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In defense of the argument that "political contributions are special", which can also be applied to some other corporate expenditures (such as charitable contributions), the argument in part is that a political contribution can look a lot like a compensation payment to a director far in excess of the direct, disclosed and formally authorized compensation of a director. While a political contribution could, in principle, merely advance the corporation's interests in profitability and policies favorable to the corporation itself, often, it appears that corporations are financing political contributions that advance the personal objectives and goals of the directors even when they work to the detriment of the corporation itself (e.g. by alienating customers or potential business partners). The business judgment rule doesn't have a great deal of force, and certainly corporations may compensate their directors and routinely do so. But, to the extent that compensation is disguised as a corporate political contribution, the duty of a publicly held corporation to be transparent towards its shareholders is violated, and if revealed for what it is, the compensation of the directors benefitting from the political contribution may become excessive. Excessive compensation is particularly problematic if the director benefitted is also an officer of the corporation who receives a large executive suite compensation package, which also allows the officer-director to escape income taxation on what would otherwise be more compensation which is in turn spent on non-deductible political contributions by that officer. The rules of corporate law are to a great extent designed to discourage self-dealing that is harmful to to corporation, and political contributions by corporations are transactions where the risk of this kind of self-dealing are much greater than for most other kinds of expenses which a board of directors authorizes.
From a practical perspective, Sanchez, for better or for worse, seems to favor "insider shareholders" over "anonymous stranger" shareholders. For the most part, "insider shareholders" are owners of very significant shares of the company (usually 1% or more in publicly held companies that are often worth billions of dollars), such as members of the families that founded the company, former C-level and VP level executives of the company, current or former directors, critical private equity fund or bank representative investors, and the like who have first hand knowledge of the inner dynamics of the corporation's executive suites. Meanwhile "outsiders" who simply own stock but have never been privy to the inner workings of its management will rarely have meaningful access to that kind of information. This elitist rule isn't absolutely horrible. Companies with significant numbers of "insider shareholders" are probably more likely to have the non-economically motivated or corrupt management practices that can trigger a valid derivative suit, and this rule allows these insider shareholders who have a huge economic interest in protecting their investment to break ranks and have an easy derivative suit path if they small a rat ginned up by their fellow insiders. The web of personal relationships in that kind of company can lead pretty naturally to soap opera style scenarios that you often really do so in large closely held companies and smaller publicly held companies. In contrast, in companies where institutional investors and faceless small shareholders hold the bulk of ownership in the company, the likelihood of personal drama getting in the way of evaluating a potential derivative suit by a committee of putatively independent directors is probably significantly smaller. Also, an interested insider who is aggrieved (e.g. a CFO who owns only a token number of shares) can seek an ally who is a major outsider shareholder such as a mutual fund or life insurance company, and arm that ally with enough insider gossip to gain the political edge of an "insider shareholder" in connection with a derivative suit which is almost by definition a form of intra-corporate civil war. Thus, only in cases where an outsider shareholder has no ally anywhere in the pool of executive suite insiders will the lack of effective pre-litigation formal discovery pose an extra barrier, and if the insider pool of executive suite insiders are united in opposing a derivative suit, the odds that it lacks merit if a committee of putatively independent directors wouldn't back the suit, may be pretty high. Surely, the Sanchez rule will still result in the dismissal of some meritorious derivative suits due to insider conspiracies and corruptions. But, in a typical large privately held company or small publicly held company, there are probably at least a dozen or two insiders who have the knowledge necessary to convert the Sanchez rule into a speed bump without formal pre-litigation discovery, and the means and wherewithal to either mount a derivative suit with their own funds or to identify and recruit allies who have those means from the ranks of major shareholders. So, Sanchez still has enough give to allow meaty informed and well funded derivative actions to go forward even in the face of perfunctorily independent but biased review by a committee of putatively independent but practically speaking beholden directors. And, any rule that allows weak cases to be dismissed as a matter of course, without affording those protected by the rule to have absolute impunity has something to be said for it.
