May 21, 2019

2019 Spring Meeting Materials and Audio

Sponsor: Miller Thomson LLP

A Tale of Two (Legal) Opinions: Customary Opinion Practice Regarding Status Under the Investment Company Act and Compliance with Margin Regulations

Among the closing opinions often requested in connection with lending transactions and securities issuances are those regarding the status of the borrower or issuer under the Investment Company Act of 1940 and the absence of violations with the Federal Reserve Board’s margin regulations (administered by the Securities and Exchange Commission) as a result of the borrower’s or issuer’s obligations entry into and performance under the transaction documents.  Violations of the Investment Company Act or the margin regulations can render a contract void or voidable and may expose offending parties (and other transaction participants) to fines and other regulatory sanctions. This program will discuss how these closing opinions are typically phrased, what they mean and the work required to support them.

For the portion dealing with investment company status opinions, the program will discuss the two key definitions of “investment company,” the special meanings given to many terms used in the statute and related regulations, how to determine whether a borrower or issuer is an “inadvertent investment company,” and some of the most common exceptions to the definition of “investment company” used by parties to avoid the requirement to register under the Investment Company Act. These exceptions will include the exception in Section 3(c)(7), relied upon by private equity funds and hedge funds, among other companies, and the requirements that should be met before securities issued by 3(c)97) entities can be cleared and settled in book-entry form. We will also discuss the important role SEC no-action letters have played in establishing customary practice with respect to the investment company status opinion, and the form and content of certificates as to factual matters on which the opinion is based.

Margin regulation compliance opinions are requested less frequently, but even when this opinion is not requested, it is routinely covered by borrower representations. Even though the opinion is often routine and not difficult to give, issues may arise where some or all of the collateral for a loan includes securities.  The program will discuss the general scope of Regulations T, U and X, key concepts and definitions under the margin regulations, the potential problem of “indirect security” for a loan in the form of margin stock and when lenders must obtain “purpose statements” to ensure compliance with the margin regulations. 

Advertising APRs on Facebook, Phones and More: Disclosing Credit Terms in Online Advertising

Advertising credit products through online, mobile, and social media channels requires applying the Trust in Lending Act (“TILA”), 5 U.S.C. § 1601 et seq., and Regulation Z, 12 C.F.R. Part 1026, disclosure rules to new (and changing) media. While the rules accommodate electronic disclosures somewhat, it is not always clear how disclosures can and/or should be made in space-constrained media. Advertisers must balance marketing considerations with legal and compliance.

Specific issues facing advertisers of credit products include:

  • The type of disclosures required by the ad
  • Size and formatting of disclosure text
  • The location of disclosures (e.g., in the body of the ad, a footnote, or elsewhere)
  • Conveying “clear and conspicuous” disclosures in online media, including using hyperlinks, pop-ups/scroll-over windows, and adjusting to mobile browsers

Advertisers must tackle these compliance challenges not only for ad’s posted to the company’s website or sent electronical through an e-mail blast, but for banner ads, search engine ads, social media content posted on networks such as Facebook, Twitter, Instagram, and a variety of others. 

Advising Boards & Management: Ethical Rules & Professional Liability Risks of Corporate Counsel

The White Collar "Cooperation Revolution" Focuses on the Personal Criminal Liability of Executives and Managers. In 1999, then US Attorney-General Eric Holder issued an internal Justice Department memo entitled: "Bringing Criminal Charges Against Corporations." It laid the groundwork for policies that allowed more leeway in bringing criminal charges against large firms.  

By 2002, the Enron and WorldCom failures had occurred, and Arthur Andersen had imploded simply because it had been indicted. (It was ultimately acquitted of criminal misconduct). But innocent partners, employees, shareholders and others suffered severe losses as a result of Andersen's demise.  Congress acted promptly.  In 2002 the Sarbanes-Oxley Act (SOX) became law with the express goal of improving the quality of public company financial reporting.  SOX imposed on senior executives personally enhanced disclosure and certification obligations, eliminated accountants' potential conflicts of interest, and established a new federal regulatory body, the PCAOB, to police the quality of public company audits.  The ABA chartered a task force to consider the impact of SOX. That task force later became the Director's and Officer's Liability Committee of the Business Law Section.

By 2002, the Internal Revenue Service had begun investigating the involvement of major accounting firms, law firms, the investment arms of banks, and securities firms in promoting allegedly abusive tax shelters. The tax shelters under investigation had operated to shield from tax billions of dollars of taxpayer income generated in the years leading up to the dot.com crash of 2000.  The IRS referred the matters to the Department of Justice (DOJ).  The DOJ brought or threatened criminal proceedings against both taxpayers and major accounting firms and other participants in the tax shelter industry.  The criminal cases were plowing new legal ground in that they sought for the first time to criminalize conduct that theretofore had been exclusively the province of highly disputed areas of civil tax law.  With only four major accounting firms left, the Andersen experience gave rise to an acute need to balance the interests of law enforcement and erosion of federal revenue against a desire to avoid the severely negative damage to innocent bystanders that followed Andersen's collapse.  

Avoidance Updates: Fraudulent Conveyances, Preferences, and Unauthorized Post-Petition Transfers

This panel addresses recent case law addressing avoidance actions.  The Bankruptcy Code sets forth various causes of action to avoid transfers.  The three avoidances at issue in this panel are: preferences (11 U.S.C. § 547), fraudulent conveyances (11 U.S.C. § 548), and unauthorized post-petition transfers (11 U.S.C. § 549).  This panel would be of interest to attorneys representing trustees, creditors’ committees, consumer debtors, and creditors. 

In 2018, the Supreme Court addressed and construed a major code provision concerning a safe-harbor against liability for fraudulent conveyances when financial institutions and securities are at issue.  The case may have widespread application and will be the major topic of the panel’s discussion.

In the past few years, federal appellate courts have addressed the “new value” defense to preference actions.  These case are laying the groundwork for a likely eventual ruling by the Supreme Court.  These cases will be covered.

Finally, the panel will address unauthorized post-petition transfers.

Banking in the Face of a Natural Disaster - Weathering the Storm and Mitigating the Harm

When a natural disaster such as hurricanes, floods, and wildfires hits a community, the results can be devastating. Not only does the natural disaster impact the daily lives of the customers of banks, but it has an impact on every aspect of bank operations and servicing. In those difficult times, there can be stress on the customer relationship, increased scrutiny from the regulators, adverse publicity and a challenge simply to operate the business functions of a bank in the ordinary course. It is imperative that financial institutions carefully construct contingency and business resumption plans. They should also carefully considered the customer impact of any servicing modifications or accommodations to be made in such an emotional time. 

After a natural disaster, an individual’s life can be turned upside down, and access to their money and bank can be a primary need. While online and mobile banking advances in recent years have helped the issue, the need to have detailed and comprehensive branch banking and overall banking business resumption and contingency plans in the event of a natural disaster are important. Dating back to the tme just after Hurricane Katrina, The Federal Financial Institutions Examination Council (FFIEC) member agencies (regulatory agencies) and the Conference of State Bank Supervisors compiled comments made by financial institutions regarding lessons they learned from the effects of Hurricane Katrina. Major challenges faced by these institutions included the following:

  1. Communications outages made it difficult to locate missing personnel.
  2. Access to and reliable transportation into restricted areas were not always available.
  3. Lack of electrical power or fuel for generators rendered computer systems inoperable.
  4. Multiple facilities were destroyed outright or sustained significant damage.
  5. Some branches and ATMs were underwater for weeks.
  6. Mail service was interrupted for months in some areas.

Boardroom Diversity: Pressures On

Boardroom diversity is a business imperative, statistically proven to increase profitability and likely to yield many ancillary benefits as well. Over the last several years, directors have increasingly recognized that diversity is beneficial; prominent corporate leaders have publicly encouraged companies to strive for diversity on their boards; and institutional investors have pushed companies with greater urgency and publicity to increase the number of women on their boards.

And yet, despite advancements on the international front, there had been no U.S. federal or state regulation regarding boardroom diversity – until California passed Senate Bill (SB) 826. SB 826 requires publicly traded corporations whose principal executive offices are in California to have at least one woman on their board by the end of 2019.

This panel will explore the current state of affairs for boardroom diversity; how companies have been dealing with the pressures, whether from investors, employees, the media or the law, to diversity their boards; whether regulation versus organic change is preferable; and the challenges to and tools for achieving boardroom diversity.

Brand Management: Using Your Brand to Maximize Professional Relationships

Last year, we talked a lot about how to zealously advocate for yourself and build your brand.  Now we are going to discuss how to capitalize on the brand you are building and use it to maximize your professional relationships.

Branding is all about shaping others’ perceptions of you.  Perceptions are not always accurate, but perceptions are all that matter.  Intentionally branding oneself to fully capitalize on one’s unique strengths is a practice that requires focus and attention.  Focus on both the inward-facing (inside organization) and outward facing (outside your organization) dimensions to one’s professional brand is key to having a strong, positive brand.

Brand management is the analysis and planning that goes into how your brand is received; it is an active process.  Developing key relationships is essential to brand management.  Elements of this process including presentation, skill, work product and work content.

Building a Healthcare Practice -  A Business Lawyer Perspective

In today’s global marketplace, attorneys, whether they be in-house or in private practice, are being required to step in to resolve or opine on issues that are increasingly international in scope, particularly as such issues relate to the health law and life sciences field. For some attorneys, this can be a daunting task when one is unfamiliar or does not have a general working knowledge of international transactions and common pitfalls. Our program, while broad in scope, will provide an overview of a range of international transactions as they relate to the health law and life sciences field in an effort to highlight key considerations that health law attorneys should keep in mind as they navigate international transactions. Such transactions will include Mergers & Acquisitions, Clinical Trial-related transactions, and general commercial transactions.

First and foremost, when handling an international transaction of any kind, it is important to understand the culture of the countries involved. For example, there are some countries where it is expected that contractual terms are non-negotiable, or if negotiable, discussions or tracked changes in a working document cannot be conducted in English. Further, some countries require several transactional/administrative hurdles to ensure a contract is fully-executed and binding, such as payment of a duty stamp, or registration. Cultural differences also play a factor in how you interact with players in international transactions, including determining the acceptability of customary gifts while ensuring compliance with regulatory requirements such as anti-bribery/anti-corruption (ABAC) and physician payment reporting requirements. These hurdles can be challenging, particularly for attorneys who do not have a great deal of access to resources. Overcoming these hurdles generally comes with experience as one grows more comfortable handling commercial transactions in a given territory; however, our panelists will offer some suggestions and tips on how they have overcome some of these issues and hurdles in their respective practices. 

