August 03, 2015
icon Alabama Law is Hiring
Posted by Gordon Smith

The University of Alabama School is hiring, and my friend Julie Hill is chairing the appointments committee. Position descriptions after the break.

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icon Dan Price as Henry Ford: Who Needs the Dodge Brothers When You Have Your Own?
Posted by Christine Hurt

Last week, the NY Times did a piece on Dan Price, CEO of Gravity Payments, who announced in April that each of his employees should make at least $70,000 a year.  You might think that this announcement would make him a very popular figure, but I guess you would be wrong.  Polarizing, maybe.  Story here.  You can read the details, but Price, who was raised in a very religious home, believed very strongly in creating an atmosphere in which employees would not need to worry about basic human needs and therefore be more productive and creative and happy.  Where would the new money come from?  Well, from his own salary, leveling the pay chart.  But not everyone is happy.

Here is probably an incomplete list of the haters:  (1) clients who feared their bills would be increased to cover the shortfall; (2) other employers who compete in the labor market; (3) other employers who don't compete for the same labor but who don't want to look bad; (4) Gravity Payments employees who feel that some employees don't deserve $70,000; and (5) Dan's brother and co-founder Lucas Price who feels that as a shareholder, he is being denied a return on his investment.  That last number (5) reminds us corporate law geeks a little of Dodge v. Ford.  I'm also interested in number (4), having written before on the hatred of so-called "windfalls." 

Price v. Price.  Here is the complaint.  It is brief, and the answer is more brief.  The brothers started the company as a 50/50 LLC in 2004.  After disagreements, the brothers reorganized as a corporation in 2008, with Daniel having a majority share.  This would seem to be a definitive moment for Lucas and possibly his downfall.  The complaint does not give any hints as to why Lucas would agree to this, but there must be more to the story -- My brother was trying to grab control of the company, so we reorganized and gave him control to solve the problem?  As part of the reorganization, the brothers entered into a Shareholders Agreement, which is not attached.  The causes of action are breach of fiduciary duty, not breach of the agreement.  The complaint states that Daniel used his majority control to grant himself "excessive compensation and to deprive Lucas of the benefits of ownership in Gravity Payments.  Daniel's actions have been burdensome, harsh, and wrongful, and have shown a lack of fair dealing toward Lucas."  The complaint does not give examples of the wrongful actions.  The complaint was filed shortly after the minimum wage announcement, but had been in the works before.  Further litigation may flesh out whether this complaint has a future, but shareholder oppression is a hard case to make out.  Most notably, and possibly good news for Lucas, Gravity Payments is a Washington corporation, not a Delaware corporation.  Lucas wants, among other things, either dissolution or to be bought out without a minority/marketability discount.  Corporations aren't partnerships, Lucas.  Dissolution seems a stretch.  How does this affect Daniel's minimum wage plan?  Well, he wasn't counting on having high litigation expenses when he changed the salary structure.

Employee Envy.  According to the article, several employees have left Gravity Payments because they suddenly felt undervalued when junior employees and recent hires received raises, even though they themselves did also.  When I wrote The Windfall Myth, I researched the use of the term "windfall" in the NYT and WSJ in a 12-month period.  I was astounded at the depth of bitterness people have against other people's "windfalls," even when the windfall does not affect the observer at all.  Hundreds or thousands of experiments have tried to capture why subjects will give up money if they believe under that regime others will get more (the Ultimatum Game).  Here, GP employees were given raises, but others were given larger ones, and some small raise receivers left for jobs that paid less.

This story is a great case study in how to tackle wealth inequality in the U.S., where a fidelity to pure meritocracy is heavily ingrained.  Even when the founder and CEO is willing to reduce the salary disparity at his company, some of his employees were not.  Fascinating.   

Permalink | Corporate Governance, Corporate Law, Fiduciary Law | Comments (View) | Bookmark

icon Family Film Blogging: Ant-Man
Posted by Christine Hurt

So, I'm sure loyal readers were wondering if I were ill or at the International Space Station given the fact that I had yet to review Ant-Man, the latest edition to the Marvel Cinematic Universe.  Actually, my middle guy has been at back-to-back camps for 4 weeks, so we literally went to the first showing after he returned on Saturday morning.  It was worth the wait.

