Business Organizations Law Commons^™

Patterns In A Complex System: An Empirical Study Of Valuation In Business Bankruptcy Cases, Bernard Trujillo

ExpressO

This Article applies complex systems research methods to explore the characteristics of the bankruptcy legal system, presenting the results of an empirical study of twenty years of bankruptcy court valuation doctrine in business cramdown cases. These data provide solid descriptions of how courts exercise their discretion in valuing firms and assets.

This Article accomplishes two objectives: First, using scientific methodology, this Article explains the content of bankruptcy valuation doctrine. Second, this Article uses doctrine as a variable to explore system dynamics that govern the processes of change over time.

Significant findings include (i) courts tend to “split the difference” in …

The Legal Status Of “Dump & Sue”: Should Plaintiffs And Their Attorneys Be Prohibited From Trading The Stock Of Companies They Sue? – A Law And Economics Approach, Moin A. Yahya

ExpressO

There is some evidence that plaintiffs and their attorneys are profitably short-selling the stock of the companies they intend to sue. The status of such short sales is undecided in the law. Lawsuits against companies can cause large drops in market value, and hence such an action by the plaintiff should cause concern. Plaintiffs, however, are not traditional insiders, and they do not owe the shareholders any fiduciary duties. They can therefore consent to their attorneys also short-selling the stock of the defendant corporation. The attorneys need to receive such permission to avoid misappropriating the information concerning their client’s decision …

The Supreme Court And The Trusts: Antitrust And The Foundations Of Modern American Business Regulation From Knight To Swift, Donald J. Smythe

ExpressO

The period from 1870-1920 was a turning point in modern history. It was during this time that the contours of the modern industrial state were formed. A “Great Merger Movement” occurred right in the middle of this period across most of the industrialized nations of the world. The trend toward industrial concentration, which was known at the time as the “trust problem,” generated considerable public alarm. Some have argued that it was caused by antitrust policy and the Supreme Court’s early antitrust decisions. Indeed, the idea has become the conventional wisdom among some antitrust scholars, especially those connected with the …

Shareholder Bylaws, Shareholder Nominations, And Poison Pills, Brett H. Mcdonnell

ExpressO

Shareholder bylaws limiting or directing board action raise a tough and fascinating question of statutory interpretation under state law as well as an important policy question. In particular, over the last decade shareholders have sought to use bylaws to limit poison pills and to grant shareholders access to the corporate proxy materials to nominate directors. This paper argues that an expansive, although not unlimited, shareholder power to enact bylaws is both a plausible interpretation of Delaware’s statutory scheme and desirable as a policy matter. Shareholder bylaws that set general rules of corporate governance and procedure should be valid unless more …

The Notion Of Trust As A Comprehensive Theory Of Contract And Corporate Law: A New Approach To The Conception That The Corporation Is A Nexus Of Contract, Eli Bukspan

ExpressO

The paper argues that the concept of trust is inevitably latent in every contractual relationship, and is best understood as a comprehensive theory and justification of contract law as both trust and contracts (more than any other legal action) are aiming toward the same universal goal of cooperation, risk-taking, and fulfillment of reasonable expectations. Contract law, per se and through its “good faith” doctrine, could then function as an expressive, coercive, and thus corrective legal tool, serving to symbolize, build, and internalize a culture of trust wherever it has failed to develop. Accordingly, while viewing the corporation as a nexus …

How To Be Good: The Emphasis On Corporate Director's Good Faith In The Post-Enron Era, Thomas Rivers

Vanderbilt Law Review

The "irrational exuberance"' of the late 1990s, marked by frenzied stock trading and risky investment strategies, fueled aggressive accounting practices that exaggerated real achievements and camouflaged setbacks. During that time, investors accepted business practices that measured performance by revenue, rather than earnings or cash, and by the number of "eyeballs hitting Internet sites." According to Federal Reserve Chairman Alan Greenspan, "when greed swept through our nation, we were not prepared to address it." The result was accounting scandals at Enron, WorldCom and other organizations, in which directors failed to ask "questions of management to determine whether the stock was rising …

