Why the Name?
September 29, 2003
Stephen Bainbridge’s entertaining corporate-law-and-wine blog, ProfessorBainbridge.com, very kindly describes this blog as “The oddly named, but always worth reading, By No Other blawg . . . .” The name comes from what I thought was the Ben Franklin saying, “Experience is the best teacher, but a fool will learn by no other.” Unfortunately, I just learned in a Google search that the saying is usually quoted as, “Experience is a dear teacher, but a fool will learn from no other” (emphasis added).
I should have remembered the wise counsel of a friend and former law partner. Some years ago, he jokingly chastised one of my then-fellow associates who, in drafting a brief, had misstated a procedural rule. He said, “That’s why we buy you the $*^#% books, so you can look these things up.”
I suppose I could change the name of this blog, but what the heck, the name is a useful object lesson in itself . . . .
Surreptitious Contract Changes II
September 29, 2003
This weekend I posted a clause with a representation that no unmarked changes had been made to a contract, to provide a reasonable basis for signing the electronically-negotiated contract without reading the final hard copy. Today, in a very thoughtful commentary on his Corporate Law Blog, Mike O’Sullivan offers a more rigorous clause that contains both a representation and a warranty, “to also cover all redlining failures (intentional or unintentional) and to make it easier to reform the agreement under the doctrines of mutual or unilateral mistake:”
TrackBacks
September 27, 2003
If you blog, you should use TrackBacks. I just figured out how, by watching the 2-minute QuickTime movie (9 MB) available on the Movable Type explanation of TrackBack. Here’s another explanation that was helpful, at the Cruft Box blog.
Surreptitious Contract Changes
September 27, 2003
It’s the end of the fiscal quarter, and so a lot of contracts are being negotiated. These days, most contract negotiations are done electronically. I email you a Word document. You email me a “redline” with revision marks and maybe some comments. We talk by phone. Repeat as necessary. In the end, however, we’re probably going to want a handwritten signature on a hard copy of the final contract.
Suppose I send you a signed original contract and ask you to countersign and return it. Do you do a word-for-word comparison, to make sure the hard copy matches the agreed electronic document? If you do, you’re spending time that surely could be put to better use. But if you don’t, how do you know I didn’t surreptitiously change something before printing the document for signature?
Altered (Document) States
September 26, 2003
The SEC continues its enforcement efforts, yesterday announcing that criminal charges had been filed against a former E&Y accountant for allegedly altering and destroying documents to obstruct an investigation. The SEC’s press release pretty much speaks for itself (bold-faced emphasis is mine):
Insider Trading is Bad Enough;
Lying to the SEC About It Is Worse
September 25, 2003
In the latest insider-trading bust, the SEC settled a case with a North Carolina lawyer who was accused of trading on inside information concerning a client of his law firm. The lawyer allegedly netted a whopping $4,272 in profits, which he disgorged as part of the settlement (and in addition he paid an identical amount as a civil penalty). It appears he also got fired.
Mike O’Sullivan notes, in his Corporate Law Blog, that the North Carolina lawyer “has already lost his job at the law firm. It’s unlikely he will ever earn a dime with his J.D. ever again — even if he isn’t disbarred, who’d hire him? . . . [H]ow long will it take him to earn back the trust and respect he frittered away?” Bruce Carton points out, in his Securities Litigation Watch blog, that the case is “a reminder that there really is no de minimis exception for persons who would engage in insider trading–if the SEC thinks they have the goods on you, they’ll bring the case for deterrent value alone.”
* * * * *
It could have been worse — as a Philadelphia lawyer found out a few years ago in a different insider-trading case.
Hide Outside Comp, Forfeit Your Salary?
September 24, 2003
Last week the Second Circuit federal court of appeals in New York really dropped the hammer on an investment banker. The banker was a nominal partner in a small investment banking firm.
The banker had received stock, options, and cash compensation from certain of his firm’s client companies that he was personally involved with. That was a problem: Under his employment agreement with his firm, all of that compensation was to have gone to the firm. Moreover, it seems the banker never mentioned to his firm what he was getting from these companies.
The banker left his firm to join one of the client companies as chairman and CEO. It was an amicable parting — at first. But as he and the firm tried to sort out what the firm owed him, the firm tumbled to some of the outside comp that he had been receiving. That didn’t go over very well.
Both sides filed lawsuits. When the dust settled, the appellate court held that, under New York law, the banker had been a “faithless servant” for receiving, and failing to disclose, his compensation from the client companies. Because the disloyalty had been so extensive, the court said, the banker had to forfeit all compensation paid to him by the firm — including his salary — from the time of his first act of disloyalty.
You can read the court’s opinion at the Second Circuit’s Web site — look up case no. 02-7928, Phansalkar v. Andersen Weinroth.
LOI Disclaimer Clause Rescues Investment Bank
September 24, 2003
Many letters of intent contain a clause stating that the parties do not intend to enter into a contract at that time and that neither party will be bound except by a final, formal, signed, written agreement. Earlier this month, such a clause rescued an investment bank from a lawsuit over a failed IPO.
California Anti-Spam Law - Welcome, Plaintiffs’ Bar
September 23, 2003
California has just enacted a tough new anti-spam law. See these NY Times and CNET stories. The text of the new law is here. Effective January 1, 2004, the new law:
- bans essentially all unsolicited commercial email advertisements sent to or from California, except to people who (i) have provided “direct consent” to receiving ads from the advertiser, or (ii) have a pre-existing or current business relationship with the advertiser;
- requires commercial email ads sent to pre-existing or current relationships to include an “opt-out” capability, either by email or by toll-free number;
- imposes liquidated damages of $1,000 per email, up to $1 million per email campaign; and
- perhaps most significantly, allows recipients, ISPs, and the state attorney general to file lawsuits against spammers.
Boy, the plaintiffs’ lawyers must be salivating over this one.
If your company sends out email blasts from a California location, the new law will cramp your style severely. If your company isn’t in California, you may end up with a tough choice: Either figure out which addresses on your email lists are in California, or comply with the California rules for all your emailings.
Hope They Didn’t Spend All the Money
September 23, 2003
Shortly before Enron filed its bankruptcy petition, it made accelerated payments of deferred compensation to certain executives, to the tune of some $53 million. Yesterday, a bankruptcy judge ruled that those payments had to be thrown back into the general pot that will be shared by the unsecured creditors. See this Associated Press story for more details.
The execs apparently will be entitled to their proportionate share of the unsecured-creditors’ pot. Any guesses on how much they’ll eventually see?
The basis for the judge’s order seems to have been that the deferred-comp payments constituted “avoidable preferences” under the Bankruptcy Code. For some general information on that subject, see, e.g., a site called Moran Law.