Tuesday, December 3, 2013
Here in West Virginia, it's exam time for our law students. For my Business Organizations students, tomorrow is the day. For students getting ready to take exams, and for any lawyers out there who might need a refresher, the Kentucky Supreme Court provides a good reminder that LLCs are separate from their owners, even if there is only one owner.
Here's a basic rundown of the case, Turner v. Andrew, 2011-SC-000614-DG, 2013 WL 6134372 (Ky. Nov. 21, 2013) (available here): In 2007, an employee of M&W Milling was driving a feed-truck owned by his employer. A movable auger mounted on the feed-truck swung into oncoming traffic and struck and seriously damaged a dump truck owned by Billy Andrew, the sole member of Billy Andrew, Jr. Trucking, LLC, which owned the damaged truck. Andrew filed suit against the employee and M & W Milling claiming personal property damage to the truck and the loss of income derived from the use of damaged truck. Notably, the LLC was not a named plaintiff in the lawsuit.
Hey issue spotters: check out the last line of the prior paragraph. (Also: a bit of an odd twist is the Andrew chose not to respond to discovery requests, though that was not critical to the issue of whether the LLC had to be named for Andrew to recover.)
A limited liability company is a “hybrid business entity having attributes of both a corporation and a partnership.” Patmon v. Hobbs, 280 S.W.3d 589, 593 (Ky.App.2009). As this Court stated in Spurlock v. Begley, 308 S.W.3d 657, 659 (Ky.2010), “limited liability companies are creatures of statute” controlled by Kentucky Revised Statutes (KRS) Chapter 275. KRS 275.010(2) states unequivocally that “a limited liability company is a legal entity distinct from its members.” Moreover, KRS 275.155, entitled “Proper parties to proceedings,” states:
A member of a limited liability company shall not be a proper party to a proceeding by or against a limited liability company, solely by reason of being a member of the limited liability company, except if the object of the proceeding is to enforce a member's right against or liability to the limited liability company or as otherwise provided in an operating agreement.
Not surprisingly, courts across the country addressing limited liability statutes similar to our own have uniformly recognized the separateness of a limited liability company from its members even where there is only one member.
Thursday, November 14, 2013
Last week, I attended and presented at my first legal studies in business school conference, the Southeastern Academy of Legal Studies in Business ("SEALSB") annual conference. On this recent trip, I was able to meet a number of other professors who hold positions similar to mine at other business schools. Most of the professors were from the southeast, but we also had professors from California, Michigan, Minnesota, and New York.
One of the new pieces of information I learned was that, while I was correct in my previous post stating that there is no “meat market” equivalent for legal studies in business school positions, the Academy of Legal Studies in Business (“ALSB”) does send out job postings, on occasion, to its members. Also, more than one professor in attendance claimed to have obtained his/her current position by attending the ALSB annual meeting and networking.
In this post, I will discuss some of the differences I see between my current job as a professor teaching law in a business school and my previous job as a law professor in a law school. I draw on my own experiences and conversations I have had with many professors across the country, at both types of schools. That said, this is just anecdotal evidence, and I imagine experiences differ.
- Business school deans and colleagues usually require education on legal scholarship and law journals. Business schools are used to traditional peer reviewed journals (generally double blind) that are listed on Cabell’s. That said, most business schools I know of, are accepting (at least some) law reviews as acceptable placements from their tenure track legal studies professors
- Business schools also tend to encourage, or at least not penalize, co-authored work, whereas it seems many law schools apply a significant discount to co-authored articles.
- Legal studies professors in business schools may have to struggle to obtain WestLaw access and legal research support. Everyone I talked to at SEALSB had obtained access, though it seemed to require a bit more effort than at a law school.
- In law schools, very roughly speaking, the average teaching load seems to be 2/1 at research schools and 2/2 at the teaching schools. In business schools, the normal teaching load seems to be either 2/1 or 2/2 at the research schools (with 2/2 appearing to be the norm), and 3/3 (or in some limited cases 3/4 or 4/4) at business schools. Teaching loads seem to be a bit lighter at law schools, though this may be changing at some law schools given the financial challenges many are facing.
