I saw this in Utah over spring break and I just had to share it with our readers: the Supreme Court building made out of Legos.

Supreme Court Lego Edited

This was part of an extensive Lego exhibit that also included the White House, the Capitol, and the Washington Monument, among other familiar D.C. monuments. If you have a child that likes Legos, a lot of time, and a lot of money for the Legos, feel free to try this at home. What better way for a lawyer or law student to teach a child about the Supreme Court?

The darling model next to the building is my five-year-old granddaughter Payton, something of a Lego expert herself. Thanks to Sandy Placzek for the photography. (Grandpa has too much fun playing with the grandchildren to spend time taking pictures.)

On Tuesday, the Supreme Court finally issued its decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund (.pdf), concerning the definition of “opinion falsity” in the context of a lawsuit under Section 11 of the Securities Act.

Joan described the case in more detail here, but the basic issue was, what does it mean for a statement of opinion to be false?  Or, to ground it more in the facts of Omnicare, if the company files a registration statement – as Omnicare did – that claims that the company “believes” its contracts are in compliance with the law, is that statement false when the DoJ sues for Medicaid fraud?

The defendants argued that opinion statements – such as a “belief” in legal compliance – can only be false if they falsely represent the speaker’s belief, i.e., if the speaker did not really believe that Omnicare was in compliance.  If the speaker did believe in such compliance, then even if that belief was unfounded or turned out to be false, the statement itself would be literally true.  

The plaintiffs agreed that statements of opinion may be false if the speaker misrepresents his or her own opinion, but also argued that opinions may be false for other reasons.  For example, according to the plaintiffs, an opinion statement is false if the statement has no reasonable basis, regardless of the subjective beliefs of the speaker.  So in Omnicare’s case, its statement about legal compliance would be false if it did not bother to investigate whether its contracts were in compliance with the law, or if it ignored information that suggested the contracts were not in compliance.

In general, the case was pitched as a dispute about the continuing viability of Section 11 as a strict liability statute.  Section 11, 15 U.S.C. §77k, provides that issuers are strictly liable for false statements in registration statements, and signatories of the registration statement are liable unless they demonstrate that they conducted a reasonable investigation of those statements.  So, if Omnicare prevailed in its argument that belief statements are only false if the speaker misstates his own belief, it would, as a practical matter, require the plaintiffs to demonstrate that the speaker intentionally misled investors, thus importing a scienter requirement into Section 11.  The effect would be particularly pronounced because there is a great deal of slipperiness regarding what counts as an opinion statement in the first place.

Ultimately, the Supreme Court adopted a standard that fit within the framework advocated by the plaintiffs, although the Court used a narrower formulation.  The Court agreed with the defendants that statements of opinion can only be false if disbelieved by the speaker – if the speaker misstates his or her own belief – but then went on to hold that such statements may be misleading if they omit material information.  Such as, if they omit the fact that the speaker had no basis for the belief he or she purported to hold and failed to conduct any investigation into the matter.  It depends on context and delicate inferences yadda yadda yadda, but a registration statement is a formal document and investors are likely to assume that statements of belief contained therein are the product of a reasonable investigation, etc.

But none of this is what the case was really about.

[More under the cut]

Continue Reading Omnicare – It’s Still About Civil Procedure

Plenty of valuable information was shared today at Vanderbilt’s 17th annual law & business conference, including remarks from Elisse Walter (former-SEC Chairman), Jim Cox (Duke), Bob Thompson (Georgetown), Amanda Rose (Vanderbilt), and others.

The most immediately useful information, however, might be the fact that SEC Commissioner Dan Gallagher, our luncheon speaker, is on Twitter. In academic and other circles, Commissioner Gallagher garnered a great deal of attention due to his controversial article co-authored with Joseph Grundfest (Stanford) entitled “Did Harvard Violate Federal Securities Law? The Campaign Against Classified Boards of Directors.”

Below is a recent Tweet from Commissioner Gallagher for those who would like to follow him.

Vanderbilt

After teaching my early morning classes, I will spend the rest of the day at Vanderbilt Law School for their Developing Areas of Capital Market and Federal Securities Regulation Conference.

This is Vanderbilt’s 17th Annual Law and Business Conference and they have quite the impressive lineup, including Commissioner Daniel Gallagher, Jr. of the U.S. Securities and Exchange Commission. 

