As Anne Tucker noted, last week was the fourth anniversary of the Supreme Court’s Citizens United decision, striking down as unconstitutional a ban on electioneering expenditures by corporations.

I don’t want to discuss the merits of that decision. I’m not a constitutional expert and many people much more qualified than I have chimed in. Instead, I want to talk about the public reaction to the decision. In my (admittedly limited) experience, non-lawyers react to Citizens United very differently from lawyers.

The Reaction of the Lay Public

The reaction of many non-lawyers is, “Are you nuts? Only people have constitutional rights and corporations aren’t people.” The mere idea that corporations should be treated like natural persons with similar constitutional rights is both hilarious and outrageous. Corporations aren’t people, and only an idiot would think otherwise.

The Reaction of Lawyers

The reaction of many lawyers is quite different. (I’m excluding those lawyers who appear as pundits on talk shows and are expected to overreact.) Many lawyers disagree with the Citizens United decision, but most lawyers don’t consider the idea of giving corporations the same rights as natural persons as completely beyond the pale of reason. The focus of the debate among lawyers is more on whether corporations should have the particular legal right at issue in Citizens United.

Corporations are Often Persons in the Law

The reason for the difference, I think, is that lawyers and law students are bombarded with instances of corporations as persons. It’s second nature to us. Look in the definitions section of almost any statute. It’s hard to find a statute that does not define the term “person” to include corporations. In the law, corporations are often treated as persons, with the same legal rights and obligations as natural persons.

Citizens United, in a broad sense, is just another example of that common legal concept of personhood. Because of that, although lawyers may think the Citizens United decision is bad policy or bad constitutional law, the reaction of most lawyers isn’t quite as derisive as some of the lay reaction.

Go here for the January 16, 2014 testimony of Mercer E. Bullard before the Committee on Small Business, United States House of Representatives, on the SEC’s Crowdfunding Proposal.  Here is a brief excerpt (comment deadline is February 3):

The overriding issue for crowdfunding is likely to be how the narrative of investors frequently losing their entire investment plays out. If investors are perceived as losing only a small part of their portfolios because of business failures rather than fraud, or if their crowdfunding losses are set off by gains in other investments through diversification, the crowdfunding market could weather large losses and thrive. However, if fraudsters are easily able to scam investors under the cover of a crowdfunding offering, or stale financial statements routinely turn out to have hidden more recent, undisclosed financial declines, or there are investors who can’t afford the losses they incur, resulting in stories of personal financial distress – then crowdfunding markets will never become a credible tool for raising capital.

John A. Pearce II & Jamie Patrick Hopkins have posted “Regulation of L3Cs for Social Entrepreneurship: A Prerequisite to Increased Utilization” on SSRN.  Here is the abstract:

One new business model is the low-profit, limited liability company (L3C). The L3C was first introduced in Vermont in 2008 and has since been adopted by several other states. The L3C is designed to serve the for-profit and nonprofit needs of social enterprise within one organization. As such, it has been referred to as a “[f]or-profit with [a] nonprofit soul.”

In an effort to efficiently introduce the L3C business model, states have designed L3C laws under existing LLC regulations. The flexibility provided by LLC laws allows an L3C to claim a primary social mission and avail itself of unique financing tools such as tranche investing. Specifically, the L3C statutes are devised to attract the program related investments (PRIs) of charitable foundations. Despite these successes, adoption of the L3C form has been slower than proponents expected.

A similar business initiative has found great success in the United Kingdom (U.K.), where numerous proponents supported legislation designed to create hybrid business models that would promote social entrepreneurship. As a result, the U.K. created the Community Interest Company (CIC) in 2006, allowing more than 4,500 companies to register as CICs that offer a double bottom line (or dual benefit) to investors.

While CICs and L3Cs were created with the same double bottom line in mind, CICs face strict government regulations that provide investors with additional protections. These regulations have indirectly contributed to the success of many CICs by increasing investor confidence in the success of these businesses. In the United States, the flexibility of LLC statutes may provide L3Cs with unique funding options, but the lack of government regulation leaves investor outcomes uncertain and inhibits L3Cs from being a better-utilized business model for social entrepreneurship.

Information about the annual Academy of Legal Studies in Business (“ALSB”) conference is available here. 

