Tuesday, October 6, 2015

Life as a Lions Fan: Bad Football Might Help Good Teams

As a life-long Detroit Lions fan, last night's loss to the Seattle Seahawks was largely expected.  How they lost was new, though the fact that the Lions lost in a creative way, was also to be expected.  As actor Jeff Daniels said, being a Lions fan is more painful than being a Cubs fan.

In recent years, there is ample evidence that random and uncommon rules have shown up to hurt my already mediocre team. This got me to thinking, though, of the old adage, bad facts make bad law. For the Lions, I think that's not necessarily apt.  It may be that bad football makes for better football later.   

To understand how one might get there, one needs to know a little what it's like to be a Lions fan, so here's a little insight into how life as a Lions fan works: 

I watched the start of the game last night with my ten-year-old son.  Part of the pre-game programming is all of the announcers and studio people make their pick for the game.  The ten or so predictions were unanimously for the Seahawks.  I turned to my son and said, "Well, the Lions will probably make a game of it then."  He asked why.  I replied, "Because the Lions have a better chance to win when absolutely no one objective expects them to. I don't know why. It's just true." 

He went to bed shortly after kickoff. Lest anyone think I am cruel, I am not trying too hard to make him a Lions fan.  I have tried to raise him and his little sister also as Saints fans.  I am not going to bandwagon an make them Pats fans or anything, but New Orleans was home for three years, so I can reasonably adopt the Saints.  I have been questioned on that choice as an alternative, and this year doesn't look too hot, but in my defense, my kids' team has a Super Bowl win in their lifetimes. More than I can say for me.

As the game went on, there was lost of social media complaining between me and my fellow Lions fans.  Most of it along the lines of: "Did they forgot how to throw downfield?" "This is awful." "Where's Barry Sanders?"  Then I posted something witty like, "Matt Stafford just checked down to me on my couch." 

Despite an awful game, the Lions had a chance.  With time running out, the team seemed to learned they could throw the ball down the field more than three yards. 

The Lions were losing 13-10 with 1:51 left in the game when Stafford passed to Calvin Johnson, who dove for a touchdown.  Just before the goal line, Seahawks safety Kam Chancellor punched the ball out of his hands, and the ball tumbled into the end zone. Another Seahawks play clearly hit the ball out of the back of the end zone.  The play was call a touchback, giving Seattle the football at their own 20 yard line.  The problem is that NFL rules make batting the ball illegal, and the ball should have been awarded to the Lions at the 1 yard line.  

No call, and the Lions go on to lose.  And yes, there were lots of other chances the Lions had to win, and you can't hope a refs call won't go against you.  But it still stunk.  Again, a social media glimpse into the life of a Lions fan. 

Friend 1:  Could an ending be more Lions than that?

Me:  If you're going to screw it up, do it with panache.  And no. 

Friend 2:  did you see the latest on ESPN.. apparently, it looks like it shouldn't have been a touchback, but 1 and goal at the 6 inch line

Me:  That would be as about as Lions as it gets.

That's a long-winded bit of rambling, but it's cheaper than therapy.  

All teams run into odd rules, but mediocre teams have more ways of finding challenges. The Lions find challenges like no one else. They have a history of struggling with (i.e., losing, in part, because of) arcane rules, as this article explains: Illegal bat continues Lions' proud tradition of getting hosed by the NFL rulebook. The Illegal Bat now joins the Calvin Johnson Rule and the Jim Schwartz rule.  

This mediocrity can have value, though.  Finding all these weird challenges can help make the game better by helping highlight risks for future games that matter.  Better officiating and better rules will not make the Lions a better football team, but the challenges they seem to goof into might make for more aware officials and better rules for playoff games, which usually feature better teams.

Of course, the Lions finally made the playoffs last year, only to lose, in part, because of an oddly changed call.  Nonetheless, if the Lions can't be good, at least some good is coming from their games. Right?  

You don't need to answer that. 

October 6, 2015 in Current Affairs, Joshua P. Fershee, Sports | Permalink | Comments (1)

Tuesday, September 29, 2015

I Disagree With My Own Argument That Corporation = Citizen = Person = LLC

The ABA has recommend amendment of 28 U.S.C. § 1332 through Resolution 103B, which 

urges Congress to amend 28 U.S.C. § 1332, to provide that any unincorporated business entity shall, for diversity jurisdiction purposes, be deemed a citizen of its state of organization and the state where the entity maintains its principal places of business.

I'm on record as saying a legislative fix is how this should happen because I don't think courts should read "incorporated" in the act to include any entities other than corporations.  I still believe that.  However, I have come up with an argument that supports the idea in a way I had not thought of.  I still disagree with the idea of a court adding entities other than corporations to 1332 absent legislative action, so I disagree with what follows, but I thought of an interesting argument that I almost find compelling , so I am putting it out there anyway.  

In Hobby Lobby decision, Justice Alito stated:

No known understanding of the term "person" includes some but not all corporations. The term "person" sometimes encompasses artificial persons (as the Dictionary Act instructs), and it sometimes is limited to natural persons. But no conceivable definition of the term includes natural persons and nonprofit corporations, but not for-profit corporations.

The decision continues:

Under the Dictionary Act, "the wor[d] 'person' . . . include[s] corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals." 

Section 1332 provides district courts jurisdiction over "citizens of different States," and citizens are people.  Now, citizen is likely intended to mean natural persons, but 1332 says "a corporation shall be deemed to be a citizen of every State."  So entities can be citizens. And citizens are people.  And the Dictionary Act says LLCs are people, so one could argue that 1332's corporations clause is intended to include like entities. 

I still think that's wrong, but I admit it is a better argument than some I have heard.  

September 29, 2015 in Corporations, Joshua P. Fershee, LLCs | Permalink | Comments (1)

Tuesday, September 22, 2015

Diversity Jurisdiction and Terms of Art for Entities

This post is related to another great post from Tom Rutledge at the Kentucky Business Entity Law Blog, Diversity Jurisdiction and Jurisdictional Discovery: The Third Circuit Holds That “Hiding The Ball” Will Not Work. Tom's post is about Lincoln Benefit Life Company v. AEI Life, LLC, No. 14-2660, 2015 WL 5131423, ___ F.2d__ (3rd Cir. Sept. 2, 2015), which is available here

Lincoln Benefit allows a plaintiff, after a reasonable inquiry into the resources available (like court records and public documents), to allege complete diversity in good faith, if there is no reason to believe any LLC members share the same state of citizenship.  Thus, the diversity claim can be made on "information and belief."  Tom explains that

While it may do nothing to address the fact that diversity jurisdiction may be unavailable consequent to de minimis indirect ownership  . . .  it does limit the ability of a defendant to “hide the ball” as to its citizenship while objecting that the other side has not adequately pled citizenship and therefore diversity. 

This concern arises out of the fact that LLCs, as unincorporated associations, are treated like partnerships for purposes of federal diversity jurisdiction, meaning that an LLC is a citizen of every state in which it has a member. Thus, if an LLC has members that are partnerships or other LLCs, then a plaintiff would need to drill down all the way until they find get to natural people or corporations to know all the states in which the LLC is a citizen.  (As a reminder, under 28 U.S.C. § 1332,  federal diversity jurisdiction requires that the dispute both involve more than $75,000 and that there be complete diversity between all plaintiffs and all defendants.)  

