Friday, December 31, 2021
People rarely keep resolutions, much less ones they don’t make for themselves, but here are some you may want to try.
- Post information about the law and current events that lay people can understand on social media. You don’t need to be a TikTok lawyer and dance around, but there’s so much misinformation out there by “influencers” that lawyers almost have a responsibility to correct the record.
- Embrace legal tech. Change is scary for most lawyers, but we need to get with the times, and you can start off in areas such as legal research, case management, accounting, billing, document automation and storage, document management, E-discovery, practice management, legal chatbots, automaton of legal workflow, contract management, artificial intelligence, and cloud-based applications. Remember, lawyers have an ethical duty of technological competence.
- Learn about legal issues related to the metaverse such as data privacy and IP challenges.
- Do a data security audit and ensure you understand where your and your clients’ data is and how it’s being transmitted, stored, and destroyed. Lawyers have access to valuable confidential information and hackers know that. Lawyers also have ethical obligations to safeguard that information. Are you communicating with clients on WhatsApp or text messages? Do you have Siri or Alexa enabled when you’re talking about client matters? You may want to re-think that. Better yet, hire a white hat hacker to assess your vulnerabilities. I'll do a whole separate post on this because this is so critical.
- Speaking of data, get up to speed on data analytics. Your clients use data every day to optimize their business performance. Compliance professionals and in-house lawyers know that this is critical. All lawyers should as well.
- Get involved with government affairs. Educate legislators, write comment letters, and publish op-ed pieces so that people making the laws and influencing lawmakers can get the benefit of your analytical skills. Just make sure you’re aware of the local, state, and federal lobbying laws.
- Learn something completely new. When you do your CLE requirement, don’t just take courses in your area of expertise. Take a class that has nothing to do with what you do for a living. If you think that NFTs and cryptocurrency are part of a fad waiting to implode, take that course. You’ll either learn something new or prove yourself right.
- Re-think how you work. What can you stop, start, and continue doing in your workplace and family life?
- Be strategic when thinking about diversity, equity, and inclusion. Lawyers talk about it, but from what I observe in my lawyer coaching practice and the statistics, the reality is much different on the ground and efforts often backfire.
- Prioritize your mental health and that of the members on your team. Do you need to look at billable hours requirements? What behavior does your bonus or promotion system incentivize? What else can you do to make sure that people are valued and continually learning? When was the last time you conducted an employee engagement survey and really listened to what you team members are saying? Whether your team is remote or hybrid, what can you do to make people believe they are part of a larger mission? There are so many resources out there. If you do nothing else on this list, please focus on this one. If you want help on how to start, send me an email.
Wishing you a safe, healthy, and happy 2022.
December 31, 2021 in Compliance, Contracts, Corporations, Current Affairs, Ethics, Film, Intellectual Property, Jobs, Law Firms, Lawyering, Legislation, Management, Marcia Narine Weldon, Technology, Wellness | Permalink | Comments (0)
Monday, December 13, 2021
I spent a bunch of the day today reading an excellent draft paper written by one of my 3L students. The paper is about fraud carveouts in no seller indemnity deals backed by representations and warranties insurance. But this post is not about that. It is about a question I asked the student (and myself) in connection with my review of the paper about how to classify or label certain provisions she was describing.
The standard structure of an M&A agreement includes articles clearly labeled as including representations and warranties, covenants, and conditions. However, other articles are not as transparent in advertising their contents. An article entitled "Indemnification" typically does include an express agreement (sometimes mutual agreements) to indemnify that would easily be classified as a covenant. But that article also may include an exclusive remedy provision, restricting recourse for a breach of representation or warranty to the indemnification. An example would be as follows (courtesy of Law Insider):
Sole and Exclusive Remedy. From and after the Closing, the indemnification provisions of this Article XII shall be the sole and exclusive remedy of each Party (including the Seller Indemnified Parties and the Purchaser Indemnified Parties) (i) for any breach of any Party’s representations, warranties, covenants or agreements contained in this Agreement or (ii) otherwise with respect to this Agreement or the transactions contemplated hereby with respect to the Company, other than in the case of (i) and (ii) instances of fraud or intentional misconduct or claims for non-monetary relief with respect to the enforcement of Section 6.02 or 8.03. In furtherance of the foregoing, each Party hereby waives, to the fullest extent permitted under Applicable Law, any and all rights, claims and causes of action it may have against another Party hereunder or under Applicable Law with respect to the claims described in clauses (i) and (ii) above, other than instances of fraud or intentional misconduct or claims for non-monetary relief with respect to the enforcement of Section 6.02 or 8.03.
The first part of this provision is treated as an enforceable agreement between the parties even though it reads somewhat more like an acknowledgement, affirmation, or promise. Indeed, the provision expresses an understanding between the parties. So it also is likely best classified as a covenant. The last part is a waiver.
But what about some of the provisions included in the M&A article entitled "Miscellaneous" (or sometimes "General" or the like)? Let's take an integration clause like this one (also courtesy of Law Insider):
Integration Clause. This Agreement, including all attachments and exhibits hereto, supersede[s] all prior oral or written agreements, if any, between the parties and constitutes the entire agreement between the parties with respect to the work to be performed.
Or an non-reliance provision like this one (again, courtesy of Law Insider):
Non-Reliance. Each Party acknowledges that in agreeing to this Agreement it has not relied on any oral or written representation, warranty or other assurance, except as otherwise set forth in this Agreement, and waives all rights and remedies which might otherwise be available to it in respect thereof, except that nothing in this Agreement will limit or exclude any liability of a Party for fraud.
How might we classify and label those provisions? Neither reads like a covenant--an actionable, enforceable, agreement or promise. Each provides atmosphere or context.
All of this worry about classification and labeling may not be worth much in the end. Apart from accurate descriptions in expository writing, do we really care how these contract provisions are classified and labeled? Certainly, it helps us to have labels that we can attach to performance and compliance descriptors in discussing contract enforcement (e.g., representations and warranties are accurate and complete or breached; covenants are complied with or there is a failure of compliance). But maybe there is not much else in a label . . . . Admittedly, I have not researched the matter or thought through any significant legal ramifications; I am just sharing reactions and impressions based on my review of a student paper. As a result (and as always), your views and ideas are welcomed.
Monday, November 22, 2021
JP Morgan Sued Elon Musk’s Tesla For Breach Of Contract: How Did I Predict It? - Lécia Vicente (Guest Post)
Friend-of-the-BLPB Lécia Vicente sent along the following post, which I thought our readers might find interesting, especially in light of the blog's prior posts on Elon Musk and his conduct (including those from Ann and me, like this one--citing to many others--and that one). Enjoy! Comment, as desired. I have my own comments, which I will share in due course.
And (in this week of giving thanks) I offer gratitude to Lécia for bringing this post to us! (You may remember that she guest blogged with us last December--almost a year ago. Where did the time go?)
On November 6th 2021, Elon Musk polled his Twitter followers to determine if he should sell 10% of his stake in his company, Tesla. He wrote, “[m]uch is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock. Do you support this?”
On November 8th 2021, two days after Musk’s tweet, I tweeted the following question, "[c]an Musk actually be sued if he doesn’t follow through on his pledge to sell?” Initially, I was more concerned about securities law. Based on Musk’s tweets, shareholders might be misled to sell, meaning that Musk could be sued for misrepresentation. Similar scenarios of securities fraud involving Tesla and Elon Musk have happened before. In addition, Musk’s tweets could trigger claims of breach of contractual duties. A week after my tweet, on November 15th 2021, JP Morgan filed a complaint against Tesla for breach of contractual duties. I guess I predicted it.
Specifically, in JP Morgan Chase Bank, National Association, London Branch v. Tesla, Inc, JP Morgan is suing for the Tesla CEO’s tweet on August 7th 2018 when he stated “Am considering taking Tesla private at $420. Funding secured.” This statement came from the chair of Tesla’s board of directors and controlling shareholder. While the tone and seriousness of the announcement is debatable, JP Morgan took it seriously. Seriously enough to sue.
On February 27th 2014 and March 28th 2014, JP Morgan entered a series of agreements with Tesla in which JP Morgan would buy Tesla stock warrants at a specified “strike price.” Additionally, the warrants maintained an adjustment clause in case of an announcement of a significant corporate transaction involving Tesla, such as an acquisition. The purpose of the adjustment clause was to protect the parties from adverse economic effects. The 2021 Warrants expired between June and July 2021.
As explained in the complaint, in a Form 8-K filed on November 5th 2013, Tesla identified Elon Musk’s personal Twitter account “as a source of material public information about the company” and encouraged investors to review that account. The complaint also stated that:
Because the tweet violated NASDAQ rules requiring at least 10 minutes’ advance notice before a listed corporation publicly disclosed a going-private transaction, NASDAQ temporarily halted trading in Tesla’s stock following Mr. Musk’s tweet, evidencing that the exchange considered the tweet to constitute an announcement by the company itself.
