ProfessorBainbridge.com

NY Times' sleight of hand re exemptions for employers who object to Obamacare's contraceptive mandate on religious grounds

The New York Times editorial board is opposed to granting such objections:

The Obama administration’s rule requiring employer health plans to cover birth control without a co-payment has given rise to a slew of lawsuits by private companies claiming the mandate attacks religious freedom. Three federal appeals courts have ruled on the issue, with two correctly rejecting that view as without legal foundation. Given the conflicting rulings, it is a good bet the Supreme Court will agree to address this issue in the next term. ...

Allowing employees to make independent decisions to obtain contraceptives does not violate anyone’s religious freedom. If the Supreme Court takes up these cases, it should soundly reject the warped view that some employers can get out of complying with the new law, and in effect use their religious beliefs to discriminate against women.

Fine. The Times is entitled to its opinions. But it is not entitled to lie. Yet that is more or less what it did when it opined that "there is no exemption for owners of private for-profit businesses who simply don’t want to comply with a general law because of their personal views." Granted, the Times is technically correct, because it is referring to the implementing Obama administration regulation in question, which in fact contains no such exemption. But the rule did not need to do so. The Religious Freedom Restoration Act provides precisely such an exemption:

In recent months, lawsuits challenging the Patient Protection and Affordable Care Act’s (“ACA”) requirement that providers of health insurance pay for contraceptives and abortifacient drugs have attracted attention from legal commentators, the news media, and even the Supreme Court. Plaintiffs argue that the contraception mandate violates the Religious Freedom Restoration Act (“RFRA”) by imposing a substantial burden on their religious exercise without meeting strict scrutiny requirements. Early circuit court decisions at the preliminary injunction phase foreshadowed a circuit split on the issue, with some siding with the plaintiffs, and others siding with the government. While this Note was going to print, the Tenth Circuit issued a complicated en banc decision in Hobby Lobby Stores, Inc. v. Sebelius, that reversed a lower court ruling in favor of the government. Although that case signaled a victory for the plaintiffs, the fractured nature of the decision only underscores the likelihood that this issue will ultimately land on the Supreme Court’s doorstep. 

Hobby Lobby highlights a novel issue — whether for-profit corporations can seek exemptions from the ACA by invoking RFRA. This Note will consider the arguments put forward by the majority in Hobby Lobby, as well as those put forward by the dissenters. Moreover, this Note will address additional textual and contextual factors that courts have failed to consider, ultimately concluding that RFRA draws no distinction between for- and nonprofits. Policy arguments against allowing for-profits protection under RFRA are then considered. In the end, if courts will stay true to RFRA’s text and context, they will be led to two ultimate conclusions. First, for-profits are within RFRA’s auspices. And second, the sacrifice of conscience is not the cost of incorporation in America.

Christiansen, Jeremy M., 'The Word Person...Includes Corporations': Why the Religious Freedom Restoration Act Protects Both For- and Nonprofit Corporations (August 30, 2013). Utah Law Review, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2318499.

Moreover, as I have argued, even if the courts reject that argument, the reverse veil piercing doctrine remains available as a tool for requiring just such an exemption.

And so the NY Times is caught in a sleight of hand. Yes, what it said is technically true, but it is still misleading when considered in a broader sense.

Ridge Geyserville (Sonoma County) 2010

A blend of 64% Zinfandel, 20% Carignane, 12% Petite Sirah, 2% Alicante Bouschet, and 2% Mataro (I am always curious to know if the winemaker really thought that a 2% addition from some minor grape mattered or if he was just using up some wine he had lying around!). The 2010 was a notoriously difficult vintage, especially for old vine Zinfandel, but I had splashed out on a half case of geyserville anyway, so I was curious to see how it was doing.

Deep purple. No sediment yet. Blackberry, currant, spice, pepper, dust, and menthol on the nose. The palate is pretty tough, with a lot of tannins. Needs time but has potential. I'll probably wait until Spring 2015 to open the next bottle. Grade: B+ (tentative with potential to rise)

"The Five Most Important Things Companies Need to Know and Do About the SEC’s Proposed CEO Pay Ratio Rules"

Jim Barrall has posted advice on the titular subject at The Conference Board Governance Center Blog. It's a good read for folks working on this troublesome rule.

"Are activist shareholders good for investors?"

David Prosser addresses the titular question:

Companies targeted by activists often seek to portray their pursuers as "corporate raiders", accusing such investors of being motivated by the desire to turn a quick profit, rather than any interest in the long-term value of the company.

For their part, activists argue they are holding to account companies whose managements have become complacent. Moreover, while corporate raiders of the 1980s may have been unpopular, they were only able to achieve their objectives with the support of shareholders upset that their stakes in underperforming conglomerates did not reflect the value of these companies' constituent parts. ...

... the evidence that shareholders feel the benefit of investor activism is patchy. Many academics argue that a company's financial performance - its operational results and share price returns - rarely gets much of a boost from an attack by activist investors.

My take on the issue is that activists generally are not good for other investors, but that some shareholder interventions can be beneficial. The trick, I recently argued, is sorting out the good from the bad and figuring out ways to deter the bad interventions:

Even though the primacy of the board of director primacy is deeply embedded in state corporate law, shareholder activism nevertheless has become an increasingly important feature of corporate governance in the United States. The financial crisis of 2008 and the ascendancy of the Democratic Party in Washington created an environment in which activists were able to considerably advance their agenda via the political process. At the same time, changes in managerial compensation, shareholder concentration, and board composition, outlook, and ideology, have also empowered activist shareholders.

There are strong normative arguments for disempowering shareholders and, accordingly, for rolling back the gains shareholder activists have made. Whether that will prove possible in the long run or not, however, in the near term attention must be paid to the problem of managing shareholder interventions.

This problem arises because not all shareholder interventions are created equally. Some are legitimately designed to improve corporate efficiency and performance, especially by holding poorly performing boards of directors and top management teams to account. But others are motivated by an activist’s belief that he or she has better ideas about how to run the company than the incumbents, which may be true sometimes but often seems dubious. Worse yet, some interventions are intended to advance an activist’s agenda that is not shared by other investors.

This chapter proposes managing shareholder interventions through changes to the federal proxy rules designed to make it more difficult for activists to effect operational changes, while encouraging shareholder efforts to hold directors and managers accountable.

Bainbridge, Stephen M., Preserving Director Primacy by Managing Shareholder Interventions (August 27, 2013). Research Handbook on Shareholder Power and Activism, Forthcoming; UCLA School of Law, Law-Econ. Research Paper No. 13-09. Available at SSRN: http://ssrn.com/abstract=2298415

Differing Perspectives On The SEC’s Proposed CEO Pay Ratio Rule And Who Speaks For CalPERS?

Last Wednesday, a divided Securities and Exchange Commission issued proposed amendments to Item 402 of Regulation S-K.  Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act required the SEC to amend the rule to mandate disclosure of the median of the annual total compensation of all employees of an issuer (excluding the chief executive officer), the annual total compensation of that issuer’s chief executive officer and the ratio of the median of the annual total compensation of all employees to the annual total compensation of the chief executive officer.

via calcorporatelaw.com

Keith proceeds to slice up both the SEC and CalPERS. Go reat it. Now.

Sharks SLAPPing

Strategic litigation against public participation (SLAPP):

A strategic lawsuit against public participation (SLAPP) is a lawsuit that is intended to censor, intimidate, and silence critics by burdening them with the cost of a legal defense until they abandon their criticism or opposition.^[1]

The typical SLAPP plaintiff does not normally expect to win the lawsuit. The plaintiff's goals are accomplished if the defendant succumbs to fear, intimidation, mounting legal costs or simple exhaustion and abandons the criticism. A SLAPP may also intimidate others from participating in the debate. A SLAPP is often preceded by a legal threat. The difficulty is that plaintiffs do not present themselves to the Court admitting that their intent is to censor, intimidate or silence their critics. Hence, the difficulty in drafting SLAPP legislation, and in applying it, is to craft an approach which affords an early termination to invalid abusive suits, without denying a legitimate day in court to valid good faith claims.

SLAPPs take various forms. The most common used to be a civil suit for defamation, which in the English common law tradition was a tort. The common law of libel dates to the early 17th century and (unusual in English law) is reverse onus, meaning, once someone alleges a statement is libelous, the burden was on the defendant to prove that it is not. The Defamation Act 2013 removed most of the uses of defamation as a SLAPP in the United Kingdom by requiring the proof of special damage. Various abusive uses of this law including political libel (criticism of the political actions or views of others) have ceased to exist in most places, but persist in some jurisdictions (notably British Columbia and Ontario) where political views can be held as defamatory. A common feature of SLAPP suits is forum shopping, wherein plaintiffs find courts that are more favourable towards the claims to be brought than the court in which the defendant (or sometimes plaintiffs) live.

Other widely mentioned elements of a SLAPP are the actual effectiveness at silencing critics, the timing of the suit, inclusion of extra or spurious defendants (such as relatives or hosts of legitimate defendants), inclusion of plaintiffs with no real claim (such as corporations that are affiliated with legitimate plaintiffs), making claims that are very difficult to disprove or rely on no written record, ambiguous or deliberately mangled wording that lets plaintiffs make spurious allegations without fear of perjury, refusal to consider any settlement (or none other than cash), characterization of all offers to settle as insincere, extensive and unnecessary demands for discovery, attempts to identify anonymous or pseudonymous critics, appeals on minor points of law, demands for broad rulings when appeal is accepted on such minor points of law, and attempts to run up defendants' costs even if this clearly costs more to the plaintiffs.

Walter Olson catches a plaintiff lawyer SLAPPing medical researchers:

Here are the details, as reported by Sheri Qualters of the National Law Journal. Some newborns are found to be suffering from brachial plexus injury, a type of harm to a child’s shoulder, arm, or hand that in a minority of cases results in permanent disability (so-called Erb’s palsy or a number of related conditions). A large volume of birth-injury litigation goes on as a result, in part because courts have tended to accept the idea that the only medically recognized cause of those conditions in newborns is excessive or traumatic use of physical force by clinicians (“traction”). In 2008, however, the American Journal of Obstetrics & Gynecology published a case report of a delivery in which an infant was found to be suffering such injury although the physician by her own account had not applied any excessive traction during the birth. If instead natural forces of labor could cause the dislocation resulting in the condition, many lawsuits might rest on shakier ground. Since then, defense lawyers have cited the report — by Henry Lerner of Harvard Medical School and Eva Salamon of the Bond Clinic in Winter Park, Fla. — in litigation.

A Boston lawyer who claims to have debunked the Lerner-Salamon case study has proceeded to sue its two authors, Elsevier — which publishes AJOG and many other medical and scientific journals — and Dr. Salamon’s clinic for publishing and refusing to retract it. The damages are said to be $3 million each to two families of infant plaintiffs whose lawsuits did not succeed allegedly because of the case report. The lawsuit invokes a Massachusetts consumer protection law which allows treble damages, and also asks for a court order forbidding the report to be entered as evidence in future litigation. A trial court dismissed the case, in part on the grounds that the plaintiffs had not shown that the article was a material cause of the families’ failure to prevail in the suits. Now the case is on appeal to the First Circuit, where defense lawyers are arguing, inter alia, that if there are weaknesses in the article the remedy for plaintiffs is to introduce evidence to that effect to counter it in trials. “As for its own role, Elsevier argued that applying a state consumer protection law to its published material would violate its free-speech right under the First Amendment.”

First Amendment? Let’s not go to extremes. If we start applying the First Amendment, how are lawyers supposed to silence publications that inconvenience them?

In a better world, these sort of lawsuits would result in the shark being sanctioned and disbarred. Of course, in an even better world, trial lawyer payola to Democrats wouldn't prevent tort reform.

Why I teach Business Associations by entity rather than topic (and you should too)

Steve Bradford posits a good question:

The basic Business Associations course at most law schools today includes much more than the law of corporations. Most Business Associations courses cover partnerships and limited liability companies, and often limited partnerships and agency law as well. 

The leading publishers offer a number of business associations casebooks, but their basic organizational structure is the same: each entity is covered separately. A typical casebook might, for example, begin with partnership law, then cover the law of corporations, then limited liability companies. The topics covered for each entity are similar: formation, management, fiduciary duty, the liability of investors, exit rights, and so on. 

Why not flip this organizational structure and organize business associations courses by substantive topic rather than by entity? We could begin with a chapter on formation that discusses how all of the entities are created. A chapter on management would discuss how all of the entities are managed. A chapter on fiduciary duties would discuss the fiduciary duties of agents, partners, limited partners, corporate officers and directors, and the members and managers of LLCs. And so on, topic by topic.

This alternative approach would eliminate a lot of repetition, and foster discussion of the policies underlying the rules: Why are the fiduciary duties of partners different from the fiduciary duties of shareholders? Why do partners have the right to participate in the management of the business, but not shareholders? Much that can be said about, for example, corporate opportunity would also apply to business opportunities in the partnership and the LLC. The law may differ from entity, and often for good reason, but wouldn’t the policy reasons for those differences become more apparent if we discussed all the entities at the same time?

This approach would also make choice-of-entity concerns more apparent. Students would see how choice of entity does or does not matter with respect to each topic.

There would, however, be drawbacks, which is why I’m not sure of the correct answer. For one thing, it’s much easier pedagogically to deal with one entity at a time than to bounce around from statute to statute. And an entity-by-entity organization allows instructors to focus more on the relationships among the rules affecting a particular entity—for example, the relationship between the limited liability of shareholders and their limited participation in control.

