Wednesday, January 25, 2023

Open Faculty Position - Assistant Professor of Business Law, Minnesota State University Mankato

Dear BLPB Readers:

From Professor Wade Davis:

"Minnesota State University Mankato is hiring a tenure track Business Law professor position for fall 2023. Here is a link to the Job Posting.

The Business Law program is located in the College of Business and provides students the practical knowledge and skills needed to become impactful leaders, entrepreneurs, and professionals who make legally-informed, ethical, and strategic decisions. It offers a robust curriculum including courses in contract law, employment law, intellectual property, environmental law, negotiation, and international law.

The Business Law program has a stand-alone minor with approximately 40 declared students. It teaches core classes for the College of Business, the MBA program, and several departments across the university.

Applications will start to be reviewed on Feb. 28 and continue until the position is filled. Minnesota State University, Mankato is an Affirmative Action/Equal Opportunity University and a member of the Minnesota State System. Please contact Wade Davis at wade.davis@mnsu.edu if you have any questions."

 

January 25, 2023 in Colleen Baker, Jobs | Permalink | Comments (0)

Tuesday, January 24, 2023

Save the Date: 2023 National Business Law Scholars Conference

The call for papers will be posted soon, but I wanted to let everyone know that The University of Tennessee College of Law will be hosting the National Business Law Scholars Conference in person (!) in Knoxville, Tennessee on June 15 and 16.  As many will recall, Tennessee Law was scheduled to host the conference in 2020 and 2021, only to have to move the conference online late in the game both years because of COVID-19 infection rates.  While we were happy to host our business law friends on Zoom those two years, we are truly excited to have folks come to our campus!

More coming soon.  But go ahead and save those dates.  Please reach out to me if you have any questions.

January 24, 2023 in Conferences, Joan Heminway | Permalink | Comments (0)

Saturday, January 21, 2023

waystar/ROYCO School of Law: Classes Start This Week!

As some of you may have heard, following on the success of the Yada Yada Law School, administered by friend-of-the-BLPB Greg Shill, a group of law faculty are getting together to teach classes in the waystar/ROYCO School of Law this semester.  Classes start this week.  Class meetings will be held weekly, on prescribed days, at 6pm-7pm Pacific/8pm-9pm Central/9pm-10pm Eastern.  The first two sessions are as follows:

Tuesday, January 24:
Professor Diane Kemker
Introduction: Using “Succession” (And Scripted Entertainment) to Teach Law: How and Why
[Assignment: Required: any/all of “Succession,” Seasons 1-3; Optional/recommended: any/all of “Yellowstone,” Seasons 1-5]

Wednesday, February 1:
Professor Megan McDermott
Greg Needs a Lawyer. Is He Getting an Ethical One?
[Assignment: Season 3, Ep. 2]

I will be presenting on February 16 on What the Roys Should Learn from the Demoulas Family (But Probably Won't), a lesson on corporate law fiduciary duties.

General information is provided in the syllabus included below.  A full schedule of class sessions will be available soon.  I will publish that, too.  I hope many of you will plan on attending.

++++++++++++

WaystarROYCOlogo

SYLLABUS
“Succession and the Law”
Spring 2023

About the course

This is a completely unofficial course for lawyers and law professor fans (or anti-fans!) of the HBO show, “Succession.”  It has been organized for informal educational/entertainment purposes only! Over the course of the spring semester, as we await the premiere of Season 4, we will look back at past episodes from a legal point of view.  Depending on when Season 4 begins, we may also schedule some additional group “watch parties” and real-time discussion groups.

We have assembled a terrific group of faculty from across the country and across a variety of disciplinary specialties.

Organizers

We are Prof. Diane Kemker and Prof. Susan Bandes, the organizers of our fun course on “‘Succession’ and the Law.”  Diane has a background in professional responsibility and wills and trusts, and Susan is one of the nation’s most-cited experts in criminal law and procedure.  Both of us have a longstanding interest in the use of popular culture for legal pedagogy.  In the spring of 2023, Diane will be a Visiting Professor of Law at DePaul University College of Law, from which Susan retired/took emeritus status in 2017.

Contact info

Diane: dklein14@depaul.edu
Susan: sbandes@depaul.edu

Meeting Details

Meeting time: 6pm-7pm Pacific/8pm-9pm Central/9pm-10pm Eastern

Meeting day:  Our class will meet on a weekly basis by Zoom.  Please note that we will meet on different nights of the week in different weeks, but always at the same time.

Zoom Link

https://us02web.zoom.us/j/86783560319?pwd=cTJza2N6elFyVGhBUFVjdk1Gb2oxQT09

Meeting ID: 867 8356 0319

Contact Diane or Susan for the meeting passcode.

Facebook Group

We have created a Facebook group, waystar/RoyCo School of Law, to support the class.  It will be a place for ongoing discussion of the show, of our sessions, and related issues.  To be added, please send a Direct Message to Diane Kemker.

https://www.facebook.com/groups/857390295272757

waystar/ROYCO Administration

Professor Diane Kemker (dklein14@depaul.edu)
Visiting Professor of Law, DePaul University College of Law and Southern University Law Center
Dean and Gerri Kellman Professor of Professional Responsibility, waystar/RoyCo School of Law

Professor Susan Bandes (sbandes@depaul.edu)
Centennial Distinguished Professor of Law, Emerita, DePaul University College of Law
Greg Hirsch Professor of Affectionate Litigation

Our Faculty

Professor Anat Alon-Beck
Associate Professor of Law, Case Western Reserve University School of Law

Professor Karyn Bass-Ehler
Assistant Chief Deputy Attorney General, Illinois Attorney General's Office

Professor Gillian Calder
Associate Professor
University of Victoria (Canada) Law

Professor Joan MacLeod Heminway
Interim Director of the the Institute for Professional Leadership, Rick Rose Distinguished Professor of Law
The University of Tennessee College of Law
Roy/Demoulas Distinguished Professor of Law and Business

Professor Lenese Herbert
Professor of Law
Howard University School of Law

Professor Rebecca Johnson
Associate Director, Indigenous Law Research Unit
Director, Graduate Program
University of Victoria (Canada) Law

Professor Richard McAdams
Bernard D. Meltzer Professor of Law
University of Chicago Law School

Professor Megan McDermott
Associate Teaching Professor
University of Wisconsin School of Law
Honorary Fellow at the Collingwood Centre for Ethics and Civility (Eastnor, England)

Professor Benjamin Means
Professor of Law and John T. Campbell Chair in Business and Professional Ethics
University of South Carolina School of Law

Professor Douglas Moll
Beirne, Maynard & Parsons, L.L.P. Professor of Law
University of Houston Law Center

Professor Robin Wagner
Attorney
Pitt, McGehee, Palmer, Bonanni & Rivers
NRPI Adjunct Lecturer of Employment Law

All meetings are at 6pm-7pm Pacific/8pm-9pm Central/9pm-10pm Eastern

January 21, 2023 in Corporate Governance, Corporations, Family Business, Joan Heminway, Shareholders, Teaching, Television | Permalink | Comments (0)

Friday, January 20, 2023

Well, that was inevitable

A couple of months ago, I blogged about Menora Mivtachem Insurance v. Frutarom, 54 F.4th 82 (2d Cir. 2022).  There, a public company issued new stock in connection with a merger, and the S-4 contained false information about the target, supplied by the target.  The truth came out, the stock price fell, and shareholders sued the target and some of its officers under 10(b).  In that context, the Second Circuit held that the plaintiffs, who had purchased shares in the publicly-traded acquirer and not the target itself, did not have "standing" to pursue claims against the target defendants.

