Showing papers in "Vanderbilt Law Review in 2004"

The New Look of Shareholder Litigation: Acquisition-Oriented Class Actions

Abstract: Shareholder litigation, as illustrated by derivative lawsuits and federal securities class actions, has generated a long-running debate that sets its possible governance benefit in monitoring corporate management against the fears of its misuse by self-selected clients and attorneys. This article provides the largest empirical study of shareholder litigation to date, examining more than 1000 fiduciary duty suits filed in Delaware in a two-year period. It finds that more than 80 percent of these cases are class actions against public companies challenging one type of director decision-whether or not to participate in a corporate acquisition. These acquisition-oriented suits are now the dominant form of corporate litigation, outnumbering by a wide margin derivative suits, the traditional shareholder litigation that is the staple of corporate law casebooks. The acquisition-oriented class actions are a previously unstudied category of representative litigation, which permits us to shed new light on prior studies of state derivative suits and federal securities fraud class actions. These suits provide management agency costs reductions in some cases through substantial monetary settlements. The settlements leading to relief in an acquisition setting are not spread across all acquisitions complaints (including hostile, second bidder acquisitions etc.), but rather concentrated where there is a majority shareholder who is attempting to cash-out the minority interest held by public shareholders on terms that have been picked by the majority. And, within this subset, monetary settlement is more likely to occur where the initial takeover premiums was lower. The acquisition-oriented class action suits do have many of the characteristics that have been identified in other contexts as indicators of agency costs (e.g. suits filed quickly, many suits per transaction). Yet, these litigation agency costs are lower than the level of perceived costs that spurred securities fraud legislation. Placing these findings in the historical context of the debate over the value of representative shareholder litigation, this article suggests there are positive management agency costs reducing effects of acquisition-oriented class actions, while the litigation agency costs they create do not appear excessive. Shareholder litigation is the most frequently maligned legal check on managerial misconduct within corporations.1 Derivative lawsuits and federal securities class actions are portrayed as slackers in debates over how best to control the managerial agency costs created by the separation of ownership and control in the modern corporation.2 In each instance, early hopes that these suits would effectively monitor managerial misconduct have been replaced with concerns about the size of the litigation agency costs of such representative litigation. Such litigation agency costs can arise when a self-selected plaintiffs attorney and her client are appointed to pursue the claims of an entire class of shareholders and have interests that may differ from those of the class.3 Now, however, a new form of shareholder litigation has emerged that is distinct from derivative or securities fraud claims: class action lawsuits filed under state law challenging director conduct in mergers and acquisitions. The empirical data reported in this article show that these acquisition-oriented suits are now the dominant form of corporate litigation and outnumber derivative suits by a wide margin. Are these acquisition-oriented class actions just another deadbeat in the corporate governance debate? Should policymakers take action to cut back on the development of this new form of shareholder litigation? In this paper, we argue that, just as with derivative suits and securities fraud class actions, good policy must balance the positive managerial agency cost reducing effects of these acquisition-oriented shareholder suits against their litigation agency costs. …

The Evidence on Securities Class Actions

Abstract: This article examines the theoretical issues and surveys the evidence on the desirability of securities class actions. Class actions offer the promise of energizing private enforcement of the securities laws, including in particular antifraud liability. For shareholders of large, publicly-held corporations, the individual benefits of pursuing a fraud action are often outweighed by the considerable costs of litigation. Without a class action, many potential fraud lawsuits may simply not get litigated. Nonetheless, the article explores three related problems with class actions: (a) the problem of frivolous suits (and the need to allow meritorious suits); (b) the lack of incentives on the part of plaintiffs' attorneys to focus on smaller companies; and (c) the agency problem between plaintiffs' attorneys and the plaintiff class. The article then assesses the existing evidence from the United States (in particular on the impact of the Private Securities Litigation Reform Act of 1995) in addressing these problems and proposes future avenues for research. Understanding the impact of class actions is important not only for the U.S. but also for countries considering the adoption of a U.S.-style securities class action system. As an example, the article discusses whether securities class actions would be beneficial in South Korea, a country with a smaller capital market and fewer large companies compared with the United States.

The Business Judgment Rule as Abstention Doctrine

Abstract: The business judgment rule is corporate law's central doctrine, pervasively affecting the roles of directors, officers, and controlling shareholders. Increasingly, moreover, versions of the business judgment rule are found in the law governing the other types of business organizations, ranging from such common forms as the general partnership to such unusual ones as the reciprocal insurance exchange. Yet, curiously, there is relatively little agreement as to either the theoretical underpinnings of or policy justification for the rule. This gap in our understanding has important doctrinal implications. As this paper demonstrates, a string of recent decisions by the Delaware supreme court based on a misconception of the business judgment rule's role in corporate governance has taken the law in a highly undesirable direction. Two conceptions of the business judgment rule compete in the case law. One views the business judgment rule as a standard of liability under which courts undertake some objective review of the merits of board decisions. This view is increasingly widely accepted, especially by some members of the Delaware supreme court. The other conception treats the rule not as a standard of review but as a doctrine of abstention, pursuant to which courts simply decline to review board decisions. The distinction between these conceptions matters a great deal. Under the former, for example, it is far more likely that claims against the board of directors will survive through the summary judgment phase of litigation, which at the very least raises the settlement value of shareholder litigation and even can have outcome-determinative effects. Like many recent corporate law developments, the standard of review conception of the business judgment rule is based on a shareholder primacy-based theory of the corporation. This article extends the author's recent work on a competing theory of the firm, known as director primacy, pursuant to which the board of directors is viewed as the nexus of the set of contracts that makes up the firm. In this model, the defining tension of corporate law is that between authority and accountability. Because one cannot make directors more accountable without infringing on their exercise of authority, courts must be reluctant to review the director decisions absent evidence of the sort of self-dealing that raises very serious accountability concerns. In this article, the author argues that only the abstention version of the business judgment rule properly operationalizes this approach. I. INTRODUCTION The business judgment rule pervades every aspect of state corporate law, from the review of allegedly negligent decisions by directors, to self-dealing transactions, to board decisions to seek dismissal of shareholder litigation, and so on.1 Countless cases invoke it and countless scholars have analyzed it.2 Yet, despite all of the attention lavished on it, the business judgment rule remains poorly understood.3 We lack a coherent and unified theory that explains why the rule exists and where its limits should be placed.4 This article offers such a theory. My analysis is grounded on the core proposition that the business judgment rule, like all of corporate law, is designed to effect a compromise-on a case-by-case basis-between two competing values: authority and accountability.5 These values refer, respectively, to the need to preserve the board of directors' decision-making discretion and the need to hold the board accountable for its decisions.6 Academic commentary on the business judgment rule strongly emphasizes accountability-i.e., the need to deter and remedy misconduct by the firm's decision makers and agents.7 Although the separation of ownership and control in modern public corporations inevitably raises important accountability concerns,8 accountability standing alone is an inadequate normative account of corporate law.9 A fully specified account of corporate law must incorporate the value of authority-i. …

Explaining the International CEO Pay Gap: Board Capture or Market Driven?

