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In my business organizations course, I usually highlight the difference between Nevada and Delaware law on fiduciary duties for LLCs.  My reading of changes to the Nevada statute in 2019 meant that Nevada LLCs do not come with default fiduciary duties.  This is the current statutory language:  

NRS 86.298  Duties of manager or managing member.  The duties of a manager or managing member of a limited-liability company to the limited-liability company, to any series of the limited-liability company, to any member or to another person that is a party to or otherwise bound by the operating agreement are only:

      1.  The implied contractual covenant of good faith and fair dealing; and

      2.  Such other duties, including, without limitation, fiduciary duties, if any, as are expressly prescribed by the articles of organization or the operating agreement.

What about Nevada LLCs formed prior to 2019?  There’s one relatively recent unpublished decision from the Nevada Supreme Court– Israyelyan v. Chavez, 466 P.3d 939 (Nev. 2020).  It involved an LLC formed prior to 2019.  The Supreme Court read the 2019 amendment as a clarification, meaning that Nevada LLCs did not have default fiduciary duties prior to 2019.  This is the…

Everyone remembers Emulex Corp. v. Varjabedian, right?  The Ninth Circuit held that plaintiffs could sue under Section 14(e) for negligent, as well as intentional, false statements in connection with a tender offer – breaking with circuits that had read 14(e) to require scienter – and the Supreme Court granted certiorari to resolve the split.  The problem was, the defendants were sort of arguing that 14(e) only prohibits intentional conduct, and sort of arguing that there’s no private right of action under 14(e) at all.  As a result, the whole thing ended with the Court dismissing the writ as improvidently granted. 

Fast forward to Brown v. Papa Murphy’s Holdings Incorporated, 3:19-cv-05514-BHS-JRC, pending in the Western District of Washington.  The plaintiffs there also alleged that defendants negligently made false statements in connection with a tender offer; the claims survived a motion to dismiss; but the magistrate handling the case just recommended that the district court certify for interlocutory appeal under Section 1292.  What issue is being certified?  Well, that depends on which page of the opinion you read.  Here are some quotes from the magistrate’s order, from June 9, 2021, Dkt. 62:

the Court finds that

…

Insider.com recently profiled Jeffrey Housman, who is “chief people and services officer at Restaurant Brands International.”  Part of the article explains that:

One of the first DEI initiatives Housman’s team spearheaded was a change to the interview process. RBI hiring managers now ask job candidates in their first interview what diversity means to them, and how they’d champion diversity if they joined the team. And, across RBI’s corporate offices, at least 50% of all candidates in the final interview round must be “from groups that are demonstrably diverse, including race.”

Putting aside the legality of the interview quotas, this reminded me of the debate a few years ago regarding “Diversity, Equity and Inclusion” statements required of applicants for faculty positions at a number of UC campuses.  An op-ed in the Wall Street Journal argued that:

This system specifically excludes those who believe in a tenet of classical liberalism: that each person should be treated as a unique individual, not as a representative of an identity group. Rather than helping achieve inclusion, these DEI rubrics act as a filter for those with nonconforming views…. Mandatory diversity statements can too easily become a test of political ideology and conformity.

There are grounds…

My efforts to persuade the Nevada legislature to allow the state’s ordinary regulatory process to handle exemptions were largely unsuccessful.  For a quick refresher, the legislation placed a NASAA model regulatory exemption which was already set to go into the next round of regulatory code updates into the statute.  I previously blogged about the issue and published an oped in the Nevada Independent, hoping to change some minds.  My main points were simple: (1) there was no need to actually do anything because it would become law when the regulations went into effect; and (2) putting it into the statute would make it much harder to update when SEC regulations change.

Still, the effort did have some impact.  The bill’s sponsor reached out to talk about the issue and asked that I produce some draft language for an amendment.  I agreed and spent much of my Easter Sunday doing that.  My proposal was to have the head of the state securities division simply report on the state’s offering rules and any needs the office saw every couple of years to improve coordination and prevent confusion.  This is the draft language I suggested:

No later than August 15 of

…

This coming Friday, June 11, at 2 PM, the Federalist Society is hosting a teleforum entitled, Free Speech and Compelled Speech: First Amendment Challenges to a Marketplace of Ideas.  You can register here (I believe registration is free).  What follows is a description of the program.

Section 230 has been understood to shield internet platforms from liability for content posted by users, and also to protect the platforms’ discretion in removing “objectionable” content. 

But policy makers have recently taken a stronger interest in attempting to influence tech companies’ moderation policies.  Some have argued the policies are too restrictive and unduly limit the scope of legitimate public debate in what has become something of a high-tech public square.  Other policy makers have argued the platforms need to more aggressively target “hate speech,” online harassment, and other forms of objectionable content.  And against that background, states are adopting and considering legislation to limit the scope of permissible content moderation to preclude viewpoint discrimination. 

