I teach both Civil Procedure and Business Associations. As a former defense-side commercial and employment litigator, I teach civ pro as a strategy class. I tell my students that unfortunately (and cynically), the facts don’t really matter. As my civil procedure professor Arthur Miller drilled into my head 25 ago, if you have procedure on your side, you will win every time regardless of the facts. Last week I taught the seminal but somewhat inscrutable Iqbal and Twombly cases, which make it harder for plaintiffs to survive a motion to dismiss and to get their day in court. In some ways, it can deny access to justice if the plaintiff does not have the funds or the will to re-file properly. Next semester I will teach Transnational Business and Human Rights, which touches on access to justice for aggrieved stakeholders who seek redress from multinationals. The facts in those cases are literally a matter of life and death but after the Kiobel case, which started off as a business and human rights case but turned into a jurisdictional case at the Supreme Court, civil procedure once again “triumphed” and the doors to U.S. courthouses closed a bit tighter for litigants.
Trick or Treat- A New Scary California Lawsuit Claims Failure to Disclose
Regular readers know that I write a lot about business and human rights and that I have posted about a number of lawsuits brought in California alleging violations of consumer protection statutes and false advertising claiming that companies fail to disclose the use of child slavery on their packaging. The complaints allege that consumers are deceived into “supporting” the child slave labor trade. The latest class action has been filed against Hershey, Mars, and Nestle. Back in 2001, these companies and several others signed the Engel-Harkin Protocol (drafted by Congressman Engel) in an effort to avoid actual FDA legislation regarding “slave-free” labeling. Nestle has touted its work with some of the world’s biggest NGOs to help clean up its supply chain for all of its human rights issues, not just in the cocoa industry. Nestle denies the allegations and actually has an extensive action plan related to child labor. Mars and Hershey also denied the allegations.
I am curious as to whether shareholders demand action from the boards of these companies or if the steady stream of litigation being filed in California causes companies to invest more in supply chain due diligence or to change where and how they source their
Issue Highlight: A Jury Not the SEC
Home court advantage alleged in SEC securities cases brought before administrative judges rather than a jury. Read this recent thought provoking article in the NYT DealB%k, A Jury Not the SEC, by Suja A. Thomas, a Univ. of Illinois law professor, and Mark Cuban, billionaire investor.
After losing several cases before juries, the S.E.C. went to a place where it generally cannot lose: itself. When it accuses a person of a securities violation, the S.E.C. has often brought the case in an administrative hearing where one of its own judges decides the case, not a jury. Rarely does the agency lose such cases before its judges
Thomas and Cuban refute the argument that after the financial crisis securities issues are considered public rights questions and can constitutionally be transferred to an administrative judge.
Despite the persistence of this public rights doctrine, there is no constitutional authority for it. First, Article I does not give Congress any authority to determine who decides civil cases. Second, the Seventh Amendment itself tells us who should decide these cases. Under it, juries decide money issues and federal judges decide other matters.
-Anne Tucker
Enforcing Corporate Social Responsibility Codes Under Private Law
How and when should CSR codes be enforced through litigation? This short article by Jan M. Smits attempts to answer that question. The abstract is below and the link to the article is here:
A central question in the debate on corporate social responsibility is to what extent CSR Codes can be enforced among private parties. This contribution argues that this question is best answered by reference to the applicable doctrinal legal system. Such a doctrinal approach has recently regained importance in American scholarship, while it is still the prevailing method of legal analysis in Europe. Applying a doctrinal analysis of CSR Codes allows to make the possibility of private law enforcement, i.e. enforcement by means of contract or tort, dependent on three different elements: the exact type of claim that is brought, the evolving societal standards about the binding nature of CSR Codes, and the normative complexity of the doctrinal system itself. This approach allows to make a typology of cases in which the enforceability of CSR Codes can be disputed. It is subsequently argued that societal standards have not yet reached the stage where the average consumer who buys a product from a retailer can keep that
Public Benefit Corporations: Take 2
Fellow BLPB editor Haskell Murray highlighted Laureate Education’s IPO (here on BLPB) last week as the first publicly traded benefit corporation. Steven Davidoff Solomon, the “Deal Professor” on Dealbook at NYT, focused on the interesting issues that can be raised by public benefit corporations in his article, Idealism That May Leave Shareholders Wishing for Pragmatism, which appeared yesterday. Among the concerns he raised were the vagueness of the “benefit”provided by the company, the potential laxity or at least untested waters of benefit auditing, and the potential for management rent seeking at the expense of shareholder profit in the new form. Davidoff Solomon, who (deliciously and derisively) dubs benefit corporations the “hipster alternative to today’s modern company, which is seen as voracious in its appetite for profits,” is certainly skeptical. But the concerns are valid and will have to be worked out successfully for this hybrid form to carve out a place in the securities market. What I found particularly interesting was his focus on the role of institutional investors, who as fiduciaries for their individual investors, have fiduciary obligations to pursue profits which may be in conflict with or at least require greater monitoring when investing in
SEC Mutual Fund Liquidity Risk Management Proposed Rule Overview
Two weeks ago I wrote my first in a series of posts on the SEC’s proposed liquidity and redemption rules for mutual funds. The first post, available here, focused on swing pricing. Today’s post will focus on the liquidity management proposals contained in the proposed rules to address liquidity risk.
The proposed rules would require all open end mutual funds (not UITs, closed-end funds or money management funds) to create a written liquidity management program and to disclose it to the SEC via the proposed forms N-CEN and N-PORT. Under the plan, funds would (1) classify and conduct ongoing reviews of liquidity of each of the fund’s positions in portfolio assets, (ii) assess and conduct periodic reviews of the fund’s liquidity risk, and (iii) manage the fund’s liquidity risk through a set-aside minimum portion of fund assets that are convertible within 3 business days at a price that does not materially affect the value of that asset immediately prior to sale.
Liquidity risk is born of concern that a fund “could not meet requests to redeem shares issued by the fund that are expected under normal conditions, or are reasonably foreseeable under stressed conditions, without materials affecting the fund’s net
Is CSR BS?
Today I will present on a panel with colleagues that spent a week with me this summer in Guatemala meeting with indigenous peoples, village elders, NGOs, union leaders, the local arm of the Chamber of Commerce, a major law firm, government officials, human rights defenders, and those who had been victimized by mining companies. My talk concerns the role of corporate social responsibility in Guatemala, but I will also discuss the complex symbiotic relationship between state and non-state actors in weak states that are rich in resources but poor in governance. I plan to use two companies as case studies.
The first corporate citizen, REPSA (part of the Olmeca firm), is a Guatemalan company that produces African palm oil. This oil is used in health and beauty products, ice cream, and biofuels, and because it causes massive deforestation and displacement of indigenous peoples it is also itself the subject of labeling legislation in the EU. REPSA is a signatory of the UN Global Compact, the world’s largest CSR initiative. Despite its CSR credentials, some have linked REPSA with the assassination last month of a professor and activist who had publicly protested against the company’s alleged pollution of rivers with
Diversity Jurisdiction and Terms of Art for Entities
This post is related to another great post from Tom Rutledge at the Kentucky Business Entity Law Blog, Diversity Jurisdiction and Jurisdictional Discovery: The Third Circuit Holds That “Hiding The Ball” Will Not Work. Tom’s post is about Lincoln Benefit Life Company v. AEI Life, LLC, No. 14-2660, 2015 WL 5131423, ___ F.2d__ (3rd Cir. Sept. 2, 2015), which is available here.
Lincoln Benefit allows a plaintiff, after a reasonable inquiry into the resources available (like court records and public documents), to allege complete diversity in good faith, if there is no reason to believe any LLC members share the same state of citizenship. Thus, the diversity claim can be made on “information and belief.” Tom explains that
While it may do nothing to address the fact that diversity jurisdiction may be unavailable consequent to de minimis indirect ownership . . . it does limit the ability of a defendant to “hide the ball” as to its citizenship while objecting that the other side has not adequately pled citizenship and therefore diversity.
This concern arises out of the fact that LLCs, as unincorporated associations, are treated like partnerships for purposes of federal diversity jurisdiction, meaning that an
A Dislike Button? This Could End Badly
The New York Times reports that Facebook may add a “dislike” button. I am with the many people (probably now all or mostly over 35) who use Facebook and have thought a dislike button would be a nice option.
“Just had a car accident.” “Lovely dog just passed.” “Kids barfing wildly.” Dislike.
But I assume Facebook has skipped this for a reason. That is, it could be used in a terrible manner.
“Proud to announce we’re engaged.” “Welcome to our new baby boy.” “This is my new painting.” Dislike.
I understand the desire for symmetry, but dislike is probably not the button for a good experience with Facebook. Maybe an “I’m sorry” or “That’s too bad” button, would work better. I don’t know, but when I put this blog post on Facebook, a little part of me will be happy there’s no dislike button.
Not that the lack of such a button ever stopped a snarky comment or six.
Wrong: U.S. Supreme Court & 4575 Other Cases Say an LLC is a Corporation
Limited liability companies (LLCs) are often viewed as some sort of a modified corporation. This is wrong, as LLCs are unique entities (as are, for example, limited partnerships), but that has not stopped lawyers and courts, including this nation’s highest court, from conflating LLCs and corporations.
About four and a half years ago, in a short Harvard Business Law Review Online article, I focused on this oddity, noting that many courts
seem to view LLCs as close cousins to corporations, and many even appear to view LLCs as subset or specialized types of corporations. A May 2011 search of Westlaw’s “ALLCASES” database provides 2,773 documents with the phrase “limited liability corporation,” yet most (if not all) such cases were actually referring to LLCs—limited liability companies. As such, it is not surprising that courts have often failed to treat LLCs as alternative entities unto themselves. It may be that some courts didn’t even appreciate that fact. (footnotes omitted).
I have been writing about this subject again recently, so I decided to revisit the question of just how many courts call LLCs “limited liability corporations” instead of “limited liability companies.” I returned to Westlaw, though this time