I did my annual Westlaw check-up on the use of “limited liability corporation” in place of the correct “limited liability company.”  I did a similar review for 2015 and 2016 about this time, and revisiting the same search once again showed consistency (not in a good way). I keep hoping for major improvement, but some noticeable reductions in a few areas is a positive sign. 

Since January 1, 2017, Westlaw reports the following using the phrase “limited liability corporation”:

Type

2017

2016

2015

Cases

352

363

381

Trial Court Orders

110

99

93

Administrative Decisions & Guidance

132

172

169

Secondary Sources

989

1116

1071

Proposed & Enacted Legislation

83

148

169

Modest improvement by courts (yay, judges and clerks!), a little worse showing for trial court orders in trial court orders (boo, judges and clerks!), and sizeable reductions showed up in administrative decisions and on the legislative front, and a modest reduction appeared in secondary sources. 

Hard to say what the cause of any of this is, and I am inclined to think that the legislative number is far more focused on the types of bills being proposed than anything else. That is, all of the other areas have recurring and consistent interest, in some sense, with entity type.  Legislation is more fickle.  (Side note: grammar suggestion is for “fickler,” but I can’t go there.)  

My prediction is that we will see a lot more references to “limited liability corporations” with the passage of the recent tax bill.  Why do I think this?  Let’s take a look at some recent news coverage. From Forbes, for example:

The change would allow real estate investors to take advantage of a new break that provides a 20 percent deduction on taxable income for pass-through companies. A pass-through is a special type of corporate structure, popular among small business owners.

Cue Bill the Cat: Ack! 

“A pass-through” is a tax status. The entity choosing pass-through taxation could be a “corporate structure,” most notably the S-corp (which is an entity I rather hate, but that’s for another day), but it is not necessarily so. LLCs and limited partnerships, for example, are not corporate structures.

 Mother Jones provides an example of how the tax bill might work, somewhat ironically in an article titled, Tax Lawyers Are Getting Ready to Exploit All the Mistakes in the GOP Tax Bill:

Take a New York law firm. Under the final bill, Kamin says, if a law firm lets their associates spin off into a separate limited liability corporation that provided services to the main firm, the associates’ company could then be considered a pass-through business. The associates’ firm could contract with their original firm, and as long as they restrict income to less than $157,500 for an individual and $315,000 for a married couple, the associates can take advantage of the pass-through deduction.

I will skip (for now) the merits of the example, but these kinds of misstatements are likely to be a recurring issue. 

Okay, I’ll leave it there for now.  I hope your 2018 has started well, and I wish you the very best, even if you’re a “limited liability corporation” offender.  I sincerely hope you’ll get on board and try to mend your ways, of course, but I nonetheless, wish you well. Happy New Year!

 

I am laboring with what I hope is the tail end of the fourth cold I have had since the end of October–two in December alone.  Ugh.  So, I am afraid that my new year’s day spirit is somewhat dulled by all the cold medicine.  (I get on a plane for San Diego tomorrow morning, so getting all the head congestion out of the way today is a primary goal!)

Nevertheless, since New Year’s Day is commonly associated with resolutions, I thought I would offer one in the spirit of the BLPB.   It’s not your typical new year’s resolution.  But my co-bloggers and most of our readers will no doubt find it oddly familiar . . . .  Here goes.  (Oh, and happy new year!)

*          *          *

CONSENT OF SOLE NEW YEAR’S DAY BLPB BLOGGER

Monday, January 1, 2018

————-

WHEREAS, our weblog is blessed by some of the best blog editors known to man (and woman and others); and

WHEREAS, our weblog has garnered over 1,045,000 page views; and

WHERAS, our readers are amazing, patient folks with interesting and diverse ideas, thoughts, and perspectives; and 

WHEREAS, all of the foregoing makes the undersigned very, very happy; now, therefore, it is

RESOLVED, that 2018 be the best year ever for the Business Law Prof Blog and bring health and happiness to bloggers and readers alike.

