Monday, January 13, 2020
Each time I teach Advanced Business Associations, I try to engage students on the first day in an exercise that leverages their existing knowledge of business associations law but also introduces new angles and nomenclature. I assign a reading (this year, on shareholder wealth maximization) and ask each student to write up a brief definition of the concepts of “policy” and “theory” as they may apply to and operate in business associations law. I then ask them to relate their definitions to the reading.
So, the core question before the house in that course on the first day of classes last week effectively was the following: is shareholder wealth maximization legal doctrine, policy, theory, or something else? We had a wide-ranging discussion on the question, working off three propositions I put on the board. The class session enabled me to review some concepts from the foundational Business Associations course while also discussing the role of theory and policy in law and lawyering, getting some creative mental juices flowing, and teaching a bit of the new vocabulary they will need for the course.
I decided that it could be beneficial to share with my students the views of others on our effective core question from class last week. So, today, I ask you:
Shareholder wealth maximization: doctrine, theory, policy, or something else?
Offer your answers in the comments or send me a private message. You can pick more than one category, of course, in classifying shareholder wealth maximization. In other words, the categories are not intended to be mutually exclusive. A brief explanation for your response would be helpful. I will not attribute the answers I pass on, unless you want me to. I hope this post will stimulate some interesting responses, but I also know that law professors are busy with the start of the new semester. It may go without saying, but (especially in these circumstances) a short response is appreciated as much as a long one.
Monday, January 6, 2020
Business Associations is a tough course to teach, whether it is taught in a three-credit-hour or four-credit-hour format. I have written before (here, here, and here) about the challenges of teaching fiduciary duties in this course. And I recently posted here and here about the characterization of a classic oversight conundrum as a matter of corporate fiduciary duty law in Delaware.
I just recently finished grading my Business Associations exams from last semester. They were a good lot overall, but they evidenced several somewhat common errors that seemed to beg for broad dissemination to the class. So, I sent them all a message inviting them to come in and review their exams and highlighting certain things for their attention of a more general nature.
Today, I offer you that general counsel that I gave to my Business Associations students based on that review of their written final exams. It is set forth below, absent my introductory and closing remarks. As you'll see, some of it relates to substantive law, and some of it relates to exam or other skills. Perhaps this is of use to those of you who just taught or are about to teach the course. Maybe some students will read it and learn from it. Regardless, here it is.
- Agency rules and management rules in business associations law are often confused. Agency rules express the authority of a person to act on behalf of the firm in transactions with third parties--those who enter into transactions with the firm. For example, by default under the RUPA, each partner in a RUPA partnership is an agent of the partnership that can bind the partnership to contracts with others. Management rules, by contrast address the governance and control authority of a particular firm constituent within the governance structure of the firm. Thus, agency rules relate to authority that is outward-facing (pertaining to transactional parties) and management rules relate to authority that is inward-facing (pertaining to internal constituents of the firm). For example, by default under the RUPA, each partner has an equal right to manage the partnership.
- Similarly, the concept of "limited liability" is commonly understood to refer to the limited liability of a firm owner for the firm's obligations. For example, under the RUPA, each partner is jointly and severally liable for the obligations of the partnership, whereas under corporate law, shareholders are not personally liable for the corporation's obligations to third parties. Exculpation, which eliminates the monetary liability of directors in the corporate context, relates to corporate governance claims--legal actions for breach of the fiduciary duty of care. This is internal governance litigation that does not relate to corporate obligations to third parties. So, while exculpation does limit (eliminate) a director's personal liability for a breach of the duty of care, it is not part of what people generally refer to as "limited liability" in a corporate context.
- Fiduciary duties are typically understood to instill or increase trust in relationships. Accordingly, they are commonly employed to provide a benefit in circumstances involving untrustworthy business associates. Yet a number of you seemed to think they were an undue burden to business venturers in circumstances where trust may be lacking (i.e., where fiduciary duties should be useful). You will need to make a solid argument to most folks to justify that the detriments outweigh the benefits.
- If an exam or assignment question asks for you to talk about why one set of rules is better than another in addressing a specific scenario, make sure you contrast examples from the two sets of rules, applying each to the relevant facts.
- Read questions carefully and closely. When a question asks for you to reference or rely on statutory default rules,ensure that your response references or relies on statutory default rules--not on ways on which those rules can be or have been agreed around through private ordering. When a question asks for information or an evaluation or rules relating to member-managed LLCs, ensure you directly address member-managed LLCs in lieu of (or at least before) commenting on manager-managed LLCs or the flexibility of moving back and forth between member-managed and manager-managed LLCs.
- Don't forget to cite to an appropriate source for rules on which you rely in your legal analysis.
- Keeping track of and managing time is important to the bar exam and other in-class timed exercises. If you ran out of time in responding to the prompts on this exam, evaluate why. I can help, if need be. But understanding how and why your time management skills may have failed you can be important.
Feel free to add your observations or advice of a similar (or different) nature in the comments. I am teaching Advanced Business Associations this semester, so I can work on some of these things during that course. In any event, I wish you all a happy and healthy semester and year, whatever you may be teaching or doing.
Monday, December 30, 2019
The title of this post is the core question behind a transactional law laboratory that I am co-teaching with my amazing colleague Eric Amarante for a seven-week period starting next week. The course is being taught to the entire 1L class (intimidating!) in one two-hour class meeting each week. In essence, the course segments explore, principally through the subjects taught in the first-year curriculum, the nature of transactional business law. This is our first semester teaching this course, which is a substantially revised version of a course UT Law added to its 1L curriculum three years ago. We are pretty jazzed up about it--but understandably nervous about how our course plan will "play" with this large group.
Because 1Ls come to transactional business law from various different backgrounds and experiences (including different first-semester law professors), we plan to begin by striving to develop some common ground for our work. To that end, I am asking for a late Christmas present or early New Year's gift from all of you: your answer to one or more of the following questions. How would you define transactional business law? What are some examples of this kind of practice? What makes a good transactional business lawyer? Why should every law student need to know something about transactional business law (and what should they need to know)? Let me know.
