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Thursday, January 31, 2019

Symposium on Civil Rights and Shareholder Activism at Washington & Lee

By Benjamin P. Edwards

On February 15, the Washington & Lee Law Review will host a one-day symposium on the intersection of Civil Rights and Shareholder Activism.  In March of 1968, a civil rights organization, the Medical Committee for Human Rights, received five shares of Dow Chemical Company stock as a gift.  Well-known for its work deploying doctors and nurses on the front lines of civil rights protests across the American South, MCHR had no track record of shareholder activism.  Within a year, however, MCHR had initiated its first shareholder proposal to stop Dow from manufacturing and selling napalm for military use in the Vietnam War.  The activism campaign advanced MCHR’s commitment to civil and human rights, but it also represented an important innovation in shareholders’ use of corporate governance tools. The civil rights group had catalyzed a movement: shareholder activism campaigns on pollution, minority hiring, and apartheid were quickly brought by other shareholders at major U.S. companies like General Motors and Honeywell, Inc. and, over the decades, numerous other campaigns have followed.

Fifty years later, shareholder activism on ESG matters is surging. In the 2019 Proxy Season, companies will face shareholder campaigns on economic inequality, human rights, discrimination on the basis of race, gender, and sexual orientation, board and workforce diversity, and executive compensation, to name just a few topics.  The symposium will bring together scholars and practitioners to discuss the past, present and future of ESG shareholder activism.  It will also feature a preview of the 2019 Proxy Season, presented by staff members of the Law Review.

Lisa M. Fairfax, the Leroy Sorenson Merrifield Research Professor of Law at the George Washington University Law School, will give a public keynote lecture.  In addition, a number of highly regarded experts will participate in panel discussions to connect the movement’s origins to the modern era. They include Ifeoma Ajunwa, Cornell Law and author of the forthcoming book, The Quantified Worker; Tamara Belinfanti, New York Law School and author of the new book, Citizen Capitalism; Carliss Chatman, W&L Law; D. Wendy Greene, Samford University Cumberland School of Law; Sarah C. Haan, W&L Law; Virginia Harper Ho, University of Kansas School of Law; Barbara Krumsiek, former President, CEO and Chair of Calvert Investments and current Director, MISO Energy; Kish Parella, W&L Law; Harvey L. Pitt, the 26th Chair of the U.S. Securities & Exchange Commission; Colin Reid, The Williams School of Commerce, Economics and Politics at W&L University; Cary Martin Shelby, DePaul University College of Law; Omari Simmons, Wake Forest Law School; and David Webber, Boston University Law and author of The Rise of the Working-Class Shareholder.

A link to the full schedule can be found here.  The symposium is open to the public.

January 31, 2019 | Permalink | Comments (0)

Wednesday, January 30, 2019

ICYMI: #corpgov Midweek Roundup (Jan. 30, 2019)

By Stefan J. Padfield

January 30, 2019 in Stefan J. Padfield | Permalink | Comments (0)

Tuesday, January 29, 2019

WV Proposal to Eliminate LLC Veil Piercing: Reasonable Concept, Needs A Lot of Work

By Joshua Fershee

Back in 2011, I wrote, in a Harvard Business Law Review Online article, that the default rule in analyzing all LLC questions should be one taken from CML V, LLC v. Bax, 6 A.3d 238 (Del. Ch. Nov. 3, 2010): “[T]here is nothing absurd about different legal principles applying to corporations and LLCs.” I still believe that. I further argued:

Where legislatures have decided that distinctly corporate concepts should apply to LLCs—such as allowing piercing the veil or derivative lawsuits—those wishes (obviously) should be honored by the courts. And where state LLC laws are silent, the court should carefully consider the legislative context and history, as well as the policy implications of the possible answers to the questions presented. Courts should put forth cogent reasons for their decisions, rather than blindly applying corporate law principles in what are seemingly analogous situations between LLCs and corporations. [footnotes omitted]

In 2014, I discussed a case West Virginia case in a post here at Business Law Prof Blog, More LLC Veil Piercing Forced into State Statutes. In that post, I was critical of a West Virginia Supreme Court of Appeals decision reading veil piercing into the state's LLC statute.  My main issue with that case, Kubican v. The Tavern, LLC, 232 W.Va. 268, 752 S.E. 2d 299 (2013), was that" Virginia’s veil-piercing test stated more clearly than other states . . .  that corporate formalities are the main issue for the unity of interest test" for veil piercing an LLC. This is problematic because, of course, LLCs don't have many formalities, and none of them are "corporate" (because LLCs are not corporations). 

To be fair, the opinion wisely directed that, for LLC veil piercing, courts  “disregard of formalities requirement.” But the overlay of corporate formalities and corporate traditions remain in the numerous other factors courts are to consider, and thus analysis of the factors are likely to occur with through a decidedly corporate filter.  That's not reasonable or fair for LLCs. 

The West Virginia legislature is looking to remedy this, and overrule the Supreme Court of Appeals, has proposed Senate Bill 258: 

ARTICLE 3. RELATIONS OF MEMBERS AND MANAGERS TO PERSONS DEALING WITH LIMITED LIABILITY COMPANY.

§31B-3-303. Liability of members and managers.

(a) Except as otherwise provided in §31B-3-303(c) of this code, the debts, obligations, and liabilities of a limited liability company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the company. A member or manager is not personally liable for a debt, obligation, or liability of the company solely by reason of being or acting as a member or manager. It is the intent and policy of the Legislature that for any claim against a limited liability company arising after the effective date of the reenactment of this section during the regular session of the Legislature, 2019, common law corporate “veil piercing” claims may not be used to impose personal liability on a member or manager of a limited liability company, and that the West Virginia Supreme Court of Appeals decision in Joseph Kubican v. The Tavern, LLC, 232 W.Va. 268, 752 S.E. 2d 299 (2013) be nullified.

(b) The failure of a limited liability company to observe the usual company formalities or requirements relating to the exercise of its company powers or management of its business is not a ground for imposing personal liability on the members or managers for liabilities of the company.

(c) All or specified members of a limited liability company are liable in their capacity as members for all or specified debts, obligations, or liabilities of the company if:

(1) A provision to that effect is contained in the articles of organization; and

(2) A member so liable has consented in writing to the adoption of the provision or to be bound by the provision.

As noted above, I have supported legislative action to allow or disallow LLC veil piercing. Where LLC veil piercing is to be allowed, I have advocated for a clearly stated LLC-specific test. And were veil piercing to be eliminated, I have advocated for legislation making that clear, too.  This proposal has this last option right. 

That said, I have a couple significant objections to the proposed statute, as written.  First, and most significant, the statute could be read to eliminate the possibility of personal liability for any company debt for any member of an LLC.  The proposed legislation seeks to modify the following: "A member or manager is not personally liable for a debt, obligation, or liability of the company solely by reason of being or acting as a member or manager."  By dropping "solely," this proposal appears to limit other potential sources of liability (that are not veil piercing), which are traditionally considered liability related to the actions or a member.  By analogy, the Model Business Corporation Act provides, "(b)  A shareholder of a corporation is not personally liable for any liabilities of the corporation (including liabilities arising from acts of the corporation) except (i) to the extent provided in a provision of the articles of incorporation permitted by section 2.02(b)(2)(v), and (ii) that a shareholder may become personally liable by reason of the shareholder’s own acts or conduct." § 6.22 Liability of Shareholders (emphasis added).  

