Tuesday, October 9, 2018
California drives me nuts with lazy references to LLCs -- "limited liability companies" -- as" limited liability corporations." See, e.g., Dear California: LLCs are Not Corporations. Or Are They?
A 2010 case recently posted to Westlaw provides another example, this time from the local rules for the United States District Court for the Central District of California. The case deals with an attorney withdrawing as counsel for an LLC, which requires the withdrawing attorney to provide notice to soon-to-be former client YPA, that as
a limited liability company that cannot proceed pro se, its failure to have new counsel file a timely notice of appearance will result in the dismissal of its complaint for failure to prosecute and of the entry of its default on the cross-complaint.
This is fairly typical, as entities are generally not allowed to appear pro se -- that is reserved as an option for natural persons. However, because of poor drafting, the local rules keep open the possibility that an LLC could appear pro se. As the court notes in footnote 9, the rules provide:
9. See CA CD L.R. 83-2.10.1 (“[a] corporation including a limited liability corporation, a partnership including a limited liability partnership, an unincorporated association, or a trust may not appear in any action or proceeding pro se.”)
None of this is new, coming from me. But I'm not giving up, even if I that tree I keep banging my head on is a Redwood.
Monday, September 17, 2018
I am still basking in the warm glow of having hosted a number of my fellow Business Law Prof Blog editors in Knoxville last week for our second annual "Connecting the Threads" event. What a great day we had on Friday. I could listen to these folks talk about business law until the cows come home (so to speak--no actual cows here!).
As BLPB readers may recall, the title of my paper for the 2018 "Connecting the Threads II" symposium is Lawyering for Social Enterprise. I am sure that I will blog more on that topic in this space later--when my paper from the symposium has been published--but I want to offer here the three paragraphs of conclusion to the handout I prepared for the continuing legal education materials for the program, which focus on the need of judgment, discretion, and even wisdom.
Advising entrepreneurs, founders, promoters, and directors of social enterprises can be both satisfying and frustrating. The satisfaction most often comes from helping these businesses achieve financial success while also serving the public good. The frustration comes from the difficulty of the task in providing the necessary counsel—both in selecting the optimal legal form for the firm and in advising management as the business operates over time. These legal advisory contexts involving social enterprises are richly textured and immerse legal counsel in multi-level decision-making that impacts both internal and external business constituencies. The overall advisory environment implicates, among other things, hortatory text in the Preamble to the Model Rules of Professional Conduct providing that “[a] lawyer should strive to attain the highest level of skill, to improve the law and the legal profession and to exemplify the legal profession's ideals of public service.” In lawyering for social enterprise, the legal advisor’s skill and public service responsibilities interact meaningfully.
Said another way, the complex decision-making involved in lawyering for social enterprise presents obvious challenges for business venturers and their legal counsel that involve not only baseline professional responsibility matters of competence (comprising doctrinal knowledge and solid, rational legal analysis), diligence (by offering patient and perceptive insights in helping the client to choose from among available alternatives), and communication (with the goal of ensuring informed client decision-making), but also the exercise of appropriate discretion and professionalism that require the savvy built from doctrinal, theoretical, and practical experience and leadership capabilities. As Professor Jeff Lipshaw has written in his intriguing and engaging book Beyond Legal Reasoning: A Critique of Pure Lawyering, “I am firmly convinced that great lawyers . . . bring something more than keen analytical skills to the table. They bring some kind of wisdom—a metaphorical creativity—that transcends disciplinary boundaries, both within the law and without.” That brand of wisdom is especially important in the kinds of questions that arise in lawyering for social enterprise.
Accordingly, as lawyers representing social enterprises, we need to develop knowledge of a complex set of laws and well-practiced, contextual legal reasoning skills. But that, while necessary, is insufficient to the task. We also must impose judgment borne of a deep understanding of the nature of social enterprise and of our clients and their representatives working in that space. Only then can we fulfill our professional promise as legal advisors: to provide clients with both “an informed understanding of . . . legal rights and obligations” and an explanation of “their practical implications.”
(footnotes omitted; hypertext links added).
Agree? Disagree? Can we help students (and inexperienced members of the bar) develop complex decision-making rubrics that incorporate judgment and wisdom? Can we teach judgment, wisdom, and the like to law students? Forever the optimist, I have an intuition that we can.
And with that thought in mind, I close with a picture of a UT Law student who gives me that hope. He commented on my draft paper at the symposium on Friday. He has been in my classroom for two semesters now (taking Advanced Business Associations, Corporate Finance, and Mergers & Acquisitions). He spoke about why limited liability companies may be a better legal option for organizing social enterprise firms than corporations. Proud moment for him and for me. He aced it.
Sunday, September 16, 2018
I knew it would be impossible. There was no way to relay my excitement about the potential of blockchain technology in a concise way to lawyers and law students last Friday at the Connecting the Threads symposium at the University of Tennessee School of Law. I didn't discuss cryptocurrency or Bitcoin other than to say that I wasn't planning to discuss it. Still, there wasn't nearly enough time for me to discuss all of the potential use cases. I did try to make it clear that it's not a fad if IBM has 1500 people working on it, BITA has hundreds of logistics and freight companies signed up to explore possibilities, and the World Bank, OECD, and United Nations have studies and pilot programs devoted to it. As a former supply chain person, compliance officer, and chief privacy officer, I'm giddy with excitement about everything related to distributed ledger technology other than cryptocurrency. You can see why when you read my law review article in a few months in Transactions.
I've watched over 100 YouTube videos (many of them crappy) and read dozens of articles. I go to Meetups and actually understand what the coders and developers are saying (most of the time). A few students and practitioners asked me how I learned about DLT/blockchain. First, see here, here, here, and here for my prior posts listing resources and making the case for learning the basics of the technology. What I list below adds to what I've posted in the past.
Here are some of the podcasts I listen to (there are others, of course):
1) The Decrypting Crypto Podcast
2) Block that Chain
3) Block and Roll
4) Blockchain Innovation
Here are some of the videos that I watched (that I haven't already linked to in past posts):
There are dozens more, but this should be enough to get you started. Remember, none of these videos or podcasts will get you rich from cryptocurrency. But they will help you become competent to know whether you can advise clients on these issues.
September 16, 2018 in Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Financial Markets, Human Rights, Law Firms, Law Reviews, Law School, Lawyering, Marcia Narine Weldon | Permalink | Comments (1)
Saturday, September 1, 2018
Did I lose you with the title to this post? Do you have no idea what a DAO is? In its simplest terms, a DAO is a decentralized autonomous organization, whose decisions are made electronically by a written computer code or through the vote of its members. In theory, it eliminates the need for traditional documentation and people for governance. This post won't explain any more about DAOs or the infamous hack of the Slock.it DAO in 2016. I chose this provocative title to inspire you to read an article entitled Legal Education in the Blockchain Revolution.
