March 2019

Earlier today, Senator Cancela introduced Senate Bill 304 in Nevada.  Although the bill’s text is not yet available on the website, the digest reveals that the legislation will explicitly authorize fee-shifting provisions under Nevada corporate law.  (Update–the text of the draft legislation is now available.)

The digest indicates that it will also do a few other interesting things if it passes:

  • Preserve and transfer any internal corporate claims to a Nevada corporation acquiring some other entity;
  • Authorize the application of fee-shifting provisions to claims arising from a prior entity (so long as the transaction was approved by a majority of disinterested stockholders);
  • Prohibit any provision that would forbid a shareholder from suing in Nevada courts;
  • Authorize Nevada-specific forum-selection provisions;
  • Authorize the Nevada Secretary of State to issue rules allowing lawyers to indemnify stockholders for any possible fee-shifting;
  • Provide that Nevada will have personal jurisdiction over any shareholder that sues outside of Nevada; and
  • Require the Secretary of State to study fee-shifting’s impact on the business environment and report back to the legislature in three years.

Despite the problems with shareholder litigation, Delaware opted to ban fee-shifting right as a mass of public companies began to adopt it. This, of course…

Tulane just held its 31st Annual Corporate Law Institute, and though I was not able to attend the full event, I was there for part of it.  Though the panels were very interesting and I took copious notes, as a matter of personal satisfaction, the single most important thing I learned is that it is pronounced Shah-bah-cookie.  You’re welcome.

That said, below are some takeaways from the Hot Topics in M&A Practice panel, and to be clear, this isn’t even remotely a comprehensive account of everything interesting; it’s just stuff that I personally hadn’t heard before.  (And thus, the exact contours of my ignorance are revealed.)

[Read more]

Hundreds of men have resigned or been terminated after allegations of sexual misconduct or assault.  Just last week, celebrity chef/former TV star Mario Batali and the  founder of British retailer Ted Baker were forced to sell their interests or step down from their own companies. Plaintiffs lawyers have now found a new cause of action. Although there a hurdles to success, shareholders file derivative suits when these kinds of allegations become public claiming breach of fiduciary duty, unjust enrichment, or corporate waste among other things. Examples of alleged corporate governance missteps in the filings include: failure to establish and implement appropriate controls to prevent the misconduct; failure to appropriately monitor the business; allowing known or suspected wrongdoing to persist; settling lawsuits but not changing the corporate culture or terminating wrongdoers; and paying large severance packages to the accused. Google, for example, announced earlier this year that it had terminated 48 people with no severance for sexual misconduct, but until it became public, the company did not disclose a $90 million payment to a former executive, who had allegedly coerced sex from an employee. Earlier this week, Google acknowledged another $35 million payment to a search executive who had been accused…

The University of Richmond School of Law will host the Third Annual Junior Faculty Forum on Tuesday, May 21 and Wednesday, May 22, 2019 in Richmond, Virginia.  More information is available here.  This is Richmond’s description of the event:

This annual workshop brings together junior law scholars to present their scholarship in an informal collegial atmosphere. The workshop is timed to allow participants to incorporate feedback on early ideas or projects before the summer, and papers and works-in-progress are welcome at any stage of completion. To maximize discussion and feedback, the author will provide a brief introduction to the paper, but the majority of the individual sessions will be devoted to collective discussion of the papers. We will also have plenty of opportunities for networking and more casual discussions.  

Richmond Law will provide all meals for those attending the workshop, but attendees will cover their own travel and lodging costs.

…

It is Spring Break at WVU, so I am using this time to finish some paper edits and catch up on my email. Last week, I got an email about a recent case from the United States District Court for the Northern District of Illinois. It is a headache-inducing opinion that continues the trend of careless language related to limited liability companies (LLCs). 

The opinion is a civil procedure case (at this point) regarding whether service of process was effective for two defendants, one a corporation and the other an LLC.  The parties at issue, (collectively, “Defendants”) are: (1) Ditech Financial, LLC f/k/a Green Tree Servicing, LLC (“Ditech Financial”) and (2) Ditech Holding Corporation f/k/a Walter Investment Management Corp.’s (“Ditech Holding”). The court notes that it is unclear whether there is diversity jurisdiction, because

“the documents submitted by Defendants with their motion to dismiss suggest that there may be diversity of citizenship in this case. See [12-1, at 2 (stating Ditech Holding is a Maryland corporation with a principal office in Pennsylvania) ]; [12-1, at 2 (stating Ditech Financial is a Delaware limited liability corporation with a principal office in Pennsylvania) ].”

