I had the privilege of being invited again this year to present at the 2017 LLC Institute, an annual program produced by the LLC, Partnership and Unincorporated Entities Committee of the American Bar Association’s Business Law Section.  As part of a panel discussion on LLC fiduciary duties (with friend-of-the-BLPB Mohsen Manesh and others), I sang a few bars of Rocky Top (!) and talked about the fiduciary duty waiver issue that we faced in Tennessee in revamping our limited partnership law this past year.  But that was far from the highlight of the program!  

Luckily, friend-of-the-BLPB Tom Rutledge–a leader in (and former chair of) the LLC, Partnership and Unincorporated Entities Committee–has captured the essence of the two-day event in blog posts here and here.  He notes in sum:

Over the last two days we have . . . , by means exceptional panels, considered and informed the participants on the broadest range of issues materially important to our shared area of interest and practice.  That is the mission of the LLC Institute, and hopefully it has again delivered on its objective.  The materials are posted and available for anyone, and in a few weeks the audio recordings will as well be posted.  While we recommend them to you, if you did not attend you missed out on the opportunity to ask questions as the programs were in progress and perhaps even more importantly the opportunity to meet new and liaison with old friends.  Those relationships are one of the great values of our Committee, the means by which we lean on and assist one another. 

This is so true.  The relationships–built through banter between and among panelists and audience members before, during, between, and after the sessions are what make this event special.  Of course, the subject matter also is phenomenally interesting.  

Co-blogger Josh Fershee also presented at the Institute this year.  Other BLPB readers and friends who attended (some of whom also presented) included:

  • Suffolk Law’s Carter Bishop (who moderated and led our panel);
  • Colorado’s infamous consummate practitioners and thought-leaders Bill Callison (who gave an amazing luncheon talk on Thursday regarding his work in establishing a model entity law statute for use in developing countries*) and Bob Keatinge;
  • Glommer and BYU Law Associate Dean Christine Hurt; and
  • Baylor Law’s Beth Miller (a/k/a the walking, talking guru of Texas business associations law and Queen of LLC caselaw–who, it was announced, will soon have a Committee content award named after her).

I am sure that I am missing someone . . . .  Needless to say, a good time was had by all.  And let me know if you’d like to be part of the program next year.  I know that the folks who organize the event like to have new presenters come every year, to keep the banter going.  I am happy to pass your name along.

_____

*Specifically, as noted in his firm biography: “He is the American Bar Association’s delegate to the United Nations Commission on International Trade Law Working Group I (Micro, Small and Medium Enterprises), which is focusing on law reforms enabling adoption of simplified business entity structures by micro-, small- and medium-sized businesses in developing countries. He serves on the UNCITRAL Secretariat’s expert group in this process.”

The GOP unveiled its tax bill this week.  Below are a collection of links to commentary that I found interesting (taking a page from Stefan’s book, some are in the form of embedded tweets):

A lot to like and a lot to dislike in the Republican tax bill: “The tax bill aggressively takes on deductions in the individual income tax code, and channels the proceeds towards across-the-board cuts in income tax.  Unfortunately, that good work is undone by expensive giveaways to the owners of firms, and unnecessary windfalls to the heirs of the rich.”

Tax Bill May Deal a Body Blow to LBOs: “The legislation includes a provision that would cap interest deductibility at 30 percent of adjusted taxable income, a dramatic shift from the 100 percent allowed now.”

Sports Stadiums Would Lose Access to Tax-Exempt Bonds Under House Tax Plan: “Lawmakers of both parties have long sought to limit the use of municipal bonds to benefit sports teams.”

Apple Among Giants Due for Foreign Tax Bill Under House Plan: “Earnings held in cash would be taxed at 12 percent while profits invested in less liquid assets like factories and equipment face a 5 percent rate.”

Proposal Aims to Eliminate Tax Break Linked to Performance-Based Pay for Executives: “The proposed changes would eliminate the tax break linked to performance-based pay for senior executives, raising some $9.3 billion in additional tax revenue over the next decade…”

Republican Tax Plan May Leave Future of Stock Options in Flux: “Under the GOP’s bill, option owners would be required to pay income taxes immediately when the contracts can be used to buy shares, instead of when they are actually purchased.”

