Monday, September 28, 2020

The Execution of Pompey Magnus

The Execution of Pompey Magnus

          Today is the anniversary of the assassination of Pompey the Great on his (almost) arrival in Egypt.  Having lost the Battle of Pharsalus (48 b.c.) to Julius Caesar, he fled to Egypt hoping for refuge and the opportunity to raise a new army.  The Egyptians, knowing that Caesar would be on Pompey’s heals, arranged for his assassination before he reached the shore.  For those of you who enjoyed the HBO series Rome, while Pompey was killed in sight of his wife, there were more assassins than the one depicted, and it took place in the boat, not as Pompey walked to shore.

            It was an ignominious end to an amazing life.  He almost defeated Caesar earlier in the year at the Battle of Dyrrhachium. Previously, with Caesar and Crassus, he had been part of the First Triumvirate.  He was three times Consul of Rome, and three times he was awarded a Triumph. According to Josephus, The Jewish Antiquities, after conquering Jerusalem and settling a dispute as to local control he entered the Holy of Holies of the Temple, but took nothing of its riches.

Today is also the anniversary in 1066 of the arrival of the troops of William of Normandy (soon to be “the Conqueror”) in England. 

Sunday, September 27, 2020

Why Bother?

Why Bother?

On this day in the year 1590, Pope Urban VII passed away. His papacy began on September 15, 1590; he had been Pope for less than 12 days. Prior to his elevation to the Holy See he had a distinguished career as a diplomat throughout Europe, and he was eminently qualified for the position.  He died of malaria.

He did, however, during his short papacy, institute a smoking ban, threatening to excommunicate anyone who “took tobacco in the porch way of or inside a church, whether it be by chewing it, smoking it with a pipe or sniffing it in powdered form through the nose.” The prohibition was ultimately repealed a century later by Pope Benedict VIII.

Urban’s successor, Gregory XIV, would see a pontificate of only ten and a half months.

Friday, September 25, 2020

The Last Viking Invasion of England

The Last Viking Invasion of England

Today is the anniversary of the battle at Stamford Bridge in 1066, it ending, for all intents and purposes, the Viking invasions of England.  Beginning in the 8th century and the famous raid of Lindesfarne (June 8, 793), England had repeatedly suffered both Viking raids and invasions/migrations.  King Canute II (one of only two English kings denominated “the Great”) was an aspect of this chain of events; he was himself Danish.

King Edward the Confessor, who was himself “English” in that he was Anglo-Saxon,  died on January 5, 1066; he was childless.  The crown was assumed by Harald Godwinson.  His dispute with William the Bastard of Normandy over whether Harald had previously agreed to surrender the crown to William would ultimately lead to the Battle of Hastings.  In the meantime, Harald Godwinson had to deal with an invasion from Norway led by another claimant to the throne, Norwegian King Harald Hardrada; Hardrada was supported in this invasion by Tostig Godwinson, Harald Godwinson’s brother. 

Two factors were crucial to the resolution of the Battle of Stamford Bridge.   First, the invading force was dispersed on both sides of the river.  Thus, when the English army attacked the Norse contingent on the south side of the river, they outnumbered their opponent.  Second, the intelligence of the Norse army failed; they did not realize the English army was already present and ready to launch an attack. Another factor whose weight is unknown is that the invading army has days earlier defeated an English army (The Battle of Fulford) led by Earls Morcar (an exiled Northumbrian) and Edwin (Mercia), possibly leading to complacency.

It being a warm day, the invading army had left much of their armor on board their ships.  Initially, the English forces largely massacred the Norse forces on the south side of the river.  They then proceeded to attack over the bridge, an effort that, in what was almost certainly an apocryphal story, was delayed by a single Viking yielding an ax who single-handedly killed some forty soldiers before he was himself slain.  With the English having now crossed the bridge, the two armies again faced one another.  Ultimately, the Norse army would collapse consequent to its lack of armor and the deaths in battle of both Harald Hardrada and Tostig.  The few Normans who survived the battle entered into a truce with Harald agreeing to leave and never return.  While the invading fleet filled some 300 ships, the Norse survivors of the battle were able to return home in only 24 of them.

Harold Godwinson must have welcomed the end of this threat to his seat on the English throne.  Then he learned that the forces of William of Normandy had landed in the south.