These are the kinds of questions we'll be probing through discussions, drafting, problem-solving, and other in-class and out-of-class experiences in the context of contract law, property law, tort and criminal law, agency law, professional responsibility, and more. The objective is substantive exposure, not mastery. Although teaching 125+ students at once is a tall order (and we will be breaking the class down into small groups for various activities), I admit that I am a bit excited about this. I hope you are, too, and that a few of you will respond in the comments or send me a private message.
In the mean time, enjoy the waning holiday season. I wish a happy new year to all. And (of course) I wish good luck to the many among you who also are starting a new semester in the coming weeks.
Monday, December 16, 2019
Earlier today, the CLS Blue Sky Blog published a post written by Adam Sulkowski and me (thanks to Adam for taking the laboring oar on this piece at the outset!) on corporate governance lawyering in the blockchain era--the topic of our recent article published in the Wayne Law Review. A bit over a month ago, I posted the abstract for that article, together with some related commentary, here on the BLPB.
The CLS Blue Sky Blog includes some observations from our article about law practice in a corporate governance context if and as data storage and usage moves to blockchains. I want to highlight them by repeating them here.
Our specific recommendations relating to lawyering cover several areas. First, we advise attorneys not only to stay updated about applicable law and relevant interpretations, but also to expand their awareness. Serving clients responsibly will require more familiarity and astuteness with technology and operations. Second, we urge our colleagues in the practice of law – including those involved in the making and administration of laws – to be uncharacteristically forward-looking. It is prudent to be proactive in the contexts of advising firm management and public policymaking. Overall, we highlight that counsel has a critical role in thinking through all the implications and contingencies resulting from a move of any governance function or process to a blockchain-based platform.
Why might that critical role look like? I mentioned in my original post that Adam and I engaged in some visioning. Among other things,
[i]t may well fall to attorneys to help clients see and appreciate irrevocable consequences and the potential risks and opportunities. We suggest that anyone engaged in the practice and study of law has a role to play in provoking conversations and new ideas for policy solutions in the context of ambiguities. Eliminating doubts about the adoption and consequences of blockchain-enabled corporate governance will create more certainty for market participants and society.
Perhaps more strikingly, in the article,
. . . we discuss a conceptual reframing that several authors have suggested will be useful as a way of understanding our new role as attorneys. We proffer that that the lawyer’s role will evolve into that of a sort of translator – helping to transform human norms and values into software code. This is a key function in assuring that the deployment of technology serves its intended ends.
There are implications of these possible evolutions in the lawyer's role as corporate governance moves to blockchains. Those implications extend to the legal education setting.
This reconceptualization of business lawyering is relevant to the functions of legal educators and law schools. Based on our observations, there undoubtedly will be a growing need for lawyers who are familiar with both how blockchain technology can be deployed and laws relevant to corporate governance. Law schools should consider evolving their courses and business law curricula accordingly.
Overall, in the CLS Blue Sky Blog post, Adam and I offer a longer playing summary of our work. The additional information we provide there may help you to decide whether and when to read our entire article. To the extent you are not inclined to read the article, however, I hope that this post or that post may at least provoke some thought.
Monday, December 9, 2019
This post is dedicated to the students in my Business Associations class, who took their final exam this morning.
Two weeks ago, reflecting on Francis v. United Jersey Bank, 432 A. 2d 814 (N.J. 1981), I asked for commentary on the following question: "How would the Francis case be pleaded, proven, and decided as a breach of duty action under Delaware law?" That post generated some commentary--both online and in private messages to me. In this post, I forward an analysis and a related request for commentary.
A number of commentators (including BLPB co-blogger Doug Moll in the online comments to my post) posited that a Caremark oversight claim may be the appropriate claim, and that the cause of action would be for a breach of the duty of care. I find the latter part of that answer contestable. Here is my analysis.
I begin by agreeing that Mrs. Pritchard's abdication of responsibility constitutes a failure to exercise oversight. Under the Delaware Supreme Court's decision in Stone v. Ritter, I understand that claim to be Caremark claim. ("Caremark articulates the necessary conditions for assessing director oversight liability.") I think many, if not most, are also in agreement on this.
Here is where there may be some divergence. Also relying on Stone, I understand that Caremark claim as a breach of the duty of loyalty, founded on a failure to act in good faith. ("[B]ecause a showing of bad faith conduct . . . is essential to establish director oversight liability, the fiduciary duty violated by that conduct is the duty of loyalty.") This makes sense to me because of the Delaware Supreme Court's opinion in Brehm v. Eisner, in which it circumscribes the duty of care. ("Due care in the decisionmaking context is process due care only.")
However, Brehm (as evidenced in the immediately preceding parenthetical quote) addressed the duty of care under Delaware law in a decision-making context. Francis was largely a case about the absence of decision making. Moreover, the Brehm court's view on a substantive duty of care are rooted in the contradiction of that doctrine with the business judgment rule. ("As for the plaintiffs' contention that the directors failed to exercise 'substantive due care,' we should note that such a concept is foreign to the business judgment rule. Courts do not measure, weigh or quantify directors' judgments.") So, Brehm's wisdom on the duty of care under Delaware law may be inapplicable to facts like those in Francis, since the business judgment rule is inapplicable because the board did not engage in decision making.
Nevertheless, Stone seems to erect barriers to a duty of care claim for oversight like that presented in the Francis case. BLPB co-blogger Anne Tucker voiced this concern in a 2010 article in the Delaware Journal of Corporate Law
Exculpatory provisions that eliminate liability for negligence and gross negligence (i.e., the duty of care), combined with the assumption of the duty of good faith under the liability standard for the duty of loyalty, narrow the standard of liability for director oversight. The result is while directors have three fiduciary duties-the duties of care, good faith, and loyalty-the three standards of conduct are essentially collapsed into one actionable standard: the duty of loyalty.
