Elizabeth Pollman has a new Comment, published in the Harvard Law Review, on what she calls “The Supreme Court’s Pro-Business Paradox.”  She makes several very well-argued points.  First, that by weakening corporate regulation, the Supreme Court has put greater pressure on corporate governance to constrain antisocial corporate behavior; second, the Court’s rulings are arguably at odds with the preferences of corporate shareholders, whose interests the Court clams to be furthering; and third, that in its zeal to insulate corporations from liability, the Supreme Court has turned corporate governance concepts upside-down – by, for example, holding that the Alien Tort Statute makes corporations less responsible for the “decisionmaking” that occurs in boardrooms than for the actions of employee-agents lower down in the hierarchy.   There’s no abstract for me to quote, but here’s an excerpt from the Introduction:

This Comment makes two primary contributions. It first observes that cases from the recent Term reflect an important way in which the Roberts Court has earned its reputation: over the beginning of the twenty-first century, the Court has often expanded corporate rights while narrowing corporate liability or access to justice against corporate  defendants. Part I of this Comment sets forth this argument, using Americans for Prosperity, Ford, and Nestlé as case studies to show how the Court uses ill-fitting conceptions or overbroad generalizations to empower corporations and limit their accountability.

This trend gives rise to a paradox that Part II subsequently explores: the “pro-business” Court is often at odds with internal activity in corporate law and governance. Quite remarkably, as the Roberts Court has expanded corporate rights and narrowed pathways to liability, many shareholders and stakeholders have become vocal participants, putting pressure on corporations to rein in the use of their rights, to mitigate risks generated by their externalities, and to take account of environmental, social, and governance (ESG) concerns. The Court’s expansion of corporate rights not only disserves many corporate participants and spurs them to action but also might fuel challenges to new disclosure rules about corporate political activity or other ESG-related concerns that investors and others seek for effective participation in corporate governance. Further, as the Court has downplayed or ignored corporate decisionmaking structures in its jurisprudence expanding rights and narrowing liability, by contrast, in the world of corporate law and governance, we see that board oversight, monitoring, and compliance functions have grown in importance.

According to SEC Chair, Gary Gensler, “[w]hen it comes to climate risk disclosures, investors are raising their hands and asking for more.” He has therefore asked his staff to prepare recommendations on new mandatory climate-change-related disclosure rules.

There appear to be two principal policy goals behind this proposed mandatory climate-related disclosure regime. First, to advise current and prospective investors of previously undisclosed physical and transitional climate-related risks through reliable, consistent, and comparable disclosures. Second, to structure the disclosure requirements to highlight “bad actors” and incentivize changes in the climate-related behavior of publicly traded companies.

Not everyone is, however, convinced that new, mandatory climate disclosures are necessary or even wise. For example, two of the five current SEC Commissioners have questioned the wisdom and/or need for new climate disclosure rules. In addition, Professor Stephen Bainbridge and Professors Paul and Julia Mahoney have expressed concern over the costs of a new climate-disclosure regime, as well as skepticism over the claim that climate disclosures are important to the average investor.

In our recent essay, An Economic Climate Change?, my coauthor George Mocsary and I weigh into the debate over the wisdom of new mandatory climate-change disclosure rules for issuers by asking: (1) Are the goals behind the proposed reforms worthy and appropriate for an SEC disclosure regime (the mission of which is to maintain efficient markets and facilitate capital formation)? (2) Can these goals be accomplished under the existing regime? (3) What would a new disclosure requirement cost, both directly and indirectly? (4) Would any benefits from increased disclosure outweigh those costs?

We conclude that, with respect to disclosure of transitional climate-related risks (risks to issuers from current or prospective regulatory demands and broader market trends toward a carbon-neutral world), new disclosure rules would be either redundant or outside the scope the SEC’s statutory authority.

