Monday, May 28, 2018

Honoring our Fallen Military Heroes and Requesting Permanent Peace

image from

For many, Memorial Day is just another Monday holiday--a time to relax a bit more in a busy work season.  For some, the celebration of Memorial Day means sales and barbecues and community parades, fairs, and similar events.  (I linked to events in my home town, Garden City, NY, and the greater Long Island area.)  Many view Memorial Day as a time to commemorate all veterans, something we also do on Veterans Day in the fall.  (The linked article celebrates the work of some entrepreneurial veterans in the Knoxville community.)  

Many of these ways of celebrating Memorial Day involve reflection of some kind.  At its core, Memorial Day seems to encourage a particular kind of reflection--a moment to recall and honor those who have died for our country in the course of military service.  That general encouragement is consistent with, but not completely reflective of, the text of the federal law establishing the holiday, which expressly calls for the President to call us to united prayer* for permanent peace:

The President is requested to issue each year a proclamation—

(1) calling on the people of the United States to observe Memorial Day by praying, according to their individual religious faith, for permanent peace;
(2) designating a period of time on Memorial Day during which the people may unite in prayer for a permanent peace;
(3) calling on the people of the United States to unite in prayer at that time; and
(4) calling on the media to join in observing Memorial Day and the period of prayer.

Peace, of course, prevents the death of military servants that occurs in war time.  That is a worthy objective.  The President's proclamation for today can be found here.  He reminds us that "[t]he Congress, by Public Law 106-579, has also designated 3:00 p.m. local time on that day as a time for all Americans to observe, in their own way, the National Moment of Remembrance."

Those who fight for our safety and freedom as members of the armed forces are special kinds of heroes.  Those who die in the act of that service sacrifice their own lives for ours.  That service and sacrifice is significant to me.  I plan to take a few moments out today--including the time I took to compose this post and also some time at 3:00 p.m.--to engage in reflection over what it means to spend and lose one's life in service to country and to ask for permanent peace.  I hope that you will, too.


* I take the position that, notwithstanding the reference in the text of the law to religious faith, one need not align oneself with a particular religious faith to pray for permanent peace.  Dictionary definitions note secular definitions of the word as well as religious ones, e.g., here and here.  (Of course, pleadings include prayers for relief, so we lawyers know and recognize that the term has a more general meaning.)

May 28, 2018 in Joan Heminway | Permalink | Comments (0)

Sunday, May 27, 2018

ICYMI: #corpgov Weekend Roundup (May 27, 2018)

May 27, 2018 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, May 26, 2018

The difficulty with gauging materiality, part infinity

Risk factor disclosures are required under SEC rules, and encouraged under the PSLRA (which insulates from private liability forward-looking statements that are “accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement,” 15 U.S.C. § 78u-5).  The theory is that investors, armed with adequate warnings, can make intelligent decisions about how to value a company’s securities.

Both the SEC in its guidance, and Congress when passing the PSLRA, emphasized that “boilerplate” warnings are not helpful; investors must be given specific, tailored information about the firm-specific risks that the company faces.  For example, the SEC instructs firms, “Do not present risks that could apply to any issuer or any offering. Explain how the risk affects the issuer or the securities being offered.”  17 C.F.R. § 229.303.  Meanwhile, in the PSLRA’s legislative history, the Conference Report states that “boilerplate warnings will not suffice.... The cautionary statements must convey substantive information about factors that realistically could cause results to differ materially from those projected.”

Scholars have documented that firm-specific risk warnings are helpful to investors.  For example, a while ago I blogged about a study by Karen K. Nelson and Adam C. Pritchard documenting how risk factor disclosures may assist investors.

The difficulty is, how does one distinguish boilerplate risk factors from “meaningful” firm-specific ones?  The impossibility of that task has frustrated several courts, with the First Circuit calling the PSLRA’s safe harbor a “license to defraud,” In re Stone & Webster, Inc., Securities Litig., 414 F.3d 187 (1st Cir. 2005), and the Second and Seventh Circuits expressing bewilderment as to how the adequacy of cautionary language is to be assessed, Slayton v. American Exp. Co., 604 F.3d 758 (2d Cir. 2010); Asher v. Baxter Int’l, 377 F.3d 717 (7th Cir. 2004).

