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More DExit News: Dropbox Reincorporating in Nevada by Written Consent; Another Controlled Company Hits the Road

Apropos the preceding post, a friend flagged for me an announcement from Dropbox that its controlling shareholder approved a reincorporation from Delaware to Nevada. Tellingly, he did so by written consent rather than having a formal shareholder vote.

As I explain in my treatise Corporate Law, 

A majority of states allow shareholders to act without a meeting by unanimous written consent. See, e.g., MBCA § 7.04. A substantial minority, including Delaware, permit shareholders to act by written consent even if the shareholders are not unanimous. See, e.g., DGCL § 228.

DGCL § 228(a) thus provides that:

Unless otherwise provided in the certificate of incorporation, any action required by this chapter to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation in the manner required by this section.

Dropbox's articles of incorporation specifically allow the use of a written consent in lieu of a formal meeting. Typically, you need consent by the holders of a majority of the voting power of the company's stock. Dropbox has two classes of stock: Class A with one vote per share and Class B with 10 votes per share. Dropbox CEO/Chairman of the Board Andrew Houston owns Class A and B shares "representing approximately 77.3% of the voting power of the outstanding shares of capital stock of the Company," so his consent is all that Dropbox needed.

But there is a but. As I further explain in Corporate Law, 

At early common law, it was well-settled that a shareholder acting as a shareholder was entitled to vote his shares without regard to the interests of other shareholders.  As a general matter, it remains the law that shareholders are allowed to act selfishly in deciding how to vote their shares. Conversely, where a shareholder is elected to the board of directors, and acts in his capacity as a director, the shareholder-director naturally assumes fiduciary obligations towards the other shareholders.

Falling between those two extremes is the case of a shareholder with voting control. Absent cumulative voting, such a shareholder’s voting power will suffice to elect the entire board of directors. Recognizing that such a board may not act independently of the controlling shareholder, courts early began to extend the board’s fiduciary duties to the controlling shareholder.  . . .

The canonical parent-subsidiary case remains the Delaware Supreme Court’s opinion in Sinclair Oil v. Levien. . . .

The Delaware Supreme Court identified two standards potentially applicable in [controlling shareholder]  situations: the business judgment rule and the intrinsic fairness rule. Under the business judgment rule, the controlling shareholder gets the benefit of a rebuttable presumption of good faith. Under the intrinsic fairness test, the burden of proof is on the controller to show, subject to close scrutiny, that the transactions were objectively fair to Sinven. . . .

By virtue of controlling more than a majority of Dropbox's stock, Mr. Houston is per se a controlling shareholder. As such, he owes fiduciary duties to the minority shareholders of Dropbox. Which brings me to Vice Chancellor Travis Laster's decision in the TripAdvisor case, Palkon v. Maffei, 311 A.3d 255 (Del. Ch. 2024), which held that:

Delaware's most onerous standard is entire fairness. Under that standard, the fiduciary defendants must establish “to the court's satisfaction that the transaction was the product of both fair dealing and fair price.” ...

Delaware law has deemed the business judgment rule rebutted and applied the entire fairness test ab initio to any transaction between the corporation and a controlling stockholder in which the controller receives a non-ratable benefit. ...

Under Delaware law, a controller or other fiduciary obtains a non-ratable benefit when a transaction materially reduces or eliminates the fiduciary's risk of liability. ...

The real question for determining the standard of review is whether a decision confers a material benefit on the fiduciaries who made it. Here, it is reasonable to infer at the pleading stage that the conversions will confer a material benefit on the fiduciary defendants who approved them. ...

At the pleading stage, it is reasonable to infer from the complaint's allegations that Nevada law provides greater protection to fiduciaries and confers a material benefit on the defendants. ...

The complaint's allegations about the laxity of Nevada law are well taken. Michal Barzuza has demonstrated that:

Nevada [ia] an almost liability-free jurisdiction. Without much public attention, Nevada has embarked on a strategy of market segmentation with a differentiated product — a shockingly lax corporate law. Nevada law generally protects directors and officers from liability for breaches of the duties of loyalty, good faith, and care that are widely believed to be staples of U.S. corporate law. Nevada highlights these broad protections as a reason to incorporate there rather than in Delaware

Nevada's more lax approach to fiduciary duties will redound to the benefit of Dropbox's controller, as well as its other directors and managers. Hence, if challenged, the reincorporation decision will be subject to review under the entire fairness doctrine.

