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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.

After the Supreme Court decided Citizens United v. Federal Election Commission, 558 U.S. 310 (2010), there were a flurry of articles pointing out its flaws as a matter of corporate theory (and those are only a very limited sample). 

The problem is, the Supreme Court accepted a kind of simplistic view of the corporation as an association of citizen-shareholders, imbued with free speech rights by the transitive properties of the First Amendment.  But corporations are not spontaneously-formed groups of private citizens; corporations themselves are creatures of law, and law in the first instance sets the ground rules for their structure and powers, including who has authority to speak, the purposes for which they may speak (i.e., wealth maximization), and the procedures for deciding what speech will be made. 

In other words, the First Amendment can rationally be said to confer rights on natural persons, who exist outside of law; they are not constituted by law.  Corporations, however, must be created by law before they exist as entities for the First Amendment to act upon, and it’s not clear how much that law – the law that creates them – has to be informed by constitutional principles.

For example, there…

…in a nonprecedential opinion so don’t get too excited.

San Diego County Employees Retirement Association v. Johnson & Johnson represents the latest iteration of courts trying to figure out what the heck to do about fraud on the market class certification in the wake of the Supreme Court’s desperately confused Goldman Sachs Grp., Inc. v. Ark. Teacher Ret. Sys., 594 U.S. 113 (2021).

Plaintiffs alleged that J&J concealed asbestos in its talc products, resulting in multiple stock price drops as the truth dribbled out.  At class certification, J&J claimed it had rebutted the presumption of reliance by demonstrating that each allegedly corrective disclosure revealed no new information the market, and therefore could not have been responsible for the dissipation of artificial inflation.

I pause here to note that this is, I guess, the framework mandated by Goldman, but – as I have frequently screamed – it is both illogical and inconsistent with Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 (2011) (Halliburton I). Specifically, even if J&J proves beyond a reasonable doubt that its fraudulent statements were never publicly corrected, that does not in any way shed light upon the question…

I speak of Epicentrx, Inc. v. Superior Court, a case that I previously blogged about here.

Delaware entity, doing business in California.  A minority investor sues in California, alleging fraud, breach of fiduciary duty, and breach of contract.  Defendant corporation and controlling stockholder move to dismiss, on the grounds of a Delaware Chancery forum selection clause in both the charter and the bylaws.  Investor argues that California’s constitution confers a jury right that – per California precedent – cannot be contractually waived pre-dispute.  Therefore, investor claims, a forum selection clause that functionally results in a jury waiver (because the Court of Chancery sits without a jury) must also be invalid.  Investor also argues that the charter and bylaws are not binding because the internal affairs doctrine has no application here (fraud claims, for example, are not governed by the internal affairs doctrine), and the forum selection clauses were not freely adopted.

Since this is a topic I’ve written about (and written about and written about), the case had my attention.  In my previous post, I wrote, “one factor that makes constitutive documents noncontractual is that, as Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d…

Does everyone remember the summer of 2024, when the hot corporate topic was SB 313 and Delaware’s move to authorize shareholder agreements?  Much less discussed at the time, but still important, was the proposal to permit jilted merger targets to collect lost premium damages.  Delaware amended its corporation law to provide:

Any agreement of merger or consolidation governed by § 251 of this title… may provide: (1) That (i) a party to the agreement that fails to perform its obligations under such agreement in accordance with the terms and conditions of such agreement, … shall be subject, in addition to any other remedies available at law or in equity, to such penalties or consequences as are set forth in the agreement of merger or consolidation (which penalties or consequences may include an obligation to pay to the other party or parties to such agreement an amount representing, or based on the loss of, any premium or other economic entitlement the stockholders of such other party would be entitled to receive pursuant to the terms of such agreement if the merger or consolidation were consummated in accordance with the terms of such agreement)…

In other words, DGCL 261 overrides the…

I posted about In re Facebook Derivative Litigation, 2018-0307, way back in in 2023, when the Delaware Court of Chancery denied a motion to dismiss. The action has become a sprawling set of claims arising out of Facebook’s violation of its FTC consent decree regarding data privacy, and the resulting scandal and penalties that followed. The parties just filed their pretrial briefing and let’s just say this thing might actually go to trial – a first for Caremark.

