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Ann Lipton

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Ann M. Lipton is a Professor of Law and Laurence W. DeMuth Chair of Business Law at the University of Colorado Law School.  An experienced securities and corporate litigator who has handled class actions involving some of the world’s largest companies, she joined the Tulane Law faculty in 2015 after two years as a visiting assistant professor at Duke University School of Law.

As a scholar, Lipton explores corporate governance, the relationships between corporations and investors, and the role of corporations in society.  Read more.

Back in July, I blogged about the unprecedented dispute between Ben & Jerry’s and its sole shareholder, Unilever, regarding the sale of Ben & Jerry’s products in Israeli-occupied territories.  When Ben & Jerry’s was sold to Unilever, Unilever entered into a shareholders’ agreement with Ben & Jerry’s, whereby it promised that the board of directors would be largely self-perpetuating (i.e., continuing directors would nominate their successors), and the board would have authority to maintain the company’s social mission.  Unilever, via its CEO selection, would have authority over financial and operational decisions.  When the Ben & Jerry’s board objected to selling the company’s products in the West Bank, Unilever decided to transfer the entire West Bank business to an Israeli operator, bringing their spheres of authority into conflict: was this a social decision, or an operational one?  Ben & Jerry’s, under the direction of the board, sought a preliminary injunction to stop the transfer, arguing that it was the former; Unilever opposed on the grounds that it was the latter.

In my earlier blog post, I wrote about the unusual nature of the arrangement and the ambiguity surrounding the real parties in interest.  That ambiguity was not directly at issue…

I’ll admit it – I frequently choose blog post topics based on what I can write quickly, and since obviously I’ve been following the Twitter case closely, that’s the topic for today.

This post is really meant as an explainer of the legal state of play; lawyers who have been following closely probably already know most of this, but for anyone else, this is for you.

It’ll be really, really long, so I cut

A while back, when the Twitter/Musk mishegoss was just gearing up, there was a whole political aspect to the thing whereby conservatives accused Twitter’s board of intentionally stonewalling Musk’s takeover bid in order to advance their liberal commitments.  At the time, I said that it was comforting to know that whatever legal battles resulted, they would be decided by the relatively neutral principles extant in Delaware law.

Which is why I was so pleased to see Is Corporate Law Nonpartisan?, by Ofer Eldar and Gabriel Rauterberg, forthcoming in the Wisconsin Law Review, pop up on SSRN.  The authors use Carney v. Adams – the case where the Supreme Court considered, but did not decide, whether Delaware’s party-balance mandate for its judiciary violates the First Amendment – as a jumping off point, and from there conclude that many states’ corporate law is shaped by their party politics.  Delaware, by contrast, has been able to compete successfully for corporate charters because of its deliberately nonpartisan approach, which assures dispersed shareholders that their interests will not be subrogated to those of concentrated local stakeholders.  They also point out that Delaware can maintain this nonpartisan commitment in part because it’s such a small…

Dear BLPB Readers:

“Creighton University School of Law seeks to hire multiple tenure-track faculty members, and invites both entry-level and lateral candidates to apply, one of which will be focused on Academic Success & Bar Exam Preparation. The Law School is particularly interested in candidates with teaching and research interests in the field of Contracts, including Business Associations and Commercial Law and in the field of Evidence, including Criminal Law and Procedure. The Law School’s current curriculum requires these courses, which are also offered during the summer due to our robust Accelerated J.D. (AJD) program. The Law School has secondary needs in Human Rights, Constitutional Law, and in multiple areas of Private International Law, Sports & Entertainment Law, ADR, and Environmental & Natural Resources Law.

Hi, so first, if you’re reading this, you probably already noticed, but for what it’s worth, it appears that email notifications of new posts have entirely stopped.  So, if you’ve been following us via email up until now, please be aware you’ll need to switch to another method – I personally use Feedly to keep track of blog updates.

With that out of the way, obviously, my specialty is corporate and securities law, and one of the odder things about this space is that while it has incredibly well-developed standards for evaluating and litigating fraud claims, those standards are very different from the standards for fraud claims in other areas of law.

I was reminded of this when I read the decision denying a motion to dismiss in Fishon v. Peloton Interactive, 2022 U.S. Dist. LEXIS 143930 (S.D.N.Y. Aug. 11, 2022).  Fishon is a consumer fraud action brought under New York law against Peloton for misrepresenting the breadth of its song catalog.  Defendants argued, among other things, that the plaintiffs could not prove they had heard any misrepresentations, and therefore they had not been injured. The court rejected that argument, holding:

a plaintiff can also plead both injury and causation

…

Tulane University Law School seeks candidates in a variety of specialties including, but not limited to, Constitutional Law; Race and The Law; Racial Justice; and Critical Race Theory, for a position with a start date of July 1, 2023.

