Source: http://www.professorbainbridge.com/professorbainbridgecom/2013/06/index.html
Timestamp: 2014-09-16 21:26:59
Document Index: 593427171

Matched Legal Cases: ['§ 109', '§ 109', '§ 109', '§ 109', '§ 109', '§ 2000', '§ 1', '§ 501']

Posted at 04:02 PM in Securities Regulation | Permalink
| | | Responding to Bishop re forum selection clauses
Posted at 03:40 PM in Corporate Law | Permalink
| | | Classic Linda Greenhouse awfulness
| | | Delaware Chancellor Upholds Forum Selection Bylaw
The board of Chevron, the oil and gas major, has adopted a bylaw providing that litigation relating to Chevron‟s internal affairs should be conducted in Delaware, the state
where Chevron is incorporated and whose substantive law Chevron‟s stockholders know
governs the corporation‟s internal affairs. The board of the logistics company FedEx,
which is also incorporated in Delaware and whose internal affairs are also therefore
governed by Delaware law, has adopted a similar bylaw providing that the forum for
litigation related to FedEx‟s internal affairs should be the Delaware Court of Chancery.
The boards of both companies have been empowered in their certificates of incorporation
to adopt bylaws under 8 Del. C. § 109(a). ...
After considering the parties‟ contending arguments on Count I of the complaints,
the court finds that the bylaws are valid under our statutory law. 8 Del. C. § 109(b)
provides that the bylaws of a corporation “may contain any provision, not inconsistent
with law or with the certificate of incorporation, relating to the business of the
corporation, the conduct of its affairs, and its rights or powers or the rights or powers of
its stockholders, directors, officers or employees.” The forum selection bylaws, which
govern disputes related to the “internal affairs” of the corporations, easily meet these
requirements.5 The bylaws regulate the forum in which stockholders may bring suit,
either directly or on behalf of the corporation in a derivative suit, to obtain redress for
breaches of fiduciary duty by the board of directors and officers. The bylaws also
regulate the forum in which stockholders may bring claims arising under the DGCL or other internal affairs claims. In other words, the bylaws only regulate suits brought by
stockholders as stockholders in cases governed by the internal affairs doctrine. Thus, the
bylaws, by establishing these procedural rules for the operation of the corporation, plainly
relate to the “business of the corporation[s],” the “conduct of [their] affairs,” and regulate
the “rights or powers of [their] stockholders.” Because Delaware law, like federal law,
respects and enforces forum selection clauses, the forum selection bylaws are also not
inconsistent with the law.6 For these reasons, the forum selection bylaws are not facially
invalid as a matter of statutory law.
As to Count IV of the complaints, the court finds that the bylaws are valid and
enforceable contractual forum selection clauses. As our Supreme Court has made clear,
the bylaws of a Delaware corporation constitute part of a binding broader contract among
the directors, officers, and stockholders formed within the statutory framework of the
DGCL.7 This contract is, by design, flexible and subject to change in the manner that the
DGCL spells out and that investors know about when they purchase stock in a Delaware
corporation. The DGCL allows the corporation, through the certificate of incorporation,
to grant the directors the power to adopt and amend the bylaws unilaterally.8 The certificates of incorporation of Chevron and FedEx authorize their boards to
amend the bylaws. Thus, when investors bought stock in Chevron and FedEx, they knew (i) that consistent with 8 Del. C. § 109(a), the certificates of incorporation gave the
boards the power to adopt and amend bylaws unilaterally; (ii) that 8 Del. C. § 109(b)
allows bylaws to regulate the business of the corporation, the conduct of its affairs, and
the rights or powers of its stockholders; and (iii) that board-adopted bylaws are binding
on the stockholders. In other words, an essential part of the contract stockholders assent
to when they buy stock in Chevron and FedEx is one that presupposes the board‟s
authority to adopt binding bylaws consistent with 8 Del. C. § 109. For that reason, our
Supreme Court has long noted that bylaws, together with the certificate of incorporation
and the broader DGCL, form part of a flexible contract between corporations and
stockholders, in the sense that the certificate of incorporation may authorize the board to
amend the bylaws‟ terms and that stockholders who invest in such corporations assent to
be bound by board-adopted bylaws when they buy stock in those corporations.9 Francis Pileggi has a lengthy post analyzing the decision. He explains that:
a legal matter, the corporation is an entity wholly separate from the people
who own it and work for it. For most purposes the corporation is treated as
though it were a legal person, having most of the rights and obligations of
real people, and having an identity wholly apart from its constituents. Accordingly, a corporation has most of the constitutional rights possessed by natural persons.