The original decision issued on September 30; on November 30, the Second Circuit issued some minor revisions to its ruling (deleting, as far as I can tell, language that suggested that the defendants in a 10(b) action must be agents of the subject company, i.e., that plaintiffs couldn't sue if a stranger to a company made false statements about it and caused plaintiffs to make a purchase of that company's stock).

The plaintiffs sought rehearing, and one of the arguments they made was that the Menora reasoning was so broad that purchasers of shares in a SPAC would be unable to sue managers of a target company for false statements made in connection with the de-SPAC transaction.  The Second Circuit denied the petition, and so, right on cue, defendants in the Lucid SPAC case pending in the Northern District of California cited Menora to argue that the plaintiffs had no standing to pursue their claims. The court rejected Menora - and even its predecessor, Nortel - in an extensive analysis of Blue Chip and standing requirements for 10(b) actions:

Blue Chip focused on the unique problem that arises when a plaintiff’s claim is based on inaction and when it is likely that oral testimony will be the primary, or only, evidence. That problem does not exist here or in Nortel. The transactions of plaintiffs in both cases are anchored by the time of the transactions and the amount and value of securities bought or sold....

Based on this Court’s survey, Nortel’s holding regarding standing has been considered in seven decisions outside of the Second Circuit. All but one of these decisions apply Nortel with little or no commentary on the Second Circuit’s reasoning.  The one case to address Nortel’s standing analysis (notably, the one court in the Ninth Circuit that has considered Nortel) concludes that the “Second Circuit’s rationale in that decision is problematic” and not supported by extensive reasoning.” Zelman, 376 F. Supp. 2d at 962.

Further, at least two of these decisions are no longer in line with the Second Circuit’s approach after Menora. Nortel had suggested in dicta that if two companies had a “direct relationship” such as that created during a merger, that plaintiffs who purchased one company may have standing to sue based on misrepresentations of the other party to the merger.  Menora held that there is no such exception. Two cases outside of the Second Circuit had found plaintiffs had standing under the “direct relationship” exception. It is unclear if, faced with the issue again, these courts would follow the Second Circuit’s current approach....

The Court also sees no benefit from limiting standing as defendants suggest. The goal of such a limitation appears to be to ensure Section 10(b) actions are only brought where a defendant’s conduct is meaningfully related to the plaintiff’s harm. This is already accomplished by the elements of Section 10(b) claims, which include that a misrepresentation must be material and made “in connection with” the purchase or sale of a security. Not only would defendants’ standing rule be redundant, it would conflict with Section 10(b) materiality analysis, under which a misrepresentation is material and actionable where “a reasonable investor’s decision would conceivably have been affected” by it.

In re CCIV/Lucid Motors Securities Litigation, 4:21-cv-09323 (N.D. Cal. Jan. 11, 2023).  The court did, however, grant the motion to dismiss on materiality grounds, because when the plaintiff purchased shares in the SPAC, neither the SPAC nor Lucid had acknowledged that a merger was likely.  I can't find the decision on Westlaw or Lexis, but here's a Law360 article about it.

Anyhoo, as I've said before, I'm not sure how much longer SPACs will be a thing, but it seems we have a bit of a disagreement among courts that's likely to recur in different contexts.

 

 

January 20, 2023 in Ann Lipton | Permalink | Comments (0)

Monday, January 16, 2023

MLK and ESG

I have given several talks on ESG (environmental, social, and governance) matters in the past few months.  And, of course, it is a subject discussed in the classroom.  As we celebrate the birthday of Dr. Martin Luther King Jr. today (and this week), I could not help but feel that his work provided a foundation for—somehow embraced—current ESG discussions and actions.  So, I went poking around on the Internet.

I guess I am not the only one who noticed this connection.

On the environmental part of ESG, Los Padres ForestWatch offers that:

Dr. King’s actions and teachings led to many important acts being passed in congress including the Civil Rights Act of 1964 and the Voting Rights Act of 1965. It’s through this work that Dr. King created a movement that was meant for us to understand how we are mutually tied together and that all life is interrelated. It’s this structure of thinking that has led many to believe that his work was the early structure for the Environmental Justice Movement. We see after Dr. King’s passing that environmentalists were able to pass the Clean Air Act of 1970, the Clean Water Act of 1972 and the Endangered Species Act. All of which that had a direct effect on communities of color which are often marginalized and impacted heavily by climate change.

Yet, Dr. King's social issue impacts—including especially the social justice effects of his work—are far more central to communities and corporations.  Jeff Hilimire notes in a piece published on the Hands on Atlanta's website, that "[a]fter fighting for human rights for all Americans, Dr. King began to focus on employment and corporations as the next evolution of equality. He believed that companies have a responsibility to be forces of good in the world, and that their influence could make powerful change."  Finally, Natalie Runyon at Thomson Reuters Institute hints at governance accountability when she notes in an online article that, while Dr. King would view current ESG efforts favorably, "Dr. King . . . stated that words are not enough—action must follow, with measurement to demonstrate progress."

I will be giving Dr. King's connection to ESG more thought this week as we celebrate his legacy. But regardless of Dr. King's level of responsibility for ESG, his work resonates for me in ESG discussions and debates.

January 16, 2023 in Corporate Governance, Current Affairs, Joan Heminway | Permalink | Comments (0)

Saturday, January 14, 2023

Can The Next Generation of Lawyers Save the World?

An ambitious question, yes, but it was the title of the presentation I gave at the Society for Socio-Economists Annual Meeting, which closed yesterday. Thanks to Stefan Padfield for inviting me.

In addition to teaching Business Associations to 1Ls this semester and running our Transactional Skills program, I'm also teaching Business and Human Rights. I had originally planned the class for 25 students, but now have 60 students enrolled, which is a testament to the interest in the topic. My pre-course surveys show that the students fall into two distinct camps. Most are interested in corporate law but didn't know even know there was a connection to human rights. The minority are human rights die hards who haven't even taken business associations (and may only learn about it for bar prep), but are curious about the combination of the two topics. I fell in love with this relatively new legal  field twelve years ago and it's my mission to ensure that future transactional lawyers have some exposure to it.

It's not just a feel-good way of looking at the world. Whether you love or hate ESG, business and human rights shows up in every factor and many firms have built practice areas around it. Just last week, the EU Corporate Sustainability Reporting Directive came into force. Like it or not, business lawyers must know something about human rights if they deal with any company that has or is part of a supply or value chain or has disclosure requirements. 

