Photo of Marcia Narine Weldon

Marcia Narine Weldon

Subscribe to Marcia Narine Weldon's Posts

Professor Narine Weldon is the director of the Transactional Skills Program, Faculty Coordinator of the Business Compliance & Sustainability Concentration, Transactional Law Concentration, and a Lecturer in Law.

She earned her law degree, cum laude, from Harvard Law School, and her undergraduate degree, cum laude, in political science and psychology from Columbia University. After graduating, she worked as a law clerk to former Justice Marie Garibaldi of the Supreme Court of New Jersey, a commercial litigator with Cleary, Gottlieb, Steen and Hamilton in New York, an employment lawyer with Morgan, Lewis and Bockius in Miami, and as a Deputy General Counsel, VP of Global Compliance and Business Standards, and Chief Privacy Officer of Ryder, a Fortune 500 Company. In addition to her academic position, she serves as the general counsel of a startup and a nonprofit.  Read More

Follow:Marcia's Linkedin Profile

Part III Another Major “Not” and the Uniform Act’s More (!) Contractarian Approach

C. Not Whatever is Meant by a Contractual Provision Invoking “Good Faith”

Some limited partnership and operating agreements expressly refer to “good faith” and define the term.[1] As the Delaware Supreme Court held in Gerber v. Enter. Products Holdings, LLC (Gerber), such “express good faith provisions” do not affect the implied covenant.[2] In Gerber, the Court rejected the notion that “if a partnership agreement eliminates the implied covenant de facto by creating a conclusive presumption that renders the covenant unenforceable, the presumption remains legally incontestable.” [3]

The rejected notion arose from on an overbroad reading of Nemec v. Shrader [4] – namely that “under Nemec, the implied covenant is merely a ‘gap filler’ that by its nature must always give way to, and be trumped by, an ‘express’ contractual right that covers the same subject matter.”[5] Invoking Section 1101(d) of the Delaware Revised Uniform Limited Partnership Act,[6] the Gerber opinion stated: “That reasoning does not parse. The statute explicitly prohibits any partnership agreement provision that eliminates the implied covenant. It creates no exceptions for contractual eliminations that are ‘express.’”[7] 

Some agreements contain express good faith provisions but omit…

Guest post by Mohsen Manesh:

In my previous post, I suggested that we are unlikely to see Delaware ever step back from its statutory commitment to freedom of contract in the alternative entity context. And that is true even if Chief Justice Strine, Vice Chancellor Laster, and others might believe that unlimited freedom of contract has been bad public policy.

Why? To be cynical, it’s about money.

It is well known that Delaware, as a state, derives substantial profits, in the form of franchise taxes, as a result of its status as the legal haven for a majority of publicly traded corporations. In 2014 alone, Delaware collected approximately $626 million—that is almost 16% of the state’s total annual revenue—from corporate franchise taxes. (For scale, that’s almost $670 per natural person in Delaware.)

Less well documented, however, is that Delaware also now derives substantial—and growing—revenues as the legal home from hundreds of thousands of unincorporated alternative entities. My chart below tells the story. Over the last decade, while the percentage of the state’s annual revenue derived from corporate franchise taxes has been flat, an increasingly larger portion of the state’s annual revenue has been derived from the taxes paid…

 Guest post by Sandra Miller:

The ratio of LLC filings to corporate filings in Delaware from 2010 to 2014 was over 3 to 1.  Alternative business entities are no longer the province of a relatively small number of sophisticated investors.  Increasingly, corporations are becoming the “alternative” and LLCs and other unincorporated entities the norm.  Mom and Pop business as well as sophisticated real estate syndicators use alternative business entities.  Additionally, as discussed below, publicly-traded limited partnerships and LLCs are now being aggressively marketed. 

Accordingly, the assumptions that might once have justified greater reliance on private ordering in LLCs and alternative business entities should be revisited.  Not all investors are highly sophisticated parties and a relentlessly contractual approach to business entity governance is not appropriate for unsophisticated parties.   Nor is it appropriate for those without sophisticated legal counsel.  In backhanded fashion, this point was recognized by Larry E. Ribstein who advocated the removal of restrictions on waivers of fiduciary duties in limited partnerships when these entities were used by sophisticated firms that were unlikely to be publicly traded.   Ribstein expressly stated that limited partnership interests may be less vulnerable than corporate shareholders and are unlikely to be publicly traded.  (…

Guest post by Daniel Kleinberger:

Part I – Introduction

My postings this week will seek to delineate Delaware’s implied contractual covenant of good faith and fair dealing and the covenant’s role in Delaware entity law

An obligation of good faith and fair dealing is implied in every common law contract and is codified in the Uniform Commercial Code (“U.C.C”). The terminology differs:  Some jurisdictions refer to an “implied covenant;” others to an “implied contractual obligation;” still others to an “implied duty.”  But whatever the label, the concept is understood by the vast majority of U.S. lawyers as a matter of commercial rather than entity law.  And, to the vast majority of corporate lawyers, “good faith” does not mean contract law but rather conjures up an important aspect of a corporate director’s duty of loyalty.

Nonetheless, Delaware’s “implied contractual covenant of good faith and fair dealing” has an increasingly clear and important role in Delaware “entity law” – i.e., the law of unincorporated business organizations (primarily limited liability companies and limited partnerships) as well as the law of corporations.

Because to the uninitiated “good faith” can be frustratingly polysemous, this first blog “clears away the underbrush” by explaining what Delaware’s…

Guest post by Mohsen Manesh:

First, I want to give a big thanks to Anne and the rest of the Business Law Professor Bloggers for graciously hosting this mirco-symposium! As a longtime BLPB reader, it is a privilege to now contribute to the online conversation.

In this post, I want to explore the boundaries of the proposal recently made by Delaware Chief Justice Strine and Vice Chancellor Laster to address the problem, as they see it, that has been created by the unbound freedom of contract in the alternative entity context.  In their provocative “Siren Song” book chapter, the judicial pair advocate limits on the freedom of contract by making the fiduciary duty of loyalty mandatory.[1] But, importantly, they limit their proposal to publicly traded LLCs and LPs. [2]

This limitation is striking because it makes their proposal, in one respect at least, so very modest. There exists literally hundreds of thousands of Delaware LLCs and LPs. (121,592 LLCs were formed in Delaware in 2014 alone!) Only around 150 are publicly traded. [3] Thus, the Strine and Laster proposal for curtailing the freedom of contract affects only a tiny fraction of the alternative entity universe.

But in…

Guest post by Jeffrey Lipshaw:

I’m honored to be asked to participate in this micro-symposium, and will (sort of) address the first two questions as I have restated them here.

  1. Does contract play a greater role in “uncorporate” structures than in otherwise comparable corporations and, more importantly, do I care?

                  Yes, as I’ll get to in #2, but indeed I probably don’t care. My friend and casebook co-author, the late great Larry Ribstein, was more than a scholar-analyst of the non- or “un-” corporate form; he was an enthusiastic advocate. It’s pretty clear that had to do with his faith in the long-term rationality of markets and their constituent actors and a concomitant distrust of regulatory intervention. Indeed, he argued the uncorporate form, based in contract, was more amenable than the regulatory-based corporate form to the creation of that most decidedly immeasurable quality, trust, and therefore the reduction of transaction costs. I confess I never quite understood the argument and tried to explain why, but only after Larry passed away, so I never got an answer. 

                  Unlike Larry (and a number of my fellow AALS Agency, Partnership, & LLC section members), I was never able to…

I have spent the past week immersed in whistleblower discussions. On Saturday, I served on a panel with plaintiffs and defense counsel at the ABA Labor and Employment Law Mid-Year meeting using a hypothetical involving both a nursing home employee and a compliance officer as potential whistleblowers under the False Claims Act, Dodd-Frank, and Sarbanes-Oxley. My co-panelist Jason Zuckerman represents plaintiffs and he reminded the audience both through a recent article and his presentation that Dodd-Frank has not replaced SOX, at least for his clients, as a remedy. Others in the audience echoed his sentiment that whistleblower claims are on the rise.

A fellow member on the Department of Labor Whistleblower Protection Advisory Committee, Greg Keating, represents defendants, and has noticed a significant increase in claims by in house counsel, as he told the Wall Street Journal recently. More alarmingly, a San Francisco federal judge found last month that board members can be held personally liable for retaliation under Sarbanes-Oxley and Dodd-Frank when they take part in the decision to terminate a whistleblower. This case of first impression involved the termination of a general counsel who complained of FCPA violations, but it is possible that other courts may…

Next week, the BLPB is hosting a micro-symposium organized by the AALS section on Agency, Partnership, LLCs, and Unincorporated Associations.  Confirmed participants include Joan MacLeod Heminway (BLPB editor), Dan Kleinberger, Jeff Lipshaw, Mohsen Manesh, and Sandra Miller.

The micro-symposium will explore the role of private ordering in LLCs and other alternative business entities, a broad topic that encompasses many interesting questions:

(1) To what extent, and in what ways, does contract play a greater role in LLCs and LPs than in otherwise comparable corporations? Is it helpful to conceptualize private ordering in this context as contractual?

(2) Does unfettered private ordering reliably advance the interests of even the most sophisticated parties? Does it waste judicial resources? In their book chapter, The Siren Song of Unlimited Contractual Freedom, two distinguished Delaware jurists, Chief Justice Leo Strine and Vice Chancellor J. Travis Laster, raise these concerns and argue in favor of more standardized fiduciary default rules. 

(3) Should the law impose fiduciary duties of loyalty and care as safeguards against abuse of the unobservable discretion managers enjoy because those duties reflect widely held social norms that most investors would expect to govern the conduct of managers?

(4) If…

My recent article:  Locked In: The Competitive Disadvantage of Citizen Shareholders, appears in The Yale Law Journal’s Forum.  In this article I examine the exit remedy for unhappy indirect investors as articulated by Professors John Morley and Quinn Curtis in their 2010 article, Taking Exit Rights Seriously.  Their argument was that the rational apathy of indirect investors combined with a fundamental difference between ownership of stock in an operating company and a share of a mutual fund.  A mutual fund redeems an investor’s fund share by cashing that investor out at the current trading price of the fund, the net asset value (NAV). An investor in an operating company (a direct shareholder) exits her investment by selling her share certificate in the company to another buyer at the trading price of that stock, which theoretically takes into account the future value of the company. The difference between redemption with the fund and sale to a third party makes exit in a mutual fund the superior solution over litigation or proxy contests, they argue, in all circumstances. It is a compelling argument for many indirect investors, but not all.

In my short piece, I highlight how exit remedies are…

The Department of Labor issued new interpretive guidelines for pension investments governed by ERISA.  A thorny issue has been to what extent can ERISA fiduciaries invest in environmental, social and governance-focused (ESG) investments?  The DOL previously issued several guiding statements on this topic, the most recent one in 2008, IB 2001-01, and the acceptance of such investment has been lukewarm. The DOL previously cautioned that such investments were permissible if all other things (like risk and return) are equal.  In other words, ESG factors could be a tiebreaker but couldn’t be a stand alone consideration. 

What was the consequence of this tepid reception for ESG investments?  Over $8.4 trillion in defined benefit and defined contribution plans covered by ERISA have been kept out of ESG investments, where non-ERISA investments in the space have exploded from “$202 billion in 2007 to $4.3 trillion in 2014.” 

In an effort to correct the misperceptions that have followed publication of IB 2008-01, the Department announced that it is withdrawing IB 2008-01 and is replacing it with IB 2015-01. 

The new guidance admits that previous interpretations may have

“unduly discouraged fiduciaries from considering ETIs and ESG factors. In particular, the Department is

…