I so often find Keith Bishop‘s blog, California Corporate & Securities Law, both informative and entertaining.  Monday’s post in that forum is no exception.  In that post, Keith describes three important principles of Delaware corporate law that are not codified in the General Corporation Law of the State of Delaware (commonly and fondly known as the Delaware General Corporation Law or DGCL).  No surprise, but the three principles he identifies and describes are:

  • the business judgment rule;
  • derivative suit pleading requirements; and
  • the intermediate standard of review applicable in certain limited fiduciary duty actions.

Great list.  And I agree with what he says.

Of course, anyone who teaches corporate law has had to consider (and, to sone degree, call out) the areas of that body of law that derive from decisional, rather than statutory, law.  I often have been heard to say, in the basic Business Associations course, that if students forget–or need to leave behind–one of the two required texts (a casebook and a statutory resource book) when they come to class, most days, they should forget/leave behind the casebook, since it is more important for them to have the statutory law in front of them to answer most Business Associations law questions.  I note, however, that there are two large areas of exception:  veil piercing and fiduciary duty.  For those two doctrinal areas, I inform them that they won’t need the statutory resource book as much as the casebook.

Continue Reading Educating Students on the Common Law of Corporations

No, I am not really going too deep into the crowdfunding legal world. I am mostly venting. My co-bloggers, especially Steve Bradford, Joan Heminway, and Haskell Murray, are far more knowledgable than I am on the actual legal regime. 

Kickstarter and other sites have done some creative things to help people start their businesses, and I am fine with that. There are travel jackets and luggage, as well as other things like potato salad and gadgets that someone thinks someone else needs.  That’s all good.  But some of the ideas just seem dumb to me.  Case in point: the PicoBrew, about which one outlet noted: Seattle company develops ‘Keurig for beer.’ 

So, the deal is that you can make your own beer recipes (or borrow from others), and make beer at home.  Fast(ish).  KOMO News explained: 

Depending on the recipe, users add grain to the main compartment of the step filter and add hops into the appropriate hop cages inside the unit. The entire canister slides into the Zymatic and the brewing begins.

The brewing takes about four hours, leaving the unfermented beer in the keg that originally held the water. Add the yeast, then after a week of fermentation you get beer ready to be carbonated for dispensing from the keg.

So, if I want a (potentially) good craft beer, I can plan a week ahead, and zowie, with a little work I will have a bit more than a 12 pack at the ready. The Keurig was bad enough — it’s wasteful, expensive. And, did I mention it’s really wasteful?  But it can make pretty good coffee in a way that is more convenient in some circumstances. So there’s that.  

PicoBrew doesn’t seem to have any of those things. I mean, it does let you act like you brewed beer yourself, if you wanted to be that guy or gal.  But really, this seems like an expensive gift for people who don’t know really understand what it means to make your own beer.  

I am all for people coming up with ideas to build creative businesses.  And I am all for letting people spend their money on things they like (goofy or not). But that this thing raised $1.4 million still seems wrong to me. I know, some people really like this making stuff at home without really “making” much of it, but even with the recipe delivery services, there you’re just over paying for someone else to do most of the work for you. I get that. That allows you to pay someone else to do most of what you don’t want to do, while giving you flexibility and fresher food.  Maybe it’s pricey and not too creative from a cooking perspective, but still sensible for some folks. 

The PicoBrew website quotes CNET as saying, “They tasted liked craft beers I would pay money for.” After paying $500 to $1000 for the machine, plus ingredients, I am pretty sure you would still be paying money for the beer.  And you would be doing the work, waiting for it to ferment, and carbonating it, too.  I just don’t see the great value. Personally, I’d much rather buy my craft beers straight from the good folks at places like Bell’s, Founders, and Chestnut Brew Works, LLC(!).  Now if I could just get a distributor in the state to make the first two more accessible. Hey, Kickstarter . . .

Thanks to Greg Day, assistant professor of economics and legal studies at the Spears School of Business at Oklahoma State University, for joining us as a guest blogger for the month of November.