I am grateful to the Vanderbilt faculty members who invited me to this event and others like it. Vanderbilt is only about 1 mile from Belmont and I have truly enjoyed getting to know some of the Vanderbilt faculty members and their guest speakers.

Below is a call for papers and description of a weeklong project on business and human rights. If you are interested, please contact one of the organizers below. I plan to participate and may also be able to answer some questions.

Lat Crit Study Space Project in Guatemala

Corporations, the State, and the Rule of Law

We are excited to invite you to participate in an exciting Study Space Project in Guatemala. Study Space, a LatCrit, Inc. initiative, is a series of intensive workshops, held at diverse locations around the world. This 2015 Study Space project involves a 7 working day field visit to Guatemala between Saturday June 27 (arrival date) and Saturday July 4, 2015 (departure date).  We are reaching out to you because we believe that your interests, scholarship, and service record align well with the proposed focus of our trip.

This call for papers proposes a trip to Guatemala to study more closely the phenomena of failed nations viewed from the perspective of the relationship of the state of Guatemala with corporations. With the recent surge of Central American unaccompanied minors and children fleeing with their mothers, the United States has had to confront the human face of children and women whose claim to asylum or other immigration relief is rooted in the dire reality that the countries from which they flee cannot or will not protect them. Largely, these fleeing migrants are escaping violence perpetuated by private actors, at times gang members or even their own parents or spouses. Their stories of flight cannot be disengaged from the broader context in which the violence occurs. Theirs is also the story of failed nations, characterized by ineptitude, weakness, and even worse, indifference or at times even complicity.

This story of failed nations applies beyond the reign of private “rogues” whom everyone agrees are bad actors (i.e., gangs, drug traffickers, violent criminals). The other side of the coin, invisible in this new wave of Central American refugees, is a more nuanced story about the failing role of some of these Central American nations in regulating the acts of corporations, whether owned by the oligarchy or operated by transnational actors. Corporations are entities with great potential to promote and further the public good, such as through job creation and economic development. Corporations, however, can also be the cause of social ills, particularly when left unregulated or at times even supported by the state to pursue private interests that conflict with the public good. In Guatemala, examples of deeply problematic unregulated arenas abound– from the lack of antitrust legislation to the absence of meaningful environmental protections to protect even the most precious of natural resources, such as water. There is also the misuse of public institutions and laws to shield corporations from their public and fiscal responsibility or to aid them in capitalizing on public goods, including minerals or land. Ironically, here, the state apparatus functions quite effectively to exert its authority in the execution of laws. The failure, however, rests in the illegitimacy of law, not in its execution.

Guatemala is a nation that is experiencing tremendous social upheaval from the acts of corporations on issues that include mining, water uses, deforestation, genetically modified seeds, free-trade zones, and maquiladoras, to name a few. Caught between the state and corporations are the communities most deeply affected by both the absence and the presence of law in ways that appear to conflict with the public interest. The questions that arise include how law can and should restore the balance between the promotion of investment and economic development with the protection of the public interest and the preservation of the public good. These inquiries also involve issues related to the protection of rights, whether of individuals or communities in the collective, including the right to self-determination, the right to food and water, or the right to dignified work.

The purpose of this trip is not to single out Guatemala for scrutiny. The reality is that the bilateral and multilateral relations that Guatemala is forced to sustain with other more powerful nations aggravate many of its pressing problems. Questions about Guatemala’s regulation of corporations must also address the relationship between the powerful transnational forces of globalization and the domestic laws of Guatemala, including those related to trade liberalization and intellectual property. This inquiry must also acknowledge how the absence of accountability of transnational corporations operating in Guatemala in the corporation’s own nation-state – including the power these corporations have to influence law-making– should lead us to a discussion of shared responsibility and a proposal for solutions that are transnational and international in character.

Should you decide to participate, you would be encouraged and welcomed to suggest specific topics (and field visits) you would like to be included as part of this project. While we are still working on a precise itinerary (which you can help us shape), our projected goals right now are to visit with government officials, non-profits, community groups and the private sector with a special focus on labor and environment. The trip would include time in Guatemala City but also time in key rural sectors. For example, we are planning to visit a transnational mining site and the free-trade zone where maquiladoras are concentrated in Guatemala. As part of the trip, we will include orientations and debriefings with the group so we can share knowledge, impressions, and insights as the trip progresses. 

