August 2024

Not a whole lot going on this week in terms of legal developments, so I thought I’d reach back to an older post of mine, where I talked about a case pending before the Fifth Circuit regarding 14a-8.  The original petitioner, the National Center for Public Policy Research, argued that the SEC engages in viewpoint discrimination when it issues no-action letters; an intervenor challenged the entire basis for Rule 14a-8 as unauthorized by statute and unconstitutional to boot.  The SEC, for its part, addressed these substantive arguments but concentrated most of its energies on arguing that no-action letters are not final orders subject to challenge in the first place.

Normally, I’d assume a case like this wouldn’t have much chance of succeeding, but it’s the Fifth Circuit, which tends to take an entrepreneurial approach to issues like corporate rights, standing, and administrative authority.  Even then, I’d say the petitioners were likely out of luck, because the panel turned out to be Jones, Douglas, and Dennis – meaning, two Democrats and a Republican – and, indeed, only Judge Jones demonstrated any sympathies for the petitioners during oral argument.  But! The last time sec reg ended up before a 2-1…

For decades, we’ve known that many arbitration awards in the FINRA arbitration forum go unpaid.  This happens because many brokerage firms collapse after liability for abusive sales practices comes home.  Last Friday, arbitrators rendered an award finding SW Financial liable for over $13 million in damages to a group of dozens of investors.  SW Financial was expelled by FINRA in 2023 for, among other things, making false statements to customers and failing to supervise its personnel.  

Congress has noticed the problem.  The Senate Committee on Appropriations recently found that “FINRA has failed to undertake steps to address unpaid arbitration awards by its members.”  It directed the SEC to “continue to engage with FIRNA to identify ways to reduce and eliminate the occurrence of unpaid awards.”  This comes after a 2018 bipartisan proposal to create a recovery pool failed to pass.

FINRA has tracked this issue for some time and keeps statistics on unpaid awards.  That an award goes unpaid, does not mean that every customer with an unpaid award recovers nothing.  FINRA explains it this way:

At times when an arbitration panel does award monetary damages to the claimant, the respondent may fail to pay the awarded damages. If

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Last month, I was able to attend the SEALS Conference for the first time in a few years. It was good to see a number of old friends and meet some new ones. And I really enjoyed the many discussions on a wide variety of legal topics. 

While most academic panels are understandably focused on the mind, it was interesting to see a number of discussions focus on soul-related issues, including a couple on mindfulness/meditation and a few focused on religiously affiliated law schools. 

Traditionally, legal academics do an excellent job sharpening the mind. “Think like a lawyer” is a phrase even my colleagues across campus know. The soul gets much less attention at most schools, but that seems to be changing a bit, especially with increasing concerns for lawyer well-being. 

The body, however, seems almost entirely neglected both at the SEALS Conference and at law schools nationwide. Yes, there were tennis and pickleball tournaments, but I don’t think there was a single panel related to the physical health of our students, faculty, and staff.

At the undergraduate level, many universities have one or more required fitness classes, but I don’t know of any law school with similar requirements. …

As you may recall, Ann and I got a bit wound up last summer about the Delaware General Assembly’s consideration of Delaware S.B. 313 (and, within it, the proposed addition of § 122(18) of the General Corporation Law of the State of Delaware (“DGCL”)). We each offered brief oral testimony and even wrote letters to the Delaware House Judiciary Committee, which you can find here and here.

A comrade in that effort, Mark Lebovitch, has taken time to reflect a bit on the crazy summer that brought a new and troubling corporate purpose to Delaware’s venerable corporate law and to prognosticate about the future impact of DGCL § 122(18).  The result?  Soap Opera Summer: Five Predictions About DGCL 122(18)’s Effect on Delaware Law and Practice.  The abstract follows.

Predictability and stability are often cited as leading reasons for why Delaware’s corporate law system is world renowned and widely emulated, giving the First State dominance in the competition for domiciling business entities. The first half of 2024 was anything but predictable and stable in Delaware’s legal community. Rarely has an amendment to the Delaware General Corporation Law (“DGCL”) triggered as much public debate as SB 313, which became effective…

Thing One: 

I jotted!  Which is to say, I wrote a Jotwell review of Hilary Allen’s Interest Rates, Venture Capital, and Financial Stability, forthcoming in the University of Illinois Law Review.  Her paper is here, and you can find my review here.

Thing Two:  I have a new paper-ish thing.  As y’all know, I’ve been keeping an eye on litigation-limiting bylaw and charter provisions, including – as I previously posted – the Ninth Circuit’s en banc decision in Lee v. Fisher, which permitted The Gap to enforce a forum selection bylaw directing derivative Section 14(a) claims to Delaware’s Court of Chancery – even though that court has no jurisdiction to hear Section 14(a) claims.  In practical effect, then, the bylaw operated as a waiver of the federal claim.

That decision cited a draft version of an article by Professors Mohsen Manesh and Joseph Grundfest, Abandoned and Split But Never Reversed: Borak and Federal Derivative Litigation, in which they defended such bylaws.  The article was published in the Business Lawyer late last year, and is available here.

