Wednesday, July 29, 2015
My friend and corporate law colleague Marco Ventoruzzo (Penn State Law and Bocconi University) recently let me know that he and several others--Pierre-Henri Conac, Gen Goto, Sebastian Mock, Mario Notari, and Arad Reisberg--have published a coauthored teaching text entitled (and focused on) Comparative Corporate Law. As someone who has taught that subject (as well as comparative and cross-border mergers and acquisitions) in the past, I have been very interested in taking a look at the book--the first of its kind, as far as I know. Luckily, I was able to grab a review copy from the publisher, West Academic Publishing (American Casebook Series), at the Southeastern Association of Law Schools (SEALS) conference, which I am attending this week. This post shares a bit about the book (based on a relatively quick examination--peeking more closely into some chapters than others) and my ideas for teaching from it.
I recommend the book and would use it in a course I would teach on the subject matter. The content is really wonderful. Nearly everything I need as a foundation for a course in comparative or cross-border corporate law is included. However, I have a few general criticisms, primarily based on my personal teaching perspective, that I will note in this post.
Wednesday, July 22, 2015
For a number of years now, I have been using group (3-person teams) oral midterm examinations in my Business Associations course. I have found these examinations to be an effective and rewarding assessment tool based on my teaching and learning objectives for this course. At the invitation of the Saint Louis University Law Journal, as part of a featured edition of the journal on teaching business associations law, I prepared a short article giving folks the "why, how, and what" of my experience in taking this approach to midterm assessment. The article was recently published, and I have posted it to SSRN. The abstract reads as follows:
I focus in this Article on a particular way to assess student learning in a Business Associations course. Those of us involved in legal education for the past few years know that “assessment” has been a buzzword . . . or a bugaboo . . . or both. The American Bar Association (ABA) has focused law schools on assessment (institutional and pedagogical), and that focus is not, in my view, misplaced. Until relatively recently, much of student assessment in law school doctrinal courses was rote behavior, seemingly driven by heuristics and resulting in something constituting (or at least resembling) information cascades or other herding behaviors.
In the fall of 2011, I began offering an oral midterm examination to students in my Business Associations course as an additional assessment tool. This Article explains why I started (and have continued) down that path, how I designed that examination, and what I have learned by using this assessment method for three years. Although some (probably most) will not want to do in their Business Associations courses exactly what I have done in mine (as to the midterm examination or any other aspects of the course described in this Article), I am providing this information to give readers ideas for, or courage to make positive changes in, their own teaching (for a course on business associations or anything else).
You may think I am crazy (even--or especially--after reading this article). Regardless, I do hope the article sparks something positive in you regarding your teaching in Business Associations or some other course. Since I am working on finishing a long-overdue book on teaching business associations for Aspen this summer, I would welcome your honest reactions to the article and your additional thoughts on assessment or other aspects of teaching Business Associations.
Wednesday, July 15, 2015
I read with interest the recently released opinion of the U.S. Court of Appeals for the Third Circuit in Trinity Wall Street v. Walmart Stores, Inc. The Wall Street Journal covered the publication of the opinion earlier in the month, and co-blogger Ann Lipton wrote a comprehensive post sharing her analysis on the substance of the decision over the weekend. (I commented, and Ann responded.) Of course, like Ann, as a securities lawyer, I was interested in the court's long-form statement of its holding and reasoning in the case. But I admit that what pleased me most about the opinion was its use of legal scholarship written by my securities regulation scholar colleagues.
Tom Hazen's Treatise on the Law of Securities Regulation is cited frequently for general principles. This is, as many of you likely already know, an amazing securities regulation resource. I also will note that many of my students find Tom's hornbook helpful when they are having trouble grappling with securities regulation concepts covered in the assigned readings in my class.
Donna Nagy's excellent article on no-action letters (Judicial Reliance on Regulatory Interpretation in S.E.C. No-Action Letters: Current Problems and a Proposed Framework, 83 Cornell L. Rev. 921 (1998)) also is cited by the court. This piece is not praised enough, imho, for the work it does in the administrative process area of securities law. I see the citations in the opinion as an element of needed praise.
And finally, Alan Palmiter's scholarship also is cited numerous times in the opinion. Specifically, the court quotes from and otherwise cites to The Shareholder Proposal Rule: A Failed Experiment in Merit Regulation, 45 Ala. L. Rev. 879 (1994). Again, this work represents an important, under-appreciated scholarly resource in securities law.
At least one other law review article is cited once in the opinion.
