Monday, July 15, 2019
In Tennessee Wine and Spirits Retailers Assn. v. Thomas, the SCOTUS affirmed decisions of the Sixth Circuit and Federal District Court of Middle Tennessee finding Tennessee’s 2-year residency requirement applicable for retail liquor store license applicants unconstitutional as a violation of the Commerce Clause that is not saved by the 21st Amendment. Specifically, in an opinion dated June 26, 2019, Justice Alito concluded that "Tennessee’s 2-year durational-residency requirement plainly favors Tennesseans over nonresidents" and, addressing the claim that Tennessee's regulation nevertheless is valid under Section 2 of the 21st Amendment, found that "the record is devoid of any 'concrete evidence' showing that the 2-year residency requirement actually promotes public health or safety; nor is there evidence that nondiscriminatory alternatives would be insufficient to further those interests." This is a huge win for the alcoholic beverage retail industry nationwide, even of it is a deemed loss for smaller local liquor retailers in Tennessee who were protected by the stringent residency requirements (although the Tennessee Alcoholic Beverage Commission had stopped enforcing the requirements against new applicants).
[Note: BLPB reader Tom N. predicted this result in his comment to this Josh Fershee post earlier in the year.]
A number of things about the Court's opinion interest me and also may interest you. First, the Petitioner, a trade association, chose to only challenge the Sixth Circuit's opinion on only one of the two residency requirements struck down at the Sixth Circuit level. Second, the Petitioner chose not to argue that the initial application residency requirement could be sustained under the dormant Commerce Clause as a narrowly tailored measure designed to “advance a legitimate local purpose.” Rather, the Petitioner chose to argue that the law could be sustained under Section 2 of the 21st Amendment because the residency requirement promoted public health and safety. And finally, the Court's opinion includes some interesting history on alcohol regulation (including Prohibition) and the dormant Commerce Clause.
The dissent, written by Justice Gorsuch (joined by Justice Thomas), takes a states' rights viewpoint under Section 2 of the 21st Amendment. The concluding text (citations have been omitted for readability) is somewhat passionate.
Like it or not, those who adopted the Twenty-first Amendment took the view that reasonable people can disagree about the costs and benefits of free trade in alcohol. They left us with clear instructions that the free-trade rules this Court has devised for “cabbages and candlesticks” should not be applied to alcohol. Under the terms of the compromise they hammered out, the regulation of alcohol wasn’t left to the imagination of a committee of nine sitting in Washington, D. C., but to the judgment of the people themselves and their local elected representatives. State governments were supposed to serve as “laborator[ies]” of democracy, with “broad power to regulate liquor under §2,” If the people wish to alter this arrangement, that is their sovereign right. But until then, I would enforce the Twenty-first Amendment as they wrote and originally understood it.
Nevertheless, I am more persuaded by the majority opinion.
Regardless, the opinions both offer some fun reading for those interested in the dormant commerce clause or in alcohol regulation.
[Editorial Note: I found a few typos in this after posting--enough that it bears mention here that I corrected them. Thanks to coblogger Ann Lipton for spotting a particularly egregious spellcheck-generated error.]
Friday, July 12, 2019
This picture brings me joy. It captures the mood among all of us (me, my UT Law emeritus colleague John Sobieski, and a group of UT Law students) after my last UT Law yoga session this past spring. I need to begin to wrestle with how I will be able to teach yoga at the College of Law this coming semester, since I will be full-time back in the classroom teaching two demanding business law courses (Business Associations and Corporate Finance). All ideas are welcomed . . . .
My law school yoga teaching came to mind this week not because I am already deep into planning the fall semester (although that comes soon) but because of two independent health/wellness items that hit my radar screen this week. First, I was reminded that the Knoxville Bar Association (of which I am a member) is offering a full-day continuing legal education program in September entitled "Balancing the Scales of Work and Wellness - Finding Joy through Self-Care Practical Advice & Wellness Strategies". Second, I learned today that my UT Law colleague Paula Schaefer penned a nifty post yesterday on the Best Practices for Legal Education blog: Examples of How Law Schools are Addressing Law Student Well-Being. She mentions yoga, although not our UT Law classes. It seemed that I was being focused on self-care, and that made me think about our UT Law yoga sessions (and the above picture) . . . .
All of this reminded me that I should recommit myself to my goal of learning more about mental health issues and promoting mental health awareness this year. Health and wellness are far more than physical. They are emotional and psychological. I may just try to attend the Knoxville Bar Association program (or part of it). And I plan to be attentive to the ideas mentioned by Paula in her blog post.
Enjoy the weekend!
Monday, July 8, 2019
Avid BLPB readers may have noticed that I failed to post on Monday of last week. I was traveling from Portugal to Spain that day. I did plan to make this post then, but travel scrambles (thanks to the Porto metro) and delays (thanks to Ryanair) prevented me from getting to a computer with Internet access until late in the day. By then, I was too exhausted to post. So, you get last Monday's post this Monday! No harm done; this post is not time-sensitive.
Ever heard of Graham's port? The Graham's port lodge was founded by brothers William and John Graham back at the beginning of the 18th century. Fast-forward 150 years, and the Graham family sells the then-very-successful Graham's port business to another family. That second family still runs the Graham's business today.
But a Graham descendant still wanted to be in the port business. He thought he had a "better way." So, 11 years after the Graham family sold Graham's, John Graham (not the same one, obviously!) established the Churchill port lodge. Here's what the Churchill's website says about its formation as a business:
Churchill’s was founded in 1981 by John Graham, making it the first Port Wine Company to be established in 50 years. The Founder wanted to continue his family’s long Port tradition but at the same time create his own individual style of Port. He named the Company after his wife, Caroline Churchill.
I went to a port wine tasting at the Churchill's lodge in Vila Nova de Gaia, Portugal last Monday with my husband and daughter. We tasted the uniqueness of the Churchill's product. (My daughter, who is not a port wine fan, actually enjoyed what she tasted at Churchill's.) The wine is less sweet than one would expect from a port wine. John Graham himself explains why:
My Ports are made with as much natural fermentation, and with as little fortification brandy, as possible. I like to make wines in the most natural way. Above all I look for balance. I believe I brought this balance to Churchill’s Ports. There is a consensus around the characteristics that define our house style which are easily identified.
