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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.

The Supreme Court just agreed to hear Emulex Corp. v. Varjabedian, which presents something of a puzzle for merger law and policy.

In brief, Emulex agreed to be acquired by Avago in a friendly tender offer under DGCL 251(h).  When Emulex issued its Schedule 14D-9 recommending that shareholders tender their shares, it failed to mention that its bankers found the premium was on the low side as compared to similar deals.  The plaintiffs sued, alleging that the omission rendered Emulex’s recommendations misleading in violation of Exchange Act Section 14(e), which prohibits false statements in connection with tender offers.  In the courts below, the defendants argued, among other things, that the plaintiffs failed to plead that any misleading statements were made with scienter.  On appeal, the Ninth Circuit broke with other circuits and held that scienter is not a required element of a Section 14(e) violation. 

When the defendants petitioned for certiorari, here’s how they phrased the Question Presented:

Whether the Ninth Circuit correctly held, in express disagreement with five other courts of appeals, that Section 14(e) of the Securities Exchange Act of 1934 supports an inferred private right of action based on a negligent misstatement or omission made

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Chief Justice Leo Strine of the Delaware Supreme Court just posted a fascinating article/speech to SSRN, which was apparently delivered to the Institute for Corporate Governance & Finance in November.

The subject of the speech is the fiduciary obligation that mutual funds owe fund beneficiaries when voting their shares, and in particular, the funds’ failure – in Strine’s view – to adequately police portfolio companies’ political spending.

The general thesis is that investors in mutual funds benefit most when the economy does well by generating long-term, sustainable jobs, and he lauds the current trend of mutual funds’ willingness to second-guess corporate managers and vote for measures that promote long-term sustainability, including their increasing willingness to back shareholder-sponsored proposals on ESG measures.  As he puts it:

[I]nstitutional investors are not just getting involved in boardroom battles.  … [S]ome prominent mutual funds have now expressed the view that their portfolio companies should act with sufficient regard for the law and general social responsibility. That is, in the area of corporate social responsibility, the largest institutional investors seem to be evolving in a positive direction.

He laments, however, that funds’ willingness to buck management appears to stop when it comes to political…

Law and Entrepreneurship Association – Call for Papers

 

The 13th annual meeting of the Law and Entrepreneurship Association (LEA) will be held on April 5, 2019 at Boston College Law School.

 

The LEA is a group of legal scholars interested in the topic of entrepreneurship—broadly construed. Scholars include those who write about corporate law and finance, securities, intellectual property, labor and employment law, tax, and other fields related to entrepreneurship and innovation policy. Our annual meeting is an intimate gathering where each participant is expected to read and actively engage with all papers under discussion.

The theme for the meeting will be Unicorns and the Law. We seek papers addressing issues raised by the growing number of highly-valued private companies that are delaying IPOs.  One or more panels will be organized around this theme. Possible topics include disclosure requirements, unicorn valuation, regulation of private trading markets, the role of sovereign wealth funds and mutual funds as unicorn investors and governance issues including dual class capitalization, fraud, employee protection, employment discrimination, and compliance with law. We also welcome papers on other topics relevant to entrepreneurship. 

Proposals should be comprehensive enough to allow the LEA board to evaluate the

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If you read this blog regularly, you know that one of my pet issues has been litigation limits in corporate charters and bylaws (examples here, here, and here).

The holy grail, for those who are in favor of these things, has been to insert clauses in corporate governance documents that would require all securities claims to be arbitrated on an individualized basis.  The expectation has been that, given the Supreme Court’s recent jurisprudence, such provisions would pass muster under federal law.

In 2015, Delaware amended the DGCL to prohibit the insertion of arbitration clauses in corporate governance documents.  But that statute explicitly applies only to “internal corporate claims,” Del. Code tit. 8, § 115, leaving open the possibility that it would not prohibit arbitration clauses that only govern federal securities claims.

One of the main stumbling blocks to that maneuver has been the SEC’s resistance – a resistance that recently has been crumbling.

The other stumbling block has been the possibility – which I’ve discussed repeatedly in blog posts, a law review article, and a book chapter (abstract only on SSRN; you have to buy the book for the rest!) – is that…

Shop(Photo from Sharing Christmas)

‘Tis the season when people binge on those made for television holiday romance movies – mostly associated with the Hallmark Channel but, to be fair, there are plenty on Lifetime as well.

What strikes me about the genre is how business-centric it seems to be.  Though there are other types of plots (riffs on Cinderella/Roman Holiday/Sound of Music are always popular), a fairly common storyline is that there is some business that revolves around Christmas and is enjoyable for the townsfolk but relatively unprofitable.  The characters have to find a way to make the business viable without turning it over to a soulless corporate operator who will lay everyone off and destroy its essential character.  Typically, this involves teaching someone the true meaning of Christmas and the special value added to a company by longtime employees who put their hearts into their work.

