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Last week, the Delaware Supreme Court issued an opinion, Marchand v. Barnhill, which is notable for two reasons.  First, it furthers the Court’s project of reinvigorating director independence standards, and second, it is one of the very few decisions to find that the plaintiffs properly pled a claim for Caremark violations.

The facts are these.  Blue Bell Creameries suffered a listeria outbreak in 2015 that killed three people and nearly bankrupted the company, and shareholders brought a derivative lawsuit alleging that the directors failed to oversee corporate compliance with FDA and other requirements.  First, they alleged that the CEO Paul Kruse, and the VP of Operations Greg Bridges, actually received notification from various agencies of the company’s lack of compliance and took no remedial action.  In so doing, Kruse and Bridges violated their fiduciary duties to the company, and a litigation demand on the board would be futile because of their close ties to the board members.

Second, plaintiffs alleged that the Board violated its Caremark duties by failing to institute a system for monitoring the company’s compliance.

Chancery dismissed both claims, and the Delaware Supreme Court reversed.

Starting with the issue of director independence, as Delaware-watchers are well-aware…

Arizona State’s Laura N. Coordes has a new paper up making a powerful case for overhauling bankruptcy laws for health care.  Despite the soaring, and seemingly irrational medical costs paid by patients, health care bankruptcies have been on the rise.  Since 2010, health care bankruptcies have increased by 123% while bankruptcies across all sectors have declined by 58%. The problems are not evenly distributed.  Financial distress may be most concentrated in rural hospitals.  If these hospitals continue to fail and close because they cannot address financial problems through bankruptcy, many people will be left without access to basic medical care.  As the boomer population continues to age and require ever more medical care, these problems are likely to get worse and worse.

Coordes convinced me that health care organizations differ from other entities in need of bankruptcy relief.  These bankruptcy misfits have state and federal regulators and patient communities as key stakeholders, making it a challenge for bankruptcy courts charged with maximizing a bankruptcy estate’s financial value to balance competing interests. 

Looking down the road, additional health care bankruptcies appear likely.  And as they mount, the need to put a solid, health-care-specific framework in place to address them will increase. …

I’m not great at unplugging. That’s a trait I suspect rings true with a lot of people, especially lawyers. I am working on it. Writing this post while on vacation is not a great example of that, though I’m writing this while I’m on a plane, and the kids are occupied with their own electronic flashy things. 

 

I have tried very hard to put most anything that can wait to the side during our travels. I’ve not always succeeded, but I’m doing better than I usually do, so that’s good. 

 

Setting work aside (especially cellphones/email) is something a lot of try to do on vacation, but I also know I need to do a better job of it on a daily basis. If I’m accessible to people all the time electronically, I am necessarily less available to those right in front of me. There are times when that’s a necessary balancing act, but not always. 

 

In some ways, that’s a lesson I learned a long time ago (though I continue to need reminders), and I have done better in certain settings, such as individual meetings with students and colleagues. But even for myself, when I am writing …

Those who follow developments in derivatives clearing know that the regulation of this area has frequently been a source of conflict among international regulators (see When Regulators Collide).  This past week, in the Financial Times article CFTC chair complains to European Commission over regulation jibe [subscription required], Philip Stafford and Jim Brunsden report that an EU official’s comments during a recent conference, which included the phrase “you fell for it,” in reference to a March agreement between the EU and the US, spurred CFTC Chairman Christopher Giancarlo to write EU Commissioner in charge of Financial Stability, Valdis Dombrovskies, to ask for a clarification of the comments.   For me, the article did double-duty: it updated me about happenings in one of my research areas and it reminded me of the importance of our words.      

I am in Colorado attending the Law & Economics Center’s 34th Economics Institute for Law Professors. It’s a fantastic conference, and I highly encourage you to attend if you can. You can view this year’s agenda here. (If you have trouble with the links, try a different browser.  If that doesn’t work, let me know.)

This past Wednesday, during the “Economics of Innovation and Dynamic Competition” class, Prof. John Yun discussed the difference between static and dynamic models of competition, and how this might impact our assessment of monopolists. One aspect of this discussion focused on the concept of “deadweight loss.” For those of you not familiar with this concept, go watch the following 3-minute video from “ACDC Econ”: https://youtu.be/YNcPxPz9fng .

The video provides the standard assessment that monopolies create “deadweight loss” and that this deadweight loss is inefficient. Consequently, the conventional wisdom is that government regulation/intervention is therefore justified. However, this analysis is based on comparing the expected behavior of a monopolist with a static model of perfect competition. One of the problems with using a static model is that it fails to take into account where we’ve been or where we’re actually likely to go. A…

SEC Commissioner Peirce recently delivered a speech to the American Enterprise Institute and there’s a lot going on here.

First, though this wasn’t the nominal topic of the speech, Commissioner Peirce took the opportunity to take some shots at proxy advisors, complaining that:

Proxy advisor Glass Lewis, for example, has only 360 employees, only about half of whom perform research, who cover more than 20,000 meetings per year in more than 100 countries.  Companies may not get an opportunity to correct underlying errors. According to one recent survey, companies’ requests for a meeting with a proxy advisory firm were denied 57 percent of the time.  Companies submitted over 130 supplemental proxy filings between 2016 and 2018 claiming that proxy advisors had made substantive mistakes, including dozens of factual errors.  Proxy advisors ISS and Glass Lewis provide companies some opportunity to contest such errors, but access is not uniform for all issuers, and the process may not provide adequate opportunity for issuers to respond before proxies are voted.  The ramifications for the affected companies can be dramatic, as investment advisers, unaware of the error, vote their proxies in accord with the recommendation.

I’ve previously posted about the SEC’s new interest in …

…

Today’s blog is the second post (first here) about advice for new business law profs.  It is also the promised follow-on to last week’s post, particularly my response to co-blogger Haskell Murray’s comment.

I am an assistant professor at the University of Oklahoma’s Price College of Business, and I’ve also taught in law schools.  The advice I’ll share today is generally applicable in both business and law school environments.

“Negotiation and Dispute Resolution” is one of my absolute favorite courses to teach!  However, I came to the area by happenstance.  During my PhD studies at Wharton, I wanted to fulfill my TA responsibilities by assisting the securities law professor.  He didn’t need a TA.  Fortunately, Professor Ken Shropshire did for his negotiations courses.  And as they say, the rest is history.  I’ve now taught dispute resolution courses, mediated cases, am on FINRA’s arbitration roster, and recently wrote an arbitration-related article with my OU colleague Professor Dan Ostas.  So, likely the most important advice of this post that I often share with students and others is to be open to unexpected opportunities in life, especially when the door to the option you originally wanted is closed.…

It’s no secret that Tesla has weathered some … ahem … criticism of its governance structure, and in particular, the (lack of) board supervision over Elon Musk.  After Musk’s antics landed him in trouble with the SEC, the company proposed two charter amendments that would make the board more responsive to shareholders: first, to amend the charter so that future charter amendments will require only majority rather than 2/3 vote of the outstanding stock, and second, to amend the charter to reduce director terms from 3 years to 2. 

Management sponsored proposals – especially those that hand more power to shareholders – are usually kind of a done deal.  But this week, Tesla announced that even though the vast majority of voting shareholders favored the proposals, the proposals had failed to pass.  Now, to be sure, the proposals needed a 2/3 vote of the outstanding stock – that was, after all, one of the things sought to be amended! – but it was still a bit of a surprise to see that the threshold hadn’t been met, given the amendments’ popularity.

I know that I wasn’t the only one who suspected some kind of Musk-related shenanigans, like perhaps Musk…