After Mr. Musk’s tweet, Tesla’s Chief Financial Officer, its head of communications, and its General Counsel drafted an email—attributed to Mr. Musk—detailing the going-private plan. The email was sent to Tesla employees and published the same day on both Mr. Musk’s Twitter account and Tesla’s blog (which Tesla had also designated as a source of material public information about the company). In the email, and in a series of tweets responding to his Twitter followers, Mr. Musk elaborated on his plans to take Tesla private. He concluded in a tweet that “Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.”
That same day, in response to various inquiries from research analysts, Tesla’s head of investor relations confirmed that Mr. Musk’s tweet signified a “firm offer” to take Tesla private that was “as firm as it gets.” Specifically, she wrote in response to press inquiries about the tweet:
- “I can only say that the first Tweet clearly stated that ‘financing is secured.’ Yes, there is a firm offer.”
- “[A]part from what has been tweeted and what was written in a blog post, we can’t add anything else. I only wanted to stress that Elon’s first tweet, which mentioned ‘financing secured’ is correct.”
- “The very first tweet simply mentioned ‘Funding secured’ which means there is a firm offer. Elon did not disclose details of who the buyer is . . . . I actually don’t know [whether there is a commitment letter or a verbal agreement], but I would assume that given we went full-on public with this, the offer is as firm as it gets.”
It turns out that Elon Musk’s announcement of an acquisition was false. However, JP Morgan and all the banks that had entered similar contracts with Tesla, namely Goldman Sachs, did not know that at the time of the announcement. Still, JP Morgan adjusted the terms of the 2021 Warrants as a result of Tesla’s announcement of acquisition and, later, its abandonment of the transaction on August 24th 2018. JP Morgan considered that such adjustments were contractually required. Tesla refused to settle and pay in full what JP Morgan claimed Tesla owed as a result of the adjustments. JP Morgan ended up suing Tesla for $162,216,628.81, to be precise, for breach of contractual duties.
So, did Elon Musk’s tweet on August 7th 2018 constitute an announcement of an acquisition? Was it a “firm offer” to enter into a contract?”
Interestingly, JP Morgan’s complaint resonates with Johnson v. Capital City Ford, a case decided by the Louisiana Court of Appeal, in 1955. In Johnson v. Capital City Ford Co., the Court had to determine whether a unilateral declaration of will like an advertisement constituted a firm offer. Capital City Ford found itself with a surplus of 1954 Fords. To get rid of them, the company placed an advertisement in the local newspaper, the gist of which was “[c]ome in, buy a 1954 Ford and, when the new models come in, we will let you trade in the 1954 model for a 1955 model at no extra charge.”
In response to the announcement, Johnson went to Capital City’s lot, picked out a 1954 model, and bought it. When the new models arrived a short time later, Johnson returned to the Capital City lot and demanded a trade. Capital City refused, claiming that the advertisements “were not intended as offers, but merely as invitations to come in and bargain.”
The Court advanced the following major premises: (1) A newspaper advertisement may constitute an offer, acceptance of which will consummate a contract and create an obligation in the offeror to perform according to the terms of the published offer. (2) An offer to be effective, need not be addressed to determinate offerees; it can, instead, be addressed to the public at large. (3) Whether a particular advertisement is an offer, rather than an invitation to make an offer or enter negotiations, depends on “the legal intention of the parties and the surrounding circumstances.” (4) If the meaning of a declaration of will is doubtful or uncertain due to “want of explanation” that the declarer should have given or from “any other negligence of fault of his,” then “the construction most favorable to the other party shall be adopted.”
The Court held the advertisement was an offer. To a reader, the wording of the advertisement denoted a bona fide offer, and it was certain and definite enough to constitute a legal offer. If Capital City Ford really intended the advertisement not as an offer but as an invitation to make an offer, it should have said something to that effect. The advertisement created a risk of uncertainty through its ambiguous statements. Therefore, the onus was on Capital City Ford to clear up the ambiguity. Since the company did not do so, the Court construed the advertisement against Capital City.
In Johnson v. Capital City Ford, the Court applied another case R. E. Crummer & Co v. Nuveen et al. (1945). In Crummer & Co v. Nuveen, the US Court of Appeals for the Seventh Circuit had to decide if a notice published in a regular paper circulated among municipal bond dealers was a mere solicitation for offers to sell the bonds or an offer to purchase them. The notice reads as follows:
For the convenience of bondholders who may wish to surrender their bonds, the Board […] has arranged to provide funds for the purchase of the above described bonds at par and interest to December 1, 1941. Holders may send their bonds to the Manufacturers Trust Company for surrender pursuant to such terms.
The plaintiff was the owner and holder of $458,829 principal amount of the bonds, dated June 1st 1940 and due June 1st 1970. The defendants arranged with the Manufacturers Bank of New York (“Bank”) to deposit funds necessary to cover all such bonds presented for payment pursuant to the terms of the notice. The plaintiff, in reliance on the notice, delivered its bonds to the Bank on December 11th 1941. However, the Bank refused to pay the principal amount as provided by the notice. The plaintiff attempted to sell the bonds to other parties at par, but the bid for them was substantially less than par resulting in damages of $35,000. The defendants moved to dismiss the complaint on the grounds that the notice was merely a solicitation for offers to sell the bonds and not an offer to purchase them.
The US Court of Appeals maintained:
We cannot believe that the ordinary business man could be expected to read the advertisement as an invitation to send bonds from wherever he might be to New York on the chance that when they got there the advertiser would accept his offer to enter into negotiations for the purchase of the bonds. Rather, we think the wording of the advertisement is such as to show "an intent to assume legal liability thereby." [emphasis added].
In other words, the US Court of Appeals considered the notice as an offer to purchase bonds and not a mere solicitation for offers to negotiate the sale of bonds.
The agreements JP Morgan entered with Tesla included an announcement event protection clause. An “announcement event” is contractually defined in the agreements as follows:
(i) The public announcement of any Merger Event or Tender Offer or the announcement by the Issuer of any intention to enter into a Merger Event or Tender Offer,
(ii) the public announcement by Issuer of an intention to solicit or enter into, or to explore strategic alternatives or other similar undertaking that may include, a Merger Event or Tender Offer or
(iii) any subsequent public announcement of a change to a transaction or intention that is the subject of an announcement of the type described in clause (i) or (ii) of this sentence (including, without limitation, a new announcement relating to such a transaction or intention or the announcement of a withdrawal from, or the abandonment or discontinuation of, such a transaction or intention) (in each case, whether such announcement is made by Issuer or a third party);
provided that, for the avoidance of doubt, the occurrence of an Announcement Event with respect to any transaction or intention shall not preclude the occurrence of a later Announcement Event with respect to such transaction or intention.
Did Tesla’s CEO manifest a plain and clear intention to make a firm offer to sell his stock? Were his tweets mere invitations to negotiate rather than firm offers? Was there consideration or any sort of reward if the potential offerees satisfied specified requirements? Was his August 7th 2018 tweet a promise to enter contracts to sell stock?
Potentially, Musk's tweet could be seen as an offer to sell his stock to his Twitter followers if it gave the public the right to acquire Tesla’s stock when Tesla sold them. In this scenario, if those who accepted the offer paid for the stock when it was sold, then a contract would have been formed. In addition, Musk’s tweet could be seen as a promise to sell stock. In this case, offerees have a right to demand that Musk sell the stock. If this is a promise Musk did not intend to keep, then the SEC can understandably view it as a false statement.
More important than Elon Musk’s behavior is the actions as a result from his tweet on August 7th 2018. Why did he do it? It is doubtful that the tweet was originally intended as an offer to sell stock. It is not clear if Tesla’s CEO’s intention was to have his Twitter followers contact him with an acceptance and form a contract. That investors feel strongly about Elon Musk’s tweets is not surprising. As Jeremy Grantham said in a 2019 interview to CNBC news channel, Tesla “is an extreme demonstration of growth.”
The bottom line is that there is space to explore what substantiates an offer-via-tweet in the context of corporate transactions such as initial public offerings, takeovers, mergers and acquisitions. Even if one concludes Musk did not provide a firm offer, the contractual terms of JP Morgan and Tesla’s 2021 Warrants help expand this interesting area of contract law.
* * *
Thank you to Nathan B. Oman, Rollins Professor of Law and Co-Director of the Center for the Study of Law and Markets at William and Mary Law for comments and fruitful interaction on this issue via Twitter.
Friday, September 24, 2021
I'm so excited to present later this morning at the University of Tennessee College of Law Connecting the Threads Conference today at 10:45 EST. Here's the abstract from my presentation. In future posts, I will dive more deeply into some of these issues. These aren't the only ethical traps, of course, but there's only so many things you can talk about in a 45-minute slot.