US tax reform will boost innovation and entrepreneurship: “We will defer the tax on private stock gains until employees can actually realise those gains by selling the stock, or at least give them a reasonable amount of time to pay the tax bill.”

The GOP tax plan has a tiny ‘bubble tax’ that could end up raising taxes on the rich: “Every dollar after $1 million of income for an individual or $1.2 million for a couple would incur a surcharge. It would add $6 in taxes for every $100 of taxable income earned above those thresholds — essentially, an extra 6% tax.”

Senate Democrats falsely claim GOP tax plan will raise taxes for most working-class families: “The original report referred to 8 million households receiving a $794 tax increase. Somehow, when it got communicated down the line, that nuance was lost and it was translated into a talking point referring to all working-class families.”

How a Tax Cut Turns Into a Tax Increase: “In rolling out their plan, House Republicans focused on an example family — a married couple making $59,000 per year and with two kids. They said that family would get a tax cut of over $1,182 in 2018 (compared to what they paid in 2017). But, what they didn’t say is that a family making $59,000 would face a tax increase by 2024 relative to current law, with the tax increase potentially rising to nearly $500 by 2027.”

Republicans Bank on Future Congresses to Keep Family Tax Credit: “Taxpayers shouldn’t worry, Republicans say, because future Congresses will prevent the tax credit from vanishing.  … Rep. Carlos Curbelo (R., Fla.), said he thought members of both parties would ultimately support extending the break. ‘That family credit is de facto permanent and you can take that to the bank,’ Mr. Curbelo said.”

The GOP Tax Plan and Divorce: “The summary estimates that eliminating the deductibility of alimony payments will increase revenues by $8.3 billion over ten years.”

Republican Tax Proposal Gets Failing Grade From Higher-Ed Group: “In broad terms, the bill would eliminate or consolidate a number of tax deductions meant to offset the costs of higher education for individuals and companies, including the Lifetime Learning Credit, which provides a tax deduction of up to $2,000 for tuition, a credit for student-loan interest, and a $5,250 corporate deduction for education-assistance plans.  The bill proposes new taxes on some private-college endowments and on compensation for the highest-paid employees at nonprofit organizations, including colleges and nonprofit academic hospitals. The plan would also tax the tuition waivers that many graduate students receive when they work as teaching assistants or researchers. Perhaps most significant, the bill would result in many fewer people itemizing their deductions for charitable gifts.”

Teachers spend nearly $1,000 a year on supplies. Under the GOP tax bill, they will no longer get a tax deduction: “Unlike other professionals, teachers are regularly expected to furnish their own supplies. They are often filling in gaps where students are unable to afford supplies — and where districts are unable to furnish them.”

House tax plan allows unborn children to have college savings accounts: “The tax-advantaged accounts, called 529s, help people save for future college expenses. Anyone — a relative, a friend, or yourself — can be named as a beneficiary at the time the account is opened. The House legislation unveiled Thursday would allow unborn children to be named as a beneficiary as well. It defined an unborn child as a ‘child in utero’ and further as ‘a member of the species homo sapiens, at any stage of development, who is carried in the womb.’”

Why top tax writer Rep. Kevin Brady, father of two adopted kids, didn’t protect the adoption tax break: “Brady defended the decision to cut the adoption tax credit by pointing out that some families can’t claim the credit because they don’t pay enough in taxes or they don’t itemize their tax bill.”

The Johnson Amendment Under GOP Plan: “The main concern of the repeal of the Johnson Amendment is churches will effectively turn into giant super PACs.” 

Homebuilders tank as the GOP’s tax plan caps a big benefit for homeowners: “the tax plan caps the mortgage-interest deduction, which subtracts interest payments from homeowners’ taxable income, on new homes at $500,000.”

And, umm, an outraged twitter thread with associated R-language is here, but I will not embed it because this is a family blog.

