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2008 Casebook Supplement Available

Attention adopters of Klein, Ramseyer & Bainbridge Business Associations:

The 2008 Case Supplement for Klein, Ramseyer and Bainbridge’s Business Associations, Cases and Materials on Agency, Partnership and Corporations, Sixth Edition is available for Fall 2008 classes. 

Gordon Smith on AALS Boycott

Gordon Smith offers up a thoughtful and important comment on the AALS annual meeting dispute. Money quote:

I couldn’t help but notice that one of the groups calling for the boycott was the AALS Section on Legal Writing Research and Reasoning. They seem strangely light on reasoning over there.

Go read the whole thing to find out why.

Update: Related thoughts from Larry Ribstein.

Longest Law Review Article Title?

Rick Garnett cites what may be one of the longest law review titles ever:

The Servant Leader Where the Modern Lawyer Should Be and How the Modern Lawyer Can Get There: How the Professionalism Paradigm Fueled by a Lawyer’s Ethical Obligation to Inform Clients about Alternative Dispute Resolution Can Revive the Lawyer’s Sense of Self, Sense of Vocation, and Sense of Service

Forty-eight words. But what’s the record? Various Google searches proved unavailing. As did a Westlaw search of both longest /s article /s title and longest /s title.

Delaware Legislature Should Revisit 102(b)(7)

Gordon Smith comments on the controversial recent decision in Ryan v. Lyondell:

If you are following the Ryan case, which I blogged about below, you will be interested to read the ”Defendants’ Memorandum of Law in Support of Their Application for Certification of Interlocutory Appeal and to Stay Proceedings Pending Appeal.” (Whew!) The gist of the appeal is that Vice-Chancellor Noble’s decision would “eviscerate” section 102(b)(7) because it conflates the duty of care and the duty of good faith. The crux of the argument is that the defendants were “properly motivated, unconflicted and independent directors.” As Meatloaf reminded us, two out of three ain’t bad.

Vice-Chancellor Noble’s opinion acknowledges that the defendants were unconflicted and independent, so he ends up focusing on motivation: “the Board’s failure to engage in a more proactive sale process may constitute a breach of the good faith component of the duty of loyalty as taught in Stone v. Ritter.” ...

In the final analysis, however, the defendants have a bigger problem: nothing in Vice-Chancellor Noble’s opinion would “eviscerate” 102(b)(7), as claimed by the defendants, because the Lyondell directors can still get the benefit of the exculpation provision if they are found after trial to have breached only their duty of care. The problem with the decision is that they can’t get a lawsuit like this dismissed. But I don’t see how you can pin that on Vice-Chancellor Noble. He is just taking direction from the Delaware Supreme Court.

I think Gordon’s got an excellent point. Ever since the Delaware supreme court held in Emerald Partners v. Berlin, 726 A.2d 1215, 1223-24 (Del. 1999), that a § 102(b)(7) provision is an affirmative defense, thereby imposing on defendant directors the burden of proving that they are entitled to exculpation under the statute, a § 102(b)(7) provision rarely entitles directors to a dismissal during the motions stage of the case. The legislative history of section 102(b)(7) is scant and thus does not allow confidence on this issue.

Regardless of whose fault the present state of the law is, however, the present state is most unfortunate. Because 102(b)(7) cannot reliably be invoked to result in a dismissal at the motions stage, plaintiffs will usually get to discovery, which some might call a fishing expedition, and the settlement value of shareholder claims will go up.

The time has come for the Delaware legislature to revisit the issues raised by section 102(b)(7). First, there is the broad issue of freedom of contract. Delaware has been a leader in allowing contractual limitations on fiduciary duty liability in public uncorporations such as LLCs. The legislature needs to start thinking about the extent to which those legal developments should carry over into the corporation law. Section 102(b)(7) would be a great place to start. In my view, it should be permissible for the articles to create a liability limitation provision that would entitle directors to get the case dismissed at the motions stage absent particularized allegations about a very narrow range of misconduct.

Second, although certainty and predictability long have been hallmarks of Delaware law, section 102(b)(7) was a botch job from the outset that has been made worse through judicial interpretation. It now wholly lacks certainy. When revisiting the issue, the Delaware legislature should bear in mind the considerations identified by the comments to the equivalent Model Business Corporation Act provision:

As important as validating the shareholders’ right to determine for themselves the extent of the directors’ liability is stating the limits of this right in terms promoting a clear understanding of the conduct which is and which is not included in the limitation of liability. Terms such as “duty of loyalty,” “good faith,” “bad faith,” and “recklessness” seem no more precise than (and therefore as potentially expansive as) “gross negligence.” All of these formulations are characterizations of conduct rather than definitions of it. Characterizations by nature tend to be more elastic than definitions.