All lawyers strive to be ethical, but they don’t always know what they don’t know, and this ignorance can lead to ethical lapses or violations. This presentation will discuss ethical pitfalls related to conflicts of interest with individual and organizational clients; investing with clients; dealing with unsophisticated clients and opposing counsel; competence and new technologies; the ever-changing social media landscape; confidentiality; privilege issues for in-house counsel; and cross-border issues. Although any of the topics listed above could constitute an entire CLE session, this program will provide a high-level overview and review of the ethical issues that business lawyers face.
Specifically, this interactive session will discuss issues related to ABA Model Rules 1.5 (fees), 1.6 (confidentiality), 1.7 (conflicts of interest), 1.8 (prohibited transactions with a client), 1.10 (imputed conflicts of interest), 1.13 (organizational clients), 4.3 (dealing with an unrepresented person), 7.1 (communications about a lawyer’s services), 8.3 (reporting professional misconduct); and 8.4 (dishonesty, fraud, deceit).
Discussion topics will include:
- Do lawyers have an ethical duty to take care of their wellbeing? Can a person with a substance use disorder or major mental health issue ethically represent their client? When can and should an impaired lawyer withdraw? When should a lawyer report a colleague?
- What ethical obligations arise when serving on a nonprofit board of directors? Can a board member draft organizational documents or advise the organization? What potential conflicts of interest can occur?
- What level of technology competence does an attorney need? What level of competence do attorneys need to advise on technology or emerging legal issues such as SPACs and cryptocurrencies? Is attending a CLE or law school course enough?
- What duties do lawyers have to educate themselves and advise clients on controversial issues such as business and human rights or ESG? Is every business lawyer now an ESG lawyer?
- What ethical rules apply when an in-house lawyer plays both a legal role and a business role in the same matter or organization? When can a lawyer representing a company provide legal advice to an employee?
- With remote investigations, due diligence, hearings, and mediations here to stay, how have professional duties changed in the virtual world? What guidance can we get from ABA Formal Opinion 498 issued in March 2021? How do you protect confidential information and also supervise others remotely?
- What social media practices run afoul of ethical rules and why? How have things changed with the explosion of lawyers on Instagram and TikTok?
- What can and should a lawyer do when dealing with a businessperson on the other side of the deal who is not represented by counsel or who is represented by unsophisticated counsel?
- When should lawyers barter with or take an equity stake in a client? How does a lawyer properly disclose potential conflicts?
- What are potential gaps in attorney-client privilege protection when dealing with cross-border issues?
If you need some ethics CLE, please join in me and my co-bloggers, who will be discussing their scholarship. In case Joan Heminway's post from yesterday wasn't enough to entice you...
Professor Anderson’s topic is “Insider Trading in Response to Expressive Trading”, based upon his upcoming article for Transactions. He will also address the need for business lawyers to understand the rise in social-media-driven trading (SMD trading) and options available to issuers and their insiders when their stock is targeted by expressive traders.
Professor Baker’s topic is “Paying for Energy Peaks: Learning from Texas' February 2021 Power Crisis.” Professor Baker will provide an overview of the regulation of Texas’ electric power system and the severe outages in February 2021, explaining why Texas is on the forefront of challenges that will grow more prominent as the world transitions to cleaner energy. Next, it explains competing electric power business models and their regulation, including why many had long viewed Texas’ approach as commendable, and why the revealed problems will only grow more pressing. It concludes by suggesting benefits and challenges of these competing approaches and their accompanying regulation.
Professor Heminway’s topic is “Choice of Entity: The Fiscal Sponsorship Alternative to Nonprofit Incorporation.” Professor Heminway will discuss how for many small business projects that qualify for federal income tax treatment under Section 501(a) of the U.S. Internal Revenue Code of 1986, as amended, the time and expense of organizing, qualifying, and maintaining a tax-exempt nonprofit corporation may be daunting (or even prohibitive). Yet there would be advantages to entity formation and federal tax qualification that are not available (or not easily available) to unincorporated business projects. Professor Heminway addresses this conundrum by positing a third option—fiscal sponsorship—and articulating its contextual advantages.
Professor Moll’s topic is “An Empirical Analysis of Shareholder Oppression Disputes.” This panel will discuss how the doctrine of shareholder oppression protects minority shareholders in closely held corporations from the improper exercise of majority control, what factors motivate a court to find oppression liability, and what factors motivate a court to reject an oppression claim. Professor Moll will also examine how “oppression” has evolved from a statutory ground for involuntary dissolution to a statutory ground for a wide variety of relief.
Professor Murray’s topic is “Enforcing Benefit Corporation Reporting.” Professor Murray will begin his discussion by focusing on the increasing number of states that have included express punishments in their benefit corporation statutes for reporting failures. Part I summarizes and compares the statutory provisions adopted by various states regarding benefit reporting enforcement. Part II shares original compliance data for states with enforcement provisions and compares their rates to the states in the previous benefit reporting studies. Finally, Part III discusses the substance of the benefit reports and provides law and governance suggestions for improving social benefit.
All of this and more from the comfort of your own home. Hope to see you on Zoom today and next year in person at the beautiful UT campus.
September 24, 2021 in Colleen Baker, Compliance, Conferences, Contracts, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Delaware, Ethics, Financial Markets, Haskell Murray, Human Rights, International Business, Joan Heminway, John Anderson, Law Reviews, Law School, Lawyering, Legislation, Litigation, M&A, Management, Marcia Narine Weldon, Nonprofits, Research/Scholarhip, Securities Regulation, Shareholders, Social Enterprise, Teaching, Unincorporated Entities, White Collar Crime | Permalink | Comments (0)
Tuesday, September 14, 2021
Campbell University's Norman A. Wiggins School of Law in Raleigh, NC is hiring for two positions. They are especially interested in candidates in the following areas: (1) business organizations, (2) commercial law (including sales law), and/or contracts. Details here or after the break.
Monday, July 19, 2021
. . . I figure it is still OK to publish a link to the SSRN posting of my co-authored article from the 2020 Business Law Prof Blog symposium, Connecting the Threads. Published earlier in the spring, this piece, entitled Business Law and Lawyering in the Wake of COVID-19, was written with two of my students: Anne Crisp (who will start her 3L year in about a month) and Gray Martin (who graduated in May and will take the bar exam next week). My March 30, 2021 post on business interruption insurance came from this article. The SSRN abstract is included below.
The public arrival of COVID-19 (the novel coronavirus 2019) in the United States in early 2020 brought with it many social, political, and economic dislocations and pressures. These changes and stresses included and fostered adjustments in business law and the work of business lawyers. This article draws attention to these COVID-19 transformations as a socio-legal reflection on business lawyering, the provision of legal services in business settings, and professional responsibility in business law practice. While business law practitioners, like other lawyers, may have been ill-prepared for pandemic lawyering, we have seen them rise to the occasion to provide valuable services, gain and refresh knowledge and skills, and evolve their business operations. These changes have brought with them various professional responsibility and ethical challenges, all of which are ongoing at the time this is being written.
No doubt both the changes to business lawyering and the lessons learned from the many substantive, practical, and ethical challenges that have arisen in the wake of COVID-19 will survive the pandemic in some form. This offers some comfort. While the thought of another systemic global crisis is unappealing at best, what we have experienced and learned will no doubt be useful in maneuvering and surviving through whatever the future may bring.
This article came to be because I agreed to take on additional research assistants after summer jobs were scuttled for many students in the spring of 2020. I shared the germ of an idea with Anne and Gray. They took that idea and ran with it, adding important new concepts and support. The writing collaboration naturally followed. They co-presented the article with me at the symposium back in October. Working with them throughout was so joyful and fun--a true pandemic silver lining.
Sunday, June 27, 2021
Our relatively new Transactional Skills program has been such a success that we need to hire one or two additional adjuncts immediately for the Fall. Our current adjuncts work for BigLaw, in-house, and boutique firms. Classes start in August but the current sections are full and 2Ls start registration on Tuesday.
The course description is below:
This interactive, practice-oriented course will be structured around the acquisition of an asset or business and some of the key agreements required to complete the transaction. Students will act as junior associates and work on one deal throughout the semester representing either the buyer or seller. Although the class will focus on certain provisions common to all contracts, students will negotiate and draft documents which may include a non-disclosure agreement, letter of intent outlining the main terms, due diligence memo, portions of an asset purchase agreement, a licensing agreement, or an employment agreement. Students will also communicate in writing to their clients throughout the duration of the transaction and will learn the proper selection and use of form agreements. Grades will be based on class participation, group and individual assignments, and a take-home exam, which will consist of writing an agreement. Students will watch videos each week from Professor Weldon discussing foundational drafting concepts and common contracts used in commercial transactions and will work in small groups with practitioners in class to work on drafting, negotiations, and simulations.
There is a small stipend but the real reward is when you hear students say that this was the most valuable course they took in law school. If you live in South Florida, you can choose to teach in person or online. It’s a lot of work but I prepare all materials. The adjunct brings in experiences and forms (not required); has one mandatory meeting with the student; and marks up an NDA and the final contract.
