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Benjamin P. Edwards

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Benjamin Edwards joined the faculty of the William S. Boyd School of Law in 2017. He researches and writes about business and securities law, corporate governance, arbitration, and consumer protection.

Prior to teaching, Professor Edwards practiced as a securities litigator in the New York office of Skadden, Arps, Slate, Meagher & Flom LLP. At Skadden, he represented clients in complex civil litigation, including securities class actions arising out of the Madoff Ponzi scheme and litigation arising out of the 2008 financial crisis. Read More

Like many people, I am traveling for the holiday this week.  Because of that, I’ll keep this short. Since November 15, 2015, several more courts have listed an LLC as a “limited liability corporation,” instead of the correct, “”limited liability company.”  The culprits:

Editorial Note: A case was removed from this listing on September 3, 2017 at the request of a reader after consultation with the author.

1) Ironridge Glob. IV, Ltd. v. Securities and Exch. Commn., 1:15-CV-2512-LMM, 2015 WL 7273262, at *11 (N.D. Ga. Nov. 17, 2015) (“Notwithstanding the plain text of § 1391(c), the SEC argues that (1) § 1391(c) was intended to apply to corporations, partnerships, limited liability corporations, and labor unions—not federal agencies—according to “a natural reading of the full text of the statute” and its legislative history; and (2) to read § 1391(c) otherwise would facilitate forum shopping.”).

2) In the caption: Perez v. Sophia’s Kalamazoo, LLC, d/b/a SOPHIA’S HOUSE OF PANCAKES, a limited liability corporation, et al., Defendants., No. 1:14-CV-772, 2015 WL 7272234 (W.D. Mich. Nov. 17, 2015).

3) In the caption: Oracle America, Inc., a Delaware Corporation, Plaintiff, v. The Oregon Health Insurance Exchange Corporation, dba Cover Oregon, an …

Regular readers of this blog know that I am fervent that the distinction between entities matters, particularly when it comes to LLCs and corporation.  I’m happy to be a part of this micro-symposium, and I have enjoyed the input from the other participants. 

My comments relate primarily to the role of contract in LLCs and how that is different that corporations. Underlying my comments is my thesis that LLCs and corporations are meaningfully distinct. This view is in contrast to Jeff Lipshaw, who argued in his post:

[I]f uncorporations differ from corporations, it’s more a matter of degree than of any real difference.  Both are textual artifacts.  We have created or assumed obligations pursuant to the text at certain points in time, and we use the artifacts and their associated legal baggage opportunistically when we can.  I am not convinced that organizing in the form or corporations or uncorporations makes much difference on that score.

I tend to be more of a Larry Ribstein disciple on this, and I wish I had the ability to articulate the issues as eloquently and intelligently as he could.  Alas, you’re stuck with me. (Editor’s note: As Jeff Lipshaw says in his comment below, he did not say the forms of LLCs and corporations are not distinct. He is, of course, correct, and I know very well he knows the difference between the forms. In fact, a good portion of what I understand of the practical implications of the LLC comes from him. I do believe that the choice of form matters, and at least should matter in how courts review the different entities, as I explain below. And I do think the LLC is better, or should be (if courts will allow it), because of what the form allows interested parties to do with it. The flexibility of the LLC form creates opportunity for highly focused, nimble, and more specific entities that can be vehicles that facilitate creativity in investment in a way that corporations and partnerships, in my estimation, do not.]

In his book, The Rise of the Uncorporation, Ribstein stated, “Uncorporations [his term for noncorporate entities] come in all shapes and sizes, and are increasingly encroaching on traditionally ‘corporate’ domain.  The thesis is that form matters.” He goes on to explain that the differences between corporations and noncorporate entities have practical implications for those in business (and their lawyers).  I think he was right. 

It seems that some view the limited liability protection that comes with both an LLC and a corporation as the main, if not sole, defining function of the firm. If that were true, then it would be accurate that LLCs and corporation are functionally the same. I think the evolution and purposes of the limited partnership, the LLC, and the corporation suggest that these entities at least should (if they don’t in fact) serve different purposes and roles for those who create them.