"The real party in interest in derivative litigation is the plaintiff’s attorney, not the nominal shareholder-plaintiff. In most cases, the bulk of any monetary benefits go to the plaintiffs’ lawyers rather than the corporation or its shareholders. In practice, such litigation is more likely to be a mere wealth transfer from corporations and their managers to the plaintiff bar than a significant deterrent to corporate criminality." While there are cases where this could be true, particularly in the case of publicly held corporations (derivative litigation almost always benefits the shareholders more than their lawyers in closely held company derivative suits), it would certainly not be true in the case of the thought experiment you proposed of a Delaware based VW in which the Plaintiffs lawyers learned that the Board of Directors expressly authorized criminal conduct on such a massive scale, to the extent that it destroyed 20%+ of the value of the company in a matter of days. The lost value would run into the billions and the attorneys fees would probably only be in the tens of millions. Also, the decision to violate the law would surely be a material fact pertinent to the value of the company's shares that was not disclosed to the shareholding public by the directors for many years. Wouldn't there be a duty to disclose this on a quarterly financial statement/SEC filing? And, wouldn't the shareholders have standing to sue in that capacity as well? Or, is that liability that would only run from the company (and perhaps from the executive required to sign the statements), and not from the other directors, since it is presumably the company and not the individual directors, who have the statutory duty to make disclosures? Then again, the net worth of the CEO signing the statement could easily exceed the net worth of the rest of the directors combined. The interesting damages question would be whether losses from the fraud should be offset by gains from the fraud. In the derivatives suit, this might very well be a plausible argument as you suggest with the authority in Note 16. But, in a securities fraud case, surely it would not be the case. Going back to the real world case and not your hypothetical, the other notable thing about this being a German corporation is that a majority of the directors minus one would probably have been union appointees, rather than directors elected by shareholders. It isn't clear to me whether, in that circumstance (under either German or Delaware law if a Delaware corporation were structured to elect its directors in that manner), if the union appointed directors would owe any duty of loyalty to the shareholders as a consequence of their generalized duty to the company, as opposed to the unionized employees who appointed them. The case that the employees came out ahead from this fraud by VW in the long run, is stronger than the case that the shareholders (collectively) did. Finally, while you deliberately dodge the Caremark issue, one can assume to almost a certainty that in real life the directors did not expressly direct the CEO to have VW flagrantly break the law and create cars designed to fake emissions tests in a resolution voted on at a director's meeting. At most, it was mentioned orally in a report or in opaque language that left no hint to a third party of what was going on, even if some or all of the directors were actually aware of what was going on through informal conversions and back channels. Quite possibly, the management team on the Board concealed it from the non-management directors (or almost all of them), and probably, not even all of the management team knew.
There have been ebbs and flows, without a doubt. A significant minority of opinions used to be a page or two of body text. I'd guess that the minimum average opinion length was probably sometime in the 1950s or early 1960s. On the other hand, truly unreadable opinions that restate almost the entire course of the factual proceedings in the case, and that regurgitate almost all of the authority found in both parties briefings and substantial parts of ALR articles located by the judges, before engaging in any meaningful analysis, were not uncommon sometime around the late 19th and early 20th century, and are fairly rare these days despite the increased bloating. Opinions today may be long, but they are readable and full of analysis. This is probably best attributed to the rise of word processing that makes cutting and pasting easy. I think that there has also been a widespread reaction against the once common practice of writing an opinion that carefully analyzes the strongest two or three arguments and then dismisses without analysis the other arguments that have been made to the court as "without merit" and not bearing further discussion. Judges these days seem to feel a much higher sense of obligation to provide an answer to every question posed to them even though doing so is laborious and it it produces ponderous opinions. This could even be a product of the practice for a couple of generations of grading bar exam essay questions in a manner that rewards the person examined for identifying every single potential issue in a question and analyzing it without much regard for whether or not one issue has more merit than another. Our legal education system does not reward people for cutting to the chase and getting the right answer.
Some sort of accountability would be nice. But, it is worth considering the situation that the EPA was dealing with here. The problem was entirely created by an unregulated private mining company that operated before mining regulation was enacted and is now probably long gone and defunct with all of its officers dead (this mine, IRCC, operated in the late 1800s). Basically, they left a ticking time bomb. The EPA was sent in as the bomb squad to deal with it. Nobody faults the bomb squad for every now and then being outwitted and failing to defuse a bomb with explosive results. Sometimes despite the purist motives and the greatest care they fail to get a perfect outcome. Similarly, nobody reasonably expects the ER to save every single patient who comes in no matter how dire. There are plenty of cases where government officials do engage in gross misconduct or just really fuck things up as a result of their deeply questionable choices (the cost overruns at VA's Veteran's Hospital which is more than billion dollars over budget is such a case), but the impression that I get from the news accounts about the spill, was that this was a case of slight bad judgment or unrecognized insufficient competence by the person doing the work for the EPA, and not gross negligence or even ordinary negligence. The problem was worse than there had been any reason to believe until it was too late.
Never would have pegged you for a Mac guy.
