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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

If it is true that “a good thing cannot last forever,” the recent turn of events concerning appraisal arbitrage in Delaware may be a proof point. A line of cases coming out of the Delaware Court of Chancery, namely In re Appraisal of Transkaryotic Therapies, Inc., No. CIV.A. 1554-CC (Del. Ch. May 2, 2007), In re Ancestry.Com, Inc., No. CV 8173-VCG (Del. Ch. Jan. 5, 2015), and Merion Capital LP v. BMC Software, Inc., No. CV 8900-VCG (Del. Ch. Jan. 5, 2015), have made one point clear: courts impose no affirmative evidence that each specific share of stock was not voted in favor of the merger—a “share-tracing” requirement. Despite this “green light” for hedge funds engaging in appraisal arbitrage, the latest case law and legislation identify some new limitations.

What Is Appraisal Arbitrage?

Under § 262 of the Delaware General Corporation Law (DGCL), a shareholder in a corporation (usually privately-held) that disagrees with a proposed plan of merger can seek appraisal from the Court of Chancery for the fair value of their shares after approval of the merger by a majority of shareholders. The appraisal-seeking shareholder, however, must not have voted in favor of the merger. Section 262, nevertheless, has been used mainly by hedge funds in a popular practice called appraisal arbitrage, the purchasing of shares in a corporation after announcement of a merger for the sole purpose of bringing an appraisal suit against the corporation. Investors do this in hopes that the court determines a fair value of the shares that is a higher price than the merger price for shares.

In Using the Absurdity Principle & Other Strategies Against Appraisal Arbitrage by Hedge Funds, I outline how this practice is problematic for merging corporations. Not only can appraisal demands lead to 200–300% premiums for investors, assets in leveraged buyouts already tied up in financing the merger create an even heavier strain on liquidating assets for cash to fund appraisal demands. Additionally, if such restraints are too burdensome due to an unusually high demand of appraisal by arbitrageurs seeking investment returns, the merger can be completely terminated under “appraisal conditions”—a contractual countermeasure giving potential buyers a way out of the merger if a threshold percentage of shares seeking appraisal rights is exceeded. The article also identifies some creative solutions that can be effected by the judiciary or parties to and affected by a merger in absence of judicial and legislative action, and it evaluates the consequences of unobstructed appraisal arbitrage.

The Issue Is the “Fungible Bulk” of Modern Trading Practices

In the leading case, Transkaryotic, counsel for a defending corporation argued that compliance with § 262 required shareholders seeking appraisal prove that each of its specific shares was not voted in favor of the merger. The court pushed back against this share-tracing requirement and held that a plain language interpretation of § 262 requires no showing that specific shares were not voted in favor of the merger, but only requires that the current holder did not vote the shares in favor of the merger. The court noted that even if it imposed such a requirement, neither party could meet it because of the way modern trading practices occur.

As many of you know, I often like to post on issues relating to advising students (witness my cover letter posts, the most recent of which can be found here).  I also like to post from time to time on issues relating to fashion and the law (e.g., this post).  And sometimes, I fuse the two in a single post.  This post is one of those fusion posts.

Many of us intuitively understand that clothing affects not only the perceptions others have of us but also the perceptions we have of ourselves.  Some of us may even have done research to unearth evidence that these intuitions have some empirical traction.  But can what you wear affect your performance?  Research provides some evidence that it can.

Researchers at Northwestern University have identified a “systematic influence that clothes have on the wearer’s psychological processes” that they term “unclothed cognition.”  Their research, published in the Journal of Experimental Social Psychology in 2012, found that the attentiveness of the subjects was higher when wearing a lab coat than it was when they were not wearing a lab coat or were wearing a lab coat described as a painter’s coat. The research was…

Today marked the end of the 2016 conference of the Southeastern Association of Law Schools (SEALS).  My discussion session on small business finance capped off the Workshop on Business Law, a series of business law programs at the conference, and closed out the conference itself just after Noon.  It was great to share programs, at various points in the conference, with co-bloggers Josh Fershee, Ann Lipton, Haskell Murray, and Marcia Narine.

