Wednesday, January 16, 2019
By now, almost everyone has seen the new Gillette ad criticizing toxic masculinity and urging men to be better men:
Reactions range from offense at Gillette's corporate moralizing to genuine appreciation and celebration. Slate captured the corporate logic effectively:
The wide range of reactions was, of course, the point: to create a conversation starter. To rile people and get them talking about Gillette. To increase brand recognition amid Gillette’s declining market share and, ultimately, make Procter & Gamble more money. Much of the criticism of the ad has revolved around the company’s motives.
Yet P&G can have financial incentives and still make an ad worth lauding. These two things are not mutually exclusive. And this ad is a step in the right direction, because the more we collectively hear the message that sexual harassment is unacceptable, that bullying is wrong, and that helping victims is noble, the more this message will shape our—and our children’s—everyday choices. We need to get messages like this from our leaders, teachers, parents—andfrom television shows, movies, books, songs, and advertisements. Cultural shifts happen when every aspect of culture embraces and normalizes a change.
Some business law professors commenting on Twitter took the same position. Iowa Law's Greg Shill immediately saw the play:
A boring take on the shaving ad: Harry's & DSC made surprising inroads on a routine toiletry product (where brand loyalty is normally high), and after years of hemorrhaging market share Gillette found the perfect way to show (rather than tell) they're "not your grandpa's razor."— Greg Shill (@greg_shill) January 16, 2019
Nicole Iannarone also saw the brand boosting implications and how the business judgment rule will protect the Gillette (P&G) board from any second guessing by disgruntled investors:
4.5m views=LOTS of attn for @Gillette. Even w 4x as many dislikes as likes and calls to boycott, bus judgment rule hard to overcome as many reasons to argue as in co’s best interest. We Believe: The Best Men Can Be | Gillette (Short Film) https://t.co/s9offVFUcI— Nicole Iannarone (@NicoleIannarone) January 15, 2019
As Joshua Fershee pointed out after the Nike ad, the business judgment rule protects a board for its marketing decisions. Even if others dislike it or they think it was a poor decision.
And Gillette certainly has its detractors. New York's Josh Barro panned the ad after celebrating the Nike ad, seeing it as more accusatory than uplifting:
This is important: Instead of offering the man something, the slogan now asks him to do something. Gillette has spent decades making him the best razors it could; now it’s the man’s turn to deliver.
Whatever this is, it isn’t marketing.
Gillette’s message — that something has too often gone wrong in masculinity, and that men ought to evaluate whether they are doing enough to combat bullying and mistreatment of women — is correct. But the viewer is likely to ask: Who is Gillette to tell me this? I just came here for razors. And razors barely even feature in Gillette’s new campaign.
From a business perspective, I see it differently. Let's face it: Razors are essentially commodities. Unlike Barro, I'm skeptical that there are any real differences between Harry's, Dollar Shave Club, or Gillette. It's blades on a stick folks. Consumers will either be drawn to a brand or they'll just buy the cheapest readily available option. (Confession: I get my razors at Costco. It's blades on a stick.) Gillette doesn't want to compete on price against the new entrants so it needs to offer a brand razor buyers want.
Barro felt as though Gillette shouldn't be taking this approach because of the way it called men out, perhaps offending its customer base. I suspect Barro may have assumed that the users are almost always the buyers. Although many men do buy their own razors, many women also buy razors and other products for families. By one count, women drive 70-80% of all consumer purchasing. From this angle, it's not surprising that women known for making ads for, among other things, feminine hygiene products created the ad. If you want a man in your life to be his best self or if you're a woman fed up with toxic masculinity, a Gillette razor might appeal to you.
Even though some may see this as a cynical marketing move, Gillette has been remarkably consistent on these issues. They ran a similar campaign a few years ago in India. This Forbes piece captures it well:
If Gillette were purpose-washing—where it uses the optics of “doing good” in a malevolent way to make a buck—the company wouldn’t possess a prior track record. There are scores of companies who claim to be purpose-driven when in fact they are purpose-washing. They use the concept of “purpose” not to change society, but solely to make a buck.
I don’t see this as the case with Gillette. They possess a track record of being purpose-driven.
Six years ago the company launched a campaign in India titled "Gillette Soldier for Women." Its goal was not about men turning women into soldiers; rather the company was pushing men to stand up for women. "Because when you respect women," as the advert insisted, "you respect your nation."
Presumably, Gillette had a good experience with that campaign before unveiling this one in the American market.
Over the long term, it also helps that Gillette is absolutely right on the issue. The American Psychological Association recently released guidelines for treating boys and men. They found that traditional masculinity has real downsides for men:
Although boys and men, as a group, tend to hold privilege and power based on gender, they also demonstrate disproportionate rates of receiving harsh discipline (e.g., suspension and expulsion), academic challenges (e.g., dropping out of high school, particularly among African American and Latino boys), mental health issues (e.g., completed suicide), physical health problems (e.g., cardiovascular problems), public health concerns (e.g., violence, substance abuse, incarceration, and early mortality), and a wide variety of otheWhor quality-of-life issues (e.g., relational problems, family well-being; for comprehensive reviews, see Levant & Richmond, 2007; Moore & Stuart, 2005; O’Neil, 2015). Additionally, many men do not seek help when they need it, and many report distinctive barriers to receiving gender-sensitive psychological treatment (Mahalik, Good, Tager, Levant, & Mackowiak, 2012).