Where an individual LLC member acts in a way that should lead to liability (promises to pay individually, seek to deceive, etc.), the possibility for direct liability to the member is proper and is generally recognized by even the most ardent advocates of abolishing veil piercing. For example, the most prominent scholar on this front, Prof. Bainbridge, in his article, Abolishing LLC Veil Piercing, "advocates a regime of direct liability: Did the defendant-members do anything for which they are appropriately held personally liable?" I concur.  

[Author's note: the proposed statute was amended today adding "solely" back into the statute.  That amendment occured after I wrote this, but before it posted, so someone else was on it.]

Next, 

It is the intent and policy of the Legislature that for any claim against a limited liability company arising after the effective date of the reenactment of this section during the regular session of the Legislature, 2019, common law corporate “veil piercing” claims may not be used to impose personal liability on a member or manager of a limited liability company, and that the West Virginia Supreme Court of Appeals decision in Joseph Kubican v. The Tavern, LLC, 232 W.Va. 268, 752 S.E. 2d 299 (2013) be nullified.

This is problematic because it applies to all prior negotiated relationships, meaning that contracts would have been negotiated with veil piercing available. This may, in some way, impacted how people negotiated guarantees in contracts.  In a prior post, I criticized the Wyoming high court for making  LLC veil piercing easy and suggesting that laws should not encourage parties to seek guarantees: 

The court cites potential abuse of LLC laws if they were to adopt such a rule that motivates companies to ask for guarantees. instead adopting a rule that could incentivize companies like Western actively avoid ask ingfor guarantees. Why? Because if you ask for a guarantee and are refused, it could be used against you later.  But if you don’t ask, you may get to piece the veil and seek a windfall recovery by getting a post hoc guarantee that was not available via negotiation. 

This West Virginia proposed legislation would likely lead more parties to seek guarantees, which I see as a good thing.  But this is a significant change to the legal landscape, and it seems to me the whole thing should be prospective.  Thus, new interactions, new contracts or renewals, etc., should be under the new law, but that there should be at least some look-back period.  One could argue that a "claim against a limited liability company arising after the effective date" related to a 2014 contract is a claim that "arose" before the effective date because a "claim" is different from a "lawsuit." For me, I would probably amend it to say something like, for events leading to a lawsuit against a limited liability company arising after the effective date . . . .." This would have the added benefit of preserving claims for events preceding the effective date that were not filed or discovered but are still within the statute of limitations.  This seems more equitable to me.  

Anyway, I am intrigued by the concept of eliminating LLC veil piercing, but I think this needs more thought. 

[Author's note 2: The amended language mentioned above added substantial changes to part (c), which I am inserting below.]

An additional amendment now adjusts part (c) t0 read (my comments inserted in  bold):

(c) All or specified members of a limited liability company are liable in their capacity as members for all or specified debts, obligations or liabilities of the company if:

(1) A provision to that effect is contained in the articles of organization; and

 

(2) A member so liable has consented in writing to the adoption of the provision or to be bound by the provision.

(1) A provision to that effect is contained in the articles of organization, and a member so liable has consented in writing to the adoption of the provision or to be bound by the provision; [This is currently item 12 of the West Virginia Secretary of State Articles of Organization of Limited Liability form.] 

(2) The member against whom liability is asserted has personally guaranteed the liability or obligation of the limited liability company in writing; [Good to make this clear, I suppose, though that is a personal obligation that attaches to the indidvudal. This is less necessary with "solely" added back to part (a).]

(3) As to a tax liability of the limited liability company, the law of the state or of the United States imposes liability upon the member; or [Also a personal obligation that attaches to the indidvudal.]

(4) The member commits actual fraud which causes injury to an individual or entity. [True before this law was proposed as a personal obligation that attaches to the indidvudal. The potential problem with this list of items 1-4 is that it may serve to limit or eliminate other forms of personal liablity that existed under prior law.  Hopefully, the "solely" langauge keeps all direct liability intact, but sometimes when a list like this is created, it is also read to mean it is the exclusive list of direct liability available.]

(d) Enterprise liability. — In circumstances where the members of a limited liability company are, in whole or in part, corporations, limited  liability companies, or other entities which are not human beings, then  if a jury shall determine that the liability of a limited liability company sounding in tort arose as part of the activities of a joint enterprise, those entities which are part of the joint enterprise with the limited liability company may be liable for the liability  of the limited liability company which arose as part of the business operations of the joint enterprise, not as a piercing of the veil, but instead under the doctrine of joint enterprise liability. [This is an attempt at preserving the concept of enterprise liability as introduced in Walkovsky v. Carlson. I rather like the idea, but I think this language could be more clear.  I hope to have time to draft proposed changes soon.]

(e) Member as tortfeasor. — Nothing in this section shall immunize or shield a member of a limited liability company, solely because he or she is a member of a limited liability company, from liability for his or her own tortious conduct that proximately causes injury to another party while the member is acting on behalf of the limited liability company.  In such circumstance, the liability of a member is not through veil piercing, but rather primary, as against any tortfeasor. [I like this and think it is critical to make clear. It does run the risk of including things I don't think it always should, such as providing indivdual liablity for a company's business tort claims, such as a toritious interference with contract.] 

(f) Clawback authority. — If a member is proved to have committed any of the following acts, then a creditor of the limited liability company whose judgment the limited liability company cannot satisfy may seek clawback from the member under this subsection: Provided, That the limited liability company’s judgment creditor may proceed in the shoes of the limited liability company [like a derivative suit?] to clawback funds from the member in order to reimburse the limited liability company for either the amount of the judgment against the limited liability company or the amount transferred from the limited liability company to the member in bad faith, whichever is less. [This may work for a business that is on going, but lacks funds for a particular creditor. However, where the LLC is in the zone of insolvency, it could be used to prioritize one creditor over another, possibly improperly.  That is, it appears this intends for the clawback funds to go to the creditor.  Once the funds come back to the LLC, though, it seems to me those funds should still need to be disbursed properly in consideration of all creditors with outstanding claims.]  

 The wrongful acts which will justify clawback (but not veil piercing) are:

(1) Conflicted exchange;

(2) Insolvency distribution; or

(3) Siphoning of funds. 

            (g) Definitions. — As used in this section:

“Conflicted exchange” means a transfer of money or other property from a limited liability company to a member of the limited liability company (or to any other organization in which the member has a material financial interest) in exchange for services, goods, or other tangible or intangible property of less than reasonable equivalent value.

“Insolvency distribution” means a transfer of money or other property from a limited liability company to a member of that limited liability company (or to any other organization in which the member has a material financial interest), in respect of the member’s ownership interest, that renders the limited liability company insolvent.

“Insolvent” means, with respect to a limited liability company, that the limited liability company is unable to pay its debts in the ordinary course of business. Claims that are unusual in nature or amount, including tort claims in claims for consequential damages, are not to be considered claims in the ordinary course of business for the purposes of this section.

“Siphoning of funds” means whether the manager or majority member has siphoned funds from the limited liability company in violation of the articles of organization, the operating agreement, or this article. [I would have hoped that all avenues to recover for improper distributions would remain. I am okay with listing them, as long as none are excluded by creation of the list.]