Greg’s posts are collected below and his scholarship is available here:

Following up on Arbitration and Human Rights

Cobras and Housing Markets

Do Sophisticated Parties Really Prefer the Freedom of Contract?

And Now Another Corporate Inversion–And More Corporate Inversion Restrictions

I never thought I would say this, but my favorite book this year is about punctuation. That’s right. Punctuation! The book is Making a Point: The Pernickety Story of English Punctuation, by David Crystal, and it’s well worth reading.

It’s an enjoyable romp through the English language, with limited attention to writing in other languages as well. (I just placed something in a German English-language publication and discovered that Germans don’t know how to “correctly” use quotation marks.)

This isn’t a rule book; Crystal talks about current usage, including areas where the “experts” disagree. (Oxford comma, anyone?) But he also covers the history—how the use of punctuation has evolved over time. One of the book’s recurring themes is how two functions of punctuation–clarifying the writer’s meaning and providing cues to speakers–can sometimes be at odds.

The history is fascinating. I have to admit that, after reading this book and seeing what excellent writers have done in the past, it’s harder to argue for a prescriptive position. I don’t always agree with Crystal’s position on disputed issues, but his case is always cogent.

Crystal covers all the major punctuation marks: , , ;, :, . . . , ., and ( ). (Yes, I did write this sentence just to see what it would look like.) But he also covers other lesser-known punctuation marks that have fallen into disuse, as well as the use of capital letters and spacing. (I was surprised to learn that early Anglo-Saxon writing often didn’t have spacing between words.)

I’m a writing geek, so I love to read books like this. But this book isn’t just for people like me. Anyone who writes for a living or wants to write for a living—and that includes all lawyers and law students—should read this book. Making a Point is entertaining and informative, and the writing is clear. (I almost restrained the urge to write “crystal-clear.”) Check it out.

A short while ago, some commentators declared that the Treasury had successfully ended corporate inversions. But after several recent corporate migrations, reports of the inversion’s death appear to have been greatly exaggerated.

A corporate inversion is a complicated and costly transaction used by American corporations to avoid particularly burdensome aspects of the U.S. tax code. The United States not only enforces the OECD’s highest corporate tax rate (the tax rate for most U.S. corporations ranges between 35% to 39%) but also worldwide taxation. This latter feature subjects an American corporation’s entire revenue stream to the United States’ extraordinary tax rate, whereas most countries tax only what is earned inside their territorial borders. In simplified terms, a corporation hoping to invert must merge with a foreign corporation—while satisfying some very idiosyncratic conditions—in order to reorganize in the foreign company’s country. After inverting, a company’s foreign generated income becomes subject to more favorable foreign tax rates, though it must still pay U.S. taxes on domestically generated revenue.

The rhetoric surrounding inversions has been heating up since Pfizer announced its intentions to invert into an Irish entity after acquiring Allegran in a $160 billion deal. The chief complaint against inversions is that inverted companies avoid their “fair share” of taxes (the United States likely lost 33.6 billion in tax revenue in 2014 alone). Not only that, the inversion trend perhaps shifts research and development and intellectual property innovation to foreign countries (see this excellent article by Omri Marian). President Obama famously declared that inversions are “unpatriotic,” Jon Stewart warned his viewers of the “Inversion of the Moneysnatchers,” and countless politicians have proposed ending the inversion loophole.

But why should we demonize inverted companies. First, consider an old Learned Hand quote: “[a]nyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose the pattern which best pays the treasury.” And considering that inverted companies must still pay U.S. taxes on U.S. generated income, the process shields only foreign-based revenue with which the United States has limited association. In fact, if the internal affairs doctrine incentivizes companies to incorporate in whichever U.S. state they wish, why should this policy not include foreign countries? 

In the end, what to do about inversions presents a number of complex issues. Critics offer very accurate arguments concerning the deleterious effects of inversions. However, in light of previous attempts, it seems quite unlikely that the tax code could be amended to prohibit future companies from inverting. As of a couple days ago the Treasury just added new inversion restrictions with the caveat that there is only so much that the Treasury can do. Indeed either lowering the corporate tax rate or ending worldwide taxation would likely be the most effective anti-inversion policy. Or the United States could take better aim at the income shifting transactions that corporations use to repatriate foreign income into the United States. But probably the best first step is for us to quit viewing inversions normatively; any well-informed policy prescription should avoid the very commonly used rhetoric of “good” guys and “bad” guys. After all, companies are just following incentivizes that the law offers.

