Law Commons^™

Rethinking Mac Clauses In The Time Of Akorn, Boston Scientific, And Covid-19, Samuel Shapiro

Michigan Business & Entrepreneurial Law Review

The MAC clause is perhaps the most important clause in contract law, giving acquirers the ability to terminate even the largest agreements in the face of an often vaguely defined “Material Adverse Change.” For decades, even though MAC clauses have been present in nearly every merger agreement, courts have almost universally refused to enforce them. But the Delaware Chancery Court’s 2018 decision in Akorn may finally change that. As the world deals with the economic uncertainty caused by COVID-19, courts may soon get more opportunities to decide whether or not they will follow Akorn’s lead and begin to allow …

Federalizing Tax Justice, Reuven Avi-Yonah, Orli Avi-Yonah, Nir Fishbien, Hayian Xu

Articles

The United States is the only large federal country that does not have an explicit way to reduce the economic disparities among more and less developed regions. In Germany, for example, federal revenues are distributed by a formula that takes into account the relative level of wealth of each state (the so-called Finanzausgleich, or fiscal equalization). Similar mechanisms are found in Australia, Canada, India, and other large federal countries. The United States, on the other hand, has no such explicit redistribution. Each state is generally considered equal and sovereign, and the federal government does not distribute revenues to equalize …

Is There A Delaware Effect For Controlled Firms?, Edward Fox

Articles

The impact of Delaware incorporation on firm value remains a central question in corporate law. Despite the difficulty scholars have had in agreeing on an answer to this question, there is a consensus that Delaware has long enjoyed stable and important advantages in the expertise of its judiciary and its extensive case law. These advantages are believed to be particularly important for firms with a controlling shareholder. This Article attempts to empirically measure the effect of Delaware incorporation on these controlled firms and thus helps us understand the market value of Delaware’s judiciary and case law. It finds, surprisingly, that …

A New Urban Front For Shareholder Primacy, Anne Choike

Michigan Business & Entrepreneurial Law Review

The hundredth anniversary of Dodge v. Ford marks an occasion to reflect upon what, if anything, has changed about shareholder primacy in a century. Seizing this opportunity, in this Article I analyze new local laws and ordinances that promote stakeholder governance and engagement, which seek to protect the interests of non-shareholder constituencies such as workers, the environment, and the communities in which corporations operate, among others. In doing so, I argue that such local laws meaningfully differ from traditional stakeholder protections, most significantly in the way that they weaken managerial accountability to shareholders. The emergence of these city laws challenges …

Unintentional Irony In Landmark Decisions Of The Delaware Supreme Court Regarding Corporate Law, Steven J. Cleveland

Michigan Business & Entrepreneurial Law Review

Three landmark decisions of the Delaware Supreme Court exhibit unintentional irony: Beam v. Stewart, Smith v. Van Gorkom, and Paramount Communications Inc. v. Time Inc. In Beam, the court concluded that, regarding the decision of whether to seek remedy against Martha Stewart, her fellow directors would not have jeopardized their reputations for the minimal gain of continuing their business and personal relationships with her. Ironically, the court failed to acknowledge that Martha Stewart—in trading on material nonpublic information, which gave rise to the corporate claim against her—jeopardized her reputation (ultimately losing hundreds of millions of dollars and her freedom) for …

The Elephant In The Room: Helping Delaware Courts Develop Law To End Systemic Short-Term Bias In Corporate Decision-Making, Kenneth Mcneil, Keith Johnson

Michigan Business & Entrepreneurial Law Review

Short-termism in corporate decision-making is as problematic for long-term investors as relying on a three-mile radar on a supertanker. It is totally inadequate for handling the long-term risks and opportunities faced by the modern corporation. Yet recent empirical research shows that up to 85% of the S&P 1500 have no long-term planning. This is costing pension funds and other long-term investors dearly. For instance, the small minority of companies that do long-term planning and risk management had a long-term profitability that was 81% higher than their peers during the 2001–2014 period—with less stock volatility that costs investors dearly as well. …

Contracting Out Of The Fiduciary Duty Of Loyalty: An Empirical Analysis Of Corporate Opportunity Waivers, Gabriel Rauterberg, Eric Talley

