Thomas E. Rutledge, Stoll Keenon Ogden PLLC
Quis custodiet ipsos custodes? - Juvenal, Satire VI, lines 347–8 (“Who will watch the watchers?”)
Unlike the Kentucky statutes governing business corporations, limited partnerships and statutory trusts, both the Kentucky Limited Liability Company Act and the Kentucky Nonprofit Corporation Acts are silent as to the requirements for “derivative actions” brought on behalf of the LLC or corporation by a member or other constituent thereof. Some have suggested that this absence indicates that derivative actions do not exist in those organizational forms, positing, it would seem, that it is the statute governing derivative actions that gives rise to the actions. This assessment is incorrect, and, presumably, arises out of a misunderstanding of the basis for derivative actions. In fact, the derivative action is a question of equitable standing that was later, in certain contexts, reduced to statute. It does not follow, therefore, that there are not derivative actions in LLCs and nonprofit corporations consequent to the failure of the statute to provide for them. Rather, equity will provide the rules applicable when the organizational statute does not specify the rules governing derivative actions.
While the analysis here explicated is equally applicable in the context of any business entity organizational statute lacking an express derivative action enabling statute, this presentation will focus upon the nonprofit corporation. That said, there appears to be implicit acceptance in Kentucky of LLC derivative actions.
This article will begin by reviewing a New York Court of Appeals case which held that derivative actions exists with respect to LLCs organized in New York notwithstanding the silence of the state’s LLC Act as to derivative actions. This article will then turn to a series of Kentucky decisions as to derivative actions in corporations at a time when the related corporate statutes were silent as to derivative actions. Collectively, these decisions stand for the proposition that derivative actions both pre-exist and exist independently of a statute authorizing derivative actions. From there, the article will discuss a pair of issues as to the necessity of affording derivative actions even where statutes are silent. The first of these is the necessity of a mechanism by which the venture’s rights may be enforced over the contrary actions of those then exercising control over it. Second, as a federal court in diversity may entertain a derivative action pursuant to its equitable jurisdiction, the point is made that it would be curious to deprive those who cannot act on a derivative basis the same rights. The next portion of the article will review a number of decisions of foreign courts that have considered the question of derivative actions in nonprofit corporations absent a statute thereon. The discussion will then review seriatim various aspects of derivative actions as they now exist in statute and ascertain whether or not similar requirements exists under Kentucky’s equity-based derivative action precedents. Last, this article considers who may exercise equitable standing in nonprofit corporations to initiate a derivative action. [...]
“FAIR”ness and Forfeiture: New Bill and Justice Department Order Seek to Reign in Controversial Police Practice
Matt Dearmond, KLJ Staff Editor
A thirty-year federal policy may be coming to an end, and to the pleasure of Fifth Amendment advocates. On Tuesday, January 27, Senator Rand Paul (R-KY) reintroduced a bill known as the Fifth Amendment Integrity Restoration (FAIR) Act that would greatly limit law enforcement’s ability to seize the assets of individuals without a warrant or charging them with a crime, and redirects proceeds from these “civil asset forfeitures” to the Treasury Department’s General Fund. This bill comes less than two weeks after departing Attorney General Eric Holder announced that local and state police would be barred from using federal law to seize cash, cars and other property without warrants or criminal charges, using a Justice Department program known as “equitable sharing.” [...]
Tragedy of the Commons in Public Health: Eliminating Religious and Personal Belief Exemptions to Compulsory Vaccinations
In only the first month of 2015, the United States has already had more cases of measles than the number typically diagnosed in an entire year. The outbreak, which began with forty diagnosed people at Disneyland in December, has now spread to at least six other states. However, this current outbreak is not the largest in United States history. Only months earlier, 383 people fell ill with measles in Ohio’s Amish Country. For a disease that was declared eliminated in 2000, how and why has measles returned in such an unprecedented fashion? [...]