This will be true even if Dropbox proceeds expeditiously with the reincorporation. In the TripAdvisor case, VC Laster opined that:

The defendants finally argue that even if the plaintiffs have stated a claim on which relief can be granted, they cannot obtain an injunction blocking the Company and Holdings from leaving Delaware. They seem to think that as a matter of policy, a Delaware court cannot enjoin an entity from leaving the state. That assertion goes too far. In extreme scenarios, courts have the power to prevent persons and assets from leaving their jurisdiction when doing so is necessary to preserve their ability to award final relief. In theory, therefore, this court could enjoin the Company or Holdings from departing Delaware if the equities warranted it. But the circumstances in which the equities might warrant that extreme result are limited. They are not present here. …

Because of the narrow issue that this case presents, it seems likely that the court will have a sufficiently reliable basis to craft a monetary award for any harm that the Company's stockholders suffer. A judgment against the defendants in that amount should provide the plaintiff with a fully adequate remedy. The court will retain jurisdiction over the individual defendants even after the conversion is complete. The court can enter a judgment against any of them who are held liable. The plaintiffs can use standard collection procedures to enforce the judgment. If that requires domesticating judgments in other jurisdictions and enforcing them there, then the plaintiffs can do that.

The closing of the conversion will not alter anything else about the case. By statute,

[t]he conversion of a corporation out of the State of Delaware in accordance with this section and the resulting cessation of its existence as a corporation of this State pursuant to a certificate of conversion to non-Delaware entity shall not be deemed to affect ... the personal liability of any person incurred prior to such conversion, nor shall it be deemed to affect the choice of law applicable to the corporation with respect to matters arising prior to such conversion.

Any liability for the conversion necessarily arises prior to the mystical singularity of the effective time. This case will go forward, governed by Delaware law, regardless of whether the Company's conversion closes.

Assuming litigation occurs, the default rule is that the defendant fiduciaries have the burden of proving that the transaction was fair to Dropbox and the minority shareholders. But Houston and his fellow officers and directors may have at least partially cleansed the transaction:

Back to my Corporate Law, 

In Kahn v. Lynch Communication Systems,  the Delaware Supreme Court held that approval of a freeze-out transaction or any other conflicted controller transaction “by an independent committee of directors or an informed majority of minority shareholders shifts the burden of proof on the issue of fairness from the controlling or dominating shareholder to the challenging shareholder-plaintiff. Nevertheless, even when an interested cash-out merger transaction receives the informed approval of a majority of minority stockholders or an independent committee of disinterested directors, the entire fairness analysis is the only proper standard of judicial review.” It is simply that the plaintiff now has the burden of proving that the transaction was unfair. 

. . .

In Kahn v. M & F Worldwide Corp.,  the Delaware Supreme Court expanded the protections potentially available to controlling shareholders. It held that a freeze-out merger would be reviewed under the business judgment rule rather than the fairness standard if six conditions are met: (1) the controlling stockholder conditions the transaction on the approval of both a special committee and the majority of the minority stockholders, (2) the special committee is independent, (3) the special committee is empowered to select its own advisors and to say no definitively, (4) the special committee meets its duty of care in negotiating a fair price, (5) the vote of the minority stockholders is informed, and (6) there is no coercion of the minority stockholders. . . .

Note that a controlling shareholder is not required to comply with MFW; like any safe harbor, it is purely optional. If the controlling shareholder wishes, it could comply with the older Lynch approach and shift the burden of proving lack of entire fairness to plaintiff by relying on an independent director vote standing alone. Indeed, a controlling shareholder who wishes to do so, could seek neither approval by a special committee of independent directors or the majority of the minority shareholders, in which case the defendant controller would retain the burden of proving the deal’s entire fairness.