Supposedly, the conference hotel, the Hyatt Olive 8, is already booked.  (Who knew that you had to book earlier than January 24 for an early August academic conference).  I hear that the conference organizers are negotiating for reduced rates at the nearby hotels, or perhaps more rooms will come available (at the conference rate of $159/night) at the Hyatt Olive 8.

This will be my first ALSB conference and my first trip to Seattle.  I am looking forward to it.  The ALSB conference is the annual, national conference for legal studies professors in business schools.  Last fall I attended, presented, and enjoyed the SEALSB regional conference in Tampa.  I am told that ALSB will be similar, but on a much larger scale.

If you are interested in this conference and/or are interested in teaching law in business schools, it might be worth joining ALSB.  The new member rate is only $30. 

Hope to see some of our readers in Seattle in August.   

An announcement from the Faculty Lounge that may be of interest to some of our readers is reproduced below:

“The National Business Law Scholars Conference (NBLSC) will be held on Thursday, June 19th and Friday, June 20th at Loyola Law School, Los Angeles.

This is the fifth annual meeting of the NBLSC, a conference which annually draws together dozens of legal scholars from across the United States and around the world. We welcome all scholarly submissions relating to business law. Presentations should focus on research appropriate for publication in academic journals, especially law reviews, and should make a contribution to the existing scholarly literature. We will attempt to provide the opportunity for everyone to actively participate. Junior scholars and those considering entering the legal academy are especially encouraged to participate.

To submit a presentation, email Professor Eric C. Chaffee at eric.chaffee@utoledo.edu with an abstract or paper by April 4, 2014. Please title the email “NBLSC Submission – {Name}”. If you would like to attend, but not present, email Professor Chaffee with an email entitled “NBLSC Attendance.” Please specify in your email whether you are willing to serve as a commentator or moderator. A conference schedule will be circulated in late May.  More information is available here:  http://lls.edu/resources/events/listofevents/eventtitle,81539,en/

 Conference Organizers

Barbara Black (The University of Cincinnati College of Law)
Eric C. Chaffee (The University of Toledo College of Law)
Steven M. Davidoff (The Ohio State University Moritz College of Law)
Kristin N. Johnson (Seton Hall University School of Law)
Elizabeth Pollman (Loyola Law School, Los Angeles)
Margaret V. Sachs (University of Georgia Law)”

Even before I read the book The Happy Lawyer by my former colleagues Nancy Levit and Doug Linder, I loved every legal job I ever had from judicial law clerk to BigLaw associate (twice), to deputy general counsel. I am still a happy lawyer after twenty-two years in the profession. I am clearly an anomaly among my attorney friends, most of whom looked at me with envy when I said that I was leaving practice to pursue academia. One friend, a partner in a South Florida firm quipped, “litigation has to be one of the only professions where your client hates you, your opposing counsel hates you, and the judge probably thinks you’re an idiot. When the outcome is positive, the client loves you until they see the bill.” No wonder lawyers aren’t happy.

But the situation for lawyers is more serious than a few clients grumbling about high bills. Earlier this week CNN reported that lawyers are the 4th most unhappy professionals behind dentists, pharmacists, and physicians, and are 3.6 times more likely to suffer from depression than non-lawyers. According to the article, 40% of law students report that they have suffered from depression before graduation. That acknowledgement of a diagnosis of depression or indeed seeking any help for mental illness or substance abuse can adversely affect the graduate’s chances for admission to the bar.

Eight states, including my home state of Florida, have added a mental health component to the continuing legal education requirement, in part to address a rise in attorney suicides.  No one can pinpoint the cause for the increase in unhappiness. Perhaps it’s the recession, which led to layoffs at every level and which will forever alter the legal landscape. Perhaps, like doctors, pharmacists and dentists, lawyers tend to be type A personalities who thrive on perfection and success and drive themselves harder than others. 

I  read the CNN article while was on a tour in Switzerland two days ago. I thought I wanted to live the life of the Swiss with their low taxes, 3.1% unemployment rate, high income and great medical and social insurance programs, when the tour guide stunned us by acknowledging that Switzerland has the third highest suicide rate in the world.  “It’s the relentless pressure to succeed and the tremendous competition here,” he explained.  It seems as though the Swiss have something in common with American lawyers.   

