October 2016

I am preparing to teach the doctrine on controlling shareholders in my corporations class tomorrow, and found the recent Delaware opinions on non-controlling shareholder cleansing votes and the BJR to be helpful illustrations of the law in this area.

In summer 2016, the Delaware Court of Chancery dismissed two post-closing actions alleging a breach of fiduciary duty where there was no controlling shareholder in the public companies, where the stockholder cleaning vote was fully informed, and applied the 2015 Corwin business judgment rule standard.  The cases are City of Miami General Employees’ & Sanitation Employees’ Retirement Trust v. Comstock, C.A. No. 9980-CB,  (Del. Ch. Aug. 24, 2016) (Bouchard, C.) and Larkin v. Shah, C.A. No. 10918-VCS, (Del. Ch. Aug. 25, 2016) (Slights, V.C.), both of which relied upon  Corwin v. KKR Financial Holdings, LLC, 125 A.3d 304 (Del. 2015).  (Fellow BLPB blogger Ann Lipton has written about Corwin here).

The Larkin case clarified that Corwin applies to duty of loyalty claims and will be subject to the deferential business judgment rule in post-closing actions challenging non-controller transactions where informed stockholders have approved the transaction.   The Larkin opinion states that:

(1) when disinterested, fully informed, uncoerced stockholders approve a transaction

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The Trump-Pence campaign has adopted a common West Virginia criticism of U.S. energy policy under the Obama administration that is known as the “war on coal.” This phrase is used to describe the current administration’s support for U.S. Environmental Protection Agency (EPA) policies to reduce greenhouse gas emissions (via the proposed Clean Power Plan) and other environmental protections that relate to consumption of fossil fuels, especially coal.  In the vice presidential debate Republican Mike Pence repeated the phrase several times, asserting that the EPA was killing coal jobs, especially in places like West Virginia and Kentucky.  The problem is that regardless of the EPA’s goals, it is not environmental regulation that is coal’s main challenge.  It is price. 

As Charlie Patton, president of West Virginia-based Appalachian Power explained, “Forget the clean power plan. You cannot build a coal plant that meets existing regulation today that can compete with $5 gas. It just cannot happen.”  Cheap natural gas, made available by horizontal drilling and hydraulic fracturing in shale formations, has led to a significant increase in natural gas-fired electric power generation, most of which replaced coal as the fuel of choice. The shale gas boom, which started approximately in 2008, can…

National Business Law Scholars Conference (NBLSC)
Thursday & Friday, June 8-9, 2017

Call for Papers

The National Business Law Scholars Conference (NBLSC) will be held on Thursday and Friday, June 8-9, 2017, at the University of Utah S.J. Quinney College of Law. 

This is the eighth meeting of the NBLSC, an annual conference that 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 17, 2017.  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 Speaker:

Lynn A. Stout, Distinguished Professor of Corporate & Business Law, Cornell Law School


Plenary Author-Meets-Reader Panel:

Selling Hope, Selling Risk: Corporations, Wall Street, and the Dilemmas of Investor Protection by Donald C. Langevoort…

I am intrigued by this new genre of financial writing that warns (in increasingly apocalyptic terms) that passive investing will lead to increasingly distorted and inefficient markets.

Nevsky Capital, a large hedge fund, noisily shut its doors last year with an investor letter that blamed, among other things, index investing that distorted correlations among stocks.

Sanford C. Bernstein & Co., LLC. recently published a note declaring that passive investing is “worse than Marxism” because at least Marxism allocates capital according to some kind of principle, whereas passive investing allocates capital by the happenstance of inclusion in an index.

And a research analyst recently posted “The Last Active Investor,” a short story that posits a dystopian future in which all market prices are set by a single person performing the world’s only fundamental research.

It’s true that index investing distorts stock prices to some degree, though there has been plenty of pushback to the claim that there’s any real danger of passive investing overtaking the market, especially since the definition of passive investing itself might be somewhat malleable in an age of increasingly sophisticated computerized trading.

But what I’m mostly curious about is what sorts of policy…

This post is mainly for our practicing lawyer readers. If I were to venture back to a law firm, I wouldn’t ask graduating students for recommendations only from their law professors. Instead, if the student was on law review (as most BigLaw applicants are) I would ask for at least one recommendation from a law professor whose article the student edited. 

