Law Commons^™

Criminal Subsidiaries, Andrew K. Jennings

Faculty Articles

Corporate groups comprise parent companies and one or more subsidiaries, which parents use to manage liabilities, transactions, operations, and regulation. Those subsidiaries can also be used to manage criminal accountability when multiple entities within a corporate group share responsibility for a common offense. A parent, for instance, might reach a settlement with prosecutors that requires its subsidiary to plead guilty to a crime, without conviction of the parent itself—a subsidiary-only conviction (SOC). The parent will thus avoid bearing collateral consequences—such as contracting or industry bars—that would follow its own conviction. For the prosecutor, such settlements can respond to criminal law’s …

101 Lawyers: Attorney Appearances In Twitter V. Musk, Andrew K. Jennings

Faculty Articles

In summer 2022, Twitter sued Elon Musk, the world’s richest person, in Delaware’s Court of Chancery over his refusal to close his agreed-to $44 billion acquisition of the social-media company. Twitter v. Musk had the makings of corporate law’s trial of the century. Leading law firms represented Twitter, Musk, and third parties in a dispute with enormous financial, social, and political implications. In the lead up to trial, however, Musk relented and closed the deal. The corporate trial of the century was a bust, over almost as soon as it began.

But in the meantime, in Twitter’s eighty-six days …

Disclosure Procedure, Andrew K. Jennings

Faculty Articles

Securities disclosure is a human process. Each year, public companies collectively spend over fifteen million hours producing disclosures that undergird an equities market with tens of trillions in market capitalization. The procedures they follow in doing so affect whether their disclosures contain misstatements or omissions—errors that can cause trading losses for investors, and litigation for issuers. Yet despite the importance of the disclosures that firms produce, the literature says little about how they do it, including whether they are spending too much, too little, or just enough on their disclosure procedures. To fill that gap, this Article uses original surveys …

Is "Public Company" Still A Viable Regulatory Category?, George S. Georgiev

Faculty Articles

This Article suggests that the ubiquitous “public company” regulatory category, as currently constructed, has outlived its effectiveness in fulfilling core goals of the modern administrative state. An ever-expanding array of federal economic regulation hinges on public company status, but “public company” differs from most other regulatory categories in that it requires an affirmative opt-in by the subject entity. In practice, firms today become subject to public company regulation only if they need access to the public capital markets, which is much less of a business imperative than it once was due to the proliferation of private financing options. Paradoxically, then, …

The Public’S Companies, Andrew K. Jennings

Faculty Articles

This Essay uses a series of survey studies to consider how public understandings of public and private companies map into urgent debates over the role of the corporation in American society. Does a social-media company, for example, owe it to its users to follow the free-speech principles embodied in the First Amendment? May corporate managers pursue environmental, social, and governance (“ESG”) policies that could reduce short-term or long-term profits? How should companies respond to political pushback against their approaches to free expression or ESG?

The studies’ results are consistent with understandings that both public and private companies have greater public …

"Grossly Negligent Utilities," "Unimaginable Property Damage" And The Scope Of Liability Insurers' Duty To Indemnify Subrogated Property Insurers - Probative And Empirical Inferences From Courts' Divided Subrogation And Indemnification Decision, Willy E. Rice

Faculty Articles

Each year, extreme weather, natural disasters and allegedly "grossly negligent" investor-owned utilities concurrently destroy property, persons and lives. In the wake, billions of dollars are lost. Given utilities' general immunity under the judicially created filed-rate or filed-tariff doctrine, residential and commercial owners are precluded from filing ordinary negligence actions against utilities. Thus, many injured consumers try to settle their property-loss claims with their insurers. Some property insurers satisfy the "make-whole" doctrine and cover all losses. Most insurers, however, refuse to settle any claim. Or, they partially compensate the insureds. Yet, an overwhelming majority of property insurers are increasingly filing subrogation …

The Market For Corporate Criminals, Andrew K. Jennings

Faculty Articles

This Article identifies problems and opportunities at the intersection of mergers and acquisitions (M&A) and corporate crime and compliance. In M&A, criminal successor liability is of particular importance, because it is quantitatively less predictable and qualitatively more threatening to buyers than successor liability in tort or contract. Private successor liability requires a buyer to bear bounded economic costs, which can in turn be reallocated to sellers via the contracting process. Criminal successor liability, however, threatens a buyer with non-indemnifiable and potentially ruinous punishment for another firm’s wrongful acts.

