By now, regular readers of this blog are aware that I’ve been especially forceful in arguing that litigation limits in corporate charters and bylaws can only address matters of corporate internal affairs, and that federal securities claims are beyond their scope.  Vice Chancellor Laster adopted a similar view in his Sciabacucchi v. Salzberg decision, where he invalidated charter provisions that purport to require that all Section 11 claims against the company be brought in federal court.  Now that the matter is on appeal to the Delaware Supreme Court (Docket No. 346,2019) – and the opening brief is due today –  a lot of articles about the scope of the internal affairs doctrine are dropping. 

First up, we have Daniel B. Listwa & Bradley Polivka’s First Principles for Forum Provisions (Cardozo Law Review, forthcoming), in which the authors argue that Laster’s opinion erroneously focused on “territoriality” rather than “comity,” and that the suit should have been dismissed for lack of ripeness.

Next, there’s Mohsen Manesh with The Contested Edges of Internal Affairs (Tennessee Law Review, forthcoming), which explores the uncertainties surrounding the scope of the internal affairs doctrine, spotlighted both by the Sciabacucchi v. Salzberg decision and by California’s new board gender diversity mandate.

And then there’s The Limits of Delaware Corporate Law: Internal Affairs, Federal Forum Provisions, and Sciabacucchi, by Joseph Grundfest, which argues that Laster adopted a “novel” view of the internal affairs doctrine, inconsistent with both Delaware and U.S. Supreme Court precedent.  This is interesting because his previous article, The Brouhaha Over Intra-Corporate Forum Selection Provisions: A Legal, Economic, and Political Analysis, 68 BUS. LAW. 370 (2013), co-authored with Kristen Savelle, stated that forum selection provisions “do not purport to regulate a stockholder’s ability to bring a securities fraud claim or any other claim that is not an intra-corporate matter” and that if they attempted to do so, courts could prevent it.  That passage was relied upon by then-Vice Chancellor Strine in his decision upholding forum selection provisions that apply to state-law internal affairs claims in Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013), and of course, Laster’s decision relied heavily on Boilermakers.  In the new article, Grundfest acknowledges the tension and explains how his language has been taken out of context.  See manuscript at n.345.

There’s also an interesting new empirical paper by Dhruv Aggarwal, Albert Choi, & Ofer Eldar, Federal Forum Provisions and the Internal Affairs Doctrine, which finds that after the Sciabacucchi v. Salzberg, firms with similar forum selection clauses in their constitutive documents experienced a stock price drop, suggesting that the market values such clauses.  In light of these results, the authors argue that the internal affairs doctrine should be interpreted to permit them.

Point being, the Delaware Supreme Court has a lot of reading to do.

The fourth chapter in Mass Torts Deals tackles the role judges play in coercing facilitating mass torts settlements.  (You can find more chapter writeups here.)

In many instances, it seems as though lawyers manage to rope judges into using procedural mechanisms and their trusted status as authority figures to push plaintiffs into settlements.  The big danger seems to be that because we do not have clean, well-established procedural rules specifically for multi-district litigation proceedings, judges simply do whatever they want, often using coercive powers without any real safeguards.

In one case, Judge Susan Wigenton seemed to take a very heavy hand with objectors to a medical device settlement.  She ordered plaintiffs to “enter into a private settlement program that entailed at least 18 months of mediation unless they settled sooner.”  At the same time, she stayed the multi-district proceeding, shutting off access to discovery.  Plaintiffs were forced to participate in the program or face dismissal.

In response, many plaintiffs objected.  Lawyers advocating for the settlement contended that Judge Wigenton had “inherent authority” to manage her docket and that the authority allowed her “to send an elderly plaintiff population into a private settlement program without their consent.”  In response to the objections, Judge Wigenton defended her authority, saying “I completely, totally and whole heartily disagree with this notion and concept that I do not have the authority manage a case in the manner that I feel is appropriate.  I think that strains logic.”

