A recent report and recommendation from a U.S. magistrate recommends that the referring court find that a plaintiff did not provide the facts needed to support taking diversity jurisdiction.  The magistrate is correct, but the recommendation is a little ironic in that it seems to be chiding the plaintiff for a lack of precision, and well, this: 

Here, Peeples’ amended complaint contains the bare assertions that the address for Xlibris Publishing is in Bloomington, Indiana, while his address is in Mobile, Alabama. The bare allegation respecting the Defendant is insufficient as it does not identify whether Xlibris is a corporation or, instead, an unincorporated entity such as a limited liability corporation. Moreover, if Xlibris is a corporation, the complaint does not delineate its state(s) of incorporation and the state where it has its principal place of business. See Flintlock Constr. Servs., LLC v. Well-Come Holdings, LLC, 710 F.3d 1221, 1224 (11th Cir. 2013) (“A corporation is considered a citizen of every state in which it has been incorporated and where it has its principal place of business.”). And, if an unincorporated entity such as a limited liability corporation,3 the amended complaint does not allege every state in which each of its members are citizens. See, e.g., Lewis v. Seneff, supra, at *3 (Without the information concerning the citizenship of each limited liability company’s membership, Plaintiffs have not shown that this Court has subject matter jurisdiction.”).

3 It appears to the undersigned that Xlibris Publishing is a limitedliability corporation. See www.xlibris.com (last visited, April 4, 2019, at 3:30 p.m.) (Xlibris website shows that it is an LLC).

MARIO ANDJUAN PEEPLES, Pl., v. XLIBRIS PUBLISHING, Def.., CA 19-0070-JB-C, 2019 WL 1983817, at *5 (S.D. Ala. Apr. 8, 2019), report and recommendation adopted sub nom. Peeples v. Xlibris Publg., CV 19-0070-JB-C, 2019 WL 1983055 (S.D. Ala. May 3, 2019).
 
In two spots in the above excerpt, the recommendation refers to a “limited liability corporation” when it clearly means “limited liability company” (the latter being used in other sentences in the excerpt).  
 
As I said, the analysis seems correct, despite the incorrect language. Mistakes happen, but still, it shouldn’t be that hard to get it right (and the incorrect term showed up twice!).  As evidence, I haven’t seen “limited liability corporation” in more than two years on one of my Business Organizations exams, and I haven’t seen it yet this year, either.
 
This mission continues.  
 

I read with interest and some sadness this New York Times article published last month.  Having just finished a full weekend of yoga continuing education with a group of women (most of whom were about to graduate from a registered teacher training like the one I completed last November), I feel compelled to say a few words about the article and the business of yoga and yoga instructor training.  My perspective on the matters raised in the article is, of course, colored by my background in business law practice and teaching and my recent teacher training experiences.  I am sure that co-blogger Colleen also would be interested in the article for similar reasons (and given her earlier post on yoga and entrepreneurship).

The article highlights specific tactics allegedly used to generate then expansion/growth of a particular yoga business.  The core aspect of the article–reports that instructors were pressured or coerced to make sales pitches that may have misrepresented the instructor training program or the results it can achieve–struck me most clearly.  To say that the “story” told in the article was chilling understates the case.  My thought after reading it?  This does not look like the yoga businesses or instructor training programs I know . . . .

Yoga Alliance instructor trainings include information on yoga teaching as a job or career and as a business.  There are many good online resources on the same. See, e.g., here and here.  As these resources and others on the business of yoga indicate, studio revenues from classes are not typically even day-to-day and week-to-week.  Teacher trainings, by comparison (as the article notes), generate revenues that are relatively large and, with solid ongoing recruitment efforts, relatively consistent.  The article’s text illustrates how revenue challenges can drive unethical–even if not unlawful–sales activities.

From a legal perspective, intentional or reckless misrepresentations made by yoga studios through their instructors about the nature of yoga teacher training or the market for yoga instruction, whether or not incentivized by financial or other benefits, are not only potentially tortious but also likely to be within the purview of consumer protection laws.  Under Tennessee law, for example, “[r]epresenting that goods or services have . . . characteristics, . . . uses, benefits or quantities that they do not have” and “[r]epresenting that a consumer transaction confers or involves rights, remedies or obligations that it does not have or involve” constitute “unfair or deceptive acts or practices affecting the conduct of any trade or commerce are declared to be unlawful.”  Tenn. Code Ann. § 47-18-104(b)(5) & (12).  As I earlier mentioned in a post focused on consumer protection issues relating to Starbucks drinks, state consumer protection law is supplemented and complemented by Federal Trade Commission and Better Business Bureau complaint processes/reporting.

