Source: https://www.professorbainbridge.com/professorbainbridgecom/2017/03/index.html
Timestamp: 2019-04-26 10:30:33+00:00

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What do "best efforts" and variants mean? A proposed set of definitions.
Friend of the blog Francis Pileggi's post from last year on The Williams Companies, Inc. v. Energy Transfer Equity, L.P., prompted a mild rant on my part about lawyers using "best efforts" and its variants without understanding its meaning. Francis now reports on a Supreme Court decision in that case, which produced a 4-1 split, with CJ Leo Strine dissenting. Oddly, neither opinion cites my blog. Most curious.
The legal meaning of the phrase “commercially reasonable efforts” does not enjoy clarity in the law. Lawyers and jurists alike should be excused if they view the law on this topic as not entirely self-evident. The split decision of the Delaware Supreme Court in the case styled The Williams Companies, Inc. v. Energy Transfer Equity, L.P., Del. Supr., No. 330, 2016 (Mar. 23, 2017), proves the point.
Very well put. I especially liked his understated observation that these clauses do "not enjoy clarity in the law"! That's both very deft and very true. It's one of those turns of phrase one wishes one had thought of.
Hexion, with which we agree, recognized that covenants like the ones involved here impose obligations to take all reasonable steps to solve problems and consummate the transaction.
[The parties] shall use [their] reasonable best efforts to, and shall cause their respective Affiliates to use reasonable best efforts to, take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper, or advisable to consummate and make effect, in the most expeditious manner practicable, the [merger] . . .
This language not only prohibited the parties from preventing the merger, but obligated the parties to take all reasonable actions to complete the merger.
So a contract requiring reasonable best efforts obligates the parties to take "all reasonable actions." That's not helpful. Isn't a basic rule of lexicography that one is supposed to avoid circular definitions; i.e., a definition of a word being defined as part of the definition? If the court had adopted such a rule, it might have enjoyed the resulting clarity.
LOU R. KLING & EILEEN T. NUGENT, NEGOTIATED ACQUISITIONS OF COMPANIES, SUBSIDIARIES AND DIVISIONS §13.06 (2001) (observing that “best efforts” standards can potentially lead to the party making the promise having to take extreme measures to fulfill it and that “commercially reasonable efforts” is a strong, but slightly more limited, alternative).
In re IBP, Inc. S’holders Litig., 789 A.2d 14 (Del. Ch. 2001).
See Triple-A Baseball Club Assocs., 832 F.2d at 225 (“We have been unable to find any case in which a court found...that a party acted in good faith but did not use its best efforts.”); Bloor v. Falstaff Brewing Corp., 601 F.2d 609, 614 (2d Cir. 1979) (best efforts imposes an obligation to act with good faith in light of one’s own capabilities); W. Geophysical Co. of Am. v. Bolt Assocs., Inc., 584 F.2d 1164, 1171 (2d Cir. 1978) (stating that an obligation to use best efforts can be met by “active exploitation in good faith”).
So let's try again. I propose that we draw a basic distinction between "best efforts" and "reasonable efforts," with the former being regarded as more onerous. To be sure, as we've seen, many "courts use the term ‘reasonable efforts' interchangeably with ‘best efforts.'" Soroof Trading Dev. Co. v. GE Fuel Cell Sys., LLC, 842 F. Supp. 2d 502, 511 (S.D.N.Y. 2012). But as a matter of plain English "best" does imply something more onerous than "reasonable."
Everything else (with one exception) should be regarded as mere surplusage. To be sure, there is a canon of construction creating a presumption that every word should be given meaning and not dismissed as surplusage. See Willner v. Manpower Inc., 35 F. Supp. 3d 1116, 1131 (N.D. Cal. 2014) (referencing "the canon of statutory construction requiring that 'a construction making some words surplusage is to be avoided'”). But applying that canon in this context is inconsistent with the goal of enjoying clarity. In addition, refusing to give the multiple variants independent meaning will encourage lawyers who want to use constructions such as "commercially reasonable good faith best efforts" or some such nonsense to define the term in the agreement.
"Best efforts" imposes an affirmative obligation to maximize "the contractual benefits of the person to whom the duty is owed, even if the benefits to the one owing the duty have been depleted.” See In re Heard, 6 Bankr. 876, 884 (Bankr.W.D.Ky.1980). Put another way, best efforts should require “that the party put its muscles to work to perform with full energy and fairness the relevant express promises and reasonable implications therefrom.” In re Cambridge Biotech Corp., 186 F.3d 1356, 1375 (Fed.Cir.1999).
