Thursday, March 6, 2014
This week in Lawson v. FMR, LLC the Supreme Court extended the reach of Sarbanes-Oxley to potentially millions more employers when it ruled that SOX's whistleblower protection applies to employees of private employers that contract with publicly-traded companies. In 2002, Congress enacted SOX with whistleblower protection provisions containing civil and criminal penalties. The law clearly protects whistleblowers who work for publicly-held companies, and courts have generally ruled against employees who work for privately-held firms. But the Department of Labor’s Administrative Review Board has ruled that contractors at public companies enjoy whistleblower protection as well. The Supreme Court agreed with that assessment, with Justice Ginsburg writing for the majority. The dissent, written by Justice Sotomayor, noted the "stunning reach" based on the majority's interpretation and opined that the extension was not what Congress intended. The plaintiffs in Lawson did not work for Fidelity, but were contracted to provide advice to Fidelity Mutual Fund customers. Plaintiffs voiced concerns to management regarding problems with cost-accounting methodologies and the alleged improper retention of millions of dollars in fees. Because Fidelity has no employees of its own, it was not a party to the suit.
This development will likely be among the many that the Whistleblower Protection Advisory Committee will discuss at our meeting next week. I sit on a 12-person committee comprised of management, labor and the public for a two-year term, and we are reviewing two dozen laws that OSHA enforces to protect employees. SOX is just one of the financial laws covered by OSHA for whistleblower purposes. Although the comment/question period for the committee meeting is officially closed, those who want to submit comments or questions can still do so through http://www.regulations.gov. The meeting is open to the public on March 11th from 9 a.m. - 5 p.m. in Room N-3437 A-C, U.S. Department of Labor, 200 Constitution Ave., NW, Washington, DC 20210
Some law professors may remember when Justices Roberts and Kennedy opined on the value legal scholarship. Justice Roberts indicated in an interview that law professors spend too much time writing long law review articles about “obscure” topics. Justice Kennedy discussed the value he derives from reading blog posts by professors who write about certs granted and opinions issued. I have no doubt that most law students don’t look at law review articles unless they absolutely have to and I know that when I was a practicing lawyer both as outside counsel and as in house counsel, I almost never relied upon them. If I was dealing with a cutting-edge issue, I looked to bar journals, blog posts and case law unless I had to review legislative history.
As a new academic, I enjoy reading law review articles regularly and I read blog posts all the time. I know that outside counsel read blogs too, in part because now they’re also blogging and because sometimes counsel will email me to ask about a blog post. I encourage my students to follow bloggers and to learn the skill because one day they may need to blog for their own firms or for their employers.
Blogging provides a number of benefits for me. First, I can get ideas out in minutes rather than months via the student-edited law review process. This allows me to get feedback on works/ideas in progress. Second, it forces me to read other people’s scholarship or musings on topics that are outside of my research areas. Third, reading blogs often provides me with current and sophisticated material for my business associations and civil procedure courses. At times I assign posts from bloggers that are debating a hot topic (Hobby Lobby for example). When we discuss the Basic v. Levinson case I can look to the many blog posts discussing the Halliburton case to provide current perspective.
But as I quickly learned, not everyone in the academy is a fan of blogging. Most schools do not count it as scholarship, although some consider it service. Anyone who considers blogging should understand her school’s culture. For me the benefits outweigh the detriment. Like Justice Kennedy, I’m a fan of professors who blog. In no particular order, here are the mostly non-law firm blogs I check somewhat regularly (apologies in advance if I left some out):
http://www.theconglomerate.org/ (thanks again for giving me first opportunity to blog a few months into my academic career!)
http://law.wvu.edu/the_business_of_human_rights (currently on a short hiatus)
I would welcome any suggestions of must-reads.
March 6, 2014 in Business Associations, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, Marcia L. Narine, Merger & Acquisitions, Securities Regulation, Social Enterprise, Teaching, Unincorporated Entities, Weblogs | Permalink | Comments (2)
Tuesday, March 4, 2014
West Virginia University has a new LLM program in Energy & Sustainable Development Law. At the moment, the program is open only to those with a U.S. law degree. The degree program capitalizes on a wide and deep range of expertise at WVU Law in a one of the nation's most energy-rich states. (Full bias disclosure: I direct the program.)
All students in the program are required to take both the Energy Law Survey and the Environmental Protection Law course. This is because we firmly believe that all lawyers connected to the energy sector need to have a firm grasp on both energy law issues and envirnonmental law issues. Both courses touch on each other's area, but having both courses as a base will lead to better prepared professionals, whether the graduate wants to work for industry, an NGO, or a regulator.
We also require some form of experiential learning, a portfolio of written work, and a Research Paper or Field-Work Project. Full details of the program are here. For this venue, and in my area of interest, I will note our business offerings. I teach my Energy Business: Law & Strategy course, details here, in addition to my Business Organizations course and the Energy Law Survey. We also have great variety of courses in energy law, environmental law, and sustainable development law.
In addition, we have a fellowship opportunity in the Land Use and Sustainable Development Clinic. This fellowship is a part-time (at least twenty hours per week), two-year position from August 2014 through July 2016. The Fellow will receive an annual stipend of $20,000 and tuition remission for the LL.M. program. The Fellow would take 6-7 credits per semester allowing time for part-time work at the Clinic. Details available here.
In a world where the Future of Business is the Future of Energy, this program is one option to consider.
Wednesday, February 26, 2014
As previously noted on this blog, 44 law professors filed an amicus brief in Sebelius v. Hobby Lobby Stores, Inc., outlining several corporate law issues in the arts-and-craft store chain’s request for a religious exemption from complying with contraceptive requirements in the Affordable Care Act. That brief prompted several responses and sparked a corporate law debate, which is being recapped and weighed in on at Business Law Prof Blog (see earlier thoughtful posts: here, here, and here by Stefan Padfield and Haskell Murray).
