Business Law Prof Blog

What is a Merger Anyway?

I want to follow on Colleen's post from yesterday with my own Business Law Prof Blog Symposium commentary.  But first, I want to thank Colleen, Ben, Josh, Doug, Haskell, and Stefan for participating with me in the symposium this year.  Our continuing legal education attendees, as well as our faculty and students, love this symposium each year.  It always turns out to be a wonderful pot pourri of business law topics that literally connect the threads of what we do as business lawyers and business law educators.

Rather than being a featured presenter this year, I chose to present panel-style with two of my UT Law colleagues.  (That's us, plus our student commentator, Dixon Babb, in the photo above.  Thanks for capturing that, Haskell!)  The panel was designed to describe different conceptions of mergers based on distinct areas of legal expertise, together with related professional responsibility commentary.  I chose my colleagues Don Leatherman and Tom Plank to join me for this session--Don a tax law practitioner and teacher and Tom a property law practitioner and teacher.  The reason for these choices was simple: the three of us had covered this issue before in an informal conversation, and I had found it really stimulating.  Don and Tom are amazingly good at what they do, are humorous in their own unique ways, and were exceedingly good sports about joining me on Friday and trying to re-create the atmosphere, as well as the content, of our prior discussion.

An edited excerpt (the introduction) from the abstract for our panel is included below.  I may have more to say about this panel in a later post.  A transcript of the full panel discussion and Q&A will be published in the spring 2020 issue of Transactions: The Tennessee Journal of Business Law.  I will try to remember to post a link after that book is published.  (Last year's symposium volume can be found here, by the way.)  

Anyway, here is our introduction.  This panel discussion was so much fun to do, as you might imagine.  I can only hope others enjoyed it as much as the three of us did!

This contribution to “Connecting the Threads III,” the third annual Business Law Prof Blog symposium, involves a conversation between and among three law professors with diverse law practice backgrounds—a corporate finance lawyer, a tax lawyer, and a property lawyer who has served as bankruptcy counsel and Uniform Commercial Code sales and securitization counsel. About ten years ago, these three lawyers, all professors at The University of Tennessee College of Law, found themselves by a water cooler talking about mergers, equity sales, and assets sales. As the corporate finance lawyer recalls, the conversation moved into high gear when the property lawyer questioned her classroom depiction of merger transactions as creatures of statutory magic . . . .

In their conversation that day, the three law professors began to scope out various conceptions of mergers and acquisitions (in common parlance, M&A transactions or business combinations) based on the distinct perspectives provided by their professional backgrounds, their scholarship, and the courses they teach that intersect with M&A transactions. The conversation emanates from the distinct policy objectives (and resulting broad, conceptual substantive focuses) of different legal regimes. The observations each made—both as to their own areas of expertise and those of their colleagues—together offered an appropriately complex picture of these intricate transactions, which often are executed using a team of lawyers representing various areas of practice. As the colleagues parted company that day, one of them made mental note that the conversation should have been recorded—for her own benefit and for the benefit of students who, depending on their upper-division course selections, may not get exposure to this more complete and rich portrayal of business combinations.

At “Connecting the Threads III,” these three law professors . . . attempt to recreate and expand on the content of their impromptu water-cooler conversation. While the precise discussion cannot, after all of these years, be faithfully replicated, its overall nature—updated to reflect current legal doctrine, policy, theory, and norms—can be reconstructed. The discussion addresses a series of broad questions, the threshold one being what a merger is, from the standpoint of each professor’s area of practice, scholarship, and teaching.

Call for Proposals - Feminist Judgments: Rewritten Corporate Law

Call for Proposals – Feminist Judgments: Rewritten Corporate Law

DEADLINE: Friday November 1, 2019

The U.S. Feminist Judgments Project seeks contributors of rewritten judicial opinions and private contracts, and commentaries on rewritten opinions and contracts, for an edited collection tentatively titled Feminist Judgments: Rewritten Corporate Law.  This edited volume is part of a collaboration among law professors and others to rewrite, from a feminist perspective, key judicial decisions in the United States.  The initial volume, Feminist Judgments: Rewritten Opinions of the United States Supreme Court, edited by Kathryn M. Stanchi, Linda L. Berger, and Bridget J. Crawford, was published in 2016 by Cambridge University Press.  Cambridge University Press has approved a series of Feminist Judgments books. In 2017, Cambridge University Press published the tax volume titled Feminist Judgments: Rewritten Tax Opinions. Other volumes in the pipeline include rewritten opinions in the areas of reproductive justice, family law, torts, employment discrimination, trusts and estates, and health law. More information about the project can be found at https://law.unlv.edu/us-feminist-judgments.

Corporate law volume editors are Anne Choike, Usha R. Rodrigues and Kelli Alces Williams. The corporate law volume’s advisory panel is comprised of Alina Ball; Lisa Fairfax; Theresa Gabaldon; Joan MacLeod Heminway; Kristin Johnson; Elizabeth Pollman; Poonam Puri; Darren Rosenblum; Cindy Schipani; Kellye Testy; Cheryl Wade; and Cindy Williams.

With the guidance of the advisory panel, the editors have selected cases that have not appeared in other Feminist Judgments volumes, doctrinally significant cases, and cases that raised issues of particular salience to women’s lives.  This volume also seeks to include a rewritten “contract,” given corporate law’s emphasis upon default law and the precedent-setting power of privately negotiated arrangements. Potential authors are welcome to suggest other opinions or contracts that they would like to address, but the overall number of cases and contracts finally included in the volume must remain limited.

Interested prospective contributors should submit a proposal to either: 1) rewrite an opinion or contract (subject to a 10,000 word limit), or 2) comment on a rewritten opinion (4,000 word limit). Rewritten opinions may be majority opinions, concurrences, dissents, or private contracts.

