Tuesday, August 9, 2016
Do you value diversity? At California Western School of Law, we pride ourselves on the diversity of our student body. This year, around 50% of our incoming students are from diverse cultural and ethnic backgrounds. We are committed to having a faculty that reflects our student body and our community.
Do you want to influence legal education at an established but innovative law school? California Western recently celebrated its 90th anniversary - but we have never been stale or ordinary. We were on the forefront of innovative, experiential education three decades ago. As a result, our graduates have a reputation for being uniquely practice-ready. California Western continues to rethink the status quo in legal education – balancing a rigorous practical education with cutting edge scholarship and community service.
Who are you? We are seeking candidates with an entrepreneurial spirit who are eager to put their own stamp on a law school with an expanding faculty and many growth opportunities.
What do you want to teach? We can prioritize your teaching preferences regardless of subject matter.
Where do you want to live? California Western is in downtown San Diego, California, literally overlooking the Pacific Ocean. A city of breathtaking beauty, we have perfect weather, miles of beaches, and nearby mountains. We are a family-friendly, diverse city with small city traffic and walkable neighborhoods.
If you are excited about teaching a diverse student body, shaping the next iteration of an innovative and successful law school, and living in “America’s Finest City,” we want to hear from you.
Candidates should email their materials by September 30, 2016 to Professor Ken Klein at firstname.lastname@example.org. Candidates are encouraged to submit a statement to our Appointments Committee addressing how they can contribute to the goal of creating a diverse faculty.
Sunday, August 7, 2016
Saturday, August 6, 2016
Friday, August 5, 2016
Thursday, August 4, 2016
Greetings from SEALS in lovely Amelia Island. On Wednesday I presented on a proposed bilateral investment treaty between the US and Cuba, and tomorrow I am part of a discussion group on Sustainable Business. I will focus on the roles and responsibilities of corporate sponsors of the Rio Olympics. According to the official Olympics website, “[m]ore than just providing products and services for the event, [the sponsors] ensure that sport always comes first and that the whole world is inspired alongside us.”
Sponsors can spend up to $200 million for the privilege to inspire us. For many sponsors, the chance to have over a billion people watch their commercials and logos appear repeatedly over a period of a few weeks on television is worth the tens of millions of dollars. They often invest in slick YouTube campaigns that show their real or imagined connections to young athletes finally achieving their lifelong dream of bringing home the gold for their country. Apparently, 54% of consumers surveyed felt more positive about Nike after the company sponsored the Olympics based on how it chose to advertise. Many companies use these kinds of sponsorships as part of their corporate social responsibility initiatives. Dow is the official “carbon” partner of the games.
As anyone who watches the news knows, the $12 billion Rio Olympics has been fraught with controversy. According to reports, the crime rate is soaring and the bay is so filthy that the athletes have been warned to keep their mouths closed during water events. Brazil was one of the ten largest economies in the world when it was awarded the games years ago and now is in free fall. As part of the deal to get the games, Brazil promised the IOC and its citizens gleaming new transportation systems, hospitals, and infrastructure but one in seven of Rio’s citizens still live in one of the 1,000 favelas and those have not improved at all. A number of people have actually lost their homes to make way for Olympic venues. Rio’s street children have asked the head of the IOC for assurances that their human rights will be respected.
Human Rights Watch prepared a report last year that outlines some key concerns about the human rights abuses that typically occur at mega sporting events. Although the Olympic Charter states at p. 14 that “the practice of sport is a human right,” the HRW report identified violations that typically occur at these kinds of events. Many have already been documented in Rio including: forced evictions without due process or compensation due to massive new infrastructure construction; environmental activism; threats, intimidation, and arrests of journalists; silencing of civil society and rights activists, and discrimination.What does any of this have to do with business? I have some questions about the role of business that I will explore tomorrow and in my research.
West Virginia Professor Jena Martin has written about the concept of the “corporate bystander.” She notes that, “TNCs often get involved in relationships with state actors who violate international human rights. TNCs then argue that they cannot be held accountable for the violations because they merely observed the underlying atrocities and did not participate in the acts that caused them.” The large corporate sponsors who tout their corporate social responsibility initiatives and who vehemently oppose human rights shareholder proposals because they already have a program in place will likely distance themselves from what is going on in Brazil. They are just sponsors after all. But is that an appropriate response? Should the IOC do more to require human rights safeguards? Should corporate sponsors conduct impact assessments or is their involvement too attenuated? Do the consumers who felt better about Nike after watching the Olympics commercials care about the street children in Brazil or the women who are displaced from their homes? Would they think twice about buying sneakers if they read some of the links in this blog? Does any of this move the share price in either direction? What is the actual business case for balancing the corporate sponsorship with the human rights impact?