So what is at stake in this case? Religious exemptions for corporations. The role of benefit corporations and other hybrid, triple bottom line entities. The classic entity theory vs. aggregate theory debate of how do we treat the legal fiction of individuals acting through businesses and businesses acting, in part, on behalf of people. The role and future of Corporate Social Responsibility generally. Corporate personhood. Corporate constitutional rights. And existential questions like can corporations pray? You know, easy stuff.
CSR. Our laws set the floor; they establish the minimum that social actors must do and that other members in our society can expect to receive. Corporate social responsibility asks companies to do more than their minimum legal obligations and to do so for a host of reasons, some of which may be religious. The owners of Hobby Lobby can elect a corporate board that will authorize the company to donate to religious charities, to reimburse employees for religious expenses, to provide paid leave for mission trip, or to not operate on Sundays. (Who here hasn’t craved a chicken biscuit on a road trip only to realize that Chick-Fil-A is closed on Sunday? Just us in the south?). Under what I will call the standard state corporate law regime, corporations can take actions like increasing their use of renewable energy sources, implementing diversity programs for women and minorities, refusing to support tobacco products and other actions that are in line with CSR. Whether for religious or environmental or other conscience-driven reasons, a corporation may take these actions and the directors of the corporation (under whose governance the acts took place) are protected by the business judgment rule in the event that any shareholder challenges the program or expenditure as a form of waste or conflict of interest.
Benefit Corporations & Hybrid Entities. For companies incorporated in states with benefit corporate statutes or laws that recognize hybrid entities interested in seeking (but not always maximizing) profits and other goals, there is even greater protection. These entities contain provisions in their charters identifying their “other” purpose, the shareholders are on notice of the dual pursuit and the corporate actions are protected by statutes recognizing this charter-based exception to profit maximization. In the event a shareholder sues for waste or conflicts of interest, not only is the business judgment rule available to protect the corporate actors, but the validity of the corporate action is strengthened by the special legislation. [This in no way captures the full scope of benefit corporation and hybrid entity legislation, but this post is about religious exemptions for corporations, so please excuse the over simplification here.]
Hobby Lobby. The owners of Hobby Lobby are not asking to do more, rather they are asking to do less. Hobby Lobby want to provide less than the standards established in the Affordable Care Act, and less than their competitors will be required to provide. Who would complain if Hobby Lobby failed to comply with the ACA? The employees without access to contraceptive medicine, and the federal government. This isn’t about the business judgment rule and whether owners, acting through boards of directors, can run companies in line with their view of religious or social or environmental consciousness. This case asks can the religious beliefs of owners of a corporation entitle that corporation to do less under the law and as compared to their competitors. On these grounds, deciding against a religious based exemption for Hobby Lobby does no harm to CSR or benefit corporations.
The Hypothetical. If the privately held religious belief of owners can change legal obligations for corporate actors, this could pose a threat to the stability, reliability and uniformity of the floor that the law sets. Poking a hole in the floor for religious exemptions based upon the owners’ religious beliefs may seem like a small concession in the Hobby Lobby case. If religion is a means to opt-out of regulations and requirements, and if doing so could lower costs, shortcut compliance obligations and otherwise provide a competitive edge there will be robust incentives for businesses to claim such an exception in a likely wide array of issues.
The Horrible. The sacred ground of religion has long been an unhappy refuge for arguments in support of racial, gender, religious and sexual-orientation discrimination. Every major social movement that I can think of has met resistance shrouded in religious beliefs. The right for women to vote (and the continuing progress towards equality), desegregating schools, the Civil Rights Acts, and our most modern example: gay rights. Consider the law that the Arizona Legislature passed last week that would exempt businesses refusing to serve same-sex couples from civil liability on the grounds of a religious exemption. Substantially similar legislation is pending in Georgia.
Religion, if we have it, should call us to do more and to be better. As individuals, we may disagree about what “more” and “better” means. I have no doubt that the owners of Hobby Lobby believe that their stance on birth control is consistent with their view of “more” and “better”. As individuals, they can express that value in many ways. As owners of a corporation they can express those values by electing directors that will govern the company and possibly pursue corporate donations to abstinence charities, promote natural family planning among employees via posters in the break room, and other avenues. The individual values of the owners should not be used to excuse the corporation from compliance with the legal standard. Individual religious views should not lower the minimum standards for corporate actions in this context, or others.
Tuesday, February 25, 2014
Yesterday, Carl Icahn sent a letter to eBay shareholders, which starts like this:
Dear Fellow eBay Stockholders,
We have recently accumulated a significant position in eBay’s common stock because we believe there is great long-term value in the business. However, after diligently researching this company we have discovered multiple lapses in corporate governance. These include certain material conflicts of interest, which we believe could put the future of our company in peril. We have found ourselves in many troubling situations over the years, but the complete disregard for accountability at eBay is the most blatant we have ever seen. Indeed, for the first time in our long history, we have encountered a situation where we believe we should not even have to run a proxy fight to change the board composition. Rather, we believe that in any sane business environment these directors would simply resign immediately from the eBay Board, either out of pure decency or sheer embarrassment at the public exposure of the extent of their self-serving activities.
Wow. You could almost drop the mic there. Icahn does not, though. He goes on to outline a series of transactions from board members and the CEO that raise reasonable questions about the independence of certain board members. (click below for more)
Sunday, February 23, 2014
My co-blogger Haskell Murray recently posted “Religion, Corporate Social Responsibility, and Hobby Lobby” and asked me to respond, which I am happy to do. I will admit that I am still developing my thoughts on the issues raised by Haskell’s post, so what follows is a bit jumbled but still gives a sense of why I currently oppose for-profit corporations being permitted to evade regulation by pleading religious freedom (if you have not read Haskell’s post, please do so before proceeding):
1. Corporate power threatens democracy. Corporations and other limited liability entities have been controversial since their creation because, among other things, the combination of limited liability, immortality, asset partitioning, etc., makes them incredible wealth and power accumulation devices. Of course, on the one hand, this is precisely why we have them – so that investors are willing to contribute capital they would never contribute if they risked being personally liable as partners, and thus unique economic growth is spurred, a rising tide then lifts all ships, and so on. On the other hand, because of their unique ability to consolidate power, corporations are aptly considered by many to be one of Madison’s feared factions that threaten to undermine the very democracy that supports their creation and growth:
Besides the danger of a direct mixture of religion and civil government, there is an evil which ought to be guarded against in the indefinite accumulation of property from the capacity of holding it in perpetuity by ecclesiastical corporations. The establishment of the chaplainship in Congress is a palpable violation of equal rights as well as of Constitutional principles. The danger of silent accumulations and encroachments by ecclesiastical bodies has not sufficiently engaged attention in the U.S.
