Friday, December 7, 2018
In Hexion Specialty Chemicals, Inc. v. Huntsman Corp., 965 A.2d 715, 730 (Del. Ch. 2008) – a case I worked on as a judicial clerk – the court wrote, “[m]any commentators have noted that Delaware courts have never found a material adverse effect to have occurred in the context of a merger agreement.”
That statement is no longer true.
Today--in a 3 page opinion--the Delaware Supreme Court affirmed the 240+ page opinion by Vice Chancellor Travis Laster in Akorn, Inc. v. Fresenius Kabi, AG, et al., which held that Akorn triggered the Material Adverse Effect ("MAE") clause of the merger agreement at issue.
As the Chancery Daily reports, and as is clear looking at the recent opinions, the Delaware Supreme Court opinion does not provide much reasoning for its decision to affirm, but the Court of Chancery opinion does provide plenty of guidance. In the first few pages, the Court of Chancery notes that Akorn experienced a "dramatic, unexpected, and company-specific downturn in...business that began in the quarter after signing." The Court of Chancery also notes the importance of whistleblower letters and issues with Akron and the FDA.
Also of interest, the court notes that this was an expedited case -- a real benefit of the Delaware Court of Chancery. The parties only had 11 weeks leading up to the trial. At the five day trial, there were 54 depositions transcripts lodged, 1,892 exhibits introduced into evidence, and 16 live witnesses (including 7 experts). Those poor lawyers -- and judicial clerks!
Tuesday, November 27, 2018
Last week I posted Can LLC Members Be Employees? It Depends (Because of Course It Does), where I concluded that "as far as I am concerned, LLC members can also be LLCs employees, even though the general answer is that they are not. " I thought I would follow up today with an example of an LLC member who is also an employee.
I am not teaching Business Associations until next semester, but it galls me a little that I did not note this case last week, as it is a case that I teach as part of the section on fiduciary duties in Delaware.
Genitrix, LLC, is a Delaware limited liability company formed to develop and market biomedical technology. Dr. Segal founded the Company in 1996 following his postdoctoral fellowship at the Whitehead Institute for Biomedical Research. Originally formed as a Maryland limited liability company, Genitrix was moved in 1997 to Delaware at the behest of Dr. H. Fisk Johnson, who invested heavily.
Equity in Genitrix is divided into three classes of membership. In exchange for the patent rights he obtained from the Whitehead Institute, Segal's capital account was credited with $500,000. This allowed him to retain approximately 55% of the Class A membership interest. . . .Under the [LLC] Agreement, the Board of Member Representatives (the “Board”) manages the business and affairs of the Company. As originally contemplated by the Agreement, the Board consisted of four members: two of whom were appointed by Johnson and two of whom were appointed by Segal. In early 2007, however, the balance of power seemingly shifted. . . .Dr. Andrew Segal, fresh out of residency training, worked for the Whitehead Institute for Biomedical Research . . . [and when he] left the Whitehead Institute and obtained a license to certain patent rights related to his research.
With these patent rights in hand, Dr. Segal formed Genitrix. Intellectual property rights alone, however, could not fund the research, testing, and trials necessary to bring Dr. Segal's ideas to some sort of profitable fruition. Consequently, Segal sought and obtained capital for the Company. Originally, Segal served as both President and Chief Executive Officer, and the terms of his employment were governed by contract (the “Segal Employment Agreement”). Under the Segal Employment Agreement, any intellectual property rights developed by Dr. Segal during his tenure with Genitrix would be assigned to the Company.
Fisk Ventures, LLC v. Segal, No. CIV.A. 3017-CC, 2008 WL 1961156, at *2 (Del. Ch. May 7, 2008) (emphasis added) (footnotes omitted).
Co-blogger Joan Heminway noted in a comment to last week's post that what it means to be an employee can vary, based on statutory and other conditions, which is certainly true. I stand by my prior conclusion that it depends on the case whether a particular member of an LLC is an employee, and even that can vary based on context. Thus, LLC members are not inherently employees, and perhaps most of the time they are not, but it's also true that LLC members can be employees.
Finally, as to the Fisk Ventures case, in case you're curious, the short of it is that Fisk decided not to provide additional financing to Genitirx, and Segal sued claimed that not doing so breached certain fiduciary duties under the LLC agreement and further various acts "tortiously interfered with the Segal Employment Agreement." Ultimately, Chancellor Chandler determined that there was no duty breached, the obligation of good faith and fair dealing did not block certain members from exercising express contractual rights, and the agreement's clause disclaming any fiduciary duties was valid.
Tuesday, October 30, 2018
Tom Rutledge, at Kentucky Business Entity Law Blog, writes about a curious recent decision in which the Kentucky Court of Appeals overrule a trial court, holding that the law of piercing the veil required the LLC veil to be pierced. Tavadia v. Mitchell, No. 2017-CA-001358-MR, 2018 WL 5091048 (Ky. App. Oct. 19, 2018).
Here are the basics (Tom provides an even more detailed description):
Sheri Mitchell formed One Sustainable Method Recycling, LLC (OSM) in 2013. Mitchell initially a 99% owner and the acting CEO with one other member holding 1%. Mitchell soon asked Behram Tavadia to invest in the company, which he did.
He loaned OSM $40K at 6% interest from his business Tavadia Enterprises, Inc. (to be repaid $1,000 per month, plus 5% of annual OSM profits). There was no personal guarantee from Mitchell. OSM then received a $150,000 a business development from METCO, which Tavadia personally guaranteed and pledged certain bonds as security.
Two years (and no loan payments) later under the original $40,000 loan, Tavadia agreed to delay repayment. OSM and Tavadia the created a second loan for $250,000, refinancing the original $40,000 and a subsequent Tavadia $12,000 loan. This loan provided Tavadia a 25% ownership interest in OSM, but there was still no personal guarantee on the loan. Mitchell claimed this loan was needed to purchase essential equipment (no equipment was purchased). OSM then received a $20,000 loan from Fundworks, LLC, which was secured by Mitchell, who signed Tavadia’s name for OSM and she signed a personal guarantee in Tavadia’s name (both without permission).
Not surprisingly, in October 2015, OSM stopped operations, the equipment was sold, and more than half of the sale proceeds were deposited in Mitchell’s personal bank account, with the rest going to OSM’s account. OSM (naturally) defaulted on the Fundworks’ loan, which Tavadia learned about when Fundworks demanded repayment. The METCO loan also defaulted, and Tavadia was asked to provide funds from the bonds he provided as collateral.
Okay, so it sounds like Mitchell took advantage of Tavadia and engaged in some elements of fraud. What I can’t figure out from this case is why we’re talking about veil piercing.
First, the court states: “The evidence presented at trial demonstrated that Mitchell diverted OSM assets into her own account.” Tavadia v. Mitchell, No. 2017-CA-001358-MR, 2018 WL 5091048, at *5 (Ky. Ct. App. Oct. 19, 2018). So that money Mitchell owes to OSM, which owes money to Tavadia. The court noted that at least half the funds from the sale of OSM equipment went into Mitchell’s personal account. That needs to go back to OSM, and if veil piercing has value, then a simple order of repayment should be, too.