This threat may inhibit the marketability of businesses that have criminal exposure, …

The Breakdown Of The Public–Private Divide In Securities Law: Causes, Consequences, And Reforms, George S. Georgiev

Faculty Articles

As a regulatory scheme, U.S. securities law has traditionally been designed around a set of lines—the “public–private divide”—which separate public companies, public capital, and public markets, from private companies, private capital, and private markets. Until the early 2000s, the lines were successful in establishing two largely coherent legal realms—a highly regulated public realm and a lightly regulated private realm. A series of bold and often-inconsistent reforms between 2002 and 2020, however, have transformed this longstanding regime into a low-friction system wherein public capital flows to both public and private companies, private capital is ever more abundant, and firms can effectively …

The Human Capital Management Movement In U.S. Corporate Law, George S. Georgiev

Faculty Articles

Corporations cannot exist without workers, yet workers are not part of the formal or informal governance structures established by U.S. corporate law. Commentators and policymakers have bemoaned this state of affairs for decades, to little avail. Since the mid-2010s, however, a concept related to workers, human capital management (HCM), has become an increasingly prominent part of U.S. corporate governance. HCM is premised on the notion that workers can be viewed as “assets” and ought to be managed just as carefully as firms manage physical and capital assets. In practice, HCM is an expansive concept that has been used to refer …

Regulatory Competition And State Capacity, Martin W. Sybblis

Faculty Articles

This Article explores an underlying tension in the regulatory competition literature regarding why some jurisdictions are more attractive to firms than others. It pays special attention to offshore financial centers (OFCs). OFCs court the business of nonresidents, offer business friendly regulatory environments, and provide for minimal, if any, taxation on their customers. On the one extreme, OFCs are theorized as merely products of legislative capture— thereby lacking any meaningful agency of their own. On the other hand, OFCs are conceptualized as well-governed jurisdictions that attract investment because of the high quality of their laws and legal institutions—indicating some ability to …

Appraising Problems, Not Stuff, Chad J. Pomeroy

Faculty Articles

If you are a lawyer, you will deal with value. "Value," here, means the valuation of something. And all lawyers must concern themselves with this, in some way, at some point. Business lawyers, of course, help clients craft business plans, transactional strategies, and documents. Essentially, these are entirely directed to exchanges of value. Litigation lawyers, too, are effectively always contesting matters of value-lawsuits turn on the value of goods, opportunities, injuries, or any number of things. Family lawyers, government lawyers, criminal lawyers-all lawyers must deal with items or things of value at some point.

Follow-Up Enforcement, Andrew K. Jennings

Faculty Articles

Firms sometimes break the law. When they do, a host of government agencies have power to bring enforcement actions against them, which serve to punish past wrongs, compensate victims, disgorge unlawful gains, deter others, and prevent recidivism. Each of these purposes but one—preventing recidivism—is either met or not once the case reaches settlement. Whether recidivism will occur, however, remains uncertain at the time a case is settled. In light of that uncertainty, this Article takes a critical look at how enforcers currently address recidivism prevention—what it dubs the “clawback” approach—under which defendant firms receive penalty credit today in exchange for …

Notice Risk And Registered Agency, Andrew K. Jennings

Faculty Articles

To sue a firm is to sue an artificial person, making the most reliable service method—physically handing papers to the defendant—unusable. This problem illustrates notice risk: if a plaintiff’s service obligations are loose, it is advantaged (because the defendant may never receive notice), whereas if they are strict, the defendant is advantaged (because the plaintiff may struggle to effect service). For litigation involving corporate defendants, civil procedure and corporate law mitigate this problem through a technology for managing notice risk: registered agency. A firm using this technology, because it cannot be served directly, appoints an agent who will accept papers …

Securities Disclosure As Soundbite: The Case Of Ceo Pay Ratios, Steven A. Bank, George S. Georgiev

Faculty Articles

This Article analyzes the history, design, and effectiveness of the highly controversial CEO pay ratio disclosure rule, which went into effect in 2018. Based on a regulatory mandate contained in the Dodd-Frank Act of 2010, the rule requires public companies to disclose the ratio between CEO pay and median worker pay as part of their annual filings with the Securities and Exchange Commission (SEC). The seven-year rulemaking process was politically contentious and generated a level of public engagement that was virtually unprecedented in the long history of the SEC disclosure regime. The SEC sought to minimize compliance costs by providing …

Can God Create A Rock So Heavy That He Cannot Lift It?: Outlawing Pensions Under State Constitutions, Chad J. Pomeroy

Faculty Articles

Public pensions are a problem. More than twenty-seven million people participate in state and local government pension plans. And those plans are in the hole trillions of dollars. This means that state and local governments are going to have to raise additional trillions in taxes (or shift those trillions away from schools, police, firemen, or other spending targets) to satisfy these obligations.

