The Impact of Business Courts (Outside of Delaware)

Jens Dammann, Business Courts and Firm Performance (U. Tex. Research Paper No. 564, 2017), available at SSRN.

Professor Jens Dammann’s paper titled Business Courts and Firm Performance is a bold attempt to answer a vexing question concerning the efficacy of state business courts. The paper can be summed up with a simple phrase and minor qualification: business courts are important (outside of Delaware). Specifically, the paper addresses the question of “whether giving publicly traded corporations access to business courts to litigate their internal corporate affairs benefits firm performance.” (P. 1. ) The paper answers this question affirmatively. More importantly, the paper provides a long-awaited empirical justification to claims that business courts, outside of Delaware, are a positive development for publicly traded firms in the sense that these courts impact a corporation’s bottom line. The underlying hypothesis of Dammann’s paper is that business courts improve corporate performance by reducing/policing managerial self-enrichment (e.g., stealing, misappropriation, entrenchment). (P. 6.)

Delaware’s business courts have been the premier forum for high-profile corporate litigation for over a half century.1 And many publicly traded firms incorporate in Delaware, in part, to seek access to Delaware’s Court of Chancery.2 Despite Delaware’s preeminence as a hub for corporate litigation among publicly traded firms, over the past thirty years, many other states have created their own specialized business trial courts. Outside of Delaware, there are approximately 25 specialized business courts and 5 complex litigation programs. (P. 3, Table 1.) State actors, often through judicial decree or legislative action, created these courts to respond, in part, to general problems related to litigating in state courts: lack of judicial expertise on business and commercial matters, lengthy proceedings, unpredictability, and so on. (P. 2.) Scholars offer and debate the reasons behind this surge of state business courts such as preventing corporate migration, attracting out-of-state companies, generating litigation business for lawyers, reincorporations, encouraging investment, and jurisdictional competition. (P. 5.) The scholarly treatment of state business courts, however, lacks a satisfying explanation for what economic value publicly traded firms actually derive from litigating internal corporate disputes in state business courts. To be fair, observers often provide anecdotal support for the idea that firms value access to highly quality business courts and derive general benefits from them such as speed, expertise, and greater certainty. Continue reading "The Impact of Business Courts (Outside of Delaware)"

 
 

(Almost) Everything You Wanted to Know About Class Actions

With the advent of the new administration, aggregate litigation is under attack again. As of this writing new legislation aimed at limiting class actions has been introduced in Congress. This is the perfect time for Congresspersons and their aids to read John C. Coffee’s book, Entrepreneurial Litigation: Its Rise, Fall, and Future – both friends and enemies of the class action will benefit from reading this fair-minded and nuanced analysis.

Before delving into the reason for this recommendation, a bit of background. In the scholarly literature on class actions there have been two big ideas. The first was that class actions can have a deterrent effect on large institutions by permitting the enforcement of laws when many people suffer a wrong too small to merit bringing a suit. It is easy to forget that this is in large part what class actions are about. The earliest statement of this idea that I know of was in 1941 in a law review article by Harry Kalven, Jr. and Maurice Rosenfeld. The second big idea was the observation that the class action separates ownership of claims from control of claims, much like the corporate form separates ownership from control of the firm, giving rise to agency costs. John C. Coffee, Jr. has long championed this formulation, first presenting it in 1986. Continue reading "(Almost) Everything You Wanted to Know About Class Actions"

 
 

The Role of “Good Prosecutors” in Advancing Access to Criminal Justice

Bruce A. Green, Access to Criminal Justice: Where Are the Prosecutors? 3 Tex. A&M L. Rev. 515 (2016).

Jurisdictions around the world have adopted “access to justice” as an objective for regulation of the legal profession. Despite the widespread recognition of the importance of access to justice, there is no consensus on its meaning. Often commentators and advocates use the term to refer access to civil legal services for low income clients. In this article, Professor Bruce A. Green persuasively explains why such a connotation is entirely too narrow. He challenges readers to consider the meaning of “justice,” asking provocatively, “what happened to criminal justice?” One reason that I recommend reading this article is that it illuminates the pivotal role that prosecutors play in the pursuit of criminal justice and identifies specific steps that prosecutors should take to avert individual injustices, as well as systematic injustices.

