Reviving Reliance

This Article explores the misalignment between the disclosure requirements of the federal securities laws and the private causes of action available to investors to enforce those requirements. Historically, federally mandated disclosures were designed to allow investors to set an appropriate price for publicly traded securities. Today’s disclosures, however, also enable stockholders to participate in corporate governance and act as a check on managerial misbehavior. To enforce these requirements, investors’ chief option is a claim under the general antifraud statute, section 10(b) of the Securities Exchange Act of 1934. But courts are deeply suspicious of investors’ attempts to use the Act to hold corporations liable for false statements related to governance. As this Article demonstrates, judicial skepticism can be traced to the functional elimination of the element of reliance from private investors’ claims. Without the element of reliance, courts cannot discriminate between deception, which section 10(b) prohibits, and poor managerial decisionmaking, to which section 10(b) does not speak. Doctrines that courts developed to distinguish between the two now have the perverse effect of devaluing disclosures intended to facilitate shareholder participation in corporate governance. More troublingly, they enforce a normative viewpoint that shareholders do not, or should not, have interests beyond the short-term maximization of a firm’s stock price. This interpretation of shareholder preferences undermines modern regulatory initiatives that employ shareholders as a restraining force on antisocial corporate conduct. This Article proposes that courts adopt new interpretations of section 10(b) that reestablish the centrality of reliance. By doing so, courts can facilitate shareholders’ participation in the corporate governance structure and reward investors who inhabit the role of corporate monitor

DFN-02, Sumatriptan 10 mg Nasal Spray with Permeation Enhancer, for the Acute Treatment of Migraine: A Randomized, Double-Blind, Placebo-Controlled Study Assessing Functional Disability and Subject Satisfaction with Treatment.

BackgroundThe commercial formulation of sumatriptan nasal spray is an effective option for migraine patients requiring or preferring a non-oral route of drug administration, but its utility is limited by poor absorption and tolerability issues. DFN-02, a new formulation of sumatriptan 10 mg nasal spray, is co-formulated with a permeation enhancer that gives it pharmacokinetics comparable to subcutaneous sumatriptan. As reported previously, DFN-02 was significantly better than placebo on multiple efficacy endpoints at 2 h postdose, including pain freedom, absence of the most bothersome symptom, and pain relief, and its safety and tolerability profiles were excellent.ObjectiveThe objective of this study was to assess the efficacy of acute treatment of migraine with DFN-02, including its effect on migraine-related functional disability and patient satisfaction with treatment.MethodsThis was a multicenter, randomized, double-blind, placebo-controlled efficacy and safety study of DFN-02 in adults with episodic migraine. Functional disability and subject satisfaction with treatment were prespecified endpoints, assessed in real-time by subjects, using an electronic diary.ResultsIn total, 107 subjects were randomized. DFN-02 was significantly superior to placebo for the reduction in functional disability score from predose level at 2 h after treatment (- 1.2 vs. - 0.6, p < 0.001). Subjects treated with DFN-02 were also more likely to be satisfied or very satisfied than subjects treated with placebo at 2 h postdose (70.0% vs. 44.2%, p = 0.027). Using the Patient Perception of Migraine Questionnaire-Revised at 24 h postdose, DFN-02 mean scores were significantly superior to placebo for the subscales of efficacy (65.2 vs. 42.5, p = 0.016) and function (68.9 vs. 42.1, p = 0.001), and for total score (71.0 vs. 56.6, p = 0.016); global medication effectiveness (p = 0.027); and overall satisfaction (p = 0.019). Placebo was significantly better than DFN-02 on the tolerability subscale (94.8 vs. 88.5, p = 0.026). At 24 h postdose, subjects reported significantly higher satisfaction with DFN-02 compared with satisfaction reported pre-randomization regarding their usual migraine medication (p = 0.012).ConclusionDFN-02 was superior to placebo for the relief of migraine-related functional disability, and provided greater satisfaction than placebo or subjects' usual acute treatment.Trial registrationClinicalTrials.gov identifier: NCT02856802

Not Everything Is About Investors: The Case for Mandatory Stakeholder Disclosure

Corporations are required to disclose specific types of information to the public, but only the federal securities laws impose generalized disclosure obligations that produce a holistic overview of corporate operations. While these disclosures are intended to benefit investors, they are accessible to anyone, and thus have long been relied upon by regulators, competitors, employees, and local communities to provide a working portrait of the country’s economic life. Today, that system is breaking down. Congress and the SEC have made it easier for companies to raise capital without triggering securities reporting obligations, allowing modern businesses to grow to enormous proportions while leaving the public in the dark about their operations. Meanwhile, investors’ governmentally conferred informational advantage allows them to tilt managers’ behavior in their favor, at the expense of consumers, employees, and other corporate stakeholders. As a result, securities disclosures do not provide the comprehensive picture necessary to maintain social control over corporate behavior

