Author Archive for elizabeth-nowicki
This One Is For You, Paul Gowder!
posted by Elizabeth Nowicki
Paul Gowder suggested on a prior thread authored by my esteemed colleague, Eric Muller, that we all “shut up about” the topic at hand. I took that to mean that Mr. Gowder had had his fill for the day of law professor pontification about topics that have nothing to do with what I know I find to be an issue of import and likely Mr. Gowder does as well – cable t.v.
Because I am a “customer-focused” blogger, I want to be responsive to Mr. Gowder’s preferences. I am therefore happy to move the discussion to more worthy topics. So, here is the critical question, Paul Gowder: Should I have my cable t.v. at home canceled this summer, in preparation for the cable-free life I will be living in the fall term, when I am away visiting (and living in a rental place without cable)? Additionally, I anticipate that the place where I will be living/renting in the spring term of 2007 does not have cable either, such that I will be forcibly cable-free for at least 9 months in total. I have toyed for some time with the idea of cutting off my cable here in Richmond (where I now live and where I will continue to own a home) for good, basically now, since it is only a matter of time before I will be cable-less on my visits, but I have not yet had the guts to pull the plug. Paul Gowder, should I do it? And should I do it *now*?
June 23, 2006 at 1:59 pm
Posted in: Humor
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Price Discrimination in the World of Medicine
posted by Elizabeth Nowicki
The WSL had an article today about drug pricing and the power that big purchasers have with the drug manufacturers. The article got me thinking: Am I the only one who cares that small retail pharmacies (to the extent that they still exist) get the short end of the stick with drug manufacturers (or have historically, anyway)?
A nice example, albeit dated, deals with birth control pills. Most colleges sell to their students birth control pills at somewhere around $10 per package. The colleges get their birth control pills for perhaps . . . $5 per package. The retail pharmacy on Main Street, however, gets the pills for $14 per package, and it sells the package for $19 to the person with insurance and $38 per package to the person without insurance. How is that fair? There is no way the retail pharmacy can ever compete with the University pharmacy (or the Wal-Mart pharmacy, that likely gets a similarly significant discount).
The birth control pill manufacturers typically evade antitrust scrutiny b/c they maintain that they are giving the university a “volume discount.” Last I checked, however, most antitrust lawyers agreed that the true volume discount in situations like that was nowhere near the discounts universities, Wal-Marts, etc. were actually being given. The discounts given were far larger than the discounts that could be justified on a basis of costs saved due to volume purchases. Yet nobody squawks.
On a related note, why is it that I have to pay $75 for my doctor’s appointment if I miss it and don’t call to cancel, but, if I had actually gone to the appointment, my insurer would have only been billed $48 or some such? I realize that my insurer has negotiated better prices with my doctor than have I, but why is that not price discrimination in violation of the Robinson-Patman Act? Where are our antitrust lawyers? I cannot believe that the volume discount math really works out in this case – my gut instinct is that the doctors are just caving to the insurers and sticking it to the poor individuals when insurance does not apply.
In my pursuit to be like Harvey Goldschmid, I have long wanted to teach antitrust, but Richmond could not really afford to have me give up a corporate class to teach antitrust. Hopefully, if I were teaching antitrust, I could answer my doctor’s appointment question myself.
June 22, 2006 at 3:04 pm
Posted in: Legal Ethics
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Benjamin Nelson and “Good Faith”
posted by Elizabeth Nowicki
Benjamin Nelson (who appears to be a lawyer *and* philosopher) from Law & Society Blog fortuitously took an interest in my “not in good faith” theory and my “good faith” debate with others. (**In a great addition to Mr. Nelson’s comments, law professor Steven L. Winter from Wayne State sent Mr. Nelson an e-mail, with permission to post the e-mail on lawsocietyblog.com. See here.) Before I say anything about “not in good faith,” let me thank Mr. Nelson and everyone else who has commented on my posts here, on truthonthemarket, and on theconglomerateblog. Commenting on posts (posting in general) takes time, and I appreciate the generosity folks have shown me in commenting. Those comments and criticisms allow me to look for new ways to bolster my arguments, modify my arguments, or consider disgarding them.
