When a law professor receives student feedback that his class is boring, should he care?  I once had a discussion with a colleague about this topic who was insistent that students care too much about being “entertained” in class and too little about actually learning the material that is conveyed to them.  While I agree that the ultimate measure of a successful class should be whether the students have learned (and can apply) the material, we shouldn’t downplay the importance of entertainment in facilitating that learning.  Indeed, I think it is wrong to think that our job description does not include “entertainer” almost as much as it does “teacher.”  (If you don’t believe me, try sitting through a colleague’s 75-minute class, as I recently had to do for evaluation purposes.  While time seems to fly as the professor, it moves at a decidedly slower pace when you are in the student’s shoes.)      

    But what does it mean to be an entertainer in class?  Must the professor tell jokes, sing songs, or swallow fire?  While I have no doubt that this would help, of course not.  Students will learn the material better when they are interested and engaged, and being an entertainer is simply shorthand, in my view, for creating a classroom environment that facilitates student interest and engagement.  Such entertainment might include problem sets, hypotheticals, simulations, or flipping the classroom.  But it would incorporate simpler devices too, such as humor, personal stories, or even just changing inflection on key points. 

    One doesn’t have to entertain every second of every class, of course, as sometimes the material is just boring and there isn’t much that can be done with it (believe me, as I teach some UCC classes).  But it is wrong, in my view, to think that our role as a teacher doesn’t include a role as an entertainer.  Students will learn better when we present the material in an interesting and engaging manner, and that means that we need to think about entertaining as part of our efforts to be an effective teacher.  Fortunately, entertaining does not require one to be a showboat in the classroom, or to have a stand-up comedy routine on a daily basis.  But it does require a consistent effort to think of our job description as something more like “facilitator of student learning” than “conveyer of useful information.”  So while it is true that some students care too little about learning the material, it is also true that we as law professors need to think about how entertaining might make that material easier to learn.  

    And now, if you’ll excuse me, I have to get back to my fire-swallowing trick . . . .

It’s family vacation week, and I am letting securities experts provide you interesting and exciting information far beyond what I could put together (frankly regardless of whether I am away from the office or not).  The D&O Diary (a great blog) hosted a guest post by Michael Klausner, Professor of Law, Stanford Law School, and Jason Hegland, Executive Director of Stanford Securities Litigation Analytics reporting on data collected on securities litigation.  Read the full post, Deeper Trends in Securities Class Action Litigation 2006-2015, and look for these highlighted trends:

  • Increased securities class action filing and dismissals
  • Types of cases (overstated earnings and product/operations cases)
  • Targeted industries (technology and health)
  • Role of plaintiffs’ law firms; and
  • Settlement timing (discovery) and amounts

Happy Summer!

-Anne Tucker

Today, the following business law professor position at Pepperdine University’s Seaver College was brought to my attention. Further information is available here and below.

—————–

Assistant Professor of Business Law

The business administration division of Pepperdine University seeks a candidate with a terminal degree in law for a tenure-track position in business law. Candidates are expected to complete all requirements for the JD before the date of appointment, which is August 1, 2017. A documented research interest in law is required and teaching experience is preferred. The expected courses taught would be undergraduate classes in business law and international business. The flexibility to teach occasionally in another field is preferred.

The business program at Seaver College, is accredited by The Association to Advance Collegiate Schools of Business (AACSB). USA Today ranked Seaver’s business program as the 7th best undergraduate business program in the country. We have approximately 775 undergraduate students in the Business Administration Division. Despite the large number of majors, our classes are small (rarely more than 25 students) and our faculty is collegial and collaborative. The division offers Bachelor of Science degree programs in accounting, business administration, and international business, and a contract major in finance. Degree programs are offered on a full-time, residential basis at the campus in Malibu, California. Seaver College has an enrollment of approximately 3,200 students. Please visit our website for more information.