 

       /s/ Joan MacLeod Heminway         
      Joan MacLeod Heminway
      Sole New Year’s Day BLPB Blogger

There is so much to unpack in FINRA’s recent settlement with Citigroup Global Markets over its analyst ratings. (Press release here.)

The short version is that due to a glitch in one of Citigroup’s clearing firms, there was a nearly five year period when its displayed ratings for 1800 different equity securities (buy, sell, hold) were incorrect.  Buys were listed as sells; securities that weren’t covered received a rating, etc.  As I understand it, the research reports themselves were accurate – so you could probably click through to see the true rating – but in various summaries made electronically available to customers and brokers, the bottom line recommendation was wrong.  My guess – and this is just a guess – is that some brokers and customers probably figured out that the summary ratings were unreliable and made a habit of clicking through to check the research reports, but nonetheless FINRA alleges the mistakes impacted trading in various ways, including by allowing trades in violation of certain account parameters (i.e., accounts that were supposed to be restricted to securities rated “buy,” and so forth).

The problem did not go entirely unnoticed within the firm, but there wasn’t a firm level understanding of how systematic the issue was.  So, brokers would report problems with individual ratings, and maybe they were corrected and maybe not, but no one seems to have had their eye on the system as a whole. 

So, first – wow.

Second, I can’t help but point out that European regulations will soon require that investment banks charge for their research rather than provide it “free” to brokerage clients.  This has created some rather complex questions regarding the value of analyst research as research (rather than as an entrée for schmoozing with corporate insiders, as Matt Levine has extensively discussed).  Which means we now have a new datapoint: if Citi can go nearly five years with no one caring much about systematic mistakes in its analyst recommendations, that, umm, is rather suggestive of the research’s value.  I also look forward to someone doing the empirical work to determine if these mistakes had any impact on market prices.  I mean, Citi leaves a big footprint; it’s not impossible to imagine the errors had some detectable effect on stock prices, if only briefly. 

Third, the extent to which securities laws prohibit false statements of opinion is a perennially hot topic.  Technically, Rule 10b-5, Section 11, and Section 18 prohibit false statements of fact.  Assuming the distinction between fact and opinion is a clear one (which is a whole ‘nother issue) – does that mean people are free to falsely talk up stocks as great buys (in their opinion) even when they are not?

Courts have settled on the rule that when a speaker misrepresents his own opinion – claims that he thinks a stock is a great buy when he thinks it is in fact no such thing – that is a false statement of fact, namely, about the fact of the speaker’s own opinion.  The Supreme Court has also made clear that statements of opinion may be false in the sense that they mislead about the factual basis that underlies the opinion.  Throughout this debate, it has been generally assumed that falsity in the first sense is, functionally, indistinguishable from scienter: after all, how could anyone accidentally misrepresent their own opinion about something? 

Well, it seems Citigroup has now found a way.

Interestingly, this is not a case where a company seems to have accidentally bumbled into a series of mistakes that happily worked out in the company’s favor.  In this case, the false reports were all over the map, and did not appear to result in any particular benefit to Citi.  So, it appears that once computer algorithms get involved, it is in fact possible to falsely state one’s opinion without harboring fraudulent intent.

But only up to a point – some brokers noticed problems with particular stocks and reported them, though Citi took its own sweet time about making a fix.  Does that mean the company acted with scienter with respect to particular false recommendations?  And if so, can we expect to see lawsuits?  (Loss causation will be an issue, naturally, but – well.  We can stay tuned to see if someone comes up with an argument).

We are at a time of year where schools are starting to make offers for professor position.

In business schools, the hiring process is more of a year-round affair than it is in law schools, but business schools have started to learn that they need to hire on the same schedule as law schools if they want to compete for the best legal academic talent. Also, a few business schools, such as the University of Georgia this year, have started to attend the AALS hiring conference.

As I explained a few years ago, working as a law professor in a business school can be a good bit different than working in a law school.

Business school legal studies positions have become more popular in recent years as law school hiring has diminished and as many law schools face financial difficulties. Personally, I have fielded dozens of calls from prospective academics and current law school professors, asking advice about getting a job teaching law in a business school.