If you or someone you know has at least ten years of experience as a transactional lawyer and has an interest, please email a resume to me at email@example.com. I’m happy to answer questions if you want more information before applying.
We would like to get adjuncts on board ASAP so that we can add sections. Students are already registering and the current sections have waiting lists.
Friday, April 9, 2021
As regular readers of the blog know, my passion is business and human rights, particularly related to supply chain due diligence and disclosure. The ABA has just released thirty-three model clauses based on the United Nations Guiding Principles on Business and Human Rights, and the OECD Due Diligence Guidance for Responsible Business Conduct. The ABA committee's reasoning for the model clauses is here:
The human rights performance of global supply chains is quickly becoming a hot button issue for anyone concerned with corporate governance and corporate accountability. Mandatory human rights due diligence legislation is on the near-term horizon in the E.U. Consumers and investors worldwide are increasingly concerned about buying from and investing in companies whose supply chains are tainted by forced or child labor or other human rights abuses. Government bodies such as U.S. Customs and Border Protection are increasingly taking measures to stop tainted goods from entering the U.S. market. And supply chain litigation, whether led by human rights victims or Western consumers, is on the rise. There can therefore be little doubt that the face of global corporate accountability for human rights abuses within supply chains is changing. The issue is “coming home,” in other words. ... Some of the key MCCs 2.0 obligations include: (1) Human Rights Due Diligence: buyer and supplier must each conduct human rights due diligence before and during the term of the contract. This requires both parties to take appropriate steps to identify and mitigate human rights risks and to address adverse human rights impacts in their supply chains. (2) Buyer Responsibilities: buyer and supplier must each engage in responsible sourcing and purchasing practices (including practices with respect to order changes and responsible exits). A fuller description of responsible purchasing practices is contained in the Responsible Buyer Code of Conduct (Buyer Code), also developed and published by the Working Group. (3) Remediation: buyer and supplier must each prioritize stakeholder-centered remediation for human rights harms before or in conjunction with conventional contract remedies and damage assessments. Buyer must also participate in remediation if it caused or contributed to the adverse impact.
Even if you're not obsessed with business and human rights like I am, you may find the work product provides an interesting context in which to discuss contract clauses such as representations, warranties, and damages either in a first-year contract course or a transactional drafting course.
Tuesday, March 30, 2021
As a teaser to a forthcoming article I coauthored with two of my students (who co-presented with me) for the Business Law Prof Blog symposium back in the fall, I offer a short excerpt on business interruption insurance litigation resulting from governmental actions forcing business closures as a result of the pandemic, focusing on a recently decided Tennessee case.
In general, business lawyers got inventive in bringing legal claims of many kinds. A federal district court case recently decided in Tennessee, Nashville Underground, LLC v. AMCO Insurance Company, No. 3:20-cv-00426 (M.D. Tennessee, March 4, 2021), offers a notable example involving the interpretations of a business interruption insurance policy. The plaintiff in the action, a Nashville bar, restaurant, and entertainment venue, claimed coverage under the food contamination endorsement in its business interruption insurance policy for the damages suffered when it was forced to close its doors by governmental orders issued in March 2020 in response to the COVID-19 pandemic. The insurer denied coverage. The court held for the defendant insurer on its motion to dismiss for failure to state a claim, finding the contract language unambiguous. The court’s conclusion in its opinion noted sympathy, in spite of the outcome.
Like many Americans, the undersigned can sympathize with Plaintiff and so many of our other small to medium-sized businesses that seem to have borne much of the brunt of the effects of the COVID-19 pandemic. One could understand if Plaintiff (or anyone else) lamented that it simply is not right that this should be the case. But it also is not right, or lawful, for a business's insurer to be on the hook for coverage it simply did not contractually commit to provide. Presumably like a myriad of other enterprises throughout this nation, Plaintiff in retrospect perhaps would have bargained for broader coverage but simply did not foresee such need before the unprecedented pandemic conditions arose in 2020. Accordingly, Plaintiff was unfortunately left without the coverage it now asks this Court to find in an insurance policy that simply does not provide it.
Nashville Underground, supra. Sympathy notwithstanding, cases of this kind are decided on the basis of specific contract language. Although overall insurers tend to be winning in these contract interpretation battles, insureds are prevailing in some cases, at least in pretrial and summary judgment motion battles. See, e.g., Kenneth M. Gorenberg & Scott N. Godes, Update on Business Interruption Insurance Claims for COVID-19 Losses, NAT’L L. REV. (Oct. 29, 2020), https://www.natlawreview.com/article/update-business-interruption-insurance-claims-covid-19-losses; Richard D. Porotsky Jr., Recent Federal Cases in the N.D. Ohio Split on COVID-19 Business Interruption Insurance Coverage, NAT’L L. REV. (Jan. 26, 2021), https://www.natlawreview.com/article/recent-federal-cases-nd-ohio-split-covid-19-business-interruption-insurance-coverage; Jim Sams, Judge Rules in Favor of 3 Policyholders With COVID-19 Claims in Consolidated Case, CLAIMS J. (Feb. 21. 2021), https://www.claimsjournal.com/news/national/2021/02/24/302197.htm.
The opinions in these cases constitute an interesting emergent body of decisional law relevant to contract and insurance law and practice. Along with litigation relating to, e.g., force majeure and material adverse change/effect, the legal actions interpreting language in business interruption insurance contracts are bound to offer important lessons and tips for legal counsel and their clients--a legacy likely to affect practice and litigation for many years to come.
The article from which the above quoted text (reformatted for posting here) comes, Business Law and Lawyering in the Wake of COVID-19, is scheduled for publication later this spring in Transactions: Tennessee Journal of Business Law. I will promote the article here once the final version is available and has been posted to SSRN. In the meantime, you have a a short preview of one part of the article in this post!
Monday, November 16, 2020
A number of years ago, I became acquainted with Kate Vitasek, a colleague in The University of Tennessee's Haslam College of Business. She introduced me to a way of supply contracting called "vested." Vested relationships are characterized by the following attributes that may differentiate them from traditional contractual relationships (as identified in the FAQs on the vested website):
- "Uses flexible Statements of Objectives, enabling the service provider to determine 'how'”
- "Measures success through a limited number of Desired Outcomes"
- "Uses a jointly designed pricing model with incentives that optimize the overall business and fairly allocates risk/reward"
- "Focuses on insight, using governance mechanisms to manage the business with the supplier"
When I first talked to Kate and her colleagues about vested, I remember noting for her that the vested approach sounded like a specific type of relational contract . . . .
Recently, Kate and I reconnected. She informed me about her recent coauthored Harvard Business Review article. It merits promotion here.
The main point of the article is to highlight the possible advantages of relational contracting in the current environment. Here's the crux:
For procurement professionals at large multinational companies, the temptation is to use their company’s clout to pressure suppliers to reduce prices. And when the supplier has the upper hand, it is hard to resist the opportunity to impose price increases on customers. Witness how the shortage of personal protective equipment (PPE) and ventilators led to skyrocketing prices. . . .
A better alternative is formal relational contracts that are designed to keep the parties’ expectations continuously aligned. This kind of agreement is a legally enforceable written contract (hence “formal”) that puts the parties’ relationship above the specific points of the deal. The parties embrace the fact that all contracts are incomplete and can never cover all the contingencies that may occur. This time it is a pandemic. Next time it will be something else.
The coauthors conclude:
Given the uncertainty that lies ahead, it is especially important now that companies try to avoid antagonizing the members of their ecosystems. Formal relational contracts, which can turn adversarial relationships into mutually beneficial partnerships, is a proven means to such an end.
This all makes great sense to me, especially for contracting parties who have long-term relationships or are repeat players in the same market. The article both explains the concept and offers several examples of how relational contracting can foster more collaborative relationships that enable contracting parties to "ride the bumps" in their relationship. Specifically the parties are incentivized to work together to devise solutions to transactional problems as they arise.
The article reminded me about the relational aspects of M&A contracting and, more specifically, Cathy Hwang's Faux Contracts as well as her work with Matthew Jennejohn--including their Deal Structure article. In Deal Structure, Cathy and Matthew write that "[r]elational contracts blend formal contract terms, which are enforceable in court, with informal constraints, such as reputational sanctions, to create strong relationships between parties." [p. 311]
Law folks and business folks should talk more often. As the pandemic continues, parallel avenues of work like this in business and law can have important practical implications for business. This collective body of business and legal scholarship may have significant value to both business managers and the legal advisers who represent them. Collaboration between business and law experts can only enhance that value.
Friday, October 23, 2020
It’s hard to believe that the US will have an election in less than two weeks. Three years ago, a month after President Trump took office, I posted about CEOs commenting on his executive order barring people from certain countries from entering the United States. Some branded the executive order a “Muslim travel ban” and others questioned whether the CEOs should have entered into the political fray at all. Some opined that speaking out on these issues detracted from the CEOs’ mission of maximizing shareholder value. But I saw it as a business decision - - these CEOs, particularly in the tech sector, depended on the skills and expertise of foreign workers.