Pepperdine University was established in 1937 by Mr. George Pepperdine, a Christian businessman, who stressed the desirability of a complete education built on a Christian value system. The institution is committed to the ideals of the founder. Successful candidates also must demonstrate an active commitment to Pepperdine’s Christian mission and tradition. Located near Los Angeles in Southern California, Pepperdine University is especially interested in candidates who can contribute through their teaching, research and service to the diversity and excellence of the University and our surrounding community.

Applicants should apply at apply.interfolio.com/35896.  A background check will be required as a condition of employment.

For more information, please contact the chair of the search committee:

Keith Whitney (keith.whitney@pepperdine.edu )

Chair, Recruiting Committee

Business Administration Division

Seaver College, Pepperdine University

24255 Pacific Coast Highway

Malibu, CA 90263

So, readers of this blog know that I despise the misuse of the term “limited liability corporation” when the writer or speaker means “limited liability company,” which is the correct term for an LLC.  There is a time, though, when an LLC can be a corporation, and that is for federal tax purposes if the entity makes such a choice.  

Entity choice is a state law decision, but and LLC can elect to be treated as a corporation under the Internal Revenue Code. The Internal Revenue Service recently issued Publication 3402, which explains: 

Classification of an LLC Default classification.

An LLC with at least two members is classified as a partnership for  federal income tax purposes. An LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes). Also, an LLC’s federal tax classification can subsequently change under certain default rules discussed later.

Elected classification.

An LLC can elect to be classified as an association taxable as a corporation or as an S corporation. After an LLC has determined its federal tax classification, it can later elect to change that classification. For details, see Subsequent Elections, later. LLCs Classified as Partnerships If an LLC has at least two members and is classified as a partnership, it generally must file Form 1065, U.S. Return of Partnership Income. Generally, an LLC classified as a partnership is subject to the same filing and reporting requirements as partnerships. See the Instructions for Form 1065 for rep

Still, this should really be called an LLC that has elected federal tax status as a corporation or an “LLC FCorp.” Or something like that. But at least in this situation, an LLC is something of a corporation.  

Anne Tucker (who, together with Haskell Murray, me, and many others, attended the 8th Annual Berle Symposium in Seattle a week ago) penned an excellent post last week on the importance of shareholder value under Delaware law.  Her post covers important outtakes from the symposium presentation given by former Delaware Chancellor William (Bill) Chandler and Elizabeth Hecker, both lawyers in the Wilmington, Delaware office of Wilson Sonsini Goodrich & Rosati. In the post, Anne accurately and succinctly summarizes a key take-away from the former Chancellor’s remarks:

[A] Delaware court will invalidate a board of directors’ other serving actions only if they are in conflict with shareholder value, but never when it is complimentary. And there is a expanding appreciation of when “other interests” are seen as complimentary to, and not in competition with, shareholder value maximization.

Specifically, as Anne’s summary indicates, Chancellor Chandler stated his view that a Delaware corporate board must place shareholder financial wealth (whether in the short term or the long term) ahead of any other value in its decision making.  This is hardly a surprise to anyone who follows Delaware corporate law judicial opinions (although the former Chancellor’s statement of the law was among the clearest and most definite I have heard).  After all, Chancellor Chandler’s opinion in the eBay case is widely cited for this proposition.

The Berle symposium focused on benefit corporations this year, and my draft paper for the symposium highlights the central importance of a corporation’s charter-based corporate purpose in that type of firm.  So, I asked the former Chancellor for his personal view on how a Delaware court might handle a specific type of corporate purpose clause in a non-benefit-corporation Delaware corporate law context.  The specific corporate purpose clause I had in mind is one that expresses a clear “second bottom line” (other than the promotion of shareholder value) and clearly indicates that neither bottom line is to be given constant or presumed precedence over the other in decisions made by the board of directors or the corporate officers.

Continue Reading Berle VIII and a Delaware Law Puzzle

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As an expression of love for my country, I do try to wear red, white, and blue on Independence Day and, in fact, for the entire holiday weekend.  This causes some wardrobe challenges for obvious reasons.  And it’s probably more than a bit hokey.