The authors Mark Fenwick, Wulf A. Kaal, and Erik P. M. Vermeulen discuss how technological innovations, including artificial intelligence and blockchain will change how we teach and practice law related to real property, IP, privacy, contracts, and employment law. If you're a practicing lawyer, you have a duty of competence. You need to know what you don't know so that you avoid advising on areas outside of your level of expertise. It may be exciting to advise a company on tax, IP, securities law or other legal issues related to cryptocurrency or blockchain, but you could subject yourself to discipline for doing so without the requisite background. If you teach law, you will have students clamoring for information on innovative technology and how the law applies. Cornell University now offers 28 courses on blockchain, and a professor at NYU's Stern School of Business has 235 people in his class. Other schools are scrambling to find professors qualified to teach on the subject.
To understand the hype, read the article on the future of legal education. The abstract is below:
The legal profession is one of the most disrupted sectors of the consulting industry today. The rise of Legal Tech, artificial intelligence, big data, machine learning, and, most importantly, blockchain technology is changing the practice of law. The sharing economy and platform companies challenge many of the traditional assumptions, doctrines, and concepts of law and governance, requiring litigators, judges, and regulators to adapt. Lawyers need to be equipped with the necessary skillsets to operate effectively in the new world of disruptive innovation in law. A more creative and innovative approach to educating lawyers for the 21st century is needed.
For more on how blockchain is changing business and corporate governance, come by my talk at the University of Tennessee on September 14th where you will also hear from my co-bloggers. In case you have no interest in my topic, it's worth the drive/flight to hear from the others. The descriptions of the sessions are below:
Session 1: Breach of Fiduciary Duty and the Defense of Reliance on Experts
Many corporate statutes expressly provide that directors in discharging their duties may rely in good faith upon information, opinions, reports, or statements from officers, board committees, employees, or other experts (such as accountants or lawyers). Such statutes often come into play when directors have been charged with breaching their procedural duty of care by making an inadequately informed decision, but they can be applicable in other contexts as well. In effect, the statutes provide a defense to directors charged with breach of fiduciary duty when their allegedly uninformed or wrongful decisions were based on credible information provided by others with appropriate expertise. Professor Douglas Moll will examine these “reliance on experts” statutes and explore a number of questions associated with them.
Session 2: Fact or Fiction: Flawed Approaches to Evaluating Market Behavior in Securities Litigation
Private fraud actions brought under Section 10(b) of the Securities Exchange Act require courts to make a variety of determinations regarding market functioning and the economic effects of the alleged misconduct. Over the years, courts have developed a variety of doctrines to guide how these inquiries are to be conducted. For example, courts look to a series of specific, pre-defined factors to determine whether a market is “efficient” and thus responsive to new information. Courts also rely on a variety of doctrines to determine whether and for how long publicly-available information has exerted an influence on security prices. Courts’ judgments on these matters dictate whether cases will proceed to summary judgment and trial, whether classes will be certified and the scope of such classes, and the damages that investors are entitled to collect. Professor Ann M. Lipton will discuss how these doctrines operate in such an artificial manner that they no longer shed light on the underlying factual inquiry, namely, the actual effect of the alleged fraud on investors.
Session 3: Lawyering for Social Enterprise
Professor Joan Heminway will focus on salient components of professional responsibility operative in delivering advisory legal services to social enterprises. Social enterprises—businesses that exist to generate financial and social or environmental benefits—have received significant positive public attention in recent years. However, social enterprise and the related concepts of social entrepreneurship and impact investing are neither well defined nor well understood. As a result, entrepreneurs, investors, intermediaries, and agents, as well as their respective advisors, may be operating under different impressions or assumptions about what social enterprise is and have different ideas about how to best build and manage a sustainable social enterprise business. Professor Heminway will discuss how these legal uncertainties have the capacity to generate transaction costs around entity formation and management decision making and the pertinent professional responsibilities implicated in an attorney’s representation of such social enterprises.
Session 4: Beyond Bitcoin: Leveraging Blockchain for Corporate Governance, Corporate Social Responsibility, and Enterprise Risk Management
Although many people equate blockchain with bitcoin, cryptocurrency, and smart contracts, Professor Marcia Narine Weldon will discuss how the technology also has the potential to transform the way companies look at governance and enterprise risk management. Companies and stock exchanges are using blockchain for shareholder communications, managing supply chains, internal audit, and cybersecurity. Professor Weldon will focus on eliminating barriers to transparency in the human rights arena. Professor Weldon’s discussion will provide an overview of blockchain technology and how state and nonstate actors use the technology outside of the realm of cryptocurrency.
Session 5: Crafting State Corporate Law for Research and Review
Professor Benjamin Edwards will discuss how states can implement changes in state corporate law with an eye toward putting in place provisions and measures to make it easier for policymakers to retrospectively review changes to state law to discern whether legislation accomplished its stated goals. State legislatures often enact and amend their business corporation laws without considering how to review and evaluate their effectiveness and impact. This inattention means that state legislatures quickly lose sight of whether the changes actually generate the benefits desired at the time off passage. It also means that state legislatures may not observe stock price reactions or other market reactions to legislation. Our federal system allows states to serve as the laboratories of democracy. The controversy over fee-shifting bylaws and corporate charter provisions offers an opportunity for state legislatures to intelligently design changes in corporate law to achieve multiple state and regulatory objectives. Professor Edwards will discuss how well-crafted legislation would: (i) allow states to compete effectively in the market for corporate charters; and (ii) generate useful information for evaluating whether particular bylaws or charter provisions enhance shareholder wealth.
Session 6: An Overt Disclosure Requirement for Eliminating the Duty of Loyalty
When Delaware law allowed parties to eliminate the duty of loyalty for LLCs, more than a few people were appalled. Concerns about eliminating the duty of loyalty are not surprising given traditional business law fiduciary duty doctrine. However, as business agreements evolved, and became more sophisticated, freedom of contract has become more common, and attractive. How to reconcile this tradition with the emerging trend? Professor Joshua Fershée will discuss why we need to bring a partnership principle to LLCs to help. In partnerships, the default rule is that changes to the partnership agreement or acts outside the ordinary course of business require a unanimous vote. See UPA § 18(h) & RUPA § 401(j). As such, the duty of loyalty should have the same requirement, and perhaps that even the rule should be mandatory, not just default. The duty of loyalty norm is sufficiently ingrained that more active notice (and more explicit consent) is necessary, and eliminating the duty of loyalty is sufficiently unique that it warrants unique treatment if it is to be eliminated.