[Note: Alison Frankel also points out that Vice Chancellor Laster cites formatively to a paper co-authored by Jill Fisch, Sean Griffith, and Steve Davidoff Solomon in a recent opinion. More evidence that our work matters, at least to the judiciary.]
As Ann's post notes, the Trinity opinion also is worth reading for its substance. In addition to the matters Ann mentions, the opinion includes, for example, a lengthy, yet helpful, history of the ordinary business exclusion under Rule 14a-8. And the analysis is instructive, even if unavailing (unclear in its moorings and effect in individual cases).
Finally, it's worth noting that the opinion is drafted with a healthy, yet (imv) professional, dose of humor. The opinion begins, for example, as follows:
“[T]he secret of successful retailing is to give your customers what they want.” Sam Walton, SAM WALTON: MADE IN AMERICA 173 (1993). This case involves one shareholder’s attempt to affect how Wal-Mart goes about doing that.
And the conclusion of the opinion includes the following passage that made me smile:
Although a core business of courts is to interpret statutes and rules, our job is made difficult where agencies, after notice and comment, have hard-to-define exclusions to their rules and exceptions to those exclusions. For those who labor with the ordinary business exclusion and a social-policy exception that requires not only significance but “transcendence,” we empathize.
(This is part of the "scolding" Ann references in her post.)
Read the concurring opinion of Judge Shwartz, too. It is thoughtful (even if not entirely helpful, as Ann notes) in making some nice additional points worth considering.
Saturday, July 11, 2015
I noted with favor the other day (to myself, privately) the helpful and interesting commentary on The Glom of our trusted colleague and co-blogger, Usha Rodrigues, regarding the recent press reports on Mylan N.V.'s related-party disclosures. As the story goes, a firm managed and owned in part by the Vice Chair of Mylan's board of directors sold some land to an entity owned by one of the Vice Chair's business associates for $1, and that entity turned around the same day and sold the property to Mylan for its new headquarters for $2.9 million. Usha's post focuses on both the mandatory disclosure rules for related-party transactions and the mandatory disclosure rules on codes of ethics. Two great areas for exploration.
A reporter from the Pittsburgh Tribune-Review called me Thursday to talk about the Mylan matter and some related disclosure issues. He and I spoke at some length yesterday. That press contact resulted in this story, published online late last night. The reporter was, as the story indicates, interested in prior related-party disclosures made by Mylan involving transactions with family members of directors. This led to a more wide-ranging discussion about the status of family members for various different securities regulation purposes. It is from this discussion that my quote in the article is drawn. But our conversation covered many other interesting, related issues.
Wednesday, July 8, 2015
Last September, I authored a post here on the BLPB on judicial opinions and related statutes regarding LLCs as non-signatories to LLC operating agreements (simply termed "LLC agreements" in Delaware and a number of other states). I recently posted a draft of an essay to SSRN that includes commentary on that same issue as part of a preliminary exploration of the law on LLC operating agreements as contracts. (Readers may recall that I mentioned this work in a post last month on the Law and Society Association conference.) I am seeking comments on this draft, which is under editorial review at the SMU Law Review as part of a symposium issue of essays in honor of our departed business law colleague, Alan R. Bromberg, who had been an SMU Dedman School of Law faculty member for many years before his death in March 2014. My SSRN abstract for the essay, entitled "The Ties That Bind: LLC Operating Agreements as Binding Commitments," reads as follows:
This essay, written in honor and memory of Professor Alan R. Bromberg as part of a symposium issue of the Southern Methodist University Law Review, is designed to provide preliminary answers to two questions. First: is a limited liability company (“LLC”) operating agreement (now known under Delaware law and in certain other circles as a limited liability company agreement) a contract? And second: should we care either way? These questions arise out of, among other things, a recent bankruptcy court case, In re Denman, 513 B.R. 720, 725 (Bankr. W.D. Tenn. 2014).
The bottom line? An operating agreement may or may not be a common law contract. But that legal categorization may not matter for purposes of simple legal conclusions regarding the force and effect of operating agreements. A state’s LLC law may provide that LLCs are contracts or are to be treated as contracts in general or for specific purposes and may establish the circumstances in which operating agreements are valid, binding, and enforceable. However, in the absence of an applicable statute, the legal conclusion that an operating agreement is or is not a common law contract may matter in legal contexts that depend on the common law of contracts for their rules. In either case, the bar may want to participate in clarifying the status of operating agreements as binding commitments.
