spring 2018 archive (ba)
The Casebook for this class is Lawrence A Cunningham, Corporations and Other Business Organizations: Cases, Materials, Problems, Ninth Edition, 2016 (this is the most recent edition of the Casebook I used in 2016 and 2015 – in earlier years I used a different Casebook for this class). Links to relevant statutes will be provided via this blog. The class will meet on Tuesdays, Wednesdays and Thursdays from 2.00 pm to 3.20 pm in room F 209. The exam for this class will be a closed book exam.
Week 15: April 23-27 We will be focusing on review this week in class on Tuesday and Wednesday and in an additional review session on Friday April 27 at 11am-12.30 pm in Room F209. I have asked for the session to be recorded.
On Wednesday I propose to discuss the Spring 2015 exam. I provided a diagram of this exam here.
On Friday I would expect to discuss the Spring 2016 exam.
April 26: Here is a Diagram of the Spring 2016 exam
Here is the audio from the April 27 session.
April 27: Themes of the course:
There are themes that tend to recur in this class from semester to semester, such as form and substance, the advantages and disadvantages of specific or bright-line rules and less determinate rules, whether it is a good idea or not to allow for contracting out of fiduciary duties, whether litigation is a useful mechanism for controlling the behavior of corporate directors and officers.
We saw the idea of control in a number of different contexts, from control as a component of the agency relationship, to control as the basis for the imposition of fiduciary duties on controlling stockholders, to control as circumstances negating the idea of the sort of independent decision-making that justifies business judgment review (in one sense this is a specific example of the determinate/indeterminate rules issue).
This semester we discussed a number of issues relating to corporate social responsibility, broadly defined, including issues of corporate compliance, the #metoo movvement, corporate responses to the Parkland tragedy, Etsy (“our mission is to keep commerce human“). The cases we read don’t really encourage corporations to take on issues of social responsibility but they do allow space for corporations to take account of social issues in decision-making (e.g., the Business Judgment Rule).
April 19: Andrew Cuomo and the New York Department of financial Services warned financial institutions based in New York that they should “review any relationships they may have with the National Rifle Association and other similar organizations. Upon this review, the companies are encouraged to consider whether such ties harm their corporate reputations and jeopardize public safety.”
Have a good weekend!
Week 14: April 16-20 This week we will be studying Chapter 19 (pages 875-928) of the Casebook. For Tuesday please read pages 875-894, for Wednesday to page 919 and for Thursday to page 928.
The following week we will focus on review in the classes on Tuesday and Wednesday and there will be a review session on Friday April 27 at 11am-12.30 pm in Room F209. I have asked for the session to be recorded.
If there are particular materials you think it would be helpful to review on Tuesday April 24 please let me know. And I am happy to answer your questions by email or in person (email me to schedule an appointment time).
I mentioned some cases in class on April 12:
In Re Trulia where Chancellor Bouchard declined to approve a disclosure-only settlement of a shareholder class action. He suggested that any additional disclosures should be plainly material in a way that significantly alters the total mix of information available to stockholders.
In Appel v Berkman in February 2018 the Delaware Supreme Court held that when proxy materials failed to disclose that the Chairman of the Board had declined to vote for the merger because he believed it was not a good deal the shareholder vote was not effective to make the Business Judgment Rule the standard of review: “precisely because Delaware law gives important effect to an informed stockholder decision Delaware law also requires that the disclosures the board makes to stockholders contain the material facts and not describe events in a materially misleading way. Here, the founder and Chairman’s views regarding the wisdom of selling the company were ones that reasonable stockholders would have found material in deciding whether to vote for the merger or seek appraisal, and the failure to disclose them rendered the facts that were disclosed misleadingly incomplete.‘
I also mentioned that magicJack Vocaltec recently published an amendment to its proxy disclosures after the filing of lawsuits arguing that the pooriginal proxy statement violated section 14(a) and Rule 14a-9. The announcement stated: “The Company denies the allegations in all three complaints and denies that there are any material misrepresentations or omissions in the Definitive Proxy Statement. The Company is hereby disclosing certain additional information (the “Supplemental Disclosures”) in response to the three putative class action complaints and solely for the purpose of mooting the allegations contained therein. The Company denies the allegations of the three class action complaints, and denies any violations of law. The Company believes that the Definitive Proxy Statement disclosed all material information required to be disclosed therein, and denies that the Supplemental Disclosures are material or are otherwise required to be disclosed. The Company is disclosing the Supplemental Disclosures solely to eliminate the burden and expense of further litigation. Nothing in the Supplemental Disclosures shall be deemed an admission of the legal necessity or materiality under applicable law of any of the Supplemental Disclosures.”