Session 7: Does Corporate Personhood Matter? A Review of We the Corporations
Professor Stefan Padfield will discuss a book written by UCLA Law Professor Adam Winkler, “We the Corporations: How American Businesses Won Their Civil Rights.” The highly-praised book “reveals the secret history of one of America’s most successful yet least-known ‘civil rights movements’ – the centuries-long struggle for equal rights for corporations.” However, the book is not without its controversial assertions, particularly when it comes to its characterizations of some of the key components of corporate personhood and corporate personality theory. This discussion will unpack some of these assertions, hopefully ensuring that advocates who rely on the book will be informed as to alternative approaches to key issues.
September 1, 2018 in Ann Lipton, Compliance, Conferences, Contracts, Corporate Governance, Corporate Personality, Corporations, Current Affairs, Employment Law, Human Rights, Intellectual Property, International Business, Joan Heminway, Joshua P. Fershee, Law School, Lawyering, LLCs, Marcia Narine Weldon, Real Property, Shareholders, Social Enterprise, Stefan J. Padfield, Teaching, Technology, Web/Tech | Permalink | Comments (0)
Sunday, August 12, 2018
We’re a month away from our second annual Business Law Professor Blog CLE, hosted at the University of Tennessee on Friday, September 14, 2018. We’ll discuss our latest research and receive comments from UT faculty and students. I’ve entitled my talk Beyond Bitcoin: Leveraging Blockchain for Corporate Governance, Corporate Social Responsibility, and Enterprise Risk Management, and will blog more about that after I finish the article. This is a really long post, but it’s chock full of helpful links for novices and experts alike and highlights some really interesting work from our colleagues at other law schools.
Two weeks ago, I posted some resources to help familiarize you with blockchain. Here’s a relatively simple definition from John Giordani at Forbes:
Blockchain is a public register in which transactions between two users belonging to the same network are stored in a secure, verifiable and permanent way. The data relating to the exchanges are saved inside cryptographic blocks, connected in a hierarchical manner to each other. This creates an endless chain of data blocks -- hence the name blockchain -- that allows you to trace and verify all the transactions you have ever made. The primary function of a blockchain is, therefore, to certify transactions between people. In the case of Bitcoin, the blockchain serves to verify the exchange of cryptocurrency between two users, but it is only one of the many possible uses of this technological structure. In other sectors, the blockchain can certify the exchange of shares and stocks, operate as if it were a notary and "validate" a contract or make the votes cast in online voting secure and impossible to alter. One of the greatest advantages of the blockchain is the high degree of security it guarantees. In fact, once a transaction is certified and saved within one of the chain blocks, it can no longer be modified or tampered with. Each block consists of a pointer that connects it to the previous block, a timestamp that certifies the time at which the event actually took place and the transaction data.
These three elements ensure that each element of the blockchain is unique and immutable -- any request to modify the timestamp or the content of the block would change all subsequent blocks. This is because the pointer is created based on the data in the previous block, triggering a real chain reaction. In order for any alterations to happen, it would be necessary for the 50%-plus-one of the network to approve the change: a possible but hardly feasible operation since the blockchain is distributed worldwide between millions of users.
In case that wasn’t clear enough, here are links to a few of my favorite videos for novices. These will help you understand the rest of this blog post.
- Blockchain Expert Explains One Concept in 5 Levels of Difficulty
- 19 Industries That Blockchain Will Disrupt
- How Blockchain is Changing Money and Business
To help prepare for my own talk in Tennessee, I attended a fascinating discussion at SEALS on Thursday moderated by Dean Jon Garon of Nova Southeastern University Shepard Broad College of Law called Blockchain Technology and the Law.
For those of you who don’t know how blockchain technology can relate to your practice or teaching, I thought I would provide a few questions raised by some of the speakers. I’ve inserted some (oversimplified)links for definitions. The speakers did not include these links, so if I have used one that you believe is incomplete or inaccurate, do not attribute it to them.
Del started the session by talking about the legal issues in blockchain consensus models. He described consensus models as the backbones for users because they: 1) allow users to interact with each other in a trustless manner; 2) ensure the integrity of the ledger in both normal and adversarial situations; and 3) create a “novel variety of networks with extraordinary potential” if implemented correctly. He discussed both permissioned (e.g. Ripple) and permissionless (Bitcoin) systems and how they differ. He then explained Proof of Work blockchains supported by miners (who solve problems to add blocks to the blockchain) and masternodes (who provide the backbone support to the blockchain). He pointed out how blockchains can reduce agency costs and problems of asymmetrical information and then focused on their utility in financial markets, securities regulation, and corporate governance. Del compared the issues related to off-chain governance, where decisionmaking first takes place on a social level and is then actively encoded into the protocol by the developers (used by Bitcoin and Ethereum) to on-chain governance, where developers broadcast their improvement protocols on-chain and then, once approved, those improvements are implemented into the code. He closed by listing a number of “big unanswered issues” related to regulatory guidance, liability for the performance of the technology and choice of consensus, global issues, and GDPR and other data privacy issues.
Catherine wants to help judges think about smart contracts. She asked, among other things, how judges should address remedies, what counts as substantial performance, and how smart contract audits would work. She questioned whether judges should use a consumer protection approach or instead follow a draconian approach by embracing automation and enforcing smart contracts as drafted to discourage their adoption by those who are not sophisticated enough to understand how they work.
Tonya focuses on blockchain and intellectual property. Her talked raised the issues of non-fungible tokens generated through smart contracts and the internet of value. She used the example of cryptokitties, where players have the chance to collect and breed digital cats. She also raised the question of what kind of technology can avoid infringement. For more on how blockchain can disrupt copyright law, read her post here.
In case you didn’t have enough trust issues with blockchain and cryptocurrency, Rebecca’s presentation focused on the “halo of immutability” and asked a few central questions: 1) why should we trust the miners not to collude for a 51% attack 2) why should we trust wallets, which aren’t as secure as people think; and 3) why should we trust the consensus mechanism? In response, some members of the audience noted that blockchain appeals to a libertarian element because of the removal of the government from the conversation.
Professor Carla Reyes, Michigan State University College of Law- follow her on Twitter at Carla Reyes (@Prof_CarlaReyes);
Carla talked about crypto corporate governance and the potential fiduciary duties that come out of thinking of blockchains as public trusts or corporations. She explained that governance happens on and off of the blockchain mechanisms through social media outlets such as Redditt. She further noted that many of those who call themselves “passive economic participants” are actually involved in governance because they comment on improvement processes. She also noted the paradox that off chain governance doesn’t always work very well because participants don’t always agree, but when they do agree, it often leads to controversial results like hard forks. Her upcoming article will outline potential fiduciaries (miner and masternode operators for example), their duties, and when they apply. She also asked the provocative question of whether a hard fork is like a Revlon event.