Abstract: The large gap between American CEO pay and foreign CEO pay is one of the biggest puzzles in executive compensation. Recent scholarship has suggested that it is the result of board capture. This theory claims that the pay gap arises because in the U.S. passive friendly directors award their CEOs huge pay increases, while in other countries tight-fisted control shareholders suppress CEO pay levels. This paper criticizes Board Capture Theory and then develops four market-based theories that offer persuasive alternative explanations for the international CEO pay gap. It argues that market forces will determine whether the pay gap will disappear and that current proposals for government intervention will be at best ineffective, and more likely counterproductive.. I. INTRODUCTION One of the most puzzling aspects of executive compensation is the pay gap that exists between American and foreign Chief Executive Officers (CEOs).1 U.S. CEOs are paid vastly more than their foreign counterparts: they have higher base salaries, they receive larger bonuses, they get more stock options, and they are given bigger chunks of company restricted stock.2 Commentators3 and the financial press4 have been quick to claim that such differences can be explained by "Board Capture," a theory that claims powerful American executives take advantage of weak domestic boards of directors and passive, dispersed shareholders to overpay themselves exorbitantly.5 According to Board Capture theorists, American CEOs orchestrate the appointments of their obedient subordinates as inside directors and of friendly, passive outside directors. The net result is a board comprised of compliant directors and a Compensation Committee that lacks the aggressive hard-nosed negotiators needed to keep executive pay in check. To make matters worse, the Compensation Committee's advisors, usually paid consultants from a handful of well-known firms, have conflicts of interest that preclude them from giving truly disinterested advice. They tell directors to rely upon industry surveys of pay levels that have the (un)intended consequence of constantly ratcheting executive pay levels upward.6 American CEO pay levels have skyrocketed, they claim, as a result of this process. The international pay gap arises, the story goes, because foreign CEOs do not have the same power over their boards.7 In most foreign corporations, control shareholders act as strong checks on executive pay. Control shareholders will recoup most of the firm's rents and therefore have strong financial incentives to keep executive pay abroad at more reasonable levels. Thus, by comparison to U.S. CEOs, foreign CEOs are paid less. In the wake of Enron, Global Crossing, and the host of other financial scandals, and the anecdotal evidence surrounding the abuse of corporate perks and compensation schemes that has surfaced in their wake, Board Capture Theory has caught the public's attention. Executive compensation has been painted as the symbol of out-of-control greed in corporate America. People here and abroad want to believe that American CEOs have been playing a one-sided game, and have been winning without really having to work hard for their pay. Board Capture Theory provides an argument supporting these claims. This Article presents the first comprehensive theoretical analysis of the international pay gap.8 It is critical of the Board Capture explanation and offers several more plausible market-based theories that explain this phenomenon. The problem with relying solely on board capture as an explanation is that, while it may lead to some inflation in U.S. CEO pay levels, it does not fully explain the CEO pay gap. For example, Board Capture Theory does not tell us why executive pay in the U.S. grew so rapidly after the early 1980s.9 There is no evidence that CEOs' power over their boards grew during this time period; in fact, most evidence is to the contrary.10 Nor does Board Capture Theory offer a persuasive explanation of why bigger firms pay their executives more than smaller ones, or why the supply of executives has not dramatically increased in response to the alleged huge rents that CEOs have been receiving for the last twenty years. …

From Smokestack to SUV: The Individual as Regulated Entity in the New Era of Environmental Law

Abstract: A debate between advocates of command and control regulation and advocates of economic incentives has dominated environmental legal scholarship over the last three decades. Both sides in the debate implicitly embrace the premise that regulatory measures should be directed almost exclusively at large industrial polluters. This Article asserts that for many pollutants the premise is no longer supportable, and that much of the focus of regulation in the future should turn to individuals and households. Examining a wide range of empirical data, the Article presents the first profile of individual behavior as a source of pollution. The profile demonstrates that individuals constitute a surprisingly large source and that the resulting environmental harms may be substantial. Reconceptualizing individuals as targets of regulatory action will require corresponding changes in regulatory theories and methods, and agency management. The Article suggests that although traditional command and control and economic measures have limited prospects for changing individual behavior, innovative uses of informational regulation and norm management, both alone and in combination with the traditional measures, are potentially powerful tools. The Article also proposes agency management reforms, including development of agency expertise on the social influences of agency actions and a reexamination of the administrative procedures needed for informational regulatory measures. The new view of the individual as polluter presented in this Article thus not only challenges a fundamental premise of the environmental regulatory debate but offers an agenda for the evolution of the regulatory state. I. INTRODUCTION A cardinal principle in dealing with every type of legal arrangement is to keep steadily in view the kinds of people to whom the directions of the arrangement in question are initially addressed-who the people are, in other words, who are expected to act or refrain from acting in accordance with the arrangement if it works successfully, and under what circumstances they are expected to act.1 If asked to envision a polluter, most of us would describe a tall stack from a large industrial facility billowing smoke or a pipe releasing foaming liquid into a stream. The environmental laws and academic commentary of the last thirty years reflect this common conception. With few exceptions, the environmental laws enacted since the 1970s have directed command and control requirements at large industrial sources of pollution. Similarly, in law reviews, books and congressional hearings, advocates of command and control regulation have battled with economic incentive enthusiasts over the optimal measures for regulating large industrial sources.2 The participants in this debate differ on the effectiveness of various regulatory instruments and the need for regulatory reform, but they share an important, although often unspoken, premise: that the principal sources of pollution are large industrial facilities and the principal victims are individuals.3 This Article suggests that the reality today is quite different. We are polluters. Each of us. We pollute when we drive our cars, fertilize and mow our yards, pour household chemicals on the ground or down the drain, and engage in myriad other common activities. Although each activity contributes minute amounts of pollutants, when aggregated across millions of individuals, the total amounts are stunning. Industrial sources continue to be major sources of pollution, and other important pollution sources exist, but individuals are now the largest remaining source of many pollutants. The time has come to focus attention in their direction. Treating individuals as regulated entities, however, will require fundamental changes in the theories and methods of environmental law. Moreover, the need to focus on individual behavior exists across a wide range of health, safety and other areas, and will require substantial modifications in many aspects of the post-New Deal regulatory state. …

Felony Jury Sentencing in Practice: A Three-State Study

Abstract: The Court's recent decision in Apprendi v. New Jersey, 530 U.S. 466 (2000), has prompted renewed interest in sentencing by jury in non-capital cases. Yet jury sentencing in felony cases remains one of the least understood procedures in contemporary American criminal justice. This Article looks beyond idealized visions of jury sentencing to examine for the first time how felony jury sentencing actually operates in three different states-Kentucky, Virginia, and Arkansas. Dozens of interviews with prosecutors, defenders, and judges, as well as an analysis of state sentencing data, reveal that this neglected corner of state criminal justice provides a unique window through which one can observe some of the most fundamental forces operating in criminal adjudication today. It turns out that jury sentencing in practice looks very little like jury sentencing in theory. Sentencing by jury is promoted for its democratic contribution, but its vitality may turn instead upon its ability to streamline case disposition and protect elected officials from political accountability for sentencing policy. Jury sentencing is viewed by these criminal justice insiders as a critical component of the justice system in each state, a tool they have adapted to deter trials, to accommodate elected judges, and to appease constituents who support ever higher sentences for crime. The Article explores the implications of this research for sentencing reform, and criminal justice reform generally. I. INTRODUCTION Today, in six states, felons convicted by juries are routinely sentenced by juries. These states form a sizeable segment of the United States, beginning with Virginia at the eastern end, and proceeding west, through Kentucky, Missouri, Arkansas, Texas, and Oklahoma, following the trail of early settlers. Juries in these jurisdictions select an appropriate sentence from within a statutory range of punishment provided to them in their instructions from the judge. The use of juries to sentence felons in these states began well over a century ago,1 well before the recent United States Supreme Court decision in Apprendi v. New Jersey,2 which has generated renewed interest in the appropriate role for juries in sentencing.3 Roughly 4000 juries deliver felony sentences every year.4 The number of felons sentenced by juries in Texas alone exceeds the number of federal defendants convicted annually by jury, for misdemeanors or felonies, in all districts combined.5 Despite its continuing influence, jury sentencing in noncapital cases is one of the least understood procedures in contemporary American criminal justice. While scholars and commissions have repeatedly dissected other sentencing systems and jury functions, felony jury sentencing has managed to elude systematic empirical inquiry.6 This Article looks beyond idealized visions of jury sentencing to examine for the first time how jury sentencing in noncapital cases actually operates in three different states-Kentucky, Virginia, and Arkansas. Dozens of interviews with prosecutors, defenders, and judges, as well as an analysis of state sentencing data, reveal that this neglected corner of state criminal justice provides a unique window through which one can observe some of the most fundamental forces operating in criminal adjudication today. It turns out that jury sentencing in practice looks very little like jury sentencing in theory. According to its academic advocates, jury sentencing could perform a very special function-the jury's sentence could reflect the community's view of punishment, a view that may be different from that of a professional judge. Theoretically, jury sentences would take into account the full range of penalties authorized by the legislature and mirror community norms concerning retribution, deterrence, incapacitation, and rehabilitation.7 Bargaining in the shadow of the expected jury sentence, a prosecutor could resort to the jury if judges were not punishing offenders severely enough, and a defendant could resort to the jury if judicial sentences exceeded community standards. …

