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March 1, 201104190735

Slaying Zombies In the Courtroom: Texas Enacts the First Law Designed Specifically To Combat Botnets

The Internet has become indispensable for companies and individuals, with billions of dollars of business being transacted on a daily basis. Indeed, children of high school age have never known a time without ready access to the Internet. 1 Thus, the Internet has achieved the status of a basic utility. However, unlike previous utilities (e.g., the power grid, the telephone, etc.), the Internet is still largely unregulated. Consequently, the potential for misuse exists, and it should be no surprise that criminals and tortfeasors have found ways to exploit the Internet. One of the more virulent maladies plaguing the Internet today is botnets.
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March 1, 2011Robin Phelan, Ocean Tama

The Use of DIP Financing as a Mechanism to Control the Corporate Restructuring Process

Lenders routinely use debtor-in-possession (“DIP”) financing agreements to gain substantial control over debtors in Chapter 11 and the bankruptcy reorganization process. However, the currently accepted degree of lender control over the Chapter 11 process has evolved into a major de facto change in the bankruptcy process that inhibits rehabilitation of distressed companies. This evolution has been accelerated by the overleveraging of debtors, the proliferation of secured financing, restrictions on the time for debtors to assume or reject leases, the exorbitant cost of DIP financing, and the availability of forms of DIP financing documents on the Internet. Whether this change is bad policy, or merely an economically efficient reallocation of capital, is an issue that courts, scholars, and practitioners are struggling to address.
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March 1, 2011Val Ricks

Three Suggestions for the Texas Limited Liability Company Law

In this paper, I describe what I believe are the three most inexplicable Texas LLC laws. The first (described in Part I) is the provision purporting to address resolution of managers', managing members', and officers' conflicts of interest. This statute is drawn to mimic exactly a provision applicable to corporations. But the statute actually contains no language addressing conflicts of interest! The second statute (in Part II) addresses agency and the LLC. This provision was taken from the partnership code but adapted to the LLC in a manner I find befuddling. Read literally, it abolishes the common law of agency as applied to agents of LLCs. The third provision (Part III) is a bit of corporate code addressing veil-piercing that does not exist in the LLC code but is being applied to LLCs by the courts as if it did. It is difficult to explain why this provision should be imported, and the code forbids it.
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March 2, 2011Bret Wells

New Schedule UTP: “Uncertain Tax Positions In the Age of Transparency”

A taxpayer, when signing the jurat on the tax return, swears under penalties of perjury that the tax return is true, accurate, and complete. But, as a general rule, the taxpayer need not have a subjective belief that the tax position taken on the tax return is sustainable when making this sworn statement. Furthermore, tax advisors need not believe that a tax position is ultimately sustainable before they advise the client to take a position on a tax return.
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May 1, 2019Michael J. Scott

Consumer Collections

According the Federal Reserve, there are 59.5 Billion debit or credit card swipes a year in the United States. That boils down to 165 million swipes/day; approximately 15% of which occur in Texas (25 million/day; 1.8 million/hour; 30,000/minute; 500/second). That’s a lot of plastic, and much of this article will be geared to the type of consumer debt that is created in the retail debt arena. However, “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes” is likely a consumer debt.
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May 1, 201906477000

Drafting Preliminary Agreements

A confidentiality agreement (“Confidentiality Agreement”), also sometimes called a non- disclosure agreement (“NDA”), is typically the first stage in the due diligence process for an acquisition transaction as parties generally are reluctant to provide confidential information to the other side without having the protection of a confidentiality agreement. After a Confidentiality Agreement is in place, the parties exchange information and proceed to negotiate the terms of a transaction. If the negotiations are successfully completed, the parties may enter into a letter of intent. While the parties initially intend that a letter of intent does not bind the parties to proceed with a transaction, disputes often arise as to whether and to what extent the parties are contractually bound.
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May 1, 2019ronc

