This Michael Avenatti extortion case is fascinating to me. I am not really sure why, other than it seems so absurd.  You may recall Avenatti as the lawyer who represented Stormy Daniels in her lawsuits against President Trump. He is a big personality and known for being outlandish at times.  
 
According to federal prosecutors, Avenatti tried to extort Nike for millions of dollars because he claimed to have evidence that Nike employees were illegally paying people to help recruit college basketball players.  Apparently, Avenatti believed he would be able to get Nike to pay him millions of dollars in exchange for the evidence. Instead, he ended up with the FBI. 
 
The New York Time reports:
According to people with knowledge of the cases, once Nike heard Mr. Avenatti’s claims, it acted to inform federal officials of the allegation that the company’s employees were paying players. The nature of the discussion with Mr. Avenatti raised the possibility that extortion was taking place.
That is, as soon as Nike was on notice of a potential problem right to the authorities.  How very Allis-Chalmers of them.  I am a fan of that old business judgment rule case, which state “it appears that directors are entitled to rely on the honesty and integrity of their subordinates until something occurs to put them on suspicion that something is wrong. If such occurs and goes unheeded, [only] then liability of the directors might well follow . . . “ Graham v. Allis-Chalmers Mfg. Co., 41 Del. Ch. 78, 85, 188 A.2d 125, 130 (1963).  So, as soon as Nike was on notice of wrongdoing, they disclosed it to officials.  
 
Nike took action to deal with the problem quickly, rather than acting like Caremark did years ago, when “there was an unconsidered failure of the board to act in circumstances in which due attention would, arguably, have prevented the loss [from fines resulting from bad employee behavior].” By taking action, Nike likely insulates the company (or at least mitigates the harm) it could face from alleged wrongdoing. Rather than engaging in a cover up (and potentially paying to hide the problem), the company acted proactively by disclosing the actions.  
 
Was this Avenatti’s first attempt at such a thing?  It seems unlikely one would start with a company like Nike, but maybe the potential payoff seemed worth it. On the other hand, maybe such tactics have worked in other circumstances with smaller companies, so it seemed like a good idea. 
 
Regardless, it seems like Nike handled this wisely. The company recognized the issue before it, and fairly quickly realized that any of the alleged bad behavior was already done.  When such things happen, it is disappointing, to be sure, but it can’t be undone.  The only question then is, “how are you going to respond.”  For my money, going to the authorities was the right call, even though Nike had to know some bad press was going to follow.  
 
Now, I recognize it is possible that Nike knew about the behavior and reported nothing until Avenatti showed up. It would be interesting to find out, and if so, the analysis of whether they should have reported earlier would be an interesting one.  For example, would the company have faced more or less scrutiny had they reported on their own?  Or did they inoculate themselves to some degree by waiting and having the alleged Nike behavior overshadowed by Avenatti’s alleged acts? Tough questions that require the exercise of business judgment. Thank goodness there is a rule about that.  

Yoga(Me-WII)

Colleen’s post yesterday–and more specifically the last interview questions she asked (“[H]ow can power yoga be particularly helpful for professors or students?“)–inspired me to write about some work that I have recently done in studying the benefits of mindfulness to lawyers and in lawyering, and more specifically in business lawyering.  Colleen’s entrepreneur yogi noted the obvious benefits of power yoga to physical health.  But she also noted what she termed “clarity of mind.”  More specifically, she said: “I practice yoga to allow time away from devices and work emails, which in turn creates some distance to clear my mind and create clarity in how I want to interact with my environment.”

I do, too.  And I have noticed that it makes a difference in the way I interact with people.  I am not alone.

I recently was challenged by my friends at the Tennessee Bar Association to present an hour of continuing legal education on mindfulness, reflecting on some of what I learned in my yoga instructor training last year and linking it to law practice.  Three of the eight limbs of yoga–asana (poses), pranayama (breath control), and dhyana (object-focused meditation)–are traditional mindfulness practices that I studied in that training program.  Of course, there are many more mindfulness practices in which one may engage.

So, if yoga and other mindfulness practices offer clarity of mind, why?  What’s the secret?  And how might mindfulness practices practices affect business lawyers and their work?  I will start by offering a brief definition of mindfulness.