Concerning mandatory disclosure of physical risk (a company’s risk to physical assets, markets, and supply chain due to climate-related extreme weather events), we express concern that the unreliability of the nascent discipline of “event attribution science” (which strives to identify causal links from human-influenced climate change to extreme weather events) would force issuers into rampant speculation that would be of little use to investors. It is not consistent with the SEC’s mission (and is likely outside its current statutory authority) to mandate disclosures that would be of little or no use to investors.

Finally, we conclude by highlighting the potential for some unintended consequences of mandatory disclosures in this area. For example, the burden of such disclosures may force some currently public companies to go private. This would have the result of further reducing the already decreasing number of investment opportunities for Main Street investors. Moreover, capital may shift abroad to markets that do not require climate-related disclosures, making U.S. markets less competitive. And perhaps most concerning, new climate disclosure rules may force larger, more eco-friendly companies to reduce their carbon footprint by selling off fossil-fuel-based assets and business lines. These assets may be purchased by private or foreign companies that are less concerned about the environment. This may actually result in a net increase in carbon emissions.

Dear BLPB Readers:

“The University of Michigan Law School is pleased to invite junior scholars to attend the 8th Annual Junior Scholars Conference, which will take place in-person on April 22-23, 2022, in Ann Arbor, Michigan.

The Conference provides junior scholars with a platform to present and discuss their work with peers and receive feedback from prominent members of the Michigan Law faculty. The Conference aims to promote fruitful collaboration between participants and to encourage their integration into a community of legal scholars. The Junior Scholars Conference is intended for academics in both law and related disciplines. Applications from graduate students, SJD/PhD candidates, postdoctoral researchers, lecturers, teaching fellows, and assistant professors (pre-tenure) who have not held an academic position for more than four years, are welcomed.”

The complete call for papers is here: Download CFP Michigan Law School 2022 Junior Scholars Conference

Since reading the Minutes of the Federal Open Market Committee July 27-28, 2021, I’ve wanted to learn more about the following statement: “Some participants cited various potential risks to financial stability including the risks associated with expanded use of crypotcurrencies or the risks associated with collateral liquidity at central counterparties [CCPs] during episodes of market stress.” (p.11)  Today, I finally got my wish in reading about CCPs and collateral liquidity risks in the Federal Reserve’s recently released November 2021 Financial Stability Report (Report).   

A box on p.51 of the Report entitled, Liquidity Vulnerabilities from Noncash Collateral at Central Counterparties, provides background on CCPs and collateral posting practices, noting that CCPs might need to monetize quickly noncash collateral in a time of extreme financial market stress.  Were a CCP unable to do this, it could lead to a clearing member’s failure and further stress in markets.  CCPs have liquidity requirements, which encompass cash and tools to monetize noncash collateral.  The Report states: “The designated CCPs generally rely on three types of tools to monetize noncash collateral: (1) committed tools, such as committed lines of credit or committed foreign exchange swap facilities; (2) rules-based tools, for which the CCP rule book requires nondefaulting clearing members to provide liquidity support to the CCP; and (3) uncommitted or best-efforts tools, such as repurchase agreement (repo) transactions executed under an uncommitted master repo agreement or market transactions that may include sales of noncash collateral for same-day settlement.” (p.54) 

“Designated CCPs” are CCPs that the Financial Stability Oversight Council has designated as “systemically important.”  Under Dodd-Frank’s Title VIII, designated CCPs can have accounts and services at the Federal Reserve and, in certain circumstances, access to its discount window.  I’ve written extensively about this (for example, here and here). 

In July, the Federal Reserve established a standing repo facility.  After reading the Report, I couldn’t help but wonder if the Federal Reserve will eventually designate some CCPs as counterparties to this new facility and, were this to happen, what the benefits and costs of such an arrangement would be?  The Federal Reserve has stated that “Counterparties for this [standing repo] facility will include primary dealers and will be expanded over time to include additional depository institutions.”  And, maybe eventually, CCPs?