Looking at my own life, I don't think an overly stoic, traditional masculinity has served me particularly well. One of the APA's identified markers is the rejection of help. I'd probably have been happier and healthier if I had sought help when I needed it. Instead, men often suffer needlessly for fear of showing weakness. This likely contributes to the negative outcomes that fall on men--early deaths, suicides, mental health problems, and lower graduation rates. To remind myself of that, I might grab the Gillette brand razors the next time I'm stocking up at Costco. After all, even people that don't shave with razors are buying them:
I don’t even shave with razors. But I’m about to go buy some @Gillette.— Aaron D. Ford (@AaronDFordNV) January 16, 2019
"The disintegration of securities trading ... is arguably reducing market quality for ... issuers, investors, regulators and the taxpayers ... while increasing control of the largest institutions over access to the market."— Stefan Padfield (@ProfPadfield) January 13, 2019
44 J. Corp. L. 29 #corpgov
"corporate law's requirement of lawful conduct embeds particular social values into the corporate code"— Stefan Padfield (@ProfPadfield) January 13, 2019
Elizabeth Pollman, Corporate Disobedience, 68 Duke L.J. 709 (2019) #corpgov
Had Kavanaugh replaced Kennedy before Masterpiece Cakeshop, would the Court "likely have decided more broadly that free exercise trumps any generally applicable obligation under a mere state statute"?— Stefan Padfield (@ProfPadfield) January 13, 2019
82 Alb. L. Rev. 121 #corpgov
'Built into the structure of federal employment discrimination law are several openings for customer preferences to provide employer defenses to what would otherwise likely be actionable discrimination." 97 N.C. L. Rev. 91 #corpgov— Stefan Padfield (@ProfPadfield) January 13, 2019
"Volkswagen emissions scandal as an example of cultural misalignment where the company and individual employees below board level ... have been ... found liable despite ... rhetoric about the directors’ responsibility for corporate culture." https://t.co/dQP1o2rqw7 #corpgov— Stefan Padfield (@ProfPadfield) January 11, 2019
"results suggest that enhanced director discretion promotes long-term value by reducing contracting costs with stakeholders ... and mitigating the externalities that stakeholders may bear due to conflicts of interests with shareholders" https://t.co/19ZUUWEFkh #corpgov— Stefan Padfield (@ProfPadfield) January 11, 2019
Tuesday, January 15, 2019
I am wading back into a jurisdiction case because when it to LLCs (limited liability companies), I need to. A new case from the United States Court of Appeals for the Sixth Circuit showed up on Westlaw. Here's how the analysis section begins:
Jurisdiction in this case is found under the diversity statute 28 U.S.C. § 1332. John Kendle is a citizen of Ohio; defendant WHIG Enterprises, LLC is a Florida corporation with its principal place of business in Mississippi; defendant Rx Pro Mississippi is a Mississippi corporation with its principal place of business in Mississippi; defendant Mitchell Chad Barrett is a citizen of Mississippi; defendant Jason Rutland is a citizen of Mississippi. R. 114 (Second Am. Compl. at ¶¶ 3, 5) (Page ID #981–82). Kendle is seeking damages in excess of $75,000. Id. at ¶¶ 50, 54, 58, 64, 71 (Page ID #992–95). The district court issued an order under Rule 54(b) of the Federal Rules of Civil Procedure that granted final judgment in favor of Mitchell Chad Barrett, and so appellate jurisdiction is proper. R. 170 (Rule 54(b) Order) (Page ID #3021).
Kendle v. Whig Enterprises, LLC, No. 18-3574, 2019 WL 148420, at *3 (6th Cir. Jan. 9, 2019).
No. No. No. An LLC is not a corporation, for starters. And for purposes of diversity jurisdiction, "a limited liability company is a citizen of any state of which a member of the company is a citizen." Rolling Greens MHP, L.P. v. Comcast SCH Holdings L.L.C., 374 F.3d 1020, 1022 (11th Cir. 2004). As such the where the LLC is formed doesn't matter and the LLC's principal place of business doesn't matter. All that matters is the citizenship of each LLC member.
In this case, I can tell from the opinion that Kendle and Rutland are "co-owners" of WHIG Enterprises. The opinion suggests there may be other owners (i.e., members). The opinion refers to the plaintiff suing "WHIG Enterprises, LLC, two of its co-owners, and another affiliated entity." Kendle v. Whig Enterprises, LLC, No. 18-3574, 2019 WL 148420, at *1. The opinion later refers to Rutland as "another WHIG co-owner." If we want to know whether diversity jurisdiction is proper, though, we'll need to know ALL of WHIG's members.
Now, it may well be that there is diversity among the parties, but we don't know, and neither, apparently, does the court. That may not be an issue in this case, but if people start modeling their bases for jurisdiction on the Kendle excerpt above, things could get ugly. The Eleventh Circuit, as noted above. A more recent case further reminds us to check diversity for all members in an LLC. Thermoset Corporation v. Building Materials Corp. of America et al, 2017 WL 816224 (11th Cir., March 2, 2017).
I figured that I should give a shout out to folks getting right, given all my criticism of those getting it wrong. Come, Sixth Circuit, let's get it together.
Monday, January 14, 2019
My frequent academic partner and friend John Anderson and I organized and moderated a discussion session on insider trading in the blockchain transactional environment at this year’s AALS annual meeting. The session, entitled “Insider Trading and Cryptoassests: The Future of Regulation in the Blockchain Era,” featured teacher-scholar participants from academic backgrounds in white collar crime, corporate law, securities regulation, intellectual property, cyberlaw, and ethics/compliance. The program description is as follows:
As the cryptoasset ecosystem shows signs of emerging from its “Wild West” phase, insider trading has become a principal concern for trading platforms, investors, and regulators. Insider trading cases concerning cryptoassets present challenges, however, because the legal understanding of both cryptoassets and the markets in which they are generated, bought, and sold has been significantly outpaced by their development, expansion, and innovation. In the United States, market professionals, the Securities and Exchange Commission (SEC), the Commodities Futures Trading Commission (CFTC), and others debate whether virtual currencies are securities, contracts, currencies, commodities, or something else. Both the SEC and CFTC assert jurisdiction over cryptoassets, but (at this writing) neither has precisely defined the scope or nature of its purported regulatory oversight. This commercial and regulatory uncertainty leaves a number of questions about insider trading in cryptoassets unanswered. This Discussion Group considers these and other related concerns regarding insider trading in cryptoassets.
The short papers submitted by the participants and the related commentary reflected the diverse areas of expertise of the participants and were engaging and thoughtful. Constructive audience participation also was a highlight of the program.
We focused the discussion initially on whether, and if so how, insider trading in cryptoassets currently is regulated. We also discussed whether regulation of that activity should be undertaken. Then, assuming regulation, we considered whether existing regulatory tools could and should be used. Finally, as part of that discussion, we began to assess who and exactly what should be regulated. The dialogue was energizing, even if inconclusive.
Marcia Narine Weldon has written here at the BLPB at various times in the past six months on blockchain technology and its intersection with business and business law, including here, here, and here. In the first of those linked posts, she advises us that we ignore the blockchain at our peril. I agree.
