January 2017

Energy and business are closely related, and the former often has a direct impact on latter.  At Whitehouse.gov, the President has posted his energy plan, making the following assertions: 

Sound energy policy begins with the recognition that we have vast untapped domestic energy reserves right here in America. The Trump Administration will embrace the shale oil and gas revolution to bring jobs and prosperity to millions of Americans. We must take advantage of the estimated $50 trillion in untapped shale, oil, and natural gas reserves, especially those on federal lands that the American people own. We will use the revenues from energy production to rebuild our roads, schools, bridges and public infrastructure. Less expensive energy will be a big boost to American agriculture, as well.

It is certainly true that we “have vast untapped domestic energy reserves right here in America.” It has brought some wealth and prosperity to the nation, and low oil prices because the country “embrace[d] the shale oil and gas revolution to bring jobs and prosperity to millions of Americans.” However, low oil and gas prices (which largely remain) have slowed that growth and expansion because shale oil and gas exploration and production was…

Conference information from an e-mail I recently received. 

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The second annual Susilo Symposium of the Susilo Institute for Ethics in the Global Economy will be held on June 15-17, 2017 at Boston University Questrom School of Business.

The event will feature distinguished and varied speakers, including Professor Francesca Gino of Harvard Business School, and site visits at Aeronaut Brewing, Bright Horizons, and Fenway Park, among other exciting area companies.

The Susilo Symposium will be part of a new Global Business Ethics week, which begins at Bentley University from June 12-15 for the Global Business Ethics Symposium and teaching workshop, and then will move to BU for June 15-17.

The event promises an audience of both scholars and practitioners from around the world. All seek to explore and exchange ideas in a unique and interactive forum about the role of ethics in the global economy.

This year’s Susilo Symposium follows the inaugural symposium, which was held in May 2016 in Surabaya, Indonesia. Featuring foremost business, academic, and political leaders, it reflected on “Global Business Ethics – East Meets West.”

What to Expect

The program is directed specifically toward both academics and practitioners. Our hope is that attendees will learn…

Although it may have gotten a bit lost in the shuffle of the POTUS’s first ten days in office, the nomination of Representative Tom Price for the post of Secretary of Health and Human Services has received some negative attention in the press.  In short, as reported by a variety of news outlets (e.g., here and here and here), some personal stock trading transactions have raised questions about whether Representative Price may have inappropriately used information or his position to profit personally from securities trading activities, in violation of applicable ethical or legal rules.  This post offers some preliminary insights about the nature of the concerns, which are set forth in major part in this New York Times editorial from January 18, and joins others in calling for reform.

Concerns about legislators’ securities trading activities are not new.  As you may recall, a 2011 study (using data from 1985-2001) found that members of the U.S. House of Representatives do make abnormal returns on stock trades.  A 60 Minutes exposé, “Insiders,” then followed, which helped catalyze the adoption in 2012 of the Stop Trading on Congressional Knowledge (“STOCK”) Act.  A recently released paper catalogues this history and effects on those abnormal returns.  The findings in this paper, which focuses on Senate trading transactions, are summarized below.

Before “Insiders” aired, the market-value weighted hedged portfolio earns an annualized abnormal return of 8.8%. This abnormal return comes entirely from the sell-side of the portfolio, which earns an annualized 16.77% abnormal return. Post-60 Minutes, we find no evidence of continued outperformance in our market-value weighted portfolios. On average, abnormal returns to the market-value weighted sell portfolio are 24% lower post-60 Minutes, relative to the pre-60 Minutes sample. Taken together, our evidence suggests that, Senators, on the whole, outperformed the market pre-60 Minutes, and this systematic outperformance did not survive the attention paid to Senators’ investments surrounding the broadcast of “Insiders” and subsequent passage of the Stop Trading On Congressional Knowledge (STOCK) Act.

I’ve previously posted about Delaware’s vulnerability – namely, to the extent it tries to police shareholder litigation through procedural rather than substantive legal standards, it is vulnerable to losing disputes to other jurisdictions that have rules deemed more favorable by litigants.  Plaintiffs and defendants can reach sweetheart merger settlements in jurisdictions that examine the terms less searchingly; defendants can win a dismissal of all claims filed by weak plaintiffs in one jurisdiction and estop stronger plaintiffs who bring suit in Delaware.

So, for example, Delaware encourages derivative plaintiffs to seek books and records under Section 220 before bringing a lawsuit, but that takes time.  A plaintiff in another jurisdiction might simply file a lawsuit right away, and if that suit is dismissed, the dismissal can preclude the Delaware plaintiff– which only gives the Delaware plaintiff less incentive to seek books and records in the first place.