Scholars have also assailed the judiciary for adopting unrealistic standards of how investors read and interpret corporate disclosures, and, in particular, for overestimating ordinary investors’ ability to digest corporate disclosures and correctly incorporate them into their decisionmaking. David A. Hoffman, The “Duty” to Be a Rational Shareholder, 90 Minn. L. Rev. 537 (2006); Stephen M. Bainbridge & G. Mitu Gulati, How Do Judges Maximize? (The Same Way Everybody Else Does—Boundedly): Rules of Thumb in Securities Fraud Opinions, 51 Emory L.J. 83 (2002); Stefan J. Padfield, Is Puffery Material to Investors? Maybe We Should Ask Them, 10 U. PA. J. Bus. & Emp. L. 339 (2008).

A new study by Richard A. Cazier, Jeff L. McMullin, and John Spencer Treu supports scholars’ intuition – and courts’ frustration – by demonstrating that standards generated by judges and the SEC appear to encourage firms to include lengthier, less informative risk disclosures in their SEC filings, despite the fact that long, boilerplate warnings may actually harm firms by increasing their cost of capital.  In Are Lengthy and Boilerplate Risk Factor Disclosures Inadequate? An Examination of Judicial and Regulatory Assessments of Risk Factor Language, the authors demonstrate that in the event of a lawsuit, judges are more likely to find risk factors adequate if they are lengthier and more boilerplate.  Moreover, the SEC is less likely to issue a comment letter if the risk factors match those of peer companies rather than identify firm-specific risks.  In other words, the legal system encourages firms to adopt practices that are the opposite of what would benefit the market. 

At this point, I just have to quote myself – sorry! – from an earlier blog post:

[A]ll of our measures of impact and harm and loss are, at this point, so far removed from reality as to border on complete legal fiction.  Materiality is a construct from case law, with numerous additional doctrines piled on to it by courts without any heed for actual evidence of how markets behave. …. [W]hat we call “harm” and “damage” for the purpose of private securities fraud lawsuits have become so artificial that it no longer seems as though we’re even trying to measure the actual real-world effects of fraud.  I believe private lawsuits are an essential supplement to SEC action but a system of fines or statutory damages would make so much more sense.

(As long as I’m plugging myself, I’ve also proposed having distinct damages and liability regimes for investors who can prove actual reliance, since I think the fraud on the market context often leads courts astray).  But more immediately, here’s hoping the SEC takes notice of these findings and incorporates them into its practice.



May 26, 2018 in Ann Lipton | Permalink | Comments (7)

Friday, May 25, 2018

From Russia With ...



Hello from Russia, a country I swore a few years ago I would not visit for pleasure because of its human rights violations. Not only did I visit St. Petersburg, Russia on a cruise stop, but I bought FIFA World Cup T-shirts. I stopped short of buying the Trump/Putin nesting dolls, but I couldn’t resist a picture. I attended the last World Cup in Brazil, and in between matches met with activists because I was looking at the effect of mega sporting events on human rights. Hundreds of thousands of people were displaced in Brazil to build new facilities and activists protested both the government and corporate sponsors.  Russia and Qatar (a future World Cup destination and another notorious human rights violator) were on my personal no-go lists. Alas, as regular readers of this blog know, I’m a perfect example of most consumers out there- I have some situational ethics when it comes to certain things. At least I’m self aware. 


There are only about 5 cruise ships in port today and the city was packed. On other days during the summer, thirteen cruise ships with 2000-4000 passengers each may be in the city. Thousands of other tourists come in by ferry, air, and rail. 


As I pushed my way through throngs of people at various tour stops, I wondered why Americans like me and U.S. businesses such as McDonalds and Subway were even allowed to be in Russia. In contrast, the U.S. government severely restricts what businesses can do in Cuba and where U.S. persons can stay. The Trump administration wants to make sure that U.S. dollars don’t go into the hands of the Cuban government and particularly the military. 


Today, I ate lunch with thousands of Americans in a state-owned restaurant and shopped in what may have been an official state-owned tourist shop. I could be wrong because there are 80,000 oligarchs in Russia. Maybe one of those billionaires/friends of Putin owns the shops and tour company we used. I’m certain though that the dollars that I spent in the Hermitage and churches (many of which are also museums) goes to the Russian treasury, notwithstanding the sanctions against Russia and 38 oligarchs and industries. 


I’m not alone in my desire to see Russia. Despite the news reports of alleged meddling in the elections and human rights abuses, U.S. tourists are flocking to Russia. This not only benefits the Russian government, but it also benefits U.S. companies such as cruise lines so I don’t anticipate any major changes to the tourism industry any time soon. There’s just too much money to be made. 