Directors should be afforded reasonable predictability; they are entitled to know whether a contemplated course of action will result in personal liability for money damages. Limits on their exculpation from liability are appropriate but should be expressed in terms that minimize the opportunity for after-the-fact second-guessing.

A coherent liability limitation provision would make clear whether it is intended to come into play pre- or post-trial, and identify with specificity the kinds of director misconduct for which monetary liability may still be recovered.

As to the latter issue, Delaware could do worse than tracking MBCA section 2.02(b)(4)’s operative language:

The articles of incorporation may set forth: (2) provisions not inconsistent with law regarding: (4) a provision eliminating or limiting the liability of a director to the corporation or its shareholders for money damages for any action taken, or any failure to take any action, as a director, except liability for (A) the amount of a financial benefit received by a director to which he is not entitled; (B) an intentional infliction of harm on the corporation or the shareholders; (C) a violation of section 8.33; or (D) an intentional violation of criminal law.

The 4 exceptions to the prohibition of money damages here are far more precisely delineated than the vague and repetitive language of 102(b)(7).

Did the AALS Cave?

Larry Ribstein reports that the AALS has resolved the dispute over whether to boycott one of the hotels chosen for the upcoming annual meeting, quoting an AALS announcement:

In the last few weeks there have been suggestions that the Association should boycott the Hyatt because its owner has contributed money to a ballot initiative designed to overturn the California Supreme Court’s May decision in favor of same-sex marriage. In addressing this issue, the Executive Committee has sought to ensure that the Annual Meeting serves the needs of all participants to the maximum extent possible given our contractual obligations to the hotels.

Our contracts with the hotels provide that each hotel reserve a block of guest rooms, and leave to the AALS the choice of where to locate the AALS Registration, Exhibit Hall, Section Programs, Presidential Programs, and House of Representatives meetings. We will honor our contracts with both hotels, and we have exercised our option to hold all AALS events at the Marriott to ensure the maximum participation by our members.

Larry identifies the $64 question:

I don’t know whether the Marriott was chosen for convention activities before the boycott, or whether it would have been chosen but for the boycott.

If the answers to those questions are running no’s, then the AALS caved. My money’s on they caved. If you compare the meeting facilties at the two hotels, the Hyatt has 10,000 more square feet of meeting space and 3 ballrooms capable of handling up to 3,000 people (depending on configuration), while the Marriott‘s largest room can only handle 2,500. The Hyatt also has more guest rooms than the Marriott.

Update: Paul Caron links to multiple posts from around the law school blawgosphere.

Dave Hoffman translates the AALS email as:

we agree with you that merely contributing to the SSM amendment is beyond the pale, but we (sadly) can’t breach our contracts.

And let’s give the always indispensable Tom Smith the last word:

I am happy, however, to see the AALS is taking a principled stand on this issue, though I am sorry I am not clever enough to discern exactly what principle is being stood up for.

Are you subsidized?

Tyler Cowen links a study claiming that University of New Mexico professors are “subsidized to the tune of $10,554 apiece,” defined as “difference between the cost of the professor minus the revenue he or she brings in from tuition.” I gather the actual is complicated. But let’s just do a little back of the envelope number crunching. In 2006-07, the last time I taught a full year’s worth of students, I taught a total of 253 students. At today’s tuition rate of $27,055.50 per student (making the generous to the law school assumption that all of my students paid in-state fees), and assuming the students averaged 30 credit hours per year, and since I taught 10 hours, that’s $2,281,680.50. Right? Or am I missing a variable or two?

Anyway, it’s interesting to ponder what tuition and faculty salary structures would look like if elite law schools were run for profit.

Best Athlete or Curricular Need?

In a post that’s mainly about which specialties are most in demand, Brian Leiter opines that:

Bear in mind that while the top 15-20 law schools, plus a few others (e.g., George Mason, San Diego etc.), generally do “best athlete” hiring (sometimes with an eye, of course, to curricular needs), the vast majority of law schools do curricular-driven hiring.

My experience at both UCLA and Illinois was to the contrary. While it’s true that UCLA sometimes has done a least one best athlete available hire over the last 10+ years (e.g., when they hired me ), for the most part at both schools hiring has been driven, say, 70% by curricular need rather than raw talent/credentials. Add in, say, 30% for the old boy and new boy/girl networks, and pure best athlete available hires have been few and far between.

Law Professors as Free Agents

Larry Ribstein links to the latest round of posts on the rather silly topic of whether we ought to worry about law professors behaving as free agents and, if so, what we ought to do about it. My answers: Don’t worry, be happy, but if you want to keep law professors from jumping ship offer a defined benefit retirement plan structured so that folks who stay forever do best. I know UCLA’s defined benefit plan is one of the things I like best about my current job.