The Public and Private Faces of Derivative Lawsuits

Abstract: Derivative suits, long the principal vehicle for discussions about representative litigation in corporate and securities law, now share the stage with younger cousins - securities fraud class actions and state law fiduciary duty class actions. At the same time, alternative governance vehicles - independent directors, auditors and other reforms that have followed in the wake of Enron - potentially diminish the relative place of litigation such as derivative suits. This Article presents data from all derivative suits filed in Delaware over a two-year period. We find a relatively small number, certainly as compared to fiduciary class action and securities fraud class actions. Unlike these other representative suits, derivative suits are used for both public and close corporations. They arise usually in a duty of loyalty context. Contrary to earlier studies, we do not find evidence that these cases are strike suits yielding little benefit. Instead, roughly 30 percent of the derivative suits provide relief to the corporation or to the shareholders, while the others are usually dismissed quickly with little apparent litigation activity. In cases producing a recovery to shareholders, those amounts typically exceed the amount of attorneys' fees awarded by a significant margin. They do demonstrate some indicia of litigation agency costs (for example suits being filed quickly, multiple suits per controversy, and repeat plaintiffs' law firms), but each of these is much less pronounced for derivative suits than for other forms of representative litigation. Overall, the claim that derivative suits are strike suits is much weaker than in earlier periods. The Delaware judiciary, which hears most public company corporate litigation in America, has effectively monitored these cases. There is room to open the door for larger shareholders to utilize these suits to police corporate misconduct. Institutional shareholders, while not willing to take on as large a role in governance as many have suggested in terms of naming directors and the like, may be willing to take a larger role in derivative litigation. Thus we see potential for derivative litigation to play a more important role in the future. We therefore suggest that suits brought by a 1 percent or larger shareholder should be excused from the demand requirement currently applied in derivative suits. Are shareholder derivative suits at death's door? Once described as "the most important procedure the law has yet developed to police the internal affairs of corporations,"1 derivative suits are today regularly portrayed as nuisance suits whose "principal beneficiaries ... are attorneys."2 Even if these critics are wrong, there may now be less need for derivative suits, as other forms of representative suits have grown up that do much of their work. Federal securities fraud class actions increasingly address legal claims that raise issues about management care,3 and fiduciary duty class actions under state law are the principal litigation vehicle to remedy management misconduct in merger and acquisition settings.4 At the same time, American stock exchanges now require more independent directors for larger public companies, a change that will make it more difficult for derivative suits to survive procedural challenges under existing legal rules.5 Despite all this adversity, we believe derivative suits continue to play an important role. In fact, we see them having the legal equivalent of a cat's nine lives.6 They have survived vigorous reform movements in both the 1940s7 and the early 1980s.8 Public company suits continue to be filed and to make new law. The impact of decisions in derivative cases like Caremark,9 Disney,10 and Oracle11 goes well beyond the outcome of the cases themselves. These decisions changed the rules for future legal practice by allowing well-motivated legal counselors to get their clients to accept better conduct and procedures. Moreover, derivative suits against private companies perform an important, if less heralded, role in policing conflict of interest transactions and duty of care violations. …

"Accommodations" for the Learning Disabled: A Level Playing Field or Affirmative Action for Elites?

Abstract: A growing number of students in American higher education are being diagnosed as "learning disabled" and then using that diagnosis to secure beneficial "accommodations,"such as extra time on exams. These accommodations are often said to be mandated by the Americans with Disabilities Act (ADA). This Article challenges the premise that the ADA necessarily requires educational institutions to provide learning disabled students with any accommodations. The ADA defines "disability" as an impairment that substantially limits a major life activity. Whether one is substantially limited is determined with reference not to one's innate abilities, but to the skills of the average American citizen. Thus, a learning disabled college or law student who fails to live up to his potential, and who reads slower than one would predict given his general mental aptitude, is not disabled as a matter of law, provided he reads at a level comparable to the average American. Legal requirements aside, it may be appropriate to accommodate learning disabled students, but it is increasingly difficult to distinguish the truly disabled from those simply claiming a disability to gain an advantage. The traditional touchstone of a medical diagnosis as learning disabled, which diverges importantly from the legal definition, is a substantial discrepancy between a person's mental aptitude and academic achievement. Whatever scientific rigor such a diagnosis may once have had, it is now hopelessly indeterminate. Moreover, there is evidence that significant numbers of students, or at least those with the wherewithal and initiative to consult psychologists and lobby school administrators, can secure such an advantageous diagnosis. Drawing upon the concept of agency costs, this Article explores the tension between the interests of administrators of nonprofit educational entities and the interests of the entities themselves. Educational institutions are of course committed to ensuring fairness and academic integrity, but individual educators and administrators may not have sufficient personal incentives to scrutinize requests for accommodations or to tailor those accommodations narrowly to a student's claimed learning disability. I. INTRODUCTION For several decades, college-bound students could have themselves certified "disabled" and then receive miscellaneous "accommodations" on the SATs. Most commonly, these accommodations would include extra time, stretching from an hour to a day, and the right to take the exam in a special location away from the distractions, auditory and visual, that other test takers would encounter in a crowded room. There was, however, an incalculable cost attached to the "disabled" certification: The Educational Testing Service (ETS) would place an asterisk, or "flag," next to all test scores obtained under nonstandard conditions. How much college admissions officers discounted such flagged scores, if at all, was unknown. All this recently changed. Starting October 1, 2003, the ETS and College Board discontinued the practice of flagging nonstandard test scores.1 College admissions offices will no longer be able to distinguish between a 1500 (3 hours) and a 1500 (6 hours).2 From 1987 to 2000, the number of students receiving accommodations on the SATs quadrupled,3 and approximately 90 percent of the test takers who qualified for accommodations were diagnosed with a "learning disability" or "LD."4 Originating just a few decades ago, the LD diagnosis now subsumes dozens of ailments and imperfections, such as dyslexia (reading difficulties), dyscalculia (computing difficulties), dysgraphia (writing difficulties), dysrationalia (thinking difficulties), cognitive processing deficit (remembering difficulties), and Attention-Deficit/Hyperactivity Disorder (ADHD) (concentration difficulties).5 An entire industry has arisen dedicated to the diagnosis and medication of any student falling short of Einsteinian mental prowess combined with Ghandian spiritual calmness. …