The cost of your participation (excluding flight) is $1,900.  This fee will cover housing, food, in-country transportation, conference space, and other fees that we will pay such as to translators, community groups assisting with logistics, and a modest fee to Luis Mogollón (a Guatemalan lawyer with significant law school academic program development experience in Guatemala) who will spend countless hours making this trip safe and enjoyable for all of us.  The flight to Guatemala from the United States should range between $600 to $800. 

Our aim is to publish essays from this project as a book in Spanish and English. We hope to have between 15-20 contributions. While ideally participants will speak Spanish, we can accommodate non-Spanish speakers (or those who only speak “un poquito”) and will hire interpreters to work with you during the trip to Guatemala.  Keep in mind that you may need to conduct some research in Spanish (at least for primary sources) depending on the focus on your project. We also hope to present papers about this project at several conferences upon the completion of our project, including at LatCrit, Inc. and ideally in Guatemala.

The organizing Committee is comprised of Raquel Aldana, Associate Dean for Faculty Scholarship at Pacific McGeorge School of Law; Steven Bender, Associate Dean for Research and Faculty Development at Seattle University School of Law; José R. Juárez, Professor of Law and Director of the Spanish for Lawyers Program at the University of Denver, Sturm College of Law; Beth Lyon, Director of the Farmworker Legal Aid Clinic and Professor of Law at Villanova University School of Law; Mario Mancilla, Technical Assistant of the Secretariat of Environmental Matters, CAFTA-DR; Luis Mogollón, Adjunct Professor and Consultant of the Inter-American Program from Pacific McGeorge; Rachael Salcido, Professor of Law at Pacific McGeorge School of Law; and Enrique Sánchez-Usera, Chair of the Inter-Disciplinary Studies at the University of Rafael Landívar Law School.

Please do not hesitate to contact any of us with questions. We do hope you decide to join us in this great project.

 

 

Last week, NCAA lawyers went into court seeking to reverse the U.S. District Court for the Northern District of California’s ruling in O’Bannon v. National Collegiate Athletic Association.  In that case, the district court had held that the NCAA member colleges illegally restrained trade under Section 1 of the Sherman Act when they colluded among other things, to keep college athlete compensation below the full cost of college attendance. 

Among the NCAA’s many legal arguments in seeking reversal was their claim that college athletics is exempt from the Sherman Act because amateurism, according to the NCAA, is driven by economic motives and not commercialism.  Although previous court decisions from the Third and Sixth Circuit seem to side with the NCAA’s argument on that point, other circuits have long rejected this contention and analyzed NCAA conduct in labor markets under the traditional Sherman Act.

Nevertheless, even to the extent there exists a split in the circuits on this important issue, it seems extraordinarily disingenuous for the NCAA lawyers to even make the argument that it prioritizes education over economics when considering the economic realities of the ongoing NCAA men’s basketball tournament.  In the past ten days alone, the NCAA has pocketed upwards $1 Billion from media rights and other revenues related to this single tournament tournament.  And, not only are the athletes unpaid, they are also going uneducated based on the NCAA’s attempt to maximize their own television revenues through midweek tournament games.

Through the first week of the NCAA men’s basketball tournament, athletes on many college basketball teams have already missed upwards of three class days.  While the NCAA elects to schedule midweek games in the early rounds to maximize its television revenues, the NCAA could easily recast the tournament with all teams playing back-t0-back games on Friday night and Saturday night much as all Ivy League teams do during the Ivy League’s regular season.

Making matters worse, the NCAA has once again scheduled its men’s college basketball championship game on a Monday night – requiring athletes on the two finalist teams not only to miss late-week classes, but also to miss Monday and Tuesday classes in that last round.  Indeed, while NCAA member schools make substantial money from the NCAA men’s basketball tournament, the athletes’ main “compensation” — a minimum of at least six missed class days – places them substantially behind in the classroom on their way home.

Today, part of the assignment for my Securities Regulation students was to read a chapter in our casebook and, as assigned by me, come to class prepared to teach in  a three-to-five-minute segment a part of the assigned reading.  The casebook is Securities Regulation: Cases and Materials by Jim Cox, Bob Hillman, and Don Langevoort.  The chapter (Chapter 7, entitled “Recapitalization, Reorganizations, and Acquisitions”) covers the way in which various typical corporate finance transactions are, are not, or may be offers or sales of securities that trigger registration under Section 5 of the Securities Act of 1933, as amended (the “1933 Act”).  I have used this technique for teaching this material before (and also use a student teaching method for part of my Corporate Finance course), and I really enjoy the class each time.

