Tuesday, August 18, 2015

LLCs, Freedom of Contract, Bankruptcy, and Planning Ahead

Over at the Kentucky Business Entity law blog, Thomas Rutledge discusses a recent decision from the United States District Court for the Southern District of Indiana, affirming a Bankruptcy Court decision that finding that when a member of an LLC with voting control personally files bankruptcy, that right to control the LLC became a vested in the trustee because the right was part of the bankruptcy estate. The case is In re Lester L. Lee, No. 4-15-cv-00009-RLY-WGH, Adv. Proc. No. 14-59011 (S.D. Ind. August 10, 2015) (PDF here).

A key issue was that the bankruptcy filer (Lester Lee) had 51% of the vote, but no shares. The court then explains:

7.  . . . [t]he Operating Agreement states . . .

(D) Each member shall have the voting power and a share of the Principal and income and profits and losses of the company as follows:

Member’s Name (Share) (Votes)

Debra Jo Brown (20%)  (10)

Brenda R. Lee (40%) (20)

Larry L. Lee (20%) (10)

Melinda Gabbard (20%) (10)

Lester L. Lee (0%) (51)

. . . .

8. . . . Trustee’s counsel became aware of the Debtor’s 51% voting rights as a member, and that pursuant to applicable law, “this noneconomic interest became property of the estate subject to control of the Trustee on the filing of the petition pursuant to 11 U.S.C. § 541.”

Here's Rutledge's take: 

On appeal, the Court’s primary focus was upon whether the right to vote in an LLC constitutes “property of the estate,” defined by section 541(a)(1) of the Bankruptcy Code as “all legal or equitable interest of the Debtor in property as of the commencement of the case. After finding that Lee could be a “member” of the LLC notwithstanding the absence of any share in the company’s profits and losses or the distributions it should make, the Court was able to determine that Lee was a member. In a belt and suspenders analysis, the Court determined also that the voting rights themselves could constitute “economic rights in the company” affording him the opportunity to, for example, “ensure his continued employment as manager” thereof.

In a response to Rutledge's blog, Prof. Carter Bishop notes,

The court did not state the trustee could exercise those voting rights.  The next step is crucial. If the operating agreement is an executory contract of a multi-member LLC, BRC 365 will normally respect LLC state law restrictions as “applicable law” and deny the trustee the right to exercise the debtor’s voting rights (similar outcome to a non-delegable personal service contract).This was a managing member of a multi-member LLC, so I assume BRC 365 blocks the trustee’s exercise.

Rutledge notes that could be the case, but it's also possible the Lee court was saying we already decided that -- voting rights are part of the estate.  

I find all of this interesting and important to think about, especially given my limited bankruptcy knowledge. My main interest, though, is how might we plan around such a situation?  Many LLC statutes provide some options.  

For example, some states allow those forming an LLC to adopt a provision in the Operating Agreement that makes bankruptcy an event that triggers "an event of dissociation,” which would make the filer (or his or her successor in interest) no longer a member. See, e.g., Indiana Code sec. 23-18-6-5(b) ("A written operating agreement may provide for other events that result in a person ceasing to be a member of the limited liability company, including insolvency, bankruptcy, and adjudicated incompetency.").  This raises the question, then, of whether the bankruptcy code trumps this LLC code such that the bankruptcy filing creates an estate that makes it so the state LLC law cannot operate to eliminate the filer as a member. 

The answer is no, the state law doesn't trump the bankruptcy code, but the state provision can still have effect.  A recent Washington state decision (petition for review granted), relying on Virginia law, determined that where state law dissociates a member upon a bankruptcy filing, the trustee cannot be a member, and thus the trustee cannot exercise membership rights: 

[I]nstead of dissociating the debtor, Virginia law operated to dissociate the bankruptcy estate itself. The court concluded, “Consequently, unless precluded by § 365(c) or (e), his bankruptcy estate has only the rights of an assignee.
 
Given the similarities between Virginia's and Washington's treatment of LLC members who file for bankruptcy, we adopt the reasoning of Garrison–Ashburn [253 B.R. 700 (Bankr. E.D. Va. 2000)]. By applying Washington law, we conclude that RCW 25.15.130 dissociates a bankruptcy estate such that it retained the rights of an assignee under RCW 25.15.250(2), but not membership or management rights, despite the provisions of 11 U.S.C. § 541(c)(1).
Nw. Wholesale, Inc. v. PAC Organic Fruit, LLC, 183 Wash. App. 459, 485, 334 P.3d 63, 77 (2014) review granted sub nom. Nw. Wholesale, Inc. v. Ostenson, 182 Wash. 2d 1009, 343 P.3d 759 (2015).

The court then needed to decided whether § 365 allows a member to retain his or her membership. Under Washington partnership law, as applied to the bankruptcy code, the court explained:  

under § 365, the other partners are not obligated to accept an assumption of the partnership agreement. Partnerships are voluntary associations, and partners are not obligated to accept a substitution for their choice of partner. The restraint on assumability also makes the deemed rejection provision of § 365 inapplicable to the partnership agreement. Therefore, § 365(e)'s invalidation of ipso facto provisions does not apply, and state partnership law is not superseded. The debtor-partner's economic interest is protected by other sections of the bankruptcy code, but he no longer is entitled to membership. 

Nw. Wholesale, Inc. v. PAC Organic Fruit, LLC, 183 Wash. App. 459, 489, 334 P.3d 63, 79 (2014) review granted sub nom. Nw. Wholesale, Inc. v. Ostenson, 182 Wash. 2d 1009, 343 P.3d 759 (2015). The court then applied the same reasoning to LLC law, concluding "that that 11 U.S.C. § 541 and § 365 did not preempt Washington law that" removes members in the limited liability company upon a bankruptcy filing.  
 
The fact that Indiana law provides the option to make (instead of automatically making) bankruptcy a dissociating event, it seems to me, shouldn't change the outcome if Washington's analysis is right, and I think it is. LLC members be able to pick their members, and protecting that right even in the face of bankruptcy is important. 
 
In the Lee case, state LLC law did not provide that bankruptcy was a dissociating event and the parties did not choose to make that the case.  I am all for LLCs allowing the members to make such a decision (either way), but here, LLC members did not do so (at their own peril).  I agree with Prof. Bishop that an open question remains as to whether the trustee can vote, and I hope the answer is no. But one can make that outcome a lot more likely by planning ahead.  

August 18, 2015 in Bankruptcy/Reorganizations, Business Associations, Joshua P. Fershee, LLCs, Partnership, Unincorporated Entities | Permalink | Comments (0)

Saturday, August 1, 2015

Hey! We're Hiring at The University of Tennessee

As you may have seen elsewhere already (but just to make it abundantly clear):

THE UNIVERSITY OF TENNESSEE COLLEGE OF LAW invites applications from both entry-level and lateral candidates for as many as two full-time, tenure-track faculty positions to commence in the Fall Semester 2016. The College is particularly interested in the subject areas of business law, including business associations and contracts; gratuitous transfers/trusts and estates; and health law. Other areas of interest include legal writing, torts, and property.