Corporate Voting And The Takeover Debate, Paul H. Edelman, Randall S. Thomas

Vanderbilt Law Review

Shareholder voting is the key to the outcome of hostile takeovers. The most obvious example arises when an acquirer tries to unseat a corporate board in a proxy contest for corporate control. But shareholder votes are needed in almost all other takeover settings as well. For instance, when a bidder announces a hostile tender offer, a resistant target company's board of directors will normally use its poison pill antitakeover defense, or a combination of a poison pill and a classified board, to stop its shareholders from selling their shares to the bidder, forcing the bidder to engage in at least …

Corporate Voting And The Takeover Debate, Randall Thomas, Paul H. Edelman

Vanderbilt Law School Faculty Publications

For many years academics have debated whether it is better to permit hostile acquirers to use tender offers to gain control over unwilling target companies, or to force them to use corporate elections of boards of directors in these efforts. The Delaware courts have expressed a strong preference for shareholder voting as a change of control device in hostile acquisitions. To force acquirers to accept their preferences, the Delaware courts have developed a jurisprudence permitting the effective classified board (ECB), a poison pill combined with a classified board, to protect target company management from removal by a hostile tender offer …

Limited Liability Companies And Estate Planning, Michael D. Larobina J.D., L.L.M.

WCBT Faculty Publications

Discusses court cases involving the use of limited liability companies as an estate planning tool in the U.S. Facts of the case of Estate of Strangi versus Commissioner; Stance of the court on the transfers made to the limited partnership; Impact of the case of Kimbell versus U.S. on the use of limited liability companies as estate planning vehicles.

The Fate Of Firms: Explaining Mergers And Bankruptcies, Clas Bergström, Theodore Eisenberg, Stefan Sundgren, Martin T. Wells

Cornell Law Faculty Publications

Using a uniquely complete data set of more than 50,000 observations of approximately 16,000 corporations, we test theories that seek to explain which firms become merger targets and which firms go bankrupt. We find that merger activity is much greater during prosperous periods than during recessions. In bad economic times, firms in industries with high bankruptcy rates are less likely to file for bankruptcy than they are in better years, supporting the market illiquidity arguments made by Shleifer and Vishny (1992). At the firm level, we find that, among poorly performing firms, the likelihood of merger increases with poorer performance, …

Recalling Why Corporate Officers Are Fiduciaries, Lyman P.Q. Johnson, David Millon

William & Mary Law Review

No abstract provided.

A New Interpretation Of The Contemporaneous Ownership Requirement In Shareholder Derivative Suits: In Re Bank Of New York Derivative Litigation And The Elimination Of The Continuing Wrong Doctrine, Terence L. Robinson Jr.

BYU Law Review

No abstract provided.

The "Duty" To Be A Rational Shareholder, David A. Hoffman

ExpressO

How and when do courts determine that corporate disclosures are actionable under the federal securities laws? The applicable standard is materiality: would a (mythical) "reasonable investor" have considered the disclosures important. As I establish through empirical and statistical testing of 500 cases analyzing the materiality standard, judicial findings of immateriality are remarkably common, and have been stable over time. Materiality's scope results in the dismissal of a large number of claims, and creates a set of cases in which courts attempt to explain and defend their vision of who is, and is not, a "reasonable investor." Thus, materiality provides an …

The Missing Preferred Return, Victor Fleischer

ExpressO

Managers of buyout funds typically offer their investors an 8% preferred return on their investment before they take a share of any additional profits. Venture capitalists, on the other hand, rarely offer a preferred return. Instead, VCs take their cut from the first dollar of nominal profits. This disparity between venture funds and buyout funds is especially striking because the contracts that determine fund organization and compensation are otherwise very similar. The missing preferred return might suggest that agency costs pose a larger problem in venture capital than previously thought. Is the missing preferred return evidence, perhaps, that VCs are …

The Cyclical Transformations Of The Coporate Form: A Historical Pespective On Corporate Social Responsibility, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