The head of the IOC has signed on to work with the UN on the Sustainable Development Goals--seventeen economic, environmental, social, and governance initiatives that the private sector, government, and civil society aim to achieve by 2030. How does that square with conducting the Olympics in locales with human rights and environmental violations? Should the IOC only hold the Olympics in host countries with "perfect" human rights records and what would that even look like?
I will be discussing these issues tomorrow and will explore it more firsthand when I head to Rio on Saturday. In the meantime, corporate sponsors may hope that the press coverage on Friday evening focuses on panoramic shots of Sugarloaf and Copacabana Beach and not the planned protests before the opening ceremonies.
Wednesday, August 3, 2016
The Federal Reserve Board announced its enforcement actions against Goldman Sachs from 2012-2014 events where a Goldman Sachs banker, a former NY Fed employee, received confidential documents from a NY Fed employee. The individuals involved plead guilty to the resulting charges and Goldman Sachs paid fines in New York. The Federal Reserve Board took separate actions this week based upon evidence that the banker "repeatedly obtained, used and disseminated [confidential supervisory information or CSI] ... including CSI concerning financial institutions’ confidential CAMELS ratings, non-public enforcement actions, and confidential documents prepared by banking regulators." Even though Goldman Sachs terminated the banker involved and reported the matter to authorities, apparently the misconduct was sustained over a long-enough period of time and used to "solicit business" in a way that compelled Federal Reserve Board Action.
The Fed's release and copies of the orders are available here. The sanctions against Goldman Sachs include the monetary fine as well a requirement to 'Within 90 days of this Order, ...submit to the Board of Governors an acceptable written plan, and timeline for implementation, to enhance the effectiveness of the internal controls and compliance functions regarding the identification, monitoring, and control of confidential supervisory information."
Financial press coverage of the matter is available in a variety of outlets:
Tuesday, August 2, 2016
I am traveling to the SEALS Annual Meeting today, which means my summer is over. We start orientation next week at WVU College of Law, and I have absolutely no idea where the time went.
I will be keeping myself busy at the conference, where I am participating in a number of events, including a discussion group on Sustainability & Sustainable Business and one on White Collar Crime. Today, I thought I'd write a little bit about the first subject, and engage in a bit of shameless self-promotion, as well.
The intersection of sustainability and business is a significant part of my work. My areas of focus are business law and energy law, and I have spent much of my research time looking at how companies respond to regulation, including the effects of environmental regulations. (I also teach courses in Energy Law and Business Organizations, as well as a course called Energy Business: Law and Strategy, which merges the two subjects.)
I was recently asked to submit a response to Prof. Felix Mormann's paper, Clean Energy Federalism, which appeared in the Florida Law Review. His paper, which I think is well done, offers "two case studies, a novel model for policy integration, and theoretical insights to elucidate the relationship between environmental federalism and clean energy federalism." His article argues that renewable portfolio standards (mandates that require a certain percentage of electricity generated come from renewable energy sources) and feed-in tariffs (guaranteed payments for renewable energy that are independent of the market price) can be used together to find a "better, more efficient allocation of investor and regulatory risk."
The recent influx of cheap natural gas from shale formations (using hydraulic fracturing and horizontal drilling) has lead some to believe that renewable energy goals like the ones Prof. Mormann proposes will be ineffective, or at least much weaker. Although cheap natural gas does change way the electricity market was expected to evolve, my response argues that the change does not necessarily make renewable energy goals unattainable or even less attainable. My response, Natural Gas is Changing the Clean Energy Game, But the Game is Not Over, appears in the Florida Law Review Forum. Here's the abstract (and the paper is available here):
In his article, Clean Energy Federalism, Professor Felix Mormann analyzes the keys facets of how energy law and environmental law intersect, as he considers how to implement a program to “decarbonize America’s energy economy.” In this forward-thinking piece, Professor Mormann considers the potential role of renewable portfolio (RPSs) and feed-in tariffs (FITs) and how concurrent implementation at the federal and state level could support a lower-carbon energy future. His conclusion—“that one clean energy policy (RPS) be implemented at the federal and another (FIT) at the state level”—is likely correct from a policy-optimization perspective. Still, as Professor Mormann acknowledges, such policies can face enormous political hurdles.
