ProfessorBainbridge.com

Striped Bass with Fennel in a Pouch

2009-11-07T23:39:47-08:00

1 whole striped bass, cleaned and scaled (about 1 and ½ pounds)
1 fennel bulb, trimmed, rinsed and scrubbed, cored, and julienned with fronds reserved
1 Maui sweet onion, julienned
2 small carrots, peeled and cut into ¼-inch coins
20 cherry tomatoes, halved
3 cloves garlic, sliced very thinly
3 tablespoons fresh basil leaves chiffonade
zest of 1 lemon, chopped very fine
1 tablespoon butter
1 tablespoon olive oil
½ cup white wine
4 ¼-inch slices lemon, seeded
3 large fresh basil leaves
sea salt
freshly grounded black pepper

Preheat oven to 425°.

Heat a 12-inch nonstick skillet over medium heat. Add olive oil and butter. When butter stops foaming, add fennel, onion, and carrots. Cook 10 minutes. Add tomatoes, garlic, basil chiffonade, lemon zest. Cook 2 minutes. Add white wine, increase heat until mixture boils, reduce heat to a low simmer and cook 3 minutes. Remove from heat.

Line a rectangular glass baking dish long enough to hold fish with aluminum foil. Cut 2 24-inch long by 12-inch wide rectangles of aluminum foil. Lay both over baking dish, shiny side up. Add vegetable mix to top layer of foil. Rinse fish thoroughly. Season exterior and interior with salt and pepper. Stuff interior with lemon slices, reserved fennel fronds, and basil leaves. Fold top layer of foil over fish to form a pouch and crimp sides tightly. Repeat with lower layer of foil.

Bake at 425° for 25 minutes. Transfer fish, vegetables and sauce to a large warm platter and serve.

Serve with Le Risotto aux Tomates et au Safran (i.e., Tomato Risotto with Saffron). You can cheat by using Alessi Pomodori Risotto, which I find quite agreeable.

A crisp white wine without a lot of oak would do nicely. I poured a 2007 Le Cigare Blanc, a Rhone-style blend of roussanne and grenache blanc from Bonny Doon Vineyards. Lots of white stone fruit and melon flavors, with good acidity made it a nice match.

The RSU Guys on the Election

2009-11-05T12:18:11-08:00

Jones v. Harris Argued

2009-11-02T14:33:03-08:00

The Supreme Court heard argument today in Jones v. Harris, a case in which a mutual fund investor challenged allegedly excessive advisory fees.

Regulatory Background

Congress enacted Investment Company Act of 1940 to mitigate conflicts of interest inherent in relationship between investment advisers and the mutual funds they create
Section 36(b) imposes on investment advisers a fiduciary duty with respect to the receipt of compensation for services
Authorizes fund shareholders to bring claims for breach of fiduciary duties
Approval by the board of directors is not conclusive…shall be given consideration by the courts as deemed appropriate under all circumstances

The Second Circuit decision in Gartenberg v. Merrill Lynch Asset Management, Inc. set prevailing standard for more than 25 years:

Does the fee schedule represent a charge within the range of what would have been negotiated at arm's-length; or
Are the fees so disportionately large that it bears no reasonable relationship to the services rendered
Gartenberg found that fees paid to other fund advisers were not dispositive
A court should rely on its own business judgment to determine whether the fee is inconsistent with the investment advisers fiduciary duty under Section 36(b)

Courts should consider six factors:

Nature, extent and quality of services provided to fund shareholders
The profitability of the fund’s fees to the adviser
Fallout benefits to the adviser
Whether fee levels reflect economies of scale as the fund grows
Fee structure of comparative funds
The independence and conscientiousness of the trustees

The Seventh Circuit Opinion in Jones v. Harris Associates

Easterbrook's majority opinion held that Harris had not violated the Act because the fees were ordinary
Rejects Gartenberg approach ("because it relies too little on markets")
Disclosure plus fee-setting market will regulate itself
Investors vote with their feet and dollars
Market competition rather than a "just price" administered by the courts is appropriate
Judge Posner issued dissent and chided the panel for rejecting Gartenberg

The SCOTUS

Prompted by the Circuit split and, one suspects, the split between Easterbrook and Posner--whom one normally thinks of as ideological soulmates--the SCOTUS took cert.

According to Bloomberg, which reported on the oral argument held today:

U.S. Supreme Court justices signaled they are split over the role judges should play in reviewing the compensation of mutual fund advisers in a case that might force reductions in the $90 billion in annual fees advisers collect.