I don’t have time for a substantive post today, but thought I would direct you to a post I wrote for the Miler Method online magazine, available here. The post focuses on competition and community.

I think the discussion in that post is relevant to law school, as so much emphasis is put on class rank and thus the competition can become especially fierce, potentially destroying community. Competition can certainly be a good thing, and can lead to progress and accomplishment, but competition does need to be contained at times. 

Every year, the United Nations holds a symbolic but important vote on a resolution condemning the U.S. embargo against Cuba and every year the United States and Israel are the only two countries to vote against it. Last year, the United States abstained in accordance with the rapprochement that the Obama administration began in 2014. A few hours ago, the U.S. and Israel stood alone and voted once again against the UN resolution, while 192 other nations voted for it. Ambassador Haley explained that the vote demonstrated, “continued solidarity with the Cuban people and in the hope that they will one day be free to choose their own destiny.” Prior to the vote she announced to the General Assembly that “today, the crime is the Cuban government’s continued repression of its people and failure to meet even the minimum requirements of a free and just society… The United States does not fear isolation in this chamber or anywhere else. Our principles are not up for a vote … We will stand for respect for human rights and fundamental freedoms that the member states of this body have pledged to protect, even if we have to stand alone.” The United States is indeed isolated in its thinking. Furthermore, the vote and the embargo inflame tensions with allies in Latin America that the U.S. needs for the war on terror and drug smuggling.

I feel strongly about this issue having visited the island three times in the past two years to research business and human rights issues. I’ve sat on a panel with Cuban lawyers and judges in Havana to discuss the embargo.  I’ve attended countless seminars and meetings with lawyers and businesses who want to trade with Cuba. At the American Bar Association International Law Section meeting last week there were at least 6 sessions on Cuba. The world wonders why the United States places so much attention on this tiny island nation.  

A few minutes ago, I put my finishing touches on my third law review article on Cuba (I had to wait to add in the UN vote). I argue that if and when the U.S. lifts the embargo and considers a bilateral investment treaty, it should require human rights provisions as a condition precedent for investor-state dispute resolution. I will post more about the article when it’s finally published but here’s a sneak peek of an argument relevant to today’s UN vote and the United States’ purported concern about the lack of human rights in Cuba:

[P]rior to lifting the embargo, the United States needs to examine its own record on human rights and how it treats other violators, otherwise it will have no credibility with the Cuban government. The U.S. Congress demands human rights reform in Cuba but has not been consistent in its own business dealings with other authoritarian or socialist regimes. For example, although the U.S. Department of State has criticized Cuba’s human rights record, China, another communist country with a poor human rights record, is the United States’ third largest trading partner. The United States lifted its trade embargo with Communist Vietnam twenty years ago and major U.S. companies now operate there today even though the U.S. government has leveled some of the same human rights criticism against Vietnam as it has against Cuba. The communist government of Laos did not fare much better than Cuba in human rights states department reports, but the U.S. government actively promotes potential investment opportunities there. This inconsistency in approach to human rights violators diminishes the U.S. government’s integrity in negotiating with Cuba. Tellingly, in its 2017 World Report, Human Rights Watch, a respected NGO, warned of the dangers of the Trump Administration from a human rights perspective. This hardly puts the U.S. in a strong bargaining position with Cuba when discussing the conditions on lifting the embargo.

The Trump Administration still has not released its official changes to the trade rules that it announced in June. In the meantime, although it’s hardly easy to do business in Cuba or with the Cuban government, U.S. businesses now remain in limbo until the implementing rules come into force. To be clear, I do not condone the human rights violations that the Cuban government commits against its people. In my upcoming article, I propose mechanisms to prevent foreign investors from perpetuating violations themselves. However, these same businesses that cannot do business with Cuba have no problem doing business with Russia, China, or other regimes with oppressive human rights records. Perhaps the Trump administration has not read State Department and NGO reports on those countries, but I have. Today, the hypocrisy was once again on full display for the world community to see.  