However, I did not plan on coordinating my food choices for the weekend with my sartorial selections!  So, when I opened the lovely yogurt parfait that I made to take to Starbucks for breakfast on Saturday morning, I was delighted and surprised to note its appropriate color scheme (and promptly posted a picture memorializing the same to Facebook).  I include the picture above.

Happy Fourth of July to one and all.  Regardless of whether you are as crazy as I am about celebrating with the colors of the day, I wish you a safe and pleasant holiday.  Happy Birthday, U.S.A.!

The University of Akron Law Review recently published its Symposium on Law and SocioEconomics.  You can find a full list of the contributions here (Volume 49, Issue 2).  As one of the organizers of the symposium, I had the honor of writing a conclusion to the issue, titled Socio-Economics: Challenging Mainstream Economic Models and Policies.  I provide the abstract below, and you can read the entire piece here.

At a time when many people are questioning the ability of our current system to provide economic justice, the Socio-Economic perspective is particularly relevant to finding new solutions and ways forward. In this relatively short conclusion to the Akron Law Review’s publication, Law and Socio-Economics: A Symposium, I have separated the Symposium articles into three groups for review: (1) those that can be read as challenging mainstream economic models, (2) those that can be read as challenging mainstream policy conclusions, and (3) those that provide a good example of both. My reviews essentially take the form of providing a short excerpt from the relevant article that will give the reader a sense of what the piece is about and hopefully encourage those who have not yet done so to read the entire article.

There have recently been several high profile news items about companies using dual class share structures.

First, Facebook announced that it would issue a class of nonvoting shares so that Mark Zuckerberg could maintain his control over the company via his supervoting shares, in a move reminiscent of a similar tactic by Google a couple of years ago.

(A fun game I like to play with my students: compare the stock prices of voting shares of Google with the prices of nonvoting shares, and then talk about the two, in light of the fact that Sergey Brin and Larry Page control the majority of the voting power regardless due to their supervoting shares.)

Second, Lionsgate announced it would be acquiring Starz, in a partially cash, partially stock deal.  Because Starz has a dual class structure – with supervoting power held by John Malone – the arrangement involves Lionsgate creating a new class of nonvoting shares.  Holders of Starz A shares will get cash and nonvoting Lionsgate shares, while holders of Starz B shares (e.g., Malone) get less cash, but both voting and nonvoting Lionsgate shares.

Third, Mondelez just made a bid to buy Hershey – one that could be blocked by the Hershey Trust that controls 80% of the voting power via dual class shares.

Dual class share structures are all the rage these days.   The growing popularity of dual class structures suggests that as investors gain more power in the governance structure – via legal changes, and via the increasing concentration of share ownership – corporate managers are fighting back with new tools to cabin investors’ influence.

But dual class structures carry some fairly obvious dangers – some of which are now on full display in the show trials regarding Sumner Redstone and Viacom.  In brief, Viacom has a dual class structure with most of the voting stock held by a company called National Amusements, which itself is controlled by Sumner Redstone.  Redstone is 93 years old and recently ousted the Chair of Viacom, as well as other Viacom directors, setting up court battles in Delaware and Massachusetts regarding his competency.

With dual class structures’ increasing popularity, I’m sure we can expect a lot more conflicts (and more development of the law).  It will be interesting to see whether there will be enough institutional investor pushback to cabin their use, and/or create some standardized features (sunset provisions, limits on the creation of new nonvoting share classes, etc).

Today a number of athletes will compete in various track & field events in the Olympic Trials.

One of those events is the qualifying round of the 800m, and one of the 800m runners, Boris Berian, was recently caught in a legal dispute with his old shoe sponsor (Nike) because of his attempt to sign with a new shoe sponsor (New Balance). The story of the dispute even made The Wall Street Journal. 

You can read the details of the case here, here, and here, but I will attempt to summarize briefly.