A J.D. or equivalent law degree is required. Successful applicants must have a strong academic background. Significant professional experience is desirable. Candidates also must have 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, students 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 2015 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 interest, resume, and the names and contact information of three references by September 30, 2015 to:

Sean Gunter
On behalf of Becky Jacobs and Michael Higdon
Co-Chairs, 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.

I hope a number of our readers will be interested in applying.  Feel free to contact me if you have questions or need more information (although please note that I am not on the Faculty Appointments Committee).

August 1, 2015 in Business Associations, Corporations, Joan Heminway, Jobs, Law School, Unincorporated Entities | Permalink | Comments (0)

Wednesday, July 8, 2015

LLC [Operating] Agreements as Contracts

Last September, I authored a post here on the BLPB on judicial opinions and related statutes regarding LLCs as non-signatories to LLC operating agreements (simply termed "LLC agreements" in Delaware and a number of other states).  I recently posted a draft of an essay to SSRN that includes commentary on that same issue as part of a preliminary exploration of the law on LLC operating agreements as contracts.  (Readers may recall that I mentioned this work in a post last month on the Law and Society Association conference.)  I am seeking comments on this draft, which is under editorial review at the SMU Law Review as part of a symposium issue of essays in honor of our departed business law colleague, Alan R. Bromberg, who had been an SMU Dedman School of Law faculty member for many years before his death in March 2014.  My SSRN abstract for the essay, entitled "The Ties That Bind: LLC Operating Agreements as Binding Commitments," reads as follows:

This essay, written in honor and memory of Professor Alan R. Bromberg as part of a symposium issue of the Southern Methodist University Law Review, is designed to provide preliminary answers to two questions. First: is a limited liability company (“LLC”) operating agreement (now known under Delaware law and in certain other circles as a limited liability company agreement) a contract? And second: should we care either way? These questions arise out of, among other things, a recent bankruptcy court case, In re Denman, 513 B.R. 720, 725 (Bankr. W.D. Tenn. 2014).

The bottom line? An operating agreement may or may not be a common law contract. But that legal categorization may not matter for purposes of simple legal conclusions regarding the force and effect of operating agreements. A state’s LLC law may provide that LLCs are contracts or are to be treated as contracts in general or for specific purposes and may establish the circumstances in which operating agreements are valid, binding, and enforceable. However, in the absence of an applicable statute, the legal conclusion that an operating agreement is or is not a common law contract may matter in legal contexts that depend on the common law of contracts for their rules. In either case, the bar may want to participate in clarifying the status of operating agreements as binding commitments.

Any and all comments on the essay are welcomed.  Comments that decrease the length of the essay are especially appreciated, since I am admittedly over the allotted word limit. (These essays are meant to be very short pieces so that many of us can contribute to honoring Alan.)  Of course, there's always time to write another, lengthier piece on this topic later, if there's enough more to be said . . . .

Also, I will note that the Association of American Law Schools Section on Agency, Partnership, LLC's and Unincorporated Associations is planning a program on the role of contract in LLCs at the 2016 annual meeting in January.  I have been asked to participate, and the panel promises to have some additional members that will attack the embedded issues from a number of interesting angles.  Stay tuned for more on that.

July 8, 2015 in Conferences, Corporations, Joan Heminway, LLCs, Unincorporated Entities | Permalink | Comments (0)

Modern Independent Contractor vs. Agent Problem: UBER DRIVERS

For those of you who teach agency (and the related concept of independent contractors) the following recent case example will make for a fun and culturally relevant example for many of your students.  

In March, 2015, the California Labor Commissioner’s Office issued an opinion finding that a  driver for the ride-hailing service mobile app company, Uber, should be classified as an employee, not an independent contractor.  The opinion details the control Uber exercised over the driver including setting the payment rates and terms, quality controls, service platforms, user communications, liability insurance requirements, and background checks all the while maintaining that drivers are independent contractors.  Citing to S. G. Borello & Sons, Inc. v. Dep't of Indus. Relations, 48 Cal. 3d 341, 350-51, 769 P.2d 399 (1989), the Commission analyzed the following elements:

(a) whether the one performing services is engaged in a distinct occupation or business;

(b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;

(c) the skill required in the particular occupation;

(d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;

(e) the length of time for which the services are to be performed;

(f) the method of payment, whether by the time or by the job;

(g) whether or not the work is a part of the regular business of the principal; and

(h) whether or not the parties believe they are creating the relationship of employer-employee.  

The Commission explained its finding that Plaintiff was an employee (not an independent contractor) (Commission Opinion, Berwick v. Uber, at 8)  with the following:

By obtaining the clients in need of the service and providing the workers to conduct it, Defendants retained all necessary control over the operation as a whole.  The party seeking to avoid liability has the burden of proving that persons whose services he has retained are independent contractors rather than employees.  In other words, there is a presumption of employment…..The modern tendency is to find employment when the work being done is an integral part of the regular business of the employers, and when the worker, relative to the employer, does not furnish an independent business or professional service.

Id. at 8.

The Commission found that “Plaintiff’s work was integral to Defendants’ business…Without drivers such as Plaintiff, Defendants’ business would not exist.” Id.


Impact Discussion:

Many technology companies, like Uber, contend that their virtual marketplaces facilitate individuals acting as contractors, using their own possession to provide services for a personal profit. The argument is that this empowers workers giving them flexibility and freedom to set their own hours and success. A counter argument raised by labor activists and others is that this type of freelance work strips workers from certainty of wages and job status as well as other benefits of traditional employment such as health care, retirement and sick leave benefits. Opponents argue that what is being touted as good for individuals is just a means to minimize costs and increase corporate, not individual, profits. 

[Note, I have included this, along with a host of other case updates and teaching materials, in my new Business Organizations electronic casebook, available through ChartaCourse starting fall 2015.]

Edited on 7/10/15 to add:  colleague, friend and fellow blogger Haskell Murray suggested this article (How Crowd Workers Became the Ghosts in the Digital Machine) from The Nation on crowd-workers and the thought-provoking discussion on whether minimum wage laws should apply to these workers.  Joan Hemminway, same credentials above, noted that the Wall Street Journal Blog is also commenting on the Uber case.

 

-Anne Tucker

July 8, 2015 in Anne Tucker, Business Associations, Corporations, Current Affairs, Unincorporated Entities | Permalink | Comments (3)

Tuesday, July 7, 2015

Note to U.K. Supreme Court: LLCs Don't Have Places of Incorporation (But You're Right on Pass-Through Taxation)

A recent unanimous decision from the Supreme Court of the United Kingdom, Anson v. Commissioners for Her Majesty’s Revenue and Customs [2015] UKSC 44, determined that a U.S. limited liability company (LLC) formed in Delaware will be treated for U.K. tax purposes as a partnership, and not a corporation. This is a good thing, as it provides the LLC members the ability to reap more completely the benefits of the entity's choice of form.

