It’s pending in Delaware Chancery, C.A. 2022-0357-MTZ; VC Zurn heard oral arguments July 26, and presumably a decision will soon be forthcoming.

Buzzfeed was a private company that was taken public via SPAC.  Many of its employees were paid in stock and stock options, but – as was widely reported – on the first day of trading after the merger, they found themselves unable to place sell orders.  By the time it was all straightened out, Buzzfeed’s stock price had dropped significantly, and now those employees are suing Buzzfeed, its managers, and transfer agent.  They sought to bring their claims in a mass arbitration as required by their employment agreements, but Buzzfeed filed a declaratory judgment action in Delaware Chancery, arguing that because the employees’ claims are tied to their status as Buzzfeed stockholders, they are bound by the forum selection provision that was inserted into Buzzfeed’s charter when it went public, requiring that all such actions be brought in Delaware courts.

It’s actually a complex case, in part because the publicly traded entity – the one with the forum selection provision – is not the entity that employed the plaintiffs.  The employing entity was merged into a shell corporation and is now a subsidiary of the publicly traded entity, and in the merger, the employees’ private company stock was converted into the stock of the public parent.

And things get even more complex than that – there are issues regarding the exact nature of the claims that the employees have (are they suing as employees, or as stockholders?), which Buzzfeed managers – of which entity – are responsible for any problems, and so forth, but for now, I actually want to point out one specific aspect of the dispute, and that’s why the employees were unable to trade their shares in the first instance.

As alleged in the pleadings, as a private company, Buzzfeed had multiple classes of stock (this is why Carta was created: to help private companies manage their cap tables, because the different classes of stock can get very complex).  And many of its employees received as compensation the same class of stock that the founder received, namely Class B stock.  When Buzzfeed decided to go public, it was also decided that Class B stock would carry 50 votes per share (to maintain founder control).  Of course, Class B stock would not publicly trade, so in the merger, only Class A stock was actually registered with the SEC.  The employees were not, allegedly, made aware of the distinction.  As a result, when employees holding Class B stock tried to sell their shares, they couldn’t – those shares were not registered!  Instead, they first had to convert their shares to Class A stock, which was doable, but time consuming, and that delay was critical. 

So the real question, here, is how did this happen?  I.e., how did ordinary line employees end up with stock carrying 50 votes per share?  I don’t know, of course, but the best I can figure is that this is a fairly dramatic example of the well, sloppiness, that has characterized some SPAC deals, which John Coates talks about here.  As he explains, a lot of the problems with SPACs – such as misaccounting for warrants – did not arise out of new issues, but simply arose out of shoddy work, and once people took a closer look at what had been done, they finally caught the errors.  Buzzfeed may present a particularly egregious example of the problem.

From what I can tell, law schools are seemingly falling over one another to hire this season. Following an understandable period of dormancy, lots of schools are apparently looking to fill a lot of slots — perhaps restocking to get back to pre-pandemic student-faculty ratios. But there appear to be some dark clouds looming. The news on college enrollments is not great (cf. “First-year and transfer enrollment at Rutgers-Camden is down 27%, and faculty are concerned“), hiring is slowing in some areas (cf. “Some law firms are ‘pulling back the throttle’ on hiring as expenses rise and deal work slows“), winter is coming (cf. “Europe’s household electrical bills could surge by $2 trillion by next year amid a worsening energy crisis“), and some smart market watchers are predicting a long period of significant economic pain ahead (cf. “Chamath Palihapitiya goes into detail on the 2022 economic crisis and warns about an imminent and very prolonged recession.“). Of course, these sorts of predictions are fraught with peril, and — despite the click-bait title of this post — I’m not arguing that newly-hired faculty will be fired even if the gloomy predictions pan out (buyouts and early retirements for senior faculty are much more likely). I’m also not arguing that law schools should slam on the brakes when it comes to hiring because, as we know: “When the music stops … things will be complicated…. But as long as the music is playing, you’ve got to get up and dance.”

ADDENDUM: You might want to avoid Googling “layoffs” if the foregoing has bummed you out (cf. “The ‘scariest economic paper of 2022’ predicts big layoffs over the next 2 years as the fight against inflation gets more intense“).

I’m pleased to report that registration is now open for our third annual Corporate Governance Summit to be held on Friday September 30, at the Wynn.  Co-sponsored by the William S. Boyd School of Law and Greenberg Traurig, the event features four panels and a keynote address from Jan Jones Blackhurst. 

This is our program:

8:00 a.m.
Registration and Continental Breakfast

9:00 a.m.
Opening Remarks

• Michael J. Bonner, Managing Shareholder, Greenberg Traurig, Las Vegas
• Benjamin P. Edwards, Associate Professor of Law, The UNLV William S. Boyd School of Law
• Leah Chan Grinvald, Dean and Richard J. Morgan Professor of Law, The UNLV William S. Boyd School of Law

9:15 a.m.
“We Did What??” What No Board Wants to Hear!

• Michael J. Bonner, Managing Shareholder, Greenberg Traurig, Las Vegas
• Frank M. Placenti, Shareholder and Chair of the U.S. Corporate Governance Practice, Greenberg Traurig, Phoenix
• Nancy Rapoport, Garman Turner Gordon Professor of Law & Affiliate Professor of Business Law and Ethics, The UNLV William S. Boyd School of Law & Lee Business School

10:30 a.m.
Break

10:45 a.m.
Dealing with Activists: When the ‘Out of Office’ Greeting is Not Enough

• Scott Bisang, Partner, Joele Frank, Wilkinson Brimmer Katcher
• Benjamin P. Edwards, Associate Professor of Law, The UNLV William S. Boyd School of Law
• Yaron Nili, Associate Professor of Law, University of Wisconsin Law School
• Paul Schulman, Managing Director – M&A and Activism Advisory Group, Morrow Sodali

12:15 p.m.
Lunch & Keynote

• Jan Jones Blackhurst, Las Vegas’ First Woman Mayor, Thought Leader, Senior Corporate Executive, and Experienced Corporate Board Member 

1:30 p.m.
Break

1:45 p.m.
ESG – Doing Good and Enhancing Corporate Performance

• Rachel Anderson, Professor of Law, The UNLV William S. Boyd School of Law
• Barbara A. Jones, Co-Managing Shareholder of Greenberg Traurig’s Los Angeles Office, Co-Chair, Blockchain &  Digital Assets Practice
• Linda Park, Corporate Secretary, VP & Associate General Counsel, Edwards Lifesciences Corporation (NYSE)
• Libby Stennes, Shareholder, Greenberg Traurig
• Jessica Strine, Managing Partner & CEO, Sustainable Governance Partners, LLC

3:15 p.m.
Strength in Differences – Leveraging Diversity for More Effective Corporate Governance

• Radhika Papandreou, Office Managing Partner, Chicago, Sector Leader, Travel, Hospitality & Leisure Practice, Korn Ferry
• Liane Pelletier, Board Member, Switch, Inc. (NYSE: SWCH); Board Member, Frontdoor, Inc (Nasdaq: FTDR); Board Member, Expeditors International of Washington, Inc. (Nasdaq: EXPD); and Board Member, ATN International (Nasdaq: ANTI)

4:45 p.m.
Cocktail Reception

Dear BLPB Readers:

“Stephen M. Ross School of Business at the University of Michigan invites applications for two tenure-track professors (open rank) beginning September 1, 2023. This is an open-area search for faculty with outstanding research records and scholarly expertise related to diversity, racial and social equality and economic mobility and opportunity. The successful candidate will be appointed in one of the Ross School’s disciplinary areas: Accounting, Business Economics and Public Policy, Business Law, Finance, Management and Organizations, Marketing, Strategy, and Technology and Operations.”

