Mandatory Arbitration

Welcome to shareholder Primacy from freefloat media, podcast about activist investing security slaw and all the ways. The financial legal world's intersecting Collide in real life, Anna and I are back once again. And of course his law professor at University of Colorado, who teaches in res, Law. And she looks after all the law, the legal, and our podcast, all every law, or every security, And that's Mike Levin and activist investor who lives and works in Chicago. He covers the financial side of our podcast. Yes. And I will today and remind people that we have an email address shareholder, Primacy one word at freefloat dot LLC. And if you'd like to send us things that you'd like us to answer or talked about on the show or complaints or right, people do that. So we have today, A really interesting subject. It starts off a little, shall I say arcane? Not to me, know, I know that but it's I mean to other people. It might start off a little technical but it gets really interesting and very impactful is we kind of dig into it. So, let's talk about mandatory arbitration. Yes, as a way to resolve our controversies and disputes, um, So the reason we decided to talk about this now, is there was the proximate event or the proximate reason was the SEC just in the past, several days, announced they either are considering or they, in fact, will allows okay to is to do an IPO to go public with. Let me show you, I get this right mandatory arbitration, Provisions in the corporate, constitute of constitutive constitutive and students Charters and buy us Charters and biologics. So um, let's talk about that. What what's the issue? You know, why, what is it? Why do companies like it? Take us through this. Yeah so let's start with like so arbitration. It's just an agreement to resolve a dispute like a legal dispute outside of a courtroom. Usually in secrecy with more abbreviated rules than a traditional court. It's not a mediation, it's not a settlement. Negotiation, it's like a little mini trial but it's done just outside of a courtroom in private, with just far less formal rules, you know? And there are a lot of reasons why party would rather arbitrate their disputes, then try them in a quart. It's faster, it's cheaper, and it's much more private. But that so, the totally legitimate reasons to choose to resolve disputes in arbitration. But what companies like to do is stick arbitration clauses in contracts, because that require any disputes that come up to be arbitrated, because they can also add to that, that those disputes will have to be arbitrated on an individualized basis, and not in class action. So, there's a difference between this is what we call it mandatory arbitration. So, this is a difference between two parties of equal bargaining power, sort of having a dickered contract and agreeing that they're going to resolve their disputes in arbitration. That's one thing. But the issue that comes up is when companies that are draft The contracts like that are mass contracts. Like maybe consumer contracts, things like that. Oh sure. Nobody you're agreement to like sign up for a mobile phone plan or exactly your mobile phone plan. Your iTunes plan your credit card, your car loan, whatever it is and they all require arbitration. But what they do is that they say and this replaces class actions. So what the so that every dispute has to be individual and you can't bring your claims is Class. A lot of small consumers. Retail disputes are simply not feasible economically to be brought individually. The only way they make economic sense is to bring them as class actions. So what companies get out of this, it's not that they want the arbitration. I mean, I'm sure they're happy to have a private secret tribunal, but that's not the point. The point is to kill class actions because once you say that dispute to be brought individualized basis, then they just won't be brought it all. So the arbitration is really, it's the mechanism to make it impossible to bring us to do some sort of mass Action. So so exactly. Okay, so the idea, here we go ahead, go ahead, no, no it's just gonna say that like someone we talk about mandatory arbitration. The reason the phrase mandatory is placed in front of it is because the theory is that it's like put into like contracts but they're not. Ones that anyone really negotiated or had an ability to fight. I remember those as being is it, is it alright to call those the contracts of adhesion where contract? Adhesion, exactly one. I learned I learned something in business, law. Yes, it comes to the what we say, dickard contract. So, yeah, exactly. But so, in this point has the point is to take this out of the realm of me individual consumer having to hire a lawyer, build a case. It's, you know, I could do that. I could sue somebody, but that's completely. No one will take that case. It's completely impractical. So, we used to go and form a big class, there's laws, that shop for this stuff, and, and the antidote to that, if you're the company is to say, no, we're going to arbitrate this, but it's got to be one and arbitration is by its nature. Not a class type thing. It's a one by one kind of. Yeah, there is something that's, yeah, there's such a thing as class arbitration but Essentially over the years, courts have made the Supreme Court has made clear that you when you write an arbitration Clause, you can also write in that, it must be individualized. You can't do that for like a chord action. So, so the idea now, when we're talking about the Securities realm is, look at the contrast