Although most would agree that courts have substantial inherent authority to manage the cases and attorneys before them, modern multi-district litigation processes seem to strain and surpass defensible outer limits for that authority.  Consider two different orders often issued in these cases: (1) census orders, and (2) Lone Pine orders.  Just keeping track of the specialized procedural terminology is a challenge.  Most lawyers won’t learn these exotic moves in their ordinary practice or civil procedure.

Census

With census orders, courts order all the lawyers appearing before them to disclose information about all of their clients–even ones in state court or who have not filed any case.  Although this information might be useful for dealmakers working to craft a settlement, forced disclosures of confidential information about other clients seems to create a conflict for an attorney. 

The jurisdictional basis for these orders also baffles me.  I do not understand how a person who has never submitted to the personal jurisdiction of any court by filing any complaint can have their information hauled out simply by having a relationship with a lawyer who is representing a different client in a proceeding in some distant state.

Lone Pine Orders

These orders essentially require plaintiffs who do not agree to a settlement deal to quickly furnish case-specific proof.  If the orders require expedited production of medical records and expert opinions, the aggressive timetables alone can be enough to force plaintiffs into settlements.

Ultimately, Burch captures the challenge with aggressive application of inherent authority in these cases.  She explains that it “appears to have no limits.  It is guided neither by consent nor contract principles.  It swells to fill whatever role it must, sacrificing transparency, predictability, and restraint in its wake.”

The challenge here may be to keep encourage judicial behavior that promotes autonomy for plaintiffs instead of simply forcing settlement.  Although courts face pressures to resolve cases, they should make sure that injured plaintiffs can still have their day in court on reasonable terms if they want to try their case.  Without actually trying more of these cases, it’s hard to know whether we’re actually doing anything close to justice in these proceedings.

 

 

This past Friday, I had the privilege of attending the First Annual ISG/Corporate Issuers Conference, hosted by the Investor Stewardship Group (ISG) and the John L. Weinberg Center for Corporate Governance at the University of Delaware. The Investor Stewardship Group is “an investor-led effort that includes … more than 60 U.S. and international institutional investors with combined assets in excess of US$31 trillion in the U.S. equity markets,” which was formed “to establish a framework of basic investment stewardship and corporate governance standards for U.S. institutional investor and boardroom conduct.”[1] The John L. Weinberg Center for Corporate Governance “is one of the longest-standing corporate governance centers in academia, and the first and only corporate governance center in the State of Delaware, the legal home for a majority of the nation’s public corporations.”[2] Charles M. Elson is the Edgar S. Woolard, Jr., Chair in Corporate Governance and the Director of the Weinberg Center.[3]

The primary work product of the ISG is the “framework for U.S. Stewardship and Governance comprising of a set of stewardship principles for institutional investors and corporate governance principles for U.S. listed companies. The corporate governance framework articulates six principles that the ISG believes are fundamental to good corporate governance at U.S. listed companies.” Meanwhile, the “stewardship framework seeks to articulate a set of fundamental stewardship responsibilities for institutional investors.” The Framework “became effective on January 1, 2018.”[4]

The agenda for the conference included a “deep-dive” into both the ISG Stewardship Principles and ISG Corporate Governance Principles, as well as “Fireside Chat” consisting of Charles Elson interviewing Marty Lipton. What follows, in no particular order, are three of my reflections on the conference. The Chatham House Rule applied, so I will not attribute any statements to any particular speakers.

Continue Reading Reflections on the First Annual ISG/Corporate Issuers Conference

Screenshot 2019-09-13 21.09.15

I am pleased to announce that The University of Tennessee College of Law is again hosting editors of this blog for a symposium focusing on current topics in business law.  The website for the symposium, which is sponsored by UT Law’s Clayton Center for Entrepreneurial Law, is here.  Faculty and students from UT Law will comment on presentations given by my fellow BLPB bloggers.  Participating editors of the BLPB in this year’s program include Colleen Baker, Ben Edwards, Josh Fershee, me, Doug Moll, Haskell Murray, and Stefan Padfield.  The lunchtime panel features me and two of my UT Law colleagues exploring the legal meaning and understanding of mergers and other business combinations from various perspectives, including business associations law, bankruptcy and UCC law, and federal income tax law.  That, alone, is surely worth the price of entry!