But I also want to note that whether you believe that the blockchain is an awesome and promising new technology or a pernicious computer-based contrivance, its interactions with business law provide us all with opportunity: the chance to use our expertise to identify and resolve new legal and regulatory issues. As I learned from my experience in studying the regulatory context of crowdfunding in its early days, once the innovation train has left the station and is rolling down the tracks, it compels study and benefits from open, enlightened debate. Business lawyers are uniquely qualified to provide the necessary examination, dialogue, and guidance. Let's get to it!
Sunday, January 13, 2019
As the New Year begins, are you thinking about the conferences you’ll attend in 2019?
The Academy also has a number of regional conferences. Check out all the options (if I missed one, send me an email)!
Canadian ALSB Annual Conference May 2-4, 2019 (Halifax, Nova Scotia)
Great Lakes ALSB, October 11-12, 2019 (Frankenmuth, Michigan)
Mid-Atlantic Academy of Legal Studies in Business, March 29-30, 2019 (Reading, Pennsylvania)
Mid-West Academy of Legal Studies in Business, March 27-29, 2019 (Chicago, Illinois)
North Atlantic Regional Business Law Association Annual Conference, April 6, 2019 (Boston, Massachusetts)
North East Academy of Legal Studies in Business, May 3-5, 2019 (Cape May, New Jersey)
Pacific Northwest Academy of Legal Studies in Business, April 11-13, 2019 (Seattle, Washington)
Pacific Southwest Academy of Legal Studies in Business, February 14-17, 2019 (Palm Springs, California)
Rocky Mountain Academy of Legal Studies in Business [check for 2019 updates]
Southern Academy of Legal Studies in Business, February 28 - March2, 2019 (San Antonio, Texas)
Southeastern Academy of Legal Studies in Business [check for 2019 updates]
Western Academy of Legal Studies in Business, March 8-10, 2019 (Monterey, California)
Saturday, January 12, 2019
The Supreme Court just agreed to hear Emulex Corp. v. Varjabedian, which presents something of a puzzle for merger law and policy.
In brief, Emulex agreed to be acquired by Avago in a friendly tender offer under DGCL 251(h). When Emulex issued its Schedule 14D-9 recommending that shareholders tender their shares, it failed to mention that its bankers found the premium was on the low side as compared to similar deals. The plaintiffs sued, alleging that the omission rendered Emulex’s recommendations misleading in violation of Exchange Act Section 14(e), which prohibits false statements in connection with tender offers. In the courts below, the defendants argued, among other things, that the plaintiffs failed to plead that any misleading statements were made with scienter. On appeal, the Ninth Circuit broke with other circuits and held that scienter is not a required element of a Section 14(e) violation.
When the defendants petitioned for certiorari, here’s how they phrased the Question Presented:
Whether the Ninth Circuit correctly held, in express disagreement with five other courts of appeals, that Section 14(e) of the Securities Exchange Act of 1934 supports an inferred private right of action based on a negligent misstatement or omission made in connection with a tender offer.
Note the precise wording here – because we’re going to come back to that.
The dispute begins with the language of Section 14(e):
It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation.
The basic difficulty is that the phrase “make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading” is very similar to that used in Section 11 of the Securities Act, which prohibits misstatements in registration statements, and does not require a showing of scienter. It’s also nearly identical to that used in Rule 14a-9 of the Exchange Act, which prohibits misstatements in proxy materials, and also has generally been interpreted not to require scienter. And it’s pretty much word-for-word the language in Section 17(a)(2) of the Securities Act, which is enforceable only by the SEC and prohibits obtaining money or property by means of untrue statements about securities, and also - you guessed it - does not require a showing of scienter.*
But the phrase “fraudulent, deceptive, or manipulative acts or practices” is very similar to the prohibitions in in Section 10(b) of the Exchange Act, which does require a showing of scienter.
14(e) has both! Oh no! Which is it?
Now the interesting thing is, until now, it wasn’t that much of an issue. But then the situation changed.
First, in around 2009 or 2010, you had the great merger litigation explosion; suddenly almost every sizeable merger was being challenged under state law, at least partly (most say) because the collapse of Milberg Weiss left a lot of plaintiffs’ firms hungry for work. Delaware eventually got sick of it and started making it harder to bring state law claims with cases like Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304 (Del. 2015) and In re Trulia, 129 A.3d 884 (Del. Ch. 2016). Plaintiffs responded by bringing claims under federal law instead. (The stats are documented in The Shifting Tides of Merger Litigation, by Matthew Cain, Jill Fisch, Steven Davidoff Solomon, and Randall Thomas).
Second, in 2013, Delaware enacted 251(h), which created the so-called “intermediate form” merger by making it much easier to structure a friendly acquisition as a tender offer without holding a shareholder vote (a few other states followed suit). Suddenly, the number of deals structured as tender offers spiked.
All of which means that Section 14(e) has been getting more of a workout than it has in the past, leading to new questions about the proper interpretation of the statute.
But here’s where we get back to that Question Presented. It’s really two questions: first, what is the state of mind element under Section 14(e), and second is there a private right of action at all? The implication of the defendants’ petition for cert is, well, no, there isn’t, and the amicus brief filed by the Chamber of Commerce makes that argument explicitly.
So what the defendants are really angling for is a declaration that plaintiffs cannot bring claims under 14(e) at all, with a fallback position of, if they can, they have to show intent. (Well, actually, I think the defendants are after something else - but we’ll get there.) And here’s where the rubber meets the road:
When an acquisition is structured as a merger, it will require a shareholder vote, which means the target corporation must circulate a proxy statement. And it was established way back in 1964 that private plaintiffs can bring actions for false statements in corporate proxy materials under Rule 14a-9. See J.I. Case Co. v. Borak, 377 U.S. 426 (1964). As I mentioned, at this point it’s reasonably well established that 14a-9 does not require a showing of scienter.
Meanwhile, acquisitions structured as friendly tender offers (easy to do now under 251(h)) do not require shareholder votes, and thus do not involve proxy statements; the only federal prohibition on false statements comes from 14(e). (And, well, Section 10(b)).
So if the defendants prevail in Emulex - and depending on how they prevail - it could create very different liability schemes for deals structured as mergers rather than tender offers – a difference that is just now mattering a whole lot because of the changes in Delaware law.