The LLC Revolution helped facilitate formation of entities with pass-through taxation and limited liability protection. And it is true, that limited liability one chief benefit of the corporation, and the rise of the corporation can be tracked to that benefit.  But, entity choice is more that just liability and taxation, too, at least where there are real entity choices that provide options. 

Corporations are far more off-the-rack in nature, and they have a tremendous number of default rules. These rules facilitate start up, and help skip a number of conversations that promoters and initial investors might otherwise need to have. (Of course, they probably should have these conversations, but if they don’t, there are more significant gap fillers than for other entities.) 

Ribstein observed, “Uncorporations not only explicitly permit, but also indirectly facilitate contracts.  A firm’s contractual freedom should be evaluated not only in terms of the flexibility permitted by a given business association statute, but in light of the alternative available standard forms.”  As such, the clearer and more distinct the terms of the various entity-form statutes are, the more significant a firm’s choice of form can be.  And if the choice is an LLC, that choice should be respected.

As my countless posts lamenting the fact that courts can’t seem to get the distinction between LLCs and corporations clear, there’s evidence that Lipshaw is right as to the current state of the law, or some meaningful portion of it. But that doesn’t make it right.

The defense for Don Blankenship, former CEO of Massey Coal, rested today without putting on any witnesses.  Blankenship is on trial because he is charged with conspiring to violate federal safety standards. Investigators believe that Blankenship’s methods contributed to a mine disaster that killed 29 people at the Upper Big Branch mine in West Virginia.  

One part of the trial has an interesting business law component.  Prosecutors have tried to show the Blankenship’s interest in making more money was a key factor in cutting corners.  One West Virginia news paper reported it this way:

“The government is using his compensation package as an indication of how much production mattered to Don,” said Mike Hissam, partner at Bailey & Glasser. “They’re using his compensation to establish a motive for him lying and making false statements to investors, their theory being his compensation was so tied up with company stock he had a motive for lying to the SEC and the public to protect his own personal net worth.”

It’s possible that this is accurate, but I am leery of that line of thinking.  It’s not that I don’t think it’s possible Blankenship cut corners because it cost money…

Missouri’s president recently resigned amid protests about how his institution responded to racist and other deplorable acts on his campus.  A graduate student staged a hunger strike, and players from the Missouri football team threatened to sit out their next game if the president did not resign. 

Some have worried that the threat sets bad precedent, in that they think now a president can be forced to resign based on the racist acts of someone beyond his or her control. I don’t buy that, but more on that later.  Others are upset that it took the football team to make the protests have legs.  I don’t buy this one, either, though I give this one more credence. 

As someone working in an academic environment, I will say that I would be sympathetic if the resignation really happened because of things that were out of the control of the university president. That is, if he were really being held accountable for what was said by an idiot racist student, I’d be supportive of him and think it was wrong he was being forced out. Based on what I have seen, though, the criticisms were valid about the institution’s response…

The Georgia Attorney General’s (AG) office is trying to make the case that the Georgia Pipeline Act does not allow any entity other than a corporation to use the statute’s eminent domain power.  Palmetto Pipeline is seeking a certificate for authorization to use that power, provided in GA Code § 22-3-82 (2014): 

(a) Subject to the provisions and restrictions of this article, pipeline companies are granted the right to acquire property or interests in property by eminent domain for the construction, reconstruction, operation, and maintenance of pipelines in this state . . . .

The state AG has argued that a pipeline company must be a corporation, and thus a limited liability company (LLC)  cannot use the statutory power.  The AG is right.  In the Pipeline Act’s definitions section, it provides, at GA Code § 22-3-81 (2014), 

As used in this article:

. . . .

(2) “Pipeline company” means a corporation organized under the laws of this state or which is organized under the laws of another state and is authorized to do business in this state and which is specifically authorized by its charter or articles of incorporation to construct and operate pipelines for the

…

So, my rants about the problem of courts (and others) conflating LLCs and corporations are not new.  Unfortunately for the proper evolution of the law, but good fodder for my posts, I continue to get examples.  We now have a new one that raises the bar a bit.

 A recent case from the United States District Court for the Western District of Pennsylvania continues the trend. The beauty, if one can call it that, of the case is that there are failures to recognize the difference between LLCs and corporations at multiple levels. 