Any and all comments on the essay are welcomed. Comments that decrease the length of the essay are especially appreciated, since I am admittedly over the allotted word limit. (These essays are meant to be very short pieces so that many of us can contribute to honoring Alan.) Of course, there's always time to write another, lengthier piece on this topic later, if there's enough more to be said . . . .
Also, I will note that the Association of American Law Schools Section on Agency, Partnership, LLC's and Unincorporated Associations is planning a program on the role of contract in LLCs at the 2016 annual meeting in January. I have been asked to participate, and the panel promises to have some additional members that will attack the embedded issues from a number of interesting angles. Stay tuned for more on that.
Wednesday, July 1, 2015
As I earlier noted, on June 23rd, I moderated a teleconference on proposals to shorten the Section 13(d) reporting period, currently fixed by statute and regulation at 10 days. If you don't mind registering with Proxy Mosaic, you can listen to the program. The link is here.
The discussion was lively--as you might well imagine, given that one of the participants represents activist shareholders and the other represents public companies. A number of interesting things emerged in the discussion, many (most) of which also have been raised in other public forums on Schedule 13D, including those referenced and summarized here, here, and here, among other places.
- Exactly how does the Section 1d(d) reporting requirement protect investors or maintain market integrity or encourage capital formation? Or is it just a hat-tipping system to warn issuers about potential hostile changes of control, chilling the potential for the market for corporate control to run its natural course? Of course, the answer to many questions about Section 13(d) depends on our understanding of the policy interests being served. It's hard to tinker with the reporting system if we cannot agree on the objectives it seeks to achieve . . . . (Read the remaining bullets with this in mind.)
- We're not in the 1960s, 1970s, or 1980s any more. If market accumulations are deemed to present dangers to investors today (and that case needs to be made), why are they not just an accepted risk of public market participation? Shouldn't every investor know that market accumulations are a risk of owning publicly traded securities? And how does the reporting requirement really protect them from harm? Is this just over-regulation that treats investors as nitwits?
- Not all activist investors are the same. Some act or desire to act as a Section 13(d) group; others don't. Some seek effective or actual control of an issuer; some don't.
- Provisions within the Section 13(d) filing requirements interact. So, can we really talk about decreasing disclosure time periods without also talking about triggering thresholds and mandatory disclosure requirements?
- Why is 5% beneficial ownership the triggering threshold for reporting? What's the magic in that number--and if it were to be changed, should it be lower or higher?
- Schedule 13D is a disclosure form fraught with complexity. Many important judgment calls may have to be made in completing the required disclosures accurately and completely, depending on the circumstances. Is all this complexity needed? In particular, can the Item 4 disclosure requirement be simplified? And is the group concept necessary?
- What is the value, if any, in looking at the issue from a comparative global regulatory viewpoint? Toward the end of the call, international comparisons were increasingly being made and used as evidence that a change in U.S. regulation is needed or desirable. But are other markets and systems of regulation enough like ours for these comparisons to work? E.g., although other countries require Schedule 13D-like filings fewer days after attainment of a triggering threshold of ownership, does that mean we also should reduce the time period for mandatory disclosure here in the U.S.?
Lots of questions; I am beginning to think through answers. Regardless there's much food for thought here. Any reactions? What do you think, and why?
Wednesday, June 24, 2015
I had the privilege of sitting in on a stimulating paper session on "Private Fiduciary Law" at the Law and Society Association conference in Seattle last month. The program featured some super work by some great scholars. My favorite piece from the session, however, is a draft book chapter written by Gordon Smith that he recently posted to SSRN. Aptly entitled The Modern Business Judgment Rule, the chapter grapples with the current state of the business judgment rule in Delaware by tracing its development and reading the disparate doctrinal tea leaves. Here is a summary of his "take," as excerpted from his abstract (spoiler alert!): "The modern business judgment rule is not a one-size-fits-all doctrine, but rather a movable boundary, marking the shifting line between judicial scrutiny and judicial deference."
In the mere 18 pages of text he uses to engage his description, analysis, and conclusion, Gordon gives us all a great gift. His summary is useful, his language is clear, and his analysis and conclusions are incredibly useful, imho. I am no soothsayer, but I predict that this will be a popular piece of work.
Gordon posted on his paper the other day on The Glom. He is inviting comments, and I know him to be serious in wanting to receive and incorporate them. So, have at it!
The Turtles continue to have salience in the music world. Now, they also are a "happening thing" in legal circles. Two recently published law review articles take on an interesting issue in copyright law relating to pre-1972 sound recordings that has been the subject of legal actions brought by members of The Turtles. The articles (both of which use the song Happy Together, a Turtles favorite, in their titles) are authored by my University of Tennessee College of Law colleague, Gary Pulsinelli, and Georgetown University Law Center Professor Julie L. Ross.