While we were at the tasting, we took a tour and learned the basic facts I relate here.
I was enchanted by the business story! Headline: A Graham founds Churchill's after the Graham family sells Graham's. A bit confusing, but a great narrative involving family business, M&A (and corporate finance more generally), intellectual property, business formation, and more. We learned, for example, that the grapes are foot-treaded (stomped on by human feet). Imagine the interesting employment questions. (The shifts are twelve hours and there are stems and seeds in with the grapes . . . .) And the tasting is still done by John Graham himself, raising questions about key man insurance and business succession planning. (We were told that John Graham has chosen a successor taster--not a member of the family. But we did not ask about management.) Finally, a major real estate acquisition--buying a vineyard (Quinta da Gricha) with a special terroir--is part of the tale.
I am scheming to find ways to integrate what I learned into my teaching this year. I know I will find places to work aspects of the story in--particularly in Advanced Business Associations and Corporate Finance. Because I teach on a dry campus, no wine tasting will take place during the lessons. But maybe an optional out-of-class session could be planned. Hmmm . . . .
Friday, July 5, 2019
The dark side of entrepreneurial finance
Editors: Arvind Ashta, Olivier Toutain
Theme of the special issue
Whether we are talking about start-ups, more recently "grow up" or more broadly about company creation-takeover, entrepreneurial finance attracts a lot of attention, from the entrepreneurs' side and from the side of private and public financing organisations and the media. Entrepreneurial finance includes Founder's equity, Love Money, Business Angel, Venture Capital, LBO Funds, banks, IPOs and various alternative financing treated as shadow banking: micro-credit, loan sharking, leasing, crowdfunding, Initial Coin Offerings, among others (Block, Colombo, Cumming, & Vismara, 2018; Wright, Lumpkin, Zott, & Agarwal, 2016).
Financing is considered as an inherent dimension of the entrepreneurial development process (Panda, 2016; Yunus, 2003). Without financing, there is no investment and, therefore, little chance of starting a business with adequate production tools and an organization capable of absorbing the trials and tribulations of starting and developing entrepreneurial activities. Without funding, the risk of lack of legitimacy is also high: what does it mean in the entrepreneurial ecosystem not to have the support of one or more funding agencies? More so in the start-up world! Is that conceivable? Finally, can the entrepreneur now free himself from financial support, even if he does not really need it to start his business? If the reasoning is pursued further, does the entrepreneur have a choice? In other words, is it possible to create and develop your company without mobilizing the financial resources of the territory? Without entering into a financial system and ecosystem that regulates the creation and takeover of companies in a territory? Or a system that pushes the entrepreneur to finance so much that the system itself collapses by bringing forth a financial crisis (Boddy, 2011; Diamond & Rajan, 2009; Donaldson, 2012; Guérin, Labie, & Servet, 2015; Mishkin, 2011).
Applying for funding today is often considered as a difficult adventure: is it really a fighter's path given the particularly numerous mechanisms in France? But are they also numerous in Europe? In the world? Is the cost of financing transparent or hidden (Attuel-Mendes & Ashta, 2013)? In any case, to adventure is to walk and remove obstacles while following a guide... often at the funder's request... which is often called coaching or mentoring. Or following the guide, sometimes - or often, depending on the reader's appreciation – results in respecting rules, imposed steps, in short, to adopt a good conduct... to such an extent that the entrepreneur can lose track of his North Star, or at least part of his project, modified by "pitching" and integrating the comments, suggestions, strong suggestions of potential funders... In other words, if we push the reflection further, the accompanying logic proposed in the form of good intentions by the funders of an ecosystem, are they not likely, by force, to respond to external constraints, to generate effects opposite to expectations: inhibited entrepreneurs, whose project has lost its originality, vitality and excellence through the coaching or mentoring of initially imagined value creation (Collewaert, 2009)? Isn't the finance injected into the support systems finally a Dr Jekyll and Mr Hyde of entrepreneurship? In other words, if it constitutes an unprecedented measure of support for entrepreneurial growth in the world, does it not at the same time generate "antipreneurial" effects? Normative and highly biased, do financial actors deserve such a place in the creative process? What is it that basically legitimizes their central place? (Bateman, 2010; Sinclair, 2012) What is the hidden face of entrepreneurial finance (Henderson & Pearson, 2011; Krohmer, Lauterbach, & Calanog, 2009; Toe, Hollandts, & Valiorgue, 2017)?
The purpose of this issue is to extract itself from the normative fields and discourses that highlight, in the vast majority of cases, the important role of finance in the development of entrepreneurship, whether purely economic, social or environmental. In other words, we are asking ourselves here about the secondary, even hidden, effects of finance on the emergence and development of new companies in France and around the world.
The proposals will address, among other things, the following topics:
- What place does finance occupy today in the feeling of success and accomplishment of an entrepreneurial activity?
- How do entrepreneurs interact with potential funders?
- How do funders dialogue with each other?
- How do funders make their investment decisions? Rationality, Short termism, information asymmetry....
- How do entrepreneurs and funders negotiate? On which elements of the project or company? Are there any losers? What is lost in the process?
- How does the relationship between entrepreneurs and funders change over time?
- Can finance harm the value creation produced by entrepreneurial activity? Can it affect entrepreneurial freedom?
- Is it possible to free oneself from financing circuits? How?
Finally, what is the dark side of entrepreneurial finance?
Submission of texts: By April 30, 2020 at the latest
Publication: March 2021
[I have omitted here the list of references supporting the text citations. Please contact me by email if you would like a .pdf copy of the call for papers that includes the list. There is more information after the jump.]
Saturday, June 29, 2019
Greetings from sunny Portugal. I am enjoying some vacation time here after attending and presenting at the European Academy of Management conference in Lisbon this past week. I will have more to say about that conference in a later post. But for today, I offer some light thoughts and an Internet "treasure hunt" relating to mergers and acquisitions.
I arrived at my hotel in Sintra earlier today to find a notice in the room stating that "[o]n the 30th June 2019, the Hotel Tivoli Sintra will be changing the legal business entity which will be reflected in future invoices." The notice went on to ask that, "to avoid possible delays relating to the billing" each guest pay up his or her bill to date on June 30th "in a partial invoice," noting that "[t]he remaining services will be invoiced at the departure time with the new entity." Apologies were made for "the inconvenience" and thanks were offered for "the understanding."