First, a law professor has less reason to exaggerate or falsely praise a student at another school. Second, a law professor who has worked on an article with a student gets excellent insight into that student’s attention to detail (or lack there of) and attention to deadlines (or lack there of). Third, the law professor/author gets to see the student do work where the rewards are not immediate nor as large as they can be in the studying/grades context. Fourth, the cite checking and editing work done on law review articles is more similar to the work of a junior associate than is (at least a good percentage of) course work. 

Yes, a law professor at another school will have limited interaction with that student and usually only virtual interaction. But a lot of legal work is done virtually…

Today, I received the position announcement below from my friend Alicia Plerhoples (Georgetown), who is doing exciting things in the social enterprise and nonprofit areas. This is an excellent opportunity, and I think anyone would be fortunate to work with her and her clinic. 

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Georgetown University Law Center –
Graduate Teaching Fellowship, Social Enterprise & Nonprofit Law Clinic

Description of the Clinic

The Social Enterprise & Nonprofit Law Clinic at Georgetown University Law Center offers pro bono corporate and transactional legal services to social enterprises, nonprofit organizations, and select small businesses headquartered in Washington, D.C. and working locally or internationally. Through the Clinic, law students learn to translate theory into practice by engaging in the supervised practice of law for educational credit. The Clinic’s goals are consistent with Georgetown University’s long tradition of public service. The Clinic’s goals are to:

  • Teach law students the materials, expectations, strategies, and methods of transactional lawyering, as well as an appreciation for how transactional law can be used in the public interest.

  • Represent social enterprises and nonprofit organizations in corporate and transactional legal matters.

  • Facilitate the growth of social enterprise in the D.C. area.

    The clinic’s local focus not only allows the

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The Wells Fargo headlines–fresh from a congressional testimony, a spiraling stock price, and a CEO with $41M less dollars to his name— raise the question of whether this is a case study of corporate governance effectiveness or inefficiency. That the wrong doing (opening an estimated 2M unauthorized customer accounts to manipulate sales figures) was eventually unearthed, employees fired and bonus pay revoked may give some folks confidence in the oversight and accountability structures set up by corporate governance. Michael Hiltzit at the LA Times writes a scathing review of the CEO and the Board of Directors failed oversight on this issue.  

The implicit defense raised by Stumpf’s defenders is that the consumer ripoff at the center of the scandal was, in context, trivial — look at how much Wells Fargo has grown under this management. But that’s a reductionist argument. One reason that the scandal looks trivial is that no major executive has been disciplined; so how big could it be? This only underscores the downside of letting executives off scot-free — it makes major failings look minor. The answer is to start threatening the bosses with losing their jobs, or going to jail, and they’ll start to

…

Here we go again: 

Plaintiff seeks to collect the outstanding balance owed from Defendant Healthcare Enterprises, L.L.C. d/b/a Princesse Pharmacy and Defendant Octavio RX, Enterprises, L.L.C., d/b/a Christian’s Pharmacy & Medical Supplies (collectively “Corporate Defendants”) as well as Defendant Christian. (Dkt. No. 13 at 3). Plaintiff alleges that Corporate Defendants “are shell corporations or alter egos of [Defendant] Christian, owner of the different establishments known as Princesse Pharmacy, [and] Christian’s Pharmacy & Medical Supplies.”
Cesar Castillo, INC. v. Healthcare Enterprises, L.L.C., CV 2012-108, 2016 WL 5660437, at *1 (D.V.I. Sept. 27, 2016). 
 
So, the “Corporate Defendants” are actually formed as a limited liability company (LLC).  As so often happens, the court get this wrong. This is one of the challenges that come from veil piercing law that treats all such cases a “piercing the corporate veil” instead of “piercing the entity veil” or piecing the veil of limited liability.”  The court ultimately dismisses the veiling piercing claim as to Christian individually because there were no factual allegations in the complaint sufficient to support veil piercing.  I would have dismissed it for making an impossible assertion.  Following is the from th complaint: 
The defendants Octavio Rx Enterprises, LLC and Healthcare

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The Stanford Law Review Online has just released a series of essays on Salman v. United States, scheduled for oral argument on Wednesday.  I plan to blog more about the Salman case as/if I can find time this week, but I wanted you to have this link right away–first thing this morning.  The essays are a veritable insider trading feast and are written by some of the most thoughtful scholars in the area: Jill Fisch, Don Langevoort, Jonathan Macey, Donna Nagy, and Adam Pritchard.  There’s something in at least one of the essays for almost everyone out there.