[More after the break.]
February 23, 2014 in Business Associations, Constitutional Law, Corporate Governance, Corporations, Current Affairs, Financial Markets, Food and Drink, Haskell Murray, Religion, Social Enterprise, Stefan J. Padfield | Permalink | Comments (3)
Friday, February 21, 2014
From the Faculty Lounge:
The New York Law School Law Review is calling for papers to be published in connection with its April 25, 2014 symposium, Combating Threats to the International Financial System: The Financial Action Task Force.
Although this symposium will specifically address the Financial Action Task Force, the symposium's companion Law Review publication will broadly examine contemporary threats to the international financial system, such as money laundering and terrorist financing. In examining these issues, the publication will address how these threats have been responded to in the past, as well as how they should be responded to at the international, federal, and state levels in the future.
The Law Review is currently accepting abstracts for papers to be considered for publication in the spring of 2015. To be considered for publication, please send by March 28, 2014 an abstract of no more than 500 words in MS Word format, accompanied by a CV, to Editor-in-Chief G. William Bartholomew at firstname.lastname@example.org.
Final papers will be due June 13, 2014, and may not exceed 35 pages in length (double-spaced, including footnotes). Details on the symposium are here.
Professor Stephen Bainbridge made me aware of Keith Paul Bishop's post entitled:
I was shocked because the [law professor] brief constitutes a frontal assault on corporate social responsibility. For example, the law professors make the following apocalyptic claim: "If this Court were to agree that, as a matter of federal law, shareholders holding a control bloc of shares in a corporation may essentially transfer their [social responsibility] beliefs to the corporation, the results could be overwhelming." Ok, I substituted “social responsibility” for “religious”. However, if the transfer of stockholder religious beliefs to the corporation would be “overwhelming”, why wouldn’t the same be true of beliefs regarding climate change, the environment, or other beliefs animating the corporate social responsibility movement?
Two of my co-bloggers signed the law professor brief in the Hobby Lobby case that Bishop discusses, so they are probably better suited to respond, but I will provide a few thoughts.
One distinction, between the Hobby Lobby case and CSR, that may be quickly raised is addressed in section II.C of the law professor brief. Hobby Lobby is attempting to use religion to avoid legal obligations. There may be situations where companies argue they should be able to avoid legal obligations because of "beliefs regarding climate change, the environment, or other beliefs animating the corporate social responsibility movement" but none spring immediately to mind.
While the parade of horribles in the second section of the law professor brief might prove compelling, the entire first section (over half of the argument) would be seriously damaged if Hobby Lobby's articles of incorporation were amended to express the religious stance of the company. The first section of the brief focuses on treating the corporation as a separate entity, distinct from its owners. It seems, however, that Hobby Lobby's owners could amend the corporation's articles to endow the corporation with its own, separate and distinct, religious views.
As I have previously mentioned, Hobby Lobby could have helped its chances in this case by converting to some form of for-profit benefit corporation and being specific about its religious views in its articles of incorporation. The Delaware Public Benefit Corporation ("PBC") statute makes the ability to maintain a religious purpose in a PBC explicit when it defines "public benefit" as "a positive effect (or reduction of negative effects) on 1 or more categories of persons, entities, communities or interests (other than stockholders in their capacities as stockholders) including, but not limited to, effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature." (emphasis added) According to Delaware's PBC law, each PBC must include at least one "specific public benefit" within its statement of purpose.
I am interested in any additional thoughts on this topic, and am eagerly awaiting Professor Bainbridge's promised full response to the law professor brief (and any responses to his response).
Thursday, February 20, 2014
Our BLPB group has had a number of email discussions recently about the use of social media including blogs, Facebook, LinkedIn and Twitter for professional purposes. My home institution has discussed the same topic and even held a “training” session on technology in and outside of the classroom. Because I am a heavy user, I volunteered to blog about how I use social media as a lawyer and academic in the hopes of spurring discussion or at least encouraging others to take a dip in the vast pool of social media.
Although I have been on Facebook for years, I don’t use that professionally at all. I also don’t allow my students to friend me, although I do know a number of professors who do. I often see lawyer friends discussing their clients or cases in a way that borders on violations of the rules of professional conduct, and I made sure to discuss those pitfalls when I was teaching PR last year.
I have also used LinkedIn for several years, mainly for professional purposes to see what others in my profession (at the time compliance and privacy work) were thinking about. I still belong to a number of LinkedIn groups and have found that academics from other countries tend to use LinkedIn more than US professors. I have received a number of invitations to collaborate on research just from posts on LinkedIn. I also encourage all of my law students to join LinkedIn not only for networking purposes, but also so that they can attract recruiters, who now use LinkedIn almost as often as they use headhunters. When I blog, I link my posts to LinkedIn, which in turn automatically posts to Twitter.
I admit that I did not like Twitter at first. I now have three Twitter accounts- follow me at @mlnarine. I started using Twitter when I was a deputy general counsel and compliance officer and I followed law firms and every government agency that was online that regulated my industry. The government agencies were very early to the Twitter game and I once learned about a delay in the rollout of a regulation via Twitter a full week before my outside counsel who was working on the project informed me.
I also use the hashtag system (#) to see what others are saying on topics that hold my interest such as #csr (corporate social responsibility and unfortunately also customer service rep), #socent for social enterprise, #corpgov for corporate governance, and #Dodd-Frank and #climatechange (self explanatory).