Anne Tucker Nees, Who's the Boss? Unmasking Oversight Liability Within the Corporate Power Puzzle, 35 Del. J. Corp. L. 199, 224–25 (2010). Lyman Johnson similarly had commented, seven years earlier (and before the Stone case was decided) that
care has been rendered a “small” notion in corporate law. It largely refers to the manner in which directors are to act. It is a process-oriented duty to act “with care.” Having confined care to that narrow chamber, the other meanings of care as found in the phrases “take care of” (the corporation) and “care for” (the corporation) remain fully available for infusion into corporate law through an expansive duty of loyalty.
Lyman Johnson, After Enron: Remembering Loyalty Discourse in Corporate Law, 28 Del. J. Corp. L. 27, 72 (2003). Others also have written about this.
Based on the foregoing, I conclude that a duty of care cause of action is not available in Delaware for an oversight claim like that raised in Francis. Delaware's duty of care comprises the duty to fully inform oneself of material information reasonably available under Smith v. Van Gorkom. As a result, an oversight claim based on facts like those in Francis is a claim for a breach of the duty of loyalty as described in Stone.
Agree? Disagree? Provide analyses and, if possible, relevant decisional law.
Monday, December 2, 2019
Last night, my husband and I made our last meal from Plated, our favorite home meal delivery kit merchant. (As readers may recall, I have been a meal kit delivery fan for quite a while. See here, here, and here.) Plated announced that it would cease producing meal kits for home delivery last month. The message I received from Plated, which arrived a full week after pubic announcement had been made of the closure of the home delivery business, was simple.
To our loyal customer,
Just in case you haven’t heard, Plated will be closing its subscription business. Our last boxes will be shipped on November 26, just in time for Thanksgiving. Please log into your account to manage your subscription at any time before that, or contact us if you have any questions.
Plated is part of the Albertsons Companies family of stores, including many of your favorite grocery store brands across the country, like Safeway, Vons, Acme Markets, Jewel-Osco and more.
Over the next year, Albertsons Companies will be moving Plated's chef-inspired dinners, brunches and other delicious recipes to its family of stores.
You might not live near one of the stores that offers Plated, but that may change in the future. Please know we have enjoyed serving you for the past 7 years.
The Plated team
A true "loyal customer" (and I have been one) should receive notice of a business closure roughly simultaneously with any public announcement as a matter of courtesy (at the least). But I will leave discussion of that for another day.
It seems significant to note from Plated's message to me (and its public disclosures) that Plated meal kits are not, apparently, going the way of the dodo. They will continue to exist, but not for home delivery. Of course, home delivery has been an important part of the draw of this service for me and my husband. We do not have an Albertsons Companies store anywhere near us.
The press on this business closure has covered a range of related issues, including (as one might predict) prognostications on the overall sustained profitability of meal delivery kit businesses. One online outlet reports that "in recent months, it seems the tide has turned against meal kits, with countless headlines saying they’ve 'fizzled,' or worse, are 'doomed to fail' or already 'DOA.'" Another observes that "[t]he bloom is definitely off the rose for mail order meal kits. Blue Apron, a pioneer in the business, continues to limp along with dismal results. A report earlier this year from Nielsen said that sales of meal kits grew with in-store retail being the engine for meal kit growth." I certainly hope that reports of the industry's death are premature (if not, as Mark Twain once said, "greatly exaggerated"). But I understand it has been hard to make the business model sustainable.
In any event, in honor of our years of great service (and super recipes) from Plated, I am posting a picture of the meal we made last night (Chicken-Avocado Burgers with Lemon Aioli and Sautéed Haricots Verts). It was delicious. And we had fun making and eating it together.
Farewell, dear Plated. Alas, we knew you well and enjoyed our time with you. I hope others continue to enjoy your recipes and convenience by purchasing your kits in supermarkets.
Monday, November 25, 2019
Many of us teach Francis v. United Jersey Bank, 432 A. 2d 814 (N.J. 1981), in Business Associations courses as an example of a substantive duty of care case. The case involves a deceased woman, Lillian Pritchard, who, in her lifetime, did nothing as a corporate director to curb her sons' conversions of corporate funds. The court finds she has breached her duty of care to the corporation, stating that:
Mrs. Pritchard was charged with the obligation of basic knowledge and supervision of the business of Pritchard & Baird. Under the circumstances, this obligation included reading and understanding financial statements, and making reasonable attempts at detection and prevention of the illegal conduct of other officers and directors. She had a duty to protect the clients of Pritchard & Baird against policies and practices that would result in the misappropriation of money they had entrusted to the corporation. She breached that duty.
Id. at 826. In sum:
by virtue of her office, Mrs. Pritchard had the power to prevent the losses sustained by the clients of Pritchard & Baird. With power comes responsibility. She had a duty to deter the depredation of the other insiders, her sons. She breached that duty and caused plaintiffs to sustain damages.
Id. at 829.
Francis is followed in our text by a number of additional fiduciary duty law cases, including Delaware's now infamous Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985), Stone v. Ritter, 911 A.2d 362 (Del. 2006), and In re Walt Disney Derivative Litigation, 907 A 2d 693 (Del. 2005). In covering these cases and discussing them with students during office hours, I became focused on the following passage from the Disney case:
The business judgment rule . . . is a presumption that "in making a business decision the directors of a corporation acted on an informed basis, . . . and in the honest belief that the action taken was in the best interests of the company [and its shareholders]." . . . .
This presumption can be rebutted by a showing that the board violated one of its fiduciary duties in connection with the challenged transaction. In that event, the burden shifts to the director defendants to demonstrate that the challenged transaction was "entirely fair" to the corporation and its shareholders.