Tuesday, September 22, 2020

The Battle of Salamis

The Battle of Salamis

      Today is the anniversary of the Battle of Salamis, which took place in 480 B.C.

      A decade earlier Darius of Persia invaded Greece.  It was the famous victory at Marathon that put an end to that venture.

      Xerxes, successor to Darius, again invaded Greece.  Those of you who saw “The 300” know something of how part of this invasion, namely the first few days, went.  BTW, while parts of that movie conform to the sources (“then we will fight in the shade”), much of it does not.  For example, Sparta had not one but two kings, and Leonidas had already fallen before the final onslaught and destruction of the Spartan force.  Still they had achieved their objective, namely delaying the Persians at Thermophylae.

      At Salamis the Greek fleet attacked that of Persia and won a major victory.  The Persian army, fearing that it would be trapped in Greece, largely withdrew.  The remainder met the Greek army the next year at Plataea.  It was at Plataea that the exhortation with which The 300 opens and closes takes place.  That battle was not the set piece that is indicated in the movie, but it did result in a Greek victory.

      There were no more Persian invasions of Greece.

Monday, September 21, 2020

The Assassination of Flavias Aetius


The Assassination of Flavias Aetius

      Flavias Aetius was the Roman commander at the Battle of Chalons (451), where along with forces of the Visigothic Empire, it under the command of its King, Theodoric , the Huns under Attila were defeated.  Flavias had been appointed magister militum (essentially “supreme commander” of all Roman military forces) by Valentinian III, a particularly weak (and in this era that is saying something) emperor.  While Boethius is oft identified as the last gasp of the Roman Empire’s (or at least its western components’) intellectual life, Flavius Aetius can equally be described as the last of the great western Roman generals.  Gibbons called him the Last of the Romans

      Only three years after Chalons on September 21, 454, Aetius was assassinated by Valentinian.  Within the year, Valentinian would in turn be assassinated by friends of Aetius while Valentinian’s guard watched; the members of the guard had been followers of Aetius. The shrinking remnants of the Western Roman Empire would finally collapse in 476 with the deposition of the last emperor of the Western Roman Empire, Romulus Augustus.

Saturday, September 19, 2020

Theodore of Tarsus

 

Theodore of Tarsus

      Today marks the anniversary of the death, in the year 690, of Theodore of Tarsus. At the time of his death, he was the Archbishop of Canterbury. Probably you have never heard of him. That’s unfortunate; he led a most interesting life.

      Theodore was born in Tarsus (the same city as was born Paul the Apostle) on the southern coast of what is today Turkey. He grew up at a time of conflict between the Byzantine Empire controlled out of Constantinople and the Sassanid Empire out of what was then referred to as Persia (today’s Iran). At this time, pre-the rise of Islam, most of the Sassanid Empire was Zorastrian (the same religion as Freddy Mercury of Queen).  By the early 600s and the rise of Islam, the Sassanid Empire converted to Islam. As such, through this stage in his life, Theodore had been immersed in classical Persian and then Muslim cultures even as he studied classical Western and Christian studies. Ultimately, he relocated first to Constantinople and then to Rome, where he entered a monastery and continued his studies.

       Following the death, before consecration, of a man intended to be the Archbishop of Canterbury (a certain Wighard), Theodore was chosen by the Pope to fill that vacant See. He was consecrated as the Archbishop of Canterbury in Rome, and at some point thereafter departed for England. Once in England, he took steps with respect to a variety of issues ranging from the calculation on what day Easter should be held to a variety of matters of church discipline. He is well served as a mediator in a number of political disputes. He founded a famous school at Canterbury. Many aspects of his time as the Archbishop of Canterbury are known through Bede’s Ecclesiastical History of the English People.

       Theodore would ultimately die in Canterbury at the age of approximately 88.

      So there you have it. Theodore was born in southern Turkey, lived under both the Persian Sassanid and then the Persian Islamic Empires, studied in Constantinople and then in Rome, and spent over 20 years as the Archbishop of Canterbury. The suggesting the people in the Middle Ages did not travel far from where they were born is simply not accurate.

