Interesting article by Alison Frankel on the growing phenomenon.
Francis Pileggi noted on May 4:
Yesterday’s Wall Street Journal featured a front page article about an apparently increasing number of CEOs of public companies who use their companies’ resources, and wield their companies’ resources as a sword, to advocate in their official corporate capacities to advance their favorite social agendas–or to oppose legislation on social policies that they disfavor. ...
If a stockholder thought that a CEO of a public company was more focused on social activism than observing his or her duty to maintain a focus on maximizing shareholder wealth, one element of a claim would be the measure of damages. If a company is profitable “enough”, the CEO may “get a pass”. But the recent downward trajectory of the stock price of profitable companies like Apple, which recently lost about $73 billion in market value, and an unrelated petition of over one million people who are boycotting Target department stores due to their position on recent gender issues, may gain the attention of a different type of activist: plaintiffs’ lawyers who specialize in stockholder class actions.
The twist, of course, is that many trial lawyers are themselves social justice warriors.
A leader in the latest Economist contends that one lesson of the Panama Papers is the need to "regulate the law firms and other intermediaries that set up and husband offshore companies and trusts. They are supposed to know their clients, weeding out the dodgy ones. But too many are paid to act as buffers, offering an extra layer of protection against those who pry."
Regulate the lawyers? How? Implicit in the Economist's argument is the notion that lawyers function as gatekeepers. What does that mean you ask? As I have explained before:
A gatekeeper is someone—be it a person or entity—who, if they withhold their blessing, can prevent the corporation from effecting a desired transaction or from maintaining some desired status.
Often, a gatekeeper will be a reputational intermediary who provides certification services for investors. Auditors and rating agencies are good examples of this category. They have a lot of reputational capital. Indeed, it must be so, because their reputation is their stock in trade. Investors say “this must be a good investment, because it got a good rating from an agency I trust.”
In theory, they will not besmirch their reputation to benefit one client. Hence, they hold the gate between the corporation and the promised land of investor capital. Without the blessing conferred by the auditor’s letter or the rating agency’s evaluation, the corporation will have a more difficult time selling securities or remaining listed on a securities exchange.
Lawyers also are corporate gatekeepers, albeit of a different sort. To be sure, sometimes a very high profile general counsel or law firm partner might be able to give a client in trouble the benefit of the lawyer’s reputation for probity and upstanding ethics. Usually, however, we play a more behind the scenes role.
But while we may not function as reputational intermediaries, we too have a gatekeeping role. As counsel, we are well positioned to block the effectiveness of a defective registration statement or prevent the consummation of a transaction.
Most lawyers hate the idea that they should function as gatekeepers:
The relationship between lawyers and clients is often intensely personal. Former SEC Chairman Harvey Pitt went so far as to compare the lawyer-client relationship to that between priest and penitent in the confessional. Lawyers are zealously supposed to guard, defend and promote the interests of their clients. To do that, Pitt argued, clients must feel comfortable confiding in their lawyers. Efforts to turn lawyers from advocates into gatekeepers can infringe upon the willingness of clients to confide in their lawyers, and curtail their ability to receive the benefits that flow from an unfettered lawyer-client dialogue.
In my view, however, that argument pertains mainly to the lawyer representing a client in litigation. A lawyer acting in a transactional of advisory role faces a different dynamic with different incentives and concerns.
The mindset advocated by Chairman Pitt leads to fiascos like Enron:
I’ll quote Enron examiner Batson, who observed that Enron’s “attorneys saw their role in very narrow terms, as an implementer, not a counselor. That is, rather than conscientiously raising known issues for further analysis by a more senior officer or the Enron Board or refusing to participate in transactions that raised such issues, these lawyers seemed to focus only on how to address a narrow question or simply to implement a decision (or document a transaction).”
So I am fine with the idea that attorneys should function as internal gatekeepers. And if that's what the Economist wants to encourage, great.
But there is a huge difference between lawyers taking steps within a firm to discourage client misconduct and forcing the lawyer to publicly blow the whistle on a client. If the Economist wants lawyers to become whistle blowers who call in the SEC cops, that really would trash the lawyer-client relationship. It would throw centuries of respecting client confidentiality out the window. It would destroy lawyer-client trust. To be sure, there are some cases where incurring those costs is worthwhile: Where the lawyer knows that the client is about to commit a serious crime involving a substantial risk of serious harm to life, limb, or property.
In general, however, the idea that we should broadly promote a role for lawyers as external gatekeepers strikes me as a very bad idea.