Authors of rewritten opinions or contracts will be bound by the law and precedent in effect at the time of the original decision. Commentators will explain the original court decision or contract and its context, how the feminist opinion or contract differs from the original, and the impact that the rewritten feminist opinion or contract might have made.  The volume editors conceive of feminism as a broad movement and welcome proposalsthat bring into focus intersectional concerns beyond gender, such as race, class, disability, gender identity, age, sexual orientation, national origin, and immigration status.

To facilitate collaboration among contributors across the entire volume, the editors tentatively plan to host a gathering at the Law & Society Annual Meeting on May 28–31, 2020 in Denver, Colorado.  All contributors are invited, but not required, to participate in the workshop. Contributors attending the gathering must cover their own travel, lodging and meal expenses.

The editors will notify accepted authors and commentators by Saturday, November 30, 2019. Abstracts of rewritten opinions or contracts will be due on April 30, 2020 for circulation to fellow authors. Abstracts of commentaries will be due on May 15, 2020 for circulation to fellow authors. First drafts of rewritten opinions will be due on Wednesday, July 15, 2020. First drafts of commentaries will be due on Tuesday, September 15, 2020. The target date for submission of the completed, compiled manuscript for publication is February 2021.

To submit a proposal for rewriting an opinion or contract or providing commentary, please e-mail the following information to the volume co-editors, Anne Choike, [email protected], Usha R. Rodrigues, [email protected], and Kelli Alces Williams, [email protected] by Friday, November 1, 2019:

1. Your CV, your areas of corporate law interest or expertise, and why you are interested in and well suited to participate in this project. The Feminist Judgments Project and the Corporate Law volume editors are committed to including authors from diverse backgrounds. If you feel an aspect of your personal identity is important to your participation, please feel free to include that in your expression of interest.
2. Your top two or three preferences of cases or contracts to write about from the list below. Alternatively, if you have another case or contract that you feel strongly should be included instead of one of the selected cases or contracts and that you would like to write about, provide a summary of the case or contract (no more than 250 words), a copy of the full text of the case or contract, and a brief summary (no more than 250 words) of the reasons that you think it should be included. Contributors who wish to co-author a rewritten opinion, rewritten contract or commentary, or work together on a rewritten opinion or contract and the commentary thereupon, are welcome to indicate that in the application.
3. Your preference for contributing a rewritten opinion or contract, or a commentary.
4. Any time constraints and other obligations that may impact your ability to meet the submission deadlines.
5. Your willingness and ability to attend the tentatively planned gathering at the Law & Society Annual Meeting in Denver, Colorado in May 2020. Selection of contributors does not depend on their ability or willingness to attend this gathering.

This list of cases and contracts that the editors have selected for consideration to be included in the volume Feminist Judgments: Rewritten Corporate Law, is as follows:

Legal Personality, Identity, and Limited Liability of Corporate Entities:

1. Citizens United (rights of corporate “persons” and nature of corporate personality)
2. Walkovszky v. Carlton (limited liability/veil piercing)

Role and Purpose of the Corporation and Corporate Combinations in Society

3. Dodge v. Ford (shareholder primacy)
4. Merriam v. Demoulas Super Mkts. (stakeholder responsibility in family-owned business)
5. Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. (directors’ duty to maximize share price in corporate takeover)

Fiduciary Duties in Corporate Governance

6. Meinhard v. Salmon (duty of loyalty)
7. Smith v. Van Gorkom (duty of care and business judgment rule)
8. Francis v. United Jersey Bank (duty of care to understand business)
9. In re Walt Disney Derivative Litigation (duty of care regarding executive compensation)
10. Harvey Weinstein Employment Agreement (duty of care to monitor compliance)

Closely Held Businesses and Other Considerations Regarding the Composition of Boards, Management, and Owners

11. Ringling Bros.--Barnum & Bailey Combined Shows, Inc. v. Ringling (dispute over board seats)
12. Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart (legitimacy of board member personal relationships)
13. Donohue v. Rodd Electrotype (close corporations and minority shareholder oppression)

Protecting Vulnerable Investors and Potential Investors in Corporations

14. Jordan v. Duff & Phelps (duty to disclose material information)
15. SEC v. Howey (definition of investment contract)
16. US v. Chestman (culpability for insider trading based on personal relationships)

The Kelley School of Business at Indiana University - Legal Studies Professor Positions

The Kelley School of Business at Indiana University is hiring legal studies professors. Details about the positions below. 

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Tenure-Track Position(s)

The Kelley School of Business at Indiana University seeks applications for a tenured/tenure-track position or positions in the Department of Business Law and Ethics, effective fall 2020. The candidate(s) selected will join a well-established department of 25 full-time faculty members who teach a variety of courses on legal topics, business ethics, and critical thinking at the undergraduate and graduate levels. It is anticipated that the position(s) will be at the assistant professor rank, though appointment at a higher rank could occur if a selected candidate’s record so warrants. 

To be qualified, a candidate must have a J.D. degree (or equivalent terminal law degree) with an excellent academic record and must demonstrate the potential for outstanding teaching and research in law and/or ethics. We seek applicants with research and teaching interests across a broad range of law and ethics issues in business, and we would be pleased to receive applications from scholars whose research or teaching interests intersect with issues of racial, ethnic, and gender diversity and equity in corporate and work environments (including but not limited to corporate board diversity, civil rights, employment anti-discrimination and anti-harassment, public accommodation, family leave, business and human rights, feminist and/or critical race theory and law/ethics, etc.). 

Candidates with appropriate subject-matter expertise and interest would have the opportunity to be involved on the leading edge of a developing collaboration between the Kelley School of Business and the Kinsey Institute, the premier research institute on human sexuality and relationships and a trusted source for evidence-based information on critical issues in sexuality, gender, and reproduction. Such expertise, however, is not required to be qualified and considered for the position or positions. 