This Article describes the transformations underwent by the corporate form from its Roman origins to the present. It shows that every time there was a shift in the role of the corporation, three theories of the corporation (the aggregate, artificial, and real entity theories) were brought forward in cyclical fashion. However, every time the real entity theory prevailed, and it is the dominant theory during periods of stability in the relationship between the corporation, the shareholders, and the state. The article describes this evolution in detail, and then attempts to derive normative consequences for the legitimacy of corporate social responsibility …

The One-Stop-Shop For Vat And Rst: Common Approaches To Eu-U.S. Consumption Tax Issues, Richard Thompson Ainsworth

Faculty Scholarship

In March 2004 the European Commission solicited comments on a proposal to simplify value added tax (VAT) obligations through a one-stop scheme. The proposal was modest in scope. It was designed to build upon the success of a similar scheme that dealt with non-EU established persons supplying digital products to non-taxable EU persons. That scheme is found in Article 26c of the Sixth VAT Directive.

In its March Consultation Paper the Commission proposed that businesses established within the EU be allowed to participate in a one-stop scheme that would be similar to the Article 26c scheme. Limited to B2C transactions, …

Organizational Misconduct: Beyond The Principal-Agent Model, Kimberly D. Krawiec

ExpressO

This article demonstrates that, at least since the adoption of the Organizational Sentencing Guidelines in 1991, the United States legal regime has been moving away from a system of strict vicarious liability toward a system of duty-based organizational liability. Under this system, organizational liability for agent misconduct is dependant on whether or not the organization has exercised due care to avoid the harm in question, rather than under traditional agency principles of respondeat superior. Courts and agencies typically evaluate the level of care exercised by the organization by inquiring whether the organization had in place internal compliance structures ostensibly designed …

The Corporation As God, Douglas Litowitz

ExpressO

No abstract provided.

Guaranteed Payments Made In Kind By A Partnership, Douglas A. Kahn, Faith Cuenin

Articles

Guaranteed payments are payments made by a partnership to a partner for services performed in his partnership capacity or for the use of capital to the extent that the amount of the payment is not determined by reference to the partnership's income. In addition, some distributions made by a partnership in liquidation of a partner's interest in the partnership are treated as guaranteed payments. A guaranteed payment constitutes ordinary income to the partner, and the partnership is allowed a deduction for the payment unless it constitutes a capital expenditure. While guaranteed payments typically are made in cash, it is possible …

Regulation Nms: Has The Sec Exceeded Its Congressional Mandate To Facilitate A “National Market System” In Securities Trading?, Dale A. Oesterle

The Ohio State University Moritz College of Law Working Paper Series

The SEC is currently holding hearings on sweeping changes to the micro-structure of the country's securities trading markets - modifying the trade through rule, for example. Professor Oesterle argues that the SEC should not be in the business of so structuring the country's securities markets in the first place. In the piece he chronicles the SEC's expansive interpretation of its power under Congress's 1975 National Market System Amendments to the 1934 Securities and Exchange Act and questions whether Congress intended to grant the SEC such a mandate.

Corporate Law, Profit Maximization And The "Responsible Shareholder", Ian B. Lee

ExpressO

The article concerns the theorization of shareholder responsibility and ethical investing. The article develops the following arguments, among others:

If public corporations pursue stockholder profits “pathologically,” as claimed by some critical scholars, it is not because of any obligation arising under corporate law, but because the pursuit of stockholder profits is congenial to the stockholders.

For this reason (and others discussed in the article), shareholders have an ethical stake in the conduct of corporate business, quite apart from any notion that shareholders “own” the corporation.