The business school legal studies positions are quite diverse – vastly different pay scales, vastly different teaching loads, vastly different research expectations, and some are tenure-track and some are not. As such, I think it is smart to explore some of the following before accepting a legal studies professor position in a business school.

  • What are the research expectations, especially how does the school view law reviews? (Some business schools disregard or heavily discount law reviews because they are not “peer-reviewed” in the traditional sense. There are peer-reviewed legal journals, like the American Business Law Journal, the Journal of Legal Studies Education, and the regional ALSB related journals, but there are relatively limited publication slots. Also, business schools may use metrics for scholarship not common among law schools, and you should attempt to uncover the formal and informal tenure requirements before accepting a job.)
  • Does the business school provide WestLaw/Lexis access? (Most schools at least have Lexis, but they may or may not have access to all the law resources you need for your research.)
  • Does the business school have an ExpressO and Scholistica accounts? If not, will they reimburse for your submissions?
  • What is the teaching load/schedule? Ask not only about the number of hours, but also the number of courses, as business schools seem to have more 2-credit courses, especially at the MBA level than law schools. Also, business schools have night, weekend, and online classes, especially at the MBA level, more frequently than law schools.
  • Are there other tenure-track legal studies faculty members? If so, those faculty members likely will have fought most of the research battles mentioned above, though standards do change over time and resources are cut, so it is still worth asking those questions. I am the only tenure-track legal studies faculty member at the Massey College of Business at Belmont University, and I do miss discussing my research with knowledgeable colleagues on my hall. That said, having a law school at Belmont and nearby Vanderbilt has helped some, though I don’t make it over to either school nearly enough.
  • What is the policy on research stipends? (This varies significantly at business schools).
  • What is the policy on travel? (If you do not have legal studies colleagues in the school or nearby, you will definitely want to travel to the various ALSB conferences for work-shopping your articles and for exchanging ideas with fellow legal academics).
  • What administrative responsibilities will you have? At some schools, full-time legal studies professors are responsible for managing the legal studies adjuncts, which can take a considerable amount of time. (I do not). At some schools, legal studies professors serve as pre-law advisers to undergraduate business students. (I do, and I enjoy it, though it does mean quite a number of extra meetings and reference letters, especially in the late fall and early spring.)
  • Does the school have a pre-law major or minor or certificate program? (If so, this may give you some additional job security and may allow you to teach a variety of courses, instead of section after section of Business Law/Legal Environment).
  • Is the school AACSB accredited? There are multiple accrediting bodies in the business school space, but AACSB is clearly the best and most of the non-AACSB schools do have a bit of a second-class reputation. Also, I believe Business Law/Legal Environment is generally a required course at most (if not all) AACSB schools.   

Always happy to discuss teaching law in a business school with those who have additional questions. Good luck to everyone on the market.  

Most Americans now struggle to save for retirement.  The ones fortunate enough to have some savings set aside often don’t have much.  For help allocating those savings, many turn to commission-compensated stockbrokers.  In many instances, these stockbrokers give their clients “suitable” advice.  The advice might not be the best, but decent, suitable advice often helps substantially.

Of course, not all stockbrokers give suitable advice.  Sometimes, a financial adviser decides to chase a bigger commission and pushes a client into a direction that isn’t in his or her best interest.  One financial adviser coined Brown’s Law of Broker Compensation to explain the dynamic.  In short, the worse a product is for clients, the more a broker will be paid to sell it to clients.

Access to representation shifts with the amount of damages in play.  Clients with big problems can often find a eager lawyer.  Clients that suffer $15,000 in damages may struggle to find representation.  These cases are complex.  They require substantial skill and diligence to resolve.  The potential compensation for these relatively smaller cases may not motivate the private bar to provide representation.

Securities arbitration clinics provide an option.  These relatively rare clinics take on a few of these smaller matters.  They provide representation and train law students using live, complex disputes at the same time.  One clinic even works with its state regulator to provide enforcement assistance.  But there are only about fifteen of them to serve the entire nation.  Still, they are a decent resource.  If you know someone that has had a problem, consider sending them to a securities clinic for assistance.  