As I understand the timeline from the reporting and legal filings:

  • After the 2012 season, Boris dropped out of his division II college (Adams State) to pursue pro-running.
  • For a couple of years, Boris struggled to find world class success, and he worked at McDonald’s.
  • Boris didn’t have a real breakthrough until mid-2015, when he ran the fastest time for an American that year.
  • On June 17, 2015, shortly after his breakthrough race, Boris signed a short-term exclusive sponsorship deal with Nike (chosen from among many suitors).
  • On December 31, 2015, the Nike-Boris contract expired, though the contract gave Nike the right to match any competitor’s bona fide offer within 180 days of 12/31/15.
  • On January 20, 2016, Boris’ agent notified Nike than New Balance had made Boris a 3 year, $375,000 offer ($125,000 per year guaranteed).
  • Nike’s response to New Balance offer is disputed and at the center of a breach of contract lawsuit that Nike filed on April 29.
  • Nike supposedly served Boris with notice of the lawsuit at a track meet.
  • In short, Boris claimed that New Balance’s $375,000 offer was guaranteed, while Nike’s “match” was full of potential reductions. Nike claims that the contract they sent was simply a standard form. Nike claimed that guaranteed money is unusual in track contracts and Boris’ agent had not shown proof of the lack of reductions in New Balance’s offer, and that if the lack of reductions was proven, Nike would have matched those terms within the deadline.
  • On June 7, a judge granted Nike’s TRO, restraining Boris from competing in non-Nike gear until June 21.
  • On June 22, a judge declined to extend the TRO and stated that he would rule on June 29.
  • On June 23, Nike dropped its lawsuit (without prejudice), claiming that they wanted to “eliminate this distraction for Boris” given the upcoming Olympic Trials.
  • On June 30, Boris Berian signed with New Balance.

In the fall of 2014, Robert Bird (UConn) and David Orozco (Florida State) published a nice short article in the MIT Sloan Management Review entitled Finding the Right Corporate Legal Strategy. This has been a key article in the growing Law & Strategy area. The article notes five main legal strategies; “The five, in order of least to greatest strategic impact, are: (1) avoidance, (2) compliance, (3) prevention, (4) value and (5) transformation.”

This Nike v. Boris Berian situation, in my opinion, is an interesting example of the use of corporate legal strategy. In particular, Nike appears to be using litigation as a move for firm-wide value (#4 on the Bird & Orozco list).

Why did Nike sue?  In my opinion, Nike likely sued not just because they believed Boris breached the contract, but also to send a message to its other athletes that Nike “plays hardball.” This message may have been especially important given Kara Goucher’s doping allegation against the Nike Oregon Project and its coach; a number of prized Nike athletes may have been watching Boris’ situation and may have defected (right before the Olympics!) if Boris was treated with a light touch. Also, especially given that Boris claimed that he would rather sit out that run for Nike, perhaps Nike was simply trying to distract what could soon be a potential star for its competitor New Balance. While Nike has a number of track athletes with the star power of Boris, New Balance has a shallow bench of star track athletes and a good bit would ride on Boris’ performance for NB. If Boris medals, especially with his McDonald’s to track star story, that could be a huge deal for New Balance. Nike, on the other hand, has a absurd number of track stars with good stories and a high likelihood of medaling.

Why did Nike drop its lawsuit? I think the press was getting worse for Nike than Nike originally imagined. Also, perhaps the case was not resolving as quickly as Nike had guessed, and if Nike pursued the lawsuit into the Olympic Trials, the negative coverage may have exploded. That said, Nike must have known the coverage was going to be negative, so I imagine that factored into their original calculation, to some degree. Their lawyers might have gotten the impression that the judge was not going to rule in their favor when he decided against extending the TRO, so maybe Nike decided to try to win back some fans by dropping the lawsuit voluntarily. I agree with this author, eliminating the distraction for Boris was likely not Nike’s main motivation, if so, they would have not sued him during the Olympic Trials build-up. As any runner knows, the months before a meet are much more important than the week before (at least as a physical matter). More likely, and perhaps unanticipated at the filing of the lawsuit, 19-year old Donavan Brazier of Texas A&M announced that he was turning pro just a few days before Nike dropped its lawsuit. Brazier, who had recently won the NCAA championships in the 800m in record time, was probably even a bigger signing target for Nike than Boris. By dropping the lawsuit, Nike may have been able to come off as altruistic to Brazier (saying something like – we had legal grounds to pursue the Boris lawsuit, but we want to do what is best for our current and former athletes). A few days after Nike dropped the lawsuit, Brazier signed with Nike. In addition, around the same time, Nike also signed another 800m star, Clayton Murphy. Both Braizer and Murphy were underclassmen and it was uncertain, until recently, whether they would turn pro. Not only did dropping the lawsuit against Boris likely help Nike in pursuing these two young athletes, but the recent strength of these athletes in the 800m made it possible that Boris would not even make the team, much less medal in Rio.