Sovereign Debt Reform and the Best Interest of Creditors

Abstract: In April 2002 the International Monetary Fund introduced a sovereign bankruptcy proposal only to be rebuffed by the United States Treasury. Where the IMF wanted a mandatory bankruptcy regime, the Treasury wanted to solve distress problems with contractual devices. Sovereign bondholders and sovereign issuers themselves flatly rejected both proposals, even though they were nominally the beneficiaries of both proponents. This Article addresses and explains this bondholder reaction. In so doing, it takes a highly skeptical view of the IMF's proposal even as it shows that the incentive structure surrounding sovereign lending renders untenable the Treasury's contractarian proposal. The Article's analysis follows from a review and restatement of the economic learning on sovereign debt relationships. The IMF and the Treasury share the objective facilitating restructuring by substituting a regime of collective action for the prevailing practice of requiring unanimous bondholder consent to significant amendments of bond contracts. In so doing they follow a conventional wisdom respecting bond contracts under which standard unanimity provisions are inefficient and irrational. The Article shows that this dismissal of the unanimity requirement comes too quickly. Under our analysis of the problem of debtor distress, bondholders rationally may prefer to make compositions harder to conclude. There is no first best equilibrium bond contract; instead bondholders select from a menu of second best forms, making trade offs between unanimous action and collective action provisions in an imperfect world. One factor leading lenders to favor unanimous action is the need to self protect. In a world without a good faith backstop, creditors motivated by side deals can take advantage of majority rule to impose suboptimal compositions. Holding out is the only weapon available to the minority creditor. The Article argues that, given such side deals, a stable majoritarian regime cannot be achieved as a matter of free contract. Mandate will be necessary. It follows that the Treasury's contractarian approach is implausible absent a backstop regime of intercreditor good faith duties. The Article draws on the history of corporate reorganization prior to the enactment of the section 77B of the Bankruptcy Act of 1934 to show that courts have grappled with these questions before, intervening aggressively on equitable principles. I. INTRODUCTION This Article is about boilerplate language located at the back of contracts drafted by the world's largest law firms. The clauses in question are process provisions that regulate the amendment of sovereign debt contracts. These paragraphs have been drafted and redrafted by generations of corporate lawyers, yet they have changed little in their broad outlines in more than a century of use. Now they take center stage in the global financial arena, where they govern billions of dollars (and pounds, euros, and yen) of sovereign debt in default and billions more in imminent risk of default. Officials, academics, and even some of the lawyers who drafted the clauses now want the clauses removed because they make defaulted debt difficult to restructure. How did this arcane preserve of the bond lawyer come to be the cutting edge in the evolution of international financial architecture? Whereas private debt defaults lead to bankruptcy, sovereign debt defaults lead to informal, often lengthy standstills. The creditors can wait out the period of distress, expecting eventual economic recovery to lead to a resumption of payments. But, for the most part, payment resumption requires that creditors come to the negotiating table to rewrite the defaulted debt contracts. Such a "composition" or "restructuring" scales down the sovereign's obligations and causes it to return to health quickly. In theory, this makes both the sovereign and its creditors better off. There are practical barriers to be overcome before a composition can be concluded. …

On What A "Private Attorney General" Is-And Why It Matters

Abstract: Although the phrase "private attorney general" is commonly employed in American law, its meaning remains elusive. The concept generally serves as a placeholder for any person who mixes public and private features in the adjudicative arena. Yet there are so many players who mix public and private functions in so many different ways that the idea holds the place for a motley cast of disparate characters. My goal in this Article is to map these mixes-to distill from the singular private attorney general concept a range of distinct private attorneys general-and then to show why this new taxonomy is a helpful heuristic device. Specifically, I argue that the new taxonomy illuminates a weakness in the governing model of the class case. Scholars loosely associated with the law and economics movement have helpfully described class action lawsuits as presenting a classic agency problem: class action attorneys (agents) pursue the interests of their class member clients (principals) with little oversight or control. Consequently, class action scholarship has focused on identifying ways to better align the interests of the agents with those of their principals. This obsession with agent incentives assumed, without significant investigation, that there existed a stable group of principals with easily-identifiable interests. My typology demonstrates that different types of private attorneys general serve different types of principals, each of which combine public and private interests in different ways. If the goal of class action law is to align the attorneys' interests with those of their clients, it is necessary to identify clearly the precise nature of these underlying principals. That is the contribution of this piece. I. INTRODUCTION May 17, 2004 marked the fiftieth anniversary of the Supreme Court's decision in Brown v. Board of Education.1 This precise day also marked the sixty-first anniversary of the Supreme Court's first use of the phrase "private attorney general."2 For about three decades after this initial 1943 appearance, the private attorney general concept surfaced only occasionally in the legal literature. Starting in the 1970s, however, its presence became quite regular, and that regularity has escalated steadily to the present: on average, during the past fifteen years, every single workday, somewhere in the United States, some judge has written a legal opinion or some scholar has penned an article invoking the private attorney general concept.3 That the phrase is employed so frequently suggests its utility as a concept. What is odd, though, is that when probed, the concept proves surprisingly mercurial.4 The phrase is sometimes used to refer to plaintiffs,5 occasionally used to refer to defendants,6 and typically used to refer to lawyers.7 (What other concept is so malleable that it can be deployed to signify either a plaintiff or a defendant, a lawyer or a client?) Legislatures create private attorneys general by statute, but before they did and when they have not, courts have created them by judicial decision, and executive agencies by fiat.8 Congress creates private attorneys general, but so do state legislatures, state courts, and state administrative agencies.9 The phrase is an integral part of the doctrine of standing10 and of the rules concerning attorneys' fees.11 In its single most important decision about private attorneys general, the United States Supreme Court ruled that the Constitution necessarily restrains the concept, while simultaneously implying that courts of equity nonetheless retain inherent powers to propagate it.12 If there is any fixed star in this constellation, it is that the private attorney general is a placeholder for any person who mixes private and public features in the adjudicative arena. Yet even that compass point proves elusive, as there are so many players who mix public and private functions in so many different ways that the concept holds the place for a motley cast of disparate characters. …

Brown, the Civil Rights Movement, and the Silent Litigation Revolution

Abstract: Brown v. Board of Education had two collateral effects on the legal profession. First, it created a new set of professional heroes-plaintiffs' lawyers pursuing social reform through litigation. Second, it began the gradual deregulation of the bar, particularly the plaintiffs' bar. Both changes reached well beyond the original civil rights arena, and both continue to shape the legal profession and the economics of civil litigation. I. INTRODUCTION One doubts that Robert Carter, Thurgood Marshall, Spottswood Robinson, Jack Greenberg and the rest of the legal team that argued Brown v. Board of Education1 spent much time thinking about mass torts. Nonetheless, it is entirely appropriate that a commemoration of their achievements include not only that topic but also international human rights and health care, as well as the more expected ones of education and social welfare. Brown was part of a revolution, and revolutions often have collateral effects as important as their immediate consequences. The civil rights movement followed the same pattern. As an immediate consequence, that movement brought us school desegregation. Follow-on effects included desegregation of public facilities. These were important milestones in U.S. society. They achieved specific changes, but they also made possible the second civil rights revolution-the legislative actions that have, in the last four decades, transformed U.S. society. Beyond race and civil rights, Brown created several ripples, two of which provide the focus for this Essay. First, Brown and the civil rights litigation movement helped create a renewed belief, not just in the law, but more specifically in litigation as a noble calling and as an avenue for social change. That belief lies open to challenge, and it can leave students and lawyers frustrated at the distance between the aspirations that brought them to law school and the world of practice as they perceive it. But whether or not it is well-founded, this belief, with roots traceable to Brown and civil rights litigation, has endured for several generations. Thus, Brown reshaped the aspirations of lawyers in ways that are still important. Second, Brown constituted an important step in the restructuring of the U.S. bar. One of Brown's progeny, NAACP v. Button,2 marked a first step in the relaxation of bans on solicitation and the marketing of lawyers. In the wake of Button came greater changes. Collectively those changes remade the world of practice, particularly on the plaintiffs' side of the bar. We now have political candidates who regularly campaign for or against the "trial lawyers," by which they mean the plaintiffs' bar.3 To put this in perspective, it is unthinkable that any national political candidate in 1954 would have even thought it plausible to have a position on the plaintiffs' bar. While Brown did not create this world, it constituted a very powerful symbol of litigation as a transformative force, and the power of that image helps explain the fact that the plaintiffs' bar regularly depicts itself as the defender of constitutional rights. Brown and its sequels made that slogan both plausible and attractive. It gave to the plaintiffs' bar, which was starting to reshape its finances and practice setting, an image that involved more than vehicular accidents: plaintiffs represented by this bar were, like the plaintiffs in Brown, vindicating rights suppressed by the defendants. II. BROWN AND THE CULTURE OF LAWYERS Brown gave us a model for social change through litigation, a model in which civil litigators of sufficient dedication and creativity could bring about deep, important social changes. That belief itself marked a new vision of legal change. Although several earlier generations of crusaders had sought social change, Brown's successful use of litigation as an agent of social change marked a departure. In the previous century, abolitionists had tried to use the law to free slaves, but their struggle used legislation and direct action. …