As a former chief privacy officer, I have to confess a bias toward Charlotte’s presentation. She talked about blockchain in healthcare focusing on these questions: will gains in cybersecurity protection outweigh specific issues for privacy or other legal issues (data ownership); what are the practical implications of implementing a private blockchain (consortium, patient-initiated, regulatory-approved); can this apply to other needed uses, including medical device applications; how might this technology work over geographically diverse regulatory structures; and are there better applications for this technology (e.g. connected health devices)? She posited that blockchain could work in healthcare because it is decentralized, has increased security, improves access controls, is more impervious to unauthorized change, could support availability goals for ransomware attacks and other issues, is potentially interoperable, could be less expensive, and could be controlled by regulatory branch, consortium, and the patient. She closed by raising potential legal issues related to broad data sharing, unanswered questions about private implementations, privacy requirements relating to the obligation of data deletion and correction (GDPR in the EU, China’s cybersecurity law, etc); and questions of data ownership in a contract.
Eric closed by discussing the potential tax issue for hard forks. He explained that after a hard fork, a new coin is created, and asked whether that creates income because the owner had one entitlement and now has two pieces of ownership. He then asked whether hard forks are more like corporate reorganizations or spinoffs (which already have statutory taxation provisions) or rather analogous to a change of wealth. Finally, he asked whether we should think about these transactions like a contingent right to do something in the future and how that should be valued.
Stay tuned for more on these and other projects related to blockchain. I will be sure to post them when they are done. But, ignore blockchain at your peril. There’s a reason that IBM, Microsoft, and the State Department are spending money on this technology. If you come to UT on September 15th, I’ll explain how other companies, the UN, NASDAQ, and nation states are using blockchain beyond the cryptocurrency arena.
August 12, 2018 in Commercial Law, Compliance, Conferences, Contracts, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, Human Rights, Law School, Lawyering, Legislation, Marcia Narine Weldon, Research/Scholarhip, Securities Regulation, Shareholders, Teaching, Technology, Writing | Permalink | Comments (0)
Friday, July 27, 2018
Pura vida from Costa Rica. Between recovery from carpal tunnel surgery a few weeks ago and an ATV flip two days ago, I don’t have much mental or physical energy to do a full post. I haven’t mastered dictation so I’m typing this on an iPad with one hand. Next week, I’ll provide more substance as well as a preview on my September talk at our second annual BPLB symposium at the University of Tennessee. Today, I want to pass on some resources for those who don’t know anything about blockchain.
For those who want to provide resources for students, Walter Effross has put together a great site:
The following sources come from Professor Tonya Evans at UNH, who has developed an online curriculum on blockchain:
Blockchain + Law:
Next week, I’ll talk about my research into how blockchain is used in corporate governance, compliance, supply chain management, enterprise risk management, cybersexurity, and human rights.
Monday, July 9, 2018
As a legal advisor to both for-profit and not-for-profit ventures for more than 30 years, I have had to learn about the business operations of new clients many, many times. The facts are so important in these knowledge acquisition processes (which generally take time to complete). The more experienced one is as a business lawyer, the more adept one is at getting the right facts--and analyzing the legal risks, rights, and responsibilities they represent or signal.
As a law professor, I have had many opportunities to experience joy from the work of my students. They do such amazing things! As the careers of my former students lengthen and deepen, my pride in them often exponentially increases.
With all that in mind, I bring you today a podcast featuring one of my beloved former students. She doesn't work for a law firm or a major multinational corporation. She is not a general counsel. Instead, she works for a relatively small nonprofit organization in a broad-based planning and development role.
The podcast consists of an exposition/interview by that former student, Betty Thurber Rhoades. In the podcast, Betty explains--from soup to nuts (i.e., application to move-in)--the process of getting disabled veterans into modified or new homes through Jared Allen's Homes for Wounded Warriors (JAH4WW), the nonprofit organization for which she works. Betty started her career post-law school thirteen years ago as a Presidential Management Fellow working for the Department of Veterans Affairs (VA) on regulatory policy matters. She stayed with the VA until March 2017, ending her VA career as Executive Management Officer (Chief of Staff) to the Deputy Under Secretary for Economic Opportunity, before beginning her work for JAH4WW. Totally impressive; totally heartwarming.
What I love about this podcast (other than how proud it makes me of the work Betty does) is the utility this kind of description would have/could have for a lawyer who wants to volunteer or otherwise sign on to help with one of JAH4WW's housing projects. She mentions in the podcast the contributions of lawyers; she talks about acquiring and titling property, identifying and selecting contractors, etc. She is, of course, herself a lawyer, so she is sensitive to the facts that matter. I could easily create a checklist for an engagement letter from this podcast--and get a good overall sense of the "givens" and uncertainties of the representation, too.
We probably ought to talk more in this space about the work that some of our students do once they graduate. I know I have done very little of this. But Betty's work and podcast inspire action--at least for me.
Friday, June 1, 2018
Greetings from Atlanta, Georgia, site of the Emory Transactional Law & Skills Conference. After only a few hours of presentations, I'm already inspired to make some changes in my new transactional lawyering class. I will write about some of the lessons learned next week. Today, I want to share some of Tina Stark's remarks from the conference dinner that ended moments ago. Although she initially teased the audience by stating that she would make "subversive" statements, nothing that she said would scandalize most law students or surprise practicing lawyers.
Her "radical" proposal entailed having transactional skills education be a part of every law student's curriculum. In support, she cited ABA Standard 301(a), which states:
OBJECTIVES OF PROGRAM OF LEGAL EDUCATION (a) A law school shall maintain a rigorous program of legal education that prepares its students, upon graduation, for admission to the bar and for effective, ethical, and responsible participation as members of the legal profession.
She argued that for the academy to meet this standard, schools must go beyond a narrow reading of ABA rules and provide every student with the foundation to practice transactional law, particularly because half of graduates will practice in that area even if they don't know it while they are in law school. She also referenced ABA Standard 302, which states in part:
LEARNING OUTCOMES A law school shall establish learning outcomes that shall, at a minimum, include competency in the following: (a) Knowledge and understanding of substantive and procedural law; (b) Legal analysis and reasoning, legal research, problem-solving, and written and oral communication in the legal context.
