Nice review of Fiduciary Duties from one of our local bankruptcy judges.

Bankruptcy Judge Neil Bason has a nice explanation of Fiduciary Duties in a bankruptcy case.  See   Solution Trust v. 2100 Grand LLC (In re AWTR Liquidation Inc.), 548 B.R. 300 (Bkrtcy, C.D. Cal, 2016)(Bason. J.)

C. Corporate Fiduciary Duties
Corporate fiduciary duties typically are divided into three categories (although the
last of these may be a sub-category):

Duty of care – This is the duty to exercise reasonable prudence in making
business judgments for the corporation, including gathering adequate
information and undertaking due consideration of the relevant issues.
See, e.g., Lamden v. La Jolla Shores Clubdominium Homeowners Assn.,
21 Cal.4th 249, 258 (1999) (“A director shall perform the duties of a
director … with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances.”). Continue reading

Some thoughts on securities laws

Caveat (short for “lawyer paranoia”):  This post is for law students.  It should not be taken as legal advice.  I am a bankruptcy lawyer, not a securities lawyer.  Every simple rule set forth below probably has many exceptions.  Do not try this at home.

The basic “blue skies” rule is, a person may not offer or sell a security without registering it unless the transaction is exempt.  The registration is required by federal law, i.e., the SEC, and state law, certainly California.  Exemptions are provided by federal and state law.  The issue must be analyzed separately under federal and under state law. Continue reading

Some Comments on the Briefs Form

I have been reviewing the briefs turned in by students last week.  I have some comments.

For question 2, it doesn’t do anyone much good to know that Hannewald is the plaintiff.   We need to know what part he plays in the case.  In Hannewald, the plaintiff is a creditor.  The defendant is an individual who owns a corporation that Hannewald entered into the contract with.  How can the individual be liable for a debt of the corporation.  Isn’t there “limited liability?”  That is what this case is about.  This is “creditor of corp versus owner of corp.”  That is what question 2 should say. Continue reading

Great Lesson on “How to Be the World’s Best Law Professor” – Prof. Warren Binford

This is a great article entitled How to be the World’s Best Law Professor.  By Prof. Warren Binford.  Start a great blog and make your students follow it?  No, that is not one of her recommendations.  The article opened my eyes a little.  Now I have to figure out how to at least get a little closer to her ideals.  Here are her main points in my humble opinion. Continue reading

Assignment – Public Company Comments

I should have added in the last post about the assignment answers I have been getting – a basic rule of accounting.   The total of liabilities plus stockholders equity is always exactly equal to the assets.  If the company’s assets equals $1 million for example, the liabilities plus stockholders equity will also equal $1 million.    If you own a car worth $30,000 and you owe $10,000 on it, your equity is $20,000.

The relationship between debt and equity is a telltale sign of the financial health of the company.  The more the liabilities exceed the equity, the shakier the financial health is.  A company with $1 million in assets and $950,000 in debts is “highly leveraged.”  Its profits are going to go to pay the liabilities instead of to shareholders.  To the extent the liabilities are accruing interest, the profit is going to pay the interest rather than dividends.

Assignment – Response to Student Questions

  1.  Don’t wait for me to tell you that the company you picked is okay.  It is okay unless I tell you it is not.
  2. You can pick a non-profit corporation or any other corporation you want as long as there is a 10K report and proxy statement.
  3. Please review your work.  I have received a few emails now with the assignment attached.  A corp could not have $3 billion of gross sales and $2.7 billion of profit.  A corp could not have 81 million shares outstanding selling at $30 per share and be worth $240 billion.
  4. The info should be for the latest two years.

Assignment

                                   BUSINESS ORGANIZATIONS ASSIGNMENT

PROFESSOR M. JONATHAN HAYES                                                                        Fall, 2016

jhayes@hayesbklaw.com

Pick a public corporation of your choice from the Fortune 500 list which can be found at http://fortune.com/fortune500/wal-mart-stores-inc-1/.   Pick one that seems like an interesting company to you.  By Friday, August 12, 2016, send me an email with the name of the company you are choosing.  I want you to do this so that no two persons pick the same company.  Assume that the corporation you have chosen is acceptable.  I will let you know immediately if it is not.  Continue reading

ESG Capital v. Venable LLP, a lesson in Rule 10(b)5

In ESG Capital v. Venable, — F.4th — (9th Cir July, 2016), a “group of investors” formed a limited partnership expecting to buy some Facebook shares before the company went “public.” It entered into a contract with a guy who basically stole their money then disappeared.  The investors sued the individual as well as his attorney, Venable LLP.  The investors alleged that Venable violated Rule 10(b)5 as well as “nonfraud state law claims for conversion, unjust enrichment, unfair competition, aiding and abetting fraud, and conspiracy to commit fraud.”  The Firm filed a Motion to Dismiss, FRCP 12(b)(6), and after one amendment, the district court dismissed the case with prejudice. Continue reading