Compliance is a subject that is well suited to a law school clinic with an associated seminar and readings. I essentially learned compliance work by volunteering on local non-profit boards and ending up with the responsibility by default as a person with something approaching the right skill set. There is simply no substitute for hands on experience when it comes to finding the right people in the organization to implement obligations and learning what to say to them to make it happen. Also, it is often easier to fit the timing of a compliance project into the academic year or a semester than it is, for example, in litigation where the usual clinical solution is to take on cases with very short time fuses that will recur frequently during the term like TROs, evictions and misdemeanor criminal cases. Compliance is neither too intense, nor too slow moving, for a semester or year long clinical project. This needn't be limited to non-profits either. Any city with a business incubator is a great place for law students to help growing businesses looking for any way possible to trim their expenses to start out on the right track from a compliance perspective.
"Proxy advisory firms have no financial interest in shareholder votes. They rarely understand the companies on which they report, their competitive situations or their strategic challenges. They use opaque processes, and they often solicit consulting fees from the same companies on whose issues they advise, without disclosing specific arrangements. Most important, proxy advisory firms claim no duty to the shareholders whose votes they effectively control." The same can be said of credit reporting agencies like the S&P.
I had similar problems but was too clueless to realize that it was an attack, let alone to realize its source. Thanks for the tip.
The fictional reference for the younger generation would be Hermione Granger in J.K. Rowling's Harry Potter and the Chamber of Secrets, in which " Hermione was granted permission to use, and was sent, a Time-Turner from the Ministry of Magic to facilitate her volition to study far more subjects than was possible without time travel."
The main historical precedent would be the British East India Company.
Charlie Stross' Merchant Prince series touches on something similar, as does the SyFy series "Helix".
Islamic usury laws (which forbid all interest) and Islamic finance systems may shed light on Christian approaches to usury, as both arise from the same Iron Age Levantine milieu. One approach common in Islamic finance is to engage in a transaction which in Western legal terms is equivalent to piecemeal sale of tenancy in common interests in property accompanied by a straight lease of the TIC interests owned by the Islamic investor. In the ordinary transaction where there are no defaults in payments until the property is purchased in full, this is quite similar to a purchase money mortgage. But, it has some notable features: if the buyer can't make payments losses due to declining value are shared by the buyer and the investor; there is never a deficiency judgment. If the buyer sells before paying off the property, gains are shared by the buyer and the investor. And, perhaps most importantly, there is never compound interest. There are almost no ordinary consumer transactions in which compound interest accrues when the consumer is not in default. In economic practice, compound interest is purely a default remedy. And, compound interest has the capacity to make a loan much larger than the value of the financed property even at the original price. Thus, one feature of Islamic banking arising in a religious usury context is a focus on less harsh sanctions for default (which often involves someone who is broke anyway, with compound or default interest or deficiency judgments often awarded against people who couldn't pay even the regular payments). More generally, usury laws do not take issue with equity based investments, or arrangements such as sharecropping where a land owner gets a percentage of the gross crop in lieu of a fixed dollar rent. In general, the religious preference for equity over debt may reflect a preference for an economy that is more robust and leaves no one ruined in economic downturns. Equity financed businesses can survive weak economies much more easily than debt financed ones. A modern response to the policy ideas embodied in usury in a primitive economy might include: eliminating tax preferences for debt over equity in corporate finance; prohibiting default interest rates greater than non-default interest rates; prohibiting compounding of interest in consumer transactions (the focus on the poor in usury theology suggests that usury may be a concept only valid in consumer deal and not between non-subsistence merchants or corporations); and disfavoring deficiency judgments due to declining property values beyond the control of the debtor (perhaps by requiring a foreclosure bid to be no less than the original loan amount).