I make an effort to tweet daily and am now an expert in trying to say something useful in 140 characters or less (being on yearbook staff in high school and counting characters for headlines made this a breeze for me). I re-tweet other tweets that I believe may be of interest to my followers or links to articles, and often gain new followers based on what I have chosen to tweet, largely because of my use of hashtags. In fact, after a marathon tweeting session following the Dodd-Frank conflict minerals oral argument before the DC Circuit Court of Appeals, I received four calls from the press for interviews, a nice, unexpected benefit of trying to educate my followers. Often when I attend conferences, such as last week’s ABA meeting or the UN’s Business and Human Rights Forum, the organizers develop a hashtag so that those who cannot attend in person can follow the proceedings through tweets and the attachments to those tweets.
The best part of twitter is that I met fellow blogger, Haskell Murray because of one his tweets and that led to an invitation to speak at a conference. Haskell has published a useful list of business law professors on Twitter so if you’re not on his list, let us know and we will update it.
Next week I will post about the benefits or perils of blogging, especially for someone new to academia.
February 20, 2014 in Business Associations, Anne Tucker, Conferences, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, Ethics, Haskell Murray, Marcia L. Narine, Social Enterprise, Stefan J. Padfield, Teaching, Web/Tech | Permalink | Comments (0)
Tuesday, February 11, 2014
CVS/Caremark announced, on Feb. 5, 2014, that that the company would cease selling tobacco products in its 7,600 U.S. pharmacies. Given that the entity estimated that it would lose about $2 billion in revenues from the decision, the world took notice. CVS has managed the announcement well, and the company has received generally good press about the whole idea.
Personally, I applaud the decision, both because I think it’s a sensible choice and because I think the board properly exercised its authority to set CVS stores up for long-term success. The company tried to maximize the feel-good story of the decision, but I think that message was tempered by the necessity that CVS explain the profit-seeking role of the decision with the announcement. Clearly, CVS’s counsel read eBay v. Newmark.
The CVS announcement had two components. First, the media spin – for the aren’t-they-great? response:
“We have about 26,000 pharmacists and nurse practitioners helping patients manage chronic problems like high cholesterol, high blood pressure and heart disease, all of which are linked to smoking,” said Larry J. Merlo, chief executive of CVS. “We came to the decision that cigarettes and providing health care just don’t go together in the same setting.”
The decision to exit the tobacco category does not affect the company's 2014 segment operating profit guidance, 2014 EPS guidance, or the company's five-year financial projections provided at its December 18th Analyst Day. The company estimates that it will lose approximately $2 billion in revenues on an annual basis from the tobacco shopper, equating to approximately 17 cents per share. Given the anticipated timing for implementation of this change, the impact to 2014 earnings per share is expected to be in the range of 6 to 9 cents per share. The company has identified incremental opportunities that are expected to offset the profitability impact. This decision more closely aligns the company with its patients, clients and health care providers to improve health outcomes while controlling costs and positions the company for continued growth.
Here’s the thing: CVS shouldn’t have to do this second part, in my view, though I would have advised them to because of the recent language used by the Delaware courts. Unlike some, I still believe in the business judgment rule. Absent conflicts of interest, fraud, or illegality, CVS should be able to make this decision without further justification. The court should abstain. But courts want more.
In eBay v. Newmark, Chancellor Chandler was not satisfied that craigslist was profitable or that the company had achieved market-leading status through its chosen course of operations. He wanted more:
craigslist’s unique business strategy continues to be successful, even if it does run counter to the strategies used by the titans of online commerce. Thus far, no competing site has been able to dislodge craigslist from its perch atop the pile of most-used online classifieds sites in the United States. craigslist’s lead position is made more enigmatic by the fact that it maintains its dominant market position with small-scale physical and human capital. Perhaps the most mysterious thing about craigslist’s continued success is the fact that craigslist does not expend any great effort seeking to maximize its profits or to monitor its competition or its market share.
For Chancellor Chandler, and Delaware courts, it was not sufficient that craigslist’s CEO testified “that craigslist’s community service mission ‘is the basis upon which our business success rests. Without that mission, I don’t think this company has the business success it has. It’s an also-ran. I think it’s a footnote.’” Would it have been sufficient if he had said “our profitability” instead of “business success?” I doubt it.
As such, CVS had to go further to show where this decision fit within their profit-making scenario. Chancellor Strine agrees: “I simply indicate that the corporate law requires directors, as a matter of their duty of loyalty, to pursue a good faith strategy to maximize profits for the stockholders.” Chancellor Strine immediately seeks to soften the blow by stating, “The directors, of course, retain substantial discretion, outside the context of a change of control, to decide how best to achieve that goal and the appropriate time frame for delivering those returns.” The problem: that’s not really true if you add this philosophy together with eBay, which appears to require “great effort” to maximize profits, or monitor competition or market share, as opposed to pursuing a corporate philosophy that creates and maintains profitability and market leadership.
To be clear, this is not about CSR. This is about director primacy and keeping the courts out of the boardroom as much as possible. I think CVS should be able to decide to drop tobacco if they wish, just as craigslist should be able to decide that it wants to stay profitable and be a market leader forever. If long-term success, in the board’s judgment, means not selling cigarettes or not monetizing and not taking risks of a boom and bust, they should be able to do that.
Was it essential that Boston Market and Krispy Kreme expand as fast as possible and as seek as much profit at they could in the near term? I hope not. The directors are supposed to be in charge and make such decisions, not the shareholders, and not the courts. The business judgment rule is an abstention doctrine, and courts should stay out of it unless there is a strong indication of a conflict of interest, fraud, or illegality. CVS took the proper steps to minimize the risk of a court intervention. They just shouldn't have had to justify that decision to anyone but their shareholders at election time.
Thursday, February 6, 2014
One of my favorite professors/bloggers, Mike Koehler has an interesting post describing how and why the former DOJ FCPA Enforcement Chief criticized the SEC's handling of the FCPA. I used to read Mike's blog daily during my in-house days, and I share his views on the FCPA enforcement regime.