Saturday, September 12, 2020

Athenian Forces Defeat Invading Persians at Marathon

Athenian Forces Defeat Invading Persians at Marathon

      Today might be the anniversary of the great battle, fought in 490 b.c. at Marathon, at which the forces of Athens defeated the Persian invasion sent by Darius the Great. The exact date of the battle is subject to controversy, although there is something of an alternative consensus on the 21st.

      At the time of the battle, the Persian Empire extended from the western boundaries of what is today India across the Middle East, Turkey and to Southwest Europe.  Darius had decided that the land we refer to today as Greece, inhabited by a variety of city-states, would be next incorporated into his empire.  The fact that various of the Greek city-states were supporting rebellious territories in what is today Western Turkey and the Mediterranean probably had a big role in that decision.  An invasion fleet landed its troops some twenty-six miles northeast of Athens at the Bay of Marathon.  Working with collaborators in Athens, it was thought that the army could be drawn away and destroyed even as the collaborators led an internal revolt, taking control of the city and making it available to Darius.  It would not turn out that way.

      At news of the landing, Athens sent word to Sparta seeking its assistance, the Spartan hoplite troops being the strongest force in the region.  Famously, the Spartans were unwilling to send their forces in light of an upcoming religious festival. In consequence, Athens would stand alone.  The Athenian army, well smaller than that of the Persian forces, camped facing their enemy for over a week.  On the 8th day, seeing that the Persians were re-embarking some troops onto ships and fearing that they intended to launch a direct assault on Athens, the Greek forces attacked.  Although outnumbered, by skillful flanking maneuvers the Greeks were able to envelop the Persian forces.  While the historical records recite what must be grossly inflated figures, certainly the Persians lost in excess of 6,000 men while the Greeks lost fewer than 200.

Although not recounted in the contemporary historic record, a runner, Pheidippides, took off to announce the victory to Athens.  Just over 26 miles later, he entered the city, announced “nickomen” (“victory”) and dropped dead from exhaustion.  Meanwhile, the balance of the Persian army embarked on their ships and set out from the Bay of Marathon with the intent of directly attacking Athens.  The Athenian army force-marched itself back to the city, manning its walls as the Persian fleet approached.  The Persians decided that another attack was not in their best interest and they withdrew.  

     A decade after Marathon, the Persian forces under Xerces, son of Darius, would again invade Greece.  They would ultimately fall victim to the Spartan and allied forces at Thermopylae, the Greek naval forces at Salamis and again the allied forces at Plataea.

            As for the famous runner bring news of victory, probably not.  The runner to Athens after the Battle of Marathon is not supported in the historic record, and is first recorded in the writings of the Roman Lucian. Lucian lived in the Second Century a.d., so generously there were six hundred thirty years between the Battle of Marathon and Lucian drafting the first report of this event.

Thursday, September 10, 2020

Using Contractual Flexibility to Avoid Otherwise (Inappropriate) Fiduciary Obligations


Using Contractual Flexibility to Avoid Otherwise
(Inappropriate) Fiduciary Obligations

         
              A recent decision from the Delaware Court of Chancery highlights the ability of persons drafting unincorporated business entity contracts (partnerships, limited partnerships and LLCs) so as to avoid the application of Delaware's (highly questionable) decision USACafés, L.P. Litigation, 600 A.2d 43 (Del. Ch.), appeal refused sub nom. Wyly v. Mazzafo, 602 A.2d 1082 (Del. 1991). This most recent guidance was delivered in Fannin v. YMTH Land Development, L.P. (In re: United Development Funding III, L.P.), C.A. No. 12541-VCF, 2020 WL 4384230 (Del. Ch. Jul. 31, 2020).

Both this decision and USACafés involved limited partnerships. In USACafés, then-Chancellor Allen of the Delaware Chancery Court held that “directors and controllers of a corporate general partner owed fiduciary duties to the limited partnership and the limited partners.” In that case, when an opportunity was presented that could conceivably have been utilized by the limited partnership, certain principles of the corporate general partner utilized it for themselves. In this instance, the defendants argued that USACafés was incorrectly decided and should be abandoned. The court, however, found that there was no indication that USACafés was clearly wrong and noted its continued citation in both court decisions and the legal scholarship. Note, however, that the parent satisfaction with USACafés is incomplete. For example, Mohsen Manesh has cogently argued that it was incorrectly decided, and is catalog the decisions of numerous other state courts that have not followed. See Mohsen Manesh, The Case Against Fiduciary Entity Veil Piercing, 72 Bus. Law. 61 (Winter 2016-17).