that's um, between me and the company. And I always say, this is not exactly right, but it's sort of a good way to appeal. The intuition is the bylaws are kind of, sort of, maybe a little form of contract between me a shareholder and the company. Yes. So this is the idea. So the idea is that companies wanted to tap individualized, get to kill the Security's class action, basically, to kill the ability of shareholders to bring claims under the federal Securities, laws section 10 section 11 for false statements. The only reason those are economical to bring is because they're like almost always brought us class actions and companies really wanted to kill the class action. But that means you have to have a contract in which to put the arbitration Us. And the only contract that exists really for like open market purchases of Securities are, as you say, the charters and bylaws. So there's been this long-standing and somewhat tortured legal question about whether Charters and bylaws would count as a contract into which you could insert the arbitration Clause that would kill the class action by saying all Securities claims would have to be arbitrated on an individualized. All right? So what what's practice? Been up until now. Yes. So well up until now you haven't had them because they've got this towards so several years ago. Delaware passed a law that said you could Delaware started, allowing you to put, not arbitration, but Forum, selection Clauses. Oh, in in your charters, in the difference between a forum selection clause and arbitration close arbitration says, you have to arbitrate and can also say individually Forum, just picks a court. It just says, normally, you could go to any Court in the country, but now we're going to funnel all claims into one particular court. So several years ago, Delaware passes a law that says you can put a forum selection clause for Delaware, State claims Delaware State claims in your Charters and bylaws that would funnel all claims to a particular court like Delaware Court, but it was alright, It does, it has you can't deny access to a Delaware Court but you can add a chord so you could say Delaware and Virginia but you because Delaware did not actually the reason they passed the law was because a company chose North Carolina exclusively until there was, oh, no, that's not. Okay, you can't know. We are, we need, we want, we want to litigation here in Wilmington. Exactly. So, now, for this was for only for Delaware like your standard fiduciary duty claims not federal Securities claims. So, it wasn't clear, whether you could even write a charter or bylaw, that would govern Security's like, I mean, because the charter and bylaw, even if you view it as a contract, it's a contract about this state entity. And it wasn't clear that you could like, deal with Federal Securities claims in your Charters and by laws aren't Charters and bylaws supposed to be about state law. So but then eventually in a case called Salzburg versus Shabba cookie, which nobody can pronounce but it's a cookie it. Yes, that's a defendant that was the plaintiff because there's the place Salt shop of cookie one. And in the, in the Chancery Court before, Vice Chancellor, Laster Salzburg, which was the company, like, it sounds like a bakery shop. Yeah, I know, but it's actually not spelled anything, like what it sounds. Okay. So in Salzburg versus Shabbat cookie. The Delaware Supreme Court said, you can, in fact, have Charters and bylaws, that allow a forum selection clause for federal Security's. In other words, you can require that Federal Securities claims be brought in a particular Forum. A particular court just by putting that into your Charter in bylaw. And this is what the point where I have to say. It's a terrible thing. I mean, just here's the thing, it really confuses and this is coming from Delaware. It's a little surprise in that, it kind of confuses Charters and bylaws. In the opinion because it's starts out by because the one of the major differences between Chargers and bylaws is Charters, can only be amended with a shareholder vote, right? Sharers or shareholder approved by us and my last directors, directors can just pass them unilaterally. And so, one of the things, the opinion does is it says, well, a Charters and bylaws are just like contracts. And they go on about Charters being just like contracts, because shareholders approve them, and then it just throws bylaws in and they're like, wait, but, but they didn't prove that. It's just anyway, nonetheless, there's really sketchy on bylaws but Charters, you can and then it was really unclear, which federal Securities claims are going to be covered under this. But after that decision, courts around the country took that case to mean. Yes, you can put a forum selection Clause that covers Federal Securities claims in your bylaws and Charters, including these unilaterally passed by laws by directors and that was okay. So that really opened the door at the state level, to authorizing it under Delaware law or state law to authorizing potentially mandatory arbitration in forums It's a short step from Forum selection to arbitrary, exactly to arbitration. But that was, that was just a state law development, Okay? So we've not talked a little bit about Delaware, I think, if we okay, But this is all federal actions, right? So then it's alright. So then the next issue though was okay. Well, if Delaware the door is open, anyway, if Delaware the door is open, what's going to happen. How does the SEC feel? And there was this additional barrier So, this requires