New Challenges to the Internal Affairs Doctrine

A Delaware vice chancellor recently lamented that “Delaware should not be determining employment law for the country and for the world.”[1]  That remarkable assertion was a reference to the gradual expansion of the internal affairs doctrine, which provides that the law applicable to the internal governance of a business entity is that of the chartering jurisdiction. The contours of the internal affairs doctrine have never been defined with precision, which is why several recent developments have placed new pressures on the doctrine’s boundaries. These fall into roughly three categories:

Corporate governance for noninvestors.  Especially in the ESG era, … Read more

Capital Discrimination

In 2014, Diane Straka, along with three male associates, formed a corporation for the purpose of providing accounting services.  Each of the founders was an officer, director, and 25 percent shareholder of the new entity.  A problem soon emerged: One of the corporation’s employees taunted Straka with sexist jokes and cartoons in the office, and her fellow shareholders refused to rein him in.  Additionally, Straka’s work was undermined by some of her co-owners, who condescended to her and countermanded her decisions.  Eventually, Straka left the firm and brought a lawsuit in New York State court alleging shareholder oppression.  Oppression is … Read more

The Case for Mandatory Stakeholder Disclosure

There are many sources of information about corporate operations, but one of the most critical is the disclosure required by the federal securities laws.  Whenever a company seeks to raise capital through the public sale of securities, the U.S. Securities and Exchange Commission (“SEC”) requires that it file a detailed description of its business and financial condition, periodically updated with new information about its profits, revenues, assets, and general business activities.  Regulators, competitors, employees, journalists, and members of the community have all grown to depend on securities disclosures to provide a working portrait of the country’s economic life.  Yet securities … Read more

Reviving Shareholder Reliance in Securities Fraud Cases

To be a public company in the United States is to be subject to an array of federally-imposed disclosure requirements. In my forthcoming article, Reviving Reliance, I describe how the private causes of action available to enforce these requirements have failed to keep pace with the changing purposes of mandatory disclosure. I trace the problem to the functional elimination of the element of reliance from claims brought under Section 10(b) of the Securities Exchange Act[1] via the adoption of the fraud-on-the-market doctrine. I ultimately conclude that courts can better effectuate federal policy by drawing distinctions between actual reliance … Read more

Halliburton and the Dog that Didn’t Bark

The Duke Journal of Constitutional Law & Public Policy recently published a symposium issue on the implications of the Supreme Court’s decision in Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”).[1] In my contribution, I discuss how the Court’s reasoning represents a compromise position that reveals the theoretical tensions that lie behind class certification doctrine.

In Basic Inc. v. Levinson,[2] the Supreme Court endorsed the fraud on the market doctrine. That doctrine provides that when a security trades in an “efficient” market, plaintiffs bringing Section 10(b) claims gain the benefit of two … Read more

Manufactured Consent: The Problem of Arbitration Clauses in Corporate Charters and Bylaws

Courts and commenters regularly describe corporate charters and bylaws as “contracts” among shareholders. This necessarily raises the question whether the Federal Arbitration Act (FAA)[1] – which requires that arbitration clauses in “contracts” be enforced according to their terms – applies to such documents in the same way it applies to ordinary contracts. In a series of decisions involving a single Maryland-based REIT, two courts separately held that corporate bylaws are akin to ordinary contracts and equally subject to FAA analysis.[2] However, in my forthcoming article, Manufactured Consent: The Problem of Arbitration Clauses in Corporate Charters and Bylaws, … Read more