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Friday
Aug102012

When Does a Promissory Note Become a Security? Fletcher Int'l, Ltd. v. ION Geophysical Corp.

In Fletcher Int'l, Ltd. v. ION Geophysical Corp, Fletcher International Ltd (Fletcher), a preferred shareholder of ION Geophysical Corp. (ION), challenged the issuance of promissory notes by an ION subsidiary.  Fletcher asserted that the notes were securities and that under the rights and preferences of the preferred shares, it had a right to “consent” to the issuance of “any security.”  The Court of Chancery of Delaware granted in part and denied in part the parties’ cross-motions for partial summary judgment, concluding that one note ION issued was a security and its issuance violated Fletcher’s consent rights.  No. 5109-CS, 2012 WL 1883040 (Del. Ch. May 23, 2012).

The instant case concerned three promissory notes ION caused another subsidiary to issue in connection with ION’s acquisition of ARAM Systems Ltd. and its affiliate Canadian Seismic Rentals, Inc. (“ARAM”). The notes were issued to ARAM’s owner, Don Chamberlain and his family.  ION issued these notes as a condition of its agreement with ARAM to finance the purchase price through short-term bridge financing and to expedite the closing. This included a one-year, non-convertible $35 million “Escrow Note” and a one-year, $10 million “Tax Receivable Note.” After ION issued the first two notes, ION and ARAM amended the Senior Credit Facility of the purchase agreement that shortened the lives of both notes from one year to three months. 

The third note was issued as a result of Lehman Brothers’ collapse and the resulting credit market freeze.  Instead of going forward with its planned bond offering, ION issued the five-year, transferrable, $35 million “Final Note” with a quarterly interest rate of fifteen percent.  ION failed to consult with Fletcher before causing any of the three notes to be issued.  

The court had to determine whether the notes were securities under the Certificate of Rights and Preferences for the preferred shares.  As in an earlier decision involving the same parties, the court relied on the four-factor test set out in Reves v. Ernst & Young, 494 U.S. 56 (1990).  Reves set out a four-part “family resemblance” test for determining when, under the federal securities laws, a note constituted a security.  The test required consideration of: “(1) the motivations that would prompt a reasonable buyer and seller to enter into the transaction; (2) the plan of distribution of the note; (3) the reasonable expectations of the investing public; and (4) whether some factor, such as the existence of another regulatory scheme, significantly reduces the risk of the instrument, thereby rendering the application of the securities laws unnecessary.”

In applying the test, the court determined that two of the loans were not securities but short-term bridge loans. Factors that led the court to this conclusion were the notes’ short terms, the inherent difficulty in pricing or selling the notes, and their short-term nature, something that made the protection of the securities laws unnecessary. The court was not dissuaded by the fact that the notes contained securities act legends and contained references to securities laws.   

The court found that the third note was a security.  The note was issued to finance a substantial investment in lieu of the planned bond offering; it had a long, high-interest life, necessitating securities law protection; and it included a securities legend and securities law references.

As a result, the court granted Fletcher’s motion for summary judgment, finding that the issuance of the one note had violated the consent rights under the Certificates.  

The primary materials for this case may be found on the DU Corporate Governance website.

Thursday
Aug092012

St. Clair Shores General Employees’ Retirement System v. Lender Processing Services: If at First You Don't Succeed…

In City of St. Clair Shores Gen. Emp. Ret. Sys. v. Lender Processing Serv., Inc., 3:10-CV-1073-J-32JBT, 2012 WL 1080953 (M.D. Fla. Mar. 30, 2012), the court granted Defendants' motion to dismiss, while also allowing Plaintiff leave to file another amended complaint.

According to the complaint, Defendant Lender Processing Services ("LPS") provides mortgage processing and settlement services and default and technology solutions to mortgage lenders; Defendant Lee A. Kennedy is an officer and chairman of LPS's board; and Defendants Jeffrey S. Carbiener, Francis K. Chan, and Michelle M. Kersch are officers of LPS (collectively, "Defendants"). Plaintiff City of St. Clair Shores General Employees' Retirement System, a municipal pension fund, and other possible class members, purchased or acquired LPS shares between August 2008 and October 2010. Plaintiff claimed that during that period, Defendants inflated LPS's revenue through the use of fraudulent business practices. Plaintiff alleged that as a direct result of this fraud, LPS shareholders lost millions of dollars.

In order to state a claim under section 10(b) and Rule 10b–5, a plaintiff must allege a material misrepresentation or omission, scienter, a connection with the purchase or sale of a security, reliance, economic loss, and loss causation. To avoid dismissal, a Rule 10b–5 claim must satisfy the fraud pleading requirements under Federal Rule of Civil Procedure Rule 9(b), as well as the heightened pleading requirements of the Private Securities Litigation Reform Act (“PSLRA”). The PSLRA requires plaintiffs to "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." Furthermore, the plaintiff must state with particularity the facts that demonstrate the defendant acted with scienter.

Defendants alleged that Plaintiff failed to plead the following: "(1) that the individual defendants ‘made’ any of the alleged misstatements; (2) that any of the alleged misstatements were materially false or misleading; (3) loss causation; and (4) a strong inference of scienter."

Defendants sought dismissal of the claims under the Supreme Court's decision in Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296, asserting that the individual defendants had not “made” the alleged misstatements.  The court, however, found that the allegations were sufficient to find that at least three defendants had “ultimate authority” over their statements.  This included statements made by the defendants in the press, statements made as agents for the company, and the execution by some of the defendants of the certification required for SEC fillings. 

The court also agreed that Plaintiff had sufficiently alleged the materiality of the misstatements.  This was the case "[e]ven if Defendants' statements were literally accurate, as argued by Defendants”.  Similarly, the allegations were sufficient to plead causation.  The court noted that

"loss causation is not subject to a heightened pleading requirement" and that "to sufficiently plead loss causation, a plaintiff must allege a disclosure or revelation of truth about a defendant's prior misstatement or omission that is in some way connected with a stock price drop.” Here, the court deemed that Plaintiff's Complaint establishes a connection between Defendant's misstatement and the drop in stock price and was therefore not subject to dismissal on a causation basis.

The court did find, however, that Plaintiff had not adequately allege  scienter. "Rule 9(b) does not allow a complaint to merely lump multiple defendants together, but requires plaintiffs to differentiate their allegations when suing more than one defendant and inform each defendant separately of the allegations surrounding his alleged participation in the fraud." Accordingly, the court dismissed Plaintiff's complaint without prejudice, but allowed Plaintiff to file a second amended complaint that would comply with the requirements of Rule 9(b).

The primary materials for this case may be found on the DU Corporate Governance website.

Wednesday
Aug082012

The Director Compensation Project: Bank of America Corp.

This post is part of an ongoing series that examines the way stock exchange independence rules relate to director compensation.  We are for the most part including companies from 2011’s Fortune 500 and using information found in their 2011 proxy statements.

Nasdaq and the NYSE have similar rules with respect to director independence.  NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors.  A director does not qualify as “independent” if he or she has a “material relationship with the company.”  NYSE Rule 303A.02(a).  In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years.  NYSE Rule 303A.06 imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 (C.F.R. §240.10A-3).

Independent directors are compensated for their service on the board.  The amount of compensation can be seen from examining the director compensation table from the Bank of America (NYSE:BAC) 2011 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

  

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

All Other Compensation
($)

Total
($)

Mukesh D. Ambani *

92,282

184,534

0

0

276,816

Susan S. Bies

80,000

160,000

0

0

240,000

William P. Boardman (retired)

0

0

0

0

0

Frank P. Bramble, Sr.

100,000

160,000

0

0

260,000

Virgis W. Colbert

80,000

160,000

0

0

240,000

Charles K. Gifford **

100,000

160,000

0

257,190

517,190

Charles O. Holliday, Jr.

167,000

333,000

0

0

500,000

D. Paul Jones, Jr.

80,000

160,000

0

0

240,000

Monica C. Lozano

80,000

160,000

0

0

240,000

Thomas J. May

100,000

160,000

0

0

260,000

Donald E. Powell ***

80,000

160,000

0

75,000

315,000

Charles O. Rossotti

110,000

160,000

0

0

270,000

Robert W. Scully

100,000

160,000

0

0

260,000

* Mr. Ambani was appointed in March, 2011 and the amounts provided reflect pro-rated awards for service prior to the 2011 annual meeting

** Mr. Gifford receives office space and secretarial support

*** Mr. Powell is a non-management director with an annual cash retainer of $75,000

 

Director Compensation.  During fiscal year 2011, Bank of America held 18 Board meetings and each of the current directors attended at least 75% of the meetings of the Board and Board Committee meetings collectively.  The five active (non-emergency) Committees met at least 9 times each and one Committee as many as 16 times during 2011.  Bank of America grants an annual restricted stock award to Directors.  After a one-year vesting period, dividends are paid simultaneously as those on common stock stares.  The shares awarded to each Director equals the dollar value of the award divided by the closing price of common stock as of the grant date and rounded down plus a cash payment for fractional shares.  Non-management directors are given the opportunity to defer these awards to a stock account. 

Director Tenure.  The two most senior members of the Board of Directors include Mr. May and Mr. Gifford, each holding his position since April 2004.  All directors currently serving are slated for re-election except for one, Mr. Jones.  Most directors sit on other boards.  Mr. Colbert, for example, sits on the boards of both Sara Lee Corporation and Stanley Black & Decker, Inc.  Ms. Lozano serves on the board for The Walt Disney Company and ImpreMedia. 