This Response acknowledges the enormous role fossil fuels still play in our electricity generation sector and notes that renewables still account for less than 15% of the overall U.S. generation market. The energy sector, though, can be expected to continue its diversification, in part because diversification is valuable for utility reliability and resilience, as well as for financial management purposes. With lower natural gas prices, fuel switching has continued at pace, with the bulk of the new natural gas generation replacing coal-fired generation. This is a positive development for those looking to displace coal, but the change to natural gas also delays at least some of the shifting to renewables.
This response argues that all is not lost because of that delay. The coal-fired generation that is displaced by natural gas could create at least some opportunity for a parallel increase in renewable electricity generation. Although some may believe that low natural gas prices undercut the option of bringing new renewable energy online, that does not need to be the case. Professor Mormann’s option is still a reality, and the likelihood of success is more a question of priority than opportunity.
Monday, August 1, 2016
I was recently invited to write a short piece on crowdfunding and investor protection for a special issue of one of the publications of the CESifo Group Munich, the CESifo DICE Report--"a quarterly, English-language journal featuring articles on institutional regulations and economic policy measures that offer country comparative analyses." The group of authors for this publication (present company excluded) was truly impressive, and I have enjoyed reading their submissions. My contribution is published here on the CESifo website and here on SSRN, for those who care to look it over.
I did not hesitate to accept the CESifo Group's invitation to publish this paper, even though it is not primary scholarship and the deadline was tight for me given other professional obligations. (The editors did allow me to negotiate a bit on the timing, however.) The purpose of my post today is to explain why I decided to take this opportunity. With the limited time that we all have to produce research papers, why would I invest in this kind of an "extra" publication--one that is not likely to get me full scholarly credit (whatever that may mean) in a critical assessment of my body of work? Here are four reasons why I value this kind of project (if I can fit it in with my primary professional obligations).
- A publication with an interdisciplinary international research group puts a scholar's name and pre-existing scholarship (some of which typically is cited in the piece) in front of a new audience.
- A short, summary research paper of this kind offers the opportunity to synthesize or re-synthesize ideas from prior research and writing--a skill that (in my experience) improves with practice and is useful in other writing as well as in teaching.
- The reductive, focused writing process may reveal fresh insights, and these may lead to new research, writing, or teaching.
- Leveraging prior research by using it for multiple, distinct projects is efficient--and smart.
You may or may not agree with these reasons. You may have other reasons for publishing this kind of work--or reasons for not doing so. I invite you to add them in the comments. And if you are untenured, not yet fully promoted, or otherwise subject to adverse employment action relating to scholarship activity, you'll likely want to check with your dean and trusted senior members of your faculty (including any associate dean for faculty development) before accepting a publication invitation of this kind. Each institution honors these "extra" publications differently . . . .
The University of Nebraska College of Law is hiring, and business law is one of their areas of interest. See the ad below:
The UNIVERSITY OF NEBRASKA COLLEGE OF LAW invites applications for entry-level and lateral
candidates for one or more tenure-track or tenured faculty positions. Our needs include courses related
• Business Law (e.g., Business Associations; Corporate Finance, Corporate Governance, Insurance Law,
Bankruptcy, Corporate Restructuring, Nonprofit Organizations, Risk Management / Compliance, or White
• Criminal Law (e.g., Federal Criminal Law or White Collar Crime, Criminal Procedure 2, Post-Conviction
Remedies, or Criminal Sentencing);
• Health Care (e.g., Federal Regulation of Health Care Providers, Health Care Finance, Torts,
Administrative Law, Medical Malpractice, Privacy Law, Law and Medicine, Public Health Law, Bioethics
and the Law, and the Law of Provider and Patient);
• Litigation Skills and Related Courses (e.g., Trial Advocacy, Civil Rights Litigation, Pretrial Litigation or
other litigation skills courses, Conflicts of Laws);
• Family Law;
• Education Law; and
• Election Law.
Minimum Required Qualifications: J.D Degree or Equivalent, Superior Academic Record, Demonstrated
Interest in Relevant Substantive Areas. Title of Asst/Assoc/or Full Professor will be based on
qualifications of applicant. Please fill out the University application, which can be found at
http://employment.unl.edu/postings/50660, and upload a CV, a cover letter, and a list of references.