First, the answers to the obvious questions.  Yes, Ant-Man will be an Avenger (in the second tier with Falcon and Quiksilver).  Yes, one of the Avengers is in Ant-Man (Falcon).  No, Agent Coulson does not show up in the movie, and the current state and future of S.H.I.E.L.D. is not discussed.  No, in the movie Hank Pym is not linked to Ultron, a clear break from the "historical record" of the comic books.  Yes, Hydra is still out there.  Yes, there are special effects ants, and scientist agree that the ants are realistic, except that they would all be female.

Scott Lang (the very likeable Paul Rudd) has served three years in prison for a very likeable crime.  An electrical engineer at VistaCorp, he discovers that his employer has been bilking clients and hacks into the network to return the funds to their rightful owners.  He also releases secrets.  (I've only seen the movie once, and his actual crime is alluded to only once.)  He's a combination of a hacker and a self-proclaimed cat burgler.  And, he seems to be a small folk hero.  Anyway, he's determined to go straight, but after finding it difficult to obtain employment with his record and thus be able to have visitation with his daughter, he decides to do one burglary offered up by his former cellmate and friends.  (This hilarious trio of good-hearted thieves makes the movie.)  The whole thing is a set up by Dr. Hank Pym (Michael Douglas), former S.H.I.E.L.D. agent, scientist and Ant-Man.  Pym uses the job to confirm his belief that Scott should be the next Ant-Man.

Why does the world need a new Ant-Man?  Because, Pym's former mentee Darren Cross has developed the mothballed Pym Particle (a formula to reduce the space between atoms -- in other words shrink living beings) and wants to sell it as a weapon.  Just as Captain America had to defeat Red Skull and Winter Soldier, Iron Man had to defeat Obadiah Stane and Anton Vanko, and Hulk had to defeat Abomination, our superheroes always seem to be coming up against frenemies who "steal their tech."  All the scientific breakthroughs in the Marvel Universe seem to be double-edged swords and the tension always between saving mankind and weaponization.  Anyway, Scott needs to don Pym's Ant-Man suit to steal back/destroy Cross' research and his new Yellowjacket suit.  There will be a brief training montage with Hank's daughter Hope Pym, and then Scott will need to enlist the good-hearted thieves to help.

Rudd's Ant-Man is very self-aware and doesn't take himself or the movie very seriously.  he's much like Guardians of the Galaxy's Peter Quill, cracking jokes while saving the world.  His niche in the superhero ensemble is that he is smart in a practical way and humbly selfless, an altruistic engineer to Tony Stark's narcissistic genius.  Though in the end all the Avengers throw themselves on the grenade, Scott seems to come to the job with a clear knowledge that he is, in his own words, expendable.

Hope (Evangeline Lilly) is, at least in this movie, fairly underused and underdeveloped.  In fact, there is a moment when it is clear to cast and audience alike that Hope would make a much, much better Ant-Man than Scott.  Hank's reasons for recruiting Scott seem quite sexist at first, but are revealed to be more admirable than that.  After the credits, the audience is treated to a hint that we will see much more of Hope (the new Wasp) in the future. 

So, the plot isn't all that new, but at least it isn't as hard to follow as Avengers 2.  The ending turns very Big Hero Six, but it works.  The movie is here to introduce us to the new characters and does that well.  The dialogue is witty, the characters are likeable, and the appetite for Ant-Man is sufficiently whetted for future appearances.

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icon A Review Of A Financial Crisis
Posted by David Zaring

Over at the New Rambler Review (which I'm really enjoying), I've got a review of Philip Wallach's legal history of the financial crisis.  The kick-off offers a riff on the crisis:

The government’s response to the financial crisis was an example of messy policymaking that occasioned a happy ending, although not everyone sees it that way. Some are unsure about the ending – they have decried the very modest meting out of punishment that followed the recovery of the economy. Others are unsure that the policymaking was messy – they are likely to think of the government’s response to the financial crisis as an inevitable manifestation of executive preeminence as the doer of last resort, institutionally capable of acting when courts and legislatures cannot.

