May 2016

The latest example of dramatic institutional failure – that somehow was entirely accidental – comes to us from MetLife.

The story begins with variable annuities, a product that might be suitable if you’re trying to shelter your assets from a lawsuit, but otherwise one whose chief virtue lies in its capacity to serve as a litmus test for the honesty of your broker. 

After the financial crisis, insurance companies decided that their outstanding variable annuities were too good for existing customers, and began offering very high commissions to any brokers who could persuade their clients to exchange an older one for a newer, less generous model.

Enter MetLife.  From 2009 to 2014, MetLife brokers churned $3 billion worth of variable annuities, resulting in $152 million in dealer commissions.  Customers were told that the newer annuity was less expensive or comparable, when in fact, 72% of the time, this was, shall we say, not so much true.   For example, 30% of the replacement applications falsely stated that the new contract was less expensive than the old one.  Applications also failed to disclose benefits and guarantees that the customer would forfeit in making the exchange, understated the value of existing…

With this post I warmly welcome John Linarelli to the Business Law Professor Blog as a guest blogger for the month of May.  Professor Linarelli, Chair in Commercial Law at Durham Law School, has crossed the Atlantic and different disciplines throughout his career.  His research engages with issues of inequality, specifically focusing on economic and commercial issues.  Recent scholarly publications include his forthcoming co-authored book, to be published with Oxford University Press, Beyond Global Capitalism: Reclaiming the Future of International Law and his 2015 article Concept and Contract in the Future of International Law, 67 Rut. U. L. Rev. 61.  Interested readers can view Professor Linarelli’s full academic bio and his SSRN page for more information.  Look for new BLPB content from Professor Linarelli later this month.

Understanding that American academics and practicing lawyers may be unfamiliar with Durham University, Professor Linarelli provided us with an overview.  He writes a helpful introduction and provides a charming view into some different academic traditions:

Durham Law School usually ranks as one of the top 5 law schools in the UK.  In the UK-wide Research Excellence Framework (REF) exercise in 2014, of which all university participate, we ranked third.  Our students are incredible and a good number go off to the big City of London law firms upon completion of their practice qualifications. Lord Justice Hughes on the UK Supreme Court is an alum. We also run several LLM programmes, including in Corporate Law, International Trade and Commercial Law, European Trade and Commercial Law, and International Law and Governance.  

It is commencement season – our commencement at Belmont University is tomorrow. Commencement season means commencement speeches. Commencement speeches often comes with an extra helping of cliché advice. If I had to guess, no piece of cliché advice is more common in commencement speeches than “follow your passion in your career.”

For example, in Steve Job’s famous Stanford commencement speech he said:

You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.

Jim Carey, in an otherwise pretty original and somewhat odd commencement speech, included some of the cliché “follow your passion” advice when he said:

My father could have been a great comedian, but he didn’t believe that was possible for him, and so he made a conservative choice. Instead, he got a safe job as an accountant, and when I was 12 years old, he was let go from that safe job and our

…

Today I hit “submit” on an article I was asked to review for an international law journal. Because the process required blind peer review, I won’t be any more specific other than to say that the article related to a topic that I have written and spoken about extensively over the past few years. Unfortunately, the author did not cite any of the main (or even ancillary) articles on the topic and instead focused on a number of disparate theories that barely related to the title or topic of the piece. In short, the article had a few good pages and might make a few decent articles, but only after major revisions. I knew what the article was missing because I have read almost every other piece written on the topic.

As a junior academic, I admit that the most frustrating part of the law review process is the lack of peer review, at least in the United States. My colleagues in the EU review articles of 10-12,000 words on average and generally have 1-2 other reviewers deciding on publication of a scholar’s piece. The review period tends to be 6-8 weeks (or so I have been told) and generally…

In follow up to my post yesterday, my trusted and valued co-blogger Joan Heminway asked a good question (as usual) based one of my comments.  My response became long enough that I thought it warranted a follow-up post (and it needed formatting).  Joan commented: 

you say: “there should be no problem if, for example, Delaware corporate law did not allow a for-profit entity to exercise religion for the sole sake of religion. I think that is the case right now: that’s not a proper corporate purpose under my read of existing law.” Are you implying that a corporate purpose of that kind for a for-profit corporation organized in Delaware would be unlawful? Can you explain?

My response: I am suggesting exactly that, though I concede one might need a complaining shareholder first. My read of eBay, and Chief Justice Strine’s musing on the subject, suggest that an entity that is run for purposes of religion (not shareholder wealth maximization) first and foremost, is an improper use of the Delaware corporate form. (“I simply indicate that the corporate law requires directors, as a matter of their duty of loyalty, to pursue a good faith strategy to maximize profits for…

Last week, Hamdi Ulukaya, founder and CEO of Chobani, announced a 10% company stock grant to all company employees.  Chobani joined the ranks of high profile stock grants including Whole Foods, Starbucks, Apple and Twitter.  Stock grants, while more common in tech industries, are a part of hybrid corporate law-employment law conversation on shared ownership.  Employee ownership in companies can occur in several different forms such as ERISA-governed benefit plans where the company stock issued or bought as a part of a retirement saving plan. Alternatively, a stock grant may be structured as a bonus plan, a standard compensation, or a vesting employee benefit eligible after threshold years and types of service.  All of these plans fall under the rubric of shared ownership.  In 2015, the National Center for Employee Benefits estimated that over 9000 companies participated in some form of shared ownership.

In a similar vein, actors in the hit (and record-breaking with 16 Tony Nominations) musical Hamilton have entered into a profit-sharing agreement with producers.  The deal is different for these actors, but the sentiment is the same in sharing profits, aligning interests, and promoting employee loyalty.

Shared ownership plans, especially the ERISA-governed ones can…

I am looking forward to attending and presenting at Emory University School of Law’s upcoming conference (June 10-11) focused on the art and science of teaching transactional law and skills.  I received word yesterday from Sue Payne, the Executive Director of Emory Law’s Center for Transactional Law and Practice, that the keynote speakers for the conference are “the dynamic duo of Martin J. Katz and Phoenix Cai will deliver a keynote address entitled – ‘Encouraging this Particular Form of (Very Fun) Madness – Roles for Deans and Faculty Members.'” The notice se sent to me on the keynote speakers offers the following information about Professors Katz and Cai and the conference as a whole:

Marty Katz is Dean and Professor of Law at the University of Denver, Sturm College of Law. Under his leadership, Denver Law developed and implemented a major strategic plan that included initiatives in experiential learning and specialization. He is a founding board member of Educating Tomorrow’s Lawyers, a national consortium of law schools that serve as leaders in the experiential education movement. Dean Katz’s recent publications include “Facilitating Better Law Teaching – Now” (Emory Law Journal) and “Understanding the Costs of Experiential Legal Education” (Journal of Experiential Learning).    

Phoenix Cai is…

Submissions: manuscripts or abstracts must be submitted electronically to Professor Michelle Harner, Chair-Elect of the Section on Business Associations, at mharner@law.umaryland.edu August 24, 2016.

The AALS Section on Business Associations and the AALS Section on Comparative Law are pleased to announce a Call for Papers for a joint program to be held on January 5, 2017, at the AALS 2017 Annual Meeting in San Francisco.  The topic of the program is “Business Law in the Global Gig Economy:  Legal Theory, Doctrine, and Innovations in the Context of Startups, Scaleups, and Unicorns.”  

Startups and entrepreneurs have long played an important role in the U.S. economy.  From Henry Ford to Mark Zuckerberg, entrepreneurs have revolutionized the ways in which their customers receive products and services. As Phil Libin, CEO of Evernote, has explained, “There’s lots of bad reasons to start a company. But there’s only one good, legitimate reason, and I think you know what it is: it’s to change the world.”

That philosophy continues today as entrepreneurs disrupt markets and challenge business and legal norms. Traditional notions of the firm, fiduciary duties, contractual bargains, and optimal capital structures may not aptly fit entrepreneurial approaches. Indeed, entrepreneurs’ business models, financing needs, and operational objectives require lawyers and scholars to rethink governance, capital structures, and regulatory schemes that may limit or impede further innovation, both nationally and transnationally.  

A recent Vanity Fair article discussing Citizens United is making the rounds. (I saw it on Facebook!)  The article notes:  

It had already been established, in Buckley v. Valeo (1976), that anyone has a First Amendment right to spend his or her own money advancing his or her own cause, including a candidacy for political office. Citizens United extended this right to legally created “persons” such as corporations and unions.

I have been giving some more thought to whole “personhood” discussion of late, and my thoughts have taken me back to both Hobby Lobby and Citizens United. What follows is a long blog post that pulls together my thoughts on these two cases in an admittedly not well developed way.  But it’s a start (though I really should be grading).