In his abstract, Gary summarizes the problem as follows:
Federal copyright law provides a digital performance right that allows owners of sound recordings to receive royalties when their works are transmitted over the Internet or via satellite radio. However, this federal protection does not extend to pre-1972 sound recordings, which are excluded from the federal copyright system and instead left to the protections of state law. No state law explicitly provides protection for any type of transmission, a situation the owners of pre-1972 sound recordings find lamentable. These owners are therefore attempting to achieve such protection by various means. . . .
[S]tate law cannot provide the remedy that the owners of pre-1972 sound recordings seek. Their concerns, however, should not be dismissed. The exclusion of pre-1972 sound recordings from the federal system does deprive the owners of such recordings of royalties received by similarly situated owners whose recordings happen to have been made after that date. Because state law cannot remedy the problem, federal law must. Pre-1972 sound recordings should be brought into the federal system, on essentially the same terms as other works from the same era that are already protected by federal copyright.
Professor Ross reaches the same conclusion, as summarized in her abstract:
[G]iven the delicate balancing that has gone into Congress’ recognition of a limited digital performance right and creation of a compulsory statutory licensing system, any remedy for the inequity to owners of pre-1972 sound recordings must be left to Congress. Allowing individual courts in individual states to craft a patchwork of inconsistent remedies would disrupt the balance struck by Congress and interfere with the functioning of the compulsory license system for digital sound recording performances. This is a result that the Supremacy Clause does not permit.
Last week, I posted on federal securities law reform. It looks like federal copyright law also is in need of some fixing . . . . However, the copyright issue addressed in these two papers seems like an easy one to fix efficiently and effectively, unlike some of the federal securities law issues on the current reform agenda. Regardless, I'll raise three cheers to fixing what's legally broken in the most efficacious way!
Imagine how the world could be
So very fine
So happy together . . . .
Wednesday, June 17, 2015
In response to one of my posts last week, co-blogger Josh Fershee raised concern about making minor changes to securities regulation--in that case, in the context of the tender offer rules. Specifically, after raising some good questions about the teaser questions in a marketing flyer regarding a program I am moderating, he adds:
This reflects my ever-growing sense that maybe we should just take a break from tweaking securities laws and focus on enforcing rules and sniffing out fraud. A constantly changing securities regime is increasingly costly, complex, and potentially counterproductive.
Admittedly, I am not that close to this, so perhaps I am missing something big, but I’m thinking maybe we should just get out of the way (or, probably better stated, keep the obstacles we have in place, because at least everyone knows the course).
Although I pushed back a bit, I generally agree with his premise (and I told him so). I will leave the niceties regarding the tender offer rule at issue for another day--perhaps blogging on this after the moderated program takes place. But in the mean time, I want to think a bit more out loud here about Josh's idea that, e.g., mandatory disclosure and substantive regulation should be minimal and fraud regulation should be paramount. Not, of course, a new idea, but a consideration that all of us who are honest securities policy-makers and scholars must address.
Wednesday, June 10, 2015
Last week, I attended the National Business Law Scholars Conference at Seton Hall University School of Law in Newark, NJ. It was a great conference, featuring (among others) BLPB co-blogger Josh Fershee (who presented a paper on the business judgment rule and moderated a panel on business entity design) and BLPB guest blogger Todd Haugh (who presented a paper on Sarbanes-Oxley and over criminalization). I presented a paper on curation in crowdfunding intermediation and moderated a panel on insider trading. It was a full two days of business law immersion.
The keynote lunch speaker the second day of the conference was Kent Greenfield. He compellingly argued for the promotion of corporate personhood, following up on comments he has made elsewhere (including here and here) in recent years. In his remarks, he causally mentioned B corporations and social enterprise more generally. I want to pick up on that thread to make a limited point here that follows up somewhat on my post on shareholder primacy and wealth maximization from last week.
June 10, 2015 in Business Associations, Conferences, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Delaware, Joan Heminway, Litigation, Social Enterprise | Permalink | Comments (6)
Courtesy of AALS Section on Securities Regulation Chair Christine Hurt:
Call for Papers
AALS Section on Securities Regulation - 2016 AALS Annual Meeting
January 6-10, 2016 New York, NY
The AALS Section on Securities Regulation invites papers for its program on “The Future of Securities Regulation: Innovation, Regulation and Enforcement.”
