I spent some time digging into those anomalies and examining them through the lens of incomplete contracting theory. It’s now a short (less than 5000 word) article, which has been posted to SSRN:

Abstract

This article uses the ABA’s Private Target Mergers and Acquisitions Deal Points Study to interrogate a puzzle that I initially took for evidence of bad lawyering: the persistent presence of undefined or unaddressed terms in sophisticated acquisition agreements.

Post-closing purchase price adjustments, representation and warranty insurance exclusivity, exclusive remedy provisions, and—most strikingly—the material adverse change (MAC) clause itself are all, in a nontrivial share of deals, left silent or vague on questions that seem central to what the parties are bargaining over.

Rather than treat these gaps as drafting failures, I turn to the incomplete contracting literature to ask what work silence and vagueness might be doing. I show that the literature offers not one explanation but several, and that they are not mutually exclusive: strategic vagueness (Choi and Triantis), renegotiation-lever theory (Denis and Macias, Quinn), risk-allocation architecture (Gilson and Schwartz), delegation to a trusted forum—here, Delaware’s accumulated MAC jurisprudence—stickiness and agency costs in boilerplate drafting (Anderson and Manns), and “agreeing to disagree” (Ben-Shahar).

Using the MAC clause as the central case study, I argue that the ABA data, properly read, actually vindicates rather than falsifies the strategic vagueness account. Ninety-eight percent of deals nominally “define” a MAC, but the core standard remains circular—defining a material adverse change by reference to materiality—while drafting effort is instead concentrated in an increasingly long and specific list of carve-outs. That two-part architecture is exactly what strategic vagueness predicts: precision where it is cheap and valuable across every deal, vagueness where specification cost is better deferred to the rare tail event that actually triggers litigation.

I then examine two harder cases that resist easy assimilation to strategic vagueness: the small percentage of deals with no MAC definition at all, and the larger percentage silent on RWI exclusivity. I argue that the first is genuinely underdetermined by the frequency data alone, admitting of several competing explanations that happen to generate the same observable correlation. The second, by contrast, is better explained as a structural or signaling gap than as vagueness properly understood, since exclusivity is a binary allocation question rather than an open-textured standard.

The larger methodological payoff is a caution against reading deal-points frequencies as revealed-preference evidence of efficient design without further cross-sectional data on deal size, structure, and counsel sophistication—data the published tables do not provide, and without which efficient deferral and lawyerly inattention remain observationally equivalent.

Keywords: incomplete contracts, contract theory, mergers and acquisitions, acquisition agreements

But in mid-class I got to wondering about “agentic” AI. So, after class, I asked Claude “what tasks do agentic AIs commonly perform” and “do any of those tasks involve the AI buying or selling things on behalf of the user”?

Here’s what Claude said (AI generated):

Yes—commerce is one of the more actively developed (and more controversial) categories of agentic AI:

Shopping agents: some AI systems can search for products, compare prices, and complete a purchase on a retailer’s site given a budget or set of preferences (e.g., early versions of this have been piloted by various shopping assistants and browser-based agents).

Financial/trading agents: there’s experimentation with AI agents executing trades or rebalancing portfolios within pre-set rules, though this remains more constrained and heavily regulated than shopping use cases.

Booking and reservations: buying tickets, booking travel, or reserving services counts as a transaction-executing task and is a common target for agentic systems.

Business procurement: agents that place recurring orders (e.g., restocking inventory) based on preset thresholds.

That said, giving an AI agent the ability to actually spend money is treated with more caution industry-wide than read-only or draft-only tasks, since it involves real financial risk, authentication, and liability questions. Many current implementations stop short of full autonomy here—the AI might find options, compare prices, or prepare an order, but leave final confirmation of a purchase to the human.

“More caution” does not mean it isn’t happening. And a lot of that looks like the sort of stuff human agents do all the time.

So the question arises: If your AI agent signed you up to a contract, would you be bound by that contract in the same way you would be if a human agent had done so?

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Ms. Pringle recently posted the following at LinkedIn:

”Beloved”? My blushes.

And, yes, that is exactly my catnip. Corporate law as applied to religious entities has long been an intersection of my two main interests (sort of the flip side of my interest in theological implications for corporate law).

The Case: JCC v. Young

The case in question is Jeremiah Counsel Corporation v. Young.1 It arises out of a dispute at the Second Baptist Church of Houston (SBC), which is one of the largest churches in Texas. SBC is organized as a Texas nonprofit corporation, which means it is subject to the Texas Business Organizations Code. In turn, that places the legal regime in which the church operates within the framework of state corporate law, which became central to the dispute.