Stark correctly observed that notwithstanding the litigation focus in law school, lawyers write more than predictive memos and briefs. She emphasized that competency in oral and communication skills is particularly important for deal lawyers.
If she came even close to being "radical," (and I don't think she did), it's because she went beyond calling on more schools to offer, much less require drafting courses. Instead, she recommended that schools add at least one credit to the first year contracts course so that students can learn the structure of contracts and build a foundation for more advanced work. She likened law students failing to learn the parts of a contract to medical students studying anatomy without doing dissections.
She anticipated the argument that schools do not have enough time to add an extra credit to the basic contracts course by countering that another first year course could be moved to the second year. This would allow professors to spend the first part of the semester teaching 1Ls to read and analyze a contract so that they can understand business drivers when reading cases in contracts and property class.
Although some in the academy might resist the proposal, I believe that members of the bar and business community would applaud this move. If the long waiting list for my transactional lawyering course and similar ones around the country are any indication, law students would appreciate more balance in the curriculum as well.
Tuesday, March 13, 2018
A recent Georgia case highlights a whole host of things that frustrate me with litigation related to limited liability companies (LLCs). This one features an LLC making incorrect arguments and a court sanctioning that silliness. For example
Baja Properties argues that it is exempted from the rule set out in OCGA § 43-41-17 (b) by a provision in OCGA § 43-41-17 (h). Subsection (h) states, in part:
Nothing in this chapter shall preclude any person from constructing a building or structure on real property owned by such person which is intended upon completion for use or occupancy solely by that person and his or her family, firm, or corporation and its employees, and not for use by the general public and not offered for sale or lease. In so doing, such person may act as his or her own contractor personally providing direct supervision and management of all work not performed by licensed contractors.
contend that the trial court erred by denying their motion for summary judgment as to negligence claims asserted against them personally. They assert that corporate law insulates them from liability and that, while a member of an limited liability corporation [sic] may be liable for torts in which he individually participated, Ugo Mattera has pointed to no evidence that the Goldens specifically directed a particular negligent act or participated or cooperated therein. We agree with the Goldens that they were entitled to summary judgment on Ugo Mattera's negligence claim.An officer of a corporation who takes part in the commission of a tort by the corporation is personally liable therefor, and an officer of a corporation who takes no part in the commission of a tort committed by the corporation is not personally liable unless he specifically directed the particular act to be done or participated or cooperated therein.Jennings v. Smith, 226 Ga. App. 765, 766 (1), 487 S.E.2d 362 (1997) (citation omitted). Thus, if Baja Properties was negligent in constructing the house, an officer of the corporation could be held personally liable for the negligent construction if he specifically directed the manner in which the house was constructed or participated or cooperated in its negligent construction. See Cherry v. Ward, 204 Ga. App. 833, 834 (1) (a), 420 S.E.2d 763 (1992).
Monday, February 26, 2018
Professional Responsibility in an Age of Alternative Entities, Alternative Finance, and Alternative Facts
Like my fellow editors here at the BLPB, I enjoyed the first Business Law Prof Blog conference hosted by The University of Tennessee College of Law back in the fall. They have begun to post their recently published work presented at that event over the past few weeks. See, e.g., here and here (one of several newly posted Padfield pieces) and here. I am adding mine to the pile: Professional Responsibility in an Age of Alternative Entities, Alternative Finance, and Alternative Facts. The SSRN abstract reads as follows:
Business lawyers in the United States find little in the way of robust, tailored guidance in most applicable bodies of rules governing their professional conduct. The relative lack of professional responsibility and ethics guidance for these lawyers is particularly troubling in light of two formidable challenges in business law: legal change and complexity. Change and complexity arise from exciting developments in the industry that invite—even entice—the participation of business lawyers.
This essay offers current examples from three different areas of business law practice that involve change and complexity. They are labeled: “Alternative Entities,” “Alternative Finance,” and “Alternative Facts.” Each area is described, together with significant attendant professional responsibility and ethics challenges. The essay concludes by offering general prescriptions for addressing these and other professional responsibility and ethics challenges faced by business lawyers in an age of legal change and complexity.
I do not often write on professional responsibility issues. However, I do feel an obligation every once in a while to add to the literature in that area addressing issues arising in transactional business law. In essence, it's service through scholarship.
I hope you read the essay and, if you do, I hope you enjoy it. I also can recommend the commentary on it published by my UT Law faculty colleague George Kuney and my student Claire Tuley. Both comments will be available electronically in the coming months. I will try to remember to post links . . . .
Tuesday, February 13, 2018
I suspect click-bait headline tactics don't work for business law topics, but I guess now we will see. This post is really just to announce that I have a new paper out in Transactions: The Tennessee Journal of Business Law related to our First Annual (I hope) Business Law Prof Blog Conference co-blogger Joan Heminway discussed here. The paper, The End of Responsible Growth and Governance?: The Risks Posed by Social Enterprise Enabling Statutes and the Demise of Director Primacy, is now available here.
To be clear, my argument is not that I don't like social enterprise. My argument is that as well-intentioned as social enterprise entity types are, they are not likely to facilitate social enterprise, and they may actually get in the way of social-enterprise goals. I have been blogging about this specifically since at least 2014 (and more generally before that), and last year I made this very argument on a much smaller scale. Anyway, I hope you'll forgive the self-promotion and give the paper a look. Here's the abstract:
Social benefit entities, such as benefit corporations and low-profit limited liability companies (or L3Cs) were designed to support and encourage socially responsible business. Unfortunately, instead of helping, the emergence of social enterprise enabling statutes and the demise of director primacy run the risk of derailing large-scale socially responsible business decisions. This could have the parallel impacts of limiting business leader creativity and risk taking. In addition to reducing socially responsible business activities, this could also serve to limit economic growth. Now that many states have alternative social enterprise entity structures, there is an increased risk that traditional entities will be viewed (by both courts and directors) as pure profit vehicles, eliminating directors’ ability to make choices with the public benefit in mind, even where the public benefit is also good for business (at least in the long term). Narrowing directors’ decision making in this way limits the options for innovation, building goodwill, and maintaining an engaged workforce, all to the detriment of employees, society, and, yes, shareholders.
The potential harm from social benefit entities and eroding director primacy is not inevitable, and the challenges are not insurmountable. This essay is designed to highlight and explain these risks with the hope that identifying and explaining the risks will help courts avoid them. This essay first discusses the role and purpose of limited liability entities and explains the foundational concept of director primacy and the risks associated with eroding that norm. Next, the essay describes the emergence of social benefit entities and describes how the mere existence of such entities can serve to further erode director primacy and limit business leader discretion, leading to lost social benefit and reduced profit making. Finally, the essay makes a recommendation about how courts can help avoid these harms.
February 13, 2018 in Business Associations, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Delaware, Joshua P. Fershee, Law and Economics, Lawyering, Legislation, LLCs, Management, Research/Scholarhip, Shareholders, Social Enterprise, Unincorporated Entities | Permalink | Comments (0)
Friday, December 22, 2017
One of the things I have noticed in raising two young children is how both my son and my daughter are much more likely to do what I do than they are to do what I say.
For example, I’ve always encouraged my children to be active, but it wasn’t until I started running that they really started being interested in running themselves. Now, they stage mock races, love their “running shoes,” and ask which foods will make them fast. On the less positive side, when they see me looking at my phone or eating sweets, they want to do the same thing, regardless of what I say is best for them.
Similarly, I had a professor in law school who insisted that we be on-time to class. He explained all the reasons why a habit of punctuality would benefit us in our careers, but then proceeded to be late a number of times himself. He attempted to explain this away, telling us “the partners in the law firm may be late, but that doesn’t excuse lateness from you.” Nevertheless, the students did not seem to respect the professor’s cautionary tale about being late because of the own actions, and it became difficult for him to hold the line he had drawn.
While all of us are human and flawed, the above is a good reminder to me. Our children and our students are watching us, and we are likely to have a bigger impact through our example than through our words.
Friday, December 8, 2017
I have had an opportunity to read the oral argument transcript (112 pages) from Tuesday's oral argument in the Masterpiece Cakeshop case.
One of the first things that struck me was that it seemed pretty clear that most of the justices have already taken sides. This is not surprising, but it does sadden me.
I wish that judges, especially justices on the Supreme Court of the United States, were really trying to get the "correct" answer rather than reasoning backward from some predetermined outcome. Perhaps that is naive. Perhaps that is not possible. My former Constitutional Law professor warned of some of the political issues with the Supreme Court and recently wrote about the issues in his book Supreme Myths: Why the Supreme Court Is Not a Court and Its Justices Are Not Judges.
Only Justice Kennedy is thought to be "in play" in this case. All intelligent people of integrity, however, should be aware of their biases, open to the possibly that their initial thoughts are wrong, and open to persuasion based on the law and the facts. Maybe that is too much to ask. Or maybe on of the "reliably conservative" or "reliably liberal" justices will surprise us in this case. In any event, I am definitely looking forward to reading this opinion; it will undoubtedly bring significant consequences.
(As an aside, corporate law scholars may be interested in pages 96-98 regarding who is speaking - Masterpiece Cakeshops (the entity) or Jack Phillips (the individual)).
Monday, November 27, 2017
Friend-of-the-BLPB Ben Edwards penned a nifty op ed that was published yesterday (Sunday, November 26) in The Wall Street Journal. (Sorry. It's behind a firewall, available only to subscribers.) It covers a subject near and dear to my heart and does so in a novel way. Specifically, in the WSJ piece (entitled "Immigrants Need Better Protection—From Their Lawyers") Ben deftly describes the extremely low quality representation that immigrants receive in the United States, notes the market's inability to self-correct to remedy the situation, shares his view that "the best solution--a right to immigration counsel similar to the right to a criminal defense lawyer--" is unlikely to attract and sustain the necessary legislative support, and proposes a novel second-best solution to the problem.
In a forthcoming article in the Washington and Lee Law Review, I argue that requiring disclosure of immigration lawyers’ track records could improve the market for representation. It almost certainly would drive some of the worst out of business. Who wouldn’t shop around after discovering a lawyer ranked in the bottom 10% by client outcomes? Although no lawyer should be expected to win them all, immigrants should get nervous if their lawyer always loses.
Ben uses the concept of a prospectus as his template reference point for the disclosure concept he describes in the article--unsurprising, perhaps, given his professional practice experience as a business litigator and the fact that his academic endeavors leverage that practice experience. The title of the article is: The Professional Prospectus: A Call for Effective Professional Disclosure.
I became aware of the many problems that immigrants have in securing adequate legal representation back in 1990. Susan Akram (now Director of the International Human Rights Clinic at the Boston University School of Law, but then the Executive Director of the Political Asylum/Immigration Representation (PAIR) Project in Boston) came to the Skadden, Arps office in Boston, where I then was an Associate, and informed us about the particular difficulties in securing representation for asylees, whose chances of success in proving and prevailing in their asylum applications was almost nil without representation and relatively high with pro bono representation. I left the room knowing I needed to help.
The situation then described continues to exist today. Ben notes in the WSJ op ed that
the best immigration lawyers may struggle to make a living because their corner-cutting competitors depress the price of services. That’s part of why many talented practitioners choose to abandon immigration law. This has led to a shortage of representation. One 2015 study found that only 37% of people in removal proceedings have lawyers.
He also relates that "[p]ro bono lawyers—who handle less than 10% of cases—win about 90% of the asylum claims they file."
Over the years, working with the PAIR Project, I was proud to represent or assist in representing refugees from Somalia, Zaire (now the Democratic Republic of the Congo), Haiti, Burma (now Myanmar), and Ethiopia. My Somali client married a U.S. citizen, became a permanent legal resident, and later became a U.S. citizen. The daughter of the Zairean couple I worked with--who was separated from her parents in the journey to the U.S. but eventually reunited with them here with my assistance (and Senator Ted Kennedy's help) is a nurse. There are other stories, of course, as well. Although I have lost track of many of the clients and their families over time, the pride in helping them has not diminished.
Ben's professional prospectus idea has merit in the immigration lawyering context. In my view, it is unlikely, alone, to completely solve the problem, and it may have trouble getting traction in the communities that would be responsible for its promotion and implementation. But it is a step in the right direction in ensuring that immigrants get meaningful representation in navigating our complex legal waters, which currently are populated by too many sharks.
Tuesday, November 21, 2017
Hardesty on Law Students as Future Leaders: Using Neutral Facilitation Techniques to Teach Leadership Skills
I have had the pleasure to work with a diverse and impressive group of people on the law faculties upon which I have had the privilege to serve. One of those people is David C. Hardesty, Jr., President Emeritus of West Virginia University and Professor of Law at the WVU College of Law. President Hardesty holds degrees from West Virginia University, Oxford University (which he attended as a Rhodes Scholar), and Harvard Law School, but more impressive is the time he spends mentoring students and faculty. He remains committed to the college, university, and state, and we are fortunate he continues to share his time with us.
