More on Magna Carta

More on Magna Carta

 

       An article in the New York Times, while more eloquent than my posting last Monday, likewise challenges the importance of the 1215 Magna Carta.

 

 

HERE IS A LINK TO THAT ARTICLE

 

 

More on Recent Amendments to the Delaware Corporate Laws - Forum Selection

More on Recent Amendments to the Delaware Corporate Laws -

Forum Selection

      The Delaware General Assembly, by means of Senate Bill 75, has enacted a number of revisions and additions to the Delaware General Corporation Law. As previously noted (HERE IS A LINK TO THAT POSTING), Senate Bill 75 has precluded stock corporations, either in their certificate of incorporation or bylaws, from imposing requirements upon shareholders and other stakeholders to pay all defense cost in the event a derivative or similar action is not successful. That was not, however, the sole import of Senate Bill 75.

      Another provision added to the DGCL addresses forum selection provisions in either the certificate of incorporation or the bylaws. Under the new provisions, it is clear that either the certificate or the bylaws may provide that (a) the Delaware courts are the exclusive jurisdiction for consideration of internal corporate claims or, in the alternative (b) the courts of a foreign jurisdiction or a permissible venue for the resolution of disputes over internal affairs provided that the Delaware courts as well remain an available venue. At the same time, and this is made express in the official comment released with the statute, neither the certificate nor the bylaws may purport to identify the courts of a jurisdiction outside of Delaware as the exclusive venue for the resolution of internal corporate claims: the statute “invalidates such a provision selecting the courts in a different State, or an arbitral forum, if it would preclude litigating such claims in the Delaware courts.”

      The referenced definition of “internal corporate claims” of section 115 is to “claims, including claims in the right of the corporation, (i) that are based upon a violation of the duty by a current or former director or officer or stockholder in such capacity, or (ii) as to which this title confers jurisdiction upon the Court of Chancery.”

      It should be noted that, while such provisions may not be set forth in the certificate of incorporation or the bylaws, they may still be set forth in a shareholder agreement that has been “signed by the stockholder against whom the provision is to be enforced.”

      The 2015 Kentucky General Assembly, through sections of 6 and 7 of House Bill 440 (2015 Ky. Acts, ch. 34), have enabled a corporation to identify the “appropriate court,” that being the circuit court of the county in which the corporation has its principal office address or, if the principal office address is not in Kentucky, its registered office, as that in which derivative actions or actions to compel the production of books and records, may or must be brought. However, the Kentucky Act requires that the venue election be in the articles of incorporation; a venue provision in the bylaws has not been statutorily sanctioned.  Further, in that the statute has defined where such a provision may be adopted, namely in the articles of incorporation, by implication the adoption elsewhere is in effective.

Delaware Legislature Rejects Fee Shifting

Delaware Legislature Rejects Fee Shifting

      In ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014), in the context of a nonprofit corporation, the Delaware Supreme Court affirmed the validity of a provision added to the corporation’s bylaws providing, inter alia, that if a member of the corporation should bring a derivative action and not substantially prevail, they must pay all of the defense costs incurred in connection with the action. In effect, similar bylaw provisions (alternatively, these requirements could be set forth in the certificate of incorporation) have the effect of insulating the directors and officers from challenges for breach of fiduciary duty. The Delaware General Assembly has passed, and there is every expectation that the governor will sign, amendments to the Delaware General Corporation Law providing, essentially, that fee shifting provisions in either the certificate or the bylaws will not be effective.

      Specifically, Senate Bill 75, with respect to stock corporations (the contrary rule as set forth in ATP Tour for nonstock/nonprofit corporations is not modified), adds a new subsection (f) to section 102 to provide:

The certificate of incorporation may not contain any provision that would impose liability on a stockholder for the attorneys’ fees or expenses of the Corporation or any other party in connection with an internal corporate claim, as defined in § 115 of this title.

In a similar vein, there is added to section 109 of the DGCL:

The bylaws may not contain any provision that would impose liability on a stockholder for the attorneys’ fees or expenses of the Corporation or any other party in connection with an internal corporate claim, as defined in § 115 of this title.

      The referenced definition of “internal corporate claims” of section 115 is to “claims, including claims in the right of the corporation, (i) that are based upon a violation of the duty by a current or former director or officer or stockholder in such capacity, or (ii) as to which this title confers jurisdiction upon the Court of Chancery.”