a little bit, I'm going to get, like, detailed about the federals. I told you, I said it was gonna be, like, Arcane technical, was it? It's gonna be, it's gonna be architecture, but, I promise everyone. We will. We will, we will come back to the broader. Yeah, the general, the general reporting, which, like it's fine. Is that the SEC banned? Arbitration close is an ipo's. And that's not exactly what happened. But, so I'm gonna be technical about this, so you have to start with The federal Securities laws are very old Security Act. 1933 30 1933. The Securities Act was passed. That's almost 100 years. Say God. It's it's and it was nothing like it had ever happened before. So nobody knew how it was going to work. And one of the things that this very old statute says, is you the company can't sell Securities to the public unless they're registered you file a registration State? That's the essence of. Yeah. The SEC does is they track exactly exactly. And the way the statute is worded, it actually says that you can file your registration statement and unless the SEC takes action to stop you, that registration statement will automatically become effective after 20 days. So you file your registration statement, you wait 20 days and then you can sell your securities. But that turns out to be in practice almost immediately, they figure it out and practice terrible because the SEC often has questions and problems with your registration statement. A 20 days is simply not enough to resolve them and nobody wants to go public and then have the SEC come after them and say, there was a problem with your registration statement plus today, I mean, think about it pricing and how the number of the You're going to charge and the number of shares you're going to sell, that's not absolutely settled until the very last minute. Nobody wants to put in their registration statement, how many shares they're selling and at what price and then, wait, 20 days, like the whole, the world, the whole Market can shift. Yeah, we've seen exactly. So this idea that you can file and wait 20 days just doesn't work. So instead companies in the SEC worked out, a different system and the system is that the company will agree not to have their registration statement. Become effective until the SEC has worked out with them, whatever problems and questions to the SEC has and once that happens, the SEC will accelerate the effectiveness. They'll skip the 20 days and say okay you're registration statement is ready now and then the company will sell and that way the company can get a date certain that it knows in advance and like quickly sell as soon as soon as it settles on price and that. So that process is called acceleration of the effectiveness of the registration statement and what the SEC developed a policy of back. In certainly around 2013 to 2014, maybe earlier. But that was like, there was a big blow up about this. It decided it was very uncomfortable with the idea that companies might put mandatory individualized arbitration clauses in their Charters and bylaws. So it said we're just not going to accelerate your the effectiveness of your registration statement if you have them in your company constitutive documents. So nobody went public with these things in their Charters and bylaws but that didn't stop them. Nothing stopped them from adding them later, especially in a bylaw which you can directors capacity in a laterally but nobody ever did and presumably, that's interesting. Yeah, so yeah, nobody ever did know. Well, I think there are a couple of obviously, there have been agitations. There was one particular, there's a law, professor house, got it at Harvard, who was actually really urging companies to adopt these. Once they were already public, but the problem for companies the idea is the new, they would get into a fight over whether they were enforceable, they knew they would get into it. Fight with the states. Because at this point, it wasn't clear. It was legal under Delaware. They would get into a fight with shareholders over it and they knew the SEC hated it. And the last thing they wanted was to get into a like, what is the? If the SEC says, oh, you've insulated yourself from shareholder class actions. Should we take a closer look at your financial statement? Nobody just wanted to pick the fight. So even though they always could have passed those after they were public, they just didn't bother. And the other reason is they are more valuable at the IPO stage and this is why They're essentially two kinds of claims that are brought as Federal Securities class, actions section, 10B, claims and section 11 claims section. 10 is, what? Those are, okay, I am going to tell you what they are section, 10, B claims are what we normally think of as Federal Securities class action, it's for fraud and you can bring it if and, you know, this is the kind of claim that, you know, is your usual vanilla company lied about something about its business, and there's a federal Security's class action section. 