TOPIC DESCRIPTION: This panel discussion will explore the current trends and future implications in the securities regulation field including transactional and financial innovation, the regulation of investment funds, the intersection of the First Amendment and securities law, the debate over fee-shifting bylaws, the ever-expanding transactional exemptions including under Regulation D, and judicial interpretations of insider trading laws. The Executive Committee welcomes papers (theoretical, doctrinal, policy-oriented, empirical) on both the transactional and litigation sides of securities law and practice.
ELIGIBILITY: Full-time faculty members of AALS member law schools are eligible to submit papers. Pursuant to AALS rules, faculty at fee-paid law schools, foreign faculty, adjunct and visiting faculty (without a full-time position at an AALS member law school), graduate students, fellows, and non-law school faculty are not eligible to submit. Please note that all faculty members presenting at the program are responsible for paying their own annual meeting registration fee and travel expenses. NOTE FURTHER, AALS has announced reduced registration fees for junior faculty for the 2016 conference.
PAPER SUBMISSION PROCEDURE: Up to four papers may be selected from this call for papers. There is no formal requirement as to the form or length of proposals. However, more complete drafts will be given priority over abstracts, and presenters are expected to have a draft for commentators two weeks prior to the beginning of the AALS conference.
Papers will be selected by the Section's Executive Committee in a double-blind review. Please submit only anonymous papers by redacting from the submission the author's name and any references to the identity of the author. The title of the email submission should read: "Submission - 2016 AALS Section on Securities Regulation."
Please email submissions to the Section Chair Christine Hurt at: firstname.lastname@example.org on or before August 21, 2015.
Friday, June 5, 2015
This week, while preparing for and attending the National Business Law Scholars Conference, I have had to deal with a Tennessee corporate law "brushfire" of sorts generated by a Nashville Business Journal (NBJ) article published earlier this week. The article, written by a Nashville lawyer, took a somewhat alarmist--and substantively inaccurate--view of a recent addition to the Tennessee Business Corporation Act drafted by the Business Entity Study Committee (BESC) of the Tennessee Bar Association, of which I am a member (and about which I have written here in the past, including here, here, and here). Specifically, the author asserted that Tennessee's adoption of the text of Model Business Corporation Act Section 14.09 creates new liability for Tennessee corporate directors--especially directors of insolvent Tennessee corporations. Somewhat predictably, calls and emails from directors, executives, and the Tennessee Secretary of State's office (which, itself, received many calls) ensued.
By design, and (we believe) by effect, the statutory section at issue clarifies the duties of directors of dissolved Tennessee corporations and establishes a safe harbor from liability. Accordingly, the drafting team from the BESC (me included) believed we had to jump in and correct the mischaracterizations in the article, which the author apparently was unwilling to retract or self-correct. The NBJ, greatly to its credit, understood our concerns and published a rebuttal from the BESC chair, which the BESC collaborated in drafting and co-signed. In addition, the Chattanooga Times Free Press published an article that outlines the debate (in which the BESC chair and I am quoted).
So, folks do pay attention to corporate law--and they think it matters! Unfortunately, sometimes, they get it wrong. This leads to a number of lessons . . . . Apropos of that thought, it's important that a lawyer measure twice and cut once, especially when writing a critical exposé intended and destined to receive attention from an important audience--one personally affected by the contents of the exposé. Moreover, the need for experienced corporate legal counsel--lawyers steeped in the structure and function of corporate law--continues to be important in the drafting of, and public education regarding, complex corporate legal rules.
Wednesday, June 3, 2015
I just returned early Monday from this year's Law and Society Association conference. I presented my paper on LLC operating agreements as contracts--about which I later will blog here--on a panel as part of a CRN (Collaborative Research Network) on corporate and securities law. I enjoyed the conference and being in Seattle (a city I rarely get a chance to visit).
I noticed something in a number of the sessions I attended, however, that I want to share here. A number of scholars referenced, in their presentations or in comments to the presentations of others, "shareholder primacy." As I listened, it was clear these folks were referring to the prioritizing of shareholder interests--especially financial interests--ahead of the interests of other stakeholders in corporate decision-making, rather than the elements of corporate control (few as there are) enjoyed by shareholders. As I began to recognize this, several things happened in rapid succession.
First, I remembered David Millon's recent paper on this subject, which (among other things) tells a history of the use of the "shareholder primacy" term. It's well worth a read. Or a re-read!
Second, I remembered Steve Bainbridge's earlier work on this same topic. Ditto on that paper; read it or re-read it. His chart in Figure 1 of that paper is an amazing visual summary.