If you live in or near Knoxville, please come and join us.  Continuing legal education credit is available to members of the Tennessee bar.  If you cannot make it to the symposium, however, a video recording of the proceedings will later be available on UT Law’s website, with an expected option for online continuing legal education credits.  (Last year’s program is available here with a continuing legal education credit option.)  In addition, the written proceedings of the symposium are scheduled to be published in the spring volume of Transactions: The Tennessee Journal of Business Law.

I am looking forward to having many of my BLPB co-editors in town for this program.  It’s always a special time when we are together.

Emily Strauss at Duke has posted a fascinating new paper, Crisis Construction in Contract Boilerplate (Law & Contemp. Probs., forthcoming).  She examines how judges interpreted the boilerplate in RMBS contracts during the financial crisis, and finds that they relaxed their reading of certain provisions in order to enable injured investors to recover their losses, and then reverted to more strict readings when the crisis had passed.

Specifically, the RMBS contracts provided that the “sole remedy” available for loans that did not conform with quality specifications was for trust sponsors to repurchase the noncompliant loan.  Of course, during the crisis, investors alleged that huge percentages of loans backing the trusts were noncompliant, and a loan-by-loan repurchase requirement would have been, as a practical matter, impossible to pursue.  Strauss finds that judges interpreted the clause to permit investors to use sampling to identify noncompliant loans and claim damages, but only in the years following the crisis.  By 2015, they reverted to a stricter reading of the contracts.  She cites this an example of “crisis construction,” namely, the way that courts alter their readings of contracts during times of calamity in order to further some economic policy.  (Strauss discusses that phenomenon in her paper, and Mitu Galati also describes it in this blog post spotlighting Strauss’s work ).

The part that really fascinates me, though, is how this trend strikes me as the opposite of what I experienced when I litigated these cases not as a matter of contract construction, but as a matter of securities law violations.  As I posted a few years ago (with additional discussion here and here), I believe that courts adopted a narrow – and nonsensical – approach to class action standing when investors started suing en masse after the crisis, and they did so as a way of managing what would otherwise be incomprehensibly large liabilities for Wall Street’s major players.  So I’m intrigued that when it came to securities liability, courts shut the door to plaintiffs, but when it came to contract liability, they opened it.

 

 

Chapter three in Mass Tort Deals by Elizabeth Chamblee Burch tackles repeat player dynamics in aggregate litigation.  If you’re interested in earlier posts on it, they’re available here and here.  

My biggest takeaway is that for the attorneys in this space, if they want to be in the room where it all goes down, they’ve got to bro down socialize and remain well-thought of by their well-connected colleagues. A lawyer’s ability to make a living in the space and generate results for clients seems to depend on relationships with other key players. So much depends on being well-connected:

  • the ability to get a leadership appointment;
  • the ability to get some of the work flow;
  • the ability to get a decent fee allocation;
  • the ability to get a settlement favoring your “inventory” of clients; and
  • the ability to get other attorneys to back any play you make.

Functionally, this means that attorneys face intense incentives to get along with other attorneys in the space.  This probably does not produce solid strategic behavior because attorneys may be more likely to simply agree with well-connected leaders than to press for things that might rock the boat a bit but generate better outcomes for all plaintiffs swept up in the aggregate litigation vortex.  Burch does a great job of bringing stories forward about questionable litigation decisions likely driven by this process.

Burch also breaks down how pairing these incentives with known shortcomings in group decision-making poses real risks for actually getting cases ready for trial.  Lawyers with better situated test cases or a different understanding than group leaders may not put their information before the group or be able to get their cases ready.

One thing that struck me was how the size of the committees managing the litigation might not be well-suited for effectively operating.  I’ve seen this dynamic myself.  A small group of 4-5 can generally work well together.  When groups double in size, we don’t tend to be as effective.  Judges tend to appoint groups of 12 or more.  Judge Eldon Fallon apparently appoints 12 because “there were 12 apostles.”  And I guess that makes sense if you want a group that will mostly just bow down and follow the leader around.  But if you want a group to share power and operate strategically and effectively, a 12-15 lawyer committee might not be the right size.