Mindfulness, which is defined here as “the self-regulation of attention with an attitude of curiosity, openness, and acceptance,” involves a focused state of mind that screens out life’s distractions and allows one to observe one’s sense of being in the here-and-now.  We can practice mindfulness in many everyday situations: speaking and listening, cooking, reading, crafting, etc.  Mindfulness trainers have examples and exercises that they employ to illustrate some of these mindfulness practices.  We also can practice mindfulness through yoga poses, breath work, and meditation.  I showed the Tennessee Bar Association audience some chair yoga, a breathing technique, and positioning for a chair-seated meditation–mindfulness practices that folks can do at their desks in an office setting or at home.

Of course, a clear mind should enable more fluid decision-making in the problem-solving that business lawyers do day-in and day-out.  Overall, communication and drafting should be easier–more efficient and effective.  But there’s more.

A 2014 article in Time reported that “scientists have been able to prove that meditation and rigorous mindfulness training can lower cortisol levels and blood pressure, increase immune response and possibly even affect gene expression. Scientific study is also showing that meditation can have an impact on the structure of the brain itself.” In fact, neuroscientists have found (see here) that mindfulness may better enable the brain’s gray matter in the frontal cortex to control decision-making rather that allowing the amygdala (the fight-or-flight part of the brain) to control decision-making.

This means that mindfulness practice–including yoga–can impact business law practice by conditioning lawyers to “hit the pause button” and rationally think through contested matters. As a result, tmindfulness practice has the capacity to reduce professional stress and enhance civility and collegiality.  (See Jan Jacobowitz’s take on this for the American Bare Association.)  I have seen a lot of lawyers–in practice and in the law academy–whose anger is hair-triggered by stressful situations (especially negotiations or disagreements on process that generate frustration–more on that below).  It seems that scientists have begun to establish that yoga and other mindfulness practice (meditation seems to be the most-studied practice) can help us keep our cool in those situations.

I know that when I am over-caff’ed or over-tired, I am more assertive, more easily angered, and less able to take into account the whole of a situation in approaching requests, responses, negotiations, and other communications.  I also know that if I have just engaged in a focused yoga practice (that’s me holding a Warrior II–Virabhadrasana II–pose, with a prop, in the photo above), I am more careful and considerate of others in engaging in those same communications.  Overall, my mind seems less burdened, less cluttered, more able to sort the important from the unimportant.  Business lawyers–and especially transitional business lawyers–cannot afford to squander relationships with clients, colleagues, and opposing counsel (not to mention an opposing counsel’s client!) by over-reacting or responding to queries in anger or frustration.  

A personal business law story seems appropriate at this juncture.  In practice, I once participated in an unexpectedly hostile transaction negotiation session in which a mindful colleague was confronted by an over-stressed opposing counsel.  He leaned across the conference room table in an angry manner, with a reddened face and an imposing physical attitude, yelling about open deal items.  A representative of the lawyer’s client soon called him off (and took him aside privately outside the room for a bit). I have always been proud that the opposing counsel’s client hired my colleague and me to represent it on a subsequent transaction.  The client representative who had been present at that ugly meeting called my colleague personally and asked if she and I would work with the firm on that later transaction.

My friend and Colorado Law professor Peter Huang published a piece in the Houston Law Review about two years ago that expands on much of what I have written here–and more.  The article, entitled “Can Practicing Mindfulness Improve Lawyer Decision-Making, Ethics, and Leadership?,” includes information from a fascinating array of sources and, like Peter’s work generally, is very readable (even if long).  Peter is an economist and a lawyer.  He teaches business law.  In the article, he notes that “Mindfulness is now a part of business and finance, yet is not part of business law.” He’s right about that.  But we have the power to make it so, if we believe that mindfulness is important to business law.  In concluding, Peter offers us the link: “Practicing mindfulness offers lawyers an empirically-validated, potentially sustainable process to improve their decision-making, ethical behavior, and leadership. Doing so can improve the lives of lawyers, their clients, and the public.”

So be it.  A good note on which to end.

[Editorial note: Footnotes have been omitted from the quotes to Peter Huang’s article.  Check out the original for cited sources.]

Entrepreneurs and entrepreneurism have always fascinated me.  Hence, I was thrilled to see that in a recent TCU Neeley Institute for Entrepreneurship and Innovation ranking that “tracks research articles in premier entrepreneurship journals for the past five years,” my colleagues in the University of Oklahoma’s Price College of Business Tom Love Division of Entrepreneurship and Economic Development, directed by Professor Tom Lumpkin, were 7th in the WORLD!  Boomer Sooner!

And since coming to OU, I’ve had the good fortune to meet an inspirational, 4th generation Oklahoma entrepreneur, Merideth VanSant, in attending 405 Yoga OKC, the 2018 Best Yoga Studio in OKC, and one of four studios owned by VanSant.  The U.S. has more than 6000 yoga studios, so VanSant’s success is no small feat.  Yoga is big business: Americans spend about $16 billion a year on classes, clothes, and related equipment.  In fact, America is now a “Nation of Yoga Pants.” 