What is not so good is that the court left unaddressed a lower court determination as follows, was quoted in para. 47: 

“Delaware law governs the rights of the members of [the LLC] as the law of the place of its incorporation, and the LLC agreement is expressly made subject to that law. However, the question whether those rights mean that the income of [the LLC] is the income of the members is a question of domestic law which falls to be determined for the purposes of domestic tax law applying the requirements of domestic tax law ….” (para 71) (emphasis added)

An LLC does not have a place of incorporation!  It has a place of formation.  Here is the link to Delaware's Certificate of Formation, which is to be filed in accordance with the Limited Liability Company Act of the State of Delaware: https://corp.delaware.gov/llcform09.pdf. In contrast, you can find the Certificate of Incorporation, which is to be filed in accordance with the General Corporation Law of the State of Delaware, here: http://www.corp.delaware.gov/incstk.pdf

I'm glad the high U.K. court recognized that partnership taxation status can be proper for a U.S. LLC. But, just as You Can’t Pierce the Corporate Veil of an LLC Because It Doesn't Have One, I wish they'd made clear that you can't incorporate an LLC.  

July 7, 2015 in Corporate Governance, Corporate Personality, Corporations, Delaware, International Business, Joshua P. Fershee, LLCs, Unincorporated Entities | Permalink | Comments (0)

Thursday, April 2, 2015

Key Legal Documents for Startups and Entrepreneurs

Earlier this week I went to a really useful workshop conducted by the Venture Law Project and David Salmon entitled "Key Legal Docs Every Entrepreneur Needs." I decided to attend because I wanted to make sure that I’m on target with what I am teaching in Business Associations, and because I am on the pro bono list to assist small businesses. I am sure that the entrepreneurs learned quite a bit because I surely did, especially from the questions that the audience members asked. My best moment, though was when a speaker asked who knew the term "right of first refusal" and the only two people who raised their hands were yours truly and my former law student, who turned to me and gave me the thumbs up.

Their list of the “key” documents is below:

1)   Operating Agreement (for an LLC)- the checklist included identity, economics, capital structure, management, transfer restrictions, consent for approval of amendments, and miscellaneous.

2)   NDA- Salmon advised that asking for an NDA was often considered a “rookie mistake” and that venture capitalists will often refuse to sign them. I have heard this from a number of legal advisors over the past few years, and Ycombinator specifically says they won't sign one.

3)   Term Sheets- the seminar used an example for a Series AA Preferred Stock Financing, which addressed capitalization, proposed private placement, etc.

4)   Independent Contractor Agreement- the seminar creators also provided an IRS checklist.

5)   Consulting Agreement- this and some other documents came from  Orrick's start-up forms page and ycombinator. FYI, Cooley Goddard also has some forms and guidance.

6)   Employment Agreement- as a former employment lawyer, I would likely make a lot of tweaks to the document, and vey few people have employment contracts in any event. But it did have good information about equity grants.

7)   Convertible Promissory Note Purchase Agreement- here's where the audience members probably all said, "I need an attorney" and can't do this from some online form generator or service like Legal Zoom or Rocket Lawyer.

8)   Stock Purchase Agreement- the sample dealt with Series AA preferred stock.

9)   IRS 83(b) form- for those who worry that they may have to pay taxes on "phantom income" if the value of their stock rises.

10) A detailed checklist dealing with basic incorporation, personnel/employee matters, intellectual property, and tax/finance/administration with a list of whether the responsible party should be the founders, attorney, officers, insurance agent, accountant, or other outside personnel.

What’s missing in your view? The speakers warned repeatedly that business people should not cut and paste from these forms, but we know that many will. So my final question- how do we train future lawyers so that these form generators and workshops don't make attorneys obsolete to potential business clients?

 

April 2, 2015 in Business Associations, Corporate Finance, Corporations, Entrepreneurship, Law School, LLCs, M&A, Marcia Narine, Teaching, Unincorporated Entities | Permalink | Comments (4)

Thursday, February 12, 2015

“We Just Can’t Get Enough of Business Associations”

My seventy business associations students work in law firms on group projects. Law students, unlike business students, don’t particularly like group work at first, even though it requires them to use the skills they will need most as lawyers—the abilities to negotiate, influence, listen, and compromise. Today, as they were doing their group work on buy-sell agreements for an LLC, I started drafting today’s blog post in which I intended to comment on co-blogger Joan Heminway’s post earlier this week about our presentation at Emory on teaching transactional law.

While I was drafting the post, I saw, ironically, an article featuring Professor Michelle Harner, the author of the very exercise that my students were working on. The article discussed various law school programs that were attempting to instill business skills in today’s law students. Most of the schools were training “practice ready” lawyers for big law firms and corporations. I have a different goal. My students will be like most US law school graduates and will work in firms of ten lawyers or less. If they do transactional work, it will likely be for small businesses.  Accordingly, despite my BigLaw and in-house background, I try to focus a lot of the class discussion and group work on what they will see in their real world.

I realized midway through the time allotted in today’s class that the students were spending so much time parsing through the Delaware LLC statute and arguing about proposed changes to the operating agreement in the exercise that they would never finish in time. I announced to the class that they could leave 10 minutes early because they would need to spend at least another hour over the next day finishing their work. Instead most of the class stayed well past the end of class time arguing about provisions, thinking about negotiation tactics with the various members of the LLC, and figuring out which rules were mandatory and which were default. When I told them that they actually needed to vacate the room so another class could enter, a student said, “we just can’t get enough of business associations.” While this comment was meant to be a joke, I couldn’t help but be gratified by the passion that the students displayed while doing this in-class project.  I have always believed that students learn best by doing something related to the statutes rather than reading the dry words crafted by legislators.  My civil procedure students have told me that they feel “advanced” now that they have drafted complaints, answers, and client memos about Rule 15 amendments.

I am certainly no expert on how to engage law students, but I do recommend reading the article that Joan posted, and indeed the whole journal (15 Transactions: Tenn. J. Bus. L. 547 (2014). Finally, please share any ideas you have on keeping students interested in the classroom and prepared for the clients that await them. 

 

February 12, 2015 in Business Associations, Business School, Conferences, Corporations, Delaware, Joan Heminway, Law School, LLCs, Marcia Narine, Negotiation, Teaching, Unincorporated Entities | Permalink | Comments (1)

Wednesday, February 4, 2015

Conferences

I am a list maker.  I make daily to do lists, grocery lists, research plans, workout schedules (that quickly get jettisoned) and  complicated child care matrices necessary in two-career families.  How else am I supposed to remember and keep on my radar all of the things that I am supposed to be doing now, or doing when I have time, or things that I can't forget to do in the future?  One area where I feel deficient is in planning my conference travel/attendance. It always feels either a little ad hoc (ohh I got an invitation and I never say no to those!) or a little out habit (once you have presented at a conference it is easier to be asked to participate in future panels). Rarely does it feel like a part of an intentional plan for the year where I set out to prioritize conference A or break into conference B.  