Third, and largely as a result of those two papers, I wondered why we use the same term for these two aspects of corporate modeling (whether you label them them radical versus traditional shareholder primacy, shareholder protection versus monitoring, corporate ends versus means, or anything else). It's confusing! I kept wanting to interrupt, as folks were using "shareholder primacy," to ask: "which kind?" to move my understanding and analysis further forward faster.
Here's my pitch. I advocate moving away from using the term "shareholder primacy" when a more specific term is available. In the alternative, I advise defining the use of "shareholder primacy" in context when it is used, whether orally or in writing. Am I alone in being unsettled by this? Am I being too pedantic or controlling in my advocated solution or advice? I welcome your views.
Wednesday, May 27, 2015
As a semi-closeted (now "out," I guess) foodie* and as a lover of "things Brazilian" (including Havaianas flip-flops and Veja sneakers, as well as churrascarias and caipirinhas), I read with interest a recent electronic newsletter headline about a thriving Brazilian chef. I clicked through to the article. I loved it even more than I had thought I would.
The article tells the story of an emergent Brazilian chef and restauranteur, Rodrigo Oliveira, and his flagship establishment (Mocotó), as promised. That was great. But that was not all. The piece also told the story of a business run using a "holistic business model."
Today, Oliveira focuses on his employees as much as his customers. . . . Oliveira pays for his employees’ part-time education. And their kids’ health care. And daily jiujitsu and yoga classes in the room he built upstairs. It’s a rarely encountered, holistic business model that contributes to his restaurant’s roaring success. . . .
. . .
Beneath the street level they’re boring out new dormitories for employees, for a quick nap and shower between jiujitsu, work and class. . . .
He also seems to be attentive to the greater local community beyond his customers and employees, preferring (to date) to expand his business locally rather than into larger metropolitan areas. Good business? Yes! But it seems like more than that. This business appears to have more than one bottom line!
Perhaps this is not a remarkable story, in the end. Regardless, I wanted to share it. Another Brazilian social enterprise, Ashoka, gets a lot of attention.** But it's now clear to me that we can and should look beyond larger, storied examples of social entrepreneurship for other manifestations of social enterprise in action in Brazil.
**Actually, much to my surprise, Ashoka is a U.S. organization that networks social enterprises across the globe. So, it's not even Brazilian! Having been in Rio teaching for a few summers and known of its presence there, I assumed it was a Brazilian organization. Please forgive the error. Hat tip to co-blogger Haskell Murray for pointing it out to me.
Wednesday, May 20, 2015
Some of you may recall that I blogged last summer about a SEALS (Southeastern Association of Law Schools) discussion group on "publicness." That post can be found here. My contribution to the discussion group was part of a paper that then was a work-in-process for the University of Cincinnati Law Review that I earlier had blogged about here.
That paper now has been released in electronic and hard-copy format. I just uploaded the final version to SSRN. The abstract for the paper reads as follows:
Conceptions of publicness and privateness have been central to U.S. federal securities regulation since its inception. The regulatory boundary between public offerings and private placement transactions is a basic building block among the varied legal aspects of corporate finance. Along the same lines, the distinction between public companies and private companies is fundamental to U.S. federal securities regulation.
The CROWDFUND Act, Title III of the JOBS Act, adds a new exemption from registration to the the Securities Act of 1933. In the process, the CROWDFUND Act also creates a new type of financial intermediary regulated under the Securities Exchange Act of 1934 and amends the 1934 Act in other ways. Important among these additional changes is a provision exempting holders of securities sold in crowdfunded offerings from the calculation of shareholders that requires securities issuers to become reporting companies under the 1934 Act.
This article attempts to shed more light on the way in which the CROWDFUND Act, as yet unimplemented (due to a delay in necessary SEC rulemaking), interacts with public offering status under the 1933 Act and public company status under the 1934 Act. Using the analytical framework offered by Don Langevoort and Bob Thompson, along with insights provided in Hillary Sale’s work, the article briefly explores how the CROWDFUND Act impacts and is impacted by the public/private divide in U.S. securities regulation. The article also offers related broad-based observations about U.S. securities regulation at the public/private divide.
I hope that you are motivated to read the article--and that you get something out of it if you do read it. The thinking involved in creating the article was often challenging (even if the expressed ideas may not reflect or meet that challenge). Yet, writing the article, in light of the super work already done by Don Langevoort, Bob Thompson, and Hillary Sale, was joyful and illuminating for me in many ways.