For decades, SBC operated under articles of incorporation originally adopted in 1928 and later amended in 1978, along with its bylaws. Under that governance structure, church members had meaningful voting rights. Among other things, members participated in decisions involving church leadership and changes to the church’s governing documents.

That structure changed significantly in 2023.

In May of that year, church leadership proposed amendments to both the articles and the bylaws. The congregation considered the changes at a May 31 business meeting and approved them by a vote of 315–2.

The amendments did much more than make minor adjustments to the church’s governing documents. The new bylaws eliminated member voting rights and replaced the existing board structure with a self-perpetuating Ministry Leadership Team (“MLT”). They also gave Senior Pastor Ed Young substantial influence over the MLT’s membership and succession, while placing broad authority over church assets in the hands of the MLT.

Jeremiah Counsel Corporation (“JCC”), an association made up of current and former church members, challenged the changes in court. JCC alleged, among other things, that church leadership had used the restructuring to consolidate control and had not adequately disclosed the effect of the proposed amendments before the vote. It also asserted violations of Texas corporate law, breaches of fiduciary duty, ultra vires conduct, and claims involving the allegedly improper transfer of a church asset known as The Winning Walk.

The Chancery Daily Takes Note

The Chancery Daily long has been my go to source for keeping up to date with developments in Delaware corporate law. Its daily email summary of decisions and filings is an essential resource.

With the rise of DExit and the concomitant growth in interest in Texas and Nevada corporate law, the perspicacious Ms. Pringle added a section that (with tongue firmly planted in cheek, I suspect) she calls Hinterlands Holdings, “highlighting nascent developments from business courts around the country.”

In August 18th’s Tuesday Texas Trailer report, she took note of four recent Texas Business Court decisions, including Young. She explained:

Plaintiff brought this action to challenge the 2023 Bylaws and the amendment to the Articles of Incorporation (together, the "2023 Amendments"). The TBC concluded as a threshold matter that it had the authority to determine the validity of the 2023 Amendments. The TBC concluded that, under the church autonomy doctrine, it lacked "neutral principles of law to be applied" and plaintiff's derivative-based claims of ultra viresacts, fraud, breach of fiduciary duty, civil conspiracy, tortious interference, and conversion were barred because defendants "acted in furtherance of the [c]hurch's religious mission and any judicial inquiry into the propriety of their choices would necessarily intrude upon the [c]hurch's right to structure its internal governance free from secular interference." The TBC also concluded that, while plaintiff lacked derivative standing, as an association of former and current members who lost their voting rights in the 2023 Bylaws, it possessed standing to bring direct claims. The TBC concluded that notices provided by the church made no mention of the Articles of Incorporation, invalidating this amendment, but that TBOC § 22.156(b) eliminated the written notice requirement (for churches) for meetings to amend bylaws. The TBC concluded that the 2023 Bylaws did not conflict with the Articles of Incorporation because the Articles did not specify who elected the trustees or expressly assign voting rights to members, leaving no basis on which to invalidate the bylaws.

Plaintiff also challenged the church's lawyer's conduct as legal counsel and later as a member of the Ministry Leadership Team. The TBC concluded that a challenge to conduct arising after joining the Ministry Leadership Team was barred by the church autonomy doctrine and plaintiff's lack of derivative standing. The TBC concluded that the court is expressly barred under Texas Government Code § 25A.004(h)(3) from exercising jurisdiction over claims rooted in alleged legal malpractice such as those arising from the lawyer's pre-appointment conduct.

The Big Question

The dispute ultimately raises a difficult question at the intersection of corporate law and religious autonomy: when a church chooses to organize itself as a corporation under state law, how far can a secular court go in enforcing the ordinary rules of corporate governance without crossing the line into the church’s right to govern its own religious affairs?

The Plan for Going Forward

I anticipate a total of four posts involving various aspects of this interesting case. In today’s post, I tee things up by discussing the various ways in which states have approached the question of incorporating churches and similar religious entities. In future posts, I will tackle the church autonomy issue, the corporate law issues bubbling under the surface, and finally some links to my prior work on incorporating religious entities.

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There’s a lot going on in Lipton’s article. Due to the space limits on the JCL response, I have been posting a series of additional comments here. I assume familiarity with those posts:

Lipton’s article depends heavily on these propositions:

1. Corporate authority requires visible social legitimacy.

2. Governance procedures serve symbolic as well as economic functions.

3. Shareholder welfare and public welfare sometimes diverge in ways external regulation does not adequately resolve.

In this post, I focus on the first proposition.

Lipton starts with a simple but important distinction: there is a difference between having legal power and having legitimate authority. Corporations may have the legal right to own property, hire workers, sign contracts, shut down factories, develop new technologies, influence elections, and decide how billions of dollars are spent. But just because corporations are legally allowed to exercise this kind of power does not automatically mean that society will continue to accept it without demanding greater political oversight.

