Business Associations

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A recent Illinois case uniquely applied the alter ego doctrine in the context of a criminal case.  See People v. Abrams, 47 N.E.3d 295, ¶¶ 57-61, 399 Ill. Dec. 790 (2015) ( slip op. PDF here ).  In my view, not quite right, either.

In the case, the defendant (Abrams) stole $1.87 million from the victim (Lev), which led to a restitution order for that amount and a twelve-year prison sentence for Abrams.  The conviction was for a Class 1 felony, for the the theft of property exceeding $500,000.  Id.¶ 23 (citing 720 Ill. Comp. Stat. Ann. 5/16-1(a(2) (West 2012)).  The statute provides, “Theft of property exceeding $500,000 and not exceeding $1,000,000 in value is a Class 1 non-probationable felony.” 720 Ill. Comp. Stat. Ann. 5/16-1(b)(6.2). 

On appeal, the defendant argued the indictment was wrong in that it stated the money was stolen from Lev, when most of the money actually belonged to Lev’s company, The Fred Lev Company (presumably a corporation, but that is not stated expressly).   Abrams claimed: 

the State did not prove he obtained “unauthorized control” of more than $500,000 of Lev’s property. Abrams recognizes the evidence presented at trial established that over $1.8 million was taken. Abrams contests the finding that

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This is not a pipe dream!  I honestly believe that in the fall of 2017, this will be a reality for me.  (I typically teach Business Associations in the fall semester to a large number of students who understand “cases,” not “deals.”)

The reason for my good spirits and honest belief in the positive change in my students?  Our new 1L curriculum, which is rolling out this fall.  No doubt, we will find some changes that need to be made as we implement our relatively bold plan.  But I am truly excited that the new first-year curriculum exposes every student to a transactional experience in the first year of law school.  

There are many reasons for implementing this kind of change, of course.  Among other things, this new approach to the first year at UT Law responds to suggestions that we got from our students and represents an effort to better connect the 1L year to our upper division curriculum (on which we have spent a lot of time over the years).  The new 1L transactional offering is part of a larger plan constructed by a College of Law committee, chaired by my colleague (and e-discovery queen) Paula Schaefer, that spent several years looking…

I’m at the MALSB Conference in Chicago, but saw Anita Krug’s recently posted book chapter entitled Toward Better Mutual Fund Governance. Worth reading. Abstract below.

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This chapter evaluates the implications of an emerging model of mutual fund governance for effective oversight and regulation. As in the traditional model, in which a board of directors or trustees serves as the board of multiple discrete funds managed by a single investment adviser, this alternative model similarly contemplates the creation of multiple funds, but it eschews a single investment adviser charged with managing each fund’s assets. Rather, there are numerous advisers, each managing one or a small number of funds within the group. Although the new model may portend an improvement over the traditional model in some respects, questions arise as to whether it introduces concerns of its own and whether those concerns are more or less manageable than those to which the traditional model gives rise. The chapter contends that, although the new model produces risks not associated with the traditional model, there are reasons to believe, at least preliminarily, that it is at least as effective as the traditional model.

There are those I-need-to-pinch-myself moments in life that come along every once in a while.  I was lucky enough to have one last week.  I was invited to attend a conference and comment on two interesting draft papers written by two law faculty colleagues whose work I have long admired and who are lovely people.  And the location was Miami Beach.  Does it get any better than that for a law professor who likes the beach?  I think not.

The event was the annual conference for the Institute for Law and Economic Policy (ILEP).  The conference theme was “Vindicating Virtuous Claims.”  The papers will be published in the Duke Law Journal, which co-sponsored the program. 

I will save details on the papers for later (when the papers are finalized).  But I will briefly describe each here.  The first paper on which I commented, written by Rutheford B (“Biff”) Campbell (University of Kentucky College of Law), argues for federal preemption of state securities regulation governing the offer and sale of securities, since federal preemption would be more efficient.  The second paper, written by James D. (“Jim”) Cox (Duke University School of Law, who was honored at the event and received the most amazing tribute from his Dean, David Levi, at…

Benjamin Means and Joseph Seiner, both of University of South Carolina School of Law, have an interesting article out entitled Navigating the Uber Economy. Work is changing quickly, and the employment/independent contractor line is becoming more difficult to draw. The abstract is reproduced below and the article is available here. Last July, Anne Tucker authored a blog post related to this issue, available here. 

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In litigation against ride-sharing companies Uber and Lyft, former drivers have alleged that they were misclassified as independent contractors and denied employment benefits. The companies have countered that they do not employ drivers and merely license access to a platform that matches those who need rides with nearby available drivers. At stake are the prospects, not only for Uber and Lyft, but for a nascent, multi-billion dollar “on-demand” economy.

Unfortunately, existing laws fail to provide adequate guidance regarding the distinction between independent contractors and employees, especially when applied to the hybrid working arrangements characteristic of a modern economy. Under the Fair Labor Standards Act and analogous state laws, courts consider several factors to assess the “economic reality” of a worker’s alleged employment status; yet, there is no objective basis for prioritizing those factors.

This Essay…

I feel badly for Chipotle. When I have taught Business Associations, I have used the chain’s Form 10-K to explain some basic governance and securities law principles. The students can relate to Chipotle and Shake Shack (another example I use) and they therefore remain engaged as we go through the filings. Chipotle has recently been embroiled in a public relations nightmare after a spate of food poisonings occurred last fall and winter, a risk it pointed out in its February 2015 10-K filings. The stock price has fluctuated from $750 a share in October to as low as $400 in January and then back to the mid $500 range. After some disappointing earnings news the stock is now trading at around $471.

Clean Yield Group, concerned that the company will focus only on bringing its stock back to “pre-crisis levels,” filed a shareholder proposal March 17th asking the company to link executive compensation with sustainability efforts. The proposal claims that the CEO was overpaid by $40 million in 2014 and states in part:

A number of studies demonstrate a firm link between superior corporate sustainability performance and financial outperformance relative to peers. Firms with superior sustainability performance were more likely…

I usually look forward to the Olympics for months, if not years, before they start.

This year, however, all of the doping news, and buzz around Rule 40 has left me less enthusiastic.

For now, I am going to leave the doping news to one side, and focus on Rule 40.

From July 27 to August 24, 2016, Rule 40, prohibits Non-Olympic Commercial Partners from using the word “Olympics” and (depending on context) “Olympic-related terms,” including:

  • 2016
  • Rio/Rio de Janeiro
  • Gold
  • Silver
  • Bronze
  • Medal
  • Effort
  • Performance
  • Challenge
  • Summer
  • Games
  • Sponsors
  • Victory
  • Olympian

Now, I understand why the International Olympic Committee (“IOC”) and the U.S. Olympic Committee (“USOC”) might want these restrictions (given the large sums of money official sponsors pay), and from what I understand from experts in this specific area, the IOC & USOC may have a defensible legal stance.

This, however, seems one of the many areas where (1) the law has not kept up with advances in technology, namely social media, and (2) even if the IOC & USOC are right on the law, they may lose in the court of public opinion. Here, it seems, there is a good bit of difference between a company running a detailed TV-ad noting that it sponsors…

If you follow sports related news, you know that tennis star Maria Sharapova recently tested positive for a banned performance enhancing drug called Meldonium. Details here and here and here.  According to one source, over 60 athletes have tested positive for Meldonium this year; the drug was just recently added the banned substances list. Sharapova claims she was unaware that she was taking a banned substance. 

A number of Sharapova’s biggest sponsors have suspended or ended their relationship with her and/or delayed planned events. These sponsors include, Nike, Porsche, and TAG Heuer. Head and Evian appear to be sticking with her. Head chairman Johan Eliasch claimed that Sharapova simply made an “honest mistake.”

The companies that have cut ties with Sharapova have likely been able to do so through what is often called a morals clause or a morality clause in the endorsement contract. Some background on morals clauses can be found here and here and here. And here is an interesting contract law question from Eric Goldman that involves morals clauses. 

Some of our December graduates haven just taken the Florida bar exam. As always, I asked them about the business associations questions. Florida drastically changed its LLC rules in 2014, but still hasn’t asked any questions about LLCs, focusing instead on partnerships and corporations (at least according to the students). From a review of the released questions, the bar didn’t ask about LLCs before the amendments either.

I teach BA again next year and I’m struggling with what to emphasize. Business Associations is not required in many Florida law schools, but it is at St. Thomas, and many students enter the class with trepidation. Most will only take the one required course and won’t go on to advanced classes in securities regulation, corporate taxation, or other drafting courses. I try to focus the required BA class on skills that graduates will need in the workplace in addition to preparing them for the bar by using released test questions. Now I wonder how to balance the tension between the rise of LLCs and the many changes in laws related to securities regulation with the bar’s continued focus on partnerships and traditional corporations.

Yesterday the Obama administration added Miami to the list…

Fellow BLPB editor, Stefan Padfield, raised some insightful questions on the continued reach and impact of defacto corporation doctrines and corporation by estoppel in an earlier, offline conversation.  [Stefan uses my Business Organizations casebook offered on the electronic platform ChartaCourse and was graciously providing me some feedback].  The conversation raised two related groups of questions. First what is the continued import and application of defacto corporation doctrine in a world of standardized incorporation processes.  Long gone are the days of lost mail (lost Email maybe) and corrections can be made nearly instanteously and will relatively little cost in the event of typos or other defects.  To what extent does the de facto doctrine, long a staple of the survey law school course on corporations, still play a relevant role in practice. I understand all of the doctrinal reasons law professors may want to continue to teach it because it tests the outer limits of the substance over form debate in corporations and the begs the questions how fragile or strong is the legal fiction of separately incorporated entities.  It is nearly as fun as piercing the corporate veil!  But in [insert finger quotes here] “real life” or “practice” how relevant is…