Realizing that this year there are 3 corporate law events within 10 days of each other is seriously making me reconsider my approach.  I need a conference list-- a way to plan for the coming year, prioritize opportunities and frankly, schedule grandparent visits (read: child care) when I need to travel for more than a night or two.  

Below is my running list of annual or nearly annual events, but I know that I am missing big pieces of the conference puzzle.  Please contribute in the comments so we can create a list of some standard corporate law events (great for new teachers, great for those looking to expand their research circles, etc.).  Updated to reflect suggestions in comments & put in approximate order of timing.

 

-Anne Tucker

February 4, 2015 in Anne Tucker, Business Associations, Call for Papers, Conferences, Law and Economics, Securities Regulation, Teaching, Unincorporated Entities | Permalink | Comments (6)

Wednesday, January 7, 2015

BA/Corporations -- New Media Teaching Resources

I had very limited time at AALS this year (unfortunately) but I still walked away with some great ideas (and a chance to say hello to a few, but not enough, friendly faces).  I am borrowing from many ideas shared in the panel cited below, as well as a few of my own.  As many of you prepare to teach BA/Corporations for the spring (or making notes on how to do it next time), here are a few fun new resources to help illustrate common concepts:

  • HBO's The Newsroom.  A hostile takeover, negotiations with a white knight-- all sorts of corporate drama unfolded on HBO's Season 3 of The Newsroom.   I couldn't find clips on youtube, but episode recaps (like this) are available and provide a good reference point/story line/hypo/exam problem for class.
  • This American Life-- Wake Up Now Act 2 (Dec. 26, 2014).  This brief radio segment/podcast tells the story of two investors trying to reduce the pay of a company CEO.  The segment discusses board of director elections, board duties, board functions and set up some large questions about whether or not shareholders are the owners of the corporation and their profit maximization is the ultimate goal for a company.  This could be followed with Lynn Stout's 2012 NYT Dealbook article proposing the opposite view.
  • HBO's Silicon Valley.  For all things tech, start up, entrepreneurship and basic corporate formation, clips (you will want to find something without all of the swears, I suspect) and episode recaps from this popular show illustrate concepts and connect with students.  Again, great for discussion, hypos, and exam fact patterns.
  • The Shark Tank!.  I have to thank Christyne Vachon at UD for this idea.  There are tons of clips on youtube and most offer the opportunity to talk about investors bringing different things to the table, how to apportion control, etc.  Here is an episode involving patent issues. I think that I am going to open my experiential Unincorporated/Drafting class with a Shark Tank clip on Monday.  
  • Start Up Podcasts.  These 30-minute episodes cover a wide range of topics. Here is one podcast on how to value a small business.   At a minimum, I will post some of these to my course website this spring.  (Thank you Andrew Haile at Elon for this recommendation.).
  • Planet Money.  The podcasts are a great resource, but what I love is the Planet Money Twitter page because it is a great way to digest daily news, current events and topical developments that may be incorporated into your class.
  • Wall Street Journal--TWEETS.  (that felt like an oxymoron to write). Aside from the obvious, I find the Twitter feed to be the most useful way to use/monitor the WSJ.  I will admit it, I don't "read" it every day, but this is my proxy.

Special thanks to the participants in the Agency, Partnership & the Law's panel on Bringing Numbers into Basic and Advanced Business Associations Courses: How and Why to Teach Accounting, Finance, and Tax

Moderator: Jeffrey M. Lipshaw, Suffolk University Law School
Speakers:
Lawrence A. Cunningham, The George Washington University Law School
Andrew J. Haile, Elon University School of Law
Usha R. Rodrigues, University of Georgia School of Law
Christyne Vachon, University of North Dakota School of Law
Eric C. Chaffee, University of Toledo College of Law
Franklin A. Gevurtz, University of the Pacific, McGeorge School of Law

And Happy New Year BLPB Readers!

-AT

January 7, 2015 in Anne Tucker, Business Associations, Corporations, Current Affairs, Entrepreneurship, LLCs, M&A, Unincorporated Entities | Permalink | Comments (3)

Tuesday, December 30, 2014

Courts and the LLC, End of the Year Edition

I continue to document how courts (and lawyers) continue to conflate (and thus confuse) LLCs and corporations, so I did a quick look at some recent cases to see if anything of interest was recently filed. Sure enough, there are more than few references to "limited liability corporations" (when the court meant "limited liability companies."  That's annoying, but not especially interesting at this point.  

One case did grab my eye, though, because because of the way the court lays out and resolves the plaintiffs' claim.  The case is McKee v. Whitman & Meyers, LLC, 13-CV-793-JTC, 2014 WL 7272748 (W.D.N.Y. Dec. 18, 2014).  In McKee, theplaintiff filed a complaint claiming several violations of the Fair Debt Collection Practices Act against defendants Whitman & Meyers, LLC and Joseph M. Goho, who failed to appear and defend this action, leading to a default judgment. After the default judgment was entered, defense counsel finally responded.  

This case has all sorts of good lessons.  Lesson 1: don't forget that all named parties matter.  Get this: 

Defense counsel admits that he was under the mistaken assumption that default was to be taken against the corporate entity only. See Item 17. However, default was entered as to both the corporate and individual defendants on July 3, 2014 (Item 9). Defense counsel did not move to vacate the default and in fact did not respond in any way until the default judgment was entered on September 17, 2014. Item 12. Even then, the defense motion was framed as one for an extension of time in which to file an answer (Item 14), rather than a motion to vacate the default or default judgment. Inexplicably, in his papers, defense counsel states that a default judgment has not been entered. See Item 17. Since good cause is to be construed generously and doubts resolved in favor of the defaulting party, see Enron Oil Corp., 10 F.3d at 96, the court will accept the explanation of defense counsel as evidence of a careless lack of attention to procedural detail rather than an egregious and willful default on the part of defendant Goho [the individual and apparent owner of the LLC].
McKee v. Whitman & Meyers, LLC, No. 13-CV-793-JTC, 2014 WL 7272748, at *1 (W.D.N.Y. Dec. 18, 2014).  A link to a free version of the case is here.
 
Wow.  I concede there are some procedural details here, but this sure sounds substantive to me, as well.  
 
Lesson 2: if you name someone in the caption, you probably want to have some allegations about them as a defendant.  Fortunately for defense counsel, the plaintiff's counsel was not on the ball, either.  Though Goho was named in the caption, the complaint did not describe Goho as a party or contain allegations about Goho's individual liability for the FDCPA violations. The defendant's Prayer for Relief also only sought judgment from the Whitman & Myers, LLC. (The court conveniently skips the fact that court probably should have noticed these deficiencies the first time around, before entering default judgment against Goho.)  