I was actually in Switzerland for the 4th annual kickoff of the innovative LawWithoutWalls program founded by University of Miami Professor Michele DeStefano. The program requires law and business students from around the world to work on teams to develop a project of worth addressing a problem facing the legal profession or legal education. I serve as an academic mentor with entrepreneurs, venture capitalists, in house counsel, practitioner mentors and lawyers from sponsor Eversheds. The students learn about the commoditization of legal services from the very firms that are disrupting the profession, Axiom and LegalZoom, who have representatives serving as mentors or thought leaders. They watch actual pitches on legal innovations to venture capitalists. They learn about doing a business plan for their projects of worth from entrepreneurs, and they use that knowledge when they present their project in a Shark Tank-like presentation in April. The next few months of their lives as part of this program will help the students learn skills and make contacts for an ever-evolving global legal market. Hopefully, they will be better equipped to handle what’s out there than the students who take their career cues from the television show Suits.

But what about the practicing lawyers? Not everyone wants to or can make the leap to academia. There are few LawWithoutWalls programs for veteran, burned-out lawyers. Many attorneys will continue to suffer from soul-crushing anxiety, depression or boredom. I don’t have the answer but look out for the follow-up to Levit and Linder’s book entitled The Good Lawyer: Seeking Quality in the Practice of Law due out this summer.  

 

Aaron George at Under30CEO has a nice post on the top five legal mistakes made by startups. Not much new to those of us who are lawyers, but it’s a nice summary of some of the mistakes startups can make.

I could quibble with his list. I think selling securities without complying with securities law ought to be there somewhere, and I think his No. 5–not hiring a lawyer–ought to be No. 1. But his list does include some of the common legal mistakes made by budding entrepreneurs.

Today marks the 4 year anniversary of the Citizens United decision and tomorrow marks the 41st anniversary of Roe v. Wade.  Corporations, the First Amendment, and Reproductive choice/freedom may have seemed like odd bed-fellows, but all three issues come together in the upcoming Hobby Lobby case challenging the application of access to birth control required under the health care law to a corporation whose owners oppose the extension on the grounds of religious freedom. 

Consider this a teaser on the issues offered up in the Hobby Lobby case.    Law professors are filing amicus briefs on this case coming down on either side of the issue.  One group arguing that religious views of the owners should not protect the corporation from complying and another arguing that the religious views of the owners can be imputed to the corporation and thus exempt it from compliance.  This is set to be a fantastically interesting issue, and hopefully one that will generate some healthy debate on this blog.  There will be more to come from me on this issue, but for now…consider this a teaser (or a place holder).

And if you crave more substance and internet sleuthing this afternoon, let me refer you to a list of 7 charts that is making its rounds in the blogosphere today. These charts detail the consequences of Citizens United in the last four years.  The results are not surprising and include:increased outside spending, conservative spending outpacing liberal spending 2:1, more political ads and occurring earlier, and decreased disclosures.  You can see the version posted by the Washington Post here.

-Anne Tucker

Freedom Industries — the company apparently responsible for contaminating the Elk River (and, along with it, 300,000 West Virginia residents’ drinking water) – has filed for Chapter 11 bankruptcy.  The company wasted little time filing for reorganization, and the process already has some people on edge. 

From a public relations perspective, this kind of cases does not serve the concepts of Business Organizations especially well.  The use of limited liability vehicles is sanctioned by law, and such use has been credited with creating all kinds of opportunities for growth through pooled resources that would not otherwise occur without the grant of limited liability.  I happen to think that’s true.  (See, e.g., Corporate Moral Agency and the Role of the Corporation in Society, p. 176, By David Ronnegard) 

Still, one of the issues is that figuring out who owned Freedom Industries took some sleuthing (reporter’s findings here).  It appears the structure is as follows: 

Freedom Industries’ Chapter 11 documents list its sole owner as Chemstream Holdings, which is owned by J. Clifford Forrest.  Forrest also owned the Pennsylvania company, Rosebud Mining, which is located at the same address Chemstream Holdings lists for its headquarters.  The Reports note that the chapter 11 filing also states that two entities have offered to lend up to $5 million to fund Freedom Industries’ reorganization.  The two entities are VF Funding and Mountaineer Funding, the latter of which is a West Virginia LLC formed by its sole owner: J. Clifford Forrest.

