Last year, Professors Armour, Black and Cheffins published a paper titled 'Is Delaware Losing its Cases?' in which they reported on the Delaware courts' loss of market share in shareholder suits involving Delaware companies: see here. Against this background, it is interesting to note that one of the effects of the proposed Chapter 11 Bankruptcy Venue Reform Act of 2011 would be to reduce the situations in which companies incorporated in Delaware are able to file for bankruptcy there. The proposed Act - available here - was introduced in the House of Representatives in July and last month was subject to a hearing by the Committee on the Judiciary: see here. The Bill's progress can be followed here and a statement by its sponsor, Congressman Lamar Smith, is available here.
Showing posts with label new york. Show all posts
Showing posts with label new york. Show all posts
Thursday, 20 October 2011
USA: the Chapter 11 Bankruptcy Venue Reform Act of 2011
Last year, Professors Armour, Black and Cheffins published a paper titled 'Is Delaware Losing its Cases?' in which they reported on the Delaware courts' loss of market share in shareholder suits involving Delaware companies: see here. Against this background, it is interesting to note that one of the effects of the proposed Chapter 11 Bankruptcy Venue Reform Act of 2011 would be to reduce the situations in which companies incorporated in Delaware are able to file for bankruptcy there. The proposed Act - available here - was introduced in the House of Representatives in July and last month was subject to a hearing by the Committee on the Judiciary: see here. The Bill's progress can be followed here and a statement by its sponsor, Congressman Lamar Smith, is available here.
Monday, 23 February 2009
USA: New York: Parmalat, Deloitte and vicarious liability
The United States District Court for the Southern District of New York has given its opinion in Re Parmalat Securities Litigation. The case concerned the claim that Deloitte Touche Tohmatsu (DTT), a Swiss verein with headquarters in New York, was vicariously liable for the actions of Deloitte Italy, Parmalat's auditor. DTT sought summary judgment dismissing the claim: the trial judge declined and observed (p. 19):In all the circumstances, the totality of the evidence – including evidence concerning the structure and internal relationships of Deloitte generally, DTT’s authority over the professional practices of the member firms, and DTT’s exercise of that authority in connection with the Parmalat engagement – raises a genuine issue of material fact as to whether Deloitte Italy was an agent of DTT with respect to the Parmalat engagement".
For background information, click here.
Saturday, 26 April 2008
US: New York: The derivative action and LLCs
In 1994, New York State introduced a new legal form: the Limited Liability Company (LLC). The LLC is, to quote directly from the Guide produced by New York State's Division of Corporations:
"...an unincorporated business organization of one or more persons who have limited liability for the contractual obligations and other liabilities of the business. The Limited Liability Company Law governs the formation and operation of an LLC. An LLC may organize for any lawful business purpose or purposes. The LLC is a hybrid form that combines corporation-style limited liability with partnership-style flexibility. The flexible management structure allows owners to shape the LLC to meet the needs of the business. The owners of an LLC are "members" rather than shareholders or partners. A member may be an individual, a corporation, a partnership, another limited liability company, or any other legal entity".
The question before the New York State Court of Appeals in Tzolis v. Wolff, N.Y. Slip Op. No. 01260 (N.Y. February 14, 2008) was whether members of a LLC could bring a derivative action. The Limited Liability Company Law is silent on this issue. The majority in Tzolis held that a member could bring such an action, referring to early English and American cases; Smith J. observed (pp. 5-6):
"...we continue to heed the realization that influenced Chancellor Walworth in 1832 [in Robinson v Smith (3 Paige Ch 222)], and Lord Hardwicke ninety years earlier: When fiduciaries are faithless to their trust, the victims must not be left wholly without a remedy. As Lord Hardwicke put it, to 'determine that frauds of this kind are out of the reach of courts of law or equity' would lead to 'an intolerable grievance' (Charitable Corp. v Sutton, 2 Atk at 406 [(1742) 26 ER 642]). To hold that there is no remedy when corporate fiduciaries use corporate assets to enrich themselves was unacceptable in 1742 and in 1832, and it is still unacceptable today. Derivative suits are not the only possible remedy, but they are the one that has been recognized for most of two centuries, and to abolish them in the LLC context would be a radical step".
However, in a powerful dissent, Read J. observed (p. 20):
"The enacting (not a subsequent) Legislature considered and explicitly rejected language authorizing the very result that plaintiffs have successfully sought from the judiciary in this case. Fourteen years after the fact the majority has unwound the legislative bargain. The proponents of derivative rights for LLC members -- who were unable to muster a majority in the Senate -- have now obtained from the courts what they were unable to achieve democratically. Thanks to judicial fiat, LLC members now enjoy the right to bring a derivative suit. And because created by the courts, this right is unfettered by the prudential safeguards against abuse that the Legislature has adopted when opting to authorize this remedy in other contexts"
"...an unincorporated business organization of one or more persons who have limited liability for the contractual obligations and other liabilities of the business. The Limited Liability Company Law governs the formation and operation of an LLC. An LLC may organize for any lawful business purpose or purposes. The LLC is a hybrid form that combines corporation-style limited liability with partnership-style flexibility. The flexible management structure allows owners to shape the LLC to meet the needs of the business. The owners of an LLC are "members" rather than shareholders or partners. A member may be an individual, a corporation, a partnership, another limited liability company, or any other legal entity".
The question before the New York State Court of Appeals in Tzolis v. Wolff, N.Y. Slip Op. No. 01260 (N.Y. February 14, 2008) was whether members of a LLC could bring a derivative action. The Limited Liability Company Law is silent on this issue. The majority in Tzolis held that a member could bring such an action, referring to early English and American cases; Smith J. observed (pp. 5-6):
"...we continue to heed the realization that influenced Chancellor Walworth in 1832 [in Robinson v Smith (3 Paige Ch 222)], and Lord Hardwicke ninety years earlier: When fiduciaries are faithless to their trust, the victims must not be left wholly without a remedy. As Lord Hardwicke put it, to 'determine that frauds of this kind are out of the reach of courts of law or equity' would lead to 'an intolerable grievance' (Charitable Corp. v Sutton, 2 Atk at 406 [(1742) 26 ER 642]). To hold that there is no remedy when corporate fiduciaries use corporate assets to enrich themselves was unacceptable in 1742 and in 1832, and it is still unacceptable today. Derivative suits are not the only possible remedy, but they are the one that has been recognized for most of two centuries, and to abolish them in the LLC context would be a radical step".
However, in a powerful dissent, Read J. observed (p. 20):
"The enacting (not a subsequent) Legislature considered and explicitly rejected language authorizing the very result that plaintiffs have successfully sought from the judiciary in this case. Fourteen years after the fact the majority has unwound the legislative bargain. The proponents of derivative rights for LLC members -- who were unable to muster a majority in the Senate -- have now obtained from the courts what they were unable to achieve democratically. Thanks to judicial fiat, LLC members now enjoy the right to bring a derivative suit. And because created by the courts, this right is unfettered by the prudential safeguards against abuse that the Legislature has adopted when opting to authorize this remedy in other contexts"
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