A new article by Kelvin Low addresses the titular debate:
Of all the duties a law student encounters in the study of law, few will prove as bewildering as fiduciary duties. Whilst their core is supposed to be “relatively clear”,1 the wider content of fiduciary obligations continue to elude us. Whilst we know that fiduciaries are expected to avoid unauthorised profits and conflicts of interests, whether any fiduciary duties exist beyond this core remains controversial. Beyond a few established categories of fiduciary relationships such as trustee and beneficiary, 2 director and company,3 agent and principal,4 partners, 5 and solicitor and client,6 it remains a mystery as to when fiduciary duties arise. This is problematic because “[i]t is not because a person is a ‘fiduciary’ … that a rule applies to him. It is because a particular rule applies to him that he is a fiduciary … for its purposes.” 7 Whilst the latter problem of who is a fiduciary is a very real one, the former problem surrounding its content is by far the more acute of the two. Until we know what fiduciary duties the law subjects fiduciaries to, it should not be surprising that the courts will remain circumspect in determining who is a fiduciary outside the established categories.
The most contentious dispute surrounding the content of the fiduciary obligation in recent years lies in its proscriptive or prescriptive nature. Despite case law suggesting that the fiduciary obligation may be prescriptive,8 some courts9 and commentators10 fiercely defend the exclusively proscriptive nature of fiduciary duties. This article proposes that fiduciary duties operate at two levels. The most commonly encountered fiduciary duties are the proscriptive duties preventing conflicts and unauthorised profits. These duties are prophylactic in nature, operate at a subsidiary level and are sometimes said to be better characterised as disabilities.11 At the primary level, the search for peculiarly fiduciary duties is an exercise in futility as fiduciary accountability is invariably and inextricably associated with duties of a nominate or even particular character that apply differently to various categories of fiduciaries. Rather, if at all desirable, it is perhaps more sensible to distinguish fiduciary breaches from non-fiduciary breaches of these complex duties. It is fiduciary accountability at the primary level that the subsidiary proscriptive duties seek to support rather than any non-fiduciary form of accountability. In this sense, at the primary level, fiduciary accountability can be prescriptive. However, in its prescriptive form, as it is inextricably embedded within a complex and compound nominate duty, it is pointless to search for an independent prescriptive fiduciary duty.
Low, Kelvin, Fiduciary Duties: The Case for Prescription (2016). Trust Law International, Vol 30, (3-25), 2016; Singapore Management University School of Law ResearchPaper No. 6/2017. Available at SSRN: https://ssrn.com/abstract=2928472
I addressed that debate in my article, The Parable of the Talents (August 15, 2016). UCLA School of Law, Law-Econ Research Paper No. 16-10. Available at SSRN: https://ssrn.com/abstract=2787452, in which I come down on the prescriptive side.
On March 24, 2017, WLF filed formal comments with the U.S. Securities and Exchange Commission in response to acting Chairman Michael S. Piwowar’s request for input on the implementation of the Pay-Ratio Disclosure Rule. SEC adopted the rule in August 2015, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In the interest of ensuring that SEC focuses on the integrity of financial markets, WLF maintained that SEC should avoid enforcing regulations that have no relation to the agency’s purpose. WLF also cautioned that the agency must carefully consider First Amendment protections provided to commercial speakers. WLF’s comments pointed out that the U.S. Supreme Court has long recognized the right of individuals and companies to choose to speak—or not to speak. WLF contended that SEC’s effort to compel commercial speakers to voice messages with which they disagree blatantly violates the First Amendment.
The Becket Fund has an update on an important trio of religious liberty cases pending before the Supreme Court:
Advocate Healthcare Newtork v. Stapleton St. Peter’s Healthcare v. Kaplan Dignity Health v. Rollins
Status: U.S. Supreme Court granted review, to hear case Spring 2017
Faith-based hospitals draw inspiration from their religious heritage. Driven by their faith to provide compassionate care, these hospitals treat people of all faiths and backgrounds, and their wellness services go beyond just providing medical care. For example, Saint Peter’s Family Health Center also serves juvenile victims of abuse, economically disadvantaged families and mentally disabled or violence-prone youth. And Catholic Health Initiatives provides millions annually to benefit programs and services for the poor, such as free clinics.
These faith-driven hospitals also provide generous benefits to their employees, including pensions through the hospitals’ comprehensive church pension plans. Yet their beliefs and the charitable work they do are being threatened for no reason: a group of plaintiffs’ lawyers are targeting these hospitals for a payoff, dragging them to court and demanding that they pay their attorney fees. Their argument? That hospital ministries are not religious enough to have a tax-exempt church pension plan under The Employee Retirement Income Security Act (ERISA). However, it is not the job of lawyers to decide that hospitals can’t be part of a church, and the IRS has rightly viewed these ministries as part of a larger church for over 30 years.