California Consumer Privacy Act of 2018: New Standards and New Challenges

Under the threat of a more restrictive ballot initiative, in June 2018 the California Legislature enacted the Consumer Privacy Act (CCPA).  The new law expands existing consumer privacy rights under existing laws such as the Online Privacy Protection Act and the Shine the Light law as well as establishing new rights in relation to limiting the sale of personal information, requiring deletion of personal information, and nondiscrimination based on the assertion of privacy rights.  CCPA also creates a private right of action, including the availability of statutory damages, for those impacted by security breaches.  The provisions of the new law are scheduled to become effective on January 1, 2020 and the California Attorney General is tasked with writing rules to interpret and clarify provisions of the law.  This program will review several issues around the CCPA.

Canadian Derivatives Regulation and Cross-Border Impact

Post-crisis regulatory reform of the over-the-counter derivatives markets by the Leaders of the G-20 has been characterized by calls for cross-border harmonization.1 However, despite significant process through collaboration by national regulators and various comparability and equivalence determinations among such regulators, inconsistency in global over-the-counter derivatives regulation has resulted in additional complexity and challenges for derivatives users. The panel will discuss regulatory reform of the over-the-counter derivatives markets in Canada and the United States, and challenges faced by derivatives users who are subject, either directly or indirectly through their counterparties, to regulations imposed by securities and derivatives regulators in Canada and the United States.

At the Pittsburgh summit in 2009, the G-20 Leaders committed to a fundamental reform of the over-thecounter derivatives markets, which they alleged played a role during the global financial crisis. The G-20 Leaders’ objectives were to make the over-the-counter derivatives markets safer by mitigating systemic risk and providing additional transparency. These objectives resulted in regulatory proposals, including central clearing of standardized over-the-counter derivatives to reduce counterparty credit risk, higher capital requirements, margin requirements, and trade reporting requirements.

Cannabis in Canada and the U.S.: From Banking to Bankruptcy

On October 17, 2018, recreational cannabis became legal in Canada, authorizing provincial cannabis markets to emerge across the nation in the recreational space. This wholesale legalization remains in stark contrast to the legal status of cannabis in the United States where, at the commencement of 2019, only ten states in the U.S.A. allowed for recreational cannabis use and 33 states allowed for medical cannabis use while cannabis remains a Schedule 1 drug criminalized under U.S. federal law. As Americans are grappling with the tensions between state legalization and federal prohibition and uncertainty surrounding the legality of cannabis businesses, we seek to provide a snapshot of what the current legal landscape is for cannabis businesses in the different stages of their business. 

Cashing in on Cannabis: Current Issues in Financing, Operations, Banking, and Regulations in the Cannabis Industry, and a Comparative Analysis of the U.S. and Canadian Landscapes

The laws impacting cannabis and marijuana-related businesses have been an evolving landscape in both the U.S. and Canada.  There are also a number of inconsistencies between U.S. Federal and State laws that make it increasingly difficult for stakeholders in the cannabis business to determine what is legal.  29 states plus the District of Columbia have legalized marijuana for medical purposes, six states have legalized marijuana for recreational use and Maine and Massachusetts have approved legalization measures that have not yet taken effect. 

Under the Controlled Substances Act (the “CSA”), federal Law prohibits the manufacture, possession, or use of marijuana for any purpose, including medical purposes.   The Money Laundering Control Act also prohibits knowingly conducting a financial transaction that involves the proceeds of unlawful activity, which includes violations of narcotics laws.  However, there is an exclusion from violation of the CSA where the underlying activity is not an offense in the foreign country.

The landscape in the U.S. has changed very recently with the passage of the Agriculture Improvement Act of 2018 (also called the Farm Bill).  The Farm Bill makes “industrial hemp” exempt from the Controlled Substances Action, which is the law prohibiting the manufacture, distribution and dispensing of marijuana for any purpose even in states where recreational or medical marijuana sales are legal.  The Farm Bill also allows for interstate sales of hemp products.  There are also efforts in certain states, namely Oregon, to allow Oregon-grown cannabis to be sold across state lines.  Because of this confusing and contradictory environment in the U.S., there are genuine issues around whether marijuana-related businesses can access services of financial institutions such as obtaining loans, opening bank accounts, accepting credit and debit cards and using electronic payroll services.   

Comparing and Contrasting the Role of and Standards for Independent Directors in M&A

Conducting an Effective Internal Investigation – One Chance to Get it Right

Corporate Counsel Boot Camp: A Lawyer’s Guide to the In-House World

The world of an in-house lawyer is strikingly different from law-firm life.  The client and the client’s problems are not limited to the discrete legal matters that land in your office:  your client and your responsibilities become all encompassing.  The tsunami of new responsibilities can quickly overwhelm an in-house lawyer.  This presentation will help distill these responsibilities in order to help in-house lawyers of all experience levels enter, survive, and thrive in the in-house world.  

A lawyer just entering the in-house world must understand how to apply professional responsibilities to their new client: their employer.  An in-house lawyer has three main areas to consider ethically: 

  1. Understanding who their new client is and how interacting day-to day with their client’s employees, agents, and directors may quickly complicate their ethical duties.  Entrenched within the day-to-day workings on their client, in-house lawyers must understand how their professional duty to the client interplays with their interactions for their client’s employees, officers, and directors.
  2. Protecting their client’s confidential information under the attorney-client privilege, particularly when legal advice intersects with business advice.  The best in-house lawyers will know their client well, and that knowledge means any advice will often mix legal advice with business advice, where the attorney-client privilege may not apply.
  3. Learning their role in corporate governance.  For governance, in-house lawyers determine their role with respect to corporate governance matters, identifying when their board and other committees needs independent counsel.  They must also learn what to do when they discover wrongdoing.  Finally, in-house lawyers must help set the cultural tone and understand how governance is an integral part of the corporation’s value. 

Corporate Venture Capital: Legal and Other Considerations

Corporate venture capital (“CVC”) is on the upswing and playing an increasingly important role in venture finance and the strategies of emerging tech companies.  The recent Q4 Venture Monitor report showed that in 2018, CVC groups participated in 1,443 venture capital deals, or 16.1 percent of all the U.S. transactions.     CVC transactions raise a range of special considerations, both from the perspective of the CVC as well as the issuing company and its existing shareholders.  This CLE will examine a select set of issues that arise in this context with the goal being to improve the general awareness of these issues and to provide a framework for working through them efficiently in the context of quickly moving and often complex financing transactions.  More specifically, the panel will focus the discussion on the following three topics: control rights, information rights, and special notice and other rights related to an acquisition of the company.

Critical Cybersecurity Compliance Issues for Canadian and US Companies Operating Cross-Border

Laws governing cybersecurity and privacy have been in effect for a number of years in both Canada and the United States. Enforcement activities have been on the rise in both countries. Although the Canadian framework has one federal statute, supplemented by provincial laws, in the U.S. there are multiple federal laws and a growing number of state statutes and regulations that govern privacy and cybersecurity. Understanding the laws and regulations that are applicable to a business or client is imperative in order to assure that personal information and sensitive or confidential information are appropriately protected. For businesses that are engaged in Canadian-U.S. cross-border transactions it is important to have knowledge of laws and regulations on both sides of the border in order to assure that the personal and confidential information of  individuals is protected while also minimizing risks to businesses that may occur through penalties for non-compliance with laws and as a result of possible loss of strategic business information through hacking activities or other loss of data.

In the U.S., no single federal law regulates the privacy and security of personal information and confidential data.  Instead, there is a complex combination of federal and state laws and regulations that overlap and sometimes contradict one another.  Recently, data breach disclosure obligations have expanded significantly as data security breaches continue to dominate the news.  In addition, governmental agencies and industry groups have developed guidelines and self-regulatory regimes that create what amount to privacy and security best practices.  These new laws, coupled with the tremendous increase in data collection and processing, result in greater risk of privacy and security violations and create significant compliance challenges.

The U.S. Federal Trade Commission Act, The Health Information Portability and Accountability Act (HIPPA), The Electronic Communications Privacy Act, and the Children's Online Privacy Protection Act are several, but not all U.S. federal laws that govern certain actions or set out procedures that must be followed in order to protect private information as defined in the respective laws. The California Consumer Privacy Act and the Massachusetts Data Security Regulation are two state statutes that are trying to provide greater protection than may be available under federal laws. Washington State’s legislature is considering enacting a law called the Washington Privacy Act. If enacted, that law and the California act are two frameworks that are more stringent than other U.S. frameworks. The Washington legislation is more closely modeled after the European Union’s General Data Protection Regulation, which is more restrictive on businesses than current U.S. laws. 

Cross Border M&A-Can‘t Get No Relief:  The Growing Limits on Foreign Investment

Cross-Border Mortgage Regulation - Stress Tests v. Qualified Mortgages

Cross Border Social Enterprises and Social Responsibility: Benefit Corporations, Social Enterprises, and Corporate Social Responsibility in the States and Canada

Globally, the question about how business is done (and profits are earned and should be distributed or redistributed) vis a vis how we exist and interact with each other as a society has risen to the forefront. This inquiry is more than just political. In the United States, we daily live the with debate about how: (1) we pay for health care, (2) we deal with the loss of jobs caused by innovation, (3) we grapple with regulation on business in order to combat climate change, and (4) we govern and tax ourselves in order to pay for the goods and services that are delivered to us by our federal, state, and local governments. These questions are front and center almost daily given the current political climate in the United States. While elected or would be elected officials debate these issues, the average American citizen – either a worker or business owner/investor (or anyone in between) -- grapples with how to earn money to pay for everything from basic human needs to luxury items to retirement. The production of income either through active activities (goods or services delivered in exchange for compensation) or passive activities (the investment of capital into the income earning activities of others with an expectation of a return of the capital investment plus profit) occupies brain space in every citizen of the United States who works for a living, interacts with the world through social media, consumes goods and services, depends on entitlements, or is saving or living for or through retirement. So, whether they know it or not, both United States law makers and average citizens grapple with the role and place profit making businesses play in both the personal and private lives of everyone.