Finally, the moment regular readers (see, e.g.,  here, hereherehere, and here) saw coming:
 
Lesson 3: You Can’t Pierce the Corporate Veil of an LLC Because It Doesn't Have One.  The plaintiff argued that "the court should pierce the corporate veil and hold defendant Goho personally liable." The court's response: "[T]here is nothing on the face of the complaint or in the record that would support individual liability for defendant Goho on the basis of corporate veil-piercing . . ."  
 
The court is, of course, correct. However, the sentence should be followed by one that says, "This is because there is no corporation named as a party to this case, so there is no corporate veil to pierce."  Obviously, the court could have gone on to note that even if the plaintiffs meant for the court to pierce the limited liability veil of the LLC, the allegations were insufficient for that, too.
 
As a side note, it would have been interesting to see how the court would have dealt with the argument that Goho and his LLC were so intertwined that they share legal counsel and that even his own counsel did not immediately recognize the individual and the entity as separate until after default judgment was entered.  (I don't see that as a winning argument, but it's better than what was argued.) 
 
Moving forward, I'd like to see courts tell plaintiffs that a request to "pierce the corporate veil" of an LLC amounts to a failure to state a claim.  The court should allow counsel to amend the complaint to get the language right. Until there is a consequence, even a minor one, for merging LLCs and corporations, attorneys and courts will continue to get it wrong.  
 
Thus, a New Year's Resolution for Courts:  "We will treat corporations and LLCs as separate entity types."  And, please, after making sure to always call LLCs "limited liability companies," move on to creating separate veil piercing language.  

December 30, 2014 in Business Associations, Corporations, Haskell Murray, Joshua P. Fershee, LLCs, Unincorporated Entities | Permalink | Comments (2)

Thursday, November 13, 2014

What do lawyers and judges need to know about LLCs?

Understandably, business law professors get upset when people who should know better- judges for example- mischaracterize LLCs. I say we should be even more angry at the law clerks drafting the opinions. Many judges had no exposure to LLCs in law school but clerks graduating today certainly have. 
 
Given the ubiquity of LLCs now, I was surprised to learn that among the many outstanding CALI (Computer-Aided Legal Instruction) lessons, there are none on LLCs. (Hat tip to co-blogger Steve Bradford- my students love him now). I have volunteered to work on at least one and maybe more in the coming months. I canvassed some colleagues for their must-haves for these LLC lessons. In no particular order, here's the current list:
 

1) Difference between LLCs, corporations and partnerships 

2) Del. and ULLCA coverage of fiduciary duties, and especially the issue of contractual waiver and default 

3) Ease of formation
 
4) Expense of formation
 
5) Ease of maintenance    
 
6) Expense of maintenance
 
7) Restrictions re. business purpose or activity
 
8) Continuity of life/limitations on existence
 
9) Label for/characteristics (incl. transferability) of ownership interests
 
10) Restrictions re. owners (number, type, or other)
 
11) Authority to bind/create liability for the firm
 
12) Personal liability of owners to outsiders
 
13) Form of management/rights to manage
 
14) Existence/characteristics of monitoring managers/board of directors
 
15) Other (additional governance rules, rights, obligations, etc.)
 
16) Entitlement to income and assets
 
17) Liability for taxes and other governmental obligations
 
18) How investors can get money OUT of an LLC
 

19) No right to distributions, and no right to vote for distributions if manager-managed

20) No right to salary or employment

21)  Taxable liability for LLC membership

22) Exit rights—voluntary withdrawals vs. restricted withdrawals, and whether or not that comes with the ability to force the return of an investment or a new status as a creditor of the LLC

23) Liability for improper distributions

24) Veil piercing, particularly given the lack of corporate formalities

I would love some feedback from practitioners as well. What do law students and practicing lawyers need to know about LLCs? What's missing from this list? What should I get rid of? Please feel free to comment below or to email your thoughts to mnarine@stu.edu

 

 

 

November 13, 2014 in Business Associations, C. Steven Bradford, Corporate Personality, Corporations, Delaware, Law School, LLCs, Marcia Narine, Partnership, Teaching, Unincorporated Entities | Permalink | Comments (1)

Monday, October 27, 2014

Wrestling with Securities Regulation Policy and Morrison

On Friday, I participated in the 2014 Workshop for Corporate & Securities Litigation sponsored by the University of Richmond School of Law and the University of Illinois College of Law and held on the University of Richmond's campus.  Thanks to Jessica Erickson and Verity Winship for hosting an amazing group of scholars presenting impressive, interesting papers.  I attended the workshop to test an idea for a paper tentatively entitled: "Policy and International Securities Fraud Actions: A Matter of Investor and (or) Market Protection?"

The paper would address an important issue in U.S. federal securities law: the extraterritorial reach of the general anti-fraud protections in Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 adopted by the U.S. Securities and Exchange Commission under Section 10(b). In a world where securities transactions often cross borders—sometimes in non-transparent ways—securities regulators, issuers, investors, and intermediaries, as well as legal counsel and the judiciary, all need clarity on this matter in order to plan and engage in transactions, advocacy, and dispute resolution. Until four years ago, the rules in this area (fashioned more as a matter of  jurisdiction than extraterritorial reach) were clear, but their use often generated unpredictable results.

In Morrison v. Nat’l Austl. Bank Ltd., 130 S. Ct. 2869 (2010), the U.S. Supreme Court held that “Section 10(b) reaches the use of a manipulative or deceptive device or contrivance only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States.” This was a non-obvious analytical result (at least to me) that has generated significant criticism, debate, and discussion. The Court's struggle—and that of those who disagree with the holding or the Court's reasoning or both—has been to determine the purpose(s) of Section 10(b) as a federal securities law liability statute and assess the extraterritorial reach of Section 10(b) in light of that purpose or those purposes. This project extends my earlier work (originally written for and published as part of a French colloquium in 2012) and involves the engagement of a deep analysis of long-standing, albeit imperfectly articulated, federal securities regulation policy in the context of cross-border fraud and misstatement liability.

This will be a big undertaking, if I commit to a comprehensive approach.  I got a lot of good feedback on my overall concept for the project--enough that I am rethinking the project in significant ways.  One possible idea is to approach the underlying general policy articulation first, as a separate project, before undertaking the formidable task of rationalizing that policy at the intersection of the academic literature on class action litigation, Section 10(b) and Rule 10b-5, and cross-border markets and cross-listings.  The two-stage approach has significant appeal to me.  I start from the notion that investor protection and the maintenance of market integrity under federal securities regulation both serve the foundational goal of promoting capital formation.  But that is contestable . . . .

What are your thoughts regarding the most coherent articulation of the policies underlying Section 10(b) and Rule 10b-5 multinational securities regulation and the appropriateness of the Morrison test for extraterritoriality in light of that articulation?

