Business Law Prof Blog

I'm talking about proxy solicitations

Look, I know the Tesla/SolarCity decision just came down, and I’m, like, contractually obligated to blog about it, but to tell you the truth, this was the last week of classes, exams are next week, and I just got back from a conference thing, so comments on the Tesla decision will have to wait (though, yes, I did appreciate the wink in footnote 377).

So, proxy solicitations.  Specifically, the Eighth Circuit’s decision in Carpenters’ Pension Fund of Illinois v. Neidorff, 30 F.4th 777 (8th Cir. 2022), which I was alerted to by the Deal Lawyers’ blog.

In Neidorff, the plaintiffs brought a derivative Section 14(a)/Rule 14a-9 claim alleging that Centene Corporation solicited a vote in favor of a merger by way of a misleading proxy statement that failed to disclose known problems with the target company. Rule 14a-9 prohibits proxy statements from:

containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading.

In this case, the preliminary proxy statement was filed on August 19, 2015, the final proxy statement was filed on September 21, 2015, and the vote was taken on October 23, 2015.  The Eighth Circuit decision is very light on the specific allegations (and the briefs, as far as I can tell, are under seal), but apparently among them was the claim that even if the proxy statement was true as of September 21, the defendants violated Rule 14a-9 by failing to update it with newly discovered facts before the shareholder vote.  In response to that argument, the Eighth Circuit held:

As to Appellants’ argument that the failure to update the Proxy Statement rendered it materially misleading, Appellants have not cited, and we have not found, any authority supporting the proposition that § 14(a) requires a company to update its proxy statement. Moreover, this argument is inconsistent with the text of Rule 14a-9(a), which provides that a proxy statement may not contain “any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact,” 17 C.F.R. § 240.14a-9(a) (emphasis added), and the language of the Proxy Statement itself, which provides in all capital letters that neither Centene nor Health Net intends to update the Proxy Statement and that both companies disclaim any responsibility to do so, R. Doc. 79-3, at 118.

For the reasons set forth above, Appellants have failed to plead facts showing that the Proxy Statement contained a material misrepresentation or omission and, consequently, have failed to plead particularized facts demonstrating that at least half of the Board faces a substantial likelihood of liability on their § 14(a) claim.

The reason I find this incredible is that there is ample precedent for the notion that proxy statements must be updated to avoid being false.  This is because, unlike, say, a 10-K, which represents a snapshot in time - and thus will rarely be rendered “false” due to a failure to update with subsequent information - a proxy statement is supposed to provide the basis of action on a particular date, namely, the shareholder meeting.  If proxy statements do not have to be up to date as of the meeting, they will not serve their primary purpose of providing shareholders with sufficient information to cast their ballots.  Thus, in Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281 (2d Cir. 1973), the Second Circuit held, “we cannot suppose that management can lawfully sit by and allow shareholders to approve corporate action on the basis of a proxy statement without disclosing facts arising since its dissemination if these are so significant as to make it materially misleading, and we have no doubt that Rule 14a-9 is broad enough to impose liability for non-disclosure in this situation.”  See also SEC v. Parklane Hosiery, 558 F.2d 1083 (2d Cir. 1977) (quoting Gerstle).

The SEC has also made clear that companies must update their proxy statements to ensure they are accurate as of the date of the shareholder vote.  See SEC Release No. 34-23789, 1986 WL 722059 (“When there have been material changes in the proxy soliciting material or material subsequent events (in contrast to routine updating), an additional proxy card, along with revised or additional proxy soliciting material, should be furnished to security holders … to permit security holders to assess the information and to change their voting decisions if desired.”); SEC Release No. 34-16343, 1979 WL 173161 (“Even in a situation wherein a statement when made was true and correct, and is rendered incorrect due to a change in circumstances or other subsequent event, appropriate action should be taken to correct the misstatement prior to the meeting….Rule 14a-9 has been construed by courts to require either that proxy solicitation materials which have become false and misleading should be corrected or that other steps be taken to ensure that shareholders not vote on matters on the basis of incomplete or inaccurate information.”).

Further to this, Stephen Quinlivan at Stinson compiled this list of typical SEC comments on merger proxy statements.  I’ve excerpted out a relevant one:

We note the disclosure on page X that ABC does not intend to revise its projections. Please revise this disclosure, as publicly available financial projections that no longer reflect management’s view of future performance should either be updated or an explanation should be provided as to why the projections are no longer valid.

(emphasis added).

I realize a lot of this precedent is kind of old, but I have no reason to think it’s no longer good law, which makes the Eighth Circuit’s decision here bit of an eyebrow-raiser (assuming it meant what I think it meant, because, again, the opinion is light on details).

"We Know Wrongful Trading When We See It" - Some Observations Concerning the Recent Senate Hearing on the Insider Trading Prohibition Act

Earlier this month, the U.S. Senate Committee on Banking, Housing, and Urban Affairs held a hearing on the Insider Trading Prohibition Act (ITPA), which passed the house with bipartisan support in May of last year. Some prominent scholars, like Professor Stephen Bainbridge, have criticized the ITPA as ambiguous in its text and overbroad in its application, while others, like Professor John Coffee, have expressed concern that it does not go far enough (mostly because the bill retains the “personal benefit” requirement for tipper-tippee liability).

My own view is that there are some good, bad, and ugly aspects of the bill. Starting with what’s good about the bill:

• If made law, the ITPA would end what Professor Jeanne L. Schroeder calls the “jurisprudential scandal that insider trading is largely a common law federal offense” by codifying its elements.

• The ITPA would bring trading on stolen information that is not acquired by deception (e.g., information acquired by breaking into a file cabinet or hacking a computer) within its scope. Such conduct would not incur Section 10b insider trading liability under the current enforcement regime.

• The ITPA at least purports (more on this below) to only proscribe “wrongful” trading, or trading on information that is “obtained wrongfully.” Since violations of our insider trading laws incur criminal liability and stiff penalties, I have argued for some time that liability should be limited to conduct that is morally wrongful.