Of course, as an M&A practitioner and instructor, I wanted to know what led to this change in "legal business entity." I suspected a merger or acquisition transaction. Was it an asset transaction in which the hotel brand was being changed? That's what I suspected. Since I ask my advanced business law students to try to identify the nature of business combination transactions from news reports and public filings, I thought I would see what I could find out by doing a bot of Internet research. Here's what I learned.
Minor Hotels "completed the acquisition of the entire Tivoli portfolio in early 2016." I read this in the Minor International Public Company Limited 2016 Annual Report. See also here. The Tivoli Hotel Sintra was part of this final stage in acquiring the Tivoli hotels. See here. Minor International (known as MINT) is registered under the laws of the Kingdom of Thailand.
In the fall of 2018, MINT launched a compulsory tender offer for shares of NH Hotel Group SA. The tender offer was commenced as a result of MINT's acquisition of a >30% equity stake in NH Hotel Group in a series of transactions earlier in the year. A news report reveals that MINT's significant stock acquisitions were part of an initial unsolicited bid for NH Hotel Group, which Hyatt Hotels & Resorts also desired to acquire. (Spain has a compulsory tender offer law that kicks in when control of a public company--which includes the direct or indirect acquisition of 30% or more of the public company's voting rights--changes. See here.) By the end of October, MINT had acquired sufficient additional shares of NH Hotel Group's common stock to bring its equity stake in NH Hotel Group to over 94%. See here and here and here. A subsequent news report indicates that "NH Hotels and Minor Hotels are seeking to further integrate their brands." The same posting noted that "[p]lans are already underway in Brazil and Portugal to rebrand some Minor Hotels as NH Hotels, with 15 hotels in the two countries undergoing the transformation."
Accordingly, it seems that I may be among the last hotel guests to stay at the Tivoli Hotel Sintra as a Tivoli branded hotel. At least that's my guess based on what I have read. Although I was not correct in my original guess as to the nature of the transaction that led to the change in "legal business entity" of my Sintra hotel, if my assessment is correct, I wasn't far off. An asset acquisition was involved at the outset, but the posited rebranding happened later and was more the result of a series of stock acquisitions in a hostile, competitive takeover environment. Not a bad day's work in M&A sleuthing. Just call me Nancy Drew, right, Ann?
Monday, June 24, 2019
One of the things that I obsessed over (alone and together with other new business law prof colleagues) as I began my teaching career was how to teach the first day of classes in my courses. I was given some great advice by many folks. Here are a few of the most valuable things people told me--advice that I use all the time, in my first-class sessions and, in some cases, beyond.
Have a solid class plan. This may go without saying, but my obsession paid off in that I was prepared, and therefore more confident (although my legs were shaking behind the podium anyway . . . ). I actually typed up my class notes for the first semester's worth of classes I taught. (I learned that, while I can read class notes competently, I always extemporaneity anyway . . . . I no longer read typewritten class notes, but many of my colleagues who are experienced and effective teachers still do.) But typing up my notes helped to reinforce key parts of the material for me and identify course themes.
Use the first class as an opportunity to introduce the semester's task, including both substantive law coverage and other learning objectives. I use a device in each doctrinal and experiential course to offer students a window on what we are covering and how that will be done. I include a piece on my expectations (e.g., reading the syllabus, frequently checking the course management site, reading email, producing timely and thoughtful work). Be as clear as possible about your expectations for your students. (As Josh Fershee said, "it's important to be as clear as possible about the what and the why.") Write them into your syllabus, of course; but also reinforce them verbally on the first day and at every logical juncture in the course where they may be relevant.
Consider using a motivating hypothetical or in-class project to help launch the course or illustrate coverage or themes. In my Business Associations course, after using a PechaKucha presentation as a brief introduction, I assign a few students in key roles in a new business with each other, and we use the remaining class time to talk through their expectations and how the law might address them. In my Corporate Finance course (which I teach as a planning and drafting seminar), we begin with a nebulous drafting assignment. In my Securities Regulation course, we begin with the financing of a vaguely described business in which the students are invited to invest. These three sample introductory sessions are just few among the many that could be used for these or related courses. Use your knowledge of where your course is headed to construct something relevant to your materials and course plan.
Arrive at class ten minutes early. Engage the students in an informal way as they arrive and get settled. Ask about how they are, what they did last summer, compliment them genuinely on something, what kind of coffee they are enjoying, etc. Anything that comes naturally in the way of light personal banter can work. (Continue this in subsequent classes, by the way. It's a great way to develop a deeper relationship and trust network with your students. This can come in handy when you flub up on something--which you inevitably will do, based on my experience and the experiences of folks I know.)
I am sure there is more I could say, but these items are the key ones, from my vantage point. What can you add? Leave comments to help our new colleagues along a bit.
Friday, June 21, 2019
Today, the 10th annual National Business Law Scholars Conference concluded. Jill Fisch gave today's keynote lecture at lunchtime. She masterfully (really) tied together the scholarship of the far-and-away vast majority of the business law scholars attending the conference by weaving together corporate purpose, private ordering, and choice of entity. In tying these themes together, she encouraged us all to use our scholarship to serve multiple audiences--including the judiciary, the law practice community, and industry.
This talk resonated with me from start to finish. I was riveted. I knew Jill was talking directly to me and so many others in the room who have plumbed the core of corporate governance and tried to address multiple audiences with our work. She validated, and encouraged us to continue (and expand), our work in these somewhat unsettled (and sometimes unsettling!) areas of business law.
Take me for example (since I know myself best . . . ). As Jill talked about corporate purpose, I heard her to be validating part of my article on Corporate Purpose and Litigation Risk in Publicly Held U.S. Benefit Corporations. When she addressed private ordering, I understood her to be endorsing my observations on that subject (as well as corporate purpose!) in Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents. And when she extolled the virtues of scholarship on choice of entity, I realized she was supporting work like mine in Let's Not Give Up on Traditional For-Profit Corporations for Sustainable Social Enterprise. In each of those pieces, I was talking to audiences that include those outside the business law academy. I have recently focused more direct attention on these additional audiences in essays like Why Can't We Be Friends? A Business Finance Lawyer's Plaintive Plea to Entrepreneurs and Professional Responsibility in an Age of Alternative Entities, Alternative Finance, and Alternative Facts. I know that others in the audience saw similar reflections of Jill's words in their own work.