But I will take a stable economy over a few prison sentences, especially when it is possible that you can’t have both at the same time. And you won’t convince me that the things government officials did during the crisis – last minute deals, concluded late at night and paired with creative reimaginings of underused statutes and regular resorts to Congress for more legislation – was the mark of the smooth progress of an imperial presidency.

Go over there and read the whole thing!

Permalink | Administrative Law, Finance, Financial Crisis, Financial Institutions | Comments (View) | Bookmark

icon Occupational Licensing
Posted by Gordon Smith

The White House recently released an excellent report on occupational licensing. The purported goal of occupational licensing is to improve the quality of services, but the costs of licenses on workers and consumers can be substantial. As noted in the Executive Summary, "There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across State lines." The report recommends alternative forms of occupational regulation, notably certification, to strike a better balance of costs and benefits. Amen!

The new report follows License to Work, a report by the Institute for Justice on the effects of occupational licensing. Most of these licenses (including law) look like protectionism to me, and I am not sure this new report will significantly change the landscape. The report offers a list of "best practices," but in a world of regulatory capture, it would be nice to see governors and legislatures pressing the issue more forcefully.

Permalink | Entrepreneurship | Comments (View) | Bookmark

July 30, 2015
icon Sean Griffith's Deal Tax Clinic
Posted by David Zaring

Fordham's Sean Griffith is putting his motions where his writing is, and taking positions against "deal tax" shareholder settlements.  If you missed it, here's a bit from the Wall Street Journal story on the approach.

Over the past few months, Mr. Griffith says he has bought a small number of shares in about 30 companies following the announcement of a takeover. When the expected shareholder lawsuits are ultimately settled, he plans to use his standing as a shareholder to formally object.

His first salvo came Monday at a Delaware hearing to approve a settlement of litigation over Riverbed Technology Inc.’s sale. Under terms of the settlement, Riverbed, now owned by private-equity firm Thoma Bravo LLC, would pay plaintiffs’ lawyers a $500,000 fee and provide additional details on the buyout process. Riverbed and its new owners also would get immunity from future litigation stemming from the buyout, which closed in April.

Riverbed and Thoma Bravo declined to comment.

Mr. Griffith, who owns 100 shares of Riverbed, said the agreement would enrich plaintiffs’ lawyers while delivering no real benefits to investors, and he asked a judge to reject it.

Matt Levine thinks it is the lord's work.  Bainbridge approves.  And Alison Frankel is interested.  I approve as well - it's nice to see a law professor doing a research based quasi-clinic, and if Sean gets his law students to help out, he'll be following Lucian Bebchuk's very effective model.


Permalink | Legal Scholarship, M&A | Comments (View) | Bookmark

July 29, 2015
icon Peter Conti-Brown on the Fed's Regional Banks
Posted by David Zaring

My colleague Peter Conti-Brown has an op-ed in the Times today regarding the Fed's crazy regional bank system.  A taste:

Congress should let the Board of Governors appoint and remove the 12 Reserve Bank presidents, as they may do with other employees of the board. The 12 regional Feds would then become branch offices of our central bank, continuing to do research and data analysis, while leaving policy making to Washington.

This plan has several benefits. First, the next time the Fed makes an egregious mistake — like failing to predict the meltdown of the housing market — we would know for certain whom to hold accountable. Second, it would allow the Fed to modernize the distribution of the 12 Reserve Banks. There is strong evidence that the cities for the 12 banks were chosen as much for politics as economics. In 2015, do we really need two regional Feds (Kansas City and St. Louis) in Missouri, but only one (San Francisco) west of Texas?

Everything Peter writes about the Fed is worth reading, and this is no exception.  Give it a look here.