CEO Compensation.  Thomas K. Montag, the Co-Chief Operating Officer, received the highest executive compensation during the 2011 fiscal year, totaling $14,298,604.  The Chief Financial Officer, Bruce R. Thomson, received the next highest compensation at $11,114,046.  Bank of America advocates a “pay for performance” policy that limits executive fringe benefits but does provide home security systems and secure parking.  Furthermore, use of corporate aircraft when conducting business on behalf of the Company is permitted and personal use is also allowed so long as the officer reimburses the Company for operating costs. 

Wednesday
Aug082012

The Director Compensation Project: Berkshire Hathaway Inc.

This post is part of an ongoing series that examines the way stock exchange independence rules relate to director compensation.  We are for the most part including companies from 2011’s Fortune 500 and using information found in their 2011 proxy statements.

Nasdaq and the NYSE have similar rules with respect to director independence.  NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors.  A director does not qualify as “independent” if he or she has a “material relationship with the company.”  NYSE Rule 303A.02(a).  In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years.  NYSE Rule 303A.06 imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 (C.F.R. §240.10A-3).

Independent directors are compensated for their service on the board.  The amount of compensation can be seen from examining the director compensation table from the Berkshire Hathaway (NYSE: BRKB) 2011 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

  

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

All Other Compensation
($)

Total
($)

Stephen B. Burke

3,300

0

0

0

3,300

Susan L. Decker

5,300

0

0

0

5,300

William H. Gates III

3,000

0

0

0

3,000

David S. Gottesman

3,300

0

0

0

3,300

Charlotte Guyman

7,300

0

0

0

7,300

Donald R. Keough

7,300

0

0

0

7,300

Thomas S. Murphy

7,300

0

0

0

7,300

Walter Scott, Jr.

3,000

0

0

0

3,000

 

Director Compensation.  During the 2011 fiscal year, Berkshire Hathaway held one annual meeting of the directors and four special meetings.  Every director attended all meetings except for Mr. Gates and Mr. Scott, who each missed one special meeting.  Directors received $900 for each meeting they attended in person and $300 for each meeting they attended by phone.  In addition, any director who served as an Audit Committee member received a $1,000 quarterly payment. 

Director Tenure.  Mr. Buffett has presided on the board of directors since 1965 and has served as Berkshire Hathaway’s Chairman and Chief Executive Officer since 1970, holding the longest tenure.  Several directors sit on other boards.  For instance, Mr. Burke sits on the boards of JPMorgan Chase & Co., as well as the Children’s Hospital of Philadelphia.  Mr. Munger currently serves as the Chairman of the Board of Daily Journal Corporation and as a director of Costco Wholesale Corporation. 

CEO Compensation.  During the 2011 fiscal year, Chief Executive Officer and Senior Vice President Mark D. Hamburg earned a total of $974,750 for his service.  Mr. Buffett, the Chief Executive Officer and Chairman of the Board, received a $100,000 base salary and a total compensation package of $491,925.  Mr. Buffet’s base salary has remained unchanged for 25 years, and he has advised the committee that he does not expect or wish it to be altered.  Berkshire Hathaway provided personal and home security services to Mr. Buffet, which amounted to $346,925 of his total compensation.  Mr. Buffet is the largest shareholder of Berkshire Hathaway, owning shares that amounted to a 34% voting interest and a 22% economic interest.

Tuesday
Aug072012

The Director Compensation Project: CVS Caremark Corporation

This post is part of an ongoing series that examines the way stock exchange independence rules relate to director compensation.  We are for the most part including companies from 2011’s Fortune 500 and using information found in their 2011 proxy statements. 

Nasdaq and the NYSE have similar rules with respect to director independence.  NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors.  A director does not qualify as “independent” if he or she has a “material relationship with the company.”  NYSE Rule 303A.02(a).  In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years.  NYSE Rule 303A.06 imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 (C.F.R. §240.10A-3).

Independent directors are compensated for their service on the board.  The amount of compensation can be seen from examining the director compensation table from the CVS Caremark (NYSE: CVS) 2011 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

 

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Cash Fees Elected to be Paid in Stock
($)

All Other Compensation**
($)

Total
($)

Edwin M. Banks

6,500

195,000

0

2,324

262,324

C. David Brown II

40

202,500

67,460

1,627

271,627

David W. Dorman*

47

345,000

114,953

0

460,000

Anne M. Finucane

37,952

259,965

48,750

0

346,667

Kristen Gibney Williams

65,027

194,973

0

1,415

261,415

Marian L. Heard

65,000

195,000

0

1,627

261,627

Jean-Pierre Millon

65,027

194,973

0

946

260,946

Terrence Murray

37

195,000

64,963

0

260,000

C.A. Lance Piccolo

65,027

194,973

0

5,475

265,475

Richard J. Swift

70,024

209,976

0

1,627

281,627

Tony L. White

75,891

227,442

0

322

303,655

*       Mr. David W. Dorman became the independent Chairman of the Board on May 11, 2011.

*       Other Compensation reflects an additional retainer received by directors serving on subcommittees.

 

Director Compensation.  During the 2011 fiscal year, CVS Caremark held eight meetings of the board of directors.  Each director attended at least 75% of these meetings.  Directors received an annual retainer worth $260,000; seventy-five percent was paid in shares of the company’s stock, and the other 25% was paid in cash or stock, at the option of the individual director.  Several directors also served on subcommittees.  This service qualified each to receive an additional retainer of either $10,000 or $20,000.  These retainers were paid semi-annually and at least 75% were paid in shares of Caremark common stock.  

Director Tenure.  Ms. Heard has been a director since 1999, making her the longest-serving member.  Directors serving on other boards include Mr. Richard J. Swift, who currently serves as a director of Public Service Enterprise Group Inc.; Hubbell Inc.; and Ingersoll-Rand PLC, and Mr. Dorman, who serves as director of Yum! Brands, Inc. 

CEO Compensation.  During the 2011 fiscal year, CVS Caremark’s President and Chief Executive Officer, Larry J. Merlo, received a compensation package totaling $14,074,790.  Mr. Merlo was appointed as Chief Executive Officer in March 2011.  Mark S. Cosby, the Executive Vice President, earned $9,594,923 in salary, stock options, and other compensation.  The company has implemented a long-term incentive compensation program to reinforce strategic objectives and continued employment at CVS.  This component represents a significant portion of total compensation earned by executive officers, and a total of $3,834,020 for Mr. Merlo.  CVS Caremark provided a financial planning allowance so that each executive officer could hire a financial planner.  The company also required the CEO to use its corporate aircraft for business and personal travel.

Monday
Aug062012

Medafor v. CryoLife: Section 12(g) of the Exchange Act does not Provide a Private Right of Action

In Medafor, Inc. v. CryoLife, Inc., the United States District Court for the District of Minnesota ruled that Section 12(g) of the Securities Exchange Act of 1934 (“Section 12(g)”) does not provide a private right of action.  2012 WL 1072340 (D. Minn., Mar. 30, 2012). 

CryoLife markets and distributes medical products, including Medafor's product, a substance that facilitates blood clotting. CryoLife also owned approximately 10% of the outstanding common shares of Medafor.

In 2010, Medafor had about 550 shareholders and was approaching $10 million in assets.  Section 12(g) requires any corporation with 500 or more shareholders of record and more than $10 million in assets to register with the Securities and Exchange Commission (“SEC”).  To reduce its number of shareholders, thereby avoiding Section 12(g) registration and its administrative burdens, Medafor initiated a reverse stock split in which shareholders owning less than 5,000 shares were given cash value for their shares.

After Medafor executed the reverse stock split, CryoLife sent a letter to Medafor threatening to sue and report Medafor to the SEC, unless Medafor complied with the registration requirements of Section 12(g).  In response, Medafor filed suit under the Declaratory Judgment Act seeking a judicial declaration that it was not required to register under Section 12(g).  CryoLife then moved to dismiss, arguing that Medafor lacked standing to bring the suit because was no case or controversy. 

To have standing under the Declaratory Judgment Act, a plaintiff must show the existence of a case or controversy by demonstrating a “substantial likelihood that he will suffer injury in the future.”  Thus, for the threat of a lawsuit to establish standing, the suit must be substantially likely to occur.  To determine the likelihood that Cryolife could bring suit against Medafor under Section 12(g), the district court examined the threshold question of whether Section 12(g) provided a private right of action that would allow a shareholder to sue a corporation for failing to register.  The language of Section 12(g) does not explicitly provide such a right, but Medafor argued that the right was implied. 

To determine whether Section 12(g) provided an implied private right of action to shareholders, the district court considered the language of Section 12(g), its legislative history, and the Supreme Court’s analysis of Section 17(a) in Touche Ross.  After finding that neither Section 12(g) nor its legislative history showed any congressional intent to create a private right of action, the district court focused on the Touche Ross decision. In Touche Ross, the Supreme Court held that Section 17(a) of the Exchange Act did not provide a private right of action because Congress had not clearly manifested its intent to include that right.  As the district court explained, the test under Touche Ross “focuses on whether Congress intended to include a private right of action, rather than on whether Congress intended to preclude that right.”  The district court applied the Touche Ross test to Section 12(g) and ruled that the section does not provide a private right of action because Congress had not intended to include that right.