• The ITPA preserves the “personal benefit” test as a limiting principal on what otherwise would be an ambiguous and potentially overbroad test for when tipping would breach a fiduciary or similar duty of trust and confidence. Traders need (and justice demands) bright lines that will allow them to determine ex ante whether their trading is legal or will incur 20 years of prison time (but more on this below).

Now, turning to what is bad about the bill, I share some concerns raised by Professor Todd Henderson in his testimony before the Senate Committee:

• Though the ITPA codifies the personal benefit test as a limit on liability, it includes “indirect personal benefit[s]” within its scope. As Henderson points out, “[i]t is possible to describe virtually any human interaction as providing an ‘indirect benefit’ to the participants. Instead, the law should reflect the common sense notion that the source of information either received something tangible and valuable in return or what amounts to a monetary gift to a relative or friend.” The personal benefit test only fulfills its intended function as a limiting principle if it imposes real limits on liability. The test should therefore only be satisfied by objective evidence of self-dealing. If indirect psychological or other benefits that can be found in any voluntary human action can satisfy the test, then it cannot function as a limit on liability.

• At least some versions of the ITPA include a catchall provision to the definition of wrongfully obtained or used information that would include “a breach of a confidentiality agreement, [or] a breach of contract.” Not only does this challenge the time-honored concept of efficient breach in the law of contracts, but as Professor Andrew Verstein has argued, this provision can open the door to the weaponization of insider trading law through the practice of “strategic tipping.” Professor Henderson raised this concern before the Senate committee, noting that so broad an understanding of wrongful trading is “ripe for abuse, with companies potentially able to prevent individual investors from trading merely by providing them with information whether they want it or not.” The recent examples of Mark Cuban and David Einhorn come to mind.

• The ITPA would impose criminal liability for “reckless” conduct. As Henderson explained to the Committee, under the ITPA, “anyone who ‘was aware, consciously avoided being aware, or recklessly disregarded’ that the information was wrongfully obtained or communicated can have a case brought against them. The ITPA is silent on the meaning of ‘recklessly disregarded,’ which would appear to rope in innocent traders along with actual wrongdoers.” Moreover, permitting mere recklessness to satisfy the mens rea element of insider trading liability will no doubt have a chilling effect on good-faith transactions based on market rumors that would otherwise be value enhancing for traders, their clients, and the markets. The loss of such trades will diminish market liquidity and reduce price accuracy.

• Finally, Henderson raised the concern that the ITPA lacks an “exclusivity clause stating that it will be the sole basis for bringing federal insider trading claims.” Henderson explained that “allowing prosecutors to cherry pick their preferred law is no way to provide clear rules for the market.” Professor Karen Woody has written about how prosecutors may be starting to bring insider trading cases under 18 U.S.C. § 1348 to avoid the court-imposed personal benefit test under Exchange Act §10b. Without an exclusivity clause, prosecutors will be free to make the same end run around the personal benefit test imposed by the ITPA.

Finally, the ITPA is straight-up ugly because, while it promises that it will limit insider trading liability (which can be punished by up to 20 years imprisonment) to only “wrongful” conduct, the bill defines the term “wrongful” in a way that suggests the drafters have no intention of delivering on that promise. For example, as noted above, some versions of the bill define any breach of contract as “wrongful,” but this is in clear tension with common sense, common law, and the doctrine of efficient breach.

In addition, though there is ambiguity in the text, current versions of the ITPA appear to embrace SEC Rule 10b5-1’s “awareness” test for when trading on material nonpublic information incurs insider trading liability. Under the awareness test, a corporate insider incurs insider trading liability if she is aware of material nonpublic information while trading for totally unrelated reasons. In other words, liability may be imposed even if the material nonpublic information played no motivational role in the decision to trade. But if the material nonpublic information played no motivational role, then the trading cannot be judged “wrongful” under any common-sense understanding of that term.

For these (and other reasons there is no space to address here), the ITPA leaves too much room for play in its definition of what constitutes “wrongful” trading and tipping to cohere with our common-sense understanding of that term. Former SEC Commission Robert J. Jackson assured the Committee that “we know wrongful trading when we see it.” Presumably Professor Jackson’s implication was that the SEC and DOJ can be trusted to exercise sound discretion in interpreting the play in the statutory language. In response, I offer the following question for Professor Jackson or any reader of the ITPA to consider: Would issuer-licensed insider trading violate the statute? I have defined “issuer licensed insider trading” as occurring where:

(1) the insider submits a written plan to the firm that details the proposed trade(s);

(2) the firm authorizes that plan;

(3) the firm has previously disclosed to the investing public that it will permit its employees to trade on the firm’s material nonpublic information when it is in the interest of the firm to grant such permission; and

(4) the firm discloses ex post all trading profits resulting from the execution of these plans.

I have argued that trading under these conditions is neither morally wrongful nor harmful to markets. If it violates ITPA, what provisions? I hope some readers will share their thoughts on this in the comments below!

ICYMI: "Twenty-Two National Professors Urge SEC to Withdraw Climate Disclosure Proposal"

As per the relevant press release (via Lawrence Cunningham): "Twenty-two of the nation’s leading professors of law and finance this week wrote the Securities and Exchange Commission (SEC) to dispute the agency’s authority to adopt a new far-reaching climate disclosure regime and to urge an immediate withdrawal of the proposal." You can find the full letter here. Here is a hopefully useful excerpt:

The following analysis raises concerns that the Proposal is neither necessary nor appropriate for either investor protection or the public interest and will not promote other statutory goals. The SEC would do better to withdraw the Proposal and revisit the subject with a fresh approach focused on America’s ordinary investors rather than an elite global subset. The three parts of this letter address each statutory issue in turn, as follows:

I. “Investor Demand” versus “Investor Protection”
    A. Investor Varieties: Diverse Institutions and Individuals
    B. Climate Shareholder Proposals: Few Are Made, Most Lose, Many Are Political
    C. The Ample Supply of Climate Disclosure
    D. Correlation of Climate Practices with Economic Performance Is Not Causation
II. Authority of Others and the “Public Interest”
    A. The Environmental Protection Agency’s Statutory Jurisdiction
    B. State Corporate Law Prerogatives on Purposes, Powers and Business Judgments
    C. Risk of Unconstitutional Compelled Political Speech
III. Other Statutory Considerations
    A. Certain High Costs versus Highly Speculative Benefits
    B. Impairs Investment Industry Competition
    C. Compliance Burdens Discourage Public Company Registrations

