Monday, June 14, 2021
The twelfth annual (and second virtual) National Business Law Scholars Conference (NBLSC) is being hosted by The University of Tennessee College of Law on Zoom this Thursday and Friday, June 17 and 18. The schedule for the two days of proceedings (fashioned painstakingly and patiently by planning committee member Eric Chaffee) can be found here. Zoom links for each session are included.
This year's conference boasts, in addition to the NBLSC's flagship scholarly paper panels, a Thursday plenary session at 1:00 pm (Eastern Daylight Time) entitled "Beyond Shareholder Primacy." The session focuses on Matt Bodie and Grant Hayden's new book, Reconstructing the Corporation: From Shareholder Primacy to Shared Governance, which follows on their 2020 Boston University Law Review article "The Corporation Reborn: From Shareholder Primacy to Shared Governance." The 2021 conference also features a later start time each day to be more inclusive of our West coast participants.
I join the rest of the planning committee (listed below) in looking forward to seeing many of you at the conference. Please contact any of us with questions.
Afra Afsharipour (University of California, Davis, School of Law)
Tony Casey (The University of Chicago Law School)
Eric C. Chaffee (The University of Toledo College of Law)
Steven Davidoff Solomon (University of California, Berkeley School of Law)
Joan MacLeod Heminway (The University of Tennessee College of Law)
Kristin N. Johnson (Emory University School of Law)
Elizabeth Pollman (University of Pennsylvania Carey Law School)
Jeff Schwartz (University of Utah S.J. Quinney College of Law)
Megan Wischmeier Shaner (University of Oklahoma College of Law)
Saturday, June 12, 2021
Everyone remembers Emulex Corp. v. Varjabedian, right? The Ninth Circuit held that plaintiffs could sue under Section 14(e) for negligent, as well as intentional, false statements in connection with a tender offer – breaking with circuits that had read 14(e) to require scienter – and the Supreme Court granted certiorari to resolve the split. The problem was, the defendants were sort of arguing that 14(e) only prohibits intentional conduct, and sort of arguing that there’s no private right of action under 14(e) at all. As a result, the whole thing ended with the Court dismissing the writ as improvidently granted.
Fast forward to Brown v. Papa Murphy’s Holdings Incorporated, 3:19-cv-05514-BHS-JRC, pending in the Western District of Washington. The plaintiffs there also alleged that defendants negligently made false statements in connection with a tender offer; the claims survived a motion to dismiss; but the magistrate handling the case just recommended that the district court certify for interlocutory appeal under Section 1292. What issue is being certified? Well, that depends on which page of the opinion you read. Here are some quotes from the magistrate’s order, from June 9, 2021, Dkt. 62:
the Court finds that defendants have shown that this matter should be certified for interlocutory appeal to determine whether there is a private right of action for claims under Section 14(e) of the Securities Exchange Act of 1934.
Defendants previously requested that the Court dismiss plaintiff’s second amended complaint on the ground that there is no private right of action for violations of Section 14(e) of the Exchange Act based on allegations of defendants’ negligence. In recommending denial of defendants’ motion to dismiss, this Court found, in part, that Ninth Circuit precedent establishes an implied private right of action under Section 14(e).
The District Court adopted this Court’s Report and Recommendation (Dkt. 47) over defendants’ objections (Dkt. 51) and found that “[a]bsent a directive from the Ninth Circuit or the Supreme Court [. . .], the Court will not overturn precedent in holding that no private right of action for negligence-based claims exists.”
Here, defendants assert that the existence of a private right of action under Section 14(e) is a controlling question of law. The Court agrees. If the Ninth Circuit were to rule that there is no Section 14(e) private right of action for claims premised on negligence, the outcome of the Ninth Circuit’s ruling could materially affect the outcome of this litigation.
Here, defendants argue that whether there is a private right of action under Section 14(e) for claims premised on negligence is a novel legal issue on which there is a substantial ground for difference of opinion.
You see the issue. Most of the opinion is about the uncertainty of a private right of action based on negligence, but some of the phrasing concerns whether there is a private right of action at all.
In fact, here are the crucial grafs of the magistrate’s opinion:
Defendants assert that current Ninth Circuit precedent under Plaine v. McCabe, 797 F.2d 713, 718 (9th Cir. 1986) permits only a private right of action under Section 14(e) based on “fraudulent activity” in connection with a tender offer. Dkt. 58, at 8. Therefore, defendants conclude that the Ninth Circuit’s opinion in Plaine does not control plaintiff’s Section 14(e) claim premised on negligence. See id. Indeed, the Ninth Circuit in Plaine only addressed whether there was a private right of action under Section 14(e) based on claims of fraud—not negligence. See Plaine, 797 F.2d at 717–18….
[A]lthough the Ninth Circuit later held that claims under Section 14(e) require only a showing of negligence (rather than scienter), the issue of whether there is a private right of action for Section 14(e) claims based on negligence was not before the court. See Varjabedian v. Emulex Corp., 888 F.3d 399, 403–408 (9th Cir. 2018).
But is that really an accurate characterization of Ninth Circuit precedent?