        But all is not lost. Under Delaware law as well as the law of many other jurisdictions, it is possible to disclaim, modify and entirely eliminate fiduciary duties. The Fannin decision points out that this opportunity to use contract reduces the impact of USACafés. Specifically, if it is desired that those in control of the general partner of the limited partnership not owe fiduciary obligations to either the limited partnership as a whole lot to the limited partners either individually or as a class, that can be specified in the controlling agreements. “Controllers may avoid or at least minimize the duty that USACafes recognized by structuring their limited partnership agreements to eliminate fiduciary duties. Delaware limited partnership jurisprudence has long recognized broad license to limit fiduciary duty protections in limited partnership agreements.” Fannin, 2020 WL 4384230, * 18.  In that way the otherwise default application of the principles set forth in USACafés is avoided.
Of course, this means that the application of USACafés continues to exist where the drafters of the controlling agreements are unaware of this option. In those circumstances, those organizing the venture should have done a better job of hiring legal counsel who were up to date with developments in the law. More pernicious is, however, the situation of small ventures that are not in the position to draft bespoke organizational documents; they are not inexpensive. Those smaller, less sophisticated ventures will continue to bear the brunt of USACafés and its arguably invalid core holding.

Wednesday, September 9, 2020

Professional Eric Chaffee and Liberty University


Professional Eric Chaffee and Liberty University

        Last week, in a story published on Reuters titled How Jerry Falwell Jr. Mixed Personal Finances with His University’s (Sept. 4, 2020), Prof. Eric Chaffee of the University of Toledo Law School, was quoted “These sweetheart land transactions are certainly eyebrow-raising.”

         HERE IS A LINK to that story.

An LLC Is Not a Corporation


An LLC Is Not a Corporation
      
      An LLC is not a partnership, and it is not a corporation. Neither is it a species of either of those business organizational forms. Rather, an LLC is a unique combination of characteristics, some which have precedents in the law of corporations and partnerships and some of which are unique to limited liability companies. There are a significant number of cases addressing the challenge of whether a statute drafted long before the existence of LLCs that references, for example, “corporations” or “partnerships” should be read as including as well LLCs. In a recent decision from Texas, with respect to a particular statute, that question was answered in the negative. D. Webb Industries, LLC v. Permian Equipment Rentals, LLC, 2020 WL 4875879 (Tx. App. - Eastland, Aug. 20, 2020).

      Under Texas law, it is possible to recover attorneys’ fees against corporations and individuals in certain cases as provided for in § 38.001 of the Texas Civil Practice and Remedies code, it being helpfully labeled “Recovery of Attorney’s Fees.” In this instance, an application was made for recovery of attorney's fees against the LLC. The defense was that the statute is restricted to recovery against corporations and individuals, and an LLC is neither.

      Following a long string of prior Texas decisions that have addressed the issue, the court refused to step outside the accepted interpretation of § 38.001, holding that attorney's fees may not be recovered against an LLC in that it is neither a corporation nor an individual.

Tuesday, September 8, 2020

Choice of Law/Forum and Waiving the Right to a Jury Trial: California Courts Holds That the Former Cannot Do the Latter

Choice of Law/Forum and Waiving the Right to a Jury Trial: California Courts Holds That
the Former Cannot Do the Latter

Business Law Today, a publication of the Section of Business Law of the American Bar Association, has published a short article of mine, Choice of Law/Forum and Waiving the Right to a Jury Trial: California Courts Holds That the Former Cannot Do the Latter.  This article reviews a recent decision of a California court that is yet another cog in the disfunctional machine that is the relationship of the business law of Delaware (and by implication of every other state) and California.  In this case the plaintiff was a member of a Delaware LLC.  When he sued the LLC he claimed that he should not be required to litigate in the Delaware Chancery Court, which does not have juries, because under the California Constitution he has a right to a jury trial.

How the Delaware court will respond awaits to be seen.

            HERE IS A LINK to the article.

