Saturday, August 6, 2022

Exculpation

Delaware recently amended its General Corporation Law to permit corporations to adopt charter provisions that would exculpate top officers, as well as directors, from damages liability associated with care violations.

The catch is, unlike with directors, officer liability can only be eliminated for direct shareholder claims – not claims brought by the corporation, including derivative claims.  In other words, the amendments aren’t there to prevent officer liability; they’re there to prevent officer liability as dictated by shareholders.  When directors decide officers should be liable – or shareholders can show directors are incapable of deciding – then officer liability may follow.

So this is a little different than the theory behind director exculpation.  Director exculpation is a protection against the threat of frivolous lawsuits, to some extent, but it also functions so directors can substantively do their jobs without fear that they will be subject to ruinous liability for well meaning mistakes.  That fear, it was posited, would deter people from wanting to be directors in the first place.

Officers, though, they aren’t exactly being protected from ruinous liability over their mistakes – the corporation/directors can still sue them for those.  Which means there’s a lot less concern that officers won’t take the job if they can be held liable.

What are these amendments doing, then?

The protections being offered are only for direct claims.  And, most of the time, direct claims only arise in one context: sale of the company.

Sure, shareholders can sometimes sue directly even for going concerns – oh look, here’s an example from Snap – but those claims are relatively rare, and even rarer still when officers would be potentially liable, and rarer still when monetary damages rather than an injunction would be on the table.  So, most of the time, and in general, the proposed amendments serve one purpose: to exculpate officers for negligence in connection with the sale of the company.

And it goes further.  Because if shareholders vote in favor of the deal, that by itself waives any fiduciary claims – except when disclosures are inadequate.

So this amendment is intended to address one specific scenario: one where officers are arguably negligent in the context of a sale of the company, and where disclosures were inadequate, in a manner that may have been relevant to voting shareholders

And these claims will apparently be blocked both when they are frivolous, and when they are meritorious. 

Of course, in order to get this protection, corporations will have to amend their charters.  Relatively easy to do pre-IPO, but requiring the assent of public shareholders post-IPO.  Leading to the question: Will they?

Why would shareholders care about this situation specifically?  As above, it’s hard to imagine they’re worried about qualified officers refusing to serve, as was the case for the original 102(b)(7) protections.  The sale of the company is an unusual event, and one where officers often have golden parachutes that offset any risk – so fear of this precise situation is unlikely to deter many officers from accepting the job in the first place.

Another possible concern is straight up litigation costs – litigation itself is expensive, sucks up the time of top management, and if we’re worried about frivolous suits or even nonfrivolous ones that won’t result in significant penalties, that might be a reason for shareholders to say the game is not worth the candle.  That, too, was likely some of the motivation for 102(b)(7) as originally drafted.

But in a sale scenario, those costs are all borne ultimately by the acquiring company.  In a cash sale, they won’t be borne by shareholders at all; in a stock sale, they’ll be borne somewhat, but even those expenses are attenuated.  And sure, you can imagine maybe the buyer will pay less if the prospect of lawsuits is out there, or insurance costs will be higher – but those possibilities are so speculative that I genuinely wonder whether shareholders would benefit from exculpation, rather than prefer to have the option of bringing nonfrivolous claims for negligently-conducted mergers (where that negligence was concealed from them in advance), knowing that litigation costs will be paid by the acquirer.

That’s particularly true when you consider that a sale of company is a final period scenario – one where corporate officers know they will no longer be subject to shareholder discipline, and therefore are most at risk of abandoning their responsibilities.

Plus, keep in mind that sometimes, cases make it past pleading on narrow theories, but discovery provides grounds for more robust ones.  Suppose keeping the negligence window open allows shareholders to sue over mergers that have a whiff of unfairness, which functionally allows further probing for more problems, which could reveal more serious defects that permit greater damages to selling shareholders?  That, too, might be valuable for shareholders of the selling company.

All of which is to say, it’s not obvious to me that the same cost-benefit analysis that applies to Original Flavor 102(b)(7) would apply to the revised version.  The specific scenarios where protections for officers are proposed are also scenarios that offer the greatest threat to shareholders, and where shareholders bear the least risk of frivolous litigation costs.  And so it’s not obvious that shareholders of publicly traded companies would be wise to approve charter amendments that exculpate officers.

What about publicly traded companies with dual-class stock?  Technically, they don’t need the assent of public shareholders to amend their charters, so they could just adopt officer-exculpation of their own accord, but (1) the public shareholders might then sue, on the grounds that this was an interested transaction intended to protect current insider/officers, and (2) dual-class companies may not be terribly worried about sale scenarios in the first place, and so have less interest in adopting these provisions.

Which leaves the IPO question: can companies simply go public with these provisions in their charters?

I mean, they can, surely, but the real question is will they pay a monetary price for doing so.  If you think IPO markets are efficient, you’d assume that if public shareholders have no use for this change mid-stream, they’d extract some kind of price for it in IPO markets, which might dissuade the adoption altogether.  I, personally, am less sanguine about the efficiency of IPO markets, however.  That said, so many companies now go public with dual-class stock, they once again may not feel they need these protections.

All of which is to say: I’m really curious to see if public companies manage to amend their charters to exculpate officers, if IPO companies adopt officer exculpation, and if there’s an obvious divergence between the two.  And, if we do see different companies adopting these things, I look forward to a financial analysis of whether they seem to affect pricing in a subsequent sale to an acquirer (who would be expected to bear the costs of shareholder litigation).

August 6, 2022 in Ann Lipton | Permalink | Comments (0)

Friday, August 5, 2022

Do Recent Calls for Censorship Respond to a Market Failure in the Marketplace of Ideas?

Back in March, I posted about a paper, "Censorship and Market Failure in the Marketplace of Ideas," that Professor Jeremy Kidd and I presented at a research roundtable on Capitalism and the Rule of Law hosted by the Law & Economics Center at George Mason University Antonin Scalia Law School. A complete version of that paper is now available here. Here is the abstract:

Use of the familiar metaphor of the exchange of ideas as a “marketplace” has historically presumed that free and uninhibited competition among ideas will reliably arrive at truth. But even the most fervent economic free-market advocates recognize the possibility of market failure. Market failure is a market characteristic (e.g., monopoly power) that precludes the maximization of consumer welfare.

The last few years have witnessed increased calls for censorship of speech and research pertaining to a variety of subjects (e.g., climate change; COVID-19 sources and treatments; and viewpoints concerning race, gender, and sexual orientation) across a variety of fora. The consistent refrain in favor of this censorship is that the spread of false or misleading information is preventing access to or distorting the truth and thereby inhibiting social progress: undermining democracy, fomenting bigotry, costing lives, and even threating the existence of the planet.

