Columbia Business Law Review

Litigating the Fix: A Legal Overview

2024-09-03T14:05:53+00:00

When a proposed merger or acquisition draws the scrutiny of the U.S. antitrust agencies (the Department of Justice or Federal Trade Commission), parties sometimes propose divestitures targeted to address the competitive concerns. If the proposed divestitures are deemed unsatisfactory by the reviewing agency, the parties may propose them in defense of the transaction in court as an effectively modified transaction. That process is known as “litigating the fix.” The 2023 William Howard Taft Lecture, sponsored by the Antitrust Law Section of the New York State Bar Association in collaboration with the Columbia Business Law Review on November 29th, 2023, addressed the proper legal standard that courts should apply when evaluating such “fixed” transactions. This Article, authored by the Moderators of the Lecture, summarizes the regulatory structure, enforcement perspectives, and developing law relating to “litigating the fix” as a foundation for the following articles on the subject by the 2023 Taft Co-Lecturers, Mr. Daniel Haar and Ms. Sara Razi.

Facing Reality: Litigating the Fix When Pre-Merger Negotiations Fail

2024-09-03T15:14:15+00:00

“Litigating the fix” refers to the practice of defendants litigating divestitures or behavioral commitments (“the fix”) designed to resolve anti-competitive concerns, following rejection by the reviewing antitrust agency during the pre-complaint merger investigation. There have been relatively few cases with this posture, until recently. The vast majority of HSR-reportable mergers that were subject to remediation formerly were “fixed” via a settlement with the DOJ Antitrust Division or FTC, avoiding the need for litigation. But the antitrust agencies’ recent enforcement posture has caused them to be more circumspect about divestitures or other conditions, opting more often to challenge deals outright in litigation. This article examines the litigated decisions addressing this issue, the legal principles they rely on, and the legislative history behind the HSR Act and identifies the proper legal standards by which courts should resolve a government merger challenge in which the defendants have proposed a fix to address any identified competitive problems. The author concludes that the relevant inquiry for a reviewing court is whether the “fixed” transaction may substantially lessen competition, not (as the government argues) whether the proffered divestiture fully restores competition that may be—but for the fix—lost from the originally filed transaction.

Litigating the Remedy

2024-09-03T15:22:34+00:00

In recent years, merging parties have with increasing frequency proposed divestitures during litigation in attempts to address competitive concerns with their mergers. These proposals raise the question: How should a court evaluate a challenge to a merger once such a divestiture has been proposed? In particular, should the court evaluate the competitive effects of the merger with or without the proposed divestiture factored in? Looking at the text of the Clayton Act and the Hart-Scott-Rodino Act, federal court precedent, and the antitrust laws’ procompetitive goals, this Article argues that courts should evaluate mergers as structured at the time of the complaint, and if the merging parties propose a divestiture to address potentially anticompetitive effects of the merger during litigation, the divestiture should properly be treated as a proposed remedy to be considered after a liability determination.

Contract Realism and Formalism in Preliminary Acquisition Agreements and Negotiations

2024-09-03T15:34:17+00:00

Preliminary negotiations in which a binding contract is imputed, and formal preliminary agreements, which may create a binding contract of undetermined scope, have special prominence in the corporate acquisition context. Case law in this area of preliminary dealings is arguably confused and unsatisfying. In recent years, contract scholars (including M&A scholars) have theorized about the purpose of such preliminary dealings primarily in the context of formal preliminary agreements, and they have also considered the role of informal negotiations and non-binding agreements in contract creation. Notwithstanding differences, these scholarly analyses have uniformly maintained that common law principles (if applied correctly) provide a coherent approach to preliminary dealing conduct. In contrast to this approach to preliminary dealings, this paper argues that, in the corporate acquisition context, preliminary dealings should be addressed under a different regime of formal contracting standards. The existing common law regime protects the integrity of preliminary dealing conduct (both formal and informal) at the risk of mistakenly imposing contract obligations on an unsuspecting party. In the distinctive context of corporate acquisitions, this approach fails to minimize efficiently the costs arising from the mistaken imposition of contractual obligations. Specifically, corporate acquisitions invariably conjoin features that alter the marginal social costs and benefits associated with contract formation, features which are uncharacteristic of many, if not most, contracting situations. Salient features in the corporate acquisition context jointly include: (i) an intrinsically multi-step bargaining process; (ii) the routine participation of sophisticated business counsel; (iii) potentially enormous contractual liability arising from contested (and generally equivocal) inferences where contractual clarity can be obtained at relatively low cost; and (iv) disproportionate windfalls or forfeitures for third-party stakeholders in the case of mistakenly imposed obligations.