Second, the Fundworks loan, which Mitchell signed for, is really her loan, not Tavadia’s. He did not know about it until they sought payment, so it wasn’t ratified, and there is no other indication she has authority to enter into the contract.
At a minimum, these funds are owed Tavadia (or OSM) and should be itemized as such. Presumably, that is not enough money to make Tavadia whole. And I don’t know he should be. To the extent there were legitimate (if poorly executed) business attempts, he is on the hook for those losses. As such, I don’t see this as a veil-piercing case.
Instead, Tavadia should be able to sue Mitchell for her fraudulent actions that harmed him directly. And Tavadia should be able to make OSM sue Mitchell for improper transfers and fraud.
Maybe there are other theories for recovery, too, but veil piercing should not be one. Mitchell did not use the entity to commit fraud. She committed fraud directly. Just because there is an entity, plus an unpaid loan, it does not make this a veil-piercing case. In fact, because Tavadia is a member of the LLC, I think there is a reasonable argument that (absent truly unique circumstances) veil piercing cannot apply.
I am sympathetic that Tavadia was taken advantage of, and I think that Mitchell should have a significant repayment obligation to him, but I just don’t think this claim should be rooted in veil piercing. At a minimum, like in administrative law, one should have to exhaust his or her remedies before proceeding to a veil-piercing theory.
Monday, September 24, 2018
This past Friday, Burr & Forman LLP and the Clayton Center for Entrepreneurial Law at the University of Tennessee College of Law (including its business law journal, Transactions: The Tennessee Journal of Business Law), cosponsored a conference entittled "Law and Business Tech: Cybersecurity, Blockchain and Electronic Transactions." This was, as you may recognize, the second business law conference UT Law sponsored in a week's time (the first being the Business Law Prof Blog symposium, "Connecting the Threads II," the week before). It has been a busy time for business law faculty and students at UT Law!
(Parenthetically, I will note here that one of the attendees at Friday's event, who also had been at the Business Law Prof blog symposium, came back to this past week's conference because he was so jazzed up about Marcia's presentation at the first event--which she mentions here and here. Thanks, Marcia, for encouraging this interest in blockchain technology in our legal community!)
At Friday's conference, I moderated and participated in a panel on "The Coming Second Wave of Digital and other Electronic Signatures in Commerce." The panelists included Ed Snow of Burr & Forman and Katy Blackwell from SIGNiX. The panel walked through a history and course of conduct from handwritten signatures to electronic signatures to digital signatures, discussing the transitions from one to another (which are, as yet, incomplete). Interesting questions emerged as among us as to, e.g., why banking/credit transactions and mergers/acquisitions tend to lag behind in the adoption of new signature technologies. (Your thoughts are welcomed.)
At the end of the prepared program, my co-panelists asked me to speak about Tennessee's adoption of a digital signature statute back in the spring. This was another of the legislative review projects that I have undertaken as a member of the Tennessee Bar Association Business Section Executive Council. We were given 24-48 hours to comment on a digital signature bill that had been introduced in the Tennessee General Assembly based on an Arizona statute adopted in 2017 (information available here). Although I personally thought the bill/statutory revision was likely unnecessary and would have preferred to spend more time studying it before commenting on it, two of us on the Executive Council pooled comments on the draft bill, which also received comments from other quarters.
The ostensible legislative policy was to ensure the enforceability of legally valid and binding transactions occurring in a distributed ledger environment. Tennessee proponents of the bill wanted to support business in this environment, as I noted in commentary quoted in this article. With that in mind, two issues were, in the short time we had, important.
Tuesday, September 4, 2018
I am teaching Sports Law this semester, which is always fun. I like to highlight other areas of the law for my students so that they can see that Sports Law is really an amalgamation of other areas: contract law, labor law, antitrust law, and yes, business organizations. I sometimes cruise the internet for examples to make my point that they really need to have a firm grounding the basics of many areas of law to be a good sports lawyer. Today, I found a solid example, and not in a good way.
I found a site providing advice about "How to Start a Sports Agency" at the site https://www.managerskills.org. This is site is new to me. Anyway, it starts off okay:
Ask any successful sports agent: education is the foundation upon which you will build your business. The first step is to earn your bachelor’s degree from an appropriately accredited institution.
. . . .
Once you have obtained your bachelor’s degree, the next step will be to pursue your master’s degree. Alternately, you may choose to pursue a law degree.
While a law degree is not required, the skills you acquire during your studies will be particularly beneficial when it comes to negotiating contracts for your clients. Most major leagues, including the NFL and the NBA, requires their sports agents to possess a master’s degree.
All true. A law degree should also help when it comes to figuring out your entity choice. The site's advice continues:
The next step is to choose a professional name for your business and to create a limited liability corporation (LLC). If you have one or more business partners, then you will need to create a limited liability partnership (LLP).
Yikes. I mean, yikes. First, an LLC is a limited liability company!
Second, I believe that after Massachusetts allowed single-member LLCs in 2003, all states allowed the creation of single-member LLCs, so an LLC is an option. An LLP might be an option, and some professional entities for certain lawyers might be an option (or requirement), such as the PLLC or PC. But the idea that one needs to choose an LLP if there is more than one person participating in the business is flawed. It is correct that to be an LLP, there would need to be more than one person, but this is not transitive.
Anyway, while not great advice, this gives me some good material for class tomorrow. I will probably start with, "Don't believe everything you read on the Internet."
Saturday, September 1, 2018
Did I lose you with the title to this post? Do you have no idea what a DAO is? In its simplest terms, a DAO is a decentralized autonomous organization, whose decisions are made electronically by a written computer code or through the vote of its members. In theory, it eliminates the need for traditional documentation and people for governance. This post won't explain any more about DAOs or the infamous hack of the Slock.it DAO in 2016. I chose this provocative title to inspire you to read an article entitled Legal Education in the Blockchain Revolution.
The authors Mark Fenwick, Wulf A. Kaal, and Erik P. M. Vermeulen discuss how technological innovations, including artificial intelligence and blockchain will change how we teach and practice law related to real property, IP, privacy, contracts, and employment law. If you're a practicing lawyer, you have a duty of competence. You need to know what you don't know so that you avoid advising on areas outside of your level of expertise. It may be exciting to advise a company on tax, IP, securities law or other legal issues related to cryptocurrency or blockchain, but you could subject yourself to discipline for doing so without the requisite background. If you teach law, you will have students clamoring for information on innovative technology and how the law applies. Cornell University now offers 28 courses on blockchain, and a professor at NYU's Stern School of Business has 235 people in his class. Other schools are scrambling to find professors qualified to teach on the subject.
