My recent article with Anthony Rickey, Uncovering Hidden Conflicts in Securities Class Action Litigation, discussed how a court-appointed special master investigating a securities class action settlement discovered a $4.1 million “referral fee” paid by Labaton Sucharow LLP (“Labaton”) to an attorney who did no work on the case but purportedly secured the Arkansas Teacher Retirement System (“ATRS”) as a client.  The bombshell revelation in Arkansas Teacher Retirement System v. State Street Bank and Trust Co. (“State Street”) undoubtedly stemmed from an email by Texas attorney Damon Chargois, who wrote:

We got you ATRS as a client after considerable favors, political activity, money spent and time dedicated in Arkansas, and Labaton would use ATRS to seek lead counsel appointments in institutional investor fraud and misrepresentation cases.  Where Labaton is successful in getting appointed lead counsel and obtains a settlement or judgment award, we split Labaton’s attorney fee award 80/20, period.

The State Street payment was not the first:  Labaton had paid a percentage of its total fee awards in at least seven other cases.  While scholars had discussed the role of “pay to play” in securities class actions for years, State Street revealed a referral agreement and raised questions about the extent of favors and political influence brought to bear.

Shortly after we published Uncovering Hidden Conflicts, Judge Wolf issued a blistering opinion in State Street, finding that “the submissions of Labaton and [the Thornton Law Firm] in support of the request for an award of $75,000,000 were replete with material false and misleading statements” and that the firms “in many respects violated Federal Rule of Civil Procedure 11(b) and related Massachusetts Rules of Professional Conduct.”  The opinion also described, in explicit detail, the origin of the relationship between Labaton, Chargois, and ATRS.  Ultimately, Judge Wolf cut the fee from approximately $75 million to $60 million (the lower end of the “presumptive reasonable range”) and referred his opinion to the Massachusetts Board of Bar Overseers.  An appeal is pending.

The State Street case prompted an exposé in the New York Law Journal, including extensive comments from Chargois’ former (now retired) law partner, Tim Herron, and a deep-dive into the history of the ATRS/Labaton relationship.  Some Arkansas lawmakers questioned ATRS’ decision to rehire Labaton during a public hearing in May.  As Professor Coffee put it, “The practices [the special master] uncovered is like turning over a rock in the field and finding some ugly things crawling around.” 

More, after the jump.

Cynthia Dahl has posted “When Standards Collide with Intellectual Property: Teaching About Standard Setting Organizations, Technology, and Microsoft v. Motorola” on SSRN (here).  The paper provides “a Teaching Guide to a plug and play module designed to easily allow professors to insert teaching about SEPs into their IP or other commercial courses.”  I have provided the abstract below.

Technology lawyers, intellectual property (IP) lawyers, or even any corporate lawyer with technology clients must understand standard essential patents (SEPs) and how their licensing works to effectively counsel their clients. Whether the client’s technology is adopted into a voluntary standard or not may be the most important factor in determining whether the company succeeds or is left behind in the market. Yet even though understanding SEPs is critical to a technology or IP practice, voluntary standards and specifically SEPs are generally not taught in law school.

This article aims to address this deficiency and create more practice-ready law school graduates. The article is a Teaching Guide to a plug and play module designed to easily allow professors to insert teaching about SEPs into their IP or other commercial courses. It is particularly designed for professors who are unfamiliar with…

The University of Utah S.J. Quinney College of Law invites applications for faculty positions at the rank of associate professor (tenure track) beginning academic year 2021-2022. Candidates should be aspiring law faculty or junior lateral candidates. Qualifications for the positions include a legal degree, an exemplary academic record, demonstrated scholarly merit, and proven or potential teaching distinction, and a demonstrated commitment to diversity, equity, and inclusion. Although all qualified candidates will be considered, the College of Law seeks candidates with teaching interests primarily in the areas of administrative law, business associations, civil procedure, commercial law, constitutional law, contracts, clinics/experiential learning, and federal courts, and secondarily in the areas of environmental law, property, and torts. Candidates should submit an application to the University of Utah Human Resources website: https://utah.peopleadmin.com/postings/106394. 