The Hidden Cost of M&A

This Article addresses one context where the pursuit of share price gains both fails to maximize the wealth of all shareholders and fails to benefit society: corporate mergers and acquisitions activity. Since Henry Manne’s seminal paper, The Market for Corporate Control, it has been generally accepted that mer- ger gains accrue either through efficiency or market power. Efficiency gains involve creating synergies and eliminating redundancies, thus enabling merged entities to do more with less. To the extent that merger gains accrue via this route, mergers benefit everyone involved: shareholders benefit from a boost in share prices, society benefits from a more efficient marketplace, and consumers benefit from lower prices for goods and services. In contrast, market power gains enable the merged entity to increase the price of the goods it sells or the services it provides, thereby reducing consumer welfare. Because of the increased cost to consumers, this second option pits the interests of some groups against others. Wealthy shareholders likely benefit more from share price increases than they are harmed by the increased cost of goods and services, since these shareholders tend to own substantial amounts of stock and to make substantial sums from that stock. However, the reverse may be true for less wealthy shareholders and society at large. Corporate legal scholarship has largely failed to address this hidden cost.
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May 1, 2019Mark Fenwick, Erik P.M. Vermeulen

Technology and Corporate Governance: Blockchain, Crypto and Artificial Intelligence

Over recent decades, the on-going “digital revolution” has transformed many aspects of everyday life. Think of the increased power and shrinking size of personal computers and smartphones; the global expansion of the Internet and the new forms of social interaction that have been created; and, the ready availability of massive amounts of cloud-based information (“Big Data”), which is processed by automated algorithms for use in multiple settings. But, how has the digital transformation affected the organization and operation of business, and what does this mean for current regulatory frameworks, particularly those related to corporate governance? And, how are current and near-future technological developments - think distributed ledger technologies, “smarter” forms of automation and artificial intelligence - likely to disrupt the current corporate governance discussion? This paper explores these questions and concludes that current corporate governance approaches need to adapt to these technological and business developments in order to remain relevant.
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May 1, 2019Zach Wolfe, Paul T. Freeman

Trade Secrets 101: What Texas Businesses and Their Lawyers Need to Know

First, if a business wants to preserve the ability to sue for misappropriation of tradesecrets, it needs to take “reasonable measures” to maintain the confidentiality of the informationthat constitutes the alleged trade secrets. This is only what businesses need to do from a legal perspective. There are many otherpractical things businesses can do, but that’s more a topic for security experts than legal experts
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May 1, 2019Amanda Barrington

Does a Prior Perfected Secured Creditor Waive Its Priority By Failing to Take Action Before a Judgment Lien Creditor Garnishes the Collateral?

On December 31, 2018, the Court of Appeals of Texas for Eastland considered an issue of first impression for Texas. The issue was whether the holder of a prior perfected security interest waives its right to collateral by failing to take affirmative action prior to a junior creditor exercising rights on the same collateral. The Court held that a prior perfected security interest holder does not waive its senior security interest by failing to exercise elective remedies prior to a junior judgment creditor exercising foreclosure rights. The Court reasoned that a disposition by a junior creditor does not cut off a senior’s security interest, thus, the senior security interest is entitled to take possession of collateral from the junior secured party and conduct its own disposition. This was an issue of first impression in Texas, and the Court adopted its reasoning from the Oregon Court of Appeals
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November 1, 2017Eric Fryar

Filling in the Gaps: Shareholder Oppression After Ritchie V. Rupe: Part 1

On June 20, 2014, the Texas Supreme Court’s decision in Ritchie v. Rupe1 initiated a seismic shift in Texas law governing the protection of minority shareholders in closely-held corporations and limited liability companies. After almost thirty years of steady appellate court development of a judicial remedy for oppressive conduct against minority shareholders, recognizing the trial court’s power to force an oppressive controlling shareholder to purchase the oppressed minority shareholder’s stock for a fair value, the Texas Supreme Court suddenly announced that no common law cause of action for oppression existed and that Texas courts had no power to order a buy-out under the statutory remedy for oppression. Three dissenting Justices accused the majority of “extinguish[ing] meaningful protections for minority shareholders.” A host of academic articles and continuing legal education papers from practitioners both decried and applauded the demise of the shareholder oppression doctrine. The gloomy assessment: “In the wake of Ritchie, minority shareholders are already having a much tougher time in the courts.”
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