At the beginning of the semester, we discuss the role of the corporation in society. In many classes, we conduct simulations where students serve as board members, government officials, institutional investors, NGO leaders, consumers, and others who may or may not believe that the role of business is business. Every year, I also require the class to examine the top 10 business and human rights topics as determined by the Institute of Human Rights and Business (IHRB). In 2022, the top issues focused on climate change:

  1. State Leadership-Placing people at the center of government strategies in confronting the climate crisis
  2. Accountable Finance- Scaling up efforts to hold financial actors to their human rights and environmental responsibilities
  3. Dissenting Voices- Ensuring developmental and environmental priorities do not silence land rights defenders and other critical voices
  4. Critical Commodities- Addressing human rights risks in mining to meet clean energy needs
  5. Purchasing Power- Using the leverage of renewable energy buyers to accelerate a just transition
  6. Responsible Exits- Constructing rights-based approaches to buildings and infrastructure mitigation and resilience
  7. Green Building- Building and construction industries must mitigate impacts while avoiding corruption, reducing inequality, preventing harm to communities, and providing economic opportunities
  8. Agricultural Transitions- Decarbonising the agriculture sector is critical to maintaining a path toward limiting global warming to 1.5 degrees
  9. Transforming Transport- The transport sector, including passenger and freight activity, remains largely carbon-based and currently accounts for approximately 23% total energy-related CO2 global greenhouse gas emissions
  10. Circular Economy- Ensure “green economy” is creating sustainable jobs and protecting workers

The 2023 list departs from the traditional type of list and looks at the people who influence the decisionmakers in business. That's the basis of the title of this post and yesterday's presentation. The 2023 Top Ten are:

  1. Strategic Enablers- Scrutinizing the role of management consultants in business decisions that harm communities and wider society. Many of our students work outside of the law as consultants or will work alongside consultants. With economic headwinds and recessionary fears dominating the headlines, companies and law firms are in full layoff season. What factors should advisors consider beyond financial ones, especially if the work force consists of primarily lower-paid, low-skilled labor, who may not be able to find new employment quickly? Or should financial considerations prevail?
  2. Capital Providers- Holding investors to account for adverse impacts on people- More than 220 investors collectively representing US$30 trillion in assets under management  have signed a public statement acknowledging the importance of human rights impacts in investment and global prosperity. Many financial firms also abide by the Equator Principles, a benchmark that helps those involved in project finance to determine environmental and social impacts from financing. Our students will serve as counsel to banks,  financial firms, private equity, and venture capitalists. Many financial institutions traditionally focus on shareholder maximization but this could be an important step in changing that narrative. 
  3. Legal Advisors- Establishing norms and responsible performance standards for lawyers and others who advise companies. ABA Model Rule 2.1 guides lawyers to have candid conversations that "may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client's situation." Business and human rights falls squarely in that category. Additionally, the ABA endorsed the United Nations Guiding Principles on Business and Human Rights ten years ago and released model supply chain contractual clauses related to human rights in 2021. Last Fall, the International Bar Association's Annual Meeting had a whole track directed to business and human rights issues. Our students advise on sanctions, bribery, money laundering, labor relations, and a host of other issues that directly impact human rights. I'm glad to see this item on the Top 10 list. 
  4. Risk Evaluators- Reforming the role of credit rating agencies and those who determine investment worthiness of states and companies. Our students may have heard of S&P, Moody's, & Fitch but may not know of the role those entities played in the 2008 financial crisis and the role they play now when looking at sovereign debt.  If the analysis from those entities  are flawed or laden with conflicts of interest or lack of accountability, those ratings can indirectly impact the government's ability to provide goods and services for the most vulnerable citizens.
  5. Systems Builders- Embedding human rights considerations in all stages of computer technology. If our students work in house or for governments, how can they advise tech companies working with AI, surveillance, social media, search engines and the spread of (mis)nformation? What ethical responsibilities do tech companies have and how can lawyers help them wrestle with these difficult issues?
  6. City Shapers-  Strengthening accountability and transformation in real estate finance and construction. Real estate constitutes 60% of global assets. Our students need to learn about green finance, infrastructure spending, and affordable housing and to speak up when there could be human rights impacts in the projects they are advising on. 
  7. Public Persuaders- Upholding standards so that advertising and PR companies do not undermine human rights. There are several legal issues related to advertising and marketing. Our students can also play a role in advising companies, in accordance with ethical rule 2.1, about persuaders presenting human rights issues and portraying controversial topics related to gender, race, indigenous peoples, climate change in a respectful and honest manner. 
  8. Corporate Givers- Aligning philanthropic priorities with international standards and the realities of the most vulnerable. Many large philanthropists look at charitable giving as investments (which they are) and as a way to tackle intractable social problems. Our students can add a human rights perspective as advisors, counsel, and board members to ensure that organizations give to lesser known organizations that help some of the forgotten members of society. Additionally, Michael Porter and Mark Kramer note that a shared-value approach, "generat[es] economic value in a way that also produces value for society by addressing its challenges. A shared value approach reconnects company success with social progress. Firms can do this in three distinct ways: by reconceiving products and markets, redefining productivity in the value chain, and building supportive industry clusters at the company's locations." Lawyers can and should play a role in this. 
  9. Business Educators- Mainstreaming human rights due diligence into management, legal, and other areas of academic training. Our readers teaching in business and law schools and focusing on ESG can discuss business and human rights under any of the ESG factors. If you don't know where to start, the ILO has begun signing MOUs with business schools around the world to increase the inclusion of labor rights in business school curricula. If you're worried that it's too touchy feely to discuss or that these topics put you in the middle of the ESG/anti-woke debate, remember that many of these issues relate directly to enterprise risk management- a more palatable topic for most business and legal leaders. 
  10. Information Disseminators- Ensuring that journalists, media, and social media uphold truth and public interest. A couple of years ago, "fake news" was on the Top 10 and with all that's going on in the world with lack of trust in the media and political institutions, lawyers can play a role in representing reporters and media outlets. Similarly, lawyers can explain the news objectively and help serve as fact checkers when appearing in news outlets.

If you've made it to the end of this post, you're either nodding in agreement or shaking your head violently in disagreement. I expect many of my students will feel the same, and I encourage that disagreement. But it's my job to expose students to these issues. As they learn about ESG from me and the press, it's critical that they disagree armed with information from all sides.

So can the next generation of lawyers save the world? Absolutely yes, if they choose to. 

January 14, 2023 in Business Associations, Business School, Compliance, Conferences, Consulting, Contracts, Corporate Finance, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Human Rights, International Business, International Law, Law Firms, Law School, Lawyering, Management, Marcia Narine Weldon, Private Equity, Shareholders, Stefan J. Padfield, Teaching, Technology, Venture Capital | Permalink | Comments (0)

Friday, January 13, 2023

A tale of two Primedia claims (or is it?)

This is sort of arcane, but I am fascinated by two decisions that came out of Delaware this week from VC Laster and VC Glasscock.  They are remarkably similar in facts and result, but travel slightly different paths to get there.

The first case, Harris v. Harris, concerned a family corporation.  The mother was alleged to have systematically looted the company and – aware that a books-and-records action was likely to be filed by her children – forced through a merger with a shell New Jersey entity.  After the merger, all of the former shareholders of the old corporation now held identical interests in the new corporation, which was the same in every respect, except for the new state of organization.

The second case, In re Orbit/FR Stockholders Litigation, concerned a corporation with private equity investors.  The controller, a French corporation, was alleged to have systematically looted the company, and then effectuated a cash squeeze out merger in order to avoid any potential claims for breach of fiduciary duty.

