Yesterday, my husband and I celebrated our 30th wedding anniversary.  I am married to the best husband and dad in the entire world.  (Sorry to slight all of my many male family members and friends who are spouses or fathers, but I am knowingly and seriously playing favorites here!)  My husband and I bought the anniversary memento pictured below a few years ago, and it just seems to be getting closer and closer to the reality of us as a couple (somewhat endearing, but aging) as time passes . . . .

IMG_0872

Of course, our wedding was not the only important event in 1985.  There’s so much more to celebrate about that year!  In fact, it was a banner year in business law.  Here are a few of the significant happenings, in no particular order.  Most relate to M&A doctrine and practice.  I am not sure whether the list is slanted that way because I (a dyed-in-the-wool M&A/Securities lawyer) created it or whether the M&A heyday of the 1980s just spawned a lot of key activity in 1985.

  1. Smith v. Van Gorkom was decided.  It was my 3L year at NYU Law.  I remember the opinion being faxed to my Mergers & Acquisitions instructor during our class and being delivered–a big stack of those goofy curly thermal fax paper sheets–to the table in the seminar room where we met.  Cool stuff.  As I entered practice, business transactional lawyers were altering their advisory practices and their board scripts to take account of the decision.
  2. Unocal v. Mesa Petroleum was decided.  The Delaware Supreme Court established its now famous two-part standard of review for takeover defenses, finding that “there was directorial power to oppose the Mesa tender offer, and to undertake a selective stock exchange made in good faith and upon a reasonable investigation pursuant to a clear duty to protect the corporate enterprise. Further, the selective stock repurchase plan chosen by Unocal is reasonable in relation to the threat that the board rationally and reasonably believed was posed.”  (The italics were added by me.)  More changes to transactional practice . . . .
  3. Moran v. Household International was decided.  As a result, I spent a large part of my first five years of law practice promoting and writing poison pills that innovated off the anti-takeover tool validated in this case.  The firm I worked for was on the losing side of the Moran case, so we determined to build a better legal mousetrap, which then became the gold standard.
  4. The Revised Uniform Limited Partnership Act (RULPA) was amended by the Uniform Law Commission.  Among the 1985 changes was an evolution of the rules relating to the liability of limited partners for partnership obligations.  The 2001 version of the RULPA took those evolutions to their logical end point, allowing limited partners to enjoy limited liability for partnership obligations even if the limited partners exercise management authority over the partnership.
  5. Landreth Timber Co. v. Landreth was decided.  Stock is a security under the Securities Act of 1933, as amended, unless the context otherwise requires.  The Court determined that instruments labeled stock that have the essential attributes of stock should be treated as stock in an offering context, even when the stock is transferred to sell a business.  Bye-bye “sale of business” doctrine . . . .

That’s enough on 30th anniversaries  for this post.  I am sure you all will think of more 30th anniversaries in business law that we can celebrate in 2015.  Feel free to leave those additional 1985 memories in the comments.

I know I am Johnny One Note on this, but while researching another project, I decided to check again if litigators (and courts) are still referring to veil piercing of LLCs as “corporate veil piercing.” As I have noted before, for LLCs, it should be “piercing the LLC veil” or, more generally, “piercing the limited liability veil.”  Or “PLLV,” as I like to call it. (Not as catchy is “PCV,” but it is far more universally accurate.)

Sure enough, last week, a New York court refused to denied the defendants’ motion to dismiss the plaintiff’s third amended complaint, deciding that “Plaintiff has adequately pled facts sufficient to defeat the Individual Defendant’s motion to dismiss Plaintiff’s claim for piercing the corporate veil.” Capital Inv. Funding, LLC v. Lancaster Grp. LLC, No. CIV.A. 8-4714 JLL, 2015 WL 4915464, at *7 (D.N.J. Aug. 18, 2015).  But Plaintiff is seeking to piercing the veil of an LLC.  As such, I think they need a fourth amended complaint.  

Also last week, in an unpublished opinion, a Minnesota court upheld a decision to pierce the limited liability veil of Alpha Law Firm, LLC.  The court found the court below “did not abuse its discretion by piercing Alpha’s corporate veil.” Guava LLC v. Merkel, No. A15-0254, 2015 WL 4877851, at *8 (Minn. Ct. App. Aug. 17, 2015). Again, though, the LLC did not have such a veil because it was not a corporation.  

This should be easier to keep straight in Minnesota than most places. Minnesota has a statute the specifically allows for LLC veil piercing, and states that the corporate law concept applies to the LLC.  But it also calls it “piercing the veil” in the LLC statute, which means the veil is an LLC veil, and not a corporate one.  The statute: 

MINN. STAT. ANN. § 322B.303(2)

. . . .

Subd. 2.Piercing the veil. The case law that states the conditions and circumstances under which the corporate veil of a corporation may be pierced under Minnesota law also applies to limited liability companies.

I am sympathetic (to a point).  As Guava points out, when a statute brings corporate veil piercing into the LLC world, it can be awkward.  Another excerpt from Guava makes that obvious:

Hansmeier next challenges the district court’s decision to pierce on the merits. “In certain circumstances, it is possible to ‘pierce the corporate veil’ and hold a shareholder personally liable .” Gunderson v. Harrington, 632 N.W.2d 695, 705 (Minn.2001) (Gilbert, J., dissenting) (citing Victoria Elevator Co. of Minneapolis v. Meriden Grain Co., 283 N.W.2d 509, 512 (Minn.1979)). Veil piercing applies to LLCs as well as corporations. Minn.Stat. § 322B.303, subd. 2 (2014). A court may pierce a corporate veil when there is fraud or when the shareholder is the “alter ego” of the corporation. Gunderson, 632 N.W.2d at 705.
Guava, 2015 WL 4877851, at *6.
 
LLCs don’t have shareholders, they have members, so that’s a little confusing.  And note how the courts operates back and forth between corporate and LLC concepts.  It can be complex. Still, I’d really like a court in every state to take the time to set the standard and separate the concepts, so that future courts can always have a place to cite.  Consider this as an alternative paragraph for Guava. 
 
Hansmeier next challenges the district court’s decision to pierce on the merits. “In certain circumstances, it is possible to ‘pierce the corporate veil’ and hold a shareholder personally liable .” Gunderson v. Harrington, 632 N.W.2d 695, 705 (Minn.2001) (Gilbert, J., dissenting) (citing Victoria Elevator Co. of Minneapolis v. Meriden Grain Co., 283 N.W.2d 509, 512 (Minn.1979)). A court may pierce a corporate veil when there is fraud or when the shareholder is the “alter ego” of the corporation. Id. at 705. Veil piercing applies to LLCs as well as corporations. Minn.Stat. § 322B.303, subd. 2 (2014). Thus, a court may pierce the veil of an LLC when there is fraud or when the member is the “alter ego” of the LLC. See Minn.Stat. § 322B.303, subd. 2 (2014); Gunderson, 632 N.W.2d at 705.
Just a thought. 

Belmont University’s Massey College of Business (my employer) has an open Assistant Professor of Management position that may interest some of our readers.

As stated below, a PHD in Management and/or a JD is required. Healthcare management expertise is strongly preferred. The recently retired professor whose line we are filling was a JD, MBA, RN with significant healthcare management and health law experience. I am not on the hiring committee, but am happy to discuss Belmont University in general, and I can point interested parties in the right direction.

The online application can be accessed here.

—

The College of Business Administration at Belmont University is seeking applications for a tenure-track faculty position at the rank of Assistant Professor beginning August 2015.

The faculty member in this position will teach both graduate and undergraduate management classes. The area of specialization/certification that will be given preference for this position is healthcare management. Ability and willingness to teach healthcare law, patient-centered care, business law, principles of management, and/or strategic management is preferred. Clinical experience or familiarity with the clinical setting will be looked upon quite favorably, as well.  Candidates should be able to demonstrate a well-developed research agenda with promise of publishing in high quality, peer reviewed management or business law journals.

An interest and/or experience in engaging students in undergraduate research will be considered favorably, as will teaching experience at the university level.  Completion of a Ph.D. in management from an AACSB or CAHME accredited/AUPHA member institution by the time of employment is required. A Doctorate of Jurisprudence (JD) is also acceptable.  Belmont University is particularly seeking applicants who can demonstrate the interest and ability to work collaboratively in course design and to teach interdisciplinary and topical courses in this program. 

Belmont University seeks to attract and retain highly qualified faculty and staff that share the University’s values and will contribute to its mission and vision to be a leader among teaching universities bringing together the best of liberal arts and professional education in a Christian community of learning and service. For additional information about the position and to complete the online application, candidates are directed to https://jobs.belmont.edu. During the application process, applicants will be asked to respond to Belmont’s mission, vision, and values statements, articulating how the candidate’s knowledge, experience, and beliefs have prepared him/her to contribute to a Christian community of learning and service and give a brief statement of teaching philosophy. An electronic version of a Cover Letter, Curriculum Vitae, List of References, Teaching Philosophy, and a Response to Belmont’s Mission, Vision, and Values must be attached in order to complete the online application.  Review of applications will begin immediately and continue until the position is filled.

A comprehensive, coeducational university located in Nashville, Tennessee, Belmont is among the fastest growing Christian universities in the nation. Ranked No. 5 in the Regional Universities South category and named for the seventh consecutive year as one of the top “Up-and-Comer” universities by U.S. News & World Report, Belmont University consists of approximately 7,300 students who come from every state and 25 countries. The university’s purpose is to help students explore their passions and develop their talents to meet the world’s needs. With more than 75 areas of study, 20 master’s programs and four doctoral degrees, there is no limit to the ways Belmont University can expand an individual’s horizon.

Belmont University is an equal opportunity employer committed to fostering a diverse learning community of committed Christians from all racial and ethnic backgrounds. Women and minorities are encouraged to apply. The selected candidate for this position will be required to complete a background check satisfactory to the University. 

I begin my 30th year of law teaching today. I can still remember that hot August day I first stepped into the huge, tiered classroom at SMU. Standing on the raised platform facing a mob of over a hundred eager students. The low hum generated by dozens of pre-class conversations. The feeling of inferiority as all those pairs of eyes checked out the newest professor.

I was scared to death. I had spent the summer reviewing the law of business associations—reading and highlighting the casebook; reading a corporate law treatise; reading law review articles. I had extensive teaching notes in front of me that first day, some of them cribbed from class notes that the late Alan Bromberg had generously shared with me. But I didn’t have a clue how to teach. For the most part, I was mimicking what my own law school professors had done, without realizing why they had done what they did.

It didn’t go well at first. I was shy and hesitant, and students could sense my lack of confidence. Many of the students weren’t as prepared as I’d hoped, and I wasn’t sure how to draw them out and build on what they understood. Some of the students weren’t that eager to learn the law of business associations, and I didn’t have a clue how to motivate them. My first-semester evaluations were horrible.

Things have changed significantly since I began teaching. I’ve changed. I’m no longer afraid as I walk into the classroom; decades of teaching have turned my fear into just a slight tinge of anxiety. The evaluations aren’t as bad; I’ve learned how to teach, and I succeed more often than not. I have even won teaching awards.

The classroom has also changed. When I started teaching, I wasn’t competing with Facebook, online shopping, and email. I don’t think anyone in my first class had a laptop. When I started teaching, PowerPoint wasn’t an option. SMU didn’t even have whiteboards; I had to regularly brush chalk off my clothes. When I started teaching, professors distributed syllabi and supplemental reading via photocopy and e-books weren’t available. Today, I distribute all supplemental material over the Internet and one of my courses is wholly online.

Some things haven’t changed that much. Some of the students are still underprepared. Some of them still aren’t that interested in business associations, taking the class only because they know it will be on the bar. And it’s still a chore to end that hum of pre-class conversations when it’s time to start.

But it’s been a great career. I enjoy what I’m doing, except when administrative hassles interfere with my teaching and research—something that, unfortunately, seems to happen more often with seniority.

If you’re new to law teaching, persevere through the challenges. Learn as your students learn and try to have fun. Law teaching is an awesome responsibility, but, in spite of the struggles, it can be an incredibly rewarding experience. I hope you too can look back after thirty years with a feeling of satisfaction and accomplishment.

If you’re a student, give those new teachers a break. They’re learning, just like you. Take out your frustrations on the old fogies like me.

As Marcia just discussed, the D.C. Circuit recently issued its decision in its rehearing in National Association of Manufacturers v. SEC (“NAM”), and it once again held that neither the SEC nor Congress may require public companies to disclose whether they use in their products certain “conflict minerals” that originated in the Democratic Republic of Congo or adjoining countries.  Marcia has a really important discussion of the question whether a disclosure requirement is even likely to be effective to accomplish Congress’s goals, but I also find the new opinion fascinating and fraught in its own right – and, incidentally, deeply disdainful toward the en banc opinion in American Meat Institute v. U.S. Department of Agriculture, 760 F.3d 18 (D.C. Cir. 2014) (“AMI”).  Probably not coincidentally, neither of the two judges in the NAM majority were part of the en banc decision in AMI, because both have senior status (the third member of the NAM panel, Judge Srinivasan, was in the AMI majority, and dissented in NAM).