A Team Production Theory of Bankruptcy Reorganization

Abstract: This paper extends Professor Margaret Blair and Lynn Stout's pathbreaking Team Production Theory of Corporate Law to the bankruptcy reorganization of public companies. The paper begins by describing the prevailing contractarian theory of bankruptcy reorganization, the Creditors' Bargain Theory propounded by Professor Thomas Jackson in 1982. The paper briefly describes the Team Production Theory of Corporate Law and then projects the consequences of that theory for the firm in bankruptcy. The final part of the paper compares the Team Production Theory of Bankruptcy Reorganization with the Creditors' Bargain theory, reaching two conclusions. First, the Team Production Theory of Bankruptcy Reorganization describes the bankruptcy system more accurately than does the Creditors' Bargain theory. Second, if the empirical assumptions underlying the Team Production Theory of Corporate Law theory are accurate, the ex ante maximization recommended by the Team Production Theory of Bankruptcy Reorganization will better serve the goal of economic efficiency than the ex post maximization recommended by the Creditors' Bargain theory. [S]ociety must insist on the maintenance of the "going concern" and must if necessary sacrifice to it the individual rights of shareholders, creditors, workers, and, in the last analysis, even of consumers. - Peter Drucker1 I. INTRODUCTION In the year before United Airlines filed for bankruptcy reorganization, the firm lost $3.2 billion.2 Fierce competition in the airline industry prevents United from stemming its losses solely through increases in revenues. Costs will have to be cut. The necessary expense reductions could come from reductions in employee pay and benefits, reductions in the amounts owing to creditors (which reduce interest expense), or both. Which should it be? United's situation is complicated by the fact that its employees own 55 percent of its stock and that their wage levels are protected by a collective bargaining agreement.3 But if we assume those protections away, we reach a fundamental issue that has divided bankruptcy scholars for two decades: whose interests should bankruptcy reorganization serve? The currently prevailing contractarian theories of the firm and of bankruptcy recommend cutting labor costs first. Bankruptcy, these theorists postulate, exists solely for the benefit of the creditors and shareholders of the firm. The theorists recognize that the interests of employees, suppliers, customers, and communities should be taken into account to the extent particular members of those constituencies are creditors with enforceable legal rights against assets under nonbankruptcy law. But they assert that to take any other interest of those constituencies into account would-as one writer put itconstitute "prima facie theft."4 The theorists' first premise derives from the agency theory of the firm. Shareholders own the firm. The board of directors, the managers, and the employees are the shareholders' agents, mere hired hands. When the firm is insolvent, ownership shifts to the creditors. In bankruptcy reorganization, the owners' interests, and theirs alone, are to be served. Debt, it follows, should be cut only as a last resortafter any possible cuts in labor costs. Another group of bankruptcy scholars, sometimes referred to as "traditionalists," are of the less elegant view that bankruptcy exists to serve a variety of policies and therefore a variety of interests. Their answer to the hypothetical is that the losses should be shared among all interested parties, including creditors and shareholders. Because their arguments are noncontractarian and do not place economic efficiency first, they fall on deaf contractarian ears. The two groups talk past one another.5 In 1999, Professors Margaret Blair and Lynn Stout introduced a new and powerful contractarian theory of the public corporationone that only now is beginning to have its impact. …

Beyond "Unlimiting" Shareholder Liability: Vicarious Tort Liability for Corporate Officers

Abstract: Although limited liability is the primary benefit of the corporate form, it continues to generate controversy. In this Article, Professor Glynn argues that extending vicarious tort liability to corporate officers is the best way to retain the benefits of limited shareholder liability while reducing its social costs. Some commentators defend limited shareholder liability; others contend it inflicts excessive costs, including encouraging unduly risky corporate activities. These costs are most pronounced in the tort context because tort victims rarely are able to protect themselves through monitoring corporate activities or bargaining with corporate actors. Proposed reforms almost always focus on extending liability for corporate activities to some or all shareholders. To date, however, the discussion has largely overlooked a more promising solution: holding top corporate officers responsible for the torts of their enterprises. Professor Glynn argues that extending vicarious liability to high-ranking corporate officers, rather than to shareholders, is the most efficient and realistic way to ensure that firms internalize tort risks. Given their unique role, these officers are the firm's most efficient risk bearers: they are best situated to monitor and avoid risks, and to implement efficient levels of risk spreading among customers, shareholders, and insurers. And officer liability, unlike shareholder liability, cannot be evaded through judgment proofing techniques. Ultimately, Professor Glynn's proposal synthesizes modern tort theory and corporate law theory, and offers a viable resolution to the lingering tension between limited liability and the aims of our tort regime. I. INTRODUCTION Debate continues to rage over limited shareholder liability and the social costs it imposes.1 While proposals flourish for imposing liability on shareholders to reduce these costs, little attention has been devoted to a more promising solution: vicarious tort liability for high-ranking corporate officers. Limited shareholder liability produces benefits, but it also inflicts costs, including encouraging excessively risky corporate activity. These costs are most pronounced in the tort context because potential tort victims rarely can protect themselves by monitoring corporate activities or bargaining with corporate actors. Commentators disagree on limited shareholder liability's net impact on social utility and what, if anything, should be done to change limited liability. Some defend the current regime as efficient or at least preferable to alternatives, even in the tort context.2 Others propose curtailing limited liability, arguing that vicarious liability for corporate torts ought to extend to some or all shareholders in closely held corporations,3 or that courts ought to "pierce the corporate veil" more often.4 Still others have gone much further, arguing that liability for corporate torts should extend to all shareholders.5 Few, however, have seriously considered extending vicarious liability to the firm's other primary stakeholders, corporate management.6 Most who have addressed the idea have dismissed it with little analysis.7 In this post-Enron environment of concerns over corporate accountability and participant behavior, it is time to take seriously the option of holding top corporate officers responsible for the torts of their enterprises. In a recent Columbia Law Review article, Professor Nina Mendelson offers the most thorough analysis to date of limited shareholder liability's moral hazard, i.e., its encouragement of excessively risky activities.8 Building on existing scholarship, she contends that the efficiency-based arguments in favor of limited shareholder liability fail to take into account qualitative differences among shareholders, that these arguments at most support limited liability only for small or passive investors, and that the limited liability of controlling shareholders for corporate torts harms social utility. …

The Role of Opt-Outs and Objectors in Class Action Litigation: Theoretical and Empirical Issues