For an excellent discussion of inversions, please read this Virginia Law Review article by Eric Talley.

Hillary Sale and Robert Thompson have published a new article to SSRN discussing the role of 10b-5 class actions, and, in particular, how private class actions function to protect the goals of securities regulation more broadly, including investor protection and general confidence in U.S. securities markets.  One of their key insights is that the concept of market efficiency is critical both to the current system of regulation, and to the 10b-5 class action – and that there is a basic hypocrisy when large, publicly-traded issuers take advantage of the concept of market efficiency to reduce their regulatory disclosure burdens while simultaneously arguing against market efficiency to defeat securities claims.  They contend the presumption of reliance – and what should be a very narrow space for defendants’ rebuttal of price impact, thus allowing classes to be certified – fits well with the class action’s role in protecting markets.

I agree with their thesis generally, namely, the role that securities class actions play in policing markets, rather than as a direct system for compensating defrauded investors.  In fact, I argued in a recent paper that courts have altered their definitions of organizational scienter to account for the changing role of the securities class action, namely, one focused more on policing markets and promoting the various goals of our regime of securities regulation rather than compensating investors for their losses.  And I believe there’s a strong case to be made – which James Park has explored – that there is value to having private actors, in addition to the SEC, play a role in deterrence/enforcement. 

The problem, of course, is that right now, the 10b-5 cause of action is in something of a transitional stage.  The element of reliance – as constructed via the fraud on the market mechanism – is well-suited to a deterrence/enforcement purpose, but other elements (including damages and loss causation) are not.  These elements remain tied to some construct of specific investor harm that becomes harder and harder to determine the more than the “front end” of the securities class action focuses on marketwide distortion/corruption.   If class actions are deterrent devices rather than compensatory ones, there needs to be some kind of rational calculation regarding appropriate damages due to degree of market harm, balanced against the wrongfulness of the defendants’ conduct.  Right now, nothing in the cause of action provides space for that kind of calculation – instead, all we have are the increasingly artificial constructs of price impact, materiality, and loss causation, which, I believe, is at least one of the reasons for courts’ incoherence  on this subject.

Please accept my apologies for not posting this notice sooner.  I received the call for papers a few weeks ago and meant to post it then.  But I now see that the deadline for abstract submissions is Monday!  Mea culpa.  Please feel free to post a comment here or contact me by email for more information if you want to submit.  I have a more full-blown version of the call for papers that I can send by email to those who are interested in more information.  (I omitted here prior conference locations as well as the names and affiliations of members of the conference academic and practice review boards and organizing committee.) 

I have participated in this conference for the past two years.  While there are few law academics in attendance, I have found the work of our international colleagues from the business side of the aisle to be both very informative to my work and interesting in many other respects.  This conference also has enabled me to forge new relationships that have positively impacted my scholarship.

Call for Papers
7th Conference on Innovative Trends Emerging in Microfinance (ITEM-7)
Pumping up Innovations In and Around Microfinance
(Microfinance, Crowdfunding and Community Development Finance)
Organized by the
Banque Populaire Chair in Microfinance of the Burgundy School of Business, Dijon, France
In collaboration with
The Chinese Association of Microfinance
And
Shanghai Jiao Tong University Centre for Financial Inclusion

March 15-17, 2016
In Shanghai, China

Poverty is a deep-rooted problem. Science magazine has published research indicating that poverty is even associated with cognitive problems. One hope to eradicate poverty is to provide the poor with the resources necessary to cope with it, the resources being specific to their situation. One possible resource is microfinance. Today, more and more researchers are getting involved in research that makes a difference to practitioners who want to create a new world of hope for the poor. Although it is too early to prove either a positive or a negative impact of financial leverage on the poor, other financial products are being offered to the poor so that they are financially included.
The international conference on Innovative Trends Emerging in Microfinance (ITEM) is aimed at researchers, both from academic field and from the industry, who are looking at institutional and technological environmental factors that could increase outreach or reduce costs or both. Previous editions of this conferences have been held in India, France and Morocco.