Because in both cases, the minority stockholders no longer held shares in the looted entity – they held shares in the reorganized entity in Harris, and cash in Orbit/FR – the controller argued they had lost standing to pursue fiduciary claims based on pre-merger conduct.

Now, as background, in In re Primedia, Inc. Shareholders Litigation, 67 A.3d 455 (Del. Ch. 2013), VC Laster held that when derivative claims are extinguished in a merger, the shareholders of the old corporation may be able to bring direct claims arguing that the merger consideration was unfair due to failure to value the derivative claims and include them in the merger consideration.  To succeed on a Primedia claim, the plaintiff must plead the existence of viable pre-merger derivative claims, that were material in the context of the merger, and that the buyer would not pursue the claims therefore no value was received for them.  The Delaware Supreme Court adopted the Primedia framework in Morris v. Spectra Energy P’rs (DE) GP, LP, 246 A.3d 121 (Del. 2021).

In Orbit/FR, the controlling shareholder argued that the plaintiffs could not meet the pleading requirements of Primedia, in large part because any derivative claims that could have been brought against the controller were time-barred – shareholders should have brought the claims earlier and did not, therefore, they had no value, therefore, they did not need to be valued in the merger.  The shareholder-plaintiffs argued that what shareholders did or didn’t do was beside the point; the claims belonged to the company, and a controlling shareholder can’t time-bar claims against itself by having the controlled board refuse to bring them.

All of that is in the briefing, but isn’t addressed by VC Glasscock, who side-stepped it by concluding that Primedia is the wrong framework.  (He did address a laches argument but – this is confusing – it was a different laches argument, one concerning the fact that the plaintiffs had actually substituted in for earlier plaintiffs who filed a suit in 2018 and then attempted to settle for amounts that the new plaintiffs deemed inadequate).

In Glasscock’s view, Primedia is reserved for cases where a third party buys the company, has no interest in pursuing the old derivative claims, and therefore does not pay for them.  He noted there are “stringent” requirements for pleading such a claim, “in light of the general rule that the derivative asset had transferred to the acquiror, and was not retained by the former stockholders.”

Orbit/FR, however, was more like a straightforward entire fairness case, in which a controller stood on both sides of the transaction.  The shareholders had never filed a breach of fiduciary duty claim against the controller for its premerger conduct; instead, the only claim was that the controller looted the company and then effectuated an unfair merger, in part because it bought out its own liability for no value.  Per Glasscock, “to the extent the existence of a pre-merger litigation asset, held by Orbit, contributes to a finding of the unfairness of the merger, that unfairness is not extinguished via the merger; it is created by the merger.”  The plaintiff had adequately pled an unfair merger, and therefore it would be appropriate for the court to assess fairness in light of all of the assets of the acquired company, including its choses in action.

So. Primedia did not apply; plaintiffs’ claims survived the motion to dismiss.

Harris was bit more complex, in that the minority-shareholder-plaintiffs really did plead premerger fiduciary breaches against their mother, the controlling shareholder, in addition to other claims.  In that context, VC Laster also invoked Primedia, but, in his view, though Primedia itself involved a third party buyer, its logic was descended from the squeeze-out case of Merritt v. Colonial Foods, Inc., 505 A.2d 757 (Del. Ch. 1986), where a controller effectuated a merger for the purpose of eliminating derivative claims, and the minority shareholders were permitted to use those claims to demonstrate the unfairness of the merger price.  In Laster’s view, then, Primedia is simply a specific instance of a general rule that when a merger eliminates derivative claims, those claims are treated as assets of the target company and the fairness of the merger is assessed accordingly.  And, further demonstrating that he believed Primedia simply to be an extension of earlier caselaw, Laster noted that the plaintiffs might not need to show that the value of the claims was material in light of the overall merger consideration – as Primedia suggests – if the unfairness of the merger can be pled by other means:

In Parnes, the Delaware Supreme Court did not hold that a stockholder only could assert a direct claim challenging a merger by pleading facts indicating that the value of the diverted proceeds were so large as to render the price unfair. The Delaware Supreme Court instead recognized more broadly that a stockholder could assert a direct claim challenging a merger if the facts giving rise to what otherwise would constitute a derivative claim led either to the price or to the process being unfair. In Primedia, the court identified this dimension of Parnes and explained that “[t]here is a strong argument that under Parnes, standing would exist if the complaint challenging the merger contained adequate allegations to support a pleadings-stage inference that the merger resulted from an unfair process due at least in part to improper treatment of the derivative claim.”

Using the Primedia framework, Laster, like Glasscock in Orbit/FR, went on to find that the minority stockholders in Harris could pursue their claims as a direct attack on the fairness of the merger. 

So the cases reached the same result, but differed on the applicability of Primedia.  Do these divergent approaches make much of a difference?  Possibly.  Glasscock seemed to think Primedia requires the pleading of very specific elements, so categorizing a claim as “Primedia” or “not Primedia” really matters for whether a complaint is sufficient; the Primedia pleading burden was avoided in Orbit/FR by viewing the case through the simple lens of whether the plaintiffs had alleged facts that made it reasonably conceivable that a controlling shareholder freezeout merger was unfair.  Laster, by contrast, did not view Primedia so narrowly; though he found the formal elements met in Harris, he also went out of his way to note that Primedia’s test is really just a mechanism for assessing whether unfairness has been pled.

Conceptually, I do agree with Laster that there is really one unified concept here, namely, the extent to which a derivative claim is an asset of the target and whether its treatment renders the merger unfair to the selling stockholders.  The facts necessary to plead such a claim should be a separate issue that is adjusted as the circumstances warrant.

Another interesting point of note, though: In Harris, Laster also held that the minority plaintiffs satisfied the two exceptions that exist to the continuous holding rule for derivative standing.  As Laster pointed out, the continuous holding rule is waived if the merger is effectuated solely for the purpose of eliminating the derivative claims (known as the “fraud exception,” Ark. Tchr. Ret. Sys. v. Countrywide Fin. Corp., 75 A.3d 888 (Del. 2013)), and it is also waived if the merger is a mere reorganization of the old corporation with no substantive changes.  Here, that’s exactly what happened on both counts, but Laster concluded that it would be administratively simpler to treat this as a direct claim, and that’s what he did. 

Which means, among other things, we now have at least one example of a case where the fraud exception to the continuous holding rule was in fact met, which I think is – new? If there others, I don’t know what they are – feel free to let me know in the comments if it’s been done before.

January 13, 2023 in Ann Lipton | Permalink | Comments (0)

Thursday, January 12, 2023

FINRA's Motion To Dismiss Constitutional Challenge in Scottsdale Capital v. FINRA

Last year, I covered a lawsuit challenging FINRA's constitutional status and the top-notch lawyers FINRA hired to defend it.  Since then, FINRA has filed its motion to dismiss.  You can read it yourself here if you're interested.  The plaintiffs have until January 30th to respond.

My sense after reading it is that FINRA would prefer to shift the focus off itself and keep the court's attention on the plaintiffs' tattered regulatory history.  The initial robust defense argues that the case should be dismissed for purported jurisdictional, venue, and standing flaws.   The first seventeen and a half pages of the motion to dismiss focus on these arguments and a review of the plaintiffs.  As a matter of litigation strategy, taking these shots early makes sense to me.  If the arguments succeed, they'll knock the case out entirely.

