Law Commons^™

How Many Fiduciary Duties Are There In Corporate Law?, Julian Velasco

Journal Articles

Historically, there were two main fiduciary duties in corporate law, care and loyalty, and only the duty of loyalty was likely to lead to liability. In the 1980s and 1990s, the Delaware Supreme Court breathed life into the duty of care, created a number of intermediate standards of review, elevated the duty of good faith to equal standing with care and loyalty, and announced a unified test for review of breaches of fiduciary duty. The law, which once seemed so straightforward, suddenly became elaborate and complex. In 2006, in the case of Stone v. Ritter, the Delaware Supreme Court rejected …

Twenty-Eight Words: Enforcing Corporate Fiduciary Duties Through Criminal Prosecution Of Honest Services Fraud, Lisa L. Casey

Journal Articles

This article examines the federal government's growing use of 18 U.S.C. § 1346 to prosecute public company executives for breaching their fiduciary duties. Section 1346 is a controversial but under-examined statute making it a felony to engage in a scheme "to deprive another of the intangible right of honest services." Although enacted by Congress over twenty years ago, the Supreme Court repeatedly declined to review the statute, until now. In 2009, Justice Antonin Scalia pointed to the numerous interpretive questions dividing the federal appellate courts and proclaimed that it was "quite irresponsible" to let the "current chaos prevail." Since then, …

Introduction: Unsettling Questions, Disquieting Stories, Mae Kuykendall, David A. Westbrook

Journal Articles

The Business Law and Narrative Symposium, held at Michigan State University on September 10-11, 2009, brought together nationally known legal scholars, and scholars from other disciplines, to discuss whether and how the institution of the corporation was embedded in social narratives, public stories. This introductory essay reviews the responses of these scholars to the thesis of Kuykendall's article, No Imagination: The Marginal Role of Narrative in Corporate Law. The authors conclude with a hope that corporate law might offer a more literary sensibility by which to make our lives in global capitalism more comprehensible.

Sarbanes-Oxley, Kermit The Frog, And Competition Regarding Audit Quality, Matthew J. Barrett

Journal Articles

The regulatory scheme after Sarbanes-Oxley has significantly improved public company audits in the United States, or at least has demonstrated the potential to do so, but the obligation to preserve client confidentially still prevents auditors from competing for new clients on the basis of audit quality. This paper suggests a simple way for the SEC to facilitate such competition within the existing regulatory framework. The SEC should require issuers and registrants to disclose whether their independent audits uncovered any financial fraud and, within specified ranges, the number and amount of all audit adjustments incorporated into the financial statements filed with …

Class Action Criminality, Lisa L. Casey

Journal Articles

This paper examines the criminal prosecution of Milberg Weiss, formerly the most successful plaintiffs’ securities class action firm in the country, for allegedly making undisclosed incentive payments to class representatives. In particular, the article examines the government’s primary charge - that the firm’s practice violated the “honest services” theory of mail and wire fraud. The government’s application of this theory presumes a fiduciary relationship between the class representatives and the class which has never been clearly delineated and, indeed, is against the weight of case law and the realities of class action litigation.

The Article proceeds on two different levels. …

Cost-Based And Rules-Based Regulatory Competition: Markets For Corporate Charters In The U.S. And The E.U., Marco Ventoruzzo

Journal Articles

Regulatory competition in corporate law is increasing in Europe and, not differently from what happens in the US, a market for corporate charters is developing in Europe. This article examines the differences between the US corporate law market, and the European one - to the extent that one exists. The basic idea is that, in Europe, there is a stronger competition for the (first) incorporation of rather small, closely-held corporations; while in the US a small closely-held corporation usually incorporates locally, where its shareholders and directors are located, and reincorporates - often in Delaware - when it is growing and, …

The Normative Foundations Of Trademark Law, Mark P. Mckenna

Journal Articles

This paper challenges the conventional wisdom that trademark law traditionally sought to protect consumers and enhance marketplace efficiency. Contrary to widespread contemporary understanding, early trademark cases were decidedly producer-centered. Trademark infringement claims, like all unfair competition claims, were intended to protect producers from illegitimate attempts to divert their trade. Consumer deception was relevant in these cases only to the extent it was the means by which a competitor diverted a producer's trade. Moreover, American courts from the very beginning protected a party against improperly diverted trade in part by recognizing a narrow form ofproperty rights in trademarks. Those rights were …

