A while ago, the National Center for Public Policy Research – a conservative organization that focuses its advocacy in the corporate and securities space – filed a lawsuit against Starbucks, arguing that its diversity equity and inclusion program ran afoul of Title VII of the Civil Rights Act of 1964, and Section 1981.

Conservative organizations have been launching a number of Section 1981-based challenges to DEI programs, but usually these are on behalf of workers.  The NCPPR case was unusual in that it brought its claims derivatively, as a Starbucks shareholder, on the ground that the directors’ illegal conduct violated their fiduciary duties to the company.

The judge dismissed NCPPR’s complaint a while back, but only now just got around to issuing the opinion, and I find it fascinating.

Starbucks’s key argument was that NCPPR did not, in fact, represent the interests of Starbucks shareholders, and therefore was not a proper representative in a derivative action.  In particular, Starbucks argued that the NCPPR’s concerns were personal, due to its general opposition to DEI policies, and that Starbucks’s major shareholders supported its DEI efforts.  Starbucks cited the fact that BlackRock and Vanguard have both argued that…

Earlier this week, Matt Levine used his column to highlight this paper on SSRN, “Executives vs. Chatbots: Unmasking Insights through Human-AI Differences in Earnings Conference Q&A”

The authors find that on earnings calls, some executives’ responses are so predictable that they are indistinguishable from responses given by a chatbot, and others are unexpected, in the sense that a chatbot would have predicted different answers.  The unexpected/novel responses are associated with stock price reactions because they communicate new information to the market.

Anyway, this interests me because I frequently blog about the issue of puffery, and how courts go about determining whether a statement was material to investors, and I wonder whether something like this method can be useful.  I.e., is it possible shareholders could use it to show that a particular statement at a particular time was unexpected and therefore informative, in the face of a claim that it was immaterial? 

I imagine this exact method will not always be helpful – in a lot of cases, the claim is that the language remained the same even as underlying conditions changed, and so then of course, the statement would not be found to convey new information, and presumably there would…

In posts in this space, and in my articles, I’ve criticized the idea that statements may be deemed immaterial or otherwise of little importance to reasonable investors merely because they are generic or stated at a particular level of generality.  Lots of really important statements are technically “generic,” I would say.  Consider fairness opinions!  Or representations that financial statements are in compliance with GAAP!

Well, joke’s on me because in New England Carpenters’ Guaranteed Annuity and Pension Funds v. DeCarlo, 2023 WL 5419147 (2d Cir. Aug. 23, 2023), the Second Circuit held that the general phrasing in a clean audit opinion may, in fact, render the statements immaterial to investors.  The court affirmed the dismissal of a securities fraud complaint on the ground that – even though the plaintiffs had shown the audit was shoddy and violated auditing standards (and the underlying financials were false) – the plaintiffs had not included specific allegations that the audit statements were material.

As the District Court concluded, the Complaint fails to allege any link between BDO’s misstatements in the 2013 Auditor Opinion and the material errors contained in AmTrust’s 2013 Form 10-K. The audit statements to which the Appellants

…

I’ve previously blogged about difficulties that courts have when determining the scienter of a “corporation” in Section 10(b) cases.  The summary judgment decision Roofer’s Pension Fund v. Papa, 2023 WL 5287783 (D.N.J. Aug. 17, 2023), is another example of the genre.

There, the defendants were alleged to have concealed Perrigo’s collusion with other generic drug makers.  By the time the case got to summary judgment, however, the court concluded that the only individual defendants and named speakers had not acted with scienter.  The plaintiffs maintained that scienter could be shown against the corporate entity by virtue of the knowledge of two non-speaking executives, who were alleged to have been complicit in the collusive scheme.  The question, then, was the legal standard the court would use to determine corporate scienter.  I.e., would the non-speaking executives’ scienter be imputed to the corporate entity?

At that point, the court identified a purported difference among circuit approaches, which – the court lamented – was particularly difficult to examine in the summary judgment context because most of the prior decisions were reached on a motion to dismiss:

The narrow approach, applicable in the Fifth and Eleventh Circuits, requires a plaintiff to identify a corporate

…

The PSLRA will allow defendants to escape liability for false projections if those projections are accompanied by “meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement.” 15 U.S.C. § 78u-5(c).  Additionally, even outside the context of projection statements, warnings and disclaimers may be sufficient to render otherwise-misleading statements not “false” for securities law purposes.  See Omnicare v. Laborers District Council Construction Industry Pension Fund, 575 U.S. 175 (2015).  Yet, as I’ve previously blogged, courts often treat fairly meaningless verbiage as though it conveyed critical information.

The most recent example is Steamship Trade v. Olo, 2023 WL 4744197 (SDNY July 25, 2023).  Olo is a publicly traded company that provides software to restaurants. One of those was the Subway chain. At a time when Olo allegedly knew (but did not disclose) that Subway intended to terminate its contract, Olo’s officers made a bunch of projections of future growth, to wit:

Throughout 2022, we believe the main drivers of revenue growth will be ARPU expansion as well as increasing the number of active locations on the platform….

And for 2022, again, we’re targeting a similar number of net

…

I recently became a Corporate Law Jotwell contributing editor.  My first jot, TOWARD A NON-BINARY VISION OF DISCLOSURE REGULATION, promotes Lisa Fairfax’s article: Dynamic Disclosure: An Exposé on the Mythical Divide Between Voluntary and Mandatory ESG Disclosure, 101 Tex. L. Rev. 273 (2022).  The crux?

At its core, Lisa Fairfax’s Dynamic Disclosure: An Exposé on the Mythical Divide Between Voluntary and Mandatory ESG Disclosure embraces mandatory disclosure rules in the spirit in which they have been enacted and employed in U.S. federal securities regulation. The article also, however, articulates the independent and cooperative value of voluntary disclosure as an important piece of the regulatory puzzle. . . . Her insightful and diplomatic treatment of the subject matter is a breath of fresh air in ongoing debates about both the regulation of ESG disclosures specifically and mandatory disclosure as a component of securities regulation more generally.

Read the jot.  But more importantly, read Lisa’s excellent article!

The AALS Professional Responsibility Section invites papers for its program “2024 New Voices Workshop.” The goal of this audience interactive workshop is to provide a forum for new voices and new ideas related to professional responsibility (PR), broadly defined.

Many scholars might address PR without realizing it. We are interested in your potential contributions whether you are an evidence scholar writing about the attorney-client privilege, a feminist interested in gender dynamics that affect lawyering, a critical race scholar commenting on how power plays out in legal systems, an ethicist exploring the moral foundations of the rules governing lawyering, or something entirely different.

Toward that end, we encourage you to submit a proposal even if you are pursuing scholarship on PR for the first time, even if you question whether your ideas really do relate to PR, and even if you are reticent to submit for some other reason.

The selected papers will be presented at the AALS Annual Meeting in January of 2024.

WORKSHOP DESCRIPTION:

The Workshop will be an opportunity to nurture the growth of a broad scholarly community in the field of Professional Responsibility and Legal Ethics. As such, it is a place to take risks and develop…