In re Walt Disney Co. Derivative Litigation, 907 A.2d 693, 746-47 (Del. Ch. 2005). I have some significant questions about the application of the "entire fairness" standard of review in certain types of cases. In thinking those through with some of my colleagues (including a few of my co-bloggers), I realized I was curious about the answer to a related question: How would the Francis case be pleaded, proven, and decided as a breach of duty action under Delaware law?
I have my own ideas. But before I share them, I want yours. How would you categorize/label the breach(es) of duty as a matter of Delaware law? What standard of conduct and liability would you expect a Delaware court to apply as a matter of Delaware law? And what standard of review would you expect that court to use? Leave your ideas on any or all of the foregoing in the comments, please!
Monday, November 18, 2019
I was thrilled to be with so many wonderful colleagues and students (pictured above) at the Tennessee Journal of Law and Policy's symposium at UT Law last Friday. The symposium, "Insider Trading: Stories from the Attorneys," featured presentations about famous and not-so-famous insider trading cases. Presenters included Michael Guttentag (Loyola, Los Angeles), me, Jeremy Kidd (Mercer), Ellen Podgor (Stetson), John Anderson (Mississippi College), Eric Chaffee (Toledo), Kevin Douglas (Scalia), and Donna Nagy (Maurer). The papers presented highlight a variety of salient issues (including observations about the impact of gender and sexual orientation in specific cases or types of cases) involving or touching insider trading regulation. They are being published in 2020 by the Tennessee Journal of Law & Policy.
The idea for the symposium came from a Southeastern Association of Law Schools (SEALS) discussion session convened last summer by John and me. I described it in this post. Let me or John know if you are working in the insider trading area and would like to join us for our 2020 SEALS discussion group, "Insider Trading: Is It All about the Money?" The SEALS conference is scheduled to be held July 30 - August 5, 2020. The discussion is always lively!
Monday, November 11, 2019
The above photo honors my father's U.S. Army service and my father-in-law's U.S. Army service, in each case, in the Korean War. I took a pause today to respect what they and so many others have done to serve our country. I hope that all veterans and their families and friends have enjoyed a Happy Veteran's Day.
With veteran legal service projects (some through student organizations, like our award-winning Vols for Vets organization at UT Law, a nonprofit supported by many in our community), including full-fledged law clinics (e.g., here and here and here and here and here), emerging across the country, I wondered whether there was any assistance outside the law school context, specifically for veterans who are entrepreneurs. I did find, through a page on the U.S. Veterans Administration (VA) website, that the Office of Small & Disadvantaged Business Utilization has a program for Veteran-Owned Small Businesses. Under the program, a veteran who owns a small business "may qualify for advantages when bidding on government contracts—along with access to other resources and support—through the Vets First Verification Program." A number of additional entrepreneurship programs exist under the auspices of the same VA office. Many can be found on the website for the Office of Small & Disadvantaged Business Utilization (noted above).
In my web travels, I also found a nifty national veteran's entrepreneurship program at the University of Florida Warrington School of Business. And at one of our sister UT system schools, the The University of Tennessee at Chattanooga, the business school--the Gary W. Rollins College of Business--has a Veterans Entrepreneurship Program. And it seems there is quite a bit more out there in the educational setting.
This all seems like a good start. I am sure with more digging, I could find more. I was admittedly gratified, however, to see that Forbes published a piece on free support programs for veteran entrepreneurs. I was hoping to see a bunch more of that kind of thing . . . . Maybe next year?
Again, I send abundant and heartfelt thanks to all of our veterans for their service.
Monday, November 4, 2019
I approached with some curiosity the Securities and Exchange Commission's recent shareholder proposal guidance in Staff Legal Bulletin No. 14J ("SLB 14J"). My interest in this topic stems from my past life as a full-time lawyer in private practice. During that time, I both wrote shareholder proposals and wrote no-action letters to the Securities and Exchange Commission ("SEC") to keep shareholder proposals out of corporate proxy statements.
In SLB 14J, the SEC clarifies its application of the "ordinary business" exception to the inclusion of a shareholder proposal under Rule 14a-8. Specifically, "[t]he Commission has stated that the policy underlying the 'ordinary business' exception rests on two central considerations. The first relates to the proposal’s subject matter; the second relates to the degree to which the proposal 'micromanages' the company." I want to share the SEC's guidance with you on the latter.
The idea of shareholders micromanaging most public firms is almost laughable. Yet, certain shareholder proposals do get somewhat specific in their direction of the firm and its resources.
In considering arguments for exclusion based on micromanagement, . . . we look to whether the proposal seeks intricate detail or imposes a specific strategy, method, action, outcome or timeline for addressing an issue, thereby supplanting the judgment of management and the board. [A] proposal, regardless of its precatory nature, that prescribes specific timeframes or methods for implementing complex policies, consistent with the Commission’s guidance, may run afoul of micromanagement. In our view, the precatory nature of a proposal does not bear on the degree to which a proposal micromanages. . . .
This makes some sense to me, yet this guidance may not be as easy to apply as the SEC may think. Here is the SEC's example of an excludable proposal:
For example, this past season we agreed that a proposal seeking annual reporting on “short-, medium- and long-term greenhouse gas targets aligned with the greenhouse gas reduction goals established by the Paris Climate Agreement to keep the increase in global average temperature to well below 2 degrees Celsius and to pursue efforts to limit the increase to 1.5 degrees Celsius” was excludable on the basis of micromanagement. In our view, the proposal micromanaged the company by prescribing the method for addressing reduction of greenhouse gas emissions. We viewed the proposal as effectively requiring the adoption of time-bound targets (short, medium and long) that the company would measure itself against and changes in operations to meet those goals, thereby imposing a specific method for implementing a complex policy.
I am note sure how I feel about the characterization of this proposal as excludable. Is the described proposal about reporting or about "prescribing the method for addressing the reduction of addressing reduction of greenhouse gas emissions"? Well, maybe a little of each . . . . What do you think?
