Over at realclearpolitics.com, a number of leading thinkers, including some leading business law folks such as Richard Epstein and Jonathan Adler, among others, have signed a public statement: Freedom to Marry, Freedom to Dissent: Why We Must Have Both.  Following is a portion of the statement:

The last few years have brought an astonishing moral and political transformation in the American debate over same-sex marriage and gay equality. This has been a triumph not only for LGBT Americans but for the American idea. But the breakthrough has brought with it rapidly rising expectations among some supporters of gay marriage that the debate should now be over. As one advocate recently put it, “It would be enough for me if those people who are so ignorant or intransigent as to still be anti-gay in 2014 would simply shut up.”

 

The signatories of this statement are grateful to our friends and allies for their enthusiasm. But we are concerned that recent events, including the resignation of the CEO of Mozilla under pressure because of an anti-same-sex- marriage donation he made in 2008, signal an eagerness by some supporters of same-sex marriage to punish rather than to criticize or to persuade those who disagree. We reject that deeply illiberal impulse, which is both wrong in principle and poor as politics.

For those who don’t know, former Mozilla CEO Brendan Eich resigned following the public outcry when it was revealed that he had donated $1,000 to support Proposition 8, a 2008 California ballot initiative and constitutional amendment designed to ban same-sex marriage in the state.

To be clear on my stance: I strongly support same-sex marriage, and I fundamentally disagree with Prop 8.   Still, punishing people, as opposed to criticizing people, for contrary and even wrong-headed political views is neither productive nor proper. (Nonetheless, there are multiple examples of people who felt Eich needed to resign. See, e.g.,  here, here, and here.) 

Admittedly, if it’s clear that the head of any organization, whether it is a profit or nonprofit entity, doesn’t further the goals of the organization, then there is a bad fit. Furthermore, this isn’t about Mr. Eich’s free speech rights in that there is no government actor here. This was a private response to a private person’s actions. Mozilla has the power to act to replace Mr. Eich, and members of the public have a right to call for his ouster.  It just doesn’t make it inherently right or wise.

Certainly, one can imagine a scenario where a CEO’s prior political or organizational giving would create problems for the organization.  For example, an environmental organization may not be comfortable with a CEO who had given money to a group fighting climate legislation. But, in that circumstance, the hiring body, and likely the CEO, would, or at least should, have known that support for climate change initiatives would be expected as part of the job.  Top employees often become the face of the organization, and that comes with job, but if a particular political view is deemed necessary for the job, it would help if the CEO knew it during the interview process.  

Even if Mozilla was responsible for the mistake (in hiring someone with political views that were not accepted to many employees and customers), as an entity, the company was not improper to respond in what it deemed to be in the best interest as the organization.  Just as important, though, is the community response to Mozilla as an entity.  The free market allows us all to choose with whom we wish to do business.  But when we make such decisions, we need to be careful about who we are punishing and why.

People have a right to be upset and to protest Mr. Eich’s views.  I think Prop 8 was dead wrong, and I don’t like that anyone supported it.  Still, I don’t think calling for Mr. Eich or anyone else to lose their job is proper simply because I disagree with their views.   I would feel differently if there were evidence that Mr. Eich discriminated against gay employees. There just doesn’t seem to be any support for that proposition.

We need to be careful to avoid a world where every portion of what we do becomes politicized and polarized.  Although there are core values each of us holds, we should also recognize that not everyone shares all of our core values, all of the time.  Nor can they.  My wife and I agree on a lot of things, and it is a big reason why we’re together.  Still, some of my best learning has been when we don’t agree. Sometimes I change my mind, and other times I don’t, but even then I have learned more about my views and why I hold them. 

I don’t want to live in a world where politicians and news outlets and companies operate in lockstep to a specific set of ideals.  There are too many examples of that already to make me comfortable.  I don’t want to choose only from a Republican burger joint or a Democratic sub shop. We need more.  We need a populist pizza place, and a libertarian ice cream shop, and everything in between.  In my view, the litmus test should be whether people do a good job at doing their job, and whether they treat others well (employees and customers), regardless of their ideological differences.  