For Lipton, legitimacy comes from a broader sense that corporate power is being used within reasonable boundaries and in ways that do not conflict with the public good. That does not mean corporations have to be popular, morally perfect, or simply follow the law. Instead, legitimacy depends on an ongoing public belief that the corporate system is worthy of acceptance, respect, and institutional protection. When that belief weakens, society becomes more likely to question corporate power and demand stronger limits on it.

In my response, I focus on the portions of Lipton’s article most directly relevant to the debate over DExit. But her legitimacy thesis also pertains to DExit. Specifically, her DExit story ultimately depends on a legitimacy mechanism rather than a conventional charter-competition mechanism. She is not primarily arguing that companies leave because Delaware law has become economically inefficient. She is arguing that polarization exposes the political content concealed within shareholder primacy, which in turn destroys Delaware’s ability to market its corporate law as politically neutral. Once that neutrality is lost, states can compete not merely on legal quality but on different normative visions of corporate governance, making DExit a structural threat to Delaware’s traditional dominance.

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On November 17, 2025, the Division announced that for the 2025–2026 proxy season (October 1, 2025 – September 30, 2026) it would not respond to no-action requests or express any views regarding companies’ intended reliance on any basis for excluding shareholder proposals under Rule 14a-8, except for no-action requests to exclude a proposal under Rule 14a-8(i)(1).

Longtime readers will recall that I covered that announcement in depth last year:

I concluded therein that:

It’s easy to imagine boards spending more time and money deciding whether to exclude a proposal and be less willing to exclude marginal proposals.

My sense is that that proved the case in this year’s proxy statements. As Drew Hutchinson reported Friday:

Friday’s update signals that companies and their investors will have to keep working out proposal disputes among themselves until the agency says otherwise, a process that during the 2026 proxy season involved an unforeseen amount of litigation.

In any case, the Division’s new announcement says that it is getting out of the no-action business entirely:

In order to focus Division resources on the review of Securities Act and Exchange Act filings, including those reviews that are statutorily required, for the protection of investors and facilitation of capital formation, and in light of the extensive body of guidance from the Commission and the staff available to both companies and proponents on Rule 14a-8, the Division has determined to discontinue responding to Rule 14a-8 no-action requests entirely, including those submitted under Rule 14a-8(i)(1), effective immediately, unless and until the Division announces otherwise. …

Companies will continue to be required under Rule 14a-8(j) to submit notices to the Commission containing the information required by the rule when they intend to exclude shareholder proposals from their proxy materials.

Hutchinson reminds us that:

The SEC is also reconsidering a federal rule requiring companies to include eligible investor proposals, which can deal with anything from shareholder rights to environmental and social programs, on their ballots.

Given the burden placed on companies by the Division’s decision to get out of the no-action letter business, the SEC needs to speed that process up. A lot.

If Chairman Atkins wants to know what I think, I refer him (and the interested reader) to my post:

In it, I explained that:

In order of preference, my reform proposals have been: Repeal > Private ordering,

But today I offer a third option: Relocation.

If we must have a shareholder democracy project, let’s move that project from Rule 14a-8 to 14a-4. I speak, of course, of the so-called zero slate proxy contest. …

… eliminating the shareholder proposal rule would not eliminate shareholder proposals. It would simply mean that a proponent would have the obligation to file a proxy statement and comply with the full panoply of proxy rules. To be sure, this would raise the proponent’s costs, meaning that proponents would need deeper pockets than the current de minimis cost system. But so what? A shareholder proponent ought to be willing to put its money where its mouth is.

Lastly, however, for my case for simply repealing Rule 14a-8, see this post:

Bainbridge, Stephen Mark, An Interest Group Response to The Legitimation of Shareholder Primacy (August 06, 2026). Available at SSRN: https://ssrn.com/abstract=7244362

ABSTRACT

This essay is forthcoming in the Journal of Corporation Law Online. It is an invited response to Professor Ann Lipton’s (Colorado Law) article, The Legitimation of Shareholder Primacy, 51 J. Corp. L. 83 (2025).

Lipton’s foundational thesis is that the exercise of corporate power requires social legitimacy. Shareholder primacy purports to provide the requisite legitimacy by constraining that power in politically neutral ways. Formal governance procedures make that constraint visible, but those procedures do not always align with shareholder value because they also serve social and symbolic purposes. When shareholder welfare conflicts with public welfare, corporate law must choose between them. The present highly polarized political environment has generated a series of controversies over issues such as the use of environmental, social, and governance (ESG) metrics in both management and investing, diversity initiatives, climate risk, Elon Musk’s immense compensation package, and directors’ oversight duties that have forced Delaware to make such choices. Delaware’s choices in recent years revealed that shareholder primacy and Delaware law are political after all. In light of those developments, Delaware’s traditional neutrality is now questioned, as its courts and legislature are accused of taking sides in national political disputes. That politicization helps drive the DExit phenomenon.