Though on their face these calls for censorship appear anti-liberal and contrary to the marketplace model, they can be made consistent with both if they are understood as a response to a market failure in the marketplace of ideas. While recent calls for censorship have not been justified expressly as a response to market failure, reframing the debate in these terms may prevent parties on both sides of the issue from engaging at cross purposes by locating the debate within an otherwise familiar model.

The Article proceeds as follows: Part I offers examples of recent calls for (and efforts at) censorship in the market of ideas concerning a variety of subjects and forums. Part II articulates a model of the marketplace of ideas that jibes with contemporary economic concepts, defines its components (e.g., sellers, buyers, intermediaries, etc.), considers the possibility of associated market failures, and highlights some common fallacies in the application of the concept of market failure more broadly. Part III explores the principal philosophical justifications for the utility of freedom of expression, focusing on the arguments articulated in John Stuart Mill’s classic, On Liberty. Part IV argues that, in light of these arguments (and taking into account contemporary critiques), the threat of false and misleading expression does not reflect market failure in the marketplace of ideas as modeled here. To the contrary, Part V argues that the ease with which recent public and private efforts at censorship have succeeded may itself reflect a market failure warranting correction—if not through legislation or the courts, then by social sanction and the court of public opinion.

August 5, 2022 in Ethics, John Anderson, Law and Economics, Philosophy | Permalink | Comments (0)

Duquesne Law Seeking Tenured/Tenure-Track Business Law Faculty

DUQUESNE UNIVERSITY SCHOOL OF LAW in Pittsburgh, PA, is seeking to hire several full-time tenured/tenure-track faculty positions to begin in the 2023-2024 academic year. We welcome applications from candidates across all areas of law, although subject areas of particular interest include: Property, Contracts, Torts, and Business Associations. Other areas of interest include: Professional Responsibility, Emerging Technologies, Intellectual Property, Health Law, and related elective course. Candidates must be available to teach in-person, although the public health situation may require occasional remote and/or hyflex teaching.

Required qualifications are a Juris Doctor from an ABA-accredited law school and superior academic credentials. Successful lateral candidates should ideally have demonstrated a commitment to excellence in teaching, scholarship, and service throughout their careers. Successful entry-level candidates should ideally demonstrate a strong potential for excellence in teaching, scholarship, and service. Prior teaching experience and/or clerking experience preferred but not required. Practice experience may provide evidence of potential for teaching excellence. Alternatively, the successful candidate may possess any equivalent combination of experience and training, which provides the knowledge, skills, and abilities to perform the essential job functions. This includes, but is not limited to the following: Commitment to the University's values of diversity, equity and inclusion, and recognition of the importance of treating each individual with dignity and respect consistent with the University's mission. Demonstrated experience with, and understanding of, the broad diversity of the University community (students, faculty, staff and others). Ability to establish and maintain effective working relationships with the University Community. Ability and willingness to contribute actively to the mission of the University and to respect the Spiritan Catholic identity of Duquesne University. The mission is implemented through a commitment to academic excellence, a spirit of service, moral and spiritual values, sensitivity to world concerns, and an ecumenical campus community, welcoming of all faiths and backgrounds.

As a condition of employment, Duquesne University requires all new employees -full-time and part-time, including adjunct faculty-to get a COVID-19 vaccine and provide proof of their vaccination upon commencement of employment. New employees requesting a religious or documented medical exemption from the vaccine must complete and submit a Duquesne University exemption request form for review and approval. To receive the appropriate exemption request form, contact hrservices@duq.edu. Employees with approved exemptions will be required to be tested on a regular basis.

APPLICATION INSTRUCTIONS:  Application review will begin immediately and will continue until the position is filled. Duquesne University uses Interfolio to collect all faculty job applications electronically. Applicants should submit a letter of intent, a curriculum vitae, and contact information for three professional references via Interfolio. The letter of intent should include comments on ability to teach in flexible environments, including online, hybrid, and in-person classroom settings. Applicants are encouraged to describe in their letter of intent how their scholarship contributes to building and supporting a diverse and inclusive community.  Applicants with questions about the position may contact the chair of the Faculty Recruitment Committee, Professor Bruce Ledewitz, at 412-396-5011 or ledewitz@duq.edu.

Duquesne University is committed to attracting, retaining, and developing a diverse faculty that reflects contemporary society, serves our academic mission and enriches our campus community. As a charter member of the Ohio, Western PA and West Virginia Higher Education Recruitment Consortium (HERC), we encourage applicants from members of underrepresented groups, and support dual-career couples.Founded in 1878 by its sponsoring religious community, the Congregation of the Holy Spirit, Duquesne University is Catholic in mission and ecumenical in spirit. Its Mission Statement commits the University to "serving God by serving students through commitment to excellence in liberal and professional education, through a profound concern for moral and spiritual values, through the maintenance of an ecumenical atmosphere open to diversity, and through service to the Church, the community, the nation and the world.” Applicants for this position should describe how they might support and contribute to the mission.  Duquesne University is Catholic in mission and ecumenical in spirit. Motivated by its Catholic and Spiritan identity, Duquesne values equality of opportunity both as an educational institution and as an employer.

https://www.duq.edu/work-at-du/careers/faculty-hiring/school-of-law/full-time-tenured/tenure-track-faculty-

August 5, 2022 in Joan Heminway, Jobs | Permalink | Comments (0)

Thursday, August 4, 2022

New FINRA Expungement Proposal

FINRA has returned to the SEC with a new proposed rule change to address problems with its expungement system.  Although the proposal continues to use arbitration to facilitate stockbroker expungements, the new proposal makes some significant changes over prior proposals.

A bit of history may help put this in context.  Two years ago, FINRA released a proposal to reform its expungement process. I wrote two comment letters in response to that proposal, prompting FINRA to amend the proposal twice.   The twice-revised proposal was ultimately withdrawn so FINRA could study the issue before returning with another proposal.  That new proposal is now here.  I put together this chart to track some of my recommendations to see what has been adopted and what has not.