But as I have written before, I don’t understand the U.S. government’s hypocrisy of the government to allow extensive travel and commerce with Russia while continuing the embargo against Cuba.


FYI- by the time you read this, I will be somewhere near Finland. I teach next week and am not crazy enough to post this from Russia. I saw how guarded our tour guide was when talking about Putin and politics. I may not be allowed back into Russia in the future, but that’s ok. There are only 30 sunny days in St. Petersburg, and I had the opportunity to experience one of them. 





May 25, 2018 | Permalink | Comments (0)

Thursday, May 24, 2018

Can We Play Moneyball with Lawyers?

Although lawyers (and other professionals) are not baseball players, some clients may benefit by looking at outcome statistics when making decisions about who to hire for a particular job.  Still, it's tough to figure out the right statistics to use.  What counts as a "win" may not always be clear.  A defense lawyer that "loses" on liability but "wins" with a small damages award probably has a happy client.  In a couple of op-eds, I've suggested that immigration court outcomes might be a useful place to start.  A recent news story has me thinking about the issue again.

Publishing outcome statistics by attorney might help asylum seekers that now bet their lives on particular attorneys.  The real question is whether they should know how different counsel might affect the odds. We've already got stats for the judges.  And outcomes vary dramatically by presiding judge.  For example, immigrants pressing asylum claims in recent years before Los Angeles’s Immigration Court Judge Lorraine J. Munoz had 97.1% of their claims denied.  In contrast, asylum seekers fare better before Los Angeles Immigration Court Judge Stephen L. Sholomson, winning 78.2% of their asylum claims.  

But we don't have ready access to the stats about other officers of the court. Although the system assigns a judge, immigrants actually get to pick their lawyers, if they're fortunate enough to afford one or find pro bono representation.  These imperfect outcome statistics may reveal unseen problems. Consider a recent lawsuit arguing that some New York immigration lawyers defrauded their clients with false promises. Notably, the suit joined by the Benjamin N. Cardozo School of Law’s immigration clinic uses statistics to make its case.  They found that the Hecht firm had filed over a thousand asylum applications from November 2006 to January 2017.  The Cardozo clinic could only confirm that two of those asylum applications were approved—an asylum claim win rate of about 0.2%.  Had they known the odds, some of the Hecht firm’s clients might have shopped around.

In theory, anyone can get this information with public records requests.  Sadly, few immigrants any practical ability to slog through the system to uncover the truth.  Because we do not make statistical information available to immigrants up front, insights into the truth lurk obscured behind piles of painstaking paperwork. Providing information about outcomes by particular professionals would help the public decide who to hire for help.  After all, one might want to avoid a heart surgeon if her patients die at double the rate of another down the street.  Immigration court practice offers a place to try increasing disclosure because immigrants may benefit from the information when picking lawyers. 

Although imperfect, statistical information may also counteract implicit biases that could lead to picking the wrong person. Without information, immigrants may be vulnerable to affinity frauds that exploit shared identity characteristics to establish misplaced trust.  One immigrant describes asking her accountant whether she could trust the Hecht firm.  He reportedly told her not to worry, saying “‘why would you think that? I’m Hispanic as well.’”  Exploiting the same human weakness, Madoff bilked billions by bamboozling coreligionists into trusting him.

Immigrants should be able to trust and verify.  Sadly, there are far too many scoundrels offering false hope for a fee.  Last year New York City’s Department of Consumer Affairs warned immigrants about “immigration service providers and immigration lawyers” that were “preying on the desperation and fear of immigrants, all so they can turn a profit.” These predators lure clients into bad decisions by telling them they have a shot at relief without disclosing that the lawyer almost never actually hits this long shot.  While a skilled shooter might strike the target more often, immigrants should know if they're praying and paying for a lawyer that is simply spraying filings.  If we make outcome statistics readily available for individual attorneys, the worst fraudsters may fleece fewer immigrants.  Pairing immigrants with more competent counsel may also save lives by increasing the odds that courts will grant valid asylum claims.  Good lawyering may also benefit us all by limiting the damage that can be done by an erratic administration.

This proposal to give immigrants easier access to public information about outcomes in public courts has vehement critics.  Much of the opposition in my inbox after writing about this came from immigration lawyers concerned about how clients might react when trying to interpret the grim math.  In response to a prior piece pointing out concerns and highlighting empirical research about the risks from the worst of the immigration law bar, the American Immigration Lawyers Association called the idea “fake news.”  One AILA chapter even sent a letter demanding that I retract the idea.  The letter claimed that making this argument publicly and warning about the risk of exploitation from attorneys was unethical because it undermined respect “for the immigration bar” and “any faith the public may have in our system.”