Recently Released - the IMF's Global Financial Stability Report April 2022

The IMF recently released its Global Financial Stability Report April 2022.  The Executive Summary provides an informative overview of the financial risks facing markets in these turbulent times.  I was particularly interested in Box 1.1 of the Report: Extreme Volatility in Commodities: The Nickel Trading Suspension.  For those readers who might be unaware, the London Metal Exchange (LME) halted nickel trading "on March 8 after prices doubled over the course of a day to a record $100,000 (£76,200) a tonne"  and cancelled all nickel transactions that day.  Nickel is a key metal for electric car batteries.  Not surprisingly, the LME’s actions proved controversial and are now the subject of several regulatory investigations.  As the end of the Executive Summary highlights: “Recent measures taken in markets and exchanges in response to elevated volatility in commodity prices highlight the need for regulators to examine the broader implications, including exchange governance mechanisms, resiliency of trading systems, concentration of risk, margin setting, and trading transparency in exchange and over-the-counter markets” (p. xiv).    

Maine Law Looking for a Visiting Professor/Visiting Assistant Professor/Visiting Professor of Practice

 

 

 

 

The University of Maine School of Law, in the coastal city of Portland, Maine, invites applications for a one- or two-semester position as a visiting professor during the 2022-2023 academic year. Specific curricular needs include Property, Real Estate Transactions, and Land Use. The visiting appointment may be at the Professor, Associate Professor, Assistant Professor, or Professor of Practice level. Salary will be commensurate with qualifications and experience. Members of minority groups, women, and others whose background would contribute to the
diversity of the Law School are encouraged to apply.

Required: Applicants must possess a J. D. degree or its equivalent, an excellent academic record, and a record or promise of successful teaching and student mentoring, including an ability and willingness to incorporate innovative teaching approaches into the curriculum.

Applications must be submitted to the University of Maine System Hire Touch portal at: https://maine.hiretouch.com/admin/jobs/show.cfm?jobID=75546. You will need to create an applicant profile, locate the Visiting Professor of Law position in Hire Touch, and complete an application. Please upload a cover letter which fully describes your qualifications and experiences with specific reference to the required and preferred qualifications, your resume or c.v., and contact information for three professional references. You will also need to complete the affirmative action survey, the self-identification of disability form, and the self-identification of veteran status form.

Review of applications will begin immediately. To ensure full consideration, we encourage you to submit materials by May 15, 2022. You may email any questions to [email protected]. Applications, however, must be submitted via Hire Touch.

Appropriate background screening will be conducted for the successful candidate.

The University of Maine System is an EEO/AA employer. All qualified applicants will receive consideration for employment without regard to race, color, religion, sex, national origin, sexual orientation, age, disability, protected veteran status, or any other characteristic protected by law.

Elon Musk is a Blessing and a Curse

I'm doing what may seem crazy to some- teaching Business Associations to 1Ls. I have a group of 65 motivated students who have an interest in business and voluntarily chose to take the hardest possible elective with one of the hardest possible professors. But wait, there's more. I'm cramming a 4-credit class into 3 credits. These students, some of whom are  learning the rule against perpetuities in Property and the battle of the forms in Contracts while learning the business judgment rule, are clearly masochists. 

If you're a professor or a student, you're coming close to the end of the semester and you're trying to cram everything in. Enter Elon Musk. 

I told them to just skim Basic v. Levenson and instead we used Rasella v. Musk, the case brought by investors claiming fraud on the market. Coincidentally, my students were already reading In Re Tesla Motors, Inc. Stockholder Litigation because it was in their textbook to illustrate the concept of a controlling shareholder. Elon's pursuit of Twitter allowed me to use that company's 2022 proxy statement and ask them why Twitter would choose to be "for" a proposal to declassify its board, given all that's going on. Perhaps that vote will be moot by the time the shareholder's meeting happens at the end of May. The Twitter 8-K provides a great illustration of the real-time filings that need to take place under the securities laws, in this case due to the implementation of a poison pill. Elon's Love Me Tender tweet provides a fun way to take about tender offers. How will the Twitter board fulfill it's Revlon duties? So much to discuss and so little time. But the shenanigans have made teaching and learning about these issues more fun. And who knew so many of my students held Twitter and Tesla stock?

I've used the Musk saga for my business and human rights class too. I had attended the Emerge Americas conference earlier in the week and Alex Ohanian, billionaire founder of Reddit, venture capitalist, and Serena Williams' husband, had to walk a fine line when answering questions about Musk from the CNBC reporter. The line that stuck out to me was his admonition that running a social media company is like being a head of state with the level of responsibility. I decided to bring this up on the last day of my business and human rights class because I was doing an overview of what we had learned during the semester. As I turned to my slide about the role of tech companies in society, we ended up in a 30 minute debate in class about what Musk's potential ownership of Twitter could mean for democracy and human rights around the world. Interestingly, the class seemed almost evenly split in their views. While my business associations students are looking at the issue in a more straightforward manner as a vehicle to learn about key concepts (with some asking for investment advice as well, which I refused), my business and human rights students had a much more visceral reaction. 

Elon is a gift that keeps on giving for professors. He's a blessing because he's bringing concepts to life at a time in the semester where we are all mentally and physically exhausted. Depending on who you talk to in my BHR class and in some quarters of the media, he's also a curse.

All I know is that I don't know how I'll top this semester for real-world, just-in-time application.

Thanks, Elon.

Signed,

A tired but newly energized professor who plans to assign Ann Lipton's excellent Musk tweets as homework. 

 

 

 

 

 

Delaware the Neutral

I guess we’re talking about Elon Musk again.

