My former research assistant Sam Moultrie and his colleague Andrea Schoch Brooks have authored a short article entitled “Defining a Proper Purpose for Books and Records Actions in Delaware.“
The article unpacks two recent Delaware books and records cases: AbbVie and Citigroup. Worthwhile reading for those who wish to stay current on this area of the law.
Vice Chancellor Laster recently issued an opinion in In re Carlisle Etcetera, LLC (available here), that has the potential to encourage (or at least fail to punish) sloppy practices and unnecessarily expands equitable standing for judicial dissolution. In doing so, the case increases litigation risk for LLCs.
The case involves an LLC made up of two member parties that formed Carlisle Etcetera, LLC. (Carlisle): WU Parent and Tom James Co. (James). The LLC agreement called for a manager-managed board, that would serve as sole manager. WU Parent appointed two board designees, as did James. Board decisions required “unanimous approval.” At some point, for tax reasons, WU Parent assigned its membership interest to WU Sub. Thereafter, Carlisle identified WU Sub as a 50% member interest in tax filings and the LLC’s accountants referred to WU Sub as “an equal member” of the LLC. The parties discussed an updated LLC agreement that would have made clear that an initial member of the LLC could transfer ownership to a wholly owned affiliate that would retain membership status, though that agreement was never finalized.
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Last week the New York Times hosted a debate about the Public Corporation’s Duty to Shareholders. Contributors include corporate law professors Stephen Bainbridge, Tamara Belinfante, Lynn Stout, David Yosifan and Jean Rogers, CEO of Sustainability Accounting Standards Board.
This collection of essays is not only more interesting than anything that I could write, but it is also the type of short, assessable debate that would be a great starting point for discussion in a seminar or corporations class.
-Anne Tucker
On April 3, Delaware Governor Jack Markell signed the Delaware Rapid Arbitration Act (DRAA) into law. The DRAA becomes effective on May 4, 2015. The DRAA is a different take on the attempted Chancery Arbitration that the Third Circuit ruled unconstitutional in 2013.
Under the DRAA, all parties in the dispute must agree to the arbitration. The DRAA does not use sitting judges to arbitrate, as the Chancery Arbitration attempted to do, but the Delaware Court of Chancery will be “facilitating” the process under the DRAA. Among other things, the Delaware Court of Chancery can assist in appointing an arbitrator for the process, enter final judgments, and determine an arbitrator’s fees. The Delaware Supreme Court can hear appeals of awards.
The DRAA appears to be encouraging a relatively fast and cost effective dispute resolution process. The process is limited to 180 days – final award to be issued within 120 days of the arbitrator’s appointment and allowable extensions up to an additional 60 days.
Given the privacy and the apparent time and cost-savings, this may be an attractive alternative dispute resolution process for various businesses.
For more analysis see:
Yesterday, Prof. Bainbridge annotated my “creed” on corporate governance, and I appreciated his take. In fact, many of his chosen sources would have been mine.
In a later footnote, he noted that he was not sure what I meant by my statement: “I believe that public companies should be able to plan like private companies . . . .” I thought I’d try to explain.
My intent there was to address my perception that there is a prevailing view that private companies and public companies must be run differently. Although there are different disclosure laws and other regulations for such entities that can impact operations, I’m speaking here about the relationship between shareholders and directors when I’m referencing how public and private companies plan.
Public companies generally have far more shareholders than private companies, so the goals and expectations of those shareholders will likely be more diverse than in a private entity. Therefore, a public entity may need to keep multiple constituencies happy in a way many private companies do not. However, that is still about shareholder wishes, and not the public or private nature of the entity itself. A private company with twenty shareholders could crate similar
The biggest recent news in the social enterprise world is that certified B corporation Etsy is going public.
Despite confusing press releases, Etsy is not legally formed as a benefit corporation, they are only certified by B Lab. (In one of the coolest comments I have received blogging, an Etsy representative admitted that they confused the “benefit corporation” and “certified B corporation” terms and corrected their public statements). If you are new to social enterprise, the differences between a “certified B corporation” and a “benefit corporation” are explained here.