Defendants – and the magistrate – interpreted Plaine v. McCabe, 797 F.2d 713 (9th Cir. 1986) to squarely hold that there is a private right of action under 14(e). But in that case, the actual question presented was whether a nontendering shareholder could sue under 14(e), given the buyer/seller limits for 10(b) claims. No one was arguing against a private right of action; the defendants merely argued that the plaintiff was uninjured because she did not tender. In that context, the Ninth Circuit said:
Initially, we address the defendants’ argument that Plaine lacks standing to bring a section 14(e) claim. The defendants allege that because Plaine did not voluntarily tender her shares pursuant to the amended tender offer, she must not have relied on the alleged misstatements and was not injured by them.
To state a violation of section 14(e), a shareholder need not be a purchaser or seller of any securities as is required under other anti-fraud provisions of the Act... Although Plaine did not tender her shares, she alleged injury occurring as a result of fraudulent activity in connection with a tender offer. In light of the Act's goal of protecting investors and the specific harm Plaine alleges, we follow the lead of the Fifth and Second Circuits and hold that in these circumstances even a non-tendering shareholder may bring suit for violation of section 14(e).
Then along came Varjabedian v. Emulex Corp. There, private plaintiffs brought a 14(e) claim based in negligence, and the district court dismissed on the ground that a showing of scienter is required. On appeal, the Ninth Circuit held that negligence is sufficient:
[F]or the reasons discussed above, we are persuaded that intervening guidance from the Supreme Court compels the conclusion that Section 14(e) of the Exchange Act imposes a negligence standard. Accordingly, we REVERSE the district court's decision as to the Section 14(e) claim because the district court employed a scienter standard in analyzing the Section 14(e) claim. We also REMAND for the district court to reconsider Defendant's motion to dismiss under a negligence standard. On remand, the district court shall also consider whether the Premium Analysis was material, an argument that Defendants raised but that the district court did not reach. In addition, the district court shall consider Plaintiff's Section 20(a) claim since the Section 14(e) claim survives.
This, the Papa Murphy defendants and magistrate held, meant that the Ninth Circuit assumed in Emulex – but never squarely held – that the private right of action extends to negligence-based claims.
By my read, though, you could make the same argument about Plaine, i.e., that the question of a private right of action was never squarely presented, the Ninth Circuit just assumed there was a private right of action, and its legal analysis was limited to whether that right extended to nontendering shareholders. I mean, that’s at least as plausible as treating a private right of action for negligence as unsettled after Emulex, seeing as how in Emulex, the Ninth Circuit was facing a private claim and squarely told the district court to consider the motion to dismiss under a negligence standard.
Given all of this, why did the Papa Murphy defendants argue, and the magistrate accept, that it was settled law in the Ninth Circuit that there exists some private right of action, and that it was only unsettled as to the state of mind requirement?
I assume it’s because of the standards for certification under Section 1292. You can only get an interlocutory appeal if you show “substantial grounds for difference of opinion.” No court has ever questioned that there is a private right of action under 14(e); therefore, the defendants would have trouble getting an interlocutory appeal for that question, even if they argued that Plaine never squarely so held. The Ninth Circuit has, however, broken with other circuits on the issue of scienter versus negligence under 14(e), creating an avenue for argument on that score. But the Ninth Circuit was also very clear that negligence, rather than scienter, is the standard in that circuit. So, the only place where the defendants could find some uncertainty that would justify interlocutory review was by threading the needle between a negligence based standard and a private right of action – in effect, suggesting that while maybe 14(e) prohibits both negligent and intentional conduct, different levels of fault matter depending on whether an action is brought by private plaintiffs or the government.
Of course, the magistrate’s opinion here is not final. It would have to be adopted by the district court, and then the Ninth Circuit would have to grant the appeal, before it would be heard. But the muddling of issues may present the same problem in any Supreme Court petition as in the original Emulex case.
Friday, June 11, 2021
Do job interview questions about commitments to diversity violate state laws against discrimination on the basis of political viewpoint?
Insider.com recently profiled Jeffrey Housman, who is “chief people and services officer at Restaurant Brands International.” Part of the article explains that:
One of the first DEI initiatives Housman's team spearheaded was a change to the interview process. RBI hiring managers now ask job candidates in their first interview what diversity means to them, and how they'd champion diversity if they joined the team. And, across RBI's corporate offices, at least 50% of all candidates in the final interview round must be "from groups that are demonstrably diverse, including race."
Putting aside the legality of the interview quotas, this reminded me of the debate a few years ago regarding “Diversity, Equity and Inclusion” statements required of applicants for faculty positions at a number of UC campuses. An op-ed in the Wall Street Journal argued that:
This system specifically excludes those who believe in a tenet of classical liberalism: that each person should be treated as a unique individual, not as a representative of an identity group. Rather than helping achieve inclusion, these DEI rubrics act as a filter for those with nonconforming views…. Mandatory diversity statements can too easily become a test of political ideology and conformity.