Week 13: April 9-13 On Tuesday we will begin with Schoon v Smith and the ADR material (pages 771-784) and please also read Chapter 15 and Tom Baker & Sean J. Griffith, Predicting Corporate Governance Risk: Evidence from the Directors’ & Officers’ Liability Insurance Market (2007). For Wednesday please read pages 810-818 and 820-835. For Thursday please read this Complaint in SEC v Sharma & Farkas, and the SEC Press Release, SEC Halts Fraudulent Scheme Involving Unregistered ICO (Apr. 2, 2018).
The following week we will study pages 875-928 of the Casebook.
In the final week of class we will concentrate on review. On Tuesday I propose to deal with questions you raise with me (some advance notice might be useful) and perhaps some short questions I can provide to focus our thinking. On Wednesday I would propose to discuss the Spring 2015 exam.
On Friday April 27 there will be a review session, 11am-12.30 pm in Room F209. I have asked for the session to be recorded.
I am happy to answer your questions by email or in person (email me to schedule an appointment time).
Week 12: April 2-6 The plan for the rest of the semester is to omit Chapter 13, and then cover Chapter 14 on derivative litigation, Chapter 15 on indemnification and insurance and some of the securities regulation material (pages 810-818, 820-835, 875-928).
So, please read pages 739-774 for next Tuesday, and also In re Oracle Corporation Derivative Litigation (Del. Ch. March 19, 2018) which we will consider after Aronson v Lewis (this is an assigned reading). For Wednesday please read pages 774-784 and 785-808. For Thursday please read Tom Baker & Sean J. Griffith, Predicting Corporate Governance Risk: Evidence from the Directors’ & Officers’ Liability Insurance Market (2007) (also an assigned reading)(we will probably also have some left over material from the Casebook to cover on Thursday).
In class on Thursday March 29 I mentioned Vice Chancellor Slights’ decision in In re Tesla Motors, Inc. Stockholder Litigation (I am not requiring you to read the full decision, but it does make interesting reading). The Vice Chancellor found that it was reasonably conceivable that Elon Musk, as a controlling stockholder, controlled the Tesla Board when it approved the acquisition of Solarcity, a corporation set up by Muck and 2 cousins which had been experiencing financial difficulties. The idea of Musk being a controlling stockholder was based partly on his 22.1% shareholding at the time and also on other factors, including Musk’s significance to Tesla (the VC noted that Musk might be the minority blockholder who could rally other stockholders to bridge the gap between the 22.1% and a majority holding and that the Plaintiffs had alleged that investments in Tesla represented investments in Musk and his vision for Tesla’s future (this was not enough on its own)), his willingness in the past to facilitate the ouster of senior management which might have influenced the Tesla directors, and the fact that practically no steps were taken to separate Musk from the Board’s consideration of the acquisition (for example there was no independent committee).
Note (April 4, 2018): Yesterday in class we discussed the direct/derivative suit distinction (Tooley test: Who suffered the harm? Who gets the benefit of any remedy?)
Here are some examples of derivative suits: Caremark (see CB p. 481 noting this is a derivative suit), Kamin v Amex (dividend policy rather than a shareholder’s claim to be entitled to dividends), Shlensky v Wrigley, Walt Disney, Stone V Ritter.
The corporate opportunities cases would be derivative claims if they had been claims brought by a shareholder, but the 2 eaxmples in the book, Broz and Northeast Harbor Golf Club, were both brought after changes in control of the corporate decision-making process (Pricellular acquisition, change in board composition).