See, e.g., First Nat’l Bank of Boston v. Bellotti, 435 U.S. 765, 784 (1978)
(corporation has First Amendment right of free speech); Hale v. Henkel, 201
U.S. 43 (1906) (corporation gets Fourth Amendment protection against
unreasonable searches and seizures but not protected by Fifth Amendment
privilege against self-incrimination); Blake v. McClung, 172 U.S. 239 (1898)
(corporation not covered by the privileges and immunities clause of the
Fourteenth Amendment or of the comity clause of Article IV); Minneapolis &
St. Louis Ry. Co. v. Beckwith, 129 U.S. 26, 28 (1888) (corporation entitled to
due process of law under the Fifth and Fourteenth Amendments); Santa Clara
County v. Southern Pacific Railroad Co., 118 U.S. 394, 416 (1886) (corporation
entitled to equal protection of the law under the Fourteenth Amendment).
But five of the eight judges made a strong statement about corporate personhood — the idea that companies share some legal rights and protections with in-the-flesh people. From the majority opinion:
RFRA provides, as a general rule, that the “Government shall not
substantially burden a person’s exercise of religion.” 42 U.S.C. § 2000bb-1(a)
(emphasis added). The parties dispute whether for-profit corporations, such as
Hobby Lobby and Mardel, are persons exercising religion for purposes of RFRA.
We thus turn to the question of whether Hobby Lobby, as a family owned
business furthering its religious mission, and Mardel, as a Christian bookstore,
can take advantage of RFRA’s protections. ...
We begin with the statutory text. RFRA contains no special definition of
“person.” Thus, our first resource in determining what Congress meant by
“person” in RFRA is the Dictionary Act, which instructs: “In determining the
meaning of any Act of Congress, unless the context indicates otherwise * * * the
word[] ‘person’ . . . include[s] corporations, companies, associations, firms,
partnerships, societies, and joint stock companies, as well as individuals.” 1 U.S.C. § 1. Thus, we could end the matter here since the plain language of the
text encompasses “corporations,” including ones like Hobby Lobby and Mardel. Given that no one disputes at least some types of corporate entities can
bring RFRA claims, the next question is whether Congress intended to exclude
for-profit corporations, as opposed to non-profit corporations, from RFRA’s
scope. Notably, neither the Dictionary Act nor RFRA explicitly distinguishes
between for-profit and non-profit corporations; the Dictionary Act merely
instructs that the term “persons” includes corporations. ...
It is beyond question that associations—not just individuals—have Free
Exercise rights: “An individual’s freedom to speak, to worship, and to petition the
government for the redress of grievances could not be vigorously protected from
interference by the State unless a correlative freedom to engage in group effort toward those ends were not also guaranteed.” Roberts v. U.S. Jaycees, 468 U.S.
609, 622 (1984) (emphasis added). Therefore, courts have “recognized a right to
associate for the purpose of engaging in those activities protected by the First
Amendment—speech, assembly, petition for the redress of grievances, and the
exercise of religion. The Constitution guarantees freedom of association of this
kind as an indispensable means of preserving other individual liberties.” Id. at
618 (emphasis added); see also Citizens United v. FEC, 558 U.S. 310, 342–43
(2010) (“First Amendment protection extends to corporations . . . [, and the
Court] has thus rejected the argument that . . . corporations or other associations
should be treated differently under the First Amendment simply because such
associations are not natural persons.” (internal quotation marks omitted)). ...