Unless the term is given specific definition in the pertinent agreement, adding additional verbiage such as "reasonable best efforts," "commercially reasonable best efforts," and the like does not change the meaning of best efforts. Such qualifiers are mere surplusage. But see # 4 below re "commercially ...."
"Reasonable efforts" imposes a duty to act in good faith toward the other party. It does not require the party owing the duty to sacrifice the benefits it gains from the contract.
"Commercially reasonable efforts" should only be used where there is an accepted trade usage defining the scope of the effort obligation. See Jeffrey M. Dressler, Good Faith Rejection of Goods in A Falling Market, 42 Conn. L. Rev. 611, 627 (2009) (observing that “'commercially reasonable standards of fair dealing in trade” is meant to be an objective measure of conformity based on trade usage, course of dealing, and course of performance'").
If the party claiming a breach of the efforts clause is unable to prove the existence of such a trade usage, then the word "commercially" should be regarded as mere surplusage and the duty again should be one of acting in good faith.
Unless the term is given specific definition in the pertinent agreement, adding or substituting other verbiage such as "good-faith reasonable efforts" or "good faith efforts" or "reasonably diligent efforts" or "diligent" efforts and the like shall be regarded as mere surplusage. The obligation remains merely one of acting in good faith.
A half century ago, corporate legal theory pursued an institutional vision in which corporations and the law that creates them protect people from the ravages of volatile free markets. That vision was challenged on the ground during the 1980s, when corporate legal institutions and market forces came to blows over questions concerning hostile takeovers. By 1990, it seemed like the institutions had won. But a different picture has emerged as the years have gone by. It is now clear that the market side really won the battle of the 1980s, succeeding in entering a wedge between corporate law and social welfare. The distance between the welfarist enterprise of a half century ago and the concerns that motivate today’s corporate legal theory has been widening ever since. This Essay examines the widening gulf. It compares the vision of the corporation and of the role it plays in society that prevailed during the immediate post-war era, before the fulcrum years of the 1980s, with the very different vision we have today, and traces the path we took from there to here. It will close with a brief prediction regarding corporate law’s future.
There's a longer summary of the piece on the CLS blog. Or, of course, you could just go read the whole thing.
The community of corporate law scholars in the United States is fragmented. One group, heavily influenced by economic analysis of corporations, is exploring the merits of increasing shareholder power vis-a-vis directors. Another group, animated by concern for social justice, is challenging the traditional, shareholder-centric view of corporate law, arguing instead for a model of stakeholder governance. The current disagreement within corporate law is as fundamental as in any area of law, and the debate is more heated than at any time since the New Deal.
This paper is part of a debate on the audacious question, Can Corporate Law Save the World? In the first part of the debate, Professor Kent Greenfield builds on his book, THE FAILURE OF CORPORATE LAW: FUNDAMENTAL FLAWS AND PROGRESSIVE POSSIBILITIES, offering a provocative critique of the status quo and arguing that corporate law matters to issues like the environment, human rights, and the labor question.
In response, Professor Smith contends that corporate law does not matter in the way Professor Greenfield claims. Corporate law is the set of rules that defines the decision making structure of corporations, and reformers like Professor Greenfield have only two options for changing corporate decision making: changing the decision maker or changing the decision rule. More specifically, he focuses on board composition and shareholder primacy. Professor Smith argues that changes in corporate law cannot eradicate poverty or materially change existing distributions of wealth, except by impairing the creation of wealth. Changes in corporate law will not clean the environment. And changes in corporate law will not solve the labor question. Indeed, the only changes in corporate law that will have a substantial effect on such issues are changes that make the world worse, not better.
Even though there is much to admire in Bratton's essay, I remain convinced that Gordon's essay was the (not a, but the) drop the mic moment in this debate.
Having said that, I'd love to see a debate between Bratton and Smith in which they directly joined issue. it'd be a heavyweight rumble well worth the price of admission.
Are we watching the demise of the American public corporation?
The firms that remain public are survivors. Few firms want to join their club. A small number of firms account for most of the market capitalization, most of the net income, most of the cash, and most of the payouts of public firms. At the industry level, revenues are more concentrated, so there are fewer public firms competing for customers. A large fraction of firms are unprofitable every year, especially at the end of our sample period. The increase in unprofitable firms indicates that many public firms are fragile and helps explain the high level of delists. Accounting standards do not reflect the importance of intangible assets for these firms. Such a bias may make it harder for executives to invest for the long run.
As a whole, public firms appear to lack ambition, proper incentives, or opportunities. They are returning capital to investors and hoarding cash rather than raising funds to invest more.
Addressing the high costs of being public imposed by litigation and regulation is not a complete solution, but as my paper argued, it is an essential place to start.