Abstract: We study 236 cases in which we could ascertain quantitative information about the number of objectors, 159 cases with quantitative information about the number of opt-outs, 205 cases with both the size of the class and the number of objectors, and 143 cases with both the size of the class and the number of opt-outs. Opt-outs from class participation and objections to class action resolution are rare: on average, less than 1 percent of class members opt-out, and about 1 percent of class members object to class-wide settlements. Opt-out-rates and objector rates can be partly explained by observable factors in a particular case. Aside from variations across case types, the most significant factor explaining opt-out and objector rates is the recovery per class member. We do not find robust evidence that the rate of opt-out or objection is associated with the level of attorney fee or the fee's proportion of the client's recovery. Class dissent does not appear to increase when the fee is high, nor does dissent appear to exert a notable moderating effect on fees. The class's recovery is the overwhelmingly dominant feature in shaping the fee level. As predicted by theory, rates of dissent decline as the number of class members increases. The rate of objection to a settlement is negatively correlated with the likelihood that the settlement will be approved. However, we find no evidence that the opt-out rate has any effect on settlement approval. Although dissent rates have never been high, they exhibit a noticeable decline between 1993 and 2003. Class actions are a useful means for achieving economies of scale in litigation, facilitating the prosecution of claims that would be uneconomic to litigate individually, and strengthening enforcement of the laws. These advantages can be obtained only because the class action brings before the court the claims of absent parties - people who may not even know that their rights are being determined in absentia. Because class action judgments are entitled to res judicata effect, the procedure can foreclose significant rights of parties who do not wish to release their claims or who may not even wish for the litigation to occur at all. The problem is particularly acute in the case of damages class actions under Rule 23(b)(3), a procedure that allows for forced consolidation of individual claims that, aside from practical considerations, could theoretically be litigated individually without impacting the interests of other claimants. This tension between the advantages and disadvantages of adjudicating the rights of absent parties is a pervasive theme in class action law. The framers of the current Rule 23, adopted in 1966 and revised from time to time thereafter, understood this tension and included measures designed to ameliorate it. The commonality, typicality, and adequacy-of-representation requirements of Rule 23(a) work to ensure both that the interests of absent class members are effectively served by competent and loyal counsel and that the representative plaintiff is not disabled from properly performing his or her role. Settlements of class actions must be reviewed by the court and found to be fair, adequate, and reasonable to the class.1 Notice of any settlement must be distributed to the class under court supervision.2 As to (b)(3) class actions, in which the problem of absent parties is most acute, the rules also require that the class members receive the best notice of class certification practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.3 Perhaps the most innovative requirement under the current Rule 23 - one not present under the pre-1966 iteration of the rules - is a provision allowing class members to exclude themselves from the class in a (b)(3) case.4 Over time, this procedure, commonly known as an "opt-out," has developed into a fundamental part of class action practice.5 Indeed, the right to opt-out provides a key premise for many of the basic principles that shape the (b)(3) action-jurisdiction over absent parties, due process considerations, judicial review of settlements, awards of attorneys' fees, and more. …

File Early, Then Free Ride: How Delaware Law (Mis)Shapes Shareholder Class Actions

Abstract: Delaware courts largely have privatized enforcement of fiduciary duties in public corporations and have expressly acknowledged this judicial policy. The Delaware courts also recognize that so encouraging private enforcement creates an obvious danger: Plaintiffs' attorneys, especially in class actions where there is no strongly interested plaintiff, may make litigation-related decisions primarily with a view to advancing their own economic interests, rather than advancing the interests of the corporation or shareholders that they purport to represent. Such decisions have the potential to impose substantial, litigation-related agency costs on corporations, shareholders, and the courts, if not appropriately curbed through judicial monitoring of settlements and fee awards. This Article examines the development of Delaware law with respect to merger-related class actions, which have become the dominant form of shareholder litigation in Delaware. We offer two broad alternative hypotheses as to what drives merger-related class actions in Delaware: a "shareholder champion" hypothesis and a "self-interested litigator" hypothesis. We then examine intensively all large mergers in 1999-2001 where the target was a publicly traded Delaware company and all class actions filed with respect to those mergers. We conduct statistical analyses as well as a detailed qualitative analysis of the 104 class actions filed during those years. The pattern that we observe is redolent of a pattern of opportunistic filings, of a lawyer-driven process rather than a true client-driven process: systematic behavior with respect to which mergers were challenged; early and frequent complaints filed; a very high percentage of dismissed cases never reached a judgment on the merits; the absence of a single case that has been decided in favor of the plaintiffs on the merits; settlements tending to reflect free riding by plaintiffs' attorneys; plaintiffs' attorneys failing to challenge special negotiating committees' decisions or competing offers; attorneys with "real" clients and from outside the "traditional" Delaware plaintiffs' bar who were far more vigorous in their litigation efforts; no settlements overturned by the Delaware courts; plaintiffs' attorneys' fee awards in settlements usually paid by defendants and not out of common funds, and largely unchallenged; and plaintiffs' attorneys' fees representing a strikingly low percentage of claimed recoveries (but attractive on an hourly basis), which may well indicate that the attorneys added little value to the recoveries. We then offer suggestions as to changes in pleading standards and the Delaware courts' approach to reviewing settlements and plaintiffs' attorneys' fees that would help curb the excesses of class action litigation without seriously undermining the constructive role that plaintiffs' attorneys have the potential to play in policing corporate misgovernance with respect to mergers. I. INTRODUCTION Delaware courts have largely privatized enforcement of fiduciary duties in public corporations. In In re Fuqua Industries, Inc. Shareholder Litigation,1 Chancellor Chandler expressly acknowledged this judicial policy. He noted that Delaware courts implement it partly by allowing private attorneys, working on a contingent fee basis, to initiate and maintain derivative and class actions in the names of "nominal shareholder plaintiffs."2 Attorneys are subject only to the relatively weak constraints that they must inform their "clients" and receive their consent before they file shareholder suits. Further, Delaware courts use cost and fee shifting mechanisms to "economically incentivize"3 those attorneys to initiate such suits.4 Chancellor Chandler also explained that Delaware courts have adopted this policy because they believe that the plaintiffs' bar is capable of performing a valuable "service on behalf of shareholders."5 Plaintiffs' attorneys understand "abstruse issues of corporate governance and fiduciary duties"6 far better than do most shareholders. …

The Muddled Duty to Disclose Under Rule 10b-5

Abstract: In recent years, courts have struggled with the affirmative duty to disclose in private securities litigation, particularly under Rule 10b-5. This Article survey a series of "muddles" in the law of securities fraud - relating to obligations pursuant to SEC line-item requirements, fiduciary duties, issuer sales and repurchases, prior and contemporaneous disclosure and the remnants of "flexible duty" analysis - to show how courts became confused and what the consequence of that confusion has been. In general, this confusion reflects a combination of ambiguous signals from the Supreme Court and judicial disagreement about what the normative basis is for thinking through hard "duty" problems. On the latter, this Article distinguishes between two plausible theories for answering duty questions - a "tort-type" approach that simply asks whether a reasonable investor would likely be misled by the nondisclosure, and a "property-type" approach that more aggressively creates expectations on which investors can rely. It ends with a set of suggestions for simplifying the problems in the case law. To this end, the Article suggests that insider trading reasoning and dicta be confined to that specific subject and not readily applied to other kinds of disclosure questions. It urges that issuer disclosure questions be addressed in a "tort-type" fashion, essentially leaving this body of law to the SEC to address by rule if more aggressive informational entitlements are appropriate. It contends that SEC line-item requirements do create a duty to disclose under Rule 10b-5. And it argues that the "flexible duty" approach retains vitality. Finally, connecting to concerns raised by others in this Symposium, it shows that concerns about private securities litigation abuse have contributed to some of the law's confusion, creating an unfortunate legacy even after Congress intervened to resolve those problems by other means. Because the federal securities laws are, at heart, about disclosure, the question of whether and when there is a duty to disclose is often the central question in any given case. Certainly, the Securities & Exchange Commission (SEC) has broad powers to compel disclosures by issuers and certain others and has crafted a mandatory disclosure regime that creates many explicit duties. For a variety of reasons, however, this explicit regime falls short of a comprehensive answer to the duty question. For some sixty years now, the hardest duty questions have been addressed under the rubric of fraud, mainly under Rule 10b-5, the principal antifraud provision of the securities laws.1 Over those years, some questions have been settled. For example, a person who chooses to speak in a manner reasonably calculated to influence investors assumes the duty to speak truthfully.2 The difficult duty questions arise mainly when there is silence about some material fact, either because the person in question has said nothing at all or because what was said was not a clear misrepresentation of the truth. There is a considerable amount of confusion in the case law on the duty question, which motivates this Article.3 This confusion is surprising precisely because duty is so central and because the courts (and the SEC) have had so long to work on it. The story is one of twists and turns. Prior to 1980, the courts and commentators were struggling with the affirmative duty to disclose mainly by invoking flexible, open-ended obligations.4 This was so both in insider trading the area that generated the largest number of duty questions - and in other settings, such as the issuer's duty to disclose some facts immediately rather than wait for its next mandatory filing. This approach shifted abruptly in Chiarella v. United States, when the Supreme Court announced in dicta that "[w]hen an allegation of fraud is based upon nondisclosure, there can be no fraud absent a duty to speak" and that such a duty arises only when one party has information "that the other is entitled to know because of a fiduciary or similar relation of trust and confidence between them. …