Luckily, Mr. Nelson was able to support my “not in good faith argument.” He does it, however, with a super diagram that is different from the one that I would have drawn. Upon reading his post and seeing his incredible color diagram, I undertook to draft a responsive diagram with my new “Visio” software. Easier said than done. When I finally completed my pathetic diagram (after days of effort, while on vacation, nonetheless), I could not upload the diagram as a pdf. So I am trying now to upload it below as a text document. Hopefully this will work.
June 20, 2006 at 2:17 pm
Posted in: Sociology of Law
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The Disney Opinion and Executive Compensation
posted by Elizabeth Nowicki
I had the good fortune to be asked to review Professor Telman’s Business Judgment Rule, Disclosure and Executive Compensation article, over on the ‘glom. I enjoyed the paper, both because I think Professor Telman proposes an interesting way to attack recent executive compensation scandals and because I am currently working with my sister (the nicer, funnier, smarter Professor Nowicki) on an empirical paper on executive compensation, such that the topic weighs heavily on my mind. In addition, however, it was interesting to read Professor Telman’s article on the heels of the Delaware Supreme Court’s Disney opinion and its weak review of the Disney board’s analysis of Ovitz’s vulgar pay package. Indeed, Gordon Smith poses a query to Professor Telman (and perhaps me) on the ‘glom that is partially related to something I had intended to address earlier here, on concurringopinions.com. For what it is worth, then:
Executive Compensation and the “Ovitz Fiasco”
In my view, the Disney board failed in an amazing assortment of ways with respect to the hiring and compensation of Michael Ovitz, not the least of which include
(a) the failure to sufficiently consider/review/debate (become informed about) the decision to hire Ovitz (or the “decision to elect Ovitz as Disney’s President”) and
(b) the failure to review as a board at least to some minimal degree the OEA.
The Delaware Supreme Court, in its recent Disney opinion, did not do a strong job with addressing these failures, both in the collective and as the bevy of very distinct issues that they were. In its opinion, the court inappropriately collapses and poorly addresses four inquiries:
(1) Did Eisner have the authority to hire Ovitz into a senior-level position – e.g. delegate board authority to an officer ala normal agency principles and DGCL § 141 – without first securing official board approval?
(2) Did the board *as a group* have to debate/consider/review/become-informed-about the decision to elect Ovitz as Disney’s President?
(3) Was a full board vote needed when approving a very costly senior executive compensation package or could that sort of matter be finalized without full board ratification?
(4) If a full board vote was needed on the compensation package, was it permissible for the board to delegate the discussion and deliberation on the entirety of the Ovitz compensation issue to the compensation committee, such that all the full board needed to do is hear the comp. committee say “yep, fine with us” and the rest of the board could sign-off on the package? (Francis v. Smith?)
June 19, 2006 at 2:15 pm
Posted in: Law and Humanities
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Oprah, Suicide, Free Speech, and Torts
posted by Elizabeth Nowicki
I am embarrassed to admit that I sometimes tape and later watch “Oprah” on t.v. I do not know that I am huge fan of her show, but I certainly find some of the guests she has on the show interesting. Anyway, Oprah said something last week that baffled me, as a legal matter. My responsive e-mailed to her GC drew no reply, so I come humbly to the blogosphere to see what you all might offer.
On one of Oprah’s shows last week, she interviewed the parents and sister of a 19-ish year old Florida State college student – very bright, very creative – who killed herself. The young-woman fed her kittens and cleaned her apartment, and then went to a hotel, took some variation of cyanide, and died. Before she left this earth, she sent a timed-delayed e-mail to her parents, starting off with a sentence along the lines of “As you probably know by now, I have passed away….” (The e-mail explained that she had struggled with depression, and she basically found the struggle futile.) I believe she also sent an e-mail to a friend and to the police, so that they would know where to find her body.
Though the story is tragic in and of itself, an overwhelmingly sad aspect of the story is that this young woman found information on the internet that helped her execute her suicide plan and some might say encouraged her to or at least coached her regarding following through. Specifically, she had been frequenting a “pro-choice” suicide blog (or chat board or message board or some such – allow me to say “blog”). (The pro-choice phrase came from the show.) It seems that the young woman was able to glean technical information about how to kill herself or links to information on what, specifically, to do kill herself from that blog. Worse, I believe her parents or Oprah said that this young woman was posting regularly on the blog to update the blog readers and posters about her two-week countdown to killing herself. One person on the blog actually helped her craft her final e-mail to her parents. Dear God.