During my time in active, full-time law practice, the format and content of Rule 14a-8 changed a number of times. It appears that the SEC may be poised to make another change--one more fundamental than enhanced guidance. According to one recent report, the SEC may announce as early as tomorrow "changes . . . to make it harder for shareholders to file proposals, and harder for proposals to be eligible for re-filing in subsequent years." Stay tuned for that possible announcement.
[Note: All footnote references in the quotations used in this post have been omitted.]
Monday, October 28, 2019
The recent Tennessee Court of Appeals decision in Mulloy v. Mulloy has me thinking. Here is the case synopsis:
Two brothers formed a limited liability company to own and lease a commercial property. When the tenant sought to expand, both brothers sought to find a suitable space for the tenant to lease. The younger of the two brothers found a property that would ideally suit the tenant’s needs, a fact that was communicated to his brother. The older brother purchased the property through a newly created limited liability company without his younger sibling’s involvement. The older brother’s new limited liability company then leased the new property to the tenant. The younger brother brought a derivative suit against his brother and the newly formed limited liability company, claiming usurpation of a corporate opportunity belonging to the limited liability company that the brothers had formed together and tortious interference with business relationships. The younger brother also claimed unjust enrichment. Following a trial, the chancery court found in favor of the older brother and his newly formed limited liability company and dismissed the complaint. After our review of the record, we affirm.
The facts are quite a bit more complex than that. But you get the idea.
First, let me make Josh Fershee's point for him: limited liability company (LLC) members cannot usurp "corporate" opportunities, since they are not corporations. Indeed, the court in Mulloy repeatedly refers to the doctrine in that way and cites to corporate law precedent we all know and love. This despite an accurate citation to Tennessee's statutory standard for the usurpation of LLC opportunities: requiring members to hold in trust for the LLC "any property, profit or benefit derived by the member in the conduct . . . of the LLC’s business, or derived from a use by the member of the LLC’s property, including the appropriation of any opportunity of the LLC.” Tenn. Code Ann. § 48-249-403(b)(1).
But the big surprise for me was "we affirm." Why? I just kept thinking of Meinhard v. Salmon. Apart from he fact that this case involves a Tennessee LLC and two brothers, the material facts are substantially similar. Yet, the result is different. The Mulloy court reasons that the property acquisition opportunity at issue was not the LLC's, but rather the older brother's (even though the brothers' jointly owned LLC existed to lease property to a specific tenant--the same tenant to which the older brother rents the new property--property that the younger brother originally identified). The court references facts that do help the older brother here. But something just smells wrong about this. The lack of candor in this situation is particularly disturbing.
So, that set me to wondering if there was a way to get that "punctilio of an honor, the most sensitive" back into the judicial sightline. Immediately, I thought of Anderson v. Wilder--a 2003 Tennessee Court of Appeals case in which the court applies the close corporation shareholder fiduciary duties under Massachusetts corporate law to members in a Tennessee LLC. However, it then occurred to me that Anderson was decided under Tennessee's "old" LLC Act; but the LLC in Mulloy opted into Tennessee's modernized, "new" LLC Act, which became effective on January 1, 2006. The new LLC Act is modeled in part on the Revised Uniform Limited Liability Company Act and provides as follows, in pertinent part (in Tenn. Code Ann. § 48-249-403(a) and (b) (emphasis in italics added)):
- "The only fiduciary duties a member owes to a member-managed LLC and the LLC's other members and holders are the duty of loyalty and the duty of care . . . ."
- "A member's duty of loyalty to a member-managed LLC and the LLC's other members and holders of financial rights is limited to the following: (1) To account to the LLC and to hold as trustee for it any . . . benefit derived by the member in the conduct . . . of the LLC's business, or derived from a use by the member of the LLC's property, including the appropriation of any opportunity of the LLC . . . ."
These statutory provisions would appear to foreclose an argument that members of an LLC organized under the new LLC Act have a fiduciary duty of utmost good faith and loyalty to each other under Anderson (or otherwise at common law). Much as I hate to admit it, that's the way a court should, and likely would, see this.
What do you think? Is my concern about the holding in the appellate court opinion in Mulloy warranted? Or do we treat the Mulloy brothers like "big boys" and agree with the appellate and trial courts? Your views are welcomed. I am looking for some creative arguments here . . . .
Monday, October 21, 2019
Given the number of corporate governance functions that can be conducted using blockchains, it seems appropriate to consider how business lawyers should respond to related challenges. Babson College's Adam Sulkowski and I undertook to begin to address this concern in an article we wrote for the Wayne Law Review's recent symposium, "The Emerging Blockchain and the Law." That article, Blockchains, Corporate Governance, and the Lawyer's Role, was recently released. An abstract follows.
Significant aspects of firm governance can (and, in coming years, likely will) be conducted on blockchains. This transition has already begun in some respects. The actions of early adopters illustrate that moving governance to blockchains will require legal adaptations. These adaptations are likely to be legislative, regulatory, and judicial. Firm management, policy-makers, and judges will turn to legal counsel for education and guidance.
This article describes blockchains and their potentially expansive use in several aspects of the governance of publicly traded corporations and outlines ways in which blockchain technology affects what business lawyers should know and do—now and in the future. Specifically, this article describes the nature of blockchain technology and ways in which the adoption of that technology may impact shareholder record keeping and voting, insider trading, and disclosure-related considerations. The article then reflects on implications for business lawyers and the practice of law in the context of corporate governance.
In the article, Adam and I do a fair amount of visioning. Based on the development of blockchain corporate governance we imagine, we conclude that business lawyers must both focus on understanding technology in the context of their clients' business operations and be proactive in providing legal advice relating to potential uses of the technology. We conclude that,
[i]n representing business clients, counsel have a critical role in thinking through all the implications of moving any governance function or process to a blockchain-based platform. It is especially important to help clients see, consider, and appreciate certain irrevocable consequences and legal risks, as well as potential opportunities. . . .
There is much for us all to learn in this area. A number of legal scholars are engaging in work that may be useful in better informing us. I, for one, try to attend as many of their presentations as possible as a means of better informing myself of what I need to know to teach corporate governance in the blockchain era. (We note in the article that blockchain corporate governance "impacts the job of legal educators and law schools.") I will continue to be on the lookout for additional work on blockchain corporate governance (and lawyering in an increasingly blockchain-driven world) and endeavor to highlight key things I find by posting about them here.
Monday, October 14, 2019
Beate advises that there are a few places left at an upcoming conference on Corporate Sustainability Reforms: Securing Market Actors' Contribution to Global Sustainability. The conference will be held in Oslo, Norway on October 24, 2019 and features contributions from around the world and across disciplines. She promotes the conference as follows:
We know that we need the contribution of all market actors: business, citizens, investors, and the public sector to achieve sustainability. However, a number of barriers, gaps and incoherencies that prevents market actors from contributing has been identified by the SMART Project. At this conference we will discuss how to facilitate the transition to sustainability, with the aim of identifying concrete proposals.
The conference is open to students, scholars, policy-makers, practitioners, and journalists. The deadline to register is October 17. There is no registration fee, and a lunch and reception are included for all participants.
Saturday, October 12, 2019
Some of you may remember my post from last year on the American Bar Association's LLC Institute, an annual program at which I have presented and from which I have benefitted. This year's institute is scheduled for November 7 & 8 at the Stetson Tampa Law Center. The registration deadline is October 25. The registration site can be found here.
The program agenda is, as usual, amazing. Baylor Law's Beth Miller will lead off (with others) in presenting updates on relevant decisional law. Additional highlights include panels on "LLC Agreements That Went Wrong, and How to Fix Them: Case Studies and War Stories" and "Re-Imagining the Business Trust as a Sustainable Business Form" (the latter featuring friend and Florida Law prof Lee-Ford Tritt) and an ethics program featuring (among others) Bob Keatinge, who is always illuminating and entertaining. Presentations by other LLC Institute favorites (including Tom Rutledge, whose message to me prompted this post) pepper the program.
On Thursday night, at the annual dinner, Mitchell Hamline School of Law Emeritus Professor Dan Kleinberger will receive the 2019 Martin I. Lubaroff Award. Most business law profs know Dan, who has (among other things) been a tremendous servant of the academy and the bar on unincorporated business entity issues. I have benefitted from that service. I am sad to miss being at the institute this year to see him get that award and congratulate him in person.
The LLC Institute is where the LLC elite meet. If you have not attended this program and research/write in the unincorporated business associations area, I recommend you check it out. Heck, I recommend that you attend anyway. It's a super two days of learning and networking in a lovely part of the country. Continuing legal education credit is available.
Monday, October 7, 2019
When I was a number of years into my law practice, Skadden, Arps, Slate, Meager & Flom LLP, the firm at which I worked, asked me to sign a mandatory arbitration agreement. Signing was voluntary, but the course of conduct indicated that it was strongly suggested. I thought about it and declined to sign.
It was hard for me to imagine bringing a legal claim against my law firm employer. I knew that if I were to sue Skadden, the matter would have to be very big and very serious--a claim for a harm that I would not want compensated through a "compromise recovery," which I understood could be a likely result in arbitration. I also was concerned about the lack of precedential value of an arbitration award for that kind of significant claim--permitting systemic bad employer behavior to be swept under the rug. And finally, I understood and respected the litigation expertise and experience of my colleagues in the firm and their connections to those outside the firm--expertise, experience, and connections that I believed would be more likely to impact negatively the opportunity for success on the merits of my claim in an arbitral setting.
I watched with interest as arbitration clauses caught on in this context, becoming (in many firms) a condition of employment. Other BLPB editors have written about mandatory arbitration in the employment law context in this space in the past, including Ann Lipton here and Marcia Narine Weldon here. The issue also has been raised by other bloggers and in the news media. I remember stories about summer associate mandatory arbitration classes, for example. (See, e.g., here and here from 2018.)
I recently read this article from The American Lawyer, which describes a trend away from these mandatory arbitration clauses in law firm employment. What goes around comes around . . . . I was especially interested to read that some firms are dispensing with the practice because employees/prospective employees disfavor these agreements. I also noted the article's description of key substantive arguments against mandatory arbitration: "[T]he clauses are unfair to workers and can allow large law firms to conceal accusations of racism, sexual harassment and assault." This is consistent with my own reasoning. Moreover, I admit that, as I was contemplating whether to sign Skadden's arbitration clause, sexual misconduct was among the big and very serious claims I determined that I would want to pursue in court--for remedy-related and public disclosure reasons.
Although the firm's leadership may have disapproved of my refusal to sign that agreement way back when, I still think I made the right decision--at least for me. If arbitration is mutually beneficial, one would hope that both parties would recognize that at the outset of their relationship or at the time a dispute arises. Otherwise, power imbalances tend to dominate in this space. Dispute resolution situations also may involve emotional and psychological factors that can impact judgment and strategy. Regardless, I am a "preserve as many options as possible" kind of gal. As a result, taking a position that maintains my rights to sue or participate in a class action claim seems natural and appropriate. I will hold onto those rights, if I can.
Saturday, October 5, 2019
SAVE THE DATE
Emory’s Center for Transactional Law and Practice is excited to announce the date for its seventh biennial conference on the teaching of transactional law and skills. The conference will be held at Emory Law, on Friday, June 5, 2020, and Saturday, June 6, 2020.
More information will be forthcoming on the Call for Proposals, the Call for Nominations for the Tina L. Stark Award for Excellence in the Teaching of Transactional Law and Skills, open registration, and travel accommodations. We are looking forward to seeing all of you on June 5 and 6, 2020!