The complete job posting is here: Download Ross Job posting for Diversity Position 

I have written in this space about Labor Day for many years now.  See here, here, here, here, and here for the posts from the past few years.  Each year, I write about something related–closely or vaguely–to the holiday.  I actually see it as my “job” as the regular Monday blogger for the BLPB to provide some kind of linkage to Monday holidays.  However, I also find that Monday holidays serve as a creative outlet for me–one that often reflects a personal or professional moment in which I find myself when I write the post.

This year, I am drawn to think about family, especially parents and grandparents.  My two children, both adults in their 30s, lost the last of their grandparents, my father, a few weeks ago.  So, all of that has been on my mind.  But what could any of that have to do with Labor Day?  I went on a digital treasure hunt to see what I could turn up . . . .

Imagine my joy when I found this article, penned eight years ago for the Association of Corporate Counsel by Anil Adyanthaya, then Senior Corporate Counsel at Analog Devices.  The title of the article, A Grand Approach to In-house Practice, intrigued me.  But the content sold me.  Amazingly, it ties together Labor Day with another September holiday, Grandparents Day!  Of course, that September holiday connection synced perfectly with my current family focus.  He writes:

The national holiday most people associate with September is Labor Day. That’s understandable considering its role as the unofficial end of summer and its purpose of honoring the great driver of our nation’s progress: the American worker. Most in-house counsel, when asked to name the September holiday most relevant to their career, would obviously name Labor Day as well. Because of our workloads, it would probably be the top choice for corporate counsel regardless of month!

But it may surprise you to learn that Labor Day is not the only September holiday relevant to in-house counsel. That other national holiday is Grandparents Day, which falls on the first Sunday after Labor Day. The statute creating Grandparents Day was signed into law by President Jimmy Carter in 1978 and states, in part, that the holiday’s purpose is “to help children become aware of [the] strength, information and guidance [that] older people can offer.’’

The main thesis of the article?  Mentoring–employing that “strength, information, and guidance” to help others in the workplace–is important to what in-house counsel bring to the task.  Here’s the ultimate conclusion, but I urge you to read the entire article, which is only one page in length.

[T]his month, as we honor our grandparents, whose wisdom and caring have done so much to shape our own lives for the better, please remember that one way to express that esteem is to take their example and apply it in our own lives. Our workplaces provide an excellent opportunity to do just that. And it won’t involve buying any ice cream or knowing any knock-knock jokes. Unless you work for a really interesting company.

I am privileged to have a career that allows, encourages, and enables me to engage in mentoring colleagues and students every day.  So, in honor of both Labor Day and Grandparents Day, I plan to redouble my efforts to use the “strength, information, and guidance” with which age has blessed me to help others in and through my work.  These efforts are emblematic of the brand of servant leadership that I enjoy most.

Jim Park, Chair of the Section on Business Associations of the Association of American Law Schools recently sent section members a reminder message relating to submissions for the section’s program for the 2023 Annual Meeting.  The extended deadline for submissions is Tuesday.  I blogged about the call for papers back in May (the post includes the entire initial call for papers) and am including an excerpted version of Jim’s recent message below for ease of reference.

*****

Dear Members of the AALS Business Associations Section:

I am writing to let you know that the deadline for submitting a paper for presentation at our program in San Diego on January 4, 2023 has been extended to Tuesday, Sept. 6, 2022. The topic of the program is Corporate Governance in a Time of Global Uncertainty. Please send all submissions to Mira Ganor at mganor@law.utexas.edu with the words “AALS – BA- Paper Submission” in the subject line of your submission email. . . .

Thanks, Jim

*****

I hope folks whose research addresses the call will send along their work for consideration.  The annual meeting program often is a great way to jumpstart the new semester and generates ideas for future scholarship and collaborations.  Both presenters and audience members benefit in these and other ways.