The final seven pages make the case for FINRA's constitutional status.  It argues that:  (1) FINRA is a private entity exempt from separation of powers or appointments clause issues; and (2) that no non-delegation doctrine violation has occurred because the SEC supervises FINRA.  

It'll be interesting to see how these arguments hold up, if Judge Scriven ever reaches them.  On the whole, the arguments so far seem to center around the issues I highlighted in my article warning about the possibility of these kinds of challenges for SROs.

For example, FINRA argues that it shouldn't be deemed a part of government because FINRA wasn't created by the government.  It relies in part on the Amtrak case, Lebron v. NationalRailroad Passenger Corp., 513 U.S. 374 (1995), for the proposition that only corporations “create[d]” by the government “for the furtherance of government objectives” will qualify as arms of the government.  

I discussed this issue in my article, and took the view that:

Drawing a constitutional line between whether these entities are government-created entities or government-authorized entities does not relate to the core concern animating Free Enterprise Fund.  Whether an entity is chartered under state law or is federally created has no bearing on whether the President is “stripped of the power . . . and his ability to execute the laws—by holding his subordinates accountable for their conduct.”  The precise method of creation of an SRO does not relate to the underlying separation of powers concerns.

The brief also argues that FINRA's power is a permissible delegation.  I'm less confident about the scope of appropriate delegation with the post-Trump era Supreme Court.  My point here isn't to say that one side or the other is right, but that there is real uncertainty about how far the Supreme Court will push on non-delegation issues.  It's going to be an interesting case to follow.

January 12, 2023 | Permalink | Comments (0)

Wednesday, January 11, 2023

Newly Released - Independent Review of Events in the Nickel Market in March 2022

For those readers interested in exchanges and clearing, I wanted to highlight that Oliver Wyman's "Independent Review of Events in the Nickel Market in March 2022" was released yesterday.  As I noted in an earlier post (here), in March 2022, the price of nickel on the LME rose over 270%, and the exchange not only halted nickel trading, but also canceled trades.  Additionally, the LME, who engaged Oliver Wyman to produce this Review, released "LME Group Response to Oliver Wyman Independent Review."  The Executive Summary - which is all I've had time to read thus far - notes that:

"The primary objectives of the review were to identify the factors that contributed to market conditions in the
nickel market in the period leading up to, and including, March 8, 2022, and make recommendations for how the
LME Group could reduce the likelihood of similar events occurring again"   

January 11, 2023 in Colleen Baker, Financial Markets | Permalink | Comments (0)

Tuesday, January 10, 2023

Society of Socio-Economists Annual Meeting Continues Through Friday

Below are the upcoming events taking place online as part of the Society of Socio-Economists Annual Meeting (all times EST). All events are accessible via a single link, which will be sent to you after registering here (registration is free). Readers of this blog will likely recognize a number of the presenters. I hope to see you there.

SOS 2023

UPDATE: You can find the paper Robert Ashford will be discussing Thursday at 2:15 here: https://scholarlycommons.pacific.edu/cgi/viewcontent.cgi?article=1372&context=uoplawreview

UPDATE 2: Two videos from economists discussing Professor Ashford's Inclusive Capitalism: (1) https://youtu.be/lL1gEEj0tCU; (2) https://video.syr.edu/media/t/1_nnt9e504 .

January 10, 2023 in Stefan J. Padfield | Permalink | Comments (0)

Monday, January 9, 2023

Automating Bias - Cardozo Law Review Symposium

If you are interested in business law topics at the intersection of law & technology and social inclusion, and if you are in NYC on January 25 (or just generally available that day for a webinar!), you may want to check out the Cardozo Law Review symposium on "Automating Bias."  The program agenda is included below.  Thanks to the symposium editor for bringing this program to our attention.

The symposium is being held at Cardozo School of Law, 55 Fifth Avenue, New York, New York, with an option to attend by webinar. (The symposium editor will send a link to the webinar to all registrants closer to the event).  In-person and live webinar attendees can receive CLE credits for attending; no CLE credits are available for remote attendees accessing the program later in recorded form.  [Note: This last sentence has been revised from the version of this post originally published to indicate that live webinar attendees may receive CLE credit.]

Those interested can register through the Eventbrite page linked here.  Click on the image below for a higher resolution copy of the program agenda and speakers.

 

BLPB(CardozoSymposium2023)

January 9, 2023 in Conferences, Joan Heminway, Technology, Web/Tech | Permalink | Comments (0)

Sunday, January 8, 2023

Deadline Extended - Fordham Journal of Corporate and Financial Law Call for Papers

Dear BLPB Readers:

"Fordham JCFL Volume XXVIII: Call for Submissions Update

The Fordham Journal of Corporate & Financial Law has extended its call for submissions for the Spring 2023 Issue of Volume XXVIII to February 3rd, 2023

As one of the premier student-edited business law journals in the country, the Journal ranks among the top-five specialty journals in banking and financial law, and among the top-ten specialty journals in corporate and securities law. The Journal welcomes articles and essays addressing important issues in antitrust, banking, bankruptcy, corporate governance, capital markets, finance, mergers and acquisitions, securities, and tax law and practice in the United States.

Please send all submissions to either our Scholastica page or our email at jcfl@fordham.edu. For more information regarding submissions, please visit our website. If you have any questions, please contact Brendan Finnerty, Senior Articles Editor, at bfinnerty6@fordham.edu."

January 8, 2023 in Call for Papers, Colleen Baker | Permalink | Comments (0)

Saturday, January 7, 2023

Non-competes, and also SPACs

Couple of things this week.

First, the FTC proposed a new rule that would bar employers from requiring employees to sign noncompetes that extend post-employment.  It’s a very broad proposal; it applies to “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer,” and includes “a contractual term that is a de facto non-compete clause because it has the effect of prohibiting the worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker’s employment with the employer.”

The sole exception is for “a non-compete clause that is entered into by a person who is selling a business entity or otherwise disposing of all of the person’s ownership interest in the business entity, or by a person who is selling all or substantially all of a business entity’s operating assets, when the person restricted by the non-compete clause is a substantial owner of, or substantial member or substantial partner in, the business entity at the time the person enters into the non-compete clause.”  A substantial owner must have at least a 25% interest in the entity. 

There’s lots to recommend a proposal like this – I’m not an expert in this area, but others have written about, for example, how Silicon Valley’s innovation may have been a result of California’s prohibition on non-competes.  

Right now, different states have different rules about the permissibility of non-competes, which is why – as I explore in my new paper, Inside Out (or, One State to Rule them All): New Challenges to the Internal Affairs Doctrine (forthcoming in the Wake Forest Law Review) – companies are increasingly trying to avoid them by writing non-competes and other employment-like terms into business entity documents (like LLC operating agreements and LP agreements), and then making employees members/partners/managers, on the theory that the non-compete is now no longer a “labor” contract, but an equity/investment contract, subject to the law of the state of organization.  That means courts – and, usually, Delaware courts – are left trying to sort out what counts as really an equity agreement versus what counts as an employment agreement.

