Law Commons^™

A History Of Corporate Law Federalism In The Twentieth Century, William W. Bratton

Seattle University Law Review

This Article describes the emergence of corporate law federalism across a long twentieth century. The period begins with New Jersey’s successful initiation of charter competition in 1888 and ends with the enactment of the Sarbanes-Oxley Act in 2002. The federalism in question describes the interrelation of state and federal regulation of corporate internal affairs. This Article takes a positive approach, pursuing no normative bottom line. It makes six observations: (1) the federalism describes a division of subject matter, with internal affairs regulated by the states and securities issuance and trading regulated by the federal government; (2) the federalism is an …

The Structure Of Corporate Law Revolutions, William Savitt

Seattle University Law Review

Since, call it 1970, corporate law has operated under a dominant conception of governance that identifies profit-maximization for stockholder benefit as the purpose of the corporation. Milton Friedman’s essay The Social Responsibility of Business is to Increase Its Profits, published in September of that year, provides a handy, if admittedly imprecise, marker for the coronation of the shareholder-primacy paradigm. In the decades that followed, corporate law scholars pursued an ever-narrowing research agenda with the purpose and effect of confirming the shareholder-primacy paradigm. Corporate jurisprudence followed a similar path, slowly at first and later accelerating, to discover in the precedents and …

The Failure Of Market Efficiency, William Magnuson

Faculty Scholarship

Recent years have witnessed the near total triumph of market efficiency as a regulatory goal. Policymakers regularly proclaim their devotion to ensuring efficient capital markets. Courts use market efficiency as a guiding light for crafting legal doctrine. And scholars have explored in great depth the mechanisms of market efficiency and the role of law in promoting it. There is strong evidence that, at least on some metrics, our capital markets are indeed more efficient than they have ever been. But the pursuit of efficiency has come at a cost. By focusing our attention narrowly on economic efficiency concerns—such as competition, …

The Judicial System’S Unjust Relationship With Attorney-Client Privilege: How Judges Knowingly (And Erroneously) Abrogate Important Contractual Arrangements In Corporate Transactions, Edward S. Adams

Michigan Business & Entrepreneurial Law Review

A Delaware court has recently recognized the need to enforce contracts that delineate where the attorney-client privilege rests after an asset transfer. This Article will argue that courts across the country should recognize the important and legitimate reasons for this type of decision. Part I will review how the attorney-client privilege functions for corporations and how courts respect the importance of the privilege in other contexts. Part II will review the fundamental corporate changes in which these questions can arise and situations in which courts choose to recognize the importance of protecting the attorney-client privilege. Part III will argue that …

Twitter V. Musk: The "Trial Of The Century" That Wasn't, Ann M. Lipton, Eric L. Talley

Faculty Scholarship

The months-long saga over Elon Musk's on-again, off-again acquisition of Twitter provided considerable entertainment for lawyers and laypeople alike. But for those of us who teach business law, it also provided a unique (and in certain ways, vexing) opportunity to show real-time examples of the legal principles that are the grist for courses in contracts, corporations, corporate finance, and mergers and acquisitions.

Both of us found ourselves incorporating the saga into our classroom discussions, which in turn informed our own thinking about how the dynamic played out. Although we were both relatively active on social media (indeed on Twitter itself) …

Deal Protection Devices, Albert H. Choi

Articles

In mergers and acquisitions transactions, a buyer and a seller will often agree to contractual mechanisms (deal protection devices) to deter third parties from jumping the deal and to compensate a disappointed buyer. With the help of auction theory, this Article analyzes various deal protection devices, while focusing on the two most commonly used mechanisms: match rights and target termination fees. A match right gives the buyer a right to “match” a third party’s offer so as to prevent the third party from snatching the target away, while a termination fee compensates the buyer when a third party acquires the …