What can be done about such a large, seemingly intractable problem? A number of states have installed specific pension funding requirements within their constitutions. Most state constitutions contain some kind of balanced budget requirement, and a number of …

Let My Arm Be Broken Off At The Elbow, Chad J. Pomeroy

Faculty Articles

Though the American legal system is deferential toward religion and churches, it is undeniable that the Church of Latter-day Saints-and other like organizations-are not just churches. They are, instead, important participants in the market economy, some of them global business enterprises of major proportions. This twinning of profit and spirit is seamless for many religions, with numerous modem churches preaching a "prosperity gospel" that promises spiritual and temporal blessings in return for donations."' Still other churches-such as the Church of Scientology-directly charge for religious services that are "necessary" for spiritual improvement and advancement in the church hierarchy. And still others …

Shareholders United?, Andrew K. Jennings

Faculty Articles

Securities regulation has a way of crossing into other lanes. What public companies do is substantive regulation. How they govern themselves while doing it-or more importantly, how they disclose it-is securities regulation. So it is no surprise that the perennial concern over regulating money in politics should also become a question of federal securities regulation. The Shareholders United Act (the "Act")-passed by the House of Representatives as part of House Bill 1, an early, major piece of legislation in the 116th Congress-does just that. The Act would require that before engaging in political spending, public companies poll shareholders on how …

The Freedom To Pursue A Common Calling: Applying Intermediate Scrutiny To Occupational Licensing Statutes (Note), Alexandra L. Klein

Faculty Articles

After the devastation of Hurricane Katrina, the monks at St. Joseph Abbey in Louisiana sought a new source of income. They began producing simple wooden coffins priced at much lower rates than caskets sold in funeral homes. After the Abbey had made a large investment in its business, St. Joseph Woodworks, the Louisiana State Board of Embalmers and Funeral Directors ordered it to close. Although the monks did not provide funeral or embalming services, a Louisiana statute regulating the funeral industry prohibited the monks from selling coffins.

Under the statute, "funeral directing" included "any service whatsoever connected with... the purchase …

Bankruptcy’S Corporate Tax Loophole, Diane Lourdes Dick

Faculty Articles

Imagine you are a company with a failing business that is drowning in debt. On the bright side, you also possess a very valuable asset. This asset is unique because, unlike most assets, if you liquidate the business through a Chapter 7 bankruptcy, it will be extinguished and its value will not be realized by any shareholders or creditors. On the other hand, even if you substantially liquidate the business using Chapter 11, you can, thanks to an extraordinary ambiguity in the law, preserve this valuable asset. Even better, you can direct the value of this asset to your preferred …

The Evolution Of The Modern Corporation: Corporate Governance Reform In Context, Charles O'Kelley

Faculty Articles

This article traces the evolution of the modern corporation from the American Civil War to the present. Professor O’Kelley begins with a focus on the period from 1865 to the Great Depression. This was the era of the Great Tycoon, the time of the second industrial revolution and the transformation of America’s economy from small proprietorships and partnerships to the forerunner of the modern corporation. Professor O’Kelley then details the transformational crisis of the Great Depression and Adolf Berle’s central role in shaping America’s changed understanding of the proper relationship between government and the modern corporation. It was Berle, both …

Economic Justice And The Internal Point Of View, Adam J. Macleod

Faculty Articles

The West is in a tumult about money. In the United States, the Tea Party movement and the Occupy Wall Street movement captured the public's attention, sounding themes of fiscal irresponsibility and material inequality, respectively. Political negotiations over the so-called "fiscal cliff," the debt ceiling, taxes, and entitlement spending, have kept these themes before the public eye. In Europe, the protests have been more dramatic, and the declarations of national leaders that the European Union is in no danger of disintegrating have sounded at times suspiciously forceful.

Despite all of the exhortations that lawmakers should do something, the public debates …

Confronting The Certainty Imperative In Corporate Finance Jurisprudence, Diane Lourdes Dick

Faculty Articles

This Article argues that the methodological constraints of the Imperative have abandoned its underlying goals of certainty and stability in financial markets. Therefore, a new paradigm is needed that will enable courts to allocate rights and remedies in accordance with the economic substance of arrangements, and thus better enhance market stability.