So I wonder whether the FTC’s proposed rule could run into the same problem that Delaware is experiencing right now.  A plain reading of the proposal suggests that the rule applies to any contractual term between a worker and employer, regardless of whether the term appears in a contract of employment or some other kind of contract – but, another part of the rule (the model language for employers giving notice to workers) refers specifically to “employment contracts.”   If the rule becomes law, I can imagine employers might try to introduce some ambiguity by distinguishing “worker” contracts from entity documents.  To discourage that kind of gamesmanship, the FTC may want to add some language to clarify.

Second, previously, I blogged about Delman v. GigAcquisitions3 LLC, concerning the GigCapital3 de-SPAC transaction.   Well, VC Will has just sustained fiduciary duty claims against the Sponsor and directors of GigCapital3.  Among other things, she accepted plaintiffs’ allegations that the proxy was misleading because it represented that the SPAC’s shares were worth $10 each, when in fact they’d be worth less due to warrants and transaction fees.  Notably, VC Laster reached a similar conclusion in another SPAC case a few months ago.

But that’s not all. 

VC Will also held that Corwin cleansing simply is not available for SPACs, even if the vote is fully informed, because shareholders can both vote in favor of the deal and exercise their redemption rights (in fact, many are incentivized to vote in favor and exercise the redemption, rather than force liquidation, because they also hold warrants).  This means, according to Will, “the structure of the Gig3 stockholder vote is inconsistent with the principles animating Corwin.”  She also held that the MFW framework would be a poor fit because “The MFW process was designed to protect minority stockholders from the retribution of a controlling stockholder engaged in a self-dealing transaction—specifically, a squeeze-out. Those fears are not realized in a SPAC merger; public stockholders can simply redeem their shares.”

At this point, I’m feeling rather chuffed because these are exactly the arguments I made in one of my blog posts about the case, and later in my essay, The Three Faces of Control, at note 88 and accompanying text.

That said, even with the inapplicability of the MFW framework, she held that, at least for pleading purposes, the Sponsor’s control over the SPAC’s business – and ties to the directors – made it a controlling shareholder, even with less than 25% of the voting power (which meant the Sponsor had fiduciary duties to the SPAC).

Anyway, I’d say this is all a really big deal for SPACs – they'd have to do some pretty radical restructuring to avoid board-level/sponsor conflicts that would permit business judgment review in the absence of shareholder ratification under Corwin (and that doesn’t even get into the thing where they openly advertise for shareholders to vote even if they’ve already sold their shares) – except for how I think SPACs may pretty much be done anyway so we’ll all wake up one day and wonder what that was all about. 

January 7, 2023 in Ann Lipton | Permalink | Comments (0)

Friday, January 6, 2023

Mittal & Jung on "Strategic Management of Corporate Political Activism"

Vikas Mittal and Jihye Jung have posted Strategic Management of Corporate Political Activism on SSRN.  Here is the abstract:

Senior leadership at many organizations engages in overt corporate political activism (CPA), defined as activities that are visible to stakeholders that support or undermine issues viewed as politically charged. According to media accounts, consumers, employees and shareholders want executives to engage in CPA. Evidence from peer-reviewed research shows that CPA does not help, but can harm companies on many fronts. This evidence shows that CPA is detrimental to a company’s brand equity, employee productivity, and financial performance while also alienating some customers. To help address these issues, this article develops a strategic framework to assess where a company is in its CPA journey and determine its path forward. The framework proposes four strategies: convergence, divergence, selective engagement, and depoliticized but supporting stance. Companies can use this framework to assess whether and how they should engage in political activism and then find ways to adapt their political activism strategy over time.

January 6, 2023 in Stefan J. Padfield | Permalink | Comments (0)

Monday, January 2, 2023

A Business Law Prof "Goes Bowling" (Again): Leadership Lessons

OrangeBowl2022(Milton+)

I have been to college bowl games before to watch the Tennessee Volunteers football team play.  There was the loss to Clemson in the Peach Bowl (Atlanta) in 2003 and there were losses to North Carolina and Purdue in the Music City Bowl (Nashville) in 2010 and 2021.  I cannot remember if I was there for the 2016 win over Nebraska in the Music City Bowl (Nashville).  And I may have missed another bowl in there somewhere.  This year, the stakes seemed bigger.  The enemy again would be Clemson.  Could this bowl game be a revenge match for the 2003 Peach Bowl loss?

+++++

And so, here we were (me, my husband, and my 31-year-old daughter), at 4:30 am Friday morning, December 30, 2022.  We were awake and showered and packing the car for our first trip to the Orange Bowl.  Tennessee football had played well in a truly storied 2022 season.  And I was there for it all (at least for the home games).  Due to my service to the campus, I had the opportunity to get great tickets.  My hubby and daughter were "in."  Now, it was "go time."

Having arranged the trip late in the game and needing to integrate it with pre-existing plans for the three of us to spend the new year in San Diego (where I have family), the flight options for the trip were complex, limited, and somewhat expensive.  But my secretarial assistant is a wiz at finding odd and inexpensive routing (shout out to Sean!). To save money, we would leave from Nashville, not Knoxville. 

The trip, counterintuitively, involved flying from Nashville to Dulles and then to Fort Lauderdale.  But we were prepared!  We know the road to Nashville well (my husband's business has a clinic there, our son lives there, and I do a fair amount of work for the Tennessee Bar Association, which is based there).  We understood that the trip to Nashville sometimes involves delays (especially in areas where the interstate is a mere two-lane highway).  So, I built an extra hour-plus into our driving schedule.  We made good progress for the first hour or so of the trip.  And then the wheels fell off the wagon (so to speak) . . . .

Less than halfway to the airport in Nashville (which is about a 2.5-hour drive from Knoxville), we were stopped dead in our tracks on the interstate.  There was an accident ahead (and apparently not too far ahead).  We were grateful that it did not involve our car or us.  For a bit, we remained calm.  We had plenty of extra time.  How bad could it be?

It was bad.  Based on news gleaned from our cell phones, two cars were overturned.  People parked on the highway with us got out of their cars to walk their dogs, etc.  If folks could tolerate the cold, they turned their engines off.  We all amused ourselves with our cell phones.  I finished calculating the grades in one of my classes.  (Grades were due later that morning, and I had planned to send this last set from the airport before we left.)  An hour passed.

Then, the panic set in, a bit.  At about 75 minutes in, with no sign of a change in sight, my husband said: "Should we look into changing our flight?"  Then, it ht me: there would be few seats left on any plane, given bowl games, new year's eve, and (in general) the holiday travel debacle that continued to plague travelers days after the Christmas holiday was ostensibly "in the books."

OrangeBowl2022(I40Traffic)

I engaged with Tom through United Airline's reservations line.  Tom was our savior.  After more than an hour on the phone (seriously--the sun began to rise as we continued to sit in the traffic jam--see the photo above) during which Tom looked for every available flight/series of flights from every fairly local airport into every imaginable airport within driving distance of Miami, Tom found us three seats on a Southwest Airlines flight out of Nashville into Fort Myers.  It would cost us megabucks extra, but it would get in early enough for us to drive the two-plus hours to Hollywood/Miami and still make the game, if all went well.  We took the deal.