Mary Katherine Kington, KLJ Staff Editor
In January, state senator C.B. Embry, Jr. (R-Morgantown) introduced a bill in the Kentucky legislature that could dictate which restroom transgender students must use while at school. Senate Bill 76, also known as the Kentucky Student Privacy Act, would require “students born male to use only those facilities designated to be used by males and students born female to use only those facilities designated to be used by females.” The school facilities listed include restrooms, locker rooms, and shower rooms that are accessible to multiple students. [...]
Class action claims for unpaid wages have become pervasive in both state and federal courts. Plaintiff employment attorneys and the ever burgeoning class action law firms are filing these cases throughout the country, including in Kentucky. A wage and hour class action can be extremely lucrative from a financial standpoint for plaintiffs’ counsel. Many of these classes include hundreds, if not thousands, of class members. Assuming a one-third contingency fee, a plaintiff counsel who settles a typical wage and hour class action could easily earn a seven-figure fee.
The federal wage and hour law, the Fair Labor Standards Act (“FLSA”), provides for a class mechanism for wage claims – collective actions. However, individuals must “opt in” to the “class,” as opposed to the more traditional “opt out” class actions. Under 29 U.S.C. § 216(b) of the FLSA, a member of the class who is not named in the complaint is not a party unless he or she affirmatively “opts in” by filing a written consent-to-join with the court. This has the obvious effect of limiting the recovery pool. Recent statistics show only around fifteen percent of litigants in federal collective actions actually “opt in” to the litigation. The incentive for a plaintiff counsel to proceed in a state law class action – as opposed to a collective action under the federal law that requires litigants to affirmatively “opt in” to the case – is extremely high.
Fortunately, for many members of the plaintiffs’ bar who practice wage and hour cases, most states supplement the basic protections of the FLSA with their own wage and hour laws. Some, but not all of these state laws, permit the class action device. For instance, several state wage and hour statutes explicitly permit an action to be brought on behalf of others. The wage and hour statutes in other states provide more general language that does not authorize, nor preclude, the use of the class action device. In this situation, state courts will typically approve of the class action device. In those cases, plaintiffs are basically limited to the remedy provided under the FLSA. [...]
So you want to make a movie portraying the life of arguably the most famous civil rights leader and orator in American history, Dr. Martin Luther King Jr. Where do you start? If your thought was to look to Dr. King’s speeches and find an actor who can deliver them with the same emotion and power as Dr. King, not so fast.
During production one of the most acclaimed movies of 2015, Selma, Director Ava DuVernay had to deal with a unique intellectual property issue that many would not think of. Dr. King’s speeches are protected by copyright law and cannot be used without paying a licensing fee to Dr. King’s estate. The film is being hailed as one of the best movies of 2015, having been nominated for dozens of awards. Furthermore, it is monumental in the fact that it is one of the first movies to portray Dr. King as a main character. Yet Ms. DuVernay cannot use Dr. King’s speeches. Why? [...]
The War on Drug Makers: Kentucky’s New Angle to Hold Big Pharma Accountable Draws on Successes Against Big Tobacco
Katy Meyer, KLJ Staff Editor
While Kentucky may be nationally renowned for its basketball, bourbon, and horses, it has also achieved infamy on the national stage for its continued struggle with prescription drug abuse and addiction. To combat this epidemic, Kentucky legislators and government officials have been forced to take new, and often creative, steps. One example of this is Kentucky’s lawsuit against Purdue Pharma, L.P. [...]
Andrea Reed, KLJ Staff Editor
A case for giving basic human rights to nonhuman primates is making its way through the New York court system.
On December 18, 2014, the Nonhuman Rights Project (NhRP) filed a motion for permission to appeal their case to New York’s Court of Appeals on the heels of the New York State Appellate Court, Third Judicial Department’s, ruling that Tommy the chimpanzee “is not a ‘person’ entitled to the rights and protections afforded by the writ of habeas corpus.” [...]