General information about the Law College is available at http://law.unl.edu/. The University of Nebraska-
Lincoln is committed to a pluralistic campus community through affirmative action, equal opportunity,
work-life balance, and dual careers. See http://www.unl.edu/equity/notice-nondiscrimination Review of
applications will begin on August 25, 2016 and will continue until the position is filled. If you have
questions, please contact Associate Dean Eric Berger, Chair, Faculty Appointments Committee,
University of Nebraska College of Law, Lincoln, NE 68583-0902, or send an email to
Sunday, July 31, 2016
Saturday, July 30, 2016
For reasons that don’t need exploring at this juncture, I was in the mood to rewatch two big business movies of the 1980s: The Secret of My Success (dir. Herbert Ross, 1987) and Working Girl (dir. Mike Nichols, 1988).
Eighties business movies are something of their own minigenre – see, e.g., Trading Places, Wall Street, and Baby Boom – but the reason Secret of My Success and Working Girl are worth comparing is that they basically tell the same story, but with the genders flipped.
Both films are about young business naïfs (Michael J. Fox and Melanie Griffith, respectively), who have jobs at the bottom of the corporate ladder (mail room, secretary). Frustrated that their talents and skills are being overlooked, both impersonate corporate executives, colonizing vacant offices and aggressively pursuing their innovative business strategies. There is plenty of farce as they juggle their dual identities, and both enter into conflicted romances with executives who have been taken in by the charade. Ultimately, their identities are revealed but their talents recognized, and they are rewarded with the jobs (and love interests) they deserve.
But despite the nearly mirror-image plots, the two could not be more different in social message.
In The Secret of My Success, Michael J. Fox plays a young college graduate, raised in farm country and new to the big city. He’s been hired for a junior executive position but when he arrives on his first day, he finds his job has disappeared in a wave of layoffs. He is can’t find new work because of his lack of experience, and because employers are only interested in hiring minority women, not white men.
His parents suggest he seek a job from a distant uncle, who just happens to head a multinational conglomerate. The uncle puts him in the mailroom – an indignity not to be borne – which is what prompts Fox to embark on his grand ruse. It turns out that he has greater insight, smarts, and diligence than any of his colleagues.
In other words, according to this movie, even though Fox is just out of college with no work experience, he is entitled to a management job on the strength of nepotism, and it is the height of injustice that he’s expected to work his way up through corporate ranks.
In Working Girl, by contrast, Melanie Griffith plays a girl from the wrong side of the tracks (Staten Island), who has been trying to climb the corporate ladder for years. She fought through night school to get her degree; since then, she’s struggled at a variety of low-status business jobs, trying to learn whatever she could along the way. What’s held her back, explicitly, is sexism and classism. When she ultimately snaps and begins her ruse, it’s because the game is stacked against her – as she puts it at the end of the film: “You can bend the rules plenty once you get upstairs but not while you’re trying to get there, and if you’re someone like me, you can’t get there without bending the rules.” Notably, she’s talented and insightful, but the movie revolves around the fact that she has one particular good idea – unlike Fox, who essentially is ready to restructure the company after a couple of months.
Working Girl, then, is about forcing open the doors of the business world to people who have historically been locked out; Secret of My Success is about how, well, people who look like Michael J Fox are just naturally entitled to great jobs.
I’m not saying the politics of Working Girl are above reproach – Sigourney Weaver’s evil-businesswoman character ultimately bears the brunt of the film’s criticism, blunting the feminist message – but the movie goes out of its way to indict the business world for excluding people who don’t begin life with privilege. Secret of My Success does the other thing.
Friday, July 29, 2016
As in past years, I will maintain lists of law professor openings in the business areas (excluding commercial law-only posts) and legal studies professor openings outside of law schools. If your school has an opening that you would like posted, feel free to contact me.
The law professor openings list uses the PrawfsBlawg spreadsheet, if an alternate link is not provided. Positions added after today will include the date added.
