Vol. 75 No. 2 -- Spring 2020

 

75th Anniversary Articles

Business & Corporate

Interview with Marty Lipton

In September of 2019, after wrapping up meetings of the Mergers and Acquisitions (“M&A”) Committee of the Business Law Section of the American Bar Association (“ABA”), I took the train from Washington, D.C. to New York City to meet with Marty Lipton—the well-known founder of Wachtell, Lipton, Rosen & Katz—in a conference room at his firm. It was perfect timing to have this conversation with Mr. Lipton, given recent developments relating to corporate views on the constituencies corporations may take into account in their decision-making.

Business & Corporate

Notice and Assent Through Technological Change: The Enduring Relevance of the Work of the ABA Joint Working Group on Electronic Contracting Practices

This article, prepared for the 75th anniversary volume of The Business Lawyer, reflects on the efforts of the ABA Business Law Section’s Joint Working Group on Electronic Contracting Practices. The Working Group produced two articles in The Business Lawyer in 2001 and 2003 that were designed to give guidance to companies presenting standard-form contract terms electronically.

Articles

Business & Corporate

Third-Party Releases in Bankruptcy Cases: Should There Be Statutory Reform?

Third-party releases, which can function as de facto discharges of nondebtors, have become an increasingly common feature of reorganization plans. There is no definitive Supreme Court case dealing with the legality and scope of such plan provisions, and the seven circuit courts of appeals that have addressed release issues have either disagreed or posited various legal tests and standards to satisfy the “extraordinary circumstances” bar they set for approving such releases.

Business & Corporate

Third Party Releases in Bankruptcy: Recent Case Developments

Several months ago, I published an article on the subject of third party releases in bankruptcy cases in which it was noted that two federal circuits, the Ninth and Tenth, prohibited the use of such releases outside of the asbestos context. In June 2020, a Ninth Circuit panel handed down Blixseth v. Credit Suisse which upheld a non-consensual third party exculpation provision in a chapter 11 plan of reorganization. However, based on the Court’s narrow reading of the exculpation clause, it is likely that the Ninth Circuit will continue to follow its prior precedent in Lowenschuss and prohibit the inclusion of a true non-consensual third party release in a chapter 11 plan.

Business & Corporate

State Section 11 Litigation in the Post- Cyan Environment (Despite Sciabacucchi)

In Cyan, Inc. v. Beaver County Employees Retirement Fund, the U.S. Supreme Court held that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) preserved state courts’ jurisdiction to adjudicate cases brought under the Securities Act of 1933, with defendants having no right to remove a case to federal court. The result of this decision has been a dramatic increase in section 11 cases litigated in state court, often with a parallel case brought in federal court against the same defendants based on the same alleged misstatements.

Business & Corporate

Loss Causation and the Materialization of Risk Doctrine in Securities Fraud Class Actions

In the context of a claim for securities fraud under SEC Rule 10b-5, most federal circuit courts have ruled or recognized that loss causation can be proven by an event that demonstrates an earlier statement by a defendant company to be false. In other words, corrective disclosure need not take the form of speech. Rather, a statement can be shown to be false by the materialization of a risk that was concealed by the company, and investors can be compensated for any losses they suffer as a result. Although this doctrine is well established, its ultimate effect is to overcompensate investors, thus encouraging excessive securities litigation and chilling voluntary disclosure.

Business & Corporate

Summary of Mendes Hershman Student Writing Contest Prize Essay: Federalism, Indemnification, and the Soul of American Corporate Law

In the aftermath of the financial crisis, Delaware’s preeminence in corporate law has been attacked by a powerful competitor: the Securities and Exchange Commission (“SEC”). The SEC has tried to preempt state indemnification laws that currently allow officers and directors to avoid personal liability for their official conduct. This article argues that the SEC’s preemption is wrong as a matter of both law and policy. It first demonstrates how, after the Great Recession, the SEC took advantage of a “market failure narrative” to encroach upon matters of director and officer indemnification and insurance traditionally regulated by state corporate law.

Reports

Business & Corporate

Changes in the Model Business Corporation Act—Proposed Amendment to Section 1.41 Governing Notice to Shareholders

The Corporate Laws Committee of the ABA Business Law Section (the “Committee”) develops and proposes changes in the Model Business Corporation Act (the “Model Act”). The Committee has approved, on second reading, a proposed amendment to section 1.41 of the Model Act (the “Amendment”). The Amendment would restore the substance of former section 16.06 as it existed before the 2016 Revision of the Model Act.

Business & Corporate

PEB Commentary No. 20 Consignments January 24, 2019

The Permanent Editorial Board for the Uniform Commercial Code acts under the authority of the American Law Institute and the Uniform Law Commission (also known as the National Conference of Commissioners on Uniform State Laws). In March 1987, the Permanent Editorial Board resolved to issue from time to time supplementary commentary on the Uniform Commercial Code to be known as PEB Commentary. These PEB Commentaries seek to further the underlying policies of the Uniform Commercial Code by affording guidance in interpreting and resolving issues raised by the Uniform Commercial Code and/or the Official Comments.

Business & Corporate

Sample California Third-Party Legal Opinion Letter for Personal Property Secured Financing Transactions

The Opinions Committee (the “Committee”) of the Business Law Section (the “Business Law Section”) of the California Lawyers Association (being the successor by operation of law to the committee of the same name of The State Bar of California) has prepared and issued the following sample California third-party legal opinion letter (the “UCC Opinion”) in consultation with the Commercial Transactions Committee of the Business Law Section and with the approval of the Executive Committee of the Business Law Section.

Business & Corporate

Sample California Third-Party Legal Opinion Letter for Personal Property Secured Financing Transactions - No Footnotes

Ladies and Gentlemen, We have acted as counsel to SPIRIT’S WILLING, INC., a California corporation (the “Borrower”), and FLESH’S WEAK, LLC, a California limited liability company (the “Guarantor”), in connection with the negotiation, execution and delivery of the Loan Agreement, dated as of [DATE] (the “Loan Agreement”), between the Borrower and TALL OAKS BANK, N.A., a national banking association (the “Lender”). The Borrower and the Guarantor are sometimes referred to in this letter individually as a “Loan Party” and collectively as the “Loan Parties.” This letter is delivered to you pursuant to Section [__] of the Loan Agreement.

Survey

Survey

Consumers

Fair Credit Reporting Act and Financial Privacy Update—2019

The previous Annual Survey1 shifted its focus from developments at the Consumer Financial Protection Bureau (“CFPB”) that had pervaded earlier Surveys2 to Congress, New York regulators, and the California legislature. This past year, federal agencies stepped back into the forefront by bringing high-profile enforcement actions and releasing a proposal to amend the Federal Trade Commission’s (“FTC’s”) Safeguards Rule.

Consumers

The California Consumer Privacy Act of 2018: A Sea Change in the Protection of California Consumers’ Personal Information

Following a series of publicly disclosed data breaches, California citizens submitted a ballot proposition entitled the California Consumer Privacy Act of 2018.1 Because ballot propositions are difficult to amend once adopted by the voters, California legislative and executive leaders reached an agreement with the ballot proposition’s proponents that it would be withdrawn if a consumer privacy act became law by June 28, 2018.

Consumers

Four-Way Stalemate: Recent Developments in Regulatory Compliance for Fintech Companies and Marketplace Lenders

In the aftermath of the financial crisis, Delaware’s preeminence in corporate law has been attacked by a powerful competitor: the Securities and Exchange Commission (“SEC”). The SEC has tried to preempt state indemnification laws that currently allow officers and directors to avoid personal liability for their official conduct. This article argues that the SEC’s preemption is wrong as a matter of both law and policy. It first demonstrates how, after the Great Recession, the SEC took advantage of a “market failure narrative” to encroach upon matters of director and officer indemnification and insurance traditionally regulated by state corporate law.

Consumers

Developments in Fintech: The CFPB Product Sandbox and No- Action Letter Policy, State Sandboxes, and Federal Actions

Financial technology (“fintech”) services companies have continued to innovate, and regulatory agencies have continued to react to their innovations, as discussed in earlier Annual Surveys.1 During the past year, the Consumer Financial Protection Bureau (“CFPB”) issued a formal proposal relating to its revised policy on no-action letters and its financial service product sandbox (“Product Sandbox”). 2 State legislatures also continue to enact similar regulatory sandboxes.

Consumers

Regulation Across the Border: Developments in Canadian and U.S. Consumer Financial Services

Technology and product development in consumer financial services have piqued the interest of policymakers in both Canada and the United States.1 While the countries share a border and there are similarities in their consumers’ adoption of financial products,2 there are differences in the Canadian and U.S. approaches to consumer financial services regulation.3 These differences matter in today’s marketplace where many new startups and financial technology companies (“fintechs”) are looking to enter the financial services sector and incumbent firms are concerned about compliance and competition.

Consumers

The Phase-out of LIBOR: U.S. Residential Mortgage Industry Developments

The London Interbank Offered Rate (“LIBOR”) is likely to be discontinued by the end of 2021, and market participants are being encouraged to begin transitioning away from the rate. The anticipated end of, and transition away from, LIBOR raises a number of significant questions and concerns for market participants that rely on the rate. While much of the work addressing such questions and concerns has, to date, focused on the derivatives market and other cash products, this survey focuses on U.S. residential mortgage industry developments.

Consumers

Three Supreme Court Decisions and a Ninth Circuit Preemption Ruling Highlight the Year’s Arbitration Decisions

The authors have had the privilege of reporting on important consumer arbitration developments in the Annual Survey for many years. Each year, the only dilemma has been deciding which of the many judicial, legislative, and regulatory issues to highlight. This year, the U.S. Supreme Court and the Ninth Circuit made the selection process easier. The Supreme Court issued three opinions on arbitration, and the Ninth Circuit issued an opinion on Federal Arbitration Act (“FAA”)1 preemption that may be headed to the Supreme Court.

Consumers

Class Action Developments

During the past year, the U.S. Supreme Court issued two decisions that will affect class action cases, including those that involve consumer finance related claims. The Court precluded third-party counterclaim defendants from removing class actions. It also confirmed that the deadline to appeal a class certification order under Rule 23(f ) of the Federal Rules of Civil Procedure is not subject to tolling. This survey analyzes both decisions.

Consumers

The Proposed Debt Collection Rule

The Consumer Financial Protection Bureau (“CFPB”) has published its long-awaited proposed Debt Collection Rule (“Rule”).1 The Rule deals with communications related to debt collection, interprets and applies prohibitions pertaining to “harassment or abuse, false or misleading representations, and unfair practice in debt collection,” and, lastly, clarifies consumer-facing debt collection disclosure requirements.

Consumers

Mortgage Regulation Developments: HMDA and TRID Updates

The Consumer Financial Protection Bureau (“CFPB”) has been actively modifying Regulation C,1 the regulation that implements the Home Mortgage Disclosure Act of 1975 (“HMDA”),2 which itself has undergone significant changes in recent years. The CFPB also released written guidance on the Truth in Lending Act-Real Estate Settlement Procedures Act Integrated Disclosure (“TRID”) Rule.

Consumers

Fair Lending Developments in the Wake of City of Miami

The fair lending cases filed by Miami against large mortgage lenders in 2013, in which the city sought to recover lost property tax revenues and increased municipal expenses allegedly caused by foreclosures that in turn were caused by the banks’ alleged redlining (denying credit on a discriminatory basis) and reverse redlining (targeting predatory loans on a discriminatory basis), have been prominently featured in several previous Annual Surveys.

Consumers

Keeping the Pedal to the Metal: Auto Finance Enforcement Floors Ahead in 2019

Federal and state regulators were keeping the pedal to the metal in many lanes of finance regulation during the past year. Through consent orders, the Consumer Financial Protection Bureau (“CFPB”) settled examinations of certain practices by two major auto finance lenders—one related to deceptive marketing of Guaranteed Asset Protection (“GAP”) products and finance contract extensions and the other related to the use of consumer credit reports. The U.S. Department of Justice (“DOJ”) settled a case against a subprime lender that improperly repossessed motor vehicles from servicemembers in violation of the Servicemembers Civil Relief Act (“SCRA”).

Consumers

Small Dollar Lending Regulation in 2019

One year ago, small dollar lenders were operating under the specter of looming compliance dates for the Consumer Financial Protection Bureau’s (“CFPB’s”) final rule concerning small dollar lending. One year later, through judicial stays and additional rulemaking, the compliance dates for this final rule continue to be pushed back—potentially to the point where the rule may never come to pass. However, small dollar lenders face legal challenges in their businesses outside potential CFPB regulations.

Consumers

Current Developments in Bank Deposits and Payment Systems

This survey summarizes several recent developments affecting bank deposits and payment systems. These include payments-related consent orders and enforcement actions by the Consumer Financial Protection Bureau (“CFPB”) and the Federal Trade Commission (“FTC”), recent case law developments regarding the ability of national banks to assess overdraft fees, and amendments to Regulation CC related to inflationary adjustments and to its application to U.S. territories.