Articles

For centuries, the duty of loyalty has been the hallowed centerpiece of fiduciary obligation, widely considered one of the few “mandatory” rules of corporate law. That view, however, is no longer true. Beginning in 2000, Delaware dramatically departed from tradition by granting incorporated entities a statutory right to waive a crucial part of the duty of loyalty: the corporate opportunities doctrine. Other states have since followed Delaware’s lead, similarly permitting firms to execute “corporate opportunity waivers.” Surprisingly, more than fifteen years into this reform experiment, no study has attempted to either systematically measure the corporate response to these reforms or …

Lessons From Institutional Shareholder Services: Governing Benefit Corporations' Third-Party Standard, Tammi S. Etheridge

Michigan Business & Entrepreneurial Law Review

Almost one hundred years ago, Henry Ford, as CEO of the Ford Motor Company, announced a plan to cease payment of special dividends to shareholders. Instead, the company would reinvest its profits to employ more workers and build more factories. Investing in new workers and factories would cut the cost of cars and make them affordable to more people. Ford publicly declared that his “ambition [was] to employ still more men, to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this we are putting …

Cooperative Mineral Interest Development In The Lone Star State: It's Time To Mess With Texas, Matthew K. Trawick

Michigan Journal of Environmental & Administrative Law

Since the early discoveries of the Spindletop, King Ranch, and East Texas oil fields, the oil and gas industry has dominated the Texas economy. The industry has also played an important role in shaping state politics and culture. The oil boom of the early 1900s created thousands of jobs for ordinary workers and immense wealth for a select few. Early Texas oil barons made headlines because of their lavish lifestyles and often extreme political beliefs. Legendary wildcatter H.L. Hunt typified this oil-fueled exuberance. Hunt became one of the eight richest individuals in the United States after securing mineral rights to …

At The Fontier Of The Younger Doctrine: Reflections On Google V. Hood, Gil Seinfeld

Articles

On December 19, 2014, long-simmering tensions between Mississippi Attorney General Jim Hood and the search engine giant Google boiled over into federal court when Google filed suit against the Attorney General to enjoin him from bringing civil or criminal charges against it for alleged violations of the Mississippi Consumer Protection Act. Hood had been investigating and threatening legal action against Google for over a year for its alleged failure to do enough to prevent its search engine, advertisements, and YouTube website from facilitating public access to illegal, dangerous, or copyright protected goods. The case has garnered a great deal of …

London As Delaware?, Adam C. Pritchard

Articles

Jurisdictional competition in corporate law has long been a staple of academic-and sometimes, political-debate in the United States. State corporate law, by long-standing tradition in the United States, determines most questions of internal corporate governance-the role of boards of directors, the allocation of authority between directors, managers and shareholders, etc.-while federal law governs questions of disclosure to shareholders-annual reports, proxy statements, and periodic filings. Despite substantial incursions by Congress, most recently in the Sarbanes-Oxley Act of 2002, this dividing line between state and federal law persists, so state law arguably has the most immediate impact on corporate governance outcomes.

London As Delaware?, Adam C. Pritchard

Articles

In the United States, state corporate law determines most questions of internal corporate governance - the role of directors; the allocation of authority between directors, managers, and shareholders; etc. - while federal law governs questions of disclosure to shareholders - annual reports, proxy statements, and periodic filings. Despite substantial incursions by Congress, most recently with the Sarbanes-Oxley Act, this dividing line between state and federal law persists, so state law arguably has the most immediate effect on corporate governance outcomes.

The Ideal Deal: How Local Governments Can Get More For Their Economic Development Dollar, Rachel Weber, David Santacroce

Books

This handbook is designed to provide local economic development practitioners with an important tool. It takes the reader step-by-step through the different elements of contracts that treat public incentive packages as a quid pro quo for public benefits. Each section discusses a different element of the ideal deal: valuation of public costs and benefits, performance standards, disclosure and oversight, and enforcement. In each section we provide detailed examples of model provisions used by local governments in their incentive legislation, ordinances, and contracts -- information that has not before been obtained or recorded in any systematic way. These examples are meant …

Daedalean Tinkering, Sean J. Griffith

Michigan Law Review

Part I of this Review describes Skeel's account of corporate scandal, focusing on the central theme of excessive risk-taking. Part II examines Skeel's most original policy proposal-the creation of an investor insurance scheme to protect against excessive risk. Although the proposal takes up only a few pages of the book, it targets the books' core concern-the risk of corporate fraud. In evaluating the proposed investor insurance regime, this Review raises a set of objections based on cost and administrability and argues that an insurance regime would be duplicative of existing mechanisms that effectively spread the risk of financial fraud. Part …