Well, until now.  In Cal. State Teachers Ret. Sys. v. Alvarez, 2017 WL 239364 (Del. 2017), that exact scenario occurred in the long-running action against Wal-Mart for violations of the foreign corrupt practices act in Mexico.  While the Delaware plaintiffs sought books and records to bolster a derivative claim, federal plaintiffs…

The Star Trek copyright lawsuit I previously wrote about settled last Friday.  This was not a surprise. Defendant Axanar’s best bet was arguing that its fan film made fair use of the Star Trek works. The court, however, foreclosed that defense a few weeks ago.  This post addresses a few points (out of many) from the opinion ruling against Axanar’s assertion of fair use.  I’m not certain that the judge got the multi-factor analysis incorrect, but I do worry about how some aspects of the opinion will be applied in the future. 

When assessing fair use, courts must review whether the work is commercial or not.  For-profit use weighs against the defense.  Axanar argued that its film was non-commercial because it would be freely downloadable.  The court rebuffed, positing that “indirect commercial benefit” is sufficient to render a use commercial. While there is precedent supporting this proposition, the opinion expanded the idea of indirect commercial benefit a step too far. 

The court held that defendants’ intent to create “other job opportunities” through the Axanar project rendered it commercial and thus, disfavored fair use.  The problem is that almost any author, film producer, etc. hopes that their projects will be successful and…

Many, if not most, law professors teach their students the IRAC framework — Issue – Rule – Analysis – Conclusion — to use in addressing legal issues and answering exam essays.

I even teach my undergraduate students the IRAC framework, and find it useful in teaching critical thinking skills.

However, like many of my former law professors, I usually underemphasize the importance of the conclusion. Of course you have to get the issue and rule correct to start, but the meat of the answer is in the fact and rule-based analysis. The conclusion, I often say, can often go either way, especially on the thorny exam issues.

Since I started hearing the term “post truth,” I have been rethinking the way I teach IRAC and the underemphasized conclusion. While it is still clearly important to teach and test analysis, I am starting to realize the value of identifying the strongest and best conclusion. This may prove difficult to test, as law exams often focus on unsettled areas of law, but perhaps I will include a few more settled portions to see if students can identify legal issues with a clearer correct answer.  

The Belmont Health Law Journal is hosting its first symposium tomorrow, January 27th.

The theme of the symposium will be What’s Next? The Movement from Volume to Value-based Healthcare Delivery, and will feature Congressman Jim Cooper as keynote speaker. 

Information is available here.

Registration is from 8:30am to 9:00am. Speakers will present from 9:00 am until noon. CLE credit and lunch provided.

Spoiler alert:  wrongful refusal of demand and bad faith standards are the same in recent Delaware Court of Chancery case: Andersen v. Mattel, Inc., C.A. No. 11816-VCMR (Del. Ch. Jan. 19, 2017, Op by VC Montgomery-Reeves).  

But sometimes a reminder that the law is the same and can be clearly stated is worth a blog post in its own right.  Professors can use this as a hypo or case note and those in the trenches can update case citations to a 2017 (and 2016) case.

In Andersen v. Mattel, Inc., VC Montgomery-Reeves dismissed a derivative suit, holding that plaintiff did not prove wrongful refusal of pre-suit demand.  The derivative action claimed that the Mattel board of directors refused to bring suit to recover up to $11.5 million paid in severance/consulting fees to the former chairman and chief executive officer who left in the wake of a falling stock price. Plaintiff challenged disclosure discrepancies over whether Stockton resigned or was terminated and the resulting entitlement to severance payments.  Mattel’s board of directors unanimously rejected the demand after consultation with outside counsel, 24 witness interviews and a review of approximately 12,400 documents.

The relied upon case law is unchanged, but the clear…

Friend and co-blogger Marcia Narine Weldon sent me a news article from Alaska discussing a “piercing of the corporate veil” claim for an LLC.  

The City and Borough of Juneau demolished the Gastineau Apartments and is trying to get hold members of Gastineau Apartments LLC, apparent owners of the building liable for the $1.4 million demolition costs. Demolition cost more than the land is worth, so the suit is seeking to have the owners of the LLC, Camilla and James Barrett, pay the bill because they missed deadlines to repair or demolish the property.

The article reports:

At issue before Juneau Superior Court Judge Philip Pallenberg is the legal concept of “piercing the corporate veil.” It would allow legal action against the Barretts, who controlled Gastineau Apartments LLC.

Defense Attorney Robert Spitzfaden had argued that the Barretts should remain shielded from liability. But the judge noted that the defendants had allowed their limited liability corporation to be dissolved after missing filing deadlines with the state.

“It’s clear that the Barretts were not always clear to observe the formal legal requirements of their LLC,” Judge Pallenberg said from the bench.

A quick review of Alaska LLC law did not make clear to me that LLCs…