In addition, yoga schools and teachers registered with Yoga Alliance (like similar business entities and professionals in other industries) agree to abide by rules set forth in a code of conduct.  These rules include agreements to, for example, “[f]ollow all local government and national laws that pertain to my yoga teaching and business” as well as “[r]espect the rights, dignity and privacy of all students” and “adhere to the traditional yoga principles as written in the yamas and niyamas.”  (Truthfulness (satya) is one of the yamas; purity (saucha) is a niyama.)

Ultimately, the article not only offers lessons to the yoga community, but also holds wisdom for entrepreneurs and business management more generally.  Business growth fueled by fraudulent or other misrepresentations is illusory and avoidable.  I could not help but think about the recently reported Insys Therapeutics convictions:

The jury, after deliberating for 15 days, issued guilty verdicts against the company’s founder, the onetime billionaire John Kapoor, and four former executives, finding they had conspired to fuel sales of its highly potent drug, Subsys, by not only bribing doctors to prescribe their product but also by misleading insurers about patients’ need for the drug.

Sobering facts that provide important warnings to mindful business promoters.

This was a busy semester, but I still managed to read a few books. Always open to recommendations. 

Enough. John Bogle (Business) (2009). Vanguard’s founder reflects on business, money, satisfaction, and life. Easy read. Read this during a 2+ hour faculty meeting.   

Dandelion Wine – Ray Bradbury (Novel) (1957). A Walter Effross recommendation. A story of boyhood and summer and wonder and magic.

Half an Inch of Water – Percival Everett (Fictional Short Stories) (2015). A series of stories situated in the western U.S.–about loss, love, youth, aging, corruption, animals, and the wilderness. My favorite story is “A High Lake” because it reminds me of my grandmothers’ independence, intelligence, and care before they died.  

The Enduring Community – Brian Habig and Les Newsom (Religion) (2001). Co-authored my a minister to two of my siblings while they were at the University of Mississippi (Newsom). Attempts to clarify the roles of the Church in community.

Heavy – Kiese Laymon (Memoir) (2018). Raw memoir in which the author struggles with his weight, abuse, racism, addiction, and depression. Laymon was raised in Jackson, MS and is an English professor at University of Mississippi, after a number of years on the faculty at Vassar College.  

Educated – Tara Westover (Memoir) (2018). Pitched as the remarkable story of the author’s journey from a survivalist family that did not believe in formal schooling to a Cambridge PHD.  But I think the book is more interesting as a look at how memories are formed, abuse, family, and mental illness.

This past week, the Commodity Futures Trading Commission (CFTC) released its third clearinghouse supervisory stress test report (see reports for 2016 and 2017).  The tests were based upon positions at CME Clearing and LCH Limited, and consisted of: 1) “reverse stress tests of CCP [clearinghouse] resources,” covering futures and options at CME and interest rate swaps at LCH, and 2) an “analysis of stressed liquidation costs,” covering certain interest rate swaps house accounts at LCH .    

Among the encouraging findings of these tests were:

The results of the reverse stress test indicate that the two tested CCPs would have sufficient pre-funded resources to cover losses even if all CMs with losses defaulted under certain extreme historic 1-day scenarios.

Results suggest pre-funded resources would have been sufficient to cover extreme but plausible market losses plus liquidation expenses for two house accounts even if the actual liquidation costs were double the amount of the liquidation margin add-on. This analysis, like the reverse stress exercise, did not include assessment powers.

Although encouraging, these results should not be taken as an invitation to complacency in this area.  Indeed, as the CFTC’s news release about the tests also notes:

One scenario [of the reverse stress tests] includes market shocks five times the size of those experienced on the day following the Lehman Brothers bankruptcy announcement; this scenario included, for example, price moves as large as 225 bps in swap rates, and 25 percent in stock index futures. These moves likely exceed possible market risk at the CCPs, and thus may be considered implausible. Under this market scenario, only two firms experienced stress losses greater than initial margin at both CCPs concurrently. If both firms defaulted, the combined shortfall would have been slightly greater than pre-funded resources at both CCPs. As the analysis did not include assessment powers, the CCPs would have access to additional resources not considered in the exercise.

Though such scenarios might seem implausible, many working in this area likely did not think  the default of an individual trader likely to exhaust two-thirds of the common default fund at Nasdaq Clearing AB in September 2018.  A recent paper by researchers at the Bank for International Settlements states that: “The exposures of individual banks [to CCPs] are also large, eg the notional amount of JPMorgan’s OTC derivatives exposures to CCPs is about $30 trillion (Graph 1, right-hand panel).”  Additionally, the global clearing mandates are arguably a response to the near collapse of American International Group related to its credit default swap (CDS) activities during the height of the financial crisis in September 2008.  Accordingly, additional clearinghouse stress testing, including ones involving CDS, liquidity needs under stress, and interlinkages with the global banking system are still very much needed.       