The failure to the U.S. Chamber of Commerce report to lay out the raw numbers that are the basis of its conclusion invites some skepticism, although it appears that when you take the raw numbers that they do mention that you can back out the raw numbers. It appears that there were about 250 lawsuits of this kind over a two year period involving about 50 mergers over two years. The "before" figure was a bit over 55% of big mergers being affected v. 90% "after", so about 15 more mergers had any lawsuits than would have been expected based upon previous trends, and the number of lawsuits per merger increased somewhat. But, the lion's share of suits resolved within 100 days in exchange for language adjustments in the disclosure documents without a monetary settlement (a situation where there is no non-judicial formal process in which to insist upon such a thing) and a significant share of the balance are voluntarily dismissed or non-suited in the first 100 days. This looks more like a speed bump arising from insufficient means of soliciting input than a crisis. In a nation where there are many hundreds of thousands of lawsuits filed a year, calling an increase in 15 mergers involved in lawsuit over a two year period (in the wake of the financial crisis that muddied the waters for many deals) an "epidemic" seems a bit histrionic, particularly when the historical rate of lawsuits was already so high. Perhaps the high litigation rate is an indication that mergers of big companies ought to be pre-approved through a judicial process as a matter of ordinary course to facilitate involvement of interested parties in a once in a company lifetime event, rather than being left to chance. Private law already takes that approach in much lower dollar contexts that involve all of the assets of the person involved such as probate, guardianship, conservatorship, divorce, and bankruptcy. There are also public hearings open to all interested parties to pre-approve a variety of private business transactions such as boundary adjustments, mergers, subdivisions and rezonings of real estate, and grants and transfers of liquor licenses. Many mergers already require anti-trust and regulatory approval anyway, why not just develop one more judicial process to structure public airing of disputes over "everything else." All of the often fairly routine proceedings where litigation for pre-approval is automatic pale in significance and room for disagreement relative to $100 million+ corporate merger deals. Pre-emptive litigation as a matter of course would reduce the number of lawsuits by approximately 80% from 5 unstructured lawsuits per deal in a variety of venues, to 1 company initiated lawsuit per deal in a pre-chosen venue. The procedural consolidation and orderly process involved would likely reduce the aggregate litigation costs per lawsuit, as well as reducing the number of lawsuits involved from 5-15 to 1.
It bears noting that Delaware partnership law is the Revised Uniform Partnership Act (1997), adopted by Colorado and at least thirty other states including Delaware, which provides that "the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership." See also, e.g., Colorado Revised Statute CR 7-64-202(1). The judicial interpretation that the elements of full contract formation be present to meet that standard, which has been adopted by Delaware as evidenced in the opinion referenced, is not a necessary, or even a majority, interpretation of that standard. The requirement that there be agreement on "critical elements" exceeds what the statutory language itself requires. Under the express terms of the act, while the business must be a for profit activity, no agreement or meeting of the minds regarding the manner of sharing of profits and losses, regarding relative control amongst the partners, or regarding ownership percentages or rights, or even regarding whether a partnership has been formed, is required, so long as the people agree that the business that they are actually carrying on the business together as co-owners. Both parties may incorrectly believe that a partnership has not been formed, because agreement to a formal statement of the rights of the parties has not been reached, when as a matter of law, it does exist. Once they carrying out of the business with a purpose of making a profit is established, the partnership is "pregnant" and the Uniform Partnership Act will provide the terms of the partnership agreement where there was no meeting of the minds as to what those terms were. The reason for a broad reading is that often people engage in economically significant activity despite not formally agreeing to many important terms. One of my very first case as a lawyer involved a floor plan financing for a car dealership. I duly prepared a mountain of loan agreements, security agreements, commercial guarantees, etc. and brought them to closing, only to learn that my client had delivered the funds several days before closing with no more of an oral agreement as to terms than that I, as my client's lawyer, would draw up a floor plan agreement for him to sign and bring the papers to him. In the context of partnerships, I recently prevailed at trial and later on an appeal in a case where the parties commenced demolition of building, sharing of some renovation costs, and drawing up plans for a potential remodel, with an intent to remodel the building for a profit. Draft partnership agreements were exchanged but no agreement was reached as to the terms (e.g. profit percentages or capital contribution amounts) and no partnership agreements were signed. But, because the parties jumped the gun and commenced carrying on the remodel on a for profit basis, with an intent that it be part of a partnership, without reaching an agreement as to these terms, the court held that there was a partnership, despite the fact that there was not a meeting of the minds as to many of the material terms regarding that relationship and upheld a jury award for breaches of fiduciary duty arising from that business association. While the Delaware court may be bound by precedent to rule as it did, I believe that the Delaware interpretation of the statutory language is incorrect as applied to gun jumping situations where acts race ahead of agreements as to the respective rights of people who have commenced acting as partners before reaching an agreement as to partnership terms. A broader rule encourages people to reach agreement before acting for risk of being stuck with a set of rules that they didn't agree to; the Delaware rule encourages starting deals with an understanding that trust evidence by substantial mutual action can be betrayed since no agreement on exact terms was reached.
Most of the critics of corporate personhood are liberals, but as a liberal myself, I think that they underestimate how powerful the corporate personhood concept is in making it possible to hold large economic enterprises involving many people accountable without knowing precisely who was involved, which is not public information. Vicarious liability is a powerful tool. The alternative of primarily individual liability with entity liability only based on senior policy maker fault that exists in civil rights litigation is not an attractive alternative.