It appears that Houston has gone with the middle option, planning to invoke Lynch rather than MFW. Dropbox's announcement informs us that:

The members of the evaluation committee were Lisa Campbell, who served as chairperson, Paul Jacobs and Karen Peacock. In addition, Don Blair, the Company’s lead independent director, was named an ex officio member of the evaluation committee. The board of directors believed these directors were appropriate to comprise the evaluation committee because Ms. Campbell and Dr. Jacobs constitute the Company’s Nominating and Corporate Governance Committee, which is responsible for reviewing and recommending to the board of directors any changes to the Company’s corporate governance framework (including to its certificate of incorporation and bylaws); Ms. Peacock has significant experience in executive-level operational roles, including in organizations navigating business transformations similar to that confronting the Company; and Mr. Blair is the Company’s lead independent director.

According to Dropbox's latest proxy statement, the board has determined that all members of the evaluation are independent under the NASDAQ listing standard definition of independence. If so, and they made an informed decision, the burden of proof should shift to plaintiff to prove that the decision was unfair.

The potential glitch, however, is that Delaware does not use the stock exchange listing standard definitions of independence. Instead, as I discuss in my recent article, A Course Correction for Controlling Shareholder Transactions, the Delaware courts have heightened the rigor with which cleansing standards are applied, particularly regarding the criteria for independent directors. 

In any case, Dropbox's announcement is another piece of anecdotal evidence that my other recent article,  DExit Drivers: Is Delaware's Dominance Threatened?, which is forthcoming in the Journal of Corporation Law, correctly argues that most major companies leaving Delaware will be companies with controlling shareholders.

DEXIT News: Will Meta Follow Tesla to Texas?

The WSJ reports:

Meta Platforms is discussing moving its incorporation from Delaware, where most big U.S. companies are legally housed, people familiar with the matter said. Texas has billed itself as a better destination for companies such as Meta with controlling shareholders like Zuckerberg. ...

Executives and controlling shareholders of public companies have long expressed frustration with the Delaware Court of Chancery, which has become home to a thriving shareholder plaintiffs’ bar. The big companies that have reincorporated elsewhere have tended to have a dominant owner potentially affected by recent Delaware decisions. ...

“The Texas state government is trying to send out signals that the Texas state courts will be more friendly to businesses than the Delaware court has been,” said Stephen Bainbridge, a law professor at the University of California, Los Angeles. “But there’s no guarantee that that’s going to happen.”

Regular readers will recall that my two most recent law review articles speak to this precise issue. DExit Drivers: Is Delaware's Dominance Threatened?, which is forthcoming in the Journal of Corporation Law, provides empirical data on reincorporations out of Delaware. It concluded that the number of reincorporations from Delaware remains trivial compared to the vast number of new incorporations Delaware attracts annually. Given the strong inertia behind the initial incorporation decision and the weak drivers for DExit, it seems unlikely to become widespread soon. 

But there is a but. My article opines that:

None of the companies in our dataset identified controlling shareholder liability exposure as a motivation for reincorporating, but there is reason to suspect that it was an important motivator for a subset of the redomiciling corporations in our study. ...

Delaware courts have decided a series of recent high profile cases that have raised controller’s liability exposure.  Specifically, in cases “involving Tesla Inc., TripAdvisor Inc., Moelis & Co., and Sears Hometown and Outlet Stores Inc.,” the court has “sought to tighten the standards for conduct by controlling stockholders.”  Areas in which the Chancery Court is perceived to have tightened standards respecting controllers include a broader definition of who is in control, expanding the class of conflicted transactions requiring cleansing, and the strictness with which the standards for cleansing are applied, especially with respect the definition of who is an independent director. . . .

As such, concerns about both the application of the law and the tone of the opinions are mounting. A New York-based corporate law partner observed that uncertainty about the definition of independence is a major concern among those voicing skepticism about the direction of Delaware law.  The same partner noted a growing impression that certain Delaware Chancery Court judges have developed a skeptical attitude towards independence of directors of Silicon Valley firms.  Similar sentiments were expressed by both a prominent Delaware academic and a leading Delaware practitioner.  On her group blog, Professor Ann Lipton likewise speculated that these developments may “hit Silicon Valley companies particularly hard, because of the chumminess of the tech world, and it's not surprising that once independence is questioned, the tone of the opinions is going to come off as skeptical, in a manner that defendants do not like.”

Having said that, however, neither Texas nor Nevada (Delaware's other major competitor has a well developed body of law governing the fiduciary duties of controlling shareholders.

