Okay, fine, that’s not what the Second Circuit formally held, but to be honest, I can’t read this decision any other way.

I’ve blogged about this issue before here, here, and here.  Basically, the situation is this:  In the class action context, there is frequently an issue as to whether the named plaintiff’s own individual claims against the defendant are sufficiently similar to the claims of the rest of the class so as to allow the named plaintiff to sue in a representative capacity.  Historically, these issues have been resolved via Rule 23 of the Federal Rules of Civil Procedure, which, among other things, requires a court to decide whether there is “commonality” among the class members, whether the common issues predominate over the individual ones, whether the named plaintiffs’ claims are typical of those of absent class members, and whether the named plaintiff will serve as an adequate representative for the absent class members.  Rule 23, of course, is only invoked after there has been substantial discovery, and certification determinations under Rule 23 frequently include expert analysis.

In the wake of the mortgage crisis, more and more courts began making these determinations on the pleadings, framing the question not in terms of class certification, but in terms of whether the named plaintiff has “standing” to bring claims on behalf of absent parties, as I discussed in more detail here.  The issue has basically been that if an investment bank underwrites multiple RMBS offerings, and I buy an RMBS issued by a particular trust backed by a particular pool of mortgages, how can a court be certain that my claims are similar enough to purchasers of different RMBS issued by a different trust, backed by different mortgages, such that I should be permitted to represent those purchasers in a securities class action against the underwriter? 

Courts have been unwilling to go the traditional route and wait until a class certification hearing to make this decision; instead, they have been seeking to limit a named plaintiff’s ability to represent absent RMBS purchasers.  They have been fundamentally troubled by the idea that a purchaser of one RMBS could represent all purchasers not only of that RMBS, but of multiple other RMBS, with face values totaling in the billions of dollars.  Courts have come up with a variety of bright-line rules limiting how the class can be defined, at the pleading stage – for example, some courts have held that plaintiffs may only represent purchasers of RMBS from the same trust; others have held that plaintiffs may only represent purchasers of RMBS from the same tranche within a trust.

That orientation has spread to other kinds of claims – similar disputes have arisen in the context of false advertising, for example, where a single misrepresentation is alleged to have been plastered across multiple similar products.  (Say, a false representation that ice cream flavors are “natural,” appearing on chocolate, vanilla, and strawberry – is it necessary that the plaintiff have purchased neapolitan in order to represent absent purchasers of all three flavors?).

[More under the jump]

That markets are less than perfectly efficient is hardly a controversial proposition; indeed, several examples of notable market efficiencies were presented to the Supreme Court this past Term when it considered the continuing vitality to the fraud-on-the-market challenge in Halliburton.  Many of those examples, however, are several years old – which is why it was so amusing for me to see two new instances of dramatic inefficiencies just in the last month.

First, the New York Times published a piece, How Our Taxi Article Happened to Undercut the Efficient Market Hypothesis, explaining how publication of an article on falling medallion prices sent the stock price of Medallion Financial – a company that issues loans secured by taxi medallions – tumbling.  This was surprising because information about taxi medallion prices is public, so the stock should not have been reacted to the news.  Josh Barro, author of both pieces, speculates that the price drop may have occurred because some of the information in his article may have been difficult for investors to obtain, particularly since false information regarding medallion prices had been (inadvertently) circulated by the New York Taxi and Limousine Commission.

(Which, by the way, suggests that courts…

Joshua Fershee has previously noted that men and women experience careers in business differently.  If women want to get to the top, they often have a longer haul than men.

Previous research has also shown that women are evaluated negatively for seeking raises (an attitude that Microsoft’s CEO inadvertently seemed to endorse) and that (at least in the tech industry) performance reviews of women tend to be more critical than those of men, and include more personality-based criticism.

Now a new study in the Harvard Business Review shows that men and women have very different expectations regarding how they balance their careers and their personal lives when they graduate from Harvard Business School – and men’s expectations are more accurate than women’s.

According to the study, in general, men who graduate from HBS expect their careers will take precedence over their spouses’ careers – and they turn out to be right.  Women expect that their careers will have equal importance – and their hopes are dashed.  (It should be noted that men’s responses differ along racial lines; men of color tend to expect a more equal division of career precedence). 