If you’re like me, you’re kind of gratified by the general public’s new fascination with corporate law, but, of course, to those of us who live here, it’s obvious that while all of the maneuvering so far is colorful, it’s bog standard legally, and the Twitter board’s actions in adopting a poison pill were not only totally unremarkable, but arguably necessitated by their fiduciary duties.  (So that they would have time to explore other alternatives; so that they could assess the seriousness of Musk’s offer and attempt to negotiate a higher one; so that they could prevent Musk from obtaining control – or sufficient control to block superior alternatives – simply through open market purchases, etc).  Nonetheless, that has not prevented a lot of people who should know better from saying silly things:

 

 

These are the Twitter board members fighting Elon Musk's takeover bid https://t.co/4WoRddSAFu pic.twitter.com/scFBlsecey

— New York Post (@nypost) April 21, 2022

Twitter enacted poison pill; our thoughts-TWTR going down the poison pill path is a predictable defensive measure for the Board to go down that will not be viewed positively by shareholders given the potential dilution and acquisition unfriendly move. Likely challenged in Courts

— Dan Ives (@DivesTech) April 15, 2022

If the current Twitter board takes actions contrary to shareholder interests, they would be breaching their fiduciary duty.

The liability they would thereby assume would be titanic in scale.

— Elon Musk (@elonmusk) April 14, 2022

(for that last, maybe Musk is thinking of his own potential exposures for fiduciary duty claims)

That said, it cannot be denied that the issue of Musk’s potential control of Twitter – and the changes he may make to content moderation – are of great political importance.  Musk has suggested that he would like to loosen content restrictions, and several conservatives, who argue that their views are censored on Twitter, have cheered Musk’s proposal for that reason alone.  Ron DeSantis, who has been aggressively leaning into the culture wars, has gone so far as to declare that not only has the Twitter board violated its duties by resisting Musk’s proposal, but that he hopes to cause Florida’s state pension fund – which is invested in Twitter – to sue. 

All of which spotlights a couple of fairly basic things about corporate law, but they are worth teasing out.

First, corporate law matters for reasons that go beyond finance; for good or for ill, whoever has control over Twitter will also have a great deal of control over the global political discourse.  That inescapable fact makes the argument for shareholder primacy – that corporate law should only concern itself with investor welfare – ring somewhat hollow. 

Second, though, and in some degree of tension with the first, I’ve joked here before about Delaware controlling the world, but part of the reason that academics and others have tolerated and/or championed Delaware’s outsized influence is because it’s probably the closest thing we will have to a neutral.   It would go too far to say Delaware law is apolitical – it does, in fact, have a shareholder-centric focus, which elevates capital above other constituencies – but we can trust that whatever disputes arise over Musk’s bid for Twitter, they will be litigated according to familiar legal standards that were not developed to appease any particular constituency on the right-left spectrum.

Update: And now congressional Republicans are demanding that the Twitter board preserve all communications pertaining to Musk’s offer, which... pretty much proves my point.

ICYMI: Coca-Cola walks back "illegal discriminatory outside-counsel policies"

As reported by The American Civil Rights Project (here):

After months of pressure from concerned stockholders, Coca-Cola’s General Counsel Monica Howard Douglas recently let it be known that the illegal discriminatory outside-counsel policies Coke announced with great fanfare last year “have not been and are not policy of the company.” ...

In January 2021, Douglas’s predecessor, Bradley Gayton, published the policies in a highly publicized open letter addressed to “U.S. Firms Supporting The Coca-Cola Company.” Under it, Coke’s law firms were required to staff Coke matters so that that “diverse” attorneys performed at least 30% of all hours billed, with “Black attorneys” performing “at least half [15%] of that amount” .... The letter stated that non-compliance for two successive quarters “will result” in Coke’s unilateral reduction of a firm’s future legal fees and that all future consideration for both new legal work and inclusion in Coke’s preferred-vendor list would turn on compliance....

[T]he ACR Project wrote to Coke, its officers, and its directors, on behalf of several shareholders, demanding the public retraction of the discriminatory policies. If Coke had refused, these shareholders would hold Coke’s officers and directors personally liable for breaching their fiduciary duties to investors.

After months of foot dragging, Ms. Douglas responded with her assurance that the discriminatory policies are not now and never have been company policy.

AALS Professional Responsibility Section – 2023 Annual Meeting New Voices

AALS Professional Responsibility Section – 2023 Annual Meeting New Voices

The AALS Professional Responsibility Section invites papers for its program “2023 New Voices Workshop.” The goal of this audience interactive workshop is to provide a forum for new voices and new ideas related to professional responsibility (PR), broadly defined. Many scholars might address PR without realizing it. We are interested in your potential contributions whether you are an evidence scholar writing about the attorney-client privilege, a feminist interested in gender dynamics that affect lawyering, a critical race scholar commenting on how power plays out in legal systems, an ethicist exploring the moral foundations of the rules governing lawyering, or something entirely different. Toward that end, we encourage you to submit a proposal even if you are pursuing scholarship on PR for the first time, even if you question whether your ideas really do relate to PR, and even if you are reticent to submit for some other reason. 

The selected papers will be presented at the AALS Annual Meeting in January of 2023

WORKSHOP DESCRIPTION:

The Workshop will be an opportunity to nurture the growth of a broad scholarly community in the field of Professional Responsibility and Legal Ethics. As such, it is a place to take risks and develop high quality work—test ideas, work out issues in drafts and dialogue with academics doing interesting and cutting-edge scholarship.

We welcome consideration of works in different formats and stages of production.

Depending on the stage of your work, the workshop format will differ.

• Some authors may have a full draft paper or substantial outline ready for distribution in advance of the conference. In that case, papers will be allocated sufficient time for authors and participants to thoroughly explore each work. The expectation is that all participants will read and prepare comments on fellow participants’ work prior to the conference.
• For early stage ideas, authors may only have an abstract or one-page treatment for distribution and discussion. In that context, authors and participants will brainstorm around each idea much more briefly than in a typical workshop, making space for a larger number of comments in each session.

Workshop groups will include senior scholars in the field who will aid in the discussion of the pieces and provide feedback. Successful papers and topics, depending on their stage of development, should engage with the scholarly literature and make a meaningful original contribution to the fields of professional responsibility and legal ethics, broadly defined. The format will be determined based on the submissions received and accepted

ELIGIBILITY: Full-time faculty members of AALS member law schools are eligible to submit papers. Preference will be given to junior scholars. Pursuant to AALS rules, faculty at fee-paid law schools, foreign faculty, adjunct and visiting faculty (without a full-time position at an AALS member law school), graduate students, fellows, and non-law school faculty are not eligible to submit. Please note that all faculty members presenting at the program are responsible for paying their own annual meeting registration fee and travel expenses.

