April 23, 2015

Inside Business Law (April 2015)

The 2015 Spring Meeting’s Most Attended Programs

The Business Law Section of the American Bar Association held its Spring Meeting, April 16–18, 2015, at the San Francisco Marriot Marquis and InterContinental San Francisco. The Spring Meeting included 68 continuing legal education programs (including 6 ethics programs), 56 full Committee meetings, and 256 Subcommittee meetings. These programs and meetings featured 597 speakers.

Following are descriptions of the five CLE programs with the highest attendance, as well as a link to the program materials presented at those programs.

What’s Unfair and Deceptive Now? – presented by the Consumer Financial Services Committee and cosponsored by the Credit Unions Committee.

Prohibitions on unfair and deceptive practices are old news, but new agencies and interpretations are remaking these standards, and reinventing the process of how these standards are enforced. The panel of state and federal enforcement lawyers, and private practitioners, reviewed the process and substance behind UDAAP, claims made by the Federal Trade Commission, the Consumer Financial Protection Bureau, and state financial regulators in state and federal courts and administrative tribunals.

The program was chaired and moderated by Eric Mogilnicki, Partner, Wilmer Cutler Pickering Hale and Dorr, LLP, Washington, DC. Speakers included Kristen Donoghue, Deputy Enforcement Director for Policy and Strategy, Consumer Financial Protection Bureau, Washington, DC; Joy Feigenbaum, Executive Deputy Superintendent, Financial Frauds & Consumer Protection, New York State Department of Financial Services, New York, NY; Carolyn L. Hann, Senior Staff Attorney, Federal Trade Commission, Washington, DC; and Lucy Morris, Partner, Hudson Cook, LLP, Washington, DC.

The materials for this program are located here.

Fisher Memorial Program: Enhanced Government Regulation – The Path to Consumer Protection or an Obstacle to Innovation – presented by the Consumer Financial Services Committee.

This panel discussion explored the effects of enhanced regulation in the financial services area and considered whether that regulatory environment is creating impediments to innovation in underwriting and delivery of services. It also considered the actions of the Consumer Financial Services Bureau in attempting to accommodate those potentially conflicting concerns.

The program was chaired by James Swartz, Director of Legal Affairs, FCE Bank, London, England, and co-chaired and moderated by John R. Chiles, Partner, Burr & Forman LLP, Fort Lauderdale, FL. Speakers included Thomas Brown, Attorney, Paul Hastings LLP, San Francisco, CA; Ryan Falvey, Director, Innovation Labs, Center for Financial Services Innovation, San Francisco, CA; and Lauren E. Willis, Professor of Law, Loyola Law School, Los Angeles, CA.

Materials for this program can be found here.

Cyber Security: The Cold, Hard Reality of Protecting Financial Information – presented by the Banking Law Committee and cosponsored by the Cyberspace Law Committee.

This panel explored the increasingly sophisticated threats banks face in cyberspace, from DDoS attacks perpetrated by nation-states, to digital mobsters looking to cash in on customers’ accounts, to “hacktivists” who target banks for political reasons. The panel also discussed the evolving regulatory framework, and how victims of cyberattacks are caught between criminal prosecutors seeking to bring perpetrators to justice, regulators who view the banks as potentially culpable for the hack, and private litigants who seek recompense for harms stemming from the attacks. How can banks best balance these competing concerns while protecting their customers and their assets?

The program was co-chaired by Hugh C. Conroy, Counsel, Cleery Gottlieb Steen & Hamilton LLP, New York, NY, and co-chaired and moderated by Paul L. Lee, Of Counsel, Debevoise & Plimpton LLP, New York, NY. Speakers included David Bitkower, Deputy Assistant Attorney General, U.S. Department of Justice, Washington, DC; Thomas Brown, Senior Managing Director, FTI Consulting, New York, NY; Kevin Greenfield, Director for Bank Information Technology Policy, Office of the Comptroller of the Currency, Washington, DC; Rena Mears, Managing Director, BuckleySandler LLP, Washington, DC; James L. Pastore, Counsel, Debevoise & Plimpton LLP, New York, NY; and Robert Patchett, Chief Privacy Officer, MUFG Americas, San Francisco, CA.