Friday, September 4, 2020

Different Forms Have Different Rules


Different Forms Have Different Rules

        While often times business organization forms such as the limited liability company, the corporation, the partnership and the limited partnership are lumped together as being only slightly different shades of gray, in fact they are distinct bodies of law all with their own rules. In a recent posting on the New York Business Divorce Blog, Franklin C. McRoberts has reviewed the New York law governing LLCs, corporations, partnerships and limited partnerships from the perspective of what obligations may or may not be set forth in an oral/course of conduct versus a written agreement. In that posting, he identifies a number of important points. Now, that may be the law for New York, but every state is going to have similar disparate limitations across entity acts, and they need to be recognized.

      The title of that posting is Enforceability of Oral Operating, Shareholder, and Partnership Agreements, posted August 24, 2020. HERE IS ALINK to that piece.

And So Begin the Middle Ages


And So Begin the Middle Ages

        By a certain measure, today marks the anniversary of the date in 476 from which the “Middle Ages” may be dated. On this day, the last emperor of the Western Roman Empire, Romulus Augustus, who was in his mid-teens and was completely controlled by his father, Orestes, the Magister Militum of the Roman military, was deposed by Odoacer. Orestes had little standing to complain about the over-throw of his son's reign - Orestes had revolted against the prior emperor and put his son on the imperial throne. Odoacer did not bother asserting that he was another Roman emperor; he was to be simply the King of the territories under his control.

        With Romulus' resignation the imperial regalia was packed up and shipped off to Byzantium. With this event, the Western Roman Empire ceased to exist, its fragments now under control of various “barbarian” tribes.

             The “eastern” Roman Empire centered at Constantinople (Byzantium) would survive another millennium until it fell to the Ottoman Turks in 1453.

Thursday, September 3, 2020

Application for Judicial Dissolution of LLC By A Non-Member Dismissed


Application for Judicial Dissolution of LLC By a Non-Member Dismissed

      The Delaware Limited Liability Company Act, and specifically section 18-802 thereof, provides that an LLC may be judicially dissolved “[o]n application by or for a member or manager.” In a recent decision, an application for judicial dissolution brought by neither a member nor a manager was dismissed. SolarReserve CSP Holdings v. Tonopah Solar Energy, LLC, C.A. No. 2019-0791-J RS, 2020 WL 1291638 (Del. Ch. March 18, 2020).

      Tonopah Solar Energy, LLC was originally organized as a single member LLC in which SolarReserve CSP Holdings, LLC was the sole member. Over time and in connection with a variety of financings, SolarReserve conveyed its interests in Tonapah to several other holding companies and as well borrowed money from the US Department of Energy. In turn, SolarReserve also entered into a joint venture agreement with Cobra Thermosolar Plants, Inc. to build a solar power facility. Ultimately, after a default in the Department of Energy borrowing, SolarReserves was removed from its position of ultimate control over Tonopah. In connection with this suit, SolarReserve alleges that Tonopah was insolvent and being unable to build its plats, it was no longer practicable for Tonopah to carry on its business. On that basis, it was requested that the court dissolve Tonopah. Tonopah resisted, which led to this decision.

      Parsing the current ownership and control structure of Tonopah, the court determined that SolarReserve was not a member, but rather an indirect investor. Further, turning to the argument it should order dissolution on equitable principles, the court deferred, concluding that doing so would create rights in SolarReserve that it did not already have. Rather, to the extent in SolarReserve continue to hold any interest in Tonopah, there was an intervening holding company from which all of the membership interests in Tonopah had been pledged to secure the now defaulted Department of Energy loan.

Wednesday, September 2, 2020

Delaware Chancery Court Applies Implied Covenant of Good Faith and Fair Dealing, Finds Plaintiff Failed To Prove What Would Have Been Agreed Upon

Delaware Chancery Court Applies Implied Covenant of Good Faith and Fair Dealing, Finds Plaintiff Failed To Prove What Would Have Been Agreed Upon

      The implied contractual covenant of good faith and fair dealing, as applied by the Delaware courts, will in one of its aspects look to and enforce what the parties would have agreed to had they thought to actually negotiate on the point. Resolution of that question will involve a factual analysis of matters including how the parties have otherwise allocated risk in the transaction. In a recent decision, the court found that the plaintiff failed to demonstrate that the defendant would have agreed to what it said it would have been the negotiated rule. RoundPoint Mortgage Servicing Corp. v. Freedom Mortgage Corp., C.A. No. 2020-0161-SG, 2020 WL 4199957 (Del. Ch. July 22, 2020).