Presumably in response to these questions, in August 2018, now presidential candidate Senator Elizabeth Warren introduced the Accountable Capitalism Act (see attached proposed Accountable Capitalism Act), which requires very large corporations to adopt a federal charter that requires those corporations to consider the interests of not just their shareholders, but also other corporate stakeholders, including employees, customers, the environment, and the community. The other key provision requires that employees elect at least 40% of the board of directors.

Crypto Asset Enforcement Actions: TKO for ICOs? or Course Correction for a New Asset Class?

Federal regulators, including the SEC, CFTC, OCC, and FinCEN, continue to shape the regulatory landscape for crypto currencies, crypto token issuers, money service businesses, and other entities that facilitate crypto transactions. While many of the earliest enforcement actions were resolved by consent, increasingly defendants are choosing to litigate more of these cases. New to the fray are investors’ class counsel seeking rescission for investors who have lost billions to fraudsters.

This program examines recent federal developments at the agency level and in the courts with comprehensive reviews of the latest enforcement actions, class action litigation, and regulatory guidance for issuers, investors, money transmitters, and other participants in the crypto markets. Based on the latest developments, panelists will distill lessons for prospective issuers and investors, and assess the state of the market for crypto assets in light of the legal realities.

Current Developments in Securitization and Structured Finance

Residential mortgage-backed securities (“RMBS”) became a household name during the financial crisis.  A decade later, litigation brought to the fore in the wake of the financial crisis remains to be decided in multiple jurisdictions.  Litigation concerning RMBS has taken on many forms over the years.  This program will focus on RMBS repurchase or “put-back” litigation in which plaintiffs seek to enforce the repurchase obligations of sponsors and originators for breaches of the loan-level representations and warranties, as well as cases in which investors have brought claims against trustees for their failure to bring timely repurchase claims.  

Current Issues in Auto Finance: Driving through Developments in Litigation and Enforcement

Post-default collections and asset recovery is a high risk part of any creditor’s activities.  One area of post-default collections that poses significant risk is the use of form letters under states’ Uniform Commercial Codes.  Because a creditor will often use the same form letters to pursue all of its collections, the scope of potential liability is great.  In an effort to comply with the law and to manage risk, a creditor may use “safe-harbor” notices set out in state versions of the UCC.  However, an ongoing case from the First Circuit Court of Appeal suggests that there may be no such thing as a “safe harbor.”  In addition, two ongoing Missouri Circuit Court Cases have held that creditors may not recover interest on an underlying consumer credit agreement after default until a final judgment has been ordered.  The nationwide scope of a class certified in one of the Missouri cases demonstrates the wide scope of the risk that creditors face in post-default collections.  

Current State of the Syndicated Loan Market

2018 was a record year for the syndicated loan market. According to LPC, overall U.S. syndicated lending (including investment grade loans) topped $2.5 trillion for the first time ever. This is entirely due to investment grade lending which surpassed $1 trillion. Looking at the leveraged loan space, nominal leveraged lending was down, but real money lending (M&A, LBOs) was up. This is the expected result in a softer market like the one we saw in 2018, because refinancings decline.  LPC recorded leveraged lending as declining by 12% in 2018. Institutional lending dropped more materially, falling 21% to $730 billion. These numbers may not tell the whole story, however. In a market where spreads were flat to wider, it was the optional refinancings that evaporated, leaving only the “real” lending. As merger activity rebounded, so did the financing supporting it. LPC saw $381 billion of leveraged M&A which surpassed the previous record in 2007. At $142 billion, LBO lending remained well short of record levels but was still the second strongest year tracked by LPC. The strong “real” lending observed also added considerably to the outstandings in the S&P/LSTA Leveraged Loan Index which climbed 20% to $1.15 trillion.

Looking at deal structure and terms, the borrower-friendly trend continued for most of the year due to the supply-demand imbalance in the market. Greater flexibility in terms and conditions was seen across the board, although terms began to tighten in December. It remains to be seen whether that will continue this year, but some market participants certainly hope that it does as covenant degradation is an area of increased lender focus. 

Data: Navigating its Promises and Problems for Evolving Payment Services

Dazed and Confused: Legal Considerations in the Business of Legalized Marijuana

Cannabis use and possession remains prohibited at the federal level under the U.S. Federal Controlled Substances Act, while currently medicinal cannabis is legal in 32 U.S. states plus the District of Columbia, adult recreational use is legal in 10 U.S. states, and adult recreational use became legal throughout Canada on October 17. These conflicting laws present challenges for those in the cannabis industry seeking to protect and enforce their intellectual property. This program, led by experts in the cannabis industry, will provide a deep-dive view of the various intellectual property issues that companies in the cannabis industry should consider when operating a legalized marijuana business. In particular, the panel will focus on strategies and solutions when seeking to trademark, patent, or license cannabisrelated products. Taking a comparative view, the panel will feature attorneys from both the United States and Canada.

Delaware Hodgepodge:  A Review Of Frequent Questions Delaware Law Practitioners Receive Regarding Private Equity and Venture Capital

Over the years, the Private Equity and Venture Capital Committee has sponsored programs analyzing several of the “big issues” under Delaware law for Private Equity and Venture Capital, including the existence of conflicts, exit rights, and traps for the unwary in drafting preferred stock terms.  This CLE will tackle several smaller, though no less important, issues. This “hodgepodge” of issues includes questions Delaware practitioners get asked on a regular basis, none of which standing alone would be the basis of a full CLE program, but in the aggregate will, we hope, provide participants with much to think about in their practices going forward.

Dialogue with the Director

Distress, Disaster, and Disability: Recent  Pronouncements on Ethical Duties Pertaining to Disabilities and Disasters

This program provides important information about  ethical obligations relating to from large-scale disasters, cyberbreaches, and issues relating to disabilities and wellness in the legal profession.  Recent ethics opinions dealing with the first two topics and recent resolutions – one adopted, one proposed but not adopted – along with some older ethics opinions on the latter two topics will be discussed.

In addition to discussing the concerns that the ethics pronouncements are intended to address, the panel will consider problems arising from reconciling ethics pronouncements with the realities of contemporary law practice, particularly business law practice.   Often, such pronouncements may be made despite the absence of any widespread concerns, inside or outside the profession, about lawyers not fulfilling ethical obligations in these areas.  There are also dangers that “one-size-fits-all” solutions fail adequately to take into account the nuances of the issues and the varied contexts in which such issues arise.  This concern is especially serious when the pronouncements seek to articulate and impose “ethical obligations” that may be novel or are not necessarily a reasonable extrapolation from, or interpretation of, existing rules of professional conduct.

In addition, issues relating to large-scale disasters, cyberbreaches, disabilities, and wellness highlight the importance of succession planning for lawyers and law firms.  This topic will also be explored.

Drafting ADR Clauses for Financial, M&A and Joint Venture Disputes

Many enterprises and lawyers that handle financial, M&A and joint venture transactions are now turning to alternative dispute resolution (ADR) as an effective way to resolve disputes. Over the last few years, ADR institutions have seen a significant increase in these types of disputes.  Oftentimes the drafters fail to appreciate all of the nuances of ADR or the various options that should be considered at the front end to set the table for a possible dispute down the road. Business corporate lawyers should include the litigators in their firms in this process, especially since if there is a dispute down the road as it is the litigators who will be in charge of any form of ADR process, be it mediation or arbitration. Consequently, drafting a dispute resolution clause can resemble the retelling of childhood tale of the Three Pigs: too vague, too specific, or just right. 

This interactive program brings together experts that draft clauses with litigators, arbitrators and arbitral institutions that have to work with these ADR clauses after a dispute has arisen.  The panelists will share their different perspectives and insights on how to avoid ADR clause drafting pitfalls and discuss what tools/resources are available.  The speakers will analyze a number of ADR clauses with the audience and provide the attendees with a list of practical considerations – including if and when to use expert determinations or mediation, whether to carve out certain types of disputes for litigation, and how to avoid common pitfalls – when drafting a dispute resolution clause.  Considerations of ethical issues and cross-border implications will be discussed – and the audience can come with its own questions.  This session is equally appropriate for litigators, in-house and transactional attorneys, and anyone interested in understanding the power of a well drafted ADR clause.

Furthermore, as one of the institutional ADR providers, JAMS notes: “Planning is the key to avoiding the adverse effects of litigation. The optimal time for businesses to implement strategies for avoidance of those adverse effects is before any dispute arises. We at JAMS recommend, therefore, that whenever you negotiate or enter into a contract, you should carefully consider and decide on the procedures that will govern the resolution of any disputes that may arise in the course of the contractual relationship. By doing this before any dispute arises, you avoid the difficulties of attempting to negotiate dispute resolution procedures when you are already in the midst of a substantive dispute that may have engendered a lack of trust on both sides.”

Ethical and Legal Issues in Multi-Jurisdictional Practice

Lawyers in the United States and Canada are generally licensed to practice by political subdivisions (“jurisdictions”), generally states or provinces.  Such licensure furthers the ability of the highest court in a jurisdiction to exercise control over, and administer, the practice of within that jurisdiction.  One justification for this local regulation is that it ensures that lawyers practicing in a particular jurisdiction are familiar with the laws of that jurisdiction. Regrettably, many clients and legal matters tend not to respect jurisdictional boundaries.  Multi-state or multi-national business dealings or litigation dealing with issues in one or more jurisdiction.  Further, the idea that lawyers licensed in a jurisdiction maintain competence in all aspects of the jurisdiction’s jurisprudence is an anachronistic concept dating back to the time when a lawyer might be called upon to handle anything from a capital criminal defense to a complex business transaction.  Most lawyers now tend to limit their practice to more focused areas of law so that business lawyer is likely to be more familiar with the business law of Delaware than the workers compensation laws of her or his home jurisdiction.

Practice of law by a lawyer licensed in one jurisdiction (the “home jurisdiction”) in another jurisdiction (the “host jurisdiction”) in which the lawyer is not licensed (“multijurisdictional practice” or “MJP”) may constitute unauthorized practice of law under the rules of the host jurisdiction and violation of home jurisdiction’s equivalent of Model Rule 5.5.   (Unauthorized Practice of Law; Multijurisdictional Practice of Law).  These strictures in some respects are intended to protect clients but may have the effect, if not the intent, to protect host state lawyers from competition. 