This article offers a complementary explanation. The phenomena Lipton identifies can be understood without treating them primarily as manifestations of shareholder primacy’s internal contradictions. They can instead be explained through a public-choice model in which the three principal producers of Delaware corporate law—the Delaware bar, the Delaware legislature, and the Delaware judiciary—act rationally to advance their own institutional interests. What Lipton describes as a crisis in the legitimation of shareholder primacy may therefore also be understood as the destabilization of an interest-group equilibrium.

Download link: https://ssrn.com/abstract=7244362

In the early 1900s, it was becoming increasingly common for companies to have two classes of common stock: one with full voting rights on a one vote per share basis, the other with no voting rights (but perhaps with greater dividend rights).

Although these disparate voting right capital structures were popular with managers (who tended to own the bulk of the voting shares), and investors showed a surprising willingness to purchase large amounts of nonvoting common stock, an increasingly vocal opposition emerged in the 1920s. Hence, the poem, which mocked the leftists of the day for opposing corporate capitalism, while largely ignoring the fine details of how corporate capitalism actually worked. (The New Masses was a Marxist journal of the day.)

William Z. Ripley, a Harvard professor of political economy, was the most prominent (or at least the most out-spoken) proponent of equal voting rights. According to Ripley, nonvoting stock was the “crowning infamy” in a series of developments designed to disenfranchise public investors. (You might say he was the Lucian Bebchuk of the day.)

William Z. Ripley

The opposition to nonvoting common stock came to a head with the New York Stock Exchange’s (NYSE) 1925 decision to list Dodge Brothers, Inc., for trading. Dodge sold a total of $130 million worth of bonds, preferred stock, and nonvoting common shares to the public. Dodge was controlled, however, by an investment banking firm, which had paid only $2.25 million for its voting common stock. In January 1926, the NYSE responded to the resulting public outcry by announcing a new position:

Without at this time attempting to formulate a definite policy, attention should be drawn to the fact that in the future the committee, in considering applications for the listing of securities, will give careful thought to the matter of voting control.

This policy gradually hardened, until the NYSE in 1940 formally announced a flat rule against listing nonvoting common stock. Although occasional exceptions arose, the most prominent being the 1956 listing of Ford Motor Company despite its dual class capital structure, the basic policy remained in effect until the mid-1980s.

In the middle of that epic decade—the era of Ronald Reagan, great music, and yuppiemobiles—we were experiencing a boom in hostile takeover bids. It was the era of corporate raiders, white knights, poison pills, and LBOs. Greed is good was the motto of the day.

So companies began trying dual class recapitalizations in which they created two classes of stock: typically a class with one vote per share and a class with ten votes per share. Through various ways, companies arranged things so that insiders held most of the super voting rights stock and outsiders held the lower voting rights stock. If successful, the dual class recap would leave the insiders with voting control. The ultimate takeover defense. Insiders who cannot be outvoted, after all, cannot be ousted.

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Today’s is just a short post driven by a pet peeve of mine.

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The service, branded Truth API, is designed to push posts from Truth Social's highest-profile accounts to paying subscribers in near-real time, the company said. Trump Media has discussed charging up to $100,000 a month for access, with a reduced rate of $60,000 a month for firms committing to a three-year agreement, according to NBC News. …

“Markets already move on Truth Social posts,” interim CEO Kevin McGurn said in a statement. “Truth API delivers a direct, licensed, real-time feed of the platform’s most market-moving Truths while advancing our strategy to monetize proprietary assets through a high-margin, recurring revenue stream.”

Specifically, Truth API will make available early access to posts from Truth Social's ten most-followed accounts, including Trump's own.

The early access will only be on the order of milliseconds, according to Eciks, but that’s enough time for high speed traders to get a potential edge over retail and even many institutional investors.

Critics charge that this amounts to insider trading. Again, from Eciks:

Democratic Senators Elizabeth Warren and Adam Schiff sent a letter to the SEC on July 29 calling Truth API “an outrageous abuse of the President’s office for his personal benefit that undermines everyday investors and the integrity of our markets.” They asked SEC Chair Paul Atkins to investigate whether the service violates laws prohibiting insider trading and market manipulation before its August 1 launch.

Renée Jones, a Boston College professor and former top SEC official, told NPR that the paid offering appears to run afoul of insider trading laws. “If the president’s Truth Social posts are being monetized, and if some people get special access to them, that’s misappropriated information,” Jones said. “By giving people his posts early, he is also violating his duty of trust and confidence.” She cited the 2012 Stock Act, which prohibits members of Congress and the executive branch from trading stocks based on privileged information.