Personally, I think Boris is going to race well today (we will know in a few hours) and over the next few days, but maybe the stress of the legal battle took a toll. Brazier and Murphy and the entire field will both be tough, but the field will be a bit more open given that two-time Olympian Nick Symmonds scratched from the 800m Olympic Trials field with an injured ankle. Boris has the best qualifying time (1:43:34 v. 1:43:55), but Brazier has the best time this season (1:43:55 v. 1:44.20). Should be exciting to watch and now you know the legal background.   

Finally, perhaps of interest to some readers, Boris Berian was using crowdfunding to pay for his legal defense. Boris even got this shout-out from Malcolm Gladwell on Twitter: “Nike earned 30 billion in 2015. Berian was flipping burgers at McDonalds two years ago. Isn’t one bully in American public life enough?”

Update #1: In one of the biggest surprises of the Trials, Donavan Brazier was knocked out in the first round of the 800m, running roughly 5 big seconds slower than he did in the NCAA Championships. Boris Berian won his heat. Nike was diversified with Clayton Murphy who won his heat, and Nike also had four others who qualified for the next round in the 800.

Update #2: Boris Berian led his 800m semi-final from start to finish. Looked strong. Clayton Murphy won the second semi-final race, in a bit slower race, but he also looked strong. Finals are Monday.

Update #3: In the finals, Boris Berian grabbed the lead around 400m and held on until the final 10m or so. He placed second to Clayton Murphy (Nike) who out-kicked him. Charles Jock (Nike OTC) finished third. Those top three finishers will represent the US in Rio in the 800m. 

Update #4: After getting 4th in one of his heats and needing to qualify on time rather than automatically, Clayton Murphy won the U.S.A.’s first medal in the 800m in 24 years. Murphy grabbed third place over the last 50m, and Boris Berian faded to 8th after going out fast. Berian looked strong in his heats, qualifying automatically for the final, but perhaps he did not have the necessary endurance. Clayton Murphy’s specialty was the 1500m prior to the Olympics, so he likely had a stronger base. Looks like Nike hedged well and got quite the payoff from signing Murphy. All of that said, Dave Wottle (former Dean of Admissions at my alma mater, Rhodes College) still ran the most exciting 800m race ever. Watch Dave Wottle come from last place to win gold in the 1972 Olympics.

Nike Lawsuit

Boris’ Response

Declaration in Support of Boris’ Opposition to Nike’s TRO

Second Declaration in Support of Boris’ Opposition to Nike’s Motion to Show Cause (Includes proposed Nike contract) (updated)

Nike’s Reply in Support of its TRO

This post concerns the rights and responsibilities of whistleblowers. I sit on the Department of Labor Whistleblower Protection Advisory Committee. These views are solely my own.

Within a week of my last day as a Deputy General Counsel and Chief Compliance Officer for a Fortune 500 company and shortly before starting my VAP in academia, I testified before the House Financial Services Committee on the potential unintended consequences of the proposed Dodd-Frank whistleblower law on compliance programs. I blogged here about my testimony and the rule, which allows whistleblowers who provide original information to the SEC related to securities fraud or violations of the Foreign Corrupt Practices Act to receive 10 to 30 percent of the amount of the recovery in any action in which the Commission levies sanctions in excess of $1 million dollars. During my testimony in 2011, I explained to some skeptical members of Congress that:

…the legislation as written has a loophole that could allow legal, compliance, audit, and other fiduciaries to collect the bounty although they are already professionally obligated to address these issues. While the whistleblower community believes that these fiduciaries are in the best position to report to the SEC on wrongdoing, as a former in house counsel and compliance officer, I believe that those with a fiduciary duty should be excluded and have an “up before out” requirement to inform the general counsel, compliance officer or board of the substantive allegation or any inadequacy in the compliance program before reporting externally.

