ProfessorBainbridge.com

You'd think this was from the Onion, but sadly not

Class action lawyers have filed suit saying that contrary to its marketing, the popular beverage doesn’t actually “give you wings.” [Reuters, ABA Journal] Meanwhile, the same scientific observation that underlies the lawyers’ action — that pharmacologically, the drinks don’t seem to deliver effects readily distinguishable from those of a strong coffee — is hard to square with the oft-expressed fear that Red Bull et al pose unusual risks to consumers, although the New York Times does seem to manage to keep both ideas in its head at once. [Jacob Sullum]

via overlawyered.com

This is the sort of crap that gives all lawyers a bad name and makes Trial Lawyers, Inc., a stench in the nostrils of God.

Did shareholder empowerment weaken banks and help cause the financial crisis?

I argued that to be the case in Corporate Governance after the Financial Crisis. New research confirms that "banks with empowered shareholders were more likely to be bailed out." Put another way, "shareholder empowerment leads to decisions that make banks weaker and less able to weather the crisis."

Not that i expect the shareholder empowerment crowd to take notice.

Do shareholders benefit from corporate political contributions?

Yes:

A hard-fought campaign is over and President Obama has been reelected. Should shareholders take notice? In brief, yes. In the paper, Corporate campaign contributions and abnormal stock returns after presidential elections, forthcoming in Public Choice, we explore the stock market performance of top corporate contributors after the elections that brought Bill Clinton and George W. Bush, respectively, to power. In both cases, the top contributors strongly outperformed the market. ...

An investor selecting a portfolio according to the percentage of contributions given to the winner in a presidential election would have earned significant abnormal returns of up to 6.6% per year during the first year after an election. Investing in a portfolio formed according to a company’s total contribution would have yielded abnormal annual returns of up to 15.5% for the same observation period.

Which tells me that the people bitching and moaning about corporate political contributions don't really have shareholder intersts at heart .. but rather the interests of the Democratic Party's anti-business left.

Do apolitical investors want corporations to disclose political contributions?

Some but not most:

The Center for Political Accountability released on December 10, 2012 its annual survey of mutual fund support for corporate political disclosure. The analysis, which is available on CPA’s website, reviewed how 40 of the largest mutual fund families voted on shareholder resolutions that asked for disclosure of political spending based on the CPA model.

The review’s key findings include the following:

• In the 2012 proxy season, 40 of the largest mutual fund families supported, on average, 34 percent of the 29 CPA-model shareholder resolutions for corporate political disclosure. They abstained on 12 percent and opposed 54 percent.
• Average mutual fund support in 2012 decreased slightly from 2011′s record 35 percent average support.

The bulk of the support for such disclosure comes not from typical investors but from Democrat-leaning union pensions, state and local government pensions, and academics. Hmmm....

Mayor Bloomberg takes nanny state to new extreme

“So we now have a politician directly dictating medical policy to doctors at city hospitals.” [Radley Balko]

P.S. In the mayor’s view, just as you can’t make an omelet without breaking eggs, so you can’t fight painkiller abuse without overriding doctors’ judgment: “so you didn’t get enough painkillers and you did have to suffer a little bit…. there’s nothing perfect.” [Colin Campbell, Politicker]

via overlawyered.com

Why can't the Vatican clean up its bank?

Schumpeter:

SINCE the beginning of the new year, tourists in Rome who want to visit the Sistine Chapel and see the papal art collections have had to put up with some unholy complications. At the end of a tedious hike from Saint Peter's square and often lengthy queuing alongside the Vatican's walls, they are being told that they cannot pay with credit or debit cards. Those without €16 ($21) in cash for an adult ticket have to walk ten minutes to the nearest bank with an ATM. (Cash dispensers in Vatican City are, incidentally, unique in providing the option of instructions in Latin.)

The refusal is the result not of a papal edict banning electronic payments, but of a decision by Italy’s central bank, which doubles as the country’s banking regulator. Payment services in Vatican City have been provided by the Italian arm of Deutsche Bank since 1997, but it did so with out the necessary authorisation. So the Bank of Italy told it to stop processing the payments. It even refused Deutsche’s request for a moratorium.

