ProfessorBainbridge.com

"How Destroying Fish Is Not Like Destroying Financial Records" - Overlawyered

In the upcoming case of Yates v. United States, the Supreme Court will decide whether a fisherman can be prosecuted under Sarbanes-Oxley’s prohibition on destroying or concealing “any record, document, or tangible object” to impede an investigation. The records, documents, or tangible objects in question were undersized fish, which Mr. Yates threw overboard instead of bringing back to the dock as instructed by inspectors. Cato has filed an amicus brief urging the Court to rule that Mr. Yates was not adequately put on notice of the reach of “tangible object” to include not just business items such as hard drives, but small marine creatures, lest the law “potentially criminalize an unfathomable range of activities.” [Trevor Burrus, earlier]

via overlawyered.com

"CALPERS's own governance" - Overlawyered

CALPERS, the giant California public-sector pension fund, is among the nation’s leading scolds of corporate governance. So as Ira Stoll points out, it’s kind of newsworthy that its CEO over most of the 2000s just pled guilty to taking $200,000 in bribes from a contractor, the money handed over in paper bags and a shoebox. [New York Sun]

via overlawyered.com

Res ipsa.

What is going on in Texas? The State Supreme Court Eviscerates Minority Shareholder Rights

A guest post at D&O Diary has the details:

The Texas Supreme Court ruled in late June that minority shareholders in private companies in Texas cannot sue for shareholder oppression, even when majority shareholders attempt push them out of the business, dilute their shares, or otherwise act to lower the value of their investment.  While some have heralded the decision as pro-business and an effort to keep the courts out of Texas boardrooms, others suggest that the case will discourage investment in Texas companies.

The ruling in Ritchie v. Rupe, which applies to businesses incorporated in Texas, held that not only does the Texas Business Organizations Code not prohibit oppression of minority shareholders, there is no common-law cause of action for minority shareholder oppression in Texas. ...

Fascinating stuff. This is a real outlier and, as the guest post points out, will probably result in a lot of private ordering:

... sophisticated investors—even if minority investors—will be likely to add minority shareholder protections contractually into their investor agreements as prerequisite to investing in a Texas corporation.  They would be able to sue pursuant to these contractual provisions. 

I've got to flag this one for Bill and Mark as possible casebook fodder.

Golf leads to a life of securities crime?

I liked Jay Brown's post Insider Trading and Another Argument Against Playing Golf.

Can you commit insider trading by giving away stock?

It's a somewhat obscure, but surprisingly interesting question of securities law, which Jay Brown analyzes in this post.

Don't poke the bear

A comment at Ann Althouse's blog amused me:

I have a short list of people I don't ever want to tick off. Topping the list is Chuck Norris. Not much farther down the list are Professors Althouse and Bainbridge.

Depressing thought for the day

Is it just me, or is the world going to hell in a hurry? Ukraine. Gaza. Syria/Iraq. Child migrant rush. Calif drought.

— Stephen Bainbridge (@ProfBainbridge) July 17, 2014

Sanctions and doing business in Russia

White & Case recently had a fascinating discussion of the impact sanctions are having on firms doing business in Russia:

On 24 June 2014 White & Case and PwC hosted a round table breakfast to discuss the effect of recent sanctions on financial institutions. Sir Andrew Wood gave a keynote address in which he considered the relevant macroeconomic and political factors that come into play when doing business in Russia in the current environment as well as the future prospects for business and investment in the region. He then led a discussion (under the Chatham House Rule) on the impact of sanctions against Russia and Ukraine together with sanctions experts from White & Case and PwC.

You can download an extended review of the program here.

Given the new sanctions the US just announced and the potential for even more sanctions if Russia turns out to be responsible for the downing of that Malaysian passenger jet, this is an especially timely program for business persons and the lawyers that advise them.

Recommended reading: Jill Fisch on money market fund reform

I liked this article a lot: Fisch, Jill E., The Broken Buck Stops Here: Embracing Sponsor Support in Money Market Fund Reform (June 16, 2014). U of Penn, Inst for Law & Econ Research Paper No. 14-24. Available at SSRN: http://ssrn.com/abstract=2456255:

Abstract: Since the 2008 financial crisis, in which the Reserve Primary Fund “broke the buck,” money market funds (MMFs) have been the subject of ongoing policy debate. Many commentators view MMFs as a key contributor to the crisis, in part because widespread redemption demands during the days following the Lehman bankruptcy led to a freeze in the credit markets. The response has been to deem MMFs a component of the nefarious shadow banking industry and to target them for regulatory reform. 

Determining the appropriate approach to MMF reform has proven difficult. Banks regulators prefer a requirement that MMFs trade at a floating NAV rather than a stable $1 share price. By definition, a floating NAV would prevent future MMFs from breaking the buck, but it is unclear that it would eliminate the risk of large redemptions in a time of crisis. Other reform proposals have similar shortcomings. More fundamentally, pending reform proposals could substantially reduce the utility of MMFs for many investors, which could, in turn, dramatically reduce the availability of short term credit. 

The complexity of regulating MMFs has been exacerbated by a turf war among regulators. The Securities and Exchange Commission has battled with bank regulators both about the need for additional reforms and about the structure and timing of any such reforms. Importantly, the involvement of bank regulators has shaped the terms of the debate. To justify their demands for greater regulation, bank regulators have framed the narrative of MMF fragility using banking rhetoric. This rhetoric masks critical differences between banks and MMFs, specifically the fact that, unlike banks, MMF sponsors have assets and operations that are separate from the assets of the MMF itself. Because of this structural difference, sponsor support is not a negative for MMFs but a stability-enhancing feature. 

The difference between MMFs and banks provides the basis for a simple yet unprecedented regulatory solution: requiring sponsors of MMFs explicitly to guarantee a $1 share price. Taking sponsor support out of the shadows provides a mechanism for enhancing MMF stability that embraces rather than ignoring the advantage that MMFs offer over banks through asset partitioning.

 

I hope somebody at the SEC is reading it.

Related articles

Yet more on money market mutual fund reform

The SEC at the precipice

Money Market Fund Reforms Remains Elusive

US money market fund reform goes down

U.S. risk council to weigh money market fund reforms Tuesday

Check out the Glom's symposium on Hobby Lobby

There is a very interesting debate going on at The Conglomerate on the Hobby Lobby decision. I was invited to participate, but I think I have literally run out of things to say about the case.

Delaware unincorporated entity law: Fiduciary duties via the back door of the implied covenant?

Doug Branson has a new article Alternative Entities in Delaware -- Reintroduction of Fiduciary Concepts by the Backdoor?, which argues that:

In the mid-1990s, the Supreme Court of Delaware resoundingly held that “nothing in a contract can override directors’ fiduciary duties,” holding invalid deal protection provisions in a contract between Viacom International and Paramount Pictures. Nearly a decade later, the Delaware Legislature trumped that judicial ruling, at least in cases for what in Delaware are termed “alternative entities” (Limited Liability Companies (LLCs) and Limited Partnerships (LPs)). The legislative enactment did not set draftsperson as free as it might seem, giving absolute priority to freedom of contract. The reason is that the statute makes clear that the implied covenant of good faith and fair dealing still applies to LLC operating and limited partnership agreements. This article explores the question of how much application of the implied covenant results in application of fiduciary like concepts if not fiduciary duties themselves.

Personally, I am deeply skeptical that the implied covenant will prove to be much of a constraint on the behavior of members of LLCs and so on, but Doug's article makes some very valid and important arguments.

What makes a good law professor: Comment on Jeff Lipshaw's faculty diversity post

Jeff's got a great post on the role practice experience ought to play in faculty hiring, of which I will (perhaps all too predictably) just excerpt the snippet about yours truly:

I do think there is something to requiring an aspiring full-time tenure track academic in a university or quasi-university setting to signal (to Brian Galle's point) what I would call a tolerance for, if not a commitment to, in the absence of a better term, "the life of the mind."  (Put aside my belief that there are whole areas of practice now the exclusive domain of lawyers and law schools that could be taught and practiced without a three year traditional law degree, and the university model need not apply there any more than it does for barbers or chefs.)  The person who comes to mind is my friend Steve Bainbridge, who quite publicly proclaims (often and loudly in a metaphoric way) his impatience with both "law and ..." and empirical legal studies and his preference to focus on the law.  Nevertheless, I don't think you ever pick up from Steve a disdain for intellectual pursuit or think of him as anything other than a university professor.  (You can pick up a lot of other clever disdain from Steve - that's why we who disagree with him so much still love him - but not disdain for thinking!)

Here's my take: A good law professor needs some practice experience, if only just to get acculturated to the profession into which s/he will be directing students for the rest of his/her professional life. More is probably better, although I think my shortish stint in practice has not been an obstacle to staying current or to being engaged with practitioners and the bench. It's mostly a matter of attitude, I think.

A good law professor also needs a commitment to the life of the mind. A commitment to doing serious but engaged scholarship of the sort that the bench and bar can't do but will find useful. A commitment to writing often and well. A commitment to keeping up to date with developments in your field OF LAW (not your law and fill in the blank field). A commitment to going where the evidence takes you. A commitment to not whoring yourself out as an expert witness or lobbyist. Mostly, a commitment to revel in the intellectual freedom this job allows. The law is an endlessly fascinating subject. A good law professor will commit to mastering some part of it at a level no judge or practitioner would ever have time to do.

Hobby Lobby Symposium Next Week at Conglomerate: Wonder What Orts will Say?

Usha Rodrigues has announced that the Conglomerate Blog is hosting a Hobby Lobby symposium next week. I've been invited to sit in and doubtless will. I understand my friend Wharton Professor Eric Orts will also be commenting. As I mentioned in an earlier post, I have been reading Eric's new book, Business Persons: A Legal Theory of the Firm, with great interest. Towards the end of the book Eric has an excellent analysis of Citizens United, in which he makes several key points:

1. The majority opinion lacks "a full-fledged legal theory to explain why business corporations should have a right of political free speech ...." (241)
2. Justice Steven's dissent likewise "does not dig very deeply into a theory of corporate personality either." (241)
3. Justice Scalia's concurrence makes a strong case "that some First amendment protection for political speech must extend to organizations, including business firms, given that people compose firms." (244)
4. Neither absolutist position--corporations have no rights versus corporations have rights of natural persons--makes sense. You have to decide these issues on a case by case, clause by clause basis. (245)

Orts concludes with an extended argument that the appropriate compromise is one of "full disclosure about business participation in politics." (250).

Although I might quibble with minor points here and there, the gist of Eric's argument strikes me as being exactly right and I'm in full agreement with his conclusion.

Hence, I'll be very interested to see what Eric makes of the Hobby Lobby case. Will he support a disclosure-based compromise on the free exercise claim? (Note that Joan Heminway thinks disclosure is the solution.) if so, how would a dislcosure regime work given that most (all?) of the companies that will be able to and likely to claim exemptions under Hobby Lobby likely will be non-reporting companies. To whom and how would they disclose?

Related articles

I'm reading Eric Orts' "Business Persons: A Legal Theory of the Firm"

Does Hobby Lobby sound a death knell for Dodge v. Ford Motor Co.?

The import for Hobby Lobby of Obama's unilateral relief from the Obamacare mandate for businesses

It's Not just Hobby Lobby

Cross-Posted from the Glom: Hobby Lobby: Form versus Substance

Does Hobby Lobby "channel core liberal principles"?

Brett McDonnell thinks so.

Fee shifting and exclusive forum bylaws "a blistering forehand down the line"

Useful WLF Legal Backgrounder on these critical corporate law developments.