PAPER SUBMISSION PROCEDURE:

There is no formal requirement as to the form or length of proposals. Abstracts are welcome.  Please email submissions to Executive Committee Member, Sande Buhai on or before September 23, 2022. The title of the email submission should read: “Submission – AALS PR New Voices Program 2023.”

Duquesne Law Looking for 2022-23 Business Law VAP

Position Number: 350124 / 20-256
Apply to: http://apply.interfolio.com/105805

Duquesne University School of Law, located in Pittsburgh, Pennsylvania, invites applications and nominations for a Visiting Assistant Professor of Law to teach during the 2022-2023 academic year. This position is a nine-month visiting position, beginning in the summer of 2022 with the possibility of one additional nine-month term. The successful candidate will be responsible for teaching three courses: one course during the fall semester and two courses the spring semester. The successful candidate will have ample time to focus on scholarship, be afforded to the Law School's library and related resources, have no administrative or faculty committee duties.

DUTIES AND RESPONSIBILITIES:

Our curricular needs include: Business Associations, Property, Contracts, Emerging Technologies, Intellectual Property, Health Law, and related elective courses. Candidates must be available to teach in-person, although the public health situation may require occasional remote and/or hyflex teaching.

REQUIRED QUALIFICATIONS:

Juris Doctor from an ABA-accredited law school.

PREFERRED QUALIFICATIONS:

Experience teaching in legal education.

Evidence of significant practical experience in an area of curricular need.

Alternately, the successful candidate may possess any equivalent combination of experience and training, which provides the knowledge, skills and abilities required to perform the essential job functions. This includes, but is not limited to, the following:

Commitment to the University's values of diversity, equity and inclusion, and recognition of the importance of treating each individual with dignity and respect consistent with the University's Mission. Demonstrated experience with, and understanding of, the broad diversity of the University community (students, faculty, staff and others).

Ability to establish and maintain effective working relationships with the University Community.

Ability and willingness to contribute actively to the mission of the University and to respect the Spiritan Catholic identity of Duquesne University. The mission is implemented through a commitment to academic excellence, a spirit of service, moral and spiritual values, sensitivity to world concerns, and an ecumenical campus community.

As a condition of employment, Duquesne University requires all new employees -full-time and part-time, including adjunct faculty-to get a COVID-19 vaccine and provide proof of their vaccination upon commencement of employment.

New employees requesting a religious or documented medical exemption from the vaccine must complete and submit a Duquesne University exemption request form for review and approval. To receive the appropriate exemption request form, contact [email protected]. Employees with approved exemptions will be required to be tested on a regular basis.

APPLICATION INSTRUCTIONS:

Catholic in its mission and ecumenical in spirit, Duquesne University values equality of opportunity as an educational institution and as an employer. We aspire to attract and sustain a diverse faculty that reflects contemporary society, serves our academic goals that enriches our campus community. We particularly encourage applications from members of underrepresented groups.

We invite applicants for this position to learn more about our University and its Spiritan heritage by visiting our Mission Statement. http://www.duq.edu/about/mission-and-identity/mission-statement. Those invited to campus for an interview may be asked about ways in which they see their talents contributing to the continued growth of our community and furthering its mission.

Application review will begin immediately and will continue until the position is filled. Duquesne University uses Interfolio to collect all faculty job applications electronically. Applicants should submit a letter of intent, a curriculum vitae, and contact information for three professional references via Interfolio. The letter of intent should include comments on ability to teach in flexible environments, including online, hybrid, and in-person classroom settings. Applicants are encouraged to describe in their letter of intent how their scholarship contributes to building and supporting a diverse and inclusive community. Applicants with questions about the position may contact Tara Willke at 412.396.2637 or [email protected].

Duquesne University was founded in 1878 by its sponsoring religious community, the Congregation of the Holy Spirit. Duquesne University is Catholic in mission and ecumenical in spirit. Motivated by its Catholic identity, Duquesne values equality of opportunity both as an educational institution and as an employer.

Workshop for Law Professors on Teaching Capitalism (July 10-14, 2022)

The following comes to us from the Law & Economics Center at the Antonin Scalia Law School at George Mason University.

The Law & Economics Center is pleased to announce that we are now accepting applications to the Workshop for Law Professors on Teaching Capitalism. This program will be held at the Park Hyatt Beaver Creek Resort and Spa in Beaver Creek, Colorado with attendees arriving on Sunday, July 10 and departing on Thursday, July 14.

The Workshop for Law Professors on Teaching Capitalism is a five-day program that will deepen law professors' understanding of the fundamentals of capitalism, educate the participants in methods and techniques for teaching about capitalism as a stand-alone course in their own law schools, and help guide these professors in ways to integrate lessons learned from capitalism and discussions around the topic into their subject-specific doctrinal courses like corporations, constitutional law, or on common law subjects. The workshop is designed to enrich the curricula of law schools across the country by encouraging a more robust discussion of capitalism and its relationship with the law in courses, by giving its attendees the tools necessary to take this instructional guidance back to their home institutions.  Across 9 lectures (and a film night), law professors will learn from the leading experts on the pedagogy of teaching capitalism and from other key scholars in the subjects covered.

Workshop Faculty Includes:

George Priest (Yale Law School)

Mike Munger (Duke University)

Donald Boudreaux (George Mason University)

Jim Huffman (Lewis & Clark Law School)

The LEC offers a $1,000 honorarium for successful completion of the program (from which attendees are expected to cover their own travel and incidental expenses).

To Apply, Please Visit: https://cvent.me/DXGWXZ

Partner Freeze-Outs are Fascinating!