 

No one will  be shocked that my last post of the year is about a court referring to a limited liability company (LLC) as a “limited liability corporation.”  It’s wrong to do so, and it’s my thing to point out when it happens.  This case is especially striking (and perhaps upsetting) because of the context of the reference.  In this 2015 case that just showed up on Westlaw (or at least, in my alerts), “Plaintiff argues that because Defendants are all limited liability corporations they must identify and prove the citizenship of their various members and that they have failed to do so.” Skywark v. Healthbridge Mgmt., LLC, No. 15-00058-BJR, 2015 WL 13621058, at *1 (W.D. Pa. July 22, 2015).  They mean LLCs, not corporations.  Okay, so far this is a pretty typical mistake.  But wait! 

In this case, the defendants did not allege the citizenship of the members of the defendants’ LLCs in their initial Notice of Removal, so the plaintiffs claimed that a filed  amendment was more than “technically defective.” In claiming the amendment was “minor, the defendants rely cited  O’Boyle v. Braverman, No. 08-553, 2008 U.S. Dist. LEXIS 62180 (D.N.J. Aug. 12, 2008), which found that when a party mistakenly alleged the citizenship of an LLC as a corporation, the party could still amend the allegations to properly allege the citizenship of its LLC members. 2008 U.S. Dist. LEXIS 62180, at *7. O’Boyle, like the present court on Skywark found the proposed amendment to be technical in nature. 
 
On the one hand, this is probably correct in terms of justice seeking. On the other hand, if a court were to find that such a mistake was more than minor, perhaps lawyers would get this right in the first place, which they should do.
 
In assessing the situation, the court states: 
Plaintiff is correct that the citizenship of a limited liability corporation is determined by the citizenship of its members. Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 420 (3d Cir. 2010). Defendants have sought to fix any errors that may affect diversity jurisdiction by filing a declaration that identifies the members of their limited liability corporations and allegations of their citizenship. Plaintiff raises several arguments in response to Defendants’ declaration and alleges that it is insufficient to prove diversity of citizenship.
Skywark v. Healthbridge Mgmt., LLC, No. 15-00058-BJR, 2015 WL 13621058, at *3 (W.D. Pa. July 22, 2015) (emphasis added). 
 
To quote Charlie Brown, AAUGH! 
 
Didn’t the court just establish that the entire issue was the distinction between corporations and LLCs?  Sigh. The mistakes are frustrating, but to add to that such a clear lack of internal consistency when the issue has been identified is darn right irritating.  
 
As I often do, I feel I must acknowledge that we’re all human and we make mistakes.  Goodness knows I have made (and continue to make) more than my fair share.  I don’t mean to say anyone is a bad person for making such mistakes.  But I sure would appreciate it if they were a lot less common, too.  

If you celebrated, I hope you had a great Christmas. We sure did. Wishing you and yours peace, warmth, and love in this holiday season.  

Christmas2017(MorningBeverage)

Merry Christmas to all celebrating today.  I am enjoying a white Christmas in Pittsburgh, Pennsylvania with my dad and my brother and his husband, joined later today by my son and his fiancée (who had to work the night shift last night–she’s a hospital nurse).  For the first time in many, many years–I think since before I was married in 1985–I am separated from my husband this Christmas.  He is back in Tennessee with my daughter, who celebrated her 26th birthday yesterday.  Their work schedules didn’t accommodate holiday travel this year.  My daughter, in particular, worked yesterday and will work again tomorrow.  The working world is a different place now during the holidays than it was when I was a child.

As I sit here with a blood orange mimosa on Christmas morning, that observation set me to thinking about blue laws and Christmas.  (Ann and I are thinking along similar lines this week, it seems . . . .)  A lot of folks save their shopping–including shopping for alcohol–until somewhat the last minute.  This year, Christmas is on a Monday, meaning that Christmas Eve–a prime shopping day–was on a Sunday.  I wondered whether any blue laws prevented stores from being open or alcohol from being sold yesterday (or today, for that matter) . . . .