The program materials can be found here.

The CFPB’s Lawsuit to Regulate the Practice of Law: What are its Implications for Lawyer Professional Responsibility? – presented by the Consumer Financial Services Committee.

The CFPB has sued a Georgia law firm alleging that it did not exercise sufficient professional judgment when filing lawsuits to collect consumer debt. Asserting the position that it can regulate an attorney’s exercise of professional judgment in rendering legal services, the CFPB has labeled the court’s exclusive regulation of attorney professional conduct as a “quaint notion.” The panel analyzed the authority which formed the basis for the CFPB’s lawsuit and the implications it has upon lawyer professional responsibility.

The program was chaired by Donald S. Maurice, Jr., Attorney, Maurice & Needleman, P.C., Flemington, NJ. Speakers included Hon. Phil Johnson, Justice, Supreme Court of Texas, Austin, TX; Donald C. Lampe, Partner, Morrison & Foerster LLP, Washington, DC; Joann Needleman, President, National Association of Retail Collection Attorneys, Wayne, PA; Manuel H. Newburger, Partner, Barron & Newburger, P.C., Austin, TX; Leah M. Nichols, Staff Attorney, Public Justice, P.C., Washington, DC; and Jennifer S. Wagner, Mountain State Justice, Inc., Clarksburg, WV.

Program materials can be found here.

50 Ways to Leave Your Lover, err . . . Business Partner: The Essentials of Business Divorce in Privately Held Entities – presented by the Business and Corporate Litigation Committee and co-sponsored by the Middle Market and Small Business Committee.

Panelists discussed the definition of “business divorce” and issues peculiar to such situations, which included a discussion of litigation alternatives for “business divorce” in corporations and LLCs, including dissolution and corporate opportunity litigation, as well as transactional alternatives for “business divorce” in corporations and LLCs, including “squeeze-out” transactions in corporations and utilization of specific dissolution/buyout provisions in LLCs.

The program was chaired by Thomas J. Walsh, Jr., Principal, Brody Wilkinson, Fairfield, CT, and was co-chaired and moderated by Kurt Heyman, Founding Partner, Proctor Heyman LLP, Wilmington, DE. Speakers included Melissa N. Donimirski, Associate, Proctor Heyman LLP, Wilmington, DE; Peter B. Ladig, Partner, Morris James LLP, Wilmington, DE; Eric Milby, Partner, Lundy Beldecos & Milby P.C., Narberth, PA; Hon. Donald F. Parsons, Jr., Vice Chancellor, Delaware Court of Chancery, Wilmington, DE; and Michaela L. Sozio, Partner, Tressler LLP, Los Angeles, CA.

Program materials are here.

The Spring Issue of The Business Lawyer

The Spring Issue of The Business Lawyer, Volume 70, No. 2, was recently published by the Business Law Section. Articles include the following. Titles are linked to the full text of the article.

Harmony or Dissonance? The Good Governance Ideas of Academics and Worldly Players, by Robert C. Clark.

This lecture asks questions concerning ideas about what constitutes good corporate governance that are espoused by academics, such as financial economists and law professors, and by more worldly players such as legislators, rule makers, governance rating firms, large institutional investors, law firms that represent corporate clients, and courts. Are there discernible trends and patterns in the views espoused by these different categories of actors, despite all the differences among individual actors within each category? The author proposes that there are such patterns, offers some initial thoughts about the characteristic themes and differences, and hypothesizes about the reasons for the differences. At the end, he reflects on what a benign policy maker interested in increasing overall social welfare might do with these observations.

Financial Innovation and Governance Mechanisms: The Evolution of Decoupling and Transparency, by Henry T. C. Hu.