The Common Law Power Of The Legislature: Insurer Conversions And Charitable Funds, Jill R. Horwitz, Marion R. Fremont-Smith

Articles

New York's Empire Blue Ccoss and Blue Shield conversion from nonprofic cofor­ profic form has considerable legal significance. Three aspects of the conversion ma.ke checase unique: the role of the scace legislature in directing the disposicion of the conversion assets, che face chac it made itself che primary beneficiary of chose assets, and the actions of che scace attorney general defending the state rather than che public inceresc in che charitable assets. Drawing on several cenruries of common Law rejecting the Legislacive power to direct the disposition of charitable funds, chis article argues chat the legislature lacked power cocontrol che …

Tender Offers By Controlling Shareholders: The Specter Of Coercion And Fair Price, Adam C. Pritchard

Articles

Taking your company private has never been so appealing. The collapse of the tech bubble has left many companies whose stock prices bordered on the stratospheric now trading at small fractions of their historical highs. The spate of accounting scandals that followed the bursting of the bubble has taken some of the shine off the aura of being a public company-the glare of the spotlight from stock analysts and the business press looks much less inviting, notwithstanding the monitoring benefits that the spotlight purports to confer. Moreover, the regulatory backlash against those accounting scandals has made the costs of being …

The Securities Litigation Uniform Standards Act Of 1998: The Sun Sets On California's Blue Sky Laws, David M. Lavine, Adam C. Pritchard

Articles

It is often said that California sets the pace for changes in America's tastes. Trends established in California often find their way into the heartland, having a profound effect on our nation's cultural scene. Nouvelle cuisine, the dialect of the Valley Girl and rollerblading all have their genesis on the West Coast. The most recent trend to emerge from California, instead of catching on in the rest of the country, has been stopped dead in its tracks by a legislative rebuke from Washington, D.C. California's latest, albeit short-lived, contribution to the nation was a migration of securities fraud class actions …

Protecting Nonshareholder Interests In The Market For Corporate Control: A Role For State Takeover Statutes, Frank J. Garcia

University of Michigan Journal of Law Reform

Part I of this Note describes a phenomenon of modern corporate activity first identified over fifty years ago as the "separation of ownership and control." This separation gives rise to the need for a governing corporate norm; recognizing the normative aspect of this phenomenon has direct implications for the takeover debate.

Part II analyzes the problem of a target board's fiduciary duty as the modern version of the fundamental normative issue of corporate law. It argues that the norm of shareholder wealth maximization, assumed as the starting point by those most in favor of an active and minimally regulated control …

Misreading The Williams Act, Lyman Johnson, David Millon

Michigan Law Review

This Article examines the emerging controversy over preemption of the most potent of recent antitakeover laws, the so-called business combination statutes recently passed by Delaware, New York, and other states, and Pennsylvania's director-approval statute. After examining the strategy employed by the states to shield these statutes from constitutional attack, we consider the issues raised by the preemption claim and the arguments currently being advanced by the SEC and others in favor of preemption. Resolving the preemption controversy requires inquiry into the original meaning and objectives of the Williams Act. We argue that this should involve attention not only to the …

Missing The Point About State Takeover Statutes, Lyman Johnson, David Millon

Michigan Law Review

In a recent article in this journal, Professor Richard Booth offers an extended appraisal of state legislation regulating hostile corporate takeovers. We think Booth's article requires comment for two reasons. The first reason is perhaps more obvious, though less interesting from our point of view. To be blunt, "unfairness" to shareholders due to coercion arising out of two-tier or partial offers simply does not occur with enough frequency to warrant a sixty-seven-page article in a major law review. According to recent congressional testimony by SEC Commissioner Cox, from 1982 to 1986 the number of two-tier offers declined from 18% of …

Corporate Auctions And Directors' Fiduciary Duties: A Third-Generation Business Judgment Rule, Steven G. Bradbury

Michigan Law Review

This Note proposes a rationale and a methodology for applying the business judgment rule when directors resist a hostile bid during the auction phase of a control contest. Part I examines the changes that occur in the responsibilities of target directors when a corporate auction is initiated. This Part describes the Unocal business judgment rule test and discusses its usefulness in the auction phase of a takeover. While the test requires modification if it is to complement effectively the auction-phase duties announced in Revlon, this Part suggests that the business judgment rule continues to be relevant and important during …