Open public discourse is a right under our Constitution, but it is not socially required. When respectful and thoughtful, open discourse helps all of us be better citizens and better people. If we commit ourselves as individuals to respecting others and listening, even when (and especially when) we disagree, good things will follow.  It is one thing to dismiss views with which we disagree; it is another to dismiss, out of hand, the people who hold such views.  For all the complaints about the evils of business, I have a suspicion that if we expected more of ourselves, businesses would follow our lead.

The SEC has proposed, but not yet adopted, an exemption that would allow securities to be sold to the general public through crowdfunding. But a number of states have beat the SEC to the punch, adopting exemptions allowing securities to be sold in crowdfunding offerings within those states. See here for a list of the state exemptions.

Those state exemptions do not (and cannot) provide an exemption from federal law. Even if a state exemption is available, the issuer of the securities must still register with the SEC unless a federal exemption is available. The obvious exemption is the intrastate offering exemption in section 3(a)(11) of the Securities Act, and its safe harbor, Rule 147.

The intrastate offering exemption imposes a number of restrictions on the issuer and the issuer’s use of the offering proceeds. But there’s a potential problem with crowdfunded intrastate offerings even if the issuer complies with all of those other restrictions.

Both section 3(a)(11) and Rule 147 require that the securities be offered and sold only to residents of that one state. It’s not enough to limit sales to residents. An offer to nonresidents would violate the intrastate offering exemption, even if those nonresidents were successfully filtered out before any sales were made.

So how can securities sold on an Internet web site open to the general public not be offered to non-residents? Given the global nature of the Internet, aren’t offers to non-residents inevitable?Luckily, the SEC staff has stepped in and provided advice that will allow intrastate offerings on public Internet sites.

Here is a recent staff interpretation:

Question 141.04

Question: An issuer plans to use a third-party Internet portal to promote an offering to residents of a single state in accordance with a state statute or regulation intended to enable securities crowdfunding within that state. Assuming the issuer met the other conditions of Rule 147, could it rely on Rule 147 for an exemption from Securities Act registration for the offering, or would use of an Internet portal necessarily entail making offers to persons outside the relevant state or territory?

Answer: Use of the Internet would not be incompatible with a claim of exemption under Rule 147 if the portal implements adequate measures so that offers of securities are made only to persons resident in the relevant state or territory. In the context of an offering conducted in accordance with state crowdfunding requirements, such measures would include, at a minimum, disclaimers and restrictive legends making it clear that the offering is limited to residents of the relevant state under applicable law, and limiting access to information about specific investment opportunities to persons who confirm they are residents of the relevant state (for example, by providing a representation as to residence or in-state residence information, such as a zip code or residence address). Of course, any issuer seeking to rely on Rule 147 for the offering also would have to meet all the other conditions of Rule 147.

Thus, as long as the web site makes it clear that offers are being made only to residents of the relevant state and potential purchasers are screened for residence before they see the details of the particular offering, the intrastate offering exemption would still be available.

However, the staff went on to warn about the use of social media or the issuer’s own web site:

Question 141.05

Question: Can an issuer use its own website or social media presence to offer securities in a manner consistent with Rule 147?

Answer: Issuers generally use their websites and social media presence to advertise their market presence in a broad, indiscriminate manner. Although whether a particular communication is an “offer” of securities will depend on all of the facts and circumstances, using such established Internet presence to convey information about specific investment opportunities would likely involve offers to residents outside the particular state in which the issuer did business.

Social media and an issuer’s general web site would reach non-residents and violate the intrastate offering exemption. However, there’s nothing in section 3(a)(11) or Rule 147 that requires an intermediary to be used for the offering, so I don’t think issuers would be excluded from direct, unmediated offerings—as long as they complied with the requirements of Question 141.04—using a separate web page with appropriate disclaimers and only allowing residents to see the actual offering. However, staff interpretations and no-action letters often attempt to impose restrictions that have little relationship to the statutory or regulatory requirements, so perhaps the staff did mean to exclude unmediated offerings.

Today I’m plugging my colleague Elisabeth de Fontenay’s new article, despite the existential threat it poses to my specialty. 