Changes to FINRA Expungement Proposal Over Time

Edwards’ Request

Initial Rulemaking

2022 Rulemaking

Abandon Arbitration-facilitated expungement

Denied

Denied

Allow Non-Party Investor Advocate  Participation

Denied

Accepted

Require Expanded Duties of Candor

 

Denied

Denied

Improve Customer Notice

Accepted

Accepted

Provide Non-Party Customers With Full Pleadings

Accepted

Accepted

Specify Attorney Fees For Successful Opposition

Denied

Denied

Allow Non-Party Customers to Access Docket Online

Accepted

Accepted

Allow Non-Party Customers to Participate in Scheduling Decisions

Accepted

Accepted

Provide Notice After Filing, Not Initial Hearing

Accepted

Accepted

Create a Time Period for Customer Notice

Accepted

Accepted

Separate Expungement Arbitrators from Ordinary Arbitrators

Denied

Denied

Specify Some Standard of Proof

Denied

Denied

Require Unanimous Expungement Awards

Denied

Accepted

The new proposal includes a major change to the process, a pathway for state regulators or their representatives to appear at the fact-finding stage.  FINRA explains the change as follows:

The current expungement process does not include a mechanism to facilitate state securities regulator involvement in expungement hearings in the DRS arbitration forum. The proposed rule change would provide a mechanism for an authorized representative to provide the state securities regulators’ position or positions on an expungement request in writing or by attending and participating in the expungement hearing in person or by video conference. This attendance and participation by an authorized representative of the state securities regulators would be limited to straight-in requests, where the panel may otherwise only hear evidence from the party requesting expungement.

This is undoubtedly a big step in the right direction.  Expungements effectively wipe a state securities regulator's memory.  By deleting information from the CRD, it removes information from the regulator's files.  State securities regulators should be able to appear at the key stage to advocate for their interests.  It's difficult to target your oversight toward brokerages with the most customer complaints if the customer complaints keep getting expunged.

My immediate concern is that I do not see a good reason for limiting this simply to straight-in requests.  Most customer cases settle.  After that, customers and their counsel have little interest in providing the panel with information.  Functionally, the only evidentiary hearing in many matters will be the expungement hearing tacked on to a settled matter.  Even within the proposal, FINRA itself has recognized that expungement hearings in settled cases are in a similar posture to straight-in requests.   It explained that although most concerns have been focused on straight-in requests, "[s]ome of these concerns, however, also apply to expungement requests filed in customer arbitrations that settle, where the panel from the customer arbitration then holds a hearing to consider the expungement request."  Given the similarity, it doesn't seem appropriate to limit state regulators to only straight-in requests.

FINRA has a tough job here to balance competing interests.  It aims to provide a way for stockbrokers to challenge complaints on their record. It also has an obligation to ensure the integrity of the CRD database.  These changes will likely result in more informed decisions by arbitrators.  Of course, given the incentive structure favoring customer apathy and broker participation, the system will likely continue to grant far too many expungements.  But it's a step in a better direction for now.

August 4, 2022 | Permalink | Comments (0)

Wednesday, August 3, 2022

Call for Papers - Fifth Conference on Law and Macroeconomics

Dear BLPB readers:

"Fifth Conference on Law and Macroeconomics
October 20-21, 2022 (virtual)

The macroeconomic instability of the 2020s continues to fuel economic, social, and political
turmoil worldwide and to recast our understanding of law and macroeconomics. The ongoing crisis
has opened up new and vitally important research opportunities. As we press on towards pandemic
recovery and confront new challenges, the Fifth Conference on Law and Macroeconomics will
focus on the law’s role in shaping a sustainable and resilient macroeconomy and on the role of
macroeconomic policy in national, regional, and global governance."

September 15, 2022 is the deadline for submitting papers for consideration.  The conference website and complete call for papers is here.

August 3, 2022 in Call for Papers, Colleen Baker, Financial Markets | Permalink | Comments (0)

Monday, August 1, 2022

Belmont University (Nashville, TN) - Assistant Professor of Business Systems and Analytics

BelmontU

We are hiring for an open Assistant Professor of Business Systems and Analytics position.

We will consider lawyers/law professors with data governance/privacy law experience/research.

I am on the hiring committee; feel free to reach out to me with any questions.

Position posting here.

August 1, 2022 in Business Associations, Business School, Haskell Murray, Intellectual Property, Jobs, Technology | Permalink | Comments (0)

LSU Law Seeks Business Law and Other Faculty

LOUISIANA STATE UNIVERSITY, PAUL M. HEBERT LAW CENTER seeks to hire tenure-track or tenured faculty in a variety of areas, including, but not limited to, faculty who have expertise in business law, civil & comparative law, civil procedure, constitutional law, contracts, criminal law and procedure, evidence, family law, professional responsibility, and property. Applicants should have a J.D. from an ABA-accredited law school (foreign equivalencies will also be considered), superior academic credentials, and a demonstrable commitment to the production of quality scholarship, as well as a commitment to outstanding teaching.

Louisiana State University is an R1 land, sea, and space-grant university with a footprint across the state of Louisiana. It is one of only eight universities in the nation with a law school, dental school, medical school, veterinary school, and an elite MBA program. The LSU Law Center, the flagship state law school of Louisiana, is part of LSU A&M’s campus, located in the state capital, Baton Rouge. See more about LSU, including links to the area, at https://lsu.edu/visit/index.php.

LSU is committed to providing equal opportunity for all qualified persons in admission to, participation in, or employment in the programs and activities which the University operates without regard to race, creed, color, marital status, sexual orientation, gender identity, gender expression, religion, sex, national origin, age, mental or physical disability, or veteran’s status. LSU is committed to diversity and is an equal opportunity/ equal access employer. LSU believes diversity, equity, and inclusion enrich the educational experience of our students, faculty, and staff, and are necessary to prepare all people to thrive personally and professionally in a global society. To learn more about how LSU is committed to diversity and inclusivity, please see LSU’s Diversity Statement and Roadmap.

Please note that applicants must apply through the LSU Career Opportunities website. Only those persons who apply online will be considered for employment. Please apply using the following link: (https://lsu.wd1.myworkdayjobs.com/LSU/job/0400-Hebert-Law-Center/Assistant-Professor-of-Law-Associate-Professor-of-Law-Professor-of-Law_R00069560). Applications should include a letter of interest, resume including a list of three references, research agenda, and, if available, teaching evaluations.  

Questions may be directed by email to Ms. Pamela Hancock, the LSU Law Center’s Coordinator of Administration, who assists the Faculty Appointments Committee (phancock@lsu.edu).

August 1, 2022 in Joan Heminway, Jobs | Permalink | Comments (0)

Sunday, July 31, 2022

DePaul Law: Business Law Hiring Interests

DePaul University College of Law invites applications from entry-level candidates for a tenure-track position expected to begin July 1, 2023. We have particular interest in the areas of Business Law, Contracts, Tax, Commercial Law, and Antitrust. 

DePaul Law is committed to improving society by educating purpose-driven lawyers who will serve their clients, the legal profession, and the broader community in ways that enhance access to justice and promote equitable policies and processes. We enthusiastically encourage applicants who would enrich the diversity of our community to apply. To learn more about us, please visit https://law.depaul.edu/Pages/default.aspx

Required Qualifications:

All candidates must hold a J.D. or equivalent degree, possess excellent academic credentials, and demonstrate potential to be an outstanding scholar and teacher.