June 12, 2006 at 10:10 am
Posted in: Criminal Law, First Amendment, Tort Law
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The Disney Opinion and “Not in Good Faith”
posted by Elizabeth Nowicki
As I noted earlier today, I thought, upon first read, that the Delaware Supreme Court’s Disney opinion from yesterday dealt a fatal blow to my “not in good faith” director liability argument. For those who missed it the first dozen times, I maintain that a complaining shareholder who is suing her directors, alleging that the directors failed to act in good faith, does not *have* to go so far as to prove “bad faith” acts by her directors, but, rather, she can point to the absence of good faith acts on which to pin liability. The phrase “not in good faith,” I maintain, does not mean (only) “bad faith.” Under my “not in good faith” theory of liability, directors who basically abdicate their duty or bury their heads – which are acts arguably short of bad faith acts – have violated their fiduciary obligation to act “in good faith.” And I thought that when I read the Disney opinion yesterday that the Delaware Supreme Court was boxing me in by maintaining narrowly that “not in good faith” only meant “bad faith.” Not so, it seems.
I had forgotten, when I first read yesterday’s opinion, that sometimes Delaware opinions take a second or third read before one can glean their full import. Such was the case with Disney. While I *thought* that the Disney opinion supported the position that my broad “not in good faith” category had no place in Delaware fiduciary jurisprudence, I was very wrong. More clearly, despite frequently invoking the phrase “bad faith” in the actual holding of the case, the Delaware Supreme Court in Disney did not say that a plaintiff shareholder who was trying to establish that a director acted without good faith in violation of her fiduciary obligations must prove “bad faith.” Quite the opposite: when the court discusses (in what I would call “dicta”) three categories of troublesome director behavior, the third category discussed appears to be almost exactly the same as the Nowicki Not-In-Good-Faith category! And that third category is (a) a category distinct from the court’s “bad faith” category (see below) and (b) a category that deals with liability-meriting behavior!
Allow me to explain in more detail:
June 9, 2006 at 5:59 pm
Posted in: Corporate Law
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The Nowicki “Not In Good Faith” Manifesto LIVES ON!
posted by Elizabeth Nowicki
I first read and posted about the Disney opinion last night. At that time, I all but agreed with Gordon Smith that the Delaware Supreme Court had shut down my “not in good faith” argument. (For those of you who somehow missed the first several recitations of my theory, my view is that the phrase “not in good faith” (as it pertains to the business judgment rule presumption and DGCL 102(b)(7)) means something DIFFERENT than “bad faith.” My view is that acts “not in good faith” INCLUDE bad faith acts, but there is also a narrower additional category reached by “not in good faith.” Essentially, Caremark-esque cases would fit into the “not in good faith” category.)
What I had forgotten, however, was that Delaware jurists are crafty. (I discussed this recently on the wonderful Truthonthemarket blog.) So, while it SEEMED to Gordon that the Nowicki “Not in Good Faith” theory could not live on, and I agreed with his pronouncement because I was weak with illness and I only had the strength to read the 89 page opinion *one* time instead of the requisite three, I now find, on my third read of the Disney opinion, that my “not in good faith” theory, much like a cockroach, has largely survived the Disney fall-out.
June 9, 2006 at 11:56 am
Posted in: Corporate Law
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Disney Prescience or Stomach Virus?
posted by Elizabeth Nowicki
I have been flat on my back and sicker than a dog for 36 hours. I thought it was a stomach virus. It seems that it might have instead been a sense of impending doom. The Disney opinion came out tonight. The link is:
http://courts.delaware.gov/opinions/(feyliwan32li1i55zzlkgaew)/download.aspx?ID=77400.
I do not have the energy in me to do a fancy blue shortened hyperlink. I have to save my meager energy to rage about blasphemous statements such as “a plaintiff who fails to rebut the business judgment rule presumptions is not entitled to any remedy unless the transaction constitutes waste.”
And the specific discussion on good faith doesn’t get any better. After making that odd statement about the BJR, the court criticizes the appellants’ assertion that “directors violate their duty of good faith if they are making material decisions without adequate information and without adequate deliberation.” Hello pot? This is the kettle, you are black. If we want to compare “unjustifiable statements that might make sense,” I have to believe that the appellants win in this situation. Is the Delaware Supreme Court really trying to say that “making material decisions without adequate information and without adequate deliberation” *ARE* acts of good faith?