 That's all for now. This is a pretty big proposal, and it won't surprise me if it passes. If they are committed to it, I sure hope they take the time to get it right. 

January 29, 2019 in Joshua P. Fershee, Legislation, LLCs | Permalink | Comments (5)

Monday, January 28, 2019

Visiting Clinical Assistant Professor, BU/MIT Startup Law Clinic (Boston University School of Law)

By joanheminway

Boston University School of Law is seeking to hire a full-time attorney in its Startup Law Clinic (the “Clinic”). The Clinic is part of BU Law’s Entrepreneurship, Intellectual Property, and Cyberlaw Program, which is a unique collaboration between BU Law and the Massachusetts Institute of Technology.

The Clinic represents current students at MIT and BU on matters related to a wide range of legal issues faced by early-stage business ventures. The attorney would be expected to help law students counsel clients and represent students in transactional settings. Clients often present questions of law involving for-profit and nonprofit entity formation, allocations of equity, startup financing, employment and independent contractor issues, ownership of intellectual property, privacy policies, terms of service and other third-party contractual relationships, and trademark and copyright matters. Experience representing startup ventures is considered a plus.

The attorney’s primary responsibility will be to supervise and assist students with direct client representation matters. The attorney will also assist the Clinic Director and Assistant Director in preparing and teaching a year-long seminar for students enrolled in the Clinic, including developing materials, performing research, and coordinating classroom activities and guest presentations. The position is a year-round position and the attorney also would work with student fellows hired to continue the work of the clinic during the summer. As time allows, the attorney would also work with the Clinic Director and Assistant Director to develop generalized legal resources and informational material to inform MIT and BU students on the legal aspects of forming and operating for-profit and nonprofit entities.

The ideal candidate is a member of the Massachusetts bar or is eligible for membership via admission by motion, with at least two years of experience advising clients in a transactional setting, and a willingness to support the work of creative and innovative young clients. Teaching experience or a strong interest in developing as a clinical faculty member is also considered a plus. Exceptional writing, editing, organizational, and managerial skills are required.

The attorney will be hired as a Visiting Clinical Assistant Professor to a two-year contract. The ideal start date is May 28, 2019 or sooner.

Boston University School of Law is committed to faculty diversity and welcomes expressions of interest from diverse applicants.

For more information, see here.

January 28, 2019 in Clinical Education, Entrepreneurship, Joan Heminway, Jobs | Permalink | Comments (0)

Life in Balance: Mindfulness for the Business Law Prof

By joanheminway

Miraval2019-1

Back in November, my sister invited me to join her for the second time for a three-day break at Miraval, a resort in Tucson, Arizona.  I accepted her invitation with the understanding that I needed to recharge a bit after a rough 2018.  A visit to Miraval, I thought, would be a great way to do that and jumpstart my research this spring. I signed on.  Then, my sister had to back out on the trip late-in-the-game for professional reasons.  My dilemma: to cancel/reschedule the trip . . . or just go by myself?  I decided to go anyway.

Miraval's distinctive claim to fame as a resort is mindfulness.  Among other things, it promotes "Life in Balance."  Mindfulness has been a hot topic for the legal profession, law schools (see, e.g., the University of Miami's Mindfulness in Law Program), and the American Bar Association (the "ABA") in recent years.  Among other things, mindfulness may help attorneys process difficult situations in a healthier manner, acting as an antidote (in some circumstances) for lawyer mental health issues I wrote about a few weeks ago. (See also Marcia Narine Weldon's follow-on post.)  Berkeley Law has published a helpful reading list here.

In an excerpt from an article originally published in the ABA's Litigation magazine, Jan L. Jacobowitz writes:

When attorneys practice mindfulness, the experience they gain by noticing their minds moving off into distraction, and returning their attention to their breath, makes them better equipped to deal with the unexpected—because they catch the thoughts and feelings that are resisting the moment, and are better equipped to stay on task and respond in proportion to the challenge. For the same reasons, they enhance their capacity to be more genuine and present for what arises in their interactions with their clients, their colleagues, witnesses, and adversaries. They are better able to focus on and enjoy their work.

In that same excerpt, Jacobowitz describes mindfulness.

Mindfulness is an awareness of life in the present moment: Simple to state, but not necessarily so easy to accomplish. Our minds are often cluttered with ruminations about the past and concerns about the future. We are so busy living in the past or projecting onto the future that often we are not acutely attuned to what is happening in the present moment. The clutter inhibits clarity of thought and increases stress and anxiety.

Mindfulness creates the opportunity to pause, breathe, and connect with one’s inner thoughts, feelings, and emotions; in other words, to become aware of how we are reacting in a given situation and to provide ourselves with the opportunity to moderate our reaction and respond thoughtfully.

Hmm.  Too  "woo-woo" for you?  Join the many lawyers who feel that way. (Jacobowitz refers to lawyers in this connection as "by nature are a skeptical group.")  I once was one of those skeptics.  

But I am now among the converted, having begin to practice mindfulness in a number of its manifestations.  I am especially fond of mindfulness though movement, especially through yoga asana and pranayama practices.

With that in mind, as I rejuvenate myself, I am gathering intelligence to take with me.  I plan to bring elements of Miraval's mindfulness/life in balance ethos back to my yoga teaching at The University of Tennessee College of Law. (I started teaching a regular class to faculty, staff, and students last Friday morning.  I will have more to say on that yoga teaching experience in later posts.)  After just a half day at Miraval, I already have information and ideas . . . .  Wish me luck in this endeavor!  And offer tips if you have any.

Miraval2019-2

January 28, 2019 in Joan Heminway, Marcia Narine Weldon, Wellness | Permalink | Comments (2)

Sunday, January 27, 2019

Learning About Spoofing

By Colleen Baker

Yesterday, I had the honor of participating in a symposium organized by the University of Pennsylvania Journal of Business Law, in collaboration with the Center for the Study of Business Ethics, Regulation, & Crime at the University of Maryland (C-BERC), on Harmonizing Business Law.  It was a well-organized, engaging, and informative event.  It also introduced me to some great research that I plan to highlight today and in future posts.  

I’ll keep this first look brief as I traveled all day and I want to circle back to this topic later once I learn more.  Gideon Mark, Associate Professor and Associate Director of C-BERC at the Robert H. Smith School of Business at the University of Maryland, discussed Spoofing and Layering, noting the minimal attention these topics have received in business law scholarship.  If you’re like me, you’re probably vaguely aware of these concepts, but couldn’t provide an elegant definition on your own.  Let me help.  Section 747 of Dodd-Frank, which amends the Commodity Exchange Act to prohibit disruptive trading practices, terms “bidding or offering with the intent to cancel the bid or offer before execution” to be spoofing.  Layering is a specific type of spoofing (apparently, an “advanced form”).  Here’s some background on these topics. And here’s why I want to circle back in the next few weeks.  Apparently, some commentators argue that spoofing isn’t so problematic because it only harms “‘front-running’ high-frequency traders who try to profit by trading ahead of other legitimate orders” (Matt Levine is quoting John Arnold).  Front-running is “the illegal practice of purchasing a security based on advance non-public information.”  Although I think I disagree with this perspective, I’m intrigued and want to learn more.  So, any readers who think spoofing isn’t so problematic, I invite you to educate me.  Share your best argument(s) or direct me to helpful resources arguing for this perspective.