Slouching Towards Monell: The Disappearance of Vicarious Liability Under Section 10(B)

Liability under section 10(b) of the Securities Exchange Act is one of the primary mechanisms for enforcing the federal securities laws. Section 10(b), however, prohibits only intentional or reckless deception, and there has never been consensus as to how to determine whether an organization, rather than a natural person, harbors the relevant mens rea. Traditionally, organizational liability under federal law is determined according to agency principles, and most courts pay lip service to the notion that agency principles govern under section 10(b). As this Article demonstrates, they do not. Many section 10(b) actions involve “open-market” frauds, whereby the allegedly fraudulent statements are issued publicly under the corporate imprimatur. These statements depend on agents operating at all levels of the company, who may intentionally or recklessly pass along inaccurate information through corporate reporting channels. In such circumstances, the actus reus that forms the basis of the section 10(b) violation—the false public statement—has been disaggregated from the actor who harbors mens rea. As this Article shows, courts have used this disaggregation to eschew the agency principles applied in other areas of law. Courts instead seek to impose a form of “direct” organizational liability tied to the actions and omissions of the organization’s highest-level authorities. This regime is, in practical effect, strikingly similar to the regime used to determine the liability of local governments under § 1983, where vicarious liability has been formally rejected by the Supreme Court. Though these two statutes would seem to have little in common, this Article argues that vicarious liability has been rejected under both regimes for similar policy reasons. Among other things, as federal corporate disclosure requirements—backed by the threat of section 10(b) liability—expand into a mechanism for substantively regulating the quality of corporate governance (a matter traditionally left to state law), courts have pushed back by limiting vicarious liability in order to distinguish “true” fraud claims from garden-variety mismanagement. Similarly, in the § 1983 context, the elimination of vicarious municipal liability functions, as a practical matter, to distinguish matters of federal constitutional concern from ordinary state law torts. This Article ultimately concludes that, despite the criticisms that have been leveled at the current approaches to organizational liability under § 1983, § 1983 doctrine may in fact improve jurisprudence under section 10(b). Courts considering section 10(b) claims may borrow from jurisprudence developed under § 1983 to formulate objective standards of fault, in order to prevent high-level corporate authorities from insulating themselves from knowledge of wrongdoing at lower levels of the corporate hierarchy

After Corwin: Down the Controlling Shareholder Rabbit Hole

As Delaware has developed its doctrine with respect to controlling shareholders, its view of their relationship to directors has evolved. This evolution has produced some pronounced inconsistencies with respect to the weight placed on director approval of controlling shareholder action. The recent Delaware Supreme Court decisions in Corwin v. KKR Financial Holdings LLC, Kahn v. M & F Worldwide Corp., and C & J Energy Services, Inc. v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust introduced further uncertainty into the mix by making the determination as to whether a transaction involves a controlling shareholder practically outcome determinative of many shareholder disputes. If a controlling shareholder is present, there is the potential for close court examination to ensure fairness to the minority; if not, any shareholder challenge is likely to be dismissed without even the chance for discovery. Yet even as the presence or absence of a controlling shareholder takes on heightened importance, changes in the business landscape have made controllers more difficult to identify. More companies are adopting multiclass capital structures both in public and private markets, and the popularity of management buyouts means that shareholders with significant stakes, ties to directors, and informational advantages are often placed across the bargaining table from companies themselves. The upshot is that courts are called upon to make early, critical judgments regarding levels of control in an increasingly complex corporate ecosystem. This Essay, prepared for the Institute for Law & Economic Policy’s 25th Annual Symposium, maps the points of doctrinal divergence and proposes changes to the law that better align the concerns posed by controlling shareholders with the law’s treatment of them. In particular, this Essay argues that courts do not pay sufficient attention to the most salient fact about controlling shareholders: their immunity to the ordinary mechanisms of market discipline. To ensure that the presence of a controller is accurately identified and the appropriate level of scrutiny applied to its self-interested transactions, courts should focus not merely on the putative controller’s influence over the board, but on the mechanisms of self-help realistically available to the unaffiliated shareholders

Boden Lecture: Of Chameleons and ESG

Ever since the rise of the great corporations in the late nineteenth and early twentieth centuries, commenters have debated whether firms should be run solely to benefit investors, or whether instead they should be run to benefit society as a whole. Both sides have claimed their preferred policies are necessary to maintain a capitalist system of private enterprise distinct from state institutions. What we can learn from the current iteration of the debate— now rebranded as “environmental, social, governance” or “ESG” investing— is that efforts to disentangle corporate governance from the regulatory state are futile; governmental regulation has an inevitable role in structuring the corporate form