      This is an important development in the law as it preserves the ability of shareholders and, on the appropriate facts, other stakeholders such as creditors to bring actions challenging the discharge of fiduciary obligations by corporate directors and officers. That said, it is unfortunate that Delaware has not extended this amendment to nonstock corporations. Essentially, the adoption of fee shifting bylaws by charities organized in Delaware remains, at this time, permissible.

      It bears noting that fee shifting in stockholder agreements remains permissible.  Investors need to carefully review stockholder and similar agreements to assess what fee shifting provision they contain.

      Senate Bill 75 enacts a number of other amendments to the Delaware General Corporation Law; those changes will be reviewed in future postings.

Jumping the Magna Carta Gun

Jumping the Magna Carta Gun

      This year there are being held a series of events commemorating the 800th anniversary of the Magna Carta, the “Great Charter” imposed on “Bad” King John in 1215.  Those events will include a display of the Magna Carta at the Kentucky State Fair, a presentation supported by both the Kentucky Bar Association and the Louisville Bar Association.

      Specifically, and it is all over the news, June 15, 1215, 800 years ago today, is celebrated for the signing of Magna Carta by King John and his leading nobles, all at Runnymede.  From there the foundation of Magna Carta is dated. In espousing the Magna Carta as a foundational document in the development of the rule of law, these celebrations are jumping the gun. 

      The only problem is that the Magna Carta of June, 1215 was a dead letter.  John repudiated the charter, and that repudiation was affirmed by Pope Innocent III.

      John's after-the-fact rejection of Magna Carta precipitated the First Barons War, a contest in which a group of disaffected nobles actually aligned themselves with the King of France. Had history turned out only slightly differently, the Angevin house of England could have been replaced by the French royal house, thereby uniting England and France under a single crown.  That, of course, was the ultimate aim of the English in the Hundred Years War in the 14^th and 15^th centuries, but that is a different story.  King John would die in October, 1216, the Crown being inherited by his nine year old son Henry III.  As part of the effort to bring the First Barons War to a conclusion, William Marshal, the prototypical knight of the period and the Regent of Henry III, caused there to be issued a shorter version of Magna Carta. This effort was not entirely successful, but the shorter version was ultimately incorporated into the settlement the brought about the resolution of the First Barons War.

      Henry III would again issue Magna Carta during his reign as a trade-off for new taxes, and his son Edward I would as well issue Magna Carta in his own name.  Subsequent monarchs would do the same through the 14th century.

      That said, none of the issuances of Magna Carta, irrespective of a specific content, had the same theatrical flair as the June 15, 1215 signing at Runnymede.  For that reason, it remains the event to which everybody refers.

      But it did not bring Magna Carta into law. 

      Today is without question the date of issuance, in 1520, of the bull Exsurge Domine by Pope Leo X.  Addressed to formerly obscure theology professor Martin Luther, it threatened excommunication if Luther did not recant certain heretical views. He did not do so, and the threatened excommunication was carried out in January 1520.  Whereas the 1215 Magna Carta never had legal effect, Exsurge Domine did and does.

Sole Proprietor is Not Employee of Sole Proprietorship

Sole Proprietor is Not Employee of Sole Proprietorship

      In a decision rendered by the Kentucky Supreme Court on May 14, 2015, it clarified the law governing sole proprietorships and the relationship of the sole proprietor thereto, a decision which, in this instance, had a material impact upon the availability of workers compensation coverage. Kentucky Employers’ Mutual Insurance v. Ellington, 2013-SC-000802-WC, 2015 WL 234-0284 (Ky. May 14, 2015).

      Randy Ellington operated his business, R & J Cabinets, as a sole proprietorship (at one time it had apparently been a partnership, but became a sole proprietorship some six years before this case arose). The sole proprietorship maintained a workers’ compensation insurance policy with Kentucky Employers’ Mutual Insurance. In December, 2010, presumably while rendering services on behalf of R & J Cabinets, his sole proprietorship, Ellington slipped on ice at a job site and broke his femur. Thereafter, he filed a claim for workers compensation benefits.

      The insurance policy, in numerous instances, excluded Ellington from coverage. For example, an endorsement with the heading SOLE PROPRIETORS, PARTNERS, OFFICERS AND OTHERS EXCLUSION ENDORSEMENT “specifically stated that there was no bodily injury coverage to any person” named on a certain schedule; it listed Ellington. In fact, on that schedule, Ellington’s name appeared in a column with the heading “Excluded Individual Name.”

