Business Law Prof Blog

Ernst and Ernst and Hochfelder and Powell

Last week, I had the pleasure of attending one of my favorite conferences: NBLSC, hosted this year in Knoxville by Joan Heminway and by Eric Chafee.  While there, I took part in a panel discussion of Adam Pritchard and Robert Thompson’s new book, A History of Securities Law in the Supreme Court.

Much of the book is based on the recently-public papers of Justice Powell, and argues that his presence on the Court reshaped the direction of securities law from the deferential approach applied in the early years of the New Deal to the much more skeptical view we often see today.  In particular, the book highlights how Justice Powell, with his experience as a corporate lawyer, exhibited particular sympathy and concern for businessmen who might be caught in an uncertain liability regime (twice, Justice Blackmun accused Justice Powell of continuing to represent his corporate clients from the bench, see pp. 85, 163).

In elucidating their argument, Pritchard and Thompson highlight a string of cases authored by Justice Powell where the Court adopted narrow constructions of the securities laws, after a run of broad constructions (both at the Supreme Court and in the lower courts).  One of those cases was Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976), where a securities broker had stolen his clients’ money, and the clients sued his auditor under Section 10(b), claiming its negligent audit had aided and abetted the scheme.  Justice Powell was particularly concerned about “expansiv[e]” readings of Section 10(b), p. 183, as well as its application to third parties, and so, writing for the Court, rejected negligence as a basis for 10(b) liability and held that Section 10(b) requires a higher standard of intent.

The book’s discussion of Ernst was something of a puzzle for me, because in many ways I find the logic of the opinion so compelling that it’s difficult to see how the case represents a turn towards narrow constructions of the securities laws – rather than, say, a push back against plaintiff overreaching.  The core textual argument is that Section 11 imposes strict liability, or something like liability for negligence, but only for a specific set of documents (registration statements) against a specific set of defendants (the issuer, directors, signatories, experts, and underwriters).  If Section 10(b) were read to include negligence-based false statements, it would entirely swamp Section 11, with its careful limits on negligence-like liability.

But as I was preparing my remarks for the conference, I thought more deeply about the history of the securities’ laws development.

Ernst was decided in 1976.  That was 12 years before Basic v. Levinson, 485 U.S. 224 (1988); though the Supreme Court had presumed reliance in cases of fraudulent omissions, Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972), and proxy fraud, Mills v. Electric Auto-Lite Co., 396 U.S. 375 (1970), for general affirmative misstatements, the fraud on the market doctrine was only just being developed in the lower courts (Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975) had been decided only a year earlier).

In 1968 – just 8 years prior to Ernst – the Second Circuit suggested for the first time that Section 10(b) claims might not require privity between the purchaser and seller in SEC v. Texas Gulf Sulfur, 401 F.2d 833 (2d Cir. 1968) (en banc), which created the possibility of liability to the entire universe of traders for open-market frauds.  See David S. Ruder, Texas Gulf Sulphur—The Second Round: Privity and State of Mind in Rule 10b-5 Purchase and Sale Cases, 63 Nw. U. L. Rev. 423 (1968); Donald C. Langevoort, From Texas Gulf Sulphur to Chiarella: A Tale of Two Duties, 71 SMU L. REV. 835 (2018).  In 1976, the law in that area was only beginning to get off the ground, which is why it is not surprising that, according to Pritchard and Thompson’s history, Justice Powell was troubled by the lack of privity between the plaintiffs and the accounting firm in Ernst.  See p. 183. 

In other words, in 1976, the door was still open to using privity, and perhaps an “eyeball” reliance requirement, as a basis for distinguishing Section 10(b) and Section 11, rather than the negligence/scienter distinction that the Court actually chose.  Certiorari had not been granted on that basis, however, and so Justice Powell was unwilling to make privity the foundation of his reasoning; he went with scienter instead.  See p. 183.

Viewed through that lens, yes, Ernst was something of an activist decision that was not necessarily driven entirely by the statutory text; it was a choice to narrow Section 10(b) on one particular ground, but not on an alternative ground.

So let’s imagine that alternative world, where the Court had, in fact, permitted negligence-based Section 10(b) claims.  I wonder if future courts (including the Supreme Court) would have been so quick to endorse open-market Section 10(b) actions, let alone the fraud on the market presumption of reliance.  In a world where negligence, rather than scienter, is enough to state a Section 10(b) claim, I think it’s possible courts would have been more circumspect about paving the way for securities class actions. 

In other words, the ironic implication of Pritchard and Thompson’s history is that Justice Powell, in his attempts to narrow the reach of the securities laws, ended up opening the door to the modern securities class action bar.

California Western School of Law Faculty Hiring Announcement – Professional Responsibility and Director of STEPPS

California Western School of Law (CWSL) is seeking lateral candidates for a full-time faculty position teaching Professional Responsibility and serving as a Director of CWSL's STEPPS Program.  STEPPS is a key component of CWSL's innovative sequential experiential curriculum, bridging the gap between the first-year legal skills program and third-year clinical and externship programs.  STEPPS integrates the teaching of professional responsibility with an experiential small "law firm" component. 

The role combines the doctrinal teaching of professional responsibility and an administrative component managing the STEPPS Program.  The majority of the time spent in the role will be dedicated to the teaching component, however, the Director will also work closely with the STEPPS staff coordinator to supervise the adjunct professors who teach the experiential component of the program.  We welcome lateral candidates with an established record of scholarship who are seeking tenured/tenure-track positions.  We also welcome clinical faculty seeking a clinical position with security of appointment under ABA Accreditation Standard 405(c).  The timing of this job opening corresponds to a periodic review of the STEPPS curriculum, and so the new Director will both be directing a mature program, but also be part of the process of ensuring the program remains innovative moving forward.  

Prior teaching experience is required.  Some administrative experience is preferred, but not required.  We welcome applications from individuals who would contribute to the vibrancy and diversity of our faculty.  The start date for the position is flexible, but it could begin as early as August 1, 2023.

Application materials should include a cover letter, C.V., and a diversity statement that addresses how you will contribute to CWSL's goal of creating a diverse faculty.  If seeking a tenured/tenure-track position, please include a research agenda.  Please direct application materials and questions to the chair of the Appointments Committee, Professor Catherine Hardee, at the following email address:  [email protected]. We will review applications and begin interviewing on a rolling basis until the position is filled, so applicants are encouraged to apply as soon as possible.  Applicants are strongly encouraged, if possible, to apply by July 15, 2023.  The salary range for the position is between $130,000 and $180,000, depending on experience.

Established in 1924, CWSL is an ABA accredited and AALS member, non-profit law school, and has the distinction of being San Diego's oldest law school. At CWSL we pride ourselves on the diversity of our student body.  This year, around 45% of our incoming students are from diverse cultural and ethnic backgrounds.  We are committed to having a faculty that reflects our student body and our community.  CWSL continues to rethink the status quo in legal education – balancing a rigorous practical education with cutting edge scholarship and community service.  As a result, our graduates have a reputation for being uniquely practice-ready.  

CWSL is located in downtown San Diego, literally overlooking the Pacific Ocean.  A city of breathtaking beauty, we boast perfect weather, miles of beaches, and nearby mountains.  We are a family-friendly, diverse city with small city traffic and walkable neighborhoods.  

Call for Papers - Wharton Conference on Liquidity and Financial Fragility

Dear BLPB Readers:

Below is an excerpt from the call for papers for the upcoming Wharton Conference on Liquidity and Financial Fragility

"Liquidity and financial fragility concerns have captured the attention of financial market participants, macroeconomists, and policymakers in recent years. The pandemic featured unprecedented liquidity dry-up and fragility in financial markets, followed by massive policy interventions and inflationary pressures not seen in decades. The collapses of the Silicon Valley Bank and Credit Suisse revealed neglected risks and have forced depositors and investors to rethink some of their decisions. Fifteen years after the global financial crisis, the financial system does not appear to be safer and the need to better understand the sources and consequences of financial fragility remains high.

With this goal, we are resuming the Wharton Conference on Liquidity and Financial Fragility, following the success of the eight editions that took place before the pandemic. The next edition, hosted by the Wharton Initiative on Financial Policy and Regulation (WIFPR), will take place at the Wharton School of the University of Pennsylvania (Philadelphia, PA) starting on the morning of Friday, October 6, 2023, and ending in the afternoon of Saturday, October 7, 2023. Details of previous conferences can be found on the conference website: https://wifpr.wharton.upenn.edu/wharton-liquidity-conference/"

The complete call for papers is here.  The deadline to submit papers for consideration is July 1, 2023.

Celebrating Juneteenth: Corporate Governance Intersections

Corporate governance has become a bit of an alphabet soup over the years--CSR,* DEIB,** and ESG*** (among other initialisms) are all part of the current practical lexicon for those of us working with businesses.  As a day celebrating the emancipation of the last enslaved Black Americans, Juneteenth, connects with so many of those acronyms in one way or another.  Businesses have been noticing.

For example, Hassina Obaidy's June 13, 2023 article, Juneteenth in the Workplace: Why your company should celebrate, posted on the website of workplace training and compliance provider Emtrain, offers one perspective on Juneteenth and CSR.

Black Lives Matter has taught both individuals and companies what allyship can really look like. We’ve also learned that the passing of time is not enough to make real change. Companies need to support employees that come from demographics that have historically been marginalized through company policies, workplace culture, and corporate social responsibility (CSR). Giving employees a day off to celebrate Juneteenth and engage with their communities in a productive way is one step leaders can take to move the needle on CSR.