Permalink | Administrative Law, Finance, Financial Institutions | Comments (View) | Bookmark

July 28, 2015
icon Shadow Everything
Posted by David Zaring

I was looking at Dan Scwarcz's lastest paper on Shadow Insurance, which is a thing:

Shadow insurance – defined as life insurers’ reinsurance of policies with captive insurers that are not “authorized” reinsurers and do not maintain a rating from a private rating agency – creates important risks to policyholders, the insurance industry, and potentially even the broader financial system. Although the standard state regulatory safeguards help mitigate some of these risks, they leave other hazards of shadow insurance largely unchecked. Even granting that shadow insurance likely helps reduce the cost of insurance associated with the excessive conservatism of some state reserving rules, the practice ultimately undermines insurance markets by impeding accurate risk assessments and tradeoffs by policyholders, regulators, and other market participants.

It's a nice paper, but it made me think we're at peak shadow.  There's Shadow Banking, Shadow Bankruptcy, and there if a firm called Shadow Financial Systems.

Of course, there may be a real world reason for this - shadow institutions are in theory nimbly entering markets that heavily regulated incumbents can't serve well.  This is the regulation is bad story of the growth of shadow finance.

Permalink | Administrative Law, Finance, Financial Institutions | Comments (View) | Bookmark

July 26, 2015
icon Dodd-Frank at Five
Posted by David Zaring
July 24, 2015
icon Gawker And The Substance Procedure Gambit
Posted by David Zaring

A bit of a Friday digression, but it involves the oversight of a publisher by corporate types, so perhaps you'll allow it.  

After Gawker published a lurid story about a medium-at-best profile media executive, and received a great deal of criticism for doing so, the publisher decided to take the post down, over strong criticism from the firm's editorial director.  That director, and Gawker's editor in chief then resigned, and their stated reason for doing so was that, regardless of the quality of the original story, removing it over the objections of editorial violated the church-state separation between the business side and the writers.

I would describe this sort of argument as a procedure based argument, and I've always been convinced by Lawrence Tribe's criticism of process based theories.  He was thinking about con law, but the point is familiar to many lawyers; it's impossible to defend a process without adopting underlying substantive values.  Indeed, the very existence of those values makes a defense of process totally epiphenomenal.  So you can't be, like: our constitutional system of separation of powers is fantastic because of the way it separates powers.  What if it does so in ways that facilitate racial discrimination?  Or disenfranchises people?  Or results in Stalinist levels of business regulation?  It's impossible to defend a process without reference to the outcomes that it facilitates.

And so that's what I don't quite get about the free speech martyrdoms in the Gawker case.  You don't want to generalize from a sample of one, at least not too much, but in my view saying, as many Gawker editors have, that "this story was a mistake, but being told by management to take it down violates our essential freedoms" is at least somewhat incoherent.  Managerial noninterference is a process, and it's a process only worth having if it produces good outcomes. I'm unconvinced that the story illustrates a good outcome.

Permalink | Constitutional Law | Comments (View) | Bookmark

July 20, 2015
icon Hiring Announcement: Georgia Business School
Posted by David Zaring

A very strong legal studies group, and as you all know, Athens is a paradise.  Announcement after the jump:

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July 17, 2015
icon Family Film Blogging: Minions
Posted by Christine Hurt

Years ago at the dawn of my career, someone advised me that there is no reason to write a negative book review.  If that advice holds for movies, I should stop here.

Minions is not a good movie.  For those who read my posts regularly, you'll know that I have a low bar for family films; I can find the good in almost any children's movie.  Not this one.  As my FB friends read today, my status was "Wednesday we got Paul Blart:  Mall Cop 2 from Redbox and thought it was the worst movie ever, until we saw Minions."  

OK, what is good about the movie?  The new characters.  We all know the Despicable Me minions, though I wasn't quite sure about their names.  The three main minions here are Bob, Stuart and Kevin.  But the new characters are great:  Scarlet Overkill (Sondra Bullock) and her husband, Herb (Jon Hamm).  How can you go wrong there?  Also, our minions hitch a ride with a bad-guy family, the Nelsons, voiced by Michael Keaton and Allison Janney.  OK, surely those four are a good "soup starter" for an excellent film, right?  No.  The producers seemed to spend all their money on voice talent and a good soundtrack (Beatles, the musical Hair, Mellow Yellow, etc.) and forgot to buy a script.