Hearing arguments today in Washington, Chief Justice John Roberts and Justice Antonin Scalia emerged as the industry’s strongest defenders, questioning whether courts should second- guess the fund boards that approve the fees. The justices are considering the impact of the federal law that governs the mutual fund industry and its $10 trillion in assets.

An investor who objects to a fee “can go look at another fund,” Roberts said. “It takes 30 seconds.”

Other justices, including Stephen Breyer, suggested that judges should compare the fees paid by mutual fund shareholders to those the same investment advisers charge institutional clients that have similar investment objectives. Breyer said that, for fund directors, that would be a “normal question to ask.”

The WSJ opines that:

The U.S. Supreme Court seemed reluctant to intervene significantly in how mutual funds charge their customers, but indicated during arguments on Monday that it may request a more clearly defined standard for the fees.

The Journal also reports a rather curious comment by Justice Scalia:

And the justices noted that although the U.S. Securities and Exchange Commission backed the petitioners in the case, the agency has not filed any actions enforcing the relevant statute since 1980.

Assistant Solicitor General Curtis Gannon said the commission has focused instead on encouraging mutual funds to disclose more information.

Justice Antonin Scalia suggested the commission could more easily take on a larger role policing the industry than the courts. "It makes a lot more sense to have the SEC regulate rates than to have the courts do it, doesn't it?" he asked.

If Scalia's suggesting substantive fee regulation, that would be a really dramatic change. Certainly, it's true that courts should not be in the business of setting fees (as opposed to policing conflicts of interest).

As the Delaware Chancery Court has observed (In re Infousa, Inc.,2007 WL 3325920):

Sensational allegations may be grist for the mill of business journalists, but a Court cannot declare a grant of executive compensation to be excessive without immediately inviting the subsequent question: “How much is too much?” The answer to that question depends greatly upon context. The acumen of the business executive, the competitive environment in the industry, and the recruitment and retention challenges faced by the hiring corporation all bear heavily on an appropriate level of compensation. “How much is too much?” is a question far better suited to the boardroom than the courtroom.

That question is equally poorly suited for the administrative office rather than the board room. The SEC's track record from the days of regulating fixed broker-dealer commissions, for example, holds out little reason to think it could do a very good job of setting salaries.

Fionally, the Conglomerate Blog has a sort of mini-symposium of blog posts on the case for your edification.

Ribstein Rising

2009-10-30T18:32:01-07:00

Larry Ribstein's The Rise of the Uncorporation is now available at Amazon, where we are told that:

The Rise of the Uncorporation covers the history, law, and finance of unincorporated firms. These "uncorporations" including general and limited partnerships and limited liability companies, are now the dominant business form of non-publicly-traded firms. Through private equity and publicly traded partnerships, uncorporations have emerged as a significant force in the governance of a wide range of the biggest firms. This is the first general theoretical and practical overview of alternatives to incorporation, including ancillary concepts connected with the evolution of these firms, and analysis of likely future trends in business organization. The Rise of the Uncorporation provides a clear and easily understandable theoretical and practical background to this important subject.

I'm looking forward to reading it, as Larry's many articles on this topic are canonical foundations of our understanding of the uncorporation (BTW, I hate that word...it reminds me of 7-Up's stupid Uncola ads).

Protecting the trial lawyers

2009-10-30T18:22:05-07:00

God knows how health care "reform" will pan out. But are we surprised to learn that trial lawyers already got a handout? BigGovernment:

The health care bill recently unveiled by Speaker Nancy Pelosi is over 1,900 pages for a reason. It is much easier to dispense goodies to favored interest groups if they are surrounded by a lot of legislative legalese. For example, check out this juicy morsel to the trial lawyers (page 1431-1433 of the bill):

Section 2531, entitled “Medical Liability Alternatives,” establishes an incentive program for states to adopt and implement alternatives to medical liability litigation. [But]…… a state is not eligible for the incentive payments if that state puts a law on the books that limits attorneys’ fees or imposes caps on damages.

So, you can’t try to seek alternatives to lawsuits if you’ve actually done something to implement alternatives to lawsuits. Brilliant! The trial lawyers must be very happy today!

As Ted Frank explains: "In other words, Congress is providing a financial incentive [for states] to uncap damages. Marvelous."

Obama's war on Capitalism

2009-10-30T11:55:28-07:00

Peggy Noonan sees a John Galt moment coming:

This week the New York Post carried a report that 1.5 million people had left high-tax New York state between 2000 and 2008, more than a million of them from even higher-tax New York City. They took their tax dollars with them—in 2006 alone more than $4 billion.