Law School Professor Positions (Business Law Areas)
- Boston University
- California Western (8/10/16)
- Pace University
- Suffolk University (IP & Entrepreneurship Clinic) (8/18/16)
- University of Alabama (8/18/16)
- University of California, Berkeley (8/10/16)
- University of California, Hastings
- University of Georgia
- University of Nebraska
- University of Nevada, Las Vegas
- University of Richmond
- University of Tennessee
- Washington University, St. Louis (Law & Economics)
- William & Mary (8/18/16)
Legal Studies Professor Positions (Outside of Law Schools, Mostly in Business Schools)
- Bentley University
- Bryant University
- Duquense University (VAP or instructor)
- Georgia Southern University (8/18/16)
- Indiana University, Kelley School of Business
- Ithaca College
- Marist College
- Pepperdine University
- Texas State University (8/10/16)
- University of Pennsylvania, The Wharton School (Business Ethics)
- University of Wisconsin, Whitewater (lecturer)
- Western Michigan University
Thursday, July 28, 2016
The position notice setting forth the details is set forth below. Please feel free to email me with any questions you may have. I will be serving on the Appointments Committee for these searches.
The University of Tennessee
College of Law
THE UNIVERSITY OF TENNESSEE COLLEGE OF LAW invites applications from both entry-level and lateral candidates for two full-time, tenure-track faculty positions to commence in the 2017 Fall Semester. Candidates should have a particular interest in either business law teaching, including business associations and contracts, or transactional clinical teaching in business, taxation, intellectual property, community economic development, or health care that offers students transferable legal skills.
A J.D. or equivalent law degree is required. Successful applicants must have a strong academic background, expertise and experience relevant to the position, and a strong commitment to excellence in teaching, scholarship, and service.
In furtherance of the University’s and the College’s fundamental commitment to diversity among our faculty, student body, and staff, we strongly encourage applications from people of color, persons with disabilities, women, and others whose background, experience, and viewpoints would contribute to a diverse law school environment.
The Faculty Appointments Committee will interview applicants who are registered in the 2016 Faculty Appointments Register of the Association of American Law Schools at the AALS Faculty Recruitment Conference in Washington, D.C. Applicants who are not registered in the AALS Faculty Appointments Register are advised to send a letter of intent, resume, and the names and contact information of three references by September 30, 2016 to:
On behalf of Michael Higdon, Chair, Faculty Appointments Committee
The University of Tennessee College of Law
1505 W. Cumberland Avenue
Knoxville, TN 37996-1810
All qualified applicants will receive equal consideration for employment and admissions without regard to race, color, national origin, religion, sex, pregnancy, marital status, sexual orientation, gender identity, age, physical or mental disability, or covered veteran status. Eligibility and other terms and conditions of employment benefits at The University of Tennessee are governed by laws and regulations of the State of Tennessee, and this non-discrimination statement is intended to be consistent with those laws and regulations. In accordance with the requirements of Title VI of the Civil Rights Act of 1964, Title IX of the Education Amendments of 1972, Section 504 of the Rehabilitation Act of 1973, and the Americans with Disabilities Act of 1990, The University of Tennessee affirmatively states that it does not discriminate on the basis of race, sex, or disability in its education programs and activities, and this policy extends to employment by the University. Inquiries and charges of violation of Title VI (race, color, and national origin), Title IX (sex), Section 504 (disability), ADA (disability), Age Discrimination in Employment Act (age), sexual orientation, or veteran status should be directed to the Office of Equity and Diversity (OED), 1840 Melrose Avenue, Knoxville, TN 37996-3560, telephone (865) 974-2498. Requests for accommodation of a disability should be directed to the ADA Coordinator at the Office of Equity and Diversity.
BA is a required 4-credit class where I teach. Our school has a social mission and many of the students want to work in criminal defense, family law, immigration, human rights, or anything other than business. I shudder to think of how many (few) students would take the course if the school didn’t force them.
Before the course begins, I send a survey to get an idea of whether they have any business knowledge or experience, and what they hope to learn from the course. Throughout the semester I send them short YouTube videos by law firms and entrepreneurs so that they can understand some of the basics (from what is a stock to what is Reg A+). These videos were produced for lay people and I want my students to learn how to explain complex concepts in plain English- a key asset for any lawyer. To give them extra help and also see what they have learned, I have one extra credit assignment that requires them to write on a television show or movie that addresses business issues and spot what the show gets legally wrong.
Prior to the start of the semester, I also send a list of helpful tips (which they are free to ignore) so they can get used to the language of business. Below are some of my suggestions:
1) Watch CNBC, Bloomberg Business or Fox Business. Once we get into publicly-traded companies, we start watching clips from CNBC at the beginning of every class in the "BA in the News" section.