So are the critics right?

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Ann Lipton

Lipton’s central thesis is that the present era’s profound political polarization has driven a politicization of corporate governance. In turn, that politicization has exposed a contradiction inherent in the foundational norm of corporate law; i.e., the principle of shareholder value maximization. In its turn, the exposed contradiction has exposed the flaw in Delaware’s claim that it offers “a distinctively nonpartisan, technocratic approach” to corporate law. In its turn, that exposure has contributed to DExit.

There is a LOT going on in Lipton’s article. Among her claims are that:

• Corporate power must be perceived by society as legitimate.

• In order for corporate power to be regarded as legitimate, that power must be deployed to “prosocial” ends.

• Prosociality maps with the progressive left conception of stakeholderism.

• Shareholder primacy was invented to solve a political dilemma.

  • Relatedly, that shareholder primacy was never apolitical and that recent developments have brought that reality into the light of day.

• Corporate governance rules are at least partly symbolic, being intended to make corporate power appear professional, accountable, and socially legitimate.

All of which strike me as interesting and, in many cases, contestable. Certainly worthy of discussion.

With a cap of around 7,000 words on the response, however, space will not allow me to address all of those debates therein. Instead, my response for JCL will focus on the relevance of Lipton’s arguments for the ongoing DExit debate.

But, it occurred to me, I have a Substack. So, I plan a series of posts here commenting on other aspects of Lipton’s claims.

Herein, however, an overview of Lipton’s article.

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Earlier this month, Chairman Atkins gave a speech to the Society for Corporate Governance in which he explained the need for major reform of the SEC’s disclosure regime:

Years of accretive rulemakings—some eliciting immaterial information—have produced reams of paperwork that can do more to obscure than to illuminate. As Justice Thurgood Marshall once warned, “Some information is of such dubious significance that insistence on its disclosure may accomplish more harm than good. Bury[ing]…shareholders in an avalanche of trivial information [is] a result that is hardly conducive to informed decision making.”

As investors struggle to parse and understand—or choose to simply ignore—today’s lengthy annual reports and proxy statements, companies also incur substantial costs to prepare those documents. These costs are financial, of course, but temporal no less—composed not only of fees for armies of specialized lawyers, accountants, and consultants, but also the opportunity costs resulting from significant use of boards’ and management’s time.

In remarks, Atkins framed the project as one of restoration rather than reinvention. He argued that the SEC should return to “first principles”—namely, materiality as the foundational principle of federal disclosure law—rather than continue down the path of “accretive rulemakings” that often elicit “immaterial information.” He proposed operationalizing that process via a “materiality overlay” for Regulation S-K, which would let companies omit line-item disclosures that are not material to their business, and, more broadly, being open to principles-based rulemaking in place of prescriptive, one-size-fits-all line items.

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For the benefit of those who missed that post, herewith a brief recap: About fifteen years ago, David Sokol was widely considered the most likely successor to Warren Buffett as chief executive of Berkshire Hathaway Inc. In March 2011, however, Sokol suddenly resigned. In the wake of that action, Buffett released a statement announcing that Sokol’s departure came after it was discovered that Sokol had purchased stock in a petrochemical company called Lubrizol shortly before Stokol proposed that a Berkshire energy subsidiary, of which he CEO, acquire Lubrizol.

In this post, I turn to the corporate governance aspect of the case. Specifically, the way in which Berkshire went out of its way to protect the image of the man known as “Saint Warren of Omaha.”

It’s been said of Buffett that:

Over the course of his long and extremely lucrative career, Buffett has built a reputation for himself as a paragon of integrity and virtue, and the annual meeting of his company’s shareholders has come to resemble a sort of beatification ceremony, if you can imagine a religion in which the same person is beatified year after year.

The way Buffett handled the Sokol matter was not very saintly. Indeed, back in the day, Andrew Frye quoted yours truly about the Sokol drama:

“They’re throwing Sokol under the bus,” said Stephen Bainbridge, a professor at the UCLA School of Law who has written and taught about corporate governance.

Why did I say that? Keep reading.

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For the benefit of those who missed that post, herewith a brief recap: About fifteen years ago, David Sokol was widely considered the most likely successor to Warren Buffett as chief executive of Berkshire Hathaway Inc.

In March 2011, however, Sokol suddenly resigned. In the wake of that action, Buffett released a statement announcing that Sokol’s departure came after it was discovered that Sokol had purchased stock in a petrochemical company called Lubrizol shortly before Stokol proposed that a Berkshire energy subsidiary, of which he CEO, acquire Lubrizol.