Similarly, in an article entitled Seven thoughtful ideas for observing Juneteenth in the workplace, Christina Bibby at employee benefits leader Mercer offers that Juneteenth presents an opportunity to "[o]pen company dialogues about racism and diversity, equity, inclusion, and belonging (DEIB)."  Specifically, she suggests that firms

[c]onsider sending out a focused leadership message about Juneteenth, sharing your DEIB strategy and progress metrics, or conducting Q&A sessions and listening sessions to better understand Black employee experiences at your company. You might also tap into expertise in your community by inviting internal or external guest speakers to talk about the history and significance of Juneteenth, social justice, or related DEIB topics.

And Brandy Hyatt's piece on Juneteenth and Environmental Justice, published by nonprofit environmental advocacy organization Vote Solar, suggests several connections between environmental and social concerns.

If we take a closer look at the legacy of slavery and racism, we see that environmental justice and climate change deeply burden Black and brown communities, poor neighborhoods, and Indigenous peoples. The resulting impact exposes and exacerbates inequalities. A study from 2017 found that Black people are 75% more likely to live near a polluting industrial or services facility, leading to higher rates of premature death from pollution. In order to truly confront and end the environmental injustice, we must undo our current structures of power and control to reimagine the system to better serve historically disadvantaged communities.

There is much more that can be said here about Juneteenth and corporate governance.  But you get the point: Juneteenth, along with certain other holidays (e.g., Memorial Day, Labor Day, and Veteran's Day), offers businesses a time to reflect and act on matters of importance to firm governance, including matters relating to a business's relationships with its employees and greater communities.  That reflection and action may serve corporate interests in promoting, practicing, or supporting CSR, DEIB, and ESG.

_____

* Corporate Social Responsibility

** Diversity, Equity, Inclusion, Belonging

*** Environmental, Social, Governance

"In connection with" is everywhere now

I’m interested in this district court opinion issued in May regarding Section 10(b) claims against Mylan.  Plaintiffs claim that Mylan’s Morgantown, West Virginia manufacturing facility was dramatically out of compliance with FDA manufacturing requirements – to the point where it was ultimately forced to halt production and recall certain products – and misled the public about it.  The court allowed the case to go forward based on a single statement by a Mylan spokesperson, but dismissed claims based on Mylan’s other statements.  See In re Mylan NV Sec. Litig., 2023 WL 3539371 (W.D. Pa. May 18, 2023).

Now, the first thing to note here is that the court found that plaintiffs properly alleged “clear circumvention of quality controls at Mylan to cut corners for time pressure and in a way that jeopardized the quality of the medications.”  The court accepted the allegations “of widespread compliance and product-quality issues at Morgantown that were driven by outsized production demands imposed by management. …[T]hese issues were directly communicated to management and high-level executives at Mylan but not meaningfully addressed until after repeated serious warnings from the FDA.”

Having said that, the court began by holding that Mylan’s statements on its general public-facing website were not made “in connection with” the purchase or sale of a security, and therefore could not form the basis of a claim.

Now, I’ve recently blogged a lot about the “in connection with” requirement, and how courts have had some trouble assessing it when someone speaks about one company in a way that’s expected to influence trading in a different company.

That’s not this case, though.  In this case, the statements were made about Mylan – just not, in the court’s view, purchases and sales of Mylan securities.  Here’s the court’s reasoning:

Rule 10b-5 states that to be actionable, an alleged misrepresentation must be made “in connection with the purchase or sale of any security[.]” 15 U.S.C. § 78j(b). This “in connection with” requirement is met “where material misrepresentations are disseminated to the public in a medium upon which a reasonable investor would rely” in deciding whether to buy or sell a security….

After careful consideration, the Court concludes that the statements from Mylan’s website are not the type of statements upon which a reasonable investor would rely.

To start, the alleged misstatements appeared on Mylan’s general website, not its investor-relations page. While certainly not dispositive, this fact suggests that investors visiting Mylan’s website would view the information contained on the separate investor-relations page to have more value to them, since it was specifically targeted to them. The information on the other pages within Mylan’s website drives this point.

These other pages included things like descriptions of products, general statements about safety and quality, and narratives regarding the company’s history. Essentially, these pages are all about promoting Mylan, its brand, and its products. “No reasonable investor would rely upon these promotional phrases in making investment decisions.” In re Medtronic Inc., Sec. Litig., 618 F. Supp. 2d 1016, 1030 (D. Minn. 2009) (holding that information published “about the Fidelis lead on its website to promote it to physicians” was not made in connection with the sale of securities), aff’d sub nom. Detroit Gen. Ret. Sys. v. Medtronic, Inc., 621 F.3d 800 (8th Cir. 2010).

The nature of the statements themselves further underscores this fact. They are best characterized as statements of “corporate optimism, “mere puffing,” or “generalized statements of optimism.”

Now, first, the court’s mixing two concepts here – puffery, and “in connection with.”  Puffery, I’ll address separately.

But “in connection with” … I mean, I looked at the Medtronic case that the court cites, and from my read, the court did not hold that website statements are not “in connection with” securities sales; rather, the court simply held they were either puffing or not false.

Moreover, in In re Carter-Wallace Sec. Litig., 150 F.3d 153 (2d Cir. 1998), the Second Circuit held that even product advertisements in medical journals might be relied upon by investors, and since then, courts have generally accepted that all public statements by a company, no matter where they appear, were fair game for fraud on the market cases. 

The SEC has specifically warned companies that their general websites might be relied upon by investors as sources of information.  See Commission Guidance on the Use of Company Websites, 73 Fed. Reg. 45862 (Aug. 7, 2008) (“companies should be mindful that they ‘are responsible for the accuracy of their statements that reasonably can be expected to reach investors or the securities markets regardless of the medium through which the statements are made, including the Internet.’ Accordingly, a company should keep in mind the applicability of the antifraud provisions of the federal securities laws, including Exchange Act Section 10(b) and Rule 10b-5, to the content of its Web site.”).

And at least one study has found that after companies air product advertisements on television, retail investors seek out financial information about the company and trade in that company’s stock.

That said, one of the ironies of the legal “reasonable investor” concept is that it is relatively impervious to evidence of how actual investors behave, which is why this Mylan opinion worries me as a bit of a camel’s nose.  Companies often issue investor-relevant information in places that are not designated specifically for investors.  As I blogged about FTX, the SEC’s complaint against Sam Bankman-Fried rested on statements made on FTX’s general website, to the media, and even in testimony before Congress, and while that says something about the (lack of) due diligence by FTX investors, I can’t say that the SEC is wrong, because investors’ lack of diligence almost certainly was due to exactly the air of legitimacy created by these statements in non-investor-specific locations. So it’s concerning that a court would just decide, as a matter of law, on a motion to dismiss, that general company websites are the equivalent of an investor no man’s land.

But now let’s talk about puffery.  Here’s what the website actually said:

“[T]here’s nothing generic about our standards. Our internal teams conduct reviews of all products, start to finish.” ECF 39, ¶ 254.

“[O]ur priorities are to meet or exceed industry standards. Our own teams conduct ongoing reviews to ensure quality and integrity of products, start to finish, and to continually improve for optimal quality and consistency.” Id. at ¶ 256.

“Mylan uses advanced testing and monitoring systems to assure product adheres to testing acceptance criteria that are in alignment with requirements established by standard-setting organizations around the world.” Id. at ¶ 258.

“Mylan utilizes state-of-the-art monitoring systems that can automatically evaluate and reject a product that does not meet specifications.” Id. at ¶ 260.

“Mylan assures product potency, purity, and drug release through expiration date by testing the stability of our products at specific intervals.” Id. at ¶ 262.

Let us all pause to laugh that Mylan explicitly saying it was not generic was deemed to be puffery, a legal term that is often defined in terms of whether a statement is too generic to convey useful information to investors. See, e.g. ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (“No investor would take such statements seriously in assessing a potential investment, for the simple fact that almost every investment bank makes these statements.”)).

Moving on. The court found that these statements were puffery, and also rejected claims based on statements in SEC filings.  In SEC filings, Mylan offered various warnings that it might fall out of compliance with regulatory requirements, including, for example:

[D]espite our efforts at compliance, from time to time we receive notices of manufacturing and quality-related observations following inspections by regulatory authorities around the world, as well as official agency correspondence regarding compliance. We may receive similar observations and correspondence in the future….

Although we have established internal quality and regulatory compliance programs and policies, there is no guarantee that these programs and policies, as currently designed, will meet regulatory agency standards in the future or will prevent instances of non-compliance with applicable laws and regulations.

Which, the court said, meant Mylan warned of the “very thing” that plaintiffs claimed was undisclosed:

Mylan’s compliance disclosures did not misleadingly “suggest that adverse consequences were only a possibility” and that the company was currently compliant despite allegedly “widespread” and “serious compliance issues.” ECF 39, ¶¶ 269, 275, 289, 296. Rather, they told investors the truth: Mylan faced serious business risk because of the heavily regulated industry in which it operated, and that maintaining adequate compliance would be a significant undertaking—an undertaking at which it would sometimes come up short…

Mylan also advised investors of the potentially severe consequences of any non-compliance,…

These added disclosures made it clear that, even under the best circumstances, there was uncertainty as to the very possibility of adequate compliance ... in light of complex and shifting government regulations. That uncertainty was even more pronounced here since Mylan was telling investors that it, in fact, had already received (and would continue to receive) notices of non-compliance (quotations omitted)….