Finally, I don’t want to end today’s post without congratulating the conference organizers (Leigh Anenson, Gideon Mark, Brian Reid, and Nicolle Stracar) for the success of this event or thanking them for all the hard work that went into its production.  And, yes, I discussed clearinghouses.  You really had to ask?   

January 27, 2019 | Permalink | Comments (0)

Saturday, January 26, 2019

Saturday Movie Blogging: The Fyre Files

By Ann Lipton

Like everyone else, it seems, I decided to watch the dueling Fyre festival documentaries on Hulu and Netflix.  (If you don’t know what I’m talking about, read this.)  At first, I had moral qualms about it because they’re each a bit skeevy, in their own way: the Hulu one paid Fyre’s organizer, Billy McFarland, to sit for an interview – so he profits from it – and the Netflix one was produced by the same media team that promoted the Fyre festival.

Then I reminded myself that I don’t, ahem, actually pay for Netflix or Hulu, and I felt much better.

I’ve read a lot of reviews of the two films and most of them seem to prefer Hulu’s.  I myself prefer Netflix’s.  The Hulu documentary was a lot lighter on the specifics of how the disaster unfolded, and a lot heavier on trying to make a broad claim about “millennials” being in thrall to social media and influencers, a claim that I found facile.

My interest was more in the technicalities of how this kind of massive fraud is perpetuated, how people go along with it, and that’s what Netflix’s documentary is about.  We get a lot of interviews with people who were involved with the project – including the residents of the Bahamian island where the festival occurred – and we get a clearer picture of what happened. 

[More under the cut]

Continue reading

January 26, 2019 in Ann Lipton | Permalink | Comments (0)

Friday, January 25, 2019

Dean Search Announcement- University of Miami School of Law

By Marcia Narine Weldon

Dean, School of Law University of Miami

The University of Miami invites nominations and applications for the position of Dean of the School of Law. The next Dean should be an innovative thinker and approachable leader who welcomes the opportunity to articulate a vision for the growth of a law school that builds on its long history of excellence. The University of Miami, considered among the top tier institutions of higher education in the U.S. for its academic excellence, superior medical care, and cutting-edge research, is the largest private research university in the southeastern United States. The University comprises eleven degree-granting schools and colleges, which are Architecture, Arts and Sciences, Miami Business, Communication, Education, Engineering, Law, the Miller School of Medicine, the Patricia and Philip Frost School of Music, Nursing and Health Studies, and the Rosenstiel School of Marine and Atmospheric Science. The core of the University is its 2,660 full-time faculty housed in three academic campuses within the greater Miami area. The University receives over $360 million annually in external research funding and has been classified as a Doctoral University with Highest Research Activity (R1) by the Carnegie Commission. We strive to create an environment where everyone contributes to making UM a great place to work through our values of Diversity, Integrity, Responsibility, Excellence, Compassion, Creativity, and Teamwork (DIRECCT).

The University of Miami School of Law, located on the 260-acre main campus, has over 100 faculty members and an enrollment of about 1200 students. In addition to the juris doctorate degree, the Law School offers a range of LLM degree programs, from its nationally ranked tax program to the innovative Entertainment, Arts, and Sports Law. The Law Schools offers joint degrees with several of the university’s premier graduate schools. The Dean, reporting to the Executive Vice President & Provost, is the School of Law’s chief academic officer with overall responsibility for its academic programs, operating budget, personnel management, strategic planning, public relations, and fundraising. The Dean is also the School of Law’s principal representative to the University, alumni, and the legal community. The School is seeking a person with a national/international reputation, high energy, enthusiasm, and vision to lead the faculty. The School consists of an interdisciplinary group of scholars, creative faculty and practitioners. The candidate should be able to build upon this balance and continue to foster these values to encourage scholarship, develop innovative educational programs, and engage our local community. The successful candidate must demonstrate strong interpersonal, managerial and leadership skills, and be able to foster an internal culture of excellence. The position requires an individual who can lead effectively and manage a large and dynamic school in a multi-campus research university. Candidates must have credentials appropriate for a tenured appointment at the rank of professor. Leadership experience with responsibility for strategic management of personnel, programs, and resources is strongly desired. Review of candidates will begin immediately and continue until the position is filled. Applications must include a letter of interest and curriculum vitae. All inquiries, nominations/ referrals, and applications should be sent electronically and in confidence to: [email protected] 

January 25, 2019 in Jobs, Law School, Marcia Narine Weldon, Teaching | Permalink | Comments (0)

Thursday, January 24, 2019

Nevada Releases Proposed Fiduciary Duty Regulations

By Benjamin P. Edwards

We have big news in the regulation of investment advice space.  Nevada just released its proposed regulations under the state's fiduciary duty statute.  Comments are due on March 1, 2019.  I broke the draft regulations down on Twitter when they came out and highlighted a few provisions:

Nevada's draft regulations differ from the SEC draft in significant ways.  The draft Nevada regulations are substantially shorter coming in at eight pages against over a thousand pages from the SEC.  They also catch more misconduct.  Consider the SEC's proposed title restrictions.  Although the SEC recognized that brokers calling themselves advisors/advisers has a tendency to mislead, the SEC only specifically targeted a few titles.  The Nevada regulations go broader:

Nevada also calls for brokers to explain how much they're getting paid when they make a recommendation.  This is important because many people operate under the misconception that brokers give advice for free, perhaps as some sort of concierge service through an affiliated bank:

The proposed regulations have made a considerable splash with coverage from the Investment News, Wealth Management, Think Advisor and others.  Although the regulations are stronger than anything proposed by the SEC, consumer groups are also calling for more, including a specific definition of the term "fiduciary duty" and an explicit requirement for brokerage firms to mitigate their conflicts of interest.

The move toward more state action comes as confidence in the SEC's proposed regulation best interest falters.  Other states moving toward a state rule include New York, New Jersey, and Maryland.  Barbara Roper, from the Consumer Federation of America framed the issue this way:

Nicole Boyson, a finance professor at Northeastern, also weighed in on the SEC's shortcomings:

Ultimately, time will tell how this all shakes out.  Although the industry will certainly challenge these regulations, I'm skeptical about their argument that the National Securities Markets Improvement Act somehow preempts state regulation on this front.

January 24, 2019 | Permalink | Comments (0)

Wednesday, January 23, 2019

ICYMI: #corpgov Midweek Roundup (Jan. 23, 2019)

By Stefan J. Padfield

January 23, 2019 in Stefan J. Padfield | Permalink | Comments (0)

Tuesday, January 22, 2019

ComplianceNet2 - Business Ethics - Last Call for "Early Bird" Registration!

By joanheminway

ComplianceNet2 Conference Invitation Announcement: Early Bird Registration Deadline is THIS FRIDAY, January 25th!

The second-annual ComplianceNet conference will take place on June 3-4, 2019. Villanova University Charles Widger School of Law and its Girard-diCarlo Center for Ethics, Integrity and Compliance will host the conference. Like the highly successful inaugural conference at UC Irvine in 2018, this conference will allow scholars from across disciplines and different legal and regulatory topics to exchange research and explore connections for collaboration.