Interested candidates should review the application requirements and submit their application athttp://indiana.peopleadmin.com/postings/8543. Candidates may direct questions to: Professor Jamie Darin Prenkert, Department Chair ([email protected]), or Professor Joshua E. Perry, Search Committee Chair ([email protected]), both at Department of Business Law and Ethics, Kelley School of Business, Indiana University, 1309 E. 10th Street, Bloomington, IN 47405. 

Application materials received by October 24, 2019 will receive full consideration. However, the search will continue until the position(s) is/are filled. 

Indiana University is an equal employment and affirmative action employer and a provider of ADA services. All qualified applicants will receive consideration for employment without regard to age, ethnicity, color, race, religion, sex, sexual orientation, gender identity or expression, genetic information, marital status, national origin, disability status or protected veteran status. 

Lecturer Position(s)

The Kelley School of Business at Indiana University seeks applications for full-time, non-tenure-track lecturer positions in the Department of Business Law and Ethics, effective fall 2020. The candidate(s) selected will join a well-established department of 25 full-time faculty members who teach a variety of residential and online courses on legal topics, business ethics, and critical thinking at the undergraduate and graduate levels. Lecturers have teaching and service responsibilities, but are not expected to engage in research activities. 

To be qualified, a lecturer candidate must have a J.D. degree (or equivalent terminal law degree) with an excellent academic record and must demonstrate the potential to be an outstanding teacher. We value applicants who have a broad range of interests and experience and a commitment to teaching classes in both the legal environment of business and practical/applied business ethics. We would be pleased to hear from applicants whose interests or experience intersect with issues of racial, ethnic, and gender diversity and equity in corporate and work environments (including but not limited to corporate board diversity, civil rights, employment anti-discrimination and anti-harassment, public accommodation, family leave, business and human rights, feminist and/or critical race theory and law/ethics, etc.). 

Candidates with appropriate expertise would have the opportunity to be involved on the leading edge of a developing collaboration between the Kelley School of Business and the Kinsey Institute, the premier research institute on human sexuality and relationships and a trusted source for evidence-based information on critical issues in sexuality, gender, and reproduction. Such expertise, however, is not required to be qualified and considered for these positions. 

Interested candidates should review the application requirements and submit their application at http://indiana.peopleadmin.com/postings/8545. Candidates may direct questions to: Professor Jamie Darin Prenkert, Department Chair ([email protected]), Professor Martin McCrory, Search Committee Co-Chair ([email protected]), or Professor Arthur Andrew Lopez, Search Committee Co-Chair ([email protected]), all at Department of Business Law and Ethics, Kelley School of Business, Indiana University, 1309 E. 10th Street, Bloomington, IN 47405. 

Application materials received by November 15, 2019, will receive full consideration. However, the search will continue until the position(s) is/are filled. 

Indiana University is an equal employment and affirmative action employer and a provider of ADA services. All qualified applicants will receive consideration for employment without regard to age, ethnicity, color, race, religion, sex, sexual orientation, gender identity or expression, genetic information, marital status, national origin, disability status or protected veteran status. 

 

Banking on the Cloud

On Friday, I attended and spoke at my first BLPB Symposium: Connecting the Threads III.  I learned a ton from listening to the presentations of my co-bloggers, the faculty and student responses to each presentation that followed, and questions from the engaged audience.  It was a great event made possible by the hard work of the U. of Tennessee College of Law student editors and staff of Transactions: The Tennessee Journal of Business Law.  In particular, Colleen Conboy and Tanner Hamilton did an excellent job of organizing the event, and co-blogger Joan Heminway and her faculty colleague George Kuney, the Director of the Clayton Center for Entrepreneurial Law and Lindsay Young Distinguished Professor of Law, also deserve thanks and kudos for their involvement!  I can’t wait for next year!

My presentation, Banking on the Cloud, shared its title with my Symposium paper (w/David Fratto and Lee Reiners).  Professor Gary Pulsinelli and law student Savannah Darnall commented - big thank you to both!  My remarks began by noting that this title referred to two important realities: 1) the amount of financial industry outsourcing to cloud service providers (the big three: Amazon Web Services, Microsoft Azure, and Google) is significant and growing, and 2) as an economy, we’re increasingly “banking on”/ “counting on” that the lights at cloud service providers, similar to the case of electric utilities, will always be on.  In a nutshell, we argue that significant cloud service providers are fast becoming critical financial market infrastructure and a new source of systemic risk in financial markets.  We contend that such entities can and should be designated as systemically important financial market utilities under Dodd-Frank’s Title VIII. 

We’ll post our article to SSRN soon, and I’ll plan to blog more about it then.  For readers who just can’t stand the wait, I’ve two suggestions: 1) see our abstract below, and 2) our paper extends Fratto and Reiners’s post, A New Source of Systemic Risk: Cloud Service Providers, and my work on Dodd-Frank’s Title VIII, and you can check out both! 

Abstract: Cloud computing is fast becoming a ubiquitous part of today’s economy for both businesses and individuals.  Banks and financial institutions are no exception. While it has many benefits, cloud computing also has costs and introduces risks.  Significant cloud providers are single points of failure and, as such, are an important new source of systemic risk in financial markets.  Given this reality, this article argues that such institutions should be considered critical infrastructure, and designated as systemically important financial market utilities under Dodd-Frank’s Title VIII.

#FutureLaw 4.0 - Call for Papers; Near-Term Deadline

Friend-of-the-BLPB Seth Oranburg informs me that the call for papers is now open for the #Futurelaw 4.0 Junior Faculty Workshop, offering newer scholars the opportunity to present and respond to research and writing in law-and-technology areas of endeavor.  Details (including how to apply for inclusion) are available at www.duq.edu/future-law-4.  The workshop is to be held on November 22, 2019.  Submissions are due on October 14, and complete drafts are due on November 8.  

Please spread the word quickly!  This sounds like an exciting opportunity, but there is a short fuse on applications.

Controlling Shareholders, and a Law in Flux

There is a lot going on in VC Slights’s new opinion in Tornetta v. Musk,  refusing to dismiss a shareholder suit challenging Elon Musk’s eye-popping compensation package.

In Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”), the Delaware Supreme Court held that, in the context of a squeeze-out merger, controlling shareholders can obtain business judgment review – rather than entire fairness – if they employ the dual protections of requiring the affirmative vote of a majority of the disinterested shares, and requiring that the deal be negotiated at the outset by a fully-empowered independent board committee.

Since then, there have been a lot of questions about MFW’s application, including whether MFW can/should be employed beyond the context of squeeze outs, which brings us to Tornetta.

Last year, Tesla granted Elon Musk a new compensation package that would award him as much as $55 billion in Tesla stock options, conditioned on achieving certain milestones.  The package was approved by a vote of the unaffiliated Tesla stockholders, but did not satisfy the full set of MFW preconditions (i.e., it was not negotiated by an independent committee, etc).  Thus, Tornetta filed a lawsuit challenging the award on the ground that (1) Musk is a Tesla controlling shareholder (2) the award is therefore an interested transaction subject to review for fairness and (3) the award was unfair.  The claims were brought both directly and derivatively.

Now, the first interesting thing about this case is the number of issues that could have been raised on the motion to dismiss, but were not (though defendants may still raise them later).

Defendants could have, but did not, dispute that Musk was a controlling shareholder (likely because VC Slights previously concluded he was in a case challenging the Tesla/SolarCity merger – I’ll come back to that).

Defendants could have, but did not, dispute that the directors who approved the package were dependent on Musk.

Directors could have, but did not, move to dismiss for failure to make a demand on the board (more on that below).

Directors could have, but did not, move to dismiss on the ground that the claim could not be maintained as a direct action (again, more below).

As a result, the narrow question before Slights was simply whether stockholder approval alone can cleanse a compensation award to a controller, or whether instead MFW procedures are required.  And he held that MFW procedures are always required when a controller’s interests conflict with those of the minority.

[More under the jump]

Continue reading

Mass Tort Deals - Chapter 5

Chapter 5 in Elizabeth Chamblee Burch's Mass Tort Deals brings together so many things.  It's got arbitration, securities filings, banks, conflicts of interest, and so much more. (You can see some of the prior posts on this here.)

Let's start with arbitration.  Burch gets the reality that arbitration contracts today are essentially imposed on the public by more powerful businesses.  She's also correct that these agreements essentially cause the law to slowly, wither and lose its influence.  I've written about this and compared it to a dark shadow.  As arbitration supplants judicial resolution, industries insulate themselves from the threat of negative court rulings.  This procedural structure may allow bad practices to go on for far longer than they would have if courts actually decided cases.  It may also perpetuate injustices within arbitration forums.  Defendants may even argue that a claim should be denied because no precedent supports it.  Yet the precedent cannot come into existence if an industry has entrenched itself with arbitration provisions.  The lack of any precedent for relief should not doom claims in instances where courts can only rarely rule.

Mass tort settlement deals essentially shunt victims into a private dispute resolution world full of conflicts, repeat players with skewed incentives, and little public or judicial oversight.  The settlement deals appear to be nothing more than vehicles for forcing injured persons to submit to some sort of private dispute resolution system.  Burch captures the major difference between these settlements and ordinary ones nicely.  Usually, when you settle a case, your client knows how much cash she will receive. In these settlements, she may only be aware that some allocation formula has been established or how many points someone in her situation might receive.  She suggests conditioning the release of claims on actual settlement offers--not the offer of a program where you may or may not recover anything.

And on to securities filings, banks, and conflicts of interest.  Burch describes how some lawyers in this space sit on the board of Esquire Financial, which holds Esquire Bank. Esquire has lawyers as investors and lawyers on its board.  For example, Chris Seeger sat on Esquire Financial's board for a number of years. Lawyers sitting on corporate boards raise all sorts of complex ethical issues.  I've written about these issues before.  Essentially, a board member will owe fiduciary duties to the corporation.  What happens when those duties sit in tension with the obligations the lawyer owes to her clients?  Sometimes, the bank's interests might conflict with a client's interests.

These different interests appear to sit in tension with Esquire Bank.   It's securities filings reveal that it profits from "delays in inherent in claims administration" because these delays give it "loan and deposit opportunities."  For example, many NFL players, in line to receive concussion-related settlement funds, took out loans from Esquire.  Loans can be a good thing.  People who need money should be able to borrow it at reasonable rates and then turn around and pay it back when the settlement funds arrive.  Of course, the bank may end up making more money if the settlement funds take longer than expected to appear.  Ordinarily, we might see these transactions as fair because most banks don't any influence over how long it will take a particular settlement program to actually disburse funds.

Mass tort lawyers affiliated with Esquire Bank as investors and board members may have some influence over payment processes and timelines in mass tort settlements.  If they shape these processes to run swiftly, their clients may benefit but their financial interests in the bank may not do quite as well.  If they build in slow timetables--perhaps to "protect" their clients with additional procedures, the bank may profit substantially from delays. Slow, rigorous procedures would root out fraud and protect more of the settlement pool for legitimate claims.  How to balance these concerns will be a judgment call. We would hope that lawyers in these situations would balance these considerations entirely in the interests of their clients without regard to any financial ramification for the bank and, derivatively, their own stock holdings.  But the conflict still exists and it appears to be the sort of conflict that would need to be disclosed to clients.  Because attorney-client retainer agreements are private, we don't have any insight as to whether these conflicts were actually disclosed to clients.

Regardless, judges should probably not put lawyers in these ethically complex positions in charge of mass tort deals.  Burch explains that these situations should cause "alarm bells" to go off because in addition to tensions with their own client interests, the lawyers may also engage in anti-competitive behavior to freeze other lenders out of providing services on these deals.  Although some predatory lenders have been barred from lending on these kinds of claims, Esquire and another firm with connections to it were allowed to lend despite offering similar terms to the prohibited lenders.