2) Read/skim the Wall Street Journal, NY Times Business Section or Daily Business Review.
3) Subscribe to the Investopedia word of the day- it's free. You can also download the free app.
4) Watch Shark Tank or The Profit (both are a little unrealistic but helpful).
5) Watch the show American Greed if you're going to work for the SEC, DOJ or will be a defense lawyer dealing with securities fraud.
6) ) Listen to The Start Up podcast available onITunes
7) Watch Silicon Valley or Billions
8) Read anything by Michael Lewis related to business
9) Watch anything on 60 Minutes related to the financial crisis
10) Watch the Oscar-winning documentary "Inside Job."
11) Listen to Planet Money on NPR on the weekends
12) Listen to Marketplace on NPR (it's on weekday evenings around 6 pm)
13) Read Inc, Entrepreneur, or Fast Company magazines.
14) Follow certain companies that you care about (or hate) or government agencies on Twitter. Key agencies include the IRS, SEC, DOJ, FCC, FTC etc. If you have certain passions such as social enterprise try #socent; for corporate social responsibility try #csr; for human rights and business try #bizhumanrights; for entrepreneurs try #startups. If you’re interested in corporate governance use #corpgov.
14) Join LinkedIn and find groups related to companies or business areas that interest you and monitor the discussions so that you can keep current on breaking issues.
15) Start reading blogs on topics that interest you. Many are written by law firms, professors, non-profits, and business leaders.
Any tips that you have that I missed? Please share them below so that I can add them to my list for the first day of class. I'm happy to say that I manage to "convert" a few skeptics every year into actually enjoying business and even changing career paths. More gratifying is that most years, a self-described "terrified" student who knows nothing about business scores the highest grade in the class, so some of these tips must be working.
Wednesday, July 27, 2016
Just in case you haven't gotten the message yet: Delaware law means fiduciary duty freedom of contract for alternative entities. In May 2016, the Delaware Chancery Court upheld a waiver of fiduciary duties in a master limited partnership. In Employees Retirement System of the City of St. Louis v. TC Pipelines GP, Inc., Vice Chancellor Glasscock upheld challenges to an interested transaction (sale of a pipeline asset to an affiliated entity) that was reviewed, according to the partnership agreement, by a special committee and found to be fair and reasonable. The waiver has been described as "ironclad" to give you a sense of how straight forward this decision was. No close call here.
Vice Chancellor Glasscock's letter opinion starts:
Delaware alternative entity law is explicitly contractual;1 it allows parties to eschew a corporate-style suite of fiduciary duties and rights, and instead to provide for modified versions of such duties and rights—or none at all—by contract. This custom approach can be value enhancing, but only if the parties are held to their bargain. Where equity holders in such entities have provided for such a custom menu of rights and duties by unambiguous contract language, that language must control judicial review of entity transactions, subject only to the cautious application of the implied covenant of good faith and fair dealing. Such is the case in the instant matter, which involves a master limited partnership (“MLP”) created with interested transactions involving the general partner as part of its business model.....
The Defendants point out that the [transaction] was approved by a special committee (the “Conflicts Committee”), which approval, in accordance with the partnership agreement, creates a conclusive presumption that the transaction is fair and reasonable to the Partnership. I find that the Conflicts Committee’s approval, in these circumstances, precludes judicial scrutiny of the substance of the transaction and grant the Defendants’ Motion.
Importantly, the contractual safe harbor for interested transactions established a process which, if followed, created a fair and reasonable transaction outside of judicial scrutiny and without recourse by the other partners. The court found that the partnership agreement precluded a good faith analysis of the Conflicts Committee's review and limited the court's review purely to matters of process.
The relevant portions of the Special Approval provision, importantly, are silent as to good faith.....According to the contractual language, the Special Approval of a duly constituted and fully informed Conflicts Committee is conclusive evidence that such transaction is fair and reasonable, and such approval is, therefore, preclusive of further judicial review. The Plaintiff does not allege that the Conflicts Committee was not duly constituted—that is, directors who are neither security holders nor employees or officers of the General Partner or its affiliates. Nor does the Plaintiff allege that the Conflicts Committee was not fully informed. Thus, the approval here is conclusive that the [transaction] is “fair and reasonable” to TCP. According to the explicit language of the LPA, when a conflicted transaction is deemed “fair and reasonable” by the terms of the agreement, such conflicted transaction is incapable of breaching the LPA.
