The University of North Carolina-Wilmington recently posted an open position for an assistant/associate professor of business law.
 
Details about the position are posted below the break. 
 
 

Continue Reading University of North Carolina Wilmington – Assistant/Associate Professor Business Law Position

     The first Business Law Prof Blog conference was held in Knoxville back in September.  Learned a lot, and had a great time.  Looking forward to future ones!

     My contribution to the conference was an article on “Judicial Dissolution of the Limited Liability Company:  A Statutory Analysis,” 19 Tennessee Journal of Business Law 81 (2017).  I took a look at the judicial dissolution statutes in all 50 states as well as the major model acts, and provided commentary on some of the more interesting differences.  The article is complete with two charts (not one, but TWO), and who doesn’t love charts in a law review article?  If you are interested, please click on the link LLC Judicial Dissolution. I summarize the descriptive findings in the article below, but you’ll have to take a look for the analysis/commentary:

     The most common judicial dissolution ground in the sample is when the court decides that it is not reasonably practicable to carry on the business in conformity with the LLC’s governing documents.  Fifty-four statutes include some version of this language.  Interestingly, this ground is articulated in several different ways.  Twenty-three of the fifty-four statutes allow for judicial dissolution if a court decides that “[i]t is not reasonably practicable to carry on the company’s activities in conformity with the certificate of organization and the operating agreement.”  Another sixteen statutes provide for judicial dissolution if a court decides that “[i]t is not reasonably practicable to carry on the business in conformity with the certificate of formation or the operating agreement.”  An additional twelve statutes allow a court to dissolve upon a finding that “it is not reasonably practicable to carry on the limited liability company’s activities and affairs in conformity with the limited liability company agreement.”  Three more states allow for dissolution when a court concludes that “it is not reasonably practicable to carry on the company’s activities and affairs.”  Finally, one state provides for dissolution when a court concludes that “it is not practicable to conduct the LLC’s business in conformance with the operating agreement and this Chapter.”

     The next most common judicial dissolution ground in the sample is the presence of unlawful, illegal, or fraudulent conduct by members, managers, or the LLC itself.  Twenty-nine statutes include some version of this language.  The most prevalent formulation is to provide one ground that focuses on the company’s activities (“the conduct of all or substantially all of the company’s activities is unlawful”) and another ground that focuses on the behavior of the managers or members (“the managers . . . or those members in control of the company . . . have acted, are acting, or will act in a manner that is illegal or fraudulent”). Some statutes, however, limit the focus exclusively to the conduct of the managers or members in control.

     Dissolution on the grounds of oppressive conduct by managers or members is included in twenty-four statutes in the sample. Most statutes articulate this ground by using the term “oppressive” or “unfairly prejudicial” action by the managers or members in control of the company.  A very small number of statutes speak of conduct that is an “abuse of authority,” and a few refer to dissolution when necessary to protect the “rights and interests” of the petitioning member.  I included all of these variations in this category.  

     Ten statutes provide for judicial dissolution when the economic purpose of the company cannot be accomplished.  Most statutes articulate this ground by providing that “the economic purpose of the [LLC] is likely to be unreasonably frustrated.”  One statute provides for dissolution when a court determines “that it is impossible for the company to carry on the purposes of the company,” while another is triggered when the “business of the limited liability company has been abandoned.”  I included all of these variations in this category.

     Other grounds for judicial dissolution include the following:  (1) member conduct that makes it not reasonably practicable to carry on the company’s business with that member (seven statutes); (2) failure to purchase the petitioner’s distributional interest when required (five statutes); (3) member or manager deadlock (five statutes); (4) waste or misapplication of assets (four statutes); (5) abuse of power by the LLC contrary to the public policy of the state (one statute); and (6) “other circumstances [that] render dissolution equitable” (one statute).

 

CALL FOR PAPERS: Integrating Corporate Reporting

June 6, 2018

The Law Faculty of the Hebrew University of Jerusalem (HUJI)

Keynote Speaker — Prof. Baruch Lev (New York University)

Workshop submission deadline: April 10, 2018

The Hebrew University of Jerusalem (HUJI) is pleased to announce an interdisciplinary international workshop on corporate reporting to be held in Jerusalem on June 6, 2018.

The workshop will focus on corporate reporting and aims to bring together researchers in law, finance, economics, accounting and political science, whose research interests include corporate reporting and corporate regulation in general.

Abstract: Corporations are involved in vital aspects of the modern social order. From capital allocation by publicly traded companies, through the supply of essential commodities such as water and electricity by state and municipal corporations, to local government corporations that design local governance and administrative structures. Consequently, the implementation of many social policies—from levying fair taxation to ensuring equal employment opportunities and fair trade—Involve corporate regulatory issues. As regulatory regimes become more and more dependent on the information provided by corporations and their managers, corporate reporting has become important for objectives other than mere capital allocation.

Thus, in recent years, alongside “classic” reporting to investors and tax authorities, reporting practice has expanded and begun to serve a wider array of purposes, both business and social. Following these developments, “corporate reporting” is now a term that refers to a broad range of phenomena that encompass various processes through which information about the corporation is produced for parties who do not have direct access to information.

The workshop intends to bring together researchers in law, finance, economics, accounting and political science to discuss corporate reporting. Special attention will be given to the inherent tension that exists in almost all corporate reporting processes: that is, the dependence of information-consumers, investors or other stakeholders on the corporation and its managers as the main source of information regarding a corporation’s financial status and operations.

Submissions Instructions: Scholars from the legal, finance, economics, accounting and political science fields are invited to submit abstracts for papers to be presented and discussed at the workshop. The deadline for submissions is April 10, 2018. Please send an abstract (of no more than 500 words) of the paper intended to be presented to the meeting organizers, Israel Klein (Iklein@huji.ac.il) and Ittai Paldor (ipaldor@mail.huji.ac.il). Abstracts will be reviewed by the scientific committee and selected abstracts will be announced by April 15, 2018.

Funding will be available to partially cover participants’ travel expenses.

Scientific Committee: Hadas Aharoni-Barak, Keren Bar-Hava, Adam Hofri-Winogradow, Israel Klein, Ittai Paldor, Benjamin Segal.

George Geis at the University of Virginia has just posted Traceable Shares and Corporate Law, exploring the implications that blockchain technology will have on various aspects of corporate law that – until now – hinged on the presumption that when one person buys a share of stock in the open market, there is no prior owner who can be identified.  The ownership history of a particular share cannot, in other words, be traced.

That lack of traceability has a lot of important effects.  For example, it means that if a company issued stock pursuant to a false registration statement, but also issued additional stock in another manner, plaintiffs may not be able to bring Section 11 claims because they cannot establish that their specific shares were traceable to the deficient registration.  In the context of appraisal, it has led to questions of whether petitioners who obtained their shares after the record date have an obligation to show that the prior owners of the shares did not vote in favor of the merger (an impossible task).  If blockchain technology makes it possible to trace the owners of a share from one transfer to another, these areas of law may be dramatically altered.

The most intriguing part of the paper, however, is where Geis goes further, and inquires whether traceability could cause us to rethink fundamental corporate doctrines.  For example, he points out that fraud-on-the-market doctrine is often criticized because some shareholders may benefit from the fraud – in the form of rising share prices – but do not have to pay any damages if they sell before the crash.  He provocatively suggests that with traceable shares, subsequent purchasers might have claims against the transferors – which might then incentivize selling shareholders to more closely attend to matters of corporate governance.

I find the proposal fascinating, because it would function, essentially, as a kind of targeted veil-piercing.  Though I doubt legislatures and courts would have much appetite for such a rule, it makes for an interesting thought experiment to imagine how it might play out.  Presumably, such a rule would not depend on inside information – insider trading prohibitions already would permit disgorgement in those circumstances – so we have to assume the selling shareholders were relying on public information when making their trades.  I also assume such liability would be more palatable when imposed on institutional investors of a certain size than on retail investors.  Would institutions have a defense if they showed they tried to be good corporate stewards, objected to, say, pay packages that encouraged risk-taking and the like?  Especially if they could also show they used an index strategy and so engagement was their only tool to monitor their investments?

One downside, of course, would be potential losses to market efficiency.  If shareholders cannot gain by selling stock of companies that they believe are overvalued, prices will become less informative.  Indeed, the act of selling out may be exactly the best way to exert pressure on management to govern more responsibly.

In any event, I think Geis is correct when he predicts that traceable shares are in our future – and we may have to rethink a lot of corporate law as a result.

I live in South Florida and have friends who live in Parkland, Florida, the site of the most recent school shooting. Like many, I’ve found solace and inspiration in the young survivors and their families who have taken to the streets and visited Washington, D.C. to demand action to prevent the next tragedy. Who knows whether they will succeed where others have failed. I certainly hope so.

I’m more surprised though, with the reactions of major companies such as WalMart, Dicks, REI, United Airlines, Hertz, Symantec and others that have cut ties with the National Rifle Association or have changed their sales practices. Skeptics have observed that corporations take “controversial” stances only when it’s cheap or easy and that this stance against the NRA isn’t even that controversial. But, it certainly hasn’t been “cheap” for Delta Airlines. Notwithstanding the fact that the airline employs 33,000 people in the state, Georgia has passed a bill to eliminate a proposed $50 million tax break because Delta announced plans to end its discount for NRA members. 

The gun control issue is the latest in a string of public policy debates that have divided corporations over the past year. CEOs have taken positions on the travel ban, Charlottesville, the NFL protests, the Paris Climate Accord, transgender bathroom laws, and immigration. Some of these positions are more closely tied to their core business than others, and some have been driven by social media activism. 

Cautious companies have guidance and momentum on their side when deciding whether to weigh in on social issues. According to the Conscious Capitalism credo, “.. business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it can elevate our existence and it is heroic because it lifts people out of poverty and creates prosperity. Free enterprise capitalism is the most powerful system for social cooperation and human progress ever conceived. It is one of the most compelling ideas we humans have ever had. But we can aspire to even more.” This movement focuses on a higher purpose than generating profits; a stakeholder orientation; leaders that cultivate a culture of care and consciousness; and a conscious culture that permeates the people, purpose, and process.

Blackrock, with $1.7 trillion under management, made that even more clear in its January 2018  letter to CEOs, which stated, among other things: 

Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth…

Companies must ask themselves: What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce? Are we adapting to technological change? Are we providing the retraining and opportunities that our employees and our business will need to adjust to an increasingly automated world? Are we using behavioral finance and other tools to prepare workers for retirement, so that they invest in a way that will help them achieve their goals?

What does this mean for the future? Is corporate social responsibility more of a business imperative than ever? Boards are now entering proxy season. Will shareholders demand more? Will state and federal governments use their power, as Georgia has, to send a message to the C-Suite? Will consumers engage in boycotts or buycotts? (See  here, here, here, here) for my views on boycotts). I look forward to seeing how whether the corporations sustain this conscious capitalism over the long term even when it is no longer “cheap” and “easy.”

 

 

Yesterday, the SEC announced a settlement with Ameriprise.  The SEC’s order explains that Ameriprise disadvantaged retirement plan customers by “selling them more expensive share classes in certain [mutual funds] when less expensive share classes were” also available through Ameriprise.  Although not a defense, Ameriprise’s spokesperson correctly pointed out that this issue has been “a long-standing industry topic and numerous firms have settled with the SEC and Finra on similar matters.”

Many open-ended mutual funds offer multiple share classes.  Investors purchasing class A shares typically pay an up-front commission or sales load.  The amount of the commission paid varies by fund.  Class B and Class C shares generally charge no up-front fees, but hit investors with higher fees over time or with contingent-deferred sales charges if the investors redeem their mutual fund shares before a certain amount of time.  In many instances, investors placing large orders can receive bulk discounts (called “breakpoints”) on Class A shares.  Ameriprise ran into trouble because it did not steer its customers into lower-fee shares when they were available and because it did not disclose that it was steering customers into expensive share classes that paid Ameriprise more money.  Overall, investors paid an extra $1.7 million in fees because of Ameriprise’s supervisory failures.  To its credit, Ameriprise reimbursed those fees “along with $190,797.40” in interest.  It also paid another $230,000 as a civil monetary penalty to the SEC to resolve the regulatory issue.

Although the numbers are not huge here, it’s good to see the SEC cracking down on the exploitation of retail investors.  The order and ongoing problem also show the need for the SEC to use its power under Dodd-Frank to impose a fiduciary duty on broker-dealer firms when they act as financial advisers to retail customers.  Notably, the SEC’s enforcement here hinges not on what Ameriprise did so much as its failure to disclose to customers that “it would earn greater compensation in recommending . . ” certain share classes “because these share classes would generate additional revenue for Ameriprise.”

Another unforced error on the LLC front, again with a limited liability company being called a corporation.   

This time, it is a recent Texas appellate court case where the court states: “In its pleadings, AMV contends that it is presently a limited liability corporation known as ArcelorMittal Vinton LLC.”  Wallace v. ArcelorMittal Vinton, Inc., 536 S.W.3d 19, 21 n.1 (Tex. App. 2016), review denied (Mar. 31, 2017).  As is so often the case, that is not accurate. 

In its brief, the entity AMV simply stated, that it was a Defendant-Appellee as named in the suit, ArcelorMittal Vinton, Inc., was “n/k/a [now known as] ArcelorMittal Vinton LLC.” Carla WALLACE, Plaintiff-Appellant, v. ARCELORMITTAL VINTON, INC., Defendant-Appellee., 2015 WL 7687420 (Tex.App.-El Paso), 1.  AMV’s counsel never said it was a corporation.  The court did that on its own.

Sigh.  Even in Texas, LLCs are not corporations. I swear!  I looked at the statute.

And yet, a close look at the statute shows why this gets confusing for some people.  The Texas statute provides specific cross-references to certain business provisions (emphasis added):

Sec. 101.002.  APPLICABILITY OF OTHER LAWS. 

(a)  Subject to Section 101.114, Sections 21.223, 21.224, 21.225, and 21.226 apply to a limited liability company and the company’s members, owners, assignees, affiliates, and subscribers.

(b)  For purposes of the application of Subsection (a):

(1)  a reference to “shares” includes “membership interests”;

(2)  a reference to “holder,” “owner,” or “shareholder” includes a “member” and an “assignee”;

(3)  a reference to “corporation” or “corporate” includes a “limited liability company”;

(4)  a reference to “directors” includes “managers” of a manager-managed limited liability company and “members” of a member-managed limited liability company;

(5)  a reference to “bylaws” includes “company agreement”; and

(6)  the reference to “Sections 21.157-21.162” in Section 21.223(a)(1) refers to the provisions of Subchapter D of this chapter.

Added by Acts 2011, 82nd Leg., R.S., Ch. 25 (S.B. 323), Sec. 1, eff. September 1, 2011.

As Ham Porter would say, “You’re killing me, Smalls.” 

Like my fellow editors here at the BLPB, I enjoyed the first Business Law Prof Blog conference hosted by The University of Tennessee College of Law back in the fall.  They have begun to post their recently published work presented at that event over the past few weeks.  See, e.g., here and here (one of several newly posted Padfield pieces) and here. I am adding mine to the pile: Professional Responsibility in an Age of Alternative Entities, Alternative Finance, and Alternative Facts.  The SSRN abstract reads as follows:

Business lawyers in the United States find little in the way of robust, tailored guidance in most applicable bodies of rules governing their professional conduct. The relative lack of professional responsibility and ethics guidance for these lawyers is particularly troubling in light of two formidable challenges in business law: legal change and complexity. Change and complexity arise from exciting developments in the industry that invite—even entice—the participation of business lawyers.

This essay offers current examples from three different areas of business law practice that involve change and complexity. They are labeled: “Alternative Entities,” “Alternative Finance,” and “Alternative Facts.” Each area is described, together with significant attendant professional responsibility and ethics challenges. The essay concludes by offering general prescriptions for addressing these and other professional responsibility and ethics challenges faced by business lawyers in an age of legal change and complexity.

I do not often write on professional responsibility issues.  However, I do feel an obligation every once in a while to add to the literature in that area addressing issues arising in transactional business law.  In essence, it’s service through scholarship.  

I hope you read the essay and, if you do, I hope you enjoy it.  I also can recommend the commentary on it published by my UT Law faculty colleague George Kuney and my student Claire Tuley.  Both comments will be available electronically in the coming months.  I will try to remember to post links . . . .