The chapter contains so much more, researched in meticulous detail.  This series really cannot do it justice.  Seriously, buy the book.  Whenever we summon the collective courage to write real rules for these kinds of cases, put Burch in charge of the committee.  We'll have her suggestions for reforms next week.

 

ICYMI: #corpgov Midweek Roundup (Sep. 25, 2019)

[NOTE: You should see embedded Tweets. If you don't, please try a different browser.]

"Wilson Sonsini Goodrich & Rosati filed an opening brief [on behalf of Blue Apron, Stitch Fix & Roku] asking the ... justices to bless corporate charter provisions that force SHs to litigate suits asserting violations of the Securities Act of 1933 in federal court." #corpgov https://t.co/EGqaMfuHde

— Stefan Padfield (@ProfPadfield) September 25, 2019

"for government to require actions by companies to address ... world problems would be problematic.... it is the government’s responsibility to address these problems via taxation and redistribution as well as regulation in areas other than corporate law" #corpgov https://t.co/0AgcjIciw6

— Stefan Padfield (@ProfPadfield) September 20, 2019

"For the first time in six years, the U.S. Securities and Exchange Commission issued an enforcement action against a company solely for Regulation FD violations." https://t.co/vfOi6vQeER

— Stefan Padfield (@ProfPadfield) September 12, 2019

"directors must 'promote the value of the corporation for the benefit of its stockholders.'" Allen v. El Paso Pipeline Gp. ...; see also N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla ...; eBay Domestic Holdings, Inc. v. Newmark ...; accord Dodge v. Ford Motor Co." https://t.co/PoNwqJyUrl

— Stefan Padfield (@ProfPadfield) September 13, 2019

"stakeholder theorists have tended to hand absolute power over to the board and the C-Suite and hope for the best, which makes the Business Roundtable’s proposal look a little less radical (and a little more self-serving)" #corpgov https://t.co/cb3EEXCfyk

— Stefan Padfield (@ProfPadfield) September 16, 2019

Commercial Law Position Announcement: University of Idaho

The University of Idaho College of Law seeks to fill a tenure-track or tenured faculty position beginning in the Fall of 2020 in the area of Commercial Law for its Moscow location. Both entry-level and lateral candidates are encouraged to apply. In addition to courses in Sales and Property Security, the faculty member will be expected to teach two additional courses – which may include Bankruptcy, Payment Systems, Real Estate Transactions, and/or State Debtor-Creditor Law – according to the interest of the faculty member and the needs of the College of Law. Candidates must have (1) a J.D. from an ABA-accredited school or the equivalent; (2) a distinguished academic record; (3) a record or the promise of teaching excellence; (4) a record or the promise of scholarly productivity; and (5) a record or the promise of expertise in the area of Commercial Law. Preference will be given to candidates with (1) post-J.D. practice, clerking, or teaching experience; and (2) post-J.D. experience related to Commercial Law and other courses listed above. Situated in the beautiful Pacific Northwest, the University of Idaho is a comprehensive research institution. Information about the College of Law is available on its website at https://www.uidaho.edu/law. Interested candidates should apply online athttps://uidaho.peopleadmin.com/postings/27297. Questions about the position should be directed to David Pimentel, Chair of the Faculty Appointments Committee, at [email protected]. The University of Idaho is an affirmative action, equal opportunity employer.

[Hat tip to Aliza Plener Cover, Associate Professor at the University of Idaho College of Law, for highlighting this opportunity.]

Learning About SRISK

This past week, Dr. Robert Engle, the 2003 Nobel Laureate in Economics and Michael Armellino Professor of Management and Financial Services at the NYU Stern School of Business, spoke at the University of Oklahoma in the Deane and Ginger Kanaly Lecture Series at the Michael F. Price College of Business and in our Energy and Commodities Finance Research Conference. 

Engle’s Kanaly Lecture focused on the work of Stern’s Volatility Institute (V-Lab), which he directs.  Specifically, he spoke at length about a measurement of systemic risk termed “SRISK.”  Systemic risk is generally understood to be the risk that the collapse of a financial institution or market will trigger domino-like collapses throughout financial markets and the broader economy.  SRISK measures the capital shortfall of a firm conditional on a severe market decline, and is a function of its size, leverage and risk.  SRISK can be used not only to measure capital shortfalls in firms, but also undercapitalization of a country or global financial system.  It forecasts how much capital a firm (country or global system) would need to raise were a crisis to occur and, naturally, leads to questioning savings sufficiency.  It asks: how prepared is a firm, country, or global system for a financial crisis?  Is there excessive credit growth (undercapitalization)?  SRISK demonstrates that excessive credit growth creates important externalities in a globally interconnected financial system.  It also provides a rational for global coordination of financial market regulation.   

I encourage readers to visit V-Lab’s homepage.  Take a look at global systemic risk by country, the systemic risk of U.S. financials, and a map of world volatility.  Also, look at the chart “Risk Analysis Overview - All Financials Total SRISK” and enter the year 2000 as the starting date.  Engle discussed this chart during the lecture, noting the four peaks during this time frame: the U.S. financial crisis, the European debt crisis, the slowdown in China, and right now!  GLOBAL SRISK is on the rise!  How Much SRISK is Too Much?  I’m glad you asked!  See Engle and Ruan’s answer: here.

I first encountered the concept of SRISK in working on The Impacts of Financial Regulations: Solvency and Liquidity in the Post Crisis Period (with Christine Cumming and Julapa Jagtiani).  So, it was thrilling to finally have an opportunity to hear Engle speak, especially about SRISK and its importance.  I hope it won't be the last!      

