Friday, September 8, 2017

Law & Wellness: Interview with Gabe Azar (Sr. Patent Counsel at Johnson & Johnson)

Gabriel (“Gabe”) Azar and I graduated one year apart, from the same law school. He has an undergraduate degree in electrical engineering from Georgia Tech and started his legal career as an associate practicing patent law at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. He moved from Finnegan to Paul Hastings and from there to an in-house position with FIS. Currently, he is Senior Patent Counsel at Johnson & Johnson. I’ve admired, mostly from a distance (he lives in Jacksonville, FL now), how Gabe has balanced family, work, and health. We recently reconnected on Strava, and it has been inspiring to see a dedicated husband/father/attorney taking his fitness seriously.   

 

The interview is below the page break.

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September 8, 2017 in Business Associations, Haskell Murray, Intellectual Property, Law Firms, Law School, Lawyering, Wellness | Permalink | Comments (0)

Tuesday, September 5, 2017

How To Read the News Carefully and Maybe Some Disclosures, Too

Reading closely is a highly valuable skill for both lawyers and law students.  But reading closely is not the only key to getting the most out of reading materials.  Often, knowing what to look for can help us discern what we're really being told. An article at LawFare, How to Read a News Story About an Investigation: Eight Tips on Who Is Saying What, by Benjamin Wittes, does a nice job of providing some tools to help read news stories more carefully, and perhaps accurately, especially when it comes to sources.  Note that this piece applies to reputable reporters, not everyone who has written something about current events.  

One solid takeaway: 

Reporters publish what they know. If a story describes a series of interactions between a witness or a subject of an investigation and the investigators and the story contains information about one side’s thinking but not the other’s, that’s a powerful sign of where the disclosure came from.

Many of the skills here would translate into other settings, too.  For example, Wittes' first rule: The Words Describing a Source Should Be Presumed Accurate.  He says, "Always start with the precise words the journalist is using to describe her sources. An ethical journalist will never write a sentence that is not on its own terms true." This should be true of a SEC filings or other corporate disclosure documents, too, but it does not mean that the words will clearly communicate the same thing to all readers. 

Wittes' Rule No. 2 also applies: Don’t Make Hasty Assumptions About Vague Sourcing.

While the words have to be true, they emphatically do not have to be evocative of some larger truth. While the words have to be true, they emphatically do not have to be evocative of some larger truth. The conventions associated with sourcing stories like these permit a certain degree of misdirection about which the reasonable reader should be savvy. Reporters have a duty to inform the public; they also have a duty to protect their sources. These goals often conflict, and the solution is sometimes to inform the public in a fashion that is technically accurate but is not what a naive reader would expect certain words to mean.

As to this rule, I would not say that "misdirection" is permitted in SEC filings, but this last part seems generally true of many SEC disclosures: they inform the public in a "technically accurate" way but not necessarily in a way that "a naive reader would expect certain words to mean." I know some people will disagree with my cynical view on this, but that's my take.  The closing advice: "Read sourcing sentences both literally and broadly."  Same with disclosures.  

I recommend reading Wittes' piece for its intended purpose and to see what you might take away for application in other settings. It's a solid and thought-provoking overview, whether you agree with my assessment or not. 

September 5, 2017 in Current Affairs, Joshua P. Fershee, Lawyering | Permalink | Comments (0)

Tuesday, August 29, 2017

More Corporate LLCs and Phantom Veil Piercing

And so it continues:

In a recent case in the United States District Court, District of Columbia, a court messes up the entity (referring to one of the parties as “Howard Town Center Developer, LLC, is a limited liability corporation (‘LLC’)") and also does a fine job of improperly stating (or really, failing to state) the law for veil piercing. 

I took the initiative to pull the initial complaint and the answer to see if either of the parties were responsible for calling the LLC a corporation. Both sides properly referred to the LLC as a “limited liability company,” so it appears the corporation reference is a court-created issue.

In the case, a property developer brought action to require a university landowner to reinstate a ground lease and development agreement between developer and university, after the university sent notices of termination. The University counterclaimed to recover unpaid rent. The court determined, among other things, that the university was entitled to the damages it sought of $1,475,000 for unpaid rents and to attorney fees related to the developer's breach of a ground lease and development agreement. But the opinion doesn’t stop there.

It is quite clear that the developer LLC does not have the funds to pay the judgment, so the question of whether the LLC’s veil could be pierced was also raised.  The court, I think properly, determined that “a targeted asset or individual must be named before veil-piercing may be considered.” Howard Town Ctr. Developer, LLC v. Howard U., CV 1075 (BAH), 2017 WL 3493081, at *56 (D.D.C. Aug. 14, 2017). The court continued: “The University should not lament, nor the Developer celebrate, that conclusion, however, on the erroneous assumption that the University has waived its right to veil-piercing in this matter.” Id.  

The court then determined that, because of “considerations of justice and equity,” the university could later seek a veil-piercing action if it were unable to satisfy its judgment. “Any such action will be fairly straightforward given the instant decision, including the Court's observations regarding the inadequacy of the Developer's capitalization . . . and the University may then be entitled to the additional discovery it presently seeks.” Id.

 Wow.  That’s some heavy dicta.  First, the court never states what the rule is for veil piercing an LLC, so it is a pretty bold assertion to say veil-piercing will be “straightforward.” Is the sole test adequate capitalization? What does that mean?  And what is that test? Well, the court gives us an explanation in footnote 22:

The Developer's status as an inadequately capitalized shell company is an ongoing demonstration of bad faith. LLCs are a legitimate corporate form, and the societal benefits of such entities are significant. Dickson testified that the use of such entities in transactions like this one is “typical[ ],” explaining that “single-asset entities are established as borrowers” so that “the borrower[ ] contains one asset,” the advantage from a “liability standpoint” being that “on a transaction of this size, the asset couldn't be pulled into bankruptcy.” Trial Tr. Day 7 AM at 49:25–50:7. Yet, even a single-asset entity must be capitalized to the extent necessary to satisfy its obligations to the project it was created to support. See Lawlor v. District of Columbia, 758 A.2d 964, 975 (D.C. 2000) (noting inadequate capitalization as factor in determining whether a given entity's corporate form should be respected). Consequently, abuse of the corporate form to render a company judgment-proof is impermissible and reflects bad faith.

Um, no.  First, the LLC is not a corporate form. And an entity not being able to pay its debts is not, in and of itself, a showing of bad faith.  Otherwise, what’s the point of limited liability? The court seems to think that being judgment proof because of a lack of funds is not allowed. But it is specifically allowed. If there is fraud or deception, that is not allowed. But an inability to pay the bills is not, alone, at all improper.  It is unfortunate, and perhaps awful, but it is not improper. 

Ultimately, it may be that veil piercing could be justified under DC law, but first, we’d need to know what that law is.  And it should be clear that it is LLC-veil-piercing law that is to be applied, and not the “corporate” veil piercing this court has apparently relied upon.  Once again, I will repeat my call for courts to state specifically the law (and the test) they are applying in LLC-veil-piercing cases, explain why the factors of the test are appropriate in the LLC setting, and then apply that test. 

Instead, the court suggests that veil piercing is essentially inevitable, which could have a strong role in forcing a settlement. This language amounts to phantom veil piercing.  The court never stated a veil-piercing test, never ran the test, and yet, there it is: the specter of a pierced limited liability veil. 

The court seemed frustrated with the developer, and that may be well founded.  Maybe the developer committed fraud. Maybe the developer and other representatives made binding promises that should make them all guarantors. The case also suggests that there may be an argument for enterprise liability among some of the entities mentioned.  And those are all issues that should have been considered.  But none of them are veil piercing claims, and if the court is going to go down that road, the court needs to be more precise to ensure justice and equity prevail.  

August 29, 2017 in Corporations, Joshua P. Fershee, Lawyering, LLCs | Permalink | Comments (1)

Wednesday, August 23, 2017

If You Annoy Your Professors, You Will Probably Annoy Your Boss/Clients

So, don't. Over at Above the Law, Prof. Kerriann Stout wrote 10 Things That Will Absolutely Piss Off Your Law Professor.  She notes it is not an exhaustive list, but it is a good one and worth a read.  This year, I added a new bit of information to my first day of class about how to interact with me about absences and workload.  (I often discuss this in class at some point, but I don't recall ever doing it in both of my classes on day one.) 

So, here's the deal.  In my classes, I allow a certain number of absences (depending on number of credits and days we meet) without questions for personal reasons, interviews, etc.  Here is an example of my attendance clause: 

Students are expected to attend every class.  Students are permitted to miss up to four classes for other obligations without explanation.  This number is to include virtually all absences, including sickness, out-of-town interviews, etc. (but does not include classes missed for religious observance).  If classes in excess of four are missed, to avoid withdrawal from the course, a written explanation may be required, including the reason for missing additional classes, the student’s plan to ensure the materials covered in the missed classes will be learned, and the reasons the student should be permitted to continue in the course.  The policy is designed to facilitate learning, not impose hardship.

This way, students can plan ahead (and most do), and they can make decisions as professionals must about how they prioritize their time.  Despite this policy, every year I have students email me to say they will (or did) miss class because they: 

  • Have to finish a paper for another class
  • Have a law review note or moot court brief due
  • Must study for a midterm
  • Need to prepare for a clinic meeting/hearing
  • Plan to attend an out-of-town football game/baseball game/concert

Again, I do not require nor do I ask for an explanation (unless it is related to excess absences, and no one has tried these reasons for that).  My new tack is to explain: 

    I am interested in you as a human being, so please do not hear me saying I don't care what you do or why.  And if you need help, you should ask. And if you can't ask me, talk to our Dean of Students or Dean of Academic Affairs or ask a friend. There is help available; please let us help.  What I am about to tell you is not about when you need help. It is about what you say when you can't make it to class or be prepared for that class and about what you say to me (or my colleagues) in communicating that information.

    Though I do not require it, I appreciate it when you tell me you cannot be in class on a given day. I am am fine if you very rarely request a pass for the day because you are not prepared.  But I don't ask you for reasons for your absence or why you are not prepared.  So, if you volunteer that information and tell me that you have to miss class or are unprepared because you need to finish a paper for another class, that says to me, "I have prioritized another class over yours."  You may not mean to be saying that, but it is in many ways what you are saying.  

    I understand that you may be sharing to be honest.  I appreciate that, and if I were to ask you, honesty is the best policy. I get that you might be trying to communicate that you are not missing my class for a frivolous reason. Okay, but you have still told me your priorities. I also understand that you might want some level of absolution.  I can't and shouldn't give you that. We all have a lot to do, and sometimes life gets in the way of life, so we must make tough choices.  That does not make me mad.  Just don't volunteer that you made such a choice when you don't need to volunteer that you did.  

    I raise this for you not because it really upsets me. It doesn't. It may annoy me on a given day, but I can handle it. But it really, really irritates some of my colleagues, even if they don't tell you.  And it is an incredibly risky thing to share with a client or boss, who definitely don't want to hear someone else's work is more important than their's. 

    So, be honest when asked, and take responsibility for your actions.  Don't share information unnecessarily. Don't seek external absolution from professors, or clients, or bosses. I am here to teach, and I am here to help you learn, and grow, and find the resources you need to thrive.  But I am not here to make you feel better about not doing the work I have asked of you.  

 

August 23, 2017 in Joshua P. Fershee, Law School, Lawyering, Teaching | Permalink | Comments (0)

Friday, August 18, 2017

Law & Wellness: Interview with Jodi D. Taylor (Shareholder at Baker Donelson)

Jodi D. Taylor, a shareholder at the law firm Baker Donelson and a former classmate of mine, recently won the firm’s Work-Life Warrior Award. “Baker Donelson established the Work-Life Warrior Award to honor an attorney in the Firm who demonstrates an ongoing commitment to excellence in maintaining a healthy work-life balance or has advocated on behalf of work-life balance issues for the benefit of others.” Jodi graciously accepted my request to answer a few questions for this post, as part of the series I am doing on law and wellness.

The interview is below the break.

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August 18, 2017 in Haskell Murray, Lawyering, Service, Wellness | Permalink | Comments (0)

Tuesday, August 15, 2017

Poor LLC Language Leads to Poor LLC Doctrine (And Unnecessary Veil Piercing)

Earlier this week, Professor Bainbridge posted California court completely bollixes up business law nomenclature, discussing Keith Paul Bishop's post on Curci Investments, LLC v. Baldwin, Cal. Ct. App. Case No. G052764 (Aug. 10, 2017).  The good professor, noting (with approval) what he calls my possibly "Ahabian" obsession with courts and their LLC references, says that "misusing terminology leads to misapplied doctrine."  Darn right.

To illustrate his point, let's discuss a 2016 Colorado case that manages to highlight how both Colorado and Utah have it wrong. As is so often the case, the decision turns on incorrectly merging doctrine from one entity type (the corporation) into another (the LLC) without acknowledging or explaining why that makes sense.  To the court's credit, they got the choice of law right, applying the internal affairs doctrine to use Utah law for veil piercing a Utah LLC, even though the case was in a Colorado court. 

After correctly deciding to use Utah law, the court then went down a doctrinally weak path.  Here we go:

Marquis is a Utah LLC. (ECF No. 1 ¶ 7.) Utah courts apply traditional corporate veil-piercing principles to LLCs. See, e.g., Lodges at Bear Hollow Condo. Homeowners Ass'n, Inc. v. Bear Hollow Restoration, LLC, 344 P.3d 145, 150 (Utah Ct. App. 2015). The basic veil-piercing analysis requires two steps:
The first part of the test, often called the formalities requirement, requires the movant to show such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist. The second part of the test, often called the fairness requirement, requires the movant to show that observance of the corporate form would sanction a fraud, promote injustice, or condone an inequitable result.
Jones v. Marquis Properties, LLC, 212 F. Supp. 3d 1010, 1021 (D. Colo. 2016). 
 
First, say it with me: You Can’t Pierce the Corporate Veil of an LLC Because It Doesn't Have One.  Second, the so-called "the formalities requirement" is a problem for Utah LLCs if one looks at the Utah LLC Act. The Colorado court does not do that, and neither does the Utah court that decided Bear Hollow Restoration, upon which Colorado relied.  They should have. You see, Utah has adopted the Revised Uniform Limited Liability Act, and the Utah version states expressly: 
The failure of a limited liability company to observe formalities relating to the exercise of its powers or management of its activities and affairs is not a ground for imposing liability on a member or manager of the limited liability company for a debt, obligation, or other liability of the limited liability company.
Utah Code Ann. § 48-3a-304(b). So, that is at least potentially a problem, because the Utah test for the formalities requirement is supposed to be determined by looking at seven factors:
(1) undercapitalization of a one-[person] corporation; (2) failure to observe corporate formalities; (3) nonpayment of dividends; (4) siphoning of corporate funds by the dominant stockholder; (5) nonfunctioning of other officers or directors; (6) absence of corporate records; [and] (7) the use of the corporation as a facade for operations of the dominant stockholder or stockholders....
Lodges at Bear Hollow Condo. Homeowners Ass'n, Inc. v. Bear Hollow Restoration, LLC, 344 P.3d 145, 150 (Utah App. 2015).
 
I know some will argue I am being overly formalistic in highlighting how corporate focused these factors are, but this is problematic.  Virtually all of these factors must, at a minimum, be contorted to apply to LLCs.  If the test is going to be applied, the least a court should do is to rewrite the test so it refers LLCs specifically.  Why? Well, primarily because in doing so, it would make clear just how silly these factors are when trying to do so.  (For example, LLCs don't have stockholders, corporate funds, dividends, and generally don't have an obligation to have officers or directors.) 

 The Marquis Properties court skips actually applying the test saying simply that an SEC investigation report was sufficient to allow veil piercing. The court determined that an SEC report establishes that sole member of the LLC used the entity "to create the illusion of profitable investments and thereby to enrich himself, with no ability or intent to honor" the LLC's obligations. "Given this, strictly respecting [the LLC's] corporate form [ed. note: UGH] would sanction [the member's] fraud."  The Court then found that veil-piercing was appropriate to hold the member "jointly and severally liable for the amounts owed by" the LLC to the plaintiffs.

But veil piercing is both neither appropriate nor necessary in this case.  In discussing the SEC report earlier in the case, the court found that "all elements of mail and wire fraud are present." I see nothing that would absolve either the LLC as an entity of liability for the fraud and I see no reason why the member of the LLC would not be personally liable for the fraud he committed purportedly on behalf of the LLC and for his own benefit.  

This case illustrates another problem with veil piercing: both courts and lawyers are too willing to jump to veil piercing when simple fraud will do. This case illustrates clearly that fraud was evident, and fraud should be sufficient grounds for the plaintiffs to recover from the individual committing fraud. That means the entire veil piercing discussion should be treated as dicta. The entity form did not create this problem, and the entity form does not need to be disregarded, at least as far as I can tell, to allow plaintiffs to recover fully.  Before even considering veil piercing, a court should be able to state clearly why veil piercing is necessary to make the plaintiff whole. Otherwise, you end up with bad case law that can lead to bad doctrine, which leads to inefficient courts and markets.  

Oh, and while I'm at it, Westlaw needs to get their act together, too.  The Westlaw summary and headnotes say "limited liability corporation (LLC)" five times in connection with this case.  Come on, y'all.  

 

August 15, 2017 in Business Associations, Corporations, Joshua P. Fershee, Lawyering, LLCs, Shareholders, Unincorporated Entities | Permalink | Comments (0)

Monday, August 14, 2017

Steve Bradford on Online Dispute Resolution for Crowdfunding Fraud

Former BLPB editor Steve Bradford has posted a new paper adding to his wonderful series of articles on crowdfunding (on which I and so many others rely in our crowdfunding work).  This article, entitled "Online Arbitration as a Remedy for Crowdfunding Fraud" (and forthcoming in the Florida State University Law Review), focuses on a hot topic in many areas of lawyering--online dispute resolution, or ODR.  Steve brings the discussion to bear on his crowdfunding work.  Specifically, he suggests online arbitration as an efficacious way of resolving allegations of fraud in crowdfunding.  Here's the abstract:

It is now legal to see securities to the general public in unregistered, crowdfunded offerings. But offerings pursuant to the new federal crowdfunding exemption pose a serious risk of fraud. The buyers will be mostly small, unsophisticated investors, the issuers will be mostly small startups about whom little is known, and crowdfunded offerings lack some of the protections available in registered offerings. Some of the requirements of the exemption may reduce the incidence of fraud, but there will undoubtedly be fraudulent offerings.

An effective antifraud remedy is needed to compensate investors and help deter wrongdoers. But, because of the small dollar amounts involved, neither individual litigation nor class actions will usually be feasible; the cost of suing will usually exceed the expected recovery. Federal and state securities regulators are also unlikely to focus their limited enforcement resources on small crowdfunding offerings. A more effective remedy is needed.

Arbitration is cheaper, but even ordinary arbitration will often be too expensive for the small amounts invested in crowdfunding. In this article, I attempt to design a simplified, cost-effective arbitration remedy to deal with crowdfunding fraud. The arbitration remedy should be unilateral; crowdfunding issuers should be obligated to arbitrate, but not investors. Crowdfunding arbitration should be online, with the parties limited to written submissions. But it should be public, and arbitrators should be required to publish their findings. The arbitrators should be experts on both crowdfunding and securities law, and they should take an active, inquisitorial role in developing the evidence. Finally, all of the investors in an offering should be able to consolidate their claims into an arbitration class action.

Although I haven't yet read the paper (which was just posted this morning, it seems), Steve's idea totally makes sense to me on so many levels.  Among other things, ODR has a history in e-commerce and social media, two front-runners and foundations of crowdfunding.  Also, the dispute resolution expense issue that Steve alludes to in the abstract is real.  It has been raised by a number of us, including by me in this draft paper, in which I assert, among other things:

Prosecutors and regulators may not be willing or able to devote financial and human resources to enforcement efforts absent statutory or regulatory incentives or extraordinary policy reasons for doing so . . . . Individual funders also are unlikely to bring private actions or even engage alternative dispute resolution since the cost of vindicating their rights easily could exceed their invested money and time, although the availability of treble damages (often a statutory right for willful violations of consumer protection statutes) or other extraordinary remedies may change the calculus somewhat.

 . . . [C]lass actions tend to be procedurally complex—difficult to get in front of a court—and may not be available in some jurisdictions. Moreover, the prospects for recovery are unknown and, based on recent information from U.S. securities class action litigation, financial compensation to individual members of the plaintiff class is likely to be relatively insignificant in dollar value and in relationship to losses suffered, even if the aggregate amount of damages paid by the defendant is relatively high . . . . Accordingly, class action litigation also may be of limited utility in bringing successful legal claims in the crowdfunding context.

This will be an area for much further thought as the crowdfunding adventure continues . . . .

August 14, 2017 in ADR, C. Steven Bradford, Crowdfunding, Joan Heminway, Lawyering, Technology, Web/Tech | Permalink | Comments (0)

Wednesday, August 2, 2017

How (Not) To Teach A Course in Compliance and Corporate Social Responsibility

Good morning from gorgeous Belize. I hope to see some of you this weekend at SEALS. A couple of weeks ago, I posted about the compliance course I recently taught. I received quite a few emails asking for my syllabus and teaching materials. I am still in the middle of grading but I thought I would provide some general advice for those who are considering teaching a similar course. I taught thinking about the priorities of current employers and the skills our students need.

1) Picking materials is hard- It's actually harder if you have actually worked in compliance, as I have, and still consult, as I do from time to time. I have all of the current compliance textbooks but didn't find any that suited my needs. Shameless plug- I'm co-authoring a compliance textbook to help fill the gap. I wanted my students to have the experience they would have if they were working in-house and had to work with real documents.  I found myself either using or getting ideas from many primary source materials from the Society of Corporate Compliance and Ethics, the  Institute of Privacy ProfessionalsDLA Piper, the Federal Sentencing Guidelines for Organizational Defendants, policy statements from various governmental entities in the US (the SEC, DOJ Banamex case, and state regulators), and abroad (UK Serious Frauds Office and Privacy Office). Students also compared CSR reports, looked at NGO materials, read the codes of conducts of the guest speakers who came in, and looked at 10-Ks, the Carbon Disclosure Project, and other climate change documents for their companies. I also had students watch YouTube videos pretending that they went to CLEs and had to write a memo to the General Counsel so that s/he could update the board on the latest developments in healthcare compliance and risk assessments. 

2) This should be a 3-credit course for it to be an effective skills course- My grand vision was for guest speakers to come in on Mondays  for an hour and then I would lecture for the remaining time or I would lecture for two hours on Monday and then students would have simulations on Wednesday.This never happened. Students became so engaged that the lecturers never finished in an hour. We were always behind. Simulations always ran over. 

3) Don't give too much reading- I should have known better. I have now taught at three institutions at various tiers and at each one students have admitted- no, actually bragged- that they don't do the reading. Some have told me that they do the reading for my classes because I grade for class participation, but I could actually see for my compliance course how they could do reasonably well without doing all of the reading, which means that I gave too much. I actually deliberately provided more than they needed in some areas (especially in the data privacy area) because I wanted them to build a library in case they obtained an internship or job after graduation and could use the resources. When I started out in compliance, just knowing where to look was half the battle. My students have 50 state surveys in employment law, privacy and other areas that will at least give them a head start.

4) Grading is hard- Grading a skills course is inherently subjective and requires substantive feedback to be effective.  40% of the grade is based on a class project, which was either a presentation to the board of directors or a training to a group of employees. Students had their choice of topic and audience but had to stay within their industry and had the entire 6-week term to prepare. Should I give more credit to the team who trained the sales force on off-label marketing for pharmaceuticals because the class acting as the sales force (and I) were deliberately disrespectful (as some sales people would be in real life because this type of  training would likely limit their commissions)? This made their training harder. Should I be tougher on the group that trained  the bored board on AML, since one student presenter was in banking for years? I already know the answers to these rhetorical questions. On individual projects, I provide comments as though I am a general counsel, a board member, or a CEO depending on the assignment. This may mean that the commentary is "why should I care, tell me about the ROI up front." This is not language that law students are used to, but it's language that I have tried to instill throughout the course. I gave them various versions of the speech, "give me less kumbaya, we need to care about the slave labor in the factories, and less consumers care about company reputation, and more statistics and hard numbers to back it up."  Some of you may have seen this recent article about United and the "non-boycott, which validates what I have been blogging about for years. If it had come out during the class, I would have made students read it because board members would have read it and real life compliance officers would have had to deal with it head on.

5) Be current but know when to stop- I love compliance and CSR. For the students, it's just a class although I hope they now love it too. I found myself printing out new materials right before class because I thought they should see this latest development. I'm sure that  what made me think of myself as cutting edge and of the moment made me come across to them as scattered and disorganized because it wasn't on the syllabus.

6) Use guest speakers whenever possible- Skype them in if you have to. Nothing gives you credibility like having someone else say exactly what you have already said.

If you have any questions, let me know. I will eventually get back to those of you who asked for materials, but hopefully some of these links will help. If you are teaching a course or looking at textbook, send me feedback on them so that I can consider it as I work on my own. Please email me at mweldon@law.miami.edu.

Next week, I will blog about how (not) to teach a class on legal issues for start ups, entrepreneurs, and small businesses, which I taught last semester.

August 2, 2017 in Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Employment Law, Human Rights, Law School, Lawyering, Marcia Narine Weldon, Teaching | Permalink | Comments (0)

Monday, July 24, 2017

Hot Off the Press: Russell and Heminway on Representing the Organizational Client on Environmental Matters

ABABookCover

My good friend and long-time mentor Irma Russell and I wrote a chapter for the recently released ABA book, Ethics and the Environment: A Lawyer's Guide.  Irma also is a co-editor of the book (with Vicki Wright).  In our joint contribution, the chapter entitled "Representing the Organizational Client on Environmental Matters," Irma and I cover issues involving professional responsibility, corporate governance, and environmental compliance.  Guess which part was my primary responsibility . . . ?!)  Covering some 37 pages of the 242-page book, the rules we cover and the observations we make are fairly wide-ranging.  We hope, as we noted in our conclusion to the chapter, that we supply legal counsel representing corporations and other organizations with "foundational tools to assist them in providing advisory and advocacy-oriented services to organizational clients in the environmental law context."  Irma and I received our copies last week.  The book soon will be available through the ABA and other outlets.


 
ABABookChapterPage

 

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July 24, 2017 in Books, Compliance, Ethics, Joan Heminway, Lawyering | Permalink | Comments (0)

Wednesday, July 19, 2017

Making Friends with Entrepreneurs

Last year, I was asked to contribute to a symposium on law and entrepreneurship hosted at the University of North Carolina.  Although I had to Skype in for my presentation from Little Rock, Arkansas (where I had just given a separate, unrelated CLE presentation), the panel to which I was assigned was fabulous.  Great scholars, with great ideas.

For my contribution to the symposium, I chose to reflect on the unfulfilled promise of the potentially mutually beneficial relationship between an entrepreneur and a business finance lawyer.  I recently posted the published work memorializing my thoughts on the topic, featured this spring with several other articles from the symposium in a dedicated edition of the North Carolina Law Review.  The brief abstract for my article follows:

Entrepreneurs have the capacity to add value to the economy and the community. Business lawyers—including business finance lawyers—want to help entrepreneurs achieve their objectives. Despite incentives to a symbiotic relationship, however, entrepreneurs and business finance lawyers are not always the best of friends. This Article offers several approaches to bridging this gap between entrepreneurs and business finance lawyers.

My hope in writing this article was to infuse some energy into conversations about the role of business finance and business finance lawyers in the start-up and small business environment.  Too many principals of emergent businesses with whom I interact think that business entity choice and formation are divorced--wholly or in major part--from finance.  Of course, governance and tax matters (as well as, e.g., intellectual property and employment law concerns) are key.  But my personal view is that entrepreneurs and promoters of new businesses should map out their plan for financing firms from the start and take that plan into account in choosing the form of legal entity for those businesses.  I may be fighting an uphill battle on this (for a variety of reasons, mostly relating to the limited resource environment in which start-ups and small businesses exist), but I hope the article gives both clients and lawyers in this space something to consider, at the very least.

July 19, 2017 in Corporate Finance, Entrepreneurship, Joan Heminway, Lawyering, Securities Regulation | Permalink | Comments (2)

Tuesday, July 4, 2017

Lessons on Teaching Law and Creating a Legacy from Hamilton: An American Musical

With a Fourth of July post, I was inclined to write something patriotic and connected with our great nation and to law schools generally. As an unabashed and unapologetic fan of the Hamilton: An American Musical, a couple of analogies from this brilliant production seemed appropriate to convey my thoughts on law school and leaving a legacy.  

First, I think most of us who are fortunate enough to serve as law professors recognize the great gift we have to pursue our passion and to be part of educating the next generation of people who understand the rule of law and have the skills to protect the rights of individuals and groups. This is especially needed for those who are marginalized or under represented and thus less likely to be able to enforce their rights without the help of our legal system.  This is an incredible legacy in America, set in motion by some our nation's founders.  

Like John Adams defending British soldiers and Alexander Hamilton defending Loyalists after the war, lawyers (and law professors) do not need to compromise their own views to embrace the ideals they seek to uphold. We can vigorously maintain our personal views, while defending the rights of others to have their views.  As law professors, I think we generally do value and defend the rights of others who have differing views, but I also think we can do a better job ensuring that is the case (and that others know it).

To be effective, law professors must be engaged with their work, with their institution, and their students. This means, to me, engaging in scholarship, in some way, and sharing that work with the world.  As Alexander Hamilton tells Aaron Burr in The Room Where It Happens

“When you got skin in the game, you stay in the game. But you don’t get a win unless you play in the game. Oh, you get love for it. You get hate for it. You get nothing if you…Wait for it, wait for it, wait!”

We need to part of the program. We need to engage and share our ideas. This doesn't mean being overtly political, and it doesn't necessarily mean being abrasive. But we must be invested in what we do, and we must be invested in how we do it. The passive teacher and scholar will likely have passive students, and we need to be educating lawyers to get in, get dirty, and keep learning.  We can't just tell them. To some degree we have to be the ones to show them how.

Second, as law professors who are committed to their profession, I think we need to be thinking about who we want to be as professors, including our desires for our legacy, early in our careers.  We need to think about what we want to be like as tenured professors before were are tenured.  And we need to think about where we hope to get as professionals, as teachers, and as scholars.  I think a lot faculty members (law and otherwise) get to a point where they aren't sure what it will mean to move on or how, and that makes it hard to stay engaged or focused because you don't have an idea of the end game. And that is linked, in part, to feeling like their legacy is incomplete.  That is understandable.   

Alexander Hamilton says, in the song, The World Was Wide Enough Legacy: 

"What is a legacy? It's planting seeds in a garden you never get to see."

And it's true. We rarely, if ever, will get to see our legacy, but we can know what we are trying to grow.  We each create our own legacy by the seeds we choose to plant.  And as professors, we plant those seeds in our students.  They go out and hopefully grow and flourish. And as part of a profession, those seeds are spread wider than just our students, as those new lawyers go out and interact with and work to protect others.  We must think carefully about what we are teaching about the profession that we helping to shape, whether or not we ever see it fully grown.  The world evolves and so must we, so that the seeds we plant, our legacy, is one that is worthy of this great, though greatly flawed, nation that got its start 241 years ago.  

As we celebrate the Fourth of July, let us celebrate the past while at the same time we think about the future.  This goes for both our teaching and for our nation overall.  Wishing you a happy and safe Fourth. 

July 4, 2017 in Current Affairs, Law School, Lawyering, Music, Teaching | Permalink | Comments (1)

Tuesday, June 13, 2017

My Favorite Business Law Cases, Round 1: Sinclair Oil Corp. v. Levien (Del. 1971)

I am such a fan of Sinclair Oil Corp. v. Levien,  280 A.2d 717 (Del. 1971), that I use the case in both Business Organizations and in Energy Law. The case does a great job of giving a basic overview of parent-subsidiary relationships, some of the basic fiduciary duties owed in such contexts, and it sets up the discussion of why companies use subsidiaries in the first place. 

On fiduciary duties and when the intrinsic (entire) fairness test applies: 

A parent does indeed owe a fiduciary duty to its subsidiary when there are parent-subsidiary dealings. However, this alone will not evoke the intrinsic fairness standard. This standard will be applied only when the fiduciary duty is accompanied by self-dealing — the situation when a parent is on both sides of a transaction with its subsidiary. Self-dealing occurs when the parent, by virtue of its domination of the subsidiary, causes the subsidiary to act in such a way that the parent receives something from the subsidiary to the exclusion of, and detriment to, the minority stockholders of the subsidiary

On what test to apply to parent-subsidiary dividends: 

We do not accept the argument that the intrinsic fairness test can never be applied to a dividend declaration by a dominated board, although a dividend declaration by a dominated board will not inevitably demand the application of the intrinsic fairness standard. Moskowitz v. Bantrell, 41 Del.Ch. 177, 190 A.2d 749 (Del.Supr. 1963). If such a dividend is in essence self-dealing by the parent, then the intrinsic fairness standard is the proper standard. For example, suppose a parent dominates a subsidiary and its board of directors. The subsidiary has outstanding two classes of stock, X and Y. Class X is owned by the parent and Class Y is owned by minority stockholders of the subsidiary. If the subsidiary, at the direction of the parent, declares a dividend on its Class X stock only, this might well be self-dealing by the parent. It would be receiving something from the subsidiary to the exclusion of and detrimental to its minority stockholders. This self-dealing, coupled with the parent's fiduciary duty, would make intrinsic fairness the proper standard by which to evaluate the dividend payments.

. . . . The dividends resulted in great sums of money being transferred from Sinven to Sinclair. However, a proportionate share of this money was received by the minority shareholders of Sinven. Sinclair received nothing from Sinven to the exclusion of its [722] minority stockholders. As such, these dividends were not self-dealing. We hold therefore that the Chancellor erred in applying the intrinsic fairness test as to these dividend payments. The business judgment standard should have been applied. 

On whether shareholder of one subsidiary should be allowed to participate in ventures pursued by other subsidiaries: 

The plaintiff proved no business opportunities which came to Sinven independently and which Sinclair either took to itself or denied to Sinven. As a matter of fact, with two minor exceptions which resulted in losses, all of Sinven's operations have been conducted in Venezuela, and Sinclair had a policy of exploiting its oil properties located in different countries by subsidiaries located in the particular countries.

It makes sense for companies, often, to use subsidiaries to keep certain businesses well organized and to protect assets for shareholder.  That is, I might only want to invest in a subsidiary doing business in Mexico because I trust that the assets there are secure.  I may not want to participate in work in Venezuela, which I might deemed riskier.  And it's not just shareholders who might feel that way.  Creditors, too, may view such investments very differently and may only be willing to participate in ventures where the risks can be more easily assessed. 

June 13, 2017 in Case Law, Corporations, Joshua P. Fershee, Lawyering, Management, Venture Capital | Permalink | Comments (1)

Wednesday, May 31, 2017

What Law Schools Should Be Teaching and Aren’t

I listened to a podcast today entitled “What Law Schools Should be Teaching, and Aren’t (with Mark Cohen).” Cohen is the founder and CEO of Legal Mosaic. In a previous life he served as a partner in a large law firm, a partner in his own boutique firm, a receiver, and the founder of a now defunct legal tech startup, Clearspire.

Given all of his experience, I value what he has to say about what law schools need to do to prepare students for the current legal marketplace. I recommend that you listen to the podcast yourself, but here is his list of gaps in student knowledge:

  1. How to interview clients
  2. The importance of project management, collaboration and teamwork
  3. How to provide legal solutions and not just merely legal opinions.
  4. How to use technology and deal with the rise of legal process outsourcing
  5. Marketing and getting clients
  6. The importance of emotional intelligence

Many may quibble with his list in an age in which bar passage rates are at historical lows. But I think he has a point, especially since most of students will work for small law firms and will not have the infrastructure/safety net of Big Law. As Cohen mentioned, lawyers increasingly work within a legal supply chain and must provide value beyond what they are being taught in law school. These include the soft skills that business schools typically teach, and which will enable our students to get and keep clients.

I particularly liked his discussion of project management and collaboration. As we know, many law students can’t manage their time properly, don’t like working in groups, and focus more on regurgitating what they are taught in class rather than thinking of creative, constructive solutions. Students also haven’t developed the skills to deal with the increasing automation of document review/drafting and the potential rise of robots, which thankfully, won’t replace lawyers (yet).

I have tried to teach my students to understand the importance of learning their client’s business so that they can provide solutions rather than standard law school exam answers. I grade based on deliverables and time management to the extent that I don’t accept late work (barring extraordinary circumstances). In every class, I have had students do some work in groups, even though they don’t like it at first. I have also stressed the importance of learning to explain complex concepts clearly and concisely through blogging (which also provides marketing opportunities).

Now I plan to see how I can incorporate more of Cohen’s suggestions. Practitioners- is there anything else professors can do to produce more effective and efficient graduates?

May 31, 2017 in Law Firms, Law School, Lawyering, Marcia Narine Weldon, Teaching, Technology | Permalink | Comments (2)

Tuesday, May 30, 2017

LLCs Are Not Corporations: "Corporate" Disclosure Edition

Regular readers know that I monitor courts and other legal outlets for improper references to LLCs as "limited liability corporations" when the writer means "limited liability companies." I get a Westlaw update every day. Really. Every day. So while it may seem that I write about examples a lot, I tend to think I am showing great restraint.  

At times, this is just a semantic issue, or at least a more amorphous "how one thinks about entities" issue.  Usually, at a minimum such cases can cause confusion about entity type and what laws apply, which may eventually lead courts to an improper analysis and application of the wrong laws.  It certainly leads some lawyers to incorrectly characterize their clients and their cases.  

For example, a recent case from the United States District Court for the Western District of Washington gets the law right, but still creates some potential confusion. Consider this excerpt: 

Cash & Carry asserts that the court's jurisdiction is based on diversity of citizenship. (Not. at 2.) For purposes of assessing diversity, the court must consider the domicile of all members of a limited liability company. Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006) (“[A]n LLC is a citizen of every state of which its owners/members are citizens.”); see also Local Rules W.D. Wash. LCR 101(e). Plaintiff Deborah Markham alleges that she is a Washington resident. (Compl. (Dkt. # 2) ¶ 1.2.) However, neither the complaint nor the notice of removal identifies Cash & Carry's members or the domicile of those members. (See id. ¶ 1.3 (alleging that Cash & Carry is “a limited liability corporation formed under the laws of the State of Washington”); Not. at 2.)
DEBORAH MARKHAM, Plaintiff, v. CASH & CARRY STORES, LLC, et al., Defendants., No. C17-0746JLR, 2017 WL 2241136, at *1 (W.D. Wash. May 23, 2017) (emphasis added).  It'd have been great for the court to note that Cash & Carry's claim it was "a limited liability corporation" was incorrect.  Instead, the court then stated, "Furthermore, Cash & Carry's corporate disclosure statement fails to establish Cash & Carry's domicile. (CDS (Dkt. # 4).)" Id. As an LLC, Cash & Carry isn't "corporate," but because of the local rules for the Western District of Washington, it does have an obligation to make a "corporate disclosure." See U.S. Dist. Ct. Rules W.D. Wash., Civ LR 7.1.
 
Rule 7.1. Disclosure Statement

(a) Who Must File; Contents. A nongovernmental corporate party must file 2 copies of a disclosure statement that:

(1) identifies any parent corporation and any publicly held corporation owning 10% or more of its stock; or

(2) states that there is no such corporation.

(b) Time to File; Supplemental Filing. A party must:

(1) file the disclosure statement with its first appearance, pleading, petition, motion, response, or other request addressed to the court; and

(2) promptly file a supplemental statement if any required information changes.

However, in Washington, the Local Rule 7.1 adds to the requirements of the federal "disclosure statement":

CORPORATE DISCLOSURE STATEMENT

(a) Who Must File; Copies

Any nongovernmental party, other than an individual or sole proprietorship, must file a corporate disclosure statement identifying:

  1. any parent corporation and any publicly held corporation owning more than 10% of its stock;

  2. any member or owner in a joint venture or limited liability corporation (LLC);

  3. all partners in a partnership or limited liability partnership (LLP); or

  4. any corporate member, if the party is any other unincorporated association

If there is no parent, shareholder, member, or partner to list in response to items (1) through (4), a corporate disclosure statement must still be filed stating that no such entity exists.

In this instance, the Local Rule changes the disclosure to "corporate disclosure," when it would appear this is really an "ownership" or "financial interest" disclosure.  (And, while I am being picky, isn't it odd to have a subpart "a," when there is not subpart "b?" I suspect this subpart notation is to track subpart a of Federal Rule 7.1, but it still looks odd to me.)  
 
This is not the first time a local rule has created some potential trouble with regard to Federal Rule 7.1.  Back in January of this year I posted Oops: Oregon District Court Rule For LLCs that are Defined as Corporations, which discussed some different concerns for the Oregon District Court's expansion of Rule 7.1. I will note that the LLC reference in the Oregon District Court Local Rule remains incorrect
 
I am prepared for the "no harm, no foul" comment. And maybe that's right. But it still seems like courts (and lawyers) should be able to get this right more often. 

May 30, 2017 in Corporations, Joshua P. Fershee, Lawyering, LLCs | Permalink | Comments (0)

Tuesday, May 23, 2017

Just Because You Can, Doesn't Mean You Should, Detroit Lions Edition

Last weekend, retired NFL receiver Calvin Johnson made news when he revealed that he was not pleased with the Detroit Lions and how they handled his retirement. Johnson is apparently frustrated that the Lions required him to pay back about 10% of the  unearned $3.2 million remaining on his $16 million signing bonus from his 2012 contract. This is apparently a thing for the Lions, who sought all of the unearned signing bonus money remaining on Barry Sanders' contract when he abruptly retired in 1999.

This is in contrast to Tony Romo's retirement, in which the Dallas Cowboys released him, making the $5 million remaining on the signing bonus Romo's.  Cowboys owner Jerry Jones said he was following the “Do Right Rule” when he allowed the team to release him.  The Seattle Seahawks made a similar decision with Marshawn Lynch.  

Some have argued that Johnson is being "pettier" than the Lions in this spat.  Mike Florio, a sports writer and graduate of WVU College of Law, where I teach, argued that "while Johnson has every right to be miffed at the Lions, Johnson also should be miffed at himself. Or at whoever advised him to retire instead of biding his time until the Lions would have released him." Florio correctly notes that Johnson had a big cap number likely to come due had he not retired or accepted a restructured deal, so he was coming from a position of power in negotiating, which would have likely forced the Lions to cut him. Still, that doesn't mean Johnson is wrong to be frustrated.  

Perhaps Johnson didn't ever want to be cut in his career, even at that point in his carerr. Maybe he just wanted to retire.  The Lions were worried, perhaps about "precedent" that other players could use to walk away without paying back the bonus, though there is already such precedent out there, as discussed above, and the Lions have non-binding precedent already in the Barry Sanders case, where an arbitrator said Sanders had to pay back some of his signing bonus.  Beyond that, the response to most players would simply be, "I know we didn't ask Calvin Johnson for any money back. You're not Calvin Johnson." 

It is  true that the Lions could seek money from Johnson, and that Johnson almost certainly, from a legal sense, owed the money.  But having a legal right to something doesn't always mean it is a good idea.  And that is important for lawyers to remember.  The question I would have asked the Lions front office is this: "Is it really worth $320,000 when it is possible that one of your greatest players will feel disrespected by the process? Especially when you already created a rift with one of you other greatest players fifteen years ago?"  

Maybe it was asked, and the answer was yes, but I just don't see the upside.  My guess is that the Lions asked for a lot more and the two sides negotiated to this figure.  But that process, not the payment, is likely what irked Johnson.  Why does it matter? Because it tells future people the team wants, especially coaches and free agents, how the Lions do business.  And when choosing between two similar offers, that could very well lead one to choose the other team.  

I often use these kinds of issues facing a business when teaching the importance of the business judgment rule and allowing a board of directors not to pursue claims it can win (as long as there is no fraud or self dealing).  Sometimes, it is better for the entity to let a claim go than to extend a bad story or scare off potential talent.  Back in 2007, for example, Billy Donovan was hired to leave his head coaching job at the University of  Florida to lead the NBA's Orlando Magic.  Just days later, Donovan decided he did not want to leave Florida, and asked the Magic to let him return to the college game. The Magic decided to let him do so without any financial penalty, though they did ask him to agree not to coach in the NBA for five years.

Why let Donovan back out and return to Florida without a payment?  For one, the Magic needed to hire a new coach, and you want to send a message that you are a good employer.  Second, Donovan was beloved in Florida. He had won two NCAA championships in a key market for the team.  Don't irritate your prime audience is always a good bit of advice.  There was little upside to being difficult. The team was almost certainly irritated, but there is little value in letting that lead to bad publicity and unnecessary public spats. This principle extends well beyond the sports realm, but it is especially important in any area where employers fight for talent, which is common in the sports and entertainment areas. 

In assessing the legal (and business) options for the Calvin Johnson situation, good lawyering requires a recognition that key issues were likely related to perception and respect, not money.  As such, the fact that there was an argument about repayment at all was the issue that made Johnson frustrated (and now could have repercussions in the future free agent market).  It is certainly possible the Lions assessed this risk and decided it was worth it.  I disagree that it was worth it, but that would be a reasonable decision.  (As a life-long Lions fan, I will need more evidence the problem was properly assessed, though I do hold out hope for the new front office.) 

Such decisions, if made simply on the legal merits (e.g., Would I win in court?), run the risk of what Jeff Lipshaw calls "pure lawyering," which is essentially legal reasoning without context or assessment of non-legal impacts or opportunities. As Lipshaw explains in the preface to his book, Beyond Legal Reasoning, A Critique of Pure Lawyering

Legal reasoning is merely one way of creating meaning out of circumstances in the real world. In its pure form, it does nothing more than convert a real-world narrative to a set of legal conclusions that have no necessary connection either to truth or morality.

Or the ability to recruit free agents.  

May 23, 2017 in ADR, Compensation, Contracts, Corporate Personality, Current Affairs, Joshua P. Fershee, Lawyering, Sports | Permalink | Comments (1)

Tuesday, May 16, 2017

What is Loyalty?

This past week was a big one for loyalty stories.  First, we have the New York Times reporting that President Trump asked former FBI director James Comey for his pledge of loyalty, to which Comey apparently promised "honesty."  (The White House disputes this report.) 

Then, we have a high school quarterback in Illinois being forced to decommit from the University of Wisconsin's, apparently because he tweeted that the University of Georgia had offered him a scholarship.  The student called Wisconsin Coach Budmayr, telling him he had the offer and said he was "still 100% committed to the Badgers." The next day Budmayr apparently told him that he was no longer a good fit for Wisconsin and that he should keep looking.  The reason: lack of loyalty.  

Obviously, I only have the facts as they have been portrayed in these articles, and there are two sides to every story.  Nonetheless, these anecdotes got me to thinking about loyalty and how people tend to perceive the concept. 

To some, loyalty means fidelity.  This can be in the physical or emotional sense, as in the marriage context.  Some view extend it to ideological loyalty.  And to some, it means undying, uncompromising agreement and support.  It is this last idea that troubles me, because often it means that the loyalty is misguided. 

Merriam-Webster dictionary defines loyal as follows:

1. unswerving in allegiance: such a

a :  faithful in allegiance to one's lawful sovereign or government were loyal to the king    

b:  faithful to a private person to whom faithfulness is due a loyal husband

 c :  faithful to a cause, ideal, custom, institution, or product a loyal churchgoer

2. showing loyalty a loyal friend

3. obsolete :  lawful, legitimate

The Trump-Comey scenario is clearly type 1(a), but I think the same is true of the Badger football situation. The concept of requiring absolute loyalty to the cause as a prerequisite for being part of the team.  

The problem, of course, is what it means to be faithful and to whom.  In the Comey situation, Comey's loyalty is to the FBI, the country, and the truth, not the person in the White House. Trump has sort of acknowledged this, although it is not clear what the president had in mind if he really did ask Comey for such a pledge.  But it is clear that if Comey were to have pledged loyalty to the president, he would clearly have created the risk of compromising his loyalty to the country and the truth.  

For football, this is harder to define.  Is it to the team?  To the coach? To the other players?  To the program?  Everything? 

Blind allegiance is rarely a good thing, and can often lead to bad outcomes.  In the Badger football case, it seems the coach was either (a) looking to get out of the commitment and took an excuse, (b) really believes assurances from one of his commits are hollow, or (c) wanted to send a message about allegiance.  It is entirely possible it was some combination of the three. 

When it comes to the high school player, I can imagine a scenario where the player was excited to be pursued, and he was showing off a little.  Hard to blame a kid for that, frankly.  Despite assurances to the contrary, the Badger coach wanted none of it.  His team, his call, but I don't like it. 

In my view, loyalty runs two ways.  And loyalty should have room for misunderstandings, at a minimum, if not mistakes. Even it it doesn't, in the case of college player and college coach, the coach is the grown up.  He or she should act like it.  That means, if you have a real problem with the player, state it. And if you really don't want them any more, say it.  I have no idea what the coach said, and in fairness to him, he may be the one taking the high road here by not airing issues publicly. 

I can't say these stories raise any clear answers for me.  But they do raise questions about loyalty, and what it means.  I think that's worth thinking about, especially for lawyers and future lawyers. Both of these stories make me uncomfortable. It's worth it to me to think about why and what that means. And I think we should all spend a little time thinking about it. 

May 16, 2017 in Current Affairs, Joshua P. Fershee, Lawyering, Philosophy | Permalink | Comments (1)

Thursday, May 11, 2017

Does the Bar Exam Put Business Clients At Risk?

The Legal Skills Prof Blog has posted an article entitled Our Broken Bar Exam by Deborah Jones Merritt. The post discusses Merritt’s proposal for a task force on the bar exam. Merritt’s article states, among other things:

The bar exam is broken: it tests too much and too little. On the one hand, the exam forces applicants to memorize hundreds of black-letter rules that they will never use in practice. On the other hand, the exam licenses lawyers who don’t know how to interview a client, compose an engagement letter, or negotiate with an adversary.
 
This flawed exam puts clients at risk. It also subjects applicants to an expensive, stressful process that does little to improve their professional competence... The bar examination should test the ability of an applicant to identify legal issues in a statement of facts, such as may be encountered in the practice of law, to engage in a reasoned analysis of the issues, and to arrive at a logical solution by the application of fundamental legal principles, in a manner which demonstrates a thorough understanding of these principles... Why doesn’t our definition of minimum competence include cognitive skills that are essential for effective client representation? The answer does not lie in the fact that these skills are difficult to test on a written exam. Research, fact gathering, interviewing, and other lawyering skills are cognitive abilities.

We could test for these skills by directing test-takers to outline a research plan, interview approach, or negotiation strategy based on a mock client file. Test-takers could also identify potential pitfalls, fall back positions, and ethical issues associated with their plan. These questions are no more difficult to draft and grade than classic issue-spotter essay questions. The primary reason we don’t test bar candidates on these skills is that law schools don’t stress them. Schools teach some professional competencies (like appellate advocacy) quite effectively, but relegate others to a corner of the curriculum. Employers and state supreme courts have urged law schools to teach a fuller range of lawyer competencies, but most schools have resisted…

Here are some of the many ideas that the task force could consider:

  • Develop MBE and essay questions that test fundamental principles and legal reasoning, rather than memorization. As proposed above, practicing lawyers could serve as test subjects to validate these questions.
  • Allow test-takers to refer to notes, codes, and other sources while taking the bar exam. This practice would more accurately measure professional knowledge.
  • Develop tests for more of the competencies that new lawyers perform.
  • Replace some (or all) multiple-choice and essay questions with performance-oriented case files like those presented on the Multistate Performance Test (MPT).
  • Allow examinees to take portions of the exam at different times, including after the first year of law school.
  • Work with law schools to create lawyering classes that would substitute for portions of the bar exam, as the University of New Hampshire has done. Bar examiners could audit these classes for content and rigor.
  • Encourage bar associations, law schools, and other organizations to develop postgraduate lawyering institutes to replace some (or all) of the bar exam. Law graduates currently spend more than $100 million annually on bar review courses—in addition to the fees they pay to take the bar. That money could support six to eight week intensive summer programs to teach and assess new graduates’ lawyering competence.

I thought about these criticisms and recommendations as I graded my Business Associations exam this week. Every year, I dutifully spend time on GPs, LPs, and LLPs in class and test on them during exam time because the Florida bar tests on these business subjects every year. The bar pays scant attention to LLCs even though that’s the fastest growing business entity in my state. Indeed, I have had almost a dozen guest speakers in my startup law skills class, and all of the attorneys indicated that they deal almost exclusively with LLCs and corporations. I worry when I spend time on interviewing and negotiation skills in the doctrinal class because the bar won’t test on these topics, but these are precisely the skills my students will need in practice.

Perhaps I worry for nothing. After the administration of every bar exam, I receive notes from students indicating that they felt prepared for both the exam and for life after law school. But I fear that schools do too little to prepare students for either. I highly recommend that you read Merritt’s article and if you agree with her, work with your state bar and the NCBE on reform.


 


 

 

May 11, 2017 in Corporations, Current Affairs, Law School, Lawyering, LLCs, Marcia Narine Weldon, Teaching | Permalink | Comments (0)

Wednesday, April 26, 2017

What Is Ideological Diversity in the Legal Academy?

More than a few legal blogs and scholars have taken note of a recent paper by Adam Bonica (Stanford University), Adam S. Chilton (University of Chicago), Kyle Rozema (Northwestern University) and Maya Sen (Harvard University), “The Legal Academy’s Ideological Uniformity.”  The paper finds that those in the legal academy are more liberal than those in legal profession generally.  Anecdotally, I have to say I am not surprised. 

The abstract of the piece is as follows:

We find that approximately 15% of law professors are conservative and that only approximately one out of every twenty law schools have more conservative law professors than liberal ones. In addition, we find that these patterns vary, with higher-ranked schools having an even smaller presence of conservative law professors. We then compare the ideological balance of the legal academy to that of the legal profession. Compared to the 15% of law professors that are conservative, 35% of lawyers overall are conservative. Law professors are more liberal than graduates of top 14 law schools, lawyers working at the largest law firms, former federal law clerks, and federal judges. Although we find that professors are more liberal than the alumni at all but a handful of law schools, there is a strong relationship between the ideologies of professors from a law school and the ideologies of alumni from that school. However, this relationship is weaker for schools with more conservative alumni.

Jonathan Adler recently discussed the paper in a piece for The Volokh Conspiracy How ‘ideologically uniform’ is the legal academy? Adler notes, that the paper's "findings are based upon an examination of reported political donations. While this is an admittedly imperfect measure of ideology, it does allow for comparisons across population groups." I agree on both counts.   

I am particularly interested in (and a bit skeptical of) the use of political donations as the proxy for ideology.  I understand why the authors used that proxy: the information is available and it does, as Adler says, provide for comparisons.  My skepticism is not about their process or choice, but merely about whether it tells us very much about legal ideology. I think it tells us primarily about political party. And even there, in a primarily two-party system, it only tells us about preferences between those two parties, and if the data is primarily presidential, about those two specific candidates. 

My point is that legal ideology is often different that political party choice. When choosing between two parties, we all have priorities of our views, too. For example, I am a far bigger believer in the ability of markets to solve problems than many of my colleagues.  I am more skeptical of government intervention and increased regulation than many of my colleagues. But because of a few priorities that tip my balancing test, I would almost certainly come out "liberal" in using my modest contributions to political parties as the assessment of my ideology.  

In assessing legal ideology, though, I would argue diversity comes more from how we view the law than particular candidates or certain social issues. Obviously, it is much harder to assess that, but I think it should matter when considering how law schools teach.  

Some legal programs (like SEALS) have been seeking diversity of viewpoints, along with other measures of diversity, for panel and discussions groups. This is a good thing. It's not always easy to assess, though. Maybe we should just ask. Here's how I'd assess my own legal ideology: When it comes to economic regulation, my thinking is much more in line with former law professor and SEC Commissioner Troy A. Paredes than I am with, say, Elizabeth Warren. When it comes to business entities law, I am far more Bainbridge than Bebchuck.  For environmental law, more Huffman or Adler than Parenteau. Of course, I have at various times agreed and disagreed with them all.  

I, like many others, am very skeptical of an ideological litmus test or quota system. And yet I also think there is value in embracing different perspectives and viewpoints.  Ultimately, I don't care how someone votes when I assess whether they are a good legal scholar, a good colleague, and a good teacher. I do care that they value diversity of all kinds (including ideological), and I care that they believe in encouraging and faciltitating productive discourse. There is little value in lockstep thinking in any arena, and that is particularly true in legal education. I'm glad this discussion is part of how we consider moving forward in legal education.  

April 26, 2017 in Corporate Governance, Current Affairs, Joshua P. Fershee, Law and Economics, Law School, Lawyering, Research/Scholarhip, Teaching | Permalink | Comments (0)

Monday, April 24, 2017

Lawyers and Compliance: Business Entity Clients with Control Persons Who Recklessly Disobey

As a business lawyer in private practice, I found it very frustrating when the principals of business entity clients acted in contravention of my advice.  This didn't happen too often in my 15 years of practice.  But when it did, I always wondered whether I could have stopped the madness by doing something differently in my representation of the client.

Thanks to friend and Wayne State University Law School law professor Peter Henning, who often writes on insider trading and other white collar crime issues for the New York Times DealBook (see, e.g., this recent piece), I had the opportunity to revisit this issue through my research and present that research at a symposium at Wayne Law back in the fall of 2015.  The law review recently published the resulting short article, which I have posted to SSRN.  The abstract is set forth below.

Sometimes, business entity clients and their principals do not seek, accept, or heed the advice of their lawyers. In fact, sometimes, they expressly disregard a lawyer’s instructions on how to proceed. In certain cases, the client expressly rejects the lawyer’s advice. However, some business constituents who take action contrary to the advice of legal counsel may fall out of compliance incrementally over time or signal compliance and yet (paradoxically) act in a noncompliant manner. These seemingly ineffectual varieties of the lawyer/client relationship are frustrating to the lawyer.

This short article aims to explain why representatives of business entities who consider themselves law-abiding and ethical may nevertheless act in contravention of the business’s legal counsel and offers preliminary means of addressing the proffered reasons for these compliance failures. The article does not address willful noncompliance or even willful blindness. Rather, it makes observations about behavior that falls squarely into what the law typically recognizes as recklessness. An apocryphal lawyer-client story relating to insider trading compliance provides foundational context.

The exemplar story derives from things I witnessed in law practice.  Perhaps some of you also have experienced clients or business entity client principals which/who act contrary to your advice in similar ways.  Regardless, you may find this short piece of interest.

April 24, 2017 in Compliance, Conferences, Corporate Governance, Joan Heminway, Lawyering, Securities Regulation | Permalink | Comments (2)

Wednesday, March 1, 2017

Conference on Doing Business in Cuba: Legal, Ethical, and Compliance Challenges

Businesses from small farmers to cruise lines are anxiously awaiting President Trump's policy on Cuba and how/if he will rescind President Obama's Executive Orders relaxing restrictions on doing business with the island.

If you're in the South Florida area next Friday March 10th, please consider attending the timely conference on Doing Business in Cuba: Legal, Ethical, and Compliance Challenges from 8:00 am-4:30 pm at the Andreas School of Business, Barry University. The Florida Bar has granted 6.5 CLE credits, including for ethics and for certifications in Business Litigation and International Law. The Miami-Dade Commission on Ethics and Public Trust is organizing the event.

As a member of the Commission and an academic who has just completed my third article on Cuba, I'm excited to provide the opening address for the event. I'm even more excited about our speakers John Kavulich, President, U.S. Cuba Trade and Economic Council Inc;  the general counsel of Carnival Cruise Lines;  mayors of Miami Beach, Coral Gables, and Doral; director of the Miami International Airport; a number of academic experts from local universities; Commissioners Nelson Bellido and Judge Lawrence Schwartz; and outside counsel  from MDO Partners, Akerman LLP, Holland & Knight, Greenberg Traurig, Squire Patton Boggs, and Gray Robinson.

It promises to be a lively and substantive discussion.

Registration closes on Monday, March 6th. The $50 admission fee includes breakfast, lunch, and all materials. Go to ethics.miamidade.gov or call 305-579-2594 to register or for more information.  You can also leave comments below or email me at mnarine@stu.edu.

March 1, 2017 in Compliance, Conferences, Corporate Governance, Current Affairs, Law School, Lawyering, Marcia Narine Weldon, Research/Scholarhip | Permalink | Comments (0)