The timing of this year’s conference is designed to follow on the heels of the Law & Society meeting in nearby Washington, D.C. If you are already headed to Law & Society, Villanova is a short train-ride away and easily accessible by public transportation. Regardless of whether you will be attending Law & Society, Villanova is in a beautiful location right outside Philadelphia, easily serviced by major international airports (Philadelphia (PHL), Newark (EWR), Baltimore (BWI), two more in NYC, and two more in DC); 90 minutes from NYC; and two hours from D.C.

The theme of this year's conference is "Business Ethics", although we welcome additional papers discussing compliance across diverse settings. This year’s theme seeks to engage the question of how to run ethical companies, and how to encourage ethical behavior within organizations. The conference welcomes attempts to explore the strengths and limitations of various approaches, to identify how measurement strategies have shaped practices, and to understand how we can improve outcomes, for instance through new technology and combining methods. Submissions do not need to align with the meeting theme, but we encourage you to consider relating to it. The conference is also open to scholars and other experts who want to attend without presenting a paper.

The conference will host a business meeting of ComplianceNet, during which members may discuss future activities. To register for the conference either as a presenter or attendee, please fill out the form by following this link. The URL is https://www.eventbrite.com/e/the-second-annual-compliancenet-conference-tickets-50784542935.

For individual papers, please submit the paper title and abstract (up to about 200 words). For panels (3 papers minimum with a maximum of 5 per panel), please submit an integrative statement explaining the panel (approximately 200 words), the titles of each paper and their authors, and an abstract for each paper (approximately 200 words). At our website, ComplianceNet.org, there is also a form to nominate papers for awards. Papers may be considered for awards whether they come through the nomination link or are presented at the conference.

The early registration discount deadline to submit papers and panels is January 25, 2019. The regular registration deadline for papers and panels is February 22, 2019. The registration deadline to attend without a paper or panel (as space available) is March 29, 2019. Registration for the conference includes the yearly membership in ComplianceNet. If you have questions regarding the call for proposals or about the conference, please contact Benjamin van Rooij ([email protected]).

January 22, 2019 in Compliance, Conferences, Ethics, Joan Heminway | Permalink | Comments (0)

Back to Basics: The Reciprocal Nature of Agency and Partnership Relationships

By Joshua Fershee

In Business Organizations, I am in the early part of teaching agency and partnership. In my last class, we discussed Cargill, which is a fairly typical case to open agency discussions.  I like Cargill, and I think it is a helpful teaching tool, but I think one needs to go beyond the case and facts to give a full picture of agency. 

Of note, the case deals only with "actual agency" -- for whatever reason, the plaintiffs did not argue "apparent agency" or estoppel in the alternative.  A. Gay Jenson Farms Co. v. Cargill, Inc., 309 N.W.2d 285, 290 n.6 (Minn. 1981) (“At trial, plaintiffs sought to establish actual agency by Cargill's course of dealing between 1973 and 1977 rather than 'apparent' agency or agency by estoppel, so that the only issue in this case is one of actual agency. ”). I think this explains a lot about how the case turns out.  That is, the court recognized that to find for the farmer, there had to be an actual agency relationship.  

I don't love this outcome because one of the hallmarks of an agency relationship is its reciprocal nature. That is, once we find an agency relationship, the principal is bound to the third party and the third party is bound to the principal. In contrast, in a case of estoppel, the principal may be bound (estopped from claiming there is not an agency relationship), but that finding only runs one way. The principal still cannot bind the third party.  

This is a problem for me in Cargill. That is, I don't see a scenario where a court would bind the farmers to Cargill on similar facts. (I know I am not the first to make this observation, but it seemed worth exploring a bit.) As such, I don't think it can rightly be deemed an agency relationship.  

Assume the facts from the case to show agency, but suppose instead Cargill was suing the farmers because the grain prices had increased dramatically and that the farmers had a contract with Warren (the purported agent) to deliver grain at $5/bushel.  However, spot prices were now $15/bushel.  Warren had not paid the farmers for a prior shipment and did not have the ability to pay now. If the contract is with Warren, the farmers should be able to now sell that grain in the market and take the extra $10/bushel for themselves.  However, if Cargill were really the principal on that contract, Cargill would have a right to buy it at $5/bushel.  I just don't see a court making such a ruling on these facts.  

For what it's worth, I do think there is an estoppel argument here, and I think the Cargill court had ample facts to support finding Cargill a guarantor through other actions (promises to pay, name on checks, etc.), some of which might support an apparent authority argument, too. But because I don't see this relationship as an agency relationship as a two-way street, I don't think it can be an "actual agency" relationship. 

Incidentally, I see this reciprocal nature test as proper for partnerships, too.  That is, unless a court, on similar facts, would be willing to find a partnership where it works to the detriment of the plaintiffs, one cannot find a partnership.  Think, for example, of another classic case, Martin v. Peyton, 246 N.Y. 213 (N.Y. 1927).  There, creditors of the financial firm KNK sued KNK, as well as Peyton, Perkins, and Freeman (PPF) who had loaned KNK money. The claim was that PPF was not a mere lender, but had instead become partners of KNK because of the amount of control and profit sharing included in the loan arrangement.  If PPF were deemed partners of KNK, of course, PPF would be liable to the KNK creditors.  Here, the court determines that no partnership exists.  

While a reasonably close call,  I think this is right.  I don't think, based on a similar set of facts, that a court would find for PPF if the dispute were such that finding a partnership between PPF and KNK would reduce the amount KNK would pay its investors. If it can't run both ways, the partnership cannot exist.  I appreciate that in some cases, there simply is not a good analog to test the reciprocal nature of the relationship.  But where it's possible, I think this is a good test to determine whether there really is an agency or partnership relationship or if, instead, what we really have is a sympathetic plaintiff.   

 

January 22, 2019 in Agency, Business Associations, Joshua P. Fershee, Partnership, Teaching | Permalink | Comments (5)

Monday, January 21, 2019

Martin Luther King Jr., Love, Teaching, and Learning

By joanheminway

image from pixabay.com

As we celebrate Martin Luther King Day today, I am moved to write a bit about him as a teacher.  Preachers (along with coaches and others who interact with us in various capacities in our lives) are teachers, of course.  They struggle, as educators, with similar challenges in their teaching to those that we face in curricular, co-curricular, and extracurricular teaching in law schools.

So many parallels are obvious.  But I want to focus on one small (and perhaps less obvious) thread in this post: love.  The choice of this focus derives from a David Brooks op-ed that I read a few days ago in The New York Times.  The column included a number of helpful facts and ideas relating to the connection between emotions and intelligence.  Perhaps one of the most poignant messages it conveyed was this one: "children learn from people they love, and . . . love in this context means willing the good of another, and offering active care for the whole person."  That rang true to me.  How, then, might love unite Dr. King with teaching and learning?

Of course, as many may recall, Dr. King (like other Christian clerics) preached about loving one's enemies.  But I somehow sensed there was a more palpable, direct, individual connection among Dr. King, love, teaching, and learning.  As I searched the web for specific references to substantiate and illustrate my hunch, I found online drafts of Dr. King's papers, including "Draft of Chapter IV, 'Love in Action.'"  In this draft, Dr. King focuses in on the simple words of Jesus spoken from the cross: "Father, forgive them, for they know not what they do."  (Luke 23:34)  As I read Dr. King's text, I understood that part of his message was that Jesus's words expressed love, and through that love, Jesus taught his followers.  By repeating and parsing Jesus's words and linking Jesus's love-through-forgiveness with the ignorance (or intellectual blindness) of those who did not love Jesus, Dr. King can be seen as more subtly making the same point that George Will made in his column: love and learning are intertwined.  Specifically, Dr. King wrote:

One day we will learn that the heart can never be totally right if the head is totally wrong.  This is not to say that the head can be right if the heart is wrong. Only through the bringing together of head and heart—intelligence and goodness—can man rise to a filfillment [sp] of his true essence.