October 27, 2014 in Financial Markets, International Business, Joan Heminway, Securities Regulation, Unincorporated Entities | Permalink | Comments (0)

Monday, September 29, 2014

More on LLCs as Non-Signatories of Operating Agreements . . .

In recent blog posts, two of my favorite bloggers, Keith Paul Bishop and Steve Bainbridge, have highlighted for our attention Delaware and California statutes providing (differently in each case) that an LLC and, at least in Delaware, its managers and members, are bound by the LLC's operating agreement even if they do not sign that agreement.  Bishop notes in his post that the California "RULLCA creates an odd situation in which LLCs are bound by contracts that they did not execute and to which they seemingly are not parties."  In his post Bainbridge cites to the Bishop post and another post by Francis Pileggi.  Certainly, they all have a point.  For students of contract law, the conclusion that a non-party is bound by a contract does not seem to be an obvious result . . . .

The flap in the blogosphere has its genesis in a recent Delaware Chancery Court decision, Seaport Village Ltd. v. Seaport Village Operating Company, LLC, et al. C.A. No. 8841-VCL.  The limited liability company defendant in that case raised as its only defense that it was not a party to the limited liability company agreement and therefore was not bound.  Unsurprisingly in light of applicable Delaware law, Chancellor Laster found the defense wanting as a matter of law.

This issue has more history than my brother bloggers point out, some of which is included in the brief Seaport Village opinion.  I probably don't have all the details, but set forth below is some additional background information that may be useful in thinking about the binding nature of LLC operating agreements.  Others may care to fill in any missing information by leaving comments to this post.

Continue reading

September 29, 2014 in Business Associations, Current Affairs, Delaware, Joan Heminway, LLCs, Unincorporated Entities | Permalink | Comments (2)

Sunday, September 14, 2014

Hobby Lobby Redux: 7 Corporate Law/Theory Quotes

This coming Tuesday, I am scheduled to provide a brief overview of the corporate law/theory aspects of Hobby Lobby as part of the University of Akron’s Supreme Court Roundup.  What follows are the seven key quotes from the opinion that I plan to focus on (time permitting) in order to highlight what I see as the key relevant issues raised by the opinion. Comments are appreciated.

Issue 1: Did corporate theory play a role in Hobby Lobby?

While I believe the majority made a pitch for applying a pragmatic, anti-theoretical approach (“When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of … people.” Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 2768 (2014)), the following quote strikes me as conveying an underlying aggregate view of corporations:

In holding that Conestoga, as a “secular, for-profit corporation,” lacks RFRA protection, the Third Circuit wrote as follows: “General business corporations do not, separate and apart from the actions or belief systems of their individual owners or employees, exercise religion. They do not pray, worship, observe sacraments or take other religiously-motivated actions separate and apart from the intention and direction of their individual actors.” 724 F.3d, at 385 (emphasis added). All of this is true—but quite beside the point. Corporations, “separate and apart from” the human beings who own, run, and are employed by them, cannot do anything at all.

134 S. Ct. at 2768.

 

Continue reading

September 14, 2014 in Business Associations, Constitutional Law, Corporate Governance, Corporate Personality, Corporations, Current Affairs, Religion, Social Enterprise, Stefan J. Padfield, Unincorporated Entities | Permalink | Comments (2)

Friday, September 12, 2014

Delaware Judges and Law Review Articles

In 2007, J. W. Verret (George Mason) and then Chief Justice Myron Steele authored an article entitled Delaware's Guidance: Ensuring Equity for the Modern Witenagemot, which discussed "some of the extrajudicial activities in which members of the Delaware judiciary engage to minimize the systemic indeterminacy resulting from the resolution of economic disputes by a court of equity."

One of these extrajudicial activities is authoring or co-authoring law review articles.  In this post, I am not going to weigh in on whether Delaware judges should be authoring law review articles, but rather, I simply note that there are two recent law review articles and one recent book chapter by Delaware judges that warrant our attention. 

Vice Chancellor Travis Laster - Evidence-Based Corporate Law.

John Maynard Keynes is said to have observed, "When the facts change, I change my mind. What do you do, sir?" In Delaware's Choice, Professor Subramanian argues that the facts underlying the constitutionality of Section 203 have changed. Assuming his facts are correct, and the Professor says that no one has challenged his account to date, then they have implications for more than Section 203. They potentially extend to Delaware's jurisprudence regarding a board's ability to maintain a stockholder rights plan, which becomes a preclusive defense if a bidder cannot wage a proxy contest for control of the target board with a realistic possibility of success. Professor Subramanian's facts may call for rethinking not only the constitutionality of Section 203, but also the extent of a board's ability to maintain a rights plan.

Chief Justice Leo E. Strine, Jr. and Nicholas Walter (Yale), Conservative Collision Course?: The Tension between Conservative Corporate Law Theory and Citizens United.

One important aspect of Citizens United has been overlooked: the tension between the conservative majority’s view of for-profit corporations, and the theory of for-profit corporations embraced by conservative thinkers. This article explores the tension between these conservative schools of thought and shows that Citizens United may unwittingly strengthen the arguments of conservative corporate theory’s principal rival.

 

Citizens United posits that stockholders of for-profit corporations can constrain corporate political spending and that corporations can legitimately engage in political spending. Conservative corporate theory is premised on the contrary assumptions that stockholders are poorly-positioned to monitor corporate managers for even their fidelity to a profit maximization principle, and that corporate managers have no legitimate ability to reconcile stockholders’ diverse political views. Because stockholders invest in for-profit corporations for financial gain, and not to express political or moral values, conservative corporate theory argues that corporate managers should focus solely on stockholder wealth maximization and non-stockholder constituencies and society should rely upon government regulation to protect against corporate overreaching. Conservative corporate theory’s recognition that corporations lack legitimacy in this area has been strengthened by market developments that Citizens United slighted: that most humans invest in the equity markets through mutual funds under section 401(k) plans, cannot exit these investments as a practical matter, and lack any rational ability to influence how corporations spend in the political process.

Because Citizens United unleashes corporate wealth to influence who gets elected to regulate corporate conduct and because conservative corporate theory holds that such spending may only be motivated by a desire to increase corporate profits, the result is that corporations are likely to engage in political spending solely to elect or defeat candidates who favor industry-friendly regulatory policies, even though human investors have far broader concerns, including a desire to be protected from externalities generated by corporate profit-seeking. Citizens United thus undercuts conservative corporate theory’s reliance upon regulation as an answer to corporate externality risk, and strengthens the argument of its rival theory that corporate managers must consider the best interests of employees, consumers, communities, the environment, and society — and not just stockholders — when making business decisions.

Chief Justice Leo E. Strine, Jr. and Vice Chancellor Travis Laster, The Siren Song of Unlimited Contractual Freedom

One frequently cited distinction between alternative entities — such as limited liability companies and limited partnerships — and their corporate counterparts is the greater contractual freedom accorded alternative entities. Consistent with this vision, discussions of alternative entities tend to conjure up images of arms-length bargaining similar to what occurs between sophisticated parties negotiating a commercial agreement, such as a joint venture, with the parties successfully tailoring the contract to the unique features of their relationship.