Special Instructions to Applicants:

Interested candidates should apply online. Required materials include a cover letter, curriculum vitae, list of references, research statement, diverse learning environment statement, and writing sample. Please direct any questions about the position to mhelvest@depaul.edu.

July 31, 2022 in Joan Heminway, Jobs | Permalink | Comments (0)

Saturday, July 30, 2022

WFSU on Gov. DeSantis taking aim at 'woke' ideology in Florida's investments

I’m currently working on a piece on anti-ESG legislation for our upcoming BLPB Symposium. According to The Heartland Institute (here), as of April 5, 2022, twenty-eight states have initiated some form of “anti-ESG action.” So, recent news of Florida Governor Ron DeSantis pushing for further action in this area caught my eye. Here is an excerpt from relevant coverage by WFSU (go read the full piece here):

DeSantis plans to have the State Board of Administration, which oversees investments, direct pension-fund managers against “using political factors when investing the state's money.” So-called ESG policies have drawn criticism from Republicans across the country…. Renner, who will become House speaker after the November elections, called the corporate practices a national-security issue and a pocketbook issue. "What we have is these large corporations and banks that are pursuing a woke agenda that is artificially driving up our costs in energy,” Renner said. “There's a reason why we haven't built new refineries. There's a reason why we're not drilling for oil even though we have more reserves in this country than any other place in the world, it’s because the banks and this woke agenda is choking off their ability to get financing to do that.” DeSantis said ESG is a being used by “upper echelons of our society” to impose a “woke ideology on the economy.” “We don't want to see the economy further politicized, and we want to push back against the politicization that's already happened,” DeSantis said. “Our investment of funds should be for the best interest of our beneficiaries here in the state of Florida, it should not be a vehicle to impose an ideological agenda.”

July 30, 2022 in Stefan J. Padfield | Permalink | Comments (1)

Twitter and Tea Leaves

As the world watches this unfold, I figured I’d blog this week to make a point I’ve expressed in other spaces (Twitter, etc), but I haven’t articulated here.

Where we are in this saga:  Musk sent a letter to Twitter on July 8, publicly filed with the SEC, purporting to terminate the merger agreement due to what he claimed were three contract breaches by Twitter.  First, Twitter falsely represented the amount of spam/bots on the platform; second, Twitter failed to provide information to Musk that was necessary to consummate the transaction (i.e., information about the amount of spam on the platform); third, Twitter failed to operate in the ordinary course by instituting a hiring freeze and laying off some employees. 

Twitter filed a lawsuit against Musk on July 12 seeking specific performance, arguing that it had not breached the agreement and that Musk, himself, was in breach, by failing to use his best efforts to consummate the deal as he promised to do.  (Links to case filings, by the way, are taken from this handy archive set up by Andrew Jennings.)

Musk filed an answer with counterclaims yesterday, but it’s under seal, so we’ll have to wait for a public version before we get a more complete account from him, but – at least based on what we know now – the dispute in this case is about who breached first. 

As has been widely reported, Musk’s arguments appear quite weak (with all due caveats about facts that may come out in the future, based solely on what has been publicly disclosed up until now, etc etc).  Stephen Bainbridge has a good break down here, but quickly:

Let’s just get the ordinary course thing out of the way – at least in his opposition to Twitter’s motion to expedite, Musk didn’t seem to be pressing on it very hard, and the fact is, the merger agreement has very seller-friendly language in which Twitter only promised to use “commercially reasonable efforts to conduct the business of the Company and its Subsidiaries in the ordinary course of business.”  Given the state of the economy and the industry, a hiring freeze and layoffs seems consistent with commercial reasonableness, and the Delaware Supreme Court has already suggested that what is “commercially reasonable” is gauged by references to peers, so it’s unlikely this has legs.

Which means the case is about the spam.  Did Twitter misstate its spam?  Or did it deny Musk information he was entitled to receive about spam?

Now, even if Twitter did misrepresent the amount of spam on the platform, that alone is not grounds to walk away; Musk would further have to show either that the misrepresentation was intentional, and that he relied on it (the common law rule about fraud in contracting), or that the misrepresentation (whether or not intentional) was so egregious that it caused a material adverse effect (which is the standard set forth in the merger agreement), and so far, there’s no evidence of any of that. 

But there’s also a good argument that Twitter did not make any false representations about spam in the first place, and Musk cannot show that it did.  There’s nothing in the merger agreement about spam; what the merger agreement says is that Twitter’s SEC filings are accurate.  Here’s what those SEC filings say:

There are a number of false or spam accounts in existence on our platform. We have performed an internal review of a sample of accounts and estimate that the average of false or spam accounts during the fourth quarter of 2021 represented fewer than 5% of our mDAU [monetizable daily active users] during the quarter. The false or spam accounts for a period represents the average of false or spam accounts in the samples during each monthly analysis period during the quarter. In making this determination, we applied significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated. We are continually seeking to improve our ability to estimate the total number of spam accounts and eliminate them from the calculation of our mDAU, and have made improvements in our spam detection capabilities that have resulted in the suspension of a large number of spam, malicious automation, and fake accounts. We intend to continue to make such improvements. After we determine an account is spam, malicious automation, or fake, we stop counting it in our mDAU, or other related metrics.  We also treat multiple accounts held by a single person or organization as multiple mDAU because we permit people and organizations to have more than one account. Additionally, some accounts used by organizations are used by many people within the organization. As such, the calculations of our mDAU may not accurately reflect the actual number of people or organizations using our platform.

Notice here that Twitter is not making a specific representation about spam or bots; it’s representing that it conducts an analysis, that analysis reached a result, and that result could be wrong.  Even if Musk got the data he wants, conducted his own analysis, and reached a different result, that still would not show that Twitter’s actual representation was false

(The July 8 letter also alleged that Twitter continued to include accounts identified as spam in the mDAU despite claims not to do so, but I don’t see that allegation repeated in Musk’s Chancery filings so far. We’ll see if that pops up again in the answer).

As for Musk’s rights to information, he’s only entitled to information “for any reasonable business purpose related to the consummation of the transactions,” and even that with lots of caveats (Twitter can deny information if it would be disruptive, cause competitive harm, etc).  And his demand for increasingly detailed spam information – Twitter is already providing him with reams of data – hardly seems like it falls in that category.  (As Twitter argued in its complaint at ¶96, he wants this information to find an excuse to blow up the deal, not to close it).

In Delaware Chancery, the parties first sparred over a trial date – Musk wanted February, Twitter wanted September – and Chancellor McCormick decided that a five-day trial would be held in October.

Next, the parties sparred over the exact dates in October (Musk wanted the week of October 17, Twitter preferred October 10 but was amenable to October 17 with assurances that the trial length would remain 5 days), and McCormick ordered a trial from October 17-21.