Taking Shareholder Rights Seriously, Julian Velasco

Journal Articles

The great corporate scandals of the recent past and the resulting push for legal reform have revived the role of the shareholder in the corporation as a subject of great debate. Those who favor an expanded role for shareholders in corporate governance tend to focus on developing new legal rights for shareholders, and their critics respond with reasons why such rights are unnecessary and inappropriate. While these issues certainly are worthy of consideration, issues concerning existing shareholder rights are more fundamental. If existing rights are adequate or could be improved, then new rights may not be necessary; but if existing …

Limited Liability Company Citizenship: Reconsidering An Illogical And Inconsistent Choice, Debra R. Cohen

Journal Articles

The trend in diversity actions in Federal Court is to rigidly apply the formalistic rules for determining citizenship (aggregate or entity) to deem limited liability companies (LLCs) to have aggregate or "partnership" citizenship. While the approach is designed to reduce the federal docket; there is no evidence that it works. More importantly, this result-oriented approach is not based on well-reasoned analysis. This approach creates several illogical and inconsistent results. It bears no reflection on modern business realities, it undermines well established principles of law, and it undercuts the purpose for which diversity jurisdiction was established, This article suggests that, just …

Europe's Thirteenth Directive And U.S. Takeover Regulation: Regulatory Means And Political Economic Ends, Marco Ventoruzzo

Journal Articles

Cross-border acquisitions, especially through hostile takeovers, represent one of the most dramatic consequences of the growing integration, both within Europe, and when considering the economic balance of power between the US and the European industries. This Article focuses on the single most important piece of legislation on European takeover law, the Thirteenth Directive of the European Union on Takeover Regulation, which was approved on April, 21 2004 and must be implemented by Member States before the end of 2006.

Passage of the Thirteenth Directive is no minor event. Earlier versions were embroiled in arresting political controversies that generated significant Member …

The Fundamental Rights Of The Shareholder, Julian Velasco

Journal Articles

Shareholders have many legal rights, but they are not all of equal significance. This article will argue that two rights — the right to elect directors and the right to sell shares — are more important than any others, that these rights should be considered the fundamental rights of the shareholder, and that, as such, they deserve a great deal of respect and protection by law.

The history of corporate law has been one of increasing flexibility for directors and decreasing rights for shareholders. Although the law seems to have coalesced around the norm of shareholder primacy, this is not …

The Congressional Response To Corporate Expatriations: The Tension Between Symbols And Substance In The Taxation Of Multinational Corporations, Michael Kirsch

Journal Articles

During the past few years, several high-profile U.S.-based multinational corporations have changed their tax residence from the United States to Bermuda or some other tax haven. They have accomplished these expatriations, and the resulting millions of dollars of annual tax savings, merely by changing the place of incorporation of their corporate parent, without the need to make any substantive changes to their business operations or their U.S.-based management structure. Congress and the media have focused significant attention on this phenomenon. Despite this attention, Congress initially enacted only a non-tax provision targeting corporate expatriations - a purported ban on expatriated companies …

Experiments In Comparative Corporate Law: The Recent Italian Reform And The Dubious Virtues Of A Market For Rules In The Absence Of Effective Regulatory Competition, Marco Ventoruzzo

Journal Articles

The article addresses a sweeping Reform of corporate law which was enacted by the Italian government in 2003 and came into effect on January 1, 2004. The new statutory regulation significantly increases freedom of contract in corporate law, relying on the idea that the development of an efficient market for rules will allow the "natural selection" of the rules that better suit the need of the different stakeholders. Together - and to some extent to compensate for - this greater freedom of contract, new protections for minority shareholders have also been implemented. The reform also imports into the Italian legal …

Structural Bias And The Need For Substantive Review, Julian Velasco

Journal Articles

One of the fundamental debates in corporate law pits the authority of the board of directors to make business decisions without judicial interference against the accountability of directors to shareholders for their decisions. The business judgment rule attests to the value ascribed to authority by providing only limited judicial review for claims of breach of the duty of care, while the entire fairness test demonstrates the value ascribed to accountability by providing far more exacting scrutiny for claims of breach of the duty of loyalty. In cases involving structural bias, however, neither doctrine is appropriate. Whenever the interests of directors …

Corporation Law After Enron: The Possibility Of A Capitalist Reimagination, David A. Westbrook

Journal Articles

No abstract provided.