- Business school professors tend to give many more assessments than law school professors. In law schools the norm still seems to be one major assessment per semester, though plenty of professors do more. Most of the legal studies professors in business schools claimed to give at least three major assessments a semester, and sometimes as many as six or seven.
- The business school professors I spoke to tended to have smaller classes (20-50), at least smaller than the large section law classes (70-150). That said, some of the professors from large state universities reported undergraduate classes as large (or sometimes much larger) than the average large section law school class.
- Many legal studies professors I have met teach both undergraduate and graduate business law courses, though some only teach undergraduate. Obviously, law professors only teach graduate students. That said, the average MBA student likely has more work experience than the average law student.
- As far as I can tell, service requirements seem similar at law and business schools.
- Compensation of law professors and legal studies in business school professors seems relatively close, at least if the business school has an MBA program, in addition to its undergraduate program. The compensation seems a bit less uniform across business schools than across law schools, with a few business professors who would be outliers, on the low end, of current law school compensation.
These are all obviously generalizations, and I am sure there are many exceptions, but I thought the rough sketch of the differences might be useful for those who are trying to choose between teaching law at a business school or at a law school.
Wednesday, November 6, 2013
Yesterday was election day! Elections hold a special place in my heart, and I remain interested in the interplay of corporations and campaigns, especially in a post-Citizens United world. The races, candidates, and results, however, received significantly less attention without a federal election (mid-term or general) to garner the spotlight. The 2014 election season, which officially begins today, has several unknowns. While Citizens United facilitated unlimited independent expenditures (distinguishable from direct campaign contributions) for individuals and corporations alike, corporations remain unable to donate directly to campaigns. Individual campaign contributions are currently capped at $2,500 per candidate/election and are subject to aggregate caps as well. McCutcheon v. FEC, which was argued before the US Supreme Court on October 8, 2013, challenges the individual campaign contribution cap. If McCutcheon removes individual caps, the foundation will be laid to challenge corporate campaign contribution bans as well. See this pre-mortem on McCutcheon by Columbia University law professor Richard Briffault. As for current corporate/campaign finance issues, the focus remains on corporate disclosures of campaign expenditures in the form of shareholder resolutions (118 have been successful) and company-initiated disclosure policies, possible SEC disclosure requirements for corporate political expenditures, and the threat of legislation augmenting corporate disclosure requirements for political expenditures (see, for example the latest bill introduced: the Corporate Politics Transparency Act (H.R. 2214)).
As an aside, brief treatment of the questions regarding the rights of corporations to participate in elections, and the role of corporations in our democracy elicit some of the best (and most heated) student discussions in my Corporations class. If you have the stomach for it, I highly recommend that you try it!
Thursday, October 31, 2013
Although I blog on business issues, I spent most of my professional life as a litigator and this semester I teach civil procedure. A few weeks ago I asked my students to draft a forum selection clause and then discussed the Boilermakers v. Chevron forum selection bylaw case, which at the time was up on appeal to the Delaware Supreme Court. The bylaws at issue required Delaware to be the exclusive venue for matters related to derivative actions brought on behalf of the corporation; actions alleging a breach of fiduciary duties by directors or officers of the corporation; actions asserting claims pursuant to the Delaware General Corporation Law; and actions implicating the internal affairs of the corporation.
While I was not surprised that some institutional investors I had spoken to objected to Chevron’s actions, I was stunned by the vitriolic reactions I received from my students. I explained that Chevron and FedEx, who was also sued, were trying to avoid various types of multijurisdictional litigation, which could be expensive, and I even used it as a teachable moment to review what we had learned about the domiciles of corporations, but the students weren’t buying it.