      RoundPoint Mortgage Servicing acquired, by means of a merger, Freedom Mortgage. The merger agreement, in addition to the usual restrictions on transactions outside the ordinary course between signing and closing, specifically addressed that RoundPoint might, in that period of time, face margin calls on a credit facility that was secured by certain of its assets. In order to make funds available to satisfy those obligations, the merger agreement allowed RoundPoint to borrow money from its controlling shareholder (the “Shareholder Loan”). That same merger agreement required as a closing condition that Round Point “shall have repaid, all amounts outstanding under the [Shareholder Loan].” Pursuant to that authorization, between the signing of the merger agreement and its ultimate close, that controlling shareholder loaned to RoundPoint some $123 million. However, except with respect to $1 million thereof, prior to closing the controlling shareholder forgave the Shareholder Loan without requiring any repayment; this worked to the controlling shareholder’s interest because the purchase price was net asset value plus a 7.5% premium. Had the Shareholder Loan been repaid, the net asset value would have been reduced. But as characterized by the Chancery Court, the controlling shareholder appreciated that with this that each dollar of the loan forgiven “benefits (almost) 7.5 cents per dollar of debt it forgives.” and that “each such dollar [forgiven by the controlling shareholder] requires [Freedom Mortgage] to come up with an additional dollar (plus premium) in cash at closing.” 

      RoundPoint Mortgage sought to avoid its obligation to close on the transaction unless the seller actually repaid, rather than forgave, the Shareholder Loan.

      After first determining that the merger agreement did not expressly prohibit the controlling shareholder from forgiving the Shareholder Loans (and thereby effecting a net increase in the purchase price), it recognized that, in support of its claim under the implied covenant, the buyer would want to prohibit forgiveness of the loan that it first sanctioned. The court, however, was not willing to imply into the agreement a no forgiveness limitation because Freedom Mortgage, the buyer, failed in its burden of demonstrating that, had the parties negotiated the terms, they would have negotiated in a no forgiveness condition. Rather, while it is not conclusive that the parties would have negotiated a no forgiveness limitation, is entirely possible that they would have negotiated something else.  Failing to satisfy that burden, Freedom Mortgage's implied covenant claim failed.

Tuesday, September 1, 2020

No Breach of Fiduciary Duty or of Good Faith and Fair Dealing in (Apparently) Zeroing Out Another Member

No Breach of Fiduciary Duty or of Good Faith and Fair Dealing in (Apparently) Zeroing Out Another Member

      In a recent decision from New York, while at best sparse on the underlying facts, does affirm a determination that the exercise of an express power set forth in an operating agreement will not give rise to a claim of breach of fiduciary duty or the implied contractual covenant of good faith and fair dealing. Seeking Valhalla Trust v. Deane, --- N.Y.S.3d ----, 182 A.D.3d 457, 2020 WL 1812730 (App. Div. 1st April 9, 2020).

       Again, the available facts are sparse; this entire opinion runs to only two pages. Still, it would appear that the Seeking Valhalla Trust was a member in an otherwise unnamed LLC. Deane, apparently the LLC’s manager, exercised an express right under the operating agreement to adjust the sharing ratios amongst the members, even down to zero, at any time. It appears that this was done, and the Seeking Valhalla Trust brought suit alleging that Deane, in making these adjustments, violated either or both of fiduciary duty or the implied contractual covenant of good faith and fair dealing.

       In dismissing the claim for the alleged violation of the obligation of good faith and fair dealing (the court would as well summarily dismiss the claim for breach of fiduciary duty), the opinion recites:

Nevertheless, the complaint was properly dismissed for failure to state a cause of action. As the court found, Deane did not breach the operating agreement or the covenant of good faith and fair dealing by exercising her express sole discretion to reallocate sharing ratios, even down to zero, at any time. The language of the provision is unambiguous. Considered otherwise, Deane merely exercised the very power given her by the operating agreement. 2020 WL 1812730, *1 (citations omitted).