His post is below and reiterates what I wrote about here about the number of enforcement officers who leave office and question the way in which the FCPA is prosecuted:
This post has a similar theme to this prior post. The theme is – all one has to do is wait for former DOJ and SEC FCPA enforcement officials to blast various aspects of the current FCPA enforcement climate. Touching upon the same issues I first highlighted in this August 2012 post titled “The Dilution of FCPA Enforcement Has Reached a New Level With the SEC’s Enforcement Action Against Oracle,” as well as prior posts here, here and here, a former Assistant Chief of the DOJ’s FCPA Unit (William Stuckwisch - currently a partner at Kirkland & Ellis) blasts certain aspects of SEC FCPA enforcement inthis recent article published in Criminal Justice.
The article begins:
“Imagine the following scenario: You have guided your client, a publicly traded company, through the long and winding process that is a Foreign Corrupt Practices Act (FCPA) internal investigation. Afterward, or increasingly more often simultaneously, you then lead your client through presentation of the results of the investigation to the United States Department of Justice (DOJ) and Securities and Exchange Commission (SEC) (collectively, “government”). Ultimately, neither the internal investigation nor the government’s investigation finds any improper payment (or offers of payments) to any foreign official, or any other knowing misconduct. As a result, the government cannot pursue substantive FCPA antibribery charges against your client, and the DOJ cannot pursue any other FCPA-related criminal charges. Just when you begin to savor this significant success, you are ripped back to reality, as the SEC informs you that, nevertheless, your client faces civil enforcement under the FCPA’s internal controls provision and demands a significant penalty. Unfortunately, this scenario is not a hypothetical for the FCPA Bar to deliberate at conferences and include as footnotes in memoranda addressing real-world client issues. Instead, it mirrors the facts publicly alleged in the SEC’s August 2012 enforcement action against Oracle Corporation, a case considered by many FCPA practitioners to be a stunning result. [...] In Oracle, the SEC faulted the US parent corporation for not auditing local distributors hired by its Indian subsidiary, without alleging that the distributors (or anyone else) had made any improper payment to any foreign government official. Oracle is the latest example of the SEC’s expansive enforcement of the FCPA’s internal controls provision, and it potentially paints a bleak picture—one in which the provision is essentially enforced as a strict liability statute that means whatever the SEC says it means (after the fact).”
Elsewhere, Stuckwisch, the lead author of the article, notes:
“[G]iven the highly subjective nature of the internal controls provisions, companies will continue to feel at the SEC’s mercy once it opens an FCPA investigation, even if no improper payments (or offers of payments) are ever found.” [...] In our view, the true lesson of Oracle is not that this particular type of internal control is required, but rather that the internal controls provision is so broad, and the statutory standard of reasonable assurances so subjective, that the SEC has an almost unfettered ability to insist on a settlement, including a civil penalty, at the conclusion of virtually any FCPA investigation. Companies may be willing to enter into such settlements—particularly because, in the absence of a parallel DOJ action, they need not make any factual admissions (due to the “neither admit nor deny” nature of SEC settlements in such circumstances), and the cost of a settlement is often lower than continuing investigative and representative costs. But such settlements can have severe, unintended consequences. Perhaps most significantly, these settlements can lead other companies to misdirect their scarce compliance resources.”
Stuckwisch’s final observation is of course spot-on and generally restates the thesis from my 2010 article “The Facade of FCPA Enforcement.“
Monday, February 3, 2014
A friend and current Delaware attorney just sent me this article from Delaware Online: Bouchard seen as Chancery candidate.
Interestingly, Andre Bouchard had been the chairman of the Delaware Judicial Nominating Commission since 2011, and he recently resigned from that position. Bouchard is currently the managing partner of Bouchard Margules & Friedlander, P.A. in Wilmington, Delaware.
From what I hear from my friends who practice in Delaware, Bouchard is well-respected and would make an excellent Chancellor.
According to the article, and as I suspected here, current Vice Chancellor Travis Laster is also in the conversation regarding the next Chancellor. Superior Court Judge Jan Jurden is being mentioned as a possibility as well. Previously, Judge Jurden had been considered a serious contender for the Chief Justice of the Supreme Court of Delaware position that ultimately went to Chancellor Strine.
Sunday, February 2, 2014
Gedicks & Van Tassell on “RFRA Exemptions from the Contraception Mandate: An Unconstitutional Accommodation of Religion"
Frederick Mark Gedicks & Rebecca G. Van Tassell recently posted “RFRA Exemptions from the Contraception Mandate: An Unconstitutional Accommodation of Religion” on SSRN (HT: Robert Esposito). Here is excerpt of the abstract:
Litigation surrounding use of the Religious Freedom Restoration Act to exempt employers from the Affordable Care Act’s “contraception mandate” is moving steadily towards resolution in the U.S. Supreme Court. Both opponents and supporters of the mandate, however, have overlooked the Establishment Clause limits on such exemptions.
The heated religious-liberty rhetoric aimed at the mandate has obscured that RFRA is a “permissive” rather than “mandatory” accommodation of religion — a government concession to religious belief and practice that is not required by the Free Exercise Clause. Permissive accommodations must satisfy Establishment Clause constraints, notably the requirement that the accommodation not impose material burdens on third parties who do not believe or participate in the accommodated practice.
While it is likely that RFRA facially complies with the Establishment Clause, it violates the Clause’s limits on permissive accommodation as applied to the mandate. RFRA exemptions from the mandate would deny the employees of an exempted employer their ACA entitlement to contraceptives without cost-sharing, forcing employees to purchase with their own money contraceptives and related services that would otherwise be available to them at no cost beyond their share of the healthcare insurance premium.
Neither courts nor commentators seem aware that a line of permissive accommodation decisions prohibits shifting of material costs of accommodating anti-contraception beliefs from the employers who hold them to employees who do not. Many of the Court's decisions under the Free Exercise Clause and Title VII also exhibit this concern with cost-shifting accommodations. Yet, one federal appellate court has already mistakenly dismissed this cost-shifting as irrelevant to the permissibility of RFRA exemptions from the mandate.