The district court ruled that because Section 12(g) does not provide a private right of action for CryoLife to sue Medafor, there was no case or controversy.  Therefore, the court granted CryoLife’s motion to dismiss because Medafor lacked standing to pursue a declaratory judgment.

The primary materials for this case may be found on the DU Corporate Governance website.

Saturday
Aug042012

Finding the Latest "Hot" Corporate and Securities Law Scholarship

Many readers of this blog are likely very familiar with the Social Science Research Network (SSRN), which "is devoted to the rapid worldwide dissemination of social science research."  One of the neat things you can do on SSRN, which may be news to at least some interested readers, is see the top downloaded papers in a particular subject area for all papers posted in the last 60 days.  You get there via the "Browse" page on SSRN.  From there you can see the top downloads for any subject heading by clicking on the accompanying "info" icon where available.  For example, you can find the list for "Corporate Governance U.S." here (the list on the left is for all-time downloads) and the list for "Securities Law: U.S." here (there will be some overlap).  Happy hunting!

PS--For some analysis of the “Top 5 Corporate & Securities Blog Posts” you can check out the Securities Law Practice Center, which posts a “bi-weekly installment shining a light on the best of the corporate and securities blogosphere.”  The authors were kind enough to select my last post for inclusion here.

Thursday
Aug022012

Barker v. UBS AG: Motion for Summary Judgment Denied

In Barker v. UBS AG, Mary Barker brought a case alleging that UBS AG (UBS) ended her employment in violation of the whistleblower provision of the Sarbanes-Oxley Act (“SOX”) under 18 U.S.C. § 1514A.  3:09-CV-2084, (D. Conn. May 22, 2012).  UBS moved for summary judgment, and the court denied the motion. 

Traditionally, a firm must own a minimum number of “seats” to be able to trade on that exchange.  According to the complaint, UBS in 2006 began investing in additional seats on the exchanges.  Barker was assigned to reconcile these holdings on a uniform, consolidated basis.  In the course of doing so, Barker discovered reporting discrepancies regarding firm-wide holdings. 

Barker reported the discrepancies to her supervisor, Gerald Hees.  Hees allegedly discussed how to “spin” these discrepancies to senior management with other co-workers, forbade Barker from discussing these discrepancies with anyone outside the Equities department, and reprimanded her for informing Operational Risk about the project.  At the conclusion of the reconciliation project, management rewarded Barker for her work.  Barker, however, noticed that she was passed over for projects and removed from the promotion consideration list.  Subsequently, UBS conducted a large-scale employee reduction and terminated Barker. 

A motion for summary judgment may be granted only when there is no dispute regarding the material facts to be tried.  The court must draw all inferences in favor of the non-moving party.  If there is evidence that a reasonable jury would decide in the non-moving party's favor, then a dispute about a genuine issue of fact exists and the motion must be denied.  The plaintiff bears the initial burden of showing a violation of 18 U.S.C. § 1514A by setting forth a prima facie case.  The plaintiff must allege that: (1) a protected activity was engaged in; (2) “the employer knew of the protected activity”; (3) an unfavorable action was suffered; and (4) “circumstances exist to suggest that the protected activity was a contributing factor to the unfavorable action.”

To demonstrate a protected activity, the plaintiff must “provide factually specific information regarding the conduct she believes to be illegal” and plead that the protected activity she engaged in contributed to her termination.  The court defines a contributing factor as “any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision.”

UBS argued that Barker could not establish a protected activity because management requested, supported, and concluded the project.  Additionally, UBS praised Barker and her team for their work.  Finally, UBS alleged that Barker did not know she was blowing the whistle on securities fraud and that senior management did not have knowledge of Barker’s protected activity when they made the decision to terminate her.

Barker asserted that senior management did not know about the project until months after she started.  She further asserted that she went beyond the scope of her job in completing the project and she was reprimanded for discussing the project with the Operational Risk department.  Barker argued that she met with a member of senior management to discuss her findings and, shortly thereafter, was removed from consideration for promotion. 

The court found that material issues of fact existed as to whether Barker participated in protected activities.  The court held that a reasonable jury could find that senior management knew of Barker’s protected activity when they chose to terminate her.  Furthermore, the court concluded that a reasonable jury could find that Barker’s expressed concerns regarding the inaccurate reporting created a reasonable belief that UBS violated federal law and that the close proximity of events leading to Barker’s termination satisfied the causation requirement.

Nor had UBS rebutted this prima facie case by showing that Barker had been terminated irrespective of the protected activity.  UBS had asserted that Barker had been terminated due to its financial hardships and her performance evaluations.  The performance evaluations discussed some performance issues, but they also complimented Barker.  Thus, the court found that UBS did not provide clear and convincing evidence that Barker would have been terminated regardless of any protected activity.

For all of these reasons, the court denied UBS’s motion for summary judgment.

The primary materials for this case may be found on the DU Corporate Governance website.

Wednesday
Aug012012

In re Answers Corporation: Court Denies Defendants’ Motion to Dismiss Shareholder Claims 

On April 11, 2012, the Court of Chancery of Delaware denied defendants’ motion to dismiss plaintiffs’ claims. The plaintiffs consisted of the shareholders of the Answers Corporation (“the company”), who alleged that the board breached its fiduciary duties of care, loyalty, and good faith in connection with the merger of the company with AFCV Holdings, LLC (“AFCV”). The plaintiffs further alleged that A-Team, a wholly owned subsidiary of AFCV, which is a portfolio company of Summit Partners, L.P. (collectively, “the Buyout Group”), aided and abetted the company’s breach of its fiduciary duties.   In re Answers Corp. Shareholders Litig., C.A. No. 6170-VCN (Del. Ch. Apr. 11, 2012).

The plaintiffs specifically asserted that three conflicted board members conducted the sales process in accordance with their own interests and accepted an unfair price for the company. With respect to the other board members, the plaintiffs claimed they knowingly allowed this flawed sales process to occur and therefore breached their duty of loyalty. The plaintiffs alleged that the board locked up the merger with unreasonable deal protection measures, used the merger to gain benefits for itself, and issued materially misleading proxy materials.

According to the complaint, Redpoint Ventures (“Redpoint”) owned 30% of the stock at the time of the merger, was the largest shareholder of the company, and wanted to sell its interest.   The plaintiffs asserted that Redpoint threatened Mr. Rosenchein, the company’s CEO, that the entire management team would be replaced if it did not find a way to sell the company. Further, two other board members appointed by Redpoint, W. Allen Beasley and R. Thomas Dyal, steered the sale to benefit Redpoint’s goal.

The plaintiffs’ complaint alleged that in November 2010, AFCV offered to buy the company for $10.25 per share, which was more than the trading price at the time. However, negotiations continued and by December, the board became concerned that the company stock was going to rise above ACFV’s offer price unless the sale occurred quickly.   The plaintiffs alleged that the board was aware of Redpoint’s goal and approved a quick sales process to guarantee that the company stock would not rise above $10.25 per share before the sale.

The plaintiffs’ complaint further alleged that the Buyout Group insisted that the board do a quick “market check.”  In response,  the board asked UBS, its financial advisor, to do a two-week market check, which UBS stated was not a “real” market check. It coincided with the holidays and was not an accurate representation of the interest in the company. In April of 2011, the board received an offer from Brad. D. Greenspan to buy a controlling interest in the company at $13.50 per share. The board rejected the offer, stating that it was not superior to the ACFV offer.

The defendants denied the allegations and moved to dismiss the claims. The board argued that the plaintiffs had failed to state a claim for any breach of fiduciary duty.  The Buyout Group alleged that since the plaintiffs failed to state the underlying claim, they also failed to state a claim for aiding and abetting, among other arguments.

When a board decides to sell a company, “the board must perform its fiduciary duties in the service of a specific objective: maximizing the sale price of the enterprise.” There is no one specific way to meet this requirement, but the process the directors follow must be reasonable. The board must consider the option of keeping the company independent, it cannot manipulate the sales process in any way to benefit a particular bidder, and it must seek the highest reasonable value available for its shareholders in the case it decides to sell.

To plead that a board breached its duty of loyalty, the plaintiff must allege facts that “the majority of the board either was interested in the sales process or acted in bad faith in conducting the sales process.” An interested director is one who receives a personal financial benefit that the other directors do not. Further, to show a director acted in bad faith, the plaintiff must show the director “intentionally fail[ed] to act in the face of a known duty to act, demonstrating a conscious disregard for his or her duties.”

The court held that the plaintiffs adequately pled the board breached its fiduciary duty for the following reasons: (1) the CEO knew his job was on the line if the sale did not go through and actively attempted to sell the company before the stock price went up; (2) two other directors manipulated the sale “to achieve liquidity for Redpoint”; and (3) the rest of the board was aware of the reasoning behind the sale and allowed the flawed sales process to proceed.  In addition, the court held that while there was nothing inherently unreasonable about the deal protection measures and the board extracting certain benefits like accelerated stock options, these issues were tag-along claims to the breach of fiduciary duty, and therefore should not be dismissed at this time.

To plead aiding and abetting of a breach of fiduciary duty, the plaintiffs must show (1) that a fiduciary relationship existed, (2) there was a breach of that duty, (3) the defendants knowingly participated in the breach, and (4) the plaintiff suffered damages caused by the breach.