11 claims are specific to registration, statements false, registration statements. So they're almost always brought for the IPO stage and they are easier for plaintiffs to bring and harder for defendants to defend against because they do not require a showing of intent section 10 B requires that the company have a state of mind, kind of State of Mind. Exactly, but section 11 does not require a showing of intent and that is basically Acclaim that can for the most part only be brought with companies are going public. So if you can't put these in your documents when you go public, you can't protect against section 11 claims at most passing. The later will protect you against. Section 10, B claims but section 10. B claims are already sort of hard for plaintiffs to brain because they have to show intent and they're hard, they're just, they're just harder for planes. So the just the balance of risks versus benefits of adding them. After you're already public. Given the sec's obvious dislike of them, just companies didn't bother. So arbitration kind of fell out of favor like it just there wasn't, it wasn't on anyone's radar screen. No one was paying attention to the idea, right? Even though even though and we're gonna talk about this a little bit even The class actions and I think is it fair to talk about their first cousin Cheryl the derivative or is that going to? Well, that well, that state loss. So that's our usually state law. That's almost always like that goes. That's almost sure enough. But companies is as much as they dislike actors, they really hate class actions security. Hey, classic. Well, the potential damages are enormous. They're actually a lot, like, over the years. Companies have gotten a lot of legislation passed that makes them harder and harder and harder for plaintiffs to bring and courts tend to be very skeptical of them. So really a lot of these cases get dismissed. They don't go far but if they manage to make it to pass the motion to dismiss in class certification, the potential liability is very much. Yes, and that's what they usually settle at that point, right? So, even, even though there was just kind of underlying worry among Boards and companies, it's they didn't do much about it because of all these, what I'll say is sort of procedural, these are kind of hurdles, they had to go and it just wasn't exactly. It just wasn't worth it because it was, it wasn't clear, they'd be legal and even if they were fighting with the SEC over it for a potential future claim that may or may not be brought it just, they obviously didn't think it was worth having a fight over, got it, and then, and then before we get to the Recent SEC news. There was some more yes Delaware's stuff, right? That. Yes, preceded. This. Okay? Yes. And this is what just happened. Is, was why so funny because really what we're living now is in a state where after a big sort of fight about this for a few years in like 2014 and 2015, essentially companies forgot about it like they just weren't bothering with arbitration, nobody was worrying about it and then Delaware changed its law again. I'm going to try to avoid, get to try to awaken too far in the weeds but let's just say that a couple of companies had these bylaws that suggested certain federal Securities claims would remember they could do for him selection. So the Forum that they selected was Delaware Chancery. That is a problem because for some federal Securities claims you can't bring them in state courts like at all like the state courts just don't have jurisdiction. So if you have a forum selection Clause that says these Securities claims have to be brought in the Delaware Court of Chancery what your functionally saying is they. Can't be brought in any court at all because the only Court you're allowing them water. You're barred from filing any claim, but exactly. And like only like two companies even bothered to make this argument bothered to try this. Only two, it's no a couple more like it was a handful of companies that tried this one quart, the ninth circuit actually allowed. It actually said, oh, I guess there is a forum selection Clause, I guess it does say the Delaware Court of Chancery. I guess that means you can't bring your claim, sorry, playing this. But for the most part, it was such an obscure little thing and it was suction obscure little issue that most companies weren't even bothering. This is just too silly. So here's what I think happened in Delaware. We know there was this huge fight in Delaware recently about SB 21 and making it harder for Ryan is to bring actions that was all state law. Delaware changed its law. It was a huge ugly fight and I think this year just that was early this year. It's just a few months ago how soon and, yes, exactly. And Elsa, the year before there was the shareholder thing about it, was basically the defense bar muscling through a lot of changes to Delaware law. That were very, very damaging to play Netflix. And I think they wanted to essentially throw a plane of a bone after this, see where fair and reasonable this, tiny little corner where a couple of companies for this tiny little obscure kind of situation where able to essentially completely fend off Security's actions by shunting them all, to the Delaware Court of Chancery will ban that And the way they ban that was by saying, if you have a forum selection clause in your Charter or bylaw or if you have a selection of some kind of clause in your Charter and bylaw that governs Federal Securities claims, you have to give access to at least one Delaware Court court with jurisdiction, to hear the claim, okay? In other words, you're not allowed to what they meant was to say, you can't shut all claims into a court that has no jurisdiction to hear them, but the way they actually wrote it was, you have to give access to a quart, a quart, not an arbitrary Forum a court, which means they are essentially saying, you can't pass a charter or bylaw that exclusively requires arbitration because you have to leave open access to a court to a court. Exactly. The word is critical, they weren't thinking about arbitration. They