Now, the defendants are correct that these days, the Supreme Court finds implied rights of action far less easily than it used to, and when the Court interpreted 14a-9 in 1964, implied rights of action were at their heyday. But unless we’re going to revisit Borak – and literally a 50-plus year understanding of the liability scheme for proxies – it makes no sense to say that plaintiffs are prohibited from suing for misrepresentations in tender offers under 14(e) while still permitting claims for false proxy statements under 14a-9. There are enough artificial distinctions between mergers and tender offers without adding more incentives for deal planners to game out a kind of regulatory arbitrage; indeed, Delaware recently amended the DGCL to create more, not less, similarity between long form and intermediate form mergers. And reaffirming that 14(e) requires scienter while 14a-9 does not may not be as dramatic a move, but it still creates an unnecessary discontinuity.
In any event, if Emulex prevails, I can totally see all kinds of weird results. Like, there are many states that don’t allow intermediate-form mergers, meaning that if you acquire a majority of shares via tender offer, unless you manage to get all the way to 90% or so, you’ll either have to get some kind of top-up or – if you can’t – you’ll have to hold a shareholder vote anyway to complete the deal. In those states, it may make more sense to simply hold a shareholder vote from the outset and skip the tender offer. But if there’s more liability for proxy materials than tender offer materials, acquirers may be tempted to choose a two-step structure anyway: they’ll make the tender offer, obtain enough shares to swing the merger vote, and hold a vote on the back end. That way, they may be insulated from liability for the initial tender offer materials, and – after Virginia Bankshares, Inc. v. Sandberg (1991) – there’s no cause of action for false statements in proxy materials where the outcome is fait accompli.
Or say you need a shareholder vote on the acquirer side – like, to issue more shares. It’s common to just distribute a joint proxy and have both target and acquirer shareholders vote. But if there’s a greater liability risk for proxy materials than tender offer materials, acquirers could intentionally break up the steps and hold a vote of their own shareholders, and then commence the tender offer.
Obviously, all this would be unwieldy and expensive, and if there isn’t another business justification, the choice to avoid issuing proxy statements might function as a confession of intent to commit fraud, but my broader point is simply this: Whatever the rule is going to be, it shouldn’t turn on whether the deal is structured as a merger or a tender offer.
Now, true, we haven’t seen a rash of gaming under the current regime, which - until the Ninth Circuit’s decision - already had different scienter requirements for 14(e) and 14a-9. That said, it must be recalled that Delaware didn’t start pushing these cases into federal court until 2015-ish; we may not have fully experienced the effects of divergent standards. In that sense, then, what Emulex is really doing is making the distinction more salient.
And what about this issue of private rights of action? Kevin LaCroix doubts the Court will eliminate the private right of action under 14(e) entirely, especially since no circuit court has even hinted at that possibility. But here’s the payoff: the Supreme Court doesn’t have to go all the way to holding that 14(e) provides no right of action to make an impact; all it has to do is say “We reserve for another day the question whether a private right of action exists under 14(e),” and we are off to the races. Expect a bunch of test cases, and a concerted, coordinated build of precedent in the lower courts, now more populated with Republican judges inclined to be skeptical of private claims. And that, I suspect, is really what the defendants, and the Chamber of Commerce, consider endgame.
*yes, yes, the phrase about “mak[ing] any untrue statement[s]” is also similar to the language of Rule 10b-5(b), which requires a showing of scienter, but that interpretation of 10b-5(b) is entirely due to the fact that 10b-5’s authorizing statute, Section 10(b), requires scienter; it’s not a standalone interpretation of the language of the rule.
Friday, January 11, 2019
I wasn't one of those people who decided to become a lawyer after watching To Kill a Mockingbird, Witness for the Prosecution, and Twelve Angry Men, but they were some of my favorite movies. These movies and TV shows like Suits, How to Get Away with Murder, and Law & Order "teach" students and the general public that practicing law is sexy and/or confrontational. When I teach, I try to demystify and clear up some of the falsehoods, and that's easy with litigation-type courses. When I taught Business Associations, it was a bit tougher but we often used movies or TV shows to illustrate the right and wrong ways to do things. As an extra credit assignment, I asked students to write a critique of what the writers missed, misrepresented, or completely misunderstood.
This semester, I will be teaching a transactional drafting course where the students represent either the buyer or the seller of a small, privately owned business. I would like to recommend movies or TV shows that don't deal with multibillion dollar mergers, but I haven't been watching too much TV lately. I'm looking for suggestions along the lines of Silicon Valley (which past students have loved) or Billions. If you have any suggestions, please comment below or email me at firstname.lastname@example.org.
Thursday, January 10, 2019
In case you're not also subscribed, I wanted to flag this post from the Legal Scholarship Blog. It's an excellent resource for seeing what's going on and calls for papers where you might want to apply. This time, there is real money available from the Risk Institute:
The Risk Institute at The Ohio State University’s Fisher College of Business invites area-specific and inter-disciplinary proposals for research covering all areas in risk and risk management. Priority will be given to topics of the Risk Institute’s 2018-2019 risk series:
- human resources risk
- aging workforce
- differing risks between born digital and traditional firms
- third-party risk
- predictive metrics and modeling
- cybercrime/data fraud
The main focus of the research proposal should be understanding or managing risks with respect to any of these topics.
Funding will be up to $10,000 cash or research support per person with a maximum of $30,000 per project.
Proposals are due January 31, 2019, and should be limited to five pages plus necessary appendices.