Conference themes
The 7th edition brings together researchers from three areas: Microfinance, Crowdfunding and Community Development Finance. However, the conference is open to other closely related microfinance fields and papers on impact measures, social governance, innovation, and sustainable development are welcomed.
The ITEM conference provides a forum for both researchers and practitioners to discuss and exchange on financial inclusion. The conference in March 2016 seeks quantitative, qualitative and experience-based papers from industry and academia. Case studies and PhD research-in-progress are also welcomed. It encourages reflections on the potential and use of technology in microfinance in developed and developing countries.
Papers can be in English, French and Chinese. Normally, there is no provision for translations. So, English is preferred.

Publication opportunity
The conference invites both professional presentations and research papers. Since we are all aiming for high level publications, we do not publish books or copyrighted proceedings. It is expected that the review process and the partnerships developed would help the researchers develop the paper towards a high impact journal and that, perhaps, they would think of acknowledging their participation in the conference. However, if researchers want, their papers are directly considered for journal special issues or books that the organizers or other participants may be associated with. These journals include Strategic Change (Wiley) and Cost Management (Thomson-Reuters).

Submission procedure
Proposals: All contribution types require a proposal in the first instance, including a short abstract between 300 and 500 words, up to five keywords, the full names (first name and surname, not initials), email addresses of all authors, and a postal address and telephone number for at least one contact author.

The abstract should indicate:

Title of the paper

Track of the paper (see below)

Authors and affiliations

Research purpose

Research design/methodology/approach

Key results

Impact: (on new research or on new practices, policies)

Value added/originality

Tracks proposed:

Stream 1: Microfinance

Track 10: Microfinance (all other)
English / French
Track 11: Communication and Microfinance
English/ French
Track 12: Experiments in Microfinance
English
Track 13: Market research in microfinance
English
Track 14: Microfinance in China
Chinese/English

Stream 2: Crowdfunding

Track 20: Crowdfunding (all other)
English / French
Track 21: Communication et crowdfunding
English/ French
Track 22: Regulation in Crowdfunding
English / French
Track 23: Engaging the crowd
English
Track 24: Strategies of crowdfunding
English/French
Track 25: Governance in Crowdfunding
English / French

Stream 3 : Community Development Finance

Track 30: Community Development (all other)
English / Chinese
Track 31: Impact Investment Funds
English
Track 32: Community Development Funds
English
Track 33: Slow Money / Agricultural Investment
English

Full Papers are only required after acceptance of abstract. Papers should not to be more than 5000 words including abstract, keywords and references. Submission period for the full papers is till December 31st, 2015. These will be sent for review after the registration fee has been paid. Each author of a full paper will also be required to review a paper and be a discussant at the conference.

Deadline / Timeline
November 30, 2015: Submission of abstract of proposals
December 10, 2015: Confirmation of acceptance
December 31, 2015: Early-bird registration ends
January 15, 2015: Full papers for those who want their papers reviewed
January 31, 2016: Normal registration ends
March 15-17, 2016: Conference

Registration and Payment: instructions will be sent at the time of confirmation of acceptance of abstract.
There are special discounts available for early-bird registration and for students. These will be posted on the conference website.

Contacts:
ITEM7@escdijon.eu
Web site: http://www.bmicrofinance.org/item7/

I try to read everything Lyman Johnson writes, so my Thanksgiving break reading is his recent book chapter The Reconfiguring of Revlon. The abstract is below:

Three decades later, an irksome uncertainty still impedes a settled understanding of the Delaware Supreme Court’s landmark ruling in Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. For such a towering doctrine, Revlon’s underlying rationales remain controversial, its exact contours and demands continue to be surprisingly unclear, and it holds out scant hope for remedial relief. In spite of these troubling features of today’s Revlon jurisprudence, however, Revlon is slowly being worked back into the larger fabric of Delaware’s fiduciary duty law and away from being a gangling, standalone doctrine. The organizing themes of this judicial project are strong deference in the deal context to decisions made by independent directors without regard to deal structure, the substantially reduced likelihood of equitable or monetary remedies in all types of deal-related lawsuits, and a nascent effort at harmonizing Revlon with Delaware’s more general, and ill-defined, doctrine on corporate purpose.