Litigated Learning and the Limits of Law

Abstract: The fiftieth anniversary of Brown v. Board of Education warrants celebration, but not one that deflects careful analysis of the decision's influence on school desegregation in particular and equal educational opportunity more generally. The popular mythology that has emerged during the past five decades emphasizes the Supreme Court's critical role in securing equal educational opportunity for all students. While the Brown decision achieved important-indeed seminal-successes, many of the challenges the decision and its implementation encountered persist, and new ones have emerged. Current public school desegregation data reveal a picture that is far from pretty and one that complicates the legacy of Brown. One important consequence of the Brown decision, however, is that it inspired secondary and tertiary waves of litigation seeking greater education equity. A brief review of the litigation terrain covered since, and stimulated by, Brown reveals two major themes. First, the equal educational opportunity doctrine has evolved considerably over time. Today, education reformers (and litigants) increasingly construe equal education in terms of resources and, even more recently, student academic achievement rather than race. second, current efforts endeavoring to secure greater educational opportunity increasingly pivot around indicia of student academic achievement and, by implication, teaching and learning-activities located inside schools and classrooms. If litigants found it difficult to penetrate factors located outside schools (school desegregation and finance), litigants will likely encounter even greater difficulty when they venture inside schools and classrooms. The resilience of student academic achievement to even successful litigation underscores its inherent complexity, nonlegal components and, more generally, structural limitations of law and litigation as tools to achieve desired social change. Moreover, navigating through such battles will likely place at least as much of a premium on collaboration as adversarial litigating. Thus, if my two central claims are correct, the more complicated litigation efforts of the future will require manifestly greater effort-and greater effort alone will not ensure success. I. INTRODUCTION The fiftieth anniversary of Brown v. Board of Education1 certainly warrants well-deserved celebration, but not one that deflects careful analysis of its legacy. Brown's legacy and what it says about the efficacy of litigation as a vehicle to achieve social change mean different things to different people. Perspectives on what Brown "means" and what it has accomplished vary tremendously and reveal just as much about ourselves as they do about the decision itself.2 This ambiguity invariably muddles Brown's legacy. I argue that Brown's legacy does not bode well for future litigation efforts seeking to enhance the equal educational opportunity doctrine, principally due to how the doctrine has evolved during the past fifty years. Even if one concludes that Brown succeeded in the school desegregation context (itself a contested point), the nature of equal educational opportunity contests has changed over the decades in ways that make them even less amenable to litigation. Unlike past efforts, emerging litigation focuses more directly on student academic achievement rather than on race or school funding. Academic achievement implicates teaching and learning activities - activities located deeper inside schools and classrooms, and consequently, further from litigation's reach. If past education reformers and litigants found it difficult to influence such factors as school demographic profiles and funding levels, litigation efforts seeking to influence student achievement will likely encounter even greater difficulty. Furthermore, this substantive legal area's insulation from even successful litigation underscores its inherent complexity, the salience of nonlegal components and, more generally, the structural limitations of law and litigation as tools to achieve desired social change. …

Accommodating Technological Innovation: Identity, Genetic Testing and the Internet

Abstract: To evaluate the need for legal change stemming from technological innovation we need to look beyond the accommodations of specific rules and on to the impact of technological innovation on social structures, institutes and values. In this Article I study how social tensions created by recent technological innovations produce a need to elevate a legal interest ptfrom the shadows of legal discourse into the forefront of legal debate. Specifically, I examine two innovations that are exerting significant influence on our lives-genetic testing and the Internet-and their impact on our normative conception of identity. This socially oriented approach leads to several insights. First, I show that a host of seemingly unrelated social and legal controversies emanating from these technologies can be traced to a common tension. I demonstrate that by altering social structures through which we perceive our identity, genetic testing and the Internet induce novel societal tensions Secondly, I find that despite the role identity tensions play in controversies implicating genetic testing and the Internet, these tensions are not addressed in the legal debate. Furthermore, I show that our legal tools often fail to even indirectly protect identity interests. The study of identity tensions, therefore, uncovers a need for legal adjustment to accommodate the social changes resulting from the diffusion of these new technologies. The failure to address identity interests combined with the frequent failure to provide for their protection calls for the incorporation of identity interests into our legal debate. Identity interests need to be considered in controversies as diverse as the physician's duty to warn relatives of a patient's genetic condition and commercial profiling on the Internet. Specifically, I propose two potential resolutions: (i) direct incorporation of an independent identity interest; and (ii) indirect incorporation through the readjustment of existing doctrinal tools. I suggest that the pressures applied by the new technologies make both options viable by creating the need for inducing long overdue changes in our traditionally conservative legal discourse. I. INTRODUCTION History demonstrates the ability of technological innovation to bring about legal change. It shows that technological innovation can both create and bring to the forefront legal values that for years lurked in the shadows of legal discourse. The creation of privacy and its long trail of expansion is a prime example of the force technological innovations have in shaping legal values. In a sense, privacy protection is the offspring of photography and the progeny of wiretapping.1 Yet, it is well known that the law lags behind technology.2 Legal failure to accommodate technological innovation is traditionally related to the nature of the common law legal system. Specifically, such failures are tied to the difficulty of transforming legal doctrine due to the need to rely on precedent and analogy.3 Consequently, the need for legal change is evaluated in a fragmented manner within the framework of specific rules. Legal analysis focuses on whether an existing law can be used to govern a new technology. For example, a typical judicial inquiry would analyze how the Electronics Communications Privacy Act, which was created to govern communication modes that preceded the Internet, can be applied to Internet technology.4 Our assessment of the need for legal change is hence fragmented into doctrinal categories. Although major technological innovations often create the need and the conditions for transforming the legal landscape, the potential for legal change is impeded by doctrinal fragmentation. Fragmentation obstructs our ability to fully understand the social impact of a technological innovation. It limits our capacity to correctly evaluate the need for legal change, consequently affecting our ability to provide the appropriate legal resolutions. …

