Dear BLPB readers,

I wanted to share about great opportunity that I learned about from Professor Laurie Lucas at Oklahoma State University, a Member of the Governing Committee of the Conference on Consumer Finance Law (thanks, Laurie!!):

Those of you who may have interest in consumer finance, FinTech, antitrust issues, or the use of nonfinancial alternative data in this space are invited to attend this free program sponsored by the Conference on Consumer Finance Law and George Mason University Scalia Law School. During this program, three members of the CFPB’s Taskforce on Federal Consumer Financial Law will discuss the report and its key recommendations.  
 
This program, “New Directions for Consumer Finance Law.  An Insider’s Look at the Report of the CFPB’s Taskforce,” is scheduled for Feb. 11, 2021, 12:00 – 1:30 p.m. EST. Registration is free, but closes February 8, 2021. (No CLE is available for this event.) Flyer is here: Download Ccfl_feb_webinar
 

 

[I found the following in my inbox this morning and subsequently received permission from Dean Peters to republish it here.]

Dear members of the Akron Law family,

Over the weekend, I revisited Martin Luther King Jr.’s astounding Letter from a Birmingham Jail.  If you haven’t read it, or haven’t read it recently, it is worth ten minutes of your time on this day devoted to Dr. King’s legacy.  (Be aware that Dr. King twice repeats an offensive epithet in the Letter to describe racist insults in the South.)  Letter from a Birmingham Jail is essential reading for all Americans, and it carries particular significance for lawyers.

Dr. King wrote Letter from a Birmingham Jail in April 1963, at the height of the Civil Rights Movement and a few months before his “I Have a Dream” speech in Washington.  He and his colleagues had been arrested for illegally marching to protest segregation in Birmingham, Alabama, the fiefdom of the infamous Theophilus Eugene “Bull” Connor and his fire hoses and police dogs.  While Dr. King sat in jail, a group of white Alabama clergymen published an open letter denouncing King’s methodology of public (and sometimes illegal) protest and resistance.  The white clergy insisted that the anti-segregationist cause “should be pressed in the courts and in negotiations among local leaders, not in the streets.”

Letter from a Birmingham Jail was Dr. King’s response to this indictment, and there are many aspects of it that remain strikingly resonant today.  The Letter is a cogent defense of civil disobedience, one of the most eloquent explorations of that topic ever written.  But it is not an excuse for thoughtless lawbreaking or a call for disobedience without consequences.  And it is a powerful rejection of the urge to violence.

In the Letter, Dr. King argued that while a person “has not only a legal but a moral responsibility to obey just laws, … one has a moral responsibility to disobey unjust laws.”  But King was meticulous about the distinction between just and unjust laws.  An unjust law is not simply a law that one does not like, or even a law that one personally believes to be unjust.  Rather, an unjust law is one that is rotten at its core – a law that is made or applied so as to deny the equal humanity of those it purports to bind.  For example, King wrote, “[a] law is unjust if it is inflicted on a minority that, as a result of being denied the right to vote, had no part in enacting or devising the law.”

Segregationist laws were unjust in this way, Dr. King understood, and so disobedience of them was justified.  But even those who engage in justified disobedience had to be willing to pay the consequences:  “In no sense do I advocate evading or defying the law ….  That would lead to anarchy.  One who breaks an unjust law must do so openly, lovingly, and with a willingness to accept the penalty.”  For King, “an individual who breaks a law that conscience tells him is unjust, and who willingly accepts the penalty …, is in reality expressing the highest respect for law.”

Dr. King thus accepted the crucial distinction between peacefully resisting a particular unjust law and “defying the law” itself.  And he emphatically rejected the legitimacy of violent disobedience of the law.  In his Letter, King denounced the “force … of bitterness and hatred” that tugged at some opponents of segregation, one that “comes perilously close to advocating violence.”  In place of violence, King advocated “a type of constructive, nonviolent tension which is necessary for growth. …  It seeks so to dramatize [an] issue that it can no longer be ignored.”

These central threads of Dr. King’s message – the legitimacy of peaceful civil disobedience and the illegitimacy of unequal laws; the importance of respect for the underlying institution of the law; and above all the utter rejection of violence – deserve our attention now.  And there is another dimension of Letter from a Birmingham Jail that carries lessons for us today.  The Letter is an unfailingly civil document and a fastidiously reasoned one.  King takes his antagonists to task, certainly; but he never insults them or the intelligence of his readers.  He recognizes that his real audience is the nation and posterity, not the intransigent white clergymen whose letter sparked his reply.  And so he is careful about his facts and scrupulous about his assertions.  He lets his arguments speak for themselves.

