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It’s Mardi Gras season here in NOLA, so I’m afraid I’ve been a little distracted.  It’s hard to concentrate when this is what’s going on a block away ….

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So, for this Saturday, I offer you a game: The Unicorn Startup Simulator.  The goal is to reach a billion dollar valuation while keeping your employees happy – it took me a few tries, but I managed it.   Good luck!

In 1995, the Private Securities Litigation Reform Act revamped the procedures applicable to class action lawsuits alleging claims under the federal securities laws.

Concerned about frivolous, attorney-driven litigation, Congress mandated that once a class action complaint is filed, the court must appoint a “lead plaintiff” to take control of the case.  This, it was believed, would be preferable to the old tradition of simply giving control of the case to the first plaintiff to file a complaint.  The lead plaintiff would be selected based on factors similar, but not quite identical, to those involved in selecting a class representative, using a more preliminary, less searching inquiry than might be expected for class certification.  See 15 U.S.C. §78u-4; Topping v. Deloitte Touche Tohmatsu CPA, 95 F. Supp. 3d 607 (S.D.N.Y. 2015).

In enacting the scheme, Congress left a number of questions unanswered.  Like, what is the relationship between the lead plaintiff and the class rep?  Does the lead plaintiff position disappear once class reps are appointed?  It’s not an issue that comes up often, since most lead plaintiffs seek class rep status, and those that don’t tend to cooperate with any class reps who are eventually appointed. 

Another unanswered question was, what…

I’m teaching a seminar on the Financial Crisis this semester, and so I was intrigued when I saw this article about a new paper that proposes a simple reform to improve credit ratings.

As most readers probably know, one of the problems that led to the crisis was a gradual deterioration in the quality of the credit ratings issued by agencies like Moody’s and Standard & Poor’s.  The basic charge has been that the agencies, paid by the issuers, had an incentive to issue inflated ratings.  If they did not, the issuer would simply turn to another agency.  The competition for business among agencies was destructive and corrupted the integrity of the rating.

There have been lots of proposals to reform the process – everything from greater disclosure to disgorgement of profits – but Howard Esaki and Lawrence J. White have a simpler idea.  They would simply create a rule that if the issuer goes to more than one ratings agency, the issuer is required to drop (or not pay for) the most lenient rating.  

They have a couple of variations, but the basic idea is the same – ratings agencies won’t compete to give the most lenient rating if…

The University of Richmond School of Law invites submissions for the inaugural Mid-Atlantic Junior Faculty Forum. This workshop will be held on Wednesday, May 10 and Thursday, May 11, 2017 in Richmond, Virginia.

Overview

This new workshop will bring together junior law scholars to present their scholarship in an informal collegial atmosphere.  The workshop is timed to allow participants to incorporate feedback on early ideas or projects before the summer.  Papers and works-in-progress are welcome at any stage of completion.  To maximize discussion and feedback, the author will provide a brief introduction to the paper, but the majority of the individual sessions will be devoted to collective discussion of the papers. 

Richmond Law will provide all lunches and dinners for those attending the workshop, but attendees will cover their own travel and lodging costs.

Eligibility

All untenured law faculty at Mid-Atlantic law schools who have been teaching for ten years or less are eligible to participate.   Those who do not currently hold a permanent or visiting faculty appointment, but expect to do so beginning in fall 2017 are also welcome. 

Submission Procedure

If you would like to participate, please send an abstract of the paper you would like to present…

It’s a drive-by this week, but I wanted to call your attention to the recent Delaware Chancery decision in In re Merge Healthcare Inc. Stockholders Litigation.  The plaintiffs challenged IBM’s acquisition of Merge, alleging that a 26% Merge shareholder counted as a controller and was conflicted.  Therefore, the shareholder vote in favor of the merger could not cleanse the deal under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015).

Vice Chancellor Glasscock rejected the argument.  Assuming (without deciding) that the 26% shareholder counted as a controller, he concluded that because the shareholder’s interests were aligned with those of the public shareholders – among other things, the alleged controller had no unusual need for liquidity/a fire sale – no heightened scrutiny was required and the stockholder vote in favor of the deal was sufficient to cleanse the transaction.

Of particular interest:  It turns out that the Merge corporation did not have a 102(b)(7) exculpatory clause in its charter, which potentially exposed its board to damages for duty of care violations (though, ultimately, the stockholder vote was sufficient to cleanse any problems).  I didn’t even know that was a thing that could happen.

In other…

In 2012, the U.S. Patent Office instituted the Inter Partes Review (IPR) system—an administrative process allowing parties to challenge the validity of issued patents. If the agency determines a patent was erroneously granted, it is invalidated. IPR was intended as a less expensive alternative to litigating validity, and it serves this purpose. However—like many government programs—it had unforeseen consequences.

Almost any party hoping to challenge a patent can file for IPR; there is no requirement that they have a business interest in the patent. This lack of a standing requirement opened the door to a new type of rent seeking. Invalidity Assertion Entities (IAEs) threaten to use IPR to (attempt to) invalidate a patent, unless its owner pays a “settlement.” Anecdotal evidence shows that they target patents presently being litigated (presumptively because the patentee has the most to lose from invalidation at that time), but IAEs have no actual interest in the subject patent.

When this business model came to light, Congress reflexively proposed to do away with the practice. The legislation didn’t pass, but the negative response wasn’t surprising; rent seekers in patent law (e.g., patent trolls) have a bad reputation. I’ve written on IAEs (here and…