February 2023

As I noted in a post a few weeks ago, I am presenting on corporate fiduciary duties tonight as the Roy/Demoulas Distinguished Professor of Law and Business at the Waystar/ROYCO School of Law.  The title of my presentation is: What the Roys Should Learn from the Demoulas Family (But Probably Won’t).  The presentation will run from 9:00 pm to 10:00 pm Eastern on Zoom at the following link:  https://us02web.zoom.us/j/86783560319?pwd=cTJza2N6elFyVGhBUFVjdk1Gb2oxQT09.

If you do not know about the Demoulas family and their fiduciary duty tangles up in Massachusetts, my presentation will inform you (and may even get you interested).  Members of the family were locked in litigation with each other for over 20 years.  Much of that litigation relates to alleged breaches of corporate and trust fiduciary duties.  And for those who have not watched the HBO Max series Succession, I will offer a window on some of the characters and plot lines, tying them in to observations about the Demoulas family.  

I welcome your attendance and participation!

I’m an avid reader of Matt Levine’s Money Stuff newsletter.  Yesterday, he discussed a recently posted article by Dhruv Aggarwal, Albert H. Choi, and Yoon-Ho Alex Lee, Meme Corporate Governance.  Although I’ve not yet had time to review the paper, it’s now on my reading list, and I thought other BLPB readers might want to add it to theirs too!  Here’s the abstract:

“In 2021, several publicly traded companies, such as GameStop and AMC, experienced a dramatic influx of retail investors in their shareholder base. This Article analyzes the impact of the “meme stock surge” phenomenon on the companies, particularly with respect to their governance outcomes and structures. The paper presents three principal findings. First, as a preliminary matter, we show how the “meme stock” frenzy was affected by the introduction of the commission-free trading platform, such as Robinhood, in 2019. We show empirically that the meme stock companies experienced a larger trading volume when commission-free trading was widely introduced. Second, we examine how the influx of retail shareholders has directly affected the governance outcomes at the meme stock companies. The main finding is that, notwithstanding the promise of more active shareholder base, meme stock companies have experienced…

Thomson Reuters recently published an accounting & compliance alert (here) noting the following.

  • Representative Bill Huizenga of Michigan signaled a new working group “will lean heavily into the Supreme Court’s 2022 ruling in West Virginia v. EPA to argue that the SEC has gone beyond its statutory authority with the proposed [climate] rules, set to be finalized this spring…. The working group will examine how to ‘rein in the SEC’s regulatory overreach’ and reinforce the materiality standard in the disclosure regime, as well as ‘hold to account market participants who misuse the proxy process or their outsized influence to impose ideological preferences in ways that circumvent democratic lawmaking,’ according to a news release.” 
  • “Senator Marco Rubio on Feb. 2 announced his ‘anti-woke agenda’ for the 118th Congress, including the Mind Your Own Business Act that would enable shareholders to more easily sue public companies over socially-driven actions, such as refusing to do business in states that crack down on abortion or restrict voting rights.” [FWIW, I suspect that Sen. Rubio might replace “refusing to do business in states that crack down on abortion or restrict voting rights” with “refusing to do business in states that protect the

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As I’ve mentioned repeatedly in this space, I recently posted a new paper to SSRN: Inside Out (or, One State to Rule them All): New Challenges to the Internal Affairs Doctrine, forthcoming in the Wake Forest Law Review.  The paper is about the uncertain boundary between matters subject to the internal affairs doctrine, and matters subject to ordinary choice of law analysis, and one of the issues I tackle concerns LLC agreements.  Specifically, LLCs have increasingly included employment provisions in their operating agreements, leaving Delaware courts in somewhat of a quandary as to whether the operating agreement is subject to the internal affairs doctrine – and thus Delaware law – or whether instead it should be treated as an employment contract, subject to ordinary choice of law analysis. (I also blogged about one such case here; as longtime readers are aware, stuff I muse on in blog posts often ends up in papers).

Anyhoo, this is why VC Will’s new opinion in Hightower Holding LLC v. Gibson is so striking.  There, partners in a financial advisory firm sold their interests to Hightower, and were made LLC members and principals in Hightower.  The LLC agreement contained a…

As reported by America First Legal (here), Texas Governor Greg Abbott’s office recently issued a memo reminding state agencies and universities that “federal and state law forbid discrimination against a current or prospective employee because of that person’s race, color, religion, sex, national origin, age, disability or military service.” As stated in the letter (here): “Rebranding this employment discrimination as ‘DEI’ doesn’t make the practice any less illegal.” Of course, the extent to which diversity may be deemed a compelling interest justifying at least some forms of racial discrimination is an issue currently before the Supreme Court (see here).