Perhaps in anticipation of the likelihood of an affirmance from Delaware’s high court, the plaintiffs voluntarily dismissed their appeal, which may have been a smart tactical move. Now let’s see how many Delaware corporations move from the wait and see mode and join the 250 companies that already have these kinds of bylaws. Interestingly, prior to the dismissal, only 1% of those surveyed by Broc Romanek indicated that they would never institute a forum selection bylaw. Given how broad some of these bylaws are, it may stem the tide of some of the litigation that I blogged about here as plaintiffs’ lawyers are forced to face Delaware jurists. Yesterday, as we were discussing venue, I broke the news about the dismissal of the appeal to my students. Needless to say, many were disappointed. Perhaps they will feel differently after they have taken business associations next year.
Wednesday, October 23, 2013
Yesterday, the Executive Director, James Leipold, of NALP (the National Association of Law Placement) presented data regarding law graduate hiring trends from 2000 through 2012, both nationally and for my school (Georgia State University College of Law). It provided an understanding of the changes to the legal market as a whole, and for our graduates specifically. I wasn’t aware of the data compiled by NALP and available on their website prior to this presentation, and man was I impressed. As a faculty member who frequently counsels students on job searches, the data paints a very interesting story about HOW a majority of law graduates find jobs and WHERE they find them. The data also tells a very compelling story of how the 2008 financial crisis/Great Recession has impacted the legal hiring market. (In short: big law jobs are down significantly which was created downward pressure on alternative career paths as students who would have traditionally pursued big law jobs compete for other positions.)
On the HOW question, the data confirmed a suspicion of mine about how a majority of students find jobs. Of course these statements will be either more or less true depending on the reputational capital of your school. Before the Great Recession approximately 20% of students found their post-graduation job through on campus interviewing (OCI) and that number is now approximately 14%. This means that even before the Great Recession, but certainly today, a vast majority of students find jobs through other means such as networking/personal referral, self-initiation such as inquiring about job opportunities and sending out resumes, and responding to postings on sites like Monster.com. In thinking about HOW law students find jobs, this information provides a powerful narrative that students who are working hard to find a job are not alone, and not the outlier now, or even in the past. This information will shape the advice that I give students about where and how to place their energy during their three years in law school. If in-school activities do not land a student on law review and the top 10% of their class, then focusing on external opportunities to network and gain professional contacts in law practice and law-related fields should be a top priority for students.
And now for the WHERE part, private practice job placement is down from a steady 55% to approximately 50% of post-graduation jobs. One of the sectors that has absorbed this shift is JD hiring by businesses, which is up to almost 18% of new graduate jobs (from historic percentages of 12-13%). The NALP report on 2012 graduates 9 months after graduation concludes that:
“Employment in business was 17.9%, down a bit from the historic high of 18.1% reached in 2011, but still higher than the 15.1% for the Class of 2010. The percentage of jobs in business had been in the 10-14% range for most of the two decades prior to 2010, except in the late 1980s and early 1990s, when it dipped below 10%. About 29% of these jobs were reported as requiring bar passage, and about 39% were reported as jobs for which a JD was an advantage.”
Out of a presentation that included a host of facts and figures, I want to highlight one other part of the picture painted by the data. Feedback from legal employers (mostly private practice law firms) said that in new-JD hires, they were looking for students who understand that practicing law in a firm is a business and how they fit into that business model. They also want students to have a basic understanding of financial literacy skills. I plan on sharing this information with our students who are turning their attention to scheduling classes for their spring semester. I see this as a clear justification for emphasis on business-related classes.
Tuesday, October 22, 2013
Yesterday, the New York Times published what I consider a medicocre criticism of law reviews. Not that some criticism isn't valid. It is. I just think this one was poorly executed. Consider, for example, these thoughtful responses from Orin Kerr and Will Baude.
As I have thought about it, one thing that struck me was about the Times article was the opening:
“Would you want The New England Journal of Medicine to be edited by medical students?” asked Richard A. Wise, who teaches psychology at the University of North Dakota.
Of course not. Then why are law reviews, the primary repositories of legal scholarship, edited by law students?
