Copyright (c) 2008 All rights reserved. http://works.bepress.com/stefan_padfield Recent documents in Stefan J. Padfield en-us Mon, 25 Aug 2008 03:23:47 PDT 3600 http://works.bepress.com/stefan_padfield/5 http://works.bepress.com/stefan_padfield/5 Wed, 16 Apr 2008 09:26:26 PDT Forthcoming in 2008. Stefan Padfield Securities Regulation http://works.bepress.com/stefan_padfield/4 http://works.bepress.com/stefan_padfield/4 Wed, 24 Oct 2007 10:29:41 PDT In securities litigation, the puffery doctrine stands for the proposition that vague statements of corporate optimism are not actionable because no reasonable investor would rely on them in deciding whether to purchase or sell securities. In other words, puffery is immaterial as a matter of law. Courts routinely rely on the puffery doctrine to dismiss securities claims pre-trial. However, the doctrine has been the subject of much academic criticism. In order to test who is correct about how investors react to alleged puffery, a group of actual investors was surveyed. The survey results showed that when actual investors were confronted with statements deemed immaterial puffery by courts, anywhere from 33% to 84% of them found the statements to be material. This may well be the first direct empirical support for the assertion that the puffery doctrine is being too liberally applied by judges. The paper goes on to argue that surveys should play a role in materiality determinations in securities litigation similar to the role they already play in Lanham Act cases. Stefan Padfield Securities Regulation http://works.bepress.com/stefan_padfield/3 http://works.bepress.com/stefan_padfield/3 Wed, 24 Oct 2007 10:27:01 PDT Corporations sometimes tread a fine line by disclosing the data necessary to calculate the bottom line impact of a particular set of facts, while failing to disclose the bottom line itself. For example, in 2002, Merck & Co., Inc., disclosed that one of its subsidiaries had recognized as revenue co-payments it never actually received, but failed to disclose that the total amount so recognized was $5.54 billion for the year 2001. When plaintiffs challenge such incomplete disclosure, courts routinely dismiss their claims based upon what I call the "Simple Math" rule. The Simple Math rule states that, assuming a material bottom line, disclosing the data necessary to calculate the bottom line suffices to make failure to "do the math" for investors an immaterial omission as a matter of law. This is, in fact, what the Third Circuit concluded in the Merck case. I argue, however, that courts should apply what I call the "Reasonably Available Data" rule, which builds upon existing materiality doctrines to analyze each particular omission on its own facts. Specifically, I argue that when courts are presented with the question of whether failure to explicitly disclose the bottom line constitutes a material omission, they should ask: (1) whether all the relevant pieces of data necessary to calculate the bottom line were disclosed proximately to one another and the place where a reasonable investor would expect to find them; (2) whether the data was cross-referenced to; and (3) whether the import of the data was sufficiently highlighted to alert the reasonable investor. In addition, where the bottom line was omitted in a corrective disclosure, that fact should weigh in favor of finding materiality. Finally, a presumption of materiality should be applied where the bottom line is subsequently made public and the market reacts negatively to that disclosure. This proposed approach is consistent with the Supreme Court's admonition against the use of bright-line rules in the context of materiality determinations. Furthermore, it makes sense from a policy standpoint because it continues to serve the safety-valve function of the Simple Math rule by allowing courts to dismiss frivolous claims, while avoiding the erosion of a materiality standard that is so integral to our modern disclosure regime. Stefan Padfield Securities Regulation http://works.bepress.com/stefan_padfield/2 http://works.bepress.com/stefan_padfield/2 Wed, 24 Oct 2007 10:22:47 PDT An important, yet undeveloped, area of corporate law concerns the fiduciary duties of wholly-owned subsidiary directors. The district court in First American Corp. v. Al-Nahyan, 17 F. Supp. 2d 10, (D.D.C. 1998), expressed the hope that this "perplexing issue" would become the subject of "a more robust discourse." Id. at 26, n.17. The Delaware Supreme Court has said that "in a parent and wholly owned subsidiary context, the directors of the subsidiary are obligated only to manage the affairs of the subsidiary in the best interests of the parent and its shareholders." Anadarko Petroleum Corp. v. Panhandle Eastern Corp., 545 A.2d 1171, 1174 (Del. 1988). Meanwhile, the district court in Al-Nahyan concluded that "the directors of a wholly-owned subsidiary owe the corporation fiduciary duties, just as they would any other corporation." 17 F. Supp. 2d at 26. As for legal commentators, one has argued that a fundamental rights analysis should be applied to differentiate legitimate from illegitimate shareholder demands in the wholly-owned subsidiary context. Another has suggested that due to the uniquely insulated nature of the relationship between a parent company and its wholly-owned subsidiary, directors of wholly-owned subsidiaries should be held to a lesser standard than other directors--perhaps all we should expect of them is to act as mere agents of the parent. In this article, I argue that precisely because the relationship between a parent company and its wholly-owned subsidiary is so insulated, directors of wholly-owned subsidiaries should be held to higher fiduciary standards than other directors. In the alternative, I argue that a derivative right to enforce the wholly-owned subsidiary director's duty to the corporation should be granted to certain stakeholders. Stefan Padfield Corporate Law http://works.bepress.com/stefan_padfield/1 http://works.bepress.com/stefan_padfield/1 Wed, 24 Oct 2007 09:43:56 PDT In this Comment, I argue that the withholding of good time credits for refusal to participate in rehabilitation does not constitute compulsion under the Fifth Amendment. Consequently, a state may administer a rehabilitation program utilizing good time credits as an incentive without granting immunity. Stefan Padfield