There are grounds for concluding that Democrats have become the party of racial discrimination in the name of anti-discrimination (see, e.g., here and here), while Republicans defend the colorblind ideal that: “The way to stop discrimination on the basis of race is to stop discriminating on the basis of race.” (We can assume that both parties take their respective positions in the good faith belief that they are championing the best way forward for us as a nation and, in particular, for the continued progress of historically marginalized groups.) To the extent this partisan divide exists, do job interview questions asking about commitments to diversity violate state laws against discrimination on the basis of political viewpoint?
Thursday, June 10, 2021
My efforts to persuade the Nevada legislature to allow the state's ordinary regulatory process to handle exemptions were largely unsuccessful. For a quick refresher, the legislation placed a NASAA model regulatory exemption which was already set to go into the next round of regulatory code updates into the statute. I previously blogged about the issue and published an oped in the Nevada Independent, hoping to change some minds. My main points were simple: (1) there was no need to actually do anything because it would become law when the regulations went into effect; and (2) putting it into the statute would make it much harder to update when SEC regulations change.
Still, the effort did have some impact. The bill's sponsor reached out to talk about the issue and asked that I produce some draft language for an amendment. I agreed and spent much of my Easter Sunday doing that. My proposal was to have the head of the state securities division simply report on the state's offering rules and any needs the office saw every couple of years to improve coordination and prevent confusion. This is the draft language I suggested:
No later than August 15 of every even-numbered year, the Administrator shall publicly release, via posting to the Secretary of State’s website or other means, his or her views on:
(a) whether any model rules, regulations, exemptions, or other provisions adopted by the North American Securities Administrators Association within the preceding five years have been implemented by the State and, if they have not been implemented, an explanation for why the State has not implemented the model rules, regulations, exemptions, or other provisions adopted by the North American Securities Administrators Association within the preceding five years;
(b) whether the Securities Division has an optimal level of resources to achieve its objectives; and
(c) whether the Administrator recommends that any legislation be enacted in the public interest and for the protection of investors.
The bill's sponsor ultimately decided to simply expand the legislation to add an amendment based off my draft language and also persist with the effort to place the exemption into the statute. The amendment, now law, tracked my language with a few changes and reads:
1. On or before August 15 of each even-numbered year, the Administrator shall: (a) Submit a written report to the Director of the Legislative Counsel Bureau for submission to the Legislative Commission; and (b) Publish the report described in paragraph (a) on an Internet website of the Secretary of State or by similar means.
2. The report must include, without limitation:
(a) A summary of the states that adopted a model rule, regulation, exemption or like provision of the North American Securities Administrators Association within the 5 years immediately preceding the publication of the report described in subsection 1;
(b) A summary of the states that did not adopt a model rule, regulation, exemption or like provision of the North American Securities Administrators Association within the 5 years immediately preceding the publication of the report described in subsection 1, and the reasoning why each state did not adopt any such model rule, regulation, exemption or like provision;
(c) A determination of whether the Division has the resources necessary to achieve its objectives; and
(d) Any recommendations for legislation relating to the protection of investors in this State.
I told the bill's sponsor that I did not support the legislation on the whole because it continued to put the exemption into the statute instead of simply letting it become law through the ordinary regulatory process. Still, the sponsor did tell the legislature that I wrote the reporting requirement and had been "very helpful." You can find that at 8:31:45 here if you want to see it.
Now we wait to see if the problem I flagged emerges. I also predict that one of the items in the first report under this legislation will be a request that the private fund adviser exemption be removed from the statute so that it can be managed and updated in the ordinary course within the regulatory code.
To be clear, my only objection here was that this exemption belonged in the administrative code. I still think that's where it will ultimately end up because keeping it in the statute will cause problems as SEC regulations change. It's been a real learning experience to participate in the legislative process.
Wednesday, June 9, 2021
On June 3rd, the United States Court of Appeals for the Second Circuit (Court) decided Lacewell v. Office of the Comptroller of the Currency (here). I’d previously blogged about the “Dueling Law Professor Amicus Curiae Briefs” (here and here, see Appendix A of the Opinion for a listing of these briefs) in this heavily watched federal fintech charter case about whether the Office of the Comptroller of the Currency (OCC) has the authority to issue special-purpose national bank (SPNB) charters for fintech firms “engaged in the ‘business of banking,’ including those that do not accept deposits.” I promised to update BLPB readers when the Court rendered its decision.
In a nutshell, the Court reversed the district court's amended judgement and remanded “with instructions to enter a judgement of dismissal without prejudice.” The Court explained that DFS [the New York State Department of Financial Services, of which plaintiff Lacewell is Superintendent] lacked “standing because it failed to allege that the OCC’s decision caused it to suffer an actual or imminent injury in fact and...that DFS’s claims are constitutionally unripe for substantially the same reason.” Given these considerations, the Court stated that it did not have the jurisdiction to “address the district court’s holding, on the merits, that the ‘business of banking’ under the NBA [National Bank Act] unambiguously requires the receipt of deposits, nor whether that holding warrants setting aside Section 5.20(e)(1)(i) [OCC regulation permitting issuance of SPNB charters] nationwide with respect to non-depository fintechs applying for SPNB charters.” It added that “we express no view on the district court’s determinations regarding these issues.”