 First, though, let’s recap what LLCs are.  LLCs are limited liability companies, and they are creatures of statute. See, e.g., 6 Del. C. § 18-101, et seq.  As such, they are not corporations, which are creatures of other statutes. Cf., e.g., 8 Del. Code § 101, et. seq. In contrast, LLCs, like corporations and other associations, can be people.  See, e.g.,  Dictionary Act, 1 U.S. Code § 1 (“[The wor[d] ‘person’ . . . include[s] corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals.”).

Back to our newest example, which I think of as a…

From potential employers to faculty, I hear a common mantra that students are “no longer able to write.” Thus, we need to get them practice ready in a way that apparently we, as law schools, used to do. 

I, too, share frustration with poorly written materials and poor performance generally. I also worry about the practice-ready nature of some of our students. Still, I find myself compelled to say that, in my experience, the vast majority of our students are thoughtful, intelligent, and capable.

I also can say that many of our students do not push themselves to deliver the high-quality work product of which they are capable.  I long for the self-motivated student, the same way I have (at times) longed for the self-motivated employee.  Some people have it, and some people don’t.  Like height, one can’t really teach motivation, but we can try to help students find their own motivation from within.  And we can set expectations high enough that failure is, in fact, an option. 

I have come in contact with quite a few students, and I don’t think we have an actual literacy problem with the students I have taught over the years (a few stark…

Readers of this blog know how much I hate courts that call LLCs “corporations.” (If you’re a new reader, welcome. And now you know, too.)  I am also one who likes to remind people that entity choices come with both rights and obligations, as do choices about whether to have an entity at all. Recent events in Illinois touch on both of these issues. 

A recent news story from Chicago’s NBC affiliate laments a recent court decision in Illinois that requires entities to have counsel if they are to make an appeal, even in the administrative process related to a parking ticket.  The story can be found here.  The short story is this: if one registers a vehicle in the name of a corporation, then the corporation must be represented by counsel to contest the ticket.  The reason for this determination comes from a non-parking related decision from 2014. 

In that decision, Stone Street Partners LLC v. City of Chicago Department of Administrative Hearings, the court determined that “the City’s administrative hearings, like judicial proceedings, involve the admission of evidence and examination and cross-examination of sworn witnesses–all of which clearly constitute the practice of law.” 12 N.E.3d…

As a life-long Detroit Lions fan, last night’s loss to the Seattle Seahawks was largely expected.  How they lost was new, though the fact that the Lions lost in a creative way, was also to be expected.  As actor Jeff Daniels said, being a Lions fan is more painful than being a Cubs fan.

In recent years, there is ample evidence that random and uncommon rules have shown up to hurt my already mediocre team. This got me to thinking, though, of the old adage, bad facts make bad law. For the Lions, I think that’s not necessarily apt.  It may be that bad football makes for better football later.   

To understand how one might get there, one needs to know a little what it’s like to be a Lions fan, so here’s a little insight into how life as a Lions fan works: 

I watched the start of the game last night with my ten-year-old son.  Part of the pre-game programming is all of the announcers and studio people make their pick for the game.  The ten or so predictions were unanimously for the Seahawks.  I turned to my son and said, “Well, the Lions will probably…

The ABA has recommend amendment of 28 U.S.C. § 1332 through Resolution 103B, which 

urges Congress to amend 28 U.S.C. § 1332, to provide that any unincorporated business entity shall, for diversity jurisdiction purposes, be deemed a citizen of its state of organization and the state where the entity maintains its principal places of business.

I’m on record as saying a legislative fix is how this should happen because I don’t think courts should read “incorporated” in the act to include any entities other than corporations.  I still believe that.  However, I have come up with an argument that supports the idea in a way I had not thought of.  I still disagree with the idea of a court adding entities other than corporations to 1332 absent legislative action, so I disagree with what follows, but I thought of an interesting argument that I almost find compelling , so I am putting it out there anyway.  

In Hobby Lobby decision, Justice Alito stated:

No known understanding of the term “person” includes some but not all corporations. The term “person” sometimes encompasses artificial persons (as the Dictionary Act instructs), and it sometimes is limited to natural persons. But no conceivable

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