Anyhoo, I now have a (very short) reply to Professors Manesh and Grundfest, also forthcoming…

Lincoln Memorial University Duncan School of Law in Knoxville, TN, seeks entry-level and lateral candidates for full-time, tenure-track faculty positions starting July 2025. LMU Law aims to provide legal education to students from underserved regions, focusing on practice-oriented training for diverse backgrounds. The goal is to produce graduates who will pass the bar and serve their communities, particularly addressing the legal needs of Appalachia and other underserved areas.

We welcome applications from all subject areas, with particular need for expertise in business associations, civil procedure, evidence, property, constitutional law, and criminal law and procedure. As we expand our predominantly online hybrid program, we seek candidates across all doctrinal areas and are particularly interested in those who would enjoy the challenges of online teaching.

Educating the next generation of lawyers is our top priority. Faculty members are committed to supporting students in their academic, professional, and personal development. Our campus design ensures faculty accessibility and active engagement in law school life. We work collaboratively to provide innovative legal education, incorporating skill-based and experiential learning and best practices from academic and bar success. We seek candidates who share this ethos and are excited to contribute.

Candidates must have a J.D. or equivalent…

Hiring Announcement: Emory University School of Law

Robert T. Thompson Professorship in Business Law

Emory University School of Law seeks applications from outstanding tenured scholars for the Robert T. Thompson Professorship in Law. This professorship recognizes outstanding achievement in scholarship and teaching in disciplines related to business law, including mergers & acquisitions, securities regulation, corporate finance, and other related business law fields.  Candidates should have exceptional records in research, teaching, and service and have attained a J.D., Ph.D., or equivalent degree. Candidates should currently hold a tenured academic appointment and should be eligible for appointment as a full professor at Emory. 

Candidates must complete the online application which requires creating an account, uploading a resume or CV, and providing basic demographic information. In addition, applicants should submit a cover letter, a current CV, a published or unpublished academic article, a brief research agenda, and an indication of teaching interests (if not listed on the CV) to the chair of the Appointments Committee: Professor Joanna Shepherd, at law.faculty.appointments@emory.edu. Applications will be considered on a rolling basis. 

Description

The Washington and Lee University School of Law warmly invites applications for up to two tenure-track or tenured faculty positions that will begin on July 1, 2025. We are excited to advance our trajectory of outstanding scholarship and teaching with these new hires. A central aspect of the mission of our Law School is to promote a diverse, equitable, and collaborative intellectual community. To do so, we continually strive to foster an inclusive campus community that recognizes the value of all persons regardless of identity. In keeping with the University’s Strategic Plan, we welcome applications from candidates belonging to communities traditionally underrepresented in the legal academy.

Qualifications

A J.D. from an ABA-accredited law school or equivalent is required. We particularly encourage applications from entry-level and junior lateral candidates (either pre-tenure or recently tenured) to join our faculty at the Assistant or Associate Professor level, but we welcome applications from candidates at all levels of experience. Candidates should have a distinguished record of scholarly achievement or demonstrated potential for high scholarly achievement, effective teaching, active service, and a record of inclusion. Our search will focus on applicants whose research and teaching interests include corporate and business law (including commercial law)…

In 1995, Congress passed the Private Securities Litigation Reform Act (PSLRA), which dramatically heightened the pleading burden for plaintiffs bringing securities fraud cases.  At the same time, the PSLRA also instituted a mandatory stay on discovery until resolution of any motions to dismiss, which means plaintiffs have to use their own investigation – relying on public information, confidential sources, and the like – to draft a complaint that is sufficiently particular to satisfy PSLRA standards.

In 2002, Steve Bainbridge and Mitu Gulati published How Do Judges Maximize? (The Same Way Everybody Else Does – Boundedly): Rules of Thumb in Securities Fraud Opinions.  The paper explained that, given the high pleading standards of the PSLRA, judges deciding motions to dismiss lighten the workload by coming up with various rules of thumb for determining whether a complaint pleads materiality or scienter.  For example, they identified the puffery doctrine (presuming that investors treat vague statements of optimism as immaterial), the bespeaks caution doctrine (predictions of the future are immaterial if they are caveated by warnings of future uncertainty), and fraud by hindsight (refusing to draw inferences about what the company knew at an earlier time due to negative disclosures at a later time)…

Yesterday, the Delaware Supreme Court released its decision in the Dell fee award appeal.  It’s available here.  The Dell case presents a question for blockbuster shareholder litigation–when the damages numbers in dispute grow particularly large, should courts apply a declining percentage when setting the attorneys’ fees?  (Disclosure, I joined an amicus brief on this issue at the trial level.)  The Dell plaintiffs secured a billion dollars in settlement.  Delaware’s Chancery Court opted to give the lawyers $267 million in fees.  

Ultimately, funds holding about 24% of the class objected to the fee award.  This is how the Delaware Supreme court stated their argument:

Pentwater argued that awarding a percentage of the settlement sought without considering the size of the settlement was unfair to the class. They contended that, in this case, the proposed fee was disproportionate to the value of the settlement. The objectors urged the court to apply a declining percentage to the fee award, which is similar to the approach used by federal courts in large federal securities law settlements. The declining percentage method reduces the percentage of the fee awarded to counsel as the size of the recovery increases. According to Pentwater, fee awards “are meant

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