InDo the Securities Laws Matter?, de Fontenay compares the market for syndicated loans, which are not treated as securities, to the market for bonds, which are.  She finds that the market for syndicated loans is as deep and as liquid as the market for bonds, suggesting that the mandatory disclosure regime that governs bonds, but not loans, is unnecessary.

As she puts it in her abstract:

One of the enduring principles of federal securities regulation is the
mantra that bonds are securities, while commercial loans are not. Yet the
corporate bond and loan markets in the U.S. are rapidly converging,
putting significant pressure on the disparity in their regulatory treatment.
As securities, corporate bonds are subject to onerous public disclosure
obligations and liability regimes, which corporate loans avoid entirely. This
longstanding regulatory distinction between loans and bonds is based on
the traditional conception of a commercial loan as a long-term relationship
between the borrowing company and a single bank, in contrast to bonds,
which may be issued to widely dispersed retail investors and are traded in a
liquid market. Today, however, not only are loans funded by dispersed, nonbank
creditors, but the pricing, terms, participants, and liquidity in the two
markets are rapidly converging. Logically, securities regulators should
respond to this functional convergence by treating loans and bonds as one
and the same. While the regulatory disparity persists, however, it provides a
rare natural experiment testing the effectiveness of the securities laws. That
the loan market has achieved comparable depth and liquidity to the bond
market, even in the absence of mandatory disclosure and robust antifraud
provisions, suggests that the securities laws are not doing the work for
which they were intended.

It’s a really fascinating paper.

 

Earlier this semester, Belmont undergraduate students competed for a total of $8,000 in a business plan competition.  The first place team, What’s Hubbin’, won $5,000.  Law firm Baker Donelson was one of the sponsors. 

WH

Each competition team was required to provide: (1) an executive summary, (2) a description of the business (including mission and vision), (3) plans for marketing, operating, finances, and growth, and (4) financial statements (historical, if applicable, and projected).  The finalists presented in front of a team of judges, which included local attorneys, investors, and entrepreneurs.  The event also attracted a strong audience of faculty members (myself included), staff, and students. 

Given the evolving legal industry, and the increasing focus on Law & Technology and Law & Entrepreneurship, I could see business plan competitions like this one being a success at law schools (perhaps in coordination with their sister business schools).

One of the three What’s Hubbin’ team members is Makenzie Stokel.  She is also one of my undergraduate business law students.  I asked her if she would mind answering a few, short questions about the competition and about her team’s business, which is one of the competition’s businesses that is already up and running.  My questions and her answers are below.

HM: Will you please briefly describe your business, What’s Hubbin’, for our readers?

MS: What’s Hubbin’ is a website that promotes music here in Nashville.  We highlight local artists and promote events going on around town.  Our site allows users to “hub” (RSVP) events and artists and have an organized profile of their music preferences.  We also allow users to filter events based on their preferences to ensure that everyone finds something that they will want to do.  We host events around Nashville and will be hosting a day-long festival at the end of this month.  Our goal is to have everything music related all in one place so users don’t have trouble finding events or discovering new music. You can find us online at www.whatshubbin.com and on Twitter at @WhatsHubbin

HM: How has participating in the competition helped your business?

MS: Participating in the business plan competition has helped promote our business a great deal.  We have had multiple blogs write about us, and were even named Belmont’s hottest start-up by Southern Alpha.  It has really helped us get our name out there with the Belmont community and provided some validation of our business.  

HM:  How has participating in the competition enriched your college experience, especially your experiences in your classes?

MS: I am so glad that the What’s Hubbin’ team was able to participate in this competition.  The competition definitely helped us with our public speaking skills, which is necessary to have in classes and after college. It also forced us to think quickly when answering the judges’ questions.  When preparing for the questions that we thought they might ask, we had to determine who was best at the different aspects of our business. The competition, and the start-up process part in general, has been more relevant to some classes than others.  Business Law and Foundations of Entrepreneurship are two examples of relevant classes.  Also, as a result of being involved in What’s Hubbin’, I have seen ways to apply what I am learning in classes outside of school. 

HM: Congratulations and best of luck.

MS: Thank you!

Elizabeth Pollman at the Loyola Law School Los Angeles, recently posted her paper, A Corporate Right to Privacy, on SSRN (forthcoming in the Minnesota Law Review 2014).  This paper timely weighs in on the corporate personhood debate by addressing one aspect of that question:  privacy.