(emphasis in the original)

I am not in the classroom this semester.  Nevertheless, I will have some student interaction, including most prominently with my research assistants.  I intend to carry the messages from the op-ed and Dr. King's writings in my heart and work to push them into practice.  George Will noted in his op-ed that "students have got to have a good relationship with teachers. . . . In good times and bad, good teachers and good students co-regulate each other."  I have always endeavored to relate to my students as best as possible despite age and other differences.  But I know that is hard to do in a large-class setting.  I also know there always are students who resist the entreaty to engage.  "The call for intelligence," Dr. King observed, "is a call for open-mindness, sound judgment, and love for truth."  Both instructor and student must share these values and observe them in the teacher-student relationship for the learning proposition to optimally succeed.

My sense is (and my anecdotal experience bears this out) that the results are worth the effort if instructors and students collaboratively invest in the teaching and learning process in this way.  Do you agree?  I am interested in your thoughts, consistent or inconsistent with the observations made here.

January 21, 2019 in Joan Heminway, Teaching | Permalink | Comments (2)

Sunday, January 20, 2019

Ten Years After the Global Financial Crisis, Is the System Safer?

By Colleen Baker

Today, I’d planned to blog about what their early 2019 speeches suggest is on the minds of policymakers at U.S. financial regulatory agencies as the New Year begins.  I decided to wait a few weeks to collect more data.  However, my initial research included a visit to the Federal Reserve Bank of Minneapolis (FRBM) site and led me to the subject of today’s post.

Last week, Neel Kashkari, the President and CEO of the FRBM, participated in a live Intelligence Squared U.S. (IQ2US) debate (in partnership with Foreign Affairs) on whether Ten Years After the Global Financial Crisis, the System is Safer (Resolution).  According to its website, IQ2US has now held 160 debates with 500 debaters.  Before a debate, the audience votes “yes,” “no,” or “undecided” about a resolution.  After three rounds of debate (opening statements, responses and audience questions, and closing statements), the audience votes again.  Each debate team argues for or against the resolution of the day.  The team whose numbers have increased the most in the final vote wins. 

Kashkari, in addition to debate partner Jason Furman, a top economic adviser to President Obama and former Chairman of the Council of Economic Advisers, debated in support of the Resolution.  Kashkari – who oversaw TARP during the financial crisis – shared his perspective that although more needs to be done, the system is now safer than it was ten years ago.  Specifically, he and Furman focused in their opening remarks upon five dimensions of the financial system, arguing that three were safer (big banks have more capital and less short-term funding; activity levels have fallen in non-bank areas such as securitization and money market mutual funds; and certain positive international developments such as banking reforms in Europe, institutionalized central bank swap lines, and the U.S. now being the world’s biggest oil producer), and that two were about the same/neutral (the use of monetary or fiscal policy to respond to a crisis). Hence, overall, the system was safer even if there was room for improvement.

Harvard Professor Kenneth Rogoff and Robert Rosenkranz, Chairman of Delphi Capital Management and Founder and Chairman of IQ2US, debated against the Resolution.  Rogoff’s opening remarks emphasized unknowns in the system, that the next war (financial crisis) is likely to look different from those of the past, and that a critical aspect of the financial system is leadership (seemingly a combination of competent technocrats and political leaders who support them).  Rogoff has confidence in global central banks such as the U.S., U.K. and E.U., but expressed reservations about other leadership areas.  Rosenkranz’s opening comments focused on the complex web of interrelationships in the system (OTC derivatives being the most important source); the arguable continued vulnerability of the system to the failure of a single, large bank; an increase in the potential for herd behaviors by “accelerators of trouble” (such as the spread of algorithmic trading and potential rating agency decisions); international frictions; and, the diminished strength of system shock absorbers such as liquidity.                         

All four debaters did an excellent job and a short blog post is an insufficient space for a comprehensive summary (so, view it for yourself!).  However, I was previously unaware of IQ2US, intrigued by its mission, and am always interested in the financial system and past crises.  Now, I know you’re wondering…so I’ll go ahead and tell you…the initial/final audience vote was: For (29%/35%), Against (49%/57%), and Undecided (22%/8%).  Hence, Rogoff and Rosenkranz prevailed by a 2% margin. 

Finally, if you’re like me, you probably haven’t been thinking about how you’d vote for the resolution: Don’t Bring Extinct Creatures Back to Life.  Who knows, maybe I’ll tune in on January 31st, and then just maybe, I’ll let you know!   

January 20, 2019 | Permalink | Comments (2)

Saturday, January 19, 2019

Retweets are not endorsements

By Ann Lipton

Forgive me for yet another foray into the vagaries of Tesla, but the company provides your humble blogger with an endless supply of discussion material.  (My own prior posts on disparate Tesla-related subjects can be found here, here, and here; Joan Heminway also commented on Tesla here.)

Earlier this month, it was reported that Elon Musk retweeted a Forbes report that Tesla had outsold all other US luxury car makers, only to delete the tweet when it turned out the report was inaccurate (it had compared Tesla’s global sales with US sales by other car manufacturers).  Such was the creation of a classroom hypothetical if I ever saw one.

I have so many questions:

1.    Why did the Chief Executive Officer of Tesla not realize that the sales report was inaccurate, and if he did realize it, did he retweet anyway in hopes that no one would spot the error?

2.    If Musk was aware the report was false, could he be liable for having made a false statement in connection with a securities transaction in violation of Section 10(b)?

A.  We might ask whether Musk “made” a statement at all.  As I’ve previously posted here and here, the Supreme Court is set to decide in Lorenzo v. Securities & Exchange Commission whether merely passing on someone else’s false representation – attributed to that other person – constitutes a false statement or otherwise fraudulent action by the conduit.

At the same time, there is a long (pre-Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011)) history of courts holding that corporate executives are responsible for the content of analyst reports when they place their imprimatur upon them. See, e.g., In re Cabletron Sys. Inc., 311 F.3d 11 (1st Cir. 2002); Elkind v. Liggett & Myers, Inc., 635 F.2d 156 (2d Cir. 1980); Southland Sec. Corp. v. INSpire Ins. Solutions Inc., 365 F.3d 353 (5th Cir. 2004).  Did Musk’s retweet qualify?  Was his authorship “implicit from surrounding circumstances” under Janus? 

We might say this is different from the Lorenzo case because in that instance, the conduit positioned himself as an employee, passing on information pursuant to his boss’s instruction; Musk, by contrast, apparently chose to single out this particular article; the curation itself may be interpreted as a kind of endorsement.

What if his profile said “retweets are not endorsements”? (At the time of this posting, by the way, it did not.)  And – continuing with the fancy that this is a classroom discussion – if you were corporate counsel, would you insist on such a disclaimer?