were thinking about the situation where a couple of companies shunted all claims to a court that had no jurisdiction which Was such a tiny thing that companies weren't even trying to find you. Can you pick a court in Delaware? And you can. Yeah. But because they were thinking about arbitration. But now, so now Delaware law, technically prohibits mandatory arbitration. It prohibits a company from adopting a charter or bylaw that requires individualized, arbitration of federal Securities claims because your Charter or bylaw has to give access to it at least one quart in Delaware with just, an arbitration is not a core is not an arbitrator is not a court. Exactly. So people have asked me, this is metallic people ask me, is that the only way to read the statute? I'm like well that's the only reasonable way to read the statute. If you read it any other way you would like up and other parts of the law. I mean just doesn't make any sense like yes. That's what the law says currently. In Delaware, but this just took effect. It just took effect September 1st. This was all that SB 21. Of course, that was right after us be 21. As I said, I think they was sort of like supposed to be a soft like, look how reasonable we are we aren't boring all shareholder claims, but they wrote this statue. Not thinking about arbitration because arbitration wasn't on the table and the SEC. And then the SEC shifts its position, the SEC just you know, recently announced we will no longer refuse to accelerate the effectiveness of IPOs just because they have arbitration clauses, meaning that you can now go public with these things in your Charters and bylaws. And I think it sort of sends a permission to companies that were refraining from adopting. The midstream the SEC will not get on your case if you choose to adopt the Midstream. So now companies they could always do it but now they kind of have permission from the SEC except they can't in Delaware because Delaware's law just took effect on September 1st. So if they are Incorporated in Delaware, they actually can't. So there's a little bit of a contradiction at least as regards Delaware Corporations. It's not contradiction, but it's just like you can, the feds won't have a problem with it, but Delaware will according to Delaware law right now, but the SEC almost called out Delaware. So Paul, you know, the chair of the SEC Paul Atkins. When he made this statement is kind of like, of course we're not talking about state law. Apparently, their band in Delaware. Other states may do things differently but Etc. Okay. Wow. All right, so that's that's actually that's a decent Foundation to try to understand some of the implications and where this goes and so forth. But let's do that, after a break. Shareholder Primacy is brought to you by free flow analytics.com. The only free database of corporate directors, their influence and their performance. If you own a stock or retirement plan go to free flow, analytics.com, and look up which of your elected directors are performing well and which aren't use your vote in the alternative democracy and get your data at free. Float analytics.com. Now, back to the show, the Primacy. I'm Anne lived in here with Mike Levin and we're talking about mandatory arbitration of Securities claims in corporate bylaws. And so, just to make sure again, I actually am in. I'll talk about in a minute. I've Been invite, I've been involved in the Tesla litigation as you know, which oh yeah, okay. But I've been involved in some other location. And another company I'm involved in to compel an AGM. I've actually talked about it more with some friendly attorneys and so forth. It's becoming increasingly more. Like top of Mind really fast. Yeah about. Is there an is there a litigation angle two escalating? Some sort of a case against a company or some sort of an activist, right? Yeah. And we've talked about those that the 16 B claims in the, in the oh, the Massimo. Oh, yeah. Sure exactly. Yes, that was Federal here. I mean because we're taking the federal and state. Yeah. Yeah there's more of this. This is this is relevant increasingly relevant. It used to be completely almost irrelevant act, but activists are considering this a little more adding it that's interesting, the toolkit if you want to call it that. So let's let's um now that the SEC basically is going to allow IPOs just and it's allows you and that also that the implicit threat from the SEC has been lifted for past IPO stages. So public companies that are public. Now have more permission to add them. They could always do it legally but they, you know, now they have that permission. Now, we're in a world where it's possible, so I'm guessing that Again, I know companies are positively allergic to this kind of cases. And for the reasons we talked about it, it's, it's in an enormous household. It's a very expensive to try to work work, these and the potential damages are enormous So, I'm guessing that the at least initial reaction is been Jubal in Jubilation. Is that the right is the river? I don't, I don't know. I mean, I, you know, I kind of have been waiting for like, the first company to pass a bylaw, requiring arbitration with got to be Tesla because it's not in Delaware anymore. It's technically been waiting for the Tesla AK to drop. Say we've changed our last. But actually, I think, part of the reason they haven't, I mean, we'll see but my at first I thought, like, okay, where's the Tesla? AK, isn't Tesla gonna be the first, because it gets slap, a security thread loss suits all the time, but it actually occurred