You know what New York, both state and city, will do to make up for the lost money. They'll raise taxes.

I talked with an executive this week with what we still call "the insurance companies" and will no doubt soon be calling Big Insura. (Take it away, Democratic National Committee.) He was thoughtful, reflective about the big picture. He talked about all the new proposed regulations on the industry. Rep. Barney Frank had just said on some cable show that the Democrats of the White House and Congress "are trying on every front to increase the role of government in the regulatory area." The executive said of Washington: "They don't understand that people can just stop, get out. I have friends and colleagues who've said to me 'I'm done.' " He spoke of his own increasing tax burden and said, "They don't understand that if they start to tax me so that I'm paying 60%, 55%, I'll stop."

He felt government doesn't understand that business in America is run by people, by human beings. Mr. Frank must believe America is populated by high-achieving robots who will obey whatever command he and his friends issue. But of course they're human, and they can become disheartened. They can pack it in, go elsewhere, quit what used to be called the rat race and might as well be called that again since the government seems to think they're all rats. (That would be you, Chamber of Commerce.)

Speaking of the Chamber, Jeb Bush told it that ""I think President Obama has used the bully pulpit as a way to attack capitalism."

There are days it sure seems that way.

Obama's Thin Skin

2009-10-30T11:43:37-07:00

Has there been a President in recent memory with a thinner skin than Barack Obama? Business Insider relates:

But in addition to Fox News, now The White House is going after highly-respected and influential car site Edmunds.com.

They're actually using The White House blog to dispute the site's analysis of Cash-For-Clunkers (via Detroit News).

The post is snarkily titled: "Busy Covering Car Sales on Mars, Edmunds.com Gets It Wrong (Again) on Cash for Clunkers"

The blog post goes on to accuse Edmunds of seeking "to grab headlines and get coverage on cable TV."

This administration is locked in a permanent campaign mode, in which every critic must not only be answered but delegitimated.

All we need now is for Joe Biden to start talking about nattering nabobs of negativism, and the Nixon analogy will really start to have traction.

"Lieberman Marching Further Right in 2010"

2009-10-30T11:37:12-07:00

In an article carrying the above title, ABC journalist Jonathan Karl writes:

Sounding more like an independent than a Democrat, Sen. Joe Lieberman, I-Conn., tells ABC News he will campaign for some Republican candidates during the 2010 midterm elections and may not seek the Democratic Senate nomination when he runs for re-election in 2012. ...

Asked if he would go so far as to "join a Republican filibuster against the entire health bill" if the public option is included, Lieberman said, "Yes, that's right."

The aphorism that springs to mind, of course, is: "If you aren't a liberal when you're young, you have no heart. If you aren't a conservative when you are old, you have no brain."

Interim Dean and Search Committee

2009-10-30T09:19:42-07:00

UCLA press release:

Scott L. Waugh, UCLA Executive Vice Chancellor and Provost, sent this message today to administrative officers, deans, department chairs, directors, vice chancellors and the School of Law faculty:

Dear Colleagues:

I am writing to inform you that Chancellor Block and I have proposed for UC Regents’ approval the appointment of Stephen C. Yeazell as interim dean of the School of Law, effective November 23, 2009.

Professor Yeazell, David G. Price and Dallas P. Price Distinguished Professor of Law, has taught at UCLA since 1975, bringing to his new role many years of academic leadership, service and an outstanding research and teaching career in the areas of civil procedure, civil litigation and structure of the legal profession. Among his publications are a definitive history of the class action, the most widely used course book in civil procedure, and a recently published book exploring contemporary civil litigation and the legal profession.

Professor Yeazell has earned UCLA’s highest honors both for his teaching and research, receiving the UCLA Distinguished Teaching Award in 1979 and the designation of Faculty Research Lecturer in 2007. He served as associate dean of the School of Law from 1995 to 1998 and as chair of UCLA’s Academic Senate in 2000-01.

Professor Yeazell brings a wealth of experience to the position, and I appreciate very much his willingness to take on this important role. I also am deeply grateful to Michael Schill for his dedicated service as dean since 2004.

Please join me in congratulating Professor Yeazell and in welcoming him to this new and important role.

Steve was the associate dean when I was hired and I was (and remain) tremendously impressed. It's a great choice. Congratulations to Steve and thanks to him for stepping up to the plate during this important period in the law school's history.

The search committee for a permanent new dean was also announced. I'm not on it, for which I am deeply grateful (as, I suspect, are my colleagues, students, and alumni!).