Since the plaintiffs sufficiently pled breach of fiduciary duty, the court held that they satisfied elements 1, 2, and 4.  The court decided that the plaintiffs had satisfied element 3 as well, because the Buyout Group had non-public information about the company that it used to push the board to do a quick market check and close the sales process before the stock price could rise above ACFV’s offer price. 

Therefore, because the plaintiffs adequately pled breach of fiduciary duty and aiding and abetting of that breach, the court denied both motions to dismiss. However, the court did dismiss the plaintiffs’ proxy claim because the plaintiffs had abandoned that claim.

The primary materials for this case may be found on the DU Corporate Governance website.

Tuesday
Jul312012

Faculty Law Blogs and Referrals

In the world of Internet trivia, another way to determine the influence of a blog is to show its ability to send traffic to another blog.  The Race to the Bottom has been posting on faculty who blog.  There have been a number of posts that have referenced the discussion.  Squarespace, the platform used by The Race to the Bottom got these referrals as a result of the other articles:

148   www.volokh.com  


76   www.thefacultylounge.org


28   www.theconglomerate.org

 

17

 

 

opiniojuris.org




8   lawprofessors.typepad.com (TaxProf Blog)
Tuesday
Jul312012

Law Faculty Blogs and the State of the Blogosphere: Law Faculty Who Blog by Law Schools (as of June 2012)

As of June 2012, there were approximately 302 law school faculty members who actively blogged, a number that has been relatively stable over much of the last decade.  (This post has been continuously updated and was most recently updated on August 12, 2012). 

Of the law schools represented on the blogosphere, about 8% came from the elite schools in the top 10.  Blogging was more common for the remainder of the top 25.  Schools 11 through 25 contributed 41 bloggers, or 14%.  Law schools ranked 26 through 50 added 50 faculty or 16% to the blogosphere. Thus, the top 50 schools were responsible for 38% (114) of the 300 active full time law faculty bloggers.   

By contrast, most active bloggers taught at schools outside of the top 50.  These schools were collectively responsible for 62% (188) of law faculty who blogged regularly.  Of those, 91 came from schools ranked 51 through 100 and 97 from the third and fourth quartiles.

Please note that this data was difficult to compile.  Attempting to uncover all law faculty blogs and all other law blogs where faculty write regularly was not easy.  There are no doubt omissions.  Please feel free to send queries to me about omitted information or put up comments.  The data will be corrected accordingly.

For those who want a look at a complete version of the data (including a citation list for approximately 180 law faculty blogs), it can be found at Law Faculty Blogs and Disruptive Innovation: the Data.

 

Top 10 Law Schools: 

Yale (1); Harvard (4); Columbia (4); Chicago (2); NYU (5); Berkeley (5); Penn (1); UVA (1)

23 (8%)

 

Law Schools Ranked 11-25: 

Duke (1); Northwestern (1); Georgetown (8); Cornell (4); UCLA (6); Texas (2); USC (1); Minnesota (4); George Washington (6); Washington University (St. Louis) (1); Notre Dame (5); Washington & Lee (2)

41 (14%)

 

First Tier, 26-50:   

 Arizona State (1), Boston University (2), Indiana University (Maurer) (Bloomington) (1); Boston College (1); Fordham (2); Alabama (1); UC Davis (5); Iowa (1); Georgia (4); Illinois (2); Wisconsin (1); UNC Law (5); BYU (1); George Mason (4); Ohio State (4); Maryland (1); UC Hastings (1); University of Colorado (2); Wake Forest (1); Utah (1);  Florida (Levin) (2); American (5); Pepperdine (2)

50 (16%)

 

Second Tier, 51-100: 

Baylor (1); Florida State (2); SMU Law (1); Cardozo (4); University of Houston (1); Lewis & Clark (5); Temple (5); Chicago-Kent (1); UConn (1); Kentucky (1); Brooklyn Law (4); University of San Diego (6); Case Western (2); Loyola – Chicago (1); Seton Hall (5); University of Cincinnati (3); University of Denver (Sturm) (1); University of Miami (3); University of New Mexico (1); University of Pittsburgh (2); University of Tennessee (1); Penn State – Dickinson (2); University of Nevada – Las Vegas (1); Louisiana State (2); St. John’s (5); University of Missouri (Columbia) (2); Catholic University of America (1); Michigan State (3); Seattle University (1); SUNY Buffalo (1); University of Oklahoma (1); University of Oregon (2); DePaul (3); Hofstra (2); Indiana University (Indianapolis) (3); University of Arkansas (1); University of Louisville (2); Marquette (2); Santa Clara (4); Syracuse (1); Rutgers – Camden (1)

91 (30%)

 

Third Tier, 101-145: 

St. Louis University (3); Texas Tech (2); Villanova (3); West Virginia (2); University of San Francisco (1); University of South Carolina (1); Chapman (4); Wayne State (2); Albany (2); CUNY (2); Florida International  (1); Drexel (1); Stetson (2); University of Akron (2); University of Maine (1); Vermont (2); William Mitchell (3); John Marshall – Chicago (5); Southwestern (1); University of Toledo (1); Willamette (2); New York Law School (2); Suffolk (2); University of Mississippi (2); University of Missouri – Kansas City (1); Pace (3); University of North Dakota (1);

54 (18%)

 

Fourth Tier (Unranked): 

Barry Law School (1); Campbell (1);  Capital (1); Charleston (1); Cleveland Marshall (1); Dayton (3); Hamline (3); Mass (1); Nova (1); Northern Kentucky (1); Regent (1); St. Thomas (7); South Texas (4); Southern Illinois (3); Texas Wesleyan (3); Thomas Jefferson (1); Touro (1); UC Irvine (2); Valparaiso (1); Western New England (1); Widener (5);

43 (14%)

Total:  302

Monday
Jul302012

Law Faculty Blogs and the State of the Blogosphere: Faculty Who Are Actively Blogging (June 2012)

Putting together a list of all  law faculty blogs and law faculty bloggers is a surprisingly difficult task.  There is no single repository for law faculty blogs.  A starting point was a list of law faculty blogs compiled in 2009.  Many of these blogs, however, are inactive or are not the types of blogs included in this list.

There are other law faculty blogs that began before the founder began teaching at a law school. Patently O is an example.  FCPA Professor was started by Mike Koehler who began the blog while teaching at a business school before joining the faculty at Southern Illinois law school. These blogs are included in the count. 

In addition, identifying all law faculty blogs (those started and operated by law faculty) will not reveal all of the law faculty who blog.  Some write on other types of law blogs.  Thus, for example, there are law faculty who contribute to SCOTUS, a law blog sponsored by Bloomberg.   

The list is also complicated by the fact that law faculty blogs often list multiple contributors, some of whom no longer write.  To be included in this list, a faculty member had to write at least four posts since Jan. 1, 2012.

As a result, apologies are in order for anyone omitted.  Please do not hesitate to contact me with any corrections (as some have done already).  I will make changes accordingly. 

The aggregate data on the number of law faculty who blog has been remarkably consistent.  Census data on the number of persons blogging in August 2007 put the number at 308, little changed from an earlier study.  The study reflected in this data shows that there were 302 law faculty who were actively blogging in June 2012.  Moreover, as earlier studies have shown, there is a gender difference in those who blog.  The data shows that around 70% of the bloggers are male. 

For those who want a look at a complete version of the data, it can be found at Law Faculty Blogs and Disruptive Innovation: the Data.  We again emphasize that there may well be errors in this data and hope that anyone who finds some mistakes will send in the corrections.  The list will be accordingly updated.  It has been most recently updated on August 12, 2012.


 

Law School

Gender

Faculty Member

Blog

Akron

M

William Huhn

Will Huhn

Akron

M

Stefan Padfield

The Race to the Bottom

Alabama

M

Paul Horwitz

Prawfsblawg

Albany

M

Keith Hirokawa

Environmental Law Prof Blog

Albany

F

Patricia E. Salkin

Law of the Land

American

M

Michael Carroll

Carrollogos

American

M

Kenneth Anderson

Opinio Jurist; LawFare;  Volokh Conspiracy

American

F

Amanda Frost

SCOTUS Blog

American

M

Darren L. Hutchinson

Dissenting Justice

American

M

Steve Vladeck

Prawfsblawg; LawFare

Arizona State

M

Art Hinshaw

ADR Prof Blog

Arkansas

F

Susan A. Schneider

Agricultural Law &

LLM Program in Agricultural and Food Law

Barry Law

M

Marc Edelman

Sports Law Blog

Baylor

M

Mark W. Osler

Law School Innovation

Boston

F

Linda McClain

Balkinization

Boston

M

Kevin Outterson

The Incidental Economist

Boston College

M

Brian JM Quinn

M&A Law Prof Blog

Brooklyn

M

Derek Bambauer 

Info/Law

Brooklyn

M

Adam Kolber

Neuroethics & Law Blog

Brooklyn

F

Robin Effron

Civil Procedure and Federal Courts Blog

Brooklyn

M

Jason Mazzone

Balkinization

BYU

M

Gordon Smith

Conglomerate

Campbell

M

Timothy R. Zinnecker

The Faculty Lounge

Capital

M

David N. Mayer

Mayer Blog

Cardozo

F

Susan Crawford

Susan Crawford Blog

Cardozo

F

Deborah N. Pearlstein

Opinio Jurist

Cardozo

M

Brett Frischman

Madisonian.net

Cardozo

M

Peter Tillers

Tillers on Evidence and Inference

Case Western

M

Jonathan Adler

Volokh Conspiracy &

Bench Memos &

The Corner

Case Western

F

Jacqueline D. Lipton

Madisonian.net &  The Faculty Lounge

Catholic

F

Karla Simon

Nonprofit Law Prof Blog

Chapman

M

Tom W. Bell

Agoraphilia

Chapman

M

Kenneth A. Stahl

Land Use Prof Blog

Chapman  33

F

Deepa Badrinarayana

Environmental Law Prof Blog

Chapman

M

Hugh Hewitt

Hugh Hewitt's Townhall Blog

Charleston

F

Sheila B. Scheuerman

Torts Prof Blog

Chicago

M

Brian Leiter

Leiter Report:  A Philosophy Blog &  Brian Leiter's Law School Reports

Chicago

M

Tom Ginsburg

Constitution Making .org

Chicago-Kent

M

Sheldon Nahmod

Nahmod Law

Cincinnati

M

Jacob Katz Cogan

International Law Reporter

Cincinnati

M

Paul Caron

Taxprof Blog

Cincinnati

F

Barbara Black

Securities Law Prof Blog

Cleveland Marshall College

F

Lolita Buckner Inniss

Ain't I a Feminist Legal Scholar Too?

