Since I suspect there is something of an obligation for all corporate law bloggers to weigh in on Hobby Lobby, I offer my thoughts. I admit to some trepidation posting them because (and I blush to confess it) I haven’t been as immersed in the case as most other corporate professors have, so I feel like a bit of an outsider to the debate. So, take these thoughts as coming from someone whose knowledge of the case comes chiefly from, well, the Supreme Court’s opinion.
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So, Halliburton Co. v. Erica P. John Fund, Inc. (2014) (“Halliburton II”) came down, and to call it a change in the law is too generous – at best, it might qualify as a “clarification.” After all of the angst over the possibility that the Court might give plaintiffs the burden of proving the price impact of a particular misstatement, the Court soundly rejected that argument, reaffirmed Basic, Inc. v. Levinson (1988), and instead merely allowed defendants to rebut the fraud on the market presumption. Because demonstrating a lack of price impact is as difficult as showing price impact in the first place, I don’t expect Halliburton II to change much in existing law – if anything, some of the rhetoric may make matters easier for plaintiffs.
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Professor Urska Velikonja has just published a new article arguing that the trend toward corporate boards with a “supermajority” – not merely a majority – of independent directors is part of a strategy by large institutional investors and corporate managers to fend off more substantive forms of corporate regulation that would reduce shareholder wealth. Her thesis is that when corporations engage in risky and illegal behavior, they – and their shareholders – capture gains while externalizing losses; thus, large shareholders and managers have an interest in staving off real regulation. The easiest way to do that is by advocating for greater board independence – it’s functionally a call for self-regulation.
I think the thesis has an intuitive appeal – similar to, for example, The Failure of Mandated Disclosure, which, as Steven Bradford pointed out, argues that we too often default to additional and wasteful disclosures as a substitute for substantive regulation (see also Joan Heminway’s post on disclosure creep).
In the case of Professor Velikonja’s argument, though, I think the picture is slightly more complicated. Many institutional investors are employee or union pension funds – in other words, their beneficiaries are exactly the third parties to whom corporate misbehavior is
Via the 10-5 Daily, I learned of the case In re Maxwell Technologies, Inc. Sec. Litig., 2014 WL 1796694 (S.D. Cal. May 5, 2014), which dismissed the plaintiffs’ securities fraud claims for failure to plead scienter. The case interests me, because I have actually just written a paper on this very subject, forthcoming in the Washington University Law Review (in April 2015 – it’ll be a while!)
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On Thursday, the First Circuit handed down its opinion in In re Genzyme Corp. Securities Litigation(.pdf), affirming the dismissal of the complaint. The decision highlights an issue that’s particularly important in securities cases – although, full disclosure, I was very involved with the Genzyme case on the plaintiffs’ side before I left practice to teach, so I’m not an unbiased observer. Take that as you will.
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A couple of weeks ago, I posted about the Delaware Supreme Court’s recent decision in ATP Tour, Inc., et al. v. Deutscher Tennis Bund, et al., which held that nonstock corporations may adopt bylaws that require unsuccessful plaintiffs engaged in intracorporate litigation to pay the defense’s attorneys fees. Though the decision did not technically apply to stock corporations, nothing in the decision suggested the analysis for stock corporations would be any different.
The decision prompted an immediate, somewhat panicked response from the Delaware plaintiffs’ bar, while some defense attorneys counseled their clients to adopt such bylaws to discourage merger litigation.
Though, as the previous link shows, Steven Davidoff, at least, is skeptical that these provisions would become popular with publicly traded corporations, there has been a quick push to have the Delaware legislature amend the DGCL to overrule ATP. The Delaware Corporation Law Council has proposed new legislation that will be considered by the Delaware legislature by June 30.
Following up on Steven Bradford’s post regarding the Fourth Circuit’s interpretation of Janus Capital Group v. First Derivative Traders (2011):
The SEC recently announced that it intends to pursue more cases under Section 20(b) of the Exchange Act, which prohibits people from violating the Exchange Act “through or by means of any other person.” I suspect this move will have serious implications for private cases under Section 10(b).
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Reuven S. Avi-Yonah recently posted Just Say No: Corporate Taxation and Corporate Social Responsibility.
He poses the question whether corporations are obligated to engage in strategic transactions solely for the purpose of avoiding taxes. His conclusion is basically that under any theory of the firm – aggregate, real entity, or artificial entity – corporations have an affirmative obligation not to engage in overly-aggressive tax planning.
His thesis is attractive, though I’m not sure it’s entirely convincing. He basically posits that taxes are the means by which we ensure a peaceful and civilized society, and no matter what theory of the firm one endorses, it is therefore proper for corporations to shoulder that burden. The argument, however, would seem to encompass any form of strategic behavior – i.e., the argument would apply to all behaviors in which corporations can engage that evade the spirit of various regulations intended for the greater good of society. If so, then it’s not clear that the argument gets us very far in terms of determining the legitimate boundaries of corporate behavior.
In ATP Tour, Inc., et al. v. Deutscher Tennis Bund, et al., the Supreme Court of Delaware upheld a fee-shifting provision in a non-stock corporation’s bylaws, providing that unsuccessful plaintiffs in intracorporate litigation would be required to pay the fees and costs of defendants.
The court was answering a certified question from the Third Circuit, and thus was careful to note that it was only answering the question in the abstract, and that any such bylaw would have to be tested in a particular instance to determine if it was equitable. But the court agreed that the bylaw appropriately concerned the “business of the corporation, the conduct of its affairs,
and its rights or powers or the rights or powers of its stockholders, directors, officers or employees” as the DGCL requires, and therefore was within the power of the directors to adopt. The court also held that the purpose to deter litigation was not, in the abstract, “improper,” such that the bylaw could be invalidated on that ground.
The court was careful to repeat that this was a “nonstock” corporation, but nothing in the opinion suggests that the outcome would be any different for a publicly-traded corporation.
I’ve
I previously posted about my experience in drafting my first exam, for my Securities Litigation class. Well, the exam period just ended – now it’s time to grade.
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