Over the past two decades, in the United States both the Model Rules of Professional Conduct and state rules governing unauthorized practice of law have been reviewed and relaxed to take into account several circumstances in which a home state lawyer is practicing in a host state including, in-house (or single-client) representation, pro hac vice practice, licensing of foreign legal consultants, military lawyers and their spouses, temporary practice, pro bono practice in the host state by home state lawyers, practice while awaiting admission on motion, practicing in non and others.  In each of these cases, the states have needed to develop rules either admitting the home state lawyers to practice, declaring particular activities not to be the unauthorized practice of law, or providing special limited licenses to practice under certain conditions.  Attendant to these rules, states have had to consider the application of rules such requirements with respect to continuing legal education, location for maintenance of trust accounts, participation in pro bono activities.

Ethics Rules and Recent Updates on Informed Consent to Waive Conflicts, Prospective Waivers, Screening Procedures, and Outside Counsel Guidelines

This presentation will address conflicts and waivers, including prospective or “advance” waivers, screening procedures, and “Outside Counsel Guidelines,” and will provide the practicing attorney with some practical tips along the way.  The presentation itself will likewise identify some recent updates and issues on this topic. 

One cannot appreciate the importance of specific conflict waivers, prospective or “advance waivers,” screening procedures, and in many instances, “Outside Counsel Guidelines,” without having a general command of the basic conflict of interest rules.  Under ABA Model Rule 1.7(a)(1), the lawyer cannot represent one client “directly adverse” to another current client of the lawyer or his/her law firm, even in an unrelated matter, without the informed consent, confirmed in writing, of each affected client. 

There is often a misconception among lawyers, particular transactional lawyers, as to what “directly adverse” means in this context.  “Directly adverse” conflicts do not necessarily have to arise in adversarial situations.  Rather, a “directly adverse” conflict arises in any situation where the lawyer’s representation of one client affects the legal rights or interests of another current client the lawyer or his/her law firm represents in some other matter.  Another common misconception about the conflict rules is the failure of lawyers to appreciate that, when dealing with two opposing current clients, the relatedness of the two matters is immaterial to the conflict analysis.  If the lawyer (or his/her law firm) represents the adverse party in any ongoing representation, the lawyer has a conflict.  The only way the lawyer can ethically undertake the adverse representation is for each of the affected clients to provide their informed consent, confirmed in writing.  

Fisher Memorial Program: The Fair Lending Implications of AI Underwriting

This year’s Fisher Memorial Program will address and debate the use of artificial intelligence (or machine learning) in the marketing and underwriting of consumer financial services products.

First, we will review the source of artificial intelligence, such as big data, and other information sources. Next we will pose and debate the question as to why financial services companies should not be able to use information available to them, or voluntarily offered by potential consumer in order to craft and offer products to certain consumer based upon such data. Such offers might be designed not only to consumer who are likely to apply, but also be approved and use the product.

Faster Payments: The Journey from Authorization to Settlement

With the introduction of a variety of new, faster payment methods, including Same Day ACH, The Clearing House’s Real-Time Payment System (RTP) and Early Warning Services’ Zelle payment service, as well as a potential Federal Reserve Real Time Gross Settlement (RTGS) offering, the payments landscape is evolving rapidly.

These systems and services are subject to an extensive set of legal requirements. Those aiming to understand this legal framework must look to not only laws and regulations, but also payment system rules. Core laws include the Electronic Fund Transfer Act and its implementing regulation, Regulation E, and Article 4A of the Uniform Commercial Code (Article 4A). In many cases, the applicability and operation of these requirements, a financial institution’s obligations, and a customer’s rights, are dependent on the nature and features of a particular payment transaction. This includes, for example, whether the transaction is a consumer or commercial transaction; whether funds are moved via a “debit pull” payment or a “credit push payment”; and whether the transaction is reversible or final. In many cases, these distinctions and their significance is not well understood. However, to make sense of the legal requirements for new, faster payments systems, it is essential to understand core payment concepts and how the functionality of these systems differ.

Fiduciary Dodgeball: Governance of Distressed Multi-State Corporate Groups

Fintech True North: American and Canadian Policy Approaches to Digital Currency and Fintech

Foreclosure and the FDCPA: A Look at Obduskey v. McCarthy & Holthus LLP

Gaming Law Basics for Business Lawyers: Sports Betting, Online Gaming & Tribal Casinos

Lawyers with a gaming law practice typically represent clients before regulatory bodies that monitor compliance with a broad range of requirements imposed by statute and through regulations.  But gaming attorneys necessarily have to develop expertise in other areas of law.   One of the notable characteristics of a gaming law practice is its intersection with other areas of business law:  tax law, bankruptcy, corporate finance, and intellectual property, to name just a few.  A gaming attorney must have considerable familiarity with these and other areas of business law, including business torts. 

Correspondingly, many business lawyers who do not represent clients in the gaming industry may come up against issues that in some way or another implicate gaming law.  Client transactions that, even indirectly, affect gaming interests may be impacted by the heavily regulated nature of gaming.  A business lawyer who says, “I don’t handle gaming law issues,” may be surprised when issues arise that require a knowledge of some aspects of gaming law.  For example, a client who conducts business with a gaming property can in some instances be called forward before a regulatory body for a determination of suitability.  In such a setting, an awareness of fundamental concepts of gaming law may be an important base of knowledge for the business lawyer.

With these considerations in mind, the Gaming Law Committee has undertaken a book project titled, “What Every Business Lawyer Needs to Know About Gaming Law.”  The book, due to be published in the fall of 2019, will set out the basic structure of the gaming industry and the elaborate framework of regulation and licensing that is characteristic of the industry.  It will also cover topics such as:  dealings with Indian tribes, issues of corporate financing and restructuring, anti-money laundering requirements, social gaming, enforceability of gaming debts, internet gaming, and problem gambling.  The book will also offer background on gaming issues that have a high public profile such as sports betting and lotteries.  We expect our primary audience to be business lawyers who don’t specialize in gaming but who represent clients with business interests that may occasionally involve gaming law.

Government Regulation of Blockchain - What, How and Why (Bother)?

  • In the first month of 2019, 17 state had introduced a total of 27 blockchain bills in their legislatures.  This panel will cover the state, federal and international regulation of blockchain. The two key written materials for the presentation are Blockchain and the Uniform Electronic Transactions Act, by A.J. Bosco (74 The Business Lawyer, Winter 2018-2019, 243) and a whitepaper on smart contracts published by the Digital Chamber of Commerce. 
  • Program Materials
  • Audio

Guiding Clients Through CFIUS Review In the Wake of the Foreign Investment Risk Review Modernization Act of 2018

Inclusion and Advancement of Diverse Lawyers: How to Ensure Success After the Hire, Ethical Considerations to Supporting Inclusion Initiatives, and What We Can Learn from Our North American Neighbors

The legal profession has moved at a slow pace in addressing issues of diversity and inclusion. Reports in the U.S. and Canada indicate that lawyers of color, lawyers with disabilities, LGBTQ2+ lawyers and women lawyers (collectively, for purposes of this article, “diverse lawyers”) are not well-represented in the profession, particularly at the partner level or in leadership or management roles.

The American Bar Association reported in 2018 that 85% of lawyers in the U.S. were Caucasian/white and 36% identified as female. A 2018 Report on Diversity in U.S. Law Firms by the National Association for Placement reported that:

  • overall representation of women, minorities and minority women saw only small gains in 2018;
  • representation of Black/African-American lawyers among partners has barely increased since 2009;
  • minority women continue to be the most underrepresented group at partnership level;
  • there are wide geographic disparities in the number of LGBT lawyers, with a majority being accounted for in densely populated cities such as New York City, Washington, DC, Los Angeles, and San Francisco; and
  • reporting of lawyers with disabilities is scant at both partner and associate levels.

International Transactions in a Heavily-Regulated and Changing Legal Landscape

As either Legal practices and or organizations expand organically or through mergers, it is critical, they foster specialization.  What are organizations doing to develop new lawyers?  The competitive legal healthcare landscape requires organizations to offer more opportunities for new lawyers in the field whether in-house or in private practice.  Regrettably, new lawyers are not always aware of how to build a health law practice.  Our program while broad in scope, will attempt to provide the various industry leader perspectives on how to prepare, build and develop a healthcare practice.  The program should provide new attorneys with how to explore the field with the many opportunities a healthcare legal practice can develop and offer to its fullest. 

When the decision is made to pursue healthcare law what does that entail for a new lawyer to the field?  There are significant differences on why different leaders chose different paths within healthcare field to explore.  There is the traditional route with recruitment through internships during law school, various law courses and or other routes to arrive with focusing on healthcare law.  For some after a few health law courses, personal health law experiences or just the need to want to help those with issue in healthcare legal field might be how one chooses to focus on healthcare law. 

After you make the decision that healthcare law, is where you want to be then what is next?  One panel member will talk about how they built their law practice organically within the same firm and ultimately became the firms practice leader.  You will hear the panelists talk about their day-to-day responsibilities and how this has changed over the years.  In addition, you will hear why being with a law firm was more important than joining an organization’s in-house legal department.  Why one chose the route of business lawyer in lieu of litigation.  Did gender affect the decision to focus on a health law practice they chose?  These are the many questions and or issues a new lawyer faces with building a healthcare practice.

"Law & Order" Discovery Victims Unit

This is a 2-hour CLE program focused on electronic discovery, spoliation and sanctions issues, presented in a Law & Order'esque story format.  Panelists, including eight judges, lawyers representing each side of the case, a fact witness, and competing technical/forensic experts will act out the storyline, pausing at designated intervals to drop character and inject commentary.  The story will be based on a hypothetical federal lawsuit involving the alleged theft of trade secrets by former employees of a political consulting firm, and will track the progression of the lawsuit in the trial court from the initial Rule 26(f) conference, to a Rule 16 scheduling hearing before a judge, a hearing on an early motion to compel and for sanctions relating to the withholding of ESI, another hearing on a related motion for sanctions for deposition misconduct, an evidentiary hearing on a pretrial motion for Rule 37(e)(2) sanctions for failure to preserve ESI, and ultimately to a mock sidebar at trial because a witness or attorney mentioned an issue or evidence precluded by the Court's earlier sanctions rulings.  The first hour will focus on graduated levels of conduct warranting sanctions from the Rule 26(f) conference through the discovery motions practice, seeking to educate the audience as to what conduct is sanctionable versus conduct that may be obnoxious but falls short of being sanctionable.  The second hour will focus on how sanctionable discovery conduct concerning ESI is addressed under the current version of Fed. R. Civ. P. 37(e)(1)-(2) in the pretrial sanctions hearing and during the mock sidebar at trial.  The program will be structured to allow reactions to the scripted presentations and the presiding judges' rulings from the bench.

Throughout this interactive two-hour program, panelists will address the fact that the sheer volume and cost required to obtain and process ESI during discovery can make it difficult for counsel to know whether an adversary's responsive ESI has been withheld, altered or destroyed. The intentional destruction of ESI has become increasingly common and more difficult to detect as technology has become more sophisticated. Powerful wiping programs and other practices can obliterate documents and metadata. Yet an analysis of whether such programs and practices were deployed is rarely part of trial counsel's initial assessment. This program will provide practical tips to assist counsel in understanding when to be on heightened alert for the potential of ESI spoliation, how to identify red flags, and how to efficiently detect whether ESI spoliation has occurred.  Panelists will also provide a useful framework for conducting a base analysis and determining when additional analysis is worthwhile. In addition, the presentation will feature a discussion of available legal strategies, options, and remedies in response to an adversary's ESI spoliation. Importantly, program will address the professional obligations that counsel for the requesting party and for the producing party must consider throughout the litigation process.  These ethical considerations cover a broad range of topics, including competency, duties to preserve and collect evidence, candor, cooperation, confidentiality, fairness, professional integrity, and more.

Law & Order fans will note reference to characters who have played a role in the show over the years (including some famous cameo appearances), and this interactive program will aim to ensure that those who attend do not become “Discovery Victims.”

Legal Analytics Series: Organizing Useful Practice Data - First Steps for Everyone

This first program in the Legal Analytics Series - Organizing Useful Practice Data - First Steps for Everyone focuses on teaching attorneys the basics of creating and organizing useful practice data. Many lawyers haven’t had real exposure to the idea of using data to drive decisions. They might not understand the idea, or they might not know how to start. In this respect, the legal industry is well behind other industries. Almost all of the principles that guide the process of using data to make decisions come from other industries – but they are easily adapted to legal practice. In addition, data-driven decision making is equally applicable to in-house attorneys or legal operations.

In “What is Data Driven Law,” Mary Juetten provides a useful article on data-driven law, describing the methods attorneys should use to bring a data-driven approach to their practice. She outlines the basic concepts:

  • Start with the end in mind:  identify what you as an attorney want to accomplish, find your pain points, and determine what changes you want to see in your practice.
  • Process before Purchase; Data before Decision: determine what you want to accomplish and how you might achieve that goal before you start investing in new systems and technology. Obtain data, and use that data to make your decisions.
  • Capture data near the source: capture your information as close to the beginning of the process as possible, and continue to collect it as the process continues. 

Legislative Developments in State Consumer Protection Laws

Until very recently, legal principles surrounding unfairness, deception, and abusiveness have been defined primarily at the federal level. Yet with perceived federal retrenchment from consumer protection, states have increasingly taken a hard look at their roles in protecting their citizens from unfair, deceptive, or abusive acts or practices (UDAP/UDAAP).  Recent legislative changes in Maryland and Arkansas highlight the different approaches states are taking in how they regulate UDAP/UDAAP and through those changes are choosing to either prioritize consumer protection or protect industry from perceived overreach.

Lessons from the Trenches for Transactional Lawyers

Let’s Make a Bank!: Developments in De Novo Bank, Industrial Loan Company and Fintech Charters

De novo bank and other depository institution formation reached historically low levels in the period following the 2007-09 financial crisis. In 2007, the Federal Deposit Insurance Corporation (“FDIC”) approved 191 applications for deposit insurance. By 2009, that number had fallen to eleven approvals and declined even further in the following years (2010 - ten approvals; 2011 - three approvals; 2012 - zero approvals; 2013 - two approvals; 2014 - zero approvals; 2015 - three approvals; 2016 - two approvals).

However, in recent years, the formation of de novo depository institutions has begun to rebound with eight FDIC approvals of deposit insurance applications in 2017 and 15 such approvals in 2018. In addition to the raw numbers of approvals for deposit insurance, several recent regulatory developments have brightened the outlook for new financial institutions. On January 23, 2018, FDIC Chairperson Jelena McWilliams indicated in her Senate confirmation testimony that she intended to begin processing industrial loan company (“ILC”) applications for deposit insurance in good faith once she was sworn in; on July 31, 2018, the Office of the Comptroller of the Currency (“OCC”) began accepting applications from nondepository financial technology companies for limited purpose national bank charters; and on December 6, 2018, the FDIC published new guidance on organizing de novo institutions and applying for deposit insurance. Each of these developments standing alone would be positive developments for the financial institution startup market, but together they indicate that the regulatory environment is quickly becoming more favorable to financial institution startups.

As noted above, the market for de novo banks and other insured depository institutions collapsed after the 2007-09 financial crisis. In response to the increase in deposit insurance applications in recent years, the FDIC has revised its handbook for de novo organizers as well as its deposit insurance applications manual. While the revisions to both documents do not establish any new policies or guidance, they do provide organizers and the public greater transparency and clarity related to the FDIC’s review and approval of applications for deposit insurance. Additionally, the same day it revised its handbook and manual related to deposit insurance applications, the FDIC also issued a Financial Institutions Letter announcing that it had established a process for organizers to officially request FDIC staff review of a draft deposit insurance application. Taken together, these developments demonstrate the FDIC’s renewed commitment to making deposit insurance applications more accessible and efficient.

Letters of Credit & Applicant Bankruptcy:  U.S. & Canadian Bankruptcy Provisions and Cases for Beneficiaries, Issuers, Applicants & Others

This program examines the effect on a letter of credit (LC) transaction of the U.S. or Canadian bankruptcy of the applicant (Applicant) for the LC.  Questions explored include:

May the beneficiary (Beneficiary) of the LC draw on the LC or is it stayed from drawing because of the bankruptcy proceeding?

May the issuer (Issuer) of the LC pay a facially complying drawing on the LC or is it stayed from doing so because of the bankruptcy proceeding?

If the Issuer pays the LC drawing, may the Beneficiary keep the LC proceeds?

If the Issuer pays the LC drawing, is it entitled to be reimbursed

If the Issuer has been reimbursed, is it entitled to keep the reimbursement?

What happens if the Beneficiary fails to draw on the LC?

LIBOR Phase-Out: What the Countdown to 2021 Means for Lenders

The London Interbank Offered Rate (LIBOR) is a global benchmark interest rate, which is calculated in five difference currencies. US Dollar LIBOR alone is referenced in approximately $200 trillion of outstanding financial products. The LIBOR benchmark is used for nearly all financial products, including commercial, consumer, and mortgage loan products. Numerous outstanding loan transactions have maturities well into the future. The problem is that LIBOR has become less reliable and trustworthy, and it may not exist after 2021.

LIBOR is determined daily based on the representations of certain large, international banks regarding what they believe they would have to pay to borrow unsecured funds from each other on the London interbank lending market. US Dollar LIBOR is calculated from an average of 18 bank submissions after excluding the four highest and lowest submissions. Since LIBOR is not set by the cost of funds that banks actually pay, it was always susceptible to manipulation by stakeholders and traders. And when widespread LIBOR manipulation was discovered, regulators assessed billions of dollars of penalties and fines against institutions and individuals. While panel banks have continued to participate in the LIBOR survey at the insistence of regulators, that voluntary agreement to sustain LIBOR will cease at the end of 2021, when LIBOR will either disappear entirely or become unreliable.

In response to this potentiality, the Federal Reserve Board and the Federal Reserve Bank of New York (New York Fed) created the Alternative Reference Rate Committee (ARRC) “to identify a set of alternative reference interest rates that are more firmly based on transactions from a robust underlying market and that comply with emerging standards,” as well as to establish best practices for contract quality, and to develop and create an implementation plan. In 2017, the ARRC announced that the Secured Overnight Financing Rate has been chosen as the recommended primary replacement rate for LIBOR.

LLC Boot Camp:  What Every Associate (And Every Partner) Needs To Know

In every state, far more limited liability companies (LLCs) are being formed than corporations.  LLCs provide flexible organizational structure as opposed to business corporations. One of the major reasons more people elect to form LLCs over corporations is the pass through tax treatment that can be received without dealing with the restrictions that an S-corporation presents. Answering questions regarding the rights or responsibilities of LLC members must be done by careful examination of a particular operating agreement and a state’s LLC Act.

The manner in which a LLC operating agreement is drafted is vital to the function of the LLC.  Operating agreements can be drafted based on statutory defaults found in a state’s LLC act. Statutory defaults can vary from state to state as every state’s LLC Act is unique. This uniqueness is seen in the use of inconsistent terminology, differing default rights, and various limitations on the modification of default rules. Operating agreements can also be drafted by private ordering, giving contractual freedom to its members. When drafting an operating agreement it is vital that its author be competent and careful attention be given to drafting the operating agreement to match the deal structure and business plan of the LLC.

LLCs are funded through initial and ongoing capital contributions. Initial capital contributions can be made through cash, property, or services. Ongoing funding often requires periodic cash infusions. It is important that the LLC’s operating agreement detail the process and rules for contributing capital to the LLC.

LLC Case Law Update

M&A Post Closing Disputes

The M&A Post Closing Disputes session will be delivered by a panel of senior legal and financial practitioners from several geographies with extensive experience in the broad range of disputes that arise in and from merger and acquisition transactions.  The discussion will focus not only in-country acquisitions but also cross-border acquisitions and the disputes that can arise therefrom.  The international nature of the panelists (USA, UK and Canada) are well suited to cover this ground.  Each panelist will provide a presentation on aspects of M&A disputes in their particular field of expertise and in which they have been involved along with a number of “war stories” on interesting matters in which they have been personally involved.   These matters canvass a broad range of industry contexts.  The discussion will address a number of legal issues, how to deal with them after they arise and how to avoid them in the first place.  It will also address financial and related remedies to various problems that can arise – from the most common working capital adjustments to the more complicated pricing / valuation adjustments that can arise in circumstances such as misrepresentations and related issues. The discussion will also address recent trends in these M&A dispute matters and provide insights in to the processes that may be involved for the resolution of such disputes (including international arbitration) and pros and cons of each.  

Making Sure Your Project is Properly Insured

Medical AI: Legal Issues of Robotics in Healthcare

Your pacemaker uses machine learning algorithms to detect irregularities in your breathing and make related predictions about the function of your heart. Although this allows for more precise treatment of your condition, it may take the privacy and security concerns from your smart watch, a mere wearable, and literally implant them into your heart. Who is liable if your heart is hacked and damage results? Does available insurance adequately cover the risks? Can patients be expected to understand enough about how the device functions to fully comprehend the scope of potential downstream risk? This panel will explore these and other issues at the frontier of Artificial Intelligence (“AI”) in healthcare.

The panelists will ground the discussion by first providing foundational details regarding the technical aspects of AI. When we refer to AI, what do we mean specifically? Which types of AI are most commonly used in healthcare applications? How do the features of those AI techniques affect analysis of legal issues in medical AI? How do non-technical lawyers get up to speed sufficiently to adequately perform the required analysis? This program will offer a short, introductory explanation of the technical fundamentals of AI that transactional lawyers should understand in order to effectively counsel clients building products and services at the intersection of AI and healthcare.

The program will then discuss some of the use cases of medical AI. Surgeons using smart scalpels. Dermatologists using AI-assisted research and data mining tools to assist with difficult diagnosis. Radiologists using deep learning algorithms to read diagnostic imagery with greater preciseness than human capability. Precision AI to detect breast cancer, as well as applications in cardiology, pathology and ophthalmology. The program will also touch on the ever-increasing availability of wearable and implantable medical AI. All of these use cases offer potential benefits of greater patient well-being through earlier detection and more effective treatment of disease. But with all technology, the benefits come with trade-offs.

Motivate, Facilitate, Celebrate: Pro Bono Models that Work for American and Canadian Business Lawyers

"Good morning! Welcome to bankruptcy court. I'm glad you're here." That's how I often greet prose debtors who are appearing in my courtroom, the U.S. Bankruptcy Court for the Eastern District of New York, in Brooklyn, nervous and concerned that something has gone wrong in their case. Sometimes I also explain that bankruptcy relief has deep roots in the U.S. legal system, and that it is provided for in the United States Constitution where the Founders empowered Congress in Article I, Section 8 to "establish ... uniform Laws on the subject of Bankruptcies." Then as now, a federal bankruptcy law was viewed as necessary to provide relief and a "fresh start" to the "honest but unfortunate debtor" who is overwhelmed by debt. 

More than one million bankruptcy cases were filed in the United States last year, and each one might have led to a discharge for the debtor and, where there were assets, a distribution to creditors. But in tens of thousands of those cases, the debtor filed the case without the assistance of a lawyer. And many of those cases ended in a dismissal for failure to comply with one of the Bankruptcy Code's procedural or administrative requirements. The prospect of relief for the debtor, and perhaps, distribution to creditors, was lost. 

Navigating How and When to Make Public Disclosures based on Bank or Regulatory-Initiated Findings

Preparing Law Students for a Global Practice

In an era of high law school tuition and a tight legal job market, educators and lawyers are constantly reexamining the law school curriculum. The traditional curriculum, based on the Socratic method and core courses such as torts, Constitutional Law, contracts, civil procedure, and property, is being rethought.

Among the issues generating attention is “global legal education.” Inspired by the recognition that lawyers are increasingly dealing with cross-border problems and the expectation that cross-border work will only accelerate, educators and practitioners are asking how to prepare students for this increasingly interconnected world.

Indeed, large law firms have become increasingly global, and studies have shown that lawyers in a variety of practices report having cases or clients with international problems. The increasing importance of multi-national corporations, global financial markets, international trade and the international regulation of banking have all encouraged increasing discussion of the extent to which American legal education should be molded to prepare students for a transnational practice. American law students are schooled in the common law, the legal culture of the United Kingdom, Canada, the United States, Australia, and India. Historically, however, United States law students have not been exposed to legal schemes of the rest of the world, such as the European emphasis on civil law, derived from Roman law and the Napoleonic Code, Islamic law, or Chinese law.

Problems with Governance in Controlled Public Companies: Dual Class Structures and Other Issues

Race and Equity in Legal and Corporate America

On March 28, 2019, the Consumer Financial Services Committee’s Diversity and Inclusion Taskforce sponsored a discussion called “Ethical Issues in the Law (and Tech).”  Bari A. Williams, Vice President of Legal, Business, and Policy Affairs at All Turtles, led the discussion, and Robin Nunn, a partner and head of the consumer financial services practice at Dechert LLP, served as the moderator.

The discussion started out with an identification of the key ethical issues in the intersection of law and tech.  Williams identified two such issues:  (1) lack of diversity when working on matters can expose you to bad product creation, and (2) lack of diversity when working on matters exposes you to blind spots with unintended results.

Williams discussed the roles of both in-house and outside counsel in tackling the problem of lack of diversity.  She noted that a growing number of in-house legal departments are taking on diversity initiatives internally, and are requiring that outside law firms staff diverse attorneys on matters.  For outside law firms, this means that to get and retain business, firms will have to “walk the walk” on diversity as clients’ diversity standards and put in place and enforced.

Ratification of Defective Corporate Acts -- Delaware, the Model Business Corporation Act and Beyond

The program will describe the background of Sections 204 and 205 of the Delaware General Corporation Law (DGCL), which provide statutory procedures for ratifying and validating defective corporate acts.  These statutory provisions eliminated the problems under prior case law in distinguishing between void and voidable corporate acts and the serious consequences created by corporate acts that were void and thus could not be subsequently ratified.  The program will also cover the provisions of the Model Business Corporation Act (MBCA) and the common law of ratification in jurisdictions other than Delaware and discuss practice pointers and recent Delaware cases on ratification of defective corporate acts. 

Identifying a “defective corporate act” and a “failure of authorization” are essential to understanding Sections 204 and 205.  The program will explain the elements of a defective corporate act, the distinctions between “acts” and “intentions” and review the recent case law interpreting these concepts.  The presenters will provide examples of defective corporate acts and provide practical guidance on how to ratify such defects under the Delaware statutory provisions and the comparable sections of the MBCA and will discuss recent judicial decisions in the area. 

The program will also discuss how to determine whether the corporation has valid directors and a valid board and the quorum and voting requirements for ratification and how these requirements are interpreted and applied where the proposed ratification relates to the election of the initial board.  The quorum and voting requirements are the greater of (i) those at the time of the act and (ii) those at the time of ratification, subject to certain specified exceptions such as the presence or approval of any director elected or appointed by the holders of any class or series where no shares of such class or series are outstanding at the time of ratification.  The presenters will also discuss situations where defective corporate acts create uncertainty regarding board composition and whether to “fix” board composition before the board adopts the ratifying resolutions or later seek judicial validation under Section 205 or the comparable provision of the MBCA.  

Recent Developments in Business & Corporate Litigation: Annual Review Panel

Traditional approaches to case management and trials are changing as our society and technology evolve.  New technology does not always result in efficiencies, and generational differences affect how litigation is managed and cases are presented at trial.  This Panel of practitioners and a jurist will address these issues in roundtable format.  The Panel will focus on multiple phases of litigation, including early case resolution, motion practice, jury selection, trial procedures, and verdict trends.  What worked for docket management in the recent past is proving to be inefficient.  Some courts are attempting to address judicial economy woes with more electronic filing options and less interpersonal interaction.  Others are considering informal conferences early in the case to reduce motion practice and discovery disputes.  The Panel will discuss how a return to in-person and/or informal conferences with the trier of fact may be the solution to promote judicial economy in a world where electronic communications and filings overwhelm practitioners and the court.  Technology and generational preferences also influence how attorneys prepare for jury selection and trial.  The use of technology in presenting evidence and ideas, and in gathering and culling information during trial, is not uniform.  The Panel will discuss ethical duties related to accessing juror social media accounts during voir dire, how to capture the attention of younger jurors (and whether and when traditional demonstrative methods are still effective), and how younger generations and frequent public dissemination of legal issues via electronic media drives higher verdicts.  Finally, the Panel will discuss the pros of requesting alternative procedures during trial related to, among other practices, the use of questionnaires, iPads for juror notes, mini-openings and statements of counsel at various times in the proceedings, and the distribution of jury instructions at various times in the proceedings.

Reflections on the 2018 Midterm Elections: How It Will Impact the Business Lawyer

In the wake of the 2018 Midterm Elections, with a new Congress and shifting governmental agendas and goals, many businesses have identified the need to evaluate and recalibrate lobby agendas and campaign finance strategies. Some businesses that have typically concentrated their efforts at the federal level are now turning to the states, where others are utilizing the current climate to aggressively pursue their agendas at unprecedented levels.

Regardless of goals and agendas, it is important for the business lawyer to ensure compliance with campaign finance, lobby and governmental ethics (including gifting) laws when interacting with federal, state and local governments. Government regulators are increasingly asserting their enforcement authority. Mistakes and oversights made when making campaign contributions, interacting with government and engaging in lobbying activities are costly and may result in criminal penalties, civil fines, loss of governmental contracts and serious reputational harm to an organization.

To ensure compliance with campaign finance, lobby and governmental ethics provisions, the business lawyer would be well-served to ensure his or her organization has implemented internal programs where interacting with government. While the appropriate compliance program for a given company will depend on its circumstances, organization and level of government interaction, successful internal programs typically include internal company policies, coordination between the active and interested stakeholders, a training element, tracking of campaign finance, lobby and governmental ethics activities, and finally, an audit function.

Responses to the "Regulatory Void" and State Action on Federal Preemption

Salvation or Curse: The Impact of Innovation on Small Banks

It is no secret that financial institutions of all sizes face challenges in competition, customer retention and preparing for the future of providing financial services to businesses and consumers. Our panel and materials focus on the changing landscape challenging the U.S. banking industry, especially community banks. Facing headwinds of consolidation, technology; innovation and the modernization of banking regulations, community banks are struggling in many cases to compete.

Serving the Credit Invisibles: Opportunities and Challenges for the Consumer Finance Industry

Credit invisibility remains a significant problem in the U.S., with an estimated 35-44 million Americans remaining outside of the credit mainstream. Banks and lenders use credit scores to evaluate whether to make loans to potential borrowers, including what interest rates to offer. Applicants must demonstrate through their credit histories that they are sufficiently low risk before they can access credit options that could potential lead to wealth building (such as taking out a home loan). Adults with limited or no credit histories, however, are disadvantaged in this regard and must surmount higher obstacles in getting credit on responsible terms. They may take out predatory, non-traditional forms of credit, or perhaps fail to qualify at all. In either case, however, their inability to access mainstream credit on affordable terms leads to an almost inevitable cycle of poverty. Prior research reveals that certain segments of the U.S. population are more likely to be credit invisible or thin file. These segments include, for example, Blacks, Hispanics, the elderly, young consumers who have yet to establish a credit background, recent immigrants, and low-income individuals.

In September 2018, the Consumer Financial Protection Bureau’s Office of Research published its third “Data Point” discussing American consumers who are “credit invisible.” These individuals lack a credit history with one of the national credit reporting agencies (TransUnion, Experian, and Equifax). Credit invisible adults also include those who have a credit file that contains either too little information (insufficient unscorable) or information that is deemed too old to be relied on to calculate a three-digit credit score (stale unscorable). The Bureau’s report, titled “The Geography of Credit Invisibility,” examines the connection between geography and credit invisibility. This research expands on the CFPB’s prior Data Points that analyzed “Credit Invisibles” and “Becoming Credit Visible.”

Sexual Abuse and Bullying In Sport: Balancing The Rights Of Accused And Accusers

Issues of athletes being abused by people in positions of power relative to them, particularly coaches, officials and other athletes, have come to the fore in the past decade as a result of scrutiny first arising from the issues at Penn State and more recently from the issues of abuse by a team doctor (Larry Nasser) for the USA Gymnastics team, who was also a resident team doctor at Michigan State University.  This brought the scandal into the center of the Olympic movement in the United States.  What occurred was, to say the least, brutal, criminal, and completely shocking. 

These scandals brought down top sports administrators for improperly handling the cases as they were reported or arose.  Prior to these scandals, sport, and the various institutions that govern it, lacked significant direction or a standard and methodological approach to dealing with these issues.  We can now see this in hindsight.  Now, the UK, Australia and the United States are at the leading edge of regulation in this area. 

In the United States in particular, there is extensive regulation of abuse of athletes in the sport context, particularly in Olympic sports.  On January 1, 2017, the US Center for SafeSport (“SafeSport”), created by the work of a broad, cross-sectional United States Olympic Committee, went into business.  Immediately following the sentencing of Larry Nasser, the number of athlete reports of abuse skyrocketed.  In addition, the US Congress got involved and passed amendments to the Ted Stevens Olympic and Amateur Sports Act (“TSOASA”) to require reporting by governing body officials of abuse allegations and to recognize the role of SafeSport in the US Olympic sports environment.

Start Smart 2.0: Advising Start-ups on Formation and Early-Stage Organizational Issues

Sustainable Financing and the Double Bottomline: Creating Social and Financial Value

  • The financial services industry has a significant role to play in helping society to meet its goals, including the achievement of a better and more sustainable future for all. By some estimates, the investment opportunity to achieve the goal of a sustainable future exceeds $26 trillion (Global Commission on the Economy and Climate, September 2018 report). As investors, customers, clients and communities seek to capitalize on this opportunity, banks are taking action as well. A suite of products have been rolled out in recent years designed to meet investor demand for sustainable products and/or to help companies and communities to finance their sustainable projects or ambitions.  Two such products have been introduced into the loan market for eager lenders to invest in – green loans and sustainability linked loans.

2018 saw its first green loans in the Americas —and on the heels of that activity, the Loan Syndications & Trading Association (LSTA), along with the Loan Market Association (LMA) in Europe and Asia Pacific Loan Market Association (APLMA), published global Green Loan Principles. In addition, the first sustainability-linked loans emerged in the U.S.  An overview of those products is set out below, and the panel will discuss in detail their elements and their potential appeal to the market, in the context of the broader movement within the financial services industry to recognize the opportunities and help to address the challenges of climate change.  

Taming the Gig Economy: Freelance Isn’t Free

Tax Reform for Business Lawyers - One Year Later

This presentation will focus on the 2017 Tax Reform, also known as the Tax Cuts and Jobs Act ("TCJA"), and issues business lawyers should be aware of when structuring acquisitions.

The TCJA introduced new aspects to entity choices when setting up an acquisition structure. Whether an acquisition is structured through an individual, an S-Corp or a partnership has big implications on the taxation. The TCJA brought many changes to the pass through taxation and the use of subchapter S corporations.

The tax reform also changed the thinking of how to finance an acquisition. In the past, within the limitation of re-characterization of debt into equity, in many instance debt was the financing option that was preferred over equity financing. However, the TCJA forces US companies to rethink this approach. Under the new law, financing the purchase through debt can be particularly challenging given the new limitation on interest deductibility. Based on the amended provisions of the Internal Revenue Code, interest expenses may only be deducted up to the net interest income plus 30% of the adjusted taxable income, which is basically the same as EBITDA. As of 2021, this limit will be further tightened by replacing the EBITDA limit with 30% of EBIT. Any interest that was not deductible in any given year, may be carried forward and utilized in later years. The limitation applies to debt by related and unrelated parties alike and generally makes additional modelling necessary. While this limitation of the interest deductibility is a tax provision many countries have implemented recently and which the European Union forced on their Member States by way of Directive, most other countries draw a distinction between unrelated party debt, which is not subject to the limitation and related party debt, which is subject to the new rules. The US law does not differentiate, which makes finding the most beneficial financing structure quite an exercise.

Ten Tips on Board Oversight of M&A Transactions - Governance Handbook Comes to The Rescue!

This program will introduce The Role of Directors in M&A Transactions – A Governance Handbook for Directors, Management and Advisors. This Handbook is the result of the efforts by the members of a Joint Task Force of the Mergers and Acquisition Committee and the Corporate Governance Committee of the American Bar Association Business Law Section. That Joint Task Force, co-chaired by four veteran M&A practitioners with deep experience in dealing with the governance issues that arise in M&A transactions, and comprised of deal lawyers from across North America, has produced a timely and valuable resource, which will be used by many directors and M&A lawyers in both public and private company acquisitions to assure proper board oversight of these transactions.

M&A transactions are complex and typically involve a lengthy process. They involve significant decisions about business strategy and deal execution. All of these decisions require board oversight. Indeed, the board is the final decision-maker on whether the proposed transaction is in the best interests of stockholders.

Corporate governance issues that is, issues for which the board of directors must provide oversight arise at every step of the M&A process. To start with, how should the board exercise its oversight role and what are its key duties in an M&A transaction? How does the board identify and manage conflicts of interests of directors, management, or major stockholders? What types of advisors will the board require and when? What types of processes should the board implement to consider the M&A transaction? What are the key first decisions to start a sales process, and what should the board consider in making the decision to consider strategic alternatives? What should a sales process look like? What are the board-level issues in the various deal agreements? What happens after signing and before closing what is the board’s continuing role? 

The Challenges and Opportunities of Cross-Border Payments

Cross-border payments take many forms, from traditional wire transfers and closed-loop systems (like Western Union and MoneyGram) to modern, disaggregated peer-to-peer transfer systems based on block-chain technology.

Our panel begins today with an introduction to some of the methods and systems used today to effect cross-border payments.

  • Transfers in Open-Loop Systems (e.g., bank-initiated wire transfers and ACH transactions that rely on correspondent banking relationships)
  • Closed-loop Proprietary Systems (e.g., Western Union, MoneyGram and payment card networks (like Visa and Mastercard))
  • Interlinking of Domestic Payment Systems (e.g., FedGlobal ACH)
  • Virtual currency (e.g., Bitcoin) and Distributed Ledger Systems that leverage direct, peer-to-peer systems without numerous intermediaries

The Height of Oversight:The Role of Bank Boards of Directors in Compliance Management

While federal and state regulators have required bank directors to be involved in the details of regulatory compliance, recent proposed guidance from the Federal Reserve suggests boards should re-focus on their “core responsibilities.” This panel will discuss how lawyers can address this tension in advising bank clients.

The Law of Artificial Intelligence and Smart Machines

In 2019, what could attorneys and law professors know about artificial intelligence that would be worth reading? Right now, AI is a technical problem, not a social problem. Developers are still trying new flavors of supervised learning, data crunching and neural networks. Even Google, Apple and Facebook don’t know how artificial intelligence will be used to transform their businesses. Most companies and government entities have not even considered AI as a management tool.

AI is still the realm of science fiction rather than science fact – more real on movie screens than in companies and courthouses. Real-life general artificial intelligence, the kind that chats reassuringly with the hoi polloi and makes rational decisions on policy problems, doesn’t exist right now. We don’t even have a solid idea how such intelligence might behave or whether its existence would be helpful or harmful to humanity. What’s more, this is a technical problem to be solved – if ever – with creative programing skills and more sophisticated mathematics. So what can lawyers know about it and why should we care about their insights?

As exhibited in the chapters of the ABA BLS book The Law of Artificial Intelligence and Smart Machines, lawyers have training and specialized thinking that can be useful in any stage of a technology’s development. The attorney’s need for linguistic precision leads to a talent for defining terms and concepts. This talent is particularly useful in early days of complex technical matters. Most people today do not understand AI, and particularly not its various directions and its constituent parts. Lawyers can help. Also, attorneys, by definition, spot the places where legal conflicts are likely to occur. As a technology develops, the law reacts, and law professors are employed to predict those schisms and how they might be resolved. Third, lawyers spot and mitigate risks. Artificial intelligence will seep into every aspect of human endeavor and decision making, and lawyers are trained to see the realistic risks ahead of time and to chart paths to minimize their impacts. Anyone can make panicked predictions about the singularity and AI’s ascendance into Earth’s dominant life form, but lawyers have unique talent for discussing societal risks likely to emerge in the next two decades, and finding ways to deal with those risks.

The Lifecycle of a Cross-Border Bond: So You Want to Do a Deal in Canada, Eh?

This program explores the life cycle of U.S./Canada cross-border bonds. In particular, the program will explore eligibility of the indenture trustee, Canadian regulatory issues, and default and insolvency. Further, we discuss some recent developments in Canada, including the legalization of cannabis in Canada and how that industry is financed.

These issues are significant given the huge volume of such cross-border transactions. Crossborder transactions between the US and Canada increased 30% from 2017 to 2018 with southbound deals into the US increasing 40% from US$80.56 billion to US$112.0 billion, while northbound deals into Canada decreased 9.8% from US$21.52 billion to US$19.42.

The New NAFTA:  What Does it Mean and What are the Implications for Cross-Border Transactions?

The Nuts & Bolts of IP in Business Transactions

Intellectual Property (IP) is becoming more and more important in today’s business world.  There’s hardly an aspect of modern business that doesn’t involve IP, whether it be in a real property transaction, a bankruptcy, due diligence for a merger or acquisition or financing.  In some cases, the most important part of a “deal” is the IP involved. 

There are four key forms of intellectual property – patents, trademarks, copyrights and trade secrets, all of which afford certain rights and protections to the holder. Patents are property rights in designs or processes granted and formally recognized by the government to the inventor for a limited period of time. A patent can provide opportunities for revenue by licensing rights in and to a patent, but can also act as a shield against other inventors or would-be thieves of designs or processes.  As such, patents can be valuable assets, especially for individuals or organizations whose business is derived from or formed around the patented subject matter (like a toy).  Trademarks are the names, words, pictures, descriptions, logos, taglines, etc. that designate a product, idea, organization or other source for goods and services.  Such marks can be formally registered or acquired at common law through first usage. Trademarks are central to branding for companies and for products/product lines alike.  As leading branding tool a company’s reputation is often associated with or triggered by trademarks.  Copyrights are the protected modes of expressing ideas, rather than the ideas themselves. Copyrights may be registered, but registration is not required to assert a copyright.  Copyrights are also everywhere and apply to everyday aspects of our lives – the code of the software that enables programs to run on our laptops, the books we read, the web pages we visit, the videos we watch on the internet – all are subject to copyright protections.  Trade secrets are the confidential, proprietary information that maintain their value by remaining confidential, known only to its owner.  While not formally or publicly registered, trade secrets are statutorily protected intellectual property.  While trade secrets remain unknown, they often are at the core of an organization’s most valuable intellectual property.  The rights and protections created in the intellectual property described above can both enable and hinder, but certainly always complicate business transaction.  

Seemingly simple or straightforward transactions can be complicated by IP issues, often times issues raised by third parties.  This CLE panel will explore the IP issues raised in four (4) common business settings.  First, we will examine what type of IP issues arise when financing the purchase or license of software.  Second, we will explore the best tips and procedures for conducting IP due diligence, whether it be in a merger or acquisition or other transaction.  Third, we will delve into the complicated world of IP and bankruptcy.  Finally, we will learn about the often overlooked, but sometimes critically important, IP rights associated with real property transactions.  

The Proliferation of Sports Betting In The US - What Are The Issues And Effects?

In 1992, Congress enacted the Professional and Amateur Sports Protection Act (“PASPA”) to prevent states that did not already have legalized sports wagering from legalizing sports betting. Lawmakers worried that interstate sports betting would undermine the integrity of sports, and in turn viewership, by incentivizing match fixing. Since then, only four states—Oregon, Delaware, Montana, and Nevada—allowed for legal sports wagering.

Twenty six years later, in May 2018, the Supreme Court in Murphy v. NCAA struck down the law, holding that the law violated the 10th Amendment’s anti-commandeering principle. This principle prevents the federal government from compelling a state to enact legislation. Because of this principle, the Court found that two PASPA provisions unconstitutionally commandeered the states by prohibiting state legislatures from enacting laws. The Court explained, “PASPA’s anti-authorization provision unequivocally dictates what a state legislature may or may not do,” and that there is no distinction between “compelling a State to enact legislation or prohibiting a State from enacting new laws.” The Court further held that no part of PASPA could be salvaged, as the other provisions not in issue were too closely tied to the provisions that violated the anti-commandeering principle.

The decision ushered in a wave of states seeking to capitalize on the opportunity. West Virginia, New Jersey, Mississippi, and Delaware legalized sports betting and are now taking bets. Pennsylvania, Rhode Island, and New York legalized sports betting, but have not started taking bets. There are also fruitful opportunities in tribal gaming jurisdictions, because those jurisdictions experience less barriers to entry and a very strong market share. While states are rushing to legalize sports betting, several hurdles remain, and understanding these potential issues, their effects, and the various regulatory schemes is critical for business attorneys with clients interested in entering the gaming industry.

Tips from the Trial Bench

Too Broke to Go Bankrupt?  The Impact of The New US Trustee Fees On MidCap Bankruptcy Debtors

Chapter 11 is intended to provide businesses with the opportunity to restructure their financial affairs.  Business bankruptcies seek to balance the social good of ensuring that firms can continue to provide jobs, benefits, and products, with the maximization of recovery for creditors.  Preventing the inefficient dismemberment of companies and quelling creditor’s raw self-preservation instincts have been guiding principles of chapter 11 and its predecessors for more than 100 years.  From its early days, American bankruptcy law, an enumerated Congressional power (U.S. Const. Art. I, §8 cl. 4), departed from the English system, which strongly favored creditors.  “The English law of bankruptcy, as it existed at the time of the adoption of the Constitution, was conceived wholly in the interest of the creditor and proceeded upon the assumption that the debtor was necessarily to be dealt with as an offender.”  Cont'l Illinois Nat. Bank & Tr. Co. of Chicago v. Chicago, R.I. & P. Ry. Co., 294 U.S. 648, 668 (1935).  As commerce became more complex, the bankruptcy system also evolved. 

In 1978, Congress adopted the Bankruptcy Code, marking the beginning of the modern era of bankruptcy law.  As part of the adoption of the Bankruptcy Code, a pilot program was initiated to establish a government “watchdog” over the bankruptcy process, the United States Trustee Program (the “UST”).  Over the years, Congress expanded the role of the UST to appointment of trustees (both panel trustees and specially appointed trustees), appointment of creditor committees in chapter 11 cases, oversight and administration to prevent fraud and abuse, as well as many other matters.  By statute, the UST is supposed to be a self-funding entity.  However, “[a]ccording to the legislative history, the self-funding mechanism was designed to pay for the operation of the program, not to make money for the government.”  The major way the UST is funded is by statutory fees imposed on chapter 11 debtors. 

Since 1978 everything, bankruptcy included, has become more complex and expensive.  Therefore, small and mid-sized companies are finding it harder and harder to reorganize in bankruptcy.  Debtors must pay a quarterly fee based on the amount of “disbursements” they make.  However, the term “disbursements” is not defined in the Bankruptcy Code.

Venture Exchanges: Providing Liquidity to Small Cap Companies?

The creation of venture exchanges has sometimes been proposed as a way of facilitating capital formation for smaller, growth-stage companies.  The concept usually entails:

  • A public trading venue (open to individual retail investors and functioning as an exchange, with some transparency in pricing);
  • A commitment to smaller, growth-stage companies;
  • The ability for existing investors to sell their shares to new investors on the exchange; and
  • The ability of the issuer to raise capital in connection a decision to list the shares for secondary trading.

What US Banks Need to Know about Banking Regulation in Canada

In Canada's federal system of government, legislative authority is shared between the federal government and ten provinces. The federal government has exclusive legislative authority over banking and incorporation of banks, while provinces retain jurisdiction over contract law, property and civil rights. As a result, both federal and provincial laws shape the regulation of banks and other financial institutions.

Federal regulation of banking and the dominant position of a small number of very large banks with nationwide branches have been the hallmarks of the Canadian banking system since its inception. The federal government’s express constitutional authority over banks has allowed the development in Canada of national banks with diversified loan portfolios across Canadian regions and has enabled them to capture scale economies.

Incorporated only federally, banks are by far the most dominant form of organisation for financial institutions in Canada. The legislation recognizes three categories of banks in Canada: Canadian-incorporated domestic banks (listed in Schedule I to the Bank Act), Canadian-incorporated foreign bank subsidiaries (listed in Schedule II to the Bank Act), and Canadian branches of authorized foreign banks (listed in Schedule III to the Bank Act). As of March 2019, 35 Schedule I banks, 21 Schedule II banks, and 32 Schedule III banks operate in Canada.

What You Need to Know About the Emerging Field of Growth Equity

"Growth Equity" is a relatively new term. Without a definition fixed by law or regulation, it's not necessarily clear how you differentiate a venture capital transaction from a growth equity transaction. Is it entirely a matter of who the Investors are, (venture capital funds make venture capital investments and private equity funds make growth equity investments)? Is it a question of whether the target entity (hereafter an 11 lssuer") has (or foresees having) positive EBITDA? Of how far along the Issuer is in its development? Whether the Issuer is a limited liability company, as opposed to the C corporations that are the traditional recipients of venture capital investment? Most would agree that the term 11growth equity" is usually used to denote an infusion of equity in a relatively mature Issuer that does not constitute a change in control. 

There is no debate however that growth equity is a rapidly growing tool being used by Issuers, private equity firms and their counsel. According to year-end 2019 data released by Thomson Reuters, roughly $50 Billion was invested in 2019 in U.S. Private Equity Minority Interest Activity, which number was up from the roughly $20 Billion invested in this category in 2015 and the roughly $5 Billion so invested in 2009. 

Before looking at particular terms, both investors and the Issuer (and its owner) have to make sure that their interests are sufficiently aligned. Assuming that control of the Issuer is staying with the current owner, this burden primarily falls upon the Investor. A growth equity investor, used to controlling its investments, must consider whether it can fulfill its primary goals without control (and what terms it may need to do so). Do all parties have the same view of distributing versus reinvesting profts? Are their respective timeframes for an exit similar? If not, can the Investor obtain contractual rights, whether the right to force a redemption or otherwise, to achieve its exit timing? What about risk tolerance? Does the Investor in its portfolio generally take big risks and hope for big rewards? What if the PE firm running the Issuer looks to take less risk and hit singles and doubles? PE firms moving from buy-outs into growth equity may not be used to asking these questions.

Non-CLE Materials

 

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