Wednesday, January 9, 2019
Is income inequality a myth? Compare "This Cartoon Explains How the Rich Got Rich and the Poor Got Poor" https://t.co/fzL8fFyIss with "5 reasons why income inequality is a myth—and Occupy Wall Street is wrong" https://t.co/veglQjq9y2 #corpgov— Stefan Padfield (@ProfPadfield) January 3, 2019
"The statement, which is signed by companies including Unilever, Adidas and AngloAmerican, recognizes human rights defenders as 'important partners in identifying risks or problems in our business activities' ...." https://t.co/L7QiiNTvZa #corpgov— Stefan Padfield (@ProfPadfield) January 4, 2019
"survey evidence shows that managers admit to short-termism driven by earnings management—they are willing to sacrifice positive net present value long-term investments to meet earnings goals" #corpgov https://t.co/DIUl4zTlej— Stefan Padfield (@ProfPadfield) January 8, 2019
"Rather than heralding a permanent shift ..., a lot of gig-economy activity was odd jobs that people took up to make ends meet. As the economy returned to normal, they returned to more familiar work arrangements." https://t.co/ZNqpC7uFdM #corpgov— Stefan Padfield (@ProfPadfield) January 8, 2019
RIP Harold Demsetz (1930-2019). "the relevance of the work of Demsetz is as critical to understanding the dynamics of marketplace today as it was when he first approached the study of industry structure and competitive behavior" https://t.co/fMgVeS9a2r #corpgov— Stefan Padfield (@ProfPadfield) January 9, 2019
"conservative groups ... complain that the companies defer too closely to the Southern Poverty Law Center when defining what constitutes hate speech. Many companies ... rely on the center’s list of hate groups, counting nearly 1,000 across the US" https://t.co/dpg6q66unc #corpgov— Stefan Padfield (@ProfPadfield) January 9, 2019
Tuesday, January 8, 2019
Not for my purposes, anyway. Back in 2016, I made the argument that the IRS should "stop using state-law designations":
My proposal is not abolishing corporate tax – that’s a much longer post and one I am not sure I’d agree with. Instead, the proposal is to have entities choose from options that are linked the Internal Revenue Code, and not to a particular entity. Thus, we would have (1) entity taxation, called C Tax, where an entity chooses to pay tax at the entity level, which would be typical C Corp taxation; (2) pass-through taxation, called K Tax, which is what we usually think of as partnership tax; and (3) we get rid of S corps, which can now be LLCs, anyway, which would allow an entity to choose S Tax.
This post deals with the tax code, which means I am in over my head, and because this is tax related, it means the solution is a lot more complicated than this proposal. But now that the code provisions are not really linked to the state law entity, I think we should try refer to state entities as state entities, and federal tax status with regard to federal tax status. Under such a code, it would be a little easier for people to understand the concept behind state entity status, and it would make more sense to people that a “C Corp” does mean “publicly traded corporation” (a far-too common misunderstanding). Thus, we could have C Tax corporations, S Tax LLCs, K Tax LLCs, for example. We'd know tax status and state-entity status quite simply and we'd separate the concepts.
We discussed this issue on Saturday at the 2019 AALS Section on Agency, Partnership, LLCs & Unincorporated Associations Program on LLCs. As I taught my first Business Organizations class of the semester, I talked about this and it occurred to me that maybe the better way to think about this is to simply acknowledge that there are no federal entities.
State law is the origin of all entity types (barring, perhaps, a few minor exceptions), and references to "C Corps" and "S Corps" are not really on target. I concede that the IRS does so, which is a challenge, but it's really unnecessary under today's tax code. That is, with check-the-box options, most entity types can choose whatever tax treatment they wish. An LLC can choose to be taxed under subchapter S, for example, though it has to meet certain requirements (e.g., can only have one class of "stock"), but the LLC can file Form 2553 an make an S election.
As such, as I have argued before, I think we should work to keep entity type and tax treatment separate. Thus, for example, we can have an S-taxed LLC (an LLC that made the S election) and a K-taxed LLC (an LLC that made a K election for pass-through taxation). The tax treatment does not "convert" the LLC to a corporation -- or S corp. It simply provides for certain tax treatment. I really think we'd see some doctrinal improvements if we could get more people to use language that makes clear tax treatment and entity type are separate issues, at least in today's word.
Entities are creatures of state law. How the federal or state government tax such entities does not change that reality. It's time we start using more precise language to make that clear.
Monday, January 7, 2019
CALL FOR PRESENTATION PROPOSALS
Institute for Law Teaching and Learning Summer Conference
“Teaching Today’s Law Students”
June 3-5, 2019
Washburn University School of Law
The Institute for Law Teaching and Learning invites proposals for conference workshops addressing the many ways that law professors and administrators are reaching today’s law students. With the ever-changing and heterogeneous nature of law students, this topic has taken on increased urgency for professors thinking about effective teaching strategies.
The conference theme is intentionally broad and is designed to encompass a wide variety of topics – neuroscientific approaches to effective teaching; generational research about current law students; effective use of technology in the classroom; teaching first-generation college students; classroom behavior in the current political climate; academic approaches to less prepared students; fostering qualities such as growth mindset, resilience, and emotional intelligence in students; or techniques for providing effective formative feedback to students.
Accordingly, the Institute invites proposals for 60-minute workshops consistent with a broad interpretation of the conference theme. Each workshop should include materials that participants can use during the workshop and when they return to their campuses. Presenters should model effective teaching methods by actively engaging the workshop participants. The Institute Co-Directors are glad to work with anyone who would like advice on designing their presentations to be interactive.
To be considered for the conference, proposals should be one page (maximum), single-spaced, and include the following information:
- The title of the workshop;
- The name, address, telephone number, and email address of the presenter(s); and
- A summary of the contents of the workshop, including its goals and methods; and
- A description of the techniques the presenter will use to engage workshop participants and make the workshop interactive.
The proposal deadline is February 15, 2019. Submit proposals via email to Professor Emily Grant, Co-Director, Institute for Law Teaching and Learning, at email@example.com.
The following comes from our friend Saule Omarova at Cornell Law. I hope that many can arrange to attend one or both events to honor Lynn's life and work.
* * *
Please join us on February 1-2, 2019, in New York City, for a special two-part event celebrating the life and work of our colleague and friend, Professor Lynn Stout.
On February 1, 2019, Cornell University Law School will hold the Lynn Stout Memorial Conference, honoring Professor Stout’s scholarly work and significant impact in corporate governance. The conference will feature a series of cutting-edge paper presentations and discussion panels; the conference celebrates Professor Stout’s scholarship and highlights the lasting impact of her ideas and writings on the present and future trajectory of legal research in corporate law, securities and derivatives regulation, law and economics, and law and ethics.
The conference will take place at the Cornell Club in New York City (6 East 44th Street, New York, NY 10017).
On February 2, 2019, at 10 a.m., an informal memorial service will be held at St. Paul’s Chapel of Trinity Church Wall Street (209 Broadway, New York, NY 10007).
The agenda and RSVP information can be found at:
Please note that capacity is limited for this event, so please RSVP before January 25.
- Thursday, January 31 book launch event invitation page: here is the link.