In addition, it is possible that Delaware courts will adopt a course correction that rebalances the law governing controllers. Indeed, my other recent article, A Course Correction for Controlling Shareholder Transactions, advocates just such a correction. Or, more precisely, four corrections:

...  the courts: (1) should narrow the definition of controller; (2) should not attempt to sort out in which cases controllers owe fiduciary duties to the minority from those in which they do not, but instead hold that a controller always owes fiduciary duties to the minority;  (3) narrow the class of cases under which entire fairness is the standard of review by adopting a reinvigorated Sinclair Oil threshold test under which entire fairness is triggered only when the controller receives a benefit at the expense of and to the exclusion of the minority; and (4) improve the regime for cleansing transactions in which entire fairness applies. These changes will reduce costs and encourage beneficial investment, are doctrinally sound, and will enhance Delaware’s position as the state of choice for incorporation.

The article argues that these corrections are necessary because:

Delaware courts increasingly exhibit a reflexive suspicion of transactions involving a controlling shareholder.  The court has operationalized that skepticism by notably broadening the definition of who qualifies as a controlling shareholder. In particular, the courts are increasingly willing to hold that shareholders who own less than a majority of the corporation’s voting power nevertheless possess control.  Taken to its logical extreme, this trend easily could result in someone being deemed a controller even in the absence of stock ownership.  

The court’s growing skepticism of controlling shareholders is further reflected in its tightening of the standards governing the conduct of controlling shareholders.   In doing so, the court has expanded the range of conflicted transactions necessitating cleansing and heightened the rigor with which cleansing standards are applied, particularly regarding the criteria for independent directors. 

This article contends that Delaware courts need a course correction. They have pushed the law governing controlling shareholders far beyond legitimate policing into unnecessary and unwise overregulation. This has prompted a backlash in which controllers threaten to reincorporate outside of Delaware, following Elon Musk’s example of moving Tesla to Texas. 

I confess to taking a certain amount of pleasure in saying I told you so.

By the way, as I have said before, the UCLA Law Library is one of UCLAW's crown jewels. The reference staff is exceptionally friendly, helpful, knowledgeable, and supportive. The DExit article would not have been possible without their support. Likewise, this blog post owes our head librarian a shout out, as he flagged the WSJ article for me. It's precisely the sort of little assists they do routinely that make this such a supportive environment. Prospective students and faculty should take our library's excellence into account when deciding whether to join us.

Agency, Partnerships, and Limited Liability Entities: Cases and Materials on Unincorporated Business Associations--6th Edition

Foundation Press has announced that the 6th edition of Agency, Partnerships, and Limited Liability Entities: Cases and Materials on Unincorporated Business Associations is now available for pre-orders.

This book is a collection of edited cases, original text, questions, and problems designed for use in a law school level course on agency, partnerships, and limited liability entities. A key feature of this casebook is the extensive coverage of limited liability entities, especially unincorporated limited liability companies (LLCs). The authors include cases on such LLC topics as formation, interpretation of the operating agreement, piercing the LLC "veil," fiduciary obligation, expulsion of an LLC member, and dissolution. Also included is a section on the question of whether membership interests in LLCs and limited partnerships are a security. This edition has been meticulously updated with important new cases and rules.

In this edition, I am joined by two new coauthors: James Park (UCLA) and Usha Rodrigues (Georgia). I was delighted that these two outstanding corporate law scholars wanted to work with me and our partnership went very well. I think the new book is even better than ever thanks to their contributions.

 

Does Trump's Anti-DEI order conflict with Dodd-Frank?

President Trump promulgated an executive order providing in pertinent part that:

I therefore order all executive departments and agencies (agencies) to terminate all discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements.  I further order all agencies to enforce our longstanding civil-rights laws and to combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.

Agencies is not a defined term in the order but the accompanying fact sheet claims that the order "terminates 'diversity, equity, and inclusion' (DEI) discrimination in the federal workforce, and in federal contracting and spending.

The Dodd-Frank Act of 2010 created 12 USC § 5452, which provides in subsection (a)(1)(A) that:

Except as provided in subparagraph (B), not later than 6 months after July 21, 2010, each agency shall establish an Office of Minority and Women Inclusion that shall be responsible for all matters of the agency relating to diversity in management, employment, and business activities.