To understand the hype, read the article on the future of legal education. The abstract is below:
The legal profession is one of the most disrupted sectors of the consulting industry today. The rise of Legal Tech, artificial intelligence, big data, machine learning, and, most importantly, blockchain technology is changing the practice of law. The sharing economy and platform companies challenge many of the traditional assumptions, doctrines, and concepts of law and governance, requiring litigators, judges, and regulators to adapt. Lawyers need to be equipped with the necessary skillsets to operate effectively in the new world of disruptive innovation in law. A more creative and innovative approach to educating lawyers for the 21st century is needed.
For more on how blockchain is changing business and corporate governance, come by my talk at the University of Tennessee on September 14th where you will also hear from my co-bloggers. In case you have no interest in my topic, it's worth the drive/flight to hear from the others. The descriptions of the sessions are below:
Session 1: Breach of Fiduciary Duty and the Defense of Reliance on Experts
Many corporate statutes expressly provide that directors in discharging their duties may rely in good faith upon information, opinions, reports, or statements from officers, board committees, employees, or other experts (such as accountants or lawyers). Such statutes often come into play when directors have been charged with breaching their procedural duty of care by making an inadequately informed decision, but they can be applicable in other contexts as well. In effect, the statutes provide a defense to directors charged with breach of fiduciary duty when their allegedly uninformed or wrongful decisions were based on credible information provided by others with appropriate expertise. Professor Douglas Moll will examine these “reliance on experts” statutes and explore a number of questions associated with them.
Session 2: Fact or Fiction: Flawed Approaches to Evaluating Market Behavior in Securities Litigation
Private fraud actions brought under Section 10(b) of the Securities Exchange Act require courts to make a variety of determinations regarding market functioning and the economic effects of the alleged misconduct. Over the years, courts have developed a variety of doctrines to guide how these inquiries are to be conducted. For example, courts look to a series of specific, pre-defined factors to determine whether a market is “efficient” and thus responsive to new information. Courts also rely on a variety of doctrines to determine whether and for how long publicly-available information has exerted an influence on security prices. Courts’ judgments on these matters dictate whether cases will proceed to summary judgment and trial, whether classes will be certified and the scope of such classes, and the damages that investors are entitled to collect. Professor Ann M. Lipton will discuss how these doctrines operate in such an artificial manner that they no longer shed light on the underlying factual inquiry, namely, the actual effect of the alleged fraud on investors.
Session 3: Lawyering for Social Enterprise
Professor Joan Heminway will focus on salient components of professional responsibility operative in delivering advisory legal services to social enterprises. Social enterprises—businesses that exist to generate financial and social or environmental benefits—have received significant positive public attention in recent years. However, social enterprise and the related concepts of social entrepreneurship and impact investing are neither well defined nor well understood. As a result, entrepreneurs, investors, intermediaries, and agents, as well as their respective advisors, may be operating under different impressions or assumptions about what social enterprise is and have different ideas about how to best build and manage a sustainable social enterprise business. Professor Heminway will discuss how these legal uncertainties have the capacity to generate transaction costs around entity formation and management decision making and the pertinent professional responsibilities implicated in an attorney’s representation of such social enterprises.
Session 4: Beyond Bitcoin: Leveraging Blockchain for Corporate Governance, Corporate Social Responsibility, and Enterprise Risk Management
Although many people equate blockchain with bitcoin, cryptocurrency, and smart contracts, Professor Marcia Narine Weldon will discuss how the technology also has the potential to transform the way companies look at governance and enterprise risk management. Companies and stock exchanges are using blockchain for shareholder communications, managing supply chains, internal audit, and cybersecurity. Professor Weldon will focus on eliminating barriers to transparency in the human rights arena. Professor Weldon’s discussion will provide an overview of blockchain technology and how state and nonstate actors use the technology outside of the realm of cryptocurrency.
Session 5: Crafting State Corporate Law for Research and Review
Professor Benjamin Edwards will discuss how states can implement changes in state corporate law with an eye toward putting in place provisions and measures to make it easier for policymakers to retrospectively review changes to state law to discern whether legislation accomplished its stated goals. State legislatures often enact and amend their business corporation laws without considering how to review and evaluate their effectiveness and impact. This inattention means that state legislatures quickly lose sight of whether the changes actually generate the benefits desired at the time off passage. It also means that state legislatures may not observe stock price reactions or other market reactions to legislation. Our federal system allows states to serve as the laboratories of democracy. The controversy over fee-shifting bylaws and corporate charter provisions offers an opportunity for state legislatures to intelligently design changes in corporate law to achieve multiple state and regulatory objectives. Professor Edwards will discuss how well-crafted legislation would: (i) allow states to compete effectively in the market for corporate charters; and (ii) generate useful information for evaluating whether particular bylaws or charter provisions enhance shareholder wealth.
Session 6: An Overt Disclosure Requirement for Eliminating the Duty of Loyalty
When Delaware law allowed parties to eliminate the duty of loyalty for LLCs, more than a few people were appalled. Concerns about eliminating the duty of loyalty are not surprising given traditional business law fiduciary duty doctrine. However, as business agreements evolved, and became more sophisticated, freedom of contract has become more common, and attractive. How to reconcile this tradition with the emerging trend? Professor Joshua Fershée will discuss why we need to bring a partnership principle to LLCs to help. In partnerships, the default rule is that changes to the partnership agreement or acts outside the ordinary course of business require a unanimous vote. See UPA § 18(h) & RUPA § 401(j). As such, the duty of loyalty should have the same requirement, and perhaps that even the rule should be mandatory, not just default. The duty of loyalty norm is sufficiently ingrained that more active notice (and more explicit consent) is necessary, and eliminating the duty of loyalty is sufficiently unique that it warrants unique treatment if it is to be eliminated.
Session 7: Does Corporate Personhood Matter? A Review of We the Corporations
Professor Stefan Padfield will discuss a book written by UCLA Law Professor Adam Winkler, “We the Corporations: How American Businesses Won Their Civil Rights.” The highly-praised book “reveals the secret history of one of America’s most successful yet least-known ‘civil rights movements’ – the centuries-long struggle for equal rights for corporations.” However, the book is not without its controversial assertions, particularly when it comes to its characterizations of some of the key components of corporate personhood and corporate personality theory. This discussion will unpack some of these assertions, hopefully ensuring that advocates who rely on the book will be informed as to alternative approaches to key issues.
September 1, 2018 in Ann Lipton, Compliance, Conferences, Contracts, Corporate Governance, Corporate Personality, Corporations, Current Affairs, Employment Law, Human Rights, Intellectual Property, International Business, Joan Heminway, Joshua P. Fershee, Law School, Lawyering, LLCs, Marcia Narine Weldon, Real Property, Shareholders, Social Enterprise, Stefan J. Padfield, Teaching, Technology, Web/Tech | Permalink | Comments (0)
Sunday, August 12, 2018
We’re a month away from our second annual Business Law Professor Blog CLE, hosted at the University of Tennessee on Friday, September 14, 2018. We’ll discuss our latest research and receive comments from UT faculty and students. I’ve entitled my talk Beyond Bitcoin: Leveraging Blockchain for Corporate Governance, Corporate Social Responsibility, and Enterprise Risk Management, and will blog more about that after I finish the article. This is a really long post, but it’s chock full of helpful links for novices and experts alike and highlights some really interesting work from our colleagues at other law schools.