Considering what securities law refers to as the “total mix” of information available to investors, Mylan’s compliance disclosures did not misleadingly “suggest that adverse consequences were only a possibility” and that the company was currently compliant despite allegedly “widespread” and “serious compliance issues.”  Rather, they told investors the truth: Mylan faced serious business risk because of the heavily regulated industry in which it operated, and that maintaining adequate compliance would be a significant undertaking—an undertaking at which it would sometimes come up short.

Recall: The court would concluded that plaintiffs had in fact alleged “clear circumvention of quality controls at Mylan to cut corners for time pressure and in a way that jeopardized the quality of the medications” and that there were “widespread compliance and product-quality issues at Morgantown that were driven by outsized production demands imposed by management” communicated to management but unaddressed. 

Despite that, the court concluded that Mylan’s usual warnings it operated in a heavily regulated industry and might fall short of compliance standards were not even misleading, and accurately characterized the risks of investing in Mylan.

I am reminded of the Seventh Circuit’s statement in Pommer v. Medtest, 961 F.2d 620 (7th Cir. 1992), “It is not enough that the other party must have recognized a risk. Risks are ubiquitous. Disclosures assist investors in determining the magnitude of risks.”

All I can say is, it seems there’s a disconnect between the standards courts apply when determining whether a statement is so banal as to be immaterial, and the standards they apply when determining whether general warnings of risk are misleading for failure to convey the magnitude of a specific existing risk.

Baker on Trading in the Clouds

This week, Nasdaq, “the second-largest stock exchange in the US,” announced its biggest deal yet: the $10.5 billion acquisition of Adenza, a software company focused on financial risk.  As I note in Derivatives and ESG, trading exchanges’ traditional business models have undergone a metamorphosis.  The largest global exchanges are increasingly becoming financial data and technology juggernauts.  Indeed, Nasdaq’s press release about the deal states: “Nasdaq Accelerates Its Transformation as a Leading Technology Provider to the Global Financial System with the Acquisition of Adenza from Thoma Bravo.” 

As I write about in Trading in the Clouds, a short piece for our 2022 BLPB Symposium Connecting the Threads VI hosted by the University of Tennessee College of Law, the continuing transformation of exchanges’ business models has also recently included significant partnerships between some of the world's largest trading exchange groups and the biggest cloud service providers, including Microsoft's partnership with the London Stock Exchange Group, Nasdaq's partnership with Amazon Webservices, and the Chicago Mercantile Exchange's partnership with Google Cloud.     

Here's the abstract for Trading in the Clouds:     

"Today, countless organizations rely upon cloud computing for operational and strategic reasons. Trading exchanges are no different. This article explores trading exchanges’ increasing migration to the cloud, related regulatory frameworks, and potential costs and benefits accompanying this transition. It concludes by positing that this migratory trend is likely to culminate in the rise of a new type of financial intermediary platform and highlights that issues in this area are ripe for additional research."

Also, check out the commentaries to this article: Professor Gary Pulsinelli's Commentary on Trading in the Clouds and Virginia Saylor's Student Commentary on Trading in the Clouds. 

National Business Law Scholars 2023 - This Thursday and Friday!

If you happen to be traveling in the region of Knoxville, Tennessee on Thursday or Friday, feel free to stop by and catch all or part of this year's National Business Law Scholars Conference, hosted by the Clayton Center for Entrepreneurial Law at The University of Tennessee College of Law.  The final schedule will be posted on the conference website within the next day, but I can tell you now that we start at 8:15 am for breakfast on Thursday (9:15 am for the program) and run through a 5:30 pm reception, and we start at at 8:00 am for breakfast on Friday (8:45 am for the program) and run until 3:30 pm. We have, as usual, a number of engaging plenary programs, but the conference mostly consists of scholarly paper panels.  As always, the schedule has been produced by the incomparable Eric Chaffee (who is moving to Case Western Law this summer).  He is amazing.

The morning plenaries (which start the conference proceedings each day) focus on entrepreneurship, a topic of focus for and strength of The University of Tennessee, Knoxville, and The University of Tennessee College of Law, working through our Transactional Law Clinic.  Thursday's morning plenary panel focuses on the engagement of law schools with university and community venture activity.  Friday's morning plenary session features an interview with two lawyer entrepreneurs who will help us explore our ability, as business law professors, to help prepare our students for entrepreneurship.

The third plenary session (Thursday, just after lunch) is an author-meets-readers program on Adam Pritchard's recently released book, A HISTORY OF SECURITIES LAW IN THE SUPREME COURT (Oxford University Press 2023).  Adam previewed aspects of the book in a presentation at the Neel Corporate Governance Center last fall.  We are in for a real treat!  UT Law is so pleased to be able to host this session at the conference.  Adam has been a regular National Business Law Scholars Conference attendee and frequently offers constructive comments on other business law scholars' works at the conference.

I look forward to seeing many of you later in the week!  We are so glad to have everyone at UT Law in person this year for the conference.

Cabining MFW

Regular readers know that I’ve spent a lot of time thinking about the problem of controlling shareholders.  I’ve written a bunch of blog posts on the subject (prior posts here, here, here, here, here, here, here, here, here, here, here , and here), and two essays: After Corwin: Down the Controlling Shareholder Rabbit Hole, and The Three Faces of Control. 

To summarize my previous writing on the subject: The label “control” in Delaware carries an enormous amount of legal weight. Controlling shareholders are subject to fiduciary duties; control itself is valuable and subject to special pricing, and interested transactions by controlling shareholders are subject to the MFW cleansing regime rather than ordinary cleansing (“ordinary” meaning by either disinterested shareholders or disinterested/independent directors).  In recent years, the definition of control has become muddled, in part – I’ve argued – because Corwin allows many suspect deals to escape review entirely, encouraging an expansive view.  And once Chancery courts concluded that all conflict transactions by controllers could only be cleansed via MFW review, enterprising plaintiffs became especially creative about identifying interested transactions, including regulatory settlements and reincorporation out of state.

The Delaware Supreme Court may have taken the first tiny steps for dealing with the first problem – how “control” is defined – in its opinion in In re Tesla Motors Stockholder Litigation.  There, both Chancery and the Supreme Court left undecided the question whether Elon Musk – with a 22% stake – could be considered a controlling shareholder of Tesla. In that context, the Delaware Supreme Court said:

The fact that such a stockholder lacks the voting power to elect directors, approve transactions, or perhaps use her voting power to block transactions makes the question [of who counts as a controller] an important one  

Which perhaps provides guidance to Chancery courts in the future, that they should concentrate their inquiry on these factors – the power to elect directors, the power to approve transactions, and the power to block transactions – when determining whether someone qualifies as controlling.  (I note, though, that in Ruprecht v. Third Point, 2014 WL 1922029 (Del. Ch. May 2, 2014), the court believed that a 20% stake might be enough to achieve blocking control. So, you know.  If control is defined narrowly, does that mean poison pills have to be narrow as well?).

But.

Putting aside the question of how control is defined, we still have the issue of how conflict transactions are cleansed.  As I said, Chancery has settled on the proposition that all conflicted controller transactions are cleansed exclusively through MFW.  But in their article, Optimizing the World’s Leading Corporate Law: A 20-Year Retrospective and Look Ahead, Lawrence Hamermesh, Jack Jacobs, and Leo Strine argued that in the modern world of institutional shareholders, independent directors, and robust SEC disclosure requirements, MFW procedures are no longer necessary; in fact, ordinary cleansing is sufficient to protect minority shareholders from a controller’s influence, and should trigger business judgment review for all controller transactions except freezeouts (or, possibly, transactions that require an organic shareholder vote for approval).

And that’s why it’s a very big deal that at the end of May, the Delaware Supreme Court ordered the parties in In re Match Group Derivative Litigation, No. 368, 2022, to brief the issue whether MFW cleansing is required for all interested controller transactions, or whether ordinary cleansing is permissible outside the freezeout context.  The case involved a series of transactions by which the old Match Group reorganized its assets, in a manner that public shareholders claimed benefitted the controller at the expense of the minority.  VC Zurn held that MFW cleansing was satisfied and the public shareholders appealed, arguing that the stringent MFW requirements were not met – leading to the question whether MFW was even necessary to trigger business judgment review.

Significantly, this issue was waived by the Match Group defendants before the Court of Chancery; the Delaware Supreme Court said that notwithstanding that waiver, “the Court finds that resolving the issue raised by the IAC Defendants is in the interests of justice to provide certainty to boards and their advisors who look to Delaware law to manage their business affairs.”

I admit to some trepidation in saying this, but what else is tenure for I can’t help noticing that this is kind of a fraught moment for the Delaware Supreme Court to actually reach out and grab the issue in a case where it was not properly presented.  Elon Musk just loudly moved Twitter from Delaware to Nevada, and the controller of TripAdvisor and Liberty TripAdvisor is now moving his companies out of Delaware and into Nevada, quite explicitly for the purpose of engaging in conflict transactions under a more permissive standard of review.  It’s hard not to recall how Martin Lipton* suggested reincorporation outside of Delaware in the wake of the City Capital Assocs. v. Interco, Inc., 551 A.2d 787 (Del. Ch. 1988) decision, and how the Delaware Supreme Court subsequently rejected Interco.  In so doing, the Delaware Supreme Court may not have been responding specifically to the Lipton memo, but it might have been swayed by a general … mood ... that the memo reflected. 