Commercial Law Intersections, Giuliano Castellano, Andrea Tosato

All Faculty Scholarship

Commercial law is not a single, monolithic entity. It has grown into a dense thicket of subject-specific branches that govern a broad range of transactions and corporate actions. When one of these events falls concurrently within the purview of two or more of these commercial law branches - such as corporate law, intellectual property law, secured transactions law, conduct and prudential regulation - an overlap materializes. We refer to this legal phenomenon as a commercial law intersection (CLI). Some notable examples of transactions that feature CLIs include bank loans secured by shares, supply chain financing arrangements, patent cross-licensing, and blockchain-based …

Picking The Low-Hanging Fruit: A Short Essay For Michael Klausner, Ronald J. Gilson

Faculty Scholarship

The articles that comprise this issue of the Journal of Corporation Law were first presented at a conference held at the Wharton School and co-sponsored by Wharton together with Columbia and Stanford Law Schools. The event was organized by my friend Peter Conti-Brown, to whom I am grateful for both the thought and the effort. Standing alone, the thought that the conference was warranted would have been extremely generous. However, anyone who has organized a conference knows that the idea for such events can be exciting, but what follows is an amount of work that had it been anticipated would …

Law And The Blockchain, Usha Rodrigues

Scholarly Works

All contracts are necessarily incomplete. The inefficiencies of bargaining over every contingency, coupled with humans’ innate bounded rationality, mean that contracts cannot anticipate and address every potential eventuality. One role of law is to fill gaps in incomplete contracts with default rules. The blockchain is a distributed ledger that allows the cryptographic recording of transactions and permits “smart” contracts that self-execute automatically if their conditions are met. Because humans code the contracts of the blockchain, gaps in these contracts will arise. Yet in the world of “smart contracting” on the blockchain, there is no place for the law to step …

The Public Cost Of Private Equity, William Magnuson

William J. Magnuson

This Article presents a theory of the corporate governance costs of private equity. In doing so, it challenges the common view that private equity’s governance structure has resolved, or at least significantly mitigated, one of the fundamental tensions in corporate law, that is, the conflict between management and ownership. The Article argues that this widespread perception about the corporate governance benefits of private equity overlooks the many ways in which the private equity model, far from eliminating agency costs, in fact exacerbates them. These governance costs include compensation structures that incentivize excessive risk-taking, governance rights that provide investors with few …

Redefining Roles And Duties Of The Transactional Lawyer: A Narrative Approach, Lori D. Johnson

St. John's Law Review

(Excerpt)

This Article posits that narrative theory can assist the transactional lawyer in walking this tightrope effectively and ethically.

Specifically, this Article proceeds to show that the use of narrative techniques, specifically those proposed by Walter Fisher, can assist transactional lawyers: (1) in understanding their clients’ goals more fully; (2) in more effectively advancing their clients’ goals through persuasion; and (3) in creating complete, holistic documents to govern the proposed deal. As such, the appropriate use of narrative techniques and understanding of narrative theory can enhance the skills of transactional lawyers, and improve client outcomes.

This Article proceeds in three …

The Public Cost Of Private Equity, William Magnuson

Faculty Scholarship

This Article presents a theory of the corporate governance costs of private equity. In doing so, it challenges the common view that private equity’s governance structure has resolved, or at least significantly mitigated, one of the fundamental tensions in corporate law, that is, the conflict between management and ownership. The Article argues that this widespread perception about the corporate governance benefits of private equity overlooks the many ways in which the private equity model, far from eliminating agency costs, in fact exacerbates them. These governance costs include compensation structures that incentivize excessive risk-taking, governance rights that provide investors with few …

The Evolution Of Entrepreneurial Finance: A New Typology, J. Brad Bernthal

Publications

There has been an explosion in new types of startup finance instruments. Whereas twenty years ago preferred stock dominated the field, startup companies and investors now use at least eight different instruments—six of which have only become widely used in the last decade. Legal scholars have yet to reflect upon the proliferation of instrument types in the aggregate. Notably missing is a way to organize instruments into a common framework that highlights their similarities and differences.

This Article makes four contributions. First, it catalogues the variety of startup investment forms. I describe novel instruments, such as revenue-based financing, which remain …

The Battle Over Corporate Bylaws, Ariel Beverly

Loyola of Los Angeles Law Review

No abstract provided.

