September 2014

There is a growing drumbeat for banning laptops in the classroom, as a recent New Yorker article explained. The current case for banning laptops appeared on a Washington Post blog (among other places), in a piece written by Clay Shirky, who is a professor of media studies at New York University, and holds a joint appointment as an arts professor at NYU’s graduate Interactive Telecommunications Program in the Tisch School of the Arts, and as a Distinguished Writer in Residence in the journalism institute.

The piece makes a compelling case for banning laptops, and I agree there are a number of good reasons to do so.  I’ll not recount the whole piece here (I recommend reading it), but here’s a key passage:

Anyone distracted in class doesn’t just lose out on the content of the discussion but creates a sense of permission that opting out is OK, and, worse, a haze of second-hand distraction for their peers. In an environment like this, students need support for the better angels of their nature (or at least the more intellectual angels), and they need defenses against the powerful short-term incentives to put off complex, frustrating tasks. That support and those defenses

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Today, the Supreme Court DIG’d (dismissed as improvidently granted) the cert petition in the Section 11 case of IndyMac, which means we will not, at least for now, get resolution on the issue of whether American Pipe tolling applies to statutes of repose.

To be honest, I’m really not surprised.  The DIG was apparently in response to an announcement of a settlement of most of the IndyMac claims, but that’s a bit odd, since the parties all agreed that the settlement left alive enough claims to render the case not moot (specifically, the plaintiffs’ claims against Goldman Sachs would proceed if the plaintiffs prevailed before the Supreme Court). 

But as I previously posted, I think IndyMac was in an awkward procedural posture to begin with. Not because the split wasn’t real, but because the entire issue regarding the statute of repose was necessarily intertwined with prior unsettled issues regarding class action standing and the scope of Rule 15c.  Frankly, I can’t help but wonder if the Justices saw the settlement as an excuse to get rid of a bad grant, and they grabbed it.

That just leaves one, and possibly two, Section 11 cases for the

In recent blog posts, two of my favorite bloggers, Keith Paul Bishop and Steve Bainbridge, have highlighted for our attention Delaware and California statutes providing (differently in each case) that an LLC and, at least in Delaware, its managers and members, are bound by the LLC’s operating agreement even if they do not sign that agreement.  Bishop notes in his post that the California “RULLCA creates an odd situation in which LLCs are bound by contracts that they did not execute and to which they seemingly are not parties.”  In his post Bainbridge cites to the Bishop post and another post by Francis Pileggi.  Certainly, they all have a point.  For students of contract law, the conclusion that a non-party is bound by a contract does not seem to be an obvious result . . . .

The flap in the blogosphere has its genesis in a recent Delaware Chancery Court decision, Seaport Village Ltd. v. Seaport Village Operating Company, LLC, et al. C.A. No. 8841-VCL.  The limited liability company defendant in that case raised as its only defense that it was not a party to the limited liability company agreement and therefore was not bound.  Unsurprisingly in light of applicable Delaware law, Chancellor Laster found the defense wanting as a matter of law.

This issue has more history than my brother bloggers point out, some of which is included in the brief Seaport Village opinion.  I probably don’t have all the details, but set forth below is some additional background information that may be useful in thinking about the binding nature of LLC operating agreements.  Others may care to fill in any missing information by leaving comments to this post.

The Delaware Supreme Court has held that fairness review in duty of loyalty cases has two elements: fair dealing and fair price. Weinberger v. UOP, Inc., 457 A.2d 701 (1983). Fair dealing focuses on process: questions such as “when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the approvals of the directors and the stockholders were obtained.” 457 A.2d at 711. Fair price focuses on the consideration paid or received in the transaction.

Weinberger says that the two elements of fairness must be considered together, that “the test for fairness is not a bifurcated one between fair dealing and fair price.” Id. But, of course, damages will be measured against a fair price. If that’s the case, I ask my students, does fair dealing really make any difference as long as the price is fair?