Clayborn v. Walter Investment Management Corp., No.

This “just in” from BLPB friends Beate Sjåfjell and Afra Afsharipour:

We are thrilled to co-organise a workshop at UC Davis School of Law on 26 April 2019, with the aim of facilitating an in-depth comparative analysis of the relationship between takeovers and value creation.

We invite submissions on themes concerning takeovers and value creation from any jurisdiction around the world as well as comparative contributions. Themes include but are not limited to:

What are the implications of a takeover on sustainability efforts?

What is the scope for using sustainability arguments as a defense by the target board in a takeover?

What should be the role of the bidder board?

What are the implications of large M&A transactions for building/growing a culture of sustainability at a firm?

Is there a distinct difference between planned mergers and uninvited takeovers?

How could takeovers be regulated to promote sustainable value creation?

We especially encourage female scholars and scholars from diverse backgrounds to submit abstracts. Participation at the workshop will be limited to the presenters, to facilitate in-depth discussions. Deadline for submission of abstracts: 27 March 2019!

Please feel free to send this call for papers on to colleagues who may be…

Jeremy Kress at the University of Michigan’s Ross School of Business recently posted on SSRN his new article, Solving Banking’s “Too Big To Manage” Problem, forthcoming in the Minnesota Law Review.  Here’s the abstract:

The United States’ banking system has a problem: many financial conglomerates are so vast and complex that their executives, directors, and shareholders cannot oversee them effectively. Recognizing this “too big to manage” (TBTM) dilemma, both major political parties have endorsed breaking up the banks, and bipartisan coalitions in Congress have introduced bills to shrink the largest firms. Despite this apparent consensus, however, policymakers have not agreed on a solution to the TBTM problem. Thus, a decade after the financial crisis, the biggest U.S. banks are significantly larger today than they were in 2008. 

This Article contends that the most prominent proposals to break up the banks—by reinstating the Glass-Steagall Act, capping banks’ size, or imposing onerous capital rules—each suffer from critical policy and political shortcomings. This Article then proposes a better way to solve the TBTM problem: using the Federal Reserve’s existing authority to compel divestitures when a financial conglomerate falls out of compliance with minimum regulatory requirements. In contrast to existing break-up proposals, this…

Yesterday was International Women’s Day and I was supposed to post but couldn’t think of what to write. I simply had too many choices based on this week’s news. It’s no coincidence that three months before the World Cup and on International Women’s Day, the U.S. Women’s Soccer Team sued U.S. Soccer for gender discrimination based on pay and working conditions, including medical treatment, travel arrangements, and coaching. On the one hand, some argue that the women should not receive the same amount as their male counterparts because they do not draw the same crowds or generate the same revenue. The plaintiffs argue that they cannot draw the same crowds in part because they do not get the same marketing and other financial support. In their defense, the U.S. women have won the World Cup three times and have won gold four times at the Olympics. The men’s team has never won either tournament and didn’t even qualify for the 2018 World Cup. I was in Brazil for the 2014 World Cup and when the men advanced, people were genuinely shocked. No one expected it and I was able to get a ticket to that match 15 minutes before start…

I am fascinated by the eyebrow-raising speech SEC Commissioner Hester Peirce delivered to the Council of Institutional Investors (CII) earlier this week.  In it, she said:

I have concerns about CII’s position with respect to the Johnson & Johnson shareholder proposal. As you know, a Johnson & Johnson shareholder submitted a proposal that, if approved, would have started the process to shift shareholder disputes with the company to mandatory arbitration…. CII also submitted a letter stating that “shareholder arbitration clauses in public company governing documents reflect a potential threat to principles of sound governance.”…

CII argues that “shareowner arbitration clauses in public company governing documents represent a potential threat to principles of sound corporate governance that balance the rights of shareowners against the responsibility of corporate managers to run the business.” Among your worries is the non-public nature of arbitration and thus the absence of a “deterrent effect.”…

The problem is that these class actions are rarely decided on the merits. Instead, the cost of litigating is so great that companies often settle to be free of the cost and hassle of the lawsuit.  Settlements are rarely public and certainly involve no publication of broadly applicable legal findings. Additionally,

…