Colorado

M

Erik Gerding

Conglomerate

Colorado

M

Paul Campos

Inside the Law School Scam

Columbia

F

Katherine M. Franke

Gender & Sexuality Law Blog

Columbia

M

Ronald Mann

SCOTUS Blog

Columbia

M

Matthew Waxman

Lawfare

Columbia

M

Dennis Crouch

Consumer Law & Policy Blog

Connecticut

F

Alexandra D. Lahav

Mass Tort Litigation Blog

Cornell

M

Michael C. Dorf

Dorf on Law

Cornell

F

Sherry F. Colb

Dorf on Law

Cornell

M

Michael Heise

Empirical Legal Studies

Cornell

M

William A. Jacobson

Legal Insurrection

CUNY

F

Ruthann Robson

Constitutional Law Prof Blog

CUNY

F

Caitlin E. Borgmann

Reproductive Rights Prof Blog

Dayton

M

Thaddeus Hoffmeister

 

Juries

Dayton

M

Eric Chaffee

The Race to the Bottom

Dayton

F

Susan W. Brenner

CYB3RCRIM3

Denver

M

J. Robert Brown, Jr.

The Race to the Bottom

DePaul

M

Brain F. Havel

Aviation Law Blog

DePaul

M

Gabriel Sanchez

Aviation Law Blog

DePaul

M

Michael S. Jacobs

Aviation Law Blog

Drexel

M

Dan Filler

The Faculty Lounge; Brian Leiter’s Law School Reports

Duke

F

Kimberly Krawiec

The Faculty Lounge

Emeritus, Univ. of Toledo

M

Howard Friedman

Religion Clause

Florida

M

Jeffery Harrison

Class Bias In Higher Education

Florida

M

Daniel Sokol

Antitrust & Competition Policy

Florida International

M

Howard Wasserman

Prawfsblawg &

Sports Law Blog

Florida State

M

Dan Markel

Prawfsblawg

Florida State

M

Ryan Rodenberg

Sports Law Blog

Fordham

F

Susan Scafidi

Counterfeit Chic

Fordham

M

Howard M. Erichson

Mass Tort Litigation Blog

George Mason

M

David Bernstein

Volokh Conspiracy

George Mason

M

Ilya Somin

Volokh Conspiracy

George Mason

M

Josh Wright

Truth on the Market

George Mason

M

Todd Zywicki

Volokh Conspiracy

Georgetown

F

Rebecca Tushnet

43(B)log

Georgetown

M

Lawrence B. Solum

Legal Theory Blog

Georgetown

M

Deepak Gupta

Consumer Law & Policy Blog

Georgetown

F

Nan Hunger

Hunter of Justice

Georgetown

M

Adam Levitin

Credit Slips

Georgetown

M

Brian Wolfman

Consumer Law & Policy Blog

Georgetown

M

Randy Barnett

Volokh Conspiracy

Georgetown

M

Dan Ernst

Legal History Blog

George Washington

M

Neil H. Buchanan

Dorf on Law

George Washington

M

Orin Kerr

Volokh Conspiracy

George Washington

M

Jonathan Turley

Jonathan Turley

George Washington

M

Donald C. Clarke

Chinese Law Prof Blog

George Washington

M

Daniel J. Solove

Concurring Opinions

George Washington

M

Lawrence Cunningham

Concurring Opinions

Georgia

F

Usha Rodrigues

Conglomerate

Georgia

F

Diane Marie Amann

IntLawGrrls

Georgia

 

Jamie Baker Roskie

Land Use Prof Blog

Georgia

F

Elizabeth Chamblee Burch

Mass Tort Litigation Blog

Hamline

F

Ann Graham

Banking Law Prof Blog

Hamline

M

Thaddeus Pope

Medical Futility

Hamline

F

Ann Tweedy

Turtle Talk

Harvard

M

Jack Goldsmith

LawFare

Harvard

M

Brian Wolfman

Consumer Law & Policy Blog

Harvard

M

Mark Tushnest

Balkinization

Harvard  

M 33

Lucian Bebchuk

Harvard Law School Forum on Corporate Governance

Hofstra

M

Julian Ku

Opinio Jurist

Hofstra

M

Monroe H. Freedman

Legal Ethics Forum

Houston

M

Johnny Buckles

Nonprofit Law Prof Blog

Illinois

M

Robert Lawless

Credit Slips

Illinois

F

Christine Hurt

Conglomerate

Indiana

Indianapolis

M

Gerard Magliocca

Concurring Opinions

Indiana

Indianapolis

M

David Orentlicher

Health Law Prof Blog

Indiana

Indianapolis,

M

Nicolas P. Terry

Health Law Prof Blog

Indiana, Bloomington

M

William D. Henderson

Legal Whiteboard

John Marshall

M

Steven D. Schwinn

Constitutional Law Prof Blog

John Marshall

M

Colin Miller

Feminist Law Professors &  Evidence Prof Blog

John Marshall

M

Mark Wojcik

International Law Prof Blog &  Legal Writing Prof Blog

John Marshall

M

Corey Rayburn Young

Sex Crimes

John Marshall

M

Alberto Bernabe

Professional Responsibility Blog; Torts Blog

Iowa

M

Jason Rantanen

Patently O

Kentucky

M

Stephen Clowney

Property Prof Blog

Lewis & Clark

M

Jack Bogdanski

Jack Bog's Blog

Lewis & Clark

M

Geoffrey Manne

Truth on the Market

Lewis & Clark

F

Erin Ryan

Environmental Law Prof Blog

Lewis & Clark

M

Tung Yin

The Yin Blog

Lewis & Clark

M

Robert J. Miller

Native America, Discovered and Conquered

Louisiana State

F

Christine A. Corcos

Feminist Law Professors & Media Law Prof Blog;

Law and Magic Blog;  Law & Humanities Blog

Louisiana State

F

Andrea Carroll

Family Law Prof Blog

Louisville

M

Jim Chen

Jurisdynamics

Louisville

F

Judith D. Fischer

Legal Writing Prof Blog

Loyola Chicago

F

Robert Araujo

Mirror of Justice

Maine

M

Dave Owen

Environmental Law Prof Blog

Marquette

M

Bruce Boyden

Madisonian.net

Marquette

M

Paul M. Secunda

Workplace Prof Blog

Maryland

F 30

Danielle Citron

Concurring Opinions

Massachusetts Law

M

Lawrence Velvel

Velvel on National Affairs

Miami

M

Sergio J. Campos

Mass Tort Litigation Blog

Miami

F

Caroline M. Bradley

BenderLaw

Miami

M

Michael Froomkin

Discourse.net

Michigan State

M

Matthew L.M. Fletcher

Turtle Talk

Michigan State

F

Kathryn E. Fort

Turtle Talk

Michigan State

F

Renee Knake

Legal Ethics Forum

Minnesota

M

Earl Larson

Volokh Conspiracy

Minnesota

M

Dale Carpenter

Volokh Conspiracy

Minnesota

F

Hari Osofsky

Environmental Law Prof Blog

Minnesota

M

Richard Painter

Legal Ethics Forum

Mississippi

F

Joanne Irene Gabrynowicz

Res Communis

Mississippi

M

P.J. Blount

Res Communis

Missouri

M

Dennis Crouch

Credit Slips

Missouri

M

Thom Lambert

Truth on the Market

Missouri, KC

M

Chris Holman

Holman’s IP Biotech Blog

Nevada, Las Vegas

F

Nancy B. Rapoport

Nancy Rapoport's Blogspot

New Mexico

F

 Nathalie Martin

Credit Slips

New York Law School

M

Arthur S. Leonard

Leonard Link

New York Law School

M

Mitchell H. Rubinstein

Adjunct Law Prof Blog

Notre Dame

M

Ed Edmonds

Sports Law Blog

Notre Dame

M

Roger Paul Alford

Opinio Jurist

Notre Dame

M

Rick Garnett

Prawfsblawg & Mirror of Justice 

Notre Dame

M

Llyod Mayer

Nonprofit Law Prof Blog

Notre Dame

M

James Kelly, Jr.