The Law of Trade Secrets: Toward a More Efficient Approach

Abstract: I. INTRODUCTION Trade secret law must efficiently protect that which can be considered a trade secret.1 Were the law to provide too little protection, information protected as a trade secret would not be created. Were the law to provide too much protection, competition would be unnecessarily stifled. Only efficient protection, meaning neither too little nor too much, appropriately addresses the unique nature of trade secrets as intellectual property. Such a conclusion becomes increasingly necessary given the rising import of trade secret law in the spectrum of intellectual property.2 "It is the policy of the law, for the advantage of the public, to encourage and protect invention and commercial enterprise."3 With this, the first sentence in Peabody v. Norfolk, states began to recognize that the law must protect commercial secrets to insure that those secrets will be developed.4 Despite the threats of preemption by the federal patent scheme,5 state trade secret law remains essential to providing incentives for innovation.6 In addition, courts have noted that trade secret law exists to institute a form of commercial morality, to impose certain ethical standards on business relationships.7 Absorbed by this potential of mandating morality, courts have molded trade secret law in ways that frustrate the notion that trade secret law should provide efficient incentives to create.8 The ultimate focus of this Note is to identify the truly efficient nature of the protection afforded by state trade secret law.9 Further, this Note seeks to identify the importance of efficient intellectual property protection.10 This Note contends that courts should abandon those aspects of trade secret law more recently grafted onto its efficiency underpinnings with hopes of mandating commercial morality. Part II first identifies the need for promoting efficient outcomes through intellectual property laws. Part II continues by discussing the extent to which the two most relevant forms of protection granted to commercially valuable ideas, trade secret law and patent law, create efficient outcomes. Part III identifies the current state of trade secret law. Finally, Part IV presents a form of trade secret law that appropriately promotes the law's efficient outcomes. II. INTELLECTUAL PROPERTY AND EFFICIENCY Trade secret law, unlike any other form of intellectual property, grants a property right that is limited by competitive forces.11 As such, trade secret law, so long as it is untainted by the potential of mandating commercial morality, is uniquely efficient. Legal protection of intellectual property is absolutely necessary.12 This result becomes clear when we consider the choice facing innovators if the law did not provide protection for intellectual property.13 Without possible legal protection, benefits accruing to innovators from information developed after extensive expenditures would continue only as long as innovators could keep this information secret.14 Once the information became public, competitors would begin to sell products, which use or embody the innovation, that would compete with those developed by the original innovator.15 Because the competitors would not have incurred the substantial costs associated with developing the innovation, those competitors would charge lower prices than would the original innovator.16 Thus, the original innovator would be quickly priced out of the market.17 Faced with such a legal regime, innovators would expect fewer benefits from new innovations than they expect under the existing regime because of the additional suppliers infused into the market. Also, innovators would expect to incur higher costs attempting to maintain secrecy than they currently expect.18 Rational actors would be deterred from developing information at the rate it is currently developed.19 Thus, the problem necessitating the law's provision of additional protection is a lack of natural exclusivity. …

With All Deliberate Speed: Civil Human Rights Litigation as a Tool For Social Change

Abstract: In Sosa v. Alvarez-Machain, the United States Supreme Court confirmed the jurisprudential validity of suits brought under the Alien Tort Claims Act to enforce international human rights norms. This Essay is concerned with the strategic and normative questions that remain, such as how to maximize the impact of these cases and ensure that they advance the human rights movement's norms and ideals. Taking off on the model of "public impact" litigation inaugurated, or at least exemplified, by Brown v. Board of Education, this Essay discusses the various "impacts" human rights litigation in the United States can have on plaintiffs, their communities, defendants, potential defendants, the human rights movement, and other processes of social change in target countries. As this Essay discusses, a necessarily impressionistic survey of the results of ATCA-style cases filed to date reveals that these impacts are most salient on the parties involved and their immediate communities, especially as a function of corrective justice. The broader impact of human rights litigation is more speculative, as it remains difficult to measure to what degree ATCA-style litigation has contributed to the deterrence of perpetrators and ultimately the reform of states' treatment of their citizens and others within their control. Because these confirmed first order effects remain worthy of praise and replication, the lack of empirical "proof" of broader second order effects does not undermine this effort. Indeed, practitioners of ATCA-style litigation should be wary of espousing an overabundance of objectives for this litigation at the risk of overshadowing what these cases do accomplish for individual victims of human rights abuses. Likewise, human rights advocates should not pin their hopes on achieving these broader impacts at the expense of their clients and their clients' experience with the litigation process. Notwithstanding the first and second order effects that have been achieved, this Essay cautions that such litigation should not replace other forms of human rights advocacy. An overreliance on adversarial litigation, as opposed to other processes of social change, raises some of the same concerns that surface in the civil rights context about the efficacy of resorting to law to promote durable social change and the ability of the judicial process to address major social and economic problems. Rather, human rights litigation must be pursued as one component of a multifaceted strategy toward the enforcement, broadly defined, of human rights norms. As the potential for human rights enforcement in the classical sense becomes real, civil cases in U.S. courts will increasingly join other domestic and international institutions in their efforts to ensure comprehensive accountability for human rights abuses, develop enforceable human rights norms, provide redress for victims, and ultimately reform human rights conditions around the world. It has been said that Filartiga v. Pena-Irala1 is the Brown v. Board of Education2 of human rights litigation.3 Like Brown, Filartiga presents one of those rare "breakthrough moments" in law.4 In Filartiga, the Second Circuit confirmed that victims of human rights abuses abroad could seek legal redress in United States courts under the then-obscure Alien Tort Claims Act (ATCA).5 Filartiga thus inaugurated a steady line of cases in U.S. courts invoking the ATCA and related statutes6 to adjudicate international human rights claims. For a variety of reasons, including the very existence of these statutes, civil litigation has emerged as a prominent means for the promotion of international human rights norms in the United States.7 Beyond the shared status of the two cases as legal watersheds, the analogy between these cases-and indeed the premise of this Symposium Panel-merits greater scrutiny. Accordingly, this essay meditates on the way in which Filartiga and its progeny simultaneously fit within, and diverge from, the model of public impact litigation inaugurated-or at least exemplified-by Brown. …

Federalism and Drug Control

Abstract: Federalism issues have been neglected in the scholarship on drug control policy. This Article addresses both empirical and normative questions relating to federal-state-local relations in the "war on drugs." Contrary to common views of federal domination and national uniformity, drug control policy actually varies considerably from state to state. State diversity has increased since the mid1990s, when drug reformers began to use the ballot initiative to change state laws. While the federal government has contested these reforms, it has not sought to use its preemption powers to enforce federal preferences. The Article employs public choice models to explain the current federal role, giving particular attention to the unusual degree of "in-kind" assistance given by federal law enforcement officials to local police agencies. While such in-kind assistance helps to decentralize drug policy making and reduce agency costs, it also undercuts legislative control and public accountability. Leading theoretical models of federalism support the ideal of decentralized decision making in drug policy. Decentralization encourages policy innovation and enhances overall citizen satisfaction. While prior commentators have not fully appreciated the present degree of decentralization in drug policy, federal-state-local relations are nonetheless in need of reform, particularly to enhance legislative control and public accountability. Accordingly, the Article proposes reforms that are intended to reduce the federal distortion of drug policy debates at the state and local level, subject federal drug enforcement decisions to a greater degree of local political control, and increase the accountability of local law enforcement to local political institutions. The American "war on drugs" has given rise to a voluminous body of scholarly literature.1 Commentators have addressed such important topics as the legality of particular drug enforcement practices,2 the effects of the drug war on families3 and minority communities,4 the "rebellion" of skeptical judges and prosecutors,5 and, more fundamentally, the relative merits of punishment, treatment, and legalization.6 Comparatively little work has been done, however, on what would seem a threshold question of utmost importance: which level of government-federal, state, or local-ought to have primacy in making and enforcing drug control policy? Which should have the authority to choose, for instance, whether punishment or treatment of drug users will be emphasized in a particular locale? And what role should the other levels of government play in implementing such a choice? Within the otherwise abundant drug policy literature, sustained treatments of federal-state-local relations are rare and increasingly dated.7 More than a decade ago, two distinguished commentators offered a critical observation that might apply equally well today: "[L]ittle attention has been paid to level-of-government issues in current drug policy discussions, and the allocations of responsibilities that take place seem haphazardly determined."8 The purpose of this Article is to address these neglected federalism issues in drug policy. A number of recent developments lend a new urgency to sorting out the current "haphazard" allocation of responsibilities. Not only has the Supreme Court revived the specter of constitutional constraints on federal regulatory power,9 but several states have adopted new drug laws that deviate markedly from enforcement oriented federal norms.10 The resulting federal-state conflicts threaten the integrity of national drug policies, generate unnecessary public confusion, and present a risk of real injustice to individuals caught in the middle