B. If Musk did make a false statement, was it material?  After all, the original false statement was already out there and presumably widely distributed.  Moreover, it concerned factual information that was easy to check.  In the past, courts have assumed that efficient markets have a heroic ability to self-correct under much more challenging circumstances (see my prior post; see also my forthcoming essay addressing the subject). If reporters’ synthesis of public raw data is not “material” for securities law purposes, see, e.g., In re Merck & Co. Securities Litigation, 432 F.3d 261 (3d Cir. 2005), it’s hard to see why Musk’s retweet of an easily-debunked false news report would be any more significant.

3.     Where was the monitor? Pursuant to Musk’s settlement with the SEC over earlier ill-considered tweets, Musk agreed to:

comply with all mandatory procedures implemented by Tesla, Inc. (the “Company”) regarding (i) the oversight of communications relating to the Company made in any format, including, but not limited to, posts on social media (e.g. Twitter), the Company’s website (e.g. the Company’s blog), press releases, and investor calls, and (ii) the pre-approval of any such written communications that contain, or reasonably could contain, information material to the Company or its shareholders.

Now, to some extent, Musk has already indicated that he does not intend to hew to the terms of the settlement with religious fervor, but leaving that point aside, does the existence of the tweet in this instance suggest that there really is no monitor?  That the monitor did not consider the retweet material? Other?

In any event, whatever else may come of Musk’s stewardship of Tesla, it’s nice to know I’ll have things to blog about so long as he remains at the helm.

January 19, 2019 in Ann Lipton | Permalink | Comments (2)

Wednesday, January 16, 2019

Marketing Cultural Change

By Benjamin P. Edwards

By now, almost everyone has seen the new Gillette ad criticizing toxic masculinity and urging men to be better men:

Reactions range from offense at Gillette's corporate moralizing to genuine appreciation and celebration.  Slate captured the corporate logic effectively:

The wide range of reactions was, of course, the point: to create a conversation starter. To rile people and get them talking about Gillette. To increase brand recognition amid Gillette’s declining market share and, ultimately, make Procter & Gamble more money. Much of the criticism of the ad has revolved around the company’s motives.

Yet P&G can have financial incentives and still make an ad worth lauding. These two things are not mutually exclusive. And this ad is a step in the right direction, because the more we collectively hear the message that sexual harassment is unacceptable, that bullying is wrong, and that helping victims is noble, the more this message will shape our—and our children’s—everyday choices. We need to get messages like this from our leaders, teachers, parents—andfrom television shows, movies, books, songs, and advertisements. Cultural shifts happen when every aspect of culture embraces and normalizes a change.

Some business law professors commenting on Twitter took the same position.  Iowa Law's Greg Shill immediately saw the play:

Nicole Iannarone also saw the brand boosting implications and how the business judgment rule will protect the Gillette (P&G) board from any second guessing by disgruntled investors:

As Joshua Fershee pointed out after the Nike ad, the business judgment rule protects a board for its marketing decisions.  Even if others dislike it or they think it was a poor decision.

And Gillette certainly has its detractors.  New York's Josh Barro panned the ad after celebrating the Nike ad, seeing it as more accusatory than uplifting:

This is important: Instead of offering the man something, the slogan now asks him to do something. Gillette has spent decades making him the best razors it could; now it’s the man’s turn to deliver.

Whatever this is, it isn’t marketing.

Gillette’s message — that something has too often gone wrong in masculinity, and that men ought to evaluate whether they are doing enough to combat bullying and mistreatment of women — is correct. But the viewer is likely to ask: Who is Gillette to tell me this? I just came here for razors. And razors barely even feature in Gillette’s new campaign.

From a business perspective, I see it differently.  Let's face it:  Razors are essentially commodities.  Unlike Barro, I'm skeptical that there are any real differences between Harry's, Dollar Shave Club, or Gillette.  It's blades on a stick folks.  Consumers will either be drawn to a brand or they'll just buy the cheapest readily available option.  (Confession:  I get my razors at Costco.  It's blades on a stick.)  Gillette doesn't want to compete on price against the new entrants so it needs to offer a brand razor buyers want. 

Barro felt as though Gillette shouldn't be taking this approach because of the way it called men out, perhaps offending its customer base.  I suspect Barro may have assumed that the users are almost always the buyers.  Although many men do buy their own razors, many women also buy razors and other products for families.  By one count, women drive 70-80% of all consumer purchasing.  From this angle, it's not surprising that women known for making ads for, among other things, feminine hygiene products created the ad.  If you want a man in your life to be his best self or if you're a woman fed up with toxic masculinity, a Gillette razor might appeal to you.  

Even though some may see this as a cynical marketing move, Gillette has been remarkably consistent on these issues.  They ran a similar campaign a few years ago in India.  This Forbes piece captures it well:

If Gillette were purpose-washing—where it uses the optics of “doing good” in a malevolent way to make a buck—the company wouldn’t possess a prior track record. There are scores of companies who claim to be purpose-driven when in fact they are purpose-washing. They use the concept of “purpose” not to change society, but solely to make a buck.

I don’t see this as the case with Gillette. They possess a track record of being purpose-driven.

Six years ago the company launched a campaign in India titled "Gillette Soldier for Women." Its goal was not about men turning women into soldiers; rather the company was pushing men to stand up for women. "Because when you respect women," as the advert insisted, "you respect your nation." 

Presumably, Gillette had a good experience with that campaign before unveiling this one in the American market.

Over the long term, it also helps that Gillette is absolutely right on the issue.  The American Psychological Association recently released guidelines for treating boys and men.  They found that traditional masculinity has real downsides for men:

Although boys and men, as a group, tend to hold privilege and power based on gender, they also demonstrate disproportionate rates of receiving harsh discipline (e.g., suspension and expulsion), academic challenges (e.g., dropping out of high school, particularly among African American and Latino boys), mental health issues (e.g., completed suicide), physical health problems (e.g., cardiovascular problems), public health concerns (e.g., violence, substance abuse, incarceration, and early mortality), and a wide variety of otheWhor quality-of-life issues (e.g., relational problems, family well-being; for comprehensive reviews, see Levant & Richmond, 2007; Moore & Stuart, 2005; O’Neil, 2015). Additionally, many men do not seek help when they need it, and many report distinctive barriers to receiving gender-sensitive psychological treatment (Mahalik, Good, Tager, Levant, & Mackowiak, 2012).