Etsy, however, will face a dilemma as noted in this article sent to me by Alicia Plerhoples (Georgetown). The B Lab terms for certified B corporations require Etsy to convert to a public benefit corporation (Delaware’s version of the benefit corporation) within four years of the Delaware law becoming effective. Delaware’s public benefit corporation law went effective August 1, 2013.
So, unless B Lab changes its terms, Etsy will lose its certified B corporation status if it does not convert to a public benefit corporation on or before August 1, 2017.
Given that converting to a public benefit corporation while publicly-traded would be extremely difficult–obtaining the necessary
Prof. Bainbridge yesterday posted about The Modern Corporation Statement on Company Law. The statement has ten fundamental rules, of which number ten is:
Contrary to widespread belief, corporate directors generally are not under a legal obligation to maximise profits for their shareholders. This is reflected in the acceptance in nearly all jurisdictions of some version of the business judgment rule, under which disinterested and informed directors have the discretion to act in what they believe to be in the best long term interests of the company as a separate entity, even if this does not entail seeking to maximise short-term shareholder value. Where directors pursue the latter goal, it is usually a product not of legal obligation, but of the pressures imposed on them by financial markets, activist shareholders, the threat of a hostile takeover and/or stock-based compensation schemes.
Prof. Bainbridge is with Delaware Chief Justice Strine in that profit maximization is the only role (or at least only filter) for board members. As he asserts, “The relationship between the shareholder wealth maximization norm and the business judgment rule, . . . explains why the business judgment rule is consistent with the director’s “legal obligation to maximise profits for
The Fordham Journal of Corporate and Financial Law recently published a March 6, 2014, lecture from Former Delaware Supreme Court Chief Justice Myron T. Steele, Continuity and Change in Delaware Corporate Law Jurisprudence (available on Westlaw, but fee may apply). As an aside, I’ll note that it appears to have taken a full calendar year for this to get published (at least on Westlaw), which seems crazy to me. If there’s any question why legal blogs can fill such a critical role in providing timely commentary on legal issues, this is a big part of the answer.
In the lecture, Chief Justice Steele discusses three main areas: (1) multi-forum jurisdiction, (2) shareholder activism, and (3) the Nevada, Delaware, and North Dakota Debate (a “competition for charters”).
As to multi-forum jurisdiction, he makes the unsurprising point that Delaware courts are of the view that first impressions of the Delaware General Corporation Law or other “internal affairs doctrine” issues should be handled in Delaware courts. Of note, he explains that the Delaware constitution (art. IV, § 11(8)) now allows federal courts, the top court from any state, the SEC, and bankruptcy courts to certify questions directly to the Delaware
The Chancery Daily reports that Governor Markell has nominated Collins “C.J.” Seitz, Jr. to the Delaware Supreme Court. The January 31, 2015 retirement of Justice Henry duPont Ridgely created the vacancy.
C.J. Seitz, Jr. has over thirty years of corporate/commercial/IP litigation experience and is a respected, influential member of the Delaware bar. He has also served as mediator, arbitrator, or special master in numerous cases. He currently serves as a founding partner of Seitz Ross Aronstam & Moritz LLP.
Joan Heminway and I must be thinking similar thoughts because before I even saw her helpful post on business law jobs, I asked my former research assistant Samuel Moultrie to share his thoughts and advice on finding legal employment in this economic environment.
Sam is one of the hardest workers I know and took his job search seriously. He also took a big risk by going beyond the typical employers we had recruiting on campus when we were at Regent Law – mostly non-profits, government agencies, and a few VA and NC law firms. Sam wanted to practice in the state that has the greatest influence on U.S. corporate law and has made it happen. His journey was not and is not easy, but I thought his story might be inspiring. Recently, Sam was also selected as a 2015 Leadership Delaware Fellow. Sam’s thoughts on finding legal employment are reproduced below.
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By: Samuel L. Moultrie
The job market for recent law school graduates is, without a doubt, miserable. While the statistics seem to vary, I think it is safe to say that the supply of new law school graduates exceeds the number of legal job openings. Nevertheless, graduates should not lose all hope. Any law school graduate can find a job, if they are motivated, willing to work hard, and take steps to distinguish themselves.
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