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Joan Heminway

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Professor Heminway brought nearly 15 years of corporate practice experience to the University of Tennessee College of Law when she joined the faculty in 2000. She practiced transactional business law (working in the areas of public offerings, private placements, mergers, acquisitions, dispositions, and restructurings) in the Boston office of Skadden, Arps, Slate, Meagher & Flom LLP from 1985 through 2000.

She has served as an expert witness and consultant on business entity and finance and federal and state securities law matters and is a frequent academic and continuing legal education presenter on business law issues. Professor Heminway also has represented pro bono clients on political asylum applications, landlord/tenant appeals, social security/disability cases, and not-for-profit incorporations and related business law issues. Read More

Call for Papers for

Section on Agency, Partnership, LLCs and Unincorporated Associations on

Respecting the Entity: The LLC Grows Up

at the 2019 AALS Annual Meeting

The AALS Section on Agency, Partnership, LLCs and Unincorporated Associations is pleased to announce a Call for Papers from which up to two additional presenters will be selected for the section’s program to be held during the AALS 2019 Annual Meeting in New Orleans on Respecting the Entity: The LLC Grows Up.  The program will explore the evolution of the limited liability company (LLC), including subjects such as the LLCs rise to prominence as a leading entity choice (including public LLCs and PLLCs), the role and impact of series LLCs, and differences in various LLC state law rights and obligations. The program will also consider ethics and professional responsibility and governance raised by the LLC. The Section is particularly seeking papers that discuss the role of the LLC as a unique entity (or why it is not).

The program is tentatively scheduled to feature:

  • Beth Miller, M. Stephen and Alyce A. Beard Professor of Business and Transactional Law, Baylor Law
  • Tom Rutledge, Member, Stoll Keenon Ogden PLLC, Louisville, KY

Our Section is proud to…

An interesting new article appears in the Chronicle of Higher Education:  What Happened When the Dean’s Office Stopped Sending Emails After-Hours, by Andrew D. Martin, dean of the College of Literature, Science, and the Arts at the University of Michigan and a professor of political science and statistics, and Anne Curzan associate dean for humanities and a professor of English. Interesting concept, and an idea worth considering.  Here’s what they tried: 

What if we experimented with a policy that set some limits in the dean’s office? Here’s what we came up with:

  • Limit email traffic to working hours. Except for emergencies, work emails are to be sent between the hours of 7 a.m. and 6 p.m., Monday through Friday. Use the delayed-send function to ensure that emails to and from people working in the dean’s office arrive only within that window.

  • Try to communicate in person. Whenever possible, associate and assistant deans should communicate with one another and with other professional staff employees in person or by telephone during the business day. Our administrative assistants can help us find quick drop-in times.

  • Avoid email forwarding. Refrain from forwarding an email to chairs and directors and asking them to forward

…

Bernie Sharfman’s paper, A Private Ordering Defense of a Company’s Right to Use Dual Class Share Structures in IPOs, was just published, and I think he has a point. In fact, as I read his argument, I think it is consistent with arguments I have made about the difference between restrictions or unconventional terms or practices that exist at purchase versus such changes that are added after one becomes a member or shareholder.  Here’s the abstract: 

The shareholder empowerment movement (movement) has renewed its effort to eliminate, restrict or at the very least discourage the use of dual class share structures in initial public offerings (IPOs). This renewed effort was triggered by the recent Snap Inc. IPO that utilized non-voting stock. Such advocacy, if successful, would not be trivial, as many of our most valuable and dynamic companies, including Alphabet (Google) and Facebook, have gone public by offering shares with unequal voting rights.

Unless there are significant sunset provisions, a dual class share structure allows insiders to maintain voting control over a company even when, over time, there is both an ebbing of superior leadership skills and a significant decline in the insiders’ ownership of the company’s common stock.

Earlier this week, Keith Paul Bishop observed on his blog, “Professor Joshua Fershee has been fighting the good fight on limited liability company nomenclature, but I fear that he is losing.”   I am not willing to concede that I am losing (yet), but I have to concede that I am winning less often than I’d hoped.  

Bishop noted my “helpful checklist” from last week for those writing about LLCs, but he argues, “it may be time to give up the fight and bestow an entirely new name on LLCs that is less likely to be confused with corporations. I am still not ready to give up the fight, but it is an interesting thought, and there are some options.

One path I have proposed before that I think would help: Let Corps Be Corps: Follow-Up on Entity Tax Status.  In that post, I suggested that the IRS should just stop using state-law entity designations, and thus stop having “corporate” tax treatment. I explained:

My proposal is not abolishing corporate tax . . . .  Instead, the proposal is to have entities choose from options that are linked the Internal Revenue Code, and not to

…

Today I will continue my quest seeking to get courts to appreciate the need to pay attention to detail as to LLCs. Sometimes courts misidentify LLCs as “limited liability corporations” (and not the correct “limited liability companies”) because they don’t know the difference. Other times it is because they copied the language from the pleadings. And other times it’s just typing “corporation” when “company” was intended.  All such errors are understandable but should be fixed.  

Today, we get an unpublished court opinion from last week that clearly has the correct information available, yet the opinion goofs anyway. The opinion states:    

Every Limited Liability Corporation (LLC) in Delaware is required to have a registered agent to receive service of process for the corporation. Service directly upon the owners of the LLC is not legally necessary if the registered agent is properly served. 