Two weeks ago, I posted some resources to help familiarize you with blockchain. Here’s a relatively simple definition from John Giordani at Forbes:
Blockchain is a public register in which transactions between two users belonging to the same network are stored in a secure, verifiable and permanent way. The data relating to the exchanges are saved inside cryptographic blocks, connected in a hierarchical manner to each other. This creates an endless chain of data blocks -- hence the name blockchain -- that allows you to trace and verify all the transactions you have ever made. The primary function of a blockchain is, therefore, to certify transactions between people. In the case of Bitcoin, the blockchain serves to verify the exchange of cryptocurrency between two users, but it is only one of the many possible uses of this technological structure. In other sectors, the blockchain can certify the exchange of shares and stocks, operate as if it were a notary and "validate" a contract or make the votes cast in online voting secure and impossible to alter. One of the greatest advantages of the blockchain is the high degree of security it guarantees. In fact, once a transaction is certified and saved within one of the chain blocks, it can no longer be modified or tampered with. Each block consists of a pointer that connects it to the previous block, a timestamp that certifies the time at which the event actually took place and the transaction data.
These three elements ensure that each element of the blockchain is unique and immutable -- any request to modify the timestamp or the content of the block would change all subsequent blocks. This is because the pointer is created based on the data in the previous block, triggering a real chain reaction. In order for any alterations to happen, it would be necessary for the 50%-plus-one of the network to approve the change: a possible but hardly feasible operation since the blockchain is distributed worldwide between millions of users.
In case that wasn’t clear enough, here are links to a few of my favorite videos for novices. These will help you understand the rest of this blog post.
- Blockchain Expert Explains One Concept in 5 Levels of Difficulty
- 19 Industries That Blockchain Will Disrupt
- How Blockchain is Changing Money and Business
To help prepare for my own talk in Tennessee, I attended a fascinating discussion at SEALS on Thursday moderated by Dean Jon Garon of Nova Southeastern University Shepard Broad College of Law called Blockchain Technology and the Law.
For those of you who don’t know how blockchain technology can relate to your practice or teaching, I thought I would provide a few questions raised by some of the speakers. I’ve inserted some (oversimplified)links for definitions. The speakers did not include these links, so if I have used one that you believe is incomplete or inaccurate, do not attribute it to them.
Del started the session by talking about the legal issues in blockchain consensus models. He described consensus models as the backbones for users because they: 1) allow users to interact with each other in a trustless manner; 2) ensure the integrity of the ledger in both normal and adversarial situations; and 3) create a “novel variety of networks with extraordinary potential” if implemented correctly. He discussed both permissioned (e.g. Ripple) and permissionless (Bitcoin) systems and how they differ. He then explained Proof of Work blockchains supported by miners (who solve problems to add blocks to the blockchain) and masternodes (who provide the backbone support to the blockchain). He pointed out how blockchains can reduce agency costs and problems of asymmetrical information and then focused on their utility in financial markets, securities regulation, and corporate governance. Del compared the issues related to off-chain governance, where decisionmaking first takes place on a social level and is then actively encoded into the protocol by the developers (used by Bitcoin and Ethereum) to on-chain governance, where developers broadcast their improvement protocols on-chain and then, once approved, those improvements are implemented into the code. He closed by listing a number of “big unanswered issues” related to regulatory guidance, liability for the performance of the technology and choice of consensus, global issues, and GDPR and other data privacy issues.
Catherine wants to help judges think about smart contracts. She asked, among other things, how judges should address remedies, what counts as substantial performance, and how smart contract audits would work. She questioned whether judges should use a consumer protection approach or instead follow a draconian approach by embracing automation and enforcing smart contracts as drafted to discourage their adoption by those who are not sophisticated enough to understand how they work.
Tonya focuses on blockchain and intellectual property. Her talked raised the issues of non-fungible tokens generated through smart contracts and the internet of value. She used the example of cryptokitties, where players have the chance to collect and breed digital cats. She also raised the question of what kind of technology can avoid infringement. For more on how blockchain can disrupt copyright law, read her post here.
In case you didn’t have enough trust issues with blockchain and cryptocurrency, Rebecca’s presentation focused on the “halo of immutability” and asked a few central questions: 1) why should we trust the miners not to collude for a 51% attack 2) why should we trust wallets, which aren’t as secure as people think; and 3) why should we trust the consensus mechanism? In response, some members of the audience noted that blockchain appeals to a libertarian element because of the removal of the government from the conversation.
Professor Carla Reyes, Michigan State University College of Law- follow her on Twitter at Carla Reyes (@Prof_CarlaReyes);
Carla talked about crypto corporate governance and the potential fiduciary duties that come out of thinking of blockchains as public trusts or corporations. She explained that governance happens on and off of the blockchain mechanisms through social media outlets such as Redditt. She further noted that many of those who call themselves “passive economic participants” are actually involved in governance because they comment on improvement processes. She also noted the paradox that off chain governance doesn’t always work very well because participants don’t always agree, but when they do agree, it often leads to controversial results like hard forks. Her upcoming article will outline potential fiduciaries (miner and masternode operators for example), their duties, and when they apply. She also asked the provocative question of whether a hard fork is like a Revlon event.
As a former chief privacy officer, I have to confess a bias toward Charlotte’s presentation. She talked about blockchain in healthcare focusing on these questions: will gains in cybersecurity protection outweigh specific issues for privacy or other legal issues (data ownership); what are the practical implications of implementing a private blockchain (consortium, patient-initiated, regulatory-approved); can this apply to other needed uses, including medical device applications; how might this technology work over geographically diverse regulatory structures; and are there better applications for this technology (e.g. connected health devices)? She posited that blockchain could work in healthcare because it is decentralized, has increased security, improves access controls, is more impervious to unauthorized change, could support availability goals for ransomware attacks and other issues, is potentially interoperable, could be less expensive, and could be controlled by regulatory branch, consortium, and the patient. She closed by raising potential legal issues related to broad data sharing, unanswered questions about private implementations, privacy requirements relating to the obligation of data deletion and correction (GDPR in the EU, China’s cybersecurity law, etc); and questions of data ownership in a contract.
Eric closed by discussing the potential tax issue for hard forks. He explained that after a hard fork, a new coin is created, and asked whether that creates income because the owner had one entitlement and now has two pieces of ownership. He then asked whether hard forks are more like corporate reorganizations or spinoffs (which already have statutory taxation provisions) or rather analogous to a change of wealth. Finally, he asked whether we should think about these transactions like a contingent right to do something in the future and how that should be valued.
Stay tuned for more on these and other projects related to blockchain. I will be sure to post them when they are done. But, ignore blockchain at your peril. There’s a reason that IBM, Microsoft, and the State Department are spending money on this technology. If you come to UT on September 15th, I’ll explain how other companies, the UN, NASDAQ, and nation states are using blockchain beyond the cryptocurrency arena.