Tulane University Law School invites applications from entry-level or pre-tenure lateral candidates for one or more tenure-track faculty positions. We welcome applications from candidates with teaching and research interests in all topics, and we particularly welcome candidates who focus on constitutional law, race and the law, racial justice, and critical race theory. We especially invite applications from candidates who will enhance the diversity of the law faculty and whose research, teaching, and service have prepared them to contribute to the strong commitments Tulane has to equity, diversity, inclusion (EDI), and anti-racism. Applications and queries should be addressed, preferably via email, to committee chair, Professor Stacy Seicshnaydre sseicshn@tulane.edu. For further information about Tulane University Law School, consult: www.law.tulane.edu. Tulane University is an Equal Employment Opportunity/Affirmative Action (EEO/AA) employer committed to a non-discriminatory, diverse work and learning environment.

Delaware recently amended its General Corporation Law to permit corporations to adopt charter provisions that would exculpate top officers, as well as directors, from damages liability associated with care violations.

The catch is, unlike with directors, officer liability can only be eliminated for direct shareholder claims – not claims brought by the corporation, including derivative claims.  In other words, the amendments aren’t there to prevent officer liability; they’re there to prevent officer liability as dictated by shareholders.  When directors decide officers should be liable – or shareholders can show directors are incapable of deciding – then officer liability may follow.

So this is a little different than the theory behind director exculpation.  Director exculpation is a protection against the threat of frivolous lawsuits, to some extent, but it also functions so directors can substantively do their jobs without fear that they will be subject to ruinous liability for well meaning mistakes.  That fear, it was posited, would deter people from wanting to be directors in the first place.

Officers, though, they aren’t exactly being protected from ruinous liability over their mistakes – the corporation/directors can still sue them for those.  Which means there’s a lot less concern that…

As the world watches this unfold, I figured I’d blog this week to make a point I’ve expressed in other spaces (Twitter, etc), but I haven’t articulated here.

Where we are in this saga:  Musk sent a letter to Twitter on July 8, publicly filed with the SEC, purporting to terminate the merger agreement due to what he claimed were three contract breaches by Twitter.  First, Twitter falsely represented the amount of spam/bots on the platform; second, Twitter failed to provide information to Musk that was necessary to consummate the transaction (i.e., information about the amount of spam on the platform); third, Twitter failed to operate in the ordinary course by instituting a hiring freeze and laying off some employees. 

Twitter filed a lawsuit against Musk on July 12 seeking specific performance, arguing that it had not breached the agreement and that Musk, himself, was in breach, by failing to use his best efforts to consummate the deal as he promised to do.  (Links to case filings, by the way, are taken from this handy archive set up by Andrew Jennings.)

Musk filed an answer with counterclaims yesterday, but it’s under seal, so we’ll have to wait for a…

A while back, I posted about the SEC’s proposal to adopt new rules on private investment funds.  Among other things, the SEC expressed concern about “side letters,” namely, tailored agreements with specific investors in particular funds, giving those investors preferential terms regarding information, redemption rights, and similar matters, as compared to other investors in the same fund.

Which is why it’s very timely that two new papers have been posted to SSRN conducting empirical analyses of what these side letters contain.

The first, Side Letter Governance, by Elisabeth de Fontenay and Yaron Nili and forthcoming in the Washington University Law Review, finds that side letters rarely offer financial preferences; instead, fund sponsors favor particular investors by other means, such as separate accounts and co-investment opportunities.  They do, however, find that side letters have become overly complex and difficult to negotiate, in part because each investor wants to make sure that it is not placed at a disadvantage relative to other investors in the fund.  They recommend, among other things, that all side letters be disclosed to other fund investors, and that certain provisions – concerning investors’ tax and regulatory concerns – be standardized across different investor types.

The…

is something I said on Twitter in connection with l’affaire de Musk. 

What I meant by that is not the specific legal rule of Revlon regarding directors’ fiduciary duties, but the orientation of Revlon, meaning, shareholder wealth maximization as the raison d’etre of corporate law, with the recognition that once a company is sold for cash, it is effectively dead, at least as far as its former investors are concerned.  It had no purpose other than as a vehicle for their wealth, and, once liquidated, that purpose is fulfilled.

Much of the commentary regarding the Twitter dispute – usually, though not always, coming from pundits outside the corporate space – is genuinely disorienting for a corporate law person, because it treats Twitter as an entity that exists as the collective sum of its stakeholder interests, rather than as an avatar for investor interests.

Which is a totally normal, human way to think about the problem from the perspective of a citizen or as a person who inhabits this planet, but is almost entirely illegible from the perspective of Delaware corporate law.

To wit:

…