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The New Public Interest in Private Markets: Transactional Innovation for Promoting Inclusion

January 5-9, 2021, AALS Annual Meeting

The AALS Section on Transactional Law and Skills is pleased to announce a program titled The New Public Interest in Private Markets: Transactional Innovation for Promoting Inclusion during the 2021 AALS Annual Meeting in San Francisco, California. This session will explore how recent developments in corporate and transactional practice address issues of bias in corporate governance and the workplace, with examples ranging from Weinstein representations & warranties in M&A agreements to California’s Women on Boards statute to inclusion riders in the entertainment industry. These developments raise immediate questions of whether public policy goals of achieving greater inclusivity are being met, and they also shed light on perennial debates about the role public law and private ordering play in spurring social innovation.

In addition to paper presentations, the program will feature a panel focusing on how to incorporate concepts, issues, and discussions of equity and inclusivity across the transactional
curriculum, including in clinics and other experiential courses, as well as in doctrinal courses.

FORMAT: Scholars whose papers are selected will provide a presentation of their paper, followed by commentary and audience Q&A.

SUBMISSION…

We have been having an on-going discussion about corporate responses to the protests and riots (see here, here, and here). A large chunk of that discussion has focused on my proposal (here) to add enhanced scrutiny to business decisions sufficiently raising a specter of political bias, and whether such enhanced scrutiny would be warranted for corporate decisions to strongly support “Black Lives Matter” while staying silent on the riots. The relevant posts have apparently been of interest to our readers, having been shared a combined 600+ times as of this writing. The discussion has many moving parts, and my views of the relevant issues have advanced as a result. Thus, I thought it worth updating and summarizing at least some of my current positions.

1.  The idea that “black lives matter” is unquestionably correct, and it is appropriate and important to strongly affirm that idea in light of current events.

2.  Perhaps the foregoing should end the discussion, but politically-charged controversy lurks just around the corner. Is “Black Lives Matter” an idea or a movement? If the latter, what are corporations endorsing when they emblazon their corporate banners with the phrase? Are they putting their…

Thanks to Andrew Jennings, a draft comment letter on the draft model whistleblower statute is now open for signatures and comments.   If you’re interested in joining, you can access the comment letter here.  I’ve signed on.  If you have other thoughts that the drafters should consider, the deadline for comments is June 30th.  Hopefully, the NASAA draft will incorporate the insights we gained from watching the federal whistleblower bounty program begin its operations.

The following will likely not make much sense if you haven’t read the preceding relevant discussion, most of which can be found here. The core issue addressed is whether the decision of many corporations to strongly support Black Lives Matter while staying silent on the riots should be insulated from scrutiny by the business judgment rule. I have put my original comments in bold, responses by Idriss Z in italics, and my further responses in plain text. In addition to comments on the substance of this post, I hope readers will let me know if the formatting can be improved.

“Are the corporate executives making these decisions doing so in accordance with their fiduciary duty to become informed of all material information reasonably available (which requires consideration of the impact of these decisions on the bottom line)…”

IZ- Of course they are! Many cases have held that companies can acquire much goodwill and better pr from such community action (examples have included charitable donations and philanthropy to local schools, including HBCUs). Or a more “hip” take: African American culture might be the most profitable marketing material source in the world, people all over the global love the various arts…

So, this week we’re back to litigation-limiting corporate constitutive documents.

Where we last left things, the Delaware Supreme Court held in Salzberg v. Sciabacucchi, 2020 WL 1280785 (Del. Mar. 18, 2020), that Delaware law permits corporations to adopt charter provisions that would require plaintiffs bring Securities Act claims in a federal, rather than state, forum.  I posted about that decision here, and argued that it left a number of unanswered questions about its application.

This week, we’re beginning to see the fallout.

In Seafarers Pension Plan v. Bradway, the plaintiff brought a derivative Section 14(a) action against the Boeing Company in the Northern District of Illinois.  Plaintiff alleged that the company proxy statements contained false statements pertaining to the development of the 737 Max, and via these false proxy statements, defendants solicited shareholder votes in favor of their own reelection and compensation.

Boeing moved to dismiss on the ground that its bylaws provided that Delaware Chancery Court would be “the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation,” as well as the sole forum for “any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation.”

Significantly, because Section 14(a) claims cannot be brought in Delaware Chancery – federal courts have exclusive jurisdiction – Boeing’s argument meant that the plaintiff would not be able to maintain its suit at all.  As a result, the plaintiff argued that application of the bylaw to this lawsuit necessarily ran afoul of 15 U.S.C. § 78cc, which prohibits prospective waivers of 1934 Act obligations.