These critics are not entirely wrong about the idea.  Releasing information will mean that immigrants will no longer have to place blind “faith” in our system or a particular lawyer. That's a good thing. When an attorney tells an immigrant to scratch together ten grand for an asylum claim, the immigrant deserves the attorney’s batting average for these kinds of claims.  If it’s 0.2%, she should shop around. 

May 24, 2018 | Permalink | Comments (0)

Wednesday, May 23, 2018

ICYMI: #corpgov Midweek Roundup (May 23, 2018)

May 23, 2018 in Stefan J. Padfield | Permalink | Comments (0)

Tuesday, May 22, 2018

Really, It's Okay to Use a Corporation to Limit Personal Liability

I was browsing through some recent veil piercing cases (because that's how I roll), and I came across this gem: 

[I]t is unclear that merely using a corporation to limit personal liability rises to the level of fraud required to pierce the corporate veil.

Indagro SA v. Nilva, No. 16-3226, 2018 WL 2068660, at *3 (3d Cir. May 3, 2018). Given that limited liability is one of the primary benefits of incorporation, I think it is at least implied that using a corporation to limit personal liability is not fraud at all.  

Moreover, the corporation at issue was a New Jersey corporation, and the state law provides:

(2) Unless otherwise provided in the articles of incorporation, a shareholder of a corporation is not personally liable for the acts of the corporation, except that a shareholder may become personally liable by the reason of his own acts or conduct.

N.J. Stat. Ann. § 14A:5-30 (West). This is pretty unequivocal.  I get that fraud may be one of the acts that could give rise to personal liability, but the use of an entity to limit personal liability, when that is a core facet of the entity, is some pretty serious attempted bootstrapping.  

The case gets it right, in the end, but still, I had to point this out. To imply that it could be fraud to use a corporation for the purpose of limiting personal liability, without anything more, is simply incorrect.  

May 22, 2018 in Corporations, Joshua P. Fershee | Permalink | Comments (5)

Monday, May 21, 2018

Call for Papers: AALS Section on Transactional Law & Skills

Call for Papers

AALS Section on Transactional Law and Skills

Transactional Law and Finance: Challenges and Opportunities
for Teaching and Research

2019 AALS Annual Meeting

New Orleans, Louisiana

The AALS Section on Transactional Law and Skills is proud to announce a call for papers for its program, “Transactional Law and Finance: Challenges and Opportunities for Teaching and Research.” This session will examine the role of finance in business transactions from various perspectives with the goal of inspiring more deliberate consideration of finance in law school teaching and legal scholarship.From structured finance to real estate, from mergers & acquisitions to capital markets, finance plays an important and fundamental role in transactional law. The intersection of transactional law and finance is dynamic, providing academics, practitioners, and the judiciary with both challenges and opportunities. For example, financial product innovation and new funding sources for entrepreneurs continue to expand. Meanwhile, the significant growth in merger appraisal litigation has cast a new spotlight on the ability to critically analyze financial models (with a critical issue being whether a particular model is appropriate for expert use to determine fair value in appraisal proceedings). At the same time, activist investors are impacting company boards and the way in which companies do business. Although these are just a few examples, they demonstrate the breadth and significance of finance in transactional law.

The Section on Transactional Law and Skills invites submissions from any full-time faculty member of an AALS member school who has written an unpublished paper, is working on a paper, or who is interested in writing a paper on this topic to submit a 1 or 2-page proposal to the Chair of the Section by August 31, 2018. Papers accepted for publication as of August 31, 2018 that will not yet be published as of the 2019 meeting are also encouraged. The Executive Committee will review all submissions and select proposals for presentation as part of our AALS 2019 Section Meeting. Please note that presenters who are selected are responsible for paying their own annual meeting registration fees and travel expenses.

Please direct all submissions and questions to the Chair of the Section, Christina Sautter, at the following address:

Christina Sautter
Cynthia Felder Fayard Professor of Law
Byron R. Kantrow Professor of Law
Louisiana State University
Paul M. Hebert Law Center
Room 330
1 East Campus Drive
Baton Rouge, LA 70803


Tel: +1 225-578-1306

May 21, 2018 in Call for Papers, Conferences, Corporate Finance, Joan Heminway | Permalink | Comments (0)

Sunday, May 20, 2018

ICYMI: #corpgov Weekend Roundup (May 20, 2018)

May 20, 2018 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, May 19, 2018

Let's talk about CBS

If you’re anything like me, you’ve spent the last few days procrastinating studying the drama unfolding at CBS.  (If you’re not aware, here’s an article summarizing the state of play; the rest of this post assumes readers are familiar with the basic facts).