Specifically, between January 5 and January 7, 2011, Sokol purchased approximately 96,000 Lubrizol shares for about $104 each. He first recommended the acquisition to Buffett around January 14 and raised the idea again later that month after meeting with Lubrizol’s chief executive.

On March 13, Berkshire’s board approved an offer to purchase Lubrizol for $135 per share. Sokol later sold his shares, making a profit of roughly $3 million. After the transactions became public, he resigned from Berkshire. Buffett initially stated that he did not believe Sokol had violated the law. However, he later described Sokol’s behavior as both “inexplicable” and “inexcusable.”

In the earlier post, I explained why I thought—and still do—that Sokol had not committed insider trading in violation of SEC Rule 10b-5. I also dug into whether Sokol had violated the state law doctrine against usurping corporate opportunities. (Berkshire is incorporated in Delaware, so per the internal affairs doctrine Delaware law governs fiduciary duty disputes involving Berkshire employees and directors.)

In this post, I turn to the question of whether Sokol breached his state law fiduciary duties to Berkshire under the Brophy line of cases, the agency law issues, and the federalism issues.

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You’ll notice that a recurring theme is trying to figure out why negotiators kick the can down the road by failing to define or otherwise specify what strike me as really important terms. It seems like an open invitation to subsequent disputes and litigation.

Purchase price adjustment provisions have become increasingly common in private deals. In 2006, for example, they were used in 68% of private company acquisitions. By 2019, they were being used in 95% of such transactions, although their use fell off to 90% in 2024-25. Was the drop between 2019 and 2025 random variance or driven by some market force?

In 2024-25, 12% of private company acquisition agreement post-closing purchase price adjustment provisions called for the use of GAAP in preparing the closing balance sheet, 10% for GAAP consistent with past practices, 32% for GAAP with specific modifications, 6% were silent, and 40% specified some other accounting method. ABA 2025 Private Deal Survey at 15. The relatively large number of deals that are silent on the point is somewhat puzzling, as it would seem to invite disputes.

The percentage of deals providing for a separate escrow for the purchase price adjustment has fluctuated over time, ranging from 23% in 2006 to 35% in 2010 to 25% in 2014 to 51% in 2018–19 50 58% in 20924-25. ABA 2025 Private Deal Survey at 16. Where a separate escrow was used, the percentage of deals providing for the escrow to be the sole source for making the purchase price adjustment, which effectively acts as a cap on the size of the adjustment, rose from 11% in 2016-17 to 42% in 2024-25. Id. What drove that increase?

Prior to 2008, less than 89% of private deals included a provision making indemnification the buyer’s exclusive remedy. Between 2008 and 2021, the percentage of such deals with an exclusivity provision rose into the >90% range, topping out at 87% in 2020-21. In 2022-25, the percentage fell back to 89%. Oddly, in the 2004 to 2025 period, the percentage of deals that were silent on the issue ranged from a low of 1% (2020-21) to a high of 14% (2004), with 6% being silent in 2024-25. ABA 2025 Private Deal Study at 112. It seems odd that such an important issue would be left unresolved, as it seems to invite litigation.

Why do some people write it as “earn-out” and some as “earnout”? I prefer the latter, but have been seeing the former in a bunch of recent cases and agreements. The ABA study uses earnout.

Material adverse change qualifiers are almost universal. Between 2006 and 2025 , the lowest percentage of deals including a MAC was 92% in 2008. In 2024-25, 99% of deals did so. ABA 2025 Private Deal Survey at 26. Curiously, a small percentage of deals contain MAC qualifiers but fail to define the term. See id. (2% of deals in 2022-23). Why would you leave such a critical term undefined?

In 2024-25, 21% of indemnification clauses in private company acquisition agreements included eligible claim thresholds. ABA 2025 Private Deal Study at 99. The percentage of deals with such thresholds has fluctuated widely over the years. The low during the ABA study period was 18% in 2006, while the high points were 39% in 2018-19 and 38% in 2014 and 2020-21. Id. Why so much variation from year to year?

In the ABA study, 28% of agreements that referenced RWI provided for the insurance to be the sole remedy but only for non-fundamental representations and warranties. Forty-six percent provided for it to be the sole source of recovery for all representations and warranties. Eight percent expressly said it was not the sole source of recovery, 11% permitted separate recovery for specified representations and warranties, and 7% were silent. ABA 2025 Private Deal Study at 125. The significant percentage of deals that are silent on such an important question is puzzling as it simply kicks the can down the road for future dispute resolution.