On Friday, I have the honor and pleasure of presenting a continuing legal education session for the Tennessee Bar Association with Dean Matt Lyon from the LMU Duncan School of Law.  Our topic?  Partner freeze-outs--situations in which a co-venturer in a business recognized as a partnership is excluded from the business by their fellow co-venturers.  This exclusion often occurs through or involves the formation of a limited liability entity, typically a corporation or limited liability company, to conduct the operations of the business going forward.  That new business entity does not include one of the initial co-venturers.  We have titled our session "No Partner Left Behind:Organizing a Limited Liability Entity for a Pre-existing Business Venture."

I truly enjoy the judicial opinions in this area.  You probably know some of them.  Holmes v. Lerner may be one of the better known cases in this space.  But there are others.  Some of the claims in these cases, like the claims in Holmes v. Lerner, stem from co-venturers involved in a de facto partnership--a venture recognized under statutory law as a partnership for which there is no express written acknowledgment of partnership.  Entrepreneurs beware!

The partnership freeze-out genre of judicial opinions is related to the old chestnut Meinhard v. Salmon, a partnership opportunity case relating to the exclusion of a "coadventurer" from a subsequent leasehold for the property that had been the subject of the co-venturers original joint venture.  These judicial opinions also can be connected to the more recent, interesting, and aberrant Energy Transfer Partners, L.P. v. Enter. Prod. Partners, L.P., in which the court finds that “[a]n agreement not to be partners unless certain conditions are met will ordinarily be conclusive on the issue of partnership formation as between the parties,” foreclosing an argument made by one of the parties to the agreement that a partnership was nonetheless formed by conduct under the statutory definition.

It turns out that Matt and I are not the only folks intrigued by these cases.  Twenty-three years ago, Frank Gevurtz wrote a nifty article on partner freeze-outs: Franklin A. Gevurtz, Preventing Partnership Freeze-Outs, 40 MERCER L. REV. 535 (1989).  Ultimately, Frank focuses in on planning and drafting ideas as a means of avoiding litigation in this area.  Like Frank, Matt and I offer lawyering points emanating from what we learned in reviewing judicial opinions of this kind.  Of course, these law practice points require that co-venturers be aware of the creation of a partnership in the first place.  These cases certainly make for animated discussions in entrepreneurship and other small business settings and are especially great fodder for discussion in a business associations law course.

Wansley on Moonshots

I really enjoyed Matthew Wansley’s new paper, Moonshots, forthcoming in the Columbia Business Review.  He focuses on the complicated incentives involved in performing “moonshot” research, that is, highly risky projects that could dramatically advance a field, but that will take years to develop.  He argues that the venture carveout structure – whereby a startup has public company parents alongside other private investors, and employee incentive ownership, is designed to mitigate the various conflicts and agency costs that would exist among the players, and uses autonomous driving as the major case study.

I haven’t seen much about corporate investment in outside entities – though I gather there has been more written in the business literature, the only other legal paper I’m familiar with is Jennifer Fan’s Catching Disruptions: Regulating Corporate Venture Capital, 2018 Colum. Bus. L. Rev. 341, which offers a detailed descriptive account of how corporate venture capital functions and how it differs from traditional venture capital.  But the two papers together convince me that this is a phenomenon that needs more attention in the legal scholarship.

Is the SEC Proposing a "Loaded Question" Climate Disclosure Regime?

Shortly after President Barack Obama’s first press conference in 2009, the Huffington Post published an article, "When Did You Stop Beating Your Wife?", that challenged the false premises of many of the questions being asked of the new president. The article opens by noting:

Sooner or later every human being on the face of this planet is confronted with tough questions. One of the toughest and most common is the infamous loaded question, “when did you stop beating your wife?” which implies that you have indeed been beating your wife. How do you answer without agreeing with the implication? How do you not answer without appearing evasive?

The author’s solution is that you should refuse to answer the question by simply responding, “no,” or by challenging the false assumption imbedded in the question. But what if the question is not asked at a press conference, by opposing counsel in the courtroom, or at a cocktail party, but as part of a federally mandated disclosure regime? This is a dilemma issuers may face if the Securities and Exchange Commission’s (SEC’s) proposed rule to "Enhance and Standardize Climate-Related Disclosures for Investors" is adopted.

Existing SEC disclosure rules and guidance already require that issuers disclose man-made-climate-change-related risks that would materially impact market participants’ investment decisions concerning the company. Nevertheless, the SEC has determined that the existing regime grants boards too much discretion in deciding whether and how to disclose climate risk—which has resulted in climate-related disclosures that are insufficiently "consistent," "comparable," and "clear."

The SEC’s proposed changes to the disclosure regime would compel all publicly-traded companies to answer specific, standardized climate-related questions concerning, for example, the physical risks of human-caused-climate-related events (e.g., “severe weather events and other natural conditions”) on their business models and earnings in a manner that will be consistent and comparable with the answers of the thousands of other regulated issuers. But what if the boards’ honest answers to these difficult questions cannot be made to fit the SEC’s proposed one-size-fits-all mold? What if some issuers question the premises of the questions?

What if, for example, a board is not convinced that extreme weather events such as hurricanes, tornadoes, wildfires, droughts, etc., can be traced directly to human versus non-human causes? In such circumstances, mandatory reporting on either transitional or physical risks due to human-caused climate change might look a lot like mandatory disclosures on questions like “When did you stop beating your spouse?” Can issuers satisfy the SEC’s reporting requirements by simply answering “no,” as the Huffington Post author suggested President Obama should have answered such questions, or by challenging the premise of the question?

There is no doubt that the extent, effects, and appropriate response to human-caused-climate change is a partisan issue in the United States. One Vanderbilt survey found that 77.3% of respondents who identify as “liberal” believe that climate change is a serious problem, but only 17.2% of those who identify as “conservative” regard climate change as a serious problem. Moreover, the division over the impacts and appropriate responses to climate change are not just political—they exist in the scientific community as well. For example, Steven E. Koonin, a former Undersecretary for Science in the U.S. Department of Energy under President Obama, and member of the Academy of Sciences, recently published a book, Unsettled: What Climate Science Tells Us, What It Doesn’t, and Why It Matters, which questions a number of the premises informing the SEC’s proposed disclosure regime.