Land Use Prof Blog

North Carolina

M

Thomas Kelly

Nonprofit Law Prof Blog

North Carolina

F

Tamar Birckhead

Juvenile Justice Blog

North Carolina

M

Jeffery M. Hirsch

Workplace Prof Blog

North Carolina

M

Eric Muller

The Faculty Lounge

North Carolina

M

Alfred Brophy

The Faculty Lounge

North Dakota

M

Eric E. Johnson

Blog Law Blog

Northern Kentucky

M

Richard Bales

Workplace Prof Blog

Northwestern

M

Andrew Koppelman

Balkinization

Nova Law

M

James Levy

Legal Skills Prof Blog

NYU

M

Rick Hills

Prawfsblawg

NYU

M

Daniel Shaviro

Start Making Sense

NYU

M

James Grimmelmann

The Laboratorium

NYU

M

Richard Pildes

LawFare

NYU

M

Stephen Gillers

Legal Ethics Forum

Ohio State

M

Douglas A. Berman

Sentencing Law and Policy; Law School Innovation

Ohio State

F

Sarah Cole

ADR Prof Blog

Ohio State

F

Deborah Jones Merritt

Inside the Law School Scam

Ohio State

M

Steve Davidoff

DealBlog

Oklahoma

F

Emily Meazell

Environmental Law Prof Blog

Oregon

F

Jennifer Reynolds

ADR Prof Blog

Oregon

M

Michael Moffitt

ADR Prof Blog

Pace  

F

Bridget Crawford

Feminist Law Professors; The Faculty Lounge

Pace

F

Jill Gross

ADR Prof Blog

Pace

M

David Cassuto

Animal Blawg

Penn

M

Cary Coglianese

Reg Blog

Penn State

M

David Kaye

Double Helix; Forensic Science

Penn State

M

Larry Catá Backer

Law at the End of the Day

Pepperdine

M

Donald Earl Childress III

Conflict of Laws

Pepperdine

M

Gregory S. McNeal

Law and Terrorism

Pittsburgh

M

Bernard Hibbits

Jurist-paper chase

Pittsburgh

M

Mike Madison

Madisonian.net

Regent

M

Scott Pryor

Pryor Thoughts

Rutgers, Camden

M

Greg Lastowka

Terra Nova

St. John’s

F

Margaret E. McGuinnes

Opinio Jurist

St. John’s

M

Chirs Borgen

Opinio Jurist

St. John’s

M

Jeff Sovern

Consumer Law & Policy Blog

St. John’s

M

Paul Kirgis

ADR Prof Blog

St. John’s

M

Marc DeGirolami

Mirror of Justice

St. Louis

M

Matt Bodie

Prawfsblawg

St. Louis

F

Marcia L. McCormick

Workplace Prof Blog

St. Louis

M

David Law

Constitution Making.org

St. Thomas

F

Patricia H. Moore

Civil Procedure and Federal Courts Blog

St. Thomas

F

Katharine Van Tesse

Health Law Prof Blog

St. Thomas

M

Rob Vischer

Mirror of Justice

St. Thomas

M

Thomas Berg

Mirror of Justice

St. Thomas

F

Elizabeth Schiltz

Mirror of Justice

St. Thomas

F

Jennifer S. Martin

Commercial Law

St. Thomas

F

Susan Stabile

Creo en Dios!

San Diego

F

Lesley K. McAllister

Environmental Law Prof Blog

San Diego 34

M

Maimon Schwarzchild

The Right Coast

San Diego

M

Mike Rappaport

The Right Coast

San Diego

M

Thomas A. Smith

The Right Coast

San Diego

M

Kevin Cole

CrimProf Blog

San Diego

M

Shaun Martin

California Appellate Report

San Francisco

M

Bill O. Hing

Immigration Law Blog

Santa Clara

M

Eric Goldman

Technology & Marketing Law Blog

&  Goldman's Observations

Santa Clara

M

David Friedman

Ideas

Santa Clara

F

Patricia Cain

Same Sex Tax Law

Santa Clara

M

Brad Joondeph

ACA Litigation Blog

Seattle

F

Julie Shapiro

Related Topics

Seton Hall

M

Stephen J. Lubben

Credit Slips

Seton Hall

M

Adam Steinman

Civil Procedure and Federal Courts Blog

Seton Hall

M

Frank Pasquale

Health Law Prof Blog &  Madisonian.net &

Concurring Opinions

Seton Hall

M

Charles A. Sullivan

Workplace Prof Blog

Seton Hall

F

Sarah Walderic

Concurring Opinions

SMU

F

Sarah Tran

Written Description

South Carolina

F

Josie F. Brown

First Amendment Law Prof Blog

Southern Illinois

F

Cindy Galway Buys

International Law Prof Blog

Southern Illinois

M

Michael Koehler

FCPA Professor

Southern Illinois

F

Sue Liemer

Legal Writing Prof Blog

South Texas

M

Matthew Festa

Land Use Prof Blog

South Texas

M

Gary Rosin

Unincorporated Business Entities Law

South Texas

M

Derek Finchman

Illicit Cultural Property

South Texas

M

Dru Stevenson

South Texas Law Professor

Southwestern

M

Byron G. Stier

Mass Tort Litigation Blog

Stetson

M

Blake Hudson

Environmental Law Prof Blog

Stetson

F

Ellen S. Podgor

White Collar Law Prof Blog

Suffolks

M

Andrew Perlman

Legal Ethics Forum

Suffolk

M

Jeffrey M. Lipshaw

Legal Whiteboard

SUNY Buffalo

M

James G. Milles

Buffalo Wings and Toasted Ravioli

Syracuse

M

David Crane

Jurist-paper chase

Temple

M

Dave Hoffman

Concurring Opinions

Temple

M

Duncan B. Hollis

Opinio Jurist

Temple

M

Peter J. Spiro

Opinio Jurist

Temple

F

Jaya Ramji-Nogales

IntLawGrrls

Temple

M

David Post

Volokh Conspiracy

Tennessee

M

Glenn Reynolds

Instapundit

Texas

M

Bobby Chesney

LawFare

Texas 

M

Sanford Levinson

Balkinization

Texas Tech

M

Gerry Beyer

Wills, Trusts & Estates

Texas Tech

F

Nancy Soopaa

Legal Writing Prof Blog

Texas Wesleyan

M

Tim Mulvaney

Environmental Law Prof Blog

Texas Wesleyan

F

Cynthia Alkon

ADR Prof Blog

Texas Wesleyan

F

Megan Carpenter

Madisonian.net

Thomas Jefferson

M

Deven Desai

Madisonian.net &  Concurring Opinions

Touro

F

Meredith R. Miller

ContractsProf Blog

UC Berkeley

F

Holly Doremus

Legal Planet

UC Berkeley

M

Dan Farber

Legal Planet

UC Berkeley

M

Steve Weissman

Legal Planet

UC Berkeley

M

Eric Biber

Legal Planet

UC Berkeley

F

Karen Tani

Legal History Blog

UC Davis

M

Anupam Chander

Anupam Chander Blog

UC Davis

M

Richard Frank

Legal Planet

UC Davis

F

Lisa R. Pruitt

Agricultural Law

UC Davis

M

Kevin R. Johnson

Immigration Law Blog

UC Davis

F

Afra Afshanpour

M&A Law Prof Blog

UC Hastings

M

Calvin Massey

The Faculty Lounge

UC Irvine

F 29

Katherine Porter

Credit Slips

UC Irvine

M

Rick Hasen

Election Law

UCLA

M

Jonathan Zasloff

Legal Planet

UCLA

M

Eugene Volokh

Volokh Conspiracy

UCLA

M

Stephan Bainbridge

ProfessorBainbridge.com

UCLA

F

Ann Carlson

Legal Planet

UCLA

M

Michael A. Woronoff

M&A Law Prof Blog

UCLA

M

Kal Rastiala

Freakonomics

USC

F

Mary L. Dudziak

Legal History Blog &  Balkinization

Utah

M

Lincoln Davis

Environmental Law Prof Blog

Valparaiso

M

Jeremy Telman

ContractsProf Blog

Vermont

F

Besty Baker

Arctic Mapping and the Law of the Sea

Vermont

M

Michael McCann

Sports Law Blog

Villanova

M

James Edward Maule

Mauled Again

Villanova

M

Michael Risch

Madisonian.net

Villanova

M

Louis J. Sirico, Jr.

Legal Skills Prof Blog

Virginia

M

Tomiko Brown-Nagin

Legal History Blog

Wake Forest

F

Tanya D. Marsh

Property Prof Blog

Washington

M

Brain Tamanaha

Balkinization

Wayne State

F

Linda McKissack Beale

A Taxing Matter

Wayne State

M

Peter J. Henning

DealBlog 

Western New England

F

Erin Buzuvis

Title IX Blog

West Virginia

F

Elaine Wilson

Nonprofit Law Prof Blog

West Virginia

M

Andre Cummings

Hip Hop Law.com

Widener

M

Nicholas Mirkay

Nonprofit Law Prof Blog

Widener

M

Justin Lipkin

Essentially Contested America

Widener

M

John Culhane

WordinEdgewise

Widener

M

D. Benjamin Barrows

Property Prof Blog

Widener

M

Christopher J. Robinette

Torts Prof Blog

Willamette

M

Ross Runkel

LawMemo Employment Law Blog

Willamette

F

Laura Appleman

The Faculty Lounge

William Mitchell

F

Kim Dayton

Elder Law Prof Blog

William Mitchell

M

Mark A. Edwards

Property Prof Blog

William Mitchell

F

Donna M. Byrne

Food & Drug Law Prof Blog

W & L

M

A. Benjamin Spencer

Split Circuits

W & L

M

David Zaring

Conglomerate

Wisconsin

N/A

Ann Althouse

Althouse

Yale

M

Jack Balkin

Balkinization 

 

 

 

 


 

Friday
Jul272012

Law Faculty Blogs and the State of the Blogosphere: Citations in Legal Publications (11-50)

The following list includes blogs ranked 11-50 by law review citations.  For those who want a look at a complete version of the data (including a citation list for approximately 180 law faculty blogs), it can be found at Law Faculty Blogs and Disruptive Innovation: the Data.

