As many already know, earlier this week, a Texas federal district court issued a nationwide preliminary injunction against enforcement of the Corporate Transparency Act (“CTA”). Many questions are being raised by the court’s memorandum opinion and order, which can be found here. In addition, law firm memos and newsletter articles have become available and are being circulated, including this one from Stoll Keenon sent to me by friend-of-the-BLPB Tom Rutledge and this one from Wilson Sonsini (which included the opinion link provided above).

Also, members of the American Bar Association’s LLCs, Partnerships and Unincorporated Entities Committee are hosting a free Webinar tomorrow on the Texas opinion. The program, The Corporate Transparency Act Update: Texas Decision, is scheduled for Friday, December 6, 2024, 3:30 p.m. E.T. Program information is included below. I registered and plan to be there!

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On Tuesday, December 3, 2024, a Texas Federal District court issued a preliminary injunction against the Corporate Transparency Act. Please join in this discussion and gain a head start on drafting client communications of this significant development. The panel will review the best information available as to what this means for you and your clients. The LLCs, Partnerships and Unincorporated Entities Committee has been in front of this issue since it developed, and it’s the best place to keep updated with changes to the CTA.

Our panelists include:
Christina M. Houston, DLA Piper, Wilmington, DE
Bob Keatinge, Holland & Hart LLP, Denver, CO
Thomas E. Rutledge, Stoll Keenon Ogden PLLC, Louisville, KY
James J. Wheaton, William & Mary Law School, Williamsburg, VA

Registration
This event is open to all and free to Business Law Section members. Business Law Section members will also be able to access a recording of the webinar after the event. Register today by visiting the ABA website.

Access Information
Upon registration, access information will be emailed to you along with a link to add the event to add a reminder to your calendar. Email Heather.Wallace@americanbar.org with any questions.

Program Materials and Past Programs
There are no planned written materials for this program. All recordings and materials from this program and previous programs are available for free for ABA Business Law section members at the ABA Business Law Section website. The content of this program does not meet requirements for continuing legal education (CLE) accreditation.

Dear Readers:

“The Department of Insurance, Legal Studies and Real Estate in the Terry College of Business at The University of Georgia invites applications for a full-time non-tenure-track faculty position in Legal Studies at the lecturer level, beginning in fall semester 2025, with an employment start date of August 1, 2025.

Candidates must hold a juris doctorate or equivalent degree. Strong communication skills and demonstrated potential for excellent teaching are required. The position is renewable based on performance and promotion to Senior Lecturer is possible after six years of service. For information regarding the requirements for each faculty rank, please see the University of Georgia Guidelines for Appointment and Promotion of Lecturers (https://provost.uga.edu/policies/appointment-promotion-andtenure/guidelines-for-appointment-and-promotion-of-lecturers/).

Participation in service activities appropriate to the rank is expected. Salary is competitive and commensurate with qualifications.”

The complete announcement regarding this position is here: UGA Legal Studies Lecturer – Start Fall 2025

Dear Readers:

“The Midwest Academy of Legal Studies in Business (MALSB) Annual Conference is held in
conjunction with the MBAA International Conference. MBAA International draws hundreds of academics from business-related fields such as accounting, business/society/government, economics, entrepreneurship, finance, health administration, information systems, international business, management, and marketing. The MALSB has its own program track on Legal Studies and attendees may take advantage of the multidisciplinary nature of this international conference and attend sessions held by the other program tracks.

Presentations in 2025 will have the option of in person or live online delivery. Tentatively MALSB paper and panel in person/live online presentations are scheduled to begin Thursday morning (April 10, 2025) and conclude Friday afternoon (April 11, 2025). If registration numbers require additional sessions, they will be held Wednesday afternoon (April 9, 2025).”

Note that the registration/submission deadline is January 26, 2025.  The complete call for conference participation is here.”

It’s the day after Thanksgiving so I’ll post part 2 of my discussion in ESG in the Trump/Vance era next week.