I don't disagree with the premise, but note how limiting it is. First, it talks about one journal, one that is highly regarded. I know some people hate all law reviews, but I humbly suggest that most people consider elite journals like the Yale Law Journal a little differently. (It's also true that some journals like the Yale Law Journal happen to use some forms of peer review in their process.)
Second, the implication is that medical journals have it all figured out. That's apparently not true, either. An article from the Journal of the Royal Society of Medicine, What errors do peer reviewers detect, and does training improve their ability to detect them?, had the following goal:
To analyse data from a trial and report the frequencies with which major and minor errors are detected at a general medical journal, the types of errors missed and the impact of training on error detection.
The study concluded:
Editors should not assume that reviewers will detect most major errors, particularly those concerned with the context of study. Short training packages have only a slight impact on improving error detection.
Consider also, for example, this article from National Geographic, Fake Cancer Study Spotlights Bogus Science Journals:
A cancer drug discovered in a humble lichen, and ready for testing in patients, might sound too good to be true. That's because it is. But more than a hundred lower-tier scientific journals accepted a fake, error-ridden cancer study for publication in a spoof organized by Science magazine.
Finally, the problem for all kinds of journals is hardly new. This study, Peer-review practices of psychological journals: The fate of published articles, submitted again, from 1982, determined that the problem can also run in the other direction. From the Abstract:
A growing interest in and concern about the adequacy and fairness of modern peer-review practices in publication and funding are apparent across a wide range of scientific disciplines. Although questions about reliability, accountability, reviewer bias, and competence have been raised, there has been very little direct research on these variables.
The present investigation was an attempt to study the peer-review process directly, in the natural setting of actual journal referee evaluations of submitted manuscripts. As test materials we selected 12 already published research articles by investigators from prestigious and highly productive American psychology departments, one article from each of 12 highly regarded and widely read American psychology journals with high rejection rates (80%) and nonblind refereeing practices.
With fictitious names and institutions substituted for the original ones (e.g., Tri-Valley Center for Human Potential), the altered manuscripts were formally resubmitted to the journals that had originally refereed and published them 18 to 32 months earlier. Of the sample of 38 editors and reviewers, only three (8%) detected the resubmissions. This result allowed nine of the 12 articles to continue through the review process to receive an actual evaluation: eight of the nine were rejected. Sixteen of the 18 referees (89%) recommended against publication and the editors concurred. The grounds for rejection were in many cases described as “serious methodological flaws.” A number of possible interpretations of these data are reviewed and evaluated.
In the interest of full disclosure, I admit I have a fondness for law reviews. I am a former editor in chief of one, have served as an advisor to another, serve as the current president of our law review alumni association, and serve on the review's Advisory Board of Editors. The things I learned, from (usually) patient and careful authors, were exceedingly valuable and help guide me to do what I do now. I also have worked with several journals and reviews from the author side, and I have been usually impressed, and sometimes very frustrated, which is also true of almost every job experience I have ever had. And I am confident every editor in chief of a law review has worked with an author or two who drove them nuts.
I understand the frustrations, and the criticisms are often valid, at least to a point. But let's not undercut the efforts of committed and careful, if not experienced, student editors, who usually work their tails off. And let's not assume that every other discipline has it all figured out. I think it's clear they don't. There may be a better system (and I suspect there is), but let's not keeping dumping on a system (and students who work hard) without proposing some alternatives that we have a reason to believe will actually be better.