Here are some examples of direct claims by shareholders (applying categories of claim identified on page 742 of the Casebook) : Donahue v Rodd Electrotype (oppression); Smith v Van Gorkom (transactions in corporate control unfairly affecting the plaintiff shareholder); Klang V Smiths Food and Drugs (described as a purported class action on p. 459, a claim to dividends); Lehrman v Cohen , Manson v Curtis (shareholder voting); Seinfeld v Verizon (books and records).
More complicated: situations with a mix of direct and derivative claims (e.g. Benihana (duty of loyalty and dilution)). Lewis v SL&E presents as a derivative suit and the claims are of breaches of the duty of loyalty, but the facts also suggest an idea of oppression or of manipulation of the price at which the shareholders would be bought out, and these would be direct claims. As I mentioned in class, some issues (think, for example about Caremark-type situations) can be analyzed either as breaches of directors’ duties (derivative) or as securities claims, focusing on failures with respect to disclosure (direct).
Cases involving self-dealing by controlling stockholders are complicated: Sinclair Oil is brought as a derivative suit, but the idea in these cases is that harm is caused to the minority shareholder so in Perlman v Feldmann the remedy provided is to the plaintiff stockholders.
The cases involving stock options could be characterized as direct (non-compliance with scheme approved by shareholders such that shareholders can enforce the scheme) or derivative (breach of directors’ duties to the corporation).
Because of the remedy part of the test some cases could be brought either as a direct or as a derivative claim. For example a case involving a challenge to an executive compensation agreement could claim as a remedy a declaration that the agreement was invalid because the Board abdicated its responsibility to shareholders (Grimes v Donald, referred to on p. 746). If the plaintiff sought damages for breach of the directors’ duties the case would be brought as a derivative suit.
Week 11: March 26-30 Here is Citigroup’s announcement of a new firearms policy:
Under this new policy, we will require new retail sector clients or partners to adhere to these best practices: (1) they don’t sell firearms to someone who hasn’t passed a background check, (2) they restrict the sale of firearms for individuals under 21 years of age, and (3) they don’t sell bump stocks or high-capacity magazines. This policy will apply across the firm, including to small business, commercial and institutional clients, as well as credit card partners, whether co-brand or private label. It doesn’t impact the ability of consumers to use their Citi cards at merchants of their choice.
For Tuesday please prepare to page 606 (I originally assigned this material for last Thursday). For Wednesday please read to page 647 (Chapter 12 on controlling shareholders). This may be enough material for the week but I am going to assign pages 739-756 for Thursday.
We will not be studying the material in Chapter 13 on changes in control. After the material on derivative litigation I would like to cover Chapter 15 on indemnification and insurance and then cover some of the securities regulation material.
With respect to issues of compensation and fiduciary duties I think that what Vice Chancellor Slights wrote in a decision last week in The Ravenswood Investment Company, L.P. v. The Estate of Bassett S. Winmill may be useful. In particular I like the line “Equity is not a license to make stuff up.” Here the line refers to the problem of what remedy to provide, but we could think about this more generally. Anyway, here is an excerpt from the opinion (I am sorry it is long: it’s mostly not new, but I think is useful because it sets out what we know from other cases in a way that is clear):
One of the pillars of our law with regard to public companies is that they must be run for the benefit of their stockholders. That goal, at times, can be difficult to square with the managers’ desire to compensate the company’s executives generously for their hard work and commitment to the business. To be sure, it is right and proper to incentivize executives to stay with a company and to work hard for its success. But how much incentive compensation is proper? In many companies, this question can be decided by board members who have no personal interest in the matter and aim to fulfill their fiduciary duties to make informed decisions in the company’s best interest. In these instances, the independent directors’ disinterested decision generally is entitled to deference under the business judgment rule. But, a s is often the case in small, family – run businesses, those making the compensation decisions and those receiving the compensation are one and the same. That dynamic can be problematic. It is made even more so when the self – interested decisions are made without proper documentation (in the form of board minutes or otherwise) and without objective evidence supporting them. Unfortunately, that is how the events giving rise to this