For corporations, the statute provides: "a corporation shall be deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business . . . ."

Some may argue that LLCs, with the limited liability shield for all members, are just like corporations and should be treated as such for diversity purposes.  I think there is instant appeal to treating LLCs as corporations in that setting, but after further thought, I don't think it's as simple as it looks (at least, not for me). As one who continues to argue that LLCs and corporations are distinct entities, I think there is a real (and valid) difference between "incorporated" as required under § 1332 and the more general term, "formed."

I would agree that one can make a reasonable argument (though I think contrary to § 1332, and not my choice) that where limited liability applies to all unit holders (or members), then the corporation rule for diversity should apply to all entities that are formed (not just incorporated). If so, though, then that would likely include LPs and LLLPs, too, because any entity that requires filing, (i.e., all limited liability entities) could then reasonably be views as "formed" under state law. That is okay, if that's the desired policy, but it's not limited to LLCs in that case.

Still, there are those who would argue that one can interpret "incorporated" in § 1332 to mean "formed," but I think that's wrong.  "Formed" has its origins in partnership law. See, e.g., Uniform Partnership Act § 202 (1997) ("Formation of partnership."). Id.§ 202(c) ("In determining whether a partnership is formed, the following rules apply . . . .").   A legislature could make such a change, but it should be a legislative change. 

Despite the best efforts of thousands of courts, LLCs are formed, not "incorporated." See Uniform LLC Act § 202(d): "(1) A limited liability company is formed when the [Secretary of State] has filed the certificate of organization and the company has at least one member, unless the certificate states a delayed effective date pursuant to Section 205(c)." As such, under current law for federal diversity, "incorporated" applies to corporations only. 

Beyond that, as to LLCs specifically, I think there is a difference between member-managed LLCs and manager-managed LLCs in carrying out the corporate analogy. That is, a manager-managed LLC is (usually) quite comparable to a corporation and a member-managed LLC is more easily compared to a partnership. That raises the question: should there be a control test, if that's really the question, as to how diversity applies?  There is no control test for close corporations, either, I would note, and instead a bright line is applied by entity, not control or risk of liability. 

Furthermore, if it's just the concept of complete limited liability, I would argue that an LP with a corporate GP (that only operates for the purposes of that LP) is functionally similar to an LLC in terms of liability, yet there seems to be less of a question how we analyze the LP for diversity purposes. 

It seems to me Lincoln Benefit got the test right, under current law.  Let's see how that goes before we start conflating LLCs and corporations in yet another area.  

September 22, 2015 in Business Associations, Corporations, Joshua P. Fershee, Legislation, LLCs, Partnership | Permalink | Comments (1)

Tuesday, September 15, 2015

A Dislike Button? This Could End Badly

The New York Times reports that Facebook may add a "dislike" button. I am with the many people (probably now all or mostly over 35) who use Facebook and have thought a dislike button would be a nice option.  

"Just had a car accident."  "Lovely dog just passed." "Kids barfing wildly."  Dislike

But I assume Facebook has skipped this for a reason. That is, it could be used in a terrible manner. 

"Proud to announce we're engaged." "Welcome to our new baby boy." "This is my new painting." Dislike

I understand the desire for symmetry, but dislike is probably not the button for a good experience with Facebook.  Maybe an "I'm sorry" or "That's too bad" button, would work better.  I don't know, but when I put this blog post on Facebook, a little part of me will be happy there's no dislike button.

Not that the lack of such a button ever stopped a snarky comment or six.  

September 15, 2015 in Current Affairs, Joshua P. Fershee | Permalink | Comments (0)

Tuesday, September 8, 2015

Wrong: U.S. Supreme Court & 4575 Other Cases Say an LLC is a Corporation

Limited liability companies (LLCs) are often viewed as some sort of a modified corporation.  This is wrong, as LLCs are unique entities (as are, for example, limited partnerships), but that has not stopped lawyers and courts, including this nation's highest court, from conflating LLCs and corporations.  

About four and a half years ago, in a short Harvard Business Law Review Online article, I focused on this oddity, noting that many courts

seem to view LLCs as close cousins to corporations, and many even appear to view LLCs as subset or specialized types of corporations. A May 2011 search of Westlaw’s “ALLCASES” database provides 2,773 documents with the phrase “limited liability corporation,” yet most (if not all) such cases were actually referring to LLCs—limited liability companies. As such, it is not surprising that courts have often failed to treat LLCs as alternative entities unto themselves. It may be that some courts didn’t even appreciate that fact. (footnotes omitted).

I have been writing about this subject again recently, so I decided to revisit the question of just how many courts call LLCs “limited liability corporations instead of “limited liability companies.”  I returned to Westlaw, though this time it's WestlawNext, to do the search of cases for the term "limited liability corp!". (Exclamation point is to include corp., corporation, and corporations in my search, not to show excitement at the prospect.)

The result: 4575 cases use the phrase at least once.  

That means that, since May 2011, 1802 additional cases have incorrectly identified the definition of an LLC.   (I concede that some cases may have used the term to note it was wrong, but I didn't find any in a brief look.)

Even the United States Supreme Court published one case using the incorrect phrase, and it was decided around three years after my article was published.  See Daimler AG v. Bauman, 134 S. Ct. 746, 752, 187 L. Ed. 2d 624 (2014) ("MBUSA, an indirect subsidiary of Daimler, is a Delaware limited liability corporation.").  (Author's note: ARRRRGH!)  The court also stated, "Jurisdiction over the lawsuit was predicated on the California contacts of Mercedes–Benz USA, LLC (MBUSA), a subsidiary of Daimler incorporated in Delaware with its principal place of business in New Jersey." Id. (emphasis added). (Author's Note: Really?)

This opinion was written by Justice Ginsberg, and joined by Chief Justice Roberts, and Justices Scalia, Kennedy, Thomas, Breyer, Alito, and Kagan. Justice Sotomayor filed a concurring opinion that did not, unfortunately, concur in judgment but disagree with the characterization of the LLC. The entire court at least acquiesced in the incorrect characterization of the LLC! 

It appears things have to get worse before they can get better, but I will remain vigilant.  I’m working on an article that builds on this, and it will hopefully help courts and practitioners keep LLCs and corporations distinct.  

In the meantime, I humbly submit to Chief Justice Roberts, and the rest of the Court, that there are already some useful things in law reviews

September 8, 2015 in Business Associations, Case Law, Corporations, Joshua P. Fershee, Law Reviews, Lawyering, LLCs, Partnership, Research/Scholarhip, Unincorporated Entities | Permalink | Comments (2)

Tuesday, September 1, 2015

Ten Promises For New (and Old) Law Professors to Consider

A couple weeks ago, I wrote Ten Promises For New Law Students to Consider, which discussed the promises I made to myself when I went to law school.  It seems to me appropriate that I should follow up with something applies to me now.

This list for law professors (or at least, this law professor) includes some of the promises I made myself when I left practice, and some that have evolved over the almost decade I have been teaching.  It's hard to believe this is my tenth year as a full-time teacher. 

To that end, here are my suggestions for faculty members, based on my experience. I don't always keep these promises, but (as I did with the law school promises) I try.  This list is even less exhaustive than my last effort, and I welcome additions to the list in comments. I am not going to lie, this was a harder list to make, and it's a challenge to fulfill them all (especially #6). 

I promise: 


(1) To be intentional.  That is, I will choose books, assign readings and exercises, and draft paper assignments and exams with a purpose.  They may not always be the best choice, but there will be a reason (supported by good intent) they were chosen. 


(2) To remember, whether it's related to demeanor, effort, or analysis, that I cannot be the benchmark for all my students.  They are not me, and I am not them.  We all have a story, and it is (in some way) unique. 


(3) To remember that, while kindness, sympathy, and empathy are essential skills to being a good teacher, colleague, and human being, they are not inconsistent with high expectations.


(4) To keep connected to practice and to people with non-academic jobs so that I can keep current and  grounded in the practical realities of life as an attorney and member of a broader community. 


(5)  To take pride (and risks) in my work in an effort to be better at what I do and to evolve in all aspects of my work -- teaching, research, and service.  (Old dogs can learn new tricks.)


(6) To recognize boundaries and to be kind and patient with my family because who I am at home impacts who I am at work (and vice versa).


(7) To do my best to get enough sleep and enough exercise. 


(8) To find the fun in my work when I can, and not forget that one of the best parts of being an academic is writing about things I choose (not that my clients choose) and taking positions I think are right.


(9) To be friendly and helpful to build relationships so that the community I know is a community I want. This includes my faculty colleagues, our staff and support colleagues, and our student colleagues.  


(10) To understand that I cannot be everything to everyone and that opportunity costs are real.  Thus, as I seek to fulfill John Wooden's ideal -- "Don't measure yourself by what you have accomplished, but by what you should have accomplished with your ability."-- I will keep in mind that accomplishments are more than articles written and classes taught. They include those, but they also include things like laughs, hugs, bike rides, soccer games, swing sets, sunsets, beaches, and good food. Beer, wine, and cocktails, are sometimes a nice touch, too. 

September 1, 2015 in Joshua P. Fershee, Law School, Research/Scholarhip, Teaching | Permalink | Comments (2)

Tuesday, August 25, 2015

LLCs Still Don't Have Corporate Veils. Really.

I know I am Johnny One Note on this, but while researching another project, I decided to check again if litigators (and courts) are still referring to veil piercing of LLCs as "corporate veil piercing." As I have noted before, for LLCs, it should be "piercing the LLC veil" or, more generally, "piercing the limited liability veil."  Or "PLLV," as I like to call it. (Not as catchy is "PCV," but it is far more universally accurate.)

Sure enough, last week, a New York court refused to denied the defendants' motion to dismiss the plaintiff's third amended complaint, deciding that "Plaintiff has adequately pled facts sufficient to defeat the Individual Defendant's motion to dismiss Plaintiff's claim for piercing the corporate veil." Capital Inv. Funding, LLC v. Lancaster Grp. LLC, No. CIV.A. 8-4714 JLL, 2015 WL 4915464, at *7 (D.N.J. Aug. 18, 2015).  But Plaintiff is seeking to piercing the veil of an LLC.  As such, I think they need a fourth amended complaint.  

Also last week, in an unpublished opinion, a Minnesota court upheld a decision to pierce the limited liability veil of Alpha Law Firm, LLC.  The court found the court below "did not abuse its discretion by piercing Alpha's corporate veil." Guava LLC v. Merkel, No. A15-0254, 2015 WL 4877851, at *8 (Minn. Ct. App. Aug. 17, 2015). Again, though, the LLC did not have such a veil because it was not a corporation.  

This should be easier to keep straight in Minnesota than most places. Minnesota has a statute the specifically allows for LLC veil piercing, and states that the corporate law concept applies to the LLC.  But it also calls it "piercing the veil" in the LLC statute, which means the veil is an LLC veil, and not a corporate one.  The statute: 

MINN. STAT. ANN. § 322B.303(2)

. . . .

Subd. 2.Piercing the veil. The case law that states the conditions and circumstances under which the corporate veil of a corporation may be pierced under Minnesota law also applies to limited liability companies.

I am sympathetic (to a point).  As Guava points out, when a statute brings corporate veil piercing into the LLC world, it can be awkward.  Another excerpt from Guava makes that obvious:

Hansmeier next challenges the district court's decision to pierce on the merits. “In certain circumstances, it is possible to ‘pierce the corporate veil’ and hold a shareholder personally liable .” Gunderson v. Harrington, 632 N.W.2d 695, 705 (Minn.2001) (Gilbert, J., dissenting) (citing Victoria Elevator Co. of Minneapolis v. Meriden Grain Co., 283 N.W.2d 509, 512 (Minn.1979)). Veil piercing applies to LLCs as well as corporations. Minn.Stat. § 322B.303, subd. 2 (2014). A court may pierce a corporate veil when there is fraud or when the shareholder is the “alter ego” of the corporation. Gunderson, 632 N.W.2d at 705.
Guava, 2015 WL 4877851, at *6.
LLCs don't have shareholders, they have members, so that's a little confusing.  And note how the courts operates back and forth between corporate and LLC concepts.  It can be complex. Still, I'd really like a court in every state to take the time to set the standard and separate the concepts, so that future courts can always have a place to cite.  Consider this as an alternative paragraph for Guava
Hansmeier next challenges the district court's decision to pierce on the merits. “In certain circumstances, it is possible to ‘pierce the corporate veil’ and hold a shareholder personally liable .” Gunderson v. Harrington, 632 N.W.2d 695, 705 (Minn.2001) (Gilbert, J., dissenting) (citing Victoria Elevator Co. of Minneapolis v. Meriden Grain Co., 283 N.W.2d 509, 512 (Minn.1979)). A court may pierce a corporate veil when there is fraud or when the shareholder is the “alter ego” of the corporation. Id. at 705. Veil piercing applies to LLCs as well as corporations. Minn.Stat. § 322B.303, subd. 2 (2014). Thus, a court may pierce the veil of an LLC when there is fraud or when the member is the “alter ego” of the LLC. See Minn.Stat. § 322B.303, subd. 2 (2014); Gunderson, 632 N.W.2d at 705.
Just a thought. 

August 25, 2015 in Corporations, Joshua P. Fershee, LLCs, Shareholders | Permalink | Comments (4)

Tuesday, August 18, 2015

LLCs, Freedom of Contract, Bankruptcy, and Planning Ahead

Over at the Kentucky Business Entity law blog, Thomas Rutledge discusses a recent decision from the United States District Court for the Southern District of Indiana, affirming a Bankruptcy Court decision that finding that when a member of an LLC with voting control personally files bankruptcy, that right to control the LLC became a vested in the trustee because the right was part of the bankruptcy estate. The case is In re Lester L. Lee, No. 4-15-cv-00009-RLY-WGH, Adv. Proc. No. 14-59011 (S.D. Ind. August 10, 2015) (PDF here).

A key issue was that the bankruptcy filer (Lester Lee) had 51% of the vote, but no shares. The court then explains:

7.  . . . [t]he Operating Agreement states . . .

(D) Each member shall have the voting power and a share of the Principal and income and profits and losses of the company as follows:

Member’s Name (Share) (Votes)

Debra Jo Brown (20%)  (10)

Brenda R. Lee (40%) (20)

Larry L. Lee (20%) (10)

Melinda Gabbard (20%) (10)

Lester L. Lee (0%) (51)

. . . .

8. . . . Trustee’s counsel became aware of the Debtor’s 51% voting rights as a member, and that pursuant to applicable law, “this noneconomic interest became property of the estate subject to control of the Trustee on the filing of the petition pursuant to 11 U.S.C. § 541.”

Here's Rutledge's take: 

On appeal, the Court’s primary focus was upon whether the right to vote in an LLC constitutes “property of the estate,” defined by section 541(a)(1) of the Bankruptcy Code as “all legal or equitable interest of the Debtor in property as of the commencement of the case. After finding that Lee could be a “member” of the LLC notwithstanding the absence of any share in the company’s profits and losses or the distributions it should make, the Court was able to determine that Lee was a member. In a belt and suspenders analysis, the Court determined also that the voting rights themselves could constitute “economic rights in the company” affording him the opportunity to, for example, “ensure his continued employment as manager” thereof.

In a response to Rutledge's blog, Prof. Carter Bishop notes,

The court did not state the trustee could exercise those voting rights.  The next step is crucial. If the operating agreement is an executory contract of a multi-member LLC, BRC 365 will normally respect LLC state law restrictions as “applicable law” and deny the trustee the right to exercise the debtor’s voting rights (similar outcome to a non-delegable personal service contract).This was a managing member of a multi-member LLC, so I assume BRC 365 blocks the trustee’s exercise.

Rutledge notes that could be the case, but it's also possible the Lee court was saying we already decided that -- voting rights are part of the estate.  

I find all of this interesting and important to think about, especially given my limited bankruptcy knowledge. My main interest, though, is how might we plan around such a situation?  Many LLC statutes provide some options.  

For example, some states allow those forming an LLC to adopt a provision in the Operating Agreement that makes bankruptcy an event that triggers "an event of dissociation,” which would make the filer (or his or her successor in interest) no longer a member. See, e.g., Indiana Code sec. 23-18-6-5(b) ("A written operating agreement may provide for other events that result in a person ceasing to be a member of the limited liability company, including insolvency, bankruptcy, and adjudicated incompetency.").  This raises the question, then, of whether the bankruptcy code trumps this LLC code such that the bankruptcy filing creates an estate that makes it so the state LLC law cannot operate to eliminate the filer as a member. 

The answer is no, the state law doesn't trump the bankruptcy code, but the state provision can still have effect.  A recent Washington state decision (petition for review granted), relying on Virginia law, determined that where state law dissociates a member upon a bankruptcy filing, the trustee cannot be a member, and thus the trustee cannot exercise membership rights: 

[I]nstead of dissociating the debtor, Virginia law operated to dissociate the bankruptcy estate itself. The court concluded, “Consequently, unless precluded by § 365(c) or (e), his bankruptcy estate has only the rights of an assignee.
Given the similarities between Virginia's and Washington's treatment of LLC members who file for bankruptcy, we adopt the reasoning of Garrison–Ashburn [253 B.R. 700 (Bankr. E.D. Va. 2000)]. By applying Washington law, we conclude that RCW 25.15.130 dissociates a bankruptcy estate such that it retained the rights of an assignee under RCW 25.15.250(2), but not membership or management rights, despite the provisions of 11 U.S.C. § 541(c)(1).
Nw. Wholesale, Inc. v. PAC Organic Fruit, LLC, 183 Wash. App. 459, 485, 334 P.3d 63, 77 (2014) review granted sub nom. Nw. Wholesale, Inc. v. Ostenson, 182 Wash. 2d 1009, 343 P.3d 759 (2015).

The court then needed to decided whether § 365 allows a member to retain his or her membership. Under Washington partnership law, as applied to the bankruptcy code, the court explained:  

under § 365, the other partners are not obligated to accept an assumption of the partnership agreement. Partnerships are voluntary associations, and partners are not obligated to accept a substitution for their choice of partner. The restraint on assumability also makes the deemed rejection provision of § 365 inapplicable to the partnership agreement. Therefore, § 365(e)'s invalidation of ipso facto provisions does not apply, and state partnership law is not superseded. The debtor-partner's economic interest is protected by other sections of the bankruptcy code, but he no longer is entitled to membership. 

Nw. Wholesale, Inc. v. PAC Organic Fruit, LLC, 183 Wash. App. 459, 489, 334 P.3d 63, 79 (2014) review granted sub nom. Nw. Wholesale, Inc. v. Ostenson, 182 Wash. 2d 1009, 343 P.3d 759 (2015). The court then applied the same reasoning to LLC law, concluding "that that 11 U.S.C. § 541 and § 365 did not preempt Washington law that" removes members in the limited liability company upon a bankruptcy filing.  
The fact that Indiana law provides the option to make (instead of automatically making) bankruptcy a dissociating event, it seems to me, shouldn't change the outcome if Washington's analysis is right, and I think it is. LLC members be able to pick their members, and protecting that right even in the face of bankruptcy is important. 
In the Lee case, state LLC law did not provide that bankruptcy was a dissociating event and the parties did not choose to make that the case.  I am all for LLCs allowing the members to make such a decision (either way), but here, LLC members did not do so (at their own peril).  I agree with Prof. Bishop that an open question remains as to whether the trustee can vote, and I hope the answer is no. But one can make that outcome a lot more likely by planning ahead.  

August 18, 2015 in Bankruptcy/Reorganizations, Business Associations, Joshua P. Fershee, LLCs, Partnership, Unincorporated Entities | Permalink | Comments (0)

Tuesday, August 11, 2015

Ten Promises For New Law Students to Consider

It is orientation time for West Virginia University College of Law, and I am sure other law schools around the country. If not, it's coming soon. I always like the buzz of the new students returning to the building, though it is a little bittersweet as the time I had for other projects is clearing nearing the end. All in all, though, I miss the students and the activity, so I'm happy the new year is getting ready to start. 

The combination of excitement and trepidation (if not fear) seems to be what stands our to me the most. It makes sense. Law school is a big undertaking, and it's not easy.  And it can be hard because it can be challenging both academically and socially.  As my wife has noted, "Law school can be more like high school than high school."  (I had a distinct advantage in skipping a lot of that because we were married when we started law school.)

To that end, here are my suggestions, based on the promises I made to myself when I left my job and went back to law school. Give it a try (and I welcome additions to the list in comments.)

I promise: 

(1) To read everything assigned.  Really. Not like undergrad, but actually read it all.  Then read it again. And again if I need to.

(2) To be honest with myself about whether I really understand what I' m reading so I know if I should read it again. 

(3) To view Black's Law Dictionary as my friend and use it liberally, rather than guessing at words from context.  

(4) To remember I don't know Latin very well (and see number 3 above). 

(5) To go to every class -- every class -- that I am able to attend and participate in that class so that I can learn what I know or don't know, not to so show what I know (or think I know). 

(6) To recognize that no one class is more important (or easier or harder) than another.  I will not skip Torts or Contracts to work on my Legal Writing memo.  It all needs to happen. 

(7) To do my best to get enough sleep. 

(8) To remember that everyone has a story and not assume I know it. 

(9) To be friendly and build relationships so that the community I know is a community I want. 

(10) To do my best work and know that my real competition is myself, so that when I finish an exam or paper, even though I don't know how well I did, I will know I did everything I could to do well. As John Wooden said, "Don't measure yourself by what you have accomplished, but by what you should have accomplished with your ability."

August 11, 2015 in Joshua P. Fershee, Law School | Permalink | Comments (4)

Tuesday, August 4, 2015

More Summer Reading: The Henry Ford Legacy Beyond Dodge v. Ford

Readers of this blog know I am fond of writing about Henry Ford and the Dodge v. Ford case (PDF here).  This summer, I am still working my way through Fordlandia, by Greg Grandin.  It's a really interesting read.  

Henry Ford had plans to build a town in the Amazon that would run like an ideal American town.  The industry would be rubber for car tires, and he was sure he could make a town that produced rubber AND moral people.  He was wrong.  

The book provides more about Ford than just his Amazon city planning. It highlights all sorts of what I will call "interesting" ideas Ford had (many of the quite appalling), and it provides context for a person who was far more interesting and disruptive than many people appreciate.  A good summary of the book is available from NPR here, where the author explains:

"Ford basically tried to impose mass industrial production on the diversity of the jungle," Grandin says. But the Amazon is one of the most complex ecological systems in the world — and didn't fit into Ford's plan. "Nowhere was this more obvious and more acute than when it came to rubber production," Grandin says.

Ford was so distrustful of experts that he never even consulted one about rubber trees. If he had, Grandin says, he would have learned that plantation rubber can't be grown in the Amazon. "The pests and the fungi and the blight that feed off of rubber are native to the Amazon. Basically, when you put trees close together in the Amazon, what you in effect do is create an incubator — but Ford insisted."

As Grandin explains, Ford's plans are a lasting disaster: 

[T]he most profound irony is currently on display at the very site of Ford’s most ambitious attempt to realize his pastoralist vision. In the Tapajós valley, three prominent elements of Ford’s vision—lumber, which he hoped to profit from while at the same time finding ways to conserve nature; roads, which he believed would knit small towns together and create sustainable markets; and soybeans, in which he invested millions, hoping that the industrial crop would revive rural life—have become the primary agents of the Amazon’s ruin, not just of its flora and fauna but of many of its communities.

Despite my love of the business judgment rule, it's hardly surprising that Ford was one of the folks who didn't get its protection. Stories like this give us some idea why.  

August 4, 2015 in Corporate Governance, Corporations, Joshua P. Fershee, Social Enterprise | Permalink | Comments (0)

Tuesday, July 28, 2015

Activist Shareholder and Law Prof: Robin Hood or Charles Pillsbury?

A lawyer representing Fordham Law School Professor (and Riverbed Technology shareholder) Sean Griffith argued in Delaware court that a class action settlement related to Riverbed Technology's  $3.6 billion sale to private equity firm Thoma Bravo was bad for shareholders and good for the lawyers involved, Reuters reports.  

Prof. Griffith told Reuters that "he has been buying stock of companies that have announced merger deals and intends to object to settlements if he feels the litigation is not serving stockholders." He asserts that the shareholders' attorneys "are in cahoots" to reach a settlement, without regard to value.  

This raises some interesting questions of law and policy with regard to the Professor's role here.  As a shareholder, Griffith has the right to object (assuming his time of ownership satisfies the applicable statute).  But how should a court assess the objection of a shareholder who has admitted that he bought stock for the purpose of objecting to settlements not in the interests of shareholders, when that shareholder has expressed ideological concern about the value of all disclosure-only settlements? 

Is Prof. Griffith's desire to protect shareholders a desire to enhance short- or long-term wealth of the entity from greedy lawyers and bad managers? Or is it a desire to punish those who abuse class action lawsuits to their own ends? Both would be reasonable motivations (though, for now, I reserve judgment on whether either assessment is accurate), but it seems that the law might view such motivations differently. 

Take, for example, Pillsbury v. Honeywell, Inc., 191 N.W.2d 406 (1971), which strikes me as similar in concept, if not law.  In that case, the court rejected Charles Pillsbury's request to access the company shareholder list and review books and records of Honeywell.  The request was expressly related to Pillsbury's anti-war efforts, and Pillsbury made clear that he sought the records because he thought Honeywell's activities in weapons were immoral.  The court denied access stating that 

petitioner had already formed strong opinions on the immorality and the social and economic wastefulness of war long before he bought stock in Honeywell. His sole motivation was to change Honeywell's course of business because that course was incompatible with his political views. If unsuccessful, petitioner indicated that he would sell the Honeywell stock.

We do not mean to imply that a shareholder with a bona fide investment interest could not bring this suit if motivated by concern with the long- or short-term economic effects on Honeywell resulting from the production of war munitions. Similarly, this suit might be appropriate when a shareholder has a bona fide concern about the adverse effects of abstention from profitable war contracts on his investment in Honeywell.

If Prof. Griffith is looking to protect the long-term interests of all companies by protecting merging companies from harmful class action settlements, and his mechanism is buying shares in companies that he has reason to believe will merge, then perhaps his Robin Hood-like actions (in that the actions seek to return funds to the rightful owners) have value for shareholder wealth maximization and entity wealth maximization. The fact that he holds out the possibility that he won't object to settlements where the litigation serves the purposes of the shareholder suggests he might be in this camp.  

But what if he will object to all settlement proposals? Or perhaps all disclosure-only settlement proposals, even where such settlements are allowable under the law?  Does this convert his actions to more of a Charles Pillsbury-like feel in that his actions are about opposing class actions settlements, regardless of whether settlement is in the best interest of the parties? 

Of course, his motivations don't necessarily matter under current law in this area, but I can't help but think the motivations will influence how a court views (and eventually decides upon) Prof. Griffith's objections. And I think they should.  If, in any given case, Prof. Griffith is right that the settlement is not in the best interest of the shareholders, the court should uphold his objections. But, under current law, it's possible that a disclosure-only settlement might still be the most efficient outcome.  It's the court's job to assess that in each case.

July 28, 2015 in Corporate Governance, Corporations, Delaware, Joshua P. Fershee, Securities Regulation | Permalink | Comments (0)

Tuesday, July 21, 2015

Is Veil Piercing (State) Constitutional?

The West Virginia Constitution provides for corporations in Article XI, and states the traditional understanding related to liability: 

11-2.  Corporate liability for indebtedness.

      The stockholders of all corporations and joint-stock companies, except banks and banking institutions, created by laws of this state, shall be liable for the indebtedness of such corporations to the amount of their stock subscribed and unpaid, and no more. 

So, suppose that one seeks to pierce the corporate veil.  Does this provision allow for that? Typically, common law allowed veil piercing and constitutions often provide that something that existed in common law remains (which appears to be the case here).  I guess, then, veil piercing is okay, though I think one could argue that a constitutional basis for limited liability should be stronger than a statutory one. 

The better argument, I think, is that veil piercing disregards the entity.  Thus, the constitutional protection does not connect, because there is no corporation.  If we thought of things this way, we'd probably be more reluctant to veil pierce, because it would be a judicial statement that the corporation that was purportedly formed does not exist because of the failures of those in charge of the entity.

Where the shareholders truly don't intend to have an entity, I am okay with this, but that's really the rarity.  Where there is fraud, prove fraud. Where there is a constitutional protection for limited liability, the respect for the entity should be exceedingly strong.  Stronger than the common law standard.

I am not arguing that a constitutional right to limited liability is a good idea -- I'm currently agnostic on that.  I'm questioning whether constitutional corporate status changing the veil piercing calculation.  I am thinking yes, but I am not sure to what degree.   I plan to give this some more thought, but I welcome comments on how constitutional limited liability status (once it exists) should change veil piercing analysis.   


July 21, 2015 in Corporate Personality, Corporations, Joshua P. Fershee | Permalink | Comments (0)

Tuesday, July 14, 2015

CVS, Business Judgment, & Noisy Withdrawal from the Chamber of Commerce

A while back, I wrote about CVS's choice to eliminate tobacco products from its stores.  I noted that it seemed clear to me that CVS could make that choice, even thought it would mean lower short-term profits, because it was a decision that is clearly protected (or should be) by the business judgment rule. 

Today, according to an LA Times piece, 

[CVS] stood up for its principles.

The pharmacy giant announced it was quitting the U.S. Chamber of Commerce after reports that the influential business organization was lobbying against anti-smoking laws around the world.

CVS bolted because of the Chamber's views on tobacco sales.  In 2009, Apple and Nike made waves with the Chamber of its policy position on climate change. I find this interesting, and I have no reason to doubt that all of these companies are following their corporate values, though I also think they see public relations value in the noisy withdrawal.  

That some big companies have stepped away from the Chamber is less surprising to me than the fact that the Chamber has maintained such strength with small business owners, while advocating for many big business positions that don't help, and may hurt, small businesses.  I can't help but wonder if the Chamber's success it not so much in promoting policies that benefit of member businesses, and instead that it promotes policies that are consistent with the ideologies of many who work for or own businesses.

If the latter is the case, as I suspect it is, that's a good business model for the Chamber, but not necessarily for the entities it represents.  Of course, if business owners, officers, and directors remain aligned with the Chamber, despite a lack of clear benefit to the entity, well, that too is protected by the business judgment rule. 

July 14, 2015 in Business Associations, Corporate Personality, Corporations, Current Affairs, Joshua P. Fershee | Permalink | Comments (1)

Tuesday, July 7, 2015

Note to U.K. Supreme Court: LLCs Don't Have Places of Incorporation (But You're Right on Pass-Through Taxation)

A recent unanimous decision from the Supreme Court of the United Kingdom, Anson v. Commissioners for Her Majesty’s Revenue and Customs [2015] UKSC 44, determined that a U.S. limited liability company (LLC) formed in Delaware will be treated for U.K. tax purposes as a partnership, and not a corporation. This is a good thing, as it provides the LLC members the ability to reap more completely the benefits of the entity's choice of form.

What is not so good is that the court left unaddressed a lower court determination as follows, was quoted in para. 47: 

“Delaware law governs the rights of the members of [the LLC] as the law of the place of its incorporation, and the LLC agreement is expressly made subject to that law. However, the question whether those rights mean that the income of [the LLC] is the income of the members is a question of domestic law which falls to be determined for the purposes of domestic tax law applying the requirements of domestic tax law ….” (para 71) (emphasis added)

An LLC does not have a place of incorporation!  It has a place of formation.  Here is the link to Delaware's Certificate of Formation, which is to be filed in accordance with the Limited Liability Company Act of the State of Delaware: https://corp.delaware.gov/llcform09.pdf. In contrast, you can find the Certificate of Incorporation, which is to be filed in accordance with the General Corporation Law of the State of Delaware, here: http://www.corp.delaware.gov/incstk.pdf

I'm glad the high U.K. court recognized that partnership taxation status can be proper for a U.S. LLC. But, just as You Can’t Pierce the Corporate Veil of an LLC Because It Doesn't Have One, I wish they'd made clear that you can't incorporate an LLC.  

July 7, 2015 in Corporate Governance, Corporate Personality, Corporations, Delaware, International Business, Joshua P. Fershee, LLCs, Unincorporated Entities | Permalink | Comments (0)

Tuesday, June 30, 2015

It May Be Dumb, But Short-Termism Can Be A Valid Business Strategy

Last week, S.E.C Commissioner Daniel M. Gallagher, gave a speech, Activism, Short-Termism, and the SEC: Remarks at the 21st Annual Stanford Directors’ College. I agree with many of Commissioner Gallagher's views on short-termism, and (I will semi-shamelessly note) he cited one of my earlier posts about the role of activists on board decision making. In his remarks, he said, with regard to short-termsim (i.e., companies operating for short term rather than long-term gains):

The current picture is bleak . . . 

Clearly, there’s a way for all the parties . . . to co-exist peacefully. The SEC sets a level playing field; companies manage themselves for the long-term with the vigorous oversight of the board; and activists put pressure on those companies that fall short of that ideal.[47] Unfortunately, we are not in that happy place. Rather, there seems to be a predominance of short-term thinking at the expense of long-term investing. Some activists are swooping in, making a lot of noise, and demanding one of a number of ways to drive a short-term pop in value: spinning off a profitable division, beginning a share buy-back program, or slashing capital expenditures or research and development expenses. Having inflated current returns by eliminating corporate investments for the future, these activists can exit their investment and move on.

. . . .

[47] See, e.g., Joshua Fershee, Shareholder Activists Can Add Value and Still Be Wrong (Apr. 28, 2015) (positing that activists can signal to boards when the company’s strategy may be inefficient; it is then the board’s responsibility to “use the tools before it to make decisions in the best interests of the entity” — that shareholder activists can improve long-term value even if following their recommendations blindly would not).

I absolutely agree with the Commissioner that too many companies are using a short-term philosophy to guide their decision making and that directors are allowing non-controlling institutional investors too much influence in the boardroom.  But, as a believer in director primacy, I see that as a director failure, not an S.E.C. failure or an institutional investor/activist failure. Directors need to make the decisions for the entity based on their view of what is best for the entity, not on someone else's  view. 

Commissioner Gallagher is spot on when he notes his concern "that some institutional investors are paying insufficient attention to their fiduciary obligations to their clients when they determine whether to support a particular activist’s activity."  

That concern, though, has nothing to do with how the board of a company responds to its activist institutional investors that urge short-termist actions.  The institutional investor activist in that case should be held accountable to its clients, and perhaps it should not be urging such behavior, but that is not relevant to how a board of a company in which an institutional investors owns stock responds to such pressure.  

It could be that some boards really believe that short-termism is how best to run a company.  The level of complaining about activists suggests otherwise, but then it is up to boards to reject the activist's requests.  If boards are being unduly influenced by non-controlling outside forces, then shareholders need to take a break from their rational apathy, and do something.  If controlling shareholders are pushing short termism to the detriment of non-controlling shareholders, boards should not follow the controlling shareholder's request or (again) non-controlling shareholders need to push back to ensure the board and the controlling shareholders are honoring their fiduciary obligations.  