Saturday, October 19, 2013
Stephen Davidoff recently posted a piece on DealBook entitled “A Push to End Securities Fraud Lawsuits Gains Momentum,” in which he notes that “Halliburton is asking the Supreme Court to confront one of the fundamental tenets of securities fraud litigation: a doctrine known as “’fraud on the market.’” He goes on to provide a lot of interesting additional details, so you should definitely go read the whole thing, but I focused on the following:
In its argument, Halliburton is asking the Supreme Court to confront one of the fundamental tenets of securities fraud litigation: a doctrine known as “fraud on the market.” The doctrine has its origins in the 1986 Supreme Court case Basic v. Levinson. To state a claim for securities fraud, a shareholder must show “reliance,” meaning that the shareholder acted in some way based on the fraudulent conduct of the company. In the Basic case, the Supreme Court held that “eyeball” reliance — a requirement that a shareholder read the actual documents and relied on those statements before buying or selling shares — wasn’t necessary. Instead, the court adopted a presumption, based on the efficient market hypothesis, that all publicly available information about a company is incorporated into its stock price…. A group of former commissioners at the Securities and Exchange Commission and law professors represented by the New York law firm Wachtell, Lipton, Rosen & Katz have also taken up the cause. In an amicus brief, the group argues that, in practice, the Basic case has effectively ended the reliance requirement intended by the statute, something that is not justified. They rely on a forthcoming law review article by an influential professor, Joseph A. Grundfest of Stanford Law School. Professor Grundfest argues that the statute on which most securities fraud is based — Section 10(b) of the Exchange Act — was intended by Congress to mean actual reliance because the statute is similar to another one in the Exchange Act that does specifically state such reliance is required.
This got me to thinking about how I might introduce the fraud-on-the-market reliance presumption to students the next time I teach it. This is what I came up with as a possibility:
Assume you know that a particular weather app is 100% accurate. Assume also that you know all your neighbors check the app regularly. If in deciding whether you need an umbrella you simply look out your window to see whether any of your neighbors are carrying one, rather than checking the weather app, are you not still actually relying on the weather app? The fraud-on-the-market presumption of reliance effectively answers that question in the affirmative. In the securities context it provides that instead of reviewing all publicly available disclosures when deciding to buy or sell securities, it is enough for you to simply “look out your window” at the market price because we assume the market price reflects the consensus equilibrium of all publicly available information.
One might protest that the plaintiff should still have to prove that all the neighbors are in fact checking the weather app, and this is in fact the case when we require plaintiffs seeking the benefits of the FOM presumption to prove the relevant market is efficient. Alternatively, one might protest that the idea that the actions of your neighbors reflect well-enough the information provided by the weather app is questionable, but since Eugene Fama just won the Nobel prize in economics it might be an uphill battle to overturn the presumption on that basis. Another objection might be that we don’t need the presumption because there are enough alternative mechanisms to hold corporate actors accountable for fraud, and it is certainly the case that when the Supreme Court adopted the FOM presumption, a large part of the rationale was the perception that there was a need for the presumption in order to facilitate actions that would otherwise never be brought in any form. What I see as a possible obstacle to this approach is that, while one may debate whether the Roberts Court is in fact pro-business, I do believe it is concerned about appearing overly so – and authoring a decision that states we no longer need the FOM presumption because alternative corporate accountability mechanisms are working so efficiently strikes me as just throwing fuel on that fire when the Court could arguably reach the same result by continuing to tighten up class-action law generally. Finally, one might object that the FOM presumption actually allows folks who just run out of the house without either checking the app or looking out their window to claim the presumption, but at least a partial answer to this objection is that the Basic decision itself provides that: “Any showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at a fair market price, will be sufficient to rebut the presumption of reliance,” Basic Inc. v. Levinson, 485 U.S. 224, 248 (1988), and this is typically understood to at least include plaintiffs who are, to continue the analogy, rushing out of the house because they don’t have time to grab an umbrella.
Obviously, the issues are ultimately more complicated than the foregoing suggests, but it is just intended to serve as an introduction, which can be expanded to account for more complicated matters as the discussion proceeds. I’d be curious to hear what readers think needs to be added/amended to make this introduction work.
