Vol. 74 No. 4 -- Fall 2019

  October 2019

Articles

Business & Corporate

The Myth of Morrison: Securities Fraud Litigation Against Foreign Issuers

74(4) 967-1014 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.

Business & Corporate

Asking the Right Question: The Statutory Right of Appraisal and Efficient Markets

74(4) 1015-1064 In this article, we make several contributions to the literature on appraisal rights and similar cases in which courts assign values to a company’s shares in the litigation context. First, we applaud the recent trend in Delaware cases to consider the market prices of the stock of the company being valued if that stock trades in an efficient market, and we defend this market-oriented methodology against claims that recent discoveries in behavioral finance indicate that share prices are unreliable due to various cognitive biases. Next, we propose that the framework and methodology for utilizing market prices be clarified. We maintain that courts should look at the market price of the securities of a target company whose shares are being valued, unadjusted for the news of the merger, rather than at the deal price that was reached by the parties in the transaction.

Business & Corporate

A Streamlined Form of Closing Opinion (2019 Update)

74(4) 1065-1076 In 2005, we published an article on the Boston Bar Association Streamlined Form of Closing Opinion. As described in the article’s introduction, the streamlined form was based on the Legal Opinion Principles drafted by the Legal Opinions Committee of the American Bar Association’s Business Law Section (the “ABA Legal Opinions Committee”). Now that the Statement of Opinion Practices (the “Statement”) and its related Core Opinion Principles (the “Core Principles”) have been published, we are updating that article and the streamlined form to reflect the Statement and Core Principles and developments in legal opinion practice since 2005. As indicated in the Statement’s explanatory note, the Statement, which has been approved by numerous bar associations and other lawyer groups, updates the Legal Opinion Principles in their entirety and selected provisions of the Guidelines for the Preparation of Closing Opinions, which also were drafted by the ABA Legal Opinions Committee. The Core Principles are derived from the Statement and are designed to be incorporated by reference in or attached to a closing opinion by those who desire to do so. Among other changes, the updated streamlined form of closing opinion incorporates the Core Principles in place of the Legal Opinion Principles.

Business & Corporate

The Shifting Sands of Conflict of Interest Standards: The Duty of Loyalty Meets the Real World with Questions of Process and Fairness

74(4) 1077-1104 Standards governing the validity of conflict-of-interest transactions by corporate directors or others in dominant positions have significantly evolved from the early days of strict judicial condemnation to the current statutory provisions. These provisions place great faith in and emphasis on the judgment of disinterested directors or shareholders. This evolution has not been consistent among states, given that substantial variations exist regarding both statutory provisions and judicial interpretations. To illustrate the variations, this article examines and compares the Delaware and Model Business Corporation Act standards. The variations reflect the concerns that arise when a director’s fiduciary duty of loyalty conflicts with the realities and demands of the commercial world. This article examines the evolution of conflict-of-interest standards and existing variations in light of two fundamental issues: (i) whether the combination of statutory and fiduciary standards obligates directors to obtain advance approval of conflict transactions and (ii) the capacity of shareholders to challenge conflict transactions on the grounds of fairness to the corporation, even after board or shareholder approval. The article concludes that statutory and fiduciary standards obligate directors to obtain advance approval of conflict transactions and provides recommendations for addressing these two issues in a manner consistent with statutory provisions and fiduciary standards.

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