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One of my Westlaw alerts contained a link to a recently published article I thought BLPB readers might find of interest.  Here is the abstract:

The reigning antitrust paradigm has turned the notion of competition into a talisman, even as antitrust law in reality has functioned as a sorting mechanism to elevate one species of economic coordination and undermine others. Thus, the ideal state idea of competition and its companion, allocative efficiency, have been deployed to attack disfavored forms of economic coordination, both within antitrust and beyond. These include horizontal coordination beyond firm boundaries, democratic market coordination, and labor unions. Meanwhile, a very specific exception to the competitive order has been written into the law for one type of coordination, and one type only: that embodied by the traditionally organized, top-down business firm.

This Article traces the appearance of this legal preference and reveals its logical content. It also explains why antitrust’s firm exemption is a specific policy choice that cannot be derived from corporate law, contracts, or property. Indeed, because antitrust has effectively established a state monopoly on the allocation of coordination rights, we ought to view coordination rights as a public resource, to be allocated and regulated in…

A few of us have blogged about benefit corporations here from time to time; they’re a controversial business form, in part because there are disputes about whether they actually are materially different from the ordinary corporate form, and in part because of flaws in states’ adopting legislation.

The basic issue here is that, as we all know, the business judgment rule is robust enough that corporate directors are perfectly free, as a practical matter, to pursue a stakeholder-oriented mission without the need of any special form.  The reason they do not has little to do with their formal legal obligations, and everything to do with the market for corporate control: If directors do not put shareholders first, their companies may become ripe for a takeover and they may be voted out of office.

In theory, benefit corporations could solve a shareholder collective action problem. Let’s assume, as some theorize, that given the choice, many shareholders would actually prefer not to maximize their own welfare but instead to share those gains with other stakeholders.  The problem is, they may experience defection in their own ranks.  Over time, some shareholders may change their minds and prefer to keep all excess profits; or…

The Delaware Supreme Court has, shall we say, an uneven relationship with the concept of market efficiency.

For many years, it entirely ignored or even disdained the concept.  See Verition Partners Master Fund Ltd. v. Aruba Networks, Inc, 2018 WL 922139, at *30 n.305 (Del. Ch. Feb. 15, 2018).  However, beginning with DFC Glob. Corp. v. Muirfield Value P’rs, L.P., 172 A.3d 346 (Del. 2017), the Court began to endorse the concept in the context of appraisal proceedings, though the significance it placed on efficiency was not entirely clear.  When Vice Chancellor Laster relied entirely on market efficiency to value shares for appraisal purposes, the Delaware Supreme Court rejected his analysis, emphasizing that market price is but one aspect of an appraisal valuation, and that “informational” market efficiency is not equivalent to “fundamental value” efficiency.

The Delaware Supreme Court’s new decision in Fir Tree Value Master Fund LP et al. v. Jarden Corporation seems to muddy the waters further.

Originally, VC Slights held that a target’s market price was the best evidence of standalone value, mainly because the other potential measures were lacking.  The deal price was flawed because the target CEO had arguably run…

It seems we’re all talking about VC Laster’s recent opinion in In re Dell Technologies Class V Stockholder Litigation.  Stefan posted about Laster’s taxonomy of coercion earlier this week; for me, I want to focus on another aspect of the case, the one that Stephen Bainbridge latched onto as indicative of his “director primacy” view.

The basic set up in Dell was that controlling shareholders – Michael Dell and Silver Lake – engineered a transaction whereby Dell would redeem Class V stock from its holders, and they wanted to cleanse the deal using Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”) procedures to ensure it would receive business judgment review.  To that end, they conditioned the transaction on special committee approval and unaffiliated shareholder approval.  Dissatisfied stockholders sued, claiming that despite those efforts, the MFW conditions were not satisfied, and, for the purposes of a 12(b)(6) motion, Laster agreed. 

Laster actually found that, as alleged, the departures from MFW were many and varied, but there’s one aspect in particular I want to focus on, namely, the curious role of the “stockholder volunteers.”  After months of negotiation, the special committee reached a deal with…

The states and XY Planning have failed in their bid to stop Regulation Best Interest.  The Second Circuit found that the SEC had discretionary authority to enact a regulation short of a uniform fiduciary standard.  It also found that the states lacked standing to sue because their theory that their tax revenue would decline was “speculative.”

With Reg BI going into effect, states must decide whether to simply pass their own statutes and rules.  As it stands, Nevada remains the nation’s only state to have a state fiduciary statute.  Other states, notably New Jersey and Massachusetts have pursued administrative rule making approaches. The next fight will likely be about the scope of state authority to regulate securities sales practices.  

Industry lawyers will likely do all they can to forestall the promulgation of state regulation or, if that fails, seek to have it struck down as somehow preempted by federal law. Some academic work has begun to explore this issue.  Columbia Law’s Yerv Melkonyan has a forthcoming Note exploring the topic (it was also featured on Andrew Jennings’s podcast here).  In a symposium piece, I took a close look at one preemption argument industry representatives made in comment letters…

From In re Dell Techs. Inc. Class V Stockholders Litig., No. CV 2018-0816-JTL, 2020 WL 3096748, at *20–30 (Del. Ch. June 11, 2020) [Hat tip to Steve Bainbridge, who comments here.]:

Coercion is a multi-faceted concept in Delaware law. At least five strands of case law use the term ….

