SCOTUS will begin hearing oral arguments for its next term tomorrow. One of the cases of particular interest to BLPB readers will be 303 Creative LLC v. Elenis. As noted on SCOTUSblog (here), the issue in 303 Creative is: “Whether applying a public-accommodation law to compel an artist to speak or stay silent violates the free speech clause of the First Amendment.” The case promises to resolve important issues left open by the Masterpiece Cakeshop decision. For whatever it may be worth, I predict that the following excerpt from the 10th Circuit’s decision below will be critical to the Supreme Court’s analysis — with SCOTUS rejecting the 10th Circuit’s conclusions.

Excepting Appellants from the Accommodation Clause would necessarily relegate LGBT consumers to an inferior market because Appellants’ unique services are, by definition, unavailable elsewhere…. To be sure, LGBT consumers may be able to obtain wedding-website design services from other businesses; yet, LGBT consumers will never be able to obtain wedding-related services of the same quality and nature as those that Appellants offer. Thus, there are no less intrusive means of providing equal access to those types of services…. This case does not present a competitive market. Rather, due to the unique nature of Appellants’ services, this case is more similar to a monopoly. The product at issue is not merely “custom-made wedding websites,” but rather “custom-made wedding websites of the same quality and nature as those made by Appellants.” In that market, only Appellants exist. And, as amici apparently agree, monopolies present unique anti-discrimination concerns. See *1181 Br. of Law and Economics Scholars at 9 ([“As Thomas Jefferson wrote, ‘the first principle of association’ is ‘the guarantee to every one of a free exercise of his industry, and the fruits acquired by it.'”] “The only exception to this principle is a monopoly situation, in which consumers are faced with a sole supplier who could decide for all sorts of reasons, including invidious motives, to refuse to deal with a group of potential consumers.”).

303 Creative LLC v. Elenis, 6 F.4th 1160, 1180–81 (10th Cir. 2021), cert. granted in part, 212 L. Ed. 2d 6, 142 S. Ct. 1106 (2022).

Since there’s absolutely nothing of interest happening in the business world these days, I figure it’s a good time to tell the story of how I tried to reject an arbitration clause when buying a car.

It was 2013, and I’d just moved to Durham, North Carolina to become a Visiting Assistant Professor at Duke.  It was quite the move; other than for schooling and clerkships, I’d spent my entire life – including my legal career – in New York City.  I’d never owned a car or really even driven one before; I had to take driving lessons in advance.  And when I arrived in Durham, I spent the first week frantically researching cars – there’s a difference between make and model, who knew? – before forming my preferences (namely, inexpensive, good gas mileage, and very very safe, to give myself a fighting chance in the all-but-inevitable crash. And small, so I’d also have a fighting chance at staying in a single lane).

I looked at a mix of new cars and used cars before settling on a bright red Kia Rio, gently used from a previous life as a rental.  (Me on test drives is a whole ‘nother story; imagine my barely-licensed self driving around car salespeople who are trying desperately to be polite and engaging and also to survive the encounter).

And that’s when the haggling began.  I’d done my research about cars and car prices, and back and forth we went.  It had been raining, I was pretty soaking wet, and the showroom was heavily air conditioned, but that didn’t stop me from an extended negotiation – prolonged by the sales guy repeatedly saying he had to “check with the manager” and disappearing into a back room, presumably to take a break and otherwise put on a display of great reluctance.  I took advantage of the time to talk to an insurance broker and arrange for coverage, since I’d be driving the car off the lot once the sale was concluded.

Finally, after maybe an hour of this, we struck a deal, and they led me into the back to close.  There was an identity check, and then a long series of contracts to sign, where they pointed out various provisions and I had to initial each separately.  And then we got to the arbitration agreement for any disputes with the dealership.

I said, I don’t want to sign an arbitration agreement.

The dude was shocked, not sure how to respond.  He said, hesitantly, “Okay, that’s your right,” and we crossed that provision off.  I handed over my cheque.