Financial innovation has fundamental implications for the key substantive and information-based mechanisms of corporate governance. “Decoupling” undermines classic understandings of the allocation of voting rights among shareholders (via, e.g., “empty voting”), the control rights of debtholders (via, e.g., “empty crediting” and “hidden interests”/“hidden non-interests”), and of takeover practices (via, e.g., “morphable ownership” to avoid section 13(d) disclosure and to avoid triggering certain poison pills). Stock-based compensation, the monitoring of managerial performance, the market for corporate control, and other governance mechanisms dependent on a robust informational predicate and market efficiency are undermined by the transparency challenges posed by financial innovation. The basic approach to information that the SEC has always used – the “descriptive mode,” which relies on “intermediary depictions” of objective reality – is, according to the author, manifestly insufficient to capture highly complex objective realities, such as the realities of major banks heavily involved with derivatives. Ironically, the primary governmental response to such transparency challenges – a new system for public disclosure that became effective in 2013, the first since the establishment of the SEC – also creates difficulties. This new parallel public disclosure system, developed by bank regulators and applicable to major financial institutions, is not directed primarily at the familiar transparency ends of investor protection and market efficiency.

As starting points, this article offers brief overviews of (1) the analytical framework developed in 2006−2008 for “decoupling” and its calls for reform, and (2) the analytical framework developed in 2012−2014 reconceptualizing “information” in terms of three “modes” and addressing the two parallel disclosure universes.

As to decoupling, the article proceeds to analyze some key post-2008 developments (including the status of efforts at reform) and the road ahead. Regarding information, the article begins by outlining the calls for reform associated with the 2012−2014 analytical framework. The article concludes with a concise version of the analytical framework’s thesis that the new morphology of public information – consisting of two parallel regulatory universes with divergent ends and means – is unsustainable in the long run and involve certain matters that need statutory resolution. However, certain steps involving coordination among the SEC, the Federal Reserve, and others can be taken in the interim.

An Overview of the General Counsel’s Decision Making on Dispute-Resolution Strategies in Complex Business Transactions, by E. Norman Veasey and Grover C. Brown.

This article is an overview of the hard choices that face a general counsel (GC) when weighing the pros and cons of whether and when a particular complex business dispute is better suited for litigation in the public courtroom or through a carefully constructed alternate dispute-resolution (ADR) process, including mediation and/or arbitration. Is either choice inherently more expensive, time consuming, or problematic than the other? The obvious answer is that each of these decisions is fact-intensive, dependent on myriad factors, and neither choice is “inherently” better or worse than the other.

The authors focus exclusively on complex commercial disputes between businesses and analyze the issues that would likely be considered by the GC and other corporate decision makers in choosing and navigating the route that provides the best opportunity for optimal results in resolving a domestic or international business dispute. These dispute resolution choices often must be faced in the negotiation of the terms of a business transaction, and thus before there is a dispute.

The authors go on to explore the pros and cons of how the panoply of dispute-resolution mechanisms may play out down the road. In doing so, they are mindful of the complicated job of the GC in foreseeing at the negotiation stage how the optimal dispute-resolution process should be analyzed and drafted.

Halliburton II: It All Depends on What Defendants Need to Show to Establish No Impact on Price, by Merritt B. Fox. 

Rule 10b-5 private damages actions cannot proceed on a class basis unless the plaintiffs are entitled to the fraud-on-the-market presumption of reliance. In Halliburton II, the Supreme Court provides defendants with an opportunity, before class certification, to rebut the fraud-on-the market presumption through evidence that the misstatement had no effect on the issuer’s share price. It left unspecified, however, the standard by which the sufficiency of this evidence should be judged. 

This article explores the two most plausible approaches to setting this standard. One approach would be to impose the same statistical burden on defendants seeking to show there was no price effect as is currently imposed on plaintiffs to show that there was a price effect when the plaintiffs later need to demonstrate loss causation. The other approach would be to decide that defendants can rebut the presumption of reliance simply by persuading the court that the plaintiffs will not be able meet their statistical burden. If the courts choose the first approach, Halliburton II is unlikely to have much effect on the cases that are brought or on their resolution by settlement or adjudication. If they choose the second approach, the decision’s effect will be more substantial. The article concludes with a brief discussion of some of the considerations that should be relevant to courts in their choice between the two approaches. 

The Spring issue also includes:

The Spring issue also includes the following Surveys: