Sunday, January 8, 2012
Starting tomorrow, Steve Bradford, Eric Chaffee, Josh Fershee, Anne Tucker, and I will no longer be blogging here at the BLPB. It's been a great ride, and I think I speak for all of us when I say "Thank you!" to all our readers for their support, as well as to Paul Caron and Joe Hodnicki for the opportunity to blog here. Finally, I'm excited to announce that starting next Sunday I will be continuing my blogging adventures at The Race to the Bottom, which not only made the Blawg 100 again this year but apparently also "received the highest number of votes in the Business Law category." While there is no way that I will be able to come even remotely close to matching the blogging prowess of Jay Brown, I am very grateful to him for giving me the opportunity to at least try and add some value to his blog.
Thanks again for all your support,
Saturday, January 7, 2012
Slightly Delayed "Live-Blogging" From the AALS
Over at the Glom, Gordon Smith recounts some of the discussion from the recent Business Associations Section meeting at the AALS Annual Meeting this past Thursday. Like Gordon, I was particularly struck by the remarks of Delaware Chancery Court Vice Chancellor J. Travis Laster on the issue of Say-on-Pay. Here is some of Gordon's summary (you can find his entire post here):
[I]s there room for a Delaware claim on executive compensation in the wake of Say on Pay? Teasing the assembled law professors, Vice Chancellor Laster suggested that the Delaware courts could decide to review pay decisions with a form of enhanced scrutiny (because that standard of review applies to situations involving structural bias), but he rightly observed that such a move would be comparable to Smith v. Van Gorkom in 1985…. The more likely path to a claim is one already being pursued by a number of plaintiffs lawyers, namely, going after a board of directors for waste of the corporate assets…. If you couple such a claim with a bad vote on Say on Pay, you might have something.
One of the other things that struck me from Vice Chancellor Laster's remarks was his statement (according to my notes) that the Delaware judiciary is very aware of the "Zeitgeist." This means that while subjecting compensation decisions to enhanced scrutiny may constitute a "thermonuclear explosion" in corporate law, Delaware may nonetheless get there if the threat of further federalization of corporate law in this area becomes great enough.
For those of you not familiar with Vice Chancellor Laster, here is a short video wherein he mentions that his preferred theory of the corporation is "utilitarian":
Friday, January 6, 2012
Strict Criminal Liability, Regulation, and Ben Franklin
Long ago, Ben Franklin warned, "Laws too gentle are seldom obeyed; too severe, seldom executed." Unfortunately, following massive environmental disasters (and financial disasters) legislators and regulators tend to respond to public outcry by seeking better ways to "put the bums in jail" without assessing the real problems.
Building on this point, I wrote my article, Choosing a Better Path: The Misguided Appeal of Increased Criminal Liability after Deepwater Horizon, which was just published in the William & Mary Environmental Law and Policy Review (available here). In the article, I argue that increased criminal liability for energy company employees is not likely to be effective in preventing disasters like the blowout of BP Macondo well in the Gulf of Mexico. And increased liability is simply not the best way. The abstract:
Despite the potential appeal of dramatically increased liability and sentences in the wake of environmental disasters like the Deepwater Horizon oil blowout in the Gulf of Mexico, this Article argues that more aggressive criminal provisions and enforcement related to environmental harms, up to and including strict criminal liability, are not likely to protect the environment better or lead to safer work environments. This Article first considers the history and legality of, and the rationale behind, policies designed to make it easier to convict allegedly responsible parties and also discusses the pursuit of increased liability in relation to disaster-related and tragedy-related events in the financial and criminal sectors. The Article then discusses the use of reduced burdens and strict liability in environmental law in both civil and criminal contexts, and argues that the use of strict liability is less effective than a negligence standard because it tends to reduce penalties, which can limit the direct punishment to violators, as well as the prophylactic potential of the laws. Finally, the Article concludes that, rather than reducing mens rea standards and increasing criminal liability, U.S. energy and environmental law needs to focus on encouraging proper risk assessment and risk management to promote safe and effective energy extraction and production while encouraging and protecting both the environment and the economy.
What's all of this mean? There are no easy answers, but here's my conclusion:
One of the greatest risks to the continued economic success of energy-related activities is an environmental disaster. As such, disaster avoidance is a benefit to all stakeholders: lawmakers, regulators, oil companies, and people generally have reason to support a safer energy industry. The first step, then, is to adopt a proper mindset to help avoid disasters. Rather than pursuing with vigor penalties to punish a future perpetrator or seeking creative ways to use obscure laws that have a slight chance of success, efforts should look to ways to prevent the next disaster.
This means carefully assessing risk, then developing plans and programs to minimize that risk. This is not something that can happen in a vacuum. It requires coordinated efforts from industry, government, and the public. We all must understand and appreciate the risks before us, then be prepared to accept the costs of our decisions.
Wednesday, January 4, 2012
Lowell Milken Institute Law Teaching Fellowship
The Lowell Milken Institute for Business Law and Policy at UCLA School of Law is accepting applications for the Lowell Milken Institute Law Teaching Fellowship. The Institute describes the fellowship as follows:
This fellowship is a full-time, year-round, one or two academic-year position (approximately July 2012 through June 2013 or June 2014). The position involves law teaching, legal and policy research and writing, preparing to go on the law teaching market, and assisting with organizing projects such as conferences and workshops, and teaching. No degree will be offered as part of the Fellowship program.
Fellowship candidates must hold a JD degree from an ABA accredited law school and be committed to a career of law teaching and scholarship in the field of business law and policy. Applicants should have demonstrated an outstanding aptitude for independent legal research, preferably through research and/or writing as a law student or through exceptional legal experience after law school. Law Teaching Fellowship candidates must have strong academic records that will make them highly competitive for law teaching jobs.
Applications are due by March 1, 2012. More information about the Institute and on the fellowship can be found here.
-- Eric C. Chaffee
Texas Tech University School of Law Seeking Business Law Visitor (2012-13)
As a courtesy to our friends at Texas Tech -- please find the following announcement. They say that "business/securities/corporate courses" are their priority:
Texas Tech University School of Law is seeking applications for one- and two-semester (full time) visitors during the 2012-13 academic year. Anticipated curricular needs include courses in business entities, business analysis for lawyers, corporate governance, securities regulation, mergers and acquisitions, property, energy law, agricultural law, natural resources law, environmental law, employment law, employment discrimination law, civil procedure, criminal procedure, criminal law, health law, animal law, and law and science. Applicants with full-time law school teaching experience fitting the curricular needs are especially encouraged to apply, as are women, minorities, and veterans. Along with a resume (PDF), an applicant should e-mail a single page cover letter (PDF) identifying the two or three courses he or she is best prepared to teach. Texas Tech University is an Affirmative Action/Equal Opportunity Employer. Applicants should e-mail Professor Michael Hatfield c/o Michele Thaetig at firstname.lastname@example.org with “2012-13 Faculty Visitor Application” and the two or three specific courses in the subject line. Review of applications will begin in mid-January.
A Year in Review: Top Delaware Cases from 2011
The Delaware Corporate and Commercial Litigation Blog has posted Noteworthy 2011 Corporate and Commercial Decisions from Delaware’s Supreme Court and Court of Chancery. As always, they provide useful and insightful information about Delaware cases, and the post and the blog are worth a read.
Among the key cases they highlight are several that we at the BLPB have discussed. As a year in review of the BLPB Delaware case discussions, here are a few:
I'm sure I have missed others, especially other cases my colleagues discussed, and I hope they will free to add (or create their own) year in review.
The First Amendment Versus Corporate Law
The headline reads: Montana High Court Says 'Citizens United' Does Not Apply In Big Sky State. I have not had a chance to read the entire 80-page decision, but I did want to share some thoughts that struck me when I read the headline--acknowledging that they may not be relevant to the particular dispute itself.
I have written here and here about my belief that Citizens United is more about corporate theory than the espoused First Amendment rights of listeners. If nothing else, even if one gives great weight to the rights of listeners it seems difficult (if not impossible) to decide whether corporations fit within the narrow class of cases allowing for identity-based restrictions under the First Amendment without resolving the fervent corporate theory debate the majority and dissent in Citizens United engage in (all while claiming corporate theory is irrelevant). In trying to unravel the mystery of this apparent inconsistency, I have noted that one explanation is the problems created by admitting corporate theory is dispositive--one of which is that this acknowledgement raises the very serious specter of these questions being more about state corporate law than First Amendment rights. To that end, this quote from the [reluctant] dissent in the Montana case seems relevant: "Corporations are artificial creatures of law. As such, they should enjoy only those powers—not constitutional rights, but legislatively-conferred powers—that are concomitant with their legitimate function, that being limited liability investment vehicles for business."
Tuesday, January 3, 2012
A Ribstein Legacy: Politics, Scholarship, and the Value of Discourse
Last month, there was something of a squabble with Professors Ribstein, Romano, and Bainbridge on one side and Professor Coffee on the other. The squabble highlighted some differences in views among some of the truly elite business law scholars -- mostly about the value of securities regulation and how Professor Coffee characterized the views of the others -- which I found interesting because I agree with all of them about some significant portion of business law. The squabble had scholarly, as well as political, overtones. A summary of the difference of opinion is here and the conclusion is here and here.
The passing of Larry Ribstein has caused me to reflect on what his scholarship meant to me as a developing business law professor. I agree with most of Ribstein's writing about LLCs and corporate obligations, and this agreement represents an evolution in my way of thinking about entity governance and operations. What is particularly appealing to me about this is that, from his blog posts, I get that sense that Professor Ribstein and I were not necessarily on the same page politically. Nonetheless, even when I disagreed with what seemed to be the motivations for his thinking, I usually thought his analysis was right.
His writing on LLCs and "uncorporations" had a particularly profound impact on how I view business entities because he helped (and perhaps caused) me to think about the value in multiple options among enitities. He explained how the LLCs and corporations are different in their respective histories and how those histories should inform the law's view of each entity. In his book, Rise of the Uncorporation he explains, at page 6:
Uncorporations are characterized by their reliance on contracts. This is an aspect of uncorporations’ partnership heritage, as partnerships are contracts among the owners. . . . In contrast, corporate law is mainly couched in mandatory terms. . . . [T]he corporation’s special regulatory nature emerged from its historical roots. The corporation initially was a vehicle for government enterprises, monopolies, or franchises.
See more of his thoughts on this here. It was, in part, Professor Ribstein's writings that spurred me to write the short piece, LLCs and Corporations: A Fork in the Road in Delaware? (Harvard Business Law Review Online).
As I think about it, through their books, articles, and blogging, Professors Ribstein and Bainbridge have probably had more of an influence on my views of corporations and LLCs than anyone, even though I tend to disagree on any number of political issues. I suspect part of it is that I like to be engaged by people with different views, and I want them to have the chance to change my view. If I'm not questioning my rationale, I'm not learning. Changing my mind doesn't happen that often, but it does happen. In turn, I hope to be given the same opportunity to influence others from time to time.
This is just one more small reason, among many large ones, why Larry Ribstein will be missed.
Sunday, January 1, 2012
Happy New Year!
If you want to spend a little time looking back at 2011, you might try going over to The Race to the Bottom and checking out Jay Brown's overview of Delaware's worst shareholder decisions for 2011.
Saturday, December 31, 2011
Litigation Pointer: Don't Mess With the Judge's Holiday
The Financial Times headline reads: Rakoff accuses SEC of misleading federal court. Stephen Bainbridge provides relevant commentary here and here. I thought I'd provide a taste of Judge Rakoff's order (emphasis added; hat tip: WSJ Blog):
On December 16, 2011, the SEC filed its original motion before this Court … seeking a stay pending appeal. The SEC expressly made the motion returnable December 30, 2011. Nonetheless, in the interest of expediting consideration of the motion, the Court, sua sponte … promised to … consider the matter on a more expedited basis than that originally proposed by the SEC. … The Court then spent the intervening Christmas holiday considering the parties' positions and drafting an opinion, so that it could file it on December 27, i.e., the first business day after the Christmas holiday (well before the December 30th date on which the SEC had originally made the motion returnable and well before any further proceedings in the case).
On December 27th, at around noon, without any notice to this Court and without inquiring as to when the Court was going to issue its decision, the SEC filed an “emergency motion” in the Court of Appeals, seeking a stay pending appeal or, in the alternative, a temporary stay, and representing that the motion was unopposed by Citigroup….
As the reason for proceeding on an emergency basis, the SEC stated that Citigroup had only until January 3, 2012 to answer or move to dismiss the underlying Complaint, and that “[i]f Citigroup files its answer, denying some or all of the allegations in the complaint, or if Citigroup moves to dismiss, challenging the complaint's legal sufficiency, it will disrupt a central negotiated provision of the consent judgment pursuant to which Citigroup agreed not to deny the allegations in the complaint.” This statement would seem to have been materially misleading ….
There appears to have been a similar misleading of this Court….
Accordingly, the Court is filing this Supplemental Order, both to make the Court of Appeals aware of this background and to attempt to prevent similar recurrences. Specifically, the parties are hereby ordered to promptly notify this Court of any filings in the Court of Appeals by faxing copies of any such filings to this Court immediately after they are filed in the Court of Appeals. In addition, this Court will send a copy of this Supplemental Order, as well as the Memorandum Order that it supplements, to the Court of Appeals with a request that they be furnished to the motions panel hearing the stay motion on January 17, 2012.
The "Shell Company" Controversy: Energy Version
Earlier this week, I was quoted in a Reuters story about a large energy company's use of smaller a "shell company" in making leases for a potential shale play in Northern Michigan. (MSNBC picked it up here, with the title: "Oil giant's shell game nets elderly farmers: Promises made, but not kept, and it's all legal."
The article explains:
Legal scholars say the operation serves as an intriguing test case of the use of shell companies.
The tactics "raise moral and ethical questions about how entities can be used," says Joshua Fershee, a contract law professor at the University of North Dakota.
Others, including Chesapeake, defend the need to use shell companies and front companies - contractors with local ties who do business on behalf of a larger corporation. John Lowe, a professor of energy law at Southern Methodist University, calls it "business as usual."
(Side note: I'm really a business and energy law professor, not a contracts professor.) From the quote, it may appear that John Lowe and I disagree, but I don't suspect we do. I stand by my quotes -- I do think the apparent use of a smaller shell company in this case raises some moral and ethical questions, as well as legal ones. But I, too, believe that larger corporations can and should be able to use smaller companies for a variety of ends, including creating local ties and managing the larger entity's risk. Still, there are boundaries.
The MSNBC article title notes that promises weren't kept, but "it's all legal." I'm not sure that's true in this case, but it's true it is legal to use smaller entities to manage risk. That shouldn't be a problem. That doesn't mean it's legal to commit fraud. So, for example, if the large entity created a small entity to take out leases and speculate on the land, it's probably legal. The entity can create a company to try new ventures like any of the rest of us. If, on the other hand (and as an example), the entity created a small LLC, instructed the LLC to draft leases with specific flaws or otherwise use deceptive practices so that the entity would only need to pay if the shale play was viable, that could certainly be a problem.
Furthermore, if the smaller entity was created to act as agent for the large entity, there may be liability for the larger entity as principal. And if the smaller entity were an alter ego of the larger entity, there may be a veil piercing opportunity if the smaller entity doesn't have the funding necessary to cover its debts. (Whether veil piercing is proper here is different than whether it's possible.)
One of the complaints here is that the large entity used a small "local" company to entice landowners to do business with the local entity over other companies. Of course, if it were so important that the landowner work with a local person solely, the landowner could contract for that protection by limiting transferability or adding some other change in control provision. That would reduce the value of the lease, but if it matters that much, ask for it. If you take the local person at his or her word, then you have signed up for the risk that your ability to judge character wasn't that good.
Ultimately, I can't tell whether this is a case of lessors wanting more than they bargained for or if it's a case of a large entity using a subsidiary lessee to speculate without taking on any concomitant risk. Frankly, it sounds like a little of both, but the facts available are limited.
Last July, when Reuters published another of story in a series on the use of shell companies, I said this:
[Another] thing worth mentioning is that corporations and LLCs are not inherently evil. Sure they can be used to help facilitate some bad things, but it doesn't take a corporation or an LLC to do evil. Individuals, sole proprietorships, and partnerships can all be pretty scummy, too. It has to do with the people running them, not an entity form.
I'm all for a little monitoring of bad behavior, but a some self policing can help, too. Among the reasons people claim to want to form a company is to make it look like their operation is bigger or more established. Before doing business with anyone, we all need to do our due diligence. Check financials and get personal guarantees if that's necessary. And if we don't care to check, then caveat emptor is still usually an appropriate rule. And if we do check, and it's a well-played scam, well, it's not the entity that is the problem. It's criminal behavior, that happened because of the criminal, not the corporate code.
I'd add to that that even if it's not criminal behavior, it may be traditional civil fraud, and that creates liability for the perpetrator, too. I am not naive -- I have noticed that corporations and LLCs can do bad things, and because they are often larger and have more resources than individuals, the harm can be broader. But people are not incapable of gathering information. At least some of the complaints about the "evil entity" are really complaints that we can't always get what we want. Unfortunately that's true, but if we get what we bargained for, we don't have a lot of room to complain about the legality of entities, even if we did deal with a scummy person.
Thursday, December 29, 2011
15% Contingency Fee Award Spurs Discussion
The Wall Street Journal Law Blog discusses the $300 million plaintiffs’ attorneys’ fees awarded by a Delaware court in the Southern Peru Copper Corporation Shareholder Derivative Litigation here. (Our own Josh Fershee previously commented on the merits of this case here.) Stephen Bainbridge noted a few days ago that “there are a lot of folks in Delaware who are happily expecting this decision to encourage plaintiffs to come back to Delaware.” He quotes Jonathan Macey and Geoffrey Miller as explaining that “in Delaware well-intentioned judges can be expected to devise legal rules requiring that Delaware lawyers be consulted when important decisions are to be made. Moreover, if Delaware judges believe that the state judicial system well serves Delaware corporations, they will be more likely to approve rules that stimulate litigation in the Delaware courts.” But the Macey and Miller quote that caught my attention was this one: “The members of the Delaware Supreme Court are drawn predominantly from firms that represent corporations registered in Delaware.” Just for the fun of it I decided to search for this quote in other law reviews on Westlaw. Here’s what I found:
1. The inability of any province to fashion a provincial jurisprudence is also a function of the manner in which judges are appointed. In Delaware, as in other states, judges are state appointees. This ensures that the state can choose judges who will be sympathetic to corporate managers. As Macey & Miller (1986, p. 502) observe, “[t]he members of the Delaware Supreme Court are drawn predominantly from firms that represent corporations registered in Delaware. The bar and the judiciary are tied together through an intricate web of personal and professional contacts.” As a result, Delaware “judges are specialized in resolving corporate law disputes and as a consequence, the state can offer firms access to a system of corporate law rules that is stable, predictable and sophisticated relative to that of other states” (Macey & Miller, 1986, p. 500). Moreover, because judicial appointments are a state matter, the state can decline to renew the appointment of a judge who does not decide cases in a manner suitably sympathetic to corporate concerns. Douglas J. Cumming & Jeffrey G. MacIntosh, The Role of Interjurisdictional Competition in Shaping Canadian Corporate Law, 20 Int'l Rev. L. & Econ. 141, 157 (2000).
2. Although judges obviously are more isolated from interest group influences than legislators, Delaware's justices are likely to reflect the interests of the corporate bar. The most obvious source of sympathy is the judicial selection process. As described earlier, the Delaware bar plays a central role in selecting justices, and it can be expected to recommend individuals who have a natural affinity to the corporate bar. This natural inclination is amply borne out by even a cursory look at who is ordinarily selected to sit on the supreme court. Nearly all of the justices, both currently and as a historical matter, were members of the Delaware bar before donning judicial robes. David A. Skeel, Jr., The Unanimity Norm in Delaware Corporate Law, 83 Va. L. Rev. 127, 158 (1997) (quoting Macey & Miller in accompanying footnote).
Not exactly ringing endorsements of objectivity.
Wednesday, December 28, 2011
"Shareholder Primacy" in Delaware Still Only Matters When Buyers Benefit
Steven Davidoff notes, For Wall Street Deal Makers, Sometimes It Pays to Be Bad. He focuses on J.Crew’s $3 billion buyout management buyout and Del Monte Foods’ $5.3 billion acquisition by KKR, Vestar Capital Partners and Centerview Capital. Davidoff notes that a Delaware court found J Crew management's behavior to be “icky” and another Delaware court heavily criticized the Del Monte deal. Nonetheless, the deals went forward.
Davidoff says that the current state of the law makes it hard to come up with a penalty to to deal with bad behavior. He explains:
[T]he problem is what to do about the penalty. Depriving shareholders of a buyout, even at a bad price, would punish them.
He's right, but if you go back to poison pill cases, see, e.g., the Airgas decision, you can see that Delaware courts are willing to deprive shareholders of a buyout, as long as management wants to keep the deal from shareholders, even for an all-cash deal. As I have noted before, "I can't see a good justification for not presenting an all-cash offer to shareholders once . . . ample time has been given to entice other potential bidders into the game."
Anyway, I share Professor Davidoff's view that we need a good penalty, but I happen to think the big issue is that there is a lack of willingness, not ability. I mean, Delaware courts are really, really good at this corporate governance thing.
Maybe the answer to create a sort of shareholder's business judgment rule for all-cash deals. That is, after adequate time for gathering other offers has passed, we add a blanket rule that all, all-cash deals that offer a premium over the current trading price will be presented to shareholders (along with management's explanantions and recommendations). This would operate like a sort of all-cash Revlon trigger. I can imagine a scenario where shareholders might choose the wrong option in such a case, but I think part of shareholder primacy includes, from time to time, respecting possible shareholder stupidity.
Monday, December 26, 2011
The Ribstein Model
The passing of Larry Ribstein caught everyone off guard, and I'm not sure I have much to add. Nonetheless, the sense of loss I feel in his learning of his passing compels me to write something. So here it is:
Even without meeting him, Professor Ribstein taught me how I can be a better scholar. If he had something to say, he wrote an article or a blog post about it (usually both, it appears). He wrote with others, assisted countless more in their efforts, and still found time to seek out new opportunities. And he worked to ensure that his efforts were understood in context, not just cited.
Earlier this year, Professor Ribstein wrote an amicus brief in Roni v. Afra, a New York case regarding fiduciary duties in LLCs. In the brief he responded to criticisms that he was an "extremist." He wrote:
Instead of citing cases and authorities relevant to my arguments, including my distinction between LLCs and corporations, Respondents attack my reputation by falsely labeling me as an extremist (p. 26 n.25). My national reputation discussed above should amply refute this characterization. In any event Respondents' culling of thousands of blog posts and hundreds of articles produces three pieces of evidence that are not only irrelevant to the issues in this case but do not support Respondents' characterization of my positions. One cited post takes a position on market efficiency supported by mainstream finance experts, another aligns with the position of a majority of the U.S Supreme Court, and the only article cited is completely mischaracterized in a way that suggests that Appellant was misled by its ironic title and did not actually read it.
I did not know Professor Ribstein, but I loved reading his work in books, articles, and blogs. He was deliberate, careful, and specific, and he said what he thought. This amicus brief was no different. He analyzed the issues, explained his reasoning, and confronted what needed to be confronted. He wasn't afraid to say when he disagreed, but he didn't look for more conflict than was necessary. He understood the difference between argument and arguing.
The loss of his scholarly impact pales in comparison to the loss his friends and family are experiencing, and I share my deepest condolences. By all accounts I have seen, his was a life well-lived, scholarly and personally, and not necessarily in that order. He will be missed, and I'm glad to have been a contemporary, even if it was not for long enough.
Sunday, December 25, 2011
The Inspiring Kindness of Larry Ribstein
If you haven't heard, Larry Ribstein passed away unexpectedly yesterday. The outpouring of condolences reflects his immense stature in the academy. As a relatively young scholar with overlapping interests, my own interactions with him were limited but nonetheless significant to me. What I remember most is that he never allowed whatever ideological differences we may have had to stop him from taking the time to respond to my queries. In fact, he even thanked me in one of his recent papers, and I can only attribute that to pure kindness--a little pat of encouragement--because I seriously doubt I could have added much of anything to his writing in light of his expertise and the brilliant scholars he clearly had close relationships with. Thus, while there is obviously much in terms of scholarship that Larry is worth remembering for, what I will primarily remember him for is his inspiring kindness.
PS--I think it is worth adding here, particularly in light of the recent civility tiff, that this willingness to spend time helping a young scholar regardless of ideology is something that I have witnessed emanating from a number of respected scholars throughout the academy (Stephen Bainbridge, in particular, comes to mind--but there are numerous others), and it is something that makes me feel very hopeful about our profession, and very grateful and proud to be a part of it.
Saturday, December 24, 2011
Davidoff on "how globalization increasingly allows companies to avoid United States taxes and regulation."
Over at DealBook, Steven Davidoff has posted "The Benefits of Incorporating Abroad in an Age of Globalization." Davidoff uses Michael Kors Holdings as a case study demonstrating how companies are incentized to incorporate abroad in order to take advantage of tax savings, decreased regulatory burdens, and a decreased threat of shareholder litigation. He notes further that this is not an isolated case, as "[p]rivate equity firms have been buying American companies with significant foreign operations and reorganizing them as foreign corporations." To the extent that this creates problems for the U.S., he suggests that "[p]erhaps it is time for the United States to adopt a tax system more in line with the rest of the world." What I found more interesting, however, was his suggestion that "American investors may be investing in Kors and other companies incorporated outside the United States without appreciating that they are not subject to the same United States laws that other publicly traded companies are." This seems to me to be the crux of the debate about whether corporate regulation generally follows a race to the bottom or the top. The greater the likelihood that signifcant portions of the investing community do not properly value the jurisdiction of incorporation, the greater the likelihood that the race is to the bottom rather than the top.
December 24, 2011 in Corporate Governance, Current Affairs, Government and Business, International Business, Investing, Mergers & Acquisitions, Musings, Politics, Securities Markets, Securities Regulation | Permalink | Comments (0)
Thursday, December 22, 2011
Sticks and stones may break my bones ....
In case you've missed the name-calling drama playing out in the legal scholar blogosphere, here's a recap:
1. Stephen Bainbridge takes issue with John Coffee calling him (and Larry Ribstein & Roberta Romano) names (here).
2. My first reaction to this was that it was somewhat of an odd response, given how many times Bainbridge has seen fit to call people idiots and other names on his blog. Matt Bodie beat me to the punch, however, here.
3. Bainbridge responds by claiming it's okay to call people names in blog posts (here).
Personally, I'm unclear as to how a lack of civility is ever really defensible. Bainbridge quotes Brian Leiter as saying (here):
Some philosophers with Kantian intuitions think that civility is always a general requirement of respect for persons, an intuition that I do not share, and for which I can not think of any compelling arguments, and many objectionable counter-examples, like those in the text: treating Nazis in Weimar with civility seems to me a moral failing on the part of their opponents, not a requirement of respect. Such a demanding conception of civility would also be incompatible with derisive polemics (think H.L. Mencken), which often play an important role in political and social life.
My answer is simply that the moral failing in the Weimar case would be to not hold the Nazis accountable. Using their behavior as an excuse to act in an uncivilized manner yourself strikes me as simply another form of moral failing. And saying that derisive polemics have worked in the past is not the same thing as saying that they represent the best way to get things done. That's sort of like saying we shouldn't strive to keep our anger in check because it can sometimes serve as a proxy for clarity.
We are currently struggling as a nation with competing ideologies that sometimes make it seem like we might be stuck in standoff mode for much longer than is good for anyone. A lack of civility has been blamed for inflaming this standoff, and I believe we have a responsibility as law professors to not place our stamp of approval on that type of behavior--in our scholarship or our blogging. Of course, even those of us who agree with this ideal will frequently fall short (particularly in blog posts and during live presentations) because we are ultimately all human and therefore, I believe, all greatly flawed by definition. Nonetheless, I believe civility is a goal worth striving for in all our affairs.
ADDENDUM (12/22): In re-reading my post, I realized that I left out what I hope would be obvious but may nonetheless be better stated affirmatively: If sacrificing civility could be shown to be somehow necessary in order to stop the Nazis, then I agree it would be a moral failing to cling to civility. However, I consider this to be a false dichotomy and believe that it is possible to effectively oppose evil without sacrificing civilized behavior. Obviously, much of this turns on one's definition of civilized behavior. However, I think it is fair to say that one need not spit on someone or insult them in order to, for example, justifiably lock them up or even kill them in self-defense. I realize I've now drifted far afield of the issue regarding civility in scholarship versus blogging, but re-reading my post just left such a bad taste in my mouth that I felt compelled to clear up any confusion I may have created. I also acknowledge that I may yet be convinced that there are indeed situations where a choice must be made between civility and justice, but I'll leave that for another day.
Wednesday, December 21, 2011
Good Business: An "Unless" Clause Means What It Says
The North Dakota Supreme Court recently determined in Beaudoin v. JB Mineral Services, LLC, that an "unless" clause in an oil & gas lease means what it says. That is, unless the lessee makes the a specified payment by a specified date, the lease terminates. The provision at issue required:
1. Notwithstanding anything to the contrary contained in said lease, it is agreed that said lease shall terminate as of120 business days from date of notarized signature (hereinafter referred to as the Termination Date) unless Lessee, on or before said Termination Date, shall pay or tender to the Lessor(s), or any successor bank, as a Supplemental Bonus Payment, the sum of Forty Five Dollars ($45.00) per net mineral acre owned by Lessor(s) and covered by said Lease. The payment or tender of said sum may be made by cash, check, or draft, mailed or delivered to the Lessor(s) or to said bank on or before said Termination Date.
2. If said supplemental bonus payment is timely paid or tendered, then said lease shall be and continue in full force and effect according to its terms. If such sum is not timely paid or tendered, then said lease shall terminate and be of no further force or effect as of the Termination Date. It is understood and agreed that Lessee has the right to, but is not obligated to, make said supplemental bonus payment. In the event said supplemental bonus payment is not made as set forth above and said lease has been filed in the records of said County and State, it is agreed that Lessee shall promptly execute and file of record a release of said lease.
As the Court notes, the clause doesn't require to lessee to make a payment. It simply provides that the lease will end unless the lessee acts. The Court also explained that "the 'unless' clause was developed for the benefit of the lessee, and is strictly construed against the lessee even though harsh results may occur."
I like this -- it is a contract with a clause for a specific purpose, and the court is enforcing it with gusto. I would note, too, that this is not a case where a mistake was claimed or where the lessee tried to comply, but somehow erred. This was a case where the lessee made an argument that if, "[c]arried to its logical extreme . . .[would mean] the lessee would be allowed to effectively extend the termination date indefinitely [without actually making the requirement payment]."
In a time where where many landowners and others are expressing concern about how oil and gas companies are treating those with whom they do business, here's at least one example where the lessor is likely to get what he or she bargained for.
Monday, December 19, 2011
Assessment, Teaching, and Memory: More to Think About
James M. Lang's article, Teaching and Human Memory, Part 2, is now available at the Chronicle of Higher Education website. I wrote about Part 1 on November 28, 2011 (here), focusing on the article's point that information about how best to teach students varies widely and often conflicts. For this second article, Dr. Lang discussed some teaching and learning research with Dr. Michelle Miller of Northern Arizona University. Dr. Lang explains:
[M]emory matters, even for those of us teaching the most complex cognitive skills we can imagine. Given its importance to our work in higher education, I sought help from [Dr. Michelle] Miller, first of all, in thinking about how her research might apply to the design and presentation of college courses.
"The mind isn't a sponge that absorbs whatever disjointed information we happen to pick up through our senses," she said. "Rather, we acquire information from the environment that we (a) understand, and (b) care about. It follows that when we design our courses, we should start by asking ourselves how we will capture and direct students' attention, and then plan how we will frame the information in a meaningful, interpretable way. This is different from the traditional approach of starting with the material to be covered and how we plan to spread it out over the course of the semester."
As law schools are now increasingly being asked to consider learning outcomes assessments of law students (and often resisting that request), it's worth knowing what the research says in this area. I'm not one who believes that all law schools are broken or that there is one way to teach anything. Different styles and processes can and should be used to achieve different goals. Students should have different kinds of courses, different assessment methods, and different expectations from year to year and class to class.
It's worth knowing, though, that Dr. Miller's research does not suggest "that certain types of assignments or exams were better than others." Instead, she says, "frequency is more important than format" with regard to assessment. Dr. Lang builds on this:
[The research thus] suggests that we should be testing, quizzing, and assigning homework to our students as frequently as possible—or perhaps as frequently as we can handle the challenge of grading all of that work. A course with a dozen low-stakes exams or quizzes, and plenty of homework, will do a much better job of promoting retention of course material than a class with only two or three high-stakes exams.
I use multiple quizzes and exercises in two of my courses (and it does make grading rather onerous), but I still use one, all-inclusive final exam to end the semester for my Business Associations courses. This is planned -- I think the value of seeing how interconnected agency, partnership and corporate concepts are as a whole, as opposed to viewing them discretely, has value. I also think there is value in preparing students for the bar exam by replicating that process to some degree, because passing the bar is still a threshold requirement to practicing law (barring a few exceptions).
I do use exercises and problems in my BA courses, too, but they are not formally assessed in any way. That's not all bad, either, as it allows students to get a sense of where they are without having the problems impact their grade. Of course, that presumes they care and are engaging in both the exercise and the self-assessment opportunity that follows. My experience suggests that many are and many are not.
Ultimately, as I consider these suggestions as they connect to my courses, it's clear to me I can do better. One of the challenges of making changes to a course to "do better" is that it comes with a risk that I will do something worse. I think it's worth the risk, though, because I want to be a better teacher. And my students deserve that. To that end, I have always found the great basketball coach John Wooden's advice to be especially insightful and motivating on this front. He's was a teacher first and a coach second, just as I strive to be a teacher first and law professor (with all that encompasses) second. Here are a few of my favorite Coach Wooden quotes:
"If you're not making mistakes, then you're not doing anything. I'm positive that a doer makes mistakes."
"Failure is not fatal, but failure to change might be."
"Don't measure yourself by what you have accomplished, but by what you should have accomplished with your ability."
Sunday, December 18, 2011
What constitutes and adequate law school ROI?
University of Louisville Law School Dean Jim Chen argues that law school graduates typically need to generate an annual income equal to three times their annual law school tuition in order for their investment in law school to leave them with adequate economic viability, assuming they incurred debt to cover the entire cost of tuition (and nothing more). The National Law Journal has the story here. Dean Chen's paper is available here.