Take, as just one example, the proposed rule’s mandatory disclosure of “physical” risks to issuers due to extreme weather events resulting from human-caused-climate change. The home page of the Task Force on Climate-Related Financial Disclosures, which the SEC credits as a principal source for its proposed rule, includes a video presentation by former Democratic Presidential Candidate, Michael Bloomberg, stating that climate change is a “crisis that shocked the [financial] system” in 2021: “wildfires, heat, flooding, and other extreme weather events have devastated communities and cost trillions of dollars this year alone.”

The premise of Bloomberg’s statement, which the SEC has effectively adopted, is that our models can reliably trace these extreme weather events to human causes. But is this true? Koonin points out that while a recent U.S. government climate report claims that heat waves across the U.S. have become more frequent since 1960, it “neglected to mention that the body of the report shows they are no more common today than they were in 1900.” Koonin also points out similar holes in common claims that human-caused climate change is responsible for extreme weather events like flooding, wildfires, and hurricanes. More fundamentally, Koonin argues that the new field of “event attribution science,” which provides the principal basis for claimed causal links between human influences and extreme weather events is “rife with issues,” and he is “appalled such studies are given credence, much less media coverage.”

None of the above should be interpreted as an attempt on my part to take sides in the climate debate. (I am no authority; my PhD is in philosophy, not in anything useful.) It is just to illustrate how these issues continue to be highly contested subjects of debate in both political and scientific circles.

The worry I raise here is that this sphere of discourse is far too contested and politically charged to be the subject of a mandatory disclosure regime. In response to challenges by Commissioner Hester Peirce and others that the SEC’s proposed rule on climate disclosure compels speech in a manner inconsistent with the First Amendment, Commissioner Gensler has responded that the reporting requirements do not mandate content. But, again, is this correct? If the disclosure questions are loaded, don’t they (at least implicitly) dictate the content of the response—particularly if the questions are carefully designed to elicit “standardized,” “consistent,” “comparable,” and “clear” answers?

Professor Hill on Bank Access to Federal Reserve Accounts and Payment Systems

Professor Julie Hill recently posted Bank Access to Federal Reserve Accounts and Payment Systems.  It's an excellent and important article.  As I've blogged about (here) and written about (here), access to a master account at the Fed is an arcane, but highly important issue.      

Here's the abstract for Professor Hill's article:

"Should the Federal Reserve process payments for a Colorado credit union established to serve the cannabis industry? Should the Federal Reserve provide an account for a Connecticut uninsured bank that plans to keep all its depositors’ money in that Federal Reserve account? Should the Federal Reserve provide payment services for an uninsured, government-owned bank in American Samoa? What about Wyoming cryptocurrency custody banks? Should they have access to Federal Reserve accounts and payment systems? Although the Federal Reserve has recently considered account and payment services applications from these novel banks, its process for evaluating the applications is not transparent.

This Article examines how the Federal Reserve decides which banks get access to its accounts and payment systems. It explores the sometimes-ambiguous statutory authority governing the Federal Reserve’s provision of accounts and payments and chronicles the Federal Reserve’s longtime policies limiting access for risky banks. Because the statutes, regulations, and Federal Reserve policies are largely silent about the process banks encounter when seeking accounts and payment services, the Article analyzes recent novel account applications. These applications reveal confusion. Most district Federal Reserve Banks do not explain how banks should apply for an account or what information they should provide. It is not clear who decides which banks are legally eligible to receive accounts. While the Federal Reserve Banks all evaluate risk associated with account and payments requests, the Reserve Banks may not have the same risk tolerances. There are no processes to encourage consistent decisionmaking across the twelve Federal Reserve Banks. Getting a decision takes years. These applications show that the Federal Reserve needs a transparent framework for evaluating access requests. Unfortunately, the Federal Reserve’s recently proposed guidelines, which consist primarily of a risk identification framework, do not go far enough."

The Federalization of Corporate Governance - Heminway on Karmel

Last May, I posted on a wonderful two-day event--a symposium hosted over Zoom by Brooklyn Law School celebrating the career of Professor Roberta Karmel.  As I noted then, I was honored to be invited to speak at the event. It was so inspiring.

I have just posted the essay that I presented at the symposium, "Federalized Corporate Governance: The Dream of William O. Douglas as Sarbanes-Oxley Turns 20" (recently published by the Brooklyn Journal of Corporate, Financial & Commercial Law), on SSRN.  It can be found here. 

The roadmap paragraph from the essay's introduction offers a brief description of the essay's contents.

This essay focuses on the federalization of U.S. corporate governance since Sarbanes-Oxley—and, more specifically, since Roberta’s article was published in 2005 [Realizing the Dream of William O. Douglas — The Securities and Exchange Commission Takes Charge of Corporate Governance, 30 DEL. J. CORP. L. 79 (2005)]—pulling forward key aspects of Roberta’s work in Realizing the Dream. To accomplish this purpose, the essay first briefly reviews the contours of Roberta’s article. It then offers observations on corporate governance in the wake of (among other things) the public offering reforms adopted by the U.S. Securities and Exchange Commission (SEC) in 2005, the SEC’s 2010 adoption of Rule 14a-11, the 2010 enactment of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the 2012 enactment of the Jumpstart Our Business Startups Act (JOBS Act), and recent adoptions of corporate charter and bylaw provisions that constrain aspects of shareholder-initiated federal securities and derivative litigation. Finally, before briefly concluding, the essay provides brief insights on the overall implications for future corporate governance regulation of these and other occurrences since the publication of Realizing the Dream.

I found it great fun to build on the architecture of Roberta's earlier work in writing this piece.  Work on the essay allowed me to appreciate in new ways the many linkages between corporate governance and corporate finance--an appreciation that will no doubt continue to infuse my teaching with new ideas over time.  I hope some of you will take time out to read the essay and that you gain some insight from it.   Comments are, of course, always welcomed.

Northwestern Still Accepting MSL Lecturer Applications

Further to my post from last Sunday, I received notice that Northwestern continues to accept applications for full-time lecturers for its Master of Science in Law program.  (The soft submission deadline was April 8.)  Preferred qualifications include a JD and 3-5 years of experience teaching or working in a field relevant to the MSL curriculum, such as a legal, business, entrepreneurship, or regulatory setting.  Applicants should submit a CV and a cover letter explaining interest in the position through Northwestern’s online application system at this link: https://facultyrecruiting.northwestern.edu/apply/MTQ2Mg%3D%3D. 