Looking at my own life, I don't think an overly stoic, traditional masculinity has served me particularly well.  One of the APA's identified markers is the rejection of help.  I'd probably have been happier and healthier if I had sought help when I needed it.  Instead, men often suffer needlessly for fear of showing weakness.  This likely contributes to the negative outcomes that fall on men--early deaths, suicides, mental health problems, and lower graduation rates.  To remind myself of that, I might grab the Gillette brand razors the next time I'm stocking up at Costco.  After all, even people that don't shave with razors are buying them:

 

January 16, 2019 | Permalink | Comments (0)

ICYMI: #corpgov Midweek Roundup (Jan. 16, 2019)

By Stefan J. Padfield

January 16, 2019 in Stefan J. Padfield | Permalink | Comments (0)

Tuesday, January 15, 2019

Sixth Circuit, Why Can't You Be More Like Your Sister, Eleventh Circuit? #LLCs

By Joshua Fershee

I am wading back into a jurisdiction case because when it to LLCs (limited liability companies), I need to. A new case from the United States Court of Appeals for the Sixth Circuit showed up on Westlaw.  Here's how the analysis section begins:

Jurisdiction in this case is found under the diversity statute 28 U.S.C. § 1332. John Kendle is a citizen of Ohio; defendant WHIG Enterprises, LLC is a Florida corporation with its principal place of business in Mississippi; defendant Rx Pro Mississippi is a Mississippi corporation with its principal place of business in Mississippi; defendant Mitchell Chad Barrett is a citizen of Mississippi; defendant Jason Rutland is a citizen of Mississippi. R. 114 (Second Am. Compl. at ¶¶ 3, 5) (Page ID #981–82). Kendle is seeking damages in excess of $75,000. Id. at ¶¶ 50, 54, 58, 64, 71 (Page ID #992–95). The district court issued an order under Rule 54(b) of the Federal Rules of Civil Procedure that granted final judgment in favor of Mitchell Chad Barrett, and so appellate jurisdiction is proper. R. 170 (Rule 54(b) Order) (Page ID #3021).

Kendle v. Whig Enterprises, LLC, No. 18-3574, 2019 WL 148420, at *3 (6th Cir. Jan. 9, 2019).

No. No. No. An LLC is not a corporation, for starters.  And for purposes of diversity jurisdiction, "a limited liability company is a citizen of any state of which a member of the company is a citizen." Rolling Greens MHP, L.P. v. Comcast SCH Holdings L.L.C., 374 F.3d 1020, 1022 (11th Cir. 2004).  As such the where the LLC is formed doesn't matter and the LLC's principal place of business doesn't matter. All that matters is the citizenship of each LLC member.  

In this case, I can tell from the opinion that Kendle and Rutland are "co-owners" of WHIG Enterprises. The opinion suggests there may be other owners (i.e., members).  The opinion refers to the plaintiff suing "WHIG Enterprises, LLC, two of its co-owners, and another affiliated entity." Kendle v. Whig Enterprises, LLC, No. 18-3574, 2019 WL 148420, at *1. The opinion later refers to Rutland as "another WHIG co-owner."  If we want to know whether diversity jurisdiction is proper, though, we'll need to know ALL of WHIG's members.  

Now, it may well be that there is diversity among the parties, but we don't know, and neither, apparently, does the court. That may not be an issue in this case, but if people start modeling their bases for jurisdiction on the Kendle excerpt above, things could get ugly. The Eleventh Circuit, as noted above. A more recent case further reminds us to check diversity for all members in an LLC.  Thermoset Corporation v. Building Materials Corp. of America et al, 2017 WL 816224 (11th Cir., March 2, 2017).

I figured that I should give a shout out to folks getting right, given all my criticism of those getting it wrong.  Come, Sixth Circuit, let's get it together. 

January 15, 2019 in Corporations, Current Affairs, Joshua P. Fershee, Lawyering, LLCs | Permalink | Comments (1)

Monday, January 14, 2019

Insider Trading and the Blockchain at the 2019 AALS Annual Meeting

By joanheminway

My frequent academic partner and friend John Anderson and I organized and moderated a discussion session on insider trading in the blockchain transactional environment at this year’s AALS annual meeting. The session, entitled “Insider Trading and Cryptoassests: The Future of Regulation in the Blockchain Era,” featured teacher-scholar participants from academic backgrounds in white collar crime, corporate law, securities regulation, intellectual property, cyberlaw, and ethics/compliance. The program description is as follows:

As the cryptoasset ecosystem shows signs of emerging from its “Wild West” phase, insider trading has become a principal concern for trading platforms, investors, and regulators. Insider trading cases concerning cryptoassets present challenges, however, because the legal understanding of both cryptoassets and the markets in which they are generated, bought, and sold has been significantly outpaced by their development, expansion, and innovation. In the United States, market professionals, the Securities and Exchange Commission (SEC), the Commodities Futures Trading Commission (CFTC), and others debate whether virtual currencies are securities, contracts, currencies, commodities, or something else. Both the SEC and CFTC assert jurisdiction over cryptoassets, but (at this writing) neither has precisely defined the scope or nature of its purported regulatory oversight. This commercial and regulatory uncertainty leaves a number of questions about insider trading in cryptoassets unanswered. This Discussion Group considers these and other related concerns regarding insider trading in cryptoassets.

The short papers submitted by the participants and the related commentary reflected the diverse areas of expertise of the participants and were engaging and thoughtful.  Constructive audience participation also was a highlight of the program.

We focused the discussion initially on whether, and if so how, insider trading in cryptoassets currently is regulated.  We also discussed whether regulation of that activity should be undertaken.  Then, assuming regulation, we considered whether existing regulatory tools could and should be used.  Finally, as part of that discussion, we began to assess who and exactly what should be regulated.  The dialogue was energizing, even if inconclusive.

Marcia Narine Weldon has written here at the BLPB at various times in the past six months on blockchain technology and its intersection with business and business law, including here, here, and here. In the first of those linked posts, she advises us that we ignore the blockchain at our peril. I agree.

But I also want to note that whether you believe that the blockchain is an awesome and promising new technology or a pernicious computer-based contrivance, its interactions with business law provide us all with opportunity: the chance to use our expertise to identify and resolve new legal and regulatory issues. As I learned from my experience in studying the regulatory context of crowdfunding in its early days, once the innovation train has left the station and is rolling down the tracks, it compels study and benefits from open, enlightened debate. Business lawyers are uniquely qualified to provide the necessary examination, dialogue, and guidance.  Let's get to it!

January 14, 2019 in Conferences, Joan Heminway, Marcia Narine Weldon | Permalink | Comments (0)

Sunday, January 13, 2019

2019 ALSB Annual and Regional Conferences

By Colleen Baker

As the New Year begins, are you thinking about the conferences you’ll attend in 2019?   

The Academy of Legal Studies in Business has a great annual conference in early August.  This year it’s in Montreal, Quebec, August 6-10.  I’ve never been to Montreal and can’t wait! 

The Academy also has a number of regional conferences.  Check out all the options (if I missed one, send me an email)!

Canadian ALSB Annual Conference May 2-4, 2019 (Halifax, Nova Scotia)

Great Lakes ALSB, October 11-12, 2019 (Frankenmuth, Michigan)

Mid-Atlantic Academy of Legal Studies in Business, March 29-30, 2019 (Reading, Pennsylvania)

Mid-West Academy of Legal Studies in Business, March 27-29, 2019 (Chicago, Illinois)

North Atlantic Regional Business Law Association Annual Conference, April 6, 2019 (Boston, Massachusetts)

North East Academy of Legal Studies in Business, May 3-5, 2019 (Cape May, New Jersey)

Pacific Northwest Academy of Legal Studies in Business, April 11-13, 2019 (Seattle, Washington)

Pacific Southwest Academy of Legal Studies in Business, February 14-17, 2019 (Palm Springs, California)

Rocky Mountain Academy of Legal Studies in Business [check for 2019 updates]

Southern Academy of Legal Studies in Business, February 28 - March2, 2019 (San Antonio, Texas)

Southeastern Academy of Legal Studies in Business [check for 2019 updates]

Western Academy of Legal Studies in Business, March 8-10, 2019 (Monterey, California)

January 13, 2019 | Permalink | Comments (0)

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