litigation unfolded. The Company’s board decided it needed to incentivize its officers and pay compensation closer to that of their investment management industry peers. Accordingly, the board decided to grant stock options to certain officers. In doing so, however, the board members granted stock options to themselves, as each board member also served in an executive capacity and each was granted stock options in that capacity. When deciding the terms of the option awards, the board chose not to hire a compensation consultant, used a comparable companies analysis that was neither well – documented nor well – substantiated, agreed that a portion of the consideration for the options could be paid over time as evidenced by promissory notes, and then forgave those notes long before they were paid in full. The contemporaneous evidence of the board’s “process” with respect to the stock option grants is, in a word, thin. Consequently, the Court was left to view the process through a retrospective lens ground in the after-the-fact testimony of the conflicted fiduciaries who made the decisions. As conflicted fiduciaries, Defendants were obliged to prove that the stock options they granted themselves were entirely fair; that is, their burden was to prove that the grant was the product of a fair process that yielded a fair result. They failed to carry that burden. Consequently, I find that Defendants breached their fiduciary duty of loyalty with respect to the option grants. But there is another important lesson to be learned from this case. While this court endeavors always to remedy breaches of fiduciary duty, especially breaches of the duty of loyalty, and has broad discretion in fashioning such remedies, it cannot create what does not exist in the evidentiary record, and cannot reach beyond that record when it finds the evidence lacking. Equity is not a license to make stuff up.
After a decade of litigation, Plaintiff has failed to develop any evidence supporting cancellation, rescission, rescissory damages or some other form of damages as possible remedies for the proven breaches of fiduciary duty. The overwhelming evidence reveals that there is no basis for cancellation. Rescission, likewise, does not work because the Company lacks sufficient funds to repay Defendants what they have already paid for the options — a necessary step if rescission is to perform its function of returning all parties to the status quo before the wrongful conduct occurred. For this same reason, rescissory damages are not viable either. And Plaintiff has failed to present any evidence upon which the Court could fashion a damages award in some other form. Specific performance of the promissory notes that were forgiven might be an option, but Plaintiff has not sought specific performance in any of its several pleadings nor has it even attempted to demonstrate that the remedy is appropriate. Indeed, if anything, Plaintiff put Defendants on notice that it was seeking the opposite of specific performance, namely rescission or cancellation. Consequently, all that can be awarded is a declaration that Defendants breached their fiduciary duties and an assessment of nominal damages against each Defendant in the spirit of equity.
Hypos:
Hypo (March 2018 (1)) (I have added the memo on this question to the materials page)
Hypo (March 2018 (2))
Week 10: March 19-23 On Tuesday we will begin with Shlensky v Wrigley. Please read to page 532 for Tuesday, to page 567 for Wednesday and to page 606 for Thursday.
Hypos:
Hypo (March 2018 (1))
Hypo (March 2018 (2))
Week 9: March 12-16 Spring Break.
Here is the Hypo (March 2018 (1)) I posted last week.
11 March 2018: Here’s a new Hypo (March 2018 (2)). It is based on some of the material we have been studying recently.
Please note that the hypo on the final exam could raise issues from any part of the course, or from some different parts of the course (e.g. a mix of partnership and LLC or corporate law issues).
Anyway, if you would like to write up an answer to this question I would be happy to take a look at your answer.
Have a good break.
Week 8: March 5-9 On Tuesday next week we will begin with Sea-land v Pepper Source and Best Foods and please also read Chapter 9(to page 468). In class we will focus on the cases in Chapter 9. For Wednesday please read to page 491, and for Thursday to page 510.
Here is a Hypo (March 2018). I wrote this is 2015 to address some of the issues we have dealt with so far in the class, and based on materials in the earlier edition of the Casebook we are using. It gives a better idea of a question I might ask based on the material we have covered than the final exams you can find on this blog do. On the final exam rather than a “discuss” prompt, the facts will be followed by 4 or 5 questions raised by the facts.
Week 7: February 26-March 2 For Tuesday’s class please read to page 410. For Wednesday please read to page 443, and for Thursday please read to page 468.
After this material we will be studying Chapters 10-12. I plan to cover Chapter 14 (omitting Chapter 13) and then spend some time on securities regulation.
