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The Delaware Supreme Court finally issued its decision in Cal. State Teachers Ret. Sys. v. Alvarez, and it appears we don’t have one neat trick for dealing with races to the courthouse in derivative litigation after all.

As I’ve discussed in previous blog posts, Delaware has a substance and procedure problem.  Namely, it uses its own court procedures as supplemental mechanisms to substantively police the behavior of corporate actors, but those procedures don’t apply in non-Delaware forums.  That leaves Delaware vulnerable to being undercut by other states – and encourages an unhealthy race to the courthouse in other jurisdictions. 

As I explained before, in the context of derivative cases, “Delaware’s recommendation that derivative plaintiffs seek books and records before proceeding with their claims simply invites faster filers to sue in other jurisdictions – and invites defendants to seek dismissals against the weakest plaintiffs, which will then act as res judicata against the stronger/more careful ones.” 

That’s what happened in Alvarez.  While the Delaware plaintiffs spent years litigating a books and records request, defendants won a dismissal for failure to plead demand futility against a competing plaintiff group in Arkansas.  The Chancery court then held that the…

If you write about regulated industries or securities and banking topics, it can be challenging to keep track of developments in the regulatory space.  There is a startup that I’ve found useful for seeing new developments. It’s called  Compliance.ai.  Mostly, I now use it to track of news from FINRA and the SEC.  They have been reaching out to law schools and offering training and access to students and faculty.  They also allow users to track news from the CFPB, DOJ, Treasury, NYSE, DOL, and a bunch of other regulators.

I haven’t yet seen anything on it that I could not find elsewhere.  Much of the material can be found in the federal register, on the websites of self-regulatory organizations, or on the SEC’s website.  Instead of constantly canvasing all these websites, Compliance.ai allows users to put together a feed from the regulators they want to follow.  It’s also made it easier for me to see things like enforcement actions as they come out.  For example, two days ago FINRA published Letter of Acceptance, Waiver, and Consent NO. 2016051672301.  This fascinating AWC details how Paul Martin Betenbaugh consented to a three month suspension for:

In September and October 2015, on three

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        As many of this blog’s readers know, RUPA § 404 (1997) “cabins in” the duty of loyalty by stating that “[a] partner’s duty of loyalty to the partnership and the other partners is limited to the following.” The situations then described all involve harm to the partnership itself—not harm to an individual partner.  Setting forth a duty that is owed to a partner, but that is defined solely by reference to harm to the partnership, is peculiar.  https://www.businesslawprofessors.com/business_law/2016/06/is-cardozo-wrong-of-partner-to-partner-fiduciary-duties-/

        In the 2013 version of RUPA, this problem was squarely addressed.  RUPA § 409(b) (2013) eliminates the “limited to” language and instead states that the duty of loyalty simply “includes” the standard partnership-harm situations. The Official Comment explains:

This section originated as UPA (1997) § 404. The 2011 and 2013 Harmonization amendments made one major substantive change; they “un-cabined” fiduciary duty. UPA (1997) § 404 had deviated substantially from UPA (1914) by purporting to codify all fiduciary duties owed by partners. This approach had a number of problems. Most notably, the exhaustive list of fiduciary duties left no room for the fiduciary duty owed by partners to each other – i.e., “the punctilio of an honor the most sensitive”). Meinhard v.

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Sometimes it feels like I’m on the litigation-limiting-bylaw beat.

To briefly recap, in several prior posts, a law review article, and a forthcoming chapter, I’ve argued that corporate governance documents are not contracts in the traditional sense and thus should not be read to impose contract-like obligations on shareholders (critical for, among other things, the applicability of the Federal Arbitration Act).  I’ve also argued that a corporation’s governing documents cannot impose forum-selection or other limitations on shareholders’ ability to press federal claims or claims that arise under the law of a nonchartering state. 

This is relevant because some companies have gone public with forum selection provisions in their charters purporting to restrict Securities Act claims to federal court.  Snap was one, as I discuss in more detail here; apparently, other companies include Blue Apron, Stitch Fix, and Roku.  The Supreme Court is set to decide this term whether SLUSA requires that Section 11 class actions be brought in federal court, but that’s a separate issue from whether corporations can use private ordering to require that all Section 11 claims be brought in federal court.

Anyhoo, it looks like New Jersey is getting…

The Wall Street Journal has an article on Morgan Stanley’s rising profits and stock price.  Much of the profits come from servicing retail investor accounts.  It’s an increasingly profitable business line:

Morgan Stanley’s X-Factor, though, is increasingly its giant retail brokerage, which oversees $2.4 trillion for some 3.5 million households. That unit’s revenue rose 10%, while lower expenses lifted its profit margin—once in the high single digits—1 percentage point to 26%. Mr. Gorman set a new upper goal of 28%.

Many of these profits come from gathering assets and then charging a management fee.  This allows Morgan Stanley to profit even when clients do not actively trade their accounts.  The Journal described it this way:

Morgan Stanley’s retail brokerage gets a growing portion of its revenue from steady fees that are assessed as a percentage of client portfolios, rather than commissions on trades. As the stock market marches higher, Morgan Stanley is guaranteed profits on those accounts whether clients trade or not.

Wrap fees

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