On March 24, 2017, WLF filed formal comments with the U.S. Securities and Exchange Commission in response to acting Chairman Michael S. Piwowar’s request for input on the implementation of the Pay-Ratio Disclosure Rule. SEC adopted the rule in August 2015, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In the interest of ensuring that SEC focuses on the integrity of financial markets, WLF maintained that SEC should avoid enforcing regulations that have no relation to the agency’s purpose. WLF also cautioned that the agency must carefully consider First Amendment protections provided to commercial speakers. WLF’s comments pointed out that the U.S. Supreme Court has long recognized the right of individuals and companies to choose to speak—or not to speak. WLF contended that SEC’s effort to compel commercial speakers to voice messages with which they disagree blatantly violates the First Amendment.
Are religious hospitals entitled to free exercise protections?
The legal campaign against faith-based hospitals began in 2013. In 2016 three of the cases were appealed to the Supreme Court, while almost a hundred more are waiting in lower courts across the country. On August 15, 2016, Becket filed a friend-of-the-court brief at the Supreme Court supporting the hospitals and their right to freely exercise their religious-based mission to provide compassionate and excellent healthcare according to their faith.
These cases aren't just about pension plans. It could have serious implications for issues like hiring, which is precisely why a set of virulently anti-Catholic lawyers around the country have been pursuing them.
But the fact remains that millions of people voted for someone other than Hillary because she was a lousy candidate with bad ideas--not because of anything Russia did. And what the left is doing here is yet another example of how they seek to demonize and delegitimize those people. They're trying to add Russian stooges to the list of everything else that makes those millions the "deplorables."
So let the investigation run its course and let the chips fall where they may, but don't ever make the mistake of thinking that Hillary got robbed. Or that the very serious policy errors of modern progressivism have vanished.
Trump is a seriously flawed commander but the fight for liberty, limited government, and rule by the people rather than the elites in the Acela corridor remains one worth waging.
Review of Stephen Presser's "Law Professors"
I'm part way through it and am loving it. Highly recommended.
I'm seeing a lot of empirical studies these days that purport to find positive correlations between corporate performance (variously measured) and progressive approved corporate "social responsibility" measures (diversity, sustainability, etc....).
It's well known, of course, that it's hard to publish studies that find no result.
But I wonder to whether there isn't a political bias here. Given the substantial tilt to the left in academia, one suspects that a lot of these number crunchers go into the problem with a preconceived notion of the "right" result and mine their data until they find one. One also suspects that editors of journals, sharing those same biases, are more likely to publish results that confirm their own policy preferences.
A recent CLS blog post by Martijn Cremers, Saura Masconale and Simone M. Sepe illustrates a recurring problem with empirical legal scholarship: First, it can only provide answers if the question involves something you can count. Second, how you count that something maters a lot.
In the past 20 years, many corporate law scholars have come to the view that governance arrangements protecting incumbents from removal are what really matter for firm value, arguing that such arrangements help entrench managers and harm shareholders. A major factor supporting this view has been the rise of empirical studies using corporate governance indices to measure a firm’s governance quality. Providing seemingly objective evidence that protecting incumbents from removal reduces firm value, these studies have encouraged the idea that good corporate governance is equivalent to stronger shareholder rights.
In our recent article, we challenge this idea, presenting new empirical evidence that calls into question prior studies that rely on corporate governance indices and developing a novel theoretical account of what really matters in corporate governance.
In revisiting the results of these studies, we focus on the entrenchment index or E-Index, introduced in 2009 by Lucian Bebchuk, Alma Cohen, and Allen Ferrell (BCF). The E-Index provides evidence that six entrenchment provisions matter the most for firm value: staggered boards, poison pills, golden parachutes, supermajority requirements for charter amendments, supermajority requirements for bylaw amendments, and supermajority requirements for mergers. As of March 2017, over 300 empirical studies have used the E-Index as a measure of governance quality, suggesting that this index has become a standard reference to define entrenchment and, hence, “bad” governance. Yet, in estimating the association between the E-Index (and each of its six constituent components) and firm value, BCF only relied on a 12-year period (from 1990 to 2002). We rely on a much more comprehensive dataset over a much longer period (from 1978 to 2008), allowing for a more robust statistical analysis of the association between corporate governance and firm value.
Our empirical findings call into question the kitchen sink approach to incumbent protection from removal adopted by the E-index.
But doesn't it also call into question the whole exercise? What if a data set running from 1960 to 2010 produced still different results? Bah, humbug.
Keith Paul Bishop notes a proposed amendment to the DGCL on how written consents are handled. In a later post, he elaborates his argument that the proposal does not save the basic problem.

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