Continuing ongoing coverage of the case challenging FINRA’s constitutional status, we have some new developments.  The plaintiffs have filed an Amended Complaint.  The United States has also intervened in the case to defend the constitutionality of the securities laws.

Lamentably, the Amended Complaint does not cite to Supreme Risk.   I can understand why they would not want to cite me.  Although the article discusses the possibility of their types of claims at length and characterizes them as a colorable risk with the current Supreme Court, it also points out that they might trigger a financial crisis if they win.  That being said, they cite many of the same people I cited in my article.  

Although I haven’t spent much time sitting with the Amended Complaint, I saw a few things that struck me as just plain wrong immediately. 

Let’s take one of their jurisdictional allegations.  To deal with the earlier motion to dismiss, the amended complaint tries to detail much more of FINRA’s connection to Florida.  It alleges that “FINRA also funds, operates, and conducts business in Florida through its Investors Rights Clinic that is located in this state.”  This struck me as completely untrue.  The Clinic…

Many BLPB readers are likely aware that Stephen Bainbridge recently published a new book, The Profit Motive: Defending Shareholder Value Maximization. I must admit that I’m a fan of the Introduction:

There are a lot of books on the market praising stakeholder capitalism. They proclaim a new age in which big corporations should embrace—and, in fact, are embracing—environmental, social, and governance (ESG) goals. Whether putatively objective academic tomes filled with statistics or mass market books filled with bullet points, the bottom line is the same; namely, that stakeholder capitalism is the right thing to do both morally and financially. This is not one of those books.

For those of you on the fence, there is an hour-long overview on YouTube (here), but if that’s too long you might consider a recent guest post by Prof. Bainbridge on the Corporate Finance Lab discussing the book (here). Below is a brief excerpt from that post.

Three major themes animate the project. First, any conception of corporate purpose that embraces goals other than creating value for shareholders is inconsistent with the mainstream of U.S. corporate law. Second, directors do—and should—have wide and substantially unfettered discretion as to how

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I teach a unit on the legal aspects of valuation in my Corporate Finance planning and drafting seminar every year.   I have often been able to secure as a guest speaker on one day during that unit a friend of mine who is a seasoned valuation expert (and was the expert whose opinion carried the day in the most recent Tennessee Supreme Court case on valuation in an M&A context).  

There is a relatively large body of academic literature on appraisal (a/k/a dissenters’) rights and, more generally, the history of valuation law and practices in the M&A context.  In the Business Associations textbook of which I am a coauthor, I excerpt from Mary Siegel’s 1995 article, Back to the Future: Appraisal Rights in the Twenty-First Century (32 Harv. J. on Legis. 79).  Her 2011 follow-on article, An Appraisal of the Model Business Corporation Act’s Appraisal Rights Provisions (74 Law & Contemp. Probs 231 (2011)), also is a good read on appraisal rights history.  Other legal academics who have dipped their toes into these waters include George Geis, Bayless Manning, Brian JM Quinn, Randall Thomas, and Barry Wertheimer (who is no longer a law…

The following excerpt is from the introduction to a recent publication that may be of interest to BLPB readers. The publication is: Emilie Kao, 303 Creative v. Elenis: Can Stand-Alone Dignitary Harm Create A Right to Endorsement and Duty to Endorse?, 2023 Harv. J.L. & Pub. Pol’y Per Curiam 5, 2–5 (2023). Emilie Kao is Senior Counsel and Vice-President for Advocacy Strategy at Alliance Defending Freedom (ADF), which represents Lorie Smith.

All people have inherent dignity and should be treated with respect. However, whether and how courts should address legal claims surrounding dignity are notoriously complicated. Does the government have an interest in protecting citizens from “dignitary harm”–subjective feelings of emotional distress or stigma? If so, does the government’s interest require it to compel or silence the expression of certain views? If so, does the dignity of the person compelled to speak or remain silent matter? Dignitary harm has played important roles in conflicts between religious freedom and anti-discrimination laws in Masterpiece Cakeshop v. Colorado Civil Rights Commission and Fulton v. Philadelphia. And they are at issue again in 303 Creative v. Elenis, a free-speech case that was recently argued at the U.S. Supreme Court.

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Section 12 of the Securities Act gives a right of rescission to purchasers of illegally unregistered securities, and purchasers of securities sold by means of a false prospectus. See 15 U.S.C. § 77l.  Although the right of action has existed since 1933, its exact contours have always been somewhat hazy.  But now, in the age of social media – with the potential for widespread promotion of unregistered and/or fraudulent investments (lately, cryptocurrencies) – interpretations of Section 12 are getting a work out, and the legal ground may be shifting.

So, the background.  Section 12 provides:

(a)In general

Any person who—

(1) offers or sells a security [without meeting registration requirements]

(2) offers or sells a security (… by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that

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