To answer the question, “where are the prosecutors?” Professor Green first considers whether “access to justice” has been misappropriated by the civil pro bono movement. As noted by Professor Green, one justification advanced for focusing on civil justice is that indigent defendants who face incarceration are entitled to legal counsel.  He explains that this rationale overlooks various limitations in Gideon v. Wainwright, 372 U.S. 335 (1963) and its progeny. Most notably, he clarifies that not all criminal defendants receive a qualified lawyer and that the Constitutional remedy for substandard representation is weak. To recognize the fact that there continues to be serious access to justice barriers faced by criminal defendants, Professor Green suggests that the bench and bar use their words carefully by not equating access to justice with access to civil justice. Rather he reminds us that no one should be “misled to believe that we have gone as far as necessary to secure criminal justice in this country.” Continue reading "The Role of “Good Prosecutors” in Advancing Access to Criminal Justice"

 
 

Smart Rules for Smart Contracts

Lauren Henry Scholz, Algorithmic Contracts, Stan. Tech. L. Rev. (forthcoming 2017), available at SSRN.

Most law students are digital natives who have been using computers since grade school, while I, a baby boomer, remain an immigrant to the world of e-communication. Yet the old and new worlds may not be as different as they sometimes seem. Five years ago, publishers expected to replace hard copies with electronic casebooks, but it turns out that millennial students seem to learn best with a hybrid of electronic and hard copy materials that allow for interactive elements like on-line multiple choice quizzes.

With exceptions like the Uniform Electronic Transactions Act, digital immigrants have left to the natives the task of figuring out how doctrine should treat computer-generated communications. If electronic communications enable transactions that have never occurred before in the hard copy world, lawyers, scholars and judges must figure out whether those transactions require new and special rules or fit within the old common law rules. Lauren Henry Scholz’s article Algorithmic Contracts, forthcoming in the Stanford Technology Law Review and available in draft form on SSRN, substantially contributes to this conversation by suggesting that old-fashioned agency principles can be repurposed to govern algorithmic contracts. Continue reading "Smart Rules for Smart Contracts"

 
 

Breaking News: New Form of Superior Agency Guidance Discovered Hiding in Plain Sight

Kevin Stack, Preambles as Guidance, 84 Geo. Wash. L. Rev. 1252 (2016).

For decades, controversy has brewed over agency (ab)use of and (over)reliance on guidance documents. On one account, agencies turn to guidance in an end run around notice-and-comment requirements, producing de facto legislative rules without either public input or, at least in some cases, judicial scrutiny. On another, guidance documents are good government in action, a helpful and illuminating benefit. In Preambles as Guidance, Kevin Stack does not take sides in this debate. But he does helpfully remind us that there is one type of guidance that (a) is not subject to the standard critique and (b) is often not appreciated as guidance at all. This overlooked creature, hiding in plain sight, is the preamble that accompanies every final rule.

The article is an exercise in APA originalism. Particularly since State Farm, the dominant understanding of the preamble has been that its central function is justificatory—in order to withstand judicial review, the agency must respond to significant comments, show that it engaged in reasoned decisionmaking, and thoroughly explain itself. But the APA’s requirement of a “statement of basis and purpose,” 5 U.S.C. §553(c), suggests a rather different goal: clarifying and helping readers understand the rule. Stack quotes the Attorney General’s Manual on the APA: “The required statement will be important in that the courts and the public may be expected to use such statements in the interpretation of the agency’s rules.” Stack’s article is an extended endorsement and elaboration of this model of rulemaking preambles, providing a clear, convincing, and elegantly written reconceptualization of a basic feature of agency rulemaking. Continue reading "Breaking News: New Form of Superior Agency Guidance Discovered Hiding in Plain Sight"

 
 

Protecting Unhappy Worker Outbursts from Discriminatory Treatment

Susan D. Carle, Angry Employees: Revisiting Insubordination in Title VII Cases, 10 Harv. L. & Pol’y Rev. 185 (2016).

The nature of workplace protests was highlighted this past year by the actions of San Francisco 49ers National Football League quarterback Colin Kaepernick. Kaepernick sparked a national controversy by his actions, in deciding to first sit and then kneel peacefully, during the playing of the national anthem at the start of his games as a mechanism of protest against treatment of black men by the police. Kaepernick’s method of peaceful protest was attacked viciously by members of the public as being unpatriotic and even by a Supreme Court Justice who asserted that Kaepernick’s actions were disrespectful and dumb. Despite claims from his general manager that Kaepernick’s actions justified him not being the quarterback of the team, a position of leadership, and that he had created unrest and unnecessary divisions within the team, Kaepernick’s protests did not end up subjecting him to disciplinary actions. His co-workers even voted to give him an award for courage, which rebutted any suggestion that his actions had divided his teammates.

Even in the workplace environment where most individuals know each other or have some knowledge about the other person involved in a dispute, that familiarity does not increase the opportunity for happy results as a response to an employee’s protest, whether made peacefully or angrily. A 2013 Gallup worldwide study of worker feelings indicated that “work is more often a source of frustration than one of fulfillment for nearly 90% of the world’s workers.” As a result, Professor Susan Carle’s recent article, Angry Employees: Revisiting Insubordination in Title VII Cases, offers an important perspective regarding the sources of worker unhappiness and how the law can protect employees when employers overreact to angry employee outbursts. Continue reading "Protecting Unhappy Worker Outbursts from Discriminatory Treatment"

 
 

Apples and Oranges, Or Trusts and Wills.

Deborah Gordon, Forfeiting Trust, 57 William & Mary L. Rev. 455 (2015).

Wills and many trusts have the same fundamental purpose: to transfer property at death. This raises perennial questions about the extent to which the law should treat these estate planning vehicles as functionally equivalent. I liked Deborah Gordon’s Forfeiting Trust because it reminds readers that consequences flow from the simple but fundamental distinction between wills and trusts. Trusts have trustees, beneficiaries, and the accompanying rules of fiduciary duty. Wills do not. Therefore not all rules that work well for wills can be applied to trusts.

No contest clauses—also known as forfeiture clauses—are Gordon’s subject. In wills, testators have long used these clauses to deter litigation. The testator leaves property to individuals who may be inclined to challenge the will on the ground that it was executed without capacity or compliance with statutory requirements, or that it was the product of undue influence, or that it is otherwise invalid. Then the testator inserts a clause providing that anyone who challenges the will forfeits her bequest. A beneficiary can still challenge the will, but only at considerable risk. If the court enforces the will, it also enforces the no contest clause. Continue reading "Apples and Oranges, Or Trusts and Wills."

 
 

What Is It Like to Think Like a Pre-Modern?

Kenneth S. Abraham & G. Edward White, The Transformation of the Civil Trial and the Emergence of American Tort Law, Ariz. L. Rev. (forthcoming), available at SSRN.

There are a number of ways to tell the story of the change in American tort law that occurred in the nineteenth and twentieth centuries. Some, like John Witt, Lawrence Friedman, and Mort Horwitz, focus on changes in material conditions. Others, like Richard Posner, Charles Gregory, and Robert Rabin, focus on changes in intellectual or doctrinal beliefs about the nature of tort law, and the best mix of rules to achieve its ends.

In The Transformation of the Civil Trial and the Emergence of American Tort Law Kenneth Abraham and Ted White offer a fascinating and, I think, unique explanation for the rise of modern negligence law and the development of doctrines that allowed victims of accidents to collect for their personal injuries. Continue reading "What Is It Like to Think Like a Pre-Modern?"

 
 

Future Interests? Meet Chattels!

John Chipman Gray, Future Interests in Personal Property, 14 Harvard L. Rev. 397 (1901).

Future interests are at once docile creatures which accommodate all sorts of human and social objectives and beastly difficult abstractions which drive us to tears. Breaking property into smaller bits along temporal lines—such is the basic idea of present interests and future interests. Typically, we think of future interests (remainders, reversions, and the like) in the context of real property.

In 1901, John Chipman Gray (1839-1915) published a 23-page essay in the Harvard Law Review titled Future Interests in Personal Property. Its title was descriptive of its content. It considered the application of temporal divisions to chattels. In doing so, Gray’s article reviews an historical error connected with chattels real and chattels personal, observes the divergence of American law from English common law, and unearths a breakdown in doctrine where future interests are applied to consumable articles. His article remains lively and relevant today. Continue reading "Future Interests? Meet Chattels!"

 
 

How Pigouvian Taxes Work on Sellers, and Why We Should Care

Kyle Rozema, Supply Side Incidence of Consumption Taxes (Oct. 5, 2016), available at SSRN.

Empirical testing of the tax laws, and in particular testing the incidence of the tax laws, may sound boring. But virtually any modern public policy goal that could be implemented through tax policy ultimately turns precisely on this question. For example: Should the United States adopt a tax on sugary drinks? Is a high cigarette tax effective in preventing smoking deaths? Would a carbon tax help to reduce global warming? Ultimately, the answers to these questions turns on who, in fact, ends up bearing the burden of these taxes.

Such proposals often represent forms of so-called Pigouvian taxes. Proponents of Pigouvian taxes support them by contending that they can be used to reduce inefficient behavior by forcing consumers to internalize the full costs of such activities. Opponents of Pigouvian taxes often point to the regressive effect of such taxes on consumers, because they increase the cost of goods by a fixed amount of taxes, which disproportionately harms those consumers least able to afford such taxes. A fair amount of literature has arisen to resolve this question, primarily focusing on the empirical question of whether increasing the price of certain goods through higher taxes in fact reduces the amount of consumption and who bears the costs of such taxes. Virtually none of the literature in this area asks a related, but equally important, question: how do Pigouvian taxes impact different types of sellers of such goods? Continue reading "How Pigouvian Taxes Work on Sellers, and Why We Should Care"