So, to bring this all back to Match Group, I’m not saying that the Delaware Supreme Court ordered the MFW briefing out of concern over an exodus from Delaware, but I’m not not saying it, either.

That said, I tend to agree the current system is not sustainable, but – and I argued this all explicitly in Three Faces – I don’t think expanding ordinary cleansing to non-freezeout transactions is the solution.

First, derivative claims against controllers are already protected by the demand requirement.  Hamermesh, Jacobs, and Strine argued for a much more forgiving standard for demand excusal, but their view of demand excusal was rejected by the Delaware Supreme Court in United Food & Com. Workers Union v. Zuckerberg, 262 A.3d 1034 (Del. 2021).  The concepts are sides of a coin; it’s one thing to easily cleanse conflicted controller transactions when there’s a robust ability to bring derivative claims, and quite another to do so when derivative procedures already provide a strong layer of protection.  See Three Faces at n. 102.

Second, the business judgment standard of review is predicated on the idea that shareholders can simply oust directors who are unfaithful to their interests.  That’s not the case when it comes to controlling shareholders, and it’s particularly not the case when the controlling shareholder – through dual class structures or other means – has a level of control that is not correlated with its economic interest in the company.

Third, recent Delaware decisions have made it clear that entire fairness review is not insurmountable.  Musk prevailed after trial in Tesla, and so did the defendants in In re BGC Partners, Inc. Derivative Litigation (currently on appeal to the Delaware Supreme Court); additionally, in In re Baker Hughes Derivative Litigation, the court accepted a one-member SLC’s conclusion that a conflicted transaction was “entirely fair” to shareholders under Zapata, and dismissed a derivative action.  So it’s not like consigning controller transactions to entire fairness review necessarily means liability will be imposed.

Finally, I believe the current predicament is a direct result of the … distance … created by Corwin between an idealized vision of corporate governance and the reality of how transactions actually unfold.  To put it bluntly, Corwin has not prevented a number of transactions that appear to be exploitative on their face, which has sometimes left Chancery floundering for a path to achieve justice.  If the Delaware Supreme Court were to make it easier for controlling shareholders to cleanse conflicted transactions, I believe that distance would become intolerable.

In SMART Local Unions and Councils Pension Fund v. BridgeBio Pharma, Inc serves as a cautionary tale.  In that case, controlling shareholder BridgeBio Pharma squeezed out the minority shareholders of Eidos Therapeutics despite the fact that a third party had offered to buy the minority shares at a higher price (subject to various governance protections).  Vice Chancellor Fioravanti applied business judgment review because, notwithstanding the price differential, BridgeBio had employed MFW procedures.  All of which provides a rather vivid illustration that even MFW leaves plenty of room for exploitation of the minority; if Delaware weakens minority shareholder protections, what new horror stories will emerge that threaten the legitimacy of its law?

But actually what I suspect will actually happen – and again, I made this argument in Three Faces at 821 – is that Chancery courts will try to find an outlet; if they can’t find it through MFW, they’ll find it through definitions of materiality or coercion or independence, which will create a new explosion of malleable standards that will be difficult for transaction planners to anticipate.

Now, I admit the whole situation is a mess (a beautiful mess, it got me two whole papers), and cries out for some kind of order, but I think in the near term, anyway, a more feasible solution is to place some moderate limits on the types of transactions subject to MFW review, without going as far as to confine MFW solely to freezeouts or transactions that require an organic shareholder vote.  For example, Delaware might decide that transactions in the ordinary course of business – like compensation, and routine legal settlements, and the like – can be cleansed using a single protective device, while more extraordinary transactions with controlling shareholders require both methods.  Cf. Three Faces at 827.

Anyway, I’ll just end with: There’s a particular irony that the Delaware Supreme Court is considering alterations to Delaware common law in light of the number of institutional shareholders, while the Delaware legislature is considering alterations to Delaware statutory law in light of the number of retail shareholders.  

*no relation

 

More Teaching Insights from Professor Siedel

In today’s post, I wanted to highlight two more works (previous posts here and here) of University of Michigan Professor Emeritus George Siedel.

First, Siedel recently wrote an informative piece in the ABAJournal entitled, Consider teaching law in a business school as an alternative career.  This helpful article should be especially useful to BLPB readers who might be interested in teaching law in a business school or simply curious to understand ways in which teaching law in a business school might be different from teaching law in a law school.  

Second, in a previous post (here) I mentioned Siedel’s book Seven Essentials for Business Success: Lessons from Legendary Professors.  I just finished reading it.  Definitely well-worth my time and effort!!  There are so many great ideas here that I can’t wait to put into practice when the fall semester begins!  It seems that great teachers combine stellar “teaching processes” with what Siedel terms “authenticity.”  From his study of and interviews with the legendary professors, he identifies “[s]ix themes relating to the teaching process” (p.186): 1) “Prepare, Prepare, Prepare,” 2) “Build a Learning Community,” 3) “Emphasize the Big Picture,” 4) “Simplify, Simplify,” 5) “Make the Learning as Interactive as Possible,” and 6) “Emphasize Why the Course Is Important.” (pp. 186-203)

While a professor’s “authenticity” is perhaps a more challenging concept to define, it is nevertheless highly important.  Siedel shares that at the beginning of a U. of Michigan course, he sends the following question to his students “What qualities do you value most in a professor?” (p.185)  While “comments on course content and delivery” seem predictable responses, he shares the following insight:

“What you might not expect – and what surprised me when I first used the questionnaire several years ago – are the large number of comments that mention qualities that are more elusive.  Almost 60% of the students used these words when describing what they value most in a professor: authentic, empathetic, passionate, love of teaching, humility, interest in and respect for the students, fair, transparent, enthusiastic, friendly, approachable, kind, lack of ego, curious, understanding, candid, energetic, patient, committed, available, and honest.”  (p.185) 

Siedel distills examples of these qualities into three clusters based on the seven professors the book profiles: “passion for the material and concern for students, dedication to continuous learning, and a higher purpose that has a positive impact beyond the classroom.” (p. 204)

Several quotes throughout the book really struck me.  I’ll highlight just three of my favorites:

“Every moment students are engaged by participation is good.” (p. 68, quoting Richard Shell, one of the profiled profs)

“[M]ost students want to know how much you care before they care how much you know” (p. 204, quoting Chris Christensen in Education for Judgement)

“[G]ood teaching cannot be reduced to technique: good teaching comes from the identity and integrity of the teacher” (p. 203, quoting Parker Palmer)

Finally, one of the seven legendary professors that Siedel profiles is Wharton Professor Richard Shell, who was also my dissertation advisor.  In the conclusion of the book and in wrapping up his discussion on authenticity, Siedel remarks "Professor Shell, says another student, is one of 'those rare people you meet who appears to walk the talk.' " (p. 210)  While attending the Wharton Fin Reg Conference this past April, I had an opportunity to catch up with Richard and to seek his wisdom and advice about many things.  I can assure the student quoted that Richard is a truly rare person and a legendary professor who indeed "walks the talk."

The Gratitude of a Mini-Me: Honoring Helen S. Scott

Earlier tonight, I had the opportunity of a lifetime: a chance to--in some small way--let a teacher-mentor know how much she means to me and has meant to my career.  Specifically, I had the privilege of presenting an award to the amazing woman who taught me in the foundational law courses that I have needed most in my careers as a practitioner and an instructor.  That amazing woman is NYU's Professor Helen Scott.  The award was a surprise, making things all the more fun.

I know some BLPB readers also are Helen's former students.  Others are fans of hers for other reasons.  For all, I am copying in below the tribute I offered in conveying the award to Helen at the 2023 Impact Investment Legal Working Group & Grunin Center Annual Conference hosted at my alma mater, NYU Law.  Feel free to add your tributes in the comments.  I promise to pass them on.

*          *          *

Commitment; sustained commitment.

Sometimes, there is someone who impacts your life deeply by merely "being there" in important ways at key times. Helen Scott is one of those people in my life. I do hope many of you are similarly blessed.

We all know Helen is retiring this year--a scary thought for some of us. It was 41 years ago that both of us began our NYU journeys. In 1982, I started my path here as a law student and she as a law professor. Kismet, in some sense, I suppose. I am grateful to have been given the opportunity to say a few words about her here before she saunters off into retirement.

I took both Corporations and Securities Regulation with Helen. By the time I found myself in her classroom as a second-year law student, I already had been working for about six months as a law clerk in the corporate finance group of a midtown firm—a job I kept until graduation. But it was in Helen's courses that everything came together for me. She made both courses truly engaging and tied them into the reality of law practice as much as possible.

Her unflagging dedication to teaching was obvious. Among other things, she was one of the only tenure-track professors during my law school career here at NYU Law who brought actual documents into the classroom and classroom discussions. She also brought interoffice envelopes filled with candy into class at the end of the semester, flinging the contents up the aisles of the classroom for all to grab.

Her obligations to her students—even back then, in her early years of teaching—extended to activities outside the classroom. She would go to lunch with small groups of interested students. Members of my study group were interested! We considered the expense of joining her for lunch at the Washington Square Diner (an affordability issue for at least some of us back then) an investment. Those lunches were above and beyond the call of academic duty. They cemented my desire to do what Helen had done, to become what my husband refers to as her “Mini Me.” But Helen's support for me and my career did not stop there.

I was married in August 1985, a few months after graduation and about a month after taking the bar exam. Helen and Ira were there to support me and my husband. As Helen knows, their wonderful wedding gift of a down comforter kept us warm over many years! We had it re-stuffed and re-sewn before we finally gave up on it.

In the years to follow, there were touch-base visits during several of Ira's board meetings in Boston (Where I was practicing at the time)—times to discuss lawyering and family. Helen and Ira's children are a few years older than ours, but close enough in age where she could share quality information. During one visit, she bought my children ice cream at Quincy Market. She was their hero!

When I told Helen I wanted to teach law, she offered encouragement, but also “tough love.” She even critiqued the structure and content of my job talk . . . over the telephone! For those in academia, you will know why that is so appreciated and so difficult.

But this story is not just about Helen and me. Helen has similarly impacted many others—I suspect both law and business students—in their lives and careers. I have had the pleasure of working with a number of NYU Law fellows through and outside the Grunin Center who echo in similar fashion, but in different ways, the strength of Helen's devotion to building their knowledge bases and fostering their continued professional development. I aspire to have the same kind of impact with my law and business students.

You may wonder where all this is going . . . .

In recognition of Helen’s extraordinary, sustained commitment to NYU Law, the Grunin Center, and her students (including me), I am delighted and honored to be able to present Helen with the inaugural Grunin Center Sustained Commitment Award. Helen’s career exemplifies sustained commitment. I know you will agree that she is truly deserving of this honor.

The Mental Health Crisis in the Legal Profession

If you follow me on LinkedIn, you know that I posted almost every day in May for Mental Health Awareness Month.

 

Last week,  I had the opportunity to discuss mental health and well being for an AmLaw 20 firm (one of my coaching clients) that opened the presentation up to all of its legal professionals. Hundreds registered. Too often, firms or companies focus on those with the highest salaries. As a former paralegal, I know how stressful that job can be. And I know I could never have done my job as a lawyer without the talented legal professionals who supported me.

Here are some scary statistics that I shared from the most recent ALM Mental Health and Substance Abuse Survey.

If you’re a law firm leader or work with legal professionals in any capacity, please read the report and take action. If you can’t get rid of the billable hour (which would solve a lot of issues), think about how you allocate work, respond to unreasonable client demands, and reward toxic perfectionism and overwork. 

✅ 71% of the nearly 3,000 lawyers surveyed said they had anxiety

✅ 45% said their morale has not changed since the pandemic

✅ 38% said they dealt with depression

✅ 31% struggled with another mental health issue

✅ 44% said they knew co-workers who struggled with alcoholism

✅ 15% said they knew someone in the profession who died by suicide in the past two years

✅ Over 50% of said they “felt a sense of failure or self-doubt, lost emotion, felt increasingly cynical and negative, and had decreased satisfaction and sense of accomplishment”

✅ A third said they felt “helpless, trapped, detached, or alone in the world.”

✅ More than 60% said they felt overwhelmed, irritable and exhausted or struggled to concentrate

✅ 28.1% used all of their vacation time, but only 31.1% said they could fully disconnect

✅ More than 76% of lawyers blamed their work environment for these problems

✅ 68% cited billable hour pressures

✅ 67% cited the inability to disconnect

✅ 54% cited lack of sleep

✅ 51% of lawyers said they would feel comfortable talking to an offsite professional

✅ Only 33% said they thought that they could take a leave of absence to address their mental health

✅ More than 72% indicated that remote work improved their quality of life

✅ 60% said that some amount of remote work improved their physical well-being.

😮 50% of the lawyers surveyed indicated that the profession is in a mental health crisis.

I see these issues with my students and with the lawyers I coach. Everyone may not have the passion I have to change the profession, but we can all do our part. So what can you do about it? Here are some resources to get you started. 

What a Week Yesterday Was

In blogging, it’s feast or famine.  Some weeks I strain to find something to say; other times I’m spoiled for choice.

This week, we kick off with the Supreme Court’s decision in Slack v. Pirani, which Ben Edwards flagged in his post yesterday.  I blogged extensively about the case previously here and here and here.

Not much to say about this one except that the unanimous reversal of the Ninth Circuit was probably the best outcome plaintiffs could reasonably have hoped for.  The Court held – as expected – that Section 11 claims require plaintiffs to show they purchased shares registered on the defective registration statement, but it also allowed for the possibility that plaintiffs would be able to do so and remanded to the Ninth Circuit to make that determination.  Plaintiffs, and their amici, raised arguments about statistical tracing and accounting methods; it’s not impossible those will stick.  And, the Supreme Court remanded to the Ninth Circuit for reconsideration of the Section 12 claims, which means plaintiffs may try to make some new law there as well.  These are all longshots, but the case survives to fight another day.

Next up, we have the Ninth Circuit’s en banc decision in Lee v. Fisher, upholding Gap’s forum selection bylaw requiring that all derivative claims – including Section 14(a) claims – be brought in Delaware Chancery, which has no jurisdiction to hear them.  I blogged about this issue here and here and here and here; the decision creates a split with the Seventh Circuit’s Seafarers Pension Plan ex rel. Boeing Co. v. Bradway, 23 F.4th 714 (7th Cir. 2022), and it was 6-5 to boot, so I’m pretty sure this is Supreme Court bound unless someone settles something.

The majority opinion kicks off with an incorrect history of forum selection clauses and their relationship to Section 14(a) claims.  None of that matters to the reasoning, really, it’s just annoying.

The court says:

Gap’s inclusion of a forum-selection clause in its bylaws is consistent with a modern corporate trend. … In the first decade of the 2000s, there was an increase in litigation, id., “brought by dispersed stockholders in different forums, directly or derivatively, to challenge a single corporate action,” … Because multiforum litigation could impose high costs and hurt investors, id., many corporations adopted forum-selection clauses in response…

That’s true as far as it goes, but multiforum litigation was an issue for state claims, not federal claims.  For federal claims, the big concern was not multiforum litigation, but state court litigation, specifically Securities Act claims in state court.  So, bylaws morphed from being a protection against state law multiforum litigation into being a protection against state court litigation of Section 11 claims.  In fact, I’m, like, 90% sure that Gap’s bylaw – requiring that derivative claims be brought in Delaware Chancery – was in fact never intended to apply to federal claims at all, but was enacted with state law claims in mind.  It was likely only after this particular derivative 14(a) claim was brought that Gap decided to apply its bylaw to federal Exchange Act claims.

Then the opinion says:

Lee’s complaint is consistent with another modern trend, in which plaintiffs frame corporate mismanagement claims that normally arise under state law (including challenges to corporate policies relating to “ESG [environmental, social, and governance] issues . . . such as environmentalism, racial and gender equity, and economic inequality”) as proxy nondisclosure claims under § 14(a), in order to invoke exclusive federal jurisdiction and avoid any forum-selection clause pointing to a state forum.

No, plaintiffs bring Section 14(a) claims because they are negligence-based and predicated on a simple material misstatement.  If they brought mismanagement claims, they’d have to get around the business judgment rule and need to show a loyalty violation; negligence would be exculpated under 102(b)(7).  That’s not a defense of the practice, or of this particular complaint; it’s just a correction of the Ninth Circuit’s history.

But onward to the main event.  My big thing here, as you all are aware by now, is the assumption that bylaws and charter provisions are in fact contracts.  Well, the Ninth Circuit just accepts that they are – and further that they are contracts governed by Delaware law – with no analysis at all.

In interpreting Gap’s forum-selection clause, we apply Delaware’s rules of contract interpretation, because “[c]orporate charters and bylaws are contracts among a corporation’s shareholders.” Airgas, Inc. v. Air Prods. & Chems., Inc., 8 A.3d 1182, 1188 (Del. 2010)….

The bylaws are not only a contract among stockholders, but are also considered “part of a binding broader contract among the directors, officers and stockholders formed within the statutory framework of the Delaware General Corporation Law,” Hill Int’l, 119 A.3d at 38, because “the certificate of incorporation may authorize the board to amend the bylaws’ terms and that stockholders who invest in such corporations assent to be bound by board-adopted bylaws when they buy stock in those corporations,” Boilermakers, 73 A.3d at 940…..

We also reject the dissent’s argument that the forum-selection clause is unenforceable because Gap’s shareholders —whether they are “sophisticated parties” or not, Dissent 66—did not “consent” to its inclusion in the corporate bylaws, Dissent 65, and had “no opportunity to negotiate the content of the bylaws or alter terms not to their liking.” Dissent 66. This argument fails as a matter of both federal and Delaware law. The Supreme Court has expressly rejected the “determination that a nonnegotiated forum-selection clause in a . . . contract is never enforceable simply because it is not the subject of bargaining.” Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593 (1991). We have likewise held that “a differential in power or education on a non-negotiated contract will not vitiate a forum selection clause.” Murphy v. Schneider Nat’l, Inc., 362 F.3d 1133, 1141 (9th Cir. 2004). And because “state law governs the validity of a forum-selection clause just like any other contract clause,” DePuy Synthes Sales, Inc. v. Howmedica Osteonics Corp., 28 F.4th 956, 963–64 (9th Cir.), cert. denied, 143 S. Ct. 536 (2022), it is even more significant that Delaware courts have not agreed with the dissent’s reasoning. 

Obviously, I’m tearing my hair out over here, but rather than type it all out again, I’ll just direct y’all’s attention to my latest paper on the subject, Inside Out (or, One State to Rule them All): New Challenges to the Internal Affairs Doctrine, the proofs of which are now actually at the printer and so thankfully I don’t have to update it to address this latest decision. 