Dr. King was an extraordinary man who lived in extraordinary times.  We live in such times too, and although we can only glimpse Dr. King’s greatness across the distance of years, we can aspire for ourselves to the values he espoused:  civility in the face of deep disagreement; reasoned argument supported by facts; abhorrence of violence; and an unflinching desire to make our laws more just.

Please be well; be safe; and be kind and respectful to each other.

All best,

CJP

As we launch into another online/hybrid semester of legal education, I want to share a new article by Jen Randolph Reise: Moving Ahead: Finding Opportunities for Transactional Training in Remote Legal Education. Here’s the abstract:

This article builds on the many calls for teaching business acumen and transactional skills in law school with a timely insight: the shift to remote legal education creates opportunities to do so, in particular by incorporating practice problems and mini-simulations in doctrinal courses. Weaving together the literature on emerging best practices in online legal education, cognitive psychology, and the science of teaching and learning, Professor Reise argues that adding formative assessments and experiential education is effective in teaching and is critical in remote learning.

Offering vivid examples from her experience teaching Business Organizations online, she urges legal instructors to use the opportunity presented by the shift to remote education to incorporate problems and simulations as an effective way to motivate students to prepare for class, to expose them to transactional practice skills, and to effectively teach them key doctrinal concepts.

For those of you who do not know Jen, she is currently a Visiting Professor at Mitchell Hamline School of Law (Twitter: @jenreise).  She and I have communicated/traded information on transactional business law teaching.  I am grateful that she brought this article to my attention–and effectively authored this post!  I look forward to continuing to engage with her on teaching and scholarship in our mutual areas of interest.

It really boils down to this: that all life is interrelated. We are all caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly, affects all indirectly. We are made to live together because of the interrelated structure of reality.

Did you ever stop to think that you can’t leave for your job in the morning without being dependent on most of the world? You get up in the morning and go to the bathroom and reach over for the sponge, and that’s handed to you by a Pacific islander. You reach for a bar of soap, and that’s given to you at the hands of a Frenchman. And then you go into the kitchen to drink your coffee for the morning, and that’s poured into your cup by a South American. And maybe you want tea: that’s poured into your cup by a Chinese. Or maybe you’re desirous of having cocoa for breakfast, and that’s poured into your cup by a West African. And then you reach over for your toast, and that’s given to you at the hands of an English-speaking farmer, not to mention the baker. And before you finish eating breakfast in the morning, you’ve depended on more than half of the world.

This is the way our universe is structured. It is its interrelated quality. We aren’t going to have peace on earth until we recognize this basic fact of the interrelated structure of all reality.

Martin Luther King Jr.
Ebenezer Baptist Church
Atlanta, Georgia
December 24, 1967

+++++

Mutuality = reality.  The truth of this is experienced in education, business and the professions, and our personal lives.  I appreciate Dr. King’s cogent reflection (parts of which are repeated from his other remarks and writings) today more than ever before.  I honor him and his memory with the republication of his meaningful words here on the holiday that celebrates his life and legacy.  May he rest in peace knowing these words continue to be heard.

[Should you want to listen to the entire Christmas Eve sermon from which the quoted words were taken, one of several online recordings can be found here.]

I’ve previously lamented the blurring of the lines of corporate and contract law, usually arising in the context of forum selection provisions in bylaws or charters that are treated as indistinguishable from ordinary contracts.  My most recent post on this concerned the dismissal of a Section 11 case against Uber; shortly thereafter, another California court dismissed claims against Dropbox, in a decision which I may or may not discuss in more detail at a later date.

As Kyle Wagner Compton, author of the invaluable Chancery Daily, recently brought to my attention, in Mack v. Rev Worldwide, VC Zurn went in the opposite direction.  The plaintiff, John Mack (yes, that John Mack) argued that he was not bound to the forum selection clauses contained in certain Notes that he held because he had not assented to them.  Zurn held that he had agreed to provisions that allowed the Notes to be amended by a vote of a majority of the noteholders, and he was thus bound by clauses added through that process.  On that holding I express no opinion.  What does grab me, however, is that Zurn supported this decision by reference to the forum selection bylaw cases, including Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013), finding them to be an appropriate analogy.

Except, as I keep pointing out, Boilermakers rested explicitly on the statutory scheme that details the conditions and limits on directors’ power to adopt bylaws, including directors’ fiduciary obligations.  See id. at 954, 956, 959.  That’s very different from a contractual agreement that details the mechanisms by which the contract can be amended.  And though Zurn did acknowledge that her analogy was not perfect, it represents a further erosion of judicial recognition of the differences between the two regimes.