- The website for the book: https://www.citcap.org
Twitter tells me that there was a good bit of conversation at the AALS conference about the law review-based system of scholarship. If you want to try your hand at a different system, namely the double-blind peer-reviewed system, here is a call for papers from a legal journal in that system.
The Atlantic Law Journal is now open for submissions and is soliciting papers for its upcoming Volume 21 with an expected publication date in summer 2019. We are now also accepting book review submissions for books related to business law/society/legal studies. The Atlantic Law Journal is listed in Cabell's, fully searchable in Thomson-Reuters Westlaw, and listed by Washington & Lee. The journal is a double-blind peer-reviewed publication of the Mid-Atlantic Academy of Legal Studies in Business (MAALSB). Acceptance rates are at or less than 25%, and have been for all our recent history. We publish articles that explore the intersection of business and law, as well as pedagogical topics. Please see our website at http://www.atlanticlawjournal.org/submissions.html for the submission guidelines, the review timeline, and more information regarding how to submit. Submissions or questions can be sent to Managing Editor, Dr. Evan Peterson, at firstname.lastname@example.org.
Sunday, January 6, 2019
Growing up in Baton Rouge, Louisiana, we often flew Southwest Airlines out of New Orleans’ Louis Armstrong International Airport. Such trips usually also involved a visit to my maternal grandparents, lifelong NOLA residents. My grandpa always referred to Southwest as the “cattle car.” In reading this past week about the legendary Herb Kelleher, Southwest’s visionary co-founder who passed away on January 3rd, I learned that my grandpa’s moniker wasn’t original. Nope, grandpa had apparently fallen into step with competitors purportedly responsible for the nickname. Unfazed, Kelleher, with characteristic playfulness, had responded by offering Southwest customers a free bag to either cover their faces if embarrassed to fly with the airline or to hold all the money they’d save by doing so (clip starts at 1:08)! With Kelleher, such stunts were commonplace. He even participated in an arm-wrestling match rather than litigation to determine whether Southwest or Stevens Aviation would be entitled to use of the slogan “Just Plane Smart” (you can find this on YouTube too!).
Like many readers of this blog, Kelleher was a lawyer (an NYU law school graduate). In 1966, in a bar in San Antonio, Texas, he and a client, Rollin King, sketched a plan for an upstart airline on a cocktail napkin. And, as they say, the rest is history.
I have enjoyed reading stories from among the plethora of tributes written in the past few days about Kelleher because they tell of a brilliant, innovative businessman who worked hard, had a keen sense of fun, produced inimitable quotes (love quotes!), and had a deep respect and care for his employees. Indeed, USA Today lists “Happy employees (and customers)” as the first of Kelleher’s Five innovations that shaped U.S. aviation. Given the extensive coverage of Kelleher’s life, I’ll keep this tribute brief, encourage readers to explore the lessons of and practices behind Southwest’s phenomenal success (an airline with “profits for each of the past 45 years in an industry known for boom and bust”), and end with a few of my favorite Kelleher quotes, in addition to a link so that you too can see downtown Dallas lit this past Friday in Southwest’s colors to commemorate this great business pioneer.
We could have made more money if we furloughed people. But we don’t do that. And we honor them constantly. Our people know that if they are sick, we will take care of them. If there are occasions or grief or joy, we will be there with them. They know that we value them as people, not just cogs in a machine.
Saturday, January 5, 2019
It's the start of a new year and a new semester. As Joan wrote earlier this week, we need to step back and take stock of our mental health. I'm the happiest lawyer I know and have been since I graduated from law school in 1992, but many lawyers and students aren't so lucky. In fact, I probably spend 25-35% of my time on campus calming students down. Some have normal anxiety that fades as they gain more confidence. I often recommend that those students read Grit or at least listen to the Ted talk. Others tell me (without my asking) about addictions, clinical depression, and other information that I should not know about. I know enough to refer to them to help. Closer to home, my 22-year old son has lost several friends to suicide. Many of those friends went to the best high schools and colleges in the country and seemed to have bright futures. And as we know, the suicide rate for lawyers is climbing.
Thankfully, the American Bar Association has gathered a number of resources for law students here. Practicing lawyers can find valuable tools for lawyer well-being here and a podcast for lawyers in recovery here. Law students can access their own ABA wellness podcast here. To help keep my energy high, I listen to a lot of podcasts of all types. I’ve found that listening to wellness podcasts, meditating, and exercising instead of watching the news has had a dramatic impact on my health. I know for a fact that the wellness stuff works. Due to significant stressors as a caretaker, my blood pressure spiked to a clinically dangerous level last week. This week, with mindfulness exercises and other wellness activities, I was able to lower it to normal levels without my new medication having kicked in yet. This is a big deal for me because despite my professional happiness, I’ve been hospitalized twice in 14 months for medical conditions exacerbated by stress. Being calm and stress free is literally a matter of life and death for me. Some of the podcasts I listen to are probably too “woo woo” to post for this audience but if you’re interested, you can email me privately at email@example.com. I’ll keep your secret.
Mainstream lawyer/business wellness podcasts include:
The Happy Lawyer Project (“The Happy Lawyer Project is an inspirational podcast for young lawyers looking to find happiness in life with a law degree. Each episode provides you with the tips, advice, encouragement and inspiration you need to craft a life and career you love.")
The Resilient Lawyer (“Practical and actionable information you can use to be a better lawyer. The Resilient Lawyer podcast is inspired by those in the legal profession living with authenticity and courage. Each week, we share tools and strategies for finding more balance, joy, and satisfaction in your professional and personal life! You'll meet lawyers, entrepreneurs, mentors and teachers successfully bridging the gap between their personal and professional lives, connecting the dots between their mental, emotional, physical and spiritual selves.”)
Happy Lawyer, Happy Life ("A knowledge centre for lawyers who want to make the best of their life in and outside of the law.")
The Tim Ferris Show (“Each episode, I deconstruct world-class performers from eclectic areas (investing, sports, business, art, etc.) to extract the tactics, tools, and routines you can use. This includes favorite books, morning routines, exercise habits, time-management tricks, and much more.”)
The Mindful Lawyer (it's no longer running, but my colleague Scott Rogers pioneered the field and these are short tracks.)
Dina Cataldo Soul Roadmap (“So, you’re a lawyer who doesn’t have it all figured out? Design the life you deserve. Stop killing yourself to achieve success and redefine it instead.”)