The movie starts out fine as an original story of how the minions came to be and how they got to modern times with Gru.  All of their evil bosses die, starting with T-Rex, and so they are continually looking for new villains.  (I didn't know that the minions were immortal, a fact that would seem important to keep consistent.)  In 1968, our brave trio leaves the minions in the cave where they are hiding out, in search of a new boss.  Their travels take them to 1968 New York City, where there are great visual gags, if you were alive and remember 1968.  Judging from the lack of laughs in our theater, I would say the number was 1.  Still, the movie seems ok.  The minions stumble upon an ad for "Villain-Con," and hitchhike there with the Nelsons.  A joke is set up about how wonderful Orlando is, but it is a pre-Disney swamp.  Again, lost on everyone in the audience.  The scenes with Villain-Con are great, and could have taken up more of the movie.  The minions win the temporary favor of the greatest villain of the time, Scarlet Overkill, and go home with her.  Again, the scenes with Scarlet in her house were great and could have taken up more of the movie.  Instead, the movie got so stupid it's hard to write about here.

Scarlet sends the three out on a quest for Queen Elizabeth II's crown.  If they fail, they will be "blown off the face of the earth."  (Again, if they have lived for tens of thousands of years, this is hard to get interested in.)  From here, things could have gone a right way or a wrong way, and the writers chose the superwrong way.  Let's just say that there's a moment where one of the minions (Stuart, maybe) hypnotizes the Tower of London guards into taking off their clothes and dancing to a minion version of the title song in Hair, the musical.  No one else in the theater knew what song that was or why they were taking their clothes off.  I guarantee you no seven year-old did.

I hate to say it, but the minions are the most boring part of the movie.  They are great for comic relief, but like the Ice Age squirrel or the Madagascar penguins, they don't need a whole movie.  If the movie had centered more on Scarlet or the Nelsons, with the minions alongside, then it would have been better.   And, funny bits that children could understand that don't assume a knowledge of the summer of 1968 would have been better.  My seven year-old, after the movie was over said, "We are never seeing that again."  This from the guy who wanted to keep Paul Blart:  Mall Cop 2 an extra day.

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icon It's Still Insider Trading If Your Firm Is Working On The Merger
Posted by David Zaring

There's not too much new in the indictment for insider trading of the former partner of Philly firm Fox Rothchild.  The partner didn't work on the deal, but he overheard a conversation between one who was working on the deal and the legal assistant they shared.  And then he traded so unbelievably transparently you can barely believe that he was a lawyer.  He bought shares in his wife's IRA account, and then he bought shares in his own IRA account.  The next day, the merger was announced, the shares went up 80ish percent, and he instantly sold, making $75 grand.  Which doesn't do his wife any favors, in the end.

The SEC’s complaint filed in federal court in Philadelphia names Sudfeld’s wife, Mary Jo Sudfeld, as a relief defendant for the purpose of recovering insider trading profits in her brokerage account through trades conducted by Sudfeld.  The complaint charges Sudfeld with violating antifraud provisions of the federal securities laws and an SEC antifraud rule.  The SEC seeks a permanent injunction and financial penalties against Sudfeld and return of allegedly ill-gotten gains and prejudgment interest from Sudfeld and Mary Jo Sudfeld.

That is insider trading of the most "please, catch me!" variety.  But maybe this guy hasn't head of the duties of quasi-insiders, and thought he was an accidental tippee.