Today, as students are stressed out over finals, here’s a post to brighten their day. Please share and forward far and wide.

We are pleased to invite your school to send a team to participate in the inaugural University of Miami Transactional Skills Competition, designed to provide law students with an unparalleled opportunity to refine their transactional lawyering skills in a challenging and dynamic setting.

In keeping with the vibrant culture of Miami, the details and challenges for this competition will be sophisticated, unexpected, and innovative, embodying the city’s forward-thinking ethos. This competition presents a distinctive opportunity for law students to engage with real-world, progressive transactional scenarios in emerging industries.

Unlike traditional moot court or contract negotiation contests, this event invites participants to navigate the complexities of contract drafting while considering broader business factors. Through a blend of virtual and in-person rounds, students will manage high-stakes negotiations while developing essential skills in negotiation, strategic thinking, and client representation. This comprehensive experience prepares participants to excel in transactional law, providing them with the expertise necessary to succeed at the intersection of law and business.

Why Your Students Should Participate:

· Substantive Legal Tasks: This competition emphasizes practical skills by engaging participants in drafting contracts and negotiating substantiative legal and business deal terms, closely mirroring real-world transactional practice.

· Networking Opportunities: Attendees will have access to multiple networking events, fostering connections with peers, legal practitioners, and industry leaders.

· Recognition and Prizes: Teams will compete for cash prizes, including an award for the Best Drafted Contract.

· A Distinctive Miami Experience: The competition is held in the vibrant city of Miami, reflecting the city’s innovative and progressive spirit through cutting-edge, real-world scenarios.

Competition Format and Key Dates:

· Written Round: Teams will draft and submit a contract by January 13, 2025. Scores from this round will combine with in-person negotiation scores to determine which teams advance to the final round. More details will be provided following the close of the registration period.

· In-Person Rounds: The competition will take place at the University of Miami Coral Gables campus from January 16-17, 2025. Round 1 will be held on Thursday, January 16th, with Round 2 and the Championship Round on Friday, January 17th.

Important Details and Eligibility:

· Participation is limited and teams will be accepted on a first-come, first-served basis. Registration closes on December 20, 2024, or when we have reached our 12-team capacity.

· A school may send up to two teams.

· Each team may include up to one coach (student, professor, or practicing attorney), though coaches may not provide assistance during the competition rounds.

· Each team may consist of two participating students, each of whom must be enrolled in or completed a transactional skills or contract drafting course, or who have had significant exposure to transactional practice through internships or clinical work.

· Registration requires the submission of a completed registration form, including contact details for each team member and their coach, along with emergency contact information.

How to Register: To confirm your participation, please complete the registration form here.

Should you have any questions or require additional information, please do not hesitate to reach out to Paul Berkowitz via email at pxb403@miami.edu (please copy me at at mweldon@law.miami.edu). Further details about the competition, including rules and logistics, will be provided following registration.

We look forward to welcoming your students to Miami for this exceptional opportunity to engage in meaningful legal practice and showcase their skills.

I was struck by this article recently published in the WSJ on the use of AI for investor relations:

Investor relations departments at companies such as shoe brand Skechers USA and networking-systems and software provider Ciena have begun using generative artificial-intelligence to help prepare their earnings commentary.

Some have used generative AI to predict the questions analysts might ask, for example, and to ready the best answers….

Executives at many companies are using AI to refine word choice in their prepared remarks, for instance, in deciding whether to say the quarter was “strong” or “solid,” said Dan Sandberg, head of quantitative research and solutions at S&P Global Market Intelligence. The firm’s tool recently preferred “strong,” based on the earnings metrics of other companies that used the word on their earnings calls, he said. 