The impermissibility of cost-shifting under the Establishment Clause is a threshold doctrine whose application is logically prior to all of the RFRA issues on which the courts are now focused: If RFRA exemptions from the mandate violate the Establishment Clause, then that is the end of RFRA exemptions, regardless of whether for-profit corporations are persons exercising religion, the mandate is a substantial burden on employers’ anti- contraception beliefs, or the mandate is not the least restrictive means of protecting a compelling government interest.
Saturday, February 1, 2014
A lot of chatter this week surrounding the submission of an amicus brief filed in the Hobby Lobby case by corporate and criminal law professors in support of petitioners. In particular, Stephen Bainbridge has written a series of posts critical of the brief:
- Help me rebut the corporate law professors brief in the Hobby Lobby and Conestoga Wood mandate cases
I was one of the 44 law professors that signed on to the amicus brief, and I also have a tremendous amount of respect for Prof. Bainbridge, so I’ve been very interested in what he’s had to say. However, I’m also currently trying to advance my latest writing project (relatedly, on the intersection of corporate governance theories, theories of corporate personality, and corporate social responsibility) to some semblance of completeness that I can submit to journals with a straight face in the next few weeks. Thus, I am going to pass on addressing Bainbridge’s critiques for now – except for briefly responding to his claim that there is some inconsistency between arguing that the Supreme Court should respect corporate personhood in Hobby Lobby (the brief states: “this legal separateness—sometimes called legal ‘personhood’—has been the very basis of corporate law at least since the 18th Century”) while at the same time bemoaning the application of that corporate personhood in Citizens United (while I won’t speak for my co-signers, I think it is fair to assume many are critics of Citizens United and I personally have expressed my disagreement with the opinion in various places, including here).
By way of background, the three primary theories of corporate personality are aggregate theory, real entity theory, and concession theory (AKA artificial entity theory). At the risk of over-simplifying, aggregate theory and real entity theory essentially presume corporations stand in the shoes of natural persons (e.g., shareholders in the former case, and the board of directors in the latter), and thus have available to them all the rights of natural persons in resisting government regulation. Concession theory, on the other hand, views the corporation as fundamentally a state creation, and presumes the state has the right to regulate its creation as it sees fit. Importantly, concession theory does not preclude granting particular rights of natural persons to corporate entities, and it certainly doesn’t preclude doing so by including “corporation” in the definition of “person” for purposes of a particular rule, regulation, or statute. It just doesn’t presume that all the rights of natural persons are automatically transferred to corporations upon their creation.
I focus on presumptions, and the concomitant allocation of burdens of proof, because I believe these issues were critical in Citizens United. The majority presumed that corporations were entitled to the same political free speech rights as natural persons, and placed the burden of proving that this right was subject to limitation on the basis of corporate status alone on the state. Meanwhile, the dissent argued that the burden was on those claiming free political speech rights for corporations and presumed the legislative determinations regarding the corrupting influence of corporate spending on politics were sufficient to uphold the relevant regulation. Accordingly, while many commentators disagree as to whether aggregate or real entity theory animated the Citizens United majority, most of those to have considered the issue agree it was one of two (I believe the key line in the opinion is: “[T]he Government cannot restrict political speech based on the speaker's corporate identity.”). On the other hand, I believe most – though certainly not all -- of the commentators that have considered the issue appear to agree that concession theory animated the dissent’s position (despite the dissent’s express protestations to the contrary).
Thus, I believe the better characterization of the relevant issue is not whether corporations are persons (we can all likely agree that corporations are entitled to personhood rights at the very least for a variety of relatively non-controversial purposes), but rather which rights of personhood corporations should be entitled to. In Hobby Lobby, the issue is not whether corporations should ever be deemed persons under the law, but rather whether corporations should be deemed legal persons that are entitled to rights of religious freedom identical to natural persons and, if so, in what situations and to what extent. I see no inconsistency in arguing that corporate personhood should not include religious freedom rights co-extensive with natural persons while at the same time arguing that corporate personhood should also not include political free speech rights co-extensive with natural persons.
Thursday, January 30, 2014
Professor Caroline Mala Corbin from University of Miami has written an interesting article on the Hobby Lobby and Conestoga Wood Specialites Corp. cases before the Supreme Court. Her abstract is below:
Do for-profit corporations have a right to religious liberty? This question is front and center in two cases before the Supreme Court challenging the Affordable Care Act’s “contraception mandate.” Whether for-profit corporations are entitled to religious exemptions is a question of first impression. Most scholars writing on this issue argue that for-profit corporations do have the right to religious liberty, especially after the Supreme Court recognized that for-profit corporations have the right to free speech in Citizens United.
This essay argues that for-profit corporations should not – and do not – have religious liberty rights. First, there is no principled basis for granting religious liberty exemptions to for-profit corporations. For-profit corporations do not possess the inherently human characteristics that justify religious exemptions for individuals. For-profit corporations also lack the unique qualities that justify exemptions for churches. Citizens United fails to provide a justification as its protection for corporate speech is based on the rights of audiences and not the rights of corporate speakers. Second, as a matter of current law, neither the Free Exercise Clause nor the Religious Freedom Restoration Act recognizes the religious rights of for-profit corporations. Finally, corporate religious liberty risks trampling on the employment rights and religious liberty of individual employees.
Tuesday, January 28, 2014
Last week, after a post here, I received a call from a Charleston (WV) reporter seeking some background on veil piercing as it relates to the company (Freedom Industries) linked to a chemical spill that left 300,000 people without clean drinking water. That conversation led to a rather long article, as newspapers go, on the concepts of veil piercing in West Virginia. The article did a rather good job of relaying the basics (with a few nits), and I hope it at least informs people a little bit about the process to follow on that front.
