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Once again, a court seems to arrive at the correct outcome, while making mistakes in the describing entity type. As usual, the court mislabeled a limited liability company (LLC).  Here we go:  

Andrea and Timothy Downs each held a 50% interest in a corporation, Downs Holdings, Inc. It held limited liability corporation (“LLC”) and limited partnership (“LP”) ownership interests. Eventually, the Downs agreed to dissolve the corporation and, as shareholders, passed a corporate resolution electing dissolution.

In re: ANDREA STEINMANN DOWNS, Debtor. NORIO, INC., Appellant, v. THOMAS H. CASEY, Chapter 7 Tr., Appellee., No. 8:16-BK-12589-CB, 2019 WL 6331564, at *1 (B.A.P. 9th Cir. Nov. 25, 2019) (emphasis added). 
 
The Downs did not follow the necessary formalities to dissolve Downs Holdings, Inc., and had instead ask that the corporation’s management company “distribute the payments and monies owed to Downs Holdings to each shareholder separately, 50% to Mr. Downs and 50% to Ms. Downs.” Id. Further, it appeared that the Downs asked to be treated as separate interest holders for both the LLC and LP. Id. Ms. Downs later borrowed $50,000 from Norio, Inc. and pledged pledged her claimed interests in the LLC and the LP as collateral. Id. at

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Many of us teach Francis v. United Jersey Bank, 432 A. 2d 814 (N.J. 1981), in Business Associations courses as an example of a substantive duty of care case.  The case involves a deceased woman, Lillian Pritchard, who, in her lifetime, did nothing as a corporate director to curb her sons’ conversions of corporate funds.  The court finds she has breached her duty of care to the corporation, stating that:

Mrs. Pritchard was charged with the obligation of basic knowledge and supervision of the business of Pritchard & Baird. Under the circumstances, this obligation included reading and understanding financial statements, and making reasonable attempts at detection and prevention of the illegal conduct of other officers and directors. She had a duty to protect the clients of Pritchard & Baird against policies and practices that would result in the misappropriation of money they had entrusted to the corporation. She breached that duty.

Id. at 826.  In sum:

by virtue of her office, Mrs. Pritchard had the power to prevent the losses sustained by the clients of Pritchard & Baird. With power comes responsibility. She had a duty to deter the depredation of the other insiders, her sons. She breached that…

Churchill'sPort

Avid BLPB readers may have noticed that I failed to post on Monday of last week.  I was traveling from Portugal to Spain that day.  I did plan to make this post then, but travel scrambles (thanks to the Porto metro) and delays (thanks to Ryanair) prevented me from getting to a computer with Internet access until late in the day.  By then, I was too exhausted to post.  So, you get last Monday’s post this Monday!  No harm done; this post is not time-sensitive.

Ever heard of Graham’s port?  The Graham’s port lodge was founded by brothers William and John Graham back at the beginning of the 18th century.  Fast-forward 150 years, and the Graham family sells the then-very-successful Graham’s port business to another family.  That second family still runs the Graham’s business today.

But a Graham descendant still wanted to be in the port business.  He thought he had a “better way.”  So, 11 years after the Graham family sold Graham’s, John Graham (not the same one, obviously!) established the Churchill port lodge.  Here’s what the Churchill’s website says about its formation as a business:

Churchill’s was founded in 1981 by John Graham, making it…

So, this post is about shameless self-promotion and a cautionary tale.  A while back I was asked to write the West Virginia section of Texas A &M Journal of Property Law’s Oil and Gas Survey.  It’s a short overview of recent developments, and one of the many perils of the law review process is how long such things take to get to print.  

Even worse than a slow timeline, a miscommunication meant that my final round of edits did not make it into the piece, and there are a couple of errors. The editors were appropriately apologetic, and I know it all happened in good faith.  I take some ownership, too, in that I was not at all demanding about knowing the schedule for the next round of edits or the overall timeline.

Ultimately, despite the (nonsubstantive) errors, I hope the piece will be helpful to some folks. There are some interesting oil and gas cases happening in West Virginia (and around the country), and how they turn out could have a significant impact on the oil and gas business.  

Here’s the abstract to my article, which you can find here: 

This Article summarizes and discusses

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A recent case in Washington state introduced me to some interesting facets of Washington’s recreational marijuana law.  The case came to my attention because it is part of my daily search for cases (incorrectly) referring to limited liability companies (LLCs) as “limited liability corporations.”  The case opens: 

In 2012, Washington voters approved Initiative Measure 502. LAWS OF 2013, ch. 3, codified as part of chapter 69.50 RCW. Initiative 502 legalizes the possession and sale of marijuana and creates a system for the distribution and sale of recreational marijuana. Under RCW 69.50.325(3)(a), a retail marijuana license shall be issued only in the name of the applicant. No retail marijuana license shall be issued to a limited liability corporation unless all members are qualified to obtain a license. RCW 69.50.331(1)(b)(iii). The true party of interest of a limited liability company is “[a]ll members and their spouses.”1 Under RCW 69.50.331(1)(a), the Washington State Liquor and Cannabis Board (WSLCB) considers prior criminal conduct of the applicant.2

LIBBY HAINES-MARCHEL & ROCK ISLAND CHRONICS, LLC, Dba CHRONICS, Appellants, v. WASHINGTON STATE LIQUOR & CANNABIS BOARD, an Agency of the State of Washington, Respondent., No. 75669-9-I, 2017 WL 6427358, at *1 (Wash. Ct. App.

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The DePaul Law Review recently posted the article, Cooperatives: The First Social Enterprise, written by my friend and colleague Elaine Waterhouse Wilson (West Virginia Univ. College of Law). I recommend checking it out. Here is an overview: 

As the cooperative and social enterprise movements merge, it is necessary to examine the legal and tax structures governing the entities to see if they help or hinder growth. If the ultimate decision is to support the growth of cooperatives as social enterprise, then those legal and tax structures that might impede this progress need to be re-examined.

This Article considers some of the issues that may impede the charitable sector in supporting the growth of the cooperative business model as a potential solution to issues of income inequality. To do so, the Article first defines a “cooperative.” Part II examines the definition of a cooperative from three different viewpoints: cooperative as social movement, cooperative as economic arrangement, and cooperative as legal construct. From these definitions, it is possible to identify those elements inherent in the cooperative model that might qualify as a tax-exempt purpose under the Internal Revenue Code (the Code) §501(c)(3). Part III reviews the definition of “charitable” for

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I am putting together a panel or discussion group (depending on how many folks respond positively) for the SEALS conference for next summer, which is scheduled to be held August 5-11, 2018, at the Marriott Harbor Beach Resort & Spa in Fort Lauderdale, Florida (details here).

Here is the proposed title and a brief draft description (which may have to be shortened for the submission):

The Role of Corporate Personhood in Masterpiece Cakeshop

The United States Supreme Court is scheduled to hear arguments in the case of Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission on Dec. 5, 2017 (SCOTUSblog summary here). The issue presented in that case is: “Whether applying Colorado’s public accommodations law to compel the petitioner to create expression that violates his sincerely held religious beliefs about marriage violates the free speech or free exercise clauses of the First Amendment.” A group of corporate law professors have filed an amicus brief in support to the CCRC (available here). One of the two arguments in that brief is: “Because Of The Separate Legal Personality Of Corporations And Shareholders, The Constitutional Interests Of Shareholders Should Not Be Projected Onto The Corporation.” This [panel] [discussion group] features…

I am happy to say I just received my new article, co-authored with a former student, S. Alex Shay, who is now a Trial Attorney in the Office of the United States Trustee, Department of Justice. The article discusses property law challenges that can impeded business development and negatively impact landowners and mineral owners in shale regions, with a focus on the West Virginia portion of the Marcellus Shale. The article is Horizontal Drilling Vertical Problems: Property Law Challenges from the Marcellus Shale Boom, 49 John Marshall Law Review 413-447 (2015). 

If you note the 2015 publication date, you can see the article has been a long time coming.  The conference it is linked to took place in September 2015, and it has taken quite a while to get to print. On the plus side, I was able to do updates to some of the issues, and add new cases (and resolutions to cases) during the process.  I just received my hard copies yesterday — January 9, 2017 — and I received a notice it was on Westlaw as of yesterday, too.

I always find it odd when law reviews use a specific year for an issue, as opposed to the actual publication year.  I…

In her post on Saturday, co-blogger Ann Lipton offered observations about possible legal issues resulting from the President-Elect’s tweets regarding public companies.  She ends her post with the following:

So, it’s all a bit unsettled. Let’s just say these and other novel legal questions regarding the Trump administration are sure to provide endless fodder for academic analysis in the coming years.

Probably right.

Today, I take on a somewhat related topic.  I briefly explore the President-Elect’s conflicting interests through the lens of a corporate law advisor.  For the past few weeks, the media (see, e.g., here and here and here) and many folks I know have been concerned about the potential for conflict between the President-Elect’s role as the POTUS, public investor and leader of the United States, and his role as “The Donald,” private investor and leader of the Trump corporate empire.

The existence of a conflicting interest in an action or transaction is not, in and of itself, fatal or even necessarily problematic.  In a number of common situations, fiduciaries have interests in both sides of a transaction.  For example, a business founder who serves as a corporate director and officer may lease property she owns to the corporation.  What matters under…

My wife and I both have many close family members in South Carolina, so the recent flood has been on our minds recently.

My first thoughts are with all of those affected by the flood.  

Relevant to this blog, the flood also reminds me of one of the opening passages in Conscious Capitalism by Whole Food’s co-CEO John Mackey. In that passage, Mackey recalls the massive flood in Austin, TX in 1981. At that time, Whole Foods only had one store, and the flood filled that store with eight feet of water. Whole Foods had loses of $400,000 and no savings and no insurance.

Mackey notes that “there was no way for [Whole Foods] to recover with [its] own resources” and then:

  • “[a] wonderfully unexpected thing happened: dozens of our customers and neighbors started showing up at the store….Over the next few weeks, dozens and dozens of our customers kept coming in to help us clean up and fix the store…It wasn’t just our customers who helped us. There was an avalanche of support from our other stakeholders as well [such as suppliers extending credit and deferring payment]. . . . It is humbling to think about what would

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