Expressions of interest due November 19, 2021
Drafts due December 22, 2021

Journal of Affordable Housing & Community Development Law

GUIDELINES FOR AUTHORS

The Journal of Affordable Housing & Community Development Law is the official quarterly publication of the Forum on Affordable Housing and Community Development Law of the American Bar Association. The Journal is the nation’s only law journal dedicated to affordable housing, fair housing and community development law. The Journal educates readers and provides a forum for discussion and resolution of problems in these fields by publishing articles from distinguished law professors, policy advocates and practitioners. This issue, which will hit mailboxes in late April of 2022, will have a theme: preservation of affordable housing, expiring use restrictions, and “Year 15” issues. Your submission does not have to address the theme but we will be looking out for pieces that do.

Article/Essay Length. The Journal welcomes essays (typically no longer than 6,000 words) or articles (typically 5,000 – 10,000 words). Generally, articles are more thoroughly researched and footnoted than essays.

Style. The writing should be appropriate for a readership that consists primarily of lawyers. Authors should avoid excess verbiage, long quotations and jargon. Authors should use gender-neutral language.

Footnotes. All references must be completely and accurately cited, using the citation style of the most recent edition of The Bluebook: A Uniform System of Citation.

Author Biography. Please include a brief description of your current professional affiliation.

Manuscript Preparation. Use footnotes rather than embedded citations; number pages; italicize rather than underline; use Word, WordPerfect, or an IBM-compatible program; and submit the manuscripts as e-mail attachments.

Prior Publication. Simultaneous submission of manuscripts to other publications is discouraged and must be brought to the attention of the editor of the Journal. Unless otherwise clearly noted, all manuscripts are expected to be original.

Copyright. The American Bar Association retains the copyright to all material published in Journal of Affordable Housing & Community Development Law. Authors are asked to sign a copyright agreement that grants to the ABA the exclusive right of first publication, the nonexclusive right to reprint, and the right to use the work in other ABA media-including electronic, print, and other. Special arrangements, although discouraged, can be made for authors who must retain copyright to their articles.

Send Manuscripts to Anika Singh Lemar, Editor-in-Chief, anika.lemar@yale.edu.

Christina Parajon Skinner has published “Central Bank Activism” in the Duke Law Journal.  Below is the abstract.  You can find a draft of the paper on SSRN here.

Today, the Federal Reserve is at a critical juncture in its evolution. Unlike any prior period in U.S. history, the Fed now faces increasing demands to expand its policy objectives to tackle a wide range of social and political problems–including climate change, inequality, and foreign and small business aid.

This Article develops a framework for recognizing and identifying the problems with “central bank activism.” It refers to central bank activism as situations in which immediate public policy problems push the Fed to aggrandize its power beyond the text and purpose of its legal mandates, which Congress has established. To illustrate, this Article provides in-depth exploration of both contemporary and historic episodes of central bank activism, thus clarifying the indicia of central bank activism and drawing out the lessons that past episodes should teach us going forward.

This Article urges that, while activism may be expedient in the near term, there are long-term social costs. Activism undermines the legitimacy of central bank authority, erodes central bank political independence, and ultimately renders a weaker central bank. In the end, this Article issues an urgent call to resist the allure of activism. And it places front and center the need for vibrant public discourse on the role of a central bank in American political and economic life today.

Christina Parajon Skinner, Central Bank Activism, 71 Duke L.J. 247, 247–48 (2021).

As the followers of this blog well know, I’ve written a lot about controlling shareholders.  There have been blog posts here, here, here, here, here, here, here, here, here, here, and here, and an essay, After Corwin: Down the Controlling Shareholder Rabbit Hole.  So, I finally posted a whole new essay to SSRN on the subject, called The Three Faces of Control.  It’s very short; it’s kind of a follow-up/sequel/coda/friendly amendment to After Corwin. Here is the abstract:

Controlling shareholders are subject to distinct legal obligations under Delaware law, and thus Delaware courts are routinely called upon to distinguish “controlling shareholders” from other corporate actors.  That is an easy enough task when a person or entity has more than 50% of the corporate vote, but when a putative controller has less than 50% of the vote – and is nonetheless alleged to exercise control over corporate operations via other means – the law is shot through with inconsistency.