You may need more than a podcast to get you through whatever you're going through right now. If you, a student, a colleague, or family member needs immediate help, please get it. I’ve cut and pasted the resources below from our law school’s web page for students.
Key National Referral Services
Chemical Dependency and Self-Help Sites
Addition Recovery Resources for Professionals, 540-815-4214
Alcoholics Anonymous (AA), 212-870-3400
American Medical Association, 800-621-8335
Center for Substance Abuse Treatment (CSAT), 240-276-1660
Cocaine Anonymous (CA), 310-559-5833
CODA Drug Abuse Hotlines, 1-877-446-9087
Crystal Meth Anonymous (CMA), 213-488-4455
Dual Recovery Anonymous (DRA), 913-991-2703
International Lawyers in A.A. (ILAA), 944-566-9040
Marijuana Anonymous (MA), 800-766-6779
Narcotics Anonymous (NA), 818-773-9999
National Clearinghouse for Alcohol and Drug Information(SAMHSA), 1-877-SAMHSA (726-4727)
National Institute on Drug Abuse (NIDA), 301-443-1124
Nicotine Anonymous (NA), 415-750-0328
Anorexia Nervosa & Associated (Eating) Disorders (ANAD), 630-577-1330
Overeaters Anonymous (OA), 505-891-2664
Adult Children of Alcoholics (ACOA), 562-595-7831
Nar-Anon Family Groups, 310-534-8188
Co-Dependents Anonymous (CODA), 888-444-2359
Co-Dependents of Sex Addicts (COSA), 763-537-6904
Mental Health Sites
Anxiety Disorders Association of America (ADAA), 240-485-1001
Journal of General Psychiatry (JAMA), 1-800-262-2350
Children and Adults with Attention Deficit/Hyperactivity Disorder(CHADD), 1-800-233-4050
Depression and Bipolor Support Alliance (DBSA), 800-826-3632
Lawyers with Depression
National Alliance on Mental Illness (NAMI), 800-950-6264
National Institute of Mental Health (NIMH), 1-866-615-6464
National Mental Health Association (NMHA), 703-684-7722
Sexual Addiction and Compulsivity
I'm sure that I've missed a number of resources. I just finished attending a wellness tea brunch at a French patisserie with fresh baked goods and champagne so I'm incredibly relaxed (#selfcare). If you have more resources to add, please feel free to comment below. Let’s make this the best year yet for our students and for ourselves. If I can ever be an ear for anyone, I’m always available.
Friday, January 4, 2019
Happy New Year! I had another post planned but will post it tomorrow.
As we get ready for the next semester and look for new inspiration, we may want to learn about some best practices. Scott Fruehwald has posted his roundup of the best legal education articles of 2018 here. Since I couldn't make it to AALS this year, I plan to spend part of my weekend digesting the articles mentioned in the post. Make sure you let him know of any articles that should be added to the list.
Thursday, January 3, 2019
The early registration deadline for Law & Society is nearly upon us. For corporate and securities, this year is being organized by Wendy Gerwick Couture at Idaho Law. The current set of panels looks fascinating. We'll also have an Author-Meets-Reader Session featuring The Rise of the Working Class Shareholder: Labor’s Last Best
Weapon by David Webber. It's in Washington, D.C. this year.
Early registration for LSA's 2019 meeting extended until January 10th.— Law and Society (@law_soc) December 21, 2018
Register here: https://t.co/JFtNDvfYTV
The 2019 meeting will be in Washington, DC from May 30 to June 2.
We hope you'll join us! #LSADC19 pic.twitter.com/kP4vmhJcRB
Hope everyone had some great holidays. A couple of weeks ago I posted on the relationship between fiduciary duty and trade secret law. https://lawprofessors.typepad.com/business_law/. I ran across a recent Fifth Circuit case (applying Louisiana law) that comes out the way I had hoped (at least in part), but that drops a footnote indicating that this resolution is far from uniform among the states. In relevant part, the court noted the following: / /
LUTSA’s [Louisiana's Uniform Trade Secret Act] preemption provision states:
- This Chapter displaces conflicting tort, restitutionary, and other laws of this state pertaining to civil liability for misappropriation of a trade secret.
- This Chapter does not affect:
(1) contractual or other civil liability or relief that is not based upon misappropriation of a trade secret, or
LA. STAT. ANN. § 51:1437. Official commentary to the statute explains that LUTSA “applies to duties imposed by law in order to protect competitively significant secret information.” Id. cmt. (1981) (Louisiana Official Revision Comments). But it does not apply to contractual duties or to “duties imposed by law that are not dependent upon the existence of competitively significant secret information, such as an agent’s duty of loyalty.” Id.
A claim for conversion of trade secrets plainly seeks protection of competitively significant information. Thus, we conclude that the plain text of LUTSA would preclude a civilian law conversion claim involving confidential information that qualifies as a trade secret under LUTSA.
We also conclude that if confidential information that is not a trade secret is nonetheless stolen and used to the unjust benefit of the thief or detriment of the victim, then a cause of action remains under Louisiana law. LUTSA’s uniformity provision instructs that LUTSA “shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this Chapter among states enacting it.” LA. STAT. ANN. § 51:1438. But courts interpreting their respective states’ versions of the Uniform Trade Secret Act (“UTSA”) have not uniformly applied UTSA’s preemption provision; instead, courts have come to varying conclusions about the preemption provision’s intended scope.4 Thus, because there is not enough uniformity among states to predict how the Louisiana Supreme Court would decide the issue, we look to intermediate state court decisions. See In re Katrina, 495 F.3d at 206.
The Louisiana appellate courts have twice held that LUTSA does not preempt where non-trade secret information was at issue.5 See B&G Crane Serv., L.L.C. v. Duvic, 935 So.2d 164, 166–67 (La. Ct. App. 2006); Defcon, Inc. v. Webb, 687 So.2d 639, 642–43 (La. Ct. App. 1997) (holding that LUTSA does not preempt breach of fiduciary duty claims for misappropriation of confidential information, as the statutory comments “make it clear that the Act ... does not apply to duties ... that are not dependant [sic] upon the existence of a trade secret”). These cases appear consistent with the plain text and stated purpose of LUTSA’s preemption provision: to preempt tort claims “pertaining to civil liability for misappropriation of a trade secret,” LA. STAT. ANN. § 51:1437, which the official commentary explains limits LUTSA’s preemption to other laws that “protect competitively significant secret information,” id. cmt. (1981) (Louisiana Official Revision Comments). Because Defcon and B&G Crane support the plain-text reading of LUTSA’s preemption provision, we conclude that LUTSA does not preempt civilian law claims for conversion of information that does not constitute a trade secret under LUTSA. Thus, we REVERSE the district court’s judgment on Brand Services’s civilian law claim for conversion of confidential information outside the definition of a trade secret without reaching the merits of that claim.