The attorney general of New York, Eric Schneiderman has commenced an investigation of Exxon MobilXOM +0.00%. He seeks to find out what the oil giant knew about the possible risks of carbon-induced climate change and when. Schneiderman’s office on Thursday served a subpoena to Exxon, demanding years of internal documents on global warming issues. The impetus for Schneiderman’s investigation appears to be recent revelations that Exxon, as far back as the 1970s, had funded studies concluding that global warming could result from carbon emissions — but that Exxon had failed to publicly disclose those risks to shareholders.
But let’s get real. See this for what it is — a witch hunt against a big company with deep pockets that the anti-carbon lobby wants to fleece to support their pet renewable energy projects.
Go read the whole thing.
Given how pervasive abuses by plaintiff lawyers are and how rarely they are really punished, it was heartening to read Alison Frankel's account of how one of the lawyers pillaging BP is staring at a federal indictment for inventing clients.
Our friend Francis Pileggi reports that:
In a recent bench ruling, the Delaware Court of Chancery refused to approve a proposed class action settlement in which the benefit to the class was “disclosures only”, and the court dismissed the case as to the named plaintiff. The court was also critical of the broad release that was proposed. This case was filed in connection with Hewlett-Packard’s $2.7 billion acquisition of Aruba Networks. The case is styled In Re Aruba Networks, Inc. Stockholder Litigation, Cons. C.A. No. 10765-VCL (Del. Ch. Oct. 9, 2015)(Transcript). My gratitude is owed to Kyle Wagner Compton, the editor of the unparalleled scholarly publication called The Chancery Daily, for alerting me to the transcript, as well as for the TCD’s exemplary coverage of all things relating to the Court of Chancery.
The Aruba decision has already been explained in such extensive detail by Kevin LaCroix on his blog called The D&O Diary, that I encourage readers to review his treatment of the case at the foregoing link.
We concur with his recommendation of The D&O Diary's excellent analysis:
Stating his belief that the merger objection litigation dynamic represents a “systemic” problem that has resulted in a “misshapen legal system,” Delaware Chancery Court Vice Chancellor Travis Laster rejected the proposed disclosure-only settlement of litigation that had been filed objecting to Hewlett-Packard’s $2.7 billion acquisition of Aruba Networks. In an October 9, 2015 settlement hearing in the case, Laster cited the “inadequacy of the representation” of plaintiffs’ counsel for the shareholder class as the basis for his rejection of the settlement, as well as for the outright dismissal of the case. Liz Hoffman’s October 10, 2015 Wall Street Journal article about Laster’s ruling can be found here.
As I said at the time following Glasscock’s rulings in the Riverbed Technology case, it would only be a matter of time before a judge at the Delaware Court of Chancery rejected a settlement on the basis that the value the plaintiff shareholders’ received in a disclosure only settlement was insufficient to support the breadth of the release that the defendants received in exchange. That is exactly what happened in connection with the proposed settlement of the H-P/Aruba Networks merger objection lawsuit.
Apparently there was a very typical Laster moment in the ruling (should we start referring to Lasterisms?):
Laster also acknowledged in the hearing that because his concerns about these kinds of settlements are well known, that parties have started dismissing the merger objection cases pending in his court in order to enter settlements in other jurisdictions where perhaps there might not be as many questions asked. (He noted parenthetically that it was fine with him if the parties took these kinds of cases to other courts; he observed that “I actually don’t like dealing with junky things, and I would prefer to devote judicial resources to real litigation, not pseudo-litigation.”)
Do go read the whole thing.
The trial lawyers whose oxen Sean is seeking to gore fought back by asking for the court's permission to depose Sean on his standing and the basis of his legal opinions. This sort of harassment is common when you've got rich lawyers going up against an underdog opponent (it's the discovery equivalent of a SLAPP suit). They try to make it too expensive for the underdog to vindicate his rights. (In my humble, First Amendment-protected opinion, of course.)
VC Glasscock shot down their request, refusing to order the deposition. Good man.
Alison Frankel (behind Westlaw firewall):
Last week, I told you about Sean Griffith, a law professor from Fordham who is quite literally putting his money where his mouth is when it comes to M&A class action settlements that result only in additional deal proxy disclosures(and fees for plaintiffs lawyers). Since the beginning of the year, Griffith has invested in shares in 30 newly acquired companies - the very corporations that are likely to be targeted in shareholder M&A class actions. Griffith, who coauthored a 2015 paper for the Texas Law Review casting doubt on the benefits to shareholders from disclosure-only settlements, told me he acquired the stock portfolio with the express purpose of establishing standing to object to class action deals he considers inadequate.