I find that the students understand the assigned material well (having already been through a lot of registration and exemption material in the preceding weeks) and embrace the responsibility of teaching me and each other.  I am convinced that they learn the material better and are more engaged with it because they have had to read it with a different intent driven by a distinct objective. For their brief teaching experience, each student needs to understand both the transaction at issue and the way in which it implicates, does not implicate, or may implicate 1933 Act registration requirements.  They do not disappoint in either respect, and I admit to being interested in their presentations and proud of them.

I also find that changing my role principally to that of a listener and questioner refreshes me.  I organize and orchestrate the general structure of the class meeting and come to class prepared with the knowledge of what needs to be brought out during the session.  But since I cannot control exactly what is said, I must listen and react and help create logical transitions and other links between the topics covered.  In addition, I can create visuals on the board to illustrate aspects of the “mini-lectures” (as I did today when a student was explaining a spin-off transaction).  I honestly have a lot of fun teaching this way.

There are, no doubt, many ways in which we can engage students in teaching course material in the classroom that may have similar benefits.  What are yours?  When and how do you use them to make them most effective?  Teach me!  :>)

The Economist has a helpful brief outline — here — of why oil prices are so low.  I continue to think that oil prices will stabilize in the $55-$65 range, but now that it’s apparent that most Bakken oil is profitable around $42, I would not be surprised to see prices bounce around in that range periodically for a while, too. 

A few things to keep in perspective when you hear about how the energy sector is suffering: 

(1) It’s not very often through the years that anyone would be upset by low energy prices.  That usually is a sign of good things to come in terms of markets because low energy prices can reduce costs of manufacturing, they tend to increase demand (in energy and beyond), and it tends to mean more money in consumers’ pockets. Those are usually very good things. 

(2) Despite layoffs are some energy sector companies, and a dramatic slow down of drilling, if you looked back to 2005 0r 2006 (an even more recently) people would have been thrilled to see the sector with this many jobs. Even another 20-30% slow down represents a strong and viable industry.

(3) Legal work for the sector is likely to carry on at a strong pace. A slow down will mean a slower pace in many sectors, and mineral leasing and other title work will likely slow significantly, but slow downs can lead to increases in M&A, restructuring, and litigation. 

There are concerns, but it’s always helpful to keep things in perspective. It’s fair to raise questions and highlight the rapid changes, but it’s not all gloom and doom.    

Today marks my return to blogging after a brief (3 weeks) respite, and what better way to be welcomed back than with news of a mega-merger?!?  Today, Kraft Foods, a publicly traded company, and H. J.Heinz, owned by Warren Buffett’s Berkshire Hathaway and Brazilian private equity firm 3G, signed a multi-billion dollar merger agreement to create what will become the third largest food company in North America. 

Under the proposed merger Kraft shareholders will receive 49% of the stock in the newly merged company, plus a cash dividend of $16.50 per share, representing a reported 27% premium on Kraft’s trading stock price as of Tuesday, March 24th which closed at around $61.33/share.  

The stock market reacted positively to the news with Kraft stock opening around $81/share and climbing up to $87 and settling down in the low $80’s (it was trading at $82/share around 2:00 pm). You can track the stock price here.  The immediate bump in price casts some shadows on the Kraft stock premium agreed to in the deal.

Among the possible legal hurdles are antitrust concerns, but the deal doesn’t raise red flags on its face given the little overlap between the two companies.
 
The bigger, and more interesting corporate governance question will be the Kraft shareholder approval process requiring a proxy statement.  Kraft Foods is a Virginia corporation (see Articles of Incorporation), and thus the merger and Kraft’s shareholders’ rights are governed by the Virginia Corporation Act.  Because Kraft is a public corporation, shareholders will not have appraisal rights under Va. Code Ann. § 13.1-730 (West) and those rights have not be altered in the Articles of Incorporation.  So the legal challenges, if any and given the size of the deal are likely, will have to assert that the transaction itself is flawed (either under duty of care or loyalty) or that the proxy process was defective in failing to disclose material information.  
-Anne Tucker