If it's just that directors like short termism as a strategy, though, and it's not a decision made for any other reason than directors think it's the right one, I believe those directors are wrong.  But that's not my call. I'm not on the board. 

June 30, 2015 in Corporate Governance, Corporations, Joshua P. Fershee, Securities Regulation | Permalink | Comments (1)

Tuesday, June 23, 2015

Freedom To Do Better Is Also An Obligation

So, I'm on vacation, which is not something I do very often, at least unrelated to work.  It's been great, and we're lucky to be able to do this (and to vacation as all). It's ungodly hot, but hey, that's the beach. I guess. Like I said, we don't do it like this very often.

Anyway, I recently read a piece that talked about freedom in way that really resonated for me.  It is applicable personally, and it is applicable professionally.  Law schools, collectively, could stand to pay attention, as well. We have choices, we just have to recognize it. I'm no philosopher, but here's the gist of the post that resonated with me, from Rapitude.com:

Sartre believed that we have much more freedom than we tend to acknowledge. We habitually deny it to protect ourselves from the horror of accepting full responsibility for our lives. In every instant, we are free to behave however we like, but we often act as though circumstances have reduced our options down to one or two ways to move forward. 

This is bad faith: when we convince ourselves that we’re less free than we really are, so that we don’t have to feel responsible for what we ultimately make of ourselves. It really seems like you must get up at 7:00 every Monday, because constraints such as your job, your family’s schedule, and your body’s needs leave no other possibility. But it’s not true — you can set your alarm for any time, and are free to explore what’s different about life when you do. You don’t have to do things the way you’ve always done them, and that is true in every moment you’re alive. Yet we feel like we’re on a pretty rigid track most of the time.

We often think of freedom as something that can only make life easier, but it can actually be overwhelming and even terrifying. Think about it: we can take, at any moment, any one of infinite roads into the future, and nothing less than the rest of our lives hinges on each choice. So it can be a huge relief to tell ourselves that we actually have fewer options available to us, or even no choice at all.

In other words, even though we want the best life possible, if life is going to be disappointing, we’d at least like that to be someone else’s fault.

As law faculty, we don't always know what to do to make major improvements, but it's on us to work to make that happen.  I think we do a lot of things right, but there's a lot (a lot!) we can do better. And that's our job -- to figure out how to be better. What to do is not an easy answer, but suggesting that we can't make changes is junk.  Again, the idea that we can't change, .... "is bad faith: when we convince ourselves that we’re less free than we really are, so that we don’t have to feel responsible for what we ultimately make of ourselves." 

June 23, 2015 in Joshua P. Fershee, Law School | Permalink | Comments (1)

Tuesday, June 16, 2015

Polls and the Dumbification of America: Energy Policy & Beyond

Public opinion polls often make news, but they don't necessarily improve discourse or policy decisions.  This is true in business and politics, at least where the polls are created primarily for news purposes. Not all polls are bad, of course, and groups like Pew and some others can offer useful starting points for policy discussions. Still we should be skeptical of public opinion polls. 

A new poll released today provides a good example of how unhelpful polls can be. Robert Morris University (RMU) today issued a press release (about a new poll) that says Pennsylvanians "expressed both overwhelming support and strong environmental misgivings, about" hydraulic fracturing (fracking). This framing of the poll does not seem to reveal any inherent inconsistencies. It would be entirely reasonable for people to recognize the potential value fracking for oil and gas can have, while at the same time being worried about the environmental risks that come with fracking (or any other industrial process).  

In fact, I have argued that this is the proper way to consider risks and benefits to help ensure oil and gas operations are as environmentally sound as possible to ensure sustainable development. Unfortunately, the poll indicates some internal inconsistencies among those polled that suggest people don't really understand either: (1) the questions or (2) how the world works.   Here are some of the results of the poll: 

  • Support fracking: 57.1% (PA) & 56% (U.S.)
  • Think fracking will help the U.S. economy: 74.2% (PA) & 73% (U.S.)
  • Say fracking will move U.S. toward Energy Independence: 69.9% (PA)

These numbers suggest reasonable-to-strong support for the drilling process. Okay so far, but here's the kicker: 60.1%  strongly or somewhat agree with this: “The environmental impact of gas drilling outweighs any resulting reduced energy costs or energy independence.

How can one agree with this statement at all and still support fracking, as it at appears at least 17% of those polled did?1 If you think that the environmental impacts outweigh "any" of those benefits, why would you support any drilling process? I'm confused. (Editor's note: a reader suggested that perhaps some people think that jobs or royalties might make the environmental impacts worth it, but not lower energy costs or energy independence.  Maybe, though I find that hard to believe, and if true, it doesn't make me feel any better about what the poll suggests.) 

Again, it makes sense to me that someone might support the drilling process, and still express reservations or concerns about it. It just doesn't make sense to me that, in the same poll, presumably within a few moments of answering the question about supporting fracking, that someone would turn around and say, essentially, "I support fracking, but some key potential benefits don't outweigh the risks."  This is seems like a John Kerry moment for those being polled: "I was for it, before I was against it." 

As I have noted before, there are studies that suggest polls like this make us dumb. As a Joe Carter article explained about a 2011 public opinion poll relating to President Obama's performance: 

On the vast majority of the items tested (8 of 11) the public expresses disapproval of Obama’s job performance and yet the overall result implies that they approve of the job he is doing. How does that make any sense? It doesn’t. By the alchemical process of applied statistics, the pollsters have turned our disapproval into approval. Unfortunately, such distortions are a common failing of opinion polls.

I'm not sure if the fracking poll makes us dumber, or just shows we tend to be dumb. Probably both, and it's not very encouraging. As Mr. Carter explains, public opinion polls "are nothing more than public perceptions produced by pollsters, mere aggregations of our ignorance. And we all become dumber by treating them seriously." The results of the RMU poll suggest he's right.  

1 From the release, the most sensible explanation of the data presented is as follows: if 60.1% of people agreed to some degree with the statement, then 39.9% did not agree. Those 39.9% of people are presumably pro-fracking relative to the 60.1%. At the same time, 57.1% of those polled stated that they support fracking, and 57.1% minus 39.9% is 17.2%, suggesting that 17.2% of of those polled said they support fracking but don't think the risks outweigh the benefits.  Admittedly, the poll answers would not likely break down this cleanly, but in that case the data makes even less sense.  


June 16, 2015 in Current Affairs, Joshua P. Fershee, Law and Economics, Legislation | Permalink | Comments (1)

Tuesday, June 9, 2015

Exam Monitoring in the Digital Age

Exam time has come and gone and grades are filed. I have never had any trouble, as far as a I know, with cheating in my exams.  My expectation is that most problems arise from plagiarism in writing assignments.   There may be people trying to cheat on my exams, I suppose, but I am not sure it would prove helpful.   I change my exams and take steps to try to make the exam as fair possible, so that cheaters, should there be any, can't get much of an advantage.  

I was interested to see the report that China took proctoring to new heights this week, according to a news report in The Guardian, China deploys drones to stamp out cheating in college entrance exams:

Authorities in China are employing surveillance drones in an effort to stamp out cheating in college entrance exams.