Go get 'em, tiger, I'd say, as would any other right thinking person. ... But wait, the trial bar strikes back:
"Make no mistake," the brief [filed by Gucci-clad trial lawyers in the first suit in which Griffith filed an objection] said. "The objector's brief is not a disinterested amicus submission from a neutral academic. It is a slanted, partisan piece of advocacy that relies on half-truths, exaggerations and misleading omissions." Griffith's "scheme" of acquiring shares in recently acquired companies is "an attack on core Delaware policies" against buying shares in order to sue, plaintiffs said. And the professor's filing is part of "a promotional campaign ... to force a debate on his policy ideas (and, perhaps, to highlight his expert-witness credentials and fortify a supplemental income stream)."
Me thinks the sharks doth protest too much.
Personally, I'm rooting for Sean and I hope more people decide to start taking on the trial lawyers pezzonovante. They're been on Easy Street far too long.
Silecchia, Lucia Ann, A Witness First Lives the Life He Proposes: Evangelization and the Catholic Lawyer (2015). “A Witness First Lives the Life He Proposes”: Evangelization and the Catholic Lawyer (May 21, 2015). Available at SSRN: http://ssrn.com/abstract=2616323:
This essay was presented at the lecture for legal professionals in Baltimore, Maryland, on May 21, 2015. The roots of the word evangelization are, literally, in the words that mean “to bring good news.” We live in a world that craves good news and, by virtue of our Baptism, all of us – lawyers included – are called to bring good news to a world that, despite all appearances to the contrary, aches for good news and deeply yearns to know the God from whom all good news comes, and to whom all good news leads. I am convinced that there is a powerful role for us in the legal profession to play in this great task of evangelization by being joyful, hopeful witnesses to what is good, just, and simply right. Each are called to respond to the call to evangelize in our own circumstances. This essay explores, briefly, the opportunities that we may have to evangelize, or “bring good news” as lawyers, in three distinct settings: in the ways in which we educate future lawyers; in the way in which our profession is practiced; and, in the substantive law of our land itself.
Big Law Business has an interesting interview with my law school classmate David Leitch:
Leitch, a former Supreme Court Clerk, Chief Counsel of the FAA, and White House adviser, recently spoke to Big Law Business about some ... ways firms can do their homework on clients, how the Ford legal department has evolved, and the future of the automotive industry.
I recommend Trautman, Lawrence J. and Luppino, Anthony J. and Simmons, Malika, Some Key Things U.S. Entrepreneurs Need to Know About the Law and Lawyers (May 15, 2015). Available at SSRN: http://ssrn.com/abstract=2606808:
New business formation is a powerful economic engine that creates jobs. Diverse legal issues are encountered as a start-up entity approaches formation, initial capitalization and fundraising, arrangements with employees and independent contractors, and relationships with other third parties.
The endeavors of a typical start-up in the United States will likely implicate many of the following areas of law: intellectual property; business organizations; tax laws; employment and labor laws; securities regulation; contracts and licensing agreements; commercial sales; debtor-creditor relations; real estate law; health and safety laws/codes; permits and licenses; environmental protection; industry specific regulatory laws and approval processes; tort/personal injury, products liability, and insurance laws; antitrust and other unfair competition laws; import/export laws; immigration laws; laws related to the internet, privacy and e-commerce; and possibly many other federal, state and/or local laws, and perhaps even international laws. Company founders need to develop familiarity with the effects of such laws and need to access qualified legal talent to address legal issues in the planning and implementation of their venture. This article is designed to provide entrepreneurs with an overview of several areas of law that commonly arise in for-profit start-up ventures and offer them some important tips on working with lawyers.
But not quite as highly as I recommend Mark McCormack's The Terrible Truth About Lawyers: How Lawyers Really Work and How to Deal With Them Successfully:
Publisher's Weekly said: "Lawyers labor inside "a wall of molasses," says McCormack (What They Don't Teach You at Harvard Business School) referring to the American system of jurisprudence and, as a result, their clients are often penalized in terms of time and cost. Proffering axiomatic, freewheeling advice, McCormack formulates action plans that will put clients on a more equal footing with their lawyers. How to cut through long-winded legalese and promote the expeditious settlement of contracts, divorces, real estate closings and other fee-bearing legal necessitiesand when not to take the legal routeis the main thrust of this primer for clients. McCormack, graduate of Yale Law School and founder of International Management Group, speaks with authority and conviction, cites cases and aims his arrows at the legal establishment in a good-humored way. Required reading before engaging a lawyer."
It's a book every business person -- and every business lawyer -- should read.
We're talking about work and labor in tonight's Catholic Social Thought and the Law seminar. One of the questions I posed to the students about the reading was:
Laborem Exercens suggests that it is through work that we realize our humanity. Laborem Exercens sees technology as an ally when it assists and augments work and improves its quality. Technology can become almost an enemy when the mechanization of work takes away all personal satisfaction and the incentive to creativity and responsibility. Discuss these two views of technology.