Subparagraph (B) refers to a comparable requirement applicable to the Bureau of Consumer Financial Protection. 

12 USC § 5452(g)(1) defines the term agency for this purpose to include "A) the Departmental Offices of the Department of the Treasury; (B) the Corporation; (C) the Federal Housing Finance Agency; (D) each of the Federal reserve banks; (E) the Board; (F) the National Credit Union Administration; (G) the Office of the Comptroller of the Currency; (H) the Commission; and (I) the Bureau."

Section 5452 lays out extensive requirements for the mandated Offices, including specified steps the agencies must take to "seek diversity in the workforce," providing annual reports to Congress on matters such as "the successes achieved and challenges faced by the agency in operating minority and women outreach programs," and the like.

The conflict with Trump's order seems obvious.

But Trump's DEI order includes a provision that "Nothing in this order shall be construed to impair or otherwise affect: (i) the authority granted by law to an executive department, agency, or the head thereof ...." It seems that this saving provision would preserve the OMWIs at the Dodd-Frank regulated financial agencies.

Interestingly, as of January 24th, the SEC has scrubbed its DEI page but its OMWI page remains up.

A Critique of California's Overly Burdensome Climate Disclosure Regulation

California's new climate laws—SB 253 (Climate Corporate Data Accountability Act) and SB 261 (Climate-Related Financial Risk Act)—mandate stricter greenhouse gas (GHG) emissions and climate risk reporting for companies operating in the state, significantly impacting how businesses address sustainability and climate risks.

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SB 253: Climate Corporate Data Accountability Act

Overview:
SB 253 is the first U.S. law requiring companies to publicly disclose GHG emissions (scopes 1, 2, and 3). It aims to increase transparency and accountability for businesses’ climate impact.

• Applicability:

  • Public and private companies operating in California with annual revenues over $1 billion.
  • Estimated 5,300+ companies must comply.

• Requirements:

  • Scope 1 and 2 Reporting: Direct emissions and indirect emissions from energy use (starting 2026).
  • Scope 3 Reporting: Indirect supply chain-related emissions (starting 2027, under a "safe harbor" provision to allow flexibility and avoid penalties for good-faith errors until 2030).
  • Reporting must follow Greenhouse Gas Protocol (GHG Protocol) standards.

• Process:

  • Companies must submit annual reports to the California Air Resources Board (CARB) via a digital platform (to be created by Jan. 2025).
  • Third-party verification of reports is required to ensure accuracy.
  • Companies may report emissions data obtained directly from suppliers.

• Penalties and Safe Harbor:

  • Misreporting emissions (except for scope 3 under safe harbor) may lead to fines up to $500,000.
  • No penalties for scope 3 errors reported in good faith until after 2030.

• Significance:

  • No other U.S. policy mandates scope emissions reporting.
  • Companies like Amazon, Walmart, and Apple are already incorporating scope 3 data into supply chain practices.

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SB 261: Climate-Related Financial Risk Act

Overview:
SB 261 focuses on assessing and reporting climate risks businesses face and contribute to, requiring financial risk disclosures consistent with global standards.

• Applicability:

  • Businesses with annual revenues over $500 million and operations in California.

• Requirements:

  • Climate risk reports must assess risks and opportunities, modeled after Task Force on Climate-Related Financial Disclosures (TCFD) recommendations.
  • Reports are due biennially, starting January 2026.

• Process:

  • Entities submit reports to CARB and make them available online.
  • Parent companies may file consolidated reports for subsidiaries.

• Third-Party Verification:

  • Climate risk disclosures must be independently verified if they include claims about GHG emissions or mitigation efforts.

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SB 219: Adjustments to SB 253 and SB 261

On September 27, 2024, Governor Gavin Newsom signed SB 219, amending SB 253 and SB 261. Key changes include:

• Delayed Timeline:

  • CARB rules for reporting postponed until July 2025.
  • Scope 3 emissions reporting phased in starting 2027.

• Consolidated Reporting:

  • Parent companies can file single, consolidated reports.
  • CARB may contract third-party organizations, like CDP, to manage reporting.

• No Changes to Initial Deadlines:

  • Scope 1 and 2 emissions reporting and climate risk disclosures still required in 2026.