The authors conclude:

Whatever the explanation, this disconnect

…

Professor Lucian Bebchuk runs the Harvard Shareholder Rights Project, which helps investors filed proposals to be included in corporate proxies under Rule 14a-8.  The Project has filed several precatory proposals to express shareholders’ views that corporations should destagger their boards, arguing that research demonstrates that declassified boards improve corporate returns.

In a new paper posted to SSRN, SEC Commissioner Daniel Gallagher and Professor Joseph Grundfest accuse the Project of making misleading statements regarding the benefits of declassified boards.  They suggest that Harvard could be vulnerable to lawsuits by shareholders or the SEC under Rule 14a-9, which forbids false statements in proxy solicitations.  The paper, with the provocative title “Did Harvard Violate Federal Securities Law?” is discussed in the Wall Street Journal here.

The basic argument made by Gallagher and Grundfest is that the proposals misleadingly cite only research in favor of declassified boards, and fail to cite contradictory research. 

Now, I have to say, I’m trying to evaluate how this claim would proceed if brought by a private shareholder, and I don’t like its chances.  First, as Gallagher and Grundfest admit, the proposals are precatory – so even if they succeed, they only have an effect if the…

Particularly in the context of benefit corporations, a lot of us have used this space to talk about whether corporate directors are in fact required to adhere to a shareholder-wealth-maximization norm.  The flipside of this inquiry is to ask what shareholder wealth maximization means from the shareholders’ viewpoint.

In his article Fictional Shareholders: For Whom are Corporate Managers Trustees, Revisited, Daniel Greenwood uses the term “fictional shareholders” to describe the mythical share-value-maximizing shareholder to whom corporate directors are theoretically beholden, who does not possess any interests, values, or priorities beyond shareholder wealth maximization.

One of the most striking examples of the “fictional shareholder” notion can be found in the D.C. Circuit’s opinion in Business Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011), where the court rejected the SEC’s proxy access rule in part on the ground that some shareholders might put forth director-nominees for the “wrong” reasons – i.e., reasons specific to their idiosyncratic interests outside of their status as shareholders, unrelated to corporate wealth maximization.  See generally Grant M. Hayden and Matthew T. Bodie, The Bizarre Law and Economics of Business Roundtable v. SEC.

Of course, in real life, shareholders do in fact have interests…

When commenters look back at the financial crisis, many blame the ratings agencies, at least in part – and in particular, the dominance of a small number of firms (Moody’s, S&P, and – distantly – Fitch).  This is why, for example, the SEC has been criticized for erecting barriers that prevent other agencies from earning the coveted NRSRO label. 

Which is why I found this story regarding an apparent effort by Moody’s to eliminate a competitor so fascinating.  According to the WSJ:

Moody’s Corp. doesn’t often give away its thoughts free of charge.

But the ratings firm made an exception recently, issuing an unsolicited credit rating to National Penn Bancshares Inc., a small community bank it had never assessed before.

Moody’s grade was lower than one issued just weeks earlier by Kroll Bond Rating Agency Inc., which the bank had hired to rate a new bond.

Kroll contends Moody’s deliberately lowballed its rating—a move that could have ripple effects through the market for National Penn’s bonds—to scare other small banks into hiring it for future deals.

“It seems this was nothing less than intimidation,” said Kroll President Jim Nadler. “Investors and issuers are worried that Moody’s, if it’s not

…

I have something of a follow-up to Haskell’s earlier post. 

While companies like Wal-Mart will be open on Thanksgiving – a decision that has garnered no small amount of public criticism– others have conspicuously declared that they will be closed, in order to allow their employees to spend time with their families.

Now, you can call this a sincere commitment to employees’ well-being if you like, but my cynical brain views this as a standard share value-maximizing decision – whether management has decided that adverse publicity would harm the brand, or that employees who get holidays off are less likely to agitate for higher wages, or that regulators are less likely to step in if the business makes some minimal concessions to employee welfare, it’s still a decision that’s about benefitting the bottom line.  If nothing else, it can be cast that way – which is precisely why, precisely as has been frequently argued on this blog, it’s difficult to understand why the separate concept of a benefit corporation is necessary, except to the extent it represents the ultimate in marketing commitment.  Or maybe some corporate directors just don’t want to have to come up with…