Read that again:
Based on the Delaware Supreme Court’s critique on page 63 of the Slip Op. of the appellants’ assertion that “directors violate their duty of good faith if they are making material decisions without adequate information and without adequate deliberation,” am I to believe that the good court is saying that such decisions *are* acts in good faith? Colleagues, we know that good faith means, roughly, acting in the best interests of the corporation. How can acts “without adequate information and without adequate deliberation” be acts “in the best interests of the corporation?”
I am so disappointed, but I am not shocked. As could be expected, the Delaware Supreme Court implicitly concedes to bastardizing the phrase “not in good faith” to mean “bad faith.” For those who missed it the first few times I made the argument, I maintain that “not in good faith” (as it appears in the BJR or in DGCL 102(b)(7)) covers ABDICATION of duty. Apparently this version of the Delaware Supreme Court has abandoned their previously held opinion that good faith is an affirmative obligation, requiring action in the best interest of the shareholders. Instead, it seems that the 2006 Delaware Supreme Court is of the view that “bad faith” is a good shorthand for the absence of affirmative action in the shareholders’ best interest. Kind of like a McDonald’s hamburger is a good shorthand for “a steak from Peter Luger’s.”
I need to go rest – I cannot tell if I am still feeling my stomach virus or I am just physically put off by 89 pages of words that bode ill for the American investor. I have much respect for Justice Jacobs, the author of the opinion, Chief Judge Steele, and Justices Berger, Holland, and Ridgely, but I have to sadly admit that I am of the view that they failed to produce the best, most-justified, most solidly-reasoned and strongly principled opinion possible. I will post my specific objections later.
June 8, 2006 at 8:17 pm
Posted in: Uncategorized
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Disney, Bob Iger, and Michael Eisner
posted by Elizabeth Nowicki
Bob Iger has been in the driver’s seat at Disney for over half of a year, and I am excited about what Iger’s Disney is starting to and will, ultimately, look like. Disney announced yesterday a new promotion – “Where Dreams Come True” – which the WSJ reports as being a “new global campaign to draw more guests to Disney’s theme parks.” The promotion, to start in October, involves a million giveaways to Disney visitors, including things like an overnight stay in Cinderella’s castle or the *entire* Magic Kingdom park to oneself for a day. I get giddy just thinking about it, in large part because I *love* the Magic Kingdom, and I like what I view to be the start of a return to the business concepts underlying Walt Disney’s ideas from decades past. I sincerely hope that Iger ends up delivering to the degree that we hard-core Disney fans expect.
June 8, 2006 at 10:40 am
Posted in: Corporate Law, Employment Law
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The Government Tries to Play Hardball With KPMG
posted by Elizabeth Nowicki
First things first: Thank you, Dan & Co., for inviting me to guest blog. I am very excited to be here, and I look forward to an interesting visit.
Second thing second:
In theory, my first post out of the starting gate here should be strong, hard-hitting, and compelling, in the hopes of impressing the audience. That was my plan, anyway. But, as I took a break from drafting the hard-hitting and compelling post, I surfed WSJ.com, and I found an article that just baffled me. Stumped me. So much for the hard-charging start. (Just to be clear, I read the words in the article, and I understood their meaning, but I have been waffling for the past half hour on where I come out on the substance of the article. I am baffled about the “right” side of the argument at issue. )
The article, titled KPMG Case Sets Up Key Ruling on Legal Fees, notes an interesting and likely significant issue currently before Judge Kaplan (SDNY).
Summary: The government is prosecuting 16 former KPMG executives who are accused of marketing fraudulent tax shelters. Defense lawyers for the executives are complaining that the federal prosecutors are pressuring KPMG to cut off legal support for the 16 former executives, presumably to make the 16 defendants cave (my phrasing). It appears (to the defense lawyers) that the prosecutors on the case are hoping that KPMG will cut off support to the executives to curry favor with the prosecutors (or at least be viewed as “cooperating with the government”) and thereby avoid prosecution itself. It seems to the defense lawyers (as best I can tell) that the prosecutors are trying unscrupulously to get KPMG to basically “give up” its former employees in order to save themselves.
June 5, 2006 at 2:35 pm
Posted in: Legal Ethics
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