to me there. They've got this upcoming shareholder, vote on Elon musk's pay. So, they may not want to, like be in the news for suddenly, focus on other things in there. But yes, so there's a lot to consider. So, like leaving aside the League's, which will get to, which we're definitely get back to, but leaving a suddenly reality. There's the question, first of all, there's a question whether companies really want to do this. So a lot of lawyers have suggested that maybe his companies don't actually want this. Because here's now here's the reason why the theory the reason you require mandatory? I mean, honestly, the reason you require mandatory arbitration individualized is to avoid class actions on the theory that almost no one's going to bring it individually. So then you've essentially left, you've gotten rid of all litigation and that's often true in the consumer space. Although, to be fair, there are some attorneys who have gotten very creative of figuring out how to join together. Lots and lots and lots of individual arbitrations and that can be even more expensive than a class action, right? But the question is, whether this idea? Well, no one's going to sue individually. So you've essentially gotten out of lawsuits may not be true. When we're talking about security cases because you have institutional investors who may in any given case have 100s of millions of dollars of losses at least on paper. And so one possibility is that if you shunt all the claims into individualized arbitration, now what you're facing is lots and lots of claims by multiple Pension funds, say each one hands or something. You know, there's well, I don't know how likely they're, but certainly the Pension funds. Each one of them is handled individually there. There's a lot, there's a lot of money in each case, so it may be worth it to bring. And the thing about arbitration is they are procedurally streamlined as compared to trials and that sounds good, most of the time, but Securities class actions have gotten such a bad reputation for being sort of nuisance suits. That the laws have changed to build up. A lot of procedural, barriers to shareholders, bringing them shareholders, have a lot of procedural roadblocks in court before they can get to the serious actually. Got a survive, the motion to dismiss, and there's all that stuff and that doesn't exist in arbitration. So companies actually have certain Protections in court that they don't have an arbitration and they would have to deal with very, like, potentially multiple claims by large Institute by, you know, large Pension funds and maybe that is more of a hassle, Than having to deal with this is a class action. So be careful what you wish for kindly but I suspect most companies would just rather roll the dice and at least try it. Like, but nonetheless, there is that argument out there that they actually would rather take their chances in court, where they have so many procedural protections and they can knock out the entire case with one and below. So that's the first issue do companies even want this. The second though issue, is once again, leaving aside Delaware's law, You can't do this in Delaware right now, it's still not entirely clear, they're enforceable. I mean the fact is that there are a lot of legal questions about just how binding these are these have whether the bylaw Amendment would be enforced. Yeah, exactly. Like like sure at this point Court, a lot of Courts have enforced Forum, selection Clauses. But let's just say there are a lot of arguments that could be made that first of all, some of those Forum, selection decisions were wrong. I think they were wrong, but whatever. But you could like, let's just say that plaintiffs are not going to give up without a fight about whether even if you pass, these they're enforceable. I mean, the SEC simply said you can put them in your Charter's in by laws. This is not a statement of whether they really are enforceable and really do what companies want them to do. This is just this is just the SEC is not going to give you a hard time, exactly. Registering your IPO, exactly. And then they're going to say, okay, take it to state court and sort of see if you can. Yeah. So it would be federal court actually and we just don't know. Yeah. So we just don't know yet whether like let's just say there would be a prolonged legal. Battle about whether or not it's really enforceable, but then we're left with there are still illegal in Delaware, but as we talked about many times on the show, Delaware is locked in this competition for Charters. It's very paranoid. Now, about losing Charters to other states to Texas, and I don't think it's gonna list Texas. But Nevada, maybe more plausible and these states are going to roll out the red carpet. I think, oh yeah, arbitration come bring it on. Yeah, exactly. So Delaware, presumably wants to. So I think there's going to be pressure on Delaware changes on. I actually saw some random Silicon Valley person on LinkedIn, like, immediately posts. Delaware, you gonna change it, you know. So I think there's a buyer's Association probably is gonna be studying, this really hard in anticipation and next Spring's legislative session if they wait that long but oh okay. But there's even more complications here. Yeah. Okay. Which is There is a statute from 1925 called the federal arbitration act and it basically says that states can't regulate contracts to arbitrate, they can't regulate them, which means Delaware's ban may not even be legal, it is possible. We don't know because it hasn't been tested that