As judges who collectively have over 20 years of experience deciding disputes involving alternative entities, we use this chapter to surface some questions regarding the extent to which this common understanding of alternative entities is sound. Based on the cases we have decided and our reading of many other cases decided by our judicial colleagues, we do not discern evidence of arms-length bargaining between sponsors and investors in the governing instruments of alternative entities. Furthermore, it seems that when investors try to evaluate contract terms, the expansive contractual freedom authorized by the alternative entity statutes hampers rather than helps. A lack of standardization prevails in the alternative entity arena, imposing material transaction costs on investors with corresponding effects for the cost of capital borne by sponsors, without generating offsetting benefits. Because contractual drafting is a difficult task, it is also not clear that even alternative entity managers are always well served by situational deviations from predictable defaults.

In light of these problems, it seems to us that a sensible set of standard fiduciary defaults might benefit all constituents of alternative entities. In this chapter, we propose a framework that would not threaten the two key benefits that motivated the rise of LPs and LLCs as alternatives to corporations: (i) the elimination of double taxation at the entity level and (ii) the ability to contract out of the corporate opportunity doctrine. For managers, this framework would provide more predictable rules of governance and a more reliable roadmap to fulfilling their duties in conflict-of-interest situations. The result arguably would be both fairer and more efficient than the current patchwork yielded by the unilateral drafting efforts of entity sponsors.

September 12, 2014 in Business Associations, Constitutional Law, Corporate Governance, Haskell Murray, LLCs, Partnership, Unincorporated Entities | Permalink | Comments (0)

Tuesday, August 12, 2014

Kinder Morgan: MLPs, C-Corps & Dividends, Oh My!

Kinder Morgan, a leading U.S. energy company, has proposed consolidating its Master Limited Partnerships (MLPs) under its parent company. If it happens, it would be the second largest energy merger in history (the Exxon and Mobil merger in 1998, estimated to be $110.1 billion in 2014 dollars, is still the top dog). 

Motley Fool details the deal this way:

Terms of the deal
The $71 billion deal is composed of $40 billion in Kinder Morgan Inc shares, $4 billion in cash, $27 billion in assumed debt. 

Existing shareholders of Kinder Morgan's MLPs will receive the following premiums for their units (based on friday's closing price):

  • Kinder Morgan Energy Partners: 12%
  • Kinder Morgan Management: 16.5%
  • El Paso Pipeline Partners: 15.4%
Existing unit holders of Kinder Morgan Energy Partners and El Paso Pipeline Partners are allowed to choose to receive payment in both cash and Kinder Morgan Inc shares or all cash. 
As I understand it, the exiting holders of the partnerships would have to pay taxes on the merger (this is partnership to a C-corp), but please, consult your tax professional.  
 
The goal here is said to be to increase dividend potential and use the C-corp structure to maximize opportunities that the MLP structure is now apparently less effective in generating.
 
I, for one, like that this company is seeking to generate income from real products, invest in new infrastructure, and pay dividends.  I'm no financial planner or investment consultant, but I like the idea of companies that offer dividend value rather than value to shareholders solely through increase share price. It seems to me it leads to better long term planning.  I am also intrgigued by the part of Richard Kinder story where he ended up not leading Enron.  As Forbes explained in 2012,
The most important man in the American Energy Boom wears brown slacks and a checkered shirt and sits in a modest corner office with unexceptional views of downtown Houston and some forgettable art on the wall. You would expect to at least see a big map showing pipelines stretching from coast to coast. Nope. “We don’t have sports tickets, we don’t have corporate jets,” growls Richard Kinder, 68, CEO of Kinder Morgan, America’s third-largest energy firm. “We don’t have stadiums named after us.”
I will be watching to see if this deal goes through, and I think the chance to have a big study in consolidating partnerships with a C-Corp could be a great teaching moment. Stay tuned! 
 
 

August 12, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Joshua P. Fershee, M&A, Partnership, Teaching, Unincorporated Entities | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 15, 2014

AALS Call for Papers--Incorporating Numbers in Business Law Classes

 Bringing Numbers into Basic and Advanced Business Associations Courses: How and Why to Teach Accounting, Finance, and Tax

2015 AALS Annual Meeting--Agency, Patnerships, LLCs & Unincorporated Assoc. Section

Washington, DC

            Business planners and transactional lawyers know just how much the “number-crunching” disciplines overlap with business law.   Even when the law does not require unincorporated business associations and closely held corporations to adopt generally accepted accounting principles, lawyers frequently deal with tax implications in choice of entity, the allocation of ownership interests, and the myriad other planning and dispute resolution circumstances in which accounting comes into play.  In practice, unincorporated business association law (as contrasted with corporate law) has tended to be the domain of lawyers with tax and accounting orientation.  Yet many law professors still struggle with the reality that their students (and sometimes the professors themselves) are not “numerate” enough to make these important connections.  While recognizing the importance of numeracy, the basic course cannot in itself be devoted wholly to primers in accounting, tax, and finance.

             The Executive Committee will devote the 2015 annual Section meeting in Washington to the critically important, but much-neglected, topic of effectively incorporating accounting, tax, and finance into courses in the law of business associations.  In addition to featuring several invited speakers, we seek speakers (and papers) to address this subject.  Within the broad topic, we seek papers dealing with any aspect of incorporating accounting, tax, and finance into the pedagogy of basic or advanced business law courses.

             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 in this area is invited to submit a 1 or 2-page proposal by May 1, 2014.  The Executive Committee will review all submissions and select two papers by May 15, 2014.  A very polished draft must be submitted by November 1, 2014.  The Executive Committee is exploring publication possibilities, but no commitment on that has been made.  All submissions and inquiries should be directed to Jeff Lipshaw, Chair (jlipshaw@suffolk.edu)

April 15, 2014 in Business Associations, Corporations, Teaching, Unincorporated Entities | Permalink | Comments (0)

Tuesday, March 25, 2014

Last Minute Hobby Lobby Thoughts & Why Reverse Veil Piercing Isn’t the Answer

With oral arguments today in the Hobby Lobby case, I thought I’d pile on a few last thoughts:

(1) As I explained here, entities should be able to take on a racial, religious, or gender identity in discrimination claims.  I would add that I feel similarly about sexual orientation, but (though I think it should be) that is still not generally federally protected. To the extent the law otherwise provides a remedy, I’d extend it to the entity. 

(2) It is reasonable to inquire, why is discrimination different than religious practice?  For me, I just don’t think religious exercise by an entity is the same as extending discrimination protection to an entity.  There is something about the affirmative exercise of religion that I don’t think extends well to an entity.   That is, discrimination happens to a person or an entity. Religious practice is an affirmative act that is different.  Basically, reification of the entity to the point of religious practice crosses a line that I think is unnecessary and improper because discrimination protection should be sufficient.