Everything is About Internal Affairs

By now, regular readers of this blog are aware that I’ve been especially forceful in arguing that litigation limits in corporate charters and bylaws can only address matters of corporate internal affairs, and that federal securities claims are beyond their scope.  Vice Chancellor Laster adopted a similar view in his Sciabacucchi v. Salzberg decision, where he invalidated charter provisions that purport to require that all Section 11 claims against the company be brought in federal court.  Now that the matter is on appeal to the Delaware Supreme Court (Docket No. 346,2019) – and the opening brief is due today –  a lot of articles about the scope of the internal affairs doctrine are dropping. 

First up, we have Daniel B. Listwa & Bradley Polivka’s First Principles for Forum Provisions (Cardozo Law Review, forthcoming), in which the authors argue that Laster’s opinion erroneously focused on “territoriality” rather than “comity,” and that the suit should have been dismissed for lack of ripeness.

Next, there’s Mohsen Manesh with The Contested Edges of Internal Affairs (Tennessee Law Review, forthcoming), which explores the uncertainties surrounding the scope of the internal affairs doctrine, spotlighted both by the Sciabacucchi v. Salzberg decision and by California’s new board gender diversity mandate.

And then there’s The Limits of Delaware Corporate Law: Internal Affairs, Federal Forum Provisions, and Sciabacucchi, by Joseph Grundfest, which argues that Laster adopted a “novel” view of the internal affairs doctrine, inconsistent with both Delaware and U.S. Supreme Court precedent.  This is interesting because his previous article, The Brouhaha Over Intra-Corporate Forum Selection Provisions: A Legal, Economic, and Political Analysis, 68 BUS. LAW. 370 (2013), co-authored with Kristen Savelle, stated that forum selection provisions “do not purport to regulate a stockholder’s ability to bring a securities fraud claim or any other claim that is not an intra-corporate matter” and that if they attempted to do so, courts could prevent it.  That passage was relied upon by then-Vice Chancellor Strine in his decision upholding forum selection provisions that apply to state-law internal affairs claims in Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013), and of course, Laster’s decision relied heavily on Boilermakers.  In the new article, Grundfest acknowledges the tension and explains how his language has been taken out of context.  See manuscript at n.345.

There’s also an interesting new empirical paper by Dhruv Aggarwal, Albert Choi, & Ofer Eldar, Federal Forum Provisions and the Internal Affairs Doctrine, which finds that after the Sciabacucchi v. Salzberg, firms with similar forum selection clauses in their constitutive documents experienced a stock price drop, suggesting that the market values such clauses.  In light of these results, the authors argue that the internal affairs doctrine should be interpreted to permit them.

Point being, the Delaware Supreme Court has a lot of reading to do.

Mass Tort Deals - Chapter Four

The fourth chapter in Mass Torts Deals tackles the role judges play in coercing facilitating mass torts settlements.  (You can find more chapter writeups here.)

In many instances, it seems as though lawyers manage to rope judges into using procedural mechanisms and their trusted status as authority figures to push plaintiffs into settlements.  The big danger seems to be that because we do not have clean, well-established procedural rules specifically for multi-district litigation proceedings, judges simply do whatever they want, often using coercive powers without any real safeguards.

In one case, Judge Susan Wigenton seemed to take a very heavy hand with objectors to a medical device settlement.  She ordered plaintiffs to "enter into a private settlement program that entailed at least 18 months of mediation unless they settled sooner."  At the same time, she stayed the multi-district proceeding, shutting off access to discovery.  Plaintiffs were forced to participate in the program or face dismissal.

In response, many plaintiffs objected.  Lawyers advocating for the settlement contended that Judge Wigenton had "inherent authority" to manage her docket and that the authority allowed her "to send an elderly plaintiff population into a private settlement program without their consent."  In response to the objections, Judge Wigenton defended her authority, saying "I completely, totally and whole heartily disagree with this notion and concept that I do not have the authority manage a case in the manner that I feel is appropriate.  I think that strains logic."

Although most would agree that courts have substantial inherent authority to manage the cases and attorneys before them, modern multi-district litigation processes seem to strain and surpass defensible outer limits for that authority.  Consider two different orders often issued in these cases: (1) census orders, and (2) Lone Pine orders.  Just keeping track of the specialized procedural terminology is a challenge.  Most lawyers won't learn these exotic moves in their ordinary practice or civil procedure.

Census

With census orders, courts order all the lawyers appearing before them to disclose information about all of their clients--even ones in state court or who have not filed any case.  Although this information might be useful for dealmakers working to craft a settlement, forced disclosures of confidential information about other clients seems to create a conflict for an attorney. 

The jurisdictional basis for these orders also baffles me.  I do not understand how a person who has never submitted to the personal jurisdiction of any court by filing any complaint can have their information hauled out simply by having a relationship with a lawyer who is representing a different client in a proceeding in some distant state.

Lone Pine Orders

These orders essentially require plaintiffs who do not agree to a settlement deal to quickly furnish case-specific proof.  If the orders require expedited production of medical records and expert opinions, the aggressive timetables alone can be enough to force plaintiffs into settlements.

Ultimately, Burch captures the challenge with aggressive application of inherent authority in these cases.  She explains that it "appears to have no limits.  It is guided neither by consent nor contract principles.  It swells to fill whatever role it must, sacrificing transparency, predictability, and restraint in its wake."

The challenge here may be to keep encourage judicial behavior that promotes autonomy for plaintiffs instead of simply forcing settlement.  Although courts face pressures to resolve cases, they should make sure that injured plaintiffs can still have their day in court on reasonable terms if they want to try their case.  Without actually trying more of these cases, it's hard to know whether we're actually doing anything close to justice in these proceedings.