What is needed is a contextual approach that recognizes that the meaning of control may vary depending on the purpose of the inquiry.  Under Delaware doctrine, the controlling shareholder label subjects that entity to unique legal treatment along three distinct dimensions.  First, controlling shareholders – unlike minority shareholders – have fiduciary duties to the corporation.   Second, interested transactions with controlling shareholders – unlike interested transactions with other fiduciaries – are subject to a unique cleansing regime in order to win business judgment deference from reviewing courts.   Third, when certain transactions involving sales of control are challenged in court, they may be treated as direct rather than derivative actions, even when similar transactions that do not involve control sales would be treated as purely derivative.

By teasing out these three aspects of the legal framework and analyzing them separately, courts can more closely attend to the reasons why control carries special significance, and ultimately develop a more rational and consistent set of definitions.  Most critically, courts may properly designate someone a controlling shareholder for some purposes, but not others. 

Frankly, if you’ve been following my posts on controlling shareholders, a lot of it will seem familiar.  I wrote the essay because I wanted to formalize my thinking rather than leave it all in the blog, and also to articulate an overall framework that is a little different from how I approached things in the After Corwin essay. 

But then, right after I drafted this here post announcing my paper, I discovered that Lawrence Hamermesh, Jack B. Jacobs, and Leo Strine posted their own general assessment of current trends in Delaware law, including controlling shareholder transactions.  They, ahem, cover a lot of the same ground that I do (and, I will admit, do so far more extensively), and their recommendations are the opposite of mine (which makes the whole thing more than a little awkward for me personally but here we are). 

Anyhoo, while my proposals would likely result in more scrutiny of interested transactions, they want less.  They think that Chancery erred by extending the MFW framework to all conflicted-controller transactions,  and instead would jettison the entire line of cases holding that interested transactions with controllers are inherently coercive.  They would allow all such transactions to be cleansed either by the disinterested directors or the disinterested shareholders (just like other interested transactions), with MFW reserved for cases where a shareholder vote is statutorily required.  They agree with the point I made in After Corwin that the MFW framework has created pressure to overdefine the category of controlling shareholders, but their solution is to limit MFW to a small group of cases, so that the controlling shareholder label does less work.  That’s a possibility I raised in the conclusion of After Corwin, but I can’t say it’s what I recommend: they are very afraid of frivolous litigation, and very trusting of institutional shareholders and independent directors to defy controllers, but it seems to me that a lot of the problem here is that courts are looking at cases that are technically “cleansed” but just don’t pass the smell test, and they want to let plaintiffs get a shot at discovery.  If there’s injustice that courts feel they can’t reach, I don’t think the solution is to make it even harder for courts to get there. 

In any event, these ideas will absolutely get a workout pretty soon.  I previously posted about the Tesla trial; whatever the verdict, it will certainly be appealed, and the Delaware Supreme Court has never articulated how far MFW extends, even as Chancery has applied MFW to all conflicted controller transactions. To date, almost all of the MFW cases that the Delaware Supreme Court has addressed involved freeze-outs, and one, Olenik v. Lodzinski, 208 A.3d 704 (Del. 2019) (which I forgot when I talked about this in my Tesla post, whoops), did not involve a freeze-out, but did involve a complex transformative transaction that statutorily required shareholder votes to proceed.  Tesla, by contrast, involves Tesla’s acquisition of SolarCity.  There was no statutory requirement of a shareholder vote on the deal, just the NASDAQ requirement that a majority of voting shareholders approve an equity issuance of that size.  (The company voluntarily adopted a disinterested-shareholder-approval requirement.) 