Blessedly, all did go well.  After two-plus hours of zero movement on the highway, the cars in front of us began to switch into gear and roll down the interstate once more.  Blessing of all blessings!  After arriving at the airport in Nashville, we were able to reserve a one-day rental car from Fort Myers to Fort Lauderdale at a reasonable price.  And after a relatively uneventful flight (despite the issues Southwest Airlines had experienced earlier in the week), we drove to Hollywood, checked into our hotel, and Uberred to the game.

We missed the alumni tailgate (a favorite pre-game activity of mine), but we arrived in time to explore the Hard Rock Stadium pre-game scene for a bit.  We were all smiles, as you can see from this photo.

OrangeBowl2022(ThreeAmigos)

Then, the adrenaline started flowing.  And it flowed, and flowed,  . . . .  And the Tennessee Vols prevailed over the Clemson Tigers 31-14.

What does any of this have to do with being a business law professor (other than that working for an employer that fields a winning football team provides more motive and opportunity to attend college bowl games)? 

As I have been processing Friday's Orange Bowl trip in my mind and, simultaneously, preparing for a panel discussion I am participating in at the Association of American Law Schools 2023 Annual Meeting later this week (Thursday, 8:00 am - 9:40 am), I realized that there are many leadership lessons in that experience that we can and should be teaching our law students.  Those include assessing the contextual importance of certain leadership attributes (e.g., tenacity, patience, flexibility, resilience) to leadership processes (e.g., effective questioning, resource allocation).  Lawyers are professional and personal leaders, and as I offered in a recently published edited transcript, "[i]n transactional business law, there are so many opportunities to lead, from team work situations involving the drafting and negotiation of merger agreements to diversifying the board of directors . . . ."  I then noted that "any scenario involving business transactional law or practice . . . likely involves at least one circumstance in which change leadership can be taught." (Check out my article on Change Leadership and the Law School Curriculum here.)

In Thursday's program, I will be talking about lawyer leadership and leadership development in the transactional business law space--at UT and more generally. As regular readers know, I have been directing our Institute for Professional Leadership at UT Law since the fall semester of 2020. The curriculum I manage addresses lawyer leadership.  But lawyer leadership is teachable in so many settings and without the need for specialized courses or an articulated curriculum..

The AALS panel is ambitiously (but not unrealistically) entitled "How Transactional Lawyers Can Impact the World."  For those of you who will be at the conference on Thursday, we will be in Marriott Grand Ballroom 11 on the Lobby Level of the North Tower.  The discussion is being moderated by Eric Chaffee, the current chair of the Section on Transactional Law and Skills.  The program description for the session reads as follows:

The theme of this year's annual meeting is "How Law Schools Can Make a Difference." References to social change and the law often beckon forth thoughts of crusading litigators winning important cases in court. This session explores what role transactional attorneys can play in impacting the world and how law students can be prepared to become those type of lawyers.

My co-panelists are an impressive lot, all dear friends in the law academy, with a varied set of perspectives and amazingly strong track records in legal education:

Alina Ball (University of California, Hastings College of the Law)
J. Robert Brown, Jr. (University of Denver Sturm College of Law)
Nicole Iannarone (Drexel University Thomas R. Kline School of Law)
Benjamin Means (University of South Carolina School of Law)

It is such an honor to be included in this group!  I hope to see a number of you who are readers from the law teaching world at the session.  The Q&A part of the program will, I am sure, be illuminating and a strong feature of the session.

Oh, and Go Vols!

January 2, 2023 in Conferences, Joan Heminway | Permalink | Comments (0)

Saturday, December 31, 2022

Year in Review: Buffett eschews ESG and beats the market by 23%?

Are the following two items related?

  1. Yesterday, CNN reported (here) that "the S&P 500 is down about 20% in 2022 – but .... Buffet’s [sic] Berkshire Hathaway (BRKA) is doing fine, though, up over 3% this year."
  2. Back in July, CIO reported (here) that "Buffett, Who Terms ESG Reporting ‘Asinine,’ Adds to Oil Holdings."

December 31, 2022 in Stefan J. Padfield | Permalink | Comments (0)

Friday, December 30, 2022

Ghosts of Christmas Past: WeWork Litigation

Everyone remember the WeWork debacle?  One interesting aspect is that although Adam Neumann is often mentioned in the same breath as Elizabeth Holmes and – these days – Samuel Bankman-Fried, Neumann was never charged with fraud, despite ballyhooed announcements of investigations.  If anything, that’s one of the more amazing things about the story: Neumann was able to incinerate billions of dollars while apparently explaining exactly what he planned to do and how he would do it.

Well, not exactly.  As I blogged in March 2021, one set of WeWork investors brought fraud claims against Neumann and other WeWork officers, namely former shareholders of a company called Prolific Interactive, which WeWork acquired for a combination of cash and WeWork stock.  The former Prolific shareholders claim that they were misled about the value of WeWork stock and sold their company too cheaply.  And, when they filed their complaint, I blogged that I didn’t understand why they had chosen to bring claims solely under Section 10(b) of the federal Exchange Act.  Section 10(b) is a very plaintiff-unfriendly statute.  Among other things, 10(b) claims are subject to the heightened pleading requirements of the PSLRA, and the scope of prohibited behavior is actually quite narrow (aiding and abetting claims, for example, are unavailable, and the definition of a primary violation can be something of a moving target).  Section 10(b) is only preferred by plaintiffs because it allows fraud-on-the-market liability, which most states’ common law does not.  The former Prolific shareholders, however, were not bringing a fraud-on-the-market case, so I didn’t understand why they were advancing claims under 10(b).

Well, on December 23, 2022, the District of Delaware finally dismissed the complaint (with leave to replead), see Emamian v. Neumann, No. 1:21-cv-00414, and from that opinion (as well as by reading some of the briefing), I got my answer.  (Sadly, the opinion is not available on Westlaw or Lexis as of this posting; you have to pull it from the docket).

When the plaintiffs signed the deal to receive WeWork stock in exchange for Prolific stock, the agreement contained a clause that disclaimed reliance on any representations outside of the agreement itself.  That disclaimer of reliance is enforceable under common law (or at least, under Delaware’s common law, see Abry Partners V, L.P. v. F & W Acquisition, 891 A.2d 1032 (Del. Ch. 2006), which likely applies here).  But some federal courts have held that anti-reliance clauses are not enforceable under Section 10(b), as they are too similar to a prohibited waiver of Exchange Act protection.  See AES Corp. v. Dow Chemical Co., 325 F.3d 174 (3d Cir. 2003). But see Cornielsen v. Infinium Capital Management, LLC, 916 F.3d 589 (7th Cir. 2019).

Sidebar: As I’ve previously blogged (here and here and here), the Ninth Circuit is right now considering whether a forum selection bylaw that shunts Exchange Act claims into a forum that has no jurisdiction to hear them is also the equivalent of a prohibited Exchange Act waiver.

In the Emamian case, though the contract disclaimed reliance on external representations, and the plaintiffs based their claims entirely on those.  Since the reliance waiver would have foreclosed claims under common law, they instead brought them under 10(b).

But!