This Article proceeds as follows: Part II articulates the jurisprudential underpinnings of the Imperative. Part III examines the economic theory and assumptions reflected in Imperative-driven decisions, as well as the interpretive methodology that has evolved across a range of judicial decisions and legislative enactments. Part IV introduces a recent …

The Predictive Power Of Merger Analysis, John B. Kirkwood

Faculty Articles

This article looks first at the process courts use to resolve merger challenges and finds that in the area of product market definition, merger analysis is reasonably strong. Market definition remains complex and subjective, however, and could be improved, or avoided altogether, through econometric techniques such as merger simulation. Judicial analysis of entry is much weaker. Courts ask whether the market is protected by entry barriers but rarely ask whether the barriers are high enough to make entry unprofitable.

The article also examines the results of "marginal" mergers, mergers that would have been blocked had the government and courts been …

Corporations, Veils, And International Criminal Liability, Ronald Slye

Faculty Articles

This article investigates the issue of corporations and their criminal liability. Specifically, it outlines general arguments surrounding the issue. It provides more of a broad overview, identifying the key arguments that are typically made for applying criminal liability to corporations.

The Enron Trial Drama: A New Case For Stakeholder Theory, Russell Powell

Faculty Articles

This article analyzes the trial of Jeffrey Skilling and Kenneth Lay, including an empirical analysis of jury comments made after the trial. The study indicates that the jury was influenced by the scope of the Enron collapse and its impact on employees, in particular. The article argues that if juries (or judges) are influenced by the magnitude of harm caused by fraudulent, disloyal behavior, especially when it impacts large numbers of working and middle-class employees, it is likely that the same factors will impact the outcome of derivative suits claiming breaches in fiduciary duties brought against officers and perhaps even …

The Entrepreneur And The Theory Of The Modern Corporation, Charles O'Kelley

Faculty Articles

The foremost description of the classic entrepreneur, immediately prior to the Great Depression and now, was presented by Frank Knight in his seminal work, Risk, Uncertainty, and Profit. In this Article, I will explicate Knight's theory of the entrepreneur and show how it relates to both the Berle-Means Paradigm and the nexus-of-contracts theory of the corporation. My effort here is in part intellectual history and in part the tentative beginnings of a new positive account of the corporation. In the latter regard, this Article takes only the first step in what may prove a quite exhaustive effort to re-plow the …

Delaware Corporation Law And Transaction Cost Engineering, Charles O'Kelley

Faculty Articles

Professor O’Kelley believes that a very good way to teach Corporations is to structure the course around a core goal – to teach Delaware corporate law systematically – not just bits and pieces of it, but the entire system, much the way the teaching of constitutional law is approached. This essay is an elaboration of his reasoning and strategies, organized as a presentation and discussion of the core rationales for organizing the course in this way. The first justification flows axiomatically from the following proposition: we create value for many of our students, and harm none, by giving them an …

Foreword: The Many Passions Of Teaching Corporations, Charles O'Kelley

Faculty Articles

Teachers of Corporations share a passion for their subject and consider this first course in the business law curriculum to have fundamental importance for all law-trained professionals. Seemingly, however, we agree on little else, including the substantive focus of the course, the nature of the course materials, and the insights that teachers should convey. In fact, Corporations differs dramatically from school to school. Some teachers focus substantial attention on unincorporated business associations, while others cover only corporation law. Some who teach exclusively about the corporation emphasize closely held firms, while others highlight the law related to publicly traded entities. Likewise, …

Foreword: Understanding The Place Of Limited Liability Companies In The Spectrum Of Business Forms, Charles O'Kelley

Faculty Articles

This article is the forward to the Symposium on Oregon's Limited Company Act. For most of this century, state law has provided participants in jointly-owned business ventures with three principal business forms the corporation, the general partnership, and the limited partnership. In the past four years, over two-thirds of the states, including Oregon, have enacted legislation authorizing a new business form-the limited liability company (LLC). It appears likely that the LLC will soon supplant the two forms of partnership as a principal business form, and that it will challenge the corporation as the form of choice for closely held firms.

Labor, Loyalty, And The Corporate Campaign, Melinda J. Branscomb

Faculty Articles

This article critically assesses the disloyalty test, offering badly needed guidance in this murky and risky area of labor law. Part I provides an overview of the relevant portions of the Act and the problems facing the National Labor Relations Board (NLRB or the Board) and the courts as these decision makers interpret section 7 law. It reviews the early section 7 exceptions, the creation of the disloyalty test, and the aftermath of this new exception, and it introduces a number of problems left as Jefferson Standard's legacy. Part II discusses the analytical inconsistency applied in disloyalty doctrine analysis and …