Thankfully, the final rule does have some limitations, in part, I believe because of my testimony and the urgings of the Association of Corporate Counsel, the American Bar Association and others. In a section of the SEC press release on the program discussing unintended consequences released a few weeks after the testimony, the agency stated:

    However, in certain circumstances, compliance and internal audit personnel as well as public accountants could become     whistleblowers when:

  • The whistleblower believes disclosure may prevent substantial injury to the financial interest or property of the entity or investors.
  • The whistleblower believes that the entity is engaging in conduct that will impede an investigation.
  • At least 120 days have elapsed since the whistleblower reported the information to his or her supervisor or the entity’s audit committee, chief legal officer, chief compliance officer – or at least 120 days have elapsed since the whistleblower received the information, if the whistleblower received it under circumstances indicating that these people are already aware of the information.

At least two compliance officers or internal audit personnel have in fact received awards—one for $300,000 and another for $1,500,000. When I served on a panel a couple of years ago with Sean McKessy, Chief of the Office of the Whistleblower, he made it clear that he expected lawyers, auditors, and compliance officers to step forward and would not hesitate to award them.

Compliance officers have even more incentive to be diligent (or become whistleblowers) because of the DOJ Yates Memo, which requires companies to serve up a high ranking employee in order for the company to get cooperation credit in a criminal investigation. I blogged about my concerns about the Memo’s effect on the attorney-client relationship here, stating:

The Yates memo raises a lot of questions. What does this mean in practice for compliance officers and in house counsel? How will this development change in-house investigations? Will corporate employees ask for their own counsel during investigations or plead the 5th since they now run a real risk of being criminally and civilly prosecuted by DOJ? Will companies have to pay for separate counsel for certain employees and must that payment be disclosed to DOJ? What impact will this memo have on attorney-client privilege? How will the relationship between compliance officers and their in-house clients change? Compliance officers are already entitled to whistleblower awards from the SEC provided they meet certain criteria. Will the Yates memo further complicate that relationship between the compliance officer and the company if the compliance personnel believe that the company is trying to shield a high profile executive during an investigation?

The US Chamber of Commerce shares my concerns and issued a report last month that echoes the thoughts of a number of defense attorneys I know. I will be discussing these themes and the Dodd-Frank Whistleblower aspect at the International Legal Ethics Conference on July 14th at Fordham described below:

Current Trends in Prosecutorial Ethics and Regulation

Ellen Yaroshefsky, Cardozo School of Law (US) (Moderator); Tamara Lave, University of Miami Law School (US); Marcia Narine, St. Thomas University School of Law (US);Lawrence Hellman, Oklahoma City University School of Law (US); Lissa Griffin, Pace University Law School (US); Kellie Toole, Adelaide Law School (Australia); and Eric Fish,Yale Law School (US)

Nationally and internationally, prosecutors’ offices face new, as well as ongoing, challenges and their exercise of discretion significantly affects individuals and entities. This panel will explore a wide range of issues confronting the modern prosecutor. This will include certain ethical obligations in handling cases, organizational responsibility for wrongful convictions, the impact of the exercise of prosecutorial discretion in whistleblower cases, and the cultural shifts in prosecutors’ offices.

To be clear, I believe that more corporate employees must go to jail to punish if not deter abuses. But I think that these mechanisms are the wrong way to accomplish that goal and may have a chilling effect on the internal investigations that are vital to rooting out wrongdoing. If you have any thoughts about these topics, please leave them below or email me at mnarine@stu.edu. My talk and eventual paper will also address the relationship between Sarbanes-Oxley, the state ethical rules, and the Catch-22 that in house counsel face because of the conflicting rules and the realities of modern day corporate life.