Of course, what constitutes the business of banking – whether deposit taking is required by the NBA to be a chartered bank – is the critical issue. Stay tuned! In the meantime, law firm analyses are available (for example, here and here) for readers interested in a more extensive discussion of this decision!
Tuesday, June 8, 2021
This coming Friday, June 11, at 2 PM, the Federalist Society is hosting a teleforum entitled, Free Speech and Compelled Speech: First Amendment Challenges to a Marketplace of Ideas. You can register here (I believe registration is free). What follows is a description of the program.
Section 230 has been understood to shield internet platforms from liability for content posted by users, and also to protect the platforms’ discretion in removing “objectionable” content.
But policy makers have recently taken a stronger interest in attempting to influence tech companies’ moderation policies. Some have argued the policies are too restrictive and unduly limit the scope of legitimate public debate in what has become something of a high-tech public square. Other policy makers have argued the platforms need to more aggressively target “hate speech,” online harassment, and other forms of objectionable content. And against that background, states are adopting and considering legislation to limit the scope of permissible content moderation to preclude viewpoint discrimination.
Some have suggested that the §230 protection, in combination with political pressure, create First Amendment state action problems for content moderation. Others argue that state efforts to protect the expressive interests of social media users would raise First Amendment concerns, by effectively compelling speech by social media and tech platforms.
What are the First Amendment limits on federal and state efforts to influence platform decisions on excluding or moderating content?
Eugene T. Volokh, Gary T. Schwartz Distinguished Professor of Law, UCLA School of Law
Jed Rubenfeld, formerly Assistant United States Attorney, U.S. Representative at the Council of Europe, and professor at the Yale Law School
Mary Anne Franks, Professor of Law and Dean's Distinguished Scholar, University of Miami School of Law
Moderator: Hon. Gregory G. Katsas, Judge, United States Court of Appeals, District of Columbia Circuit
Recently, I finished two similar books on problems with extreme meritocracy in the United States: The Tyranny of Merit by Harvard philosophy professor Michael Sandel and The Meritocracy Trap by Yale law professor Daniel Markovits. Law schools and entry level legal jobs tend to be intensely meritocratic. The more competitive entry level legal jobs rely very heavily on school rank and student class rank. Once in a private firm, billable hours seem to be the main metric for bonuses and making partner.
Sandel describes at least three problems with meritocracy: (1) people are not competing on an even playing field in the US "meritocracy" (e.g., children of top 1% in income are 77x more likely to attend an Ivy League school than children of bottom 20%); (2) even if there were an even playing field, natural talents that fit community preferences would lead to wild inequality in a pure meritocracy and those natural advantages are not “earned,” (3) a strict meritocracy leads to excessive hubris among the “winners” and shame among the “losers” who believe they deserve their place in society.
Markovits hits a lot of the same notes, but pays more attention to how the elite “exploit themselves” trying to keep themselves and their children in the shrinking upper class. While the $50,000/year competitive preschools Markovits describes are mostly limited to NYC and Silicon Valley now, the expenditures on the education and extracurriculars of children of the wealthy seems to be increasing exponentially everywhere. He also notes the lengthening work hours for the “elite” and the increasing percentage of wealth tied to labor. For example, Markovits points out that the ABA assumed that lawyers would bill 1300 hours a year in 1962 (and 1400 in 1977). As legal readers know, many firms now require 2000+ billable hours a year (which means working 2500+ hours in most cases).
Both Sandel and Markovits do a thorough job explaining the problems of meritocracy, but are fairly brief on proposed solutions. Sandel thinks meritocracy could be made more fair through elite schools eliminating SAT/ACT requirements (that tend to track family income), engaging in more aggressive class-based affirmative action, and using a lottery to admit baseline qualified students. He thinks the last suggestion would reduce the hubris of those admitted to elite schools, and acknowledge an element of luck in their selection. Sandel also suggests more government expenditures on training and retraining programs, as most economically advanced countries spend a much higher percentage of GDP on these programs (0.1% vs. 0.5% to 1.0%). He also suggests using the tax system to reward “productive labor” by, for example, “lower[ing] or even eliminat[ing] payroll taxes and rais[ing] revenue instead by taxing consumption, wealth, and financial transactions.” (218).
Markovits proposes that private schools should lose their tax-exempt status if at least half of their students do not come from the bottom two-thirds of the income distribution. Markovits also suggests promoting more mid-skill production; by, for example, reducing regulation to allow more work to be done by nurse practitioners (rather than doctors) and legal technicians (rather than lawyers.) He suggests uncapping payroll tax (so that the wealthy pay more of their share), introducing wage subsidies for middle class jobs, and raising the minimum wage.
As Ivy League professors, I think they overestimate the role of their schools in shaping the rest of the country, though they may be right about their influence among certain segments of the wealthy. And while their solutions are rather thin, I think they raise issues with meritocracy worth addressing. As Henri Nouwen acknowledged more than 50 years ago in his book Reaching Out, “people are in growing degree exposed to the contagious disease of loneliness in a world in which a competitive individualism [ a/k/a "meritocracy"] tries to reconcile itself with a culture that speaks about togetherness, unity, and community as the ideals to strive for.”