President Hardesty teaches a course on leadership, called Lawyers as Leaders, which would be highly relevant at any law school, but it especially important at a school like ours where we are the only law school in the state. In addition to serving clients big and small, our students consistently go on to hold public office, advise legislators and regulators, and run large companies in the state. President Hardesty recently wrote an article for the West Virginia Law Review Online that explains part of how he helps prepares lawyers to be leaders. The article is Law Students as Future Leaders: Using Neutral Facilitation Techniques to Teach Leadership Skills, 120 W. Va. L. Rev. Online 1 (2017). The introduction explains:
Lawyers lead in America. They always have. They probably always will. This Article suggests the reasons why. It also argues that if lawyers are destined to lead, then law schools should help law students develop an understanding of leadership theory and foster leadership skill development. The Article describes how a course called “Lawyers as Leaders” is taught at the West Virginia University College of Law, employing neutral facilitation techniques, as well as lectures, group discussions, journaling, and simulation activities. It then describes a powerful pedagogical tool that can be used to develop future leaders: “student-centered neutral facilitation.” It explains why neutral student-centered facilitation is an effective method for teaching leadership skills to law students. The Article begins and ends with two “facilitation stories,” highlighting the use of facilitation by experienced lawyers and law students alike. The first story is about the use of facilitation to help clients achieve their goals. The second is about a student in the midst of learning how to facilitate a discussion.
As we continue to evolve how we think about educating lawyers, and what we hope to accomplish, courses that discuss options and expectation in context can play a significant role in preparing our students. Hardesty explains:
Research has found that the student-centered discussion process enriches student learning. In particular, the incorporation of the student-centered discussion process into the classroom “has the potential of enhancing the level of student learning about the course content and about the way they and others think about difficult issues.” This finding makes sense given that students tend to remember course content based on their level of involvement it. Faculty members have reported that content coverage in their courses has not declined in student-centered classrooms; rather, they have found that their students experience a deeper understanding of the course’s fundamental concepts. One explanation for this deeper level of understanding is that students discover for themselves the essential concepts that would normally be presented through course readings or lecture material. In addition, “[f]aculty report that they have seen students who have not been ‘stars’ in previous classes suddenly ‘blossom’” in the student-centered classroom environment. Because students feel safe and comfortable working with their teammates, student-centered discussions can bring out the potential that some students have but may not otherwise reveal in more traditional classroom environments. (footnotes omitted)
As the semester draws to a close, I thought this one was worth a look as you gear up for next semester's courses. It helped me think about some new ideas, anyway. Happy Thanksgiving!
Tuesday, October 31, 2017
When the indictment for Paul Manafort and Richard Gates was released yesterday, I decided to take a look, in part because I read that the charges included claims that the defendants "laundered money through scores of United States and foreign corporations, partnerships, and bank accounts." (Manafort Indictment ¶ 1.)
It did not take long for people to note an initial mistake in the indictment. The indictment states that Yulia Tymoshenko was the president of the Ukraine prior to Viktor Yanukovych. (Id. ¶ 22.) But, Dan Abrams' Law Newz notes, "Tymoshenko has never been the president of the Ukraine. She ran in the Ukrainian presidential election against Yanukoych in 2010 and came in second. Tymoshenko ran again in 2014 and came in second then, too." Abrams continues:
The Tymoshenko flub is a massive error of fact, but it doesn’t impinge much–if any–on the narrative contained in the indictment itself. The error doesn’t really bear upon the background facts related to Manafort’s and Gates’ alleged crimes. The error also doesn’t bear whatsoever upon the laws Manafort and Gates are accused of breaking. Rather, it’s an error which bears upon the credibility of the team now seeking to prosecute the men named in the indictment.
Perhaps. It is a high-profile mistake, but it doesn't go to the core of the charges, so I think this may overstate it a bit. Still, it is hardly ideal, and it's definitely an unforced error. And unfortunately, there is a second such error.
Paragraph 12 of the indictment provides a chart of entities that were "owned or controlled" by the defendants. The chart headings provide "Entity Name," "Date Created," and "Incorporation Location." But a number of the entities are not corporations. They are LLCs, and you do not "incorporate" an LLC. You form an LLC. (Also, just to be clear, LLCs are not "partnerships," either. They are LLCs.)
Similar to the Tymoshenko error, the type of entity does not appear to impact the underlying narrative or charges. For example, entity type does not appear to impact the "conspiracy to launder money" count. And other jurisdictions, such as Cyprus, do tend to merge the corporate concept with the company concepts in a way that might make the chart headings less wrong than it is for U.S. entities. Nonetheless, it would not have been that hard to go with "Entity Origin" or "Formation Location."
Okay, so all of this is rather nitpicky, and I get that. The underlying charges are serious, and I hope and expect that the charges and the surrounding facts (not these mistakes) will be the focus of the legal process as it runs its course. But, it is also proper, I think, to work toward getting the entire document right. Details matter, and at some point could mean the difference between winning and losing, even if that does not appear to be the case this time around.
Monday, October 30, 2017
The title of this post is hyperbole on some level. But with Halloween being tomorrow, I couldn't resist the temptation to use a festive greeting to introduce today's post. And there is a bit of a method to my titling madness . . . .
I admit that I do feel a bit tricked by the removal of the Leidos, Inc. v. Indiana Public Retirement System case (about which co-blogger Ann Lipton and I each have written--Ann most recently here and I most recently here) from the U.S. Supreme Court's calendar. It was original scheduled to be heard a week from today. Apparently, based on the related filings with the Court, the parties are documenting a settlement of the case. Kevin LaCroix offers a nice summary here. How cunning and skillful! Just when I thought resolution of important duty-to-disclose issues in Section 10(b)/Rule 10b-5 litigation was at hand . . . .
Indeed, I had hoped for a treat. What pleasure it would have given me to see this matter resolved consistent with my understanding of the law! The issue before the Court in Leidos is somewhat personal for me (in a professional sense) for a simple reason--a reason consistent with the amicus brief I co-authored on the case. I share that reason briefly here to further illuminate my interest in the case.
In my 15 years of practice before law teaching, I often advised public company issuers on mandatory disclosure documents--periodic filings and offering documents, most commonly. I also counseled investment banks serving as public offering underwriters, placement agents for private securities offerings, and financial advisors in transactions. Even in those days, I was a bit of a rule-head (self-labeled)--a technically engaged legal advisor who tried to stick to the law and regulations, determine their meaning, and implement them consistent with their meaning in practice. I drove colleagues to distraction and boredom, on occasion, with my explanations of the appropriate interpretation of various rules, including specifically mandatory disclosure rules. (This may be why I love the work of the Sustainability Accounting Standards Board, which is looking at mandatory disclosure rules in context.) I teach my students from that same nerdy vantage point.
