Sunday, July 25, 2010

Proxy Contests and the Dodd-Frank bill

Back in the 1980s, hostile corporate takeovers received a lot of attention, and several states decided that they ought to protect their homegrown corporations' managers from outsider threats.

Naturally, these laws were themselves challenged on the ground that they impinged upon federal jurisdiction, either as actually expressed in federal statute or in more dormant form.

But the Supreme Court of the United States upheld one such law, and upheld the bunch of them by implication, in a case arising out of Indiana, CTS Corp. v. Dynamics Corp. (1987).

The Dodd-Frank bill, which contains several provisions that speak to proxy contests, represents the continuing federalization of the field. So, is CTS Corp. v. Dynamics still good law? Or is it ripe for a challenge?

Here is a related discussion by Professor Bainbridge, written just before Dodd-Frank became the law of the land.

Bainbridge quotes in that blog post an article he wrote in 2003, with the then-new Sarbanes-Oxley Act in mind. At that time, he said: "No one seriously doubts that Congress has the power under the Commerce Clause to create a federal law of corporations if it chooses. The question of who gets to regulate public corporations thus is not one of constitutional law but rather of prudence and federalism. In this essay, I advance both economic and non-economic arguments against federal preemption of state corporation law. Competitive federalism promotes liberty as well as shareholder wealth."

Possibly it does. But at some point the duplicative regulation by both feds and states becomes itself enough of a drag that the gains one might get from "competitive federalism" are lost. It is at this point that preemption is supposed to kick in.

After Sarbanes-Oxley, and now after Dodd-Frank: are we there yet?

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