Back in 2006, when Christmas also was on a Monday, National Public Radio’s All Things Considered covered this story from a South Carolina perspective.  Tennessee law, TCA § 57-3-406(e) (2016), provides as follows:

No retailer shall sell or give away any alcoholic beverage between eleven o’clock p.m. (11:00 p.m.) on Saturday and eight o’clock a.m. (8:00 a.m.) on Monday of each week. No retail store shall sell, give away or otherwise dispense alcoholic beverages except between the hours of eight o’clock a.m. (8:00 a.m.) and eleven o’clock p.m. (11:00 p.m.) on Monday through Saturday. The store may not be open to the general public except during regular business hours. Likewise, all retail liquor stores shall be closed for business on Thanksgiving Day and Christmas Day.

So, folks in Tennessee could not buy drinking alcohol yesterday from any store but can buy spirits today (absent applicable local ordinances to the contrary) from a retail store that is not a liquor store (if I am reading that correctly).

Massachusetts, my immediate former home state, has many exceptions to its blue laws, including allowing certain retail establishments to be open on Sundays, provided that rank-and-file (non-executive, non-administrative over a certain pay grade) retail employees are paid time-and-a-half if the business employs more than seven people.  See MGL c. 136, § 6(50).  This exception does not apply to any state-defined legal holiday (and to Christmas, when it is on a Sunday), but the exception does apply to the day following Christmas when Christmas occurs on a Sunday.  The exception for alcohol sales is more detailed and includes:

The retail sale of alcoholic beverages not to be drunk on the premises on Sundays by retail establishments licensed under section 15 of chapter 138; provided, however, that notwithstanding this chapter, a municipality may prohibit the retail sale of alcoholic beverages on Sundays by licensees under section 15 by vote of the city council or board of selectmen; provided further, that there shall be no such sales prior to the hour of 10:00 a.m. or on Christmas Day if Christmas occurs on a Sunday; and provided further, that establishments operating under this clause which employ more than 7 persons shall compensate all employees for work performed on a Sunday at a rate of not less than one and one-half of the employee’s regular rate. No employee shall be required to work on a Sunday and refusal to work on a Sunday shall not be grounds for discrimination, dismissal, discharge, deduction of hours or any other penalty.

MGL c. 136, § 6(52).  Massachusetts apparently delegates significant control to municipalities on the alcohol issue.  The general Massachusetts blue law proscriptions are contained in MGL c. 136, § 5:

Whoever on Sunday keeps open his shop, warehouse, factory or other place of business, or sells foodstuffs, goods, wares, merchandise or real estate, or does any manner of labor, business or work, except works of necessity and charity, shall be punished by a fine of not less than twenty dollars nor more than one hundred dollars for a first offense, and a fine of not less than fifty dollars nor more than two hundred dollars for each subsequent offense, and each unlawful act or sale shall constitute a separate offense.

Even where retail establishments may be open, states may regulate work on Christmas–and on other holidays, too–designated as legal holidays by the state.  I grew up with a system of federal and state holidays that serve this purpose.  But The Legal Genealogist tells us that Christmas has not been a government-designated holiday from work for very long.  The Tennessee list for 2017 can be found here.  The Massachusetts legal holiday list is here.

Anyway, lest I bore you with my holiday blue law musings, I will close now by wishing you a happy continuing holiday season from here in Pittsburgh. Enjoy time with and memories of family and friends.  From my house to yours, this brings wishes for a lovely holiday week.  Enjoy.

Christmas is just a couple of days away, and we all know what that means – the end of Winter break is in sight and preparation for the Spring semester must begin in earnest!

In these last few vacation days, however, I leave you with a few articles on the changing face of the Christmas business:

The down-and-out Mall Santa reinvents himself for a modern age

Sorry. Wrap It Yourself, Say Overwhelmed Online Shops

Holiday Windows Brighten a Bleak Retail Scene, but How Long Will They Last?

Merry Christmas to all who celebrate, and for the rest of us – well, I know a great Chinese place :-)!