Monday, June 7, 2021
Friend of the BLPB Bernie Sharfman recently alerted me to an online piece he posted on environmental, social, and governance (ESG) investing, How BlackRock Strikes Out On the Issue of Climate Change. In his post, offering BlackRock as an example, Bernie raises concerns about the negative aspects of establishing ESG funds. Specifically, he offers that a focus on ESG investment and reporting can reduce a sense of urgency in remedying climate change and can have other unintended undesirable effects. He also notes that BlackRock has only limited influence in establishing efficacious ESG investments, due to the nature of its role and investment portfolio. He concludes as follows:
BlackRock can be part of the solution by attempting to add “financial innovation” as a tool in the battle against climate change. Such financial innovation should be targeted to creating new private equity funds that help provide the billions of dollars of funding that will be needed by new and growing carbon-cutting companies. BlackRock can market these funds to the millions of retail investors who currently invest in its products.
ESG investment opportunities are a hot topic these days. Bernie's post offers some food for thought about the double-edged sword they may present.
Saturday, June 5, 2021
Tulane Law School is currently accepting applications for a two-year position of visiting assistant professor. The position is being supported by the Murphy Institute at Tulane, an interdisciplinary unit specializing in political economy and ethics that draws faculty from the university’s departments of economics, philosophy, history, and political science. The position is designed for scholars focusing on regulation of economic activity very broadly construed (including, for example, research with a methodological or analytical focus relevant to scholars of regulation). It is also designed for individuals who plan to apply for tenure-track law school positions during the second year of the professorship. The law school will provide significant informal support for such. Tulane is an equal opportunity employer and candidates who will enhance the diversity of the law faculty are especially invited to apply. The position will start fall 2021; the precise start date is flexible.
Candidates should apply through Interfolio, at http://apply.interfolio.com/84001, providing a CV identifying at least three references, post-graduate transcripts, electronic copies of any scholarship completed or in-progress, and a letter explaining your teaching interests and your research agenda. If you have any questions, please contact Adam Feibelman at email@example.com.
Thursday, June 3, 2021
In a rare turn of events, FINRA has withdrawn its rule proposal for making reforms to the expungement process. FINRA issued a statement after the withdrawal indicating that it would work with NASAA and other stakeholders to pursue "more fundamental changes to the expungement process."
The surprising development is a bit of a mixed bag. While it's good that FINRA will be working to deliver a proposal addressing core problems with the existing expungement framework, the decision to withdraw the proposal leaves the status quo for the interim period. Without a moratorium on expungements the process will continue to delete significant information about broker misconduct without any real adversarial scrutiny. Hopefully, FINRA will move swiftly to propose some meaningful reform soon.
Wednesday, June 2, 2021
Open Faculty Position: Fields Chair in Ethics and Corporate Responsibility at Texas State University
Dear BLPB Readers:
Texas State University invites applications for a full-time, endowed tenured faculty position at the rank of professor. We seek outstanding candidates from all areas of business with a distinctive expertise and focus on business ethics and corporate responsibility. The appointee is expected to have a nationally recognized research record, pursue continuing research and scholarship, and provide disciplinary expertise, innovation, and leadership. The McCoy College is interested in recruiting an individual who can embrace and enhance the vision of a diverse, collegial, and productive academic environment.
• Develop a nationally and internationally recognized research program, including extramural grant funded research, that addresses business challenges through the prism of ethics and corporate responsibility.
• Conduct and collaborate on high quality research leading to publications in top-tier journals.
• Develop and teach courses at the undergraduate and graduate levels, including online offerings, that highlight the ethical and social dimensions of business management.
• Enhance the integration of business ethics, sustainability, and corporate social responsibility into the College’s curricular and co-curricular learning experiences.
• Provide thought leadership and share insights through scholarly engagement with diverse groups including faculty, students, and external communities.
• Serve as an excellent faculty role model who inspires, encourages, and mentors colleagues and students.
• Contribute to college and university initiatives by sharing disciplinary expertise.
The complete job posting is here.
I thought I'd essentially copy the idea behind co-blogger Joshua Fershee's post from yesterday (thanks, Josh!) and share with readers that my new short article, Clearinghouse Shareholders and "No Creditor Worse Off Than in Liquidation" Claims is now available! Similarly, my article is a combination of a prior post and my presentation at the fourth annual Business Law Prof Blog Symposium. Here's its abstract:
Clearinghouses are the centerpiece of global policymakers’ 2009
framework of reforms in the over-the-counter derivative markets in
response to the 2007–08 financial crisis. Dodd-Frank’s Title VII
implemented these reforms in the U.S. More than ten years have now
passed since the establishment of this framework. Yet much work
continues on outstanding issues surrounding the recovery and
resolution of a distressed or insolvent clearinghouse. This Article
examines one of these issues: the possibility of clearinghouse
shareholders raising no creditor worse off than in liquidation claims
in resolution. It argues that such claims are nonsensical and should
be unavailable to clearinghouse shareholders. This would decrease
moral hazard in and promote the rationalization of the global
clearing ecosystem for derivatives.