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Critique

SB 253's comprehensive Scope 1, 2, and 3 emissions reporting requirements impose substantial compliance costs on covered businesses. Scope 3 emissions tracking is particularly onerous, as it requires companies to gather data from their entire value chain, including suppliers, distributors, and end-users. Many companies lack the existing infrastructure to collect this data accurately.

Second, the verification requirements from independent auditors create additional direct costs. Companies must hire third-party verifiers approved by the state board, which represents a recurring annual expense. The limited pool of qualified verifiers may drive up costs further.

Third, the Act creates significant operational complexity. Companies must develop new systems, train personnel, and potentially restructure supplier relationships to enable emissions tracking. This diverts resources from other business activities and innovation.

Finally, the $500,000 civil penalty provision for violations creates material financial risk, especially given the complexity of accurate emissions reporting. This could lead companies to over-invest in compliance measures out of an abundance of caution.

The USC Schwarzenegger Institute estimated compliance costs with SB 253 as folllows:

• Initial compliance costs between $300,000 to $900,000 per company
• Ongoing annual costs of $100,000 to $300,000
• Additional verification costs of $30,000 to $100,000 annually

The California Chamber of Commerce projected higher costs:

• Initial setup costs potentially exceeding $1 million for larger companies
• Annual compliance costs of $300,000 to $900,000
• Additional costs for supply chain data collection and verification

Turning to SB 261, the requirement for companies to assess both direct and indirect material financial risks from climate change demands extensive analysis across multiple business dimensions. Companies must evaluate risks from physical impacts, transition impacts, and liability concerns - a complex undertaking requiring specialized expertise many firms don't currently possess.

Second, the mandatory disclosure of adaptation and mitigation strategies forces companies to develop and publicize detailed climate planning, even when such planning may be premature or based on uncertain projections. This creates potential liability risks if actual climate impacts differ from disclosed plans.

Third, the biennial reporting requirement creates recurring compliance costs. Companies must regularly:

• Engage external consultants and climate risk specialists
• Conduct detailed scenario analyses
• Develop comprehensive risk assessments
• Prepare extensive documentation
• Update mitigation strategies

Fourth, the Act's broad definition of covered entities ($100M+ in annual revenue) captures many medium-sized businesses that may lack the resources and sophistication to conduct thorough climate risk analyses. The compliance burden falls disproportionately heavy on these smaller covered entities.

Fifth, the requirement to follow TCFD recommendations imposes a rigid framework that may not suit all business models. The standardized approach could force companies to analyze and report on risks that aren't material to their specific operations.

Notably, this burden compounds existing climate reporting requirements under SB 253, creating overlapping but distinct compliance obligations for California businesses. This regulatory layering significantly increases the total cost of climate-related compliance.

Business groups and industry analyses suggest companies will incur substantial compliance costs:

• First-time compliance costs of $300,000 to $750,000
• Recurring biennial costs of $150,000 to $500,000
• Additional costs for external expertise and risk modeling tools

Considering both bills together, California's aggressive regulatory stance may deter business investment and operations in the state. Companies may choose to limit their California presence or restructure operations to avoid triggering regulatory thresholds, potentially harming the state's economic interests.

In addition, there is a considerable risk of future problems of jurisdictional overreach and economic inefficiency. These concerns are not inconsistent with a commitment to federalism and subsidiarity. Recall that Louis Brandeis praised federalism because it allows states to experiment: "It is one of the happy incidents of the federal system, that a single, courageous State may . . . serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” Implicit in Brandeis' praise, however, is the assumption that state experimentation does not have negative externalities that put the rest of the country or even the world at risk.

Unfortunately, California's regulations often have de facto extraterritorial effects that put other states and nations at risk. When California requires companies to report on global supply chain emissions or worldwide climate risks, for example, it effectively extends its regulatory reach far beyond state borders. This creates legitimate questions about one state's authority to compel disclosure of business activities occurring entirely outside its jurisdiction.

In addition, California's climate regulation is replete with negative externalities. First, as noted above, state-level regulation of multinational enterprises creates problematic regulatory fragmentation. As climate disclosure regimes proliferate both nationally and globally, absent harmonization, companies will face duplicative but also potentially inconsistent regimes. When individual states impose distinct compliance regimes on businesses operating across multiple jurisdictions, it thus creates a complex patchwork of obligations. This fragmentation increases compliance costs as companies must track and adhere to potentially conflicting requirements across different states. If the EU, the US, Canada, and California, for example, all decide that companies (many of which will operate in all four) must file disclosures that differ from one another, companies will have to generate separate reports for each authority. 

