American Business Law Journal

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  • Incomplete Clearinghouse Mandates

    In the 2007–08 financial crisis, over‐the‐counter (OTC) derivatives triggered the collapse of colossal financial institutions. In response, global policy makers instituted clearinghouse mandates. As a result, all standardized OTC derivatives must now use clearinghouses, and global financial market stability now depends upon these institutions. Yet certain underlying legal and regulatory structures threaten to undermine clearinghouse stability, particularly were a significant clearinghouse to become distressed. This article argues that the clearinghouse mandates are incomplete in that they fail to reform these problematic arrangements. As with electric utilities, the lights at the financial market infrastructures known as clearinghouses must always be on. Yet the legal frameworks for handling a distressed clearinghouse, the problem of clearinghouse recovery, and resolution, remain uncertain. This article advances debate on this issue. It argues that recovery, a private market restructuring process, can be conceptualized as a bargaining game dependent upon time‐critical cooperation between a clearinghouse and members. This article uses transaction cost economics to demonstrate, however, that certain underlying legal and regulatory structures could work at cross‐purposes to this necessary cooperation, and actually increase its cost. Based upon this analysis, it proposes reforms designed to ensure that parties’ incentives promote efficient recovery. In the absence of efficient recovery frameworks, the path of a distressed, significant clearinghouse is likely to resemble that of the government‐backed mortgage lenders whose fate more than ten years after their entry into conservatorship remains uncertain. This article aims to help avoid a repeat of this history.

  • The Controlling Shareholder Enforcement Gap

    The regulation of controlling shareholder related‐party transactions is one of corporate law's animating concerns. A recent Chancery Court decision extends the double approval framework endorsed by the Delaware Supreme Court—independent director committees and a majority of the minority shareholders—to non‐freezeout transactions. This article explains why the Chancery Court's innovation does not decrease the risk faced by minority shareholders. Subjecting a transaction to the double approval framework is a voluntary decision. Transaction planners will willingly traverse this path if the benefits outweigh the loss in deal certainty and attendant costs. When almost every freezeout is challenged in court, the voluntary application of this framework is the logical outcome. The calculus in the non‐freezeout context leads to a different result. Non‐freezeouts must be challenged by a derivative lawsuit. The procedural hurdles inherent in the derivative mechanism affect both the demand for the ratification framework and the incentive to comply. Without a tangible threat of a lawsuit to coax voluntary compliance in the non‐freezeout setting, transaction planners have nothing to gain by subjecting the deal to the double approval gauntlet. This article's analysis reveals a large gap in the enforcement of self‐dealing transactions. Recent high‐profile litigation exposes questionable adherence to the double approval framework for obviously conflicted non‐freezeout transactions. The paucity of derivative lawsuits foretells a troubling fate for similar transactions at less enticing litigation targets. Worse yet, the superficial step toward improved minority shareholder protection stifles the discussion on additional reform.

  • The Convergence of Financial and ESG Materiality: Taking Sustainability Mainstream

    Sustainability reporting can be seen as an attempt to bring improved environmental, social, and governance (ESG) practices to mainstream business. However, this movement to mainstream is hampered by the disconnect between financial and ESG information. Both reporting streams use the concept of materiality to shape firms’ disclosure obligations, but the term carries different meanings for different organizations. One sustainability organization, the Sustainability Accounting Standards Board (SASB), has developed reporting standards to merge sustainability and financial information by leveraging the definition of materiality for financial reporting purposes. This use of financial materiality positions the SASB to collide with the Security and Exchange Commission's (SEC) hands‐off attitude to ESG reporting. In the regulatory void left by the SEC's inaction on sustainability reporting, the SASB provides the best route to reconceptualize materiality in line with society's interest in sustainable business.

  • Data Analytics and the Erosion of the Work/Nonwork Divide

    Numerous statutes and common law doctrines conceive of a dividing line between work time and nonwork time and delineate the activities that must be compensated as work. While technological innovations and increasing desires for workplace flexibility have begun to erode this divide, it persists, in part, because of the ways in which the division protects employers and employees alike. Nonetheless, the explosion of data analytics programs that allow employers to monitor and rely upon a worker's off‐duty conduct will soon weaken the dividing line between work and nonwork in dramatically greater and more troubling ways than ever before. The emergence of programs allowing employers to track, predict, rely upon, and possibly control nonwork activities, views, preferences, and emotions represents a major blurring of the line between work and nonwork. This article contends that these advances in data analytics suggest a need to reexamine the notion of work versus nonwork time and to question whether existing protections adequately consider a world in which these lines are so significantly muddled. As a society, we need to acknowledge the implications of the availability of massive quantities of employees’ off‐duty data and to decide whether and how to regulate its use by employers. Whether we, as a society, decide to allow market forces to dictate acceptable employer behavior, choose to regulate and restrict the use of off‐duty data for adverse employment decisions, or find some middle ground that requires disclosure and consent, we should choose our own course rather than allowing the technology to be the guide.

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  • Litigation Migrants

    Civil law is enforced primarily via private litigation. One characteristic of private enforcement is that litigation levels tend to cycle between periods of boom and bust. This article builds a theory for explaining this fluctuation, proposing that plaintiffs’ attorneys can be understood as economic migrants. Just as workers cross borders to find jobs, lawyers “move” across case types and jurisdictions to find profitable claims, and case filing numbers increase as a result. Using the recent wage and hour litigation boom as a case study, this article paints an empirical picture of attorney migration and its influence on case filing numbers.

  • Equating U.S. Tax Treatment of Dividends and Capital Gains for Foreign Portfolio Investors

    The U.S. tax law equates the tax rate on dividends and long‐term capital gains on stock owned by U.S. citizens and residents. However, the taxation of these two types of rewards in the hands of foreign portfolio investors remains dramatically different from each other, with the capital gain being fully exempt. Several reasons support this article's proposal to no longer exempt these gains. Extending finance theory and prior normative tax research, this article argues that foreigners’ portfolio dividends and capital gains should be taxed in the same manner because they are economically equivalent and emanate from the same source. Three recent empirical developments also support repeal of the foreigner's exemption. First, there is now extensive use by U.S. corporations of stock repurchases—which are taxed to selling shareholders as capital gain—as a form of corporate payout that was in the past primarily accomplished through dividends. Second, foreign ownership of U.S. stocks has continued to increase, with an estimated one‐third of these stocks owned by foreigners. Third, the modern tax compliance environment—including aspects of the Foreign Account Tax Compliance Act that apply to foreigners—reduces past congressional and academic concerns about enforcing the taxation of foreigners’ portfolio gains.

  • Personal Data and the GDPR: Providing a Competitive Advantage for U.S. Companies

    The European Union's General Data Protection Regulation (GDPR) became applicable in May 2018. Due to the GDPR's extraterritorial scope, which could result in massive fines for U.S. companies, comparative data privacy law is of great current interest. In June 2018, California passed its own Consumer Privacy Act, echoing some of the provisions of the GDPR. Despite the many articles comparing the two schemes of law, little attention has been given to the foundation of these laws, that is, what exactly encompasses the data referred to by these laws? By understanding how the term “personal data” or “personal information” is defined in both jurisdictions, and why these definitions and the treatment of protected data are so different, companies can strategize to take advantage of these developments in the European Union. After explaining the differences in how data is treated in the United States and the European Union by exploring the definitions, regulations, and court cases, we will explore the five legal strategy pathways that companies might pursue with respect to the legal aspects of data transfer and privacy law compliance. While these strategies range from ignoring the law to adopting the European model worldwide, this analysis of legal strategy reveals a means for companies to gain a competitive advantage through their adoption of a worldwide compliance scheme.

  • The Econtractor? Defining the Esports Employment Relationship

    Esports is now a multibillion‐dollar industry that has quickly become one of the most discussed segments of the entertainment industry. There has been a rush to mention esports alongside other more traditional sports like baseball, basketball, football, and hockey, but the comparison may not be apt. Esports leagues are fundamentally different from traditional sports leagues because the competitive games that make up esports are the intellectual property of the game makers. This unique structure results in individualized relationships between the game makers, esports producers, the teams, and the competitors. This article is among the first to examine the legal status of esports competitors. In doing so, we discuss the employment conditions within esports that make them unique. The industry is poised to face significant labor‐related challenges in the near future, so the article also analyzes the labor issues esports competitors and leagues face, and the importance for stakeholders to pay attention to the legal status and working conditions of the competitors.

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