August 12, 2018 in Commercial Law, Compliance, Conferences, Contracts, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, Human Rights, Law School, Lawyering, Legislation, Marcia Narine Weldon, Research/Scholarhip, Securities Regulation, Shareholders, Teaching, Technology, Writing | Permalink | Comments (0)
Monday, July 30, 2018
Hello to all from Tokyo, Japan (Honshu). I have been in Japan for almost a week to present at and attend the 20th General Congress of the International Academy of Comparative Law (IACL), which was held last week in Fukuoka, Japan (Kyushu). By the time you read this, I will be on my way home.
As it turns out, I was at the Congress with old business law friends Hannah Buxbaum (Indiana Maurer Law), Felix Chang (Cincinnati Law), and Frank Gevurtz (McGeorge Law), as well as erstwhile SEALS buddy Eugene Mazo (Rutgers Law). I also met super new academic friends from all over the world, including several from the United States. I attended all of the business law programs after my arrival (I missed the first day due to my travel schedule) and a number of sessions on general comparative and cross-border legal matters. All of that is too much to write about here, but I will give you a slice.
I spoke on the legal regulation of crowdfunding as the National Rapporteur for the United States. My written contribution to the project, which I am told will be part of a published volume, is on SSRN here. The entire project consists of eighteen papers from around the world, each of which responded to the same series of prompts conveyed to us by the General Rapporteur for the project (in our case, Caroline Kleiner from the University of Strasbourg). The General Rapporteur is charged with consolidating the information and observations from the national reports and synthesizing key take-aways. I do not envy her job! The importance of the U.S. law and market to the global phenomenon is well illustrated by this slide from Caroline's summary.
The Congress was different from other international crowdfunding events at which I have presented my work. The diversity of the audience--in terms of the number of countries and legal specialties represented--was significantly greater than in any other international academic forum at which I have presented. Our panel of National Rapporteurs also was a bit more diverse and different than what I have experienced elsewhere, including panelists hailing from from Argentina, Brazil, Canada, France, Germany, Poland, and Singapore (in addition to me). At international conferences focusing on the microfinance aspects of crowdfunding, participants from India and Africa are more prominent. I expect to say more about the individual national reports on crowdfunding in later posts, as the need or desire arises.
A few outtakes on other sessions follow.
July 30, 2018 in Conferences, Contracts, Corporate Finance, Corporate Governance, Crowdfunding, Current Affairs, International Business, International Law, Joan Heminway, Research/Scholarhip, Securities Regulation, Social Enterprise | Permalink | Comments (0)
Friday, July 27, 2018
Pura vida from Costa Rica. Between recovery from carpal tunnel surgery a few weeks ago and an ATV flip two days ago, I don’t have much mental or physical energy to do a full post. I haven’t mastered dictation so I’m typing this on an iPad with one hand. Next week, I’ll provide more substance as well as a preview on my September talk at our second annual BPLB symposium at the University of Tennessee. Today, I want to pass on some resources for those who don’t know anything about blockchain.
For those who want to provide resources for students, Walter Effross has put together a great site:
The following sources come from Professor Tonya Evans at UNH, who has developed an online curriculum on blockchain:
Blockchain + Law:
Next week, I’ll talk about my research into how blockchain is used in corporate governance, compliance, supply chain management, enterprise risk management, cybersexurity, and human rights.
Tuesday, July 3, 2018
Bernard Sharfman has posted Dual Class Share Voting versus the “Empty Voting” of Mutual Fund Advisors’ and it is an interesting read. He argues:
Dual class shares (shares with unequal voting rights) arise when the board of directors of a company decides to raise capital through the sale of newly issued shares, but wants one or more insiders, who may be giving up economic control through the issuance of the shares, to retain voting control in the company. Typically, this occurs in an initial public offering (IPO), but it can also occur before. In an IPO, a company will usually issue a class of common stock to the public that carries one vote per share (ordinary shares), while reserving a separate class, a super-voting class, that provide insiders with at least 10 votes per share. However, both types of shares will have equal rights to the cash flow of the company. The issuance of dual class shares may create a wide gap between voting and cash flow rights over time, especially if the insiders periodically sell a significant amount of their ordinary shares.
But this is the critical point. A dual class share structure cannot exist without the permission of those shareholders who are purchasing the ordinary shares at the price offered. The bargaining process that leads to the issuance of dual class shares is referred to as “private ordering.” . . . .
. . .
By contrast, the empty voting of mutual fund advisors is not a firm specific corporate governance arrangement that results from private ordering. It is the consequence of the industry practice of centralizing the voting of mutual funds into the hands of their advisor’s corporate governance department. As a result of this delegation of voting authority, mutual fund advisors have the voting power, but not the economic interest in the shares that they vote.
I am not evangelical about dual-class shares, but I do appreciate his point on private-ordering, which is similar (as I have noted before) to my take in many circumstances. His distinction between dual-class shares and empty voting for mutual fund advisors is a compelling one, and I recommend checking out the whole post.
Friday, June 1, 2018
Greetings from Atlanta, Georgia, site of the Emory Transactional Law & Skills Conference. After only a few hours of presentations, I'm already inspired to make some changes in my new transactional lawyering class. I will write about some of the lessons learned next week. Today, I want to share some of Tina Stark's remarks from the conference dinner that ended moments ago. Although she initially teased the audience by stating that she would make "subversive" statements, nothing that she said would scandalize most law students or surprise practicing lawyers.
Her "radical" proposal entailed having transactional skills education be a part of every law student's curriculum. In support, she cited ABA Standard 301(a), which states:
OBJECTIVES OF PROGRAM OF LEGAL EDUCATION (a) A law school shall maintain a rigorous program of legal education that prepares its students, upon graduation, for admission to the bar and for effective, ethical, and responsible participation as members of the legal profession.
She argued that for the academy to meet this standard, schools must go beyond a narrow reading of ABA rules and provide every student with the foundation to practice transactional law, particularly because half of graduates will practice in that area even if they don't know it while they are in law school. She also referenced ABA Standard 302, which states in part:
LEARNING OUTCOMES A law school shall establish learning outcomes that shall, at a minimum, include competency in the following: (a) Knowledge and understanding of substantive and procedural law; (b) Legal analysis and reasoning, legal research, problem-solving, and written and oral communication in the legal context.
Stark correctly observed that notwithstanding the litigation focus in law school, lawyers write more than predictive memos and briefs. She emphasized that competency in oral and communication skills is particularly important for deal lawyers.
If she came even close to being "radical," (and I don't think she did), it's because she went beyond calling on more schools to offer, much less require drafting courses. Instead, she recommended that schools add at least one credit to the first year contracts course so that students can learn the structure of contracts and build a foundation for more advanced work. She likened law students failing to learn the parts of a contract to medical students studying anatomy without doing dissections.
She anticipated the argument that schools do not have enough time to add an extra credit to the basic contracts course by countering that another first year course could be moved to the second year. This would allow professors to spend the first part of the semester teaching 1Ls to read and analyze a contract so that they can understand business drivers when reading cases in contracts and property class.
Although some in the academy might resist the proposal, I believe that members of the bar and business community would applaud this move. If the long waiting list for my transactional lawyering course and similar ones around the country are any indication, law students would appreciate more balance in the curriculum as well.
Monday, April 23, 2018
Call for Papers for the
Section on Business Associations Program on
Contractual Governance: the Role of Private Ordering
at the 2019 Association of American Law Schools Annual Meeting
The AALS Section on Business Associations is pleased to announce a Call for Papers from which up to two additional presenters will be selected for the section’s program to be held during the AALS 2019 Annual Meeting in New Orleans on Contractual Governance: the Role of Private Ordering. The program will explore the use of contracts to define and modify the governance structure of business entities, whether through corporate charters and bylaws, LLC operating agreements, or other private equity agreements. From venture capital preferred stock provisions, to shareholder involvement in approval procedures, to forum selection and arbitration, is the contract king in establishing the corporate governance contours of firms? In addition to paper presenters, the program will feature prominent panelists, including SEC Commissioner Hester Peirce and Professor Jill E. Fisch of the University of Pennsylvania Law School.
Our Section is proud to partner with the following co-sponsoring sections: Agency, Partnership, LLC's and Unincorporated Associations; Contracts; Securities Regulation; and Transactional Law & Skills.
Please submit an abstract or draft of an unpublished paper to Anne Tucker, email@example.com on or before August 1, 2018. Please remove the author’s name and identifying information from the submission. Please include the author’s name and contact information in the submission email.
Papers will be selected after review by members of the Executive Committee of the Section. Authors of selected papers will be notified by August 25, 2018. The Call for Papers presenters will be responsible for paying their registration fee, hotel, and travel expenses.
Any inquiries about the Call for Papers should be submitted to: Anne Tucker, Georgia State University College of Law, firstname.lastname@example.org or (404) 413.9179.
[Editorial note: As some may recall, the BLPB hosted a micro-symposium on aspects of this issue in the limited liability company context in anticipation of a program held at the 2016 AALS annual meeting. The initial post for that micro-symposium is here, and the wrap-up post is here. This area--especially as writ broadly in this proposal--remains a fascinating topic for study and commentary.]
April 23, 2018 in Anne Tucker, Business Associations, Call for Papers, Conferences, Contracts, Corporate Finance, Corporate Governance, Corporations, Joan Heminway, LLCs, Nonprofits, Partnership | Permalink | Comments (0)
Saturday, April 21, 2018
Last week, I blogged blogged about lawsuits against chocolate makers alleging unfair and deceptive trade practices for failure to disclose that the companies may have used child slaves to harvest their products. Today, I want to discuss steps that the Business Law Section of the American Bar Association is taking to provide more transparency in supply chain practices.
In 2014, the ABA House of Delegates adopted Model Principles on Labor Trafficking and Child Labor developed by over 50 judges, in-house counsel, outside counsel, academics, and NGOs. The Model Principles address the UN Guiding Principles on Business and Human Rights and other hard and soft law regimes. At last week’s ABA Business Law Spring Meeting, academics David Snyder and Jennifer Martin presented on human rights issues in supply chains alongside practicing lawyers and in-house executives. Many of them (and several others) had formed a Working Group to Draft Human Rights Protections in Supply Contracts. The Group aims to provide contract clauses that are “legally effective” and “operationally likely.”
As a former Deputy GC for a supply chain management company, I can attest that the ABA’s focus is timely as companies answer questions from customers, regulators, shareholders, and other stakeholders. Human rights issues play out in dozens of regulations, including, but not limited to: the Foreign Corrupt Practices Act, Trafficking Victims Protection Act, Dodd-Frank Conflict Minerals Act, California Transparency in Supply Chains Act, the UK Modern Slavery Act, the Trade Facilitation and Trade Enforcement Act, and the updated Federal Acquisition Regulations. Australia and at least seven EU countries are currently working on their own regulations. Savvy lawyers have use the Alien Tort Statute, RICO, negligence, and false advertising allegations to state claims, with varying success.
The following statistics may provide some context. Thanks to e. Christopher Johnson, Jr., CEO of the Center for Justice, Rights, and Dignity.
- there are 21 million victims of human trafficking
- Human trafficking provides $150 billion in profit
- Women and girls are 55% of the victims, and children 17 and under are 26%
To help companies mitigate their supply chain risks, the Business Law and UC Article 1 and Article 2 Committees have drafted more specific model clauses to incorporate human rights provisions in certain contracts. The Committees are also establishing an information exchange with NGOs and developing a Toolkit for Canadian lawyers.
One of the most practical features of the Group’s work is Schedule P, the warranties and remedies to protect human rights in the supply chain. The Working Group’s Report provides guidance on how to use the clauses as well as potential limitations. It’s a long read but I recommend that you look at the report and consider whether the model clauses and Schedule P, an appendix to supplier agreements, will help in the fight to combat human trafficking and forced labor.
Friday, March 9, 2018
I love teaching courses that develop practical skills. This summer, I am teaching a 2-credit transactional drafting course for the first time. In the past, I have taught 2-credit skills courses that had a drafting element, but the students enrolled in those courses typically had taken business associations, and therefore we could do entity selection exercises, portions of bylaws, operating agreements, asset purchase agreements, NDAs, and employment agreement clauses. This time, BA will not be a prerequisite, and I am likely to have a number of rising 2Ls enroll.
I have a pile of proposed textbooks that I'm looking to for inspiration (and to select for the course), but I'm specifically seeking tips and best practices for teaching these skills to students who are fresh off of their 1L year. I plan to have a number of practicing lawyers speak to the students about common pitfalls in negotiating and drafting because I have the luxury of one three-hour block of time per week. At a minimum, students will draft, edit, and redline (where appropriate) a retainer letter, time sheets, a nondisclosure agreement, an independent contractor or employment agreement, and a license or settlement agreement. The goal is to have them draft some documents from scratch, some from forms, learn interviewing and negotiation techniques, and apply some business judgment to address client concerns.
What has worked (or bombed) when you've taught a transactional drafting class, especially to those who have not taken BA? For the practicing attorneys, what would you want your interns or junior associates to have worked on prior to joining you? Inquiring minds want to know. Please comment below or feel free to email me at email@example.com.
Friday, December 15, 2017
Recently, the International Olympic Committee (IOC) announced that Russia will be banned from the 2018 Winter Games for systemic doping.
If you have not watched Icarus (on Netflix) on this topic, I recommend it. The documentary starts slowly, and the story-line is a bit disjointed, but the information uncovered about state-sponsored doping in Russia is fascinating and depressing. Even if you are not a sports fan, you may be interested in the parts in the documentary related to the alleged involvement of the Russian government.
It has been a busy semester, but I am working (slowly) on a journal article on morality clauses in sports contracts. Doping is often specifically mentioned in these contracts, and doping is a sad reality in many sports. Doping also betrays, I think, improper prioritization. While we are starting to see more attention paid to courage and compassion in sports, "winning" has often been promoted as the top priority. Hopefully we will see more people (and countries) who compete with passion, but also with integrity.
Wednesday, September 27, 2017
You couldn't pay me enough to be the owner of an NFL team right now. I almost feel sorry for them. Even if you're not a fan, by now you've heard about the controversy surrounding NFL free agent Colin Kaepernick, and his decision to kneel during the national anthem last year. You've also probably heard about the President's call for NFL owners to fire players who don't stand while the anthem is played and his prediction of the league's demise if the protests continue. Surprisingly, last Sunday and Monday, some of the same owners who made a business decision to take a pass on Kaepernick despite his quarterback stats (citing among other things, the potential reactions of their fans) have now themselves made it a point to show solidarity with their players during the anthem. The owners are locking arms with players, some of whom are now protesting for the first time.
Football is big business, earning $13 billion last year, and the owners are sophisticated businessmen with franchises that are worth on average $2.5 billion dollars each. They care about their fans of course, and I'm sure that they monitor the various boycotts. They are also reading about lawmakers calling for funding cuts for teams that boycott. But they also care about their sponsors. Fortunately for the NFL (and for the players who have lucrative deals), most sponsors that have made statements have walked a fine line between supporting both the flag and free speech. The question is, how long will all of this solidarity last? There is no clear correlation between the rating shifts and the protests but as soon as there is definitive proof or sponsors start to pull out, I predict the owners will do a difficult cost-benefit analysis. Most teams aren't like the Green Bay Packers, which has no "owner," but instead has over 100,000 shareholders. Most teams don't have boards of directors or shareholders to answer to. Most of these owners used their own money or have very few business partners.
The NFL teams owners' decision to maintain support of the players will likely be more difficult than those of the many CEOs who have expressed their disagreement with the President over race-related matters by quitting his advisory boards (see my previous post ). Those CEOs could point to their own corporate codes of conduct or social responsibility statements. Those CEOs considered the reputational ramifications with their employees and their consumers, and the choice was relatively straightforward, especially because there was a more unified public outrage. The NFL owners, on the other hand, have highly skilled "employees" from a finite pool of talent who have been called SOBs by the President but who are also being booed by the fans, their consumers. The owners can't be fired, and it's very difficult to remove them. Should the owners stick with the players (some of whom are brand new to the protest scene) or should they wait to see the latest polls about what fans think about the leadership of America's favorite sport? Should they fire players, as they probably could under their contracts? The big test may come during a planned boycott by veterans during Veteran's Day Weekend. Perhaps I will be proven wrong, and maybe boycotts will have an effect on what the NFL owners and players do, but I predict the players and owners will want to get back to the business of playing football sooner rather than later. I'll keep monitoring the situation this Sunday and for the rest of the season.
Wednesday, September 20, 2017
Friend of the blog and South Texas College of Law (Houston) Professor Joe Leahy sent over the following post he authored. It is cross-posted at UberLaw.Net and Medium. Embarrassingly, I had not heard about Loftium before reading this post, though at least I know of and have used Airbnb. Joe has some interesting thoughts, and I am happy to include his post on this blog.
Loftium will provide prospective homebuyers with up to $50,000 for a down payment, as long as they are willing to continuously list an extra bedroom on Airbnb for one to three years and share most of the income with Loftium over that time.
At first glance, the arrangement between Loftium and participating homebuyers might sound like a loan. (Indeed, the Times even describes it as such in an infographic.) But upon a closer look, the arrangement that Loftium contemplates with homebuyers clearly is not a loan. First of all, Loftium says it is not a loan; rather, according to Loftium, the down payment assistance it provides to homebuyers is “a part of a services agreement” lasting 12-36 months. Second, and more important, the arrangement between Loftium and homebuyers has none of the characteristics of a traditional (term) loan. There is no “principal” amount that the homebuyer is required to repay in a set period of time, and Loftium does not charge the homeowner any “interest.” In fact, the homebuyer is not required to make anypayments to Loftium in return for the company’s cash (unless the homeowner breaches the parties’ agreement and stops renting on Airbnb before the term expires).
All the homebuyer must do in exchange for Loftium’s money is (1) list her spare room on Airbnb continuously through the term of her agreement with Loftium, (2) be a decent host (i.e., “not be rude to guests”) and (3) split her Airbnb rental revenue with Loftium (with two-thirds going to the company.) If, at the end of the term, Loftium has not been repaid its initial investment, the homeowner is not required to repay Loftium’s initial contribution. Hence, if renting out the homeowner’s spare room is not profitable during the term of the parties’ agreement, “Loftium takes full responsibility for that loss.”
Of course, Loftium expects that the total income from renting out a homeowner’s spare room will greatly exceed the amount that it originally provided to the homebuyer, so that both will profit. If Loftium makes more in rental income than it pays towards the homeowner’s down payment, Loftium will make a profit.
Further, by all appearances, there is no cap on Loftium’s potential profit is its business arrangement with homebuyers. In fact, Loftium makes clear that it wants to maximize the income that it splits with homebuyers: Loftium promises that it will work with them “to increase monthly bookings as much as possible, so both sides can benefit from the additional income.” To that end, Loftium provides homebuyers with some start-up supplies for their spare bedroom (and a keyless entry lock), access to advice and know-how regarding how to rent an Airbnb room, and online tools to help maximize their rental income.
So, if the business arrangement between Loftium and homeowners is not a loan, what is it? It is almost certainly a general partnership for a term (i.e., a “joint venture”).
[Post continues after the page break]
Tuesday, May 23, 2017
Last weekend, retired NFL receiver Calvin Johnson made news when he revealed that he was not pleased with the Detroit Lions and how they handled his retirement. Johnson is apparently frustrated that the Lions required him to pay back about 10% of the unearned $3.2 million remaining on his $16 million signing bonus from his 2012 contract. This is apparently a thing for the Lions, who sought all of the unearned signing bonus money remaining on Barry Sanders' contract when he abruptly retired in 1999.
This is in contrast to Tony Romo's retirement, in which the Dallas Cowboys released him, making the $5 million remaining on the signing bonus Romo's. Cowboys owner Jerry Jones said he was following the “Do Right Rule” when he allowed the team to release him. The Seattle Seahawks made a similar decision with Marshawn Lynch.
Some have argued that Johnson is being "pettier" than the Lions in this spat. Mike Florio, a sports writer and graduate of WVU College of Law, where I teach, argued that "while Johnson has every right to be miffed at the Lions, Johnson also should be miffed at himself. Or at whoever advised him to retire instead of biding his time until the Lions would have released him." Florio correctly notes that Johnson had a big cap number likely to come due had he not retired or accepted a restructured deal, so he was coming from a position of power in negotiating, which would have likely forced the Lions to cut him. Still, that doesn't mean Johnson is wrong to be frustrated.