I’m basically buried in exam-grading right now, and that leads me to the perennial question of how best to design a law school exam.  Up until now, I’ve pretty much stuck to a single format: short essays (such as issue-spotters), in-class (3-3.5 hours), limited open book (they can use assigned materials and their own notes).  I’m wondering whether next year I should mix that up a bit.  For instance, Securities Regulation seems especially well-suited to multiple choice, at least partially; I also wonder whether a take-home exam would allow students to craft more thoughtful answers.

So, consider this a call for commentary: Especially if you teach in the business space, what kind of exam do you find works best, and why? Joan, I know, actually gives oral midterms – which I think is amazing, but I’m not quite ready for – so of the other options, in-class or take home?  Open book or closed?  Multiple choice or something else?  Why do you choose what you choose?

I blogged two weeks ago about whether we were teaching law students the wrong things, the wrong way, or both. I’ve been thinking about that as I design my asynchronous summer course on transactional lawyering while grading asset and stock purchase agreements drafted by the students in my spring advanced transactional course. I taught the spring students face to face, had them work in groups, required them to do a a negotiation either in person or online, and am grading them on both individual and group work as well as class participation. When I looked at drafts of their APAs and SPAs last week, I often reminded the students to go back to old PowerPoints or the reading because it seemed as though they missed certain concepts or maybe I went through them too quickly— I’m sure they did all of the reading (ha!).  Now, while designing my online course, I’m trying to marry the best of the in person processes with some of the flipped classroom techniques that worked (and tweaking what didn’t).

Unlike many naysayers, I have no doubt that students and lawyers can learn and work remotely. For the past nine years, I have participated as a mentor in LawWithoutWalls, a mostly virtual experiential learning program started by University of Miami professor Michele DeStefano. Also known as LWOW, the program matches students from around the world with business people and practicing lawyers to develop a project of worth over sixteen weeks. Team members meet in January in person and never see each other in person again until April during a competition that is judged by venture capitalists, lawyers, entrepreneurs, and academics. I mentored a team of students from Bucerius in Germany, Wharton in Pennsylvania, and the University of Miami. Banking behemoth HSBC sponsored our project and staffed it with lawyers from Singapore, Canada, and the UK. Other mentors on the team hailed from Spain and the UK. On any given week, 7-10 people joined Skype calls, chatted in WhatsApp, drafted on Google Docs, and accessed Slack. They attended mandatory webinars weekly via Adobe Connect on developing business plans, pitching to VCs, and working with clients. Seventy percent of the people on the seventeen teams spoke languages other than English as the first language. 

How did this virtual experience work? Extremely well, in my view. After some growing pains, students adjusted quickly as did the business partners, who are used to setting up conference calls and working across borders. Some of the winning teams developed projects that provided virtual reality training on implicit bias for police officers; informed consumers about food freshness to combat food waste; and organized health information for foster care children on a blockchain-powered platform. Humble brag- my team won best overall project by developing a solution to use blockchain and smart contracts in syndicated lending that has the potential to save the bank almost 2 million per year. I also mentored last year’s winner, Team Spotify, with students from Miami, Colombia, and Chile and lawyers housed in Sweden, California, and New York. Each year, teams do almost all of this hard work remotely, across time zones, and with language differences. Students collectively interview hundreds of subject matter experts over 16 weeks, and the vast majority of those interviews take place via phone or video and with people in different countries. Other sponsors for LWOW included Accenture, White and Case, Pinsent Mason, Microsoft,  Cozen O’Connor, LegalZoom, Eversheds Sutherland, LatAm Airlines, and Legal Mosaic– all companies and law firms that see the benefit of these skill sets.  Significantly, every year, a cohort of teams does all of the work virtually, never meeting in person for a kickoff. That virtual team winner competes in person with the traditional teams each April, and often wins the whole competition. Clearly, these students develop special skills by necessity. I plan to learn from those experiences as I design my course.

My experience with LawWithoutWalls and as a former compliance officer (where we often did training online and via video) makes me optimistic about online learning and working. In my summer course, I will have students work in groups, where they will use the latest virtual teaming tools. I will have live office hours via Skype, Zoom, or FaceTime, and I will require that some of the groups do their meetings via video as well to have a connection outside of email. Students will draft and edit on community bulletin boards. They will post their own video presentations and “webinars” geared toward fictitious business clients. Working collaboratively and creatively are key skills in the real world, and they will be key in my class. 

But there is a lot of resistance in both the legal community and academia regarding the online world. Last week, I attended a seminar at a law firm and met a member of the Florida Board of Bar Examiners. I asked his opinion on the state of students and young lawyers. I was particularly interested in his thoughts because he’s also a partner at a large law firm in our state. Like some quoted in my prior post, he believes that online coursework is a poor substitute for face to face learning. He further opined that when people don’t work in offices, they miss the camaraderie of being around peers and their work suffers. These are valid concerns. Many lawyers are unhappy in general, and the way people hide behind digital devices (even when in the same room/office) can lead to isolation, depression, and poor networking and social skills. 