There’s a lot to chew on here, and I’m sure that as the case develops, there will be much more to say, but here are some off-the-cuff initial thoughts, in no particular order.

[More under the jump]

Continue reading

May 19, 2018 in Ann Lipton | Permalink | Comments (0)

Friday, May 18, 2018

Tenure Track Business Law Openings at Emory Law

As a member of the Section on Women in Legal Education of the Association of American Law Schools, I was informed earlier this week about three openings at Emory Law, two of which are for business law folks.  The message is included below.

I am pleased to serve on the Appointments committee at Emory Law for the 2018-2019 school year. We are conducting searches for exciting young scholars in three tenure-track positions: (1) Business law with a specialization in M&A and/or Securities Regulation, (2) General Business law (no specific specialization) with the ability to teach Business Associations/Corporations and Contracts, and (3) Criminal Procedure with the ability to also teach Evidence. We are only looking for junior laterals (no more than 3 years in a tenure-track position) and entry-level candidates. Please feel free to contact me if you are interested or know of others who might be interested.

Best regards,

Barbara Bennett Woodhouse
L. Q. C. Lamar Professor of Law
Emory University School of Law
1301 Clifton Road
Atlanta, GA. 30322
cell - 352-262-1854

I urge those who are interested to contact Barbara for more information.  In any event, be on the lookout for the formal position notice(s).

May 18, 2018 in Joan Heminway, Jobs | Permalink | Comments (0)

Thursday, May 17, 2018

Designing Contract Structures

Deal Structure, a new paper by Cathy Hwang and Matthew Jennejohn, explains how sophisticated parties now structure increasingly complex contracts to achieve contracting’s various goals.  The article does an excellent job of explaining how today's corporate contracts differ from the relatively straightforward contracts encountered in most contracts casebooks. 

Hwang and Jennejohn explain that parties may be able to structure their deals to nudge courts toward adopting a preferred interpretative approach. Courts facing lengthy, complex contracts must decide whether they want to adopt a textual or contextual approach.  Prior research has noted that when parties use standards, they nudge a court toward contextualism—looking outside of the four corners of the contract for interpretive clues. In contrast, rules signal to courts to use a textual approach to interpretation. That pairing—of standards with contextualism and rules with textualism—allows Hwang and Jennejohn to make a further argument: that for this pairing to work, parties need to pay attention to how they structure the provisions within their complex agreements.  For instance, if parties intend to circumscribe judicial intervention in an issue with a rule-like provision, they must take care to isolate that provision from others in the agreement using a modular design.  In that sense, the structure of a complex agreement can be used to strategically toggle between rules and standards to encourage courts to take a textual or contextual perspective on a dispute depending on the issue.  

The article shines by focusing on how parties now structure these sophisticated contracts and how contract structure informs whether a court will take a particular approach. It’s also fun to see the integration of Hwang’s work (which focuses on overlooked aspects of real-world deal contracting, like ancillary agreements and term sheets) and Jennejohn’s work (empirical work on relational contracts, such as alliance agreements). Both have focused, in their individual work, on the front-end stage of contract design, and this collaboration has them taking a step in thinking about contract interpretation.

May 17, 2018 | Permalink | Comments (0)

Wednesday, May 16, 2018

ICYMI: #corpgov Midweek Roundup (May 16, 2018)

May 16, 2018 in Stefan J. Padfield | Permalink | Comments (0)

Tuesday, May 15, 2018

LLC Members Sued Directly In Tort, But Court Prefers to Tell Us About Corporate Law