Mike Guttentag observed in summary that Jill's words represented both a "call to action" and a celebration. I could not have summed Jill's talk up any better than that. (And she seemed pleased by that summary--indicating that if she had achieved those objectives, she had done the job she set out to do.)
I left the keynote program uplifted and, frankly, jazzed up about what I have done, am doing, and plan to continue to do. The great comments I got on my insider trading project in the session right after her talk were icing on this beautiful cake. Thank you, Jill, for your rousing endorsement of business law scholarship.
Tuesday, June 18, 2019
My colleagues started this series off well with Part I and Part II in the series, and I will try to build on their thoughts. There are so many decisions to make when you get started, including what book to use, what style you will use in the classroom, and what form or forms of assessment you will use. To start, I will echo Joan Heminway's advice because I think it is so critical: First, be yourself.
It's easy to to think of teachers you liked and think you need to teach like them to be effective. While we can all learn a lot from our best teachers, if you look closely, I think you'll find that the thing best ones have in common (in addition to being prepared) is that they are true to themselves. That is not to say that every person is the same in classroom as they are outside. Some people need to be actors -- they take on a persona when they hit the classroom. Others wear their hearts on their sleeves. Others are clinical, and still others are relaxed and casual.
You may not know immediately your full style or classroom voice, but in my experience you know pretty quickly what isn't your thing. My advice is to make sure you don't stick with something you know doesn't feel even a little bit right for you. You can experiment and push yourself to try new things, and you should. Just don't continue down a path that makes you feel like you're going the wrong way. Your students will feel it, too. Every time.
As for assessment, you'll need to decide: Will you use one big final exam? Will you have a participation grade? How about writing assignments or exercises? Will your exam be open book or closed book? There are lots of options, and none are inherently right or wrong, though some may be better than others, especially for you and/or your school. Here are some guidelines I use in deciding what to do:
(1) If there is a manageable way to incorporate more writing in to the class, do it. That might mean graded assignments, but it might mean in-class writing where students exchange their thoughts and compare it against a model or example answer. It might mean multiple small papers or a series of blog posts. The more students write, the better they will get at is. And it doesn't have to mean you will be grading 5 papers from 50 students in a semester. As long as their is some accountability -- that is, someone other than the student will read it -- I have found it valuable. Asking students to write for and assess themselves has value, too, but in my experience the participation rate for those assignments tends to be lower and with less commitment for many students.
(2) If you're not sure what to choose, or you're agnostic, find out what your colleagues tend to do, and do something different. For example, many of my colleagues have used open-book exams, so I chose to give a closed-book exam for Business Organizations. This gives students a different experience, which I think is valuable. If all my colleagues gave closed-book exams, I'd probably give an open-book one. I have done both types, by the way, and both are fine, though I prefer the output I get from closed-book exams. Students tend to write what they know instead of searching for the "perfect" answer in the book. If no one gives take-home exams, maybe consider that (though I hated those as a student and I don't like them as a teacher, your mileage may vary). Different assessment styles provide one way to give students an experience they need as professionals to work with different partners or judges or clients. Not every experience is the same, and the best lawyers are adaptable.
(3) Whatever you choose for any of these things, be intentional. Do it for a reason that is more than that's what my professor did or that's what people do here. You may choose a path for both reasons, but make sure you have considered other options and then made a conscious decision to follow that path. Be honest and open with yourself about why you chose that path. It will give you some comfort in your decision, as well as make it easier to see why you might want to change course in the future if your goals are not being met.
(4) Be open with your students about what you are doing. For me, that means explaining my thought process and why my rules are as they are. My students know why, for example, I am giving a closed-book exam, do or do not use participation points, will or will not be flexible on deadlines, or why they may not want to tell me the reason they are missing class. Note that this works even for professors who are notoriously Socratic and won't answer much of anything directly. For the good ones, it is at least clear what they will not do. That said, for me, it's important to be as clear as possible about the what and the why. Here is an example: in my energy law seminar, I tend to be flexible with deadlines (within reason) on due dates for drafts and papers, especially with advance notice. This is because the dates are somewhat arbitrary and designed as guidelines so I can provide feedback and students have time to internalize and incorporate my feedback. So, my students know that. But when I taught first-year legal writing, deadlines were absolute (or nearly so) with penalties up to including a failing grade for being one minute late. Why? One of my teaching goals there was to teach about severe and irrevocable deadlines that can be linked to court filings, statutes of limitation, and the like.
Anyway, that's a little about how I approach things. Good luck, and don't forget to give yourself a break. As hard as we try, not everything will go perfectly. And sometimes what seemed like the right path was wrong. Or it just went poorly. Try to figure out why, whether it was the idea, the execution, or an external factor, so you can decide whether to scrap it or just try again. Even the best teachers are not perfect. But they are careful, committed, and intentional. Start there, and good things will tend to follow.
Monday, June 10, 2019
I do plan to write a bit about the Law and Society Association and Grunin Center conferences that I attended over the past two weeks. But today, I am compelled to briefly post about a newly decided U.S. Supreme Court case and a recent blog post. The connection? Both reference in relevant part postal delivery services, public and private.
I was alerted to the Supreme Court opinion (in Return Mail v. U.S. Postal Service) by Tom Norris, one of our fabulous BLPB readers in Nashville. The subject of the case is the U.S. government's attempt to assert patent invalidity as a defense to a claim of infringement. The Court finds that the government is not a "person" for purposes of the relevant provisions of the U.S. Patent and Trademark Act. The National Law Journal article to which Tom pointed me offers a nice summary. I really enjoy legal actions that focus on the "person" definitions in statutes and decisional law. This one offers some interesting policy arguments (as do most)--in both the opinion of the Court and the dissent.
The blog post (Modern Mailmen) is coauthored by Leonid Sirota and Akshaya Kamalnath, the latter of whom I met at the Law and Society Association annual meeting and conference in Washington, DC. The post compares and contrasts the regulation of social media providers to the regulation of postal services. Key points follow.