I mentioned BlackRock’s Proxy voting guidelines in class. I am adding this document to the materials page. Please do read it.
Week 6: February 19-23 Fore Tuesday please read pages 262-299; for Wednesday to page 340 and for Thursday to page 380.
Please also read this documentation relating to Roku Inc., a Delaware corporation that recently carried out an IPO:
Certificate of Incorporation
By-laws
Legal Opinion (compare with the one on pages 250-251 of the casebook)
These documents are examples of the types of documents referred to in the casebook. The certificate of incorporation illustrates a complicated capital structure with preferred and common stock, with rights for the preferred stockholders which include rights to elect directors. Note also the choice of forum provision, and the authorization of the Board to adopt amend and repeal bylaws. There are also provisions relating to fiduciary duties (elimination of liability for money damages to the fullest extent, corporate opportunities provision).
Florida Statutes §607.06401(3) states: No distribution may be made if, after giving it effect: (a) The corporation would not be able to pay its debts as they become due in the usual course of business; or (b) The corporation’s total assets would be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
Week 5: February 12-16For Tuesday’s class please read pages 181-226. For Wednesday please read the Appendix on financial statements at pp 955-973 and also read pages 227-262. For Thursday please read to the top of page 292.
Here are some statutory links:
Florida Business Corporation Act
Delaware General Corporation Law
On the Steve Wynn story: Julie Creswell, Without Steve Wynn, Casino Empire Risks Losing More Than a Name, New York Times Business section, February 8, 2018.
I said I would provide some information about the digital organizations issues I talked about today.
Here are the definitions I referred to in the Vermont LLC Act:
“Operating agreement” means any form of description of membership rights and obligations … stored or depicted in any tangible or electronic medium, which is agreed to by the members, including amendments to the agreement.
“Meeting” means any structured communications conducted by participants in person or through the use of electronic or telecommunications medium permitting simultaneous or sequentially structured communications for the purpose of reaching a collective agreement.
Shawn Bayern, Of Bitcoins, Independently Wealthy Software, and the Zero-Member LLC, 108 NWU L. Rev 1485 (2014)
Lynn M LoPucki, Algorithmic Entities (April 17, 2017). 95 Washington University Law Review (Forthcoming).; UCLA School of Law, Law-Econ Research Paper No. 17-09. Available at SSRN: https://ssrn.com/abstract=2954173
Week 4: February 5-9
I am sorry for the long essay which follows.
On Tuesday we will look at McConnell v Hunt, VGS v Castiel, and Anderson v Wilder (i.e. to page 161). So we will carry on thinking about fiduciary duties, but in the context of LLCs rather than agency or partnerships. I suggested on Thursday that we can think about a spectrum of possible approaches to fiduciary duties in firms:
(1) an approach where the participants only have the benefit of duties specified by contract, with no default duties arising under the statute (Myron Steele, the judge who decided VGS v Castiel,argued in an article in 2009, in the Amercian Business Law Journal (Vol. 46:2, pp 221-242) that “default fiduciary duties violate the strong policy favoring freedom of contract enunciated by Delaware’s legislature”, but the legislature subsequently enacted §18-1104 “In any case not provided for in this chapter, the rules of law and equity, including the rules of law and equity relating to fiduciary duties and the law merchant, shall govern.”. Thus the Delaware LLC is not an example of this proposition, although at one point it seemed that it might be)
(2) statute specifies default duties but it is very easy for the participants to contract around the duties (including eliminating them) (e.g. Delaware LLC statute, §18-1101(e):”A limited liability company agreement may provide for the limitation or elimination of any and all liabilities for breach of contract and breach of duties (including fiduciary duties) of a member, manager or other person to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement; provided, that a limited liability company agreement may not limit or eliminate liability for any act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing.”
(3) statute specifies default fiduciary duties but the ability to contract around them is constrained (e.g. RUPA §103)
(4) statute specifies mandatory duties that cannot be contracted out of (I think that Cardozo in Meinhard v Salmon might be understood to suggest this sort of approach).
