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Suffolk University Law School was founded in 1906 and is located in the heart of downtown Boston. The school is dedicated to educating students of all backgrounds and circumstances, helping them to thrive in an increasingly diverse, global and technologically dependent society. The school's Business Law & Financial Services Concentration emphasizes teaching and scholarship not only in traditional corporate structures, but also in alternative non-corporate forms of organization that are becoming the norm in small businesses, emerging high-tech industries, and financial services. Its faculty members include nationally regarded experts in limited liability company, partnership, tax, and securities regulation, including Carter G. Bishop, a reporter for four separate uniform business organization law projects sponsored by the National Conference of Commissioners on Uniform State Laws, and Jeffrey M. Lipshaw, co-author with the late Larry E. Ribstein of Unincorporated Business Entities, 4th Edition (LexisNexis, 2009).



CORPORATE LAW: LLCS, CLOSE CORPORATIONS, PARTNERSHIPS,
& OTHER PRIVATE ENTERPRISES eJOURNAL
Sponsored by: Suffolk University Law School

"Kahn v. M&F Worldwide Corporation: A Small but Significant Step Forward in the War Against Frivolous Shareholder Lawsuits" Free Download
Journal of Corporation Law, Volume 40, Issue 1

BERNARD S. SHARFMAN, Independent
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From time-to-time a controlling shareholder will want to eliminate the minority shareholders by buying them out in a transaction called a freeze-out merger. When challenged, the Delaware courts have reviewed the transaction under an entire fairness standard of review. Unfortunately, the application of the entire fairness standard of review in freeze-out mergers has also created unintended negative consequences. Because entire fairness makes it almost impossible for defendants to get the case dismissed prior to trial, it has made it extremely tempting for plaintiffs’ attorneys, in order to earn attorney’s fees, to automatically file a class action lawsuit in a freeze-out merger without regard to the merits.

The Delaware Supreme Court in Kahn v. M&F Worldwide Corp. attempts to rectify this situation by allowing the defendants to gain the protection of the business judgment rule if a dual protection merger structure is put into place, i.e., the use of a special independent committee in negotiating the transaction on behalf of the minority shareholders and the approval of the transaction by an informed majority of minority shareholders. Unfortunately, the result is mostly aspirational because while the standard of review does eventually shift to the much more lenient business judgment rule, it does little to relieve the burden on defendants to show that the freeze-out merger ultimately meets the objective of an entire fairness standard of review, “fair price.? Each of the six requirements that must be met by the board and the controlling shareholder is subject to discovery and the judicial review in total still requires a level of scrutiny in terms of both process and discovery that must be considered the functional equivalent of entire fairness.

However, this does not mean that Kahn is without significance. As discussed in the commentary, Kahn may lay the foundation for a greater judicial attack on frivolous lawsuits in the context of freeze-out mergers if new approaches are allowed to enhance Kahn’s dual protection merger structure.

"A Commitment Mechanism to Eliminate Willful Contract Litigation" Free Download

OSNAT JACOBI, Peres Academic Center, Bar-Ilan University - Department of Economics
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NOAM SHER, Carmel Academic Center
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This paper concerns companies that sell commodities and are in their initial stages of formation and growth. Such companies will often face severe difficulties due to the banking system's unwillingness to finance their activities before they are able to develop sufficient credit histories. When faced with a loss contract, such a company may prefer to breach and litigate simply in order to gain time before having to pay off its debt, thereby preventing immediate insolvency. We have designed a new financial tool to eliminate this incentive to willfully litigate. Under this mechanism, the seller undertakes an obligation to pay a bank the amount of the buyer's damages if the seller does not deliver the good on delivery day in accordance with the contract and law. The bank, in turn, undertakes to pay the buyer the amount of her damages if received by the bank. The effect of this mechanism is to shift the buyer's entitlement to the bank. This increases the seller's cost of willful litigation: if the seller chooses to breach he will prefer paying the buyer's damages to the bank in order to avoid any indication of default on the bank's records, since such an indication will affect his credit rating and access to financial markets in the future. In addition, the mechanism gives the seller an incentive to breach the contract if and only if the contract becomes ex-post inefficient. We also demonstrate ex-ante benefits from the mechanism: by eliminating the risk of willful litigation, established buyers may be willing to raise the contract price, thereby increasing the probability of newcomers’ survival. The mechanism also enables the banking system to screen new companies according to their quality, and use their contracts as collateral. Ultimately, this can result in the newcomer achieving financial stability earlier.

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About this eJournal

Sponsored by: Suffolk University Law School

This eJournal distributes working and accepted paper abstracts related to LLCs, close corporations, partnerships, and other private enterprises. This includes the law, economics, history and policy of closely-held corporations and non-corporate firms, including partnerships, limited liability companies, limited partnerships, limited liability partnerships, joint ventures, and similar entities both in the US and around the world. Specific topics include private law matters such as governance, fiduciary duties, formation, litigation, arbitration, choice of law, exit, dissolution, transfer, creditors' rights, and limited liability. They also include public law matters such as bankruptcy, employment discrimination, securities regulation, competition law, and professional regulation. Articles may also focus on types of businesses or other relationships that commonly organize as limited liability companies, close corporations, partnerships or other unincorporated business entities, including venture capital, professional services, real estate, finance, family firms, domestic relationships and public-private enterprises.

Submissions

To submit your research to SSRN, sign in to the SSRN User HeadQuarters, click the My Papers link on left menu and then the Start New Submission button at top of page.

Distribution Services

If your organization is interested in increasing readership for its research by starting a Research Paper Series, or sponsoring a Subject Matter eJournal, please email: RPS@SSRN.com

Distributed by

Legal Scholarship Network (LSN), a division of Social Science Electronic Publishing (SSEP) and Social Science Research Network (SSRN)

Directors

CORPORATE, SECURITIES & FINANCE LAW EJOURNALS

BERNARD S. BLACK
Northwestern University - School of Law, Northwestern University - Kellogg School of Management, European Corporate Governance Institute (ECGI)
Email: bblack@northwestern.edu

RONALD J. GILSON
Stanford Law School, Columbia Law School, European Corporate Governance Institute (ECGI)
Email: rgilson@leland.stanford.edu

Please contact us at the above addresses with your comments, questions or suggestions for LSN-Sub.

Advisory Board

Corporate Law: LLCs, Close Corporations, Partnerships, & Other Private Enterprises eJournal

BARRY E. ADLER
Professor of Law, New York University School of Law

STEPHEN MARK BAINBRIDGE
William D. Warren Professor of Law, University of California, Los Angeles (UCLA) - School of Law

HENRY HANSMANN
Augustus E. Lines Professor of Law, Yale Law School, Fellow, European Corporate Governance Institute (ECGI)

ROBERT WILLIAM HILLMAN
Fair Business Practices Professor of Law, University of California, Davis - School of Law

KIMBERLY D. KRAWIEC
Professor of Law, Duke University - School of Law

SAUL LEVMORE
William B. Graham Professor of Law, University of Chicago Law School

ROBERT H. SITKOFF
John L. Gray Professor of Law, Harvard Law School

GORDON SMITH
Professor of Law, Brigham Young University - J. Reuben Clark Law School

LYNN A. STOUT
Distinguished Professor of Corporate and Business Law Jack G. Clarke Business Law, Cornell Law School - Jack G. Clarke Business Law Institute

THOMAS S. ULEN
Swanlund Chair, Director, Illinois Program in Law and Economics, University of Illinois College of Law