The article does reflect a little confusion over what I was trying to communicate about personal liability for the president of Freedom Industries. West Virginia law provides: (b)“Unless otherwise provided in the articles of incorporation, a shareholder of a corporation is not personally liable for the acts or debts of the corporation except that he may become personally liable by reason of his own acts or conduct.” W. Va. Code, § 31D-6-622 (emphasis added). I was trying (and I take responsibility for any lack of clarity) to reflect my view that it was conceptually possible that the company president could be found personally liable for the harm if there were activities undertaken in his personal (and not corporate) capacity, but that based on the facts currently available, that seemed unlikely to me.
West Virginia courts have long reinforced the separate nature of the corporation and the shareholder. Consistent with prevailing views, the state recognizes each corporation as a distinct, individual entity that is separate and distinct from other corporations and from their respective shareholders. “The law presumes that two separately incorporated businesses are separate entities and that corporations are separate from their shareholders.” S. Elec. Supply Co. v. Raleigh County Nat. Bank., 173 W. Va. 780, 788, 320 S.E.2d 515, 523 (1984). In a proper case, courts will disregard the entity form—pierce the limited liability veil—where necessary to prevent injustice; however, courts take seriously this separate nature of corporations and shareholders, and “the corporate form will never be disregarded lightly.” Laya v. Erin Homes, Inc., 177 W. Va. 343, 347, 352 S.E.2d 93, 97 (1986) (quoting S. States Coop., Inc. v. Dailey, 167 W.Va. 920, 930, 280 S.E.2d 821, 827 (1981)); see also S. Elec. Supply Co. v. Raleigh County Nat. Bank., 173 W. Va. 780, 787, 320 S.E.2d 515, 522 (1984) (“The [veil piercing] doctrine is complicated, and it is applied gingerly.”). Thus, while veil piercing is not impossible, it is a significant hurdle.
I mentioned in a prior post that I thought enterprise liability (essentially collapsing various limited liability entities into one) was a more likely possible remedy for unpaid losses, though again it is by no means a given. Much more information about how the various entities involved in the whole situation operated and interacted with one another will need to be discovered before the real likelihood of such an outcome can be reasonably predicted.
Regardless of how that turns out, though, there is another issue worth noting, and that is the lack of government oversight. The classic case on veil piercing and enterprise liability, Walkovszky v. Carlton, explained that complaints about the inadequacy of corporate insurance and others assets are not a problem for the courts to solve. That court explained:
if the insurance coverage required by statute “is inadequate for the protection of the public, the remedy lies not with the courts but with the Legislature.” It may very well be sound policy to require that certain corporations must take out liability insurance which will afford adequate compensation to their potential tort victims. However, the responsibility for imposing conditions on the privilege of incorporation has been committed by the Constitution to the Legislature (N. Y. Const., art. X, §1) and it may not be fairly implied, from any statute, that the Legislature intended, without the slightest discussion or debate, to require of . . . [such] corporations that they carry . . . liability insurance over and above that mandated by [law].” Walkovszky v. Carlton, 18 N.Y.2d 414, 419-420(N.Y. 1966) (citations omitted).
I don’t know if a court will pierce the veil or apply an enterprise liability theory to expand the available assets for victims of the chemical spill. There is a lot to be determined before we’ll see an outcome. Still, it needs to be clear that where a company acts within the parameters of its grant of limited liability, seeking additional compensation from others after the fact is improper. (Again, whether the companies involved acted appropriately is an open question.)
If we’re uncomfortable with the cap on recovery for harms such as this, then randomly, haphazardly, and retroactively eliminating a state grant of limited liability protection is not the proper response. There are other ways to help protect the public, such as proper permitting, oversight and enforcement at chemical storage sites, and increased insurance and/or bonding requirements. State and federal legislatures should be discussing such options right now, and at least some discussions are occuring. It is, though, disheartening to read that even while discussing stronger standards for chemical storage tank operators, the West Virginia Senate Natural Resources Committee also voted to reduce water quality standards for aluminum in state water.
Sunday, January 26, 2014
Go here for the January 16, 2014 testimony of Mercer E. Bullard before the Committee on Small Business, United States House of Representatives, on the SEC's Crowdfunding Proposal. Here is a brief excerpt (comment deadline is February 3):
The overriding issue for crowdfunding is likely to be how the narrative of investors frequently losing their entire investment plays out. If investors are perceived as losing only a small part of their portfolios because of business failures rather than fraud, or if their crowdfunding losses are set off by gains in other investments through diversification, the crowdfunding market could weather large losses and thrive. However, if fraudsters are easily able to scam investors under the cover of a crowdfunding offering, or stale financial statements routinely turn out to have hidden more recent, undisclosed financial declines, or there are investors who can’t afford the losses they incur, resulting in stories of personal financial distress – then crowdfunding markets will never become a credible tool for raising capital.
Thursday, January 23, 2014
Even before I read the book The Happy Lawyer by my former colleagues Nancy Levit and Doug Linder, I loved every legal job I ever had from judicial law clerk to BigLaw associate (twice), to deputy general counsel. I am still a happy lawyer after twenty-two years in the profession. I am clearly an anomaly among my attorney friends, most of whom looked at me with envy when I said that I was leaving practice to pursue academia. One friend, a partner in a South Florida firm quipped, “litigation has to be one of the only professions where your client hates you, your opposing counsel hates you, and the judge probably thinks you’re an idiot. When the outcome is positive, the client loves you until they see the bill.” No wonder lawyers aren’t happy.
But the situation for lawyers is more serious than a few clients grumbling about high bills. Earlier this week CNN reported that lawyers are the 4th most unhappy professionals behind dentists, pharmacists, and physicians, and are 3.6 times more likely to suffer from depression than non-lawyers. According to the article, 40% of law students report that they have suffered from depression before graduation. That acknowledgement of a diagnosis of depression or indeed seeking any help for mental illness or substance abuse can adversely affect the graduate’s chances for admission to the bar.