The Promise Of State Takeover Statutes, Richard A. Booth

Michigan Law Review

The purpose of this article is, first, to describe the problems associated with two-tier tender offers and the closely related, and perhaps still more coercive, partial tender offer. Second, the article will address the natural question why such offers have not already been banned, suggesting a better view of what coercion means in the context of a tender offer. Third, the article will offer a management-oriented view of coercion, explaining the legitimate interests of managers (and other groups) in resisting takeovers, as well as how greenmail and poison pills, though subject to abuse, can be used quite properly to combat …

Limiting Directors' Duty Of Care Liability: An Analysis Of Delaware's Charter Amendment Approach, Craig W. Hammond

University of Michigan Journal of Law Reform

This Note explores the corporate law principles guiding the amendment of section 102(b)(7) and considers what effects this statute will have on the investor-director relationship. The Note focuses on whether this reform measure excessively protects directors at the expense of shareholders.

Part I analyzes the neoclassical economic view of the contractual relationship between stockholders and management that serves as the theoretical justification of section 102(b)(7). Part II proposes a modification of the Delaware statute that would provide for periodic shareholder review of charter amendments limiting liability.

The Birth Of A Public Corporation, Jon C. Teaford

Michigan Law Review

A Review of Public Property and Private Power: The Corporation of the City of New York in American Law, 1730-1870. by Hendrik Hartog

Second Generation State Takeover Legislation: Maryland Takes A New Tack, Michigan Law Review

Michigan Law Review

This Note examines the approach recently adopted by the Maryland legislature in special session one year after the Supreme Court's decision in MITE. Maryland has departed radically from the regulatory approach of first generation statutes; however, this Note argues that the statute has failed to escape the constitutional infirmities of its predecessors. Part I outlines the various mechanisms that regulate acquisition of corporate control: the federal tender offer regulatory mechanism known as the Williams Act, state takeover legislation such as the Illinois statute invalidated in MITE, and the new Maryland statute. Part II analyzes the debate concerning the …

Qualification Requirements For Foreign Corporations: The Need For A New Definition Of "Doing Business" Based On In-State Sales Volume, Stanley M. Klem

University of Michigan Journal of Law Reform

Part I of this article examines the mechanics of the present qualification system, paying special attention to the problems created by a multiplicity of vague state standards. Part II discusses the historical justification and purposes of the present system, concluding that only the protection function justifies the continued existence of the system. Finally, Part III proposes that "doing business" be defined in terms of the annual volume of in-state sales. This solution would remedy the problems which plague the present system while furthering the legitimate protection function of the state qualification requirements.

A Reconsideration Of The Stock Market Exception To The Dissenting Shareholder's Right Of Appraisal, Michigan Law Review

Michigan Law Review

This Note engages in such a reassessment. It contends, first, that appraisal has not been an unreasonable burden on corporations and that adjustments in the appraisal procedure can eliminate remaining inequities. Next, it asserts that the stock market exception inadequately protects the dissenting shareholder, since a market might, for a variety of reasons, price a shareholder's stock at less than its intrinsic value. Finally, this Note concludes that an appraisal procedure with modifications, and not the stock market exception, reflects the appropriate balance of corporate and shareholder interests.

Controlling The Controllers In Parent-Subsidiary Relations, James C. Bruno

University of Michigan Journal of Law Reform

This article will examine the rights and responsibilities of a party in control of a corporation. The discussion of these rights and responsibilities focuses principally on the law of Michigan. However, passages on policy, discussion of the development of relevant Michigan law, and recommendations for changes in the law are pertinent to the general problem-area of parent-subsidiary relations encountered in all jurisdictions.

The Proposed Michigan Business Corporation Act, Stanley Siegel

University of Michigan Journal of Law Reform

The author of this article was selected by the Commission as Reporter, to draft and revise the statute. It is the purpose of this article to describe the drafting process, to outline the general structure and to examine some unique aspects of the proposed Michigan Business Corporation Act. In this discussion, the author expresses his own views only, and does not necessarily reflect the opinions of the Law Revision Commission or its members.

Public Utilities—Franchise Rates As Affected By The World War, Edwin C. Goddard

Articles

The economic convulsions due to the World War are abundantly reflected in the relations between the public and their public utilities operating under franchises fixing rates for service. The enormous rise in cost of labor and materials has, in many cases, so reduced the net income of such utilities as to make it a negative quantity at existing franchise rates. The utilities are crying to be saved from bankruptcy, but the unfortunate suspicion bred by past dealings of many such companies has made the public skeptical, and perhaps in many cases entirely unreasonable. In some cases plain selfishness may explain …