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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.

At this point, it almost feels like I’ve been following the securities fraud case against Halliburton my entire career.   I was grimly amused when I heard that the Fifth Circuit had granted an interlocutory appeal – again! – to hear a challenge to class certification – again! and I diligently tracked the docket on Bloomberg, only for it to belatedly sink in that – wait a minute, I actually live in New Orleans now.  I can go see the oral argument in person, live, in color.

So I did.

It was … interesting. 

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I’ve been fascinated by the efforts of various state attorneys general to investigate Exxon for securities fraud on the ground that its climate change denial misleads investors about the risks of investing in the company.  Exxon has filed a lawsuit in Texas to halt the inquiries, arguing that they infringe on its free speech rights, and Congressman Lamar Smith, head of the House science committee, has subpoenaed the attorneys general involved, to determine if this is a coordinated political attack on the company.  The dispute has even made it into the Democratic party platform, which states that “All corporations owe it to their shareholders to fully analyze and disclose the risks they face, including climate risk. …  Democrats also respectfully request the Department of Justice to investigate allegations of corporate fraud on the part of fossil fuel companies accused of misleading shareholders and the public on the scientific reality of climate change.”

An investigation by the Virgin Islands was dropped; as far as I know, both the New York and Massachusetts investigations continue, and investigations by other states.  Exxon’s lawsuit remains pending.

It’s not a new idea, to claim that securities regulation impinges on free speech rights – the DC Circuit struck down part of the SEC’s conflict minerals rule on just that ground – but usually these arguments are aimed at rules that require issuers to speak, or prohibit issuers from making truthful statements.  The Exxon case is unusual because it comes in the context of, well, false statements.

At the same time, though, one cannot help but suspect that the real concern isn’t investors, but the nature of Exxon’s participation in public political debates.

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Upper level classes start next week, and I am scrambling to prepare.   So for my post, I’ll just drop some quick links to things I found interesting this week:

First, a nice long read for Saturday: How Lending Club’s Biggest Fanboy Uncovered Shady Loans. This is a deep dive into the story of a retail investor who dug into Lending Club’s loan data – and discovered that Lending Club was padding its loan data before the company confessed publicly.  He also seems to have discovered a pattern of repeat borrowers that the company has never disclosed.

Second, here is an editorial by a Deutsche Bank risk-officer-turned-SEC-whistleblower who says he is rejecting his reward, out of disgust that the company – and its shareholders – will be paying the fines that rightly should be charged to the company’s executives.  He blames the SEC’s “revolving door,” pointing out that top SEC lawyers had formerly been employed by Deutsche Bank (though they were recused from the investigation).  The gesture would be slightly more impressive if it didn’t turn out that most of his reward is going to his lawyers, the experts he hired, and his ex-wife as part of his…

One of the more interesting aspects of state corporate law – and Delaware law in particular – is the blurring of the line between substantive regulation and procedural regulation.  Delaware gives corporate directors a great deal of leeway ex ante to structure transactions as they see fit, but if they structure them in a way that arouses suspicions – like, for example, failing to create an independent committee to negotiate a deal with a controlling shareholder – Delaware increases judicial scrutiny of the transaction, which, in practical terms, means that when the inevitable class action is filed, the defendants cannot win a quick dismissal on the pleadings.  The “carrot” that Delaware offers directors to adopt best practices is the possibility of a quick, cheap dismissal of claims.  Delaware regulates, in part, via threats of civil procedure.

This particular mode of regulation was on full display in In re Trulia, Inc. Stockholder Litig., 129 A.3d 884 (Del. Ch. 2016).  There, Chancellor Bouchard held that Delaware would only approve disclosure-only settlements in deal class actions where the new disclosures were “plainly material.”  Note, this is not the substantive standard for disclosures – it is not the standard necessary to win at…

Do you value diversity? At California Western School of Law, we pride ourselves on the diversity of our student body.  This year, around 50% of our incoming students are from diverse cultural and ethnic backgrounds.  We are committed to having a faculty that reflects our student body and our community. 

Do you want to influence legal education at an established but innovative law school?  California Western recently celebrated its 90th anniversary – but we have never been stale or ordinary.  We were on the forefront of innovative, experiential education three decades ago.  As a result, our graduates have a reputation for being uniquely practice-ready.  California Western continues to rethink the status quo in legal education – balancing a rigorous practical education with cutting edge scholarship and community service. 

Who are you?  We are seeking candidates with an entrepreneurial spirit who are eager to put their own stamp on a law school with an expanding faculty and many growth opportunities.

What do you want to teach?  We can prioritize your teaching preferences regardless of subject matter. 