Get the message? LOUD and CLEAR!
The opinion contains more analysis and excerpts of the relevant portions of partnership agreement. Look for an excerpt on this case in my ChartaCourse (electronic platform) Business Organizations casebook.
Tuesday, July 26, 2016
Anyone who reads this blog knows that I have issues with how people mess up the distinction between LLCs (limited liability companies) and corporations. In some instances, it is a subtle, likely careless, mistake. Other cases seem to be trolling me. Today, I present you such a case: Sky Cable, LLC v. Coley, 2016 WL 3926492 (W.D.Va., July 18, 2016). H/T: Jay D. Adkisson. The case describes the proceedings as follows:
DIRECTV asks the court to reverse-pierce the corporate veil and declare that Randy Coley is the alter ego of his three limited liability companies, such that the assets held by those LLCs are subject to the judgment in this case.
Okay, so claiming to pierce the "corporate veil" of an LLC is wrong (it doesn't have a "corporate" anything), but it's also exceedingly common for lawyers and courts to make such an assertion. This case takes the improper designation to the next level.
First, the court describes the LLCs in questios as "the Corporate Entities." It then goes on to discuss "Coley's limited liability companies." Ugh. The court further relates, "DIRECTV stated that in a forthcoming motion, it would ask the court to reverse-pierce the corporate veil given Coley's abuse of the corporate form." No such form, but perhaps we can now blame DIRECTV's counsel, in part, for this hot mess.
Here's the court's Legal Framework:
Generally, corporations are recognized as entities that are separate and distinct from their officers and stockholders. [Author's note: THERE ARE NO SHAREHOLDERS IN LLCS!] "But this concept of separate entity is merely a legal theory, 'introduced for purposes of convenience and to subserve the ends of justice,' and the courts 'decline to recognize [it] whenever recognition of the corporate form would extend the principle of incorporation "beyond its legitimate purposes and [would] produce injustices or inequitable consequences.' "" DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681, 683 (4th Cir. 1976) (citations omitted). When appropriate, and " 'in furtherance of the ends of justice,' " a court may pierce the corporate veil and treat the corporation and its shareholders as one, id. (quoting 18 Am. Jur. 2d at 559), if it finds a corporation and its shareholders have misused or disregarded the corporate form, United States v. Kolon Indus., Inc., 926 F. Supp. 2d 794, 815 (E.D. Va. 2013). This is often referred to as an "alter ego theory."
The court continues: "Delaware courts take the corporate form and corporate formalities very seriously.... " Case Fin., Inc. v. Alden, No. CIV. A. 1184-VCP, 2009 WL 2581873, at *4 (Del. Ch. Aug. 21, 2009)." The opinion then states that veil piercing concepts"apply equally to limited liability companies which, like corporations, have a legal existence separate and distinct from its members." The concept may, but LLCs do not have to follow the same formalities as corporations to maintain separate existence. Even if veil piercing were appropriate here, the entire case continues to misstate the law of veil piercing LLCs. Note: Delaware courts do hold some blame here: Westmeyer v. Flynn, 382 Ill. App. 3d 952, 960, 889 N.E.2d 671, 678 (2008) ("[U]nder Delaware law, just as with a corporation, the corporate veil of an LLC may be pierced, where appropriate.").
Based on the opinion, it does seems as though the defendant here was being shady, at best, and perhaps outright fraudulent. I don't suggest that, based on the facts presented, the defendant shouldn't be held accountable for his debts. Still, in addition to the misstatements of the law, I am not sure veil piercing was necessary. As the court notes, "veil piercing is an equitable remedy and an extraordinary one, exercised only in exceptional circumstances "when 'necessary to promote justice.'" It seems to me, then, the court (and the plaintiff) should discuss other remedies first, relying only on veil piercing where "necessary."
As such, I'd like to see a discussion of fraudulent or improper transfer before veil piercing -- did the defendant improperly move assets that should have been available to the plaintiff into an entity? Before veil piercing three entities, it seems to me the court should determine what should have been available to the plaintiff -- if the answer is "nothing" then no amount of shady behavior should support veil piercing. If there should be assets, then the question should still be "which ones?" If the answer is all of the assets in all of then entities, then okay. But if the court is veil piercing three entities merely to ensure adequate recovery, that's an overreach, it seems to me. In addition, how about reviewing if there was actual fraud in how the defendant acted? That, too, could support recovery without the extraordinary veil piercing remedy.