I also want to encourage BLPB readers to review the perceptive commentary by Professor Thomas E. Plank on my article (here). Finally, I'd like to thank the Transactions law review student editors for their excellent work!
Tuesday, June 1, 2021
I recently received the final version of my short article, "The Benefits and Burdens of Limited Liability," in Transactions: The Tennessee Journal of Business Law. The article is based on some of my prior blog posts, as well as my presentation as part of the fourth annual Business Law Prof Blog symposium, Connecting the Threads. It was great event, as always, thanks to Joan and the whole crew at Tennessee Law, and it was my pleasure to be part of it.
Here's the abstract:
Law students in business associations and people starting businesses often think the only choice for forming a business entity is a limited liability entity like a corporation or a limited liability company (LLC). Although seeking a limited liability entity is usually justifiable, and usually wise, this Article addresses some of the burdens that come from making that decision. We often focus only on the benefits. This Article ponders limited liability as a default rule for contracts with a named business and considers circumstances when choosing a limited liability entity might not communicate what a business owner intends. The Article notes also that when choosing an entity, you get benefits, like limited liability, but burdens (such as need for counsel or tax consequences) also attach. It's not a one-way street. The Article closes by urging courts to consider both the benefits and burdens of an entity choice, especially in considering whether to uphold or disregard an entity, to help parties achieve some measure of certainty and equity.
Monday, May 31, 2021
Notwithstanding the sales, barbecues, parades, concerts, and the like, at its true core, Memorial Day is a day of solemn reflection. Those who enter military service for our country deserve our respect and praise. Those who die in the line of that service hold a special place in our hearts and minds.
If you are at a loss for how to acknowledge this special holiday and show your regard for those it honors, you may be interested in reading the suggestions posted here. But your gratitude can be shown in so many ways every day, not just on Memorial Day (although it is good to have the holiday as a reminder). Remember those who served and died, and give thanks for (and, where possible, to) those who served and lived to tell the tale. (We'll celebrate the latter directly later in the year, of course.)
Sunday, May 30, 2021
Grading done? Join in for an engaged, energizing day with fellow business law profs to start the summer.
Grading not done? This is sure to be a fun and enlightening distraction--better than house cleaning or laundry!
Not grading at all (you lucky ducky)? Clear the decks of other impediments and come join us for what always is a super day filled with teaching tips and catalysts for scholarship and service.
REGISTER NOW! CONFERENCE IS JUNE 4th!
Emory Law's 7th biennial conference on the teaching of transactional law and skills is just a few days away! Register here and join us on Friday, June 4th. (Note: The Registration Fee for this one-day, online conference is $50.) A copy of the Conference schedule is posted here.
Connect with transactional law and skills educators across the country to ponder our theme - "Emerging from the Crisis: The Future of Law and Skills Education." You'll hear illuminating keynote addresses from three leaders in our field - Joan MacLeod Heminway, Marcia Narine Weldon, and Robert J. Rhee. And you'll participate in exciting presentations and try-this exercises designed to help us all become better teachers.
At day's end, we'll hold a Vision Workshop to synthesize our vision for the future. We'll also announce the winner of the Tina L. Stark Award for Excellence in the Teaching of Transactional Law and Skills, chosen from a group of illustrious nominees.
Special Note: The State Bar of Georgia has approved our conference for four CLE credits. We will provide attendance certificates for other states.
SIU Law is hiring one full-time visiting faculty position to begin on August 16, 2021. Please see the job announcement below.
Position Summary: Southern Illinois University School of Law is an outstanding small public law school that provides its students with an optimal mix of theoretical and experiential educational opportunities in a student-centered environment in order to prepare them for a changing legal profession in a global environment. SIU School of Law seeks to fill one full-time visiting faculty position to begin on August 16, 2021. The anticipated term of appointment is two 9-month academic terms. The appointment will be structured as a 9-month academic term, renewable for a second 9-month academic term contingent on satisfactory performance. The successful candidate will teach courses in Torts, Constitutional Law, Family Law, Corporations, and/or Legal Writing, as well as other courses depending on the needs of the School of Law and on the successful candidate’s area of expertise. Academic rank will depend on academic credentials and experience of the selected individual.
Duties and Responsibilities: Classroom instruction and other duties as assigned by the Dean.
Minimum Qualifications: Applicants must possess a Juris Doctor degree from an ABA-accredited law school or its equivalent.
For appointment at the rank of Visiting Assistant Professor, applicants must have an outstanding law school academic record as assessed by rank in class, participation on law review, participation in other co-curricular activities such as moot court, honors received, and other factors relevant to academic performance.
For appointment at the rank of Visiting Associate Professor or Visiting Professor, applicants must have an established track record of teaching and scholarship excellence commensurate with the advanced rank.
Preferred Qualifications: Law teaching experience; outstanding professional record; the ability to further the University’s commitment to inclusive excellence—cultural and professional competency, inclusion, and diversity in the classroom.