But the important thing to note – and this is the reason I’m posting – is that the significance of these skirmishes is not the trial date per se.  The significance is what the trial is about.  Musk claims he needs a prolonged schedule in order to obtain data from Twitter and employ significant computing power/expertise to analyze it and identify spam.  Twitter, by contrast, claims that no spam information is even necessary because it never made any representations about spam, and therefore this can all be resolved quickly.  As Twitter’s counsel put it in a scheduling hearing on July 19, “When the Court consults page 5 of Twitter's 10-K, it will see that it says … Twitter has a system for monitoring false or spam accounts. It is a system that requires judgment. It yields the outcome that fewer than 5 percent of users are false or spam accounts, but it may well be wrong. The number, the disclosure expressly says, could be higher.  That is what we are testing, Your Honor. And this does not require a recreation of all things known to humanity.”

And all this was also teed up in the parties’ arguments about trial dates; even though there’s very little difference between October 10 and October 17, both of them were simultaneously shoehorning in arguments over the scope of discovery.  Musk accused Twitter of refusing to produce voluminous amounts of raw data; Twitter responded that Musk’s requests were “irrelevant to Twitter’s complaint and Musk’s asserted bases for attempting to terminate. The vast amount of data related to Twitter’s user activity and platform that Musk seeks has no apparent connection to any term of the merger agreement.”

McCormick was only being asked to set a schedule, but the subtext was, that schedule must be informed by the scope of discovery.  McCormick clearly understood that, because in her order, she stated she had not “resolve[d] any specific discovery disputes, including the propriety of any requests for large data sets,” though she did limit the parties to 25 interrogatories (Twitter claims that Musk has already served 68 interrogatories, see ¶17).  And, recognizing the sensitivity of discovery issues in this case, McCormick set out a procedure for the parties to try to address any discovery disputes before bringing them to the court, involving each side designating a Delaware lawyer to review its side’s privilege logs, and designating a lawyer who will serve as the party’s “Discovery Liaison.”  Per The Chancery Daily, this procedure has been used before in a case with significant discovery disputes.

So McCormick has avoided weighing in on the scope of discovery thus far, without much of a record or briefing before her, though she has tilted towards Twitter’s view of the matter.  Sooner or later, though, McCormick will likely have to decide a discovery motion regarding exactly the kind of data Twitter is required to produce.  And while discovery disputes are usually rather ho-hum matters for those of us watching from the cheap seats, in this case, discovery could, as a practical matter, end the case.  Twitter can and will argue that it need not produce extensive datasets because Musk has not demonstrated that the amount of spam on the platform is relevant to the merger agreement (or at the very least, because Musk already has the information he needs), and if McCormick agrees, she’s functionally cut the legs out from under Musk’s entire bases for claiming Twitter breached first.  And while I wouldn’t read too much into a decision by McCormick that allows Musk some leeway on this, if she orders production of large amounts of new data, that suggests she thinks there may be some merit to Musk’s claims.  (Or, at least, that she wants publicly to be seen as fair, and not provide a basis for Supreme Court reversal, in a high profile case. Hard to say.)

So.  That’s my point.  It’s not about the dates; it’s about how much this trial really will test Twitter’s spam counts.  There’s a plausible path for Twitter to win long before trial begins, and schedules – and more importantly, discovery disputes – can be viewed through that lens. 

July 30, 2022 in Ann Lipton | Permalink | Comments (0)

Friday, July 29, 2022

Practical Tips for Teaching or Training Adult Learners

Millions of law school graduates around the US just took the bar exam. Others are preparing to enter colleges and graduates schools in a few weeks. How will these respective groups do? While a lot depends on how much and how well they study, a large part of their success or failure may depend on how they've been taught. I recently posted about how adults learn and what the research says we should do differently. In this post, I'll show how I used some of the best practices in the last ten days when I taught forty foreign lawyers from around the world  and thirty college students in separate summer courses offered by the University of Miami as well as nine Latin American lawyers who were taking courses in business law from a Panamanian school. I taught these disparate groups about ESG, disclosures, and human rights. With each of the cohorts, I conducted a simulation where I divided them into groups to prioritize issues based on whether they were a CEO, an investor, a consumer, the head of an NGO, and for the US college students, I added the roles of a member of Congress or influencer. In a future post, I will discuss how the groups prioritized the issues based on their demographics. Fascinating stuff. 

Depending on what you read, there are six key principles related to adult learning:

1. It seems obvious, but adults need to know why they should learn something. Children learn because they are primed to listen to authority figures. Too often in law school or corporate training, there's no correlation to what they learn and what they actually do. When I taught the two groups of foreign lawyers, I talked about the reality and the hype about ESG and how the topic could arise in their practices with specific examples. When I spoke to the college students who were considering law school, I focused on their roles and responsibilities as current consumers and as the future investors, legislators, and heads of NGOs. Same powerpoint but different emphasis.

2. Adults are self-directed. Under one definition, "self-directed learning describes a process by which individuals take the initiative, with or without the assistance of others, in diagnosing their learning needs, formulating learning goals, identifying human and material resources for learning, choosing and implementing appropriate learning strategies, and evaluating learning outcomes." This may seem radical because many of my colleagues complain that today's students need a lot of hand holding and spoon feeding, and I agree to some extent. But I also think that we don't give students enough credit and we underestimate them. I developed my curriculum for the practicing lawyers but I also asked what they wanted to learn and what would be most useful for them. I only had a few hours with them, so I wasn't able to explore this much as I would have. But in some of my traditional courses at the law school and when I train adults in other contexts, I often give a choice of the exam type and topic. This ensures that they will submit a work product that they are passionate about. At the end of my traditional classes at the law school, I also ask them to evaluate themselves and me based on the learning outcomes I established at the beginning of the semester. They tend to be brutally honest about whether they've taken responsibility for their own learning.

3. Adults filter what we tell them through their life experiences. In my traditional classes, I send out a survey to every student before the semester starts so that I understand their backgrounds, perspectives, and what's important to them. I often pick hypotheticals in class that directly address what I've learned about them through the surveys so it resonates much more clearly for them. With my three groups this week, I didn't have the chance to survey them but I knew where they were all from and used examples from their countries of origin, when I could. When the college students entered the Zoom room, I asked them to tell me why they picked this class. This helped me understand their perspectives. I also picked up on some of their comments during discussion and used those data points to pivot quickly when needed. It would have been easy to focus on my prepared lecture. But what does ESG mean to a lawyer in Bolivia, when that's not a priority? College students quickly grasped the context of socially responsible investing, so I spent more time there than on the Equator Principles, for example. The cultural and generational differences were particularly relevant when talking about the responsibility of tech companies from a human rights perspective. The lawyers and students from authoritarian regimes looked at social media and the power to influence the masses in one way, while the college students saw the issues differently, and focused more on the mental health issues affecting their peers. Stay tuned for a future post on this, including interesting discussion on whether Congress should repeal Section 230.