Working off the premise that bylaws are contracts, the Ninth Circuit spends most of its time dealing with the question whether you can contract to bring a derivative Section 14(a) claim in a forum that has no jurisdiction to hear it.  Functionally, of course, such a contract is the equivalent of a waiver of the claim, so the real issue is whether such a waiver is prohibited under federal law.

The Exchange Act prohibits “[a]ny condition, stipulation, or provision binding any person to waive compliance with any provision of this chapter or of any rule or regulation thereunder, . . .” 15 U.S.C. § 78cc(a).  Courts, including the Ninth Circuit, have uniformly held that a predispute agreement not to bring a private claim under the securities laws is the equivalent of a prohibited waiver of Exchange Act compliance, see, e.g., Petro-Ventures v. Takessian, 967 F.2d 1337 (9th Cir. 1992), although there is some circuit disagreement about what exactly counts as a predispute agreement not to sue.

In this case, though, the Ninth Circuit held that Gap’s bylaw does not run afoul of the Exchange Act because it only eliminates derivative Section 14(a) claims, not direct claims.  And, the court further held, false proxy statements are really more injuries to shareholders’ individual voting rights than to the company generally, which means they are a poor fit for derivative claims, and the plaintiff in this case could have brought the same claims directly.  So, according to the Ninth Circuit, the company’s substantive obligations under the Act remain intact, and no prohibited waiver is effectuated:

The dissent has failed to identify any § 14(a) claim that cannot be brought as a direct action, and therefore has failed to show that the unavailability of a derivative § 14(a) action precludes enforcement of any substantive obligation arising under § 14(a). Accordingly, the dissent’s observation that “[d]irect and derivative suits are not interchangeable,” Dissent 60, is irrelevant here. Because § 29(a)’s antiwaiver provision is concerned only with waiver of the substantive obligations imposed by the Exchange Act, the availability of any particular method of enforcing those obligations is not material.

So. The bylaw did not run afoul of the Exchange Act antiwaiver provision.

The court then turned to the plaintiff’s argument that even if the bylaw did not count as a prohibited waiver of Exchange Act claims, it still ran afoul of the general policy of the federal securities laws, which intended to allow these claims to go forward.

At this point, relying a lot on Joseph Grundfest & Mohsen Manesh’s article, Abandoned and Split But Never Reversed: Borak and Federal Court Derivative Litigation, the court held that the derivative private right of action under Section 14(a) was kind of a judicial mistake – dicta in the case that recognized it, J.I. Case Co. v. Borak, 377 U.S. 426 (1964), and out of place in the securities laws generally.  The court did not purport to overrule Borak and eliminate the right; it simply held that given the right’s weak pedigree, preserving it did not qualify as a sufficiently important policy to override the forum selection provision.

A lot of the court’s reasoning here went back to the idea that false proxy statements are really more properly brought as direct claims, because they impair stockholders’ voting rights.  The court held there was no reason not to follow Delaware’s conception of the direct/derivative distinction in this case for the purpose of interpreting federal 14(a) rights, because Delaware’s conception makes sense and is not inconsistent with the federal policy underlying the Section 14(a) cause of action. 

So.

As a policy matter, my problem with the decision is that, contra the Ninth Circuit, in fact, direct claims do not function as a complete substitute for derivative claims.  Suppose an acquiring company needs a shareholder vote to complete a merger, and the proxy statement is misleading.  Suppose the merger is a bad deal for the company.  Under Delaware law, that’s an injury to the company, not the shareholder – and, in fact, in the very Delaware cases cited by the Ninth Circuit for the proposition that these should be brought as direct claims, Delaware also held that it could not identify any injury that would justify an award of damages directly to the stockholders, because the only harms were derivative.  In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 766 (Del. 2006); In re Tyson Foods, Inc., 919 A.2d 563 (Del. Ch. 2007).  Ironically, the Ninth Circuit cited Tyson Foods for the proposition that there must be a direct remedy available for false proxy statements, when that case itself dismissed the direct claims because there was no relief anyone could think of.

So there absolutely are false proxy situations that are more naturally brought as derivative claims.  And Delaware apparently won’t provide a remedy, or might only provide a nominal damages remedy – because the psychic harm is direct but the economic harm is derivative, which is not something Tooley really contemplated.  Plus, it’s necessary that federal law provide the cause of action, because Section 14(a) imposes liability for negligence.  Delaware state law does not; companies can exculpate claims for negligence under DGCL 102(b)(7). 

All of which is to say: There is no remedy under Delaware law for negligent proxy statements whether the claim is brought directly or derivatively (with an asterisk), and if federal law is following Delaware, there’s no remedy for shareholders suing directly under federal law for transactions that harm the company, at least not unless shareholders manage to act quickly enough to halt the transaction entirely.  That’s the hole that derivative Section 14(a) claims can fill.

(Now, some courts have held that 102(b)(7) provisions can even exculpate negligence claims under federal law, as I discuss in Inside Out; let’s just say that I think these decisions are wrong and pretty clearly violate the Exchange Act’s antiwaiver provisions.)

But let’s go further.  As I said, unless someone backs down or settles, this case is Supreme Court bait.  Once it gets there, I would be surprised if we did not see an argument that predispute claim waivers simply do not run afoul of the antiwaiver provisions of the Exchange Act at all.  I.e., even though federal courts are in agreement that predispute waivers are unenforceable – and the Ninth Circuit agreed they are here, if there is no alternative federal claim preserved – I expect defendants or their amici to argue that the Exchange Act only prohibits waiver of substantive compliance with the Act; that does not necessarily translate into prohibiting private contracts not to sue.  After all, the SEC can still sue for Exchange Act violations, so the company is still bound to its substantive obligations.

I would also not be surprised if the Supreme Court were to find that argument compelling, and endorse it, or come very close (there must be some sliver of a private right remaining, or something; maybe you can waive fraud on the market claims so long as direct reliance claims remain, that kind of thing; there is already a circuit split about just how much of a private securities claim you can waive by contract).  In fact, after the Ninth Circuit’s decision, some version of that argument – you can eliminate claims this far but no farther – will probably be shopped with or without Supreme Court involvement.

If that happens, then, leaving aside what the effect might be on private contracts, the whole mess is dumped back into Delaware’s lap.  Delaware will have to decide how far companies can go in charters and bylaws to waive private securities fraud claims.  Delaware will have to decide when enforcing such waivers is a violation of directors’ fiduciary duties, and when directors are conflicted in enforcing such waivers, and whether enforcement of a waiver is a conflict transaction that needs to be reviewed under entire fairness. It will add a whole separate layer of state litigation on top of the federal, where Delaware will decide the contours of the federal right.  And it will be doing so in the shadow of jurisdictions like Nevada, which may very well adopt permissive rules.  We might even start with whether Delaware does, in fact, agree that directors may, consistent with their fiduciary duties, completely bar derivative Section 14(a) claims, especially if a situation comes up where, whether due to 102(b)(7) or Delaware’s vision of the direct/derivative distinction, Delaware would not provide any remedy but federal law would provide a derivative one.  And of course, arbitration provisions may make a comeback - even apart from the FAA, Delaware then gets to decide whether and to what extent invoking arbitration for securities claims is consistent with Delaware-imposed fiduciary duties.  This is the race to the bottom on the Autobahn.  

And that is exactly my point in Inside Out (or, One State to Rule them All): New Challenges to the Internal Affairs Doctrine.

And ... we aren’t even done with interesting business law developments this week, but this post is long enough so, more later.

Supreme Court Upholds "Tracing" Requirement for Section 11 Cases

Earlier today the Supreme Court released its opinion in Slack Technologies LLC v. Pirani.  It ruled that a plaintiff seeking to bring a Section 11 claim must trace their stock to a registration statement.  Of course, companies today now go public through direct listings or other methods where the pool of publicly traded stock includes some issued pursuant to registration statement and some from other prior holders.  Functionally, this often makes it impossible to for anyone buying shares in the open market to trace whether their shares were issued pursuant to a registration statement or simply sold by someone else.

The unanimous decision follows the vast majority of circuit courts to consider the issue.  It pointed out that the issue was previously addressed by Judge Friendly in Barnes v. Osofsky, 373 F. 2d 269, 272 (CA2 1967).  

 

In Memory; Harvey Pitt

The following message was received by me earlier this evening from the SEC Historical Society.  I thought many of you would want the information.  I interviewed with Harvey Pitt back at Fried Frank in 1984.  He then was already a securities regulation icon.  I was impressed (even though I did not end up working at Fried Frank--but together with Skadden's Washington, DC office, it was at the top of my list if I had decided to go to DC instead of Boston).  May he rest in peace and may his memory be for a blessing.

+++++

Dear Friends,

I write to pass along the very sad news that former SEC Chairman and one of the Society's founders, Harvey Pitt, passed away today.

There will be a service on Monday, JUNE 5th at 1:00 PM at the Washington Hebrew Congregation at 3935 Macomb Street, NW, Washington, DC 20016.

I understand that for anyone who would like to reach out to his wife, Saree, it was recommended by his family to give her a day or two before doing so.

I will pass along any additional helpful information that I may receive.