But these drawbacks should not doom online learning and remote working. Most of my graduating 3Ls will take their bar prep courses online. They claim that it makes no sense to drive to campus “just to watch a video of a professor speaking.” They also like the idea of being able to rewind videos to take notes. The indicated that they will meet up with friends when they want to study together and may even come on campus to watch their online coursework for a sense of community. But significantly, they don’t see the need to learn in the traditional ways. Personally, I love good online courses but I also love the ability to have face to face interaction with teammates- even if that’s via video. Being in the same physical space also allows for chance interactions that can lead to enriching conversations. On the other hand, sometimes there’s no choice. Many readers may remember that years ago, in harder economic times, companies cancelled non essential business travel and people got used to video meetings. Many employers now interview candidates by Skype first before bringing them in. Learning and working virtually is no longer a novelty. Some of our students  will work in co-working spaces for firms or companies where everyone works from home. 

Change is coming and in many places, already here. Law professors must prepare students to practice in this new world while not sacrificing pedagogical gains. This requires training on project management and effective communication with team members— all non-substantive topics and that will give many people pause. We also need to make sure that students know how to communicate with clients and employers face to face in business and social settings. Some professors will say- correctly- that they have enough to contend with making sure students understand the law and can pass the bar. But, for those of us interested in online learning, we need to do more. We have to make sure that we prepare students for both the “hard” and “soft” skills.  Most important, we need to make sure that these online courses have the rigor of traditional classes– US News is watching.

I’m open to suggestions of what has worked for you and what hasn’t so please feel free to comment below or email me at mweldon@law.miami.edu.

FINRA recently announced a new regulatory notice aimed at addressing the unpaid awards problem. In recent years, about a third of arbitration awards rendered in the FINRA forum have gone unpaid.  

The proposal calls for particular firms to set aside additional capital to pay possible awards.  FINRA described the idea:

As part of FINRA’s ongoing initiatives to protect investors from misconduct, FINRA is requesting comment on proposed new Rule 4111 (Restricted Firm Obligations) that would impose tailored obligations, including possible financial requirements, on designated member firms that cross specified numeric disclosure-event thresholds. These thresholds were developed through a thorough analysis and are based on the number of events at similarly sized peers. The member firms that could be subject to these obligations, while small in number, present heightened risk of harm to investors and their activities may undermine confidence in the securities markets as a whole. The proposal would further promote investor protection and market integrity and give FINRA another tool to incentivize member firms to comply with regulatory requirements and to pay arbitration awards.

On the whole, this seems like a step in the right direction.  It remains to be seen how significantly this proposal could reduce total unpaid awards.

Still, other options might be more effective or work in conjunction with this proposal.  In the last Congress, Senator Warren and Senator Kennedy co-sponsored legislation requiring FINRA to create a pool to cover unpaid awards. This approach would make the entire industry responsible for the problem.  The new regulatory notice does not go as far or provide as strong a guarantee, but it’s probably still an incremental improvement over the current system.

Okay, not really. But my daily Westlaw search for “limited liability corporation” recently started delivering contract award announcements from the Department of Health and Human Services (DHHS) related to contract awards. DHHS reconds many “business types” for their records, such as “Minority Owned Business” and “For Profit Organization. And now, apparently, “limited liability coroporation” is one of them.  ARRRRRGHH! LLCs are “limited liability companies” and are not corporations.  An internet search shows that there are at least 78 of these DHHS designations out there (and I’ll wager there are more).  

Following is an excerpt of one such announcement.  You’ll note that, according to the announcement, Seba Professional Services LLC is both a “Partnership or Limited Liability Partnership” and a “Limited Liability Corporation.”  Sigh.  Really, they’re making my stomach hurt: 

Department of Health and Human Services awarded contract of IGF::CT::IGF PATIENT MESSENGER AND TRANSPORT SERVICES to SEBA PROFESSIONAL SERVICES LLC

Washington: This contract was awarded to seba professional services llc with a potential award amount of $6,117,056. Of this amount, 100% ($6,117,056) has been obligated.
 
Awarding Agency:
Department of Health and Human Services
 
. . . .
 
Recipient:
SEBA PROFESSIONAL SERVICES LLC
. . . .
 
Business Types
Woman Owned Business
Women Owned Small Business
Economically Disadvantaged Women Owned Small Business
Minority Owned Business
Black American Owned Business
Partnership or Limited Liability Partnership
Limited Liability Corporation
For Profit Organization
DoT Certified Disadvantaged Business Enterprise
Self-Certified Small Disadvantaged Business
8a Program Participant