October 2015

TMR

I am happy to report that Tamika Montgomery-Reeves, currently a partner in Wilson Sonsini Goodrich & Rosati’s Wilmington, DE office, has been nominated to become a Vice Chancellor on the Delaware Court of Chancery.

Tamika and I first met as summer associates at Miller & Martin after our 1L years. We both clerked on the Delaware Court of Chancery, albeit for different judges and during different years. We then worked together in the same practice group, as fellow associates, at Weil Gotshal in NYC.

All of that to say, I have worked with Tamika, or I guess I will soon be saying “Vice Chancellor Montgomery-Reeves,” on a number of occasions and think she will do an excellent job. Tamika has both the intelligence and personality to be a global ambassador for the court, as a number of Delaware judges before her have been. She will be a great addition to the Delaware Court of Chancery. I look forward to reading her opinions and following her career.

Readers of this blog know how much I hate courts that call LLCs “corporations.” (If you’re a new reader, welcome. And now you know, too.)  I am also one who likes to remind people that entity choices come with both rights and obligations, as do choices about whether to have an entity at all. Recent events in Illinois touch on both of these issues. 

A recent news story from Chicago’s NBC affiliate laments a recent court decision in Illinois that requires entities to have counsel if they are to make an appeal, even in the administrative process related to a parking ticket.  The story can be found here.  The short story is this: if one registers a vehicle in the name of a corporation, then the corporation must be represented by counsel to contest the ticket.  The reason for this determination comes from a non-parking related decision from 2014. 

In that decision, Stone Street Partners LLC v. City of Chicago Department of Administrative Hearings, the court determined that “the City’s administrative hearings, like judicial proceedings, involve the admission of evidence and examination and cross-examination of sworn witnesses–all of which clearly constitute the practice of law.” 12 N.E.3d…

Last week,  I asked whether casebooks should include statutes. That post provoked a healthy debate in the comments and elsewhere. Today, I want to address another content question, this one dealing not with the content of casebooks but with the content of the Business Associations course itself. What securities law topics should be included in the basic business associations course?

The answer to that question obviously depends on whether the course is for three or four credit hours. I don’t think a comprehensive business associations course should ever be limited to three credit hours. But, if I had to teach a three-hour course, I would not cover any securities law. Agency, partnership, corporations, and LLCs are already too much to cram into a three-hour course. Adding securities topics on top of all that would, in my opinion, make the course too superficial.

Luckily, I have the hard-fought right to teach B.A. as a four-hour course. In a four-hour course, I think it’s essential to cover proxy regulation. Federal law or not, it’s mainstream corporate governance, at least for public companies, and many, perhaps most, securities regulation courses don’t cover it.

Beyond that, I’m not sure any securities coverage is…

Between the US Supreme Court’s decision to let Newman stand and the Delaware Supreme Court’s Sanchez decision, the intersection of friendship and corporate governance has been a hot topic this past week.  While the commentary has been enlightening, it’s always good to reflect on the primary sources.  To that end, I have collected below a series of what I perceive to be interesting quotes from the relevant opinions as follows (I also included an excerpt from a law review article referencing Reg FD, which has something to say about the extent to which we need to protect insider communications with analysts):

1.  Dirks v. S.E.C., 

2.  United States v. Newman, 

3.  United States v. Salman, 

4.  Delaware Cnty. Employees Ret. Fund v. Sanchez, 

5.  Dirks v. S.E.C. (dissent, excerpt 1),

6.  Dirks v. S.E.C. (dissent, excerpt 2), and 

7.  Donna M. Nagy & Richard W. Painter, Selective Disclosure by Federal Officials and the Case for an Fgd (Fairer Government Disclosure) Regime.

Obviously, Sanchez may be viewed as an outlier here, but perhaps this will spur some creative work on how the standard for director independence might inform the standard for improper tipping or vice versa.

There’s been something of a debate recently about whether there’s a bubble in tech startups.  It is believed that 140 have reached “unicorn” status, i.e., valuations of $1 billion or more, and numerous voices have been raised questioning the legitimacy of those valuations.  Venture capitalists insist the valuations are legitimate, but I think Buzzfeed’s story about recently-foaled unicorn JustFab is a rather powerful demonstration that something has gone awry.

JustFab offers discount clothing and shoes on a subscription basis; shoppers pay a monthly fee to have access to the products.  The problem is, according to Buzzfeed, JustFab has received thousands of complaints from consumers who claim that they were unaware they would be charged monthly subscription fees, and found themselves unable to cancel the service.   JustFab recently settled a lawsuit brought by district attorneys in Santa Clara and Santa Cruz alleging that it deceived customers.  Even more troubling are the allegations that JustFab’s founders have a long history of forming similar companies, on a similar subscription model, that also generated considerable consumer ire – as well as complaints by credit card companies because of all the chargebacks, and an FTC complaint that settled for $50 million.  At…

Christine Hurt has written an interesting article on limited liability partnerships in bankruptcy. It’s available here.

Here’s the abstract:

Brobeck. Dewey. Howrey. Heller. Thelen. Coudert Brothers. These brand-name law firms had many things in common at one time, but today have one: bankruptcy. Individually, these firms expanded through hiring and mergers, took on expensive lease commitments, borrowed large sums of money, and then could not meet financial obligations once markets took a downturn and practice groups scattered to other firms. The firms also had an organizational structure in common: the limited liability partnership.

In business organizations classes, professors teach that if an LLP becomes insolvent, and has no assets to pay its obligations, the creditors of the LLP will not be able to enforce those obligations against the individual partners. In other words, partners in LLPs will not have to write a check from personal funds to make up a shortfall. Creditors doing business with an LLP, just as with a corporation, take this risk and have no expectation of satisfaction of claims by individual partners, absent an express guaranty. In bankruptcy terms, creditors look solely to the capital of the entity to satisfy claims. While bankruptcy proceedings involving…

Like many of you, I have been discussing the Volkswagen emission scandal in my business law classes.

Yesterday, Michael Horn, President and CEO of Volkswagen Group of America testified before the House Committee on Energy and Commerce Subcommittee on Oversight and Investigations. Horn’s testimony is here. 

West Virginia University, home of co-blogger Joshua Fershee, is featured on the first page of the testimony as flagging possible non-compliance issues in the spring of 2014.

The testimony includes multiple apologies, acceptance of full responsibility, and the statement that these “events are fundamentally contrary to Volkswagen’s core principles of providing value to our customers, innovation, and responsibility to our communities and the environment.”

I plan to follow this story in my classes as the events continue to unfold. 

My wife and I both have many close family members in South Carolina, so the recent flood has been on our minds recently.

My first thoughts are with all of those affected by the flood.  

Relevant to this blog, the flood also reminds me of one of the opening passages in Conscious Capitalism by Whole Food’s co-CEO John Mackey. In that passage, Mackey recalls the massive flood in Austin, TX in 1981. At that time, Whole Foods only had one store, and the flood filled that store with eight feet of water. Whole Foods had loses of $400,000 and no savings and no insurance.

Mackey notes that “there was no way for [Whole Foods] to recover with [its] own resources” and then:

  • “[a] wonderfully unexpected thing happened: dozens of our customers and neighbors started showing up at the store….Over the next few weeks, dozens and dozens of our customers kept coming in to help us clean up and fix the store…It wasn’t just our customers who helped us. There was an avalanche of support from our other stakeholders as well [such as suppliers extending credit and deferring payment]. . . . It is humbling to think about what would

…

Two weeks ago I wrote my first in a series of posts on the SEC’s proposed liquidity and redemption rules for mutual funds.  The first post, available here, focused on swing pricing.  Today’s post will focus on the liquidity management proposals contained in the proposed rules to address liquidity risk.

The proposed rules would require all open end mutual funds (not UITs, closed-end funds or money management funds) to create a written liquidity management program and to disclose it to the SEC via the proposed forms N-CEN and N-PORT.  Under the plan, funds would (1) classify and conduct ongoing reviews of liquidity of each of the fund’s positions in portfolio assets, (ii) assess and conduct periodic reviews of the fund’s liquidity risk, and (iii) manage the fund’s liquidity risk through a set-aside minimum portion of fund assets that are convertible within 3 business days at a price that does not materially affect the value of that asset immediately prior to sale.

Liquidity risk is born of concern that a fund “could not meet requests to redeem shares issued by the fund that are expected under normal conditions, or are reasonably foreseeable under stressed conditions, without materials affecting the fund’s net…

I recently received the following e-mail announcement. Accordingly, I have updated my list of law professor positions outside of law schools:

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The Department of Management in the College of Business and Economics, Boise State University,  invites applications for a tenure track faculty position in the area of Legal Studies in Business.

Management hosts the most majors in the College of Business and Economics, with over 1000 students currently majoring in General Business, Entrepreneurship Management, Human Resource Management, or International Business, and provides courses in four MBA programs. We are housed in the impressive Micron Business and Economics Building, which opened in the summer of 2012. The College of Business and Economics is AACSB-accredited.

Recognized as a university on the move, Boise State University is the largest university in Idaho, with enrollment of more than 22,000 students. The University is located in the heart of Idaho’s capital city, a growing metropolitan area that serves as the government, business, high-tech, economic, and cultural center of the state. Time Magazine ranked Boise #1 in 2014 for ‘getting it right’ with a thriving economy, a booming cultural scene, quality health care, and a growing university. Livability.com also ranked Boise first among the…