Although some federal courts have been reluctant to give automatic effect to nonreliance clauses in 10(b) cases, they may hold that 10(b) requires plaintiffs to show that their reliance was justifiable, and a nonreliance clause may be evidence – though not dispositive – that any reliance on the disclaimed statements was not justifiable.  See O’Connor v. Cory, 2018 WL 5117197 (N.D. Tex. Oct. 19, 2018) (exploring the caselaw).  Beyond the issue of nonreliance clauses, the caselaw on what counts as “justifiable” reliance is somewhat mixed, especially since doctrines like “puffery” already serve the same function by eliminating any facially unreliable statements.  As a result, some courts have held that, since 10(b) is a fraud statute, plaintiffs have no affirmative duty to investigate defendants’ representations, Teamsters Local 282 Pension Fund v. Angelos, 762 F.2d 522 (7th Cir. 1985). 

The Third Circuit, however, requires some degree of diligence by the plaintiff, and so the Emamian court dismissed plaintiffs’ claims for failure to plead that they conducted a reasonable investigation – especially in light of the nonreliance clause and the length of the negotiations – but gave plaintiffs leave to replead on that issue.

That said, I’ll note something else: Although the court gave lip service to PSLRA pleading standards, it quite demonstrably did not require the same level of detail you’d expect in a fraud-on-the-market case by public company shareholders.  Though the court rejected plaintiffs’ claim that WeWork’s $110-per-share valuation was itself fraudulent for (for failure to plead scienter), the court did hold that plaintiffs had properly alleged that Neumann made false statements, with scienter, about WeWork’s “operations and business prospects.”  Yet the most that plaintiffs alleged along these lines was:

During these meetings [held from December 2018 to March 2019], Neumann discussed how valuable WeWork will be after its IPO as well as WeWork’s purported profitability, cash flow, and supposedly strong balance sheet at the time….

During the meetings and discussions leading up to WeWork’s acquisition of Prolific, Neumann and the other Defendants failed to disclose WeWork’s cash flow problems, massive operating losses, the unsustainable nature of the Company’s business model, Neumann’s self-dealing and erratic behavior, or that Neumann sold or was selling large blocks of his WeWork shares privately.

And, though it’s unclear whether the court considered these to be part of the fraud, Plaintiffs also made general allegations about WeWork’s public statements, such as:

Despite its growth, and the message it was presenting to the investing community that it was a tech start-up that was revolutionizing the workplace by bettering humanity and promoting community “wellness” and “kindness,” as it was later revealed, WeWork was nothing more than a subleasing company that captured the spread between long-term rental costs and short-term subleasing revenues for commercial office space.  WeWork claimed to be selling a membership “experience” that was “powered by technology designed to enable [WeWork’s] members to manage their own space, make connections among each other and access products and services.” But the reality is that WeWork simply offered a trendy desk and chair for monthly rent.

These allegations would never support a Section 10(b) class action against a public company – indeed, reading the complaint, it seems that the plaintiffs’ main claim is that they were defrauded by the $47 billion company valuation (which allegations, again, the court rejected on scienter – not falsity - grounds). Which is probably why we haven’t seen the kinds of government actions surrounding WeWork as we've seen for other high-profile startup collapses; statements of valuation – with nothing more – are extremely hard to prove false, let alone intentionally so.

Which means, we can say that 10(b) cases may formally have tougher pleading standards than common law cases, but judges may be loathe to impose them outside the class action context.

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

Wednesday, December 28, 2022

Recordings of Debt Market Complexity: Shadowed Practices and Financial Injustice

Earlier this year, co-blogger Joan Heminway posted about the University of Pennsylvania Law Review's October 2022 Symposium, Debt Market Complexity: Shadowed Practices and Financial Injustice.  It was a fantastic program! For interested BLPB readers who were unable to attend, I wanted to share that recordings of the program were available online.   

December 28, 2022 in Colleen Baker | Permalink | Comments (0)

Tuesday, December 27, 2022

Holiday Happiness and the Business Law Professor

BLPB(XmasCookies2)

As a law professor, I find December a very confusing month.  On the one hand, exams are given and papers are in, and grading them and determining course grades loom large.   These activities consume inordinate amounts of time and are stressful, adding to the stress of holiday preparations (a real thing some of us do not acknowledge).  And then there always is the need to work in medical appointments that did not make it into one's schedule during the fall semester.  The negative energy can be overwhelming.

Yet, on the other hand, class preparation is done.  Scheduling things gets a bit easier since class meetings are no longer happening.  The many hours of grading even have some bright moments--moments in which you are confident someone really "gets it" (whatever "it" is)  There is some joy in the gift-buying and wrapping, menu-planning and cooking, and certainly in gift-giving.  And there is gratitude that those medical appointments are finally happening, and that any necessary follow-ups can be organized and implemented.

The little happy surprises are, however, the best--like the wonderful homemade gingerbread pictured above, a gift from a young woman I met almost four years ago because of a talk I gave to honors undergraduates on crowdfunding.  She had this cool idea for a nonprofit, and I introduced her to one of our law clinic faculty members.  (He got cookies, too!)

I try to focus on the little joys.  They make a difference in my sense of fulfillment and productivity.  I do not fully understand why.  But I continue to pursue answers.

Along those lines, I recently had the privilege of participating in a campus leadership event that offered me some food for thought.  I reflect on it in this blog post for Leading as Lawyers, the blog hosted by the Institute for Professional Leadership at UT Law (of which I am the Interim Director).  The post is about lawyer leadership.  Each of us as law professors is a leader.  We are leaders in the classroom in our law schools, in the communities in which we live and work, and in our family and personal lives more generally.  According to the research cited by the speaker at that event, choosing to be happy by focusing on enjoyment, satisfaction, and purpose, even in stressful times, is important.  It can change the course of one's leadership and life (and the lives of others) in positive ways.

The cookies from my nonprofit entrepreneur friend (and those pictured below--with some of hers--that were made by one of my fellow Tuesday-night yogis in a special semi-private class I take at a local yoga studio) are symbolic.  I enjoy cookies.  They are meaningful representations that put a smile on my face.  The represent the fulfillment of some of my current limited "wants"--sustained and deep relationships among them.  And they are evidence that I understand and am pursuing my recognized purpose, which includes using my "corporate law powers" to help others. Yay for all that (and for cookies generally)!

I wish all much happiness and good fortune in 2023.  Pursue enjoyment, satisfaction, and purpose.  Take pleasure in the many fruits of your labors, including your relationships with students.  Happy New Year!

[Editorial note: I have been trying to publish this on and off for the past day or so. Ultimately, I had to create this post on my phone, since my computer and TypePad do not want to play ball with each other right now. I hope this will resolve itself soon, since the photo editing function is not as nuanced on a handheld (or maybe I am just inept. Lol. Please forgive!]

BLPB(Xmascookies)

December 27, 2022 in Joan Heminway, Nonprofits, Teaching | Permalink | Comments (0)

Saturday, December 24, 2022

Video of the Seventh Annual Berkeley Fall Forum on Corporate Governance

In early November, Berkeley held a 2-day forum on corporate governance, featuring a variety of A-list speakers including Chancellor McCormick and Vice Chancellor Glasscock.  I also participated on a panel with Adam Badawi to talk about everyone's favorite subject, Elon Musk's takeover of Twitter.  The videos from the event were just posted online, so for those of  you who couldn't watch it live - here's the link (also available here)!

Happy holidays, everyone. Stay warm!

December 24, 2022 in Ann Lipton | Permalink | Comments (0)