In advising issuers and others on mandatory disclosure (and in training junior lawyers in the firm), I always noted that facial compliance with the specific line-item disclosure requirements for a Securities and Exchange Commission ("SEC") form is not enough. I advised that two additional legal constraints also govern the appropriate content of the public disclosures required to be made in those forms--constraints that required them to inquire about (among other things) missing information.
- First, I noted the existence of the general misstatements and omissions disclosure (gap-filler) rules under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended (as applicable in the circumstances)--Rule 408 under the 1933 Act and Rule 12b-20 under the 1934 Act. Each of these rules provides for the disclosure of "such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made not misleading" in addition to the information expressly required to be included in the relevant disclosure document under applicable line-item disclosure rules.
- Second, I noted that anti-fraud law--and, in particular, Section 10(b) of, and Rule 10b-5 under, the 1934 Act--provides an even more comprehensive basis for interrogating the contents of disclosure that facially complies with line-item mandatory disclosure rules. The overall message? No one wants a fraud suit, and if they get one, they should be able to get out of it fast! If a business and its principals were to be sued under Section 10(b) and Rule 10b-5, I wanted to ensure that the relevant disclosures were accurate and complete in all material respects.
Thus, the existence of the line-item and gap-filling disclosure rules--and the potential for fraud liability based on failed compliance with them--are, taken together, important motivators to the best possible disclosure. In my business lawyering, I believe I used these regulatory principles to my clients' advantage. I would hate to see lawyers lose the important leverage that potential fraud liability gives them in fostering accurate and complete disclosures, fully compliant with law. Hence, my position on the Leidos litigation--that mandatory disclosure rules do give rise to a duty to disclose that may form the basis for a securities fraud claim under Section 10(b) and Rule 10b-5. (The ultimate success of any such claim would be, of course, based on the satisfaction of the other elements of a Section 10(b)/Rule 10b-5 claim.)
So, no treat for me--at least not just yet. But perhaps this post will forestall any real trickery--the trickery involved with avoiding securities fraud liability for misleading omissions to state material information expressly required to be stated under line-item mandatory disclosure rules. For me, that is what is at stake in Leidos and in disclosure lawyering generally. Let's see what transpires from here.
Wednesday, October 25, 2017
Today I sat through a panel at the ABA International Law Section Meeting entitled, I, Robot - The Increasing Use and Misuse of Technology by In-House Legal Departments. I have already posted here about Ross and other programs. I thought I would share other vendors that in-house counsel are using according to one of the panelists:
- Deal point - virtual deal room.
- Casetext - legal research.
- Disco AI; Relativity; Ringtail - apply machine learning to e-discovery.
- Ebrevia; Kira Systems; RAVN - contract organization and analysis.
- Julie Desk - AI "virtual assistant" for scheduling meetings.
- Law Geex - contract review software that catches clauses that are unusual, missing, or problematic.
- Legal Robot - start-up uses AI to translate legalese into plain English; flags anomalies; IDs potentially vague word choices.
- LexMachina - litigation analytics.
- NeotaLogic - client intake and early case assessment.
- Robot Review - compares patent claims with past applications to predict patent eligibility.
- Ross Intelligence - AI virtual attorney from IBM (Watson).
These and their future competitors lead to new challenges for lawyers, law professors, and bar associations. Will robots engage in the unauthorized practice of law? What are the ethical ramifications of using artificial intelligence in legal engagements? How much do you tell clients about how or what is doing their legal research? What about data security issues for this information? How do we deal with discovery disputes? Can robot lawyers mediate? Why should lawyers who bill by the hour want the efficiency of artificial intelligence and machine learning? Finally, how do we help students develop skills in “judgment” and how to advise and counsel clients in a world where more of the traditional legal tasks will be automated (and 23% of legal task already are)? These are frightening and exciting times, but I look forward to the challenge of preparing the next generation of lawyers.
Friday, September 8, 2017
Gabriel (“Gabe”) Azar and I graduated one year apart, from the same law school. He has an undergraduate degree in electrical engineering from Georgia Tech and started his legal career as an associate practicing patent law at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. He moved from Finnegan to Paul Hastings and from there to an in-house position with FIS. Currently, he is Senior Patent Counsel at Johnson & Johnson. I’ve admired, mostly from a distance (he lives in Jacksonville, FL now), how Gabe has balanced family, work, and health. We recently reconnected on Strava, and it has been inspiring to see a dedicated husband/father/attorney taking his fitness seriously.
The interview is below the page break.
Tuesday, September 5, 2017
Reading closely is a highly valuable skill for both lawyers and law students. But reading closely is not the only key to getting the most out of reading materials. Often, knowing what to look for can help us discern what we're really being told. An article at LawFare, How to Read a News Story About an Investigation: Eight Tips on Who Is Saying What, by Benjamin Wittes, does a nice job of providing some tools to help read news stories more carefully, and perhaps accurately, especially when it comes to sources. Note that this piece applies to reputable reporters, not everyone who has written something about current events.
One solid takeaway:
Reporters publish what they know. If a story describes a series of interactions between a witness or a subject of an investigation and the investigators and the story contains information about one side’s thinking but not the other’s, that’s a powerful sign of where the disclosure came from.
Many of the skills here would translate into other settings, too. For example, Wittes' first rule: The Words Describing a Source Should Be Presumed Accurate. He says, "Always start with the precise words the journalist is using to describe her sources. An ethical journalist will never write a sentence that is not on its own terms true." This should be true of a SEC filings or other corporate disclosure documents, too, but it does not mean that the words will clearly communicate the same thing to all readers.
Wittes' Rule No. 2 also applies: Don’t Make Hasty Assumptions About Vague Sourcing.
While the words have to be true, they emphatically do not have to be evocative of some larger truth. While the words have to be true, they emphatically do not have to be evocative of some larger truth. The conventions associated with sourcing stories like these permit a certain degree of misdirection about which the reasonable reader should be savvy. Reporters have a duty to inform the public; they also have a duty to protect their sources. These goals often conflict, and the solution is sometimes to inform the public in a fashion that is technically accurate but is not what a naive reader would expect certain words to mean.
As to this rule, I would not say that "misdirection" is permitted in SEC filings, but this last part seems generally true of many SEC disclosures: they inform the public in a "technically accurate" way but not necessarily in a way that "a naive reader would expect certain words to mean." I know some people will disagree with my cynical view on this, but that's my take. The closing advice: "Read sourcing sentences both literally and broadly." Same with disclosures.
I recommend reading Wittes' piece for its intended purpose and to see what you might take away for application in other settings. It's a solid and thought-provoking overview, whether you agree with my assessment or not.