That was 2017. In 2018, Larry Fink, CEO of BlackRock, told the largest companies in the world that “to prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society…Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders.” Fink’s annual letter to CEOs carries weight; BlackRock had almost six trillion dollars in assets under management in 2018, and when Fink talks, Wall Street listens. Perhaps emboldened by the BlackRock letter, one year later, 181 CEOs signed on to the Business Roundtable's Statement on the Purpose of a Corporation, which “modernized” its position on the shareholder maximization norm. The BRT CEOs promised to invest in employees, deal ethically and fairly with suppliers, and embrace sustainable business practices. Many observers, however, believed that the Business Roundtable statement was all talk and no action. To see how some of the signatories have done on their commitments as of last week, see here.
Then came 2020, a year like no other. The United States is now facing a global pandemic, mass unemployment, a climate change crisis, social unrest, and of course an election. During the Summer of 2020, several CEOs made public statements on behalf of themselves and their companies about racial unrest, with some going as far as to proclaim, “Black Lives Matter.” I questioned these motives in a post I called “"Wokewashing and the Board." While I admired companies that made a sincere public statement about racial justice and had a real commitment to look inward, I was skeptical about firms that merely made statements for publicity points. I wondered, in that post, about companies rushing to implement diversity training, retain consultants, and appoint board members to either curry favor with the public or avoid the shareholder derivative suits facing Oracle, Facebook, and Qualcomm. How well had they thought it out? Meanwhile, I noted that my colleagues who have conducted diversity training and employee engagement projects for years were so busy that they were farming out work to each other. Now the phones aren’t ringing as much, and when they are ringing, it’s often to cancel or postpone training.
Why? Last month, President Trump issued the Executive Order on Combatting Race and Sex Stereotyping. As the President explained:
today . . . many people are pushing a different vision of America that is grounded in hierarchies based on collective social and political identities rather than in the inherent and equal dignity of every person as an individual. This ideology is rooted in the pernicious and false belief that America is an irredeemably racist and sexist country; that some people, simply on account of their race or sex, are oppressors; and that racial and sexual identities are more important than our common status as human beings and Americans ... Therefore, it shall be the policy of the United States not to promote race or sex stereotyping or scapegoating in the Federal workforce or in the Uniformed Services, and not to allow grant funds to be used for these purposes. In addition, Federal contractors will not be permitted to inculcate such views in their employees.
The Order then provides a hotline process for employees to raise concerns about their training. Whether you agree with the statements in the Order or not -- and I recommend that you read it -- it had a huge and immediate effect. The federal government is the largest procurer of goods and services in the world. This Order applies to federal contractors and subcontractors. Some of those same companies have mandates from state law to actually conduct training on sexual harassment. Often companies need to show proof of policies and training to mount an affirmative defense to discrimination claims. More important, while reasonable people can disagree about the types and content of diversity training, there is no doubt that employees often need training on how to deal with each other respectfully in the workplace. (For a thought-provoking take on a board’s duty to monitor diversity training by co-blogger Stefan Padfield, click here.)
Perhaps because of the federal government’s buying power, the U.S. Chamber of Commerce felt compelled to act. On October 15th, the Chamber and 150 organizations wrote a letter to the President stating:
As currently written, we believe the E.O. will create confusion and uncertainty, lead to non-meritorious investigations, and hinder the ability of employers to implement critical programs to promote diversity and combat discrimination in the workplace. We urge you to withdraw the Executive Order and work with the business and nonprofit communities on an approach that would support appropriate workplace training programs ... there is a great deal of subjectivity around how certain content would be perceived by different individuals. For example, the definition of “divisive concepts” creates many gray areas and will likely result in multiple different interpretations. Because the ultimate threat of debarment is a possible consequence, we have heard from some companies that they are suspending all D&I training. This outcome is contrary to the E.O.’s stated purpose, but an understandable reaction given companies’ lack of clear guidance. Thus, the E.O. is already having a broadly chilling effect on legitimate and valuable D&I training companies use to foster inclusive workplaces, help with talent recruitment, and remain competitive in a country with a wide range of different cultures. … Such an approach effectively creates two sets of rules, one for those companies that do business with the government and another for those that do not. Federal contractors should be left to manage their workforces and workplaces with a minimum amount of interference so long as they are compliant with the law.
It’s rare for the Chamber to make such a statement, but it was bold and appropriate. Many of the Business Roundtable signatories are also members of the U.S. Chamber, and on the same day, the BRT issued its own statement committing to programs to advance racial equity and justice. BRT Chair and WalMart CEO Doug McMillon observed, “the racial inequities that exist for many Black Americans and people of color are real and deeply rooted . . These longstanding systemic challenges have too often prevented access to the benefits of economic growth and mobility for too many, and a broad and diverse group of Americans is demanding change. It is our employees, customers and communities who are calling for change, and we are listening – and most importantly – we are taking action.” Now that's a stakeholder maximization statement if I ever heard one.
Those who thought that some CEOs went too far in protesting the Muslim ban, may be even more shocked by the BRT’s statements about the police. The BRT also has a subcommittee to address racial justice issues and noted that “For Business Roundtable CEOs, this agenda is an important step in addressing barriers to equity and justice . . . This summer we took on the urgent need for policing reform. We called on Congress to adopt higher federal standards for policing, to track whether police departments and officers have histories of misconduct, and to adopt measures to hold abusive officers accountable. Now, with announcement of this broader agenda, CEOs are supporting policies and undertaking initiatives to address several other systems that contribute to large and growing disparities.”
Now that stakeholders have seen so many of these social statements, they have asked for more. Last week, a group of executives from the Leadership Now Project issued a statement supporting free and fair elections. However, as Bennett Freeman, former Calvert executive and Clinton cabinet member noted, no Fortune 500 CEOs have signed on to that statement. Yesterday, the Interfaith Center on Corporate Responsibility (ICCR) sent a letter to 200 CEOs, including some members of the BRT asking for their support. ICCR asked that they endorse:
- Active support for free and fair elections
- A call for a thorough and complete counting of all ballots
- A call for all states to ensure a fair election
- A condemnation of any tactics that could be construed as voter intimidation
- Assurance that, should the incumbent Administration lose the election, there will be a peaceful transfer of power
- Ensure that lobbying activities and political donations support the above
Is this a pipe dream? Do CEOs really want to stick their necks out in a tacit criticism of the current president’s equivocal statements about his post-election plans? Now that JPMorgan Chase CEO Jamie Dimon has spoken about the importance of respect for the democratic process and the peaceful transfer of power, perhaps more executives will make public statements. But should they? On the one hand, the markets need stability. Perhaps Dimon was actually really focused on shareholder maximization after all. Nonetheless, Freeman and others have called for a Twitter campaign to urge more CEOs to speak out. My next post will be up on the Friday after the election and I’ll report back about the success of the hashtag activism effort. In the meantime, stay tuned and stay safe.
October 23, 2020 in Contracts, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Employment Law, Ethics, Financial Markets, Human Rights, Legislation, Management, Marcia Narine Weldon, Nonprofits, Stefan J. Padfield | Permalink | Comments (1)
Friday, October 2, 2020
No. You didn't miss Part 1. I wrote about Weinstein clauses last July. Last Wednesday, I spoke with a reporter who had read that blog post. Acquirors use these #MeToo/Weinstein clauses to require target companies to represent that there have been no allegations of, or settlement related to, sexual misconduct or harassment. I look at these clauses through the lens of a management-side employment lawyer/compliance officer/transactional drafting professor. It’s almost impossible to write these in a way that’s precise enough to provide the assurances that the acquiror wants or needs.
Specifically, the reporter wanted to know whether it was unusual that Chevron had added this clause into its merger documents with Noble Energy. As per the Prospectus:
Since January 1, 2018, to the knowledge of the Company, (i), no allegations of sexual harassment or other sexual misconduct have been made against any employee of the Company with the title of director, vice president or above through the Company’s anonymous employee hotline or any formal human resources communication channels at the Company, and (ii) there are no actions, suits, investigations or proceedings pending or, to the Company’s knowledge, threatened related to any allegations of sexual harassment or other sexual misconduct by any employee of the Company with the title of director, vice president or above. Since January 1, 2018, to the knowledge of the Company, neither the Company nor any of its Subsidiaries have entered into any settlement agreements related to allegations of sexual harassment or other sexual misconduct by any employee of the Company with the title of director, vice president or above.
Whether I agree with these clauses or not, I can see why Chevron wanted one. After all, Noble’s former general counsel left the company in 2017 to “pursue personal interests” after accusations that he had secretly recorded a female employee with a video camera under his desk. To its credit, Noble took swift action, although it did give the GC nine million dollars, which to be fair included $8.3 million in deferred compensation. Noble did not, however, exercise its clawback rights. Under these circumstances, if I represented Chevron, I would have asked for the same thing. Noble’s anonymous complaint mechanisms went to the GC’s office. I’m sure Chevron did its own social due diligence but you can never be too careful. Why would Noble agree? I have to assume that the company’s outside lawyers interviewed as many Noble employees as possible and provided a clean bill of health. Compared with others I’ve seen, the Chevron Weinstein clause is better than most.
