The Internal Affairs Doctrine: The Proper Law of a Corporation
Norwood P. Beveridge, Jr., 44(3): 693–719 (May 1989)
The decision in CTS Corp. v. Dynamics Corp. of America, 481 U.S. 69 (1987), has revived the debate between flag-of-convenience champions of the traditional internal affairs rule and advocates of host state's rights over foreign and pseudo-foreign corporations, this time in the setting of antitakeover statutes. This Article argues that, even in the case of voting rights of common stock, the host state may have constitutionally valid claims to regulation of foreign corporations.
A Byproduct of the Globalization Process: The Rise of Cross-Border Bank Mergers and Acquisitions--The U.S. Regulatory Framework
Joseph J. Norton and Christopher D. Olive, 56(2): 591 (Feb 2001)
This Article examines the U.S. regulatory framework as it pertains to foreign bank acquisitions of U.S. banking interests, particularly from the "regulatory approval" perspective. Over the past two decades, the United States has endeavored to establish a domestic "level playing field" for the U.S.-based operations of U.S. and foreign banking institutions through the legal and practical imposition of a "national treatment" approach. The U.S. banking authorities have also used an international standards-based "gateway" for foreign banking institutions to initially enter the United States. In order to provide some practical insights and reference points, this Article endeavors to address these issues in the context of two recently completed foreign bank M&A transactions in the United States. This Article then considers the issue of access to "nonbank," but financially related, activities for banking institutions in the United States as a result of, and motivating factor behind, foreign bank M & As of U.S. banking institutions and other U.S. financial institutions. In this context, the possible relevant implications of the most recent U.S. bank reform legislation is considered. The Article concludes with selective observations.
G. Mitu Gulati and Kenneth N. Klee, 56(2): 635 (Feb 2001)
This Article lays bare the recent efforts of vulture investor Elliott Associates to holdup the Government of Peru. When Peru tried to restructure its Brady Bonds, Elliott launched global litigation to tie up the money and force Peru into default. A Brussels' court brought Peru to its knees and forced it to settle with Elliott. Elliott's leverage was based on its novel interpretation of the so-called pari passu clause which requires a debtor's creditors to rank equally. This Article first explains why, from an ex ante bargaining perspective, sovereign debtors would be loathe to agree to pari passu clauses with the interpretation given by the Brussels court. Next, the Article looks to the literature and case law construing sovereign and corporate debt and demonstrates why the Brussels interpretation is wrong, results in a windfall to holdout creditors, and is harmful to the majority of other creditors. The Article then discusses New York bond interpretation law and the need for the Brussels interpretation to be challenged. The Article concludes with some important insights about market changes that will result if the Brussels interpretation is allowed to stand.
Acquiring a Business in France: A Buyer's Guide
Laura Snyder, 57(2): 793 (Feb. 2002)
France is an important place for international investors. An investor contemplating the acquisition of a company or of assets located in France should understand the legal environment in which businesses in France operate. This Article provides an introduction to selected areas of French law which are of particular relevance. More specifically, this Article: (i) examines the choices a buyer has in structuring an acquisition, (ii) analyzes the pre- and post-acquisition authorizations and declarations that may be required, (iii) exposes the myriad of labor issues raised, directly and indirectly, by the acquisition, (iv) summarizes the manner in which industrial facilities are regulated under French environmental law, (v) addresses recent changes in French law as regards foreign corrupt practices and the implications of these changes for the American parent of a French subsidiary, and (vi) describes the various forms of companies that exist under French law and their most pertinent features.
Empty Voting and Hidden (Morphable) Ownership: Taxonomy, Implications, and Reforms
Henry T. C. Hu and Bernard Black, 61(3):1011–1070 (May 2006)
Most American publicly held corporations have a one-share, one-vote structure, in which voting power is proportional to economic ownership. This structure gives shareholders economic incentives to exercise their voting power well and helps to legitimate managers' exercise of authority over property the managers do not own. Berle-Means' "separation of ownership and control" suggests that shareholders face large collective action problems in overseeing managers. Even so, mechanisms rooted in the shareholder vote, including proxy fights and takeover bids, constrain managers from straying too far from the goal of shareholder wealth maximization.
In the past few years, the derivatives revolution, hedge fund growth, and other capital market developments have come to threaten this familiar pattern throughout the world. Both outside investors and corporate insiders can now readily decouple economic ownership of shares from voting rights to those shares. This decoupling—which we call "the new vote buying"—is often hidden from public view and is largely untouched by current law and regulation. Hedge funds, sophisticated and largely unfettered by legal rules or conflicts of interest, have been especially aggressive in decoupling. Sometimes they hold more votes than economic ownership, a pattern we call "empty voting." That is, they may have substantial voting power while having limited, zero, or even negative economic ownership. In the extreme situation of negative economic ownership, the empty voter has an incentive to vote in ways that reduce the company's share price. Sometimes hedge funds hold more economic ownership than votes, though often with "morphable" voting rights—the de facto ability to acquire the votes if needed. We call this "hidden (morphable) ownership" because under current disclosure rules, the economic ownership and (de facto) voting ownership are often not disclosed. Corporate insiders, too, can use new vote buying techniques.
This article analyzes the new vote buying and its corporate governance implications. We propose a taxonomy of the new vote buying that unpacks its functional elements. We discuss the implications of decoupling for control contests and other forms of shareholder oversight, and the circumstances in which decoupling could be beneficial or harmful to corporate governance. We also propose a near-term disclosure-based response and sketch longer-term regulatory possibilities. Our disclosure proposal would simplify and partially integrate five existing, inconsistent share-ownership disclosure regimes, and is worth considering independent of its value with respect to decoupling. In the longer term, other responses may be needed; we briefly discuss possible strategies focused on voting rights, voting architecture, and supply and demand forces in the markets on which the new vote buying relies.
Cross–Border Tender Offers and Other Business Combination Transactions and the U.S. Federal Securities Laws: An Overview
Jeffrey W. Rubin, John M. Basnage, and William J. Curtin, III, 61(3):1071—1134 (May 2006)
In structuring cross–border tender offers and other business combination transactions, parties must consider carefully the potential application of U.S. federal securities laws and regulations to their transaction. By understanding the extent to which a proposed transaction will be subject to the provisions of U.S. federal securities laws and regulations, parties may be able to structure their transaction in a manner that avoids the imposition of unanticipated or burdensome disclosure and procedural requirements and also may be able to minimize potential conflicts between U.S. laws and regulations and foreign legal or market requirements. This article provides a broad overview of U.S. federal securities laws and regulations applicable to cross–border tender offers and other business combination transactions, including a detailed discussion of Regulations 14D and 14E under the Securities Exchange Act and the principal accommodations afforded to foreign private issuers thereunder.
Closing Time: You Don’t Have to Go Home, But You Can’t Stay Here
Richard D. Bernstein, James C. Dugan, and Lindsay M. Addison, 67(4): 957 - 976 (August 2012)
In a significant trend, U.S. courts are increasingly rejecting cases involving foreign plaintiffs or foreign conduct. This trend was accelerated by the U.S. Supreme Court’s decision in Morrison v. National Australia Bank Ltd., which established that U.S. securities laws cannot be applied extraterritorially. Lower courts have extended the presumption against extraterritoriality to other federal and state statutes.
The Myth of Morrison: Securities Fraud Litigation Against Foreign Issuers
Robert Bartlett, Matthew D. Cain, Jill E. Fisch, and Steven Davidoff Solomon; 74(4) 967-1014 (Fall 2019)
Using a sample of 388 securities fraud lawsuits filed between 2002 and 2017 against foreign issuers, we examine the effect of the Supreme Court’s decision in Morrison v. National Australia Bank Ltd. We find that the description of Morrison as a steamroller, substantially ending litigation against foreign issuers, is a myth. Instead, we find that Morrison did not significantly change the type of litigation brought against foreign issuers, which, both before and after this case, focused on foreign issuers with a U.S. listing and substantial U.S. trading volume. Although dismissal rates rose post- Morrison, we find no evidence that this was related to the decision. Settlement amounts and attorneys’ fees remained unchanged post-Morrison. We use these findings to theorize that Morrison was primarily a preemptive decision about standing that firmly delineated the exposure of foreign issuers to U.S. liability in response to the Vivendi case, which sought to expand the scope of liability for foreign issuers whose shares traded primarily in non-U.S. venues. When Morrison is placed in its true context, it is justified as a decision in line with administrative and court actions that have historically aligned firms’ U.S. liability to be proportional to their U.S. presence. Although Morrison had this defining effect, it did not change the litigation environment for foreign issuers, which was the oft-cited import of the decision. More generally, our analysis of Morrison also underscores how the decision has been mistakenly characterized as a case primarily about extraterritoriality rather than standing.