[More after the jump]

Continue Reading En banc we go?

One of the hardest things for me as a writer is knowing when I’m done. September’s Harvard Business Review (p. 128) has a great quote from Salman Rushdie on that question. They asked him how he knows he’s finished a book. He says:

“There’s a point at which you’re not making it better; you’re just making it different. You have to be good at recognizing that point.”

Today’s post will discuss the DC Circuit’s recent ruling striking down portions of Dodd-Frank conflict minerals rule on First Amendment grounds for the second time. Judge Randolph, writing for the majority, clearly enjoyed penning this opinion. He quoted Charles Dickens, Arthur Kostler, and George Orwell while finding that the SEC rule requiring companies to declare whether their products are “DRC Conflict Free” fails strict scrutiny analysis. But I won’t engage in any constitutional analysis here. I leave that to the fine blogs and articles that have delved into that area of the law. See here, here here, here, here, and more.  The NGOs that have vigorously fought for the right of consumers to learn how companies are sourcing their tin, tungsten, tantalum and gold have had understandably strong reactions. One considers the ruling a dangerous precedent on corporate personhood. Global Witness, a well respected NGO, calls it a dangerous and damaging ruling.

Regular readers of this blog know that I filed an amicus brief arguing that the law meant to defund the rebels raping and pillaging in the Democratic Republic of Congo was more likely to harm than help the intended recipients—the Congolese people.  I have written probably a dozen blog posts on Dodd-Frank 1502 and won’t list them all but for more information see some of my most recent posts here, here, and here. The goal of this name and shame law is to ensure that consumers and investors know which companies are sourcing minerals from mines that are controlled by rebels. The theory is that consumers, armed with disclosures, will pressure companies to make sure that they use only “conflict-free” minerals in their cameras, cell phones, toothpaste, diapers, jewelry and component parts. I assume that the SEC will seek a full re-hearing or some other relief even though Chair May Jo White has said, “seeking to improve safety in mines for workers or to end horrible human rights atrocities in the Democratic Republic of the Congo are compelling objectives, which, as a citizen, I wholeheartedly share … [b]ut, as the Chair of the SEC, I must question, as a policy matter, using the federal securities laws and the SEC’s powers of mandatory disclosure to accomplish these goals.”

I agree with Chair White even though I applaud the efforts of companies like Apple and Intel to comply with this flawed law. Indeed, the Enough Project, which with others has led the fight for this and other laws, now reports that there are 140 “conflict-free” smelters. But the violence continues as just this week the press reports that the Congolese government announced that it is investigating its own peacekeeprs/soldiers for rape in the neighboring Central African Republic and the UN acknowledged that fighting between armed militias is still a problem and that they are still resisting state authority. News reports indicated two days ago that clinics are closing because of fear of attack by Ugandan rebels.  This hits particularly close to me because my connection with DRC and the conflict mineral fight stems from the work that an NGO that I work with has done training doctors and midwives in the heart of the conflict zone there.

I don’t know how effective Dodd-Frank will be if the issuers don’t have to disclose what the court has called the Scarlet letter of “non DRC-conflict free.” But more important, as I argue in my writings, I don’t think that consumers’ buying habits match what they say when surveyed about ethical sourcing. In my most recent article (which I will post once the editors are done), I point out the following:

A recent survey used to support the new UK Modern Slavery Act indicates that two-thirds of UK consumers would stop buying a product if they found out that slaves were involved in the manufacturing process and that they would be willing to pay up to 10% more for slave-free products…The numbers are similar but slightly lower for those surveyed in the United States. But note, “when asked if they would be willing to pay more for their favourite products if this ensured they were produced without the use of modern slavery: 52% of American consumers said they would pay more to ensure products were produced without modern slavery; 27% were not sure; 21% said they would not pay more.” This means that at least 20% and possibly almost half of informed consumers would not likely change their buying habits. (italics added).

I’m probably more informed than most about the situation in the DRC because I have been there and read almost every report, blog post, article, hearing committee transcript and tweet about conflict minerals. I have seen children digging gold out of the ground while armed rebels stood guard. I have met the village chiefs in the conflict zones. I have been detained by the UN peacekeepers who wanted to know what I was researching and then warned me not to visit the mines because of the five dead bodies (which I saw) lying in the road from a rebel attack the night before. I have stayed in monasteries guarded by men with machine guns and been warned that if I left after dark I was just as likely to be raped by a police officer as a rebel. I have met with many women who were gang raped by rebels and members of the Congolese army. I have had dinner with Nobel nominee Dr. Denis Mukwege, who back in 2011 wanted to know why the US wasn’t stopping the atrocities. I know the situation is terrible. But it won’t change and hasn’t changed because of a corporate governance disclosure that most average consumers won’t read (even if the SEC had prevailed) and won’t necessarily act on if they did read it.

Next week I will post about my personal conflict with disclosures. Should I, who refuses to shop at a certain big box retailer, still shop at Amazon now that an expose has revealed a very harsh workplace? What about Costco and others? Stay tuned.

 

In this interview, Delaware Supreme Court Chief Justice Leo Strine singles out C & J Energy Services, Inc. v. City of Miami General Employees’ (“Nabors”), 107 A.3d 1049 (2014) as, perhaps, the most important opinion he has authored as CJ.

Given such an endorsement, I took time to read the case yesterday. The following paragraphs get to the heart of the case, which overturned the Delaware Court of Chancery’s mandate to shop the company at issue.

Revlon does not require a board to set aside its own view of what is best for the corporation’s stockholders and run an auction whenever the board approves a change of control transaction. As this Court has made clear, “there is no single blueprint that a board must follow to fulfill its duties,” and a court applying Revlon ‘s enhanced scrutiny must decide “whether the directors made a reasonable decision, not a perfect decision.”

 

In a series of decisions in the wake of Revlon, Chancellor Allen correctly read its holding as permitting a board to pursue the transaction it reasonably views as most valuable to stockholders, so long as the transaction is subject to an effective market check under circumstances in which any bidder interested in paying more has a reasonable opportunity to do so. Such a market check does not have to involve an active solicitation, so long as interested bidders have a fair opportunity to present a higher-value alternative, and the board has the flexibility to eschew the original transaction and accept the higher-value deal. The ability of the stockholders themselves to freely accept or reject the board’s preferred course of action is also of great importance in this context.

 

pgs. 1067-68.

20150813_080513_resized

This post is dedicated to our family’s dear Tara, who left our Earth in peace yesterday.  She went lame on both ends–back first, then front.  The likely cause of her troubles, at age 12, was degenerative myelopathy.  But it’s hard to tell since that’s apparently a disease of exclusion.  No matter.  Gratefully, she was not in any perceptible pain.  And that strong tail of hers did still wag, right up to the very end.

As fate would have it, on the way to the veterinary hospital yesterday, the car in front of us had a sticker on the back bearing the words that became the title for this post: “Wag More; Bark Less.”  It looked like a faded version of the picture included below.

218jxKddCSL

With classes beginning today and Tara’s incessant tail wagging still very much on my mind, I found myself wondering whether this bumper-sticker philosophy is good counsel for law students.  My general conclusion?  Yes, this mantra can be usefully embraced by law students.

My thoughts on this are simple.  Finding the joy in law and learning law is what motivates us to stay on task and keeps us happy in our journey as lawyers.  So, in this new beginning–a new semester–I urge students to find and share the joy in their law school journey.  As a business lawyer and business law professor, I am passionate about what I do and teach.  Apparently, it shows.  I am often called out for wagging my tail.  I truly enjoy seeing my students wag theirs a bit as they strive to meet their (and my) learning objectives in the courses I teach.

This is not to say that there will not be barking–or that barking is not sometimes desirable or necessary to the task.  It is.  It may be important for lawyers and law students to loudly object, stridently argue, or otherwise attract attention.  I just advise picking those battles wisely and choosing words and tone carefully.

Barking can even be joyful.  There’s clearly room for that kind of barking in a productive, engaged program of legal education.  For example, law students should broadcast their accomplishments and sing the praises of others at appropriate times and with suitable, tailored content and the proper ethos.

As this posts, I already have been in the classroom again.  There were at least a few tails wagging in my Business Associations class this morning.  That was good to see.  There was no barking (except from me–about the need to follow instructions and communicate more effectively).  Now, it’s time to think about creating some joy in Corporate Finance this afternoon . . . .

Three cheers for the new semester!