I’ve posted about the Caremark doctrine and its tensions multiple times, and I also address them in my draft paper, The Legitimation of Shareholder Primacy (which really, really needs to be updated because it was posted before the recent amendments to the DGCL). The main issue being, Caremark (including its sister doctrine, Massey) represents a hard limit on directors’ ability to seek profits: they may not do so by intentionally violating the law (or intentionally turning a blind eye to legal violations). That may be a necessary doctrine in order for corporate law to maintain its social legitimacy, but it sits uneasily aside the principle of shareholder primacy, not to mention the reality that corporations can organize…

The following guest post comes to us from Ilya Beylin of Seton Hall Law School.

It is assumed that stock prices of public companies should grow, and indeed, this has been the case consistently over the decades if something like the S&P500 index is considered in aggregate.  But stock price should only grow when firms become more profitable (or the discount rate decreases, which I am going to ignore).  Why should firms become more profitable?  A profitable firm is doing fine, and its stock represents an annuity.     

I raise these questions because of the operational predicates to profit growth.  Typically, growing profitability over the long term comes from either expansions of scale or scope.  I am ignoring cost cutting, which I believe tends to have more limited potential for sustained profitability growth.  But expansion (in scale or scope) within the hierarchical model of a firm results in an attenuation of internal monitoring.  Where expansion takes place, top management increasingly relies on middle management, dispersing information and control.  This then puts pressure on the systems through which information is aggregated and percolated to decision-makers.[1]  In the absence of an excellent team that somehow overcomes the challenges…

Saints and Sinners.  I’ve blogged here before about Ed Rock’s thesis that Delaware common law operates as much by singling out particular corporate actors for scathing criticism than by imposing formal sanction (arguably, the recent conflagration was because Delaware departed from that practice – but maybe not; at least some seem to have taken issue with judicial “tone,” as well).

Anyhoo, VC Laster’s opinion in Leo Investments Hong Kong Limited v. Tomales Bay Capital Anduril III, L.P.  is a shining example of the genre.  Laster ended up only imposing nominal damages of $1 on the defendant fund manager, but man did he rake the fund manager over the coals.  The case, incidentally, is also an interesting little window into private company capitalization – and, as I previously have blogged about, how private companies increasingly work closely with supposedly “independent” funds that hold their shares.

The setup: Iqbaljit Kahlon is a fund manager with ties to Peter Thiel. He formed a fund designed to buy certain shares of SpaceX.  One of the investors in the fund was supposed to be a publicly traded Chinese company, but Chinese law required that it disclose the investment.  SpaceX was not happy…

If so, you’re in luck! I was fortunate enough to be a guest on Fordham’s Bite-Sized Business Law podcast, hosted by Amy Martella, for an Elon Musk conversation. Here at Apple, here at Spotify, here at Amazon Music.

And speaking of podcasts. On this week’s Shareholder Primacy, Mike Levin talks to Andrew Droste of Columbia Threadneedle. Here at Apple, here at Spotify, and here at YouTube.

Federal Rule of Civil Procedure 9 provides:

(b) Fraud or Mistake; Conditions of Mind. In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.

That said, there are certain causes of action under the securities laws, like claims under Section 11 and 12 of the Securities Act, that do not require plaintiffs to prove that the defendant had any particular state of mind.  These claims do not, therefore, sound in fraud by their nature.  And, because the PSLRA did not alter the pleading standards for claims under the Securities Act, that means Section 11 and 12 claims are ordinarily subject to the more limited demands of Rule 8 pleading.

Nonetheless, federal courts have generally agreed that if a particular plaintiff’s allegations in a particular case come across as rather fraudy, the higher pleading standard will apply.  Plaintiffs have therefore gone to great lengths to avoid alleging fraud in connection with Securities Act claims, which can be particularly challenging when Section 10(b) claims arise out of the same facts – plaintiffs usually try to completely separate the two sets…