A phenomenon which the article terms “bounded empathy,” analogous to “bounded rationality”, can help to …

Who Pays The Auditor Calls The Tune?: Auditing Regulations And Clients' Incentives, Amy Shapiro

Cornell Law Faculty Publications

As we move on from the financial scandals of the early 2000s, the question of how to prevent the next Enron continues to be a pressing one. This Article focuses on the law’s deeply conflicted treatment of auditors of public corporations. Though the audit firm is charged with serving as the public’s watchdog in insuring good financial disclosure, the auditor’s actual client is the audited corporation itself, whose interests concerning disclosure are not necessarily aligned with those of investors. Because the Sarbanes-Oxley Act of 2002 left this structure in place, further reform is needed. One promising suggestion is to give …

Corporate Officers And The Business Judgment Rule, Lyman P.Q. Johnson

Scholarly Articles

This article argues that the business judgment rule - a cornerstone concept in corporate law - does not and should not extend to corporate officers in the same broad manner in which it is applied to directors. The argument proceeds along both descriptive and normative lines. After first reviewing judicial decisions, the article concludes that, notwithstanding frequent, broad assertions to the contrary, application of the rule to corporate officers is not firmly established in case law. The article next examines the policy case by assessing three conventional rationales for applying the rule to directors and concluding, on balance, that the …

Improving The Efficiency Of The Angel Finance Market: A Proposal To Expand The Intermediary Role Of Finders In The Private Capital Raising Setting, John L. Orcutt

Law Faculty Scholarship

The angel finance market is of critical importance to the financing and creation of rapid-growth start-ups, whose continuous creation plays a substantial role in the success of the U.S. economy. Unfortunately, the angel finance market suffers from systematic problems, including information and agency problems and high transaction costs, that limit its ability to adequately finance these rapid-growth start-ups. One reason for the angel market's inefficiency is the lack of meaningful financial intermediaries that operate in the market. One logical group that could serve a meaningful intermediary role in the angel market is finders. The current regulatory treatment of finders, however, …

Fairness And Good Faith As A Precept In The Law Of Corporations And Other Business Organizations, Charles W. Murdock

Loyola University Chicago Law Journal

No abstract provided.

The Case Of Ceo Richard Grasso And The Nyse: Proposals For Controlling Executive Compensation At Public Nonprofit Corporations, Rachel Penski

Vanderbilt Law Review

In August 2003, for the first time in its 200-year history, the New York Stock Exchange (NYSE) announced the compensation package for its Chairman and Chief Executive Officer. The NYSE's Board of Directors revealed in a press release that it had distributed $139.5 million in deferred compensation to its CEO Richard Grasso. This payment was in addition to a base salary of $1.4 million with an annual bonus of $1 million. Due to the Exchange's status as a nonprofit corporation, Grasso's payout "led to an outcry, as [his compensation was] more in line with what chief executives of public corporations …

The Descendants Of Fassihi: A Comparative Analysis Of Recent Cases Addressing The Fiduciary Claims Of Disgruntled Constituents Against Attorneys Representing Closely-Held Entities, Matthew Rossman

Faculty Publications

Accordingly, this Article will examine three recent cases closely and then make observations about what these "descendants of Fassihi" say about the state of the law and how they should impact attorney behavior. To provide proper context for this discussion, a short summary of Fassihi and other contemporary responses to the issues raised in Fassihi follows.

Recalling Why Corporate Officers Are Fiduciaries, Lyman P.Q. Johnson, David K. Millon

Scholarly Articles

For all the recent federal attention to regulating - and differentiating - corporate officer and director functions, a curious fact remains: state fiduciary duty law makes no distinction between the fiduciary duties of these two groups. Instead, courts and commentators routinely describe the duties of directors and officers together, and in identical terms. To lump officers and directors together as generic fiduciaries with no distinction being made between them, suggests - as patently is not the case - that their institutional function and legal roles within the corporation are the same. Such a view, consequently, undermines efforts more sharply to …

Accelerating Towards Climate Neutrality With U.S Government Stuck In Neutral: The Emerging Role Of U.S Businesses, Cities, States, And Universities In Aggressively Reducing Greenhouse Gas Emissions, Dan Worth

Sustainable Development Law & Policy

No abstract provided.

Commercial Contributions To The Climate Change Regime: Who's Regulating Whom? , Stephen Tully

Sustainable Development Law & Policy

No abstract provided.