M. Caitlin Gallaher, KLJ Staff Editor
Whether it was your favorite football team growing up, your alma mater, or any game that happened to be on the TV, collegiate sports have been ingrained in the American way. But has the time come for us to stop considering the players’ student athletes, and instead refer to them as employees of their respective schools? [...]
Mark Roth, KLJ Staff Editor
This past week, the hotly debated issue of the use of police force has, again, captured the nation’s attention. An Albuquerque, New Mexico district attorney has chosen to bypass the grand jury process and, instead, present murder charges to a judge at a preliminary hearing in an event involving two police officers who shot and killed a knife-wielding homeless man in New Mexico. This decision occurred while police tactics remain under intense review nationwide following the fatal shooting of an unarmed 18-year-old in Ferguson, Missouri, and the chokehold death of another unarmed man in New York City. In both cases, grand juries declined to charge the officers, sparking intense protests and debates across the nation about the use of excessive police force. While this easily could have been another case of a police related death without enough evidence to bring formal charges, a police body camera that captured the whole confrontation gave the prosecutor enough evidence to file formal charges. At this stage, the judge still must decide if, based on the evidence, the case may proceed. But, even if the judge does allow the case to proceed, the prosecutor faces an uphill battle as the standard of what constitutes force weighs heavily in favor of police officers. So, whether this will usher in a new era of increased prosecutions of cops as a result of wearable cameras remains to be seen. [...]
Chuck Krebs, Sixth Circuit Blogger
In breaking news today the Supreme Court granted the writ of certiorari for four cases regarding same-sex marriage, including one out of Kentucky. The four cases have been consolidated and limited to two constitutional questions.
Namely, (1) does the Fourteenth Amendment require a state to license a marriage between two people of the same sex? And, (2) does the Fourteenth Amendment require a state to recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out-of-state? [...]
Joey Kramer, KLJ Staff Editor
The week before Thanksgiving, NBA Commissioner Adam Silver made headlines when he became the first commissioner in the history of the major sports leagues – the NBA, NFL, MLB, NHL, and NCAA – to openly support sports gambling in the United States. In an essay published in the New York Times, Silver wrote, “I believe that sports betting should be brought out of the underground and into the sunlight where it can be appropriately monitored and regulated.” [...]
Delaware – the hotbed for business incorporation – got it wrong. In In re Walt Disney Co. Derivative Litigation, the Delaware Supreme Court reviewed a corporate decision on the compensation owed to the Walt Disney Company chief executive by presuming the disinterestedness of the corporate decision-makers. The Court’s opinion wrongly applied the forgiving business judgment rule where it should have scrutinized the Disney directors’ decision on executive compensation under a less deferential standard that recognizes directors’ interest in decisions affecting executive compensation.
The business judgment rule presumes that corporate directors decide upon reasonable informedness, in good faith, and disinterestedly (independently). Where a plaintiff shareholder cannot rebut any of the business judgment predicates, Delaware courts measure the rationality between the directors’ decision and the entity’s interests. The presumption accords considerable deference to directors’ decisions. It ignores, however, considerable evidence and practical understanding that directors decide the compensation of their executives interestedly. [...]
Joseph J. Sherman and Kirby Stephens, KLJ Staff Editors
Last Tuesday marked nurse Kaci Hickox’s twenty-first asymptomatic day since her last exposure to an Ebola patient. The day also officially ended her monitoring period as set up in a settlement with the State of Maine and the Maine Department of Health and Human Services. The terms of her monitoring had included among other conditions: (1) direct active monitoring; (2) coordinating her travel plans with public health officials; (3) avoiding the use of public transportation; (4) avoiding congregate public places and workplaces; and (5) “maintain[ing] a 3-foot distance from others when engaging in non-congregate public activities.” While Nurse Hickox, her family and loved ones, as well as the general public, are certainly breathing a sigh of relief, her story has sparked a national debate over the advisability and constitutionality of quarantining health care workers who came into contact with Ebola patients. [...]
Kirby Stephens, KLJ Staff Editor
Last week, the Sixth Circuit finally ruled on the same-sex marriage cases before it and upheld the bans from Kentucky, Michigan, Ohio and Tennessee by a two to one vote. Though it began its opinion by noting that the recognition of gay marriage seems almost inevitable, the two-judge majority expressed concern that the issue should be more properly addressed through the democratic process. [...]
Joseph J. Sherman, KLJ Staff Editor
In early October 2014, Brittany Maynard captured the attention of Americans when she announced her intention to end her own life in response to her cancer diagnosis. Maynard was a California woman who was diagnosed with terminal glioblastoma. However, since California prohibits physician-assisted death, she and her family made the difficult decision to move to Oregon, where she could legally seek such medical care. On November 1, 2014, Maynard carried out her plan to end her own life by taking a lethal dose of barbiturates prescribed by her doctor. Her choice to end her own life, rather than to let her tumor take its natural course, has generated a great deal of controversy about physician-assisted death, which is also referred to as “Death with Dignity” (hereinafter “DWD”). Is it beneficent to promote an early death for the terminally ill to prevent pain and suffering? Do we overextend our role in medicine when death becomes a prescription? What implications do DWD laws have on the future of end-of-life care? [...]
Taylor Poston, KLJ Staff Editor
Due to a revision in their school’s wellness policy, students at Burlington Elementary School will no longer be able to have food at birthday celebrations. The school decided to change its policy, in part, to comply with federal guidelines. Parents and school officials said that it was not an easy decision to ban the treats, but practically, it would better serve the students and their learning environment. [...]
United States v. Kentucky Bar Association: In a Case Drawing National Attention, the Kentucky Supreme Court Addresses the Ethics of Waivers of Ineffective Assistance of Counsel in Plea Bargains
B. Scott West, General Counsel for the Department of Public Advocacy
In an opinion that is creating ripples throughout the country with respect to the ethics of criminal plea bargaining, the Kentucky Supreme Court in United States v. Kentucky Bar Association affirmed Kentucky Bar Association (“KBA”) Advisory Ethics Opinion E-435 to be a correct statement of the Kentucky Rules of Professional Conduct. That advisory opinion stated that it was a concurrent conflict of interest for a criminal defense attorney to advise a client whether to accept a plea bargain which contained a prospective waiver of a claim of ineffective assistance of counsel (IAC) against that attorney, and that likewise it was a violation of the rules for a prosecutor to induce or assist an attorney to violate the Rules of Professional Conduct by including such a waiver in an offer on a plea of guilty.
The outcome of the case is significant, given the events of the last couple of decades, where federal substantive law on the validity of waivers of constitutional rights found itself juxtaposed against the ethical requirements placed upon the attorneys involved in the plea bargain, the prosecutor and the criminal defense attorney. Specifically, the substance of KBA E-435 arguably conflicted with the federal circuit courts that had one by one applied traditional waiver analysis to the issue of IAC claims and had affirmed their validity. As more circuit courts affirmed the constitutional validity of the waivers, they began to become more prevalent in plea bargains on both state and federal levels. And as the use of such waivers became more popular with prosecutors, so grew the opportunities for various state bar ethics authorities to address the issue of the ethics of including such waivers in plea bargains. Almost as quickly as the circuit courts were affirming waivers, the vast majority of state ethics authorities found the inclusion of an IAC waiver into a plea offer to place the criminal defense attorney into an irreconcilable conflict of interest. The question necessarily arose, which interpretation takes precedence: the federal circuits that have found such waivers to be valid, or the ethics opinions that proscribe the inclusion of such waivers into plea bargains? [...]
Call for Papers
The Kentucky Law Journal will be opening an exclusive submission window for articles until November 14, 2014 at 5:00 PM EDT. All papers submitted during this window will be reviewed for publication in Volume 103, Issue 4, set for publication in Spring 2015. By submitting your article during this window, you agree to accept a publication offer, should one be extended. This window is available for articles on all topics, including articles previously submitted to the Kentucky Law Journal, though resubmission will be required. Submissions should be between 15,000 and 25,000 words with citations meeting the requirements of The Bluebook.
Submissions should be sent via email to email@example.com. Please include your article, a copy of your C.V. and a short abstract or cover letter.
Kirby Stephens, KLJ Staff Editor
A few weeks ago, the United States Supreme Court declined all seven petitions for certiorari of the same-sex marriage cases before the court. This outcome had been foreshadowed by an earlier statement from Justice Ginsburg, who said that unless a circuit split arose on the issue there was “no need for us to rush.” Justice Ginsburg was specifically referencing the forthcoming decision from the United States Court of Appeals for the Sixth Circuit, which heard arguments surrounding bans in Tennessee, Ohio, Kentucky and Michigan in August.
According to FreedomtoMarry.org, after the Supreme Court’s Monday denial of the petitions, “Same-sex couples are able to marry in 29 states, and will soon be free to marry in an additional 6.” The website tracks marriage equality by state and offers listings of both recent cases and laws surrounding marriage and marriage bans. [...]
Dylan Merrill, KLJ Staff Editor
Imagine a world without garage door openers, baby monitors, and Bluetooth headsets. A little strange, right? What about life without wireless Internet? Even stranger. These groundbreaking technologies have become integral to our daily lives, in a way that few of us could have predicted.[i] This phenomenon begs the question: what other groundbreaking inventions will arise in the next decade? And how can our legal and regulatory framework help encourage these innovations? The answer largely depends on how the federal government regulates a scarce but precious resource–not oil, water, or food, but something called “wireless spectrum”. [...]
Todd J. Weatherholt
The “war on drugs” is facing a new opponent, one that is sophisticated and dynamic, but unfortunately whose dangers go widely undocumented. As if there were not enough problems with other classes of drugs for authorities, a new “underappreciated” category, synthetic drugs, has gained tremendous momentum within the last few years in the United States and around the world. These substances, although widely eradicated in neighborhood gas stations and head shops, remain easily obtainable over the internet. The industry, which targets drug-naïve teenagers and young adults through the combination of shiny packaging with familiar cartoon characters and vibrant names such as Ivory Wave, Spice, and Cloud Nine, generates an estimated $5 billion dollars annually. Unfortunately, the synthetic drug enigma facing our nation is not merely the result of these products’ accessibility, but likewise due to their easily manipulative characteristics, which help manufacturers circumvent existing laws. As authorities identify specific chemical components to outlaw, rudimentary chemists simply modify existing drug compositions slightly to escape the law.
This note focuses on the two-tier problem of controlling synthetic drugs, from the existing loophole in the federal drug policy, to the difficulty of prosecuting synthetic drug offenders. Synthetic drugs pose an increasingly severe threat in need of an updated 21st century drug policy, instead of a continued reliance on deficient existing laws based on regulating opium, heroin, and cocaine from plants. Part I of this Note discusses two common types of synthetic drugs and the current overall drug policy landscape in the United States. Part II focuses on the rise in popularity of these substances and their potentially disastrous effects on users. Part III, utilizing a recent federal court case and textual uncertainties of the statute, identifies the difficulties surrounding prosecuting manufacturers of synthetic drugs under the existing drug policy. Lastly, Part IV advocates for two promising bills and provides additional modifications that will further assist in improving the synthetic drug problem facing our nation. [...]
Kierston Eastham, KLJ Staff Editor
The Occupational Safety and Health Administration (“OSHA”) is known across the country by employers and employees alike as it currently oversees safety and health standards for over 130 million employees. OSHA was established in 1970 under President Nixon in order to increase workplace safety and reduce employee deaths and injuries, and has reduced the number of workers killed on the job daily from about thirty-eight per day in 1970 to about twelve per day in 2010. These results require extensive enforcement efforts on behalf of the agency, which has been criticized in recent years for its laxity. [...]
Joseph Guthrie, KLJ Staff Editor
In the 1990’s, gene therapy was viewed as the next major step forward in medical treatment, with the potential to permanently cure a wide variety of genetic disorders. Despite early successful trials, gene therapy suffered a major setback in 1999 following the death of Jesse Gelsinger, an otherwise healthy 18-year-old suffering from a manageable genetic disorder, during a clinical trial. Considering the technology potentially unsafe, the FDA suspended many ongoing trials and researchers largely abandoned the field.
Fifteen years later, gene therapy is back in a huge way, having been used in human trials to successfully cure HIV, cancer, and various rare genetic disorders. Since the beginning of 2013, investors have poured nearly $700 million into companies focused on developing gene therapy treatments. Like in the pharmaceutical industry, development and testing of these kinds of treatments involves huge amounts of money, and these companies will eventually seek patents to protect their discoveries. What remains to be seen is whether these treatments can be patented, and if so, whether these patents will spur innovation or merely stifle it. [...]
Sixth Circuit Says 9/28/14
Professor Joshua A. Douglas
Robert G.Lawson & William H. Fortune Associate Professor of Law, University of Kentucky College of Law
What does it mean for an election regulation to “burden” voters? Do the relevant burdens relate to how the election system operated previously, or are they more about the particular burdens of the actual law itself outside of the context of what occurred in the last election? Put differently, is it the text of the law, or the context of the election scheme, that matters the most? These questions underlie the Sixth Circuit’s recent decision in NAACP v. Husted invalidating Ohio’s new rules on early voting; they will also likely be the focus of the Supreme Court’s impending review.
The current controversy over early voting in Ohio continues a trend of involving the courts in dictating how to operate Ohio’s election system. In 2012, the Obama campaign won an important case when the state tried to remove early voting on the last three days before the election for everyone besides military voters. The Sixth Circuit ruled that allowing early voting for some voters but not others violated the Equal Protection Clause. [...]
Sixth Circuit Says
Last week, the Sixth Circuit Court of Appeals made a plea to the Governor to consider clemency for a death row inmate after denying his arguments for relief through the courts.
The unique aspect of this decision is the plea to the Governor that the court makes at the end of the opinion. The court systematically, in its analysis, denied relief to Gregory Esparza but in closing the court stated that “[t]oday’s decision is not necessarily the end of the road for Esparza. Among other things, he has the right to file a clemency application with the governor to reduce his sentence from death to life in prison. In light of the many uninvited difficulties in his childhood, this application may be worth a serious look.” [...]
Sixth Circuit Says
Today’s blog answers one deceivingly simple question: How many judges are there on the Sixth Circuit Court of Appeals?
The answer, equally simple and yet equally deceiving, is 23.
Why is that deceiving? Because technically there are only 16 spots on the court. The Sixth Circuit started with just two judgeships in 1891. Two increased to six over the next 50 years (by 1940). The number of judgeships held at six for 25 years but shot to 16 between 1966 and 1990. Sixteen is where it stands today. Fifteen of those 16 spots are currently filled. [...]
The United States alcoholic beverage industry is unique as it is the only industry for which two amendments to the Federal Constitution have been passed. The first of those amendments, the ill-fated Eighteenth, enacted nationwide Prohibition. After the complete failure of that “Noble Experiment,” the Twenty-First Amendment was enacted, ending Prohibition and vesting in the various states the power to regulate the manufacture, purchase and sale of alcoholic beverages. [...]
Cortney E. Lollar
A 2011 American Bar Association report on the death penalty in Kentucky revealed that a shocking two-thirds of the 78 people sentenced to death in Kentucky since reinstatement of the death penalty in 1976 have had their sentences overturned on appeal. Kentucky’s reversal rate is more than twice the national average, with a 31% reversal rate in capital cases and almost four times the 17% national reversal rate in all other case types. With a sentence as irreversible as death, troubling does not begin to describe the depth of concern many experience when viewing such a startling statistic. [...]