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My seventy business associations students work in law firms on group projects. Law students, unlike business students, don’t particularly like group work at first, even though it requires them to use the skills they will need most as lawyers—the abilities to negotiate, influence, listen, and compromise. Today, as they were doing their group work on buy-sell agreements for an LLC, I started drafting today’s blog post in which I intended to comment on co-blogger Joan Heminway’s post earlier this week about our presentation at Emory on teaching transactional law.

While I was drafting the post, I saw, ironically, an article featuring Professor Michelle Harner, the author of the very exercise that my students were working on. The article discussed various law school programs that were attempting to instill business skills in today’s law students. Most of the schools were training “practice ready” lawyers for big law firms and corporations. I have a different goal. My students will be like most US law school graduates and will work in firms of ten lawyers or less. If they do transactional work, it will likely be for small businesses.  Accordingly, despite my BigLaw and in-house background, I try to focus a lot…

Many corporate governance professionals have been scratching their heads lately. In November, a federal judge in Delaware ruled that Wal-Mart had wrongfully excluded a shareholder proposal by Trinity Wall Street Church regarding the sale of guns and other products. Specifically, the proposal requested amendment of one of the Board Committee Charters to:

27. Provid[e] oversight concerning the formulation and implementation of, and the public reporting of the formulation and implementation of, policies and standards that determine whether or not the Company [i.e., Wal-Mart] should sell a product that:

1) especially endangers public safety and wellbeing;

2) has the substantial potential to impair the reputation of the Company; and/or

3) would reasonably be considered by many offensive to the family and community values integral to the Company’s promotion of its brand. 

Wal-Mart filed with the SEC under Rule 14a-8 indicating that it planned to exclude the proposal under the ordinary business operations exclusion. The SEC agreed that there was a basis for exclusion under 14a-8(i)(7), but the District Court thought otherwise because the proposal related to a “sufficiently significant social policy.” In mid-January Wal-Mart appealed to the Third Circuit arguing among other things that the district court should have deferred to…

Greetings from Dublin. Between the Guinness tour, the champagne afternoon tea, and the jet lag, I don’t have the mental energy to do the blog I planned to write with a deep analysis of the AALS conference in DC. I live tweeted for several days and here my top 25 tweets from the conference. I have also added some that I re-tweeted from sessions I did not attend. I apologize for any misspellings and for the potentially misleading title of this post:

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There are many Delaware cases from 2014 that are worth reading, but below are three relatively recent Delaware cases that I found worthwhile.  I provide the case name, my very short takeaway, and links to the case and additional commentary for those who wish to dive deeper.

In re Zhongpin Inc. Stockholders Litigation, controlling stockholders, decided Nov. 26, 2014. In denying a motion to dismiss, the Delaware Court of Chancery found a reasonable inference that a 17.3% stockholder/CEO could be a “controlling stockholder.” I have not done an exhaustive search on this issue, but this is a lower percentage of ownership for a “controlling stockholder” than I have seen in most cases, though (of course) the analysis is case specific. Additional commentary by Toby Myerson (Paul Weiss).

C.J. Energy Services, Inc. et al v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, M&A/Revlon, decided Dec. 19, 2014. The Delaware Court of Chancery held that “there was a ‘plausible’ violation of the board’s Revlon duties because the board did not affirmatively shop the company either before or after signing.” (pg. 3). The Delaware Court of Chancery enjoined the shareholder vote on the transaction at…

The Delaware Court of Chancery recently denied a motion to dismiss in In re Comverge, Inc. Shareholders Litigation. In this case, the plaintiff claimed bad faith by the board of directors that approved an allegedly unreasonable termination fee in a merger agreement. Transactional attorneys and professors who teach M&A will want to read this case.  

I am deep into grading my business associations exams, so I will outsource to a nice client alert on the case by Steven Haas at Hunton & Williams. A bit of the alert is below, and you can access the entire alert here.

The court then found that the termination fees of 5.55% of equity value (or 5.2% of enterprise value) during the go-shop period and 7% of equity value (or 6.6% enterprise value) after the go-shop period “test the limits of what this Court has found to be within a reasonable range for termination fees.” The court also analyzed the termination fee in connection with the convertible note held by the buyer in connection with the bridge financing. The plaintiff alleged that the conversion feature in the note, which allowed the buyer to purchase common stock at a price below the merger consideration, would

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Well, here we are at the end of another semester.  I just finished teaching my last class in our new, three-credit-hour, basic Business Associations offering.  (Next semester, I take my first shot at teaching a two-credit-hour advanced version of Business Associations.  More to come on that at a later date.)  The basic Business Associations course is intended to be an introduction to the doctrine and norms of business associations law–it is broad-based and designed to provide a foundation for practice (of whatever kind).  I hope I didn’t make hash out of everything in cutting back the material covered from the predecessor four-credit-hour version of Business Associations . . . .