4. Adults become ready to learn only when they see how what they are learning applies to what they need to do at work and at home. With the foreign lawyers, I focused on how their clients could have to participate in due diligence or disclosure as part of a request from a company higher up in the supply chain. I focused on reputational issues with the lawyers who worked at larger companies. College students don't deal with supply chains on a regular basis so I spent more time focusing on their role as consumers and their participation in boycotts at their universities and their activism on campus and how that does or does not affect what companies do. 

5. Adults need a task-centered or problem-focused approach to learning. I had to lecture to impart the information, but with each group, they learned by doing. I had 12 hours with the Latin American lawyers so to test them on their understanding of US business entities, instead of having them complete a multiple choice quiz, I asked them to interview me as a prospective client and develop a memo to me related providing the advice, which is what they would do  in practice. They, with the other groups, also prioritized the issues discussed above from their assigned roles as CEO, NGO head, institutional investor, or consumer. When I teach my compliance course to law students, they draft policies, hold simulated board meetings, and present (fake) CLEs or trainings. My business and human rights students  have the option to draft national action plans, write case studies on companies that they love or hate, or write develop recommendations for governments for their home country. Students are much more likely to engage with the material and remember it when they feel like they are solving a real problem rather than a hypothetical.

6. Adults need extrinsic and intrinsic rewards. Everyone I taught this week will get some sort of certificate of completion. But they all chose to take these courses and those who weren't part of the UM program either self paid or were reimbursed by their employers. None of them were required to attend the classes, unlike those in elementary and high school. When students choose a course of study and learn something relevant, that's even more important than the certificate or diploma. 

I hope this helps some of you getting ready for the upcoming semester. Enjoy what's left of the summer, and if you try any of these suggestions or have some of your own, please leave a comment.

 

July 29, 2022 in Business Associations, Corporate Governance, Corporations, CSR, Current Affairs, Financial Markets, Human Rights, International Business, Law School, Lawyering, LLCs, M&A, Marcia Narine Weldon, Teaching | Permalink | Comments (0)

Thursday, July 28, 2022

New Legislation To Support Investor Clinics Introduced

A vanishingly small cadre of investor protection clinics now exist at law schools across the United States.  Most are on the east coast with the greatest concentration of clinics in and around New York City.  Pace’s Jill Gross wrote the leading history of the rise and possible extinction of these clinics. The major problem has always been funding.  I ran one at Michigan State before taking my first tenure-track teaching post.  We recovered hundreds of thousands for ordinary people.  It closed after I left for lack of funding.

In 2018, the SEC's Investor Advisory Committee formally recommended financial support for investor clinics.  Four years later, help sits just over the horizon.  Earlier today, Nevada's Senator Cortez Masto introduced legislation to create a sustainable funding mechanism for investor protection clinics.  Similar legislation has also been introduced in the House by Illinois Congressman Mike Quigley.

The proposed legislation would allow the SEC to administer grants roughly similar to what the IRS already does for tax clinics.  This would create sustainable support for these clinics and ensure that services remain available.

A few years back, I ran an investor clinic at UNLV.  We had some notable successes, including this $40,000 win over Wells Fargo.  But we were not able to keep the clinic open at UNLV because we lacked the resources to run it on a year round basis.  The law school has embraced a hybrid model.  Many semesters, I'll teach securities regulation, business organizations, or professional responsibility.  Other semesters the law school needs me to provide some kind of clinical course for our students.  As securities arbitration cases generally take about eighteen months to resolve, they don't fit neatly into a program that starts and stops with semesters.  Doing this work requires the ability to carry cases on an ongoing basis.

If the legislation passes, we'd be able to staff up and help so many more people.  Some of the work involves bringing claims through FINRA arbitration.  But that isn't all that these clinics do.  Often, investors have losses and want help understanding what happened.  These clinics provide a valuable resource for people to figure out whether they have a claim.

July 28, 2022 | Permalink | Comments (0)

Wednesday, July 27, 2022

Tomorrow!! Are SPACs Illegal Investment Funds?

Tomorrow, the Wharton Initiative on Financial Policy and Regulation is hosting a webinar entitled, Are SPACs Illegal Investment Funds?  I encourage you to register (here) and decide what you think about this issue!

Wharton Spac Event Social Media

 

July 27, 2022 in Colleen Baker, Financial Markets | Permalink | Comments (0)

Kansas Law Hiring Business Law Faculty

The University of Kansas School of Law invites applications for two tenure-track, associate professor positions to begin fall 2023.  We invite entry-level and junior-lateral candidates in the areas of business, corporate, finance, and transactional law for the first position and entry-level candidates from all subject areas for the second position.  Qualified candidates who will contribute to the diversity of our law school community, including a diversity of scholarly approaches, are especially encouraged to apply.
 
Applicants must possess a J.D. from an accredited U.S. law school or equivalent degree, and must demonstrate strong scholarly potential and a commitment to excellence in teaching.  The School actively seeks applications from members of groups that are underrepresented in higher education.

Review of applications begins August 25 and will continue until the positions are filled. Initial interviews will be conducted via Zoom. We will review candidate materials posted in the AALS Faculty Appointments Register (FAR), and also invite applications from candidates not participating in the FAR. Applications must be submitted online:  

and should include a cover letter, a CV/resume, a detailed statement of research interests/future plans, a statement related to diversity, a writing sample, and the names of three references. Materials such as teaching evaluations or additional samples of scholarly work may be requested of candidates at a later date. For fullest consideration, candidates not participating in the FAR should apply by August 25, 2022.
 
Contact:  Professor Kyle Velte, Chair, Appointments Committee, kvelte@ku.edu  

KU is an EO/AAE, full policy at http://policy.ku.edu/IOA/nondiscrimination

July 27, 2022 in Joan Heminway, Jobs | Permalink | Comments (0)

Monday, July 25, 2022

Stetson Law - Hiring in Several Business Law Areas

POSITION: TENURE-TRACK PROFESSOR OF LAW

STETSON UNIVERSITY COLLEGE OF LAW seeks to fill at least three entry-level tenure-track positions.  While our needs are flexible, we are particularly focused on Contracts, Torts, and Legal Research and Writing, as well as the areas of the Uniform Commercial Code, Professional Responsibility, Intellectual Property (emphasis on Patent Law), and Health Law. We may also have a need for Spring 2023 visitors in Legal Research and Writing and Torts. Other doctrinal areas may be considered depending on our developing institutional needs.