VanSant has long made extensive use of her entrepreneurial and leadership abilities, whether in running award-winning yoga studios, supporting various federal agencies in the transportation and aviation areas (and receiving the 2014 National Senior Consultant of the Year Award for her work), or co-founding True U, a national social entrepreneurship enterprise bringing yoga, mindfulness, and leadership to underserved teens.  In her spare time, she’s completing an EMBA at NYU! 

Given our yoga, business school, entrepreneur, Oklahoma nexus, I thought it might be worthwhile (and fun) to ask VanSant a few questions, and to distill our Q&A for readers:

Always been an entrepreneur? VanSant grew up sandwiching the school day with working in her family’s lumber yard.  These early experiences instilled grit (great Ted Talk on its importance), a strong work ethic, and an appreciation for “working with my hands…[and] the sacrifice and sweat that goes into creating a successful business that serves the community.”

Why yoga studios? “As an undergrad in the Midwest, I started to see intelligent and gregarious women taking themselves out of the running for awards, title promotions, career mobility, opportunities, advanced education, the list goes on and on.  The more I listened, the more I heard that women in my community thought they had only limited opportunities available.  They were taking their foot off the gas pedal before they turned the car ignition on…I wanted women to feel empowered, which is why I opened our studios, empowering our community with a strong power practice that creates change from the inside-out.”  

VanSant’s mission appears to be creating empowering communities, with yoga studios and True U being vehicles to promote this objective.  From my own experience, I can attest to the powerful, empowering community at Yoga 405-OKC. 

Thoughts on how universities can best foster entrepreneurism at the undergraduate/graduate levels? “I would like to see universities opening up their entrepreneurship classes, services, and incubators to different majors, disciplines, and courses of study.  One of the challenges I see with emerging entrepreneurs is that they are skilled technicians but are missing crucial skills in business development and management.  To be able to connect medical doctors, therapists, engineers, lawyers, art teachers, to name a few, to university entrepreneurship services could allow professional trades and technicians to become well versed in high level business skills and administrative concepts that are both vital to the health of a company.”

Finally, how can power yoga be particularly helpful for professors or students? “I think power yoga is a life saver, students and professors included.  I practice yoga to allow time away from devices and work emails, which in turn creates some distance to clear my mind and create clarity in how I want to interact with my environment.  Practicing yoga also allows me to move my body daily in a way that is strength building, sweat inducing, and calorie burning – which are all important to maintain my physical health in a daily routine where I would otherwise be sedentary.  Students may benefit from clarity of mind and physical health since both may be important to handling academically rigorous courses and externships.”

 

 

  

A few months ago, I read John Carreyrou’s Bad Blood: Secrets and Lies in a Silicon Valley Startup about Elizabeth Holmes and the Theranos fraud, and I was very curious to see how the same story would play out in the new documentary The Inventor: Out for Blood in Silicon Valley.  (Sidebar: I am truly on the edge of my seat for the forthcoming Adam McKay adaptation starring Jennifer Lawrence – but that’s a whole ‘nother thing).  In general, I preferred the book: it has far more detail, and the documentary has little new information to contribute. That said, there was power in the immediacy of actually watching Elizabeth Holmes, hearing her speak, and seeing how people reacted to her.  So, below are some of my general thoughts.

Continue Reading Saturday Movie Blogging: The Inventor

Get this, from a March 15 ruling and order on a motion for summary judgment: 

Greenwich Hotel Limited Partnership [GHLP] is a limited partnership organized under the laws of Connecticut, and is the owner of the Hyatt Regency Greenwich hotel. Answer to First Amended Complaint, dated Dec. 16, 2016 (“Am. Ans.”), ECF NO. 62, at 8. Hyatt Equities, L.L.C. (“Hyatt Equities”) is a limited liability corporation incorporated in Delaware, and is the general partner of Greenwich Hotel Limited Partnership. Id. at 9. The Hyatt Corporation (“Hyatt Corp.”) is a limited liability corporation incorporated in Delaware, and is the agent of Greenwich Hotel Limited Partnership. Id. at 9.

Benavidez v. Greenwich Hotel LP, 3:16-CV-191 (VAB), 2019 WL 1230357, at *1 (D. Conn. Mar. 15, 2019). 
 