Sincerely,
Jane

 

Jane Cobb
Executive Director
[email protected]
202-756-5015

 

 

I’m Moving to the Free Enterprise Project

It’s not quite as dramatic as LeBron James taking his talents to South Beach, but I’m nevertheless excited to announce my upcoming move to the Free Enterprise Project (FEP), a DC-based think tank that “focuses on shareholder activism and the confluence of big government and big business.” The FEP is part of the National Center for Public Policy Research, which is “a communications and research foundation supportive of a strong national defense and dedicated to providing free market solutions to today’s public policy problems.” The NCPPR was founded in 1982, and readers of this blog may be interested to know that among its many activities it is the plaintiff in a recently filed lawsuit accusing the SEC of viewpoint discrimination in connection with its oversight of shareholder proposals (co-blogger Ann Lipton recently discussed an aspect of that lawsuit here).

In addition to the FEP, the National Center includes: (1) the Environment and Enterprise Institute, (2) Project 21, (3) Able Americans, and (4) The Political Forum Institute. For those interested, I’ve included a brief summary of each of these projects below.

• The Environment and Enterprise Institute seeks to “counter misinformation being spread to the public and policymakers by the environmental left.”
• Project 21 seeks to “promote the views of African-Americans whose entrepreneurial spirit, dedication to family and commitment to individual responsibility have not traditionally been echoed by the nation’s civil rights establishment.”
• Able Americans seeks to “support Americans living with intellectual, developmental and physical disabilities.”
• The Political Forum Institute seeks “to build a powerful and enduring community dedicated to the values and beliefs of the American founding: free peoples, free minds, and free markets.”

While I am looking forward to this new opportunity to advance the principles of “a free market, individual liberty and personal responsibility” – I must also express my gratitude for the opportunities I’ve been given by Akron Law to be of service to that institution and its students. If you aren’t familiar with all the great things going on at Akron Law, please visit their web page (here). There is much I could brag about when it comes to Akron Law, but perhaps the best thing I can say about the school is that everyone I ever worked with there – from the Dean’s suite to the administrative offices and throughout the school – was and is passionately committed to the success of our students. Unsurprisingly, we have not always agreed on the best path forward for the school, but I never once questioned the commitment of my colleagues to the institution and our students.

Finally, I want to express my gratitude to my past and present co-bloggers at the BLPB. I believe I can rightfully claim to be the founding member of this 2013 re-boot of the BLPB, but at this point I merely bask in the brilliance of my co-bloggers. When I was younger, I typically preferred to be a big fish in a small pond – but now the advice I almost always give is to dive into the pond with the biggest/best fish you can surround yourself with, and my experience here confirms that this is the better road travelled.

I’ve also decided to jump back on Twitter and LinkedIn, so feel free to connect with me there (at least until I’m cancelled).

Onwards and upwards!

Closing Out An Annual Day Of Reflection . . . .

Each year on and around Memorial Day, in addition to all the promotional sales that hit my email in box and text messaging apps, I read many grateful testimonials to those whose lives were lost in national military service.  The personal reflections are touching and inspire in me both sorrow for the loss and pride in the United States of America.  As many before me have said, there is no greater sacrifice for one's country.

Although family members alive during my lifetime have served in the armed services, none of those family members died in the line of service.  I have been lucky to not suffer that kind of loss.  It would be heartbreaking.

Today, my brother (who researches our family history) asked his Facebook friends--me included--to honor "all of those who have lost their lives in the struggle for freedom."  That request followed a brief recitation of the story of one of our family members who lost his life as a civilian working in what became enemy territory in World War II.  Here is what my brother wrote:

1st cousin 1 generation removed Donald MacLeod Williams (14 May 1921, San Francisco, California - 9 Mar 1943, Sasebo, Nagasaki, Japan) was a civilian POW who died while imprisoned during WWII at Sasebo POW Camp # 18. He was my grandfather’s sister’s son.

He was working for the Morrison-Knudsen Company on Wake Island when it was overtaken. Along with 250 other men, he was captured and transported by an oil tanker to Yokohoma. The men were marched through the streets and then put on a train to Sasebo Camp #18. While in the camp he became ill, developed pneumonia and died of both the pneumonia and malnutrition.

He was originally buried in Unoki near Sasebo in a mass grave. The American military recovered the bodies after the war and the family was given the ability to bury him properly. He had spent some of his childhood with his family in Hawaii and the decision was made to bury him there. He is buried in the National Memorial Cemetery of the Pacific in Honolulu, Hawaii.

I had never heard this story.  It made me think.  Specifically, it forced me to consider the risks of working abroad--something diplomats, journalists, and multinational businessmen must be keenly aware of when they are stationed or accept a position located overseas.  I offer the story to you so that you may be similarly enlightened.

To all of those who honored the lives of family, friends, or others today, "a day of prayer for permanent peace," I send sympathy and hopes for peace.

We haven’t even gotten climate change disclosure rules yet

But the First Amendment challenges to the securities laws seem to be piling up – in the Fifth Circuit Court of Appeals, specifically.

The Chamber of Commerce recently petitioned that court to overturn the SEC’s new rules requiring disclosure of stock buybacks.  Though the briefing hasn’t been filed yet, the press release on the subject announces that the Chamber plans to argue that the new rules unconstitutionally compel corporate speech.

Next up, the National Center for Public Policy Research – a conservative organization that has been filing a lot of anti-ESG shareholder proposals under 14a-8 – just petitioned the Fifth Circuit regarding the SEC’s no-action letter permitting Kroger to exclude an NCPPR proposal requesting a report on the “risks associated with omitting ‘viewpoint’ and ‘ideology’ from [Kroger’s] written equal employment opportunity (EEO) policy.”  The NCPPR argues, among other things, that the SEC has denied exclusion of similar proposals with a liberal bent, and is therefore engaging in viewpoint discrimination by allowing Kroger to exclude the NCPPR proposal.  (The SEC’s response, so far, mainly focuses on whether a no-action letter counts as a final order).

Finally, the National Association of Manufacturers (NAM) just intervened in NCPPR’s case to argue that 14a-8 itself is a violation of corporate First Amendment rights, as well as a violation of the major questions doctrine and unauthorized by the text of Section 78n. 

With respect to the statutory interpretation piece, awkwardly for NAM, Rule 14a-8, in one form or another, has been around since 1942.  NAM elides that point by focusing on the modern version of the rule and the current SEC’s interpretations of it (particularly with respect to social proposals), but NAM’s textual argument rests on the proposition that Section 78n “does not grant the SEC power to compel corporations to publicize or discuss shareholder-submitted proposals,” Mot. at 19, and therefore we’ve all been misinterpreting the statute since World War II.

For the First Amendment piece, NAM’s motion to intervene states:

[NAM]… moves to intervene to raise a fundamental threshold issue addressed by neither party but affecting every publicly traded company in the United States: Whether the First Amendment and federal securities laws allow the SEC, through its Rule 14a-8, to compel a corporation to use its proxy statement to speak about abortion, climate change, diversity, gun control, immigration, or other contentious issues unrelated to its core business or the creation of shareholder value.

The answer is “No.” It is “firmly established” that the States have the authority “to regulate domestic corporations.” CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 89 (1987). And state corporate law typically empowers corporate management, subject to oversight by the board of directors, to determine whether and how the corporation will speak or act. See, e.g., In re Franchise Servs. of N. Am., Inc., 891 F.3d 198, 210 (5th Cir. 2018).

But the SEC’s Rule 14a-8 asserts federal governmental power to override management and compel a corporation to publicize dissenting shareholders’ proposals on divisive issues in its own proxy solicitation. The SEC’s claimed power to dictate the contents of corporate proxy statements has no basis in federal securities law, and it violates the First Amendment’s prohibition against government-compelled speech.

Now, to be honest, First Amendment doctrine is way outside my lane, but I can’t help but make a couple of observations.

First, CTS was not about federal power to regulate; it was about conflicts among the powers of different states.  In fact, CTS was very explicit that federal law could preempt state law in this area, if there was federal law on point.  See 481 U.S. at 79.

More generally, state governments are … you know, governments.  If it is, in fact, a violation of the First Amendment for the federal government to require that shareholder proposals be included on corporate proxies, it would also be a violation of the First Amendment for states to do the same thing.  After all, in Citizens United v. FEC, 558 U.S. 310 (2010) – which involved federal campaign finance regulation – the Supreme Court held that states “cannot exact as the price” for the privilege of incorporation the forfeiture of First Amendment rights.  Id. at 351.

But that leads to the more interesting First Amendment question here.  Shareholder proposals don’t come from government regulators; they come from, well, shareholders.  Regulators may impose conditions for their inclusion on corporate proxies, but regulators are not the source – shareholders are.  And shareholders are, in the Supreme Court’s view, the company owners.  See Burwell v. Hobby Lobby, 573 U.S. 682 (2014).  (I include the cite to avoid debates about whether shareholders are in fact owners or simply residual claimants).  So when NAM argues that it violates the First Amendment to force companies to include shareholder proposals on proxies, what it’s really saying is that there is a constitutional principle requiring that corporate speech decisions be made exclusively by directors and officers, free from the influence of the corporation’s owners.

And that really gets to the heart of the problem with corporations and First Amendment rights; because the corporation is itself a creature of law, the law also determines who has authority to act on its behalf, and there is no obvious constitutional principle for excluding shareholders from that decision – indeed, Citizens United explicitly held that corporations are associations of citizens in corporate form, 558 U.S. at 349, and that shareholders could have a say in corporate speech via the “procedures of corporate democracy.” Id. at 370.  Those procedures are not preexisting natural forms to be found in the shape of a flower or the beat of a hummingbird’s wing; they are themselves created by law.  State or federal.

I’m hardly the first person to make that observation; academics have been arguing that point for years.