Anyway, at least I’m not the only one concerned about this; here’s Mandatory Arbitration and the Boundaries of Corporate Law, by Asaf Raz, with further discussion of the distinction between the corporate legal framework and the contractual one.

In my ongoing work for the Tennessee Bar Association, I was alerted to a recent Delaware Chancery Court decision of note.  The decision is embodied in a December 22, 2020 letter to counsel written by Chancellor Andre G. Bouchard in the case captioned In re WeWork Litigation (Consol. Civil Action No. 2020-0258-AGB).  It offers an illustration of the attorney-client privilege challenges that may exist in business associations that operate within networks consisting of affiliated or associated business firms.

The In re WeWork Litigation letter opinion involves a document production dispute.  The controversy relates to communications engaged in by discovery custodians employed at Sprint, Inc. but working on behalf of SoftBank Group Corp.  Specifically, the Sprint employees assisted SoftBank with document discovery relating to its involvement with The We Company (“WeWork”), a plaintiff in the case.  (Sprint is not involved in any substantive way in the litigation.  However, at times relevant to the chancellor’s opinion, SoftBank owned 84% of Sprint.)  The controversy centers around the conduct of Sprint CEO Michael Combes and a Sprint employee, Christina Sternberg.  Each provided SoftBank’s chief operating officer with document discovery assistance.  As Chancellor Bouchard aptly noted, these Sprint employees “wore multiple hats.”  (This comment in the letter opinion reminded me of the U.S. Supreme Court opinion in United States v. Bestfoods, in which the court quotes from Lusk v. Foxmeyer Health Corp., 129 F.3d 773, 779 (5th Cir. 1997): “directors and officers holding positions with a parent and its subsidiary can and do ‘change hats’ to represent the two corporations separately, despite their common ownership.”)

Of particular relevance to the dispute, Combes and Sternberg engaged in document production matters with SoftBank’s legal counsel and used their Sprint email accounts in that activity. In response to plaintiffs’ discovery requests, SoftBank determined to withhold from production 89 documents that were conveyed to or from Combes’s and Sternberg’s Sprint email accounts.  SoftBank’s argument was that the communications were privileged.  The chancellor’s opinion addresses a motion to compel production of those 89 documents.

Chancellor Bouchard granted the motion to compel production of the documents, finding that Combes and Sternberg did not have a reasonable expectation of privacy when using the Sprint email accounts.  As a result, the documents could not constitute “confidential communications” under Delaware Rule of Evidence 502.  Importantly, both Combes and Sternberg were afforded–and could have used–other email accounts (affiliated with WeWork or SoftBank, respectively) in their discovery work for SoftBank.

I noted in my summary of this opinion for the Tennessee Bar Association that the case “offers important cautions to businesses desiring to ensure that communications and transmitted documents can be kept in confidence.”  It is telling in this regard that proprietary email accounts were afforded to Combes and Sternberg to best ensure confidential treatment of their discovery communications, yet no attempt was made to monitor the relevant use of those email accounts as a matter of document control and discovery policy. Accordingly, I noted that it seems prudent, in light of Chancellor Bouchard’s decision, to suggest that business firms and their legal counsel review operative existing document custody and retention guidance (in the form of compliance policies and the like) to evaluate whether they include appropriate control mechanisms geared to best ensuring the confidential treatment of privileged communications and documents. As the facts of the In re WeWork Litigation opinion indicate, this may be especially important for businesses that operate within a networked system of firms.

We have some significant developments in the law for expungement hearings. As a quick refresher for those that don’t follow this corner of securities law closely, the process for deciding whether or not to remove customer dispute information from a broker’s record is unreliable, poorly designed, and seemingly emboldens brokers to commit more misconduct.  One study found that “with prior expungements are 3.3 times as likely to engage in new misconduct as the average broker.” 

Many of the problems flow from how brokers procure expungements.  Often they simply file an arbitration against their employer. (Notably, the employer benefits if its broker/sales agent has red flags and past misconduct removed from regulatory and public databases.)  At some point, they notify the customer about the arbitration and their right to participate, but non-party customers have little incentive or ability to meaningfully participate–and usually don’t participate.  Arbitrators, hearing no reason not to grant the expungement from the parties overwhelmingly recommend expungement.  The broker then notifies FINRA and has the arbitration award “confirmed” by a state court.  As I wrote in my comment letter, “judicial review under these circumstances provides no meaningful check on this process and only serves as a dubious veneer.”  Under the law, courts confirming arbitration awards do not meaningfully review these awards–they simply confirm them absent certain, statutorily-defined problems with the award.