Perhaps Johnson didn't ever want to be cut in his career, even at that point in his carerr. Maybe he just wanted to retire. The Lions were worried, perhaps about "precedent" that other players could use to walk away without paying back the bonus, though there is already such precedent out there, as discussed above, and the Lions have non-binding precedent already in the Barry Sanders case, where an arbitrator said Sanders had to pay back some of his signing bonus. Beyond that, the response to most players would simply be, "I know we didn't ask Calvin Johnson for any money back. You're not Calvin Johnson."
It is true that the Lions could seek money from Johnson, and that Johnson almost certainly, from a legal sense, owed the money. But having a legal right to something doesn't always mean it is a good idea. And that is important for lawyers to remember. The question I would have asked the Lions front office is this: "Is it really worth $320,000 when it is possible that one of your greatest players will feel disrespected by the process? Especially when you already created a rift with one of you other greatest players fifteen years ago?"
Maybe it was asked, and the answer was yes, but I just don't see the upside. My guess is that the Lions asked for a lot more and the two sides negotiated to this figure. But that process, not the payment, is likely what irked Johnson. Why does it matter? Because it tells future people the team wants, especially coaches and free agents, how the Lions do business. And when choosing between two similar offers, that could very well lead one to choose the other team.
I often use these kinds of issues facing a business when teaching the importance of the business judgment rule and allowing a board of directors not to pursue claims it can win (as long as there is no fraud or self dealing). Sometimes, it is better for the entity to let a claim go than to extend a bad story or scare off potential talent. Back in 2007, for example, Billy Donovan was hired to leave his head coaching job at the University of Florida to lead the NBA's Orlando Magic. Just days later, Donovan decided he did not want to leave Florida, and asked the Magic to let him return to the college game. The Magic decided to let him do so without any financial penalty, though they did ask him to agree not to coach in the NBA for five years.
Why let Donovan back out and return to Florida without a payment? For one, the Magic needed to hire a new coach, and you want to send a message that you are a good employer. Second, Donovan was beloved in Florida. He had won two NCAA championships in a key market for the team. Don't irritate your prime audience is always a good bit of advice. There was little upside to being difficult. The team was almost certainly irritated, but there is little value in letting that lead to bad publicity and unnecessary public spats. This principle extends well beyond the sports realm, but it is especially important in any area where employers fight for talent, which is common in the sports and entertainment areas.
In assessing the legal (and business) options for the Calvin Johnson situation, good lawyering requires a recognition that key issues were likely related to perception and respect, not money. As such, the fact that there was an argument about repayment at all was the issue that made Johnson frustrated (and now could have repercussions in the future free agent market). It is certainly possible the Lions assessed this risk and decided it was worth it. I disagree that it was worth it, but that would be a reasonable decision. (As a life-long Lions fan, I will need more evidence the problem was properly assessed, though I do hold out hope for the new front office.)
Such decisions, if made simply on the legal merits (e.g., Would I win in court?), run the risk of what Jeff Lipshaw calls "pure lawyering," which is essentially legal reasoning without context or assessment of non-legal impacts or opportunities. As Lipshaw explains in the preface to his book, Beyond Legal Reasoning, A Critique of Pure Lawyering:
Legal reasoning is merely one way of creating meaning out of circumstances in the real world. In its pure form, it does nothing more than convert a real-world narrative to a set of legal conclusions that have no necessary connection either to truth or morality.
Or the ability to recruit free agents.
Friday, April 28, 2017
We are in the middle of the final exam period, so this post will be short.
A friend of mine recently told me about a situation where he had been cheated out of a few thousand dollars. A clear contract was involved, and based on the facts I was told, the other party seems obviously in the wrong.
These situations, even if clear from the legal side, are often not worth pursuing through litigation in our current U.S. system. As most readers surely know, in the U.S. parties generally have to pay their own lawyers regardless of the outcome. In some situations, the lawyers may take the case on contingency, but most lawyers I know will not take a contingency case where the maximum recovery is a few thousand dollars. Maybe small claims court would be appropriate, but the learning and time costs involved may outweigh the potential recovery.
Perhaps this is as it should be. Perhaps we want parties to settle these smaller disputes outside the courts.
But, especially when the party in the wrong is much larger, and especially when the wrong is quite clear, it seems like we might want the courts involved to prevent this type of bad action from going without a remedy. Of course, class actions may be possible in some, though certainly not all, circumstances.
The law could make these situations more worthy of pursuit. Full expectation damages, that would put the harmed party where she would have been if the contract had been properly carried out, should consider not only legal fees but also the time and emotional energy expended to bring the claim. I do know that courts sometimes shift legal fees in egregious situations, but I think this is pretty rare, and I don't think I have ever heard of a situation where the plaintiff was reimbursed for her time and emotional energy expended in bringing the case. However, isn't that what true expectation damages would require? Without the breach, the plaintiff would not have spent time, energy, and money pursuing the claim. Recovery for this type of damage would also discourage breach, as the defendant would stand to lose significantly more than if he just carried out the contract as agreed.
That said, I do see how this could be abused by overeager attorneys, so I imagine it would have to be used somewhat sparingly and only in clear cases.
Tuesday, March 28, 2017
The Oakland/Los Angeles/Oakland Raiders are soon to become the Las Vegas Raiders. This has fans in an uproar, with some saying the move is like losing "family." Moves of sports teams are rarely well received in the place the team leaves, and this move is no different.
Teams move for a variety of reasons, though the primary reason comes down to money. And there's nothing wrong with that. Although it is a loss for long-time fans, the team will get new fans in the locations (if history is any indication), and it's certainly the right of the business owners to decide what is best for their business. In the judgment of Raiders' ownership, it's time for Vegas Baby.
The structure of the NFL is such that team owners need approval of the league to make such a move, which makes sense because a sports league is necessarily dependent on other teams. As such, the teams have created some obligations to one another and agreed to give up some level of control for the good of the league. All but one team voted to support the move to Vegas (the Miami Dolphins dissented), giving the Raiders 31 votes, when they only needed 24. Thus, it means the other league owners (sans the Dolphins' owners) thought the move was in their best interest, too.
This makes three recently announced NFL team moves. In addition to the Raiders, the former St. Louis Rams returned to Los Angeles, and the former San Diego Chargers are now a second L.A.-based team. This means the super majority of NFL owners feel all of these moves are in the best interest of the league, or are at least neutral to the moves. This makes some sense, as there had been relative stability for the league teams, with the last move before these three taking place in 1997, when the Houston Oilers left for Tennessee (Memphis temporarily, then Nashville in 1999).
Moving forward, though, how much will fans take? If several more teams make a move in the next few years, will it upset fans to the point that they stop watching? Hard to say, but the league will be able to put a stop to it if they are concerned. There are a number of older stadiums in the league, so there may be more moves to come. There will almost certainly be threats to move, even if teams end up staying put.
If teams keep moving, it's possible the league could be hurt, but that would require the NFL fans in the old league cities to stop watching the NFL. That could happen, but it seems unlikely. Either way, it probably won't be a move that tells us the league is being harmed. Instead, it will probably be when teams without a lease don't get a lucrative offer to move another city.