In 2024-25, 11% of private deals provided that the aggrieved party was entitled only to the termination fee and was expressly not allowed to seek specific performance. In 66& of deals, the agreement allowed the aggrieved party to seek either the termination fee or specific performance but not both. A surprising 23% of deals were silent, despite the seeming importance of this issue. ABA Private Deal Study at 24. Once again, why are they kicking the can down the road?

Share Bainbridge on Corporations

It elicited a response from Francine McKenna of the estimable Substack The Dig.

The Dig

Francine McKenna digs into accounting, audit, and corporate governance issues at public and pre-IPO companies.

By Francine McKenna

Ms. McKenna commented:

I’d love for you to go back and analyze the Sokol case with this framework

For those who weren’t in the biz in 2011 and/or have forgotten, back in 2011 the WSJ reported that:

David Sokol, widely seen as the leading contender to succeed billionaire Warren Buffett at the helm of Berkshire Hathaway Inc., defended himself Thursday morning after resigning unexpectedly amid surprising revelations about his personal stock trading.

In an unusual and personal announcement Wednesday evening, Mr. Buffett said the resignation followed revelations that Mr. Sokol had purchased roughly $10 million in shares of a chemicals company that Berkshire recently agreed to buy at the suggestion of Mr. Sokol, Lubrizol Corp.

“I don’t believe I did anything wrong,” Mr. Sokol said in an interview on CNBC. “I don’t think you can ask executives not to invest their own families’ capital.” ...

Mr. Buffett said Mr. Sokol, 54 years old, had bought 96,060 shares in January, before Berkshire reached a $9 billion deal to acquire the company. Berkshire’s purchase price of $135 per share meant that Mr. Sokol’s stake rose $3 million in value. ...

Securities lawyers debated whether Mr. Sokol’s dealings could fallinto a gray legal area. In broad terms, insider trading laws prohibit individuals from trading on shares based on material nonpublic information in violation of some duty of trust.

Basically, Sokol planned to pitch Buffett on having a Berkshire energy subsidiary (of which Sokol was then CEO) buy Lubrizol, a chemical company in the petrochemical space.

On December 13, 2010, Sokol met with Citigroup bankers to discuss possible takeover targets. Sokol reportedly expressed interest solely in Lubrizol. A Citigroup banker subsequently informed Lubrizol management of Sokol’s interest.

Between January 5 and 7, 2011, Sokol bought 96K shares of Lubrizol stock at prices in the $104 range. He pitched the acquisition to Buffett on or about January 14th and again in late January after a meeting with Lubrizol’s CEO.

On March 13, Berkshire’s board approved an offer for Lubrizol at $135 per share. Somewhere around that time, Sokol cashed out, earning a profit of around $3 million. When that came to light, Sokol resigned from Berkshire.

Buffett initially said he did not believe Sokol had broken the law, but later said he found Sokol’s conduct "inexplicable" and "inexcusable."

But was it illegal?

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[LeBron James] announced Tuesday that he will be playing a record 24th NBA season, but it won’t be with the Los Angeles Lakers. …

A panel of The Athletic’s reporters then debated where LeBron should sign. Jason Jones opined:

Sentiment says Cleveland, but if money isn’t a concern, go to the Knicks.

If this is about a chance to win another championship, why not go with the defending NBA champions? Mike Brown was the first coach to reach the Finals with James, so finishing his career with a season with Brown would be some Lifetime movie-type stuff that’s perfect for television. I also believe getting out of the Western Conference and away from OKC and San Antonio gives James the best chance to return to the Finals.

Given LeBron’s reported net worth of $1.3 billion, money should not be a concern.

I hope LeBron does chose the Knicks, because the mere possibility calls to mind one of my favorite set of insider trading hypotheticals.

The NY Knicks are owned by Madison Square Garden Sports Corporation, a NYSE listed company (MSGS). It is a reporting company and, as such, a public corporation.1

So let us consider several hypotheticals:

1. LeBron firmly intends to sign with the Knicks if they make him an offer, but the Knicks have not yet done so. LeBron buys MSGS stock.

2. The Knicks have made LeBron an offer, which he firmly intended to accept. LeBron buys MSGS stock.

3. The Knicks have made LeBron an offer, which he has accepted. LeBron buys MSGS stock.

In each case, LeBron’s purchases of MSGS stock occurred before any public announcement of his intentions and/or actions. In each case, LeBron subsequently signed with the Knicks and MSGS’ stock price jumped in response to the news. LeBron then cashed in.

Has LeBron violated the federal insider trading rules under SEC Rule 10b-5?