Here is a list of the three business law programs in the Workshop on Business Law from this year’s conference:

  • Discussion Group: Sustainability & Sustainable Business
  • Discussion Group: Perspectives on the Future of White-Collar Crime
  • Discussion Group: The Legal Aspects of Small Business Finance in the Crowdfunding Era

Other business law programs included several of the new scholar paper panels, the annual “Supreme Court Update” on “Business, Administrative, Securities, Tax, and Employment Issues,” a discussion group focusing on “Big Data: Big Opportunities in Business and Government, and Big Challenges in Law and Ethics,” and a discussion group in the SEALS “Works-in-Progress Series” that featured papers by veteran scholars on topics ranging from international food labeling regulation, to self-interest in financial regulation, to developing a better understanding of informational intermediaries…

The Federal Reserve Board announced its enforcement actions against Goldman Sachs from 2012-2014 events where a Goldman Sachs banker, a former NY Fed employee, received confidential documents from a NY Fed employee.  The individuals involved plead guilty to the resulting charges and Goldman Sachs paid fines in New York.  The Federal Reserve Board took separate actions this week based upon evidence that the banker “repeatedly obtained, used and disseminated [confidential supervisory information or CSI] … including CSI concerning financial institutions’ confidential CAMELS ratings, non-public enforcement actions, and confidential documents prepared by banking regulators.”  Even though Goldman Sachs terminated the banker involved and reported the matter to authorities, apparently the misconduct was sustained over a long-enough period of time and used to “solicit business” in a way that compelled Federal Reserve Board Action.

The Fed’s release and copies of the orders are available here.  The sanctions against Goldman Sachs include the monetary fine as well a requirement to ‘Within 90 days of this Order, …submit to the Board of Governors an acceptable written plan, and timeline for implementation, to enhance the effectiveness of the internal controls and compliance functions regarding the identification, monitoring, and control of confidential supervisory information.”

Financial press coverage…

I was recently invited to write a short piece on crowdfunding and investor protection for a special issue of one of the publications of the CESifo Group Munich, the CESifo DICE Report–“a quarterly, English-language journal featuring articles on institutional regulations and economic policy measures that offer country comparative analyses.”  The group of authors for this publication (present company excluded) was truly impressive, and I have enjoyed reading their submissions.  My contribution is published here on the CESifo website and here on SSRN, for those who care to look it over.  

I did not hesitate to accept the CESifo Group’s invitation to publish this paper, even though it is not primary scholarship and the deadline was tight for me given other professional obligations.  (The editors did allow me to negotiate a bit on the timing, however.)  The purpose of my post today is to explain why I decided to take this opportunity.  With the limited time that we all have to produce research papers, why would I invest in this kind of an “extra” publication–one that is not likely to get me full scholarly credit (whatever that may mean) in a critical assessment of my body of work?  Here are four reasons why I value this kind…

The position notice setting forth the details is set forth below.  Please feel free to email me with any questions you may have.  I will be serving on the Appointments Committee for these searches.

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POSITION NOTICE

FACULTY POSITIONS

The University of Tennessee
College of Law

THE UNIVERSITY OF TENNESSEE COLLEGE OF LAW invites applications from both entry-level and lateral candidates for two full-time, tenure-track faculty positions to commence in the 2017 Fall Semester.  Candidates should have a particular interest in either business law teaching, including business associations and contracts, or transactional clinical teaching in business, taxation, intellectual property, community economic development, or health care that offers students transferable legal skills.  

A J.D. or equivalent law degree is required.  Successful applicants must have a strong academic background, expertise and experience relevant to the position, and a strong commitment to excellence in teaching, scholarship, and service.

In furtherance of the University’s and the College’s fundamental commitment to diversity among our faculty, student body, and staff, we strongly encourage applications from people of color, persons with disabilities, women, and others whose background, experience, and viewpoints would contribute to a diverse law school environment.

The Faculty Appointments Committee will interview applicants who are…

Just in case you haven’t gotten the message yet:  Delaware law means fiduciary duty freedom of contract for alternative entities.  In May 2016, the Delaware Chancery Court upheld a waiver of fiduciary duties in a master limited partnership.  In Employees Retirement System of the City of St. Louis v. TC Pipelines GP, Inc., Vice Chancellor Glasscock upheld challenges to an interested transaction (sale of a pipeline asset to an affiliated entity) that was reviewed, according to the partnership agreement, by a special committee and found to be fair and reasonable.  The waiver has been described as “ironclad” to give you a sense of how straight forward this decision was. No close call here.  