Back in July, I blogged about the unprecedented dispute between Ben & Jerry’s and its sole shareholder, Unilever, regarding the sale of Ben & Jerry’s products in Israeli-occupied territories.  When Ben & Jerry’s was sold to Unilever, Unilever entered into a shareholders’ agreement with Ben & Jerry’s, whereby it promised that the board of directors would be largely self-perpetuating (i.e., continuing directors would nominate their successors), and the board would have authority to maintain the company’s social mission.  Unilever, via its CEO selection, would have authority over financial and operational decisions.  When the Ben & Jerry’s board objected to selling the company’s products in the West Bank, Unilever decided to transfer the entire West Bank business to an Israeli operator, bringing their spheres of authority into conflict: was this a social decision, or an operational one?  Ben & Jerry’s, under the direction of the board, sought a preliminary injunction to stop the transfer, arguing that it was the former; Unilever opposed on the grounds that it was the latter.

In my earlier blog post, I wrote about the unusual nature of the arrangement and the ambiguity surrounding the real parties in interest.  That ambiguity was not directly at issue in the judge’s decision on the preliminary injunction but – in a subtle way – it ended up being implicated.

To receive a preliminary injunction, Ben & Jerry’s needed to show that it was threatened with “irreparable harm” if Unilever proceeded with the sale while the case was pending, and that the public interest would be served by an injunction.  The harm that Ben & Jerry’s identified involved damage to its reputation, its prospective goodwill, and to “brand integrity,” in part due to confusion by consumers over responsibility for the actions taken.  Ben & Jerry also cited loss of authority over its brand, and loss of its “corporate independence in dictating its Social Mission” as additional harms.  Ben & Jerry’s claimed that it would lose its ability to use its own products to make protest statements; for example, in Australia it refused to serve two scoops of the same flavor ice cream, to protest the country’s ban on same-sex marriage.   The new Israeli owners might not advance the same messages, or would launch products with different messages, ones that Ben & Jerry’s disagreed with.  As for the public interest, Ben & Jerry’s argued that the popularity of the benefit corporation form shows that there is a societal good that flows from permitting corporations to advance social missions.

The district court denied the preliminary injunction, on the ground that Ben & Jerry’s failed to show a threat of irreparable harm.  Here’s what the court said:

The injunctive relief sought cannot issue on the basis of a hypothetical scenario involving several speculative steps, namely that (1) new products will be introduced, (2) those products will seek to convey a particular message, and (3) the new owners then will market those products to convey a contrary message.

The harm of customer confusion regarding Ben & Jerry’s positions is also remote.  Ben & Jerry’s has offered no evidence of such confusion or the impact of the alleged confusion. If anything, media reports and this very lawsuit evince Ben & Jerry’s position on the issue.  Further, the products sold in Israel and the West Bank will use no English trademarks….

Notice how the court – and to some extent even Ben & Jerry’s – approached this problem.  It was treated as an image issue; Ben & Jerry’s did not want to be associated with certain social messages, and the court found there was no irreparable harm because it was unlikely that the public would in fact have those associations.

But a corporate social mission is not about, or at least not exclusively about, projection of an image.  It is a moral stance that allows participants in the corporate enterprise – shareholders, specifically, when it comes to benefit corporations – to avoid having to contribute personally to a project that they believe causes injury in the world.  It’s very much like the idea behind the Supreme Court’s decision in Hobby Lobby, namely, that corporate owners should not be forced to put their capital behind something they find morally abhorrent.  The public image may matter, but it is secondary; the goal is to not use one’s resources to inflict harm, and certainly not to profit from it.

But that was a difficult, if not impossible, claim for Ben & Jerry’s to make as a corporate entity – and one that the district court entirely failed to perceive – because as a corporation, it only has the moral interests of the humans it represents.  And, as my prior post explains, it’s entirely unclear from this arrangement who those humans are supposed to be; it certainly isn’t the single shareholder, Unilever (or the natural persons who invest in Unilever). 

Randall Thomas, Robert Thompson, and Harwell Wells have posted Delaware’s Shifting Judicial Role in Business Governance on SSRN (here). The abstract is below, but I thought it worth highlighting the following two quotes from the paper:

  • For 2021, 28 percent of Delaware’s state budget was estimated to be provided by corporate franchise tax and business entity fees deriving from corporations, LLCs, LPs, and other business entities organized under its laws.
  • LLCs now provide Delaware almost thirty percent of its budgetary income from entity chartering, up from the low single digits twenty years ago.