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On his old blog, Keith Paul Bishop noted that:

California’s statutory provisions pertaining to unincorporated associations can be found in Title 3 of the Corporations Code. Part 3 of Title 3 is devoted to criminalizing various activities on the part of directors, officers and agents of joint stock associations. Nowhere, however, Part 3 define what constitutes a joint stock association. Nor does it appear that there are any decisions citing these statutes. The mystery of what exactly constitutes a joint stock association is deepened by the existence of other provisions within the Corporations Code that refer to joint stock companies (e.g., §§ 5065, 25013, and 29514). Is a “joint stock association” a “joint stock company” by another name or an entirely different entity?

According to a 1916 law review article, a joint stock association at common law was “a group of individuals organized for certain purposes into an association similar to a partnership, but, unlike a partnership, having a capital stock divided into shares transferable by the owner”. I. Maurice Wormser, The Legal Status of Joint Stock Associations, 3 Fordham L. Rev. 1 (1916).

BTW, If you’re a fellow corporate law maven with an interest in California and, importantly given DExit, Nevada corporate law, I strongly encourage you to subscribe to Keith’s Substack:

Calcorporatelaw.com

I am a former California Commissioner of Corporations, retired corporate and securities lawyer, legal writer and commentator, and law school instructor.

By Keith Paul Bishop

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More recently, we covered the successful effort to get a bill through the Hawaii legislature:

I freely concede that I’m not a constitutional law expert, although I did get A’s in both Con Law I and Con Law II, albeit 40+ years ago. But the good folks at the Institute for Free Speech know more than a little something about the constitution and they have filed a lawsuit seeming to have the Hawaii statute declared unconstitutional.

• Main IFS webpage on the law suit

• Detailed explanation of their arguments

• Copy of the Complaint

In brief, IFS argues that:

• It punishes people for joining together: Americans have a constitutional right to join together through nonprofits and other associations to advocate for causes that matter to them.

• It is unconstitutionally vague: key provisions leave organizations guessing where lawful advocacy ends and prohibited activity begins.

• It picks favored speakers: by exempting the institutional press while gagging everyone else, the government selectively decides who enjoys First Amendment rights.

I don’t deny hoping they’re right. As I observed in an older post about Citizens United:

I come down squarely on the side that worries about government regulation of core political speech and thinks that the First Amendment should be applied with strict scrutiny to such laws.

Even when somebody makes an all too clever argument for doing indirectly what they can’t do directly.

But, as we used to say back when the internet was young, YMMV.

Under Delaware law, except for the City of Wilmington, municipal voter eligibility “shall be as specified within the town charter; provided however, that in no event shall a municipality impose a durational residency requirement in excess of 30 days.” In 2008, the General Assembly amended Fenwick’s Charter to provide, in pertinent part:

(2) Non-residents: Every property owner as of March 1 prior to the annual municipal election, whether a natural person or artificial entity, including but not limited to corporations, partnerships, trusts, and limited liability companies, and who is registered to vote, if provided by ordinance, shall have one vote. A natural person shall be a citizen of the United States and age 18 on or before the date of the election. An artificial entity shall be a domestic entity in the State of Delaware.

(3) These provisions shall be construed in accordance with the principle of “one person/entity, one vote.” Where a voter is entitled to vote by virtue of being both a resident and as an owner of real property, that voter shall be entitled to only one vote; where a voter is entitled to vote by ownership of two or more parcels of real property, that voter shall be entitled to only one vote.

(4) Any legal entity other than a natural person entitled to vote, must cast its vote by a duly executed and notarized power of attorney from the legal entity granting the authority to cast its vote to its designated attorney-in-fact. ...

The ACLU sued, claiming that the charter thus violated the Elections Clause of the Delaware Constitution, which simply states: “All elections shall be free and equal.”

Judge Karsnitz of the Delaware Superior Court granted Fenwick Island’s motion to dismiss for failure to state a claim, finding that:

Visions of faceless large corporations or even HAL, controlling a small town are frightening and the stuff of science fiction. However, Plaintiff has not demonstrated that this policy violates the principle of one person/entity/one vote.

Predictably, this produced great consternation among the usual suspects on X.2

I pointed out that these concerns were overblown:

Proving once again that the Delaware legislature is not immune to X-spawned hysteria, however, some Delaware legislators have rushed to propose a constitutional amendment that would permit only natural persons to vote in any Delaware election.

So let’s think about this a bit.

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In that post, we also took a deep dive into a paper by my friend and UCLAW colleague Fernan Restrepo, which explored whether the lower court decision finding that an implied private right of action exists had generated an increase in shareholder activism.

The Supreme Court today announced its decision, finding by a 6-3 vote that § 47(b) of the ICA does not impliedly empower private parties to sue for rescission of contracts that allegedly violate the Act. (Link to Opinion)

The result is a bit surprising, because the oral argument seemed to favor the plaintiffs’ argument that an implied private right of action exists.

Share Bainbridge on Corporations

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