February 2017

As readers may recall, I posted on broker fiduciary duties back at the end of December, focusing on a WaPo op ed written by friend-of-the-BLPB, Ben Edwards (currently at Barry, but lateraling later this year to UNLV).  He has a new op ed out today in the WaPo that says everything I could and would say regarding the POTUS’s recent executive order on this topic (referenced by Ann in her post earlier today), and more.  I commend it to your reading.  

It’s important to remember as you read and consider this issue what Ben’s op ed focuses in on at the end: the rule the POTUS executive order blocks is a narrow one, since it only applies to activities relating to retirement investments. A broader fiduciary duty rule for brokers has not yet been adopted.  Suitability is still the standard of conduct for brokers outside the application of any applicable fiduciary duty rule.  The central question at issue is whether a broker must recommend investments in retirement planning that are in the best interest of the client investor or whether, e.g., a broker can recommend a suitable investment to a retirement investor that makes the broker more money/costs the client more money.

I have had…

It’s a drive-by this week, but I wanted to call your attention to the recent Delaware Chancery decision in In re Merge Healthcare Inc. Stockholders Litigation.  The plaintiffs challenged IBM’s acquisition of Merge, alleging that a 26% Merge shareholder counted as a controller and was conflicted.  Therefore, the shareholder vote in favor of the merger could not cleanse the deal under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015).

Vice Chancellor Glasscock rejected the argument.  Assuming (without deciding) that the 26% shareholder counted as a controller, he concluded that because the shareholder’s interests were aligned with those of the public shareholders – among other things, the alleged controller had no unusual need for liquidity/a fire sale – no heightened scrutiny was required and the stockholder vote in favor of the deal was sufficient to cleanse the transaction.

Of particular interest:  It turns out that the Merge corporation did not have a 102(b)(7) exculpatory clause in its charter, which potentially exposed its board to damages for duty of care violations (though, ultimately, the stockholder vote was sufficient to cleanse any problems).  I didn’t even know that was a thing that could happen.

In other…

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.

A few months ago, J.D. Vance, Yale Law School graduate and author of New York Times Best Seller Hillbilly Elegy, talked about “America’s forgotten working class.”

With the rise of Donald Trump, Vance’s book and the book’s topic have been much discussed.

I, however, want to focus on Vance’s discussion after the 10 minute mark where he thanks various mentors for helping him overcome family financial, and community-based problems. Without a stable immediate family, Vance found guidance from his grandparents, the military, and his professors.

Raised in a predominately individualistic culture, I believed, for a long time, that hard work was the primary driver of success. I still think individual dedication is important, but looking back, I am also incredibly thankful for the many people who provided a helping hand along the way.

While most schools do not specifically reward it, I think professors are particularly well situated to mentor students. We can also be incredibly helpful to our more junior colleagues. Recognizing the value of the mentors in my own life, I do hope to “pay it forward” and become increasingly involved in the mentorship process.

Donald Trump has had a busy two weeks. Even before his first official day on the job, then President-elect Trump assembled an economic advisory board. On Monday, January 23rd, President Trump held the first of his quarterly meetings with a number of CEOs to discuss economic policy. On January 27th, the President issued what some colloquially call a “Muslim ban” via Executive Order, and within days, people took to the streets in protest both here and abroad.

These protests employed the use of hashtag activism, which draws awareness to social causes via Twitter and other social media avenues. The first “campaign,” labeled #deleteuber, shamed the company because people believed (1) that the ride-sharing app took advantage of a work stoppage by protesting drivers at JFK airport, and (2) because they believed the CEO had not adequately condemned the Executive Order. Uber competitor Lyft responded via Twitter and through an email to users that it would donate $1 million to the ACLU over four years to “defend our Constitution.” Uber, which is battling its drivers in courts around the country, then established a $3 million fund for drivers affected by the Executive Order. An…

In 2012, the U.S. Patent Office instituted the Inter Partes Review (IPR) system—an administrative process allowing parties to challenge the validity of issued patents. If the agency determines a patent was erroneously granted, it is invalidated. IPR was intended as a less expensive alternative to litigating validity, and it serves this purpose. However—like many government programs—it had unforeseen consequences.

Almost any party hoping to challenge a patent can file for IPR; there is no requirement that they have a business interest in the patent. This lack of a standing requirement opened the door to a new type of rent seeking. Invalidity Assertion Entities (IAEs) threaten to use IPR to (attempt to) invalidate a patent, unless its owner pays a “settlement.” Anecdotal evidence shows that they target patents presently being litigated (presumptively because the patentee has the most to lose from invalidation at that time), but IAEs have no actual interest in the subject patent.

When this business model came to light, Congress reflexively proposed to do away with the practice. The legislation didn’t pass, but the negative response wasn’t surprising; rent seekers in patent law (e.g., patent trolls) have a bad reputation. I’ve written on IAEs (here and…

On Monday President Trump signed an Executive Order on Reducing Regulation and Controlling Regulatory Costs. The Order uses budgeting powers to constrict agencies and the regulatory process requiring that for each new regulation, two must be eliminated and that all future regulations must have a net zero budgeting effect (or less). The Order states:

“Unless prohibited by law, whenever an executive department or agency (agency) publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed.”

Two points to note here.  First, the Executive Order does not cover independent agencies like the Securities and Exchange Commission and the Commodity Futures Trading Commission, agencies that crafted many of the rules required by the 2010 Dodd-Frank Wall Street reform law–an act that President Trump describes as a “disaster” and promised to do “a big number on“.  The SEC, the CFTC and Dodd-Frank are not safe, they will just have to be dealt with through even more sweeping means.   Stay tuned.  The 2-for-1 regulatory special proposed on Monday is a part of President Trump’s promise to cut regulation by 75%.

Second, the Order is intended to remove regulatory obstacles to Americans…