The reason for central bank's tough stance is that it has to comply with the European Union’s banking and anti-money-laundering law. This law permits EU banks to operate in non-EU countries only if these have adequate regulatory frameworks and supervisory controls in place. Brussels keeps a list of countries that are considered to satisfy requirements, and the Vatican is not on it.

In July Moneyval, an international body that assesses anti-money-laundering systems, decided that the Vatican's was not up to snuff—the Istituto per le Opere di Religione (IOR), the Vatican's bank, has yet to clean up its reputation. 

The Vatican Bank isn't the Church's worst scandal--obviously, the plague of ephebophile priests still stands as #1--but it is a long running embarassment that should have been fixed ages ago. The failure to clean things up leads one to inevitably suspect that high-ranking Vatican officials are implicated in the "clandestine monetary transactions ... by the Church, but allegedly also by the mafia as well as corrupt politicians and companies" run through the bank.

At this point, the best solution would be to shut down the current bank and start over with entirely new management, state of the art transparency, and independent lay supervision or oversight.

Are expert networks doomed?

At the very least, I agree with David Zarig's assessment that " it must take some strong nerves to operate one these days." It's quite clear that the SEC's insider trading enforcement program has them targeted.

Lipton's advice for boards in 2013

Famed corporate lawyer Martin Lipton has posted the 2013 edition of his annual "Some Thoughts for Boards of Directors," which highlights the key governance and legal issues boards will face in the upcoming year. As has been the case in recent years, much of his attention is devoted to shareholder activism. As always, it's a good read.

Uncovering Union Violence

Union violence against non-unionized workers and their employers is an under-reported story. Everyone knows it happens but they look the other way. It’s hard to look the other way, however, when the violence and vandalism is videotaped and put on the web–that’s what two Philadelphia developers did and the result is making waves far beyond the workplace.

via marginalrevolution.com

Bainbridge's study aids for corporation law, agency & partnership, and/or business associations courses

Bainbridge on Agency, Partnerships & LLCs:

The emergence of the limited liability company has kindled renewed interest in unincorporated business associations among legal scholars. This revival was further stimulated by the multiple revisions made to the Uniform Partnership Act in the 1990s. By lending new intellectual respectability to the study of unincorporated business associations, these developments stimulated the supply side of the curricular equilibrium. Courses on unincorporated business associations have thus sprung up at many law schools. A number of very fine casebooks compete for that market, including one co-edited by the author of this volume. This text is intended to provide students taking a course in unincorporated business associations with a reader-friendly, highly accessible overview of the law and economics of unincorporated business associations. In addition, students taking a basic course in corporations or business associations may find this volume helpful as a more expansive treatment of the law of agency, partnership, and limited liability companies. The text does not shy away from bringing theory to bear on doctrine. While the text has a strong emphasis on the doctrinal issues taught in today’s unincorporated business associations classes, it also places significant emphasis on providing an economic analysis of the major issues in that course. Agency, Partnership and Limited Liability Companies thus offers not only with an overview of the black letter law of unincorporated business associations, but also a unifying method of thinking about the subject. Using a few basic tools of law and economics — such as price theory, game theory, and the theory of the firm literature — the reader will come to see the law in this area as the proverbial “seamless web.”

Bainbridge on Corporation Law:

Corporations classes present students with two related problems: First, many students have trouble understanding the cases studied because they do not understand the transactions giving rise to those cases. Second, Corporations classes at many law schools are taught from a law and economics perspective, which many students find unfamiliar and/or daunting. Yet, with few exceptions, corporate law treatises and other study aids have essentially ignored the law and economics revolution. 

This book is intended to remedy these difficulties. The pedagogy is up-to - date, with a strong emphasis on the doctrinal issues taught in today’s Corporations classes and, equally important, a mainstream economic analysis of the major issues in the course. As such, the text is coherent and cohesive: It provides students not only with an overview of the course, but also (and more importantly) with a unifying method of thinking about the course. Using a few basic tools of law and economics-price theory, game theory, and the theory of the firm literature-students will come to see corporate law as the proverbial “seamless web.” Finally, the text is highly readable: The style is simple, direct, and reader- friendly. Even when dealing with complicated economic or financial issues, the text seeks to make those issues readily accessible.

 

Carmen Ortiz, U.S. Attorney, Under Fire Over Suicide Of Internet Pioneer Aaron Swartz

A petition urging President Barack Obama to fire U.S. Attorney Carmen Ortiz for prosecutorial overreach in her office's case against Aaron Swartz had garnered more than 10,000 signatures in the few days since the open-democracy advocate's death. A leading academic has also called for an independent inquiry into her office's conduct.

Swartz, an Internet pioneer, took his own life on Friday at the age of 26, after fighting federal hacking charges for two years.

In the fall of 2010, Swartz downloaded millions of academic journal articles from the online database JSTOR. The scope of the download was a violation of JSTOR's terms-of-service agreement -- users are typically limited to a few downloads at a time -- although Swartz had legal access to all of the articles through his database account. JSTOR decided not to pursue any civil case against Swartz and urged the U.S. Attorney's Office for Massachusetts to abandon the criminal case against him. The Massachusetts Institute of Technology, whose computer network Swartz used to download the documents, did not do so.

Assistant U.S. Attorneys Scott Garland and Stephen Heymann, working under Ortiz, filed 13 felony charges against Swartz, seeking decades of imprisonment.

via www.huffingtonpost.com

In Memoriam: Jeff O'Connell

Jeffrey O'Connell, Professor Emeritus at the University of Virginia School of Law, passed away last week.  He was 84.  O'Connell, a torts and insurance scholar who was an early proponent of no-fault insurance, graduated from Harvard Law.  Over his career, he also taught at Illinois and Iowa, and visited at a number of other schools.  

via leiterlawschool.typepad.com

I took an advanced torts class from O'Connell and found him to be kind, generous, and incredibly smart. He had a chest of wonderful war stories that enlivened class. Granted, he went on a bit about the merits of no-fault insurance, but who can blame him? In sum, he was a great teacher and scholar who shall be missed.

The Obama White House shows its sense of humor

Once the official White House petition to secure resources and funding to begin construction on a Death Star passed 25,000 signatures, it rated a response from the White House. First, the bad news: we're not getting a Death Star. There is, however, a bit of good news: the person assigned to responding to the petition has both a firm love of science and a geeky sense of humor.

Paul Shawcross, Chief of the Science and Space Branch at the White House Office of Management and Budget, issued this response to the petition:

OFFICIAL WHITE HOUSE RESPONSE TO
Secure resources and funding, and begin construction of a Death Star by 2016.
This Isn't the Petition Response You're Looking For
By Paul Shawcross

The Administration shares your desire for job creation and a strong national defense, but a Death Star isn't on the horizon. Here are a few reasons:

• The construction of the Death Star has been estimated to cost more than $850,000,000,000,000,000. We're working hard to reduce the deficit, not expand it.
•The Administration does not support blowing up planets.
•Why would we spend countless taxpayer dollars on a Death Star with a fundamental flaw that can be exploited by a one-man starship?

via io9.com

I am amused

John Carney on "Why AIG Suing America Isn't as Crazy as You Think"

John opines:

A judge on the Federal Claims court ruled last summer that if what Greenberg argues is true, the government may really have acted illegally.

Greenberg's legal team, led by David Boies, argues that the government pushed away sovereign wealth-funds and other foreign investors who might have been willing to invest in the company before it was bailed out. This, they argue, prevented AIG from being able to raise capital and contributed to its downgrading by ratings agencies, which in turn put the company into even more dire straits. This forced AIG to accept the unfair terms the government offered in its loan agreement, the lawyers say.

Greenberg's lawyers also raise questions about the events around one of the oddest episodes of the AIG-Treasury relationship. You might recall that in the summer of 2009, the government converted its preferred shares into 79.9 percent of the common stock of AIG, something that it was entitled to do under the terms of the government's loan. This was accomplished by means of a reverse 20:1 stock split.

You might not recall precisely why the stock split occurred. At the time, then-chief executive Ed Liddy said it was necessary to prevent the stock from being delisted on the New York Stock Exchange. That might be true. But it is also true that the split was a necessary part of the conversion from preferred shares because AIG's charter didn't authorize enough common stock to allow the government to take 79.9 percent of the common stock. So when the government converted to common, it was issued unauthorized common stock.

When common shareholders were asked to authorize the additional common stock—which would have badly diluted their interest in the company—they voted no. Because the government's stake was in unauthorized shares, it didn't get a vote. 

So another vote was held about the reverse split of all issued stock—including the government's unauthorized shares. This time, the government got to vote its 79.9 percent stake on this question because its unauthorized shares were also affected. And so the measure prevailed. After the split, the total number of shares outstanding no longer exceeded the number authorized in AIG's charter, so the government's shares were now officially authorized.

That's more than a little bit confusing, I'll admit. And it does sound more than a bit questionable, even to someone as jaded about shareholder rights as I am. But Greenberg's lawyers say it's even worse. They say that this procedure was engineered to circumvent a Delaware court order meant to protect the rights of the common shareholders when the government took over the company.'

If you have the stomach for gross violations of the rule of law by the federal government, go check out the rest.

Let Blasius go the way of the Dodo

Anti-Delawarite Jay Brown is offering up his annual list of the 5 most anti-shareholder Delaware decisions--i.e., the five Delaware decisions most likely to be correct. ;-))

For example, he cites:

Keyser v. Curtis, 2012 Del. Ch. Lexis 175 (Del. Ch. July 31, 2012), [which] was the latest salvo in eroding the Blasius standard.  We discussed the case back in October.  In effect, the court found that in a case implicating both the duty of loyalty and the standard from Blasius, it would apply the standard from the duty of loyalty.  In other words, the court opted for the test that was easier for the board to meet.  Moreover, the court did so largely by disparaging the Blasius standard, portending further erosion.  Id.  (opinion stating that the main role of Blasius "to the extent it has one" is as an iteration of the intermediate standard fromUnocal).  

If the Chancery Court has its way, the need for "compelling justification" will go the way of the Dodo.  

If Blasius really is on the way out, I would applaud loudly. I direct the reader's attention to Harry G. Hutchison, Director Primacy and Corporate Governance: Shareholder Voting Rights Captured By the Accountability/Authority Paradigm, 36 Loy. U. Chi. L.J. 1111 (2005), which deploys my director primacy model to very good effect in analyzing shareholder voting rights, and makes a compelling case for scuttling Blasius.

What you ask is Blasius? Well, Gordon Smith once explained that:

One of my favorite Delaware decisions is Blasius Industries, Inc. v. Atlas Corp., 564 A.2d 651 (Del. Ch. 1988), written by then-Chancellor Bill Allen.Blasius has a narrow assignment in Delaware jurisprudence, requiring a "compelling justification" for any corporate action "intended primarily to thwart effective exercise of the franchise." Not many corporate actions over the years have been subjected to that standard, but Allen's defense of the shareholder vote is a classic:

The shareholder franchise is the ideological underpinning upon which the legitimacy of directorial power rests. Generally, shareholders have only two protections against perceived inadequate business performance. ...

To which I must respectfully dissent. 

As I wrote in The Board of Directors as Nexus of Contracts:

“The theory of our corporation law confers power upon directors as the agents of the shareholders; it does not create Platonic masters.” So opines former Delaware Chancellor William Allen, whom many regard as the leading corporate law jurist of our era. To paraphrase a television commercial of my youth, when Chancellor Allen speaks, people listen. Yet, as Horace cautioned, “even the worthy Homer sometimes nods.” The central thesis of this Article is that directors are not mere agents of the shareholders. To the contrary, the corporation’s board of directors in fact is a Platonic Guardian. All others with interests in the corporation are mere constituents.

Hence, in Director Primacy and Shareholder Disempowerment, I described Allen's holding in Blasius as "mere ipse dixit."