 Abstract: The debate over the scope of constitutional protections for corporations has exploded with commentary on recent or pending Supreme Court cases, but scholars have left unexplored some of the hardest questions for the future, and the ones that offer the greatest potential for better understanding the nature of corporate rights. This Article analyzes one of those questions — whether corporations have, or should have, a constitutional right to privacy. First, the Article examines the contours of the question in Supreme Court jurisprudence and provides the first scholarly treatment of the growing body of conflicting law in the lower courts on this unresolved issue. Second, the Article examines approaches to determining the scope of corporate constitutional rights and argues that corporate privacy rights should be evaluated not by reference to the corporate form itself or a notion of corporate personhood, but rather by reference to the privacy interests of the various people involved in the corporation and their relationship to the corporation. Further, because corporations exist along an associational spectrum — from large, publicly traded corporations constituted purely for business purposes to smaller organizations with social, political, or religious purposes — the existence of a corporate privacy right will and should vary.

Back in August, Bloomberg reported that the legal costs for the six largest U.S. banks since 2008 totaled over $100 billion. (Yes, billion with a “B.”)  Bloomberg included settlement amounts in that huge number, as well as fees to lawyers.

The financial and emotional costs of litigation, not to mention the tremendous amount of time required, amazes me.  Litigation has its place, but the vast majority of disputes eventually settle and many times all parties would have been better off settling earlier using some form of alternative dispute resolution (ADR). 

A former colleague recently pointed me to the University of Missouri School of Law’s listserv for ADR educators. 

I know many of our readers only teach business law courses, but adding negotiations to my teaching package has made me see the various intersections between negotiations and business law.  This semester, I set aside some time in my business law classes to discuss a bit of the negotiations literature, and the students seemed to appreciate it.  I just signed up for the listserv, so I cannot speak to its quality yet, but I do think more business law professors should consider exploring the world of ADR.

 Bringing Numbers into Basic and Advanced Business Associations Courses: How and Why to Teach Accounting, Finance, and Tax

2015 AALS Annual Meeting–Agency, Patnerships, LLCs & Unincorporated Assoc. Section

Washington, DC

            Business planners and transactional lawyers know just how much the “number-crunching” disciplines overlap with business law.   Even when the law does not require unincorporated business associations and closely held corporations to adopt generally accepted accounting principles, lawyers frequently deal with tax implications in choice of entity, the allocation of ownership interests, and the myriad other planning and dispute resolution circumstances in which accounting comes into play.  In practice, unincorporated business association law (as contrasted with corporate law) has tended to be the domain of lawyers with tax and accounting orientation.  Yet many law professors still struggle with the reality that their students (and sometimes the professors themselves) are not “numerate” enough to make these important connections.  While recognizing the importance of numeracy, the basic course cannot in itself be devoted wholly to primers in accounting, tax, and finance.

             The Executive Committee will devote the 2015 annual Section meeting in Washington to the critically important, but much-neglected, topic of effectively incorporating accounting, tax, and finance into courses in the law of business associations.  In addition to featuring several invited speakers, we seek speakers (and papers) to address this subject.  Within the broad topic, we seek papers dealing with any aspect of incorporating accounting, tax, and finance into the pedagogy of basic or advanced business law courses.

             Any full-time faculty member of an AALS member school who has written an unpublished paper, is working on a paper, or who is interested in writing a paper in this area is invited to submit a 1 or 2-page proposal by May 1, 2014.  The Executive Committee will review all submissions and select two papers by May 15, 2014.  A very polished draft must be submitted by November 1, 2014.  The Executive Committee is exploring publication possibilities, but no commitment on that has been made.  All submissions and inquiries should be directed to Jeff Lipshaw, Chair (jlipshaw@suffolk.edu)

They really don’t. 

To be clear, this is not a post bashing corporations (or government). It’s not really extolling the virtues of corporations, either. Instead, it’s just to make the point that, notwithstanding Citizens United or Hobby Lobby and other cases of their ilk, the idea that corporations are people is still a legal fiction.  A useful and important one, but a fiction nonetheless.  