Permalink | Securities, White Collar Crime | Comments (View) | Bookmark

July 14, 2015
icon Marks & Moss: What Makes a Law Student Succeed or Fail? A Longitudinal Study Correlating Law Student Applicant Data and Law School Outcomes
Posted by Christine Hurt

Alexia Brunet Marks and Scott Moss (my former Marquette colleague) have an interesting paper on SSRN this week that was also profiled on the WSJ Law Blog.  "What Makes a Law Student Succeed or Fail?  A Longitudinal Study Correlating Law Student Applicant Data and Law School Outcomes" should be of interest to anyone either applying to law school or admitting students to law school.  The two authors collected seven or eight years of applicant data from the University of Colorado Law School and Case Western Reserve Law School for 1400 enrolled students and matched the applicant data with resulting law school grades to see which application factors had the most predictive power for law school grades.  I was on an admissions committee with Scott Moss for two years, so I was very interested to see whether this study confirmed or disproved some of our heuristics.

Table 3 sums up the findings.  "Positive Predictors" are LSAT, UGPA, LCM (LSAT College Mean), STEM or EAF (economics, accounting or finance) major, post-college career last 4-9 years, being a teacher, and a rising UGPA if the UGPA is not old.  Though the abstract states that the LSAT underperforms compared to conventional wisdom, I think the actual findings resemble what most of us thought about the LSAT:  it predicts first-year grades, but not necessarily cumulative grades.  UGPA does correlate with long-term grades, but it seems like only somewhat better than the LSAT.  This is surprising to me only because I tend to discount UGPA in the era of grade inflation.  The combination of high LSAT/low UGPA has a negative correlation with grades, confirming a gut feeling I have been spouting off for years.  The variable of have a teaching career being positively correlated with law school grades is intriguing, though it seems to match my experiences with the very small number of ex-teachers I have taught.

I will let others pore over the statistical findings.  The authors do a good job of describing the limitations of their data -- grades, not job placement or satisfaction, are used as a proxy for law school "success."  Only matriculants are in the pool, so these are students who may have been chosen despite low UGPAs or LSATs because of other qualities that may not show up in the data -- in other words the pool is selected to succeed.  And of course, the data cannot code for personal qualities such as ambition and drive.  

What is an interesting thought experiment is whether law schools would have changed any admissions practices if Marks and Moss had proven zero correlation or even a negative correlation between LSAT and law school grades.  Given the oppression of the USNWR rankings, which have worked to put undue emphasis on LSAT scores, then other things would have to change before law schools could throw out the LSAT (including changes at the ABA).  

As an aside, having been in admissions meetings with Scott, the most interesting finding is that a disciplinary or criminal record has a negative predictive value equivalent to over a 7 point drop in LSAT.  This is fascinating to me because the applicants who are admitted with disciplinary or criminal records generally are admitted because the infraction is minor, isolated or both.  In other words, most of those applicants are let in under the assumption that their records do not reflect any cause for concern.  Apparently, admissions committees should be paying more attention to random minor-in-possession records than we thought!  Yikes!

Permalink | Law Schools/Lawyering | Comments (View) | Bookmark

July 13, 2015
icon Cost Benefit Analysis at the SEC
Posted by David Zaring

Over at DealBook, I have a piece up on the state of cost-benefit analysis at the SEC.  Inadequacies in the CBA were how the SEC used to lose all its rulemakings in the D.C. Circuit; its latest rulemaking on clawbacks sets the stage for how seriously the agency takes cost-benefit analysis now, and how much it believes that analysis should be quantified.  A taste:

Throughout the cost-benefit analysis, the agency warns that it is “often difficult to separate the costs and benefits,” and that various effects of the rule are “difficult to predict.”

I suspect the agency thinks it doesn’t need to blow the court of appeals away with some numbers to survive, though of course the S.E.C. can do more cost-benefit analysis in the final rule. It does, however, believe that a lengthy consideration of the costs and benefits of a rule should be part and parcel of any proposal.

For those who think that cost-benefit analysis slows the pace of regulation, this may not be good news. Economists might wish that numbers were being appended to the discussion.

But I am happy enough to see rules without numbers. Justifying rules only with regard to their costs and benefits is pretty routine. As routines develop, it may become difficult for regulators and judges to consider new sorts of costs, and unforeseen benefits contained, for example, by the simple expression of what the rule favors and what it discourages.

Go give it a look!

Permalink | Administrative Law, Securities | Comments (View) | Bookmark

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