Wednesday, October 9, 2013
I am emerging from a rabbit hole of research that began approximately 3.5 hours ago. The question was inspired by teaching the 2002 Delaware Supreme Court case, Download Gotham 817_A.2d_160, in my unincorporated business associations class and students' drafting of fiduciary duty waivers in a limited partnership agreement. Many of you are already aware that Delaware allows for the complete elimination of general partners' fiduciary duties. I knew that Delware was an outlier in this area, but I wasn't certain by how much. So 3.5 hours and a 50 state (plus D.C.) survey later, I have a concrete answer. Only Delaware ( Download Delaware GP Fiduciary duty statute) and Alabama ( Download Alabama Statute) statutes allow for the complete elimination of fiduciary duties for general partners. The remaining 49 jurisdictions surveyed only allow for the expansion or restriction of fiduciary duties, but not the elimination. Of those 49 jurisdictions, 20 have a stand alone provisions that outline the fiduciary duties of general partners, and 29 statutes establish the minimum fiduciary duties for general partners by linkage to the traditional partnership statutes. Of the 29 jurisdictions that rely on linkage to traditional partnership statutes, 13 use a Uniform Partnership Act (1914) "accounting" style fiduciary duty provision and 16 use a revised Uniform Partnership Act (1997) enumerated fiduciary duties style provision.
My initial research table is available here: Download LP Fiduciary Duty waiver Chart.
My findings raise several questions. The first is a curiosity as to where else are Delaware statutes outliers and what does this say about the reach of Delaware law? The ubiquity of Delaware law is limited by the incentives for foreign entities to avail themselves of Delaware state laws, the challenge to Delaware's dominance is seen most clearly with closely-held firms.
Saturday, September 28, 2013
A friend recently asked me to suggest some books that might help him improve his meditation practice. Operating under the assumption that if the topic is appropriate for the Wall Street Journal ("Doctor's Orders: 20 Minutes Of Meditation Twice a Day"), then it's good enough for this blog, I thought I'd pass on my suggestions to interested readers. The first 3 make up my personal list of "classics," and the last is a shameless plug for a book of edited dharma talks I wrote based on my year of studying under sensei Ji Sui Craig Horton of the Cleveland Buddhist Temple. While my suggestions all focus on Buddhist/Zen meditation, there are certainly more "generic" approaches to learning about meditation -- for example, one might visit the website for the Center for Contemplative Mind in Society, which seeks to transform higher education "by supporting and encouraging the use of contemplative/introspective practices and perspectives to create active learning and research environments that look deeply into experience and meaning for all in service of a more just and compassionate society" (I was made aware of this source while attending a panel discussion on "Engagement, Happiness, and Meaning in Legal Education and Practice"). Regardless, here is my promised recommended reading list:
- Zen Mind, Beginner's Mind
- Everyday Zen
- The Heart
of Buddhist Meditation
- Sun Breaks Through Gray Skies: The Dharma Lives in Cleveland
Tuesday, September 17, 2013
I (Josh Fershee) will follow up with a post of some (I hope) substance shortly, but I thought I’d take a moment to briefly re-introduce myself. When I last wrote for BLPB, I was teaching at the University of North Dakota School of Law. Last fall, we made the move to West Virginia University College of Law. (I say “we” because my wife (Kendra Huard Fershee) not only moved with me, but because she is also on the law faculty.) I joined WVU as part of a university-wide energy-law expansion and work with the Center for Energy and Sustainable Development.
I teach business law courses and energy law courses, with most of my research relating somehow to energy business and regulation. I teach Business Organizations, Energy Law Survey, Energy Business: Law & Strategy, and Energy Law and Practice. I plan to add a Hydraulic Fracturing Seminar, too, in the near future.
Of perhaps some interest to our readers, I have taught my Energy Business: Law & Strategy course once, and I plan to do so again in the spring. I think it is a unique class, especially in the law school environment, with its focus on how law comes to be and how businesses are strategic in their use of law and regulation. (Note: I am of the mind that this reality is important to understand whether you want to work for businesses and employ such strategies or if you want to work to limit businesses in the ability to do so.) I have the students work in groups, and they draft a written final project, which they also present to the class.
Below the jump, I provide the books, course description, goals, and assessment items for the course. I welcome any comments or suggestions for additional teaching materials or concepts.