I'm a Law Professor, not a Smoking Cop

2009-10-30T09:07:01-07:00

Unbelievable:

Faculty members at Widener University School of Law will have a new role to play next academic year: smoking police.

They won't have matching uniforms or extensive training. They will be armed with small cards that detail the school's impending ban on smoking or using tobacco products anywhere on campus, indoors and outdoors. If that's not enough to keep people from lighting up on campus, repeat offenders might be fined, said Linda L. Ammons, the law school's dean.

I, for one, didn't join the legal academy to police other people's lifestyle choices. There are enough health and safety kill-joys in the world already.

I think I'll find a nice, sunny spot on campus and light up a cigar this afternoon.

Kudos to Henderson

2009-10-30T08:56:24-07:00

Our friend Todd Henderson has just received the Federalist Society's 2010 Paul M. Bator Award:

The Federalist Society for Law and Public Policy Studies established the Bator Award in memory of Paul M. Bator, who had been a professor at the University of Chicago Law School and Harvard Law School. Each year, the award is given to a young academic (under 40) who embodies Bator’s excellence in legal scholarship, commitment to teaching and concern for students, and who has made a significant public impact.

“He fits all the criteria well. He already is a first-rate scholar,” said Eugene Meyer, President of the Federalist Society. “We have senior and highly talented academics on the selection committee and they were impressed with his scholarship, and he has been very helpful to students in a variety of ways.” It also was well-noted that Henderson served in the military, Meyer added.

It's great to see the award go to a business law scholar and, especially, to one as fine as Todd. Congratulations!

Is the Pay Czar Unconstitutional?

2009-10-30T08:46:06-07:00

We corporate and securities law types rarely get to play in the rarified air of The Constitution, so we are awaiting eagerly the Supreme Court's decision in Free Enterprise Fund v PCAOB, in which the argument is whether the provisions of Sarbanes-Oxley governing the selection of members of the Public Company Accounting Oversight Board violate the Appointments Clause of the US Constitution. (I have argued that it does.)

Law professor (and former federal judge) Michael McConnell argues in today's WSJ that Kenneth Feinberg's position as TARP "pay czar" likewise violates the Appointments Clause:

The Appointments clause of the Constitution, Article II, section 2, provides that all "Officers of the United States" must be appointed by the president "by and with the Advice and Consent of the Senate." This means subject to confirmation, except that "the Congress may by Law vest the Appointment" of "inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments."

There is no doubt that Mr. Feinberg is an "officer" of the United States. The Supreme Court has defined this term (Buckley v. Valeo, 1976) as "any appointee exercising significant authority pursuant to the laws of the United States." Mr. Feinberg signed last week's orders setting pay levels for executives at Bank of America, AIG, Chrysler Financial, Citigroup, GMAC, General Motors and Chrysler. They have the force of law and are surely an exercise of "significant authority" pursuant to an Act of Congress. He is not a mere "employee," acting at the direction of a superior. That means his office is subject to the requirements of the Appointments Clause.

While somewhat more disputable, Mr. Feinberg's is probably an "inferior" officer, defined as one subject to supervision and removal by a member of the cabinet. Although he has substantial discretion and independence, Mr. Feinberg reports to the secretary of the Treasury, who can fire him any time for any reason. This means that Congress could, if it wished, vest the appointment of the pay czar in the secretary, without any need for Senate confirmation.

But Congress has not done so. On the contrary, it vested the authority to implement TARP's compensation provision in the secretary of the Treasury. The secretary may sub-delegate that power to someone else—but that someone must be an "officer" properly appointed "by and with the advice and consent of the Senate."

The Supreme Court observed in Buckley v. Valeo that the provisions governing appointments under the Constitution reflect more than "etiquette or protocol." They embody the Founders' conviction that all power under U.S. laws must be exercised by officers with constitutional authority.

The Founders understood that the president and heads of the executive departments could not single-handedly carry out the law, so they required Senate confirmation as what the Federalist Papers call "an excellent check" on abuse or favoritism by the president. Yes, there are some offices so inferior that this check may be eliminated—but it is for Congress to judge which ones these may be. Congress and Congress alone has power to dispense with the safeguard of the confirmation process.

The power to set compensation at large American businesses is especially subject to potential abuse, favoritism, arbitrariness, or political manipulation. It is no reflection on Kenneth Feinberg, who has a sterling reputation and who appears to have approached these sensitive duties with a spirit of commendable integrity, to say that the checks and balances of the Constitution should be scrupulously observed. They were not. Because he is not a properly appointed officer of the United States, Mr. Feinberg's executive compensation decisions were unconstitutional.