Ultimately, I’m not convinced that the processes we have now result in adequate representation.  Part of it may be that the plaintiffs in these cases need to develop discovery in different ways.  Conducting consolidated discovery may result in material of some general utility but significantly less utility than a more focused preparation process.  Burch tells the story of a lawyer who wanted to take a tight deposition for use at trial but couldn’t because of all the other lawyers that got into the room and dragged the proceeding out.  In that lawyer’s telling, it produced a deposition that lots of lawyers got involved in and billed time to but also one that offered significantly less utility for actually trying a case than a more focused one.

We also generally lack actual legal authority for governing these proceedings or the duties the leading lawyers involved actually owe to claimants who are not their direct clients.  It seems as though moving toward something more similar to class action processes and norms would do more to protect actual victims. 

This whole area of law seems like a train wreck.  This is fitting because this area of law might also be the procedural vehicle to deal with injuries arising out of a train wreck.

 

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Call for Papers for Section on Law & the Social Sciences Program at the AALS Annual Meeting

The Section on Law & Social Sciences is pleased to announce a Call for Papers from which one or two additional presenters may be selected for the section’s program panel to be held during the AALS 2020 Annual Meeting in Washington, D.C. The panel is entitled “Empirical Research in Business Law: Works in Progress,” and the panelists will summarize the methods and/or results of their current qualitative or quantitative empirical research projects as works in progress.

Form and Length of Submission:

The Section welcomes relevant submissions in the form of research proposals, preliminary pilot studies, or even nearly completed projects with results. Junior scholars are particularly encouraged to submit. Submissions should incorporate at least a brief (3-5 page) summary or abstract of the project.

Submission Method and Due Date:

Papers should be submitted electronically to David Kwok (dkwok@uh.edu). The due date for submission is September, 20, 2019. Authors selected will be notified by September 27, 2019. The Call for Papers presenters will be responsible for paying their registration fee and hotel and travel expenses.

Inquiries or Questions:

Any inquiries about the Call for Papers should be submitted to David Kwok (dkwok@uh.edu).

The following comes to us from friend of the BLPB George S. Georgiev at Emory Law:

Emory University School of Law seeks a lateral hire for a tenured position in business law to begin in the 2020-2021 academic year. Candidates should be already tenured at an ABA-approved law school.

Candidates must have a J.D., Ph.D., or equivalent degree, a distinguished academic record, and a demonstrated potential to produce outstanding scholarship. Candidates should complete the online application here, and submit a cover letter, a current CV, a published or unpublished academic article, a brief research agenda, and an indication of teaching interests (if not listed on the CV) to the chair of the Faculty Appointments Committee: Polly J. Price, Asa Griggs Candler Professor of Law, at pprice@emory.edu.

Emory Law strives for a world in which law provides a common framework for courageous leaders to engage our most complex social and economic challenges and to achieve positive social transformation by advancing the rule of law. Emory University is dedicated to providing equal opportunities and equal access to all individuals regardless of race, color, religion, ethnic or national origin, gender, genetic information, age, disability, sexual orientation, gender identity, gender expression, and veteran’s status.

The BLPB is abuzz with blockchain news this weekend!  Past posts have also addressed this topic (here, here, here, and here for a sampling). 

I’m excited to highlight the publication of the book: FinTech: Law and Regulation, edited by Jelena Madir.  Madir is the Director, Chief Counsel at the European Bank for Reconstruction and Development, in addition to having been an outstanding editor of this book, and a delight to work with (thanks, Jelena!).  I’m grateful for the opportunity to contribute to this important work, and thankful to Wharton Professor Kevin Werbach for inviting me to coauthor the chapter: Blockchain in Financial Services (thanks, Kevin!).  Werbach also recently published the highly-rated: The Blockchain and the New Architecture of Trust.  Two great book recommendations for BLPB readers!