General Information: Please use the following link to apply https://jobs.siu.edu/jobdetails?jobid=12030
Deadline to Apply: 6/11/21
Please use the following link to apply: https://jobs.siu.edu/job-details?jobid=12030
Saturday, May 29, 2021
The biggest corporate news this week is about sustainability. A Dutch court ordered Shell Oil to reduce its carbon emissions by 45% by 2030; 61% of Chevron shareholders voted to ask the company to substantially reduce its Scope 3 greenhouse gas emissions, while 48% voted in favor of greater lobbying disclosure, and disclosure of the effect of net zero by 2050 on its business and finances, and, of course, at Exxon, not only did an activist win at least 2 board seats over sustainability demands, but shareholders also supported proposals calling for greater lobbying disclosure. And, earlier this month, shareholders at ConocoPhillips and Phillips 66 voted in favor of proposals to set emissions targets.
Unsurprisingly given the outcomes, BlackRock and Vanguard supported some of the Exxon dissident nominees, and also supported the successful Exxon shareholder proposals. State Street supported some of the Exxon dissidents as well, though I don’t know if it’s reported its stance on the shareholder proposals. BlackRock also voted in favor of the successful Chevron proposal.
Given the stunning success of shareholder environmental activism at the oil giants, then, it comes as a disappointment that it appears the deadline has passed for Congress to undo the SEC’s recent amendments to Rule 14a-8. Senator Sherrod Brown introduced a resolution to revoke the changes, but no further action was taken. These amendments to 14a-8 make it much harder for shareholders – especially smaller shareholders – to submit proposals, which is an issue because, though proposals are often supported by institutional investors, it’s retail shareholders who have traditionally taken the laboring oar of introducing and promoting them (although, when it comes to social/environmental proposals, a lot of specialty investors like religious organizations and SRI funds also introduce them).
On this, I have to point out that the Big Three – BlackRock, Vanguard, and State Street – were supporters of the new Rule 14a-8 restrictions. Vanguard did so openly; BlackRock and State Street tried to play it close to the vest, but, as I explained in my draft chapter on ESG investing (see note 49), the Investment Company Institute supported the amendments, and it’s highly unlikely it would have done so without BlackRock and State Street’s buy-in. In other words, BlackRock and State Street apparently sought to maintain their “sustainability” bona fides without publicly admitting they wanted to neuter shareholder ESG activism. And it wouldn’t surprise me if the preferences of BlackRock, Vanguard, and State Street had something to do with Congress’s failure to act on Senator Brown’s resolution calling for the 14a-8 amendments’ repeal.
Point being, despite the headlines about the Big Three’s newfound support for sustainability, their commitments are fragile, and more than anything else, they seem to want to avoid being forced to take public positions on these matters in the first place.
Friday, May 28, 2021
I just returned from my first “in-person” scholarly workshop since the onset of the pandemic. The event, “Introduction to the Economics of Information, Advertising, Privacy, and Data Security,” was hosted by the George Mason University Antonin Scalia Law School’s Law & Economics Center (LEC). The workshop took place at the Omni Amelia Island Resort—just outside of Jacksonville, Florida.
After a warm welcome from the LEC’s Director, Henry N. Butler, the program launched into nine sessions over three days:
- Introduction to Economics of Information
- Signaling/Screening/Mandated Disclosures
- Theories of Advertising, Substantiation, and Optimal Remedies
- Economics of Privacy
- Algorithmic Bias
- Economics of Data Security
- Big Data, Privacy, and Antitrust
- First Amendment Issues
- Social Media and Content Moderation.
The sessions were led by either Prof. Jane Bambauer, Prof. James C. Cooper, or Prof. John M. Yun. I’ve attended LEC workshops in the past, and have found them to be both rigorous and entertaining. This event was no exception. The assigned readings ranged from classic articles by Harold Demsetz and Jack Hirshleifer to contemporary pieces authored by the presenters and other leaders in the field. I learned a great deal and recommend future LEC workshops to anyone who may have the opportunity to participate.
But while I took a number of inspirations for future scholarship away from this workshop, I think I will remember this event most for offering the first opportunity, after a year and a half of “Zooming,” to get together with fellow scholars from around the country in person!
A number of us on the Business Law Prof Blog have written about how the pandemic has led to the discovery of wonderful new teaching and scholarly opportunities through online meeting spaces. The ability to meet “online” has certainly made me more accessible to my students (and vice versa), and I have participated in a number of conferences and panels that I would not have been able to attend even if pandemic-related travel restrictions were not in place. Nevertheless, this in-person event reminded me of the little big things that are gained by meeting in person. To note just a few:
- New friendships made while waiting in line for a coffee
- Philosophical discussions about the nature of language and sense perception over a good meal
- Long walks with old friends along the beach
- Meeting a fellow scholar at the pool who just happens to be working in the same area, and who would be perfect for the panel you are putting together…..
In sum, as wonderful as online platforms can be, there are many things about in-person meetings that are simply irreplaceable. I am grateful to George Mason and the LEC for offering me the first opportunity since the onset of the pandemic to be reminded of them.
A reminder that Emory’s 2021 conference on transactional law and skills education is next Friday, June 4, 2021. It is virtual and registration is only $50. Register here.
