May 2018

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Today I will continue my quest seeking to get courts to appreciate the need to pay attention to detail as to LLCs. Sometimes courts misidentify LLCs as “limited liability corporations” (and not the correct “limited liability companies”) because they don’t know the difference. Other times it is because they copied the language from the pleadings. And other times it’s just typing “corporation” when “company” was intended.  All such errors are understandable but should be fixed.  

Today, we get an unpublished court opinion from last week that clearly has the correct information available, yet the opinion goofs anyway. The opinion states:    

Every Limited Liability Corporation (LLC) in Delaware is required to have a registered agent to receive service of process for the corporation. Service directly upon the owners of the LLC is not legally necessary if the registered agent is properly served. 

JERZY WIRTH Pl., v. AVONDALE IQ., LLC, Def., CV N10J-03776, 2018 WL 2383578, at *2 (Del. Super. May 25, 2018). Corporations and LLCs need registered agents, but here we are dealing with an LLC.  The accompanying footnote gets it right, so this is simply an attention to detail problem.  The footnote reads: 

See 18 Del. C.

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image from www.publicdomainpictures.net

For many, Memorial Day is just another Monday holiday–a time to relax a bit more in a busy work season.  For some, the celebration of Memorial Day means sales and barbecues and community parades, fairs, and similar events.  (I linked to events in my home town, Garden City, NY, and the greater Long Island area.)  Many view Memorial Day as a time to commemorate all veterans, something we also do on Veterans Day in the fall.  (The linked article celebrates the work of some entrepreneurial veterans in the Knoxville community.)  

Many of these ways of celebrating Memorial Day involve reflection of some kind.  At its core, Memorial Day seems to encourage a particular kind of reflection–a moment to recall and honor those who have died for our country in the course of military service.  That general encouragement is consistent with, but not completely reflective of, the text of the federal law establishing the holiday, which expressly calls for the President to call us to united prayer* for permanent peace:

The President is requested to issue each year a proclamation—

(1) calling on the people of the United States to observe Memorial Day by praying…

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Risk factor disclosures are required under SEC rules, and encouraged under the PSLRA (which insulates from private liability forward-looking statements that are “accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement,” 15 U.S.C. § 78u-5).  The theory is that investors, armed with adequate warnings, can make intelligent decisions about how to value a company’s securities.

Both the SEC in its guidance, and Congress when passing the PSLRA, emphasized that “boilerplate” warnings are not helpful; investors must be given specific, tailored information about the firm-specific risks that the company faces.  For example, the SEC instructs firms, “Do not present risks that could apply to any issuer or any offering. Explain how the risk affects the issuer or the securities being offered.”  17 C.F.R. § 229.303.  Meanwhile, in the PSLRA’s legislative history, the Conference Report states that “boilerplate warnings will not suffice…. The cautionary statements must convey substantive information about factors that realistically could cause results to differ materially from those projected.”

Scholars have documented that firm-specific risk warnings are helpful to investors.  For example, a while ago I blogged about a study by Karen K. Nelson and Adam…

 

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Hello from Russia, a country I swore a few years ago I would not visit for pleasure because of its human rights violations. Not only did I visit St. Petersburg, Russia on a cruise stop, but I bought FIFA World Cup T-shirts. I stopped short of buying the Trump/Putin nesting dolls, but I couldn’t resist a picture. I attended the last World Cup in Brazil, and in between matches met with activists because I was looking at the effect of mega sporting events on human rights. Hundreds of thousands of people were displaced in Brazil to build new facilities and activists protested both the government and corporate sponsors.  Russia and Qatar (a future World Cup destination and another notorious human rights violator) were on my personal no-go lists. Alas, as regular readers of this blog know, I’m a perfect example of most consumers out there- I have some situational ethics when it comes to certain things. At least I’m self aware. 

 

There are only about 5 cruise ships in port today and the city was packed. On other days during the summer, thirteen cruise ships with 2000-4000 passengers each may be in the city. Thousands of other tourists …

Although lawyers (and other professionals) are not baseball players, some clients may benefit by looking at outcome statistics when making decisions about who to hire for a particular job.  Still, it’s tough to figure out the right statistics to use.  What counts as a “win” may not always be clear.  A defense lawyer that “loses” on liability but “wins” with a small damages award probably has a happy client.  In a couple of op-eds, I’ve suggested that immigration court outcomes might be a useful place to start.  A recent news story has me thinking about the issue again.

Publishing outcome statistics by attorney might help asylum seekers that now bet their lives on particular attorneys.  The real question is whether they should know how different counsel might affect the odds. We’ve already got stats for the judges.  And outcomes vary dramatically by presiding judge.  For example, immigrants pressing asylum claims in recent years before Los Angeles’s Immigration Court Judge Lorraine J. Munoz had 97.1% of their claims denied.  In contrast, asylum seekers fare better before Los Angeles Immigration Court Judge Stephen L. Sholomson, winning 78.2% of their asylum claims.  

But we don’t have ready access to the stats…

I was browsing through some recent veil piercing cases (because that’s how I roll), and I came across this gem: 

[I]t is unclear that merely using a corporation to limit personal liability rises to the level of fraud required to pierce the corporate veil.

Indagro SA v. Nilva, No. 16-3226, 2018 WL 2068660, at *3 (3d Cir. May 3, 2018). Given that limited liability is one of the primary benefits of incorporation, I think it is at least implied that using a corporation to limit personal liability is not fraud at all.  

Moreover, the corporation at issue was a New Jersey corporation, and the state law provides:

(2) Unless otherwise provided in the articles of incorporation, a shareholder of a corporation is not personally liable for the acts of the corporation, except that a shareholder may become personally liable by the reason of his own acts or conduct.

N.J. Stat. Ann. § 14A:5-30 (West). This is pretty unequivocal.  I get that fraud may be one of the acts that could give rise to personal liability, but the use of an entity to limit personal liability, when that is a core facet of the entity, is some pretty serious…

Call for Papers

AALS Section on Transactional Law and Skills

Transactional Law and Finance: Challenges and Opportunities
for Teaching and Research

2019 AALS Annual Meeting

New Orleans, Louisiana

The AALS Section on Transactional Law and Skills is proud to announce a call for papers for its program, “Transactional Law and Finance: Challenges and Opportunities for Teaching and Research.” This session will examine the role of finance in business transactions from various perspectives with the goal of inspiring more deliberate consideration of finance in law school teaching and legal scholarship.From structured finance to real estate, from mergers & acquisitions to capital markets, finance plays an important and fundamental role in transactional law. The intersection of transactional law and finance is dynamic, providing academics, practitioners, and the judiciary with both challenges and opportunities. For example, financial product innovation and new funding sources for entrepreneurs continue to expand. Meanwhile, the significant growth in merger appraisal litigation has cast a new spotlight on the ability to critically analyze financial models (with a critical issue being whether a particular model is appropriate for expert use to determine fair value in appraisal proceedings). At the same time, activist investors are impacting company boards and the way in which companies do…