Eight states, including my home state of Florida, have added a mental health component to the continuing legal education requirement, in part to address a rise in attorney suicides. No one can pinpoint the cause for the increase in unhappiness. Perhaps it’s the recession, which led to layoffs at every level and which will forever alter the legal landscape. Perhaps, like doctors, pharmacists and dentists, lawyers tend to be type A personalities who thrive on perfection and success and drive themselves harder than others.
I read the CNN article while was on a tour in Switzerland two days ago. I thought I wanted to live the life of the Swiss with their low taxes, 3.1% unemployment rate, high income and great medical and social insurance programs, when the tour guide stunned us by acknowledging that Switzerland has the third highest suicide rate in the world. “It’s the relentless pressure to succeed and the tremendous competition here,” he explained. It seems as though the Swiss have something in common with American lawyers.
I was actually in Switzerland for the 4th annual kickoff of the innovative LawWithoutWalls program founded by University of Miami Professor Michele DeStefano. The program requires law and business students from around the world to work on teams to develop a project of worth addressing a problem facing the legal profession or legal education. I serve as an academic mentor with entrepreneurs, venture capitalists, in house counsel, practitioner mentors and lawyers from sponsor Eversheds. The students learn about the commoditization of legal services from the very firms that are disrupting the profession, Axiom and LegalZoom, who have representatives serving as mentors or thought leaders. They watch actual pitches on legal innovations to venture capitalists. They learn about doing a business plan for their projects of worth from entrepreneurs, and they use that knowledge when they present their project in a Shark Tank-like presentation in April. The next few months of their lives as part of this program will help the students learn skills and make contacts for an ever-evolving global legal market. Hopefully, they will be better equipped to handle what’s out there than the students who take their career cues from the television show Suits.
But what about the practicing lawyers? Not everyone wants to or can make the leap to academia. There are few LawWithoutWalls programs for veteran, burned-out lawyers. Many attorneys will continue to suffer from soul-crushing anxiety, depression or boredom. I don’t have the answer but look out for the follow-up to Levit and Linder’s book entitled The Good Lawyer: Seeking Quality in the Practice of Law due out this summer.
Saturday, January 18, 2014
My Akron colleague Will Huhn just posted “2013-2014 Supreme Court Term: Court's Decision in Daimler AG v. Bauman, No. 11-965: Implications for the Birth Control Mandate Cases?” over at his blog wilsonhuhn.com. Here is a brief excerpt, but you should go read the entire post:
On January 14, 2014, the Supreme Court issued its decision in favor of Daimler AG (the maker of Mercedes-Benz), ruling that the federal courts in California lacked personal jurisdiction over Daimler to adjudicate claims for human rights violations arising in Argentina. The ruling of the Court may have implications for the birth control mandate cases pending before the Court in Hobby Lobby Stores and Conestoga Wood Specialties…. In those cases the owners of two private, for-profit business corporations contend that their individual rights to freedom of religion "pass through" to the corporation -- that the corporations are in effect the "agents" of the principal shareholders, and that this is why the corporations have the right to deny their employees health insurance coverage for birth control. In Daimler the Ninth Circuit Court of Appeals had held that MBUSA was the "agent" of Daimler AG, and that the substantial business presence of MBUSA in California could be imputed to Daimler AG. The Supreme Court was not persuaded by this agency analysis…. It would be anomalous for the Court to adhere to corporate identity for purposes of personal jurisdiction and liability for tort, and yet to ignore corporate identity to give effect to the personal religious choices of stockholders.
Friday, January 17, 2014
Last week, the New York Times Dealbook ran a story entitled, Wall Street Shock: Take a Day Off, Even a Sunday. The story details how Bank of America Merrill Lynch is supposedly encouraging its investment banking analysts and associates to take four days a month off…on the weekends.
As the authors note, "[s]uch an offer from an employer would sound like punishment for the average worker. But for junior employees of Bank of America Merrill Lynch, that recommendation was intended as a bit of relief." The memorandum was probably a relief …if the Merrill Lynch really meant it, and if it will be respected by the various managing directors.
At many large investment banks (and law firms), true rest is largely absent. Analysts and associates are pushed, and push themselves, to the brink. Call me cynical, but I doubt Merrill Lynch is doing this primarily for the good of its employees. Perhaps Merrill Lynch thinks the diminishing returns of working 80+-hour weeks and the high employee turnover are impacting their bottom line.
While the lack of true rest is glaring on Wall Street, I think any modern employee can suffer from insufficient rest. With smart phones, it is possible to be on-call 24/7. Taking a full 24-hour break from work can, and often does, lead to more productive work in the remaining hours of the week. As Dr. Stephen Covey famously noted, it pays to take time to sharpen the saw. Relatedly, I recently listened to a 2003 recording of Dr. Timothy Keller speaking eloquently on the topic of work and rest, from a Christian perspective, to his New York City audience. The recording is available here.
The benefits of intentional, regularly-scheduled rest can be seen not only in our job, but also in our exercise. One of the best marathon training plans on the market right now is the FIRST training plan, developed at Furman University. Most marathon training plans recommend running five to ten times a week and recording a high volume of miles, but do not have much focus on pace or rest.
In contrast, FIRST recommends only three runs a week, but focuses on quality and encourages a variety of speeds and distances. Some of the recommended speeds are much faster than the average marathoner would typically run, but FIRST also encourages more rest than most plans and more diversity in types of exercise. While the FIRST plan seems to recommend an insufficient number of miles to many marathon runners, it has led to countless personal records over the past few years.
Wish you all a restful weekend.
Update: See Professor Brian Quinn on Emma Jacobs' article on "why the recent fashion of limiting junior bankers hours is doomed to fail. In short it boils down to [two] things: the nature of the clients and the nature of the people who work for banks." For what it is worth, I think they are probably correct (note my two big "ifs" above). That said, I do think there might be a way to give a client 24/7 service and also give junior bankers (and lawyers) a 24-hour break each week. On the point that most of the people working in these jobs are "alpha types," I think even the "alpha types" could appreciate 24-hours of rest each week, and may realize they perform better as a result.