Some have suggested that the §230 protection, in combination with political pressure, create First Amendment state action problems for content moderation.  Others argue that state efforts to protect the expressive interests of social media users would raise First…

Friend of the BLPB Bernie Sharfman recently alerted me to an online piece he posted on environmental, social, and governance (ESG) investing, How BlackRock Strikes Out On the Issue of Climate Change.  In his post, offering BlackRock as an example, Bernie raises concerns about the negative aspects of establishing ESG funds.   Specifically, he offers that a focus on ESG investment and reporting can reduce a sense of urgency in remedying climate change and can have other unintended undesirable effects.  He also notes that BlackRock has only limited influence in establishing efficacious ESG investments, due to the nature of its role and investment portfolio.  He concludes as follows:

BlackRock can be part of the solution by attempting to add “financial innovation” as a tool in the battle against climate change. Such financial innovation should be targeted to creating new private equity funds that help provide the billions of dollars of funding that will be needed by new and growing carbon-cutting companies. BlackRock can market these funds to the millions of retail investors who currently invest in its products.

ESG investment opportunities are a hot topic these days.   Bernie’s post offers some food for thought about the double-edged sword they

In a rare turn of events, FINRA has withdrawn its rule proposal for making reforms to the expungement process.  FINRA issued a statement after the withdrawal indicating that it would work with NASAA and other stakeholders to pursue “more fundamental changes to the expungement process.”

The surprising development is a bit of a mixed bag.  While it’s good that FINRA will be working to deliver a proposal addressing core problems with the existing expungement framework, the decision to withdraw the proposal leaves the status quo for the interim period.  Without a moratorium on expungements the process will continue to delete significant information about broker misconduct without any real adversarial scrutiny.  Hopefully, FINRA will move swiftly to propose some meaningful reform soon.

BLPB(MemorialDay2021)Image by Jackie Williamson from Pixabay 

Notwithstanding the sales, barbecues, parades, concerts, and the like, at its true core, Memorial Day is a day of solemn reflection.  Those who enter military service for our country deserve our respect and praise.  Those who die in the line of that service hold a special place in our hearts and minds.

If you are at a loss for how to acknowledge this special holiday and show your regard for those it honors, you may be interested in reading the suggestions posted here.  But your gratitude can be shown in so many ways every day, not just on Memorial Day (although it is good to have the holiday as a reminder).  Remember those who served and died, and give thanks for (and, where possible, to) those who served and lived to tell the tale.  (We’ll celebrate the latter directly later in the year, of course.)

The biggest corporate news this week is about sustainability.  A Dutch court ordered Shell Oil to reduce its carbon emissions by 45% by 2030; 61% of Chevron shareholders voted to ask the company to substantially reduce its Scope 3 greenhouse gas emissions, while 48% voted in favor of greater lobbying disclosure, and disclosure of the effect of net zero by 2050 on its business and finances, and, of course, at Exxon, not only did an activist win at least 2 board seats over sustainability demands, but shareholders also supported proposals calling for greater lobbying disclosure.  And, earlier this month, shareholders at ConocoPhillips and Phillips 66 voted in favor of proposals to set emissions targets.

Unsurprisingly given the outcomes, BlackRock and Vanguard supported some of the Exxon dissident nominees, and also supported the successful Exxon shareholder proposals.  State Street supported some of the Exxon dissidents as well, though I don’t know if it’s reported its stance on the shareholder proposals.  BlackRock also voted in favor of the successful Chevron proposal.

Given the stunning success of shareholder environmental activism at the oil giants, then, it comes as a disappointment that it appears the deadline has passed…

I’ve been fascinated by the battle over the Tribune Publishing Company, because it’s a fairly stark example of directors’ obligation to maximize shareholder wealth conflicting with the broader interests of society, and is a textbook case for M&A classes.

Tribune Publishing has a troubled history, but was managing to turn a profit; Alden Global, a hedge fund with a 32% stake in the company, offered to buy out the remaining shareholders at a premium of around 35% (compared to the stock price prior to the announcement of its offer).  Alden, owner of several newspapers, is known to run them ruthlessly, selling real estate, making significant cuts to newsrooms, and causing local coverage to suffer.  The macro consequences are significant: as local news declines, corruption grows and services to residents are reduced.

That said, Alden’s papers have profit margins of about 17%; by contrast, the New York Times’s profit margin is 1%.  From a fiduciary duty standpoint, the Tribune Board’s obligation here was a no-brainer; it was unlikely that any kind of long term plan would give shareholders as much value as Alden’s offer.

Reporters at the Tribune papers, of course, protested, but that was Alden’s problem…