This chapter discusses the original Revlon decision and its rapid expansion before turning to lingering uncertainties surrounding the reach of Revlon, the decline of Revlon’s remedial clout, and where Revlon stands today in relation to Delaware’s overall fiduciary duty law. Revlon’s sharp focus on immediate value maximization was a breakthrough pronouncement on corporate purpose, a subject of longstanding national debate but one on which the Delaware Supreme Court had been strangely silent. However, grave reservations about whether and when corporate directors should be required to pursue short term goals found useful cover in sustained judicial murkiness over the boundaries of Revlon. Only if Delaware courts resolve the underlying issue of corporate purpose more generally will Revlon either be fitted into the larger body of Delaware law or continue to stand uncomfortably to the side as a doctrinal loner of diminished significance.

It’s Thanksgiving, which means it’s time to do Christmas shopping. No, that’s not it. I’m sure Thanksgiving is supposed to be about more than that. Food? Football? No, there’s something else. It’s on the tip of my tongue; I just can’t quite remember. . . . . . . . .

Oh, yeah: being thankful.

I’m thankful for many things, but I want to use this column to thank some of the people who have touched my professional life.

First, thanks to my co-bloggers (in alphabetical order): Josh Fershee; Joan Heminway; Ann Lipton; Haskell Murray; Marcia Nanine; Stefan Padfield; and Anne Tucker. Their blog posts are always interesting and informative, and usually, I have to admit, better than anything I write. But, if you think their blog posts are good, you ought to see the incredible behind-the-scenes e-mail conversations we share. I have learned a lot from each of them. Believe it or not, I’ve only met two of them in person, but I’m happy to have all of them in my academic life.

Second, I’m thankful for my colleagues here at the University of Nebraska—well, most of them anyway. All of them are deserving of thanks—if for nothing else, just for putting up with me. But I want to pick out one of my colleagues for special mention. My long-time friend and colleague Bill Lyons is retiring at the end of this year (as a colleague; not as a friend, I hope), and I’m really going to miss him. (I never would have thought anyone would miss a tax lawyer, but apparently it’s possible.) Bill and I have shared conversations about law school, teaching, children, Monty Python, Star Trek, Babylon 5, Douglas Adams, and a number of equally important matters. I will miss those conversations when Bill retires. Bill has helped keep me sane, or at least as close as I’ll ever get. Thanks, Bill.

I have already publicly thanked two other former colleagues who, sadly, are no longer with us: John Gradwohl and Alan Bromberg. But I can’t thank either of them enough, so I again want to express my thanks for what each of them did for me.

The final person I want to thank is my mother, Bettie Johnston. What’s my mother doing on a list of people who touched me professionally? For one thing, I wouldn’t be here today but for her. She helped me through the hard times; I don’t think I would have survived without her. (And there was that womb thing, too.) But she also taught me to question, and sparked a lifetime love of learning. Our kitchen conversations when I was in junior high and high school started me on the path to be a law professor.

The list of people who deserve thanks could go on and on. My students, who have made teaching so fun—and challenging. The many good teachers I had, who molded me into what I am today. (Blame them.) The many people who have used, commented on, and responded to my scholarship. But if I tried to list everyone who positively affected me professionally, this post would go on forever. To all of you, wherever you are, thank you. I haven’t forgotten you. (Well, some of your names, but that’s an age thing.)

I’ll be back to business law next week. In the meantime, have a happy Thanksgiving. Eat a lot of turkey. Watch a lot of football. And, if you must, do some shopping. But, whatever else you do, don’t forget to thank all of the people who have touched your lives—professionally or otherwise.