Corporations

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This post highlights SIGA Technologies, Inc. v. PharmAthene, Inc., Del. Supr., No. 20, 2015 (Dec. 23, 2015).

At the end of 2015, the Delaware Supreme Court issued an opinion affirming its earlier holding that where parties have agreed to negotiate in good faith, a failure to reach an agreement based upon the bad faith of one party entitles the other party to expectation damages so long as damages can be proven with “reasonable certainty.”

Francis Pileggi, on his excellent Delaware Commercial and Business Litigation blog, provides a succinct summary of the case, available here.  The parties to the suit entered into merger negotiations to develop a smallpox antiviral drug.  Due to the uncertainty of the merger negotiations, the parties also entered into a non-binding license agreement, the terms of which would be finalized if the merger fell through for whatever reason.   While nonbinding, the preliminary license agreement contained detailed financial terms and benchmarks.  When the merger was terminated, SIGA proposed terms for a collaboration that departed from the preliminary license agreement.  The Delaware Supreme Court affirmed the Court of Chancery finding that SIGA’s acted in bad faith.  The question of the case became what damages were due from…

The AALS Section on Business Associations and Law is honoring 13 exemplary mentors for their contributions to scholarship, teaching and the development of new business law scholars.  Those honored were nominated by fellow members of the AALS Section.  The mentors will be recognized at the conclusion of the AALS BA Section meeting on January 8th (1:30-3:15) at the Annual AALS meeting in New York.  Please join me in congratulating our colleagues and thanking them for their contributions to our field.

-Anne Tucker

The AALS Annual meeting starts today in New York.  The full program is available here, and listed below are two Section meeting announcements of particular interest to business law scholars:

Thursday, January 7th from 1:30 pm – 3:15 pm the SECTION ON AGENCY, PARTNERSHIP, LLC’S AND UNINCORPORATED ASSOCIATIONS, COSPONSORED BY TRANSACTIONAL LAW AND SKILLS will meet in the Murray Hill East, Second Floor, New York Hilton Midtown for a program titled:

“Contract is King, But Can It Govern Its Realm?”  

The program will be moderated by Benjamin Means, University of South Carolina School of Law.  Discussants include:

  • Joan M. Heminway, University of Tennessee College of Law
  • Lyman P.Q. Johnson, Washington and Lee University School of Law
  • Mark J. Loewenstein, University of Colorado School of Law
  • Mohsen Manesh, University of Oregon School of Law
  • Sandra K. Miller, Professor, Widener University School of Business Administration, Chester, PA

BLPB hosted an online micro-symposium in advance of the Contract is King meeting.  The wrap up from this robust discussion is available here.

Friday January 8th, from 1:30 pm – 3:15 pm join the SECTION ON BUSINESS ASSOCIATIONS AND LAW
AND ECONOMICS JOINT PROGRAM at the Sutton South, Second Floor, New York Hilton Midtown for a program titled:

 “The Corporate …

Kent Greenfield recently published a provocative article with Democracy on ending Delaware’s dominance over corporate law.  As is Greenfield’s way, he makes a familiar story sound fresh and raises an interesting question.  Is it democratic for a state with less than 1% of the country’s population to have its laws control more than half of the Fortune 500 companies?  Greenfield says no.

Power without accountability has no democratic legitimacy. If companies could choose which state’s environmental, employment, or anti-discrimination law applied to them, we’d be outraged. We should be similarly outraged about Delaware’s dominance in corporate law.

Greenfield suggests two alternative paths for ending Delaware’s dominance.  First:  states could amend their business organization statutes so that the law of the state of incorporation (Delaware) doesn’t govern the corporation, rather the law of the principal place of business would.   Second, and perhaps more radically, nationalize corporate law.  

The undemocratic critique is an astute observation. It takes the debate outside of the “race to the bottom” standard trope and into territory with perhaps more broad public appeal.  Leaving aside the state competition for headquarters, tax base and jobs with solution one and potential political friction with solution two, both solutions address

On Saturday, January 9, 2016, I will be spending the day at the AALS Section on Socio-Economics Annual Meeting at the Sheraton New York Times Square Hotel.  Among other things, I will be part of a panel discussion from 9:50 – 10:50 AM, Death of the Firm: Vulnerabilities and the Changing Structure of Employment.  My co-panelists will be June Carbone and Katherine Stone (I am very tempted to give up my 15 minutes and just sit back and listen to these two great scholars, but please don’t use the comments section to encourage me to do that).  As I understand it, the gist of the discussion will be that while firms once supported a significant part of the safety net that provided employee health and retirement benefits, they have recently abdicated more and more of these responsibilities.  At the same time, however, what may be described as subsidies granted by the state to firms — particularly corporations — as part of a social contract whereby these firms provided the aforementioned benefits, have not been correspondingly reduced.  In fact, the rights of corporations have been expanded by, for example, cases like Citizens United and Hobby Lobby — suggesting a possible windfall…

Some day, I may tire of calling out courts (and others) that refer to limited liability companies (LLCs) as “limited liability corporations, but today is not that day. Looking back on 2015, I thought I’d take a quick look to see who the worst offenders were, starting with the state courts.  I figured I’d start with Delaware.

As a state that is proud of its status as a leader as a key forum of choice for corporations, and Delaware has done well for uncorporations, as well, it seemed logical.  The book Why Corporations Choose Delaware, written by Lewis S. Black, Jr., and printed and distributed by the Delaware Department of State,  Division of Corporation, explains:

Delaware continues to be the favored state of incorporation for U.S. businesses. Delaware has been preeminent as the place for businesses to incorporate since the early 1900s, and its incorporation business, supplemented by the growth in numbers of such “alternative entities” as limited liability companies, limited partnerships and statutory trusts, continues to grow smartly.

And Delaware does have a generally well-informed and skilled judiciary.  Still, even Delaware is not above calling an LLC a “limited liability corporation.” Better than many jurisdictions, Westlaw reports that the state had just…

This is the time of year when many people make New Year’s resolutions, and I suppose that law professors do so as well. I’m taking a break from teaching business associations next semester. Instead, I will teach Business and Human Rights as well as Civil Procedure II. I love Civ Pro II because my twenty years of litigation experience comes in handy when we go through discovery. I focus a lot on ethical issues in civil procedure even though my 1Ls haven’t taken professional responsibility because I know that they get a lot of their context from TV shows like Suits, in which a young “lawyer” (who never went to law school) has a photographic memory and is mentored by a very aggressive senior partner whose ethics generally kick in just in the nick of time. It will also be easy to talk about ethical issues in business and human rights. What are the ethical, moral, financial, and societal implications of operating in countries with no regard for human rights and how should that impact a board’s decision to maximize shareholder value? Can socially-responsible investors really make a difference and when and how should they use their influence? Those…

OK.  No more complaining about grading–at least for another few months.  Whew!  I think I am getting too old for this crazy few weeks in December that involve holiday preparations and reading for the purpose of assessment.

This week, as I promised last week, I do want to say a bit more about the exams themselves, however.  I noticed certain patterns of wrong answers this year (some of them common to ones noted in prior years that I have tried in various ways–unsuccessfully–to address in my teaching).  I sent a message to my students that captured those common mistakes.  An edited list of the observations I shared with them about those errors is included below.

  • Management/Control vs. Agency.  Management and control as an entity attribute is not the same as agency. The former involves internal governance–who among the internal constituents of the firm has the power to exercise the firm’s rights and keep it operating, from a legal (and practical) point of view. The latter relates to the firm’s liability to third parties. These two matters are set forth in different rules in each statute we covered in our course last semester. In the corporation, for example–the most complicated firm we studied,

…

The Pep Boys – Manny, Moe & Jack (NYSE:  PBY) merger triangle with Bridgestone Retail Operations LLC and Icahn Enterprises LP is proving to be an exciting bidding war.  The price and the pace of competing bids has been escalating since the proposed Pep Boys/Bridgestone agreement was announced on October 16, 2015.  Pep Boys stock had been trading around $12/share. Pursuant to the agreement, Bridgestone commenced a tender offer in November for all outstanding shares at $15.  

Icahn Enterprises controls Auto Plus, a competitor of Pep Boys, the nation’s leading automotive aftermarket service and retail chain.  Icahn disclosed an approximately 12% stake in Pep Boys earlier in December and entered into a bidding war with Bridgestone over Pep Boys.  The price climbed to $15.50 on December 11th, then $17.00 on December 24th. Icahn Enterprises holds the current winning bid at $18.50/share, which the Pep Boys Board of Directors determined is a superior offer.  In the SEC filings, Icahn Enterprises indicated a willingness to increase the bid, but not if Pep Boys agreed to Bridgestone’s increased termination fee (from $35M to 39.5M) triggered by actions such as perior proposals by third parties.  Icahn challenged such a fee as a serious threat to…

A quick break from grading for my year-end report on the use of “limited liability corporation” instead of the correct “limited liability company” when referring to LLCs.  Hold on to your hats. 

Since December 31, 2014, Westlaw reports the following using the term “limited liability corporation”:

The most concerning of these, though, is Proposed & Enacted Legislation View all 169.  That’s not just misstating the law; it’s trying to make incorrect law. 

For example, Massachusetts has the following proposed legislation from, Sen. Tarr, Bruce (R), with the following summary: ” An Act relative to limited liability corporation filing fees.”  2015 Massachusetts Senate Bill No. 238, Massachusetts One Hundred Eighty-Ninth General Court. Of course, the proposed change is to the state’s Limited Liability Company Act, Mass. Gen. Laws Ann. ch. 156C, § 12 (West 2015).  

And one proposed change to “limited liability corporations” is not sufficient for that state this year. Rep. Arciero, James (D), similarly proposed “An Act relative to limited liability corporations dealing with children.” 2015 Massachusetts House Bill No. 304, Massachusetts One Hundred Eighty-Ninth General Court. The sponsors of these…