But this year officials have unleashed a six-propeller drone, flown over two testing centres in Luoyang in Henan province on Sunday – the first day of the exam – to scan for signals being sent to devices which may have been smuggled in. No such signals were detected, local reports said.

I suppose it makes sense to add enforcement mechanisms, especially with the stake so high for the exams.  Drones sure make my walking of the aisles seems a little outdated. 

Apparently some employers are taking steps to combat cheating, too.  Potknox, a cloud-based online assessment tool, is used by some employers to screen applicants. According to the Potknox Blog, here, there are ways to combat cheaters. Among other things, the program can take random pictures of the test-taker (which can catch them on the phone) and random screenshots (checking Wikipedia).  

Law schools that use exam software can lock out the internet, which can help limit such things, though I wonder just how much smartphones have changed the game.  I have never caught anyone looking at a phone during an exam, but these days, one could get a basic definition of the business judgment rule or the Howey Test pretty quickly, I suppose. I'd be shocked if anyone could cheat their way to a high grade on my exams, but one who is struggling might find it useful to get by.

I'll have to give some thought about other ways to catch cheating. I have almost no interest in catching cheaters, because that's awful for everyone.  However, I have zero interest in sending people out into the legal profession who would do such a thing, so I'll keep looking. 

June 9, 2015 in Joshua P. Fershee, Law School, Teaching | Permalink | Comments (2)

Tuesday, June 2, 2015

The Academic Importance of Non-Academic Skills

NPR recently posted a story titled, Nonacademic Skills Are Key To Success. But What Should We Call Them? The story, by Anya Kamenetz, is about labeling non-cognitive skills (or skill areas) that are important -- I would argue essential -- to success.  The listed areas are as follows: (1) character, (2) non-cognitive traits and habits, (3) social and emotional skills, (4) growth mindset, (5) 21st Century skills, (6) soft skills, and (7) grit.  

Ms. Kamenetz explains:

More and more people in education agree on the importance of learning stuff other than academics.

But no one agrees on what to call that "stuff".

There are least seven major overlapping terms in play. New ones are being coined all the time. This bagginess bugs me, as a member of the education media. It bugs researchers and policymakers too.

"Basically we're trying to explain student success educationally or in the labor market with skills not directly measured by standardized tests," says Martin West, at the Harvard Graduate School of Education. "The problem is, you go to meetings and everyone spends the first two hours complaining and arguing about semantics."


Whatever you call it, it matters.  

Beyond the semantics, it would be easy to debate the relative importance of these areas, and I am not sure I'd organize (or label) my own list in this way, but the concept behind the story is critically important to legal education.  As we in law schools strive to prepare practice-ready lawyers (at least, that's a primary focus of those with whom I have taught), I have often noticed that the skills students lack are often not information based.  Many times, it's that students have a hard time with deadlines, responsiveness, accountability, and thoroughness. 

Though it's less true today that it may have been ten, twenty, and thirty years ago, it's easy to get caught up in the idea that students might not have been taught how to draft a complaint, or file a motion, or create an LLC.  These are all things a lawyer should be able to do, of course, but I am finding that just showing students how to file a motion or form an LLC does not mean they are ready to actually do it.  That is, I am confident that some students I have taught how to form an LLC (and did well in my class) would not be ready to do that on their own. And I know some students who weren't in my class and have never seen an LLC statute who would be ready to figure it out. Why?  Life skills.  

Anyone who worked in a BigLaw job saw people who were clearly not cut out to do the job, even though the folks there come with a very serious pedigree. I sure saw people who couldn't (or wouldn't) do the work.  I worked with some truly brilliant and wonderful people, and I worked with some folks who had no idea (or at least no interest) in doing the work required.  For that matter, I also worked with some brilliant and wonderful partners, and just a couple smart partners who did good work but seemed committed to making people cry.  (That's for a different post). 

How, in addition to cognitive skills, do we teach deadlines, responsiveness, accountability, and thoroughness? I think it's through clinics and externship, as part of it, but it's also through committed efforts in courses throughout the curriculum.  We often teach first-year students about hard deadlines in their writing course, and we do it to some degree with rigid exam schedules, but that lacks the constant nature of deadlines (and moving parts) we see in practice. We can do it in other classes, with additional assignments, and I think it's worth trying. 

For my seminar courses, I have added small assignments and I don't remind people. They do it, or they don't. When students ask for an extension or change in their assignment date, I allow it if it fits my schedule and the class schedule. I'll decline or add a penalty if it causes others a problem. (They know this up front.)  It allows me to have conversations throughout the course about the importance of deadlines, and to talk more realistically about how things work in the real world.  I know I'm not solving everything, but I do think talking about these things candidly forces students to engage with these life skills in a way that might not otherwise.  

It's easy to think a lot of the life skills are things you have or you don't, but that's not true.  They just come to some people more easily. Others can be taught, if they want to be. For those who want to learn, I think it's our job to teach them.  And for those who don't want or care to learn these skills, if we offer the education, it's one less thing they can blame when they're shown the door or otherwise don't get what they want.  

[Author's note:  My colleague Steve Bradford's post "Practice-Ready" Law Graduates? is a worthwhile companion to this post.]

June 2, 2015 in Joshua P. Fershee, Law School, Teaching | Permalink | Comments (3)

Wednesday, May 27, 2015

Humblebragging is Empirically, Not Just Anecdotally, Ineffective

Last month, Ovul Sezer, Francesca Gino, and Michael I. Norton of  Harvard Business School posted Humblebragging: A Distinct – And Ineffective – Self-Presentation Strategy to SSRN (available here).  

Here is the full article abstract: 

Humblebragging – bragging masked by a complaint – is a distinct and, given the rise of social media, increasingly ubiquitous form of self-promotion. We show that although people often choose to humblebrag when motivated to make a good impression, it is an ineffective self-promotional strategy. Five studies offer both correlational and causal evidence that humblebragging has both global costs – reducing liking and perceived sincerity – and specific costs: it is even ineffective in signaling the specific trait that that a person wants to promote. Moreover, humblebragging is less effective than simply complaining, because complainers are at least seen as sincere. Despite people’s belief that combining bragging and complaining confers the benefits of both self-promotion strategies, humblebragging fails to pay off.

Although the authors accurately explain that humblebragging is "bragging masked by a complaint,"  I am partial to the Urban Dictionary definition:

Subtly letting others now about how fantastic your life is while undercutting it with a bit of self-effacing humor or "woe is me" gloss.
Uggggh just ate about fifteen piece of chocolate gotta learn to control myself when flying first class or they'll cancel my modelling [sic] contract LOL :p #humblebrag

I think most of us know someone who is a user of the humblebrag.  I used to think it was just a fairly common technique among lawyers and academics, though I am now more of the mind that it is a "people" thing, with lawyers and academics perhaps leading the way.  I'm rather glad to see an article that shows that humblebragging is empirically ineffective in its goals.  In my experience, I have also found that it's also not especially effective in getting people to like the humblebragger, either.  

Now, if only blatant, unrepressed, old-school bragging weren't so effective in some circles. we could make some real progress.  

May 27, 2015 in Jobs, Joshua P. Fershee, Research/Scholarhip | Permalink | Comments (0)