Margaret Blair just posted a new paper to SSRN, How Trustees of Dartmouth College v. Woodward Clarified Corporate Law.  It’s a fun historical piece on how Trustees of Dartmouth College v. Woodward enshrined the concession theory of the corporation into law.  She argues that although the case is often cited for the contractual theory of the corporation, it also stands for the proposition that corporations result from state-conferred privileges.  She traces the history of business organizations in the United States in order to demonstrate that critical features of the corporate form – separate personhood, asset partitioning, limited liability – were not replicable absent official state recognition, leading up to Dartmouth College’s famous pronouncement that “A corporation is an artificial being, invisible, intangible, and existing only in contemplation of the law. Being the mere creature of the law, it possesses only those properties which the charter of its creation confers upon it either expressly or as incidental to its very existence.”  The notion of a corporation as the product of state privilege was also articulated by Justice Washington in his concurrence, where he wrote, “A corporation is defined by Mr. Justice Blackstone to be a franchise….It amounts to an…

Last year, I blogged about the Boeing decision in the Northern District of Illinois.  In sum, a district court ruled that Boeing’s forum selection bylaw – requiring that all derivative actions be filed in Delaware Chancery – applied even to federal securities claims brought under Section 14(a) of the Exchange Act.  That matters because Delaware Chancery has no jurisdiction to hear Section 14(a) claims; dismissal in favor of the Delaware forum, as a practical matter, was a holding that the forum selection bylaw defeated plaintiffs’ ability to bring derivative Section 14(a) claims at all. Which would seem to be in tension with the anti-waiver provisions of the Exchange Act, which voids “[a]ny condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this title.” 15 U.S.C. § 78cc(a).

The Boeing plaintiffs have appealed to the Seventh Circuit and while we all await the outcome of that case, another court has just reached a similar result – this time, a magistrate decision in Lee v. Fisher, N.D. Cal., No. 3:20-cv-06163.  Section 14(a) claims were brought derivatively against The Gap and, just as in Boeing, the court dismissed the claims due…

I previously blogged about benefit corporations going public, with my main point being that the legal requirements in the benefit corporation statute are so weak that they do not, as a practical matter, bind companies to adhere to their social purpose.  As a result, publicly traded benefit corporations are vulnerable to market pressures to favor shareholders over other stakeholders.  The newly-public benefit corporations have therefore chosen to adopt more mundane devices to insulate them from the market for corporate control – high inside ownership, staggered boards, etc – to stay on mission.  The drawback, however, is the same as exists for all antitakeover devices: managers may use their power to advance social purposes, but they may also use it to seek personal rents.

Anyway, I mention all of this because I noticed that another company recently went public as a benefit corporation, namely, Coursera, a provider of online education.  Coursera is in some ways following the path charted by Laureate Education, which is a for-profit university system that is also organized as a benefit corporation.  Both are also certified B-Corps (which provides a bit more reassurance of staying on mission; B-Corp status does not impose legal obligations but…

The Eastern District of Pennsylvania recently issued a lengthy opinion, largely refusing to dismiss a Section 10(b) complaint alleging that Energy Transfer LP made a series of misstatements about certain pipelines that were under construction.  See Allegheny County Employees’ Ret. Sys. v. Energy Transfer LP, 2021 WL 1264027 (E.D. Pa. Apr. 6, 2021). There’s probably a lot worth examining here but I’m actually just going to use it as a jumping off point to talk about the PSLRA safe harbor.

The safe harbor insulates forward-looking statements from private securities fraud liability if:

(A) the forward-looking statement is—

(i) identified as a forward-looking statement, and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement; or…

(B) the plaintiff fails to prove that the forward-looking statement–

(i) if made by a natural person, was made with actual knowledge by that person that the statement was false or misleading; …

(2) Oral forward-looking statements

In the case of an oral forward-looking statement …the requirement set forth in paragraph (1)(A) shall be deemed to be satisfied–

(A) if the oral forward-looking statement is accompanied by a cautionary statement—

…(ii)

…

When Goldman Sachs petitioned the Supreme Court to grant certiorari from the Second Circuit’s affirmance of a class certification grant, it described the case as having “enormous legal and practical importance,” and later reiterated that it would be “hard to overstate the legal and practical importance of this case.”

By the time we got to oral argument, though … not so much.

I blogged about Goldman Sachs v. Arkansas Teacher Retirement System when it was before the Second Circuit (see here and here), but I only minimally discussed the Supreme Court iteration, in part because I couldn’t figure out what the legal issue was, other than that Goldman thought Amgen Inc. v. Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455 (2013) was wrongly decided.

Well, that was my mistake, because it’s clear now that in fact, Goldman does not think that Amgen was wrongly decided, and the legal issue is that it doesn’t like the fact that it lost in the Second Circuit Court of Appeals.

That was evident in the briefing, in which it invited the Supreme Court to review the expert evidence submitted to the district court and reweigh it in its favor. (Seriously.…

This week, I offer brief comments on a couple of different things:

1.  I’ve previously blogged about courts that stretch the definition of “forward-looking statement” in order to preclude defendants from claiming the protections of the PSLRA safe harbor.  But probably the more common scenario runs in the other direction.  Behold Police and Fire Retirement System of Detroit v. Axogen, 2021 WL 1060182 (M.D. Fla. Mar. 19, 2021), where the plaintiffs alleged that Axogen claimed that the potential demand for its medical products was very large because of the sheer number of nerve repair surgeries performed every year in the U.S.  As it turned out, far fewer surgeries were performed annually; in effect, the plaintiffs argued that Axogen overstated the size of its market.  Here’s what the court said in its dismissal order:

Plaintiff … [focuses] in particular on statements made in Axogen’s offering materials and elsewhere that a certain number of people in the United States “each year…suffer”  traumatic PNI [peripheral nerve injuries], which “result in over 700,000 extremity nerve repair procedures,” and that “[t]here are more than 900,000 nerve repair surgeries annually in the U.S.”  Plaintiff argues these statements refer to “present existing

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A speculative frenzy appears to have taken hold of markets, extending to everything from GameStop shares to sports cards and anything blockchain (again).  Caught up in the mania are SPACs – specifically the blank-check firms trading before an acquisition target has been identified.

The difficulty, as the Financial Times recently reported, is that retail shareholders caught up in the SPAC craze aren’t necessarily interested in voting their shares when it comes time to consummate a merger.  Worse, a large number of them may have sold their shares after the record date, leaving no one to actually cast the ballot.

Which is why Switchback Energy Acquisition Corporation recently issued the most extraordinary press release:

• Stockholders as of the Close of Business on December 16, 2020 Should Vote Their Shares Even if They No Longer Own Them

…

Switchback Energy Acquisition Corporation (NYSE: SBE) (“Switchback”) today announced that it convened and then adjourned, without conducting any other business, its virtual Special Meeting of Stockholders to February 25, 2021 at 10:00 a.m., Eastern time (the “Special Meeting”), to allow for more time for stockholders to vote their shares to reach the required quorum and approve the required proposals….

Switchback has

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