Located in Florida’s Tampa Bay area, the nation’s nineteenth largest metro area, Stetson was established in 1900 and is Florida’s oldest law school. Our main campus is in Gulfport, just outside St. Petersburg. We also have a part-time program with classes on both the main campus and our satellite campus in downtown Tampa. Stetson has earned a national reputation for its advocacy program, which is ranked #3 in U.S. News and World Report, and its elder law and higher education programs, with Centers for Excellence in Advocacy, Elder Law, and Higher Education Law and Policy. Stetson also has achieved a national reputation in legal writing, with its legal writing program also ranked #3 in the nation by U.S. News and World Report. Stetson is the home for the Institute for the Advancement of Legal Communication, the Institute for Biodiversity Law and Policy, and the Veterans Law Institute.

Stetson nurtures a vibrant intellectual community, situated on a beautiful campus. We encourage potential applicants to visit our website at https://www.stetson.edu/portal/law/ to learn more about our school, our community, and our programs. The law school is a part of Stetson University, which is located in DeLand, Florida, approximately three hours from the law school. The University features include a College of Arts and Sciences, a School of Music, and a School of Business Administration, the latter of which supports the law school’s JD/MBA program.

Stetson encourages applications from women, persons of color, LGBTQ+ candidates, and others who will contribute to our stimulating and diverse cultural and intellectual environment. Applicants must have a strong academic record and be committed to outstanding teaching and scholarship. Stetson’s Equal Employment Opportunity policy is available at https://www.stetson.edu/administration/human-resources/media/hotline/eeo-non-discrimination.pdf.

SALARY: Salary is competitive

STARTING DATE: August 2023

APPLICATION:

Applicants should send a cover letter indicating teaching and scholarly interests, a current curriculum vitae, and contact information for at least three professional references to Professors Jason Palmer and Rebecca Morgan at facultyappointments@law.stetson.edu or by standard mail to Professors Palmer and Morgan at Stetson University College of Law, 1401 61st Street South, Gulfport, FL 33707. The Faculty Appointments Committee will continue to review applications until positions are filled.

July 25, 2022 in Joan Heminway, Jobs | Permalink | Comments (0)

Sunday, July 24, 2022

Penn Law Business and Financial Law Workshop for Junior Faculty

INSTITUTE FOR LAW & ECONOMICS (ILE)
AT
THE UNIVERSITY OF PENNSYLVANIA CAREY LAW SCHOOL

INAUGURAL JUNIOR FACULTY BUSINESS AND FINANCIAL LAW WORKSHOP

CALL FOR PAPERS

The Institute for Law & Economics (ILE) at The University of Pennsylvania Carey Law School is pleased to announce its inaugural Junior Faculty Business and Financial Law Workshop. The Workshop will be held in person on December 8, 2022 at Penn Law School, unless pandemic protocols require otherwise.

The Workshop supports and recognizes the work of untenured legal scholars in accounting, banking, bankruptcy, corporations, economics, finance and securities regulation and litigation, while promoting interaction among them and selected tenured faculty and practitioners. By providing a forum for the exchange of creative ideas in these areas, ILE also aims to encourage new and innovative scholarship in the business and financial arena.

Approximately 6-8 papers will be chosen from those submitted for presentation at the Workshop pursuant to this Call for Papers. At the Workshop, one or more senior scholars and practitioners will provide comments , followed by a general discussion of each paper among all participants. The Workshop audience will include invited untenured academics, faculty from Penn Law School, Penn’s Wharton School and other institutions, practitioners, and invited guests.

Scholars who hold a full time academic appointment but have not yet received tenure as of the submission date are cordially invited to submit summaries or drafts of their papers. Although work that is published work or is expected to be published by the date of the Workshop is not eligible for submission, submissions may include work that has been accepted for publication so long as such work is still capable of incorporating substantive edits. ILE will cover reasonable travel/ hotel and meal expenses of all selected presenters.

Those interested in presenting a paper at the Workshop should submit an abstract, summary or draft, preferably by e-mail, on or before September 1, 2022. Direct your submission, along with any inquiries related to the Workshop, to:

Professor Lisa M. Fairfax
University of Pennsylvania Carey Law School
3501 Sansom Street Philadelphia, PA 19104-6204
fairfaxl@law.upenn.edu

Submissions will be selected after review by the ILE co-directors . Authors of accepted submissions will be notified by October 7, 2022. Please feel free to pass this Call for Papers along to any colleagues who may be interested.

July 24, 2022 in Conferences, Joan Heminway | Permalink | Comments (0)

Saturday, July 23, 2022

de Fontenay and Nili and Jeffers and Tucker on Side Letters

A while back, I posted about the SEC’s proposal to adopt new rules on private investment funds.  Among other things, the SEC expressed concern about “side letters,” namely, tailored agreements with specific investors in particular funds, giving those investors preferential terms regarding information, redemption rights, and similar matters, as compared to other investors in the same fund.

Which is why it’s very timely that two new papers have been posted to SSRN conducting empirical analyses of what these side letters contain.

The first, Side Letter Governance, by Elisabeth de Fontenay and Yaron Nili and forthcoming in the Washington University Law Review, finds that side letters rarely offer financial preferences; instead, fund sponsors favor particular investors by other means, such as separate accounts and co-investment opportunities.  They do, however, find that side letters have become overly complex and difficult to negotiate, in part because each investor wants to make sure that it is not placed at a disadvantage relative to other investors in the fund.  They recommend, among other things, that all side letters be disclosed to other fund investors, and that certain provisions – concerning investors’ tax and regulatory concerns – be standardized across different investor types.

The second, Shadow Contracts, by Jessica S. Jeffers & Anne M. Tucker and forthcoming in the University of Chicago Business Law Reviewfocuses specifically on side letters in impact investing.  They also conclude that side letters have become overly complex due to a lack of standardization and transparency, but point out that side letters associated with impact investing impose additional costs because investors have different idiosyncratic goals.  They argue that the norms developed for private equity around confidentiality are a poor fit for the impact space, and, unlike de Fontenay and Nili, find that a significant percentage of side letters do confer financial benefits on favored investors, such as fee reductions and guaranteed co-investment opportunities.

With so much investment moving into the private space, it is critical that we have more visibility into how these markets operate; these papers provide valuable insight.

July 23, 2022 in Ann Lipton | Permalink | Comments (0)

Friday, July 22, 2022

Section on Securities Regulation: Emerging Voices in Securities Regulation Call For Papers

The AALS Section on Securities Regulation invites submissions from junior scholars (defined as those who have been in a tenure-track position for 7 or fewer years) for its Emerging Voices session at the 2023 AALS annual meeting. The session will be held in-person on Saturday, January 7 from 3:00 – 4:40 p.m (PST). The session brings together junior and senior securities regulation scholars for the purpose of providing junior scholars feedback on their scholarship and helping them prepare their work for submission for publication. Junior scholars’ presentations of their drafts will be followed by comments from senior scholars and further audience discussion.