Second, state-level regulation of global businesses can interfere with federal authority over international commerce and foreign affairs. Climate and environmental issues often intersect with international agreements and federal policy. State intervention in these areas risks creating conflicts with federal objectives and complicating international business relationships.

On a Personal Note

I wanted to let my readers know how we’re doing given the Los Angeles fires. The two main fires are the Palisades and Eaton fires. The Palisades fire is about 15 miles west of us out in the Pacific Palisades and Malibu. It is mainly moving away from us. Sadly, however, many of my work colleagues do live in that area and have been evacuated. Several lost their homes.

The Eaton fire is about 15 miles northeast of us, up above Pasadena. It has not moved in our direction, thankfully.

Last Wednesday night a brush fire broke out in a canyon just northwest of us. It was about a quarter-mile away. We could see and smell the fire quite distinctly. Almost immediately, Helen and I were ordered to evacuate. We threw some stuff together, grabbed our dog Harry, and headed out. I’ve since bought us each a duffel bag and we’re organizing go bags to have essentials ready to grab if we go through this again.

We were able to find a hotel in Santa Monica that was outside the fire evacuation zones. Everyone at the hotel was incredibly welcoming, but we were quite worried about our home. A neighbor who evacuated after we did reported that the fire was almost to our house. So we were hoping and praying but preparing mentally for being burnt out.

I know God always answers prayer but I also know that sometimes the answer is “no.” But not this time. This time the answer was a resounding yes. We were able to connect to the security camera system at our house late Wednesday night and were overjoyed to see that the LAFD had stopped the fire before it reached our home.

We were able to return home Thursday afternoon and were again overjoyed to see that the house was intact.

The Sunset fire ended up burning only 43 acres, mostly of brush in undeveloped canyons. As far as I know, no structures in our neighborhood took fire damage.

Like a lot of our neighbors, however, our house took some water damage. The firefighters were using planes and helicopters to drop water on the fire and apparently quite a lot hit our house.  It also appears that they hosed down the house to keep embers from igniting. We’ve had to arrange to a home remediation service to come in and repair some damage. Fortunately, our insurance will cover most of that cost. All in all, compared to what others suffered, we feel very blessed.

Crossing the Threshold of Hope: A Transformative Encounter with John Paul II's Thought

Pope John Paul II's book Crossing the Threshold of Hope was published 30 years ago, but I'm finally reading it. It's been a tremendously impactful experience.

In Crossing the Threshold of Hope, John Paul II offers readers far more than a mere collection of theological musings. Through a series of probing questions posed by journalist Vittorio Messori, the pope engages in a remarkable intellectual journey that bridges faith and reason, tradition and modernity, and the eternal questions that haunt the human heart.

What makes this work particularly compelling is how John Paul II addresses contemporary challenges to faith while drawing upon his deep philosophical training. His discussion of human dignity and the relationship between faith and human freedom resonates powerfully with Catholic social teaching, yet remains accessible to readers of all backgrounds. The pope's phenomenological approach, influenced by his early scholarly work, brings fresh insight to age-old questions about God's existence, human suffering, and the Church's role in modern society.

The book's treatment of religious pluralism and interreligious dialogue reflects both courage and wisdom. While firmly grounding his responses in Catholic tradition, John Paul II demonstrates remarkable openness to truth wherever it may be found. His exploration of other faith traditions shows profound respect while maintaining clear conviction about his own beliefs.

Perhaps most striking is the deeply personal nature of the work. Despite his role as Supreme Pontiff, John Paul II speaks with disarming directness about his own spiritual journey and encounters with God. This combination of intellectual rigor and personal witness makes Crossing the Threshold of Hope a uniquely valuable contribution to modern religious thought.

For those seeking to understand both the challenges and opportunities facing faith in our time, this book remains an indispensable guide. Its enduring relevance speaks to John Paul II's remarkable ability to engage the deepest questions of human existence with both intellectual depth and pastoral sensitivity.