A Delaware Court of Chancery opinion, In Re Nine Systems Corporation Shareholders Litigation,  (Del. Ch. Sept. 4, 2014), recently dealt with that issue.  Vice Chancellor Noble concluded that the procedure followed by the company was unfair, so the element of fair dealing was not met. He decided that the price was fair but, considering…

I previously posted about Delaware’s approval of fee-shifting bylaws, and a legislative attempt to ban them.  That attempt was tabled until next year. 

In the meantime, several companies have adopted such bylaws, although some early challenges to the bylaws ended up being settled before courts could rule on their validity.   J Robert Brown at Race-to-the-Bottom blog reports that a company just went public with a fee shifting charter provision in place (the provision purports to cover securities claims as well as governance claims, but, as I previously posted, I don’t think that’s possible).

Most interestingly, Oklahoma recently passed a law requiring “loser pays” rules for all derivative litigation.  Which certainly creates an opportunity for a natural experiment in the idea of the market for corporate charters – will companies flock to Oklahoma?  Will investors pressure managers to stay out of Oklahoma (or to go to Oklahoma, if they doubt the value of derivative litigation)?

Stephen Bainbridge reports that the SEC’s Investor Advisory Committee will be considering fee-shifting bylaws at its next meeting, and asks (via approving linkage to Keith Paul Bishop) why should the Investor Advisory Committee be conferring with the SEC on a state…

Joseph Yockey (Iowa) has posted a new paper on social enterprise.  I have not read this one yet, but enjoyed his first article on the subject and have added this second one to my long “want to read” list.  The abstract is below.

Social enterprises generate revenue to solve social, humanitarian, and ecological problems. Their products are not a means to the end of profits, but rather profits are a means to the end of their production. This dynamic presents many of the same corporate governance issues facing other for-profit firms, including legal compliance. I contend, however, that traditional strategies for corporate compliance are incongruent to the social enterprise’s unique normative framework. Specifically, traditional compliance theory, with its prioritization of shareholder interests, stands at odds with the social enterprise’s mission-driven purpose. Attention to this distinction is essential for developing effective compliance and enforcement policies in the future. Indeed, arguably the greatest feature of the social enterprise is its potential to harness organizational characteristics that inspire the values and culture most closely linked with ethical behavior — without resort to more costly or intrusive measures.

The below is from an e-mail I received earlier this week about an impact investment legal symposium on October 2, 2014 from 8:30 a.m. to noon (eastern):

Bingham, in conjunction with the International Transactions Clinic of the University of Michigan Law School, Aspen Network of Development Entrepreneurs (ANDE) Legal Working Group and Impact Investing Legal Working Group, is proud to present a legal symposium on Building a Legal Community of Practice to Add Still More Value to Impact Investments.

The symposium will be held at Bingham McCutchen LLP’s New York offices at 339 Park Avenue or you can attend virtually by registering here.

The panelists include Deborah Burand (Michigan), Jonathan Ng (Ashoka), Keren Raz (Paul Weiss), and many others.   

Professor Dionysia Katelouzou of Kings College, London has written an interesting empirical article on hedge fund activisim. The abstract is below:

In recent years, activist hedge funds have spread from the United States to other countries in Europe and Asia, but not as a duplicate of the American practice. Rather, there is a considerable diversity in the incidence and the nature of activist hedge fund campaigns around the world. What remains unclear, however, is what dictates how commonplace and multifaceted hedge fund activism will be in a particular country.

The Article addresses this issue by pioneering a new approach to understanding the underpinnings and the role of hedge fund activism, in which an activist hedge fund first selects a target company that presents high-value opportunities for engagement (entry stage), accumulates a nontrivial stake (trading stage), then determines and employs its activist strategy (disciplining stage), and finally exits (exit stage). The Article then identifies legal parameters for each activist stage and empirically examines why the incidence, objectives and strategies of activist hedge fund campaigns differ across countries. The analysis is based on 432 activist hedge fund campaigns during the period of 2000-2010 across 25 countries.

The findings suggest that the extent to which…