AveMariaLaw

Ave Maria School of Law seeks applicants for a tenure-track position to begin in the 2018-2019 academic year. The school’s greatest curricular needs are business law subjects such as Contracts, Business Organizations, and Uniform Commercial Code courses. Applicants must have a Juris Doctorate or equivalent degree and a strong academic record. Duties will include teaching, scholarship, and service to the law school.

Ave Maria offers students a distinctive legal education marked by the integration of the Catholic faith and the law. Students are trained to reflect critically on the law and to understand that all areas of legal practice serve the common good. The law school emphasizes the importance of faith and community among its faculty, staff, and students, and seeks applicants attracted by, and supportive of, its mission. 

 Ave Maria has an increasingly diverse student body and desires to provide students with faculty role models and mentors of shared background and experience. As such, we particularly encourage applications from women and members of underrepresented groups within the profession.

Ave Maria is located in Naples, Florida along the coast of the Gulf of Mexico. Naples has been recognized for its healthy lifestyle and excellent quality of life, and is known for its cultural activities and institutions as well as for its many and varied natural attractions.

 Applicants should send a cover letter and resume to Professor Mollie Murphy, Chair, Faculty Appointments Committee, at mmurphy@avemarialaw.edu, and to Melissa Gamba, Chief Human Resources Officer at mgamba@avemarialaw.edu.

The distinction between limited liability companies (LLCs) and corporations is one that remains important to me. Despite their similarities, they are distinct entities and should be treated as such.

When the indictment for Paul Manafort and Richard Gates was released yesterday, I decided to take a look, in part because I read that the charges included claims that the defendants “laundered money through scores of United States and foreign corporations, partnerships, and bank accounts.”  (Manafort Indictment ¶ 1.)

It did not take long for people to note an initial mistake in the indictment.  The indictment states that Yulia Tymoshenko was the president of the Ukraine prior to Viktor Yanukovych. (Id. ¶ 22.) But, Dan Abrams’ Law Newz notes, “Tymoshenko has never been the president of the Ukraine. She ran in the Ukrainian presidential election against Yanukoych in 2010 and came in second. Tymoshenko ran again in 2014 and came in second then, too.” Abrams continues: 

The Tymoshenko flub is a massive error of fact, but it doesn’t impinge much–if any–on the narrative contained in the indictment itself. The error doesn’t really bear upon the background facts related to Manafort’s and Gates’ alleged crimes. The error also doesn’t bear whatsoever upon the laws Manafort and Gates are accused of breaking. Rather, it’s an error which bears upon the credibility of the team now seeking to prosecute the men named in the indictment.

Perhaps. It is a high-profile mistake, but it doesn’t go to the core of the charges, so I think this may overstate it a bit.  Still, it is hardly ideal, and it’s definitely an unforced error.  And unfortunately, there is a second such error.  

Paragraph 12 of the indictment provides a chart of entities that were “owned or controlled” by the defendants. The chart headings provide “Entity Name,” “Date Created,” and “Incorporation Location.” But a number of the entities are not corporations. They are LLCs,  and you do not “incorporate” an LLC.  You form an LLC.  (Also, just to be clear, LLCs are not “partnerships,” either. They are LLCs.)

Similar to the Tymoshenko error, the type of entity does not appear to impact the underlying narrative or charges.  For example, entity type does not appear to impact the “conspiracy to launder money” count. And other jurisdictions, such as Cyprus, do tend to merge the corporate concept with the company concepts in a way that might make the chart headings less wrong than it is for U.S. entities.  Nonetheless, it would not have been that hard to go with “Entity Origin” or “Formation Location.”  

Okay, so all of this is rather nitpicky, and I get that.  The underlying charges are serious, and I hope and expect that the charges and the surrounding facts (not these mistakes) will be the focus of the legal process as it runs its course. But, it is also proper, I think, to work toward getting the entire document right. Details matter, and at some point could mean the difference between winning and losing, even if that does not appear to be the case this time around.   