In short, individuals may incorporate for religious purposes and keep their
Free Exercise rights, and unincorporated individuals may pursue profit while
keeping their Free Exercise rights. With these propositions, the government does
not seem to disagree. The problem for the government, it appears, is when
individuals incorporate and fail to satisfy Internal Revenue Code § 501(c)(3). At
that point, Free Exercise rights somehow disappear. ...
... we cannot see why an individual
operating for-profit retains Free Exercise protections but an individual who
incorporates—even as the sole shareholder—does not, even though he engages in
the exact same activities as before. ...
In addition, sincerely religious persons could find a connection between the
exercise of religion and the pursuit of profit. Would an incorporated kosher
butcher really have no claim to challenge a regulation mandating non-kosher
butchering practices? The kosher butcher, of course, might directly serve a
religious community—as Mardel, a Christian bookstore, does here. But we see no
reason why one must orient one’s business toward a religious community to
preserve Free Exercise protections. A religious individual may enter the for-
profit realm intending to demonstrate to the marketplace that a corporation can
succeed financially while adhering to religious values. As a court, we do not see
how we can distinguish this form of evangelism from any other. ...
Because Hobby Lobby and Mardel express themselves for
religious purposes, the First Amendment logic of Citizens United, 558 U.S. at
342–55, where the Supreme Court has recognized a First Amendment right of for-
profit corporations to express themselves for political purposes, applies as well.
We see no reason the Supreme Court would recognize constitutional protection
for a corporation’s political expression but not its religious expression. This is a huge development. It opens the door to people of faith whose business is incorporated being able to launch a major assault on Obamacare. If so, of course, it'll give the left even more reason to hate Citizens United.
Posted at 02:26 PM in Religion, SCOTUS and Con Law | Permalink
So how exactly did this massive bill come to be law? Robert Kaiser, a 50-year veteran of the Washington Post, has the answer in his new book: An Act of Congress. The problem, he says, is Washington. Although some have viewed Kaiser’s reporting as congratulating Washington for “doing something,” in fact, Kaiser's good reporting paints a picture of the Dodd-Frank legislation as a prime example of what happens when you mix an economic crisis with political ambition and lobby power: bad policy. The mixture of what he describes as “politics-obsessed mediocrities who know little about the policy they're purportedly crafting and voting on,” and outcry for action in Washington following the subprime mortgage crisis, created the perfect storm for Dodd-Frank to blossom; an immaculate “policy window” ripe for Congress to seize upon. Kaiser is also not the first in his field to insinuate such a notion. In 2010, the same year Dodd-Frank was enacted, Professor Stephen Bainbridge (UCLA School of Law), suggested a similar hypothesis. In his research he compared Dodd-Frank to the Sarbanes Oxley Act of 2002, which was quickly enacted following the burst of the IT crisis in 1997. Bainbridge defines both Dodd-Frank and Sarbanes Oxley as “Bubble Acts,” characterized by the following attributes: (1) enacted in response to a major negative economic event; (2) enacted in a crisis environment; (3) a response to a populist backlash against corporations and/or markets; (4) adopted at the federal rather than state level; (5) transfers power from the states to the federal government; (6) interest groups that are strong at the federal level but weak at the Delaware [corporation mecca] level support it; (7) typically, not a novel proposal, but rather a longstanding agenda item of some powerful interest group; (8) and the empirical evidence cited in support of the proposal is, at best, mixed and often shows the proposal to be unwise. The academic work of Stephen Bainbridge and the compelling new book by Robert Kaiser make an unwittingly strong case for the repeal of Dodd-Frank and a drastic change in Washington’s legislative process away from “not letting a crises go to waste,” and moving toward the deliberative process of what used to be known as “regular order.” Voters, consumers, and the millions of Americans seeking jobs should demand that Washington scrap the massive Dodd-Frank regulatory scheme before it does any more damage to the recovery, and instead focus on the real problems facing the American economy.
