November 2015

Well, it turns out Halliburton is going – you guessed it – back to the Fifth Circuit on 23(f) review.

If you recall, the Fifth Circuit overturned the district court’s class certification order in the first go-round – a decision that was vacated by the Supreme Court in Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 (2011).  The district court recertified the class; the Fifth Circuit granted 23(f) review, and the Supreme Court vacated – again!  And then the district court certified the class for a third time, and the defendants petitioned for 23(f) review, and the Fifth Circuit has – again! – granted the petition. 

The thing that’s so amazing, of course, is that this case has hit the Supreme Court twice, the district court three times, and now the Fifth Circuit three times, and it’s the exact same argument, over and over and over, on the same evidence – just using slightly different words.  Namely, the defendants’ position that if there is no price increase at the time of an initial false statement, and no price drop in reaction specifically to news that later reveals the earlier statements to have been false…

Just a few days ago, San Franciscans voted against Proposition F, a referendum that would have placed restrictions on AirBnBs and other short-term housing rentals. This type of legislation is far from unique. Fueled by arguably the United States’ most prominent housing crisis, San Francisco has enacted layers of housing laws intended to protect tenants from skyrocketing rents, arbitrary evictions, and diminished rental supplies. Notable examples include laws governing rent controls (landlords have little ability to raise rents), market exoduses (the Ellis Act often incentives landlords to withdraw from the San Francisco rental market for five years), and buyout restrictions (landlords face numerous obstacles in buying out a tenant’s lease). Although the motives behind these statutes is admirable—considering affordable housing’s position as a social justice issue—many housing laws intended to benefit tenants are misguided, harming both tenants and landlords.

The folly of housing laws is neatly described by an economics term known as the “cobra effect,” which refers to solutions that exacerbate an original problem. The term was coined after cobras overran Delhi, prompting city officials to issue bounties for each killed cobra. Upon learning that local residents had begun farming cobras to generate additional bounties, city…

Last week I shared my thoughts on REI’s #OptOutside campaign and concluded that the campaign appeared, in my opinion, to be more of a marketing ploy than anything truly socially responsible. 

I promised to discuss what I think it takes to build a respected socially responsible brand.

In my opinion, respected socially responsible brands are: (1) Authentic; (2) Humble; and (3) Consistent. 

These three work together. Authenticity comes, at least in part, from not over-claiming (also seen in humility) and from showing social responsibility in many areas over time (consistency). Authenticity with regard to social responsibility requires some serious sacrifice, at least in the short term. Humble companies admit their imperfections, work to right wrongs, and seek to improve. Building a socially responsible brand takes time, often decades.  As Warren Buffett supposedly said, “It takes 20 years to build a reputation and 5 minutes to ruin it.”

Patagonia’s “Don’t Buy This Jacket” campaign was probably one of the best socially responsible advertising campaigns I have seen. This campaign seemed authentic because of Patagonia’s consistent history of social responsibility and because it seemed clear that Patagonia was going to take a serious financial hit from this campaign. Patagonia’s add was also…

Just a quick report from the 2015 ABA LLC Institute, an annual event held in the fall in Washington, DC that attracts anally compulsive (and I do mean that in the most positive way possible) business lawyers (academics and practitioners) interested in limited liability companies (LLCs) and other alternative business entities.  The agenda for this year’s program is full of nifty stuff and great presenters (present company excepted).  Co-blogger Josh Fershee would love the LLC Institute.  No one here confuses the LLC with the corporation!  (I will just link to one of Josh’s fabulous posts on that topic as a reference point.)

For this year’s institute, I chaired a panel on dissolution in the LLC and also participated in a panel that explored just what an LLC operating agreement really is.  I was wowed in each case by my co-paneleists.  Because the norm at this conference is to interrupt the panelists and comment on their presentations as they speak, the discourse was engaged and lively.

I will save my comments on the operating agreement panel for next week’s micro-symposium.  Today, I want to briefly cover highlights from  the dissolution panel.  Specifically, we focused a lot of attention on the evolution of dissolution events under the uniform and prototype LLC acts and various state LLC statutes since the adoption of the federal income tax “check the box” rules.  There’s more in and related to that topic than you might think . . . .

I have spent the past week immersed in whistleblower discussions. On Saturday, I served on a panel with plaintiffs and defense counsel at the ABA Labor and Employment Law Mid-Year meeting using a hypothetical involving both a nursing home employee and a compliance officer as potential whistleblowers under the False Claims Act, Dodd-Frank, and Sarbanes-Oxley. My co-panelist Jason Zuckerman represents plaintiffs and he reminded the audience both through a recent article and his presentation that Dodd-Frank has not replaced SOX, at least for his clients, as a remedy. Others in the audience echoed his sentiment that whistleblower claims are on the rise.

A fellow member on the Department of Labor Whistleblower Protection Advisory Committee, Greg Keating, represents defendants, and has noticed a significant increase in claims by in house counsel, as he told the Wall Street Journal recently. More alarmingly, a San Francisco federal judge found last month that board members can be held personally liable for retaliation under Sarbanes-Oxley and Dodd-Frank when they take part in the decision to terminate a whistleblower. This case of first impression involved the termination of a general counsel who complained of FCPA violations, but it is possible that other courts may…

Next week, the BLPB is hosting a micro-symposium organized by the AALS section on Agency, Partnership, LLCs, and Unincorporated Associations.  Confirmed participants include Joan MacLeod Heminway (BLPB editor), Dan Kleinberger, Jeff Lipshaw, Mohsen Manesh, and Sandra Miller.

The micro-symposium will explore the role of private ordering in LLCs and other alternative business entities, a broad topic that encompasses many interesting questions:

(1) To what extent, and in what ways, does contract play a greater role in LLCs and LPs than in otherwise comparable corporations? Is it helpful to conceptualize private ordering in this context as contractual?

(2) Does unfettered private ordering reliably advance the interests of even the most sophisticated parties? Does it waste judicial resources? In their book chapter, The Siren Song of Unlimited Contractual Freedom, two distinguished Delaware jurists, Chief Justice Leo Strine and Vice Chancellor J. Travis Laster, raise these concerns and argue in favor of more standardized fiduciary default rules. 

(3) Should the law impose fiduciary duties of loyalty and care as safeguards against abuse of the unobservable discretion managers enjoy because those duties reflect widely held social norms that most investors would expect to govern the conduct of managers?

(4) If…

My recent article:  Locked In: The Competitive Disadvantage of Citizen Shareholders, appears in The Yale Law Journal’s Forum.  In this article I examine the exit remedy for unhappy indirect investors as articulated by Professors John Morley and Quinn Curtis in their 2010 article, Taking Exit Rights Seriously.  Their argument was that the rational apathy of indirect investors combined with a fundamental difference between ownership of stock in an operating company and a share of a mutual fund.  A mutual fund redeems an investor’s fund share by cashing that investor out at the current trading price of the fund, the net asset value (NAV). An investor in an operating company (a direct shareholder) exits her investment by selling her share certificate in the company to another buyer at the trading price of that stock, which theoretically takes into account the future value of the company. The difference between redemption with the fund and sale to a third party makes exit in a mutual fund the superior solution over litigation or proxy contests, they argue, in all circumstances. It is a compelling argument for many indirect investors, but not all.

In my short piece, I highlight how exit remedies are…

Missouri’s president recently resigned amid protests about how his institution responded to racist and other deplorable acts on his campus.  A graduate student staged a hunger strike, and players from the Missouri football team threatened to sit out their next game if the president did not resign. 

Some have worried that the threat sets bad precedent, in that they think now a president can be forced to resign based on the racist acts of someone beyond his or her control. I don’t buy that, but more on that later.  Others are upset that it took the football team to make the protests have legs.  I don’t buy this one, either, though I give this one more credence. 

As someone working in an academic environment, I will say that I would be sympathetic if the resignation really happened because of things that were out of the control of the university president. That is, if he were really being held accountable for what was said by an idiot racist student, I’d be supportive of him and think it was wrong he was being forced out. Based on what I have seen, though, the criticisms were valid about the institution’s response…

National Business Law Scholars Conference (NBLSC)

Thursday & Friday, June 23-24, 2016

Call for Papers

The National Business Law Scholars Conference (NBLSC) will be held on Thursday and Friday, June 23-24, 2016, at The University of Chicago Law School. 

This is the seventh annual meeting of the NBLSC, a conference that annually draws legal scholars from across the United States and around the world.  We welcome all scholarly submissions relating to business law.  Junior scholars and those considering entering the legal academy are especially encouraged to participate. 

To submit a presentation, email Professor Eric C. Chaffee at eric.chaffee@utoledo.edu with an abstract or paper by February 19, 2016.  Please title the email “NBLSC Submission – {Your Name}.”  If you would like to attend, but not present, email Professor Chaffee with an email entitled “NBLSC Attendance.”  Please specify in your email whether you are willing to serve as a moderator.  We will respond to submissions with notifications of acceptance shortly after the deadline.  We anticipate the conference schedule will be circulated in May. 

Keynote Speakers:

Professor Steven L. Schwarcz, Stanley A. Star Professor of Law & Business, Duke Law School

Chief Judge Diane P. Wood, The United States Court of Appeals for the Seventh Circuit

Conference Organizers:

Tony…