FN 4: See Spitz v. Proven Winners N. Am., LLC, 759 F.3d 724, 733 (7th Cir. 2014) (concluding that Illinois’s UTSA preempts claims “that are essentially claims of trade secret misappropriation, even when the alleged ‘trade secret’ does not fall within the Act’s definition”); Unique Paving Materials Corp. v. Fargnoli, 361 F. App'x 689, 690 (6th Cir. 2010) (affirming without analysis the district court’s conclusion that Ohio’s UTSA preempted claims for “conversion, misappropriation of trade secrets, tortious interference, and unfair competition”); C&F Packing Co. v. IBP, Inc., 224 F.3d 1296, 1307–08 (Fed. Cir. 2000) (holding that Kansas’s UTSA preempted a fraud claim where it was “indistinguishable from [the plaintiff’s] trade secret misappropriation” claim); Omnitech Int’l, Inc. v. Clorox Co., 11 F.3d 1316, 1330 (5th Cir. 1994)(concluding that LUTSA preempted a fiduciary duty claim “grounded in ... trade secret allegations”); Integrated Direct Mktg., LLC v. May, 2016 Ark. 281, 495 S.W.3d 73, 76 (2016) (concluding that “intangible property, such as electronic data, standing alone and not deemed a trade secret, can be converted”); Am. Biomedical Grp., Inc. v. Techtrol, Inc., 374 P.3d 820, 827 (Okla. 2016) (holding that Oklahoma’s UTSA preempts “conflicting tort claims only for misappropriation of a trade secret” and “does not displace tort claims for information not meeting this definition” (internal quotation marks and citation omitted) ); Orca Commc’ns Unlimited, LLC v. Noder, 236 Ariz. 180, 337 P.3d 545, 547 (2014) (concluding that the state’s UTSA “leaves undisturbed claims that are not based on misappropriation of a trade secret,” including claims for misuse of confidential information (internal quotation marks omitted) ); Robbins v. Supermarket Equip. Sales, LLC, 290 Ga. 462, 722 S.E.2d 55, 58 (2012) (concluding that Georgia’s UTSA did not except from its scope claims for “the misappropriation of proprietary or confidential information”); BlueEarth Biofuels, LLC v. Hawaiian Elec. Co., 235 P.3d 310, 323 (Haw. 2010) (concluding that Hawaii’s UTSA preempts common law claims for misappropriation of trade secrets and other confidential information); Burbank Grease Servs., LLC v. Sokolowski, 294 Wis.2d 274, 717 N.W.2d 781, 793–94 (2006) (holding that Wisconsin’s UTSA “leave[s] available all other types of civil actions that do not depend on information that meets the statutory definition of a ‘trade secret’ ”); Savor, Inc. v. FMR Corp., 812 A.2d 894, 898 (Del. 2002) (concluding that Delaware’s UTSA preempted common law unfair competition and conspiracy claims where they were based on the same alleged wrongful conduct as the trade secret claims); Mortg. Specialists, Inc. v. Davey, 153 N.H. 764, 904 A.2d 652, 664 (2006) (“[T]he [New Hampshire UTSA] preempts claims that are based upon the unauthorized use of information, regardless of whether that information meets the statutory definition of a trade secret.”); Frantz v. Johnson, 116 Nev. 455, 999 P.2d 351, 357–58, 357 n.3 (2000) (concluding that Nevada’s UTSA preempted various common law tort claims that “arose from a single factual episode, namely misappropriation of bidding and pricing information”); Weins v. Sporleder, 605 N.W.2d 488, 491 (S.D. 2000) (concluding that South Dakota’s UTSA “prevents a plaintiff from merely restating their trade secret claims as separate tort claims”); Fred’s Stores of Miss., Inc. v. M & H Drugs, Inc., 725 So.2d 902, 908 (Miss. 1998) (concluding that the state’s UTSA only preempts claims that would fall with a failed UTSA claim).
FN 5: Both of these cases concern breach of fiduciary duty claims, an area specifically excepted from LUTSA’s preemption provision. We see no reason, however, that Louisiana courts would think differently about a conversion claim.
Brand Services, L.L.C. v. Irex Corp., No. 17-30660, 2018 WL 6073675 (5th Cir. Nov. 21, 2018).
Given the UTSA comment that preemption does not apply to “duties imposed by law that are not dependent upon the existence of competitively significant secret information, such as an agent’s duty of loyalty,” I still wonder how some courts (see, e.g., Omnitech in footnote 4 above) conclude that breach of fiduciary duty claims -- even ones that do involve misappropriation of trade secrets -- are preempted? Hmmm . . . .
Wednesday, January 2, 2019
German apprenticeship programs "rest on a two-track educational system that can be jarring to many Americans. Students are tracked roughly by the time they are 10 years old; those destined for apprenticeships typically graduate after 10th grade." https://t.co/DCXtj2lWrx #corpgov— Stefan Padfield (@ProfPadfield) December 31, 2018
"The program is a success if it helps a worker with less than a high-school education land a $50,000 a year job with benefits .... even though workers who held unionized manufacturing or mill jobs may have previously earned $80,000 a year." https://t.co/dJPxHK9JWi #corpgov— Stefan Padfield (@ProfPadfield) December 31, 2018
Is this something I missed? S&C categorizes shareholder proposals as "ESP" - enviro, social, political - or "Governance," rather than the blanket "ESG." There are a lot of reasons that makes sense but I haven't seen others do it.https://t.co/XOn3AZTroA— Ann Lipton (@AnnMLipton) January 1, 2019
A top economic consultant just told me “I’ve advised on 200 major mergers in the past 20y. Not a single one was pro-competitive.” My profession should change priors when consulting -we cannot provide semi scientific ammunitions to corporate power. Or are we just so easily bought?— Tommaso Valletti (@TomValletti) December 31, 2018
Tuesday, January 1, 2019