Issue One seems possible, for example, by including publisher tags. I'm not sure that I could draw the line with regard to issue two. Romance is almost everywhere even in most "hard science fiction" and "high fantasy" (although alas, almost absent from the Lord of the Rings books, where the movie makers made a welcome change). But, I think that what you really mean there is "contemporary fantasy" which is notable for having paranormal/speculative fiction elements in a contemporary setting, much of which has strong romantic elements, and some of which has weak romantic elements. In contrast, most "real science fiction" is set in the future, and most "real fantasy" is set in the past, or in either case in a world completely separate for the real world.
This is particularly true in case of private law questions (such as the distinction between law and equity) as the U.S. Supreme Court's docket involves predominantly criminal, quasi-criminal (e.g. immigration offenses) and public law cases. Law v. equity distinctions remain a fertile issue in state courts, however. For example, the Colorado Supreme Court finally definitively resolved just last month, the question of whether equitable defenses are available to causes of action that sound in law (e.g. if the laches defense can be applied to a suit to collect a promissory note). Hickerson v. Vessels, 2014 WL 104142 (Colo. January 14, 2014) (holding that they were, as a consequence of the merger of the law and equity courts of the state in the late 1800s).
The most famous example of tying voting rights to taxation was in certain periods of the Roman Republic, IRRC. Fictionally, Heinlein's novel "Starship Troopers" imagines a world where military service is the key to acquiring the right to vote.
"The same thibng is true in the USA, of course, but why?" I'm not convinced that this is an accurate statement. While the default provisions of corporation statutes generally call for directors to be adult individuals (something not required of shareholders or registered agents), many corporate statutes are predominantly default rules and the requirement that directors be natural persons is not always expressly identified as not subject to waiver by the bylaws. Corporate general partners in limited partnerships, and corporate managers in LLCs are not uncommon, so in an ambiguous case, I'm not convinced that a court would hold that the natural person requirement cannot be waived by corporate bylaws. Practically speaking, what remedy could (and should) a court provide in a case where notwithstanding the default rules of corporate law, the shareholders have elected a corporate director for many years with their unanimous approval and no natural person has expressly accepted an appointment as a director with the liability that comes with it? If the entity director is undercapitalized, veil piercing may be appropriate, and if a natural person cast a vote on behalf of the entity director that was in some way tortious, perhaps the personal participation rule might apply. But, simply declaring the corporation not to have existed for want of a valid director for the previous years would almost always be a harsh and difficult to apply remedy.
Query if this isn't just a generational inevitability. Appellate judges are inevitably one of the oldest subsets of attorneys, and in the federal courts and many state courts they serve most of their post-appointment natural lives on the bench, at least as senior judges, if not as active judges. Appellate judges have almost always spent less time pre-appointment practicing law during the period when LLCs became commonplace than the attorneys litigating cases before them. Until Generation X and later judges are the majority on the bench, LLCs are not going to be intuitive for them. Yes, they all know the important legal points or can figure them out, but Freudian slips are going to happen. Of course, when a caption is incorrect, as seems to be the case in the Carepartners case, the fault is surely with the lawyers involved, and not with the Court.
The phrase, "Chinese Wall" is not a reference to the Great Wall of China. It is a reference to the fact that Chinese architecture frequently employs paper screens as interior dividers within buildings. These barriers separate the interior of the building not because they are intrinsically effective as barriers to sound or physically keep people out, but because a code of honor within Chinese society compels people in a building that has Chinese walls to respect those barriers despite the fact that they are easily breached or circumvented with peepholes or by listening at them. The analogy in the legal and ethical context is that even though there is no way that an ordinary law firm or corporate body can actually keep information of limits to other members of the firm as a matter of practical feasibility, that firms with elite professionals bound by codes of civility and honor can be trusts to respect the compartimentalization of information in firm out of a sense of ethical fair play and honor, because everyone recognizes that the barrier to lateral employment arrangements if the profession did not agree to treat each other honorably in this regard would harm the industry as a whole. Since the architectural form of paper walls supported by honor rather than physics to divide interior spaces is pretty much exclusive to East Asia and originates in China, the term is appropriate and is not in fact in the nature of an ethnic slur and more than terms like a "Dutch auction" to describe a form of conducting an auction in form originally invented in the Nederlands. If we are going to be P.C. we should do so placed on accurate etimologies for ethnic based terms.
Hurray for this new resource. We're fortunate that someone so qualified could be recruited to do the job.
One alternative that has been proposed would be to base corporate taxation not on income, but on market capitalization.
Toggle Commented Mar 29, 2011 on GE's tax bill at
The contrary position is that institutional investors do not engage in corporate governance due to fears of securities law liability such as insider trading, market manipulation, etc., and that given a safe harbor would act differently. They probably wouldn't see common cause with many "shareholder activists" of the current regime, but might show far less tolerance for directors who tolerated underperforming executives and gave them high compensation.