I often say that I stand on the shoulders of giants in my teaching and scholarship. That was transparently true in this case. If only all academic research and writing could be so rewarding.
Wednesday, May 13, 2015
I am delighted to introduce Marcos Antonio Mendoza as an additional BLPB guest blogger for this month. He plans to do several posts here over the next few weeks. I look forward to his contributions.
Marcos is a graduate of Washburn University School of Law (J.D.) and the University of Connecticut School of Law (LL.M.), with Honors. His recent article in the Connecticut Insurance Law Journal, "Reinsurance as Governance: Governmental Risk Management Pools as a Case Study in the Governance Role Played by Reinsurance Institutions," is a continuance of “insurance as governance” scholarship through the empirical examination of reinsurer relationships. With more than 25 years in the insurance and self-funded pooling industries, he currently is an assistant director with the third party administrator for one of the largest public-entity risk management funds in the U.S., based in Austin, Texas.
Marcos is a regular reader of--and sometimes-commenter on--the BLPB. His perspectives have been quite valuable to me. I hope that you will find his insights helpful to your work.
Emory’s Center for Transactional Law and Practice cordially invites you to attend its fifth biennial conference on the teaching of transactional law and skills. The conference, entitled “Method in the Madness: The Art and Science of Teaching Transactional Law and Skills,” will be held at Emory Law, beginning at 1:00 p.m. on Friday, June 10, 2016, and ending at 3:45 p.m. on Saturday, June 11, 2016.
The registration fee for the conference is $189 and includes:
Pre-conference lunch and snacks
A pre-dinner reception on June 10
Breakfast, lunch and snacks on June 11
We are planning an optional dinner for attendees on Friday evening, June 10, at an additional cost. Attendees are responsible for their own hotel accommodations and travel arrangements. Additional information on the optional dinner and accommodations to come.
A request for proposals will be distributed in the fall.
We look forward to seeing you in June of 2016!
Executive Director and Professor in the Practice of Law
Center for Transactional Law and Practice
Emory University School of Law
As some readers may recall, I posted twice back in November about The University of Tennessee, Knoxville's decision to drop the Lady Vols moniker and mark from all women's sports teams at UTK other than women's basketball. The first post primarily wondered about university counsel's consideration of trademark abandonment in the rebranding effort. The second post unpacked some additional issues raised by the first post and addressed some readers' and friends' concerns about my stance opposing the rebranding.
Interestingly, adverse reactions to the branding change, which is effective on July 1 (the beginning of the new academic year at UTK), have not died down since those original posts. Letters from concerned citizens have been published in the local paper, and the paper even published a recent news article documenting some of the back-and-forth between Lady Vol fans and the campus administration. [Ed. Note: this article may be protected by a firewall.] I have followed all of this with some interest.
Honestly, part of me just cannot wait for the university to drop the mark altogether so that I can start using it to mass merchandise retro Lady Vols t-shirts, hats, and other merch. Entrepreneurial pipe dream? Maybe. But it seems like a great idea, yes?
And there's a case involving Macy's that I will be following to help me to assess whether and, if so, when to launch my venture. The case, covered in an article in the New York Law Journal on Monday, involves Macy's and its disuse/limited use of department store names forsaken as a result of its own rebranding efforts. You know the names well if you're a person of a certain age--A&S, Filene's, Marshall Fields, Stern's, etc. (I shopped at all of them. Eek!) The defendant in the action, Strategic Marks, claims the right to use these so-called "heritage marks" for bricks-and-mortar and online shopping services. Apparently, Strategic Brands filed intent to use applications and statements of use with the U.S. Patent and Trademark Office. In the case, Macy's challenges Strategic Marks's right to use the heritage marks--asserting, among other things, that the marks have not, in fact, been abandoned (given that Macy's still uses them on the occasional plaque, t-shirt, and tote bag.) The case had been scheduled for trial earlier this year, but the trial date was postponed to reflect new claims by Macy's regarding Strategic Marks's use of additional marks earlier registered by Macy's.
The case apparently raises some interesting trademark abandonment issues that also may apply to the Lady Vols rebranding effort as time moves on. Among them: the length of time a mark must be in disuse before it is considered abandoned (although a presumption of abandonment apparently arises after non-use for three consecutive years), the types of behavior that constitute an intent not to resume use of a mark, and the effect of residual goodwill associated with a mark on claims of abandonment. Although Macy's and Strategic Marks do not agree on the facts of the case, it is the law as applied to those facts that I am most interested in knowing.
Of course, since UTK is keeping the Lady Vols name for the women's basketball team, at least for now, the trademark abandonment issue is not ripe. Accordingly, I cannot yet think about quitting my day job to promote the Lady Vols brand to all the passionate UTK women's sports fans out there. But I am keeping my entrepreneurial eyes on this issue. If they do away with tenure in The University of Tennessee system, for example, I may need an opportunity like this . . . !
Wednesday, May 6, 2015
Monday, I had the privilege of moderating a discussion on structuring merger and acquisition transactions that I had organized as part of a continuing legal education program for the Tennessee Bar Association. Rather than doing the typical comparison/contrast of different business combination structures (with charts, etc.), I organized the hour-long discussion around the banter that corporate/securities and tax folks have in structuring a transaction. We used the terms of a proposed transaction (an LLC business being acquired by a public corporation) as a jumping-off point.
The idea for the format came from a water cooler conversation--literally--among me (in the role of a corporate/securities lawyer), one of my property lawyer colleagues, and one of my tax lawyer colleagues. The conversation started with a question my property law colleague had about the conveyance of assets in a merger. I told him that mergers are not asset conveyance transactions but, rather, statutory transactions that have the effects provided for in the statute, which include a vesting of assets in the surviving corporation. I told him that I call this "merger magic." I showed him Section 259(a) of the Delaware General Corporation Law:
When any merger or consolidation shall have become effective under this chapter, . . . all property, real, personal and mixed, and all debts due to any of said constituent corporations on whatever account, as well for stock subscriptions as all other things in action or belonging to each of such corporations shall be vested in the corporation surviving or resulting from such merger or consolidation . . . .
We discussed the possibility of an assignment/transfer of assets by operation of law under that provision and more generally under Delaware law in connection with different types of mergers, including recent case law regarding reverse triangular mergers. Ultimately, my property law colleague decided that a direct merger involved an asset sale by the target entity and a purchase transaction by the surviving corporation, as a matter of property law, notwithstanding my "merger magic" explanation I was forwarding as a descriptor under state corporate law.
The tax guy thought all this (both descriptions of a merger) was balderdash. These descriptions were too complex and stilted for his taste. Not to be outdone, he offered that all merger and acquisition transactions are either asset sales or sales of equity. At least, he allowed, that's how federal income tax law looks at them . . . . I told him that asset and equity sale transactions are joined by mergers (direct, reverse triangular, and forward triangular) and share exchange transactions (which are also statutory transactions, available in Tennessee and other Model Business Corporation Act states, but not available in Delaware) in the corporate lawyer's business combination toolkit. I also noted that federal securities law voting and reporting requirements work off these different corporate law descriptors.
Fascinating! Three lawyers, three different conceptions of business combination transactions. The moderated discussion on Monday was, in effect, an attempt by me to recreate, albeit in a different form, parts of that conversation. The discussion was, in my view, decently successful in achieving its limited purpose in the program. Nevertheless, I really wish I had a transcription of that original conversation by the water cooler. That was truly priceless . . . .
Wednesday, April 29, 2015
OK. So, Tennessee is not Delaware. But the Tennessee legislature and Supreme Court have been busy bees this spring on business law matters. Here's the brief report.
In the last week of the legislative term, the Tennessee Senate and House adopted the For-Profit Benefit Corporation Act, about which I earlier blogged here, here, and here. Although I remain skeptical of the legislation, it looks like the governor will sign the bill. So, we will have benefit corporations in Tennessee. We'll see where things go from there . . . .
The Tennessee legislature also passed a technical corrections bill for the Tennessee Business Corporation Act. The bill was drafted by the Tennessee Bar Association's Business Entity Study Committee (on which I serve and to which I have referred in the past), a joint project of the Tennessee Bar Association's Business Law Section and Tax Law Section. The governor has already signed this bill into law.
Separately, in a bit of a stealth move (!), the Tennessee Supreme Court recently announced the establishment of a business court, an institution many other jurisdictions already have. The court is being introduced as a pilot project in Davidson County (where Nashville resides)--but only, as I understand it, to iron the kinks out before introducing the court on a permanent basis. Interestingly, the Tennessee Bar Association Business Law Section Executive Council was not informed about the new court project until its public announcement in the middle of March. Although we found that a bit odd, the "radio silence" is apparently attributable to the excitement of the Tennessee Supreme Court to get the project started effective as of May 1 and the deemed lack of need for a study on the subject before proceeding. Regardless, I think it's safe to say that the bar welcomes the introduction of a court that specializes in business law cases as a matter of principle. Again, we'll see where it goes from here.
A few reflections on all this follow.