the classes I have taught I have offered extra credit for a reflection paper on how the media portrays the particular subject because most Americans, including law students, form their opinions about legal issues from television and the movies. Sometimes the media does a great job. I’m told by my friends who teach and practice criminal law that The Wire gets it right. Although I have never practiced criminal law, I assume that ABC’s How to Get Away With Murder, in which first-year students skip their other classes to both solve and commit murders, is probably less accurate. I do have some students who now watch CNBC because I show relevant clips in class. After a particularly heated on-air debate, one student called the network “the ESPN for business people.”
I’m looking for new fiction movies or TV shows to suggest to my students next semester. In addition to the standard business movies and documentaries, what makes your list of high-quality business-related shows? Friends, colleagues, and students have suggested the following traditional and nontraditional must-sees:
1) Game of Thrones (one student wrote about it in the partnership context)
2) House of Cards (not purely business, but shows how business and politics intersect)
3) House of Lies (a look at the world of management consulting)
4) Silicon Valley (one episode I saw talked about entity selection)
5) The Newsroom (during the last season writers tackled insider trading, hostile takeovers, and white knights)
6) Sons of Anarchy (I don’t watch this one so I can’t judge)
7) Shark Tank (not always a complete or accurate depiction but entertaining)
I look forward to your suggestions and to some binge-watching over the holidays.
Monday, December 15, 2014
. . . here's a relatively new Dodge Challenger commercial (part of a series) that you may find amusing. I saw it during Saturday Night Live the other night and just had to go find it on YouTube. It, together with the other commercials in the series, commemorate the Dodge brand's 100-year anniversary. "They believed in more than the assembly line . . . ." Indeed!
You also may enjoy (but may already have read) this engaging and useful essay written by Todd Henderson on the case. The essay provides significant background information about and commentary on the court's opinion. It is a great example of how an informed observer can use the facts of and underlying a transactional business case to help others better understand the law of the case and see broader connections to transactional business law generally. Great stuff.
On December 10, the press reported the Second Circuit's decision in the insider trading prosecution of Todd Newman and Anthony Chiasson (two of multiple defendants in the original case). In its opinion, the court reaffirms that tippee liability for insider trading is predicated on a breach of fiduciary duty based on the receipt of a personal benefit by the tipper and clarifies that insider trading liability will not result unless the tippee has knowledge of the facts constituting the breach (i.e., "knew that the insider disclosed confidential information in exchange for a personal benefit"). The court summarized its opinion, which addresses these matters in the context of the Newman case, a criminal case, as follows:
[W]e conclude that, in order to sustain a conviction for insider trading, the Government must prove beyond a reasonable doubt that the tippee knew that an insider disclosed confidential information and that he did so in exchange for a personal benefit. Moreover, we hold that the evidence was insufficient to sustain a guilty verdict against Newman and Chiasson for two reasons. First, the Government’s evidence of any personal benefit received by the alleged insiders was insufficient to establish the tipper liability from which defendants’ purported tippee liability would derive. Second, even assuming that the scant evidence offered on the issue of personal benefit was sufficient, which we conclude it was not, the Government presented no evidence that Newman and Chiasson knew that they were trading on information obtained from insiders in violation of those insiders’ fiduciary duties.
Friday, December 12, 2014
The Delaware Court of Chancery recently denied a motion to dismiss in In re Comverge, Inc. Shareholders Litigation. In this case, the plaintiff claimed bad faith by the board of directors that approved an allegedly unreasonable termination fee in a merger agreement. Transactional attorneys and professors who teach M&A will want to read this case.
I am deep into grading my business associations exams, so I will outsource to a nice client alert on the case by Steven Haas at Hunton & Williams. A bit of the alert is below, and you can access the entire alert here.
The court then found that the termination fees of 5.55% of equity value (or 5.2% of enterprise value) during the go-shop period and 7% of equity value (or 6.6% enterprise value) after the go-shop period “test the limits of what this Court has found to be within a reasonable range for termination fees.” The court also analyzed the termination fee in connection with the convertible note held by the buyer in connection with the bridge financing. The plaintiff alleged that the conversion feature in the note, which allowed the buyer to purchase common stock at a price below the merger consideration, would significantly increase the cost to a topping bidder of acquiring the company. Factoring in that cost to the existing termination fee, the plaintiff argued, would result in a total payment equal to 11.6% of the deal’s equity value during the go-shop period and 13.1% of the deal’s equity value after the go-shop period.
The court concluded that, for purposes of surviving a motion to dismiss, it was “reasonably conceivable that the Convertible Notes theoretically could have worked in tandem with the termination fees effectively to prevent a topping bid” from a buyer that might otherwise offer greater value to the company’s stockholders. Perhaps more importantly, the court found that the plaintiff adequately alleged that the board of directors acted in bad faith in approving these terms....
Despite the amount of litigation challenging M&A transactions, there are not many Delaware rulings that have upheld challenges to deal protections such as termination fees, matching rights, and no-shop provisions. This is because the Delaware courts have generally created a body of precedent that provides helpful guidance to buyers and sellers and also recognized the value of such terms. In Comverge, the parties appear to have deviated from this precedent, but more importantly, the court looked to the bridge loan to view the aggregate effect of the various terms on the ability of a third party to make a topping bid.