This paper proposes an alternative formal regime: an enhanced statutory signed acquisition agreement requirement (“SAAR+”). The requirement would directly address preliminary negotiations in acquisitions where a binding contract might otherwise be imputed, as well as the ill-defined contractual status and scope of formal preliminary acquisition agreements. Drawing inspiration from Judge Friendly’s observation advocating a fairly simple bright-line approach in complex business negotiations generally, a SAAR would preclude the formation of a binding agreement based on preliminary negotiations regardless of specificity in the absence of a signed acquisition agreement. A simple SAAR formality, however, would do little to eliminate the contractual opacity that inheres in signed formal preliminary acquisition agreements which may or may not be binding and, if binding, whose scope may be ill-defined. This inherent opacity of formal preliminary agreements is addressed with the enhanced SAAR+ regime: a simple SAAR coupled with a default rule that would limit damage remedies to reliance damages unless the parties expressly contract otherwise, either to eliminate damages, or to allow damages in excess of reliance damages. The default rule would incentivize contracting parties to make their intentions explicit with respect to the intended status and scope of any formal preliminary acquisition agreement.

Green Bond Reporting

2024-09-03T15:50:27+00:00

Are green bonds really “green”? A number of legal scholars have addressed various aspects of this critical question. However, none has focused on issuers’ post-issuance assertions about what they spend the bond proceeds on and on the way those assertions are, or are not, verified.

This paper is the first empirical study in legal scholarship of post-issuance reporting on the use of green-bond proceeds. Using a dataset from the Bloomberg service that covers all 155 dollar-denominated corporate green bonds from US corporate issuers in the period from mid-2019 to mid-2022, supplemented by a Web review of reporting, the paper reports that almost 10% of green bonds appear to have no post-issuance reporting and that around one third of the bonds lack reporting that is attested by a third party. Project-level attestation, the most detailed type, exists for around 30% of attested bonds and 20% of all US corporate green bonds.

Much of the commentary on green-bond verification focuses on assessments by pre-issuance reviewers, building on an analogy to credit rating agencies. But an important difference between green-bond verification and credit rating is that investors are likely to find it difficult to determine whether an issuer used bond proceeds for green purposes, while they will typically know if the bond is paying them on time or not. Thus, credible post-issuance reporting is especially important in the green-bond context. Moreover, this study finds that pre- and post-issuance reporting quality have been negatively correlated in some respects. Thus, advocates of green-bond market reform should concentrate more on improving post-issuance reporting than they have to date.

Specifically, the International Capital Markets Association should consider amending its green-bond standards to require attestation of post-issuance reporting and withdrawal of pre-issuance “greenness” opinions if issuers do not report as required on use of proceeds.

A Hard Look at Portfolio-Focused Stewardship

2024-09-03T15:56:15+00:00

Financially motivated diversified investors want to maximize the overall value of their portfolio and are not independently concerned with the performance of any given portfolio firm. A growing number of scholars have concluded that index fund managers should therefore engage in stewardship designed to force portfolio firms to internalize the costs their activities impose on other portfolio firms (“portfolio-focused stewardship”). This seemingly provides a financial justification for SEC-mandated disclosure on ESG topics—ESG disclosures concerning how a firm’s activities affect the broader economy might help index fund managers identify and, through stewardship, force the internalization of intraportfolio externalities, leading to increases in risk-adjusted portfolio value. This Article critically examines whether, and under what circumstances, financially motivated diversified investors would want their index fund managers to engage in portfolio-focused stewardship, paying careful attention to the real-world frictions that cast doubt on the likelihood that portfolio-focused stewardship would lead to net gains in risk-adjusted portfolio value as well as the alternative tools available to diversified investors for addressing intraportfolio externalities. The analysis has important implications for contemporary debates over SEC-mandated ESG disclosure as well as index fund managers’ fiduciary responsibilities.

Escaping the Parens Trap

2024-09-03T16:02:42+00:00

State enforcement of federal antitrust law is a rich combination of questions about federalism, civil procedure, and remedies. Bedrock principles support a robust role for States as “parens patriae,” a relationship that positions them as protectors of consumers. Courts are puzzling through how to effectuate this role amidst centuries of common law history and evolving modern understandings of economic harms. This Note argues that allowing states to pursue nominal damages in parens patriae cases would better protect consumers, force clarification of the ill-defined limits to parens patriae actions, and allow for more efficient restitution in certain cases. This Note first describes the relationship between States and the federal government in antitrust enforcement and the implications that arise from the relationship in our federal structure. The Note then discusses the background of nominal damage awards generally and in the specific antitrust context. Finally, the Note argues for an application of nominal damages in parens patriae cases and discusses the implications for antitrust enforcement generally.

Closing the Gates on Money Laundering: Big Tech as Gatekeepers in the Metaverse

2024-09-03T16:09:14+00:00

The rise of the metaverse has created meaningful growth opportunities for the digital economy and the use of digital assets. The conditions that have facilitated the metaverse’s growth, however, have simultaneously given rise to unchecked money laundering risk. This Note reviews the existing Anti-Money Laundering (“AML”) framework in the United States and argues that the metaverse’s inherent design features disable the efficacy of the regulatory regime. In order to improve the reach of the AML framework, this Note proposes a system of gatekeeper liability that utilizes technology corporations to curb illicit activity in the metaverse.