Gabriel Rauterberg has just posted a fascinating new paper, The Separation of Voting and Control: The Role of Contract in Corporate Governance.  It’s about shareholder agreements, and in particular, the fact that they are surprisingly common not only in private companies, but also in public companies.  These agreements typically involve a founder and/or institutional investors like private equity funds, and contain various provisions related to corporate control, such as promises to support certain director nominees, and veto power over various types of corporate actions.  As Rauterberg explains, shareholder agreements grant the parties far more freedom to order their arrangements than do bylaws and charter provisions; corporate constitutive documents, for example, could not guarantee board seats for specific nominees.

Rauterberg points out that these raise interesting questions under Delaware law, especially with respect to whether these agreements improperly end-run around mandatory corporate governance provisions.  This is particularly so when the corporation itself is a party to the agreement, and the board is bound to take certain actions, like recommend a particular board nominee to shareholders or include a nominee on a particular committee.  As he puts it:

The tapestry of corporate law draws fundamental contrasts – between control rights and

…

On June 29, 2020, the Department of Labor reinstated it’s “five-part test” for determining what constitutes investment advice under the Employee Retirement Income Security Act (ERISA).  The test first went into effect in 1975 and remained the governing standard as financial products and the investment advice industry changed significantly.  In 2016, as part of its fiduciary rulemaking, Labor embraced a broader test which was later invalidated by the Fifth Circuit.

The reinstated five-part test governs when someone giving investment advice for a fee will be classified as a fiduciary under ERISA and subject to its obligations. To be subject to ERISA, the person must:

• render advice with respect to the plan [or IRA] as to the value of securities or other property, or make recommendations as to the advisability of investing in, purchasing, or selling securities or other property;
• on a regular basis;
• pursuant to a mutual agreement, arrangement, or understanding with the plan, plan fiduciary or IRA owner, that,
• the advice will serve as a primary basis for investment decisions with respect to plan or IRA assets; and that
• the advice will be individualized based on the particular needs of the plan or IRA.

The five-part test should…

Herbert Hovenkamp has posted “Antitrust and Platform Monopoly” on SSRN.  The abstract is below.  I was particularly struck by: “The history of antitrust law is replete with firms that are organized as single entities under corporate law, but that function as competitors and [are] treated that way by antitrust law.”

This article first considers an often-discussed question about large internet platforms that deal directly with consumers: Are they “winner take all,” or natural monopoly, firms? That question is complex and does not produce the same answer for every platform. The closer one looks at digital platforms they less they seem to be winner-take-all. As a result, we can assume that competition can be made to work in most of them.

Second, assuming that an antitrust violation is found, what should be the appropriate remedy? Breaking up large firms subject to extensive scale economies or positive network effects is generally thought to be unwise. The resulting entities will be unable to behave competitively. Inevitably, they will either merge or collude, or else one will drive the others out of business. Even if a platform is not a natural monopoly but does experience significant economies of scale in production or…

Jeffrey Lipshaw has posted “The False Dichotomy of Corporate Governance Platitudes” on SSRN.  I have set forth the abstract below.  I had the pleasure of reading an early draft, and I highly recommend the paper.  Among other things, Jeff brings a level of practical experience to the topic (“more than a quarter century as a real world corporate lawyer and senior officer of a public corporation”) that makes his views a must-read.  Having said that, my own view is that the “shareholder vs. stakeholder” debate is meaningful even if it only really matters in “idiosyncratic cases in which corporate leaders have managed to be either bullheaded or ill-advised.”

In 2019, the Business Roundtable amended its principles of corporate governance, deleting references to the primary purpose of the corporation being to serve the shareholders. In doing so, it renewed the “shareholder vs. stakeholder” debate among academic theorists and politicians. The thesis here is that the zero-sum positions of the contending positions are a false dichotomy, failing to capture the complexity of the corporate management game as it is actually played. Sweeping and absolutist statements of the primary purpose of the corporation are based on arid thought experiments and idiosyncratic…