A parallel case, Chopp v. Bradway, 20-cv-00326-MN, involving derivative claims under Section 10(b), was filed in the District of Delaware.  Boeing made the same arguments in favor of dismissal in that case as well.  (Section 10(b) claims, like Section 14(a) claims, can only be brought in federal court).  The plaintiff voluntarily dismissed that action before a decision could be reached, leaving only Seafarers.

On June 8, the Seafarers court agreed with Boeing and dismissed the derivative Section 14(a) claims.  See Seafarers’ Pension Plan v. Bradway, No. 27, 19-cv-08095 (N.D. Ill. June 8, 2020).  The decision is not currently available on Lexis or Westlaw though I assume it will turn up eventually.

[More under the jump]

So instead, I’ll just say, like my co-blogger Stefan who posted yesterday, I’ve also been paying attention to corporate responses to protest movement. Because we’re both talking about that subject, I’ll just start by quickly reproducing the links that I gave Stefan in my comments on his post:

Many Claim Extremists Are Sparking Protest Violence. But Which Extremists?

The Justice Department’s rhetoric focuses on antifa. Its indictments don’t.

Misinformation About George Floyd Protests Surges on Social Media

Twitter says fake “Antifa” account was run by white supremacists

And one I forgot to add:

Armed white residents lined Idaho streets amid ‘antifa’ protest fears. The leftist incursion was an online myth.

Anyhoo, as I said, I’ve been watching how corporations are responding, but unlike Stefan, I haven’t perceived silence at all – quite the opposite.  But, what corporations are saying is interesting.  These are the articles that captured my attention:

Corporate Voices Get Behind ‘Black Lives Matter’ Cause (“Some companies were more cautious in their approach. Target, which is based in Minneapolis and was hit by looting at a store there last week, described ‘a community in pain’ in a blog post but never mentioned the word ‘black.’”)

What CEOs Said

…

Corporations have appropriately been condemning racism recently, but where’s the condemnation of the riots?  Does the following excerpt from “Understanding Antifa” provide some answers?

California Governor Gavin Newsom was a pitch perfect Rousseauist when he recently said that the violent riots were not caused by individuals; instead he insisted, “Our institutions are responsible.” Many progressives are ambivalent about criticizing the violence of Antifa because they retain this sympathetic worldview. While all on the left are not active in violent revolution, many liberal mayors and governors struggle to condemn it outright….

Some additional excerpts that may be of interest:

The anarchism of Antifa embodies the revolutionary outlook, common in the West since the 18th century, that … assumes any violent spark that creates a popular uprising will usher in a utopian world of equality and justice….

Antifa does not offer a platform of positive change. In the fashion of Robespierre, they seek to overthrow “the privileged” and they assume that this violence and destruction will inflame an uprising that will usher in a pure democracy of equality….

In the view of Antifa, traditionally powerful groups, such as white men and capitalists, conspire to suppress the natural nobility

…

Alex Platt has a fascinating new paper arguing that the SEC should consider the potential private litigation consequences of their activities.  He starts with the observation that SEC enforcement and oversight activity undoubtedly influences the private securities class actions often following in the SEC’s wake. SEC enforcement can catalyze or inhibit these “piggybacked” private securities class actions in many different ways.  For example, the SEC’s enforcement division may catalyze private litigation by revealing facts either through the filing of a complaint or in a settlement agreement. An SEC decision to include an admission of wrongdoing in a settlement agreement would substantially advance private litigation. This process can allow private attorneys to discover, and later plead, facts critical to surviving a motion to dismiss.  The SEC’s Division of Corporation Finance now also catalyzes and inhibits private litigation through its comment letter process.  Consider how the SEC communicates its views to issuers.  Oral comments in a phone call leave no record for plaintiffs to cite in some later class action.  In contrast, a disclosed letter laying out the SEC’s reasoning may persuade a court that particular facts were material or that a defendant had scienter.  A decision to pick up the phone…

…

Both as a corporate governance scholar and an American citizen, I’ve spent the last few days riveted by Twitter’s decision to go to war with the President of the United States.

And it was a decision; after Twitter posted its first fact-check of a Trump tweet, its VP of Global Communications said, “We knew from a comms perspective that all hell would break loose.”

All hell did.  Trump responded with an executive order (whose legal effect is, ahem, questionable), and Twitter’s stock price plummeted.  But Twitter doubled-down, hiding a Trump tweet for glorifying violence, and doing the same when the White House twitter account repeated the same quote.

We’ve talked a lot here about corporate political stances, and – especially in the context of Nike and Colin Kaepernick — how despite appearances, they’re often justifiable on a theory of shareholder value maximization.

A similar argument could be made about Twitter’s conduct.  It has come under increasing pressure to control its platform; trolls and bots and harassment by some users have driven away others.  Trump’s tweets about Joe Scarborough specifically led to a torrent of criticism, essentially begging Twitter to hold Trump to the…