Making Sense Of Successor Liability, Marie T. Reilly

Journal Articles

A firm that buys assets from another firm ordinarily does not acquire liability to the seller's creditors simply by buying its assets. This ordinary rule is subject to important exceptions. The buyer's consent triggers an exception. If a buyer agrees to assume the seller's liability to third parties, it is for that reason liable. This article considers a more controversial exception - successor liability. When a court decides that an asset acquirer should be treated as a "successor" to the transferor, it is liable for the transferor's debts as though it were the transferor.

Just Do It: An Antidote To The Poison Pill, Julian Velasco

Journal Articles

The poison pill is the most powerful defense against hostile takeovers. It can render a company takeover-proof, or nearly so. Efforts at developing an antidote have focused largely on shareholder-adopted bylaws, but the legality of such proposals has been questioned by many. In any event, shareholder-adopted bylaws have not been very successful in eliminating poison pills thus far. In order to effect takeovers, hostile bidders cannot rely on the courts or the target company's shareholders; they can rely only on themselves. In this article, I propose a strategy for hostile bidders to counteract the poison pill and to consummate hostile …

Focusing Failures In Competitive Environments: Explaining Decision Errors In The Monty Hall Game, The Acquiring A Company Problem, And Multiparty Ultimatums, Avishalom Tor, Max Bazerman

Journal Articles

This paper offers a unifying conceptual explanation for failures in competitive decision-making across three seemingly unrelated tasks: the Monty Hall game (Nalebuff, 1987), the Acquiring a Company problem (Samuelson & Bazerman, 1985), and multiparty ultimatums (Messick, Moore, & Bazerman, 1997). We argue that the failures observed in these three tasks have a common root. Specifically, due to a limited focus of attention, competitive decision-makers fail properly to consider all of the information needed to solve the problem correctly. Using protocol analyses, we show that competitive decision-makers tend to focus on their own goals, often to the exclusion of the decisions …

Citizenship Of Limited Liability Companies For Diversity Jurisdiction, Debra R, Cohen

Journal Articles

The limited liability company is an increasingly popular form of business organization. Due to its hybrid nature, however, the citizenship of a LLC for purposes of diversity jurisdiction is difficult to determine. Should the citizenship of a LLC be determined as if it were a corporation, in which case it has "entity" citizenship, or as if it were a partnership, in which case its citizenship is determined by the citizenship of "persons composing" the LLC?

This Article examines the history of the evolution of hybrid organizations like the LLC, and the rules for determining the citizenship of business organizations in …

The Enduring Illegitimacy Of The Poison Pill, Julian Velasco

Journal Articles

The poison pill is the ultimate defense against a hostile takeover. From management's perspective, it is almost too good to be true. Originally, the poison pill was seen as a way to guard against the worst of hostile takeover tactics. It has been successful; the poison pill has virtually eliminated these tactics from the repertoires of hostile bidders. However, the poison pill is extremely potent, capable of preventing all hostile takeovers, regardless of their underlying merit. Thus, the poison pill eventually became the means to employ a just say no defense of resisting hostile takeovers, regardless of the interests of …

The Definition Of Voting Stock And The Computation Of Voting Power Under Sections 368(C) And 1504(A): Recent Developments And Tax Lore, Stuart G. Lazar

Journal Articles

Although the concepts of "voting stock" and "voting power" are pervasive throughout the Code, until recently, courts, commentators and the Service have devoted minimal energy to demystifying the confusion surrounding the definition of voting stock and even less to expanding upon the methodology of computing voting power. Recent developments, however, may prompt practitioners to take a second look at these terms. While a 1995 decision by the Tax Court adds little to the existing body of authority with respect to the determination of the owner of voting stock, the Service's analysis of the voting power requirement in a 1994 private …