Once more, for the people in back: LLCs are “limited liability companies,” not “limited liability corporations.”As such, LLCs are not “incorporated.” LLCs are formed or organized. In addition, corporations are entities that provide shareholders limited liability, but they are generally not referred to as “limited liability corporations” because they might be confused with a separate and distinct entity type, the LLC.  
 
Whenever I read a case with this kind of language, I wonder how it happened.  Sometimes, like today, I go to the docket (thanks, Bloomberg Law) to see if the source of the wrongdoing (evil doing) was the party/lawyer or the judge/judge’s clerk.  This time, it’s pretty clear the lawyer got it right.  The case made it easy, as the ruling cited to the Answer to First Amended Complaint, which I pulled.  Here’s how the lawyer’s answer framed these “facts”: 

“Upon information and belief, defendant Hyatt Equities is a limited liability company organized under the laws of the State of Delaware, and is the general partner of GHLP.

. . . .

Upon information and belief, defendant Hyatt Corporation is a corporation organized under the laws of the State of Delaware and is the agent of GHLP.”

Benavidez v. Greenwich Hotel LP, 3:16-CV-191, Answer to First Amended Complaint, dated Dec. 16, 2016 (“Am. Ans.”), ECF NO. 62, at 9. This is all properly stated, but somehow it didn’t translate to the ruling and order.  

Kudos to the filing attorneys on getting it right. I wonder if this is something that can be corrected? One would hope.  Okay, at least I hope so. 

OK.  So, the title of this post is clickbait of sorts.  I am not writing about Monty Python, sorry to say.  But I am writing about something completely different for me–very outside my norm.  In fact, this past year, I have been researching and writing a bit outside my norm . . . .  

It all started with two blog posts here on the BLPB–here and here.  My posts, focusing on Trump’s deregulatory promises and early pronouncements, followed an earlier one written by Anne Tucker.  Anne and I then organized an discussion group at the 2018 Association of American Law Schools Annual Meeting focusing on regulation in the Trump Era: “A New Era for Business Regulation?”  I then presented some of my research on business deregulation at the National Business Law Scholars (“NBLS”) conference in June 2018.  A related Southeastern Association of Law Schools (“SEALS”) discussion group followed later in the summer of 2018.

As I began to accumulate observations and information from these academic encounters, I came to vision a series of two papers that would enable me to engage in related research and make some observations.  (I first shared my conception for the two-paper series in my NBLS presentation.)  Thanks to an invitation from the UMKC Law Review to publish an administrative law reflection of my choice and an invitation from the Mercer Law Review to turn our SEALS discussion group into a published symposium volume, I was able to channel my curiosity about presidential deregulation and my research and writing energy into developing law review essays based on the two papers I had conceptualized.  

From the start, my interest in presidential deregulation was driven by my interest in business and business law, and the essays reflect that interest and bias.  In the first essay, I set out to explore the ways in which a U.S. president may fulfill deregulatory campaign promises and objectives.  As someone who [ahem] underachieved her potential (shall we say) in Constitutional Law in law school, I was challenged in this task from the get-go.  But I persevered and learned a lot from the Constitution itself and the work of administrative law scholars.  In the second essay, I aimed to make observations about what successful presidential efforts at deregulation look like by reviewing the perceived successes of the Trump administration’s deregulatory initiatives to date.  This inquiry resulted in some interesting–even if somewhat predictable–findings.  

The first essay, Designing Deregulation: The POTUS’s Place in the Process, was just released.  You can find it here.  The last two paragraphs of the abstract follows.

This essay interrogates the role of the president in deregulation at the federal level. The interrogation is designed to serve two principle goals. First, the essay sets out to identify and explain the president’s role in the deregulatory process from a legal and practical perspective. Second, with the knowledge gained in better understanding the nature of the president’s optimal role in deregulating, the essay offers a perspective and practical advice for use by a president in constructing and implementing a deregulatory agenda.

Ultimately, the essay suggests that the president assume the roles of change leader and fiduciary in meeting deregulatory promises and expectations. The role of change leader focuses the president on processes geared to foster lasting change; the role of fiduciary focuses the president on trustworthy conduct in a relationship with the public that allows for discretion yet demands accountability. The two roles are not mutually exclusive. They have the capacity to work together as complements.

Both this essay and the forthcoming one are limited-scope works.  My hope is that by having invested time in attempting to understand the current deregulatory environment, my ongoing work in securities regulation and other federal regulatory environments will be enriched.  Regardless, I have become a more educated consumer of presidential power and authority in the process of my research and writing.  Perhaps my work in this area also will offer some of you a bit of new information or a novel idea that helps you in your work–or at least in social conversation–as deregulatory efforts progress.