We moved all my things into my new car, and they agreed they’d return my rental for me.  They put a dealer’s license plate onto the Kia, and I started to drive it off the lot.

At that point, the manager of the dealership came running, running out of the building, waving his hands and telling me to stop.  I stopped.

He told me they couldn’t sell it to me without an arbitration agreement.

In retrospect, my reaction should have been “You already did.”  But I was too kind.

Instead, we unwound the entire thing.  We put my things back in the rental, got rid of the dealer’s plate, tore up the contracts – at that point, the safe had closed on a time lock, so they couldn’t open it up to return my cheque, but they agreed to mail it to me.  I called the insurance company to cancel the policy, and I drove away.

The next day, I went to a different dealer to buy my second choice car, a brand new blue Hyundai Accent.  I looked over the paperwork carefully – noted that the manufacturer’s manual had an arbitration clause, but you could opt out within 30 days – signed on the dotted line, and I had my car.  The same car I drive today.

When I got home from the dealer, I went over the paperwork again.  And that’s when I noticed, on one of the faded carbon copies of something I’d signed, printed very very faintly on the back, was a dealer arbitration clause.

As co-blogger Joan Heminway mentioned in Monday’s post, I’m soon heading to Connecting the Threads VI.  I could not be more excited! I’m so grateful to the University of Tennessee Law School for hosting the Symposium, and especially Professors Joan Heminway and George Kuney, in addition to all of the hard-working, excellent law student editorial staff of Transactions: The Tennessee Journal of Business Law, who help with the Symposium and later edit and publish our symposium-related articles.  Paying for Energy Peaks: Learning from Texas’ February 2021 Power Crisis, coauthored with Professor James Coleman, is my latest article in Transactions and my first in the energy space!  Here’s its first paragraph (with footnotes removed):

“From February 14–19, 2021, winter storm Uri blanketed Texas with extreme cold. Tragically, the severe temperatures overwhelmed the state’s power system. Texas’ power grid ended up more than 20 Gigawatts short of the electricity Texans needed – more power than all of California produces on an average day. Over two-hundred lives were lost and an estimated $295 billion in damage resulted. Yet many had long regarded Texas’ electric power system, and its regulation, as a model for others. What happened? That question is the focus of this article.”

I recently had a chance to listen to an episode of the Institutionalized podcast discussing efforts by the American Civil Rights Project to combat the embrace of neo-racism by corporate America. (Cf. “In his new book, Woke Racism: How a New Religion Has Betrayed Black America, Professor John McWhorter argues that a neoracism, disguised as antiracism, is hurting Black communities in this country.”)  In the course of that podcast, Dan Morenoff, Executive Director of the American Civil Rights Project, discussed a relevant recent litigation filing against Starbucks. A copy of the complaint can be found in the ACRP press release here, and here is an excerpt from that release:

Yesterday [8/30/22], for the National Center for Public Policy Research, a longtime Starbucks shareholder, the American Civil Rights Project sued Starbucks’ officers and directors. That suit – NCPPR v. Schultz et al. – seeks both to bar those officers and directors from continuing to implement racially discriminatory policies and to hold them responsible for the harms those policies have done to shareholders. This step follows the parties’ exchange of letters.  In March, the ACR Project wrote the defendants and Starbucks demanding the immediate retraction of seven racially discriminatory policies. In July, the defendants responded that Starbucks’ directors had “determined that it is not in the best interest of Starbucks to accept the Demand and retract the Policies.” That response compelled the ACR Project’s filing. The complaint argues that Starbucks’ policies violate applicable state and federal civil rights laws, creating material corporate liabilities…. “Corporate America has embraced illegal, discriminatory policies that almost all Americans oppose …,” said ACR Project Executive Director Dan Morenoff…. [Meanwhile,] Director of the National Center for Public Policy Research’s Free Enterprise Project Scott Shepard explained, “NCPPR is proud to stand up for the countless small shareholders who feel powerless to challenge Starbucks’ disregard for civil rights. It cannot be in the best interests of shareholders for Starbucks to violate a huge array of civil rights law by discriminating on the basis of race. Its officers and directors ought to be ashamed of themselves and must be held liable.”… The ACR Project’s previous demands to the Coca Cola Corporation and the Lowes Companies, Inc. ended in each abandoning its illegally discriminatory policy, without litigation.