11

The Becker-Posner Blog






12

Tech. & Marketing Law Blog







13

Election Law @ Moritz






14

Election Law Blog







15

ProfessorBainbridge.com







16

White Collar Crime Prof Blog




17

Tax Prof Blog







18

Discourse.net







19

Ideoblog





20

Workplace Prof Blog




21

Credit Slips







22

Sports Law Blog






23

Legal Theory Blog





24

Empirical Legal Studies







25

Truth on the Market







25

PointofLaw.com






27

The Confrontation  Blog





28

Madisonian.net







29

Brian Leiter’s Law School Reports






30

Terra Nova







31

Counterfeit Chic






32

The Race to the Bottom







32

ImmigrationProf Blog





34

Consumer Law & Policy Blog






35

Conflict of Laws . net







36

Legal Profession





37

Althouse






38

Leiter Reports:  A Philosophy Blog






39

Business Law Prof Blog




39

Dorf on Law







41

Res ipsa loquitur







42

Civil Procedure and Federal Courts Blog





43

Law at the End of the Day





44

Mass Tort Litigation Blog




44

Chinese Law Prof Blog




44

Legal Ethics Forum






44

The Faculty Lounce






48

ContractsProf Blog




48

PropertyProf Blog_





48

M&A LawProf Blog





Thursday
Jul262012

Law Faculty Blogs and the State of the Blogosphere: Citations in Legal Publications (1-10)

Blogs are cited regularly in legal publications.  A study conducted in 2006 found 486 legal citations to blogs in various reviews and journals. Two years later, the number had more than doubled

By June 2012, the total had increased exponentially, with blogs accounting for more than 6340 citations in law reviews, journals, and other legal publications.  (The data was captured through students searches in Westlaw file for Journals and Law Reviews). 

The total may, in the end, be an undercount.  It is not unusual for posts on some blogs to be co-posted or republished on other blogs.  This study examined only citations to the primary blog and did not attempt to assess citations to posts that were republished elsewhere.

The top 10 most cited law faculty blogs are:

Rank      # of Citations        Blog 

1               742                  Volokh Conspiracy 

2               426                  Balkinization

3               393                  Patently O

4               279                  Concurring Opinions

5               272                  Sentencing Law and Policy

6               219                  Prawfs Blawg

7               200                  Opinio Juris

8               179                  Lessig Blog

9               178                  Harvard Forum on Corp. Gov.

10             171                  Conglomerate

In addition to the increase, the list has been remarkably stable.  Seven of the blogs on the list were among the most cited in a similar study done in 2007For those who want a look at a complete version of the data (including a citation list for approximately 180 law faculty blogs), it can be found at Law Faculty Blogs and Disruptive Innovation: the Data.

Wednesday
Jul252012

Law Faculty Blogs and the State of the Blogosphere: Court Citations

Blogs have appeared in a number of cases.  A study done in 2006 chronicled 27 references to blogs in court opinions, including one citation by the US Supreme Court. By June 2012, the number had increased to 88, including a second US Supreme Court citation (Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012) (citing PatentlyO)). The blogs cited by courts are:

Rank  # of Citations   Blog

(1)          45             Sentencing Law and Policy (43 fed; 2 state)

(2)          8               Volokh Conspiracy (7 fed; 1 state)

(3)          6               Patently 0 (6 fed)

(4)          4               The Confrontation Blog (1 fed, 3 state)

(5)          3               ProfessorBainbridge (3 state)

(5)          3               Election Law Blog (2 fed; 1 State)

(7)          2               Becker-Posner Blog (1 fed; 1 state)

(7)          2               Credit Slips (1 fed; 1 state)

(7)          2               Ideoblog (2 state)

Another 13 blogs have one court citation each.  These include Balkinization (federal); Cases and Materials on Bus. Entities (state); China Law Blog (federal); Evidence Prof Blog (state); Goldman’s Observations (federal); Harvard Forum on Corp. Governance & Financial Regulation; Immigration Law Prof Blog (federal); Instapundit (federal); Legal Theory Blog (state); Legal Insurrection (federal); Lessig Blog (federal); Prawfs Blog (federal); and TheRacetotheBottom (state).

For those who want a look at a complete version of the data, it can be found at Law Faculty Blogs and Disruptive Innovation: the Data.

Tuesday
Jul242012

Law Faculty Blogs and the State of the Blogosphere:  Introduction

One of the pleasures that comes with blogging is a greater awareness of what is happening on the Blogosphere.  It is a dynamic and often difficult to predict place.  Yet those with a lengthy and consistent Internet footprint learn some of these shifts by seeing them first hand.

The Race to the Bottom was not an early entrant onto the Blogosphere.  For early adopters among law faculty who continue to this day include such luminaries as Eugene Volokh at the Volkokh Conspiracy (2002), Larry Solum at the Legal Theory Blog (2002), Jack Balkin at Balkinization (Jan. 2003), and Steve Bainbridge at ProfessorBainbridge.com (2003).  The Race to the Bottom only entered the Blogosphere in 2007. 

Nonetheless, with five years of experience, it is clear that the blogosphere has undergone considerable evolution.  Two earlier papers chronicled some of this evolution: Of Empires, Independents, and Captives: Law Blogging, Law Scholarship, and Law School Rankings (2008) and Blogs, Law School Rankings, and TheRacetotheBottom.org (2007).  It is time to update the analysis. 

As an initial observation, however, law blogging has become entrenched.  As will be shown, there are now thousands of law review citations to law faculty blogs.  Moreover, some have attempted to assess academic reputation by examining the number of citations in law reviews for each faculty member.  See Scholarly Impact of Law School Faculties in 2012: Applying Leiter Scores to Rank the Top Third.  The citation list includes blog posts that are cited in law reviews.  Thus, blogging, among other advantages/consequences, now has the potential to have a material impact on rankings based upon citations in law reviews.  

What will follow is a series of posts that provide raw data. The first will rank blogs based upon court citations.  The second will provide a ranking of law faculty blogs by law review citations.  We will then note who is blogging at what law schools.  This data will be repackaged to show who blogs based upon the ranking of the law school using the ever prominent ranking by US News.  Once the raw data is up, we will offer some conclusions suggested by the data.  

The first post will go up tomorrow.  As the data goes up, we certainly hope that anyone finding a mistake will send in the correction.  Trying to identify law faculty blogs and who is actually blogging is not an easy task and there may well be some omissions.

Monday
Jul232012

Corporate Governance and the Problem of Executive Compensation: A Final Word

What does all of this tell us about the future of executive compensation as a matter of corporate governance?

As we have noted, the problem fundamentally rests with the states.  Delaware, for the most part, merely requires a showing of proper process, with the amount and type of compensation largely irrelevant to the analysis.  Process requires little more than a majority of "independent" directors and some modest amount of information.  Nor is the definition of "independent" rigorously enforced.  See Returning Fairness to Executive Compensation.   Moreover, as Zucker illustrates, the safety valve of waste is no safety valve at all.  The result is compensation without limits.

Given the lack of limits under state law, compensation will continue to escalate in amount.  Pressure on Congress to intervene will also continue.  Moreover, SOX and Dodd-Frank show that Congress is not afraid to intervene in the compensation process when circumstances dictate.  These efforts effectively took authority away from the states and effectively transferred them to the Securities and Exchange Commission.

So far, however, Congress has chosen a second best solution in the regulation of compensation.  Rather than directly address the problem by altering the fiduciary duty standards applicable to the determination of compensation, Congress for the most part has opted to add additional process (the ban on loans in SOX is a significant exception). 

Some of the efforts, particularly say on pay, will engender positive changes.  Boards will be under increasing pressure to make compensation more performance based.  What the reforms will not do is decrease the amount (or more accurately the rate of increase) in compensation.  While shareholders may not object to a significant amount of compensation tied to rising share prices, the public will react differently.  To the public, the amount matters.    

As the example of Britain shows, once executive compensation becomes a matter of public debate, pressure on politicians increases.  Britain responded first by implementing say on pay then providing for a mandatory vote on compensation policies.  There is no reason to believe that the pressure on politicians in Britain to intervene in the compensation process will stop with these reforms.  The developments in Britain could be harbingers of what will happen in the United States.  Pressure on politicians in Washington to address the issue of executive compensation will likely continue.

Is there any real solution?  The best approach would be for states to take a firmer hand in regulating executive compensation.  In the absence of this approach, Congress should consider adopting a federal fiduciary standard applicable to compensation decisions.  In effect, this would accomplish what states ought to do.  The approach would address the problem at its root and avoid second best solutions. 

Sunday
Jul222012

You don't have to hate business to denounce corporate personhood.