West Virginia Corporate Law: Is It "Broke"?, Debra R. Cohen

Journal Articles

We are all familiar with the cliche "if it ain't broke, don't fix it." The sentiment is as applicable to law as it is to the rest of life. When a law does what it is intended to do, legislators and courts should leave it alone. However, when a law no longer serves its intended purpose, it is "broke," and should be revised. The question is whether West Virginia's corporate law is "broke." In 1974, the West Virginia Legislature adopted the West Virginia Corporation Act (the "Act").' The Act brought then modem standards of corporate law to West Virginia. Since …

Corporate Initiatives: A Second Human Rights Revolution?, Douglass Cassel

Journal Articles

This Essay examines the role of multinational corporations in protecting human rights around the globe. Part I analyzes the conduct of corporations, describes examples of corporations' involvement in human rights violations, and discusses the merits of greater responsibility of corporations. Part II suggests that the level of responsibility for a multinational corporation depends on the proximity of the corporation's operations to human rights violations, in combination with the seriousness of the violations, and proposes five gradations of responsibility. This Essay concludes that the evolving nature of the global economy is producing a shift in responsibilities from government to the private …

The Character Of A Partner's Distributive Share Under The "Substantial Economic Effect" Regulation, Alan Gunn

Journal Articles

Partnership income and deductions are allocated according to the amount and the character of each partner's distributive share. This article examines the ways in which the section 704(b) regulations apply the "substantial economic effect" test to character allocations. It argues that it is important to distinguish allocations of character from allocations of amounts to understand these regulations. This is because tests that the regulations apply to character issues have to do with source-measurement correspondence and proration, while amounts are determined according to economic effect in the capital account sense. Although the regulations' rules for character allocations purport to define "substantiality," …

Government Enforcement Policy Of Section 7 Of The Clayton Act: Carte Blanche For Conglomerate Mergers?, Joseph P. Bauer

Journal Articles

This Article argues that the Department of Justice's recently articulated enforcement intentions with respect to conglomerate mergers are inconsistent with the case law applying section 7 of the Clayton Act to these transactions and also represent unsound policy. Part I will review the conglomerate merger jurisprudence of the past two decades - looking at the theories that have been used to challenge them, at the important judicial decisions interpreting and applying those theories, and at the Guidelines adopted by the Department of Justice in 1968 to codify these developments. It will then briefly discuss certain developments regarding conglomerate mergers the …

The Legal Status Of Joint Venture Corporations, Thomas F. Broden, Alfred L. Scanlan

Journal Articles

American industry employs many forms of business organizations. The sole proprietorship, the partnership, general and limited, the joint venture, the joint stock company, the corporation, public issue and close, and many others are all familiar and well established in their use. This article deals with the use by American industry of the close corporation to carry on a joint venture. With due deference to purists in legal terminology we have elected to refer to this particular type of corporate entity as the joint venture corporation. In this article we not only look at the use made of the joint venture …

Federal Income Tax In Relation To Consumer Cooperatives, Joseph O'Meara

Journal Articles

The taxation of consumer cooperative associations has proceeded on an erroneous assumption deriving from Eisner v. Macomber. Contrary to that assumption, so long as these non-profit, mutual-benefit undertakings confine themselves to their proper functions they have no income under the Sixteenth Amendment and cannot validly be required to pay an income tax.

Reorganization Of The Federal Judiciary, Thomas Frank Konop

Journal Articles

This article examines the controversy the Supreme Court have declaring unconstitutional several acts of Congress by striking social and beneficial laws from the statute books. The Supreme Court in effect told the American people that because of the Constitution their representatives could not pass these laws. It is the Supreme Court that is usurping the power of Congress and the President. It is the Supreme Court that has been destroying laws passed by Congress for a better life, more liberty and equality; social justice, and pursuit of happiness of one hundred thirty million people. This article favors the President's proposal …

A Great Opportunity For Lawyers, Thomas Frank Konop

Journal Articles

The lawyer-statesmen who drafted our Constitution had a greater task. The lawyer-statesmen who piloted us through a Civil War, through a Reconstruction Period, and through the World War, had equally difficult problems. Will the lawyer of today assume a leadership? Will he assume a duty and a responsibility for service? Will he heed an op- portunity and thus bring a lasting tribute to the profession?