The first strand of coercion jurisprudence does not involve the conduct of fiduciaries. It rather addresses the ability of a non-fiduciary to offer a reward or impose a penalty as a means of inducing action in an arm’s-length setting. The seminal case is Katz v. Oak Industries, Inc., 508 A.2d 873 (Del. Ch. 1986)….

A second strand of jurisprudence involves a third party taking action that a fiduciary (typically the board of directors) believes could have a coercive effect on the fiduciary’s beneficiaries (typically stockholders). In that setting, the fiduciary has both the power and an affirmative duty to defend its beneficiaries from the coercive threat. See Unocal, 493 A.2d at 954….

A third strand of coercion jurisprudence examines whether a fiduciary has taken action to coerce its own beneficiaries. By doing so, the fiduciary acts disloyally and violates the standard of conduct expected of fiduciaries.

Back in March, Richard Epstein published a new book, “The Dubious Morality of Administrative Law.”  Today, a review of that book by Michael S. Greve was published in Law & Liberty (here).  The following excerpt from the review may be of interests to BLPB readers:

The book title, of course, invokes Lon L. Fuller’s famous account of The Morality of Law—in here-relevant part, an explication of the minimum conditions a legal system must satisfy, at least most of the time, to be called “legal” in a moral or rule-of-law sense…. Lon Fuller, Professor Epstein argues, omitted crucial rule-of-law conditions, especially the need for an impartial judge. At variance with Fuller, moreover, and on a Hayekian note, Professor Epstein argues that formal rule of law constraints work best in the context of a classical-liberal regime that rests on property rights, freedom of contract, and protection against uncompensated takings. Once those substantive commitments go by the boards, procedural rule-of-law requirements are bound to give way as well and, for that matter, may not be worth very much…. The APA says that the “administrative process” is an adequate substitute for regular legal procedures in an independent court and that…

The Department of Labor has been a busy bee.

First, it approved the use of private equity investments in 401(k) plans.  The idea would be that workers would be able to invest in funds that invest in private equity funds; apparently, some funds are already on offer, and they also hold a small amount of publicly traded stock to satisfy liquidity concerns. Jay Clayton at the SEC endorsed the move, saying it would “provide our long-term Main Street investors with a choice of professionally managed funds that more closely match the diversified public and private market asset allocation strategies pursued by many well-managed pension funds as well as the benefit of selection and monitoring by ERISA fiduciaries.”

Second, the DOL proposed new rules to discourage the use of ESG investing with respect to ERISA-regulated retirement plans (and because many state pension funds are not covered by ERISA but follow its lead, the rules could extend much further).  The proposed rules are not exactly a surprise; they follow guidance that the Trump Administration put out in 2018, and which I blogged about at the time.  And – as I also blogged– in 2019, the Administration warned…

The CFPB recently proposed a whistleblower bounty program to enhance its enforcement efforts. Last week, Senator Cortez Masto introduced legislation to make it a reality.  Although the Bill’s text is not yet available, the press release explains its scope:

Specifically, the Financial Compensation for CFPB Whistleblowers Act would allow the Consumer Financial Protection Bureau to reward whistleblowers from the Civil Penalty Fund for between 10 – 30% of settlement awards. In cases involving monetary penalties of less than $1 million, the CFPB would be able to award any single whistleblower 10% of the amount collected or $50,000, whichever is greater. The proposal allows for a whistleblower to retain independent counsel, does not require the whistleblower to enter a contract with the Consumer Bureau and protects a whistleblower’s identity.

Interestingly, CFPB’s proposed text does not include any reference to an anti-retaliation cause of action.  If we really want whistleblowers to come forward, it may make sense to offer more than just a carrot.  Employees may also need real protection from an employer’s stick.  Other existing and proposed whistleblower bounty statutes also include anti-retaliation provisions and causes of action for whistleblowers.  Enhancing a cause of action here might cause trim…

I drafted this post before, well, the SEC got dragged into the middle of an SDNY meltdown and that’s obviously way more interesting than what I was going to say, but I have this whole post already here so… here goes.

One of the big business news stories of the past week has been Hertz and its failed stock offering. (N.B.: Well, it seemed like a big deal when this post was originally drafted)

During the pandemic, stock markets have gyrated wildly, apparently driven in part by retail traders who, left without the opportunity to bet on sports, have turned to trading as an alternative form of gambling.  They’re apparently encouraged by free trading apps and especially Robinhood, which – unlike other platforms which treat trading as srs bzns– gameifies the experience.  As one trader put it, “With sports, if I throw $1,000 at something, I lose the whole thing real quick, but here if things go south you can cut your losses.”

That particular theory was sort of tested when it came to Hertz, which is in bankruptcy.  Despite that fact, its stock started to climb, in what has been described as the…