The legal campaign against faith-based hospitals began in 2013. In 2016 three of the cases were appealed to the Supreme Court, while almost a hundred more are waiting in lower courts across the country. On August 15, 2016, Becket filed a friend-of-the-court brief at the Supreme Court supporting the hospitals and their right to freely exercise their religious-based mission to provide compassionate and excellent healthcare according to their faith.
These cases aren't just about pension plans. It could have serious implications for issues like hiring, which is precisely why a set of virulently anti-Catholic lawyers around the country have been pursuing them.
Obviously, collusion with a foreign power is serious misconduct and, if it happened, should be punished. (<sarcasm>After all, only our CIA is allowed to interfere in foreign elections!</sarcasm>)
But the fact remains that millions of people voted for someone other than Hillary because she was a lousy candidate with bad ideas--not because of anything Russia did. And what the left is doing here is yet another example of how they seek to demonize and delegitimize those people. They're trying to add Russian stooges to the list of everything else that makes those millions the "deplorables."
So let the investigation run its course and let the chips fall where they may, but don't ever make the mistake of thinking that Hillary got robbed. Or that the very serious policy errors of modern progressivism have vanished.
Trump is a seriously flawed commander but the fight for liberty, limited government, and rule by the people rather than the elites in the Acela corridor remains one worth waging.
Mark Pulliam has a thoughtful review of Stephen presser's interesting new book that uses a series of biographical sketches of law professors (some of whom want on to bigger and better things, such as Barack Obama) to muse about the evolution of American legal thought:
Law Professors is an exceptionally fine book—written in a sprightly style, well-illustrated, logically organized, and containing (as befits a scholarly tome) a detailed index. Displaying an easy but encyclopedic mastery of legal history, Presser covers American law from its English common law roots to the present, using as his pedagogical tool chapter-length sketches of influential legal figures (all of whom served at some point as law professors). He chronologically profiles in this manner 20 individuals, from Sir William Blackstone to former President Barack Obama. ...
He does point out in the present volume that the legal academy has been, and remains, very influential in our society and that the “law professoriate,” as he calls it, has become “highly politicized.” The law professors who have entered politics and have gone to the top—one thinks of a certain ex-president, and a certain Massachusetts Senator who’s expected to someday run for that office—are decidedly on the Left. This is no surprise given that legal faculties are overwhelmingly comprised of liberal Democrats, and the legal scholarship they produce tends, in Presser’s words, “to undermine or radically alter our most basic constitutional and political beliefs.”
I'm part way through it and am loving it. Highly recommended.
I'm seeing a lot of empirical studies these days that purport to find positive correlations between corporate performance (variously measured) and progressive approved corporate "social responsibility" measures (diversity, sustainability, etc....).
It's well known, of course, that it's hard to publish studies that find no result.
But I wonder to whether there isn't a political bias here. Given the substantial tilt to the left in academia, one suspects that a lot of these number crunchers go into the problem with a preconceived notion of the "right" result and mine their data until they find one. One also suspects that editors of journals, sharing those same biases, are more likely to publish results that confirm their own policy preferences.
A recent CLS blog post by Martijn Cremers, Saura Masconale and Simone M. Sepe illustrates a recurring problem with empirical legal scholarship: First, it can only provide answers if the question involves something you can count. Second, how you count that something maters a lot.
In the past 20 years, many corporate law scholars have come to the view that governance arrangements protecting incumbents from removal are what really matter for firm value, arguing that such arrangements help entrench managers and harm shareholders. A major factor supporting this view has been the rise of empirical studies using corporate governance indices to measure a firm’s governance quality. Providing seemingly objective evidence that protecting incumbents from removal reduces firm value, these studies have encouraged the idea that good corporate governance is equivalent to stronger shareholder rights.
In our recent article, we challenge this idea, presenting new empirical evidence that calls into question prior studies that rely on corporate governance indices and developing a novel theoretical account of what really matters in corporate governance.
In revisiting the results of these studies, we focus on the entrenchment index or E-Index, introduced in 2009 by Lucian Bebchuk, Alma Cohen, and Allen Ferrell (BCF). The E-Index provides evidence that six entrenchment provisions matter the most for firm value: staggered boards, poison pills, golden parachutes, supermajority requirements for charter amendments, supermajority requirements for bylaw amendments, and supermajority requirements for mergers. As of March 2017, over 300 empirical studies have used the E-Index as a measure of governance quality, suggesting that this index has become a standard reference to define entrenchment and, hence, “bad” governance. Yet, in estimating the association between the E-Index (and each of its six constituent components) and firm value, BCF only relied on a 12-year period (from 1990 to 2002). We rely on a much more comprehensive dataset over a much longer period (from 1978 to 2008), allowing for a more robust statistical analysis of the association between corporate governance and firm value.
Our empirical findings call into question the kitchen sink approach to incumbent protection from removal adopted by the E-index.
