Corporations

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General Electric (GE)  and Baker Hughes (BHI) announced on Monday, October 31st, a proposed merger to combine their oil and gas operations.  GE and Baker Hughes will form a partnership, which will own a publicly-traded company.   GE shareholders will own 62.5% of the “new” partnership, while Baker Hughes shareholders will own 37.5% and receive a one-time cash dividend of $17.50 per share.  The new company will have 9 board of director seats:  5 from GE and 4 from Baker Hughes.  GE CEO Jeff Immelt will be the chairman of the new company and Lorenzo Simonelli,  CEO of GE Oil & Gas, will be CEO. Baker Hughes CEO Martin Craighead will be vice chairman.

Reuters is describing the business synergies between the two companies as leveraging GE’s oilfield equipment manufacturing (“supplying blowout preventers, pumps and compressors used in exploration and production”) and data process services with Baker Hughes’ expertise in ” horizontal drilling, chemicals used to frack and other services key to oil production.”

Baker Hughes had previously proposed a merger with Halliburton (HAL), which failed in May, 2016, after the Justice Department filed an antitrust suit to block the merger. Early analysis suggests that the proposed GE & Baker Hughes will pass regulatory scrutiny because of the limited business overlap of GE and Baker Hughes.

As I plan to tell my corporations students later today: this is real life!  A high-profile, late-semester merger of two public companies is a wonderful gift.  The proposed GE/Baker Hughes merger illustrates, in real life, concepts we have been discussing (or will be soon) like partnerships, the proxy process, special shareholder meetings, SEC filings, abstain or disclose rules, and, of course, mergers.

I often complain about courts and their unwillingness to require plaintiffs to make appropriate claims about veil piercing in the context of limited liability companies (LLCs).  That is, courts too often allow plaintiffs to seek to “pierce the corporate veil” of LLCs, which (of course) do not have corporate veils.  They have limited liability veils, but they are decidedly not corporate.  I will complain about that again, but in the process, I will note that the court does a great job of general veil piercing analysis that is worthy noting.  
 
In Skanska USA Bldg. Inc. v. Atl. Yards B2 Owner, LLC, on Oct. 20, 2016, the Supreme Court, Appellate Division, First Department, New York, decided to dismiss a veil piercing claim based on what I see as very sound reasoning.  I would have like the court to note it was not a corporation, and instead an LLC, that the plaintiff sought to pierce, but nonetheless, I think the court got the rest right.  The court found that the plaintiff failed to plead a sufficient veil–piercing claim and explained, “both parties were very sophisticated, and negotiated in minute detail all aspects of their agreements to build

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The Association of American Law Schools (AALS) Annual Meeting will be held Tuesday, January 3 – Saturday, January 7, 2017, in San Francisco.  Readers of this blog who may be interested in programs associated with the AALS Section on Socio-Economics & the Society of Socio-Economics should click on the following link for the complete relevant schedule: 

Download Socio-Economic AALS Participants + Descriptions 161018

Specifically, I’d like to highlight the following programs:

On Wednesday, Jan. 4:

9:50 – 10:50 AM Concurrent Sessions:

  1. The Future of Corporate Governance:
    How Do We Get From Here to Where We Need to Go?
    andre cummings (Indiana Tech)                            Steven Ramirez (Loyola – Chicago)
    Lynne Dallas (San Diego) – Co-Moderator        Janis Sarra (British Columbia)
    Kent Greenfield (Boston College)                        Faith Stevelman (New York)
    Daniel Greenwood (Hofstra)                                 Kellye Testy (Dean, Washington)
    Kristin Johnson (Seton Hall)                                 Cheryl Wade (St. John’s ) Co-Moderator
    Lyman Johnson (Washington and Lee)
  2. Socio-Economics and Whistle-Blowers
    William Black (Missouri – KC)                                 Benjamin Edwards (Barry)
    June Carbone (Minnesota) – Moderator             Marcia Narine (St. Thomas)

1:45 – 2:45 PM Concurrent Sessions:

1. What is a Corporation?
Robert Ashford (Syracuse) Moderator                             Stefan Padfield (Akron)
Tamara Belinfanti (New York)                                             Sabeel Rahman (Brooklyn)
Daniel Greenwood (Hofstra)

On Thursday, Jan. …

*The guest post is contributed by Itai Fiegenbaum who teaches corporate law at Tel Aviv University and Ramat Gan College of Law and Business.  

Today’s post continues the discussion started by Anne’s informative post regarding the law of controlling stockholders. Anne astutely notes that the MFW “enhanced ratification” framework was rendered in connection with a going private merger. Although I recognize the intuitive appeal, I wish to call into question the impact of MFW’s holding on other manners of controlling shareholder transactions.

Going private transactions differ from going concern transactions in that their successful completion wipes out the minority float. This distinction accelerates stockholders’ divergent incentives and raises the possibility for minority stockholder abuse. An unscrupulous controller might structure the transaction in a manner that captures all unlocked value for later private consumption. Going private transactions allow controlling stockholders to shed the restrictions of the public market, thereby evading future retribution by minority stockholders. Policy considerations accordingly call for superior protection of minority stockholders participating in a going private transaction.

Since MFW establishes a procedure for achieving less intrusive judicial review for going private transactions, it stands to reason that this procedure should apply to all…

Assume a state trial court issues an opinion in a particular case and the case is not appealed.  Should a legal scholar using the opinion to support or refute a key point (in the text of a written work) characterize the weight or status of the opinion (e.g., noting that it is a trial court opinion and that is has not been appealed)?  Justify your answer.

If the trial court at issue is the Delaware Chancery Court and the opinion addresses matters under the Delaware General Corporation Law, does that alter your answer?  Why?  Why not?

I am having fun considering these issues today in connection with my work on a symposium paper.  I have not yet decided how to handle the specific matter that raises the questions.  Accordingly, it seemed like a good idea at this juncture to share my questions and seek collaboration in answering them . . . .

Today I used Wells Fargo as a teaching tool in Business Associations. Using this video from the end of September, I discussed the role of the independent directors, the New York Stock Exchange Listing Standards, the importance of the controversy over separate chair and CEO, 8Ks, and other governance principles. This video discussing ex-CEO Stumpf’s “retirement” allowed me to discuss the importance of succession planning, reputational issues, clawbacks and accountability, and potential SEC and DOJ investigations. This video lends itself nicely to a discussion of executive compensation. Finally, this video provides a preview for our discussion next week on whistleblowers, compliance, and the board’s Caremark duties.

Regular readers of this blog know that in my prior life I served as a deputy general counsel and compliance officer for a Fortune 500 Company. Next week when I am out from under all of the midterms I am grading, I will post a more substantive post on the Wells Fargo debacle. I have a lot to say and I imagine that there will be more fodder to come in the next few weeks. In the meantime, check out this related post by co-blogger Anne Tucker.

I am preparing to teach the doctrine on controlling shareholders in my corporations class tomorrow, and found the recent Delaware opinions on non-controlling shareholder cleansing votes and the BJR to be helpful illustrations of the law in this area.

In summer 2016, the Delaware Court of Chancery dismissed two post-closing actions alleging a breach of fiduciary duty where there was no controlling shareholder in the public companies, where the stockholder cleaning vote was fully informed, and applied the 2015 Corwin business judgment rule standard.  The cases are City of Miami General Employees’ & Sanitation Employees’ Retirement Trust v. Comstock, C.A. No. 9980-CB,  (Del. Ch. Aug. 24, 2016) (Bouchard, C.) and Larkin v. Shah, C.A. No. 10918-VCS, (Del. Ch. Aug. 25, 2016) (Slights, V.C.), both of which relied upon  Corwin v. KKR Financial Holdings, LLC, 125 A.3d 304 (Del. 2015).  (Fellow BLPB blogger Ann Lipton has written about Corwin here).