One of the most emailed Wall Street Journal items this week was an opinion piece by Jack and Suzy Welch entitled, “It's True: Corporations Are People.”  In it, the Welchs note that:

Of course corporations are people. What else would they be? Buildings don't hire people…. Corporations are people working together toward a shared goal, just as hospitals, schools, farms, restaurants, ballparks and museums are.

Because this is so obvious, the Welchs opine that:

[T]here can only be one conclusion drawn when we hear the pronouncement, "Corporations aren't people"—that it's doublespeak. That is, when people say that corporations aren't people, what they really want to say is, "Business is evil."

However, I would like to offer another explanation.  I believe that when people say, “Corporations aren’t people,” they are best understood as simply saying that corporations should not have rights—particularly Constitutional rights—co-extensive with natural persons, and that since the Supreme Court showed us in Citizens United how difficult it is to regulate an entity that has the benefit of being deemed a person for purposes of, for example, the First Amendment, we might be better off removing that benefit.  Reaching that conclusion does not require one to believe that business is evil.

Take government, for example.  The analysis used by the Welchs to conclude that corporations are obviously people also leads to the inescapable conclusion that government is also people.  However, since our founding we have felt that the particular penchant for abusing power inherent in that particular association of people warrants imposing limitations on its right to act.  Now, these limitations are expressly set forth in our Constitution, but nothing even remotely resembling modern corporations existed at the time of our founding so the absence of an express determination in the Constitution of how corporations should be treated does not inevitably lead to the conclusion that they should simply get lumped together with all other associations of citizens.  (As an aside, while at times seemingly used interchangeably, there is a very meaningful distinction between the phrase “association of persons” and “association of citizens.”  Foreigners are not permitted to influence our elections via campaign contributions (see here).  U.S. corporations, on the other hand, generally have no such limitation on foreign involvement.  Yet in Citizens United the majority repeatedly referred to corporations as “associations of citizens.”  Relatedly, the DISCLOSE Act, which at least some feel could help expose significant foreign spending on our elections, recently failed to garner enough votes to overcome the expected Republican filibuster.)

So, getting back to government: I am more of a Hobbesian than a Lockean when it comes to guessing about the state of nature sans government.  That is to say, I am grateful for our having a strong government because I believe it is one of the primary things standing between us and an existence that is “solitary, poor, nasty, brutish, and short.”  At the same time, governments throughout history have proven that there is no limit to the abuse of power they can engage in, so I think our system of limited government is a pretty good one.  That is to say, my belief that government shouldn’t be treated as simply another association of persons because it is prone to abuse its unique power does not translate into my thinking government is evil.  Quite to the contrary, I think government is necessary to prevent certain types of evil.

Likewise, the fact that I think there are good reasons to be skeptical of all of the conclusions that led to the majority opinion in Citizens United—including, (1) corporations are people, (2) money is speech, (3) only quid-pro-quo arrangements constitute corruption, and (4) none of the government’s justifications for the regulation in question satisfied strict scrutiny—does not mean I think business is evil.  In fact, I think the Welchs may well be correct when they say that:

[T]his movement afoot that hates on business is craziness. It will destroy America as we know it because very few jobs get created in an environment that's outright hostile to business. And without jobs, the whole thing falls down. It becomes a welfare state. We become a welfare state.

Nonetheless, I think a good argument can be made that at least some corporations have become as powerful as at least some governments (and engage in government-like functions, see here and here), and, therefore, I can conclude that it is in our best interest to differentiate them from other associations of persons when it comes to determining their rights and responsibilities.  Now, it may be possible to do that while leaving their current Constitutional personhood rights untouched, but it is certainly not necessary to hate business in order to conclude that change is necessary in that area as well.  You simply need to believe that corporations, like government, have the potential to abuse their power in a way (or, if you like, pose a sufficient systemic risk) that warrants differentiating them from other associations of persons.

Friday
Jul202012

Corporate Governance and the Problem of Executive Compensation: The Role of Say on Pay

The other place where matters have been federalized is with respect to say on pay.  Say on pay gives shareholders of every public company (defined as those traded on a stock exchange or registered under Section 12(g) of the Exchange Act) the right to an advisory vote on the amount paid to the top five executive officers (two of whom are the CEO and CFO).  See Rule 14a-21, 17 CFR 240.14a-21. 

Shareholders have taken advantage of the authority and proved very willing to vote against a pay package.  More than 50 companies this proxy season have received a negative vote on their compensation.  According to the WSJ, four of the companies in 2012 were repeat offenders, receiving negative votes in 2011 and 2012. 

Negative votes have generated derivative claims against the board.  They have not, for the most part, been successful.  Most recently,  the court in Iron Workers Local No. 25 Pension Fund v. Bogart, N.D. Cal., No. 11-4604, June 13, 2012 (a copy of the decision is here), dismissed a derivative suit based upon a negative say on pay vote.  Relying on Aronson, the court found that the allegations were not sufficient to show reasonable doubt as to the applicability of the business judgment rule. 

The Fund does not even claim that the MPS Board was not adequately informed when it made its decision to increase executive compensation. Instead, the Fund primarily relies upon the negative 'say-on-pay' vote to cast doubt on the honesty and good faith of MPS’s board in making its decision to increase executive compensation. The Fund argues that the negative 'say-on-pay' shareholder vote is evidence showing that directors failed to act in the shareholders' best interests and rebuts the presumption that the MPS Board’s decision regarding compensation is entitled to business judgment deference.

Allegations based only upon a negative say on pay vote were not, however, enough.

The Fund’s allegations here regarding the challenged compensation decision are not sufficient to overcome the presumption that the MPS Board reasonably exercised its business judgment. The fact that the Fund’s interpretation of the 'pay-for-performance' policy does not match the MPS Board’s executive decision is not the equivalent of an allegation that the MPS Board intentionally misled shareholders. Additionally, the 64% negative vote by shareholders does not, on its own, rebut the business judgment presumption.

While litigation has not succeeded, anecdotal evidence suggests that companies receiving a negative vote have responded to shareholder unhappiness.  Nonetheless, the impact of advisory votes is likely to be modest.  It will probably cause compensation to become more performance based.  Certain types of abusive practices will be less common.  With respect to amount, however, the experience in Britain suggests that say on pay is not likely to prevent the continued escalation of compensation. 

Wednesday
Jul182012

Corporate Governance and the Problem of Executive Compensation: Federalization and the Shift in Compensation Norms

We have been discussing the problem of executive compensation as a matter of corporate governance.  We attributed the problem primarily to lax fiduciary standards under state law.  The inability (or unwillingness) of states to address the issue has resulted in increased preemption at the federal level.  Congress has intervened a number of times in the compensation area, transferring regulatory authority away from the states and, for the most part, to the SEC.  Moreover, the issue is a global one, with Great Britain embarking on a path that may presage what will happen in the United States.

The regulation of clawbacks represents an example of reform that illustrates the weakness of the state law regime and the need for federal reform.  SOX put in place a requirement that boards clawback performance based compensation paid to the CEO and CFO following certain restatements.  In effect, Congress told companies that they had to recoup performance based compensation when the performance metrics used as a basis for computing the compensation proved to be inaccurate.  Said another way, Congress mandated the recovery of compensation that should never have been paid in the first instance. 

It was remarkable that this took an act of Congress.  Rigorous fiduciary duty standards presumably would have caused boards to seek repayment of the compensation in these circumstances.  Yet fiduicary standards were not rigorous enough to cause boards to seek the return of funds that were incorrectly paid.  As a result, the federal government was forced to act.  

SOX imposed clawbacks on a limited basis.  Fiduciary duties, however, remained lax and Congress was forced to step in once again.  In Dodd-Frank, Congress broadened the category of officers subject to clawbacks, lengthened the time period clawbacks would apply, and expanded the types of restatements that would trigger the recoupment.  Again, it was federal intervention rather than fiduciary obligations that ensured companies would collect compensation that should not have been paid. 

After two interventions by the federal government, boards may be getting the message.  Some companies have gone beyond the legal minimum required by SOX and Dodd-Frank and imposed clawback options on broader swathes of employees for broader types of conduct. Thus, JP Morgan Case indicated in its proxy statement that:  

Recoupment policies should go beyond Sarbanes-Oxley and other minimum requirements and include recovery of compensation paid for earnings that were never ultimately realized, or if it’s determined that compensation was based on materially inaccurate performance metrics or a misrepresentation by an employee. We have in place recovery provisions for “cause” terminations, misconduct, detrimental behavior, and actions causing financial or reputational harm to the Firm or its business activities. For members of the Operating Committee and senior employees with primary responsibility for risk positions and risk management, the Firm may cancel or require repayment of shares if employees failed to properly identify, raise, or assess risks material to the Firm or its business activities.

According to the WSJ, the policy was put into play with respect to the recent losses incurred by JP Morgan.  The WSJ indicated that three managers with "direct responsibility" over the portfolio "at the center of the trading losses" had been subjected to the recoupment policy.  

The article stated that this was the "most prominent instance of a major U.S. bank seeking to recover pay from a high-ranking executive since the financial crisis."  In other words, the action is unusual.  Nonetheless, it may suggest a shift in traditional norms.  Perhaps boards of public entities will take these types of steps more often.  Of course, the real test will be whether boards of public companies will apply these broader standards to top executive officers rather than lower level employees. 

But if boards look at recoupment in a broader set of circumstances, where recoupment is in the best interests of shareholders, perhaps future federal intervention will be unnecessary. 

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