Abstract

This Article examines the changing nature of judicial review of governance in American businesses. Drawing on a detailed study of all cases filed in 2018 in Delaware, the country’s dominant jurisdiction for corporate law, and a previous study of such litigation at the turn of the century, it reveals fundamental changes in corporate law issues brought to court in the twenty-first century. Twenty years ago, the chief task of the Delaware Court of Chancery, the nation’s preeminent business court (and the Delaware Supreme Court that hears all appeals from that court), was to apply fiduciary duties to resolve disputes over the governance of publicly traded corporations in an acquisition setting. Today, the Chancery Court’s ambit is far broader. Fiduciary duty litigation is still important, but alongside these cases, the chancellors are now spending more time resolving governance disputes by applying statutory provisions. In a new development for Chancery, its judges now regularly interpret contracts establishing governance in entities beyond the corporation, most prominently the limited liability company (LLC). Corporations are still important, but litigation over LLCs has sharply risen, and the court’s caseload is increasingly dominated by privately (not publicly) held firms—some corporations, some not. The court still spends most of its time resolving governance disputes within firms, but in another change, it is also being called on to resolve non-governance, commercial disputes arising between business firms, especially after an acquisition. This study has important implications for governance of contemporary business entities. It draws attention to the multiple ways that corporate governance questions are now presented to courts and the different skills judges are called upon to employ in the various settings.

In addition to documenting major changes in corporate litigation over the past two decades, this Article draws on its findings to make two additional contributions. First, it proposes new measures to determine the extent to which different kinds of cases heard in the Chancery Court take up different amounts of judges’ and litigants’ time and resources. Second, its findings shed new light on the long-debated question of state competition for business formation and litigation. LLCs now provide Delaware almost thirty percent of its budgetary income from entity chartering, up from the low single digits twenty years ago. The data on commercial non-governance filings suggest Delaware is competing for litigation, separate from chartering, more than it has in the past.

I received the following in an email and thought it might be of interest to BLPB readers.

MEDIA ADVISORY

MONDAY: NCLA Presents Oral Argument in Case Challenging Nasdaq Board Diversity Rules  

WHO: NCLA Senior Litigation Counsel Peggy Little, NCLA Litigation Counsel Sheng Li

WHAT: NCLA will appear before Judges Carl E. Stewart, James L. Dennis, and Stephen A. Higginson, in the U.S. Court of Appeals for the Fifth Circuit for a hearing in the case of National Center for Public Policy Research v. SEC.

On August 6, 2021, SEC narrowly approved a Rule requiring disclosure of the aggregate race, gender, and sexual preference of Nasdaq-listed companies, with two of five Commissioners dissenting. The Board Diversity Rule subjects Nasdaq-listed companies to the following requirements: (a) they must disclose information about their board’s self-identified gender, race, and sexual preference; and (b) either (i) meet minimum quotas of individuals of a certain gender, racial, and sexual preference, or (ii) publicly explain why the board does not meet such quotas.

The Board Diversity Rules fall outside of the agency’s regulatory authority.

WHERE: Room 209 of the Wisdom Courthouse, 600 S Maestri Pl, New Orleans, LA 70130

The hearing is open to the public.

Click on this link to listen live to the oral argument (Note, this link is active only during the hearing.)

Click on this link to listen to a recording of the argument after the hearing (Recordings are posted shortly after the hearing.)WHEN: Monday, August 29, 2022. The oral arguments for the court begin at 9:00AM CT. Click on this link for the full schedule. NCLA is expected to begin presenting from 9:40AM – 9:50AM. 

For more information click here to visit the case page here.

I’ll admit it – I frequently choose blog post topics based on what I can write quickly, and since obviously I’ve been following the Twitter case closely, that’s the topic for today.

This post is really meant as an explainer of the legal state of play; lawyers who have been following closely probably already know most of this, but for anyone else, this is for you.

It’ll be really, really long, so I cut

Continue Reading I guess I’m writing about Twitter again