Here are some specific Florida LLC statute linkss:
Florida Revised Limited Liability Company Act
Fl. Statutes §605.0105 Operating agreement; scope, function, and limitations
Fl. Statutes §605.0106 Operating agreement; effect on limited liability company and person becoming member; preformation agreement; other matters involving operating agreement
Florida Statutes §605.04091 Standards of conduct for members and managers
Florida Statutes §605.04092 Conflict of interest transactions
Florida Statutes §605.04093 Limitation of liability of managers and members
In particular, note that Fl. Stats §605.0105 provides that “(3) An operating agreement may not do any of the following:… (e) Eliminate the duty of loyalty or the duty of care under s. 605.04091, except as otherwise provided in subsection (4)(f) Eliminate the obligation of good faith and fair dealing under s. 605.04091, but the operating agreement may prescribe the standards by which the performance of the obligation is to be measured if the standards are not manifestly unreasonable.(g) Relieve or exonerate a person from liability for conduct involving bad faith, willful or intentional misconduct, or a knowing violation of law….
(4) Subject to paragraph (3)(g), without limiting other terms that may be included in an operating agreement, the following rules apply:
(a) The operating agreement may:
1. Specify the method by which a specific act or transaction that would otherwise violate the duty of loyalty may be authorized or ratified by one or more disinterested and independent persons after full disclosure of all material facts; or
2. Alter the prohibition stated in s. 605.0405(1)(b) so that the prohibition requires solely that the company’s total assets not be less than the sum of its total liabilities.
(b) To the extent the operating agreement of a member-managed limited liability company expressly relieves a member of responsibility that the member would otherwise have under this chapter and imposes the responsibility on one or more other members, the operating agreement may, to the benefit of the member that the operating agreement relieves of the responsibility, also eliminate or limit a duty or obligation that would have pertained to the responsibility.
(c) If not manifestly unreasonable, the operating agreement may:
1. Alter or eliminate the aspects of the duty of loyalty under s. 605.04091(2);
2. Identify specific types or categories of activities that do not violate the duty of loyalty;
3. Alter the duty of care, but may not authorize willful or intentional misconduct or a knowing violation of law; and
4. Alter or eliminate any other fiduciary duty.
(5) The court shall decide as a matter of law whether a term of an operating agreement is manifestly unreasonable under paragraph (3)(f) or paragraph (4)(c). The court:
(a) Shall make its determination as of the time the challenged term became part of the operating agreement and shall consider only circumstances existing at that time; and
(b) May invalidate the term only if, in light of the purposes, activities, and affairs of the limited liability company, it is readily apparent that:
1. The objective of the term is unreasonable; or
2. The term is an unreasonable means to achieve the provision’s objective.
(6) An operating agreement may provide for specific penalties or specified consequences, including those described in s. 605.0403(5), if a member or transferee fails to comply with the terms and conditions of the operating agreement or if other events specified in the operating agreement occur.”
The issue that can arise under RUPA whether a limitation of fiduciary duty is manifestly unreasonable is specifically addressed here.
Please also read Brent J Horton, Modifying Fiduciary Duties in Delaware: Observing Ten Years of Decisional Law, 40 Del. J. Corp. L. 921 (2016) at http://www.djcl.org/wp-content/uploads/2016/11/DJCL-403-Horton-921-PDF.pdf.
All of this material will take us into Wednesday’s class. But I am also going to ask you to read pages 161-180 for Wednesday’s class.
Notice that the Florida LLC rules are different from the RUPA rules with respect to dissociation. The statute provides for dissociation of a member to occur, but there is not a statutory buy-out. Under §605.0603 “a transferable interest owned by the person in the person’s capacity immediately before dissociation as a member is owned by the person solely as a transferee.” The ex-member loses management rights but retains financial rights. But unless there is a provision in the operating agreement this does not include a right to be bought out. And although the statute provides for dissolution, including court orders for dissolution which apply in a range of circumstances including deadlock, these provisions can be invoked by members and managers but not by ex-members. If those running the LLC decide not to make financial payments to the ex-member there may not be anything the ex-member can do about the situation – there’s a risk of being financially locked in but frozen out of decision-making and information. In the corporate context this sort of situation would be addressed by remedies for oppression. In the partnership context there would be a buyout right under RUPA. In the LLC typically this is an issue that is only resolved if there is a provision in the operating agreement.
