When covid first hit and we were all in lockdown, a number of courts held proceedings virtually rather than live.  Since then, questions have been raised about how the technology should continue to be used, given that it may make courts proceedings easier for litigants and witnesses to attend, but may also make it difficult to question hostile witnesses and present documentary evidence, as Scott Dodson, Lee Rosenthal, and Christopher Dodson discuss when weighing the benefits and drawbacks of Zoom proceedings. 

There has not been a ton of empirical work on this (yet), but David Horton found that arbitrations conducted with at least one Zoom hearings resulted in worse outcomes for plaintiffs.  And Jill Gross at Pace recently posted an analysis of customer win rates in FINRA arbitration.  She found that early in the pandemic, customers who had at least one Zoom hearing fared substantially worse than customers who proceeded entirely live, though, as the pandemic wore on, the two became virtually indistinguishable.  At least one explanation might be that, over time, customers were able to choose “mixed” formats more easily, where only one or two witnesses appeared by Zoom and most were live, making the Zoom…

I’ve previously blogged about confusion regarding Section 10(b)’s requirement that a false statement be made “in connection with” a securities trade, when the speaker is a subsidiary of the securities’ issuer.  We have a new entry in the genre in In re Volkswagen AG Sec. Litig., 2023 U.S. Dist. LEXIS 43031 (E.D. Va. Mar. 14, 2023).

This case concerns Volkswagen’s stupid joke from two years ago where it announced that it was changing its name to “Voltswagen,” which roiled the stock for a couple of days until the company admitted that it was just kidding.  An equally stupid securities fraud lawsuit naturally followed, resulting in what is actually a fairly baffling dismissal.  Because whatever one thinks of the claim or its merits, the legal reasoning matters, not just for this case but for future cases. 

The setup:

Volkswagen is a German company, and its stock is not listed on a U.S. exchange.  Its “unsponsored” ADRs trade in the U.S. 

VWGoA is Volkswagen’s American subsidiary.  It is wholly owned by Volkswagen.

The original press release announcing the name change came from VWGoA and its officers, who posted it to the VWGoA website on March 29, 2021.  The press release…

This week, NYAG Letitia James filed a complaint against KuoCoin, a crypto exchange, for various violations of NY law, including running an unregistered commodities and securities exchange, and acting as an unregistered securities broker.

The allegations focus on three different crypto assets: Luna, TerraUSD, and Ether.  In particular, James claims that Ether is both a commodity and a security – the latter allegation necessary to support the claim that Kuo should have registered as a securities broker.

Now, as we all know, the SEC and the CFTC have generally taken the view that Ether is a commodity, not a security, but Ether’s shift to a proof-of-stake model has raised questions about whether Ether’s status should change under federal law.  James highlights the proof-of-stake model in her briefing in support of a petition for a permanent injunction against KuoCoin.  But more interestingly, she argues in the alternative that Ether is a security under New York State’s prehistoric Waldstein test, articulated in In re Waldstein, 160 Misc. 763 (Sup. Ct, Albany Cnty. 1936).  That test says a security is “any form of instrument used for the purpose of financing and promoting enterprises, and which is designed for investment.”

Waldstein has, according…

After VC Laster held that officers have Caremark duties, and can be the subject of derivative suits for violating them, there was a flurry of commentary to the effect that this would radically expand legal liability, open corporate officers up to a host of new lawsuits, and generally represented a bold new direction in Delaware law.  Now, of course, he’s done what was the most predictable thing in the world: He dismissed the claims on grounds of demand futility.   Which demonstrates there was nothing radical – or even particularly new – about his opinion originally.

So, the backstory:

The McDonald’s plaintiffs alleged that the directors of the company, its CEO, and its “Chief People Officer,” David Fairhurst, created and/or ignored a culture of pervasive sex discrimination and sexual harassment.  Fairhurst in particular was alleged to have done nothing about employee reports of harassment, to have tolerated a culture where employees feared reporting harassment, to have cultivated a “party atmosphere” that encouraged harassment, and ultimately to have engaged in sexual harassment himself.  Matters were so bad that there were coordinated EEOC complaints, nationwide employee walkouts, and inquiries from U.S. Senators.

On January 26, VC Laster held that if the allegations…

Quick post today to mention that I did a podcast!  Evan Epstein of UC Law San Francisco hosts a regular podcast called “Boardroom Governance” for which he’s interviewed everyone who has anything to do with corporate issues – academics, practitioners, board members, you name it.  Recently, he was kind enough to invite me for an interview.  It was a great discussion, covering everything from Twitter v. Musk (of course), to the McDonald’s decision, to Sam Bankman-Fried, to public benefit corporations, to Domino’s pizza.

You can give it a listen here (and at that link there’s a handy index, if you want to jump to particular points).

As you may be aware, a Disney shareholder, Kenneth Simeone, has filed a Section 220 action in Delaware Chancery seeking books and records pertaining to Disney’s announcement in early 2022 that it opposed Florida’s “Don’t Say Gay” law, HB 1557. 

Before the law was passed, Disney’s CEO, Robert Chapek, told employees that the company would not take a public position on the law.  That decision infuriated Disney employees, who, among other things, began staging walkouts in protest.  Ultimately, Chapek reversed course and publicly stated that Disney opposed the law.

In the wake of that announcement, Governor Ron DeSantis and the Florida legislature voted to dissolve Disney’s self-governed Reedy Creek Improvement District, although they later walked back their actions by maintaining the district but transferring control to Florida political appointees.  Chapek was fired by the board (likely for a host of reasons), and former CEO Robert Iger was restored to his old role.

Anyway, Simeone claims that he has a credible basis to suspect that Disney’s public opposition to the law was the result of mismanagement and breach of fiduciary duty.  In particular, he claims that Disney’s officers and directors may have put their personal political preferences…

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…