The title of this post is hyperbole on some level.  But with Halloween being tomorrow, I couldn’t resist the temptation to use a festive greeting to introduce today’s post.  And there is a bit of a method to my titling madness . . . .

I admit that I do feel a bit tricked by the removal of the Leidos, Inc. v. Indiana Public Retirement System case (about which co-blogger Ann Lipton and I each have written–Ann most recently here and I most recently here) from the U.S. Supreme Court’s calendar.  It was original scheduled to be heard a week from today.  Apparently, based on the related filings with the Court, the parties are documenting a settlement of the case.  Kevin LaCroix offers a nice summary here.  How cunning and skillful!  Just when I thought resolution of important duty-to-disclose issues in Section 10(b)/Rule 10b-5 litigation was at hand . . . .

Indeed, I had hoped for a treat.  What pleasure it would have given me to see this matter resolved consistent with my understanding of the law!  The issue before the Court in Leidos is somewhat personal for me (in a professional sense) for a simple reason–a reason consistent with the amicus brief I co-authored on the case.  I share that reason briefly here to further illuminate my interest in the case.

In my 15 years of practice before law teaching, I often advised public company issuers on mandatory disclosure documents–periodic filings and offering documents, most commonly.  I also counseled investment banks serving as public offering underwriters, placement agents for private securities offerings, and financial advisors in transactions.  Even in those days, I was a bit of a rule-head (self-labeled)–a technically engaged legal advisor who tried to stick to the law and regulations, determine their meaning, and implement them consistent with their meaning in practice.  I drove colleagues to distraction and boredom, on occasion, with my explanations of the appropriate interpretation of various rules, including specifically mandatory disclosure rules.  (This may be why I love the work of the Sustainability Accounting Standards Board, which is looking at mandatory disclosure rules in context.)  I teach my students from that same nerdy vantage point.

In advising issuers and others on mandatory disclosure (and in training junior lawyers in the firm), I always noted that facial compliance with the specific line-item disclosure requirements for a Securities and Exchange Commission (“SEC”) form is not enough.  I advised that two additional legal constraints also govern the appropriate content of the public disclosures required to be made in those forms–constraints that required them to inquire about (among other things) missing information.  

  • First, I noted the existence of the general misstatements and omissions disclosure (gap-filler) rules under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended (as applicable in the circumstances)–Rule 408 under the 1933 Act and Rule 12b-20 under the 1934 Act.  Each of these rules provides for the disclosure of “such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made not misleading” in addition to the information expressly required to be included in the relevant disclosure document under applicable line-item disclosure rules.  
  • Second, I noted that anti-fraud law–and, in particular, Section 10(b) of, and Rule 10b-5 under, the 1934 Act–provides an even more comprehensive basis for interrogating the contents of disclosure that facially complies with line-item mandatory disclosure rules.  The overall message?  No one wants a fraud suit, and if they get one, they should be able to get out of it fast!  If a business and its principals were to be sued under Section 10(b) and Rule 10b-5, I wanted to ensure that the relevant disclosures were accurate and complete in all material respects.

Thus, the existence of the line-item and gap-filling disclosure rules–and the potential for fraud liability based on failed compliance with them–are, taken together, important motivators to the best possible disclosure.  In my business lawyering, I believe I used these regulatory principles to my clients’ advantage.  I would hate to see lawyers lose the important leverage that potential fraud liability gives them in fostering accurate and complete disclosures, fully compliant with law.  Hence, my position on the Leidos litigation–that mandatory disclosure rules do give rise to a duty to disclose that may form the basis for a securities fraud claim under Section 10(b) and Rule 10b-5.  (The ultimate success of any such claim would be, of course, based on the satisfaction of the other elements of a Section 10(b)/Rule 10b-5 claim.)

So, no treat for me–at least not just yet.  But perhaps this post will forestall any real trickery–the trickery involved with avoiding securities fraud liability for misleading omissions to state material information expressly required to be stated under line-item mandatory disclosure rules.  For me, that is what is at stake in Leidos and in disclosure lawyering generally.  Let’s see what transpires from here.