If that's of interest, you may wish to consider the book in which I elaborate on the idea of quack corporate governance, Corporate Governance after the Financial Crisis:
And you probably should also read Frank Buckley's The American Illness: Essays on the Rule of Law:
Posted at 09:49 AM in Books, Current Affairs, Dept of Self-Promotion | Permalink
Pope Francis sets up a Vatican Bank reform commission Apropos my post the other day about my growing affection for Pope Francis, I'm chuffed that he's now set up a desperately needed commission to take on reform of the Vatican Bank (a.k.a., the Institute for Religious Works or IOR):
Posted at 05:44 PM in Dept of Self-Promotion, Religion | Permalink
| | | What I find amusing about this weeks' Supreme Court cases
| | | The Supreme Court's Prop 8 non-decision
The Supreme Court ducked deciding the validity of Prop 8, which repealed gay marriage in California, which leaves the lower court ruling striking down Prop 8 intact and thereby de facto restores gay marriage in California. Posted at 12:58 PM in SCOTUS and Con Law | Permalink
| | | The Supreme Court's DOMA decision
Posted at 12:53 PM in SCOTUS and Con Law | Permalink
Posted at 02:09 PM in Law, Religion, SCOTUS and Con Law | Permalink
| | | Want to support ProfessorBainbridge.com?
I've now got an Amazon portal. If you use it to enter Amazon and buy the stuff you want, you support -- at no extra cost -- my blog. Also, of course, you can shop my aStore, where you can buy my books and those I like.
Posted at 06:54 AM in Dept of Self-Promotion | Permalink
Bebchuk's latest argument for corporate political disclosure
Lucian Bebchuk is still arguing for corporate disclosure of political expenditures:
The Securities and Exchange Commission is currently considering a rulemaking petition urging the Commission to develop rules requiring public companies to disclose their political spending. ... [S]uch rules would lead to considerable benefits for investors. As we explained in the petition, and in Shining Light on Corporate Political Spending, such rules would give investors information they have long been requesting from the companies they own. Furthermore, disclosure is necessary to ensure that directors and executives make political spending decisions that are consistent with shareholder interests. What exactly are these purported benefits? His first point, namely that investors (which ones?) have been asking for the information, is specious. Just because someone asks for something--even persistently--doesn't mean it's good for them, as anyone who's ever taken a small child down the cereal aisle of a grocery store knows. And let's consider exactly the identity of these investors. the ones pushing the issue are almost entirely union and state/local employee pension funds, all of who are in bed with the Democratic Party. Whether Bebchuk wants to admit it or not, he's carrying water for people who have a political agenda. They want to defund the Right by deterring corporate campaign contributions. (I freely admit I want to keep that spigot open. I have a dog in the fight between Democrats and Republicans, even if I'm not always that crazy about that dog.)
His second point is that "disclosure is necessary to ensure that directors and executives make political spending decisions that are consistent with shareholder interests." But the same is true of any spending decision. But the law has never required companies to disclose the minutae of spending at the minuscule level Bebchuk and his allies are demanding with respect to political decisions. Would we expect GM to disclose that some plant manager spent $250 on toner at Office Mart? On the one hand, Bebchuk's rulemaking petition claims that he and his allies "encourage the Commission to adopt ... a de minimis exception," but then they take it back by urging that the Commission set "an appropriately low
My bottom line is that this is bad policy and bad politics. With a 3-2 Democrat majority on the SEC, unfortunately, that may not be enough to stop this idea.
Posted at 07:53 PM in Securities Regulation, Shareholder Activism | Permalink
| | | Memo to Roger Goodell: I'll take my NFL football without Obamacare propaganda, please
At times it seems like every social institution has turned into a mouthpiece for the liberal agenda. (Well, except maybe Fox News.) Now it's even the NFL's turn:
Well, frak that. Maybe the NFL should spend more time on the concussion issue and less on this social crap.
Posted at 03:42 PM in Football | Permalink