So, one way or another, in Tesla if not sooner, the Delaware Supreme Court will be called upon to decide how far MFW extends, and unless the Court ducks the whole issue by holding that the disclosures were deficient (in my Tesla post, I explain how that would work), it will either lean in and extend the MFW framework to a broader category of cases – all conflicted controller transactions, as Chancery has done, maybe something less categorical – or retrench and possibly even agree with Hamermesh, Jacobs, and Strine that we’ve moved past the idea that controlling shareholders inherently coerce shareholders by their mere presence.

I mean, I know where I’d place my bets as to which direction the Court will choose, but I guess we shall see.  I suppose it’s helpful here that of all defendants in the world who are unlikely to settle anything, it’s Elon Musk, so I don’t think the Tesla case will be resolved that way.

What’s also interesting about the Hamermesh, Jacobs, and Strine paper, by the way, is that they disagree with the Delaware Supreme Court’s holding in United Food and Commercial Workers Union v. Zuckerberg, and in fact, they agree with what the plaintiffs in that case were arguing.  The plaintiffs argued that the Aronson test should apply if the demand board was the board that made the challenged decision, and that demand should be excused if the plaintiff was able to plead that the directors breached their duties with respect to the challenged decision, even if they were exculpated for that breach.  The theory here is, say there was an interested transaction that was approved by a majority independent board, but the board breached their duty of care in the process.  Under Zuckerberg, demand is not excused when challenging the underlying transaction; the plaintiffs in Zuckerberg argued it should be, because directors who breach their duties may not face monetary liability but they don’t want to expose their flaws publicly and therefore won’t consider demand fairly.  Hamermesh, Jacobs, and Strine agree with that position.

I’ll also note that they highlight the tension between the assumption that controllers are so very scary we need special procedures to cleanse their interested transactions, and a demand-excusal test that assumes independent directors can fairly decide whether to sue a controller.  (That’s something I talk about too, both in The Three Faces of Control at fn. 60, and in After Corwin at 1984-85.)  

There’s a lot more in their paper; they’re concerned about recent merger cases targeting corporate officers for care violations, and recommend amending 102(b)(7) to cover officers, and they want to reform section 220, among other things.  I don’t know that all of their ideas will come to fruition but I rather suspect many will have a lot of influence in Delaware, so anyone interested in these subjects should take a look.

More information about our dean search can be found here.  This is the ad if you’d like to come join me in fabulous Las Vegas:

The University of Nevada, Las Vegas, invites applications and nominations for the position of Dean of the William S. Boyd School of Law. This year, Boyd secured its position as one of the country’s top 30 public law schools for the 15th consecutive year. The school’s Lawyering Process Program ranked first among legal writing programs in the nation, its part-time program is rated among the top 20 in the country, and its Saltman Center for Conflict Resolution ranked fifth among the top dispute resolution programs, according to U.S. News & World Report’s 2022 rankings. Dedicated to serving both the city of Las Vegas and the state of Nevada as its only law school, Boyd is an integral component of one of the fastest growing and most diverse universities in the nation. Boyd is committed to nurturing a learning community of excellence and diversity, and strongly encourages applicants from a wide range of backgrounds to explore this exceptional opportunity.

Founded in 1957, UNLV is a thriving urban research institution of more than 31,000 students that is supported by over 4,500 faculty and staff dedicated to exceptional teaching, research, and service. The University offers professional degrees in business, law, engineering, medicine, architecture, dental medicine, and hotel administration and leading programs in liberal arts, nursing, urban affairs, public health, fine arts, sciences, engineering, and education. From its founding in 1998, Boyd has been law school committed to scholarship, experiential learning, and skills education with full time members of all three of these parts of the law school on the tenure track.

The University has become an indispensable resource in one of the country’s most diverse, enterprising, and rapidly growing cities. The UNLV campus mirrors the diversity of the community in which it sits, ranked among the most diverse undergraduate campuses in the country by US News and World Report. UNLV prides itself on being an institution of opportunity where students traditionally underrepresented in higher education can receive the support they need to achieve their educational and professional goals. As a Minority-Serving Institution (MSI), Hispanic-Serving Institution (HSI), and Asian American Native American and Pacific Islander Serving Institution (AANAPISI), UNLV enrolls a high percentage of minority students and is committed to reducing barriers to their academic success.