So I have to admit, I am very curious to find out if the Constitution mandates a particular theory of shareholder involvement in corporate governance, especially considering that we didn’t even have business corporations at the Founding and they only barely existed when the 14^th Amendment was adopted.  After Citizens United, we know that the Constitution distinguishes between corporations and their associated political action committees, so obviously there is some constitutional … minimum … regarding the corporate form, but apparently there is more to be unearthed.

But mainly, does all this mean that the Fifth Circuit is now the new “mother court” of securities law?

SEC Changes Introductory Disclaimer - Likely In Response to Discovery Dispute

If you regularly read speeches given by SEC Commissioners and staff, you may have noticed a change in the standard opening.  For most of my career, the remarks always began with something to this effect:

Before I begin, I must give the customary disclaimer that the views I express today are my own and do not necessarily reflect the views of my fellow commissioners or the staff.

That standard disclaimer came from Commissioner Crenshaw on March 30, 2023 in the opening to her remarks to the Fixed Income Forum.  And about a month ago, Chair Gensler's standard disclaimer on April 24, 2023 to the Annual Small Business Forum came out as:

As is customary, I would like to note that my views are my own, and I’m not speaking on behalf of the Commission or SEC staff.

But something has changed.  Chair Gensler gave the disclaimer this way on May 10, 2023 in remarks to the Municipal Securities Disclosure Conference:

My views are my own as Chair of the SEC, and I am not speaking on behalf of my fellow Commissioners or the staff (emphasis added)

This change continues forward to Chair Gensler's remarks today to to the Investment Company Institute:

As is customary, I’d like to note that my views are my own as Chair of the Securities and Exchange Commission, and I’m not speaking on behalf of my fellow Commissioners or the SEC staff (emphasis added)

It appears that the custom has changed and the introductory disclaimer now includes a note that remarks are in an official's capacity.  You can also see this in Commissioner Udeya's remarks at the MFA Global Summit on May 16.  He put it this way:

I would like to share remarks that reflect my views as an individual Commissioner of the SEC and do not necessarily reflect the views of the full Commission or my fellow Commissioners. (emphasis added)

The changed language likely results from discovery disputes in SEC vs. Ripple Labs.  Some news reports have covered the SEC being forced to turn over documents related to a 2018 Speech by William Hinman, then the SEC's Director for the Division of Corporation Finance.  

I poked around the docket in that case and found an order finding that internal discussions about the Hinman speech were discoverable and not protected by the Deliberative Process Privilege (DPP) because Hinman was communicating his own opinions and they did not "relate to some form of agency position, decision, or policy".  This is some relevant language from the opinion:

The DPP “is a form of executive privilege” that “shields from disclosure documents reflecting advisory opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are formulated.” U.S. Fish & Wildlife Serv. v. Sierra Club, Inc., 141 S. Ct. 777, 785 (2021) (quotation marks and citation omitted).

The DPP applies to documents that are “predecisional” and “deliberative.” Id. at 785–86. Documents are “predecisional if they were generated before the agency’s final decision on the matter, and they are deliberative if they were prepared to help the agency formulate its position.” Id. at 786 (quotation marks omitted). Judge Netburn determined that the DPP does not apply to the Internal Speech Documents because those documents were intended to facilitate the communication of Hinman’s own opinions regarding the application of the securities laws to digital asset offerings and not the opinions of the SEC. Order I at 14; Order II at 5–7. The SEC argues that Judge Netburn’s conclusion constitutes an error of law because Second Circuit precedent states that “subjective documents which reflect the personal opinions of the writer rather than the policy of the agency” are protected by the DPP. See SEC Objs. at 13 (quoting Tigue v. U.S. Dep’t of Just., 312 F.3d 70, 80 (2d Cir. 2002)) (emphasis omitted). But this argument fails to recognize that documents reflecting such personal opinions are protected only when they relate to some form of agency position, decision, or policy. Cf. Sierra Club, Inc., 141 S. Ct. at 785. Because Judge Netburn determined that the Internal Speech Documents did not relate to an agency position, decision, or policy, Order I at 14; Order II at 5–6, her conclusion is not contrary to law.

To bring this full circle, this is probably the reason why the language in the disclaimer has changed to include some statement that the remarks are in their official capacity.  I don't know if other litigants will have the same success as Ripple did in getting access to internal documents, but I would expect defendants to try if they can find some hook to argue that the documents should be provided in discovery.

 

 

New Paper - Flight to Safety in the Regional Bank Crisis of 2023

Yesterday, a new paper by Cecilia Caglio, Jennifer Dlugosz, and Marcelo Rezende - all affiliated with the Board of Governors of the Federal Reserve System - posted on SSRN, Flight to Safety in the Regional Bank Crisis of 2023.  It's obviously an incredibly timely piece.  Here's the Abstract:

"Using weekly confidential data from U.S. banks, we document an unprecedented flight to safety of deposits from regional banks towards large banks in the early 2023. We show that large banks experienced large deposit inflows relative to small and regional banks and that these differences remain substantial if we account for bank characteristics associated with bank failures over this crisis, including liquidation values and shares of uninsured deposits. Large banks lowered deposit rates relative to other banks during the crisis, supporting the hypothesis that deposits flew to these banks because they are considered safer."   

C. Warren Neel - Celebrating Corporate Governance Research and an Accidental Mentor

Earlier today, I had the honor of making a brief presentation at a luncheon honoring both the 20th anniversary of the Corporate Governance Center at The University of Tennessee, Knoxville, and a dear colleague and mentor, C. Warren Neel, who passed away at the end of March.  Set forth below are the reflections I shared at the luncheon--in relevant part.   These are my prepared remarks, but I often comment extemporaneously, rather than read.  So, please understand that I did not exactly say what is set forth below, although it accurately captures the content I delivered.

+     +     +

Lawyers must be lawyers, and so I start with law.

On July 30, 2002, President George W. Bush signed into law the Sarbanes-Oxley Act of 2002—the most broad-based federalization of corporate governance since the adoption of the federal securities law regime itself in the 1930s. It was in the shadow of that landmark legislation that The University of Tennessee’s Corporate Governance Center—now appropriately named the Neel Corporate Governance Center—was born. Like the legislation itself, the Corporate Governance Center cast a wide net. As an interdisciplinary research program that includes the College of Law and the College of Business Administration, the Corporate Governance Center brought to the campus (and I am using Warren Neel’s own words here, from an email message he wrote in support of my tenure) “an interdisciplinary approach to the critical issues of corporate governance.”

I remember the first all-hands meeting to solidify the structure and build-out of the Corporate Governance Center. We met next door (Stokely Management Center) in a classroom. After introductions, Warren kicked things off, as I recall, and then Joe Carcello led us by sharing the vision for the center and soliciting information about our research agendas that could be used to construct research collaborations and build out the center’s website and other promotional materials.

Back then, Warren and Joe envisioned categorizing the work of each of us into one of three substantive “buckets” mirroring the three key committees of a public company’s board of directors (other than the executive committee): audit, compensation, and nominating. I was the unpopular kid at the party when I noted that my work intersected all three buckets. That was the beginning of a recognition that working across departments might not be as simple as it initially seemed. We spent years together untangling that mess—a mess we still revisit with new Ph.D. students and (sometimes) faculty who join our merry band.

Little did I know then all that we would go through so much together.
Little did I know then that both Warren and Joe would become such dear friends and scholarly sparring partners.

Little did I know then that Warren, the accidental dean, would become my accidental mentor.

There is not enough time here today to unpack all of that. But suffice it to say that, after many Corporate Governance Center research forums and lectures and, more importantly, my periodic breakfasts with Warren and Tracie Woidtke (during which we entertained Corporate Governance Center distinguished speakers—maybe no one else was willing to get up that early?), Warren rubbed off on me more than a bit. I never could agree with him on a legal rule to separate the CEO and board chair functions or on mandatory term limits for corporate directors. But I deeply appreciated the analogies he could draw between and among political, academic, and corporate governance. And his insights on audit committee process and documentation from his many years as a board member were so well taken. He especially loved to talk about his board memberships at Saks, Inc. and Healthways, Inc. (now Tivity Health, Inc.) at our breakfasts.

Also, I admired the strong position he took on the need for more transparency in the disclosure of Public Company Accounting Oversight Board (PCAOB) inspection reports. In particular, Warren favored disclosure of the quality control criticisms included in Part II of those inspection reports. Some of you, like me and Tracie, may have heard him argue forcefully on that topic more than once.

Since Warren’s death, I have reflected often on these memories and Warren’s elemental place in my career here at UTK. As I earlier indicated, like Warren’s deanship at the College of Business, his role as my mentor was largely unplanned. But i had good fortune in a number of things that turned out to be the perfect storm that has created a satisfying academic career here at UTK over the past 23 years.   They included:

• leaving law practice to become an academic:
• settling here in Knoxville, at UTK, during the dot-com bust and just as fraud at many of our country’s largest public companies was becoming apparent;
• being contacted by Warren and Joe to join the Corporate Governance Center as a research fellow; and
• as a result, spending quality time with Warren.

“Those accidents would not have resulted in my career if, perhaps, I were at some university other than the University of Tennessee.” Those words are Warren’s—not mine—taken from the Epilogue of his 2010 book, The Accidental Dean.  I cannot think of a better way of capturing my own thoughts, honoring Warren, and celebrating the 20th anniversary of the Corporate Governance Center than by quoting Warren's own wise words.

I do appreciate the opportunity to be before you today to talk about the Neel Corporate Governance Center and my accidental mentor, Warren Neel.  Thank you.