Ultimately, it's possible the court got the outcome right here. But it clearly got the law wrong. A lot.
Monday, July 25, 2016
In a recent decision of the Tennessee Supreme Court, Keller v. Estate of Edward Stephen McRedmond, Tennessee adopted Delaware's direct-versus-derivative litigation analysis from Tooley v. Donaldson, Lufkin, & Jenrette, Inc., 845 A.2d 1031 (Del. 2004), displacing a previously applicable test (that from Hadden v. City of Gatlinburg, 746 S.W.2d 687 (Tenn. 1988)). Although this is certainly significant, I also find the case interesting as an example of the way that a court treats different types of claims that can arise in typical corporate governance controversies (especially in small family and other closely held businesses). This post covers both matters briefly.
The Keller case involves a family business eventually organized as a for-profit corporation under Tennessee law ("MBI"). As is so often the case, after the children take over the business, a schism develops in the family that results in a deadlock under a pre-existing shareholders' agreement. A court-ordered dissolution follows, and after a bidding process in which each warring side of the family bids, the trustee contracts to sell the assets of MBI to members of one of the two family factions as the higher bidder. These acquiring family members organize their own corporation to hold the transferred MBI assets ("New MBI") and assign their rights under the MBI asset purchase agreement to New MBI
Prior to the closing, the losing bidder family member, Louie, then an officer and director of MBI who ran part of its business (its grease business), solicited customers and employees, starved the MBI grease business, diverted business opportunities from MBI's grease business to a corporation he already had established (on the MBI property) to compete with MBI in that business sector, and engaged in other behavior disloyal to MBI. Louie's actions were alleged to have contravened a court order enforcing covenants in the MBI asset purchase agreement. They also were allegedly disloyal and constituted a breach of his fiduciary duty of loyalty to MBI. Finally, they constituted an alleged interference with New MBI's business relations.
Sunday, July 24, 2016
Saturday, July 23, 2016
It looks like the Fifth Circuit is becoming increasingly isolated.
After the Supreme Court decided Dura Pharmaceuticals, Inc. v. Broudo, 544 US 336 (2005), a circuit split developed as to how plaintiffs can satisfy the element of loss causation in a Section 10(b) action.
All circuits agree that loss causation can be shown via “corrective disclosures” – some kind of explicit communication to the market that prior statements were false, followed by a drop in stock price.
However, as I’ve discussed before, there has been an alternative theory that plaintiffs can use to show loss causation, even without an explicit corrective disclosure. The theory is usually described as “materialization of the risk.” It requires the plaintiff to show that the fraud concealed some condition or problem that, when revealed to the market, caused the stock price to drop, even if the market was not made aware that the losses were due to fraud. For example, a company may report a slowdown in sales, causing its stock price to fall, while concealing the fact that the slowdown was due to an earlier period of channel stuffing. By the time the channel stuffing is revealed, it may communicate no new information about the company’s prospects, so the stock price remains unmoved. Under a materialization of the risk theory, the price drop upon disclosure of the fall in sales would be sufficient to allege loss causation.
The Fifth Circuit has rejected materialization of the risk theory, requiring some kind of communication to the market that the earlier statements were false. The Ninth Circuit generally has done the same, but there’s enough wiggle room in its caselaw that it agreed to hear an interlocutory appeal in Mineworkers’ Pension Scheme, et al v. First Solar Incorporated, et al, No. 15-17282, to resolve the issue.
And this week, in Ohio Public Employees Ret. Sys. v. Federal Home Loan Mortgage Corporation et al. - the long-running crisis-era case alleging that Freddie Mac concealed its exposure to bad mortgage loans - the Sixth Circuit joined the vast majority of circuits in holding that materialization of the risk is sufficient to satisfy the element of loss causation (quietly glossing over earlier caselaw that had seemed to endorse the corrective disclosure standard). Among other things, the Sixth Circuit expressed concern that companies will easily be able to evade liability if liability is functionally predicated on a corporate confession of wrongdoing. That’s a reasonable concern: as Barbara A. Bliss, Frank Partnoy, and Michael Furchtgott have found, in the wake of Dura, corporations have adopted disclosure strategies aimed at masking the cause of stock price reactions, allowing them to reduce litigation risk. (I blogged about an earlier version of the paper here).