I've tried that approach twice. Once, when I was very young, using photocopied materials I cut and pasted from casebook drafts the authors kindly allowed me to use. Once by jumping around Klein, Ramseyer, and Bainbridge. Both times it was a disaster. Students found it very confusing (and boy did my evaluations show it!). It actually took more time than the entity by entity approach, because I ended up having to do a lot of review (e.g., "you'll remember from 2 weeks ago when we discussed LLCs most recently that ...."). There actually isn't all that much topic overlap. Among corporations, for example, you've got the business judgment rule, derivative suits, "duty" of good faith, executive compensation, the special rules for close corporations, proxies, and so on, most of which either don't apply to LLCs etc.... or don't deserve duplicative treatment.

Bush: Obama should play golf

Former President George W. Bush said President Obama should not be criticized over his frequent golf outings. 

via thehill.com

I agree. The more time Obama spends on the golf course and the less time in the Oval office, the less trouble he can cause.

Americans' Belief That Gov't Is Too Powerful at Record Level

Six in 10 Americans (60%) believe the federal government has too much power, one percentage point above the previous high recorded in September 2010. At least half of Americans since 2005 have said the government has too much power. Thirty-two percent now say the government has the right amount of power. Few say it has too little power.

via www.gallup.com

So what would the 60% be willing to have government stop doing?

Pelosi says 'the cupboard is bare'

House Minority Leader Nancy Pelosi says that while deficit reduction is a laudable goal, there are precious few spending cuts left to negotiate in exchange for raising the debt ceiling.

"The cupboard is bare," the California Democrat said in an interview aired Sunday on CNN's "State of the Union." "There's no more cuts to make."

via www.politico.com

WTF? How can a budget expected to result in $3.803 trillion worth of expenditures have nothing to cut?

Shareholder activism

Paul Rose and Bernie Sharfman have a new paper that also reviews the economic literature, and concluding that "Empirical studies have repeatedly shown that certain types of offensive shareholder activism lead to an increase in shareholder wealth."

The empirical question, it seems to me, is not a straightforward one - it is difficult to compare firms that activists do target with firms that they do not, and difficult of course to know what would have happened had a firm not been targeted.  I take it that the case against activist shareholders is unimpeachably logical, and very Chicago.  In efficient markets it should not be possible to realize long terms gains through management changes, for the companies targeted would be making said changes anyway.  And for examples of studies along these lines, you can look at this or this case.

via www.theconglomerate.org

Modesto Junior College Tells Student He Can’t Hand Out Copies Of The Constitution On Constitution Day

Unfortunately, for many college students, their “Free Speech Zone” shrinks considerably when on campus. One out of every six major colleges have designated “Free Speech Zones” where students are “permitted” to “enjoy” this Constitutional right, and even then there are restrictions. In these colleges, exercising your right to free speech means asking permission at least a couple of days in advance as well as having the administration “approve” your speech.

The latest example of confined and controlled speech comes to us courtesy of Modesto Junior College. As FIRE.org reports, a student found his exercise of free speech shut down on one of the worst days of the year for a college to assert its negative attitude towards the First Amendment.

via abovethelaw.com

Idiots. And, yes, I specifically include you administrator Christine Serrano.

Louis Jadot Échezeaux 2003

Had thrown a moderate amount of very light sediment, which required decanting. Light ruby color, without much depth. Modest bouquet of cherries and beets. Thin bodied with high acidity. Not much depth of flavor. Grade: B--

The Christ-Centered Pope: Understanding the Pope

Jorge Mario Bergoglio is determined to redirect the Church’s attention, and the world’s attention, to Jesus Christ. In this, his papacy will be in continuity with those of John Paul II and Benedict XVI. Pope Francis is going to be radically Christ-centered in his own way, though, and some may find that way jarring. Those willing to take him in full, however, rather than excising 17 words from a 12,000-word interview, will find the context in which those 17 words make classic Catholic sense. “We cannot insist only on issues related to abortion, gay marriage, and the use of contraceptive methods,” the pope told his interviewer. Why? Because it is by insisting on conversion to Jesus Christ, on lifelong deepening of the believer’s friendship with him, and on the Church’s ministry as an instrument of the divine mercy that the Church will help others make sense of its teaching on those matters — with which the New York Times, not the Catholic Church, is obsessed — and will begin to transform a deeply wounded culture.

via www.eppc.org

Go read the whole thing. It's a great analysis.

Should a lawyer be suspended for calling the other party in the case an "illegal alien"?

I was going to blog something snarky about this story and comment on how you're not allowed to say certain things anymore, but then I remembered the whole Federal Express unpleasantness and decided to self-censor myself. And so the forces of political correctness win again. Which is sort of the point I would have been trying to make.