      While both the ALJ and the Workers’ Compensation Board determined that coverage was not available, the Court of Appeals reversed, holding there to be an ambiguity in the agreement to the effect that while Ellington was excluded in his capacity as the owner of the business, he could be included as an employee of his sole proprietorship. That determination would be reversed by the Supreme Court. Explaining that the sole proprietor is not their own employer, the Supreme Court wrote:

It is thus evident that the Court of Appeals’ reading misunderstands the nature of a sole proprietorship.  Unlike a corporation or a limited-liability company, a sole proprietorship is not an entity separate from the proprietor.  They are one and the same.  Cf. Black’s Law Dictionary (10^th ed. 2014) (defining sole proprietorship as “[a] business in which one person owns all the assets, owes all the liabilities, and operates in his or her personal capacity” (emphasis added)). Though we often speak of such people as being self-employed, no one really contemplates that a sole proprietor acts in two capacities, both as employer and employee.  The Court of Appeals’ confusion appears to stem from the fact that Ellington operated his business under an assumed name, rather than his own, as is allowed under KRS 365.015. But again, that does mean that R & J Cabinets was a separate entity from Ellington.  Rather, the use of the assumed name for the sole proprietorship further demonstrates that Ellington and the business were one and the same.

       The Supreme Court went on to undertake a “reasonable expectation” analysis of the policy, concluding therefrom that Ellington could not have had a reasonable expectation that he was covered by the policy.

      This decision is important for a number of reasons.  First, it clarifies the relationship of a sole proprietor to their sole proprietorship. Second, it makes clear that the filing of a certificate of assumed name does not of in itself create a distinct legal entity. Third and perhaps of greatest import, it highlights the importance to sole proprietors who want workers’ compensation insurance coverage to be sure that the policy they have purchased affords them coverage. As an extension thereof, it needs to be recognized that, absent specific riders, members of an LLC are typically not covered by workers’ compensation coverage. Where the LLC’s members are rendering services on its behalf, it is important that they scrutinize their policy to ensure that coverage, if desired, is available. Surprises in this area can be very expensive.

Its Always Nice to See the Louisville Legal Community in the News, Except of Course When it is Not

Its Always Nice to See the Louisville Legal Community in the News,

Except of Course When it is Not

 

"Attorney Doubles Down On Racist, Offensive Comments"

http://abovethelaw.com/2015/06/attorney-doubles-down-on-racist-offensive-comments/

US Supreme Court Allows New Jersey Decision Restricting Arbitration Clauses to Stand

US Supreme Court Allows New Jersey Decision Restricting Arbitration Clauses to Stand

      Yesterday, the United States Supreme Court decided it would not review a case from New Jersey with respect to required wording of arbitration clauses.  U.S. Legal Group, L.P. v. Atalese.

       This case arose out of a dispute between a law firm that specializes in debt counseling and one of its clients. When that dispute arose, the firm sought to refer it to binding arbitration.  The client objected on the basis that the arbitration clause did not expressly advise her that by agreeing to arbitrate she was giving up the right to litigate the dispute in court.  At both the trial court and the New Jersey Court of Appeals, it was held that the arbitration clause was binding and effective, and there exists no rule requiring that an arbitration clause expressly explain that The right to a court trial is waived.

      Perhaps surprisingly, the New Jersey Supreme Court did not agree with that rule. Rather, it held that the arbitration clause was itself insufficient in that it did not explain that, by agreeing to arbitrate any dispute, The parties to the agreement are waiving the right to a court trial.  Specifically:

[n]owhere in the arbitration clause is there any explanation that plaintiff is waiving her right to seek relief in court for a breach of her statutory rights….

The provision does not explain what arbitration is, nor does it indicate how arbitration is different from a proceeding in a court of law. Nor is it written in plain language that would be clear and understandable to the average consumer that she is waiving statutory rights.

On that basis it was held that there was no agreement to arbitrate. Atalese v. U.S. Legal Services Group, L.P., 99 A.3d 306 (N.J. 2014)

     An appeal was filed with the Supreme Court on the basis that the New Jersey Supreme Court had inappropriately imposed an additional condition upon arbitration clauses in violation of the rule that agreements to arbitrate should be enforced just as are any other agreements.  As there is no legal requirement to explain the legal impact of other provisions of the agreement, it was argued, there cannot be a separate requirement to explain the implications of an agreement to arbitrate.

      The Supreme Court, however, determined that it would not review the ruling of the New Jersey Supreme Court. Hence, that remains the law in New Jersey, and it may, at least for now, be argued it is what the law should be in other jurisdictions.