The idea that the owner of the company that owns the company that owned the chemicals that harmed the water in West Virginia is now seeking to create a new company to loan money to the company that owned the chemicals is not sitting very well with many of those harmed by the chemical leak. 

Some of those harmed by the chemical spill are objecting to the proposed reorganization structure. As reported here, West Virginia American Water (WVAW), the utility providing the tainted water (and the subject of it own lawsuits because of it), claims the water company will be “the largest creditor by far in this bankruptcy case.” As such, WVAW has asked (PDF here) the bankruptcy judge to slow down the reorganization so that the utility and other creditors an opportunity get a better sense of the ownership structure and how the creditors (and possible creditors) will be treated. 

This case probably looks even worse because it keeps coming back to a single person, and not a group of investors. Again, one company – Chemstream Holdings, Inc. is owned by one person — J. Clifford Forrest, who then is the sole owner of a company seeking to loan money to the embattled company. 

Keeping with that theme, after a little sleuthing of my own, I found that although the initial reports were of VF Funding and Mounatineer Funding LLC offering to loan $5 million to Freedom Industries, it seems to have gotten even more convoluted.  There is yet another company in the mix – WV Funding LLC (pdf), which was formed on January 17, 2014, and on the same date the entity filed to be the Debtor in Possession of Freedom Industries (pdf). WV Funding LLC was organized by same Wheeling attorney who formed Mountaineer Funding LLC for Forrest.  The sole listed member of WV Funding LLC? Mountaineer Funding LLC (pdf). Related documents here.

All of this, at least at this point, seems permissible. Still, at some point, it really does start to look like someone is trying to pull a fast one.  And even a staunch defender of the corporation and uncorporation has a hard time arguing otherwise.  At a minimum, and even though there are good counterarguments (like Steve Bainbridge makes here in a different context), such behavior starts to make an expansive view of enterprise liability a lot more attractive. 

Late last month, the SEC released its Report on Review of Disclosure Requirements in Regulation S-K. This report is in response to section 108(a) of the JOBS Act, which provides that

The Securities and Exchange Commission shall conduct a review of its Regulation S-K . . . to

(1) comprehensively analyze the current registration requirements of such regulation; and

(2) determine how such requirements can be updated to modernize and simplify the registration process and reduce the costs and other burdens associated with these requirements for issuers who are emerging growth companies.

The SEC is required by section 108(b) to transmit the report to Congress, including “the specific recommendations of the Commission on how to streamline the registration process in order to make it more efficient and less burdensome for the Commission and for prospective issuers who are emerging growth companies.”

This report was supposed to be submitted by October 2, 2012, 180 days after the passage of the JOBS Act. It was actually released on December 20, 2013, more than a year after that deadline.

The SEC apparently believes this report satisfies the requirements of section 108. The first page of the report includes a label “As Required by Section 108 of the Jumpstart Our Business Startups Act.” But does this report really satisfy the Congressional mandate?

First, the statute requires the Commission to conduct a review and issue a report. The report is issued by the SEC staff, not the Commission itself, and expressly disclaims any Commission responsibility for its contents: “This is a report by the staff of the U.S. Securities and Exchange Commission. The Commission has expressed no view regarding the analysis, findings or conclusions contained herein.”

Obviously, no one in Congress expected the commissioners to do their own research and write a report without staff involvement. But that doesn’t mean a majority of the Commission shouldn’t have to approve the report before sending it to Congress. There’s a huge difference between having the staff’s views on an issue and having the Commission’s views on the same issue.

Setting that aside, there’s another problem with this report. Section 108 requires “the specific recommendations of the Commission on how to streamline the registration process.” The report has no specific recommendations. It indicates (at p. 108) that “the staff believes that further information gathering and review is warranted in order to formulate specific recommendations regarding specific disclosure requirements.” And the press release accompanying the report says that SEC Chair Mary Jo White has “directed the staff to develop specific recommendations for updating the rules that dictate what a company must disclose in its filings.” In other words, at some point in the future, the staff is going to do what Congress actually asked the Commission to do: develop specific recommendations for change.

I understand why the SEC couldn’t submit the report by the 180-day deadline, but it’s now been 655 days since the passage of the JOBS Act and we still don’t have what Congress asked for: a report by the Commission making specific recommendations about how to improve the registration process.