But doesn't it also call into question the whole exercise? What if a data set running from 1960 to 2010 produced still different results? Bah, humbug.
Joshua Fershee reports on yet another case in which a court treats an LLC as a corporation for veil piercing purposes:
The case is ACKISON SURVEYING, LLC, Plaintiff, v. FOCUS FIBER SOLUTIONS, LLC, et al., Defendants., No. 2:15-CV-2044, 2017 WL 958620, at *1 (S.D. Ohio Mar. 13, 2017). Here are the parties: the defendant is FTE Networks, Inc. (FTE), which filed a motion to dismiss claiming a failure to state a claim. FTE is the parent company of another defendant, Focus Fiber Solutions, LLC (Focus). The plaintiff, Ackison Surveying, LLC (Ackison) filed a number of claims against Focus, added an alter ego/veil piercing claim against FTE. Thus, Ackison is, among other things, seeking to pierce the veil of an LLC (Focus). ...
... the S.D. Ohio court states that a threshold question of whether an LLC's veil can be pierced includes an assessment of the following factors:
(1) grossly inadequate capitalization,
(2) failure to observe corporate formalities,
(3) insolvency of the debtor corporation at the time the debt is incurred,
(4) [the parent] holding [itself] out as personally liable for certain corporate obligations,
(5) diversion of funds or other property of the company property [ ],
(6) absence of corporate records, and (7) the fact that the corporation was a mere facade for the operations of the [parent company].
ACKISON SURVEYING, LLC, Plaintiff, v. FOCUS FIBER SOLUTIONS, LLC, et al., Defendants., No. 2:15-CV-2044, 2017 WL 958620, at *3 (S.D. Ohio Mar. 13, 2017) (alterations in original).
The opinion ultimately find that the complaint made only legal conclusions and failed to provide any facts to support the allegations of the LLC as an alter ego of its parent corporation, and further determined that a proposed amended claim was equally lacking. As such, the court dismissed FTE from the case. This conclusion appears correct, but it still suggests that, in another case, one could support a veil piercing claim against an LLC by showing that the LLC's "failure to observe corporate formalities," formalities it may have no legal obligation to follow.
This remains my crusade. When courts get cases like this, they should (at a minimum) provide a clear veil piercing law for LLCs that accounts for the differences between LLCs and corporations.
There is, of course, a much simpler solution: Just get rid of LLC veil piercing altogether, which has been my Quixotic crusade these many years:
Courts are now routinely applying the corporate law doctrine of veil piercing to limited liability companies. This extension of a seriously flawed doctrine into a new arena is not required by statute and is unsupportable as a matter of policy. The standards by which veil piercing is effected are vague, leaving judges great discretion. The result has been uncertainty and lack of predictability, increasing transaction costs for small businesses. At the same time, however, there is no evidence that veil piercing has been rigorously applied to affect socially beneficial policy outcomes. Judges typically seem to be concerned more with the facts and equities of the specific case at bar than with the implications of personal shareholder liability for society at large.
A standard academic move treats veil piercing as a safety valve allowing courts to address cases in which the externalities associated with limited liability seem excessive. In doing so, veil piercing is called upon to achieve such lofty goals as leading LLC members to optimally internalize risk, while not deterring capital formation and economic growth, while promoting populist notions of economic democracy. The task is untenable. Veil piercing is rare, unprincipled, and arbitrary. Abolishing veil piercing would refocus judicial analysis on the appropriate question - did the defendant - LLC member do anything for which he or she should be held directly liable?
Keywords: corporation, limited liability, limited liability company
I have posted to SSRN a new paper, Corporate Directors in the United Kingdom (March 17, 2017). UCLA School of Law, Law-Econ Research Paper No. 17-04. Available at SSRN: https://ssrn.com/abstract=2935388
In the United States, state corporation law uniformly provides that only natural persons may serve as directors of corporations. Corporations, limited liability companies, and other entities otherwise recognized in the law as legal persons are prohibited from so serving. In contrast, the United Kingdom allowed legal entities to serve as directors of a company. In 2015, however, legislation came into force adopting a general prohibition of these so-called corporate directors, albeit while contemplating some exemptions. This article argues that there are legitimate reasons companies may wish to appoint corporate directors. It also argues that the transparency and accountability concerns that motivated the legislation are overstated. The requisite enhancement of transparency and accountability can be achieved without a sweeping ban. Accordingly, this article proposes that Parliament either repeal the ban or, at least, authorize liberal exemptions.
Keywords: board of directors, directors, corporate directors, United Kingdom, natural persons, legal persons
The paper is now circulating to law reviews. (Hint, hint.)
I recently presented my paper, Interest Group Analysis of Delaware Law: The Corporate Opportunity Doctrine as Case Study (available at SSRN: https://ssrn.com/abstract=2894577 ), at BYU's law school. Here's the slide deck for the presentation: