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Bebchuk's latest argument for corporate political disclosure

Lucian Bebchuk is still arguing for corporate disclosure of political expenditures:

The Securities and Exchange Commission is currently considering a rulemaking petition urging the Commission to develop rules requiring public companies to disclose their political spending. ... [S]uch rules would lead to considerable benefits for investors. As we explained in the petition, and in Shining Light on Corporate Political Spending, such rules would give investors information they have long been requesting from the companies they own. Furthermore, disclosure is necessary to ensure that directors and executives make political spending decisions that are consistent with shareholder interests. 

What exactly are these purported benefits? His first point, namely that investors (which ones?) have been asking for the information, is specious. Just because someone asks for something--even persistently--doesn't mean it's good for them, as anyone who's ever taken a small child down the cereal aisle of a grocery store knows. And let's consider exactly the identity of these investors. the ones pushing the issue are almost entirely union and state/local employee pension funds, all of who are in bed with the Democratic Party. Whether Bebchuk wants to admit it or not, he's carrying water for people who have a political agenda. They want to defund the Right by deterring corporate campaign contributions. (I freely admit I want to keep that spigot open. I have a dog in the fight between Democrats and Republicans, even if I'm not always that crazy about that dog.)

His second point is that "disclosure is necessary to ensure that directors and executives make political spending decisions that are consistent with shareholder interests." But the same is true of any spending decision. But the law has never required companies to disclose the minutae of spending at the minuscule level Bebchuk and his allies are demanding with respect to political decisions. Would we expect GM to disclose that some plant manager spent $250 on toner at Office Mart? On the one hand, Bebchuk's rulemaking petition claims that he and his allies "encourage the Commission to adopt ... a de minimis exception," but then they take it back by urging that the Commission set "an appropriately low threshold."

My bottom line is that this is bad policy and bad politics. With a 3-2 Democrat majority on the SEC, unfortunately, that may not be enough to stop this idea.

I'm really starting to like our new Pope

I admired John Paul II for his courage and Benedict XVI for his intellect, but how does one "like" a giant? As for Pope Francis, however, I'm starting to really like him. He's hands down the most down to earth Pope of my lifetime, giving the Church the break it desperately needed from all that Prada crap. Case in point:

A last-minute no-show by Pope Francis at a concert where he was to have been the guest of honor has sent another clear signal that he is going to do things his way and does not like the Vatican high life.

The gala classical concert on Saturday was scheduled before his election in March. But the white papal armchair set up in the presumption that he would be there remained empty.

Minutes before the concert was due to start, an archbishop told the crowd of cardinals and Italian dignitaries that an "urgent commitment that cannot be postponed" would prevent Francis from attending.

The prelates, assured that health was not the reason for the no-show, looked disoriented, realizing that the message he wanted to send was that, with the Church in crisis, he - and perhaps they - had too much pastoral work to do to attend social events.

That empty chair sends a powerful signal, indeed.

I'd still like him to do two key things: First, appoint a Herculean cardinal to flush out the Augean stables in the Curia. Second, appoint a lay head of the Vatican Bank and have it transparently and publicly audited by one of the Big 4 accounting firms. Indeed, even though I'm generally not a fan of Sarbanes-Oxley, in the case of the Vatican Bank an independent audit committee and annual reports in internal controls would be a very good idea.

An open letter to Assemblyman Adrin Nazarian re SB 131's Elimination of the Statute of Limitations on Certain Child Abuse Claims

Dear Assemblyman Nazarian: You are the California Assembly representative for my district. I am writing today to urge you to oppose SB 131, which is coming up for a vote before the Assembly in the very near future. As you know, SB 131 would make dramatic changes in the statute of limitations governing certain sexual misconduct directed at children:

This bill would provide that the time limits for commencement of an action for recovery of damages suffered as a result of childhood sexual abuse shall be applied retroactively to any claim that has not been adjudicated to finality on the merits as of January 1, 2014. This bill would revive, for a period of one year, a cause of action, as specified, that would otherwise be barred by the statute of limitations as of January 1, 2014, provided that the plaintiff’s 26th birthday was before January 1, 2003, and the plaintiff discovered the cause of his or her injury on or after January 1, 2004.

I believe that you should vote AGAINST SB 131 and urge you to do so. This bill is seriously flawed, unfair, and probably unconstitutional.

Why do we have statutes of limitations? An excellent summary of the rationale behind statutes of limitations is taken from Lauren Kerns, "Incorporating Tolling Provisions into Sex Crimes Statute of Limitations", 13 Temple Policy and Civil Rights Law Review, 325, 327 (2004):

Criminal statutes of limitations are laws that limit the time during which a prosecution can be commenced. These statutes have been in operation for over 350 years and are deeply rooted in the American legal system. There are several rationales underlying statutes of limitations. First, they ensure that prosecutions are based upon reasonably fresh evidence - the idea being that over time memories fade, witnesses die or leave the area, and physical evidence becomes more difficult to obtain, identify or preserve. In short, the possibility of erroneous conviction is minimized when prosecution is prompt.

SB 131 is clearly inconsistent with that principle. It would force defendants to deal with an unworkable legal and business climate where they face unknown liability of an unknown duration under conditions where the passage of time–30, 40 or 50 years or more–make mounting an effective defense next to impossible.

Second, statutes of limitations encourage law enforcement officials to investigate suspected criminal activity in a timely fashion.

SB 131 eliminates that incentive by eliminating the statute of limitations.

[Third,] as time goes by, the likelihood increases that an offender has reformed, making punishment less necessary. In addition, society's retributive impulse may lessen over time, making punishment less desirable.

Oddly, SB 131 seeks to punish not just the actual wrongdoers, but also the organizations that employed them. As to the latter, surely the case that time lessens the justification for punishment is even more true than with respect to the actual offenders.

Finally, there is the thought that statutes of limitations provide an overall sense of security and stability to human affairs.

SB 131 is particularly unfair from this perspective. Indeed, SB 131 breaks faith with assurances given by the Legislature 10 years ago when it enacted SB 1779 (Burton), a one-time, one-year lifting of the statute of limitations for all of 2003 that allowed any victim of sexual abuse—regardless of how long ago it occurred—a second chance to file a lawsuit.  SB 131 thus would revive claims for an unprecedented third time.

SB 131 is further flawed by its fundamental unfairness. SB 131 covers incidents of abuse that may have taken place in private schools, not public schools, so the 92 percent of California children who attend public schools aren’t covered. This discriminates against both public school children and operators of private schools. Why do public schools and teachers get a free ride, while their students get no relief and their private school counterparts face potentially staggering liability?

The financial impact cannot be ignored. As I pointed out in my law review article, The Bishop's Alter Ego: Enterprise Liability and the Catholic Priest Sex Abuse Scandal, 48 Journal of Catholic Legal Studies 65 (2007) (Available at SSRN: http://ssrn.com/abstract=901663), unlimited liability exposure for the Catholic Church will "impede, if not destroy, the ability of these ministries to serve the needs of their congregants. Indeed, the mere threat of liability might do so: 'Both church and society will suffer if the continuation of ministries prompted by compassion—ministries often involving risks—is stopped short by the nervous calculation of legal liabilities.'” [Quoting Edward McGlynn Gaffney, Jr. & Philip C. Sorensen, Ascending Liability in Religious and Other Nonprofit Organizations viii-ix (1984).]

Finally, speaking as a lawyer and law professor with over 30 years experience, I simply do not understand how SB 131's retroactive application can be supported in light of Stogner v. California, 539 U.S. 607 (2003), which held that application of California law, permitting prosecution for sex-related child abuse within one year of victim's report to police, to offenses whose prosecution was time-barred at time of law's enactment was unconstitutionally ex post facto. Granted, Stogner involved a criminal--not a civil--statute of limitations. See DeLonga v. Dioceses of Sioux Falls, 329 F. Supp. 2d 1092, 1102 (D.S.D. 2004) (arguing that Stogner recognized a distinction between civil and criminal cases and that the Supreme Court has, in the past, defined a violation of ex post facto laws solely in conjunction with criminal and punitive statutes). But many of the legal arguments therein apply with equal force to civil statutes of limitation. At the very least, moreover, Stogner's policy arguments demonstrate that SB 131 is unwise even if it were found constitutional.

In Stogner, Justice Stephen Breyer writing for the majority, explained that:

Long ago Justice Chase pointed out that the Clause protects liberty by preventing governments from enacting statutes with “manifestly unjust and oppressive” retroactive effects. Calder v. Bull, 3 Dall. 386, 391, 1 L.Ed. 648 (1798). 

The unfairness inherent in SB 131 that I have detailed above surely implicates this argument against the bill. The unfair disparate application of SB 131 to public and private organizations, plus the oppressive costs and uncertainty clearly violate the principle Justice Chase laid down.

Returning to Justice Breyer's opinion in Stogner, he further explained that:

Judge Learned Hand later wrote that extending a limitations period after the State has assured “a man that he has become safe from its pursuit ... seems to most of us unfair and dishonest.”  Falter v. United States, 23 F.2d 420, 426 (C.A.2), cert. denied, 277 U.S. 590, 48 S.Ct. 528, 72 L.Ed. 1003 (1928). In such a case, the government has refused “to play by its own rules,”Carmell v. Texas, 529 U.S. 513, 533, 120 S.Ct. 1620, 146 L.Ed.2d 577 (2000). It has deprived the defendant of the “fair warning,” Weaver v. Graham, 450 U.S. 24, 28, 101 S.Ct. 960, 67 L.Ed.2d 17 (1981), that might have led him to preserve exculpatory evidence. 

As we have seen, of course, the indefinite--potentially multiple decade--extension contemplated by SB 131 is equally "unfair and dishonest" and will deprive its targets of the ability to obtain a fair trial.

In sum, SB 131 is a bad law. It must be defeated. I strongly urge you not just to vote no on SB 131, but to vigorously oppose it.

Sincerely,

Stephen M Bainbridge

William D Warren Distinguished Professor of Law

UCLA School of Law (affiliation provided solely for purposes of identification and not to imply any endorsement of the views herein by UCLA) 

The Billionaire's Apprentice: The Rise and Fall of Rajat Gupta

From The Economic Times of India (HT: Gary Emmanuel ‏@SecuritiesAttny):

How did Rajat Gupta, who belonged to the highest echelons of corporate America, the golden boy of Indian Americans, get convicted of insider trading? How did Rajaratnam get tips on companies like Intel? Anita Raghavan's book The Billionaire's Apprentice tracks one of the biggest cases — and its riveting characters — to shake Wall Street ...

Heitz Cellars Bella Oaks Cabernet Sauvignon (Napa Valley) 1997

Despite being almost old enough to drive,this 15+ year old wine proved upon decanting to have thrown surprisingly little sediment. The youthful impression continued as the color was still a very deep ruby. A very pleasant bouquet of blackcurrants, black cherries, herbs, mint, and anise. On the palate, the flavor associations continued the youthful impression, as they were dominated by red and black fruits rather than markers of maturity like cedar or tobacco. But the tannins had receded, leaving the wine eminently drinkable. I've got one bottle left in my cellar and am struggling a bit with the question of when to drink it. If it were not for the lack of remaining tannic/acid structure, the youthful presentation of the wine would suggest 10+ years. All things considered, however, I'm thinking 2015 or so. Grade: A-

A looming constitutional crisis?

My friend and UCLAW colleague Adam Winkler thinks the DOMA case might lead to one. He explains:

This past weekend, I visited Washington, D.C., and spoke to well-placed lawyers about the prospects for DOMA. Surprisingly, I heard speculation that the Court would defy the conventional wisdom on DOMA. No one said the Court was likely to endorse the law. But there was serious concern that the Court would do in the DOMA case exactly what the conventional wisdom says the justices will do in the Proposition 8 case: avoid a definitive ruling by deciding the case on procedural grounds. If the speculation is true, the DOMA case could end up a major setback for the gay rights movement. And it could put the Obama administration on a crash course toward a constitutional crisis.

It's a very Legal Realist take on the SCOTUS, in which Adam is basically saying that whether or not the Supreme Court Justices follow the election returns, they definitely have their eyes on the history books (or at least swinging Anthony Kennedy does). Which is consistent with the view my friend Mitu Gulati and I took of the Court in our article How Do Judges Maximize? (The Same Way Everybody Else Does - Boundedly): Rules of Thumb in Securities Fraud Opinions. Emory Law Journal, Vol. 51, 2002. Available at SSRN: http://ssrn.com/abstract=283261:

Bounded rationality implies that Supreme Court justices (and their clerks) have a limited ability to master legal information, including the myriad complexities of doctrine and policy in the host of areas annually presented to the court. Specialization is a rational response to bounded rationality—the expert in a field makes the most of his limited capacity to absorb and master information by limiting the amount of information that must be processed by limiting the breadth of the field in which he develops expertise. Supreme Court justices will therefore need to specialize, just as experts in other fields must do. Specializing in securities law would not be rational. The psychic rewards of being a justice—present day celebrity and historical fame—are associated with decisions on great constitutional issues, not the minutiae of securities regulation.

Hence, if Kennedy really is writing with one eye on the history books, he's being economically rational.

Update: Will Baude responds to Adam's post, arguing that the SCOTUS should do exactly what Adam fears, namely dispose of the case on procedural grounds without a substantive decision.

Martin Lipton provides analysis of dealing with hedge fund activism

Lipton:

Hedge fund activism requires attention and warrants similar preparation as to that we recommend for responding to a hostile takeover bid. This memo is a revision of the one I did in 2007 as a supplement to my Takeover Response Checklist. In fact, some activist attacks are designed to change management or the board of the target in order to facilitate a takeover or to force a sale of the target. Careful planning and a proactive response are critical. Failure to prepare reduces a company’s ability to control its own destiny.

Among the attack devices being used by activists are: (a) proposing a proxy resolution for creation of a special committee of independent directors to undertake a strategic review for the purpose of “maximizing shareholder value”; (b) conducting a proxy fight to get board representation (note solicitation for a short slate is very often supported by ISS and when it is, is usually successful); (c) orchestrating a withhold the vote campaign; (d) convincing institutional investors to support the activist’s program; (e) stock loans, options, derivatives and other devices to increase voting power beyond the activist’s economic equity investment; and (f) using sophisticated public relations campaigns to advance the activist’s arguments. SEC rules do not prevent an activist from secretly accumulating a more than 5% position before being required to make public disclosure.

Prevention of, or response to, an activist attack is an art, not a science. It is essential to be able to mount a defense quickly and to be flexible in responding to changing tactics. To forestall an attack, a company should continuously review its business portfolio and strategy and its governance and executive compensation issues sensibly and in light of its particular needs and circumstances. Companies must regularly adjust strategies and defenses to meet changing market conditions and legal developments.

This outline provides a checklist of matters to be considered in putting a company in the best possible position to prevent or respond to hedge fund activism.

He proceeds to outline his recommendations. useful stuff.

Antinori Tignanello (Tuscany) 2006

A deep ruby. It's thrown enough sediment to require decanting,  but the sediment is light enough to make decanting a bit tricky. Be very careful or run the last couple of inches through an unbleached coffee filter.

Intense blackberry and black cherry bouquet, with rich oak scents. On the palate, imagine a mix of cassis and kirsch. Vanilla from the oak. Herbs. Menthol. Yummy. Will last. Grade: A-

Plaintiff's class action lawyers had a very bad week at the U.S. Supreme Court

Michael Greve explains why. It couldn't happen to a nicer bunch of folks.

I, for one, do not welcome our new shareholder overlords ... but here's a guide for those of you who do

Ed Rock has a very interesting new article out, entitled Adapting to the New Shareholder-Centric Reality:

After more than eighty years of sustained attention, the master problem of U.S. corporate law — the separation of ownership and control — has mostly been brought under control. This resolution has occurred more through changes in market and corporate practices than through changes in the law. This Article explores how corporate law and practice are adapting to the new shareholder-centric reality that has emerged.

Because solving the shareholder–manager agency cost problem aggravates shareholder–creditor agency costs, I focus on implications for creditors. After considering how debt contracts, compensation arrangements, and governance structures can work together to limit shareholder–creditor agency costs, I turn to available legal doctrines that can respond to opportunistic behavior that slips through the cracks: fraudulent conveyance law, restrictions on distributions to shareholders, and fiduciary duties. To sharpen the analysis, I analyze two controversies that pit shareholders against creditors: a hypothetical failed LBO, and the attempts by shareholders of Dynegy Inc. to divert value from creditors through the manipulation of a complex group structure. I then consider some legal implications of a shareholder-centric system, including the importance of comparative corporate law, the challenges to the development of fiduciary duties posed by the awkward divided architecture of U.S. corporate law, the challenges for Delaware in adjudicating shareholder-creditor disputes, and the potential value of reinvigorating the traditional "entity" conception of the corporation in orienting managers and directors.

I'm going to have to read Greve's Upside Down Constitution

Michael Greve's got a new book out, The Upside-Down Constitution, and Sandy Levinson's review makes it sound highly relevant to my debates with the crowd that wants to federalize corporate law:

[Greve] is primarily interested in what might be termed the "political economy" of federalism, by which I mean its essential role, for Greve, in liberating business from oppressive regulation by generating competition among the states to attract business (and by eliminating the ability of states that might well be reflecting the views of local communities to freeze out goods produced by companies in business-friendly states).  This requires vigorous enforcement of the dormant commerce clause, on the one hand, and limitations on congressional power, on the other hand, to impose "cartelization" by a coalition of dominant states who wish to limit the autonomy of outliers.  The key examples of the latter, of course, are Hammer v. Dagenhart and its overruling case of Darby Lumber.  He would also happily constrain the power of states to impose punitive damages on vulnerable business.  He is unabashed and admirably candid in articulating what might ne termed a "Coolidgean view" of the constitutional enterprise, by which the business of Constitutionalism is protecting business. 

It sounds as though Greve's theory will provide a frame for enshrining Delaware's corporate law dominance in the Constitution, which would be useful.

Do law firms really want "practice ready" law school graduates?

You'd think so, but Deborah Jones Merritt has some evidence that they don't:

Pedagogically and professionally, it makes sense for law schools to teach practical skills along with theory and doctrine. New lawyers should know how to interview clients, file simple legal documents, and analyze real-world problems, just as new doctors should know how to interview patients, use a stethoscope, and offer a diagnosis. Hands-on work can also deepen knowledge received in the classroom. Law students who apply classroom theories to real or simulated clients develop stronger intellectual skills, as well as new practical ones.

Employers say they are eager to hire these better-trained, more rounded, more “practice ready” lawyers–and they should be. That’s why the employment results for Washington & Lee’s School of Law are so troubling. Washington & Lee pioneered an experiential third-year program that has won accolades from many observers. Bill Hendersoncalled Washington & Lee’s program the “biggest legal education story of 2013.” The National Jurist named the school’s faculty as among the twenty-five most influential people in legal education. Surely graduates of this widely praised program are reaping success in the job market?

Sadly, the statistics say otherwise. Washington & Lee’s recent employment outcomes are worse than those of similarly ranked schools. The results are troubling for advocates of experiential learning. They should also force employers to reflect on their own behavior: Does the rhetoric of “practice ready” graduates align with the reality of legal hiring?

After crunching the numbers, Merritt asks:

Washington & Lee’s outcomes are puzzling given both the prominence of its third-year program and the stridency of practitioner calls for more practical training. Just last week, California’s Task Force on Admissions Regulation Reform suggested: “If, in the future, new lawyers come into the profession more practice-ready than they are today, more jobs will be available and new lawyers will be better equipped to compete for those jobs.” (p. 14) If that’s true, why isn’t the formula working for Washington & Lee?

She then explores some possible explanations and implications. My own take away lesson is that nobody has figured out how to educate 21st Century lawyers. My best guess is that a combination of MOOCs and some sort of apprenticeship would be ideal. And I still think law should be an undergraduate major instead of a graduate school. But who knows? The trouble, of course, is that market pressures and the ABA's absurdly detailed accrediation and state bar admission rules severely limit schools' willingness to undertake radical experimentation.

Task management

I've been looking for a very simple, no frills, easy to use task management program for a while. I've been using iProcrastinate for Mac and iPhone/iPad for a few weeks and it is exactly what I needed. It's doesn't have a lot of bells and whistles, but it does basic task management very very well. Recommended.

Speaking of whistle blowers, can your attorney not only blow the whistle on you but also collect an SEC bounty for doing so?

Very interesting post by Lawrence West on "attorneys as award-seeking SEC whistleblowers":

This is a primer on attorneys as award-seeking SEC whistleblowers. It digests the relevant law and explains how it applies in real situations. That law includes the SEC attorney conduct and whistleblower award rules and each state’s ethics rules applicable to attorney disclosure. Fully assessing a particular situation will often require referring to the relevant rules for each state that might come into play for a particular lawyer in a particular situation. We therefore include information about choice of law and a chart summarizing the relevant rules in each of 51 US jurisdictions.