Monday, September 30, 2019
I want to follow on Colleen's post from yesterday with my own Business Law Prof Blog Symposium commentary. But first, I want to thank Colleen, Ben, Josh, Doug, Haskell, and Stefan for participating with me in the symposium this year. Our continuing legal education attendees, as well as our faculty and students, love this symposium each year. It always turns out to be a wonderful pot pourri of business law topics that literally connect the threads of what we do as business lawyers and business law educators.
Rather than being a featured presenter this year, I chose to present panel-style with two of my UT Law colleagues. (That's us, plus our student commentator, Dixon Babb, in the photo above. Thanks for capturing that, Haskell!) The panel was designed to describe different conceptions of mergers based on distinct areas of legal expertise, together with related professional responsibility commentary. I chose my colleagues Don Leatherman and Tom Plank to join me for this session--Don a tax law practitioner and teacher and Tom a property law practitioner and teacher. The reason for these choices was simple: the three of us had covered this issue before in an informal conversation, and I had found it really stimulating. Don and Tom are amazingly good at what they do, are humorous in their own unique ways, and were exceedingly good sports about joining me on Friday and trying to re-create the atmosphere, as well as the content, of our prior discussion.
An edited excerpt (the introduction) from the abstract for our panel is included below. I may have more to say about this panel in a later post. A transcript of the full panel discussion and Q&A will be published in the spring 2020 issue of Transactions: The Tennessee Journal of Business Law. I will try to remember to post a link after that book is published. (Last year's symposium volume can be found here, by the way.)
Anyway, here is our introduction. This panel discussion was so much fun to do, as you might imagine. I can only hope others enjoyed it as much as the three of us did!
This contribution to “Connecting the Threads III,” the third annual Business Law Prof Blog symposium, involves a conversation between and among three law professors with diverse law practice backgrounds—a corporate finance lawyer, a tax lawyer, and a property lawyer who has served as bankruptcy counsel and Uniform Commercial Code sales and securitization counsel. About ten years ago, these three lawyers, all professors at The University of Tennessee College of Law, found themselves by a water cooler talking about mergers, equity sales, and assets sales. As the corporate finance lawyer recalls, the conversation moved into high gear when the property lawyer questioned her classroom depiction of merger transactions as creatures of statutory magic . . . .
In their conversation that day, the three law professors began to scope out various conceptions of mergers and acquisitions (in common parlance, M&A transactions or business combinations) based on the distinct perspectives provided by their professional backgrounds, their scholarship, and the courses they teach that intersect with M&A transactions. The conversation emanates from the distinct policy objectives (and resulting broad, conceptual substantive focuses) of different legal regimes. The observations each made—both as to their own areas of expertise and those of their colleagues—together offered an appropriately complex picture of these intricate transactions, which often are executed using a team of lawyers representing various areas of practice. As the colleagues parted company that day, one of them made mental note that the conversation should have been recorded—for her own benefit and for the benefit of students who, depending on their upper-division course selections, may not get exposure to this more complete and rich portrayal of business combinations.
At “Connecting the Threads III,” these three law professors . . . attempt to recreate and expand on the content of their impromptu water-cooler conversation. While the precise discussion cannot, after all of these years, be faithfully replicated, its overall nature—updated to reflect current legal doctrine, policy, theory, and norms—can be reconstructed. The discussion addresses a series of broad questions, the threshold one being what a merger is, from the standpoint of each professor’s area of practice, scholarship, and teaching.
Call for Proposals – Feminist Judgments: Rewritten Corporate Law
DEADLINE: Friday November 1, 2019
The U.S. Feminist Judgments Project seeks contributors of rewritten judicial opinions and private contracts, and commentaries on rewritten opinions and contracts, for an edited collection tentatively titled Feminist Judgments: Rewritten Corporate Law. This edited volume is part of a collaboration among law professors and others to rewrite, from a feminist perspective, key judicial decisions in the United States. The initial volume, Feminist Judgments: Rewritten Opinions of the United States Supreme Court, edited by Kathryn M. Stanchi, Linda L. Berger, and Bridget J. Crawford, was published in 2016 by Cambridge University Press. Cambridge University Press has approved a series of Feminist Judgments books. In 2017, Cambridge University Press published the tax volume titled Feminist Judgments: Rewritten Tax Opinions. Other volumes in the pipeline include rewritten opinions in the areas of reproductive justice, family law, torts, employment discrimination, trusts and estates, and health law. More information about the project can be found at https://law.unlv.edu/us-feminist-judgments.
Corporate law volume editors are Anne Choike, Usha R. Rodrigues and Kelli Alces Williams. The corporate law volume’s advisory panel is comprised of Alina Ball; Lisa Fairfax; Theresa Gabaldon; Joan MacLeod Heminway; Kristin Johnson; Elizabeth Pollman; Poonam Puri; Darren Rosenblum; Cindy Schipani; Kellye Testy; Cheryl Wade; and Cindy Williams.
With the guidance of the advisory panel, the editors have selected cases that have not appeared in other Feminist Judgments volumes, doctrinally significant cases, and cases that raised issues of particular salience to women’s lives. This volume also seeks to include a rewritten “contract,” given corporate law’s emphasis upon default law and the precedent-setting power of privately negotiated arrangements. Potential authors are welcome to suggest other opinions or contracts that they would like to address, but the overall number of cases and contracts finally included in the volume must remain limited.
Interested prospective contributors should submit a proposal to either: 1) rewrite an opinion or contract (subject to a 10,000 word limit), or 2) comment on a rewritten opinion (4,000 word limit). Rewritten opinions may be majority opinions, concurrences, dissents, or private contracts.
Authors of rewritten opinions or contracts will be bound by the law and precedent in effect at the time of the original decision. Commentators will explain the original court decision or contract and its context, how the feminist opinion or contract differs from the original, and the impact that the rewritten feminist opinion or contract might have made. The volume editors conceive of feminism as a broad movement and welcome proposalsthat bring into focus intersectional concerns beyond gender, such as race, class, disability, gender identity, age, sexual orientation, national origin, and immigration status.