 

 

Reflections on the First Annual ISG/Corporate Issuers Conference

This past Friday, I had the privilege of attending the First Annual ISG/Corporate Issuers Conference, hosted by the Investor Stewardship Group (ISG) and the John L. Weinberg Center for Corporate Governance at the University of Delaware. The Investor Stewardship Group is “an investor-led effort that includes … more than 60 U.S. and international institutional investors with combined assets in excess of US$31 trillion in the U.S. equity markets,” which was formed “to establish a framework of basic investment stewardship and corporate governance standards for U.S. institutional investor and boardroom conduct.”[1] The John L. Weinberg Center for Corporate Governance “is one of the longest-standing corporate governance centers in academia, and the first and only corporate governance center in the State of Delaware, the legal home for a majority of the nation’s public corporations.”[2] Charles M. Elson is the Edgar S. Woolard, Jr., Chair in Corporate Governance and the Director of the Weinberg Center.[3]

The primary work product of the ISG is the “framework for U.S. Stewardship and Governance comprising of a set of stewardship principles for institutional investors and corporate governance principles for U.S. listed companies. The corporate governance framework articulates six principles that the ISG believes are fundamental to good corporate governance at U.S. listed companies.” Meanwhile, the “stewardship framework seeks to articulate a set of fundamental stewardship responsibilities for institutional investors.” The Framework “became effective on January 1, 2018.”[4]

The agenda for the conference included a “deep-dive” into both the ISG Stewardship Principles and ISG Corporate Governance Principles, as well as “Fireside Chat” consisting of Charles Elson interviewing Marty Lipton. What follows, in no particular order, are three of my reflections on the conference. The Chatham House Rule applied, so I will not attribute any statements to any particular speakers.

Continue reading

Announcing the Third Annual Business Law Prof Blog Symposium - "Connecting the Threads"

I am pleased to announce that The University of Tennessee College of Law is again hosting editors of this blog for a symposium focusing on current topics in business law.  The website for the symposium, which is sponsored by UT Law's Clayton Center for Entrepreneurial Law, is here.  Faculty and students from UT Law will comment on presentations given by my fellow BLPB bloggers.  Participating editors of the BLPB in this year's program include Colleen Baker, Ben Edwards, Josh Fershee, me, Doug Moll, Haskell Murray, and Stefan Padfield.  The lunchtime panel features me and two of my UT Law colleagues exploring the legal meaning and understanding of mergers and other business combinations from various perspectives, including business associations law, bankruptcy and UCC law, and federal income tax law.  That, alone, is surely worth the price of entry!

If you live in or near Knoxville, please come and join us.  Continuing legal education credit is available to members of the Tennessee bar.  If you cannot make it to the symposium, however, a video recording of the proceedings will later be available on UT Law's website, with an expected option for online continuing legal education credits.  (Last year's program is available here with a continuing legal education credit option.)  In addition, the written proceedings of the symposium are scheduled to be published in the spring volume of Transactions: The Tennessee Journal of Business Law.

I am looking forward to having many of my BLPB co-editors in town for this program.  It's always a special time when we are together.

Judicial Reactions to the Financial Crisis

Emily Strauss at Duke has posted a fascinating new paper, Crisis Construction in Contract Boilerplate (Law & Contemp. Probs., forthcoming).  She examines how judges interpreted the boilerplate in RMBS contracts during the financial crisis, and finds that they relaxed their reading of certain provisions in order to enable injured investors to recover their losses, and then reverted to more strict readings when the crisis had passed.

Specifically, the RMBS contracts provided that the “sole remedy” available for loans that did not conform with quality specifications was for trust sponsors to repurchase the noncompliant loan.  Of course, during the crisis, investors alleged that huge percentages of loans backing the trusts were noncompliant, and a loan-by-loan repurchase requirement would have been, as a practical matter, impossible to pursue.  Strauss finds that judges interpreted the clause to permit investors to use sampling to identify noncompliant loans and claim damages, but only in the years following the crisis.  By 2015, they reverted to a stricter reading of the contracts.  She cites this an example of “crisis construction,” namely, the way that courts alter their readings of contracts during times of calamity in order to further some economic policy.  (Strauss discusses that phenomenon in her paper, and Mitu Galati also describes it in this blog post spotlighting Strauss’s work ).

The part that really fascinates me, though, is how this trend strikes me as the opposite of what I experienced when I litigated these cases not as a matter of contract construction, but as a matter of securities law violations.  As I posted a few years ago (with additional discussion here and here), I believe that courts adopted a narrow – and nonsensical – approach to class action standing when investors started suing en masse after the crisis, and they did so as a way of managing what would otherwise be incomprehensibly large liabilities for Wall Street’s major players.  So I’m intrigued that when it came to securities liability, courts shut the door to plaintiffs, but when it came to contract liability, they opened it.

 

 

Mass Tort Deals - Chapter 3

Chapter three in Mass Tort Deals by Elizabeth Chamblee Burch tackles repeat player dynamics in aggregate litigation.  If you're interested in earlier posts on it, they're available here and here.  

My biggest takeaway is that for the attorneys in this space, if they want to be in the room where it all goes down, they've got to bro down socialize and remain well-thought of by their well-connected colleagues. A lawyer's ability to make a living in the space and generate results for clients seems to depend on relationships with other key players. So much depends on being well-connected:

• the ability to get a leadership appointment;
• the ability to get some of the work flow;
• the ability to get a decent fee allocation;
• the ability to get a settlement favoring your "inventory" of clients; and
• the ability to get other attorneys to back any play you make.

Functionally, this means that attorneys face intense incentives to get along with other attorneys in the space.  This probably does not produce solid strategic behavior because attorneys may be more likely to simply agree with well-connected leaders than to press for things that might rock the boat a bit but generate better outcomes for all plaintiffs swept up in the aggregate litigation vortex.  Burch does a great job of bringing stories forward about questionable litigation decisions likely driven by this process.

Burch also breaks down how pairing these incentives with known shortcomings in group decision-making poses real risks for actually getting cases ready for trial.  Lawyers with better situated test cases or a different understanding than group leaders may not put their information before the group or be able to get their cases ready.