On April 11, Corey Booker posted the following on Facebook:

In awful years past, corporations polluted the Passaic river to the point that it ended the days where people could eat from it, swim in it, and use it as a thriving recreation source. Today we announced a massive initiative to clean the Passaic river and bring it back to life again. The tremendous clean up effort will create hundreds of jobs and slowly over time restore one of New Jersey’s great rivers to its past strength and glory.

The river needs the clean-up, and I applaud the effort. Still, the reality is corporations did not pollute the Passaic River, at least not literally.  People working for the corporation did. It is agency law that allows a corporation to act in the first place, because the fictional corporate person needs a natural person to act.  (For a simple explanation, see here.) The corporation is liable for the harm caused by its agents. (And, in certain cases, the individuals would also be liable directly if their actions were, for example, illegal.)

Government doesn’t really do anything, either.  The clean-up proposal that Booker was referencing is a $1.7 billion Superfund river remediation project that was proposed by the EPA.  Of course, government works through agents, too, and there are real people behind the proposal.  Real people, through concerted action between corporations and government will actually do the clean up, too.  

This is a point I have made before, but I think it’s an important one.  We need to remember that people are at the root of all corporate and government actions.  This is important in two directions. First, for those criticizing a corporate or government action, it is critical for them to remember that there are people carrying out the action.  A corporation or a government may act in an inappropriate manner, but it is also likely that the person carrying out the action is doing so with the intent to do well in the capacity in which they were fired.

Second, for people working for corporations or governments it is equally critical that they recognize that the their employer doesn’t carry out actions without their help.  That is, people who work for corporations or governments must recognize that they are carrying out the will of the entity they represent (and they should hold themselves responsible for doing do).  Perhaps it is their boss who gave them the order (also a natural person), or even the board of directors (a group of natural people), but the charge is in fact, if not legally, being given by natural people.   

Why does this matter?  When we vilify or exalt the action of entities (like corporations or governments) we disconnect ourselves from the realities of the world, or at least our responsibilities within it.  We become more susceptible to Groupthink in either direction.  We are able to shirk our responsibilities — as employees, as agents, as lawyers, as voters, as shareholders, as people — to make decisions the are conscious of the world around us.  In our daily lives and in our representative capacities, we all must make difficult decisions from time to time.

Sometimes, tough decisions require a cost-benefit analysis that means someone else will be worse off because of our decision.  It’s hard, but it’s what people do. Often, it’s what we must do.  In doing so, though, it is essential that we hold ourselves and other people accountable as people for what we’ve done. Regardless of the rhetoric we often hear, the amalgamations of people who make up both governments and corporations have done some amazing and impressive things.  Both have also done some horrendous and outrageous things.  The people in charge, and the people who follow, are accountable in both circumstances. 

In this instance, I am making a conceptual argument, not a legal one.  There are legal regimes, sometimes effective, sometimes not, for holding both entities and their agents accountable for their actions (and rewarding them, where appropriate).  How we think about corporations and governments and each other, though, has a broader impact.  Without us — all of us — there are no corporations and there is no government.  If we remember that, our responses to challenges are more likely to be more targeted, more effective, and more reasonable.  Just because we don’t always agree, doesn’t mean we aren’t all in this together.  Whether we like it or not, we are, and it’s time we acted like it. 

In an opinion released earlier today, the D.C. Circuit Court struck down the SEC’s Dodd-Frank Conflict Mineral Rule under the compelled speech doctrine for failing the least restrictive alternative prong.  

We therefore hold that 15 U.S.C. § 78m(p)(1)(A)(ii) & (E), and the Commission’s final rule, 56 Fed. Reg. at 56,362-65, violate the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have “not been found to be ‘DRC conflict free.’”

Not striking down the need for information about conflict minerals, but rather the required approach, the Court suggested that: 

[A] centralized list compiled by the Commission in one place may even be more convenient or trustworthy to investors and consumers. The Commission has failed to explain why (much less provide evidence that) the Association’s intuitive alternatives to regulating speech would be any less effective.

In August, 2012, the SEC released final Dodd-Frank rules for conflict minerals “requir[ing] companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo (DRC) or an adjoining country.”

-AT