Family Law And Entrepreneurial Action, D. Gordon Smith

Faculty Scholarship

In "The Contractual Foundation of Family-Business Law," Benjamin Means aspires to lay the groundwork for a law of family businesses. In this brief response essay, I suggest that a workable family-business law along the lines suggested by Means is consistent with an overarching policy in the United States of promoting entrepreneurial action, and I evaluate the proposal against this policy goal, with particular attention to Means’s arguments in favor of “family-business defaults” and his concern over the potentially disruptive role of fiduciary law.

The Short Road Home To Delaware: Boilermakers Local 154 Retirement Fund V. Chevron, Anne M. Tucker

The Journal of Business, Entrepreneurship & the Law

One of the biggest Delaware Supreme Court cases of 2013 wasn’t. The Delaware Court of Chancery opinion in Boilermakers Local 154 Retirement Fund v. Chevron Corp., upheld the enforceability of Delaware forum selection clause bylaws unilaterally adopted by corporate boards of directors. It was widely expected that the Delaware Supreme Court would uphold the Court of Chancery’s opinion. However, Plaintiffs dismissed their appeal and moved to dismiss their remaining claims in the Court of Chancery, leaving intact Chancellor Strine’s strong support of forum selection clauses. National Industries Group (Holding) v. Carlyle Investment Managements L.L.C. and TC Group, L.L.C., a 2013 …

Going Once . . . Going Twice . . . Sold: The Continued Use Of "Don't Ask, Don't Waive" Standstills In Corporate Auctions, Kamaal Patterson

Kamaal Patterson

“Don’t ask, don’t waive” standstills in confidentiality agreements prevent potential bidders in a corporate auction from: (1) submitting an offer to purchase the target corporation before receiving permission; and (2) asking the target corporation to waive the standstill. These are powerful contractual provisions that can help satisfy Revlon value maximization duties, but they also create concerns about satisfaction of other fiduciary duties, such as remaining fully informed about potential offers. Recent rulings from the Delaware Court of Chancery have criticized the use of this standstill. My article attempts to address these criticisms and clarify how to properly use the standstill.

The Diverging Meaning Of Good Faith, Mark J. Loewenstein

Publications

This article explores the meaning of "good faith" in the context of corporations and unincorporated entities. The courts, particularly in Delaware, have developed two different approaches. In the corporate arena, the courts are fashioning a notion of good faith that seems to require an examination of director motivations. In the unincorporated arena, good faith has a meaning grounded in contract law. These are two different concepts and reflect the fundamental differences between corporations and unincorporated entities, with the former based on fiduciary duties and the latter on contract. There are, however, indications that this "divergence" is starting to disappear, and …

What Default Rules Teach Us About Corporations; What Understanding Corporations Teaches Us About Default Rules, Tamar Frankel

Faculty Scholarship

This Article addresses corporate law's default rules, which allow corporations to waive their directors' liability for damages based on a breach of their fiduciary duty of care. Most large publicly held corporations have adopted such a waiver in their articles of association. This Article suggests that courts should limit the range of the waivers to the circumstances that existed when the voters voted and to the information they received before they voted. This Article distinguishes between public contracts (legislation) and private contracts (commercial transactions) and the default rules that apply to each. The Article shows that courts view corporations and …

The Evolution Of Corporate Law: A Cross- Country Comparison, Katharina Pistor, Yoram Keinan, Jan Kleinheisterkamp, Mark D. West

Faculty Scholarship

The importance of law and legal institutions for economic development is widely acknowledged today. The invention of credit mechanisms to support long-distance trade has been hailed as one of the preconditions for the development of capitalism in Europe. The corporate form is regarded as another milestone for industrialization, the creation of viable market economies, and ultimately economic prosperity. Many former socialist countries quickly enacted new corporate codes or revived their pre-World War Two ("WWII") legislation. The failure of major privatization efforts to enhance enterprise efficiency is attributed to weaknesses in corporate governance, of which the corporate law is a crucial …