A recent Georgia case considers whether a "sole owner" of an LLC can be held liable for negligent actions of his or her LLC. Of course, once again, the limited liability company (LLC), is called by the court a "limited liability corporation," and the court proceeds to apply corporate law. Here's the relevant excerpt:
The Goldens contend that the trial court erred by denying their motion for summary judgment as to negligence claims asserted against them personally. They assert that corporate law insulates them from liability and that, while a member of an [sic] limited liability corporation may be liable for torts in which he individually participated, Ugo Mattera has pointed to no evidence that the Goldens specifically directed a particular negligent act or participated or cooperated therein. We agree with the Goldens that they were entitled to summary judgment on Ugo Mattera's negligence claim.
An officer of a corporation who takes part in the commission of a tort by the corporation is personally liable therefor, and an officer of a corporation who takes no part in the commission of a tort committed by the corporation is not personally liable unless he specifically directed the particular act to be done or participated or cooperated therein.
Jennings v. Smith, 226 Ga. App. 765, 766 (1), 487 S.E.2d 362 (1997) (citation omitted). Thus, if Baja Properties was negligent in constructing the house, an officer of the corporation could be held personally liable for the negligent construction if he specifically directed the manner in which the house was constructed or participated or cooperated in its negligent construction. See Cherry v. Ward, 204 Ga. App. 833, 834 (1) (a), 420 S.E.2d 763 (1992).
Baja Properties, LLC v. Mattera, 812 S.E.2d 358 (Ga. Ct. App. 2018) (emphasis added).  
In Georgia, the LLC law provides:
(a) A person who is a member, manager, agent, or employee of a limited liability company is not liable, solely by reason of being a member, manager, agent, or employee of the limited liability company, under a judgment, decree, or order of a court, or in any other manner, for a debt, obligation, or liability of the limited liability company, including liabilities and obligations of the limited liability company to any member or assignee, whether arising in contract, tort, or otherwise, or for the acts or omissions of any other member, manager, agent, or employee of the limited liability company, whether arising in contract, tort, or otherwise. 
Ga. Code Ann. § 14-11-303 (West).  The corporate law that is applied in this case could be reasonably extended to members or managers of LLCs, but if that is the court's intent, it should say so.  The role of an LLC manager is different than that of a corporate officer, though often analogous. The role of a member is less comparable, and both seem to be at issue in the case. It is true that under LLC law, generally, an individual connected to the entity can be held liable directly for his or her actions, and it would make sense for the court to extend this corporate law concept to LLCs. But the court should still be clear that it what it is doing, and say so expressly. Once again, too much to ask. 

May 15, 2018 in Corporations, Joshua P. Fershee, LLCs | Permalink | Comments (4)

Monday, May 14, 2018

A Bit More on Executive Private Lives and Fiduciary Duties

I always have loved the game of tag, and I love a challenge.  More importantly, I love a conversation about business law . . . .

Last week, Steve Bainbridge posted a follow-on to posts written by Ann and me on the application of fiduciary duties to the private lives of corporate executives.  As Steve typically does in his posts, he raises some nice points that carry forward this discussion.  In a subsequent Tweet, Steve appears to invite further conversation from one or both of us by linking to his post and writing "Tag.  You're it."

Screenshot 2018-05-14 22.50.35
I do want to make two additional points.  First, I offer an endorsement of something Steve wrote in his post.  Specifically, Steve asks (with a small typo corrected): 

 . . . to what extent should a board have Caremark duties to monitor a CEO's private life. Personally, I think Caremark is not limited to law compliance programs. A board presented with red flags relating to serious misconduct--especially misconduct in a sphere of life directly related to the corporation's business (think Weinstein)--has a duty to investigate. But, again, does that mean the board should hire private investigators to track the CEO 24/7?

I agree that a board's duty to monitor is not limited to compliance programs.  Stone v. Ritter makes it plain that the duty to monitor arises from a director's obligation of good faith, situated within the duty of loyalty.  Assuming no "intent to violate applicable positive law" or an intentionally failure to act in the face of a known duty to act (demonstrating a conscious disregard for his duties)," however, under Disney, a failure to monitor in this context likely would not rise to the level of bad faith unless the board "intentionally acts with a purpose other than that of advancing the best interests of the corporation"--which seems unlikely (although someone with more time and creativity than I have at the moment may be able to spin out some relevant facts).  Of course, the Delaware Supreme Court could add to the Disney list of actions not in good faith . . . .  But absent any of that, it is unlikely that a board of directors' failure to monitor an executive's private life will result in liability for a breach of the duty of loyalty.

Second, I want to pass on a further thought on the debate--one that is not my own.  In an email message to me, co-blogger Stefan Padfield observed that corporate opportunity doctrine questions are fiduciary duty claims that extend into a fiduciary's private life--specifically, the fiduciary's usurpation of the opportunity for his or her private gain.  He also noted that from there the leap is not as far as it may seem to conceptualizing other aspects of an executive's private conduct as being within the scope of his or her fiduciary duties to the corporation.  This certainly provides more food for thought.

I want to thank Ann for stimulating all these ideas.  Her original post raised a nice question--one that obviously provokes and has encouraged engagement in thoughtful conversation.  While we have not yet resolved the issue, we have staked out some important ground that may be covered in extant or forthcoming cases.  As Ann's and Steve's posts point out, there are a number of intriguing fact patterns at the intersection of executives' private lives and fiduciary duties that may force courts to wrestle some of this to the ground.  I, for one, will be watching to see what happens.

May 14, 2018 in Ann Lipton, Corporate Governance, Corporations, Joan Heminway, Stefan J. Padfield | Permalink | Comments (4)

Sunday, May 13, 2018

ICYMI: #corpgov Weekend Roundup (May 13, 2018)

May 13, 2018 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, May 12, 2018

Capitalist Dog

I've been hunkered down grading exams this week, so all I've got for you is this tale tail of a developing economy:

Dog Always Brings A Leaf To 'Buy' Himself Treats At The Store

For the last five years or so, the campus of Colombia's Diversified Technical Education Institute of Monterrey Casanare has been home to a sweet black dog named Negro. There, he serves as a guardian of sorts, keeping watch over things as students go about their studies.

In return, Negro is cared for by the school's faculty, who provide him with food, water, attention and a safe place with them to pass the night.

But the dog has apparently decided that anything beyond that is up to him.

Early on in Negro's tenure at the school, he came to be aware of the little store on campus where students gather to buy things on their breaks; sometimes they'd buy him cookies sold there.

This, evidently, is where the dog first learned about commerce — and decided to try it out himself.

"He would go to the store and watch the children give money and receive something in exchange," teacher Angela Garcia Bernal told The Dodo. "Then one day, spontaneous, he appeared with a leaf in his mouth, wagging his tail and letting it be known that he wanted a cookie."

Negro had invented his own currency, but, of course, it was accepted.

He got a cookie — and it came with an epiphany. 

Leaves can buy treats!

As you might expect, after the dog realized his money literally grows on trees, it's been a regular thing.

"He comes for cookies every day," Gladys Barreto, a longtime store attendant, told The Dodo. "He always pays with a leaf. It is his daily purchase."

Still more reliable than Bitcoin.

May 12, 2018 in Ann Lipton | Permalink | Comments (0)

Thursday, May 10, 2018

American Business Law Journal ("ABLJ") - Call for Submissions

Earlier today, I received this call for submissions from the American Business Law Journal ("ABLJ"). I published with the ABLJ in 2017 and had a fabulous experience. The manuscripts are blind/peer-reviewed, something we need more of in the legal academy, in my opinion. I found the substantive comments to be of a much higher quality than one gets from a typical law review, and, unlike the practice of some peer-reviewed journals, the ABLJ published my manuscript in a timely manner. 


The American Business Law Journal is seeking submissions of manuscripts that advance the scholarly literature by comprehensively exploring and analyzing legal and ethical issues affecting businesses within the United States or the world. Manuscripts analyzing international business law topics are welcome but must include a comprehensive comparative analysis, especially with U.S. law.

 As most of you know, the ABLJ is a triple-blind, peer-reviewed law journal published by the Academy. The ABLJ is available on Westlaw and Lexis, and ranks in the top 6% of all publications in the Washington & Lee Submissions and Ranking list by Impact Factor (2016) and in the top 1% of all peer-edited or refereed by Impact Factor (2016).  The Washington & Lee list ranks the ABLJ as the Number One Refereed/peer-edited “Commercial Law” and “Corporations and Associations” journal.

Because of a physical page limit imposed by our publisher Wiley, we ask that manuscripts not exceed 18,000 – 20,000 words (including footnotes). Submissions in excess of 25,000 words (including footnotes) may be returned without review. We also require that manuscripts substantially comply with the Bluebook: A Uniform Method of Legal Citation, 20th ed. For more details, please review our Author Guidelines at:

Because the peer-review process takes from four to six weeks to complete, we strongly suggest that you submit to the ABLJat least a few weeks prior to submitting to other journals. The peer-review process is not conducive to expedite requests (though we will attempt to honor them if possible), so if you give us a head start we will more likely be able to complete the review process.

While we gladly accept submissions through ExpressO and Scholastica, save yourself the submission fee and submit directly to the ABLJ at

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Thank you and we look forward to reviewing your scholarly work.


May 10, 2018 in Business Associations, Business School, Call for Papers, Haskell Murray, Law Reviews, Law School, Research/Scholarhip | Permalink | Comments (0)

Wednesday, May 9, 2018

ICYMI: #corpgov Midweek Roundup (May 9, 2018)

May 9, 2018 in Stefan J. Padfield | Permalink | Comments (0)

Tuesday, May 8, 2018

Delaware Courts Should Do Better On Entities & LLC Diversity Jurisdiction Is Wrong

If I have learned anything over the years, it is that I should not expect any court to be immune from messing up entities. Delaware, as a leader in business law and the chosen origin for so many entities, though, seems like a place that should be better than most with regard to understanding, distinguishing, and describing entities.  Sometimes they get things rights, as I argued here, and other times they don't.  A recent case is another place where they got something significant incorrect. 

The case starts off okay:

Plaintiffs brought this action under federal diversity jurisdiction, 28 U.S.C. § 1332(a)(1), asserting that complete diversity of citizenship exists among the parties. In Defendants’ Motion to Dismiss, however, they argue that complete diversity of the parties is lacking. Federal jurisdiction under § 1332(a)(1) requires complete diversity of citizenship, meaning that “no plaintiff can be a citizen of the same state as any of the defendants.” Midlantic Nat. Bank v. Hansen, 48 F.3d 693, 696 (3d Cir. 1995); Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 553 (2005). 

Cliffs Nat. Res. Inc. v. Seneca Coal Res., LLC, No. CV 17-567, 2018 WL 2012900, at *1 (D. Del. Apr. 30, 2018).
But, the court continues (my comments below): 
A natural person is a citizen of “the state where he is domiciled,”1 and a corporation is a citizen of the state where it maintains its principal place of business, as well as the state where it is incorporated. Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 418 (3d Cir. 2010). For purposes of § 1332, the citizenship of a limited liability corporation2 (“LLC”) is determined “by the citizenship of each of its members.” Id. Plaintiff Cliffs Natural Resources Inc. is incorporated in Ohio, and Plaintiff CLF Pinnoak LLC is incorporated3 in Delaware and maintains its principal place of business in Ohio. Third Am. Compl. ¶¶ 3–4, ECF No. 162. In moving to dismiss this action for lack of jurisdiction, Defendants assert that Seneca Coal Resources, LLC, a Delaware corporation,4 includes members who are Ohio citizens, thus destroying complete diversity as required for § 1332.
1 Or she? Is it that hard to note that the statute applies, regardless of gender?  
No. A citizenship of a "limited liability company" is determined by the citizenship of its members. 
3 Nope, again.  An LLC is formed, not incorporated. 
4 And one more time, no. It's a Delaware LLC.  There's a whole act just for LLCs
This is a rather run of the mill goof, and it appears the court when on to assess the issues before it correctly, even refering to LLCs correctly later in the opinion. I share it in part because this reminded me of another thing that bugs me: I still hate this rule for diversity jurisdiction of LLCs.  I know I am not the first to have issues with this rule. 
I get the idea that diversity jurisdiction was extended to LLCs in the same way that it was for partnerships, but in today's world, it's dumb. Under traditional general partnership law, partners were all fully liable for the partnership, so it makes sense to have all partners be used to determine diversity jurisdiction.  But where any partner has limited liabilty, like members do for LLCs, it seems to me the entity should be the only consideration in determing citizenship for jurisdiction purposes. It works for corporations, even where a shareholder is also a manger (or CEO), so why not have the same for LLCs.  If there are individuals whose control of the entity is an issue, treat and LLC just like a corporation. Name individuals, too, if you think there is direct liability, just as you would with a corporation. For a corporation, if there is a shareholder, director, or officer (or any other invididual) who is a guarantor or is otherwise personally liable, jurisdiction arises from that potential liability.
Okay, so I admit I am being a little lax in my civil procedure descritpions, but you get the point.  We should hold shareholders to the same standards as member or limited partners (or not). If we want a liability test or a control test, lets use that.  Or maybe I have missed something. I often reinforce the idea that LLCs, partnerships, and corporations are different entities, so different rules are often appropriate. Still, for this issue, I think the distinction between LLCs and corporations in this instance is false (or at least poorly justified).   I am open to other views, but for now, that's where I am on it right now.  
Lastly, it's Election Day here in West Virginia and in many places around the country.  I found my candidate -- I encourage you to find yours and go vote. Make your voice heard. 

May 8, 2018 in Corporations, Delaware, Joshua P. Fershee, LLCs | Permalink | Comments (2)