I am not going to assign further reading for Thursday’s class as I think we won’t get further than the end of this chapter next week.
With respect to social enterprise, it seems that sometimes the mixing of profit-making and public benefit can be complicated. Etsy (“our mission is to keep commerce human“) became a publicly traded B Corp, but investors were concerned that it wasn’t paying enough attention to shareholder value. Etsy’s response was to pay more attention to shareholder value, abandoning its B Corp status. In November 2017 Etsy announced a $100 million stock repurchase program.
Week 3: January 29- February 2 On Tuesday we will begin with the LLP cases: Apcar Investment Partners and Ederer v Gursky. Both cases raise issues about the interpretation of LLP statutes. First there is a question about the implications of non-compliance with formal requirements in a statute. Please note that with respect to Florida LLPs the statutes provide that the failure to file an annual report for an LLP, and to pay the fee can after a specified time result in revocation of the limited liability status, although the partnership may apply for reinstatement within 2 years after revocation. The reinstatement “relates back to and takes effect as of the effective date of the revocation, and the partnership’s status as a limited liability partnership continues as if the revocation had never occurred.” With respect to LLPs please note that although the casebook refers to an absence of restrictions on distributions to LLP partners, if the LLP becomes insolvent the partners in an LLP may be subject to clawvback claims on the basis that distributions they received involved monies that should have been available to satisfy creditor claims and were not legally available for distribution. This is not the same as being liable for debts of the firm, but it may not feel very different to the partners.
For Tuesday please also read to page 105, and please read these Selected Florida RUPA provisions: dissociation, buyout, dissolution .
On Wednesday I hope to finish with partnerships (to page 115, and going over some of the issues we did not discuss before, such as what issues a partnership agreement might sensible address, including what scope RUPA s 103 gives for contracting). And please also read pages 115-130.
For Thursday please read to page 153. Here is a link to the Florida Revised Limited Liability Company Act, the Florida LLC Act.
I am also providing a link to the Delaware LLC Act.
Week 2: January 22-26 On Tuesday we will begin with African Bio-Botanica v Leiner and will then finish the agency material. Please also read Holmes v Lerner for Tuesday (to page 65) although it is possible we will not get that far. Holmes v Lerner is the first partnership case we will study. I put a link to the Florida Partnership statute on the materials page. I would like to you read the statute to begin to get an idea of what a business organization statute can look like. The Florida partnership statute is based on RUPA (rather than UPA(1914)). As you can see here most states have partnership statutes based on RUPA. But if you cannot read all of the statute before Tuesday’s class please do read the Florida version of RUPA §202 (Fl. Statutes §620.8202) when preparing Holmes v Lerner.
For Wednesday please read to page 84, and for Thursday to page 98. Be sure to read RUPA §306 (Fl. Statutes §620.8306) with respect to liability of partners in general and limited liability partnerships, RUPA §401 (Fl. Statutes §620.8401) with respect to rights and duties of partners, RUPA §404 (Fl. Statutes §620.8404) on the duties owed by partners and RUPA §103 (Fl. Statutes §620.8103) on non-waivable provisions of the Act.
I moved the material previously on this page to the archive page.
First class assignment for Tuesday January 16: Please read to page 35 of the Casebook.
For the rest of the first week of class please read to page 75 of the Casebook.
You can access the Restatement 3rd of Agency via the Hein Online link on the Law School Library web page.
As of January 6, 2018 copies of the hardcover edition of the casebook are available at Carolina Academic Press for $202 (with an internet discount and there are looseleaf and electronic editions). I am not assigning a separate statutes book to save expense and will provide links to the statutes on the class materials page. Sometimes I will ask you to read specific statutes that I will link to from the blog. Please do actually read the statutes.
If we cover all the material to page 75 on Thursday January 18 I would expect to assign pages 75-178 for the second week of class.
Semester plan: when I used an earlier edition of this Casebook I basically followed the organization of the Casebook up to Chapter 12 and then covered material in later chapters selectively.