Today, I'm submitting a guest post by Professor Jen Randolph Reise of Mitchell Hamline School of Law. On Friday the 11th, I'll post my reflections from the Emory conference. Jen and I have bonded over our mission to bring practical skills into the classroom. Her remarks are below:
I’m looking forward to hearing from many leaders in transactional legal education, including keynote speakers Joan MacLeod Heminway, Marcia Narine Weldon, and Robert J. Rhee on the theme of “Emerging from the Crisis: Future of Transactional Law and Skills Education.” Marcia will also be talking about her experience launching a transactional program at Miami, joined by three of her adjunct professors.
For my part, I’ll be presenting a Try-This session sharing how I have used exercises that integrate key technological resources and techniques into teaching doctrinal courses. I’ve written in this blog before in praise of practice problems, especially in the asynchronous or flipped classroom. These exercises take that one step farther by creating a self-paced, guided discovery and low-stakes practice of some skills and resources they will need to be transactional lawyers.
Specifically, participants in the Try-This session will be introduced to, and invited to try, three exercises I have created and used in Business Organizations and M&A:
1) a State Filings Exercise, which facilitates student discovery of their state’s business entity statutes and secretary of state filing site (for example, they learn how to form an LLC, and what information on LLCs is publicly accessible);
2) a Public Company Filings Exercise, which guides students through accessing and understanding the structure of public company SEC filings and how to retrieve pertinent information from EDGAR; and
3) a Working with Definitive Agreements Exercise, which introduces M&A students to drafting based on samples and from a term sheet, and requires them to learn to create a redline using Word’s Compare feature.
I’d love to have you attend on Friday and share your experiences and feedback. Or, feel free to contact me at firstname.lastname@example.org or on Twitter @JensJourneyOn anytime for copies or to share ideas. As a transactional in-house lawyer, newly come to the academy, I’m passionate about students getting a foothold in the distinct perspective, skills, and technology they need to become successful transactional lawyers.
Wednesday, May 26, 2021
If you missed this past Monday's Regulating Megabanks: A Conference in Honor of Art Wilmarth, don't worry, it was recorded! I'll keep BLPB readers posted about when the recorded webinar is available online [now available -see link at bottom of post!]. In the meantime, Professor Wilmarth has just posted a new working paper, Wirecard and Greensill Scandals Confirm Dangers of Mixing Banking and Commerce, to keep you busy until then! Here's the abstract:
The pandemic crisis has accelerated the entry of financial technology (“fintech”) firms into the banking industry. Some of the new fintech banks are owned or controlled by commercial enterprises. Affiliations between commercial firms and fintech banks raise fresh concerns about the dangers of mixing banking and commerce. Recent scandals surrounding the failures of Wirecard and Greensill Capital (Greensill) reveal the potential magnitude of those perils.
The Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) have encouraged commercial enterprises to acquire fintech banks. The FDIC has authorized commercial firms to acquire FDIC-insured industrial banks in reliance on a controversial loophole in the Bank Holding Company Act (BHC Act). The OCC is seeking to charter nondepository fintech national banks, which commercial firms could own under a separate exemption in the BHC Act. The FDIC’s and OCC’s initiatives undermine – and could potentially destroy – the BHC Act’s longstanding policy of separating banking and commerce.
The disasters at Wirecard and Greensill demonstrate the importance of maintaining a strict separation between banking and commerce. Regulators in Germany and other countries allowed banks controlled by Wirecard and Greensill to engage in risky and abusive transactions that benefited their parent companies and other related parties, including commercial firms connected to their major investors. Wirecard Bank provided financial support to its parent company and CEO, and it also made fraudulent transfers of funds to insiders and their controlled entities. Greensill Bank made preferential and unsound loans that benefited its parent company and leading investors. Greensill Bank securitized many of its reckless loans, and Greensill Capital sold the resulting asset-backed securities as “safe” and “liquid” investments to misinformed investors.
Regulators failed to take timely enforcement actions against Wirecard and Greensill because they did not exercise consolidated supervisory authority over the complex international structures created by both firms. In addition, Wirecard and Greensill built extensive networks of influence that produced significant political favors and regulatory forbearance in Germany and the U.K. The collapse of Wirecard and Greensill embarrassed government agencies and inflicted massive losses on investors, creditors, and other stakeholders.
The failures of Wirecard and Greensill provide clear warnings about the dangers of allowing fintechs to offer banking services while evading prudential regulatory requirements and supervisory standards that apply to traditional banks and their corporate owners. Regulators and policymakers should not allow fintechs’ claims of “innovation” to serve as a rationale for regulatory arbitrage and as camouflage for fraud. Both disasters show that high-tech firms engaged in banking and commercial activities are likely to create the same unacceptable hazards as previous banking-and-commercial conglomerates, including toxic conflicts of interest, reckless lending, dangerous concentrations of economic power and political influence, supervisory blind spots, and systemic threats to economic and financial stability.
Revised as of 5/28/2021: the recorded webinar of Regulating Megabanks a Conference in Honor of Art Wilmarth is now available on Youtube.