JERZY WIRTH Pl., v. AVONDALE IQ., LLC, Def., CV N10J-03776, 2018 WL 2383578, at *2 (Del. Super. May 25, 2018). Corporations and LLCs need registered agents, but here we are dealing with an LLC.  The accompanying footnote gets it right, so this is simply an attention to detail problem.  The footnote reads: 

See 18 Del. C.

…

I was browsing through some recent veil piercing cases (because that’s how I roll), and I came across this gem: 

[I]t is unclear that merely using a corporation to limit personal liability rises to the level of fraud required to pierce the corporate veil.

Indagro SA v. Nilva, No. 16-3226, 2018 WL 2068660, at *3 (3d Cir. May 3, 2018). Given that limited liability is one of the primary benefits of incorporation, I think it is at least implied that using a corporation to limit personal liability is not fraud at all.  

Moreover, the corporation at issue was a New Jersey corporation, and the state law provides:

(2) Unless otherwise provided in the articles of incorporation, a shareholder of a corporation is not personally liable for the acts of the corporation, except that a shareholder may become personally liable by the reason of his own acts or conduct.

N.J. Stat. Ann. § 14A:5-30 (West). This is pretty unequivocal.  I get that fraud may be one of the acts that could give rise to personal liability, but the use of an entity to limit personal liability, when that is a core facet of the entity, is some pretty serious…

A recent Georgia case considers whether a “sole owner” of an LLC can be held liable for negligent actions of his or her LLC. Of course, once again, the limited liability company (LLC), is called by the court a “limited liability corporation,” and the court proceeds to apply corporate law. Here’s the relevant excerpt:
The Goldens contend that the trial court erred by denying their motion for summary judgment as to negligence claims asserted against them personally. They assert that corporate law insulates them from liability and that, while a member of an [sic] limited liability corporation may be liable for torts in which he individually participated, Ugo Mattera has pointed to no evidence that the Goldens specifically directed a particular negligent act or participated or cooperated therein. We agree with the Goldens that they were entitled to summary judgment on Ugo Mattera’s negligence claim.
An officer of a corporation who takes part in the commission of a tort by the corporation is personally liable therefor, and an officer of a corporation who takes no part in the commission of a tort committed by the corporation is not personally liable unless he specifically directed the particular act to be done

…

If I have learned anything over the years, it is that I should not expect any court to be immune from messing up entities. Delaware, as a leader in business law and the chosen origin for so many entities, though, seems like a place that should be better than most with regard to understanding, distinguishing, and describing entities.  Sometimes they get things rights, as I argued here, and other times they don’t.  A recent case is another place where they got something significant incorrect. 

The case starts off okay:

Plaintiffs brought this action under federal diversity jurisdiction, 28 U.S.C. § 1332(a)(1), asserting that complete diversity of citizenship exists among the parties. In Defendants’ Motion to Dismiss, however, they argue that complete diversity of the parties is lacking. Federal jurisdiction under § 1332(a)(1) requires complete diversity of citizenship, meaning that “no plaintiff can be a citizen of the same state as any of the defendants.” Midlantic Nat. Bank v. Hansen, 48 F.3d 693, 696 (3d Cir. 1995); Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 553 (2005). 

Cliffs Nat. Res. Inc. v. Seneca Coal Res., LLC, No. CV 17-567, 2018 WL 2012900, at *1

…

Here’s how this week’s post came to be.  I thought: “I should probably write about something other than LLCs being mischaracterized by courts. Maybe I will add some thoughts about Joan’s post about her thoughtful new essay, Let’s Not Give Up on Traditional For-Profit Corporations for Sustainable Social Enterprise. But first, I’ll read through the cases that call LLCs ‘limited liability corporations.'”  And read them I did.  I was about to let it go, but then I read something that (as usual) made me cringe. It’s from a 2012 opinion that apparently just showed up on Westlaw. Here it is:
II. UNDISPUTED FACTS.
 
. . . . The facts, viewed in the light most favorable to the Plaintiffs, are as follows. Plaintiff Edgar Lopez is a New Mexico resident. Compl. at 1, ¶ 1. Lopez owns and operates Plaintiff IMA, LLC, a New Mexico limited liability corporation that formerly managed the Perry Corners Shopping Center. . . . Lopez is the managing partner and the only surviving voting member of Hunt Partners, LLC, a Nevada corporation that has its principal place of business in New Mexico. . . . . Hunt Partners wholly owns, as the “sole

…

As I am inclined to do with cases and statutes, I spent some time this week chasing down incorrect definitions of the LLC (correctly defined as a “limited liability company”).  I did some perusing of the Code of my home state of West Virginia for incorrect uses of “limited liability corporation,” where limited liability company was intended.  As I expected, there are multiple errors. Take, for example: 

§ 31D-11-1109. Conversion of a domestic corporation to a domestic limited liability company.

. . . .

(i) When a corporation has been converted to a limited liability corporation pursuant to this section, the limited liability company shall, . . . .

This part of the Code uses “limited liability company” correctly throughout this provision, except in this one spot.  This should be cleaned up, but it appears to be an error related to repeated use of corporation and company in the same statute (as opposed to a misunderstanding of the concept).

 The West Virginia Code has adopted the use of “limited liability corporation” in place of “limited liability company” in a couple definitions provisions, too, which could be a little more problematic. 

In the Motor Fuel Excise Tax portion of the…