It’s not that this is new, exactly; Christmas stories about profit-motive versus philanthropy trace back at least as far as Miracle on 34th Street (if not A Christmas Carol).  But viewed through a business lens, Miracle on 34th Street is a tale of shareholder primacy.  Of course, Santa didn’t…

I posted about Lorenzo v. Securities & Exchange Commission when the SEC first granted certioriari; you can read my long thoughts about it here.  Now that the Court held oral argument, I’ll offer my quick comments (and I’ll probably say still more when the decision comes down; this is a bountiful source of blogging material).

Picking up where I left off in my earlier post (I’ll assume you’ve either read that or are otherwise familiar with the issues in this case):

Lorenzo poses a quandary because the Supreme Court backed itself into a corner in Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011).  There, the Court narrowly construed what it means to “make” a statement for the purposes of Rule 10b-5(b), but then went further and suggested – via its invocation of Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164 (1994) – that a wide range deceptive conduct falling outside of that definition not only would not involve making statements, but also would not be prohibited by Section 10(b) at all.

All of which has come back to bite the Court in Lorenzo.  There, Lorenzo – acting…

Palantir

On Wednesday, I had the great pleasure of delivering an address at the North American Securities Administrators Association’s annual training conference for its corporate finance division.  I spoke about equity compensation for employees in private companies (you may recall that Joan linked to Anat Alon-Beck’s paper on that subject a couple of weeks ago).  Equity compensation to employees is exempt from federal registration under Rule 701 – and the SEC is currently deciding whether to broaden that exemption – but is still subject to state regulation.  Most states, however, simply follow the federal rules.  The purpose of my talk was to discuss some of the risks posed to employee-investors when companies stay private for prolonged periods, and to suggest that state securities regulators may want to consider if there is a need for additional oversight.

Under the cut, I offer the (massively) abridged (but still probably too long) version of my remarks.  For those interested in further reading on the subject, in addition to Anat’s paper highlighted by Joan, I recommend Abraham Cable’s excellent breakdown of the issues in Fool’s Gold? Equity Compensation and the Mature Startup.

[More under the jump]

Last week, I posted about the SEC’s Proxy Roundtable, and in particular, the panel regarding proxy advisors.

As I mentioned at the time, one of the big issuer complaints about proxy advisors is that their recommendations may be erroneous – though of course, the definition of “error” is somewhat expansive and may include differences of interpretation.  Issuer advocates have long sought some regulatory/statutory ability to review and, if possible, force revisions to proxy advisor reports before they are published, a proposal that – as I previously noted – apparently has found some sympathy with at least Commissioner Roisman.

From my perspective, though, the most interesting aspect to all of this is that if proxy advisors do, in fact, include false statements (however defined) in their recommendations, it is not entirely clear whether and to what extent they are subject to federal sanction.

The most obvious place to begin is Rule 14a-9, which prohibits false or misleading statements in proxy solicitations, and has generally been interpreted to apply to negligent, as well as intentional, false statements.

The problem here is that it is not entirely clear that the voting recommendations of proxy advisors are proxy solicitations.  Glass Lewis, in its…

The SEC held its Roundtable on the Proxy Process on Thursday, and I was able to watch the live webcast of the last panel on proxy advisory firms.  (In a prior post, I discussed how, in advance of the Roundtable, the SEC withdrew two no-action letters that facilitated investment advisors’ reliance on proxy advisory services.) 

One thing I’ll note about the Roundtable is that it felt a lot like oral argument in an appellate court, in that everyone had fun expounding their positions but it’s not where the real policymaking gets done; that’s going to take place in back offices based on private meetings and written submissions, not in a public theater.

Still, I was interested in what everyone had to say.  The webcast just went online here, but I’ll offer a summary of what stood out to me. 

(More under the jump)

Jonathan Macey and Joshua Mitts have just posted an intriguing new article, Asking the Right Question: The Statutory Right of Appraisal and Efficient Markets, regarding calculation of value for the purposes of an appraisal action.

As I’ve posted about previously (here and here), Delaware is in the midst of a judicial reinterpretation of its appraisal statute, placing new emphasis on market pricing for determining the value of publicly traded stock.  Currently, one open question is whether “market” pricing refers to the deal price, assuming the process was relatively clean, or the unaffected trading price of the stock. 

Macey & Mitts begin by agreeing with VC Laster’s opinion in Verition Partners Master Fund, Ltd., et al. v. Aruba Networks, Inc., that valuation should be based on the trading price, and not the deal price, and their discussion after is where things get interesting.

First, they point out that apparently, Delaware courts only will consider trading price relevant to an appraisal action if price is efficient.  But they argue that even prices of stock that trades inefficiently would serve as a better indicator of value than more traditional calculations like discounted cash flow, in part because there are…