Amicus Brief in Meland v. Webber | Board Diversity

The blog has previously covered the ongoing litigation over California's director diversity statutes, with Ann contributing this insightful writeup of an earlier Ninth Circuit decision.  The case has returned to the Ninth Circuit on appeal again after the District Court denied a motion for a preliminary injunction.   The case involves a shareholder claim challenging SB 826 on the theory that the law exerts pressure on shareholders to unconstitutionally discriminate when they cast their votes for directors in shareholder elections out of fear that electing a board without enough women will subject the corporation to a fine.

I joined with seventeen other securities and business law scholars to file an amicus brief arguing that the shareholder claim should be classified as a derivative claim.  Many thanks to all who joined and many apologies to Faith Stevelman who joined before the filing deadline and sent thoughtful comments.  In the rush to finalize the brief, I didn't get her name on the final list of amici.  

This is the summary of the argument:

This shareholder derivative litigation should be decided under ordinary rules for shareholder litigation.  Plaintiff has asserted claims and sought a preliminary injunction as a shareholder of OSI Systems, Inc. (OSI).  Plaintiff alleged that he fears California’s law may harm OSI and that this fear might hypothetically influence him to cast his few shareholder votes in some discriminatory way in a corporate election to select a slate of directors.  His alleged injury is nothing more than an abstract “voting consideration” affecting how he might cast his vote to avoid an injury to OSI, and derivatively to the value of his shares.  The Plaintiff’s standing derives from fear of a potential corporate injury.  As Plaintiff’s alleged injury is in no way meaningfully independent from an entirely hypothetical future injury to OSI, this is a derivative claim.

The record makes clear that Plaintiff’s nominal stockholdings give him no meaningful prospect of influencing a director election for OSI’s board.  OSI elects its board through a plurality voting system.  Plaintiff’s paltry holdings have no meaningful prospect of influencing the outcome of any director election. Moreover, OSI’s director elections have been uncontested since it went public.  At the time the Ninth Circuit first considered this litigation, Plaintiff presented his complaint as though his votes might matter in some contested election where he had to make some meaningful decision between rival slates of directors.  Meland v. Weber, 2 F.4th 838, 847 (9th Cir. 2021) (“Meland I”) (“Meland has alleged that he is required or encouraged to make discriminatory decisions in voting for board members”).  The facts now reveal that this is not the case.  Plaintiff has never faced any meaningful choice between different directors implicating his voting decision.  The few votes available to cast from his nominal shareholdings would never have mattered because there were no other candidates.

Ultimately, the right to bring corporate claims properly belongs to the corporation and not to each shareholder.  OSI’s existing board has the authority under Delaware law to decide whether and when to pursue litigation and challenge statutes affecting the corporation.  SB 826 primarily impacts the board because the board makes all the meaningful decisions about whether to remain subject to SB 826 and whom to nominate as a director.  Any fine imposed would fall upon OSI and OSI would have standing to challenge it—if it deemed it in its interest to do so.

Allowing shareholder plaintiffs with nominal stakes to assert claims on the theory that laws encourage them to vote to avoid harm to the corporation risks destroying the distinction between direct and derivative claims.  Granting shareholders standing to litigate these claims would deny the corporate board the ability to maintain exclusive control over the corporation’s litigation assets.

 

Wagner Graduate Research Fellowship at NYU

The NYU Pollack Center invites applications for a Wagner Fellowship for the 2022-2023 academic year.  Thanks to a generous grant of the Leonard Wagner Testamentary Trust, the Center for Law & Business offers a one-year graduate research fellowship to help develop future law academics with an interest in the social control of business institutions and the social responsibility of business.

Requirements:

Applicants must hold a JD or LLM degree and have practiced law for two years. Preference is given to applicants with a research interest in the legal regulation of business and ethics, and to those who have a degree from NYU School of Law. Fellows are expected to make a full-time commitment to their graduate research at the center. Involvement in Pollack Center research ventures is required.

How to Apply:

Applications must be received by May 16th 2022. Applicants must submit the following materials*:

• Statement describing academic and research interests
• Proposal for the research project during the fellowship year
• Curriculum Vitae
• Law school academic transcripts
• A letter of recommendation
• A writing sample, preferably a scholarly paper written in the past two years

*Not all materials are required for every applicant.  Please inquire regarding required materials.

More information is available at the Pollack Center Website. Please direct all materials to Stephen Choi and David Yermack, Directors. We prefer that you first e-mail materials to Anat Carmy-Wiechman at [email protected], followed by a physical copy mailed to the NYU Center for Law & Business at 139 MacDougal Street, Room 116, New York, NY 10012.

Please direct inquiries to Anat Carmy Wiechman at [email protected] or (212) 992-6173.

So Elon Musk didn't file a form on time

By now, I’m sure everyone is very much aware that Elon Musk took a giant stake in Twitter, was late filing his Schedule 13G (and failed to include a certification that he intended to hold passively), was added to Twitter’s board, and updated his Schedule 13G to a 13D, leaving a question whether he should have been filing on 13D all along.  Once Musk did reveal his stake, Twitter’s stock price shot up.

The SEC has not historically policed the Schedule 13G/Schedule 13D filing requirements with great vigor, though Gary Gensler has highlighted the potential harm to traders/markets when they trade in ignorance of the presence of a potential activist investor; see also United States v. Bilzerian, 926 F.2d 1285 (2d Cir. 1991) (“Section 13(d)’s purpose is to alert investors to potential changes in corporate control so that they can properly evaluate the company in which they had invested or were investing.” (quotations and alterations omitted)).

Matt Levine asks whether this means Elon Musk engaged in insider trading, since he managed to save maybe $143 million by continuing to amass Twitter stock before finally revealing his holdings.

I’m going to ask something else: do the traders who sold between the time he was supposed to file the 13G, and the time he actually filed it, have a claim?  And it seems pretty much, yes they do.

And boy howdy this got long, so, under the cut it goes:

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