A Wolters Kluwer summary (here) provides some additional details on the Starbucks suit:

Specifically, the plaintiff alleges that the DEI policies violate 42 U.S.C. § 1981, which codifies the Civil Rights Act of 1866 to prohibit racial discrimination in contracting. The policies obligate Starbucks to base its contracting decisions on race by adopting race-based goals for hiring employees and nominating directors; excluding some employees from career development programs based on their race; basing executive compensation on the racial composition of the workforce; choosing suppliers based on the race of their owners; and reallocating advertising funds away from vendors owned by non-minorities toward minority-owned and -targeted media companies. All these policies exclude individuals and businesses from contracts on a “but-for” basis because of their race, the complaint argues. The complaint also alleges that some of the policies violate Title VII’s prohibitions on race-based employment decisions, as well as the civil rights laws of multiple states …. In addition to seeking declaratory judgment that the policies violate the above laws, the complaint also asks for a declaratory judgment that they expose Starbucks to material liabilities to private plaintiffs and governmental authorities, including the potential for uncapped damages and punitive damages…. The plaintiff alleges that the many D&O defendants breached their fiduciary duties in adopting and implementing the policies. Some or all of them knew or should have known the policies were illegal, and any who didn’t could only have failed to know by failing to inquire, in breach of their duties of due care. Alternatively, the defendants learned the policies were illegal no later than March 2022, when they received the ACR Project’s demand letter. The complaint also raises an alternative theory for breach of fiduciary duty, which is that the policies’ adoption constituted self-dealing at the expense of Starbucks and its shareholders. The D&O defendants allegedly enjoyed the social benefits of promoting the policies, while the corporation and shareholders bear the expenses and liabilities.

Senators Reed, Warren, and Cortez Masto recently introduced a bill to expand Section 12(g) of the Exchange Act.  The bill, as I understand it, would require that private companies with WKSI-level private valuation, or $5 bill in revenue plus 5,000 employees, would become reporting companies.

I couldn’t find announcements from the sponsoring senators about the purpose of the bill, but there is this floor statement from Sen. Reed:

[T]hese companies have incredible influence over our society and way of life.  … It should be alarming when private companies can become extremely large and influential in our economy and raise unlimited amounts of capital from an unlimited number of investors, while circumventing the basic disclosure and governance requirements that Congress sought to apply…

I wrote a whole article on how securities disclosures are nominally intended for investors, but they are used by other audiences, and the distortive effects of attempting to hijack the securities disclosure system for the benefit of stakeholders.  My point is not that stakeholders don’t deserve disclosure – far from it! – but instead that we should openly create a stakeholder disclosure system rather than continue to filter stakeholder-oriented disclosures through the SEC.

This bill … illustrates the problem.

Section 12(g) disclosures are currently tied to the number of investors a firm has, on the theory that when investors are sufficiently dispersed, they need mandatory disclosure.  This bill, by contrast, would require disclosure based solely on size, even, I take it, if a firm has only a handful of investors.  I think size is a great trigger for disclosure – it’s what I recommended in my paper! – but it only makes sense if your audience is stakeholders.  And though Sen. Reed’s full floor statement does nod to investor needs, his interest in protecting stakeholders seems to be the real motivator here.  But the mindset that somehow only investors are entitled to holistic disclosure forced him and his co-sponsors to try to filter still more stakeholder-disclosure through a securities disclosure system that is not designed for their needs.