[Postscript, April 29, 2019: In reviewing this post for a subsequent post, I noted that this post has the year of the Southeastern Association of Law Schools discussion group (entitled “Corporate and Financial Reform in the Trump Administration”) wrong.  It did, in fact, occur in 2017, and it therefore preceded the Association of American Law Schools conference discussion group also referenced in this post.  My apologies for the error.]

Earlier today, Senator Cancela introduced Senate Bill 304 in Nevada.  Although the bill’s text is not yet available on the website, the digest reveals that the legislation will explicitly authorize fee-shifting provisions under Nevada corporate law.  (Update–the text of the draft legislation is now available.)

The digest indicates that it will also do a few other interesting things if it passes:

  • Preserve and transfer any internal corporate claims to a Nevada corporation acquiring some other entity;
  • Authorize the application of fee-shifting provisions to claims arising from a prior entity (so long as the transaction was approved by a majority of disinterested stockholders);
  • Prohibit any provision that would forbid a shareholder from suing in Nevada courts;
  • Authorize Nevada-specific forum-selection provisions;
  • Authorize the Nevada Secretary of State to issue rules allowing lawyers to indemnify stockholders for any possible fee-shifting;
  • Provide that Nevada will have personal jurisdiction over any shareholder that sues outside of Nevada; and
  • Require the Secretary of State to study fee-shifting’s impact on the business environment and report back to the legislature in three years.

Despite the problems with shareholder litigation, Delaware opted to ban fee-shifting right as a mass of public companies began to adopt it. This, of course, didn’t stop corporations chartered in Nevada and other states from adopting fee-shifting provisions anyway.  By my count, seven publicly-traded Nevada corporations already have fee-shifting charter or by-law provisions. (Disclosure:  I consulted with legislative counsel on the initial draft. Nobody paid me any money.)

Nevada may want legislation on this issue to reduce uncertainty.  Unlike Delaware, Nevada does not have as deep a body of corporate law decisions.  Corporations interested in fee-shifting’s benefits might not want to foot the bill for early test cases here without explicit legislative support.  Plus, introduction of the bill alone also highlights Nevada as the leading alternative to Delaware corporate law.  At least one study has found that Nevada corporate law may enhance value for some firms.

The legislation seems targeted to address major problems in shareholder litigation that Delaware has yet to solve.  Delaware and its vaunted judiciary now struggle to control shareholder litigation which has expanded “beyond the realm of reason.”  Even when Delaware’s judiciary tried to rein the suits and disclosure-only settlements in, shareholder plaintiffs simply shifted many of their filings to other forums or advanced other types of claims.  

Delaware’s decision to ban fee-shifting was and remains controversial.  Despite Delaware’s decision to go the other way, fee-shifting has been widely discussed and proposed by many informed commentators as a way to address the issue. Stephen Bainbridge even noted that Delaware’s position on fee-shifting was a “self-inflicted wound” and “contrary to sound public policy and adverse to Delaware’s own interests.”  His short piece on the controversy argued that jurisdictions where “the corporate bar wields less legislative influence thus may have a significantly easier time adopting legislation authorizing such bylaws.”  Nevada may fit that description.

The legislation also seems to recognize reality–that the real party in interest in much shareholder litigation is the attorney advancing the claim.  To offset over-deterrence risks, the legislation would authorize the Secretary of State to put rules in place allowing shareholder attorneys to indemnify their clients for fee awards.   This might cover some of the concerns that these provisions would simply spook any shareholder away from suing. 

This will be interesting to watch develop as more information becomes available.  If it passes, Nevada may generate some evidence to resolve debates around fee-shifting provisions.  The digest describes a requirement for the Secretary of State to study the issue and report back after three years.  Presumably, if this passes and fee-shifting does unleash some parade of horribles as detractors of the idea fear, Nevada could simply repeal it.

Tulane just held its 31st Annual Corporate Law Institute, and though I was not able to attend the full event, I was there for part of it.  Though the panels were very interesting and I took copious notes, as a matter of personal satisfaction, the single most important thing I learned is that it is pronounced Shah-bah-cookie.  You’re welcome.

That said, below are some takeaways from the Hot Topics in M&A Practice panel, and to be clear, this isn’t even remotely a comprehensive account of everything interesting; it’s just stuff that I personally hadn’t heard before.  (And thus, the exact contours of my ignorance are revealed.)

[Read more]

Continue Reading Notes from the M&A panel at the Tulane CLI