Where do you want to live?  California Western is in downtown San Diego, California, literally overlooking the Pacific Ocean.  A city of breathtaking beauty, we…

A couple of times here at BLPB, we’ve talked about whether consumers will reward companies for ethical conduct (or punish them for unethical conduct).  Marcia in particular has expressed doubts that consumers genuinely do express their preferences with their dollars.
 
Well, it’s something of a sui generis situation, but we have one new datapoint: Trump’s properties (or rather, the properties that license his name) appear to be suffering as a result of his presidential campaign.  Foursquare has the numbers, and they show, among other things, that women in particular – who dislike Trump more than men – are steering clear.  Anecdotal evidence suggests that some travel agents and meeting planners have been explicitly instructed by their clients to book anything but Trump.
 
I don’t know if there are broader lessons here, but it seems if consumers have enough political objections to a company, they will indeed vote with their feet.

For reasons that don’t need exploring at this juncture, I was in the mood to rewatch two big business movies of the 1980s: The Secret of My Success (dir. Herbert Ross, 1987) and Working Girl (dir. Mike Nichols, 1988). 

Eighties business movies are something of their own minigenre – see, e.g., Trading Places, Wall Street, and Baby Boom – but the reason Secret of My Success and Working Girl are worth comparing is that they basically tell the same story, but with the genders flipped.

Both films are about young business naïfs (Michael J. Fox and Melanie Griffith, respectively), who have jobs at the bottom of the corporate ladder (mail room, secretary).  Frustrated that their talents and skills are being overlooked, both impersonate corporate executives, colonizing vacant offices and aggressively pursuing their innovative business strategies.  There is plenty of farce as they juggle their dual identities, and both enter into conflicted romances with executives who have been taken in by the charade.  Ultimately, their identities are revealed but their talents recognized, and they are rewarded with the jobs (and love interests) they deserve.

But despite the nearly mirror-image plots, the two could not be more different in social…

It looks like the Fifth Circuit is becoming increasingly isolated.

After the Supreme Court decided Dura Pharmaceuticals, Inc. v. Broudo, 544 US 336 (2005), a circuit split developed as to how plaintiffs can satisfy the element of loss causation in a Section 10(b) action.

All circuits agree that loss causation can be shown via “corrective disclosures” – some kind of explicit communication to the market that prior statements were false, followed by a drop in stock price.

However, as I’ve discussed before, there has been an alternative theory that plaintiffs can use to show loss causation, even without an explicit corrective disclosure.  The theory is usually described as “materialization of the risk.” It requires the plaintiff to show that the fraud concealed some condition or problem that, when revealed to the market, caused the stock price to drop, even if the market was not made aware that the losses were due to fraud.  For example, a company may report a slowdown in sales, causing its stock price to fall, while concealing the fact that the slowdown was due to an earlier period of channel stuffing.  By the time the channel stuffing is revealed, it may communicate no new…

You may have seen the news that Gretchen Carlson, a former Fox News anchor, is suing Roger Ailes, the Fox News Chair and CEO, for sexual harassment and retaliation.   One of the interesting things about the case is that – like a lot of people – Carlson has an arbitration clause in her contract requiring her to arbitrate all claims arising out of her employment

So how is she able to bring this case?

Well, Carlson is suing Ailes personally – not Fox News.  Her argument is that her arbitration agreement is with Fox News alone; Ailes is not a signatory to the agreement, and cannot benefit from it.

I first have to note that this argument is only available to Carlson at all because Ailes is wealthy, and (I assume) covered by insurance; most employees in similar situations don’t have the option of suing only their harasser (rather than their employer), because most individual harassers are likely to be judgment proof.

Beyond that, is Carlson right?  Is this a way around her arbitration agreement?

Well, according to Richard Frankel, there is a split of authority as to whether arbitration agreements to extend to agents of the signatories…

Speaking of tactics that managers use thwart shareholder activists –

Sean Griffith and Natalia Reisel have posted a new paper to SSRN, Dead Hand Proxy Puts, Hedge Fund Activism, and the Cost of Capital, analyzing the effects of dead hand proxy puts.  These are loan covenants that allow the lender to require complete loan repayment in the event of a change of control that results from an actual or threatened proxy contest, and that cannot be waived by the borrower – i.e., the incumbent directors cannot settle with the dissident, give their blessing to the new directors, and thereby avoid the provisions (the “dead hand”).

Now my instinct on these provisions has always been that they improperly interfere with shareholder suffrage by insulating the incumbent board from the market for corporate control.  I wondered whether these provisions were in fact valued by lenders, or whether they were inserted at the behest of management to protect themselves from challenge, with lender acquiescence/indifference.

But the authors find that these provisions do, in fact, have value to lenders – and thus to corporations.  They are more likely to be adopted by firms that are potential targets of shareholder activists (unsurprising), and, critically…