Vice Chancellor Glasscock’s letter opinion starts:

Delaware alternative entity law is explicitly contractual;1 it allows parties to eschew a corporate-style suite of fiduciary duties and rights, and instead to provide for modified versions of such duties and rights—or none at all—by contract. This custom approach can be value enhancing, but only if the parties are held to their bargain. Where equity holders in such entities have provided for such a custom menu of rights and duties by unambiguous contract language, that language must control judicial review of

…

In a recent decision of the Tennessee Supreme Court, Keller v. Estate of Edward Stephen McRedmond, Tennessee adopted Delaware’s direct-versus-derivative litigation analysis from Tooley v. Donaldson, Lufkin, & Jenrette, Inc., 845 A.2d 1031 (Del. 2004), displacing a previously applicable test (that from Hadden v. City of Gatlinburg, 746 S.W.2d 687 (Tenn. 1988)).  Although this is certainly significant, I also find the case interesting as an example of the way that a court treats different types of claims that can arise in typical corporate governance controversies (especially in small family and other closely held businesses).  This post covers both matters briefly.

The Keller case involves a family business eventually organized as a for-profit corporation under Tennessee law (“MBI”).  As is so often the case, after the children take over the business, a schism develops in the family that results in a deadlock under a pre-existing shareholders’ agreement.  A court-ordered dissolution follows, and after a bidding process in which each warring side of the family bids, the trustee contracts to sell the assets of MBI to members of one of the two family factions as the higher bidder.  These acquiring family members organize their own corporation to hold the transferred MBI assets (“New MBI”) and assign their rights under the MBI asset purchase agreement to New MBI

Prior to the closing, the losing bidder family member, Louie, then an officer and director of MBI who ran part of its business (its grease business), solicited customers and employees, starved the MBI grease business, diverted business opportunities from MBI’s grease business to a corporation he already had established (on the MBI property) to compete with MBI in that business sector, and engaged in other behavior disloyal to MBI.  Louie’s actions were alleged to have contravened a court order enforcing covenants in the MBI asset purchase agreement. They also were allegedly disloyal and constituted a breach of his fiduciary duty of loyalty to MBI.  Finally, they constituted an alleged interference with New MBI’s business relations.  

Last week on the blog I featured the smart book Empire of the Fund by sharing excerpts from a conversation with author, Professor William Birdthistle.  In discussing the book, he shared with me some insights on writing a book:  its process, genesis and use in the classroom.  I am fascinated by other’s people writing process in the continual effort to improve my own.

writing a book…

[W]riting a book was more of a challenge than I expected, even though I told myself it was simply a collection of law review articles.  It turns out that the blinking cursor on an empty screen is more taunting when you’re obliged to fill hundreds of pages.  Brief stints of productivity need to be repeated again and again and, until it all exists, nothing really exists.  I developed a convoluted system of drafting notes, then sitting down with a research assistant to record a chat about those notes, then working that recording into an outline.  That process still left me with plenty of writing to do, but I found it much easier to expand, polish, and revise those outlines than to fight the demon blank page.

Talking through your ideas forces you to synthesize the materials. It also…

Registration is now open for the Central States Law Schools Association 2016 Scholarship Conference, which will be held on Friday, September 23 and Saturday, September 24 at the University of North Dakota School of Law in Grand Forks, ND. We invite law faculty from across the country to submit proposals to present papers or works in progress.

CSLSA is an organization of law schools dedicated to providing a forum for conversation and collaboration among law school academics. The CSLSA Annual Conference is an opportunity for legal scholars, especially more junior scholars, to present on any law-related topic in a relaxed and supportive setting where junior and senior scholars from various disciplines are available to comment. More mature scholars have an opportunity to test new ideas in a less formal setting than is generally available for their work. Scholars from member and nonmember schools are invited to attend.

Please click here to register. The deadline for registration is September 2, 2016.

Hotel rooms are now available for pre-booking. The conference hotel is the Hilton Garden Inn in Grand Forks. The hotel phone number is (701) 775-6000. When booking, identify yourself as part of the “UND School of Law” block to receive…