If you would like to present your draft as a junior scholar, by August 31, 2022, please send your draft to Professor Benjamin Edwards (Benjamin.Edwards@unlv.edu). We welcome submissions at any stage of development, although preference may be given to more fully developed papers over abstracts and paper proposals. The authors of the selected papers will be notified by mid-September 2022. 

If you would like to volunteer to provide feedback as a more senior scholar, please let Professor Edwards know, at Benjamin.Edwards@unlv.edu, by August 31, 2022. Thank you in advance for your generosity.

On behalf of the Section on Securities Regulation

Chair: Kristin N. Johnson (Emory University)
Chair-Elect: Benjamin P. Edwards (UNLV)

Members of the Executive Committee:
Gina-Gail S. Fletcher, Duke University School of Law

Michael D. Guttentag, Loyola Law School, Los Angeles

Usha R. Rodrigues, University of Georgia School of Law

Marc I. Steinberg, SMU Dedman School of Law

Andrew Tuch, Washington University in St. Louis School of Law

July 22, 2022 | Permalink | Comments (0)

The University of Tennessee College of Law Seeks Faculty

POSITION NOTICE

FACULTY POSITIONS
The University of Tennessee
College of Law

THE UNIVERSITY OF TENNESSEE COLLEGE OF LAW invites applications from both entry-level and lateral candidates for up to four full-time, tenure-track faculty positions to begin at the start of the 2023-24 academic year. The College is interested in candidates with scholarly aptitude and experience in one or more of the following curricular areas:

  • Advocacy Clinic (a civil, juvenile, and criminal law direct legal services clinic)
  • Business law (including business associations and contracts)
  • Criminal law (both substantive and procedural)
  • Environmental law
  • Estate planning and tax
  • Health law
  • Property
  • Technology and data privacy

All positions require a J.D. or equivalent law degree. Successful applicants must have an impressive academic background. Candidates also must have a strong commitment to excellence in teaching, scholarship, and service. Significant professional experience is desirable. 

In furtherance of the University’s and the College’s fundamental commitment to diversity in our faculty, student body, and staff, we strongly encourage applications from people of color, women, individuals with disabilities, LGBTQ+ people, veterans, and others whose background, life experiences, viewpoints, or philosophy would contribute to the diversity of our faculty, curriculum, and programs.

The University of Tennessee, Knoxville, is an R1, land-grant university located in Knoxville, Tennessee. The City of Knoxville is a hidden gem with a beautiful and walkable downtown, varied nightlife, active neighborhoods, and eclectic shopping and restaurants. UT is located within easy driving distance to Asheville, Nashville, Atlanta, and the Great Smoky Mountains.

Applications must be submitted through http://apply.interfolio.com/109970. Applicants should submit a letter of interest, including the subjects the candidate is interested in teaching, a CV, and the names and contact information for three references. While applications will be considered on a rolling basis, applicants should submit their materials no later than September 1, 2022, for best consideration. For questions, please contact Professor Michelle Kwon, Chair of the Faculty Appointments Committee, mkwon2@utk.edu.

The University of Tennessee is an EEO/AA/Title VI/Title IX/Section 504/ADA/ADEA institution in the provision of its education and employment programs and services. All qualified applicants will receive equal consideration for employment and admission without regard to race, color, national origin, religion, sex, pregnancy, marital status, sexual orientation, gender identity, age, physical or mental disability, genetic information, veteran status, and parental status.

July 22, 2022 in Joan Heminway, Jobs | Permalink | Comments (0)

Lytton on Using Insurance to Regulate Food Safety

Professor  Timothy D. Lytton, Associate Dean for Research and Faculty Development at Georgia State Univeristy, recently published his new article, Using Insurance to Regulate Food Safety: Field Notes from the Fresh Produce Sector, in the New Mexico Law Review. Here's the abstract:

Foodborne illness is a public health problem of pandemic proportions. In the United States alone, contaminated food sickens an estimated 48 million consumers annually, causing 128,000 hospitalizations and 3,000 deaths. Nowhere is this crisis more acute than in the fresh produce sector, where microbial contamination in growing fields and packing houses has been responsible for many of the nation’s largest and deadliest outbreaks. This Article examines emerging efforts by private insurance companies to regulate food safety on farms that grow fresh produce.

Previous studies of using insurance to regulate food safety rely on economic theories that yield competing conclusions. Optimists argue that insurance can promote efficient risk reduction. Skeptics counter that insufficient information regarding the root causes of contamination renders insurance impotent to reduce food safety risk. This Article adds a sociolegal perspective to this debate. Based on interviews with insurance professionals, the Article documents how, notwithstanding limited information, underwriters employ a variety of techniques to encourage compliance with government food safety regulations and conformity to industry standards. These techniques include premium discounts for clients who adopt state-of-the-art food safety practices, coverage exclusions for high-risk activities, and loss control advice about how to avoid contamination.

Insurance plays a growing and potentially transformative role in advancing food safety. Government food safety regulation has traditionally been hampered by inadequate inspection resources. This Article advocates expanding insurance to fill oversight gaps in the U.S. food safety system, and it offers specific recommendations for how to nurture emerging markets for food safety coverage.

The findings presented in this Article have implications for understanding how insurance regulates risk more generally. Economic analysis of many well-established types of insurance—for example, life, health, homeowners, and auto—emphasizes the role of actuarial data in pricing premiums, determining coverage limits, and informing loss control advice. However, the underwriting professionals in this Article who describe their efforts to improve food safety on farms tell a different story. They operate in an emerging market with a low volume of claims and a dearth of actuarial data. Three aspects of their work stand out. First, underwriting in this area is more impressionistic than economic analysis assumes. When assessing the risk of microbial contamination on farms, underwriters rely more on their intuitions about a farmer’s competence and on media coverage of high-profile foodborne illness outbreaks than on actuarial data. Second, the mindset of these underwriters is more administrative than economic. They think in terms of regulatory compliance and standards conformity rather than optimal risk reduction. Third, farm size determines the role of insurance in managing risk. High-premium coverage for larger farms provides more underwriting resources for risk management than low-premium policies priced for small farms. These findings suggest that although economics explains the logic of insurance as form of risk regulation, understanding how underwriters regulate risk in practice, especially in emerging markets, requires attention to professional judgment, bureaucratic thinking, and resource constraints.

July 22, 2022 in Insurance, John Anderson | Permalink | Comments (0)