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spring 2018 archive (ba)

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
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.