the federal arbitration act prohibits Delaware from prohibiting, no one's ever asked know. But here's the thing, Remember when we started this, I said Delaware began all of this started down this road by requiring access to a court for state law. Claims the fiduciary claims you couldn't arbitrate those then it added for federal Securities claims. If somebody comes along and says, hey Delaware, I think your ban on arbitration is illegal under the federal arbitration. This 1910. Yes. Yeah. And if Delaware loses, it loses both for the Securities one. And for the state law one and then it really loses control over State fiduciary claims, which is very much, not what it wants ever like business sort of made its peace with the one about state law fiduciary claims, but the last thing, Delaware wants is for somebody for a federal court to say Delaware, you simply Can't Ban arbitration clauses. So Delaware doesn't want that tested. So, I think from Delaware's point of view, if it at least repeals the Securities band, Then it's unlikely. Anyone's going to make any arguments that it's state law. Ban on arbitration is illegal and then you know and and it doesn't care what happens to Federal Securities going. So so I mean I think that, you know, this is why I feel like Delaware is probably I mean I would like let me be clear. I think look at what I think of these but I I it's not that I want to see Delaware repeal this, this ban on it for Security's. I just feel like dealers going to feel a lot of pressure between pressure from other states and the risk of somebody saying Delaware, You Can't Ban arbitration clauses at all ever, right? Because of the federal arbitration act like the easier ways to just get rid of it for federal Security's and then nobody makes any federal arbitration act arguments, that will affect the ban on arbitration for state law clients. All right, so that's how I gain it out. So, so there's Delaware may do something. So I think, yeah, here and I just Like okay, this is where I have to go. I told you so because I've been writing about this for years. Yeah, yeah. You this is something by the way, this is something you have put a lot of thought you've written several papers. You've worked on this, when you were in practice, I mean, this is, I mean, this isn't like some new kind of Novel bit of Securities Law. I mean, this something you've spent I would number it in decades. Yes. Now, yeah, that's closing, you know, our respective ages and I, my original argument was you Charters and bylaws under state law. Can't govern federal law. Claims they just can't govern Federal claims. And, I think Delaware, really, and vice Chancellor Laster agreed with me or, and he was reversed by the Delaware Supreme Court. In this case, Salzburg versus Shabbat cookie. And part of, like last year's reading, you know, the thinking was Delaware can't really regulate for the world. Like Delaware has to sort of stay in its Lane and it's lame is not governing Federal Security's and I look and I imagine this is what the alternative world looks like. There's an alternative world where Delaware said that simply as a matter of just addiction Charters and bylaws can't control Federal claims like Charters and bylaws Are Meant To Handle state law matters. They can't handle they simply can't be used. For federal claims, if Delaware had held that, I think every other state would have agreed. This wouldn't have been a charter competition issue because Delaware is so respected. They would have just thought as a matter of like theory that Delaware is correct that Charters and bylaws, it's a state law issue, it's a state law construction, it can't control Federal claims, and then that would sort of be the settled law and this would be over. But now because Delaware sort of Arrogated to itself the authority to regulate Federal claims and Charters and bylaws now it has to get into a fighting up. Yeah. Does it repeal? The does it repeal this ban? And let's say that it repeals, this band. The first thing that's going to the first time, a Delaware company passes a mandatory arbitration law. It's going to get sued for violating its fiduciary obligations under Delaware law. Oh, can you protect yourself against Federal Security's Delaware, prohibits breaking, the large are directors trying to Shield themselves are being caught and breaking a lot. I mean, and all of. So when is it constant width or not confident with your fiduciary duties to disallow Federal Securities class actions. If you're really guilty of the federal Securities class action, should you be allowed to bring in the classes, right? And Delaware. And those are going to be Delaware fiduciary fight. That, you know, it would have been so much simpler if Delaware back in Saltsburg versus Chicago. He had said, actually, you know what, you can't use the corporate Forum to Shield yourself from federal clients, right? Exactly. so, like I just keep imagining that Homer Simpson meme where he like, Retreats into a hedge so that you can't like, that's what you've done. This is not our business is Yours, right. So um, So it's it's hard to tell what Delaware is going to do. We kind of expect maybe some companies to Try this out. Yeah, they're gonna try it out eventually and that's and it's particularly valuable at the IPO stage as I said because that's when you can get you can be potentially liable for Section 11 claims which it don't require showing of intent. Now, the thing is that I don't know if somebody's gonna bothering just because you adopted one, it's really. The rubber is going to