As lawmakers are talking about regulating speech on social media platforms, a comparison with postal services is instructive. The postal service is not required or even allowed to scrutinize people’s mail and make decisions about whether or not to deliver it. So why should its technologically more advanced relatives have to identify and remove misinformation or statements supposed to be “hate speech”? Of course, social media can be used to commit crime, including engaging in hate speech as defined in the criminal law of some countries including Canada. The post collaborated with law enforcement where necessary to investigate fraud and other criminal activities and social media companies should do the same. Social media companies should obviously comply with court orders if someone is found to have committed a crime. The issue is whether they should be expected to engage in preventive enforcement.
The further question about whether we should require these tech platforms to service all users equally, like the postal service is expected to, is more complicated. This is because the dominant postal service is usually run by the state, while the tech platforms like Facebook are run by corporations in the private sector. While we can ask a state-run enterprise to provide services to all equally, more thought needs to be given before private enterprises are held to the same standard. Yet, government regulation is being considered because, among other things, there are complaints about the spread of what activists deem to be “hate speech”, and also complaints about the silencing of conservative voices on social media.
Ultimately, the coauthors conclude that the regulatory touch on social media providers should be light and focused.
Parenthetically, it also seems appropriate to note that all of this attention to postal services comes at a time when the U.S. Postal Service's business model is subject to possible change. This testimony offers some detail. As the testimony notes, the U.S. Postal Service has been losing money for a number of years and may need a substantial operating overhaul to survive. That will be an interesting matter to follow as restructuring plans are formulated and implemented.
Monday, June 3, 2019
At the 2019 Law and Society Association Annual Meeting last week, Geeyoung Min presented her paper Governance by Dividends. In the paper, she focuses attention on stock dividends. Near the end of her presentation, Geeyoung trod over ground on which so many of us also have trod--relating to judicial standards of review in fiduciary duty actions. As familiar as the story was, she helped me to see something I had not seen before. Perhaps many of you already have identified this. If so, I am sorry to bore you with my new insight.
Essentially, what I came to realize during her talk--and develop with her and members of the audience in the ensuing discussion--was that Delaware's judiciary may have (and I may be quoting Geeyoung or someone else who was there, since I wrote this down long-form in my contemporaneous notes) muddied the waters by seeking clarity. What do I mean by that? Well, by addressing relatively clearly the circumstances in which the business judgment rule, on the one hand, or entire fairness, on the other, govern the judicial review of corporate fiduciary duty allegations, the Delaware judiciary has effectively made the interstitial space between the two--intermediate tier scrutiny--less clear.
As I reflected a bit more, I realized that an analogy could be made to the development of the substantive law of corporate fiduciary duties in Delaware. The overall story? Judicial refinement of the fiduciary duties of care and loyalty has left the duty of good faith somewhat more indeterminate.
I am not sure where all this goes from here, but there may be lessons in these musings for both judicial and legislative rule-makers, among others. As always, your thoughts are welcomed.
Friday, May 31, 2019
Last week, I attended the American Law Institute (ALI) Annual Meeting in Washington, DC. (I am back in The District this week for the Law and Society Association Annual Meeting. More on that in a later post.) Many important project drafts and projects were vetted at the ALI meeting. As many readers know, however, the tentative draft of the Restatement of the Law, Consumer Contracts generated some significant debate in advance of and at the conference. The membership approved part of the draft of the project at the meeting, but much still is to come.
As many of you likely know, there has been significant litigation about the enforceability of these kinds of provisions in form agreements--and whether a valid contract has been formed at all. See, e.g., this article from earlier this year. As the debates on the Restatement proceeded at the meeting, I found myself thinking about whether the common law of contracts is the best way to handle legal challenges to standard form contracts. Something inside me just kept screaming for a more tailored legislative solution . . . .
After conclusion of the ALI Annual Meeting, I found this testimony before the Senate Judiciary Committee from Myriam Gilles, Paul R. Verkuil Research Chair and Professor at Cardozo Law. She notes in that testimony:
[W]hen pre-dispute arbitration clauses and class action bans are forced upon consumers and employees in take-it-or-leave-it, standard-form agreements, “the probability of litigation positions is highly asymmetrical: the seller is far more likely to be the defendant in any dispute, and the consumer the plaintiff.” There is no negotiation, no choice, and the resulting arbitration procedures are not, in truth, intended to provide a forum to resolve claims. The one and only objective of forced, pre-dispute, class-banning arbitration clauses is to suppress and bury claims. The whole point is that consumers and employees seeking redress for broadly distributed small- value harms cannot and will not pursue one-on-one arbitrations.
(footnotes omitted) Professor Gilles recommended a legislative solution.
I do not teach contracts. Perhaps those of you who do have comments on this matter that negate what I have written here. If so, please share them. In general, as a corporate finance lawyer, I favor private ordering. But consumer contracts are a whole other animal, distinct from merger or acquisition and other corporate finance agreements. Perhaps we should decrease pressure on the courts by focusing some legislative attention on the appropriate form of standardized terms in consumer contracts that operate as contracts of adhesion or otherwise offend public policy. I am not sure quite what that looks like overall, but the idea seems to bear further thought . . . .
Monday, May 27, 2019
When I was young, Memorial Day meant one thing: the Memorial Day Fair at my church, The Cathedral of the Incarnation in Garden City, New York. As I contemplated how to honor our war dead this Memorial Day, I kept coming back to thinking about that fair. Others have also had memories of the fair on their minds this week. A May 25th post in a Facebook group I belong to, I grew up in Garden City, New York, asked: "What are your memories of the Memorial Day fair at the cathedral? I looked forward to it every year!" At the time this post was published, there were over 100 comments and replies posted. The Memorial Day Fair even gets a nod on the TripAdvisor page for the church--"Wonderful [sp] Memorial Day Fair and Concert." Local press stories on the preparations and schedule for this year's fair can be found here and here.
The Memorial Day Fair is a collaborative community event in which local businesses join together with church volunteers to produce a major good time. The webpage for this year's fair notes ten business sponsors and boasts that the fair "will feature games, inflatables, rides, prizes, and delicious fair food! You'll also find arts & crafts, vendors, organ concerts with patriotic sing-alongs (at 1pm and 3pm), historic tours, and an archives display." Those commenting in the Facebook group remembered the goldfish (most of which died rather soon after the fair) that many of us won by throwing ping-pong balls into goldfish bowls, the games, the rides, and the food--especially the cotton candy.
I remember all that--and selling ice cream to a famous actor visiting our local famous basketball player. But I also remember the American Legion's red poppies and the local Memorial Day Parade (which many also remembered in response to the Facebook group post). These parts of the day were directed almost exclusively toward honoring those who lost their lives fighting for our country and became intertwined with the fair in meaningful ways.
My memories of the Cathedral of the Incarnation Memorial Day Fair remain relatively strong as I take time out today to remember why Memorial Day exists: to honor the lives of people who died while serving in the U.S. armed forces. (See also here and here.) The forces of community in my home town--business and religious interests alike--that came together (and apparently continue to come together) in honor of the men and women who died in military service to our country is a great example of social responsibility in action. It continues to inspire.
Monday, May 20, 2019
Last week, a wonderful man in my life died. Jonathan Spencer, a classmate from and fellow class leader for Brown University, died unexpectedly a week ago. He collapsed while exercising and was unable to be revived. At the time of his death, he was the General Counsel of the Museum of Science Fiction in Washington, DC, a museum that he helped to found. The above photo was taken last year at our 35th reunion celebrations. Although we did not see each other a lot in between reunions, we shared a passion for Brown and our class.
We also shared a professional connection, as the title of this post indicates. Jonathan was a fellow business lawyer. He focused on communications technology for much of his career. His formal professional bio as currently posted at the Museum of Science Fiction is as follows:
Jonathan Spencer, General Counsel. Jonathan is a technology and transactional attorney with over 25 years of experience having held senior and executive level positions with several Internet and telecommunications companies. Jonathan has also representedtechnology and media companies, financial institutions and nonprofit organizations. Jonathan is a former chair of the Association of Corporate Counsel’s IT, Privacy and E-Commerce Committee and has spoken at programs for the American Bar Association, the Association of Corporate Counsel, the American Society of Association Executives and the International Technology Law Association. Jonathan is a graduate of Brown University and Duke University School of Law.
I can assure you, as impressive as his professional accomplishments are, Jonathan was far more than an impressive business lawyer. He had a seemingly boundless intellectual capacity. At his memorial services in Falls Church, Virginia yesterday, it was noted by family that "Before Google and Wikipedia, there was Jonathan." That rang so true to me. But more importantly, perhaps, Jonathan had an incredible joy for life. He was "all in" when he chose to do things--from simple conversations with friends and classmates about mutual interests through event planning and fundraising work for Brown to world travel (and much more in between). He lived life--making sure that he enjoyed the present moment as he strived to achieve all that he accomplished. His altogether too-short life reminds me to do the same.
The photo below was taken of the two of us at Brown Homecoming back in 2007. We were on campus for a leadership weekend and attended the football game while we were there. A fellow classmate found this picture for me a few days ago. I will treasure it and all of the memories of our times together. Jonathan, may you rest in eternal peace, and may your family be comforted in their time of grief. You will be missed by us all.
Monday, May 13, 2019
Today, I have been attending and presenting at the Midwest Symposium on Social Entrepreneurship in Kansas City, Missouri. This is the Seventh Annual installment of this event, which engages entrepreneurs, lawyers, government actors, and others in education, networking, and discussions around various issues (which differ from year to year) relating to social enterprise structure, governance, finance, and operations. I love attending this symposium. The people are socially and intellectually stimulating. I appreciate Tony Luppino inviting me to participate.
There is much I could write about the programs today. However, I will focus in one one small thing for now: Opportunity Zones and more particularly the funds that invest in them. A quick description of Opportunity Zones and a cautionary message on related investment funds follow.
The U.S. Internal Revenue Service has defined Opportunity Zones as follows in a Q&A posted on its website:
An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service.
The main point is to encourage investment in businesses or real estate in distressed areas of the United States through federal tax incentives.
Unsurprisingly, investment funds have been established to make these tax-advantaged financings. From that state of affairs stems my public service announcement. As I listened to folks talking about this form of funding real estate and businesses, the securities lawyer in me became uncomfortable. The presenters appeared to be ignoring the seemingly obvious conclusion that the process of seeking investors to participate in these investment funds is a securities offering that must be registered under federal or state securities laws, unless an exemption is available. So, I raised that point from the audience . . . .
Sure enough, if one looks or resources on the Internet, one learns that promoters of these funds seem to have reached the same legal conclusion about the potential application of securities offering registration/exemptions. (See, e.g., here and here.) Federal registration exemptions in or under the Securities Act of 1933, as amended, that might work in this context include those for private placements (Section 4(a)(2) or Rule 506(b)) and intrastate offerings (Section 3(a)(11) and Rules 147 and 147A).
Bottom line word to the wise? Find an exemption for the offer or sale of investment interests in a Qualified Opportunity Fund or register the offering with the Securities and Exchange Commission and any applicable state securities commission. Otherwise, proceed at your regulatory peril . . . .
Monday, May 6, 2019
I read with interest and some sadness this New York Times article published last month. Having just finished a full weekend of yoga continuing education with a group of women (most of whom were about to graduate from a registered teacher training like the one I completed last November), I feel compelled to say a few words about the article and the business of yoga and yoga instructor training. My perspective on the matters raised in the article is, of course, colored by my background in business law practice and teaching and my recent teacher training experiences. I am sure that co-blogger Colleen also would be interested in the article for similar reasons (and given her earlier post on yoga and entrepreneurship).
The article highlights specific tactics allegedly used to generate then expansion/growth of a particular yoga business. The core aspect of the article--reports that instructors were pressured or coerced to make sales pitches that may have misrepresented the instructor training program or the results it can achieve--struck me most clearly. To say that the "story" told in the article was chilling understates the case. My thought after reading it? This does not look like the yoga businesses or instructor training programs I know . . . .
Yoga Alliance instructor trainings include information on yoga teaching as a job or career and as a business. There are many good online resources on the same. See, e.g., here and here. As these resources and others on the business of yoga indicate, studio revenues from classes are not typically even day-to-day and week-to-week. Teacher trainings, by comparison (as the article notes), generate revenues that are relatively large and, with solid ongoing recruitment efforts, relatively consistent. The article's text illustrates how revenue challenges can drive unethical--even if not unlawful--sales activities.
From a legal perspective, intentional or reckless misrepresentations made by yoga studios through their instructors about the nature of yoga teacher training or the market for yoga instruction, whether or not incentivized by financial or other benefits, are not only potentially tortious but also likely to be within the purview of consumer protection laws. Under Tennessee law, for example, "[r]epresenting that goods or services have . . . characteristics, . . . uses, benefits or quantities that they do not have" and "[r]epresenting that a consumer transaction confers or involves rights, remedies or obligations that it does not have or involve" constitute "unfair or deceptive acts or practices affecting the conduct of any trade or commerce are declared to be unlawful." Tenn. Code Ann. § 47-18-104(b)(5) & (12). As I earlier mentioned in a post focused on consumer protection issues relating to Starbucks drinks, state consumer protection law is supplemented and complemented by Federal Trade Commission and Better Business Bureau complaint processes/reporting.
In addition, yoga schools and teachers registered with Yoga Alliance (like similar business entities and professionals in other industries) agree to abide by rules set forth in a code of conduct. These rules include agreements to, for example, "[f]ollow all local government and national laws that pertain to my yoga teaching and business" as well as "[r]espect the rights, dignity and privacy of all students" and "adhere to the traditional yoga principles as written in the yamas and niyamas." (Truthfulness (satya) is one of the yamas; purity (saucha) is a niyama.)
Ultimately, the article not only offers lessons to the yoga community, but also holds wisdom for entrepreneurs and business management more generally. Business growth fueled by fraudulent or other misrepresentations is illusory and avoidable. I could not help but think about the recently reported Insys Therapeutics convictions:
The jury, after deliberating for 15 days, issued guilty verdicts against the company’s founder, the onetime billionaire John Kapoor, and four former executives, finding they had conspired to fuel sales of its highly potent drug, Subsys, by not only bribing doctors to prescribe their product but also by misleading insurers about patients’ need for the drug.
Sobering facts that provide important warnings to mindful business promoters.
Monday, April 29, 2019
My essay, "Mr Toad's Wild Ride: Business Deregulation in the Trump Era," was recently published by the Mercer Law Review as part of a volume featuring works from a recent symposium on "Corporate Law in the Trump Era." The symposium was held back in October and resulted from ideas shared at a discussion group on "Corporate and Financial Reform in the Trump Administration" convened for the 2017 Southeastern Association of Law Schools conference. A portion of the introduction explaining the overall nature of the essay follows (footnote reference omitted).
This Essay identifies and takes stock of the Trump Administration’s deregulatory efforts as they impact business interests, with the thought that even incomplete or biased information may be useful to transactional business lawyering. What of significance has been done to date? With what articulated policy goals, if any? How may—or how should—the success of the administration’s business deregulatory plans and programs be judged? What observations can be made about those successes? For example, who may win and lose in the revised regulatory framework that may emerge? The Essay approaches these questions from a transactional business law perspective and offers related observations. Spoiler Alert: to date, the deregulatory journey is characterized by haphazardness not unlike the motorcar experience that is the subject of the beloved Disneyland attraction, Mr. Toad’s Wild Ride—a joyride that includes surprises and may sometimes feel like it is taking us “merrily, merrily, merrily, merrily, merrily on our way to nowhere in particular!”
This is the second essay in a pair that I wrote over the past year on deregulation and the presidency. I posted on the first essay here, with a bit of information about the project as a whole (which had its genesis in BLPB posts by Anne Tucker and me).* I also posted on this project back in September, here. Thanks to those of you who responded with ideas in the comments and in private messages in response to these earlier posts.
Although not all of those comments made it into my work implicitly or explicitly, they were nevertheless helpful as I researched and thought through my theses on these two short reflective pieces. I do have many more ideas relating to this topic. No doubt those ideas--and some of yours--will find their way into other work as time moves on.
* In reviewing my prior posts for this post, I noted that the text of this post has the year of the Southeastern Association of Law Schools discussion group wrong. It did, in fact, occur in 2017, and it therefore preceded the Association of American Law Schools conference discussion group referenced in the post. I left a postscript on that page, but I wanted to clarify the matter here also.
Monday, April 22, 2019
Co-blogger Ann Lipton has posted a number of times on Elon Musk's Twitter disclosures and their potential legal significance. I chimed in once. Unless I am mistaken, her most recent post (citing to our prior posts) on this subject is here. Based on these posts, we both seem to understand that the Twitter Era has spawned some interesting disclosure-related legal questions.
I had these posts in the back of my mind when I got an email invitation yesterday from IPO Docs, a firm that sells "Regulation D Private Placement Memorandum Templates" to check into the firm's services. I have never been a fan of online templates or form documents as drafting precedent, especially for investment disclosure documents. In general, one-size-fits-all disclosure lawyering is just too far from my practice background (which involved reverse-engineering the work of my Skadden colleagues and others). But I do tell students they should be familiar with these kinds of form/exemplar resources and that, after determining the quality and suitability of a resource for their purposes, they may want to use form documents as a cross-check for contents or phrasing.
These two examples of Internet-related disclosures (online commentary and disclosure forms) are two pieces of a larger disclosure regulation puzzle. The puzzle? How best to address challenges to disclosure regulation posed by our increased use of and reliance on the Internet. Believe me; I am a fan of the Internet. But having been engaged with disclosure regulation pre-Internet and post-Internet, I do see challenges.
Social media and blog posts or commentary, for example, raise issues about the nature of the speech and the identity of the speaker. Are tweets made by firm managers disclosures of firm information or are they private statements? Who is the person behind a social media or weblog account commenting on business affairs? (I note that Ann's September 29, 2018 post on the Musk affair reports, based on information in the SEC's complaint, that analysts "privately contacted Tesla’s head of investor relations for more information and were assured that the tweet was legit." And many may remember the dust-up--almost twelve years ago--around John Mackey's "anonymous" online posts.)
To the extent that we come to accept, from a disclosure compliance standpoint, business disclosures that are made through fractured online posts and commentary, we lose the benefits of standardization--including easy comparability--that comes from the traditional periodic and transaction-based disclosure regimes built into the Securities Act of 1933 and Securities Exchange Act of 1934. While I understand the virtues of allowing for more customized business disclosures in certain circumstances (e.g., for Form S-8 registration statements, where a summary plan description geared to benefit-holders fulfills key prospectus disclosure requirements), should we be encouraging or mandating that investors of all kinds comb the Internet to find scraps of information to enable them to get comparable data? (Of course, many investors do perform Internet searches, regardless. But mandatory disclosure documents are the core elements of compliance, and they allow for relatively direct comparisons.)
What about disclosure challenges relating to Internet-available offering documents? I admit that I have less concern here if these documents are purchased and used by a competent lawyer. But I fear that will not be the dominant scenario.
In my view, a significant peril with disclosure templates is that people using them as drafting models may not be competent or skilled in their use. Specifically, form end-users may not understand (or even consult) the legal rules relating to disclosures required to be made by a firm seeking capital under applicable federal and state securities law registration exemption(s). The interpretation and interaction of some of these rules--and the preservation of arguments and remedies if an exemption is later found to be unavailable--can be complex. It is too easy to use template text without questioning it.
Moreover, Internet forms may lull businesses into thinking they have met all attendant legal requirements relating to a financing transaction for which a form document has been purchased. In a private placement, the existence of an accurate and complete disclosure document is but one of many legal compliance issues. Private placements exempt under Regulation D have a number of moving parts, disclosure being only one.
I feel very "old school" in writing this post. What are your views on these and other issues relevant to business disclosures made on or facilitated by the Internet? As a person who has been known to describe herself as a "disclosure lawyer," I would appreciate any ideas you may have. And tell me where I am wrong in the observations I make here.
Monday, April 15, 2019
Last Friday, I had the honor to participate in Rutgers Law School's Fourth Annual Corporate Compliance Institute, presented by The Center for Corporate Law and Governance. I teamed up with Todd Cipperman, a lawyer and compliance professional who owns his own firm, in leading a discussion breakout session on current topics in financial services and securities compliance. Todd is the author of The Compliance Advantage: Ten Must-Know Trends to Protect Your Investment Firm. Our knowledge bases were complementary, and he was a great partner.
The Institute offered a super program, starting with a welcome lecture from Rutgers Law's own Hui Chen, former Compliance Counsel Expert for the U.S. Department of Justice Fraud Division. She outlined four concerns for us to focus on over the course of the program:
- Variety - including the many taxonomies of compliance
- Use of Data - including disparities in a firm's treatment of other peoples' data and its own
- Measurements and Outcomes - including the importance of measuring outcomes in addition to processes
- Ethics and Compliance - including the relationship between the two--whether they are co-extensive and, if not, whether one can exist without the other
Following these threads throughout the day proved to be a useful task.
Another highlight of the day for me was the luncheon talk offered by Eugene Soltes, author of Why They Do It, a book about the motivations for white collar crime that I am using in my current insider trading research project. Having said that, I also learned a bunch from the two morning panels--one on recent corporate compliance trends (focusing in on trade sanctions, antitrust, and immigration) and the other on data compliance issues (addressing governance, stewardship, and privacy, among other things). All-in-all, the day was a great way to learn and share. Thanks to Arthur Laby for inviting me.
Monday, April 8, 2019
More on leadership! It must be in the air . . . .
Last year, I blogged about the inaugural Women's Leadership in Academia Conference. It was an amazing event. The second conference is just a few months away (July 18-19), and organizer Leslie Kendrick (Vice Dean and David H. Ibbeken '71 Research Professor of Law at the University of Virginia School of Law) recently circulated important information about the 2019 conference that I want to share here.
Specifically, she has encouraged folks to register and has offered three ways to engage with the conference at this juncture. They are (and I am quoting her here):
Propose a panel: We’ve gotten some great proposals and would love to hear from you! The link for proposing a panel is on the website and here. Proposals are due by May 1.
Request a travel scholarship: If you could use financial assistance to defray the costs of attending the conference, please apply for a travel scholarship on the conference website or here. We’d love to hear from you. If at all possible, it would be helpful to receive requests by June 1.
Extend the welcome: Our mailing list includes attendees of our AALS events and last year’s conference, but we want to reach everyone possible. Please forward this information to friends and colleagues and disseminate it at your schools. We’d love to see everyone on July 18!
Leslie has invited folks to contact her about the conference. So, if you have any questions that the website does not answer, I suggest you send her a message or give her a call. Regardless, I hope that you will consider attending and, if you are so inclined, suggesting a panel topic and speakers.
Saturday, April 6, 2019
For the past two days, I had the privilege of attending a leadership conference hosted by UT Law's Institute for Professional Leadership. I admit to being pretty passionate about leadership literature, training, and cultivation. Some of that zeal no doubt comes from working with and studying the scholarship of business management. However, I also have participated in two academic leadership training programs over the past ten years, the Higher Education Resources Service's HERS Institute and the Southeastern Athletics Conference's Academic Leadership Development Program. Both were true eye-openers for me at a time when I was poised to assume a leadership role as our campus faculty senate president.
The conference this week was on developing leadership in lawyers. It is part of a series of conferences/symposia that a group of law faculty interested in this topic have been convening for a number of years now. Articles emanating from prior event proceedings are published here and here. The authors of many of the articles in those law review books have also authored stand-alone books and other works on leadership in the legal profession published elsewhere.
This week's conference treatments of the topic spanned a wide range, addressing (for instance) the places and methods for training lawyers to be leaders, since lawyers hold a disproportionately high number of leadership positions in the public sector. I enjoyed it all, but I was particularly inspired by the workshop on integrating well-being into leadership curricula, the roundtable discussions on what is already being done and what law practice needs, and the student/alumni panel on the importance and effectiveness of law school courses on leadership. There were lots of good ideas shared in these sessions and throughout the conference, and many seeds were sowed for action and further discussion. I hope to roll some of those ideas out on the BLPB over time.
Btw, the UT Law Institute for Professional Leadership has a blog. I plan to author some posts for the blog that I will certainly highlight here. But if you are interested in this topic more broadly, you may want to sign up to follow the blog by email (an option available on the blog site). Also, feel free to contact me or the Institute's director, Doug Blaze, for more information.