The Dean of Boyd is the chief academic and administrative officer, with the overall responsibility for providing the vision and leadership needed to maintain and enhance the stature of Boyd. As such, the Dean is accountable for the conduct and outcomes of its programs and activities. The Dean, who reports to the Provost of the University, is also Boyd’s principal participant in university governance and functions as Boyd’s lead representative to internal and external constituencies, including the University community, the legal profession in Nevada and beyond, the state legislature, and the larger community.

For full and timely consideration, applicant materials should be received by no later than November 15, 2021. Application reviews will begin immediately and continue until the completion of the search process.

Tim McFeeley is leading this search with Damla William

Dear BLPB Readers:

Professor Peari has recently posted a new article on SSRN, An Assessment of the US Rules Which Determine the Relevant Law Applicable to Corporations: A Suggestion for Reform.  It will be published in the Delaware Journal of Corporate Law. 

Here’s the abstract:

“The article addresses one of the basic legal questions of corporations: which law governs disputes involving corporations? The US scholarship has not provided yet a comprehensive answer to this question. Which law, for example, applies to adjudicate a dispute between a Delaware corporation and a Nevada corporation, considering both usually conduct business in New York, California, Montana and Canada, with respect to delivery of goods in California? Through analyzing the external (i.e. aspects that relate to interactions between corporations and people/other corporations/bodies) and internal aspects of corporation (i.e. aspects related to the structure of corporate governance in terms of the relationship between corporate shareholders, directors, and officers), the article justifies some facets of current practices and makes key suggestions for reform. At a time when COVID-19 has caused economic disruption, corporations are inherently present in almost every aspect of our lives, and the volume of online commerce is escalating, the article tackles one of the most pressing and relevant questions of contemporary social reality.”

 

Gonzaga University School of Law in Spokane, Washington seeks a Full-time Assistant, Associate, or Full Professor (Tenured or Tenure Track) who will typically teach two courses per semester, which may include first-year and/or required courses. Our curricular needs include Contracts, Bankruptcy, Secured Transactions, and other Commercial Law courses; experiential courses in the realm of business law; and academic support or bar preparation courses taught in conjunction with doctrinal courses. Gonzaga Law embraces a unified faculty model, in which all faculty members are supported as scholars in all subject matter areas and have the opportunity to teach experiential, clinical, academic support, or bar preparation courses if desired. Candidates must demonstrate the ability to be an outstanding teacher, a commitment to service, and excellent scholarly potential, particularly in alignment with one or both of Gonzaga Law’s two academic Centers – the Center for Civil & Human Rights and the Center for Law, Ethics & Commerce.

Gonzaga Law embraces its humanist mission of educating the whole person and preparing lawyers to serve marginalized populations in an increasingly international legal market. Law faculty instruct law students, provide service to the law school and University, and engage with other professionals and the public to contribute to the intellectual exchange of ideas, to improve the law, and to educate the profession and the public about the law, with an eye towards the common good.

To apply, please visit our website at www.gonzaga.edu/jobs. Applicants must complete an online application and electronically submit the following: (1) a cover letter, (2) a curriculum vitae, (3) research agenda, (4) a statement that includes evidence of teaching effectiveness and experience creating and maintaining an inclusive learning environment, and (5) the names and contact information for three professional references. These references will be contacted, for finalists, to request confidential letters of recommendation. Candidates may, at their option, also upload a statement of teaching philosophy.

Inquiries about the position may be directed to the Chair of the Faculty Recruitment Committee, Professor Agnieszka McPeak, at lawfacultyhiring@gonzaga.edu; however, the applicant must apply directly to Gonzaga University, Office of Human Resources. The position closes on November 22, 2021 at midnight, U.S. PST. For assistance with your online application, please contact Human Resources at 509-313-5996.