meet the road when they have when they have a legitimate. When it's claimed, I hope, you know, I can only hope playing us a really smart about it and they, you know, can try to identify a really strong security case that well, there's I mean, the IPO Market is picking up so, yeah, we'll see. I mean, it would be some more of these. Yeah. Or plaintiffs can just sort of try to make life health for a company that adopts one by bringing lots and lots of individualized arbitrations by well-heeled institutions that will make this. Again, I started alluding to this, there's an increasing. I mean, from a very low level appetite among at least active us to consider Litigation about this kind of stuff. so, so their conceivably could be You know, in a given company that's run into problems. two or three, small number, a handful of investors that you know they be colluding over this but could be looking at this or you know, could be talking to different attorneys and saying yeah you thought about Starting an action against a company. It's going to have to go to arbitration but you know, fortunately, you know what's nice about arbitration to an active us is it's just it's fast and cheap or faster and private so you and if you don't necessarily want to create a public record of what you're doing. Right. So yeah. So I could I could see At least among the, you know, activist community and and I'm talking more financially. I have no idea how, you know, if you folks be interested in this, Some, some willingness to kind of go along. And again, you know, I, I have had very little interest over the years in like, Securities class action stuff. It's just, you know, it always struck me and others, as sort of the realm of of scholarships that got, you know, cheated over something. But, you know, there's always kind of the tinge of aggressive plaintiff, lawyers kind of looking for? No, no, I'm saying that. That's sort of the environment that we think about it, but there are lots of legitimate. You know, claims that, you know, maybe this is gonna actually be a little easier. So, maybe a little bit of a silver lining here. Yeah, at least for, at least for for bigger funds, bigger activists, and so forth to try to, to try to get get redress for some sort of um, for some sort of perspective fraud. Yeah, especially because yeah, especially because you don't have all those judicial berries, but I mean, I'll just leave it. I think it would be a terrible thing to lose. Securities class actions. Oh wait a second. If the outcome is is is is is is none of these ever. This, that's going to be a problem because it does serve as an effective check at least on some, on some on some of what boards try to do. Yeah, I think it's a deterrent. I think it's a deterrent that helps keep boards on us. I mean, I don't think the SEC. Even the SEC is repeatedly. Said, Congress has said everybody understands the SEC does not have the resources to police the, oh no, to write this is. So this is just how the US kind of system is evolved. Is that you need all these kind of, you know, private as opposed to government regulatory actions to try to keep companies in check. And I agree with you that that, you know, companies kind of bitch in my own about how bad this is, but, you know, they're bitching and moaning about Charlotte. There's, you know, doing some of the only stuff they have available to them. Rights. Yeah, and I'll just add the other. The other thing is that even if like if the stuff moves into arbitration, first of all, I don't know if it would be nearly as effective as a deterrent as class actions are but the other issue is the law. Doesn't develop like we don't see it, we don't have any insight into it. We don't know what's happening and we don't know what the legal standards are. I mean the laws just Frozen there and I think that's just bad. Just agree that you know, one reason we're talking about some of the advantages of Delaware is that they have developed over decades, a progressively more details and sensitive or whatever. Body of law, which is largely outside of statutes, all cases. And if we don't see any cases, you're right, it's going to sort of, you know, put all that development on hold and there's stuff to talk about, there's, you know, all sorts of new markets. And you know, there's all sorts of new things where there's going to need to be, you know, public stands on, you know how to mediate, you know, fiduciary duties and involving environment. And that's going to come to an end. Yeah. And that would be Unfortunate, that would be very soon. So speaking of coming to an end, I think, I think we should probably wrap this. Yes, I think that's a lot. I mean, we'll return to this when we first we should see that. The first case for the first by law Amendment. And we'll make a note, you'll probably put in your blog. Yeah, probably, you mention it in. I'm sure. I love Professor black. So, all right, cool. And I'll repost it. All right, let's as we said, we're gonna come to an end, we're wrapping up and and it's, it's been talking about this. Well, we'll return to it. Sometime soon. This is shareholder, Primacy hosted by Ann Lipton and me Mike Levin. I'm an independent activist investor and advisor to investors about their activist situations. And is Professor of Law and Lawrence W, demuth, chair of Business Law, at University Colorado, law school. You can find me Mike at the activist investor.com and Anne is at law.com colorado.edu. Our podcast is produced and distributed by free float media. Thanks for listening. We will see you again soon.