Why Not Good Faith?-The Foibles Of Fairness In Closely Held Corporations, Daniel S. Kleinberger

Faculty Scholarship

This essay describes the contours of the shareholder’s duty to be fair and explores some of the problems caused by the law’s imprecision in defining the duty of fairness. Because this duty is best understood as a rejection of old norms, part one of this essay describes the traditional doctrines of intra-corporate responsibility. Part two describes the special characteristics of a close corporation and outlines how those characteristics pushed close corporation law to new concepts of fairness and shareholder duties. Part three attempts to delineate those duties of fairness and also to highlight some of the dangers that arise when …

No Exit?: Opting Out, The Contractual Theory Of The Corporation, And The Special Case Of Remedies, John C. Coffee Jr.

Faculty Scholarship

Aloof and insular as corporate law often seems, it cannot remain uninfluenced for very long by developments in the mainstream of American civil law. In that mainstream, there is today flowing a strong, swift current called "tort reform." As currents go, this one is remarkably broad and perhaps a little shallow, but on it floats a number of diverse legislative proposals – ceilings on liability, restrictions on attorneys' fees, greater reliance on alternative methods of dispute resolution, restrictions on joint and several liability and contribution, and the curtailment of punitive damages. All of these proposals flow from the same wellspring: …

Book Reviews, Law Review Staff

Vanderbilt Law Review

Decision at Law

By David W. Peck.

New York: Dodd, Mead & Co.,1961. Pp. vii, 303.

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Corporation Lawyer: Saint or Sinner? By Beryl Harold Levy.

Philadelphia and New York: Chilton Co., 1961. Pp. x, 175.

reviewer: Elliott E. Cheatham

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Criminal Psychology Edited by Richard W. Nice. New York: Philosophical Library, Inc., 1962. Pp. 284.

reviewer: J. Paschall Davis

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Symposium on the Labor-Management Reporting and Disclosure Act of 1959 Edited by Ralph Slovenko. Baton Rouge: Claitor's Bookstore, 1961. Pp. xliv, 1237. $20.00.

reviewer: Robert N. Covington

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Handling Accident Cases, Vol. 3

By Albert Averbach.

Rochester: The Lawyers …

Corporations - Officers And Directors - Liability For Inducing A Corporation To Breach Its Contracts, William H. Leighner

Michigan Law Review

Plaintiff real estate company brought suit against the directors of a corporation and other third persons for an alleged conspiracy to induce the corporation to breach its contract with plaintiff. The complaint alleged that the corporation had entered into an agreement whereby plaintiff was to procure a purchaser for certain premises owned by the corporation and that plaintiff had found a purchaser; that before a written offer could be obtained, the corporation contracted to sell to another broker who was to be used as a conduit to transfer title to the purchaser found by the plaintiff, and who was to …

Corporations - Stockholders - Effect Of State Constitutional Provisions On Liabilty To Creditors For Unpaid Subscriptions, Douglas Peck S.Ed.

Michigan Law Review

Basset and Company, an Oklahoma corporation, issued stock to defendant for which defendant never paid. The sum due was carried on the corporate books as "subscriptions receivable." The corporation became bankrupt and the trustee brought suit in the federal district court to recover the amount due on the subscriptions. Held, judgment for the defendant. Under the Oklahoma Constitution, where stock is issued for consideration which is less than par value, the issue is void. The stock certificate cannot serve as a consideration to support the would-be stockholder's promise to pay for the stock, and no liability attaches to the …

Validity Of Contracts Between Corporations Having Common Directors, Harold M. Bowman

Michigan Law Review

Among many who heed the results of the examinations into the methods of trust, corporation and extensive financial activities, there is a conservative belief that improvement is to be secured not by sweeping alterations in legislation, or revolutionary conversions in public opinion, but by persistent and skillful reformation of the detail of law itself. The recommendations of the Armstrong insurance committee of New York bear adequate witness to this fact. But it is interesting to note that most of the recommendations have been addressed to executive and legislative authority, not to the judiciary. This is but natural, considering the purposes …