As a follow up to that, I also think it's a reasonable question to ask: Why is religion different than speech? To me it is different because entities must speak, but entities don’t have to practice religion.  The entity needs speech to conduct business. A public entity speaks in its public filings.  Speech is not just something an entity could do. It is something it must do.  Religion, at the entity level is not necessary. 

(3) Reverse piercing is not as good a solution as it might appear.  Professor Bainbridge suggests that reverse veil piercing is one way in which the religion of the shareholders could be used to justify extending a religious identity to the Hobby Lobby entity, thus allowing the entity to object to certain provisions of the federal healthcare mandate.  His argument is, as usual, reasonable and plausible. Still, as explained above, I don't think this is necessary. 

More important, though, I don’t like expanding the use of any form of veil piercing. Veil piercing is supposed to be used (at least in my view) solely as a heightened level of fraud protection.  It is already used too often and too haphazardly, and further degradation of the line between the entity and others is a dangerous proposition, regardless of the purpose.  That is, as people (and courts) get more comfortable with disregarding the entity, they are more likely to disregard the entity.  As a general proposition, I think that’s a bad outcome. That alone is reason enough for me to hope the Court will pass on reverse veil piercing as a potential remedy. 

March 25, 2014 in Agency, Business Associations, Joshua P. Fershee, LLCs, Religion, Unincorporated Entities | Permalink | Comments (0) | TrackBack (0)

Thursday, March 6, 2014

If It's Good Enough For Justice Kennedy....

Some law professors may remember when Justices Roberts and Kennedy opined on the value legal scholarship. Justice Roberts indicated in an interview that law professors spend too much time writing long law review articles about “obscure” topics.  Justice Kennedy discussed the value he derives from reading blog posts by professors who write about certs granted and opinions issued. I have no doubt that most law students don’t look at law review articles unless they absolutely have to and I know that when I was a practicing lawyer both as outside counsel and as in house counsel, I almost never relied upon them. If I was dealing with a cutting-edge issue, I looked to bar journals, blog posts and case law unless I had to review legislative history.

As a new academic, I enjoy reading law review articles regularly and I read blog posts all the time. I know that outside counsel  read blogs too, in part because now they’re also blogging and because sometimes counsel will email me to ask about a blog post. I encourage my students to follow bloggers and to learn the skill because one day they may need to blog for their own firms or for their employers.

Blogging provides a number of benefits for me. First, I can get ideas out in minutes rather than months via the student-edited law review process. This allows me to get feedback on works/ideas in progress. Second, it forces me to read other people’s scholarship or musings on topics that are outside of my research areas. Third, reading blogs often provides me with current and sophisticated material for my business associations and civil procedure courses. At times I assign posts from bloggers that are debating a hot topic (Hobby Lobby for example). When we discuss the Basic v. Levinson case I can look to the many blog posts discussing the Halliburton case to provide current perspective. 

But as I quickly learned, not everyone in the academy is a fan of blogging. Most schools do not count it as scholarship, although some consider it service. Anyone who considers blogging should understand her school’s culture. For me the benefits outweigh the detriment. Like Justice Kennedy, I’m a fan of professors who blog.  In no particular order, here are the mostly non-law firm blogs I check somewhat regularly (apologies in advance if I left some out): 

http://www.theconglomerate.org/  (thanks again for giving me first opportunity to blog a few months into my academic career!)

http://socentlaw.com/

http://www.fcpaprofessor.com/

http://law.wvu.edu/the_business_of_human_rights (currently on a short hiatus)

http://www.professorbainbridge.com/

http://lawprofessors.typepad.com/civpro/

http://prawfsblawg.blogs.com/prawfsblawg/

http://taxprof.typepad.com/

http://lawprofessors.typepad.com/securities/

http://www.thecorporatecounsel.net/blog/index.html

http://blogs.law.harvard.edu/corpgov/

http://www.delawarelitigation.com/

http://www.dandodiary.com/

 http://lawprofessors.typepad.com/whitecollarcrime_blog/

http://lawprofessors.typepad.com/mergers/

http://lawprofessors.typepad.com/laborprof_blog/

http://www.thefacultylounge.org/

http://opiniojuris.org/

I would welcome any suggestions of must-reads.

 

 

 

 

 

 

 

 

 

 

 

 

 

March 6, 2014 in Business Associations, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, M&A, Marcia Narine, Securities Regulation, Social Enterprise, Teaching, Unincorporated Entities, Weblogs | Permalink | Comments (2)

Monday, March 3, 2014

Call for Papers: How and Why to Teach Accounting, Finance, and Tax

Business law has a broad overlap with tax, accounting, and finance.  Just how much belongs in a law school course is often a challenge to determine.  We all have different comfort levels and views on the issue, but incorporating some level of financial literacy is essential.  Fortunately, a more detailed discussion of what to include and how to include it is forthcoming.  Here's the call: 

Call For Papers

AALS Section on Agency, Partnerships LLCs, and Unincorporated Associations

Bringing Numbers into Basic and Advanced Business Associations Courses: How and Why to Teach Accounting, Finance, and Tax

2015 AALS Annual Meeting Washington, DC

Business planners and transactional lawyers know just how much the “number-crunching” disciplines overlap with business law. Even when the law does not require unincorporated business associations and closely held corporations to adopt generally accepted accounting principles, lawyers frequently deal with tax implications in choice of entity, the allocation of ownership interests, and the myriad other planning and dispute resolution circumstances in which accounting comes into play. In practice, unincorporated business association law (as contrasted with corporate law) has tended to be the domain of lawyers with tax and accounting orientation. Yet many law professors still struggle with the reality that their students (and sometimes the professors themselves) are not “numerate” enough to make these important connections. While recognizing the importance of numeracy, the basic course cannot in itself be devoted wholly to primers in accounting, tax, and finance.

The Executive Committee will devote the 2015 annual Section meeting in Washington to the critically important, but much-neglected, topic of effectively incorporating accounting, tax, and finance into courses in the law of business associations. In addition to featuring several invited speakers, we seek speakers (and papers) to address this subject. Within the broad topic, we seek papers dealing with any aspect of incorporating accounting, tax, and finance into the pedagogy of basic or advanced business law courses.

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 in this area is invited to submit a 1 or 2-page proposal by May 1, 2014 (preferably by April 15, 2014). The Executive Committee will review all submissions and select two papers by May 15, 2014. A very polished draft must be submitted by November 1, 2014. The Executive Committee is exploring publication possibilities, but no commitment on that has been made. All submissions and inquiries should be directed to Jeff Lipshaw, Chair.

Jeffrey M. Lipshaw
Associate Professor
Suffolk University Law School
Click here for contact info

March 3, 2014 in Agency, Conferences, Joshua P. Fershee, LLCs, Partnership, Teaching, Unincorporated Entities | Permalink | Comments (0) | TrackBack (0)