One thing that struck me was how the size of the committees managing the litigation might not be well-suited for effectively operating.  I've seen this dynamic myself.  A small group of 4-5 can generally work well together.  When groups double in size, we don't tend to be as effective.  Judges tend to appoint groups of 12 or more.  Judge Eldon Fallon apparently appoints 12 because "there were 12 apostles."  And I guess that makes sense if you want a group that will mostly just bow down and follow the leader around.  But if you want a group to share power and operate strategically and effectively, a 12-15 lawyer committee might not be the right size.

Ultimately, I'm not convinced that the processes we have now result in adequate representation.  Part of it may be that the plaintiffs in these cases need to develop discovery in different ways.  Conducting consolidated discovery may result in material of some general utility but significantly less utility than a more focused preparation process.  Burch tells the story of a lawyer who wanted to take a tight deposition for use at trial but couldn't because of all the other lawyers that got into the room and dragged the proceeding out.  In that lawyer's telling, it produced a deposition that lots of lawyers got involved in and billed time to but also one that offered significantly less utility for actually trying a case than a more focused one.

We also generally lack actual legal authority for governing these proceedings or the duties the leading lawyers involved actually owe to claimants who are not their direct clients.  It seems as though moving toward something more similar to class action processes and norms would do more to protect actual victims. 

This whole area of law seems like a train wreck.  This is fitting because this area of law might also be the procedural vehicle to deal with injuries arising out of a train wreck.

 

ICYMI: #corpgov Midweek Roundup (Sep. 11, 2019)

[NOTE: You should see embedded Tweets. If you don't, please try a different browser.]

"9/11 attacks, series of airline hijackings and suicide attacks committed in 2001 by 19 militants associated with the Islamic extremist group al-Qaeda against targets in the United States, the deadliest terrorist attacks on American soil in U.S. history." https://t.co/yJxM3TnYBG

— Stefan Padfield (@ProfPadfield) September 12, 2019

"a for-profit Delaware corporation is not precluded from taking social issues into account in the conduct of its business, so long as the corporation’s consideration of those social issues has a sufficient nexus to shareholder welfare and value enhancement or protection" https://t.co/MSuuB5uKdx

— Stefan Padfield (@ProfPadfield) September 7, 2019

"Tomorrow’s AI may permit humans to be replaced even at the apex of corporate decision-making. This is likely to happen first in what we call ‘self-driving subsidiaries’ performing very limited corporate functions." https://t.co/WhDGsIMaFL #corpgov

— Stefan Padfield (@ProfPadfield) September 10, 2019

"The study of disasters & disclosures ... offers a ... reference point for thinking about ... controversies associated with bringing matters of social responsibility (e.g., law abidingness) and sustainability ... into the realm of securities law." https://t.co/qw5ljayFqg #corpgov

— Stefan Padfield (@ProfPadfield) September 10, 2019

"'as a matter of agency law, a principal who delegates authority to an agent' will be deemed to maintain control over the conduct of that agent–regardless of whether the principal actually exercises control. Any conflict that disables the principal disables the agent" #corpgov https://t.co/MUODrvRXaD

— Stefan Padfield (@ProfPadfield) September 9, 2019

Call for Papers - Business Law Empirical Studies - Short Timeframe

Call for Papers for Section on Law & the Social Sciences Program at the AALS Annual Meeting

The Section on Law & Social Sciences is pleased to announce a Call for Papers from which one or two additional presenters may be selected for the section’s program panel to be held during the AALS 2020 Annual Meeting in Washington, D.C. The panel is entitled “Empirical Research in Business Law: Works in Progress,” and the panelists will summarize the methods and/or results of their current qualitative or quantitative empirical research projects as works in progress.

Form and Length of Submission:

The Section welcomes relevant submissions in the form of research proposals, preliminary pilot studies, or even nearly completed projects with results. Junior scholars are particularly encouraged to submit. Submissions should incorporate at least a brief (3-5 page) summary or abstract of the project.

Submission Method and Due Date:

Papers should be submitted electronically to David Kwok ([email protected]). The due date for submission is September, 20, 2019. Authors selected will be notified by September 27, 2019. The Call for Papers presenters will be responsible for paying their registration fee and hotel and travel expenses.

Inquiries or Questions:

Any inquiries about the Call for Papers should be submitted to David Kwok ([email protected]).

Emory Law - Tenured Lateral Business Law Opening

The following comes to us from friend of the BLPB George S. Georgiev at Emory Law:

Emory University School of Law seeks a lateral hire for a tenured position in business law to begin in the 2020-2021 academic year. Candidates should be already tenured at an ABA-approved law school.

Candidates must have a J.D., Ph.D., or equivalent degree, a distinguished academic record, and a demonstrated potential to produce outstanding scholarship. Candidates should complete the online application here, and submit a cover letter, a current CV, a published or unpublished academic article, a brief research agenda, and an indication of teaching interests (if not listed on the CV) to the chair of the Faculty Appointments Committee: Polly J. Price, Asa Griggs Candler Professor of Law, at [email protected].

Emory Law strives for a world in which law provides a common framework for courageous leaders to engage our most complex social and economic challenges and to achieve positive social transformation by advancing the rule of law. Emory University is dedicated to providing equal opportunities and equal access to all individuals regardless of race, color, religion, ethnic or national origin, gender, genetic information, age, disability, sexual orientation, gender identity, gender expression, and veteran's status.

More Blockchain News!

The BLPB is abuzz with blockchain news this weekend!  Past posts have also addressed this topic (here, here, here, and here for a sampling). 

I’m excited to highlight the publication of the book: FinTech: Law and Regulation, edited by Jelena Madir.  Madir is the Director, Chief Counsel at the European Bank for Reconstruction and Development, in addition to having been an outstanding editor of this book, and a delight to work with (thanks, Jelena!).  I’m grateful for the opportunity to contribute to this important work, and thankful to Wharton Professor Kevin Werbach for inviting me to coauthor the chapter: Blockchain in Financial Services (thanks, Kevin!).  Werbach also recently published the highly-rated: The Blockchain and the New Architecture of Trust.  Two great book recommendations for BLPB readers!