Generative AI can also read the harmonics in executives’ prepared statements on earnings, assessing them as upbeat, gloomy or something more measured…

As any securities litigator knows, these are exactly the kinds of nuances of communication that – when they become the subject of a securities fraud lawsuit – are routinely dismissed by courts as “puffery,” i.e., conveying no material information to investors. For example, a very quick Westlaw search yielded case after case treating the characterization of “strong” as inactionable. See, e.g., Ray v. StoneCo, 2024 WL 4308130 (S.D.N.Y. Sept. 25, 2024); Robeco Capital Growth Funds SICAV v. Peloton Interactive, 2024 WL 4362747 (S.D.N.Y. Sept. 30, 2024); Lloyd v. CVB Fin. Corp., 811 F.3d 1200 (9th Cir. 2016); Hawes v. Argo Blockchain, 2024 WL 4451967 (S.D.N.Y. Oct. 9, 2024).

Once again we see that securities cases are litigated in a world that is somewhat distinct from how corporations – and markets – actually function.

Last week, Delaware corporate law was on my mind, as it sometimes is. Thursday, alone, was a banner day for thinking, talking, and writing about Delaware corporate law. Tennessee Law had the pleasure of hosting Álvaro Pereira from Georgia State Law to talk about his work at the intersection of venture capital financings and Delaware corporate law. Earlier in the day, I was on the telephone talking to my Tennessee Bar Association colleagues about our April 2025 Business Law Forum that features a session on recent Delaware corporate law happenings.

Then, late Thursday, I learned that friend-of-the-BLPB Larry Cunningham also was thinking (and writing) about Delaware corporate law last week. In a Bloomberg Law article posted Thursday, Delaware Corporate Law Still Gold Standard Amid ESG Blowback, Larry pushes back against the wholesale federalization of corporate governance in response to the debate over the consideration of environmental, social, and governance factors in board decision making.

Delaware maintains its stature because it favors no one. Critics from the right declare it has adopted an anti-shareholder and approach sympathetic to the environmental, social, and governance movement, while critics from the left blame Delaware for stalling ESG. Logic suggests that one of these sides must be wrong. The reality is, they both are.

Among other things, Larry argues that the ESG corporate governance debate itself serves a public good and that Delaware responds by flexibly adjusting within what we lawyers might term a “range of reasonableness.”

While such competition is real, it has always helped Delaware maintain its leadership and double down on the reasons for the state’s success. Federal intervention risks replacing a rationally flexible system with a one-size-fits-all approach that would ignore the diverse needs of businesses across states.

Delaware’s system, built on moderation and business sense, provides the adaptability companies need while maintaining a robust legal framework. It’s this balance that has allowed Delaware to maintain its position as the gold standard for corporate law.

I always appreciate Larry’s perspectives on business law issues, even when we disagree. I enjoyed the Bloomberg piece as part of last week’s Delaware corporate law bonanza. The article is worth a read–even if you disagree.

Bloomberg had a story this week on some new anti-ESG shareholder proposals put forth by the National Legal and Policy Center. The proposals ask McDonald’s and other companies to de-link executive pay from diversity goals, on the grounds that, among other things, DEI programs are now the subject of various lawsuits (I will leave it to the reader to imagine a picture of a guy in a hot dog suit).

I had a very mixed reaction to this news. My priors are, there are a lot of legitimate criticisms of DEI programs – they’re ineffective, they’re greenwashing, and the compensation measures are weak – but I worry that many of the current attacks are not grounded in concern that DEI programs are ineffective, but in concerns that they are effective in making workplaces and other spaces more welcoming to underrepresented groups, a position that I find morally objectionable.

Historically, though, anti-ESG proposals tend to fare very poorly at the ballot box, and even though activists like Robby Starbuck have been successful in intimidating companies into backing away from DEI efforts, it is not at all clear this is something shareholders support. Therefore, my original thinking was, I’m glad NLPC is offering these proposals, and I hope companies don’t settle them the way they have so far caved to Starbuck’s demands, because I would rather see a public rejection of them.

That said, given the realities of the incoming administration, I am not certain that institutional investors would cast their ballots against these proposals; they’re precatory, after all, and BlackRock et al might find it more politic either to support them or stay neutral, rather than risk another wave of anti-ESG legislation aimed at constraining institutional shareholder behavior. Similarly, proxy advisors like ISS and Glass Lewis are already in the incoming administration’s crosshairs – ostensibly over their support for ESG, though I’ve written before that I think that’s an excuse for management to push back on shareholder power – and I can imagine them shading their recommendations, as well, to curry favor with the incoming administration (something I was concerned about during the Disney proxy contest earlier this year).

To be fair, of course, that’s not just a concern when it comes to conservative causes; Jeff Schwartz has argued that asset managers shade their voting behavior to favor liberal priorities when Democrats are in power, as well.

Anyway, all I’m saying is, this is what we professionals call “private ordering.”

And another thing. New Shareholder Primacy podcast is up – Mike Levin and I talk about the (new) lawsuit filed by Ben & Jerry’s against its sole shareholder, Unilever, and about the practice of buying shareholder votes. Available at Spotify, Apple, and YouTube.

The D.C. Circuit issued its opinion in the Alpine case this morning. I’ve covered this case repeatedly and have links to much of the briefing. The majority opinion summarized the state of play and its holding this way:

In 2022, FINRA sanctioned one of its members, Alpine Securities Corporation, for violating FINRA’s private rules for member behavior and imposed a cease-and-desist order against Alpine. Alpine then sued in federal court, challenging FINRA’s constitutionality.

While that lawsuit was pending, FINRA concluded that Alpine had violated the cease-and-desist order and initiated an expedited proceeding to expel Alpine from membership in FINRA. Alpine then sought a preliminary injunction from the district court against the expedited proceeding, arguing that FINRA is unconstitutional because its expedited action against Alpine violates either the private nondelegation doctrine or the Appointments Clause. The district court denied the preliminary injunction.

We now reverse only to the extent the district court allowed FINRA to expel Alpine with no opportunity for SEC review. Alpine is entitled to that limited preliminary injunction because it has demonstrated that it faces irreparable harm if expelled from FINRA and the entire securities industry before the SEC reviews the merits of FINRA’s decision. Alpine has also demonstrated a likelihood of success on its argument that the lack of governmental review prior to expulsion violates the private nondelegation doctrine. We accordingly hold that FINRA may not expel Alpine either before Alpine has obtained full review by the SEC of the merits of any expulsion decision or before the period for Alpine to seek such review has elapsed. (emphasis added)

The decision grants Alpine a reprieve for the SEC to consider the merits of FINRA’s decision to expel Alpine. This is the crux of the private non-delegation analysis:

The result of this regulatory scheme is that FINRA can, without any SEC review of its decision on the merits, effectively decide who can trade securities under federal law. Due to FINRA’s current expedited-hearing process, the SEC statutorily cannot review expulsion orders before they go into effect and may be unable or unwilling to grant a stay so that it can meaningfully review a decision before it goes into effect and the expelled member’s business collapses.

So if the SEC reviews FINRA’s expulsion orders at all, it does so only through a stay proceeding that disfavors immediate relief for the expelled member and does not decide the merits. That falls short of what the private nondelegation doctrine requires:  an accountable government actor that “retains the discretion to approve, disapprove, or modify” FINRA’s delegated decisions.  AmtrakI, 721 F.3d at 671 (formatting modified); see Adkins, 310 U.S. at 388.

The majority opinion avoids many of the concerns I worried about when I wrote Supreme Risk. It expressly stresses that “our opinion is narrow and limited to expedited expulsion proceedings, where the irreversible nature of the underlying sanction prevents review on the merits by the SEC.” The opinion goes on to again explicitly stress the narrow nature of its ruling for four different reasons: (1) the opinion is in the context of a limited preliminary injunction record; (2) the opinion is “limited to expulsion orders issued in expedited proceedings; (3) the opinion does not address “FINRA’s own ability to delay the effectiveness of its expulsion orders in expedited proceedings, or the SEC’s authority to lower its stay standard in expulsion cases;” and (4) “nothing  in  our  opinion  questions  the constitutionality of enforcing an expulsion order, or any other sanction, after the SEC has affirmed it.”

The majority pushed Appointments Clause issues to the side, deciding that Alpine was not entitled to a preliminary injunction on those issues–particularly because the SEC must now conduct a review of Alpine’s expulsion. There is no argument that the SEC isn’t validly appointed under the Appointments Clause.

Alpine also argued that it should not be forced to litigate before FINRA’s allegedly unconstitutionally appointed officers. The majority saw that argument as foreclosed by existing precedent–citing three diffferent cases. From them, the majority concluded that, collectively, “those three cases squarely hold that being investigated by, or participating in a proceeding before, an unconstitutionally appointed officer is not, without more, an injury that necessitates preliminary injunctive relief.”

On the whole, I’d call this a qualified win for FINRA. This certainly isn’t over though as the opinion explains that “nothing in this opinion resolves Alpine’s claims on the merits.”

Judge Walker filed a dissent. If he had secured another vote, he would have prohibited FINRA from bringing enforcement proceedings. His dissent argues that:

FINRA wields significant executive authority when it investigates, prosecutes, and initially adjudicates allegations against a company required by law to put itself at FINRA’s mercy. That type of executive power can be exercised only by the President (accountable  to  the  nation)  and  his  executive  officers (accountable to him).

By  flouting  that  principle  through  an  “illegitimate proceeding, led by an illegitimate decisionmaker,” FINRA imposes an irreparable injury that this court should prevent by granting the requested preliminary injunction in its entirety.

What will happen next? We’ll have to see what the parties decide to do. Alpine might take a shot at en banc review or appeal to the Supreme Court. From an ongoing enforcement perspective, the decision undercuts the ability of SROs to swiftly expel scoundrels from the industry.

Consider how the reasoning here might apply to the National Future Association. Can they move quickly to expel bad actors or must they wait for the CFTC to approve their action?

In Supreme Risk, I highlighted how the NFA was able to expel Jacob Wohl in about six months after problems emerged. If the CFTC needs to be involved, expulsions like this may take longer.

The ability to move quickly is one of the key benefits for SROs. The decision makes SRO enforcement a bit less efficient and likely increases the amount of time bad actors may be able to continue committing bad acts. This reality may be counterbalanced by other benefits from ensuring review by government actors, but it’s still a meaningful tradeoff.

Another enforcement benefit for SROs is that they can enforce their rules and simply expel bad actors who refuse to provide information. What does the layer of government review do here? Is the SEC going to be able to approve an SRO expelling a member asserting its 5th amendment rights? This creeping governmentalization might make it possible for SRO members to stonewall and to refuse to cooperate in investigations as any expulsion would be express government action. There will be many downstream implications from turning an SRO action into an SEC action.

Earlier this year, the SEC released a rule treating significant market participants as “dealers” or “government security dealers.” The fact sheet explains the rationale was to update existing rules to capture modern electronic trading activity. The rule would apply to businesses that are:

  • Regularly expressing trading interest that is at or near the best available prices on both sides of the market for the same security and that is communicated and represented in a way that makes it accessible to other market participants; or
  • Earning revenue primarily from capturing bid-ask spreads, by buying at the bid and selling at the offer, or from capturing any incentives offered by trading venues to liquidity supplying trading interest.

At the time, I didn’t see the rule as particularly controversial. Market-makers have long been regulated. As trading technology changed, market participants began acting like market-makers without operating under the same regulatory standards. Firms subject to the rule would be required to register and possibly join an SRO if appropriate. The proposal generated a significant comment file and predictable litigation followed.