In October, I wrote about a proposal to change some of the rules for brokers seeking to expunge customer dispute information from their records and linked to my own extensive comment letter on the proposal which drew heavily from a law review article explaining how the system fails to surface relevant information because many hearings are not adversarial.  (The SEC also received comments from Arbitrator Julius Z. Frager,  PIABA, NASAA, AdvisorLaw, Pace Law School’s Securities Clinic, St. John’s Securities Clinic, and Steven Caruso.) At the time, I explained that the proposal would do much to change the fundamental dynamic and would leave many problems in place:

But there are many things the proposal won’t do.  It won’t address common customer barriers to participation.  It won’t provide a lengthy notice period so customers can figure out what is going on and get legal help. It won’t even guarantee customers can receive all of the documents filed in these arbitrations.  It won’t make it clear that these proceedings are really ex-parte proceedings and that all advocates must be held to higher standards in them.  It won’t change the system in any truly significant way.  It burdens the customer with protecting the public record at the customer’s expense.

After the comment period, FINRA extended the time for SEC action on the proposal before providing a response to comments and an amended proposal, addressing some of the problems I highlighted.  The amended proposal meaningfully engages with the comments and makes some real improvements.  Although I didn’t get everything I wanted, I’m glad that the amendment addresses some of the most egregious flaws in the current system.  I have my thoughts on FINRA’s response after the jump.

Continue Reading New Developments in Expungement Rules

Given anti-democratic events at the nation’s Capitol which were made possible by continued structural injustice in the U.S. – I feel obligated as a lawyer and professor to emphasize our responsibilities to address the interlocking systems of subordination that impact every area of the law – with entrepreneurship being no exception. These systems divide us into “haves” and “have nots” based on race, gender, class, and even geography.

We have a moral obligation as lawyers and professors to address these structural barriers in the classroom. Entrepreneurship is often touted as a means for greater economic participation and a vehicle for innovation. Yet many entrepreneurs and small businesses are hobbled by barriers rooted in structural injustice. These obstacles prevent them from raising necessary capital, accessing legal resources, obtaining other technical assistance, and numerous impediments related to operations such as insurance and talent retention. A full accounting of existing barriers, though important, is insufficient. We must examine the legal roots of modern structural barriers to entrepreneurship – interlocking systems of subordination based on race, class, and gender. Sadly, U.S. laws and policies have actively devalued certain populations and entire communities, elevating certain communities while relegating others to the economic margins. For example, redlining influenced decades of public and private investment, decimating both the inner-city as well as rural areas.

Law professors must equip our students to be thoughtful, diligent, competent, compassionate, and ethical lawyers. As part of this education, students must confront, and unpack legal regimes and reckon with their practical impacts. At a minimum, our students will engage with state and local policy as private attorneys, regulators, and even elected officials. Grounding them in a thorough understanding of the impacts of structural barriers and empowering them to create change by demanding legal reforms is a task we must embrace.

This blog post expands on my presentation at the AALS 2021 Annual Meeting, where I outlined methods for introducing this vital and complex topic into the business law classroom. Below, I detail my learning goals, lesson plans, and provide some additional materials that may prove helpful for other business law professors. This class was first designed and implemented during my time as an Associate Professor at West Virginia University’s College of Law. I mention this to emphasize that the demographics of a law school student body or fellow faculty should not deter academics from engaging in these topics. I have also modified this class successfully for my current students at American University’s Washington College of Law. I can attest that the class has resulted in important and rich dialogue in both law school classrooms. (Please click below for more.)

 

Continue Reading Teaching Race & Entrepreneurship: A Guest Post from Prof. Priya Baskaran

Indiana University Robert H. McKinney School of Law seeks one or more entry-level or experienced applicants interested in serving as a full-time, temporary faculty member for the 2021-2022 academic year. Subject matter needs include property, intellectual property, administrative law, and health law-related courses. 

As part of IUPUI, Indiana’s premier urban research institution, the law school is committed to being a welcoming community that reflects and enacts the values of diversity, equity, and inclusion that inform academic excellence. We seek candidates who will not only enhance our representational diversity but whose research, teaching, and community-engagement efforts contribute to diverse, equitable, and inclusive learning and working environments for our students, staff, and faculty. IU McKinney condemns racism in all its forms and has taken an anti-racist stance that moves beyond mere statements to interrogating its policies, procedures, and practices. We hope to identify individuals who will assist in our mission to dismantle racism so that everyone has the opportunity to succeed at IU McKinney. The law school is an Equal Opportunity/Affirmative Action Institution with a strong commitment to inclusion and offers domestic partner benefits: https://mckinneylaw.iu.edu/about/administration/policies/diversity-and-inclusion/. For more information about the school, please visit http://indylaw.indiana.edu/.