Several of the students had really interesting takes on the problem, but I was especially interested this observation from one of the students:
From a professional work point of view, the benefits of technology are even clearer. Doctors rely on ever-evolving technologies to improve their performance. A doctor is better able to provide accurate diagnoses with the aid of MRIs and biopsies, and certainly their patients are better off with improved technology.
Even lawyers are indisputably better off with technology. Research via Westlaw and Lexis is orders of magnitude faster and more comprehensive than paper research. Typing up briefs and memos on a PC (or even using speech recognition software) is much faster than writing by hand or using a typewriter. Without a doubt, technology increases a lawyer’s productivity. ...
We don’t really see technology taking away jobs in white-collar professions. To my knowledge, doctors were not laid off after the rise of MRI machines, nor was there a trend of lawyers losing their jobs when legal research moved online. Whatever costs imposed by technology in those fields are easily outweighed by the benefits to the workers and their customers – better medical treatment and presumably better legal representation.
I'm going to tackle that claim in the seminar tonight, because I think technology has played a major role in the legal profession's problems in recent years. John McGinnis has a very good analysis of this issue in a recent post:
The most important cause of the decline in demand for legal services is technological shock. Technological change has reduced the demand for lawyers, at least at the price point law schools were delivering it. The technological shock has been of two kinds. First, machine intelligence is beginning to substitute for lawyers, particularly at the low end of the legal profession. Document discovery is moving from human to machines. Legalzoom and similar services are encroaching on the production of simple documents, like many wills and trusts. And once machines get into an area, they dominate over time.
Second, machine intelligence is reducing the agency costs from which lawyers have benefited, General counsel, for instance, can keep better track of exactly what their outside counsel are doing, cutting down on slack. The information age reduces the information asymmetry between lawyers and many of their clients.
This technological shock has been good for the economy by reducing the transaction costs constituted by lawyers. But it raises a grave challenge to law schools. Since the cause of the decline in applications is structural, the applicants are not likely to come back in anything like previous numbers. Because the structural change is technological, it also may intensify as computation becomes ever more powerful. In a subsequent post, I will discuss how law schools can respond to these challenges.
My bottom line is that all of us who work are subject to technological shocks and that Catholic Social Thought provides a relevant framework from which to analyze appropriate societal responses.
Standish Fleming makes the case.
I had a slip and fall at a restaurant tonight after Christmas Eve dinner. (No. It's not what you're thinking. I had only had two beers. It was dark and the step was hard to see.) The manager freaked and then double freaked when I mentioned I was a lawyer. My first thought was "payday!" Mega-settlement baby.
But my second thought was that it was just a scraped knee and injured pride. And then my third thought was about all those nasty things I've said about trial lawyers over the years. And then my fourth thought was that I'd end up as a story on Walter Olson's Overlawyered blog! And my final thought was I'd never be able to hold my head up around my tort reform pals again!
So I'm just going to put some ice on it and forget about it.
“This list puts a light-hearted face on a serious problem: As a country, we simply sue too much,” ILR President Lisa A. Rickard said. “In fact, the collective toll that abusive lawsuits take on our society and our economy is no laughing matter. Lawsuits should be a last resort, not a first option.”
The “Top Ten Most Ridiculous Lawsuits of 2014” included the year’s ten most popular stories featured in monthly polls on FacesOfLawsuitAbuse.org. The “Faces of Lawsuit Abuse” campaign is ILR’s public awareness effort, created to highlight absurd and ridiculous lawsuits filed against businesses, families, and communities across the U.S.
This year’s “Top Ten Most Ridiculous Lawsuits” are:
1. Plaintiff in Pending Disability Lawsuit Topples Huge, Historic Boulder (Utah)
2. Little League Coach Sues Player Over Celebratory Helmet Toss (California)
3. NY Man Sues for More Money Than Exists on Planet Earth (New York)
4. Rescuers Sued By Man They Pulled From Floodwaters (Colorado)
5. CA Town Victimized by Plaintiffs’ Attorney Who Has Filed More Than 3,000 Lawsuits (California)
6. NYC Woman Spooked by “Dexter” Ad Sues MTA, Showtime for Subway Fall (New York)
7. Baseball Fan Caught Sleeping on Camera, Sues ESPN for $10 Million (New York)
8. Minimum Wage for Court-Ordered Community Service? (New York)
9. Jimmy John’s Lawsuit “Sprouts” Hefty Payday for Lawyers – Vouchers for Victims (California)
10. Woman Sues Disney for $250M, Claims “Frozen” Stolen From Her Life’s Story (New Jersey)
Links to the full stories from which the list was drawn and the complete results of the poll are available here.