The Larkin case clarified that Corwin applies to duty of loyalty claims and will be subject to the deferential business judgment rule in post-closing actions challenging non-controller transactions where informed stockholders have approved the transaction.   The Larkin opinion states that:

(1) when disinterested, fully informed, uncoerced stockholders approve a transaction

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Here we go again: 

Plaintiff seeks to collect the outstanding balance owed from Defendant Healthcare Enterprises, L.L.C. d/b/a Princesse Pharmacy and Defendant Octavio RX, Enterprises, L.L.C., d/b/a Christian’s Pharmacy & Medical Supplies (collectively “Corporate Defendants”) as well as Defendant Christian. (Dkt. No. 13 at 3). Plaintiff alleges that Corporate Defendants “are shell corporations or alter egos of [Defendant] Christian, owner of the different establishments known as Princesse Pharmacy, [and] Christian’s Pharmacy & Medical Supplies.”
Cesar Castillo, INC. v. Healthcare Enterprises, L.L.C., CV 2012-108, 2016 WL 5660437, at *1 (D.V.I. Sept. 27, 2016). 
 
So, the “Corporate Defendants” are actually formed as a limited liability company (LLC).  As so often happens, the court get this wrong. This is one of the challenges that come from veil piercing law that treats all such cases a “piercing the corporate veil” instead of “piercing the entity veil” or piecing the veil of limited liability.”  The court ultimately dismisses the veiling piercing claim as to Christian individually because there were no factual allegations in the complaint sufficient to support veil piercing.  I would have dismissed it for making an impossible assertion.  Following is the from th complaint: 
The defendants Octavio Rx Enterprises, LLC and Healthcare

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Fresh from the presidential debate,** I find myself writing about board room diversity.*** Over the 2016 summer, SEC Chairwoman Mary Jo White signaled intent to revisit diversity in U.S. boardrooms.  In 2009 the SEC adopted a diversity disclosure rule requiring companies to disclose how their nominating committees considered diversity and whether the company had a diversity policy. The full rule can be viewed here.  The SEC did not define (nor did it mandate a singular definition of ) diversity, and companies have been left to define diversity individually, often without regard to gender, ethnic, racial or religious identities.  The result, criticized by Chairwoman White,  has been vague disclosures without apparent impact. 

SEC diversity rule making (past and future) was the backdrop for a recent corporate governance seminar class where I asked students:  Why should they care about board room diversity? And if the 2009 disclosure rule changes, how should it change? How do other countries approach the issue of boardroom diversity?  Can it be a mandated or legislated endeavor?  To guide our discussion we read  Aaron A Dhir’s brilliant and thorough: Challenging Boardroom Homogeneity: Corporate Law, Governance and Diversity and consulted Catalyst.org to understand the panoply of diversity choices…

Lately, I’ve been researching the twelve nation Trans-Pacific Partnership Treaty (“TPP”) because I am looking at investor-state dispute settlements (ISDS) in my work in progress proposing a model bilateral investment treaty between the U.S. and Cuba.

The TPP, which both Trump and Clinton oppose, has the support of U.S. business. Although President Obama has pushed the treaty as part of his legacy, just this morning, Vice-President Biden added his pessimistic views about its passage. More interestingly, over 220 law and economics academics, led by Harvard’s Laurence Tribe, have come out publicly to oppose TPP, stating:

ISDS grants foreign corporations and investors a special legal privilege: the right to initiate dispute settlement proceedings against a government for actions that allegedly violate loosely defined investor rights to seek damages from taxpayers for the corporation’s lost profits. Essentially, corporations and investors use ISDS to challenge government policies, actions, or decisions that they allege reduce the value of their investments… Through ISDS, the federal government gives foreign investors – and foreign investors alone – the ability to bypass th[e] robust, nuanced, and democratically responsive legal framework. Foreign investors are able to frame questions of domestic constitutional and administrative law as treaty claims…