I find teaching fiduciary duty in the corporations part of the basic Business Associations course more than a bit humbling.  There is a lot there to offer, and one can only cover so much (whether in a three-credit-hour or four-credit-hour course format).  Every year, I steel myself for the inevitable questions–in class, on the class website (TWEN), and in the post-term review session (scheduled for today at 5 PM)–about the law of fiduciary duty as it applies to directors.  This past weekend, I received a question in that category on…

I’m starting to think that courts are playing the role of Lucy to my Charlie Brown, and proper description of LLCs is the football.  In follow up to my post last Friday, I went looking for a case that makes clear that an LLC’s status as a disregarded entity for IRS tax purposes is insufficient to support veil piercing.  And I found one.  The case explains:

Plaintiff . . . failed to provide any case law supporting his theory of attributing liability to Aegis LLC because of the existence of a pass-through tax structure of a disregarded entity. Pl.’s Opp’n. [50]. Between 2006 and 2008, when 100% of Aegis LLC’s shares were owned by Aegis UK, Aegis LLC was treated as a disregarded entity by the IRS and the taxable income earned by Aegis LLC was reflected in federal and District of Columbia tax returns filed by Aegis UK. Day Decl. Oct. 2012 [48–1] at ¶ 37. In the case of a limited liability corporation with only one owner, the limited liability corporation must be classified as a disregarded entity. 26 C.F.R. § 301.7701–2(c)(2). Instead of filing a separate tax return for the limited liability corporation, the owner would

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Understandably, business law professors get upset when people who should know better- judges for example- mischaracterize LLCs. I say we should be even more angry at the law clerks drafting the opinions. Many judges had no exposure to LLCs in law school but clerks graduating today certainly have. 
 
Given the ubiquity of LLCs now, I was surprised to learn that among the many outstanding CALI (Computer-Aided Legal Instruction) lessons, there are none on LLCs. (Hat tip to co-blogger Steve Bradford- my students love him now). I have volunteered to work on at least one and maybe more in the coming months. I canvassed some colleagues for their must-haves for these LLC lessons. In no particular order, here’s the current list:
 

1) Difference between LLCs, corporations and partnerships 

2) Del. and ULLCA coverage of fiduciary duties, and especially the issue of contractual waiver and default 

3) Ease of formation
 
4) Expense of formation
 
5) Ease of maintenance    
 
6) Expense of maintenance
 
7) Restrictions re. business purpose or activity
 
8) Continuity of life/limitations on existence
 
9) Label for/characteristics (incl. transferability) of ownership interests
 
10) Restrictions re. owners (number, type, or other)
 
11) Authority to

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On Monday, The University of Tennessee (UT) College of Law hosted Larry Cunningham to talk about his book, Berkshire Beyond Buffett: The Enduring Value of Values, which he previewed with us here on the BLPB a few months ago in a series of posts (here, here, and here).  As you may recall, the book focuses on corporate culture and succession planning at Berkshire Hathaway.  Joining Larry at the book session was UT College of Law alumnus James L. (Jim) Clayton, Chairman and principal shareholder of Clayton Bank and the founder of Clayton Homes, one of the Berkshire Hathaway subsidiaries featured in the book.  The impromptu conversation between Larry and Jim was an incredible part of the event (although Larry’s prepared presentation on the book also was great).

As part of the event, Larry and Jim answered a variety of  audience questions.  Included among them was a question from UT College of Law Dean Doug Blaze on the role of lawyers in management,  transactions, and entrepreneurialism.  As part of Jim Clayton’s response, he noted the value of preventative lawyering–advising businesses to keep them out of trouble.  I was so glad, as a business law advisor…

My co-blogger Stefan Padfield passed along this article from The New York Times Dealbook on the social network Ello.

Ello is a Delaware public benefit corporation. The social enterprise terminology is proving difficult, even for sophisticated authors at the New York Times Dealbook. The article calls Patagonia and Ben & Jerry’s public benefit corporations. Patagonia, however, is a California benefit corporation. I wrote about the differences between public benefit corporations and benefit corporations here. Ben & Jerry’s is a certified B corporation, but, as far as I know, Ben & Jerry’s has not yet made the legal change to convert to any of the social enterprise forms. I wrote about the differences between benefit corporations and certified B corporations here and here. Just as my co-blogger Joshua Fershee remains vigilant at pointing out the differences between LLCs and corporations, so I will remain vigilant on the social enterprise distinctions. 

Besides my nitpicking on the use of social enterprise terminology, there are a few other things I want to say about this article.     

First, Ello raised $5.5 million dollars, which is not that much money in the financial world, but puts Ello in…