Two cases challenging the rule were filed in Texas. District Court Judge Reed O’Connor vacated the rule in both cases, one filed by the Crypto Freedom Alliance and the other filed by the National Association of Private Fund Managers, Alternative Investment Management Association, and the Managed Funds Association.

Curiously, both cases were filed in the Northern District of Texas. I wouldn’t have guessed it, but the cover sheet to the Complaint for one of the cases explains that the National Association of Private Fund Managers resides in Tarrant County, Texas. By coincidence, the Crypto Freedom Alliance also resides in Tarrant County. By residing and filing in Tarrant County, litigants end up in the Fort Worth Division of the Northern District of Texas. This means they can draw Reed O’Connor, Mark Pittman, or Senior Judge Terry Means. Judge O’Connor somehow manages to end up with many significant cases.

For context, Steve Vladeck has recently written in response to some comments from Judge O’Connor about judge-shopping.

The decisions just came out today and my read of the Private Fund Managers opinion leaves me with the impression that Judge O’Connor believes that market actors can’t be classified as dealers unless they are somehow directly interacting with customers. This skips past how much markets have changed from the time when Congress enacted the Exchange Act. We don’t use pneumatic tubes to transmit orders anymore.

The rule would have provided more consistency in the Treasury market. Perversely, the largest, deepest, most important market-Treasury–now has some of the least transparency. With the rule getting vacated, regulators will continue to lack information and the ability to oversee the market. I do not expect the new SEC Chair, whoever she or he may be, to appeal this decision.

Two days after the US election, I moderated and participated on a Society of Corporate Compliance and Ethics (SCCE) panel on  ESG through the life cycle of a business with Eugenia Maria Di Marco, who focused on startups and international markets, and Ahpaly Coradin, who focused on M&A, private equity, and corporate governance.

I shared these stats with the audience before we delved into the discussion:

  • Elon Musk, who may have significant influence in the Trump administration, has stated, “ESG is a scam. It has been weaponized by phony social justice warriors.”
  • The SEC’s climate-risk disclosure rule is already facing several legal challenges and may not survive. 
  • An open letter from the Attorney Generals of 13 states following the Supreme Court’s SFAA decision re race warned Fortune 100 CEOs that companies using  DEI to “engage in racial discrimination should and will face serious legal consequences.”
  • AGs from 21 other states reassured CEOs that diversity and inclusion programs “comply with the spirit and the letter of state and federal law” and actually “reduce corporate risk for claims of discrimination.”
  • As of September 2024, about 20 states have enacted anti-ESG legislation.
  • In July 2024, SHRM, the largest professional HR association with nearly 340,000 members in 180 countries, announced it was officially eliminating ‘Equity’ from ‘Inclusion, Equity, and Diversity.’ 
  • The Loper Bright decision, which eliminated Chevron deference may:
    • Hinder federal agencies like the EPA, Department of Labor, FTC, and SEC from effectively implementing and enforcing ESG regulations.
    • Increase litigation risks for companies facing challenges to ESG-related rules and disclosures.
    • Create regulatory uncertainty, leading to inconsistent judicial interpretations and complicating compliance efforts.
  • Many U.S. businesses and lawmakers have raised concerns about the extraterritorial impact of EU due diligence and sustainability reporting regimes. 

And what about consumer behavior? McKinsey & Company reported in July 2024 that consumer interest in ESG issues is declining across generations:

  •  Gen Z consumers in five of six surveyed countries have lost interest in ESG, with a decline of five points since 2023.
  • Millennials’ consideration of ESG in purchase decisions has also declined.

Yet, there’s a silver lining for ESG supporters:

In early November, Thomson Reuters released the State of Corporate ESG report. 71% of survey respondents agree or strongly agree that ESG investment is a source of competitive advantage, up from 60% in 2023. 82% believe that the role of ESG in corporate performance will continue to grow.

Given this complex landscape, how should companies rethink strategies in light of these shifts?

In a future post, I’ll share some insights from our conversation.