Interestingly, although several hundred executives have left their positions due to allegations of sexual misconduct or harassment since 2017, only a small minority of companies use these Weinstein clauses. Here are a few:
Except in each case, as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, to the Knowledge of the Company, (i) no allegations of sexual harassment have been made against (A) any officer or director of the Acquired Companies or (B) any employee of the Acquired Companies who, directly or indirectly, supervises at least eight (8) other employees of the Acquired Companies, and (ii) the Acquired Companies have not entered into any settlement agreement related to allegations of sexual harassment or sexual misconduct by an employee, contractor, director, officer or other Representative.
- Merger between Genuine Parts Company, Rhino SpinCo, Inc., Essendant Inc., and Elephant Merger Sub Corp.:
To the knowledge of GPC, in the last five (5) years, no allegations of sexual harassment have been made against any current SpinCo Business Employee who is (i) an executive officer or (ii) at the level of Senior Vice President or above.
- AGREEMENT AND PLAN OF MERGER BY AND AMONG WORDSTREAM, INC., GANNETT CO., INC., ORCA MERGER SUB, INC. AND SHAREHOLDER REPRESENTATIVE SERVICES LLC:
(i) The Company is not party to a settlement agreement with a current or former officer, employee or independent contractor of the Company or its Affiliates that involves allegations relating to sexual harassment or misconduct. To the Knowledge of the Company, in the last eight (8) years, no allegations of sexual harassment or misconduct have been made against any current or former officer or employee of the Company or its Affiliates.
- AGREEMENT AND PLAN OF MERGER By and Among RLJ ENTERTAINMENT, INC., AMC NETWORKS INC., DIGITAL ENTERTAINMENT HOLDINGS LLC and RIVER MERGER SUB INC.:
(c) To the Company’s Knowledge, in the last ten (10) years, (i) no allegations of sexual harassment have been made against any officer of the Company or any of its Subsidiaries, and (ii) the Company and its Subsidiaries have not entered into any settlement agreements related to allegations of sexual harassment or misconduct by an officer of the Company or any of its Subsidiaries.
Here are just a few questions:
- What's the definition of "sexual misconduct"? Are the companies using a legal definition? Under which law? None of the samples define the term.
- What happens of the company handbook or policies do not define "sexual misconduct"?
- How do the parties define "sexual harassment"? Are they using Title VII, state law, case law, their diversity training decks, the employee handbook? None of the samples define the term.
- What about the definition of "allegation"? Is this an allegation through formal or informal channels (as employment lawyers would consider it)? Chevron gets high marks here.
- Have the target companies used the best knowledge qualifiers to protect themselves?
- How will the target company investigate whether the executives and officers have had “allegations”? Should the company lawyers do an investigation of every executive covered by the representation to make sure the company has the requisite “knowledge”? If the deal documents don't define "knowledge," should we impute knowledge?
- What about those in the succession plan who may not be in the officer or executives ranks?
Will we see more of these in the future? I don’t know. But I sure hope that General Motors has some protection in place after the most recent allegations against Nikola’s founder and former chairman, who faces sexual assault allegations from his teenage years. Despite allegations of fraud and sexual misconduct, GM appears to be moving forward with the deal, taking advantage of Nikola’s decreased valuation after the revelation of the scandals.
I’ll watch out for these #MeToo clauses in the future. In the meantime, I’ll ask my transactional drafting students to take a crack at reworking them. If you assign these clauses to your students, feel free to send me the work product at firstname.lastname@example.org.
Take care and stay safe.
October 2, 2020 in Compliance, Contracts, Corporate Governance, Corporate Personality, Corporations, Current Affairs, Employment Law, Ethics, Lawyering, M&A, Management, Marcia Narine Weldon, Securities Regulation | Permalink | Comments (1)
Monday, August 10, 2020
I recently received word from one of our former guest bloggers, Marcos Mendoza (whom I introduced here and who posted here, here, here, here, and here), that his most recent insurance article, The Limits of Insurance as Governance: Professional Liability Coverage for Civil Rights Claims Against Public School Districts, has been published in the Quinnipiac Law Review. It is available on SSRN here. The abstract follows.
Insurance intersects with people throughout their lives, sometimes with elements that are unobserved or misunderstood. That is often the case with “insurance as governance,” a form of private contractual regulation. This theory assumes that insurers, to minimize their financial losses, attempt to shape policyholder conduct by employing private regulatory measures, primarily through underwriting and contractual loss prevention methods. Insurance as governance is about risk reduction.
This article addresses a question regarding civil rights—do insurers influence the civil rights policies of public school districts? A broad legal arc encompasses civil rights litigation against schools, from freedom of speech complaints to sex-based claims involving students. School boards purchase professional liability insurance to defend their operational policies and actions. Previous research has not examined whether insurers attempt to shape school officials’ conduct to reduce these claims. This article finds that insurer influence is surprisingly minimal despite the financial and potential societal benefits.
Landmark scholarship (Rappaport, Harvard Law Review, 2017) established that insurers could positively influence police officer conduct, resulting in fewer civil rights claims against police entities. But this school environment research determines that insurers of public schools do not employ assertive loss prevention methods to limit civil rights claims. This lack of private regulation is because school boards want and exercise significant local control authority, and the administrators of interlocal risk pools—the leading type of insurer discussed within—have political concerns about membership stability, leading to regulatory hesitation.
This empirical study makes two main contributions. First, it involves a discussion of why insurer private regulation does not linearly increase when school district civil rights exposures rise. This contribution includes a review of the school districts’ mutual ownership of the predominant school insurer, the interlocal pool; an examination of the strong local control desires of school boards; and an analysis of the attendant political concerns of the interlocal pool administrators. Second, it reviews the policy adoption process of school boards, notes how school officials interact with and tend to resist insurers, and documents how this sociolegal setting creates insurers’ reluctance to attempt conduct-shaping with school districts regarding civil rights. This article will further private regulation scholarship regarding governmental entities and allow scholars to reassess the reach of insurance as governance.
Both this article and an earlier piece written by Marcos are cited in the new edition of Kenneth Abraham and Dan Schwarcz's Insurance Law and Regulation casebook.
I took a quick peak into the article, even though insurance is not my legal "thing." (I come from a line of insurance brokers and underwriters, but I went a different way . . . .) The article is well written and covers a lot of interesting ground. It is a tale of private ordering and regulation--or, rather, the absence thereof. On a macro level, the piece asks and answers the question: why, if insurance contracts incentivize policyholder behavior in some circumstances or with some insureds, do they not incentivize behavior in or with others? Its focus is, as the article title suggests, on public school districts as policyholders and civil rights claims as insured risks.
Although The University of Tennessee recently faced significant exposure for alleged Title IX violations (settled four years ago), I admit I hadn't thought much about the exposure of school districts to civil rights litigation. Of course, that exposure includes more than Title IX litigation. As the article notes, Section 1983 claims, Title VI claims, Title VII claims, and disability claims under the Individuals with Disabilities Education Act and Section 504 of the Rehabilitation Act of 1973 also represent potential liability threats. Overall, the level of risk is reasonably high.
Yet, perhaps not high enough . . . . In the introductory portion of the article, Marcos contrasts the regulation of public police through insurance policies (evidenced in prior literature) with the lack or failure of similar regulation of public school districts. In the conclusion, he notes, among other things, that "it seems that assertive regulation happens with public actors only when the risk exposures become extreme, and not before." He also observes that insurer, as well as insured, behaviors contribute to the creation of regulatory power through insurance arrangements. All in all, the article is an instructive read with analogies to many other areas in which common types of contracts are entered into by repeat players in a commercial or other context.
Monday, August 3, 2020
Drake University invites applications from entry level and lateral candidates for a tenure-track Assistant/Associate Professor of Law position beginning in the 2021-22 academic year. We are interested in candidates with demonstrated interest or experience in Technology Law. Applicants must hold a J.D. degree (or the equivalent) and should have a record of academic excellence, substantial academic or practice experience, and a passion for teaching. Appointment rank will be determined commensurate with the candidate’s qualifications and experience.
In addition to service and scholarship, this position involves teaching courses such as Legal/Ethical Issues in Technology, Technology Law, Privacy Law, and related areas in both the Law School and the College of Arts & Sciences as well as advising law and undergraduate students and serving as a University resource on technology legal issues.
Drake University sustains a vibrant intellectual culture, and Des Moines has been recognized as the Best Place to Live (US News), the Best Place for Young Professionals (Forbes), and as the #1 Best U.S. City for Business (MarketWatch).
Drake University is an equal opportunity employer and actively seeks applicants who reflect the nation’s diversity. No applicant shall be discriminated against on the basis of race, color, national origin, creed, religion, age, disability, sex, gender identity, sexual orientation, genetic information or veteran status. Diversity is one of Drake’s core values and applicants need to demonstrate an ability to work with individuals and groups of diverse backgrounds.
Confidential review of applications will begin immediately. Applications (including a letter of interest, a complete CV, teaching evaluations (if available), a diversity statement, and the names and addresses of at least three references) should be sent to Professor Ellen Yee, Chair, Faculty Appointments Committee, Drake University Law School, 2507 University Ave., Des Moines, IA 50311 or e-mail: email@example.com.
Drake University Law School invites applications from entry level and lateral candidates for a tenure-track or tenured Assistant/Associate/Professor of Law position beginning in the 2021-22 academic year. We are especially interested in candidates with demonstrated interest or experience in Contracts, Sales, Tax, Intellectual Property, and Family Law. Applicants must hold a J.D. degree (or the equivalent) and should have a record of academic excellence, substantial academic or practice experience, and a passion for teaching. Appointment rank will be determined commensurate with the candidate’s qualifications and experience.
Drake University Law School sustains a vibrant intellectual culture, and Des Moines has been recognized as the Best Place to Live (US News), the Best Place for Young Professionals (Forbes), and as the #1 Best U.S. City for Business (MarketWatch). The Law School features innovative and nationally recognized programs in agricultural law, constitutional law, legal research and writing, and practical training.
Drake University is an equal opportunity employer and actively seeks applicants who reflect the nation’s diversity. No applicant shall be discriminated against on the basis of race, color, national origin, creed, religion, age, disability, sex, gender identity, sexual orientation, genetic information or veteran status. Diversity is one of Drake’s core values and applicants need to demonstrate an ability to work with individuals and groups of diverse socioeconomic, cultural, sexual orientation, disability, and/or ethnic backgrounds.
Confidential review of applications will begin immediately. Applications (including a letter of interest, a complete CV, teaching evaluations (if available), a diversity statement, and the names and addresses of at least three references) should be sent to Professor Ellen Yee, Chair, Faculty Appointments Committee, Drake University Law School, 2507 University Ave., Des Moines, IA 50311 or e-mail: firstname.lastname@example.org.
Sunday, April 26, 2020
In his Wednesday post (here), co-blogger Stefan J. Padfield highlighted a recent development in the arbitration area that I also want to bring to readers’ attention. I’m sure that all BLPB readers are a party to an arbitration agreement as these provisions have become so widespread in consumer adhesion contracts. The New York Times recently ran a fascinating article by Michael Corkery and Jessica Silver-Greenberg, ‘Scared to Death’ by Arbitration: Companies Drowning in their Own System. It details an innovative development in which entrepreneurial lawyers “are leaders in testing a new weapon in arbitration: sheer volume,” which is something the current arbitration system can’t handle.
Arbitration provisions in consumer adhesion contracts generally bar class-action lawsuits and might also bar class-wide arbitration. And it often makes little economic sense for an individual to take a large corporation to arbitration. Not surprisingly, many don’t. Corkery and Silver-Greenberg note that “Over the past few years, the nation’s largest telecom companies, like Comcast and AT&T, have had a combined 330 million customers. Yet annually an average of just 30 people took the companies to arbitration…” Now entrepreneurial lawyers such as Teel Lidow, who runs FairShake, and Travis Lenkner at Chicago law firm Keller Lenkner have entered the picture and are shaking up the consumer arbitration area with mass arbitration filings. It’s going to be a really interesting development to watch. It’s also a great reminder to all of the power of entrepreneurial thinking: “ 'The conventional wisdom might say that arbitration is a bad development for plaintiffs and an automatic win for the companies,’ he said. ‘We don’t see it that way.’ ” (Lenkner, as quoted by Corkery and Silver-Greenberg)
Sunday, April 5, 2020
The tenuous link to business law is this…I was blessed to have a phenomenal first-year contracts professor. Over the years, one of my closest friends (also in that course) and I have reminded each other of the professor’s pearls of wisdom about contracts and life. “Life is a marathon, not a sprint,” he would assure us.
I would imagine that many of us feel in the midst of a marathon these days. As another week in these unusual times begins, I was thinking about a few of the lessons I’ve learned in distance running that were helping me to run the course we’re all on these days. First, the importance of paying attention to your breath (Joan Heminway has written about breath and mindfulness here). Second, if you just keep putting one foot in front of the other, you’ll eventually reach the destination/be done. Third, the need for pacing (likely the point my contracts prof was making). Fourth, you’ve always got one more mile in you than you think you have. Fifth, running with others pushes you to be your best and makes the miles fly by. While this is harder to do at the moment, I know that staying connected (via zoom, Skype, Strava etc.) to encouraging, positive people is especially important in these challenging times.
While Haskell went to the 2020 Olympic men’s marathon trials (here), I only read about them in his post and in Runners World. I first learned about the surprise, unsponsored, second-place finisher, Jake Riley, from the article Jake Riley and His Coach Were ‘Broken.’ Now, They’re Going to the Olympics (here). Amazingly, over the past three years, Riley has apparently dealt with a serious bacterial infection, major Achilles surgery, and a divorce. The article ends by quoting his coach as saying “‘There’s nothing better than seeing a broken man come back,’ Troop said. ‘And when they come back, they’ve got nothing to lose.’” Of course, Riley will now have to wait an additional year for his Olympic run. His story of grit, perseverance, and hope really inspired me. As another week in these unusual times begins, I hope that it might offer inspiration to some of you too.
[Revision: actually, I think my last running post is here, but Haskell has still written two since I wrote it!]
Monday, February 17, 2020
In an email exchange with Stanford business law clinician Jay Mitchell, I learned of this intriguing post on legal document design. Jay takes the design thinking context way beyond my "legal design" idea of using IRAC in corporate finance drafting as a means of ensuring that students are engaging with applicable law and norms in their drafting, and in doing so, he makes a number of interesting observations and points that relate to both document planning and drafting, on the one hand, and teaching planning, drafting, and overall business law practice, on the other. Here are a few.
- "The physical design of clinic work-products and client communications is a constant concern. It’s humbling, idea-generating, and inspiring to look at graphic design and wayfinding books and see great solutions to complex information design challenges."
- "Our world is one of entities; structures; flows of information, money, and property rights; time periods; decision-making processes; legal, tax, and accounting principles; and dense and difficult documents — and then helping clients operationalize all this across multiple functions and geographies. Seems like we need good tools for capturing, assessing, and conveying information. Visual executions can provide those tools. They have great communicative capacity: shape, color, line, line weight, line effects, and white space are all at hand, and, as noted, people just get pictures."
- "Design outlooks and practices seem to distill and operationalize knowledge, from a variety of disciplines, in ways relevant to a lawyer, service provider, professional writer, and producer of tangible products. Our clients notice the attention to user, context, and functionality, as well as factual and legal accuracy, in our advice, client communications, contracts, and governance materials."
- "In a setting where students are drafting and doing other legal tasks for the first time, we need to give them room to try, receive feedback, and try again."
- After advocating sketching (using shapes, colors, etc. on a whiteboard) with students: "Sketching enables us to visibly and slowly break down a situation, and then to build it back up, step by step. It lets, or maybe forces, us to leave out detail; it helps reveal higher-order relationships that are otherwise difficult to discern. It helps us define the problem and possible solutions. Those qualities make it a good tool for identifying the most important features in an unstructured environment . . . ."
- "What are seen as core elements of design thinking are now familiar: observation, empathy, ideation, and experimentation. Designers focus on the realities and needs of people for whom they’re designing a product or process. They frame problems and generate lots of ideas. They test those ideas through low-fidelity prototypes, over and over. They try to “keep people at the center” of their work. These are useful notions for the clinical teacher or senior lawyer working with new lawyers." (footnote omitted)
Jay notes along the way in describing the impact of design thinking on his teaching and practice: "I’ve learned more about legal documents, about their features and footprints, about what they demand of user and thus producer. Which leads to thinking harder about what to make, what to include, and how to present information in effective ways. And to productive discussions with students not only about work-product but also client respect and client reality." Great stuff. I know that our contract drafting curriculum at UT Law focuses on presentation as well as content (as do, I am sure, most similar law school programs of that kind). Jay's post is great food for thought in executing on that focus.
Sunday, December 15, 2019
Prof. Bainbridge recently posted, Here's the thing I don't understand about the implied covenant of good faith and fair dealing. He explains:
In Bandera Master Funds LP v. Boardwalk Pipeline Partners, LP, C.A. No. 2018-0372-JTL (Del. Ch. Oct. 7, 2019), the court reviews the Delaware law of the implied covenant:
“In order to plead successfully a breach of an implied covenant of good faith and fair dealing, the plaintiff must allege a specific implied contractual obligation, a breach of that obligation by the defendant, and resulting damage to the plaintiff.” Fitzgerald v. Cantor, 1998 WL 842316, at *1 (Del. Ch. Nov. 10, 1998). In describing the implied contractual obligation, the plaintiffs must allege facts suggesting “from what was expressly agreed upon that the parties who negotiated the express terms of the contract would have agreed to proscribe the act later complained of . . . had they thought to negotiate with respect to that matter.” Katz v. Oak Indus. Inc., 508 A.2d 873, 880 (Del. Ch. 1986). That is because “[t]he implied covenant seeks to enforce the parties’ contractual bargain by implying only those terms that the parties would have agreed to during their original negotiations if they had thought to address them.” El Paso, 113 A.3d at 184. Accordingly, “[t]he implied covenant is well-suited to imply contractual terms that are so obvious . . . that the drafter would not have needed to include the conditions as express terms in the agreement.” Dieckman, 155 A.3d at 361.
My question is simple: How do you know that the provision was left out because it was obvious? After all, if it was obvious, shouldn't the parties have put it in the contract? Put another way, how do you know the parties did think about it and decide to leave it out?
Agreed. And I think this concept of the implied covenant matters more than ever, now that Delaware allows the elimination of the duty of loyalty in LLCs (my thoughts on that here). Even in allowing parties to eliminate the duty of loyalty in an LLC, such agreements always retain the duty of good faith and fair dealing. The Delaware LLC Act provides (emphasis added):
. . .
(c) To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement, the member’s or manager’s or other person’s duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement; provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing.
So what does that mean? I am of the mind that the implied covenant of good faith and fair dealing means that: (1) you get the express terms of the agreement, and (2) the agreement cannot take away all possible reasons for the deal in the first place. As to the latter point, it means, quite simply, even without a duty of loyalty, there must be some reason for the contract to exist at all. So, you may not be entitled to a fair share of proceeds from the agreement, or even a significant share. But there must always be some value (or potential value) to have been gained by entering the agreement. At a minimum, it can't be an agreement to get nothing, no matter what.
As one example, a Delaware court explained that a plaintiff's claim was lacking when the
the incentive [gained by the defendant] complained of is obvious on the face of the OA [operating agreement]. The members, despite creating this incentive, eschewed fiduciary duties, and gave the Board sole discretion to approve the manner of the sale, subject to a single protection for the minority, that the sale be to an unaffiliated third party. . . . [T]he parties to the OA [thus considered] the conditions under which a contractually permissible sale could take place. They avoided the possibility of a self-dealing transaction but otherwise left to the [defendant] the ability to structure a deal favorable to their interests. Viewed in this way, there is no gap in the parties’ agreement to which the implied covenant may apply. The implied covenant, like the rest of our contracts jurisprudence, is meant to enforce the intent of the parties, and not to modify that expressed intent where remorse has set in.
Miller v HCP & Co., C.A. No. 2017-0291-SG (Del. Ch. Feb. 1, 2018). (More commentary on this case here.)
Furthermore, the implied covenant
does not apply when the contract addresses the conduct at issue, but only when the contract is truly silent concerning the matter at hand. Even where the contract is silent, an interpreting court cannot use an implied covenant to re-write the agreement between the parties, and should be most chary about implying a contractual protection when the contract could easily have been drafted to expressly provide for it.
Sunday, December 1, 2019
Over at Kentucky Business Entity Law Blog, Tom Rutledge recently posted Respectfully, I Dissent: Dean Fershee and Elimination of Fiduciary Duties, in response to my recent paper, An Overt Disclosure Requirement for Eliminating the Fiduciary Duty of Loyalty. Tom and I have crossed paths many times over the past few years, and I greatly value his insight, expertise, and opinion. On this one, though, we will have to agree to disagree, but I recommend checking out his writing. You may well agree with him.
I actually agree with Tom in most cases when he says, "I do not believe there is justification for protecting people from the consequences of the contracts into which they enter." Similarly, I generally agree with Tom "that entering into an operating agreement that may be amended without the approval of a particular member constitutes that member placing themselves almost entirely at the mercy of those with the capacity to amend the operating agreement . . . . " Nonetheless, I maintain that there is a subtle but significant difference where, as in Delaware, such changes can be made to completely eliminate (not just reduce or modify) the fiduciary duty of loyalty.
As applied, Tom may be right. Still, until Delaware's recent change, we had a long history, in every U.S. jurisdiction, prohibiting the elimination of the duty of loyalty. It is simply expected, that at some basic level, those in control of an entity owe the entity some level of a duty of loyalty. Because that is such a long-held rule and expectation, I remain convinced that the option to eliminate the duty requires some type of special notice to those entering an entity. Until now, even conceding that a lack of control could put an LLC member "almost entirely at the mercy of those with the capacity to amend the operating agreement," the amending member's power was still limited by the duty of loyalty.
Ultimately, I tend to be a big fan of private ordering and freedom of contract, especially for LLCs. But, when we change fundamental rules, I also think we should more overtly acknowledge those changes, for at least some period of time, to let people catch up.
Saturday, September 7, 2019
Have you ever wanted to learn the basics about blockchain? Do you think it's all hype and a passing fad? Whatever your view, take a look at my new article, Beyond Bitcoin: Leveraging Blockchain to Benefit Business and Society, co-authored with Rachel Epstein, counsel at Hedera Hashgraph. I became interested in blockchain a year ago because I immediately saw potential use cases in supply chain, compliance, and corporate governance. I met Rachel at a Humanitarian Blockchain Summit and although I had already started the article, her practical experience in the field added balance, perspective, and nuance.
The abstract is below:
Although many people equate blockchain with bitcoin, cryptocurrency, and smart contracts, the technology also has the potential to transform the way companies look at governance and enterprise risk management, and to assist governments and businesses in mitigating human rights impacts. This Article will discuss how state and non-state actors use the technology outside of the realm of cryptocurrency. Part I will provide an overview of blockchain technology. Part II will briefly describe how public and private actors use blockchain today to track food, address land grabs, protect refugee identity rights, combat bribery and corruption, eliminate voter fraud, and facilitate financial transactions for those without access to banks. Part III will discuss key corporate governance, compliance, and social responsibility initiatives that currently utilize blockchain or are exploring the possibilities for shareholder communications, internal audit, and cyber security. Part IV will delve into the business and human rights landscape and examine how blockchain can facilitate compliance. Specifically, we will focus on one of the more promising uses of distributed ledger technology -- eliminating barriers to transparency in the human rights arena thereby satisfying various mandatory disclosure regimes and shareholder requests. Part V will pose questions that board members should ask when considering adopting the technology and will recommend that governments, rating agencies, sustainable stock exchanges, and institutional investors provide incentives for companies to invest in the technology, when appropriate. Given the increasing widespread use of the technology by both state and non-state actors and the potential disruptive capabilities, we conclude that firms that do not explore blockchain’s impact risk obsolescence or increased regulation.
Things change so quickly in this space. Some of the information in the article is already outdated and some of the initiatives have expanded. To keep up, you may want to subscribe to newsletters such as Hunton, Andrews, Kurth's Blockchain Legal Resource. For more general information on blockchain, see my post from last year, where I list some of the videos that I watched to become literate on the topic. For additional resources, see here and here.
If you are interested specifically in government use cases, consider joining the Government Blockchain Association. On September 14th and 15th, the GBA is holding its Fall 2019 Symposium, “The Future of Money, Governance and the Law,” in Arlington, Virginia. Speakers will include a chief economist from the World Bank and banking, political, legal, regulatory, defense, intelligence, and law enforcement professionals from around the world. This event is sponsored by the George Mason University Schar School of Policy and Government, Criminal Investigations and Network Analysis (CINA) Center, and the Government Blockchain Association (GBA). Organizers expect over 300 government, industry and academic leaders on the Arlington Campus of George Mason University, either in person or virtually. To find out more about the event go to: http://bit.ly/FoMGL-914.
Blockchain is complex and it's easy to get overwhelmed. It's not the answer to everything, but I will continue my focus on the compliance, governance, and human rights implications, particularly for Dodd-Frank and EU conflict minerals due diligence and disclosure. As lawyers, judges, and law students, we need to educate ourselves so that we can provide solid advice to legislators and business people who can easily make things worse by, for example, drafting laws that do not make sense and developing smart contracts with so many loopholes that they cause jurisdictional and enforcement nightmares.
Notwithstanding the controversy surrounding blockchain, I'm particularly proud of this article and would not have been able to do it without my co-author, Rachel, my fantastic research assistants Jordan Suarez, Natalia Jaramillo, and Lauren Miller from the University of Miami School of Law, and the student editors at the Tennessee Journal of Business Law. If you have questions or please post them below or reach out to me at email@example.com.
September 7, 2019 in Compliance, Conferences, Contracts, Corporate Governance, Corporations, CSR, Current Affairs, Financial Markets, Human Rights, Law Reviews, Lawyering, Legislation, Marcia Narine Weldon, Securities Regulation, Shareholders, Technology | Permalink | Comments (0)