To facilitate collaboration among contributors across the entire volume, the editors tentatively plan to host a gathering at the Law & Society Annual Meeting on May 28–31, 2020 in Denver, Colorado. All contributors are invited, but not required, to participate in the workshop. Contributors attending the gathering must cover their own travel, lodging and meal expenses.
The editors will notify accepted authors and commentators by Saturday, November 30, 2019. Abstracts of rewritten opinions or contracts will be due on April 30, 2020 for circulation to fellow authors. Abstracts of commentaries will be due on May 15, 2020 for circulation to fellow authors. First drafts of rewritten opinions will be due on Wednesday, July 15, 2020. First drafts of commentaries will be due on Tuesday, September 15, 2020. The target date for submission of the completed, compiled manuscript for publication is February 2021.
To submit a proposal for rewriting an opinion or contract or providing commentary, please e-mail the following information to the volume co-editors, Anne Choike, firstname.lastname@example.org, Usha R. Rodrigues, email@example.com, and Kelli Alces Williams, firstname.lastname@example.org by Friday, November 1, 2019:
- Your CV, your areas of corporate law interest or expertise, and why you are interested in and well suited to participate in this project. The Feminist Judgments Project and the Corporate Law volume editors are committed to including authors from diverse backgrounds. If you feel an aspect of your personal identity is important to your participation, please feel free to include that in your expression of interest.
- Your top two or three preferences of cases or contracts to write about from the list below. Alternatively, if you have another case or contract that you feel strongly should be included instead of one of the selected cases or contracts and that you would like to write about, provide a summary of the case or contract (no more than 250 words), a copy of the full text of the case or contract, and a brief summary (no more than 250 words) of the reasons that you think it should be included. Contributors who wish to co-author a rewritten opinion, rewritten contract or commentary, or work together on a rewritten opinion or contract and the commentary thereupon, are welcome to indicate that in the application.
- Your preference for contributing a rewritten opinion or contract, or a commentary.
- Any time constraints and other obligations that may impact your ability to meet the submission deadlines.
- Your willingness and ability to attend the tentatively planned gathering at the Law & Society Annual Meeting in Denver, Colorado in May 2020. Selection of contributors does not depend on their ability or willingness to attend this gathering.
This list of cases and contracts that the editors have selected for consideration to be included in the volume Feminist Judgments: Rewritten Corporate Law, is as follows:
Legal Personality, Identity, and Limited Liability of Corporate Entities:
- Citizens United (rights of corporate “persons” and nature of corporate personality)
- Walkovszky v. Carlton (limited liability/veil piercing)
Role and Purpose of the Corporation and Corporate Combinations in Society
- Dodge v. Ford (shareholder primacy)
- Merriam v. Demoulas Super Mkts. (stakeholder responsibility in family-owned business)
- Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. (directors’ duty to maximize share price in corporate takeover)
Fiduciary Duties in Corporate Governance
- Meinhard v. Salmon (duty of loyalty)
- Smith v. Van Gorkom (duty of care and business judgment rule)
- Francis v. United Jersey Bank (duty of care to understand business)
- In re Walt Disney Derivative Litigation (duty of care regarding executive compensation)
- Harvey Weinstein Employment Agreement (duty of care to monitor compliance)
Closely Held Businesses and Other Considerations Regarding the Composition of Boards, Management, and Owners
- Ringling Bros.--Barnum & Bailey Combined Shows, Inc. v. Ringling (dispute over board seats)
- Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart (legitimacy of board member personal relationships)
- Donohue v. Rodd Electrotype (close corporations and minority shareholder oppression)
Protecting Vulnerable Investors and Potential Investors in Corporations
- Jordan v. Duff & Phelps (duty to disclose material information)
- SEC v. Howey (definition of investment contract)
- US v. Chestman (culpability for insider trading based on personal relationships)
Sunday, September 29, 2019
Friend-of-the-BLPB Seth Oranburg informs me that the call for papers is now open for the #Futurelaw 4.0 Junior Faculty Workshop, offering newer scholars the opportunity to present and respond to research and writing in law-and-technology areas of endeavor. Details (including how to apply for inclusion) are available at www.duq.edu/future-law-4. The workshop is to be held on November 22, 2019. Submissions are due on October 14, and complete drafts are due on November 8.
Please spread the word quickly! This sounds like an exciting opportunity, but there is a short fuse on applications.
Monday, September 23, 2019
The University of Idaho College of Law seeks to fill a tenure-track or tenured faculty position beginning in the Fall of 2020 in the area of Commercial Law for its Moscow location. Both entry-level and lateral candidates are encouraged to apply. In addition to courses in Sales and Property Security, the faculty member will be expected to teach two additional courses – which may include Bankruptcy, Payment Systems, Real Estate Transactions, and/or State Debtor-Creditor Law – according to the interest of the faculty member and the needs of the College of Law. Candidates must have (1) a J.D. from an ABA-accredited school or the equivalent; (2) a distinguished academic record; (3) a record or the promise of teaching excellence; (4) a record or the promise of scholarly productivity; and (5) a record or the promise of expertise in the area of Commercial Law. Preference will be given to candidates with (1) post-J.D. practice, clerking, or teaching experience; and (2) post-J.D. experience related to Commercial Law and other courses listed above. Situated in the beautiful Pacific Northwest, the University of Idaho is a comprehensive research institution. Information about the College of Law is available on its website at https://www.uidaho.edu/law. Interested candidates should apply online athttps://uidaho.peopleadmin.com/postings/27297. Questions about the position should be directed to David Pimentel, Chair of the Faculty Appointments Committee, at email@example.com. The University of Idaho is an affirmative action, equal opportunity employer.
[Hat tip to Aliza Plener Cover, Associate Professor at the University of Idaho College of Law, for highlighting this opportunity.]