Interested candidates should submit a CV and cover letter to Vice Dean Cynthia Adams at cmadams@iu.edu. Individuals who require a reasonable accommodation in order to participate in the application process should give Vice Dean Adams adequate notice.  Applications will be reviewed on a rolling basis with February 1 as the deadline for all applications.

The past few days, I’ve been thinking a lot about the classic case of AP Smith Manufacturing Co. v. Barlow, 98 A.2d 581 (N.J. 1953).

Though it is often invoked as emblematic of the “stakeholder” theory of the corporation, large portions of Barlow read more like a particularly vigorous application of the business judgment rule.  So long as corporate altruism could conceivably benefit the corporation, it will not be second-guessed.  Thus, Barlow held that corporate donations to Princeton University were permissible because, among other things:

[Corporations] now recognize that we are faced with other, though nonetheless vicious, threats from abroad which must be withstood without impairing the vigor of our democratic institutions at home and that otherwise victory will be pyrrhic indeed. More and more they have come to recognize that their salvation rests upon sound economic and social environment which in turn rests in no insignificant part upon free and vigorous nongovernmental institutions of learning….[S]uch expenditures may likewise readily be justified as being for the benefit of the corporation; indeed, if need be the matter may be viewed strictly in terms of actual survival of the corporation in a free enterprise system….

[T]here is now widespread belief throughout the nation that free and vigorous non-governmental institutions of learning are vital to our democracy and the system of free enterprise and that withdrawal of corporate authority to make such contributions within reasonable limits would seriously threaten their continuance. Corporations have come to recognize this and with their enlightenment have sought in varying measures…to insure and strengthen the society which gives them existence and the means of aiding themselves and their fellow citizens. Clearly then, the appellants, as individual stockholders whose private interests rest entirely upon the well-being of the plaintiff corporation, ought not be permitted to close their eyes to present-day realities and thwart the long-visioned corporate action in recognizing and voluntarily discharging its high obligations as a constituent of our modern social structure.

Once you get past the anti-Communist rhetoric of the era, the point here is that corporations fundamentally rely on the stability of the nations in which they operate.  Civil unrest, weak legal institutions, are bad for business.  Or, as Matt Levine put it a few years ago:

If the president can, without consulting the courts or Congress, banish U.S. lawful permanent residents, then he can do anything. If there is no rule of law for some people, there is no rule of law for anyone. The reason the U.S. is a good place to do business is that, for the last 228 years, it has built a firm foundation on the rule of law. It almost undid that in a weekend. That’s bad for business.

So it isn’t surprising that business leaders have offered some forceful condemnation of recent efforts by some Republicans to subvert the results of the presidential election.  Before January 6, the US Chamber of Commerce stated, “Efforts by some members of Congress to disregard certified election results in an effort to change the election outcome or to try a make a long-term political point undermines our democracy and the rule of law and will only result in further division across our nation.”  Other business leaders signed a statement to the same effect.

After the President of the United States incited an attack on Congress in hopes of overturning election results, the Business Roundtable stated that “elected officials’ perpetuation of the fiction of a fraudulent 2020 presidential election is not only reprehensible, but also a danger to our democracy, our society and our economy.”  The National Association of Manufacturers called for Vice Pence and the Cabinet to invoke the 25th Amendment and remove Trump from office, and the President of the American Petroleum Institute was quoted in the Washington Post saying that Trump was “unworthy of the office of being president.”

Beyond mere rhetoric, there’s been chatter about withholding campaign contributions from politicians who continue to provoke political instability.  According to a director of Merck and Morgan Stanley, “Respect for the rule of law underlies our market economy.”

To be sure, there is some question as to how committed business leaders will remain to this stance.  Business leaders have supported Trump throughout his presidency, distancing themselves during controversies only to re-embrace him when he cut taxes or regulations. 

In a time when we debate whether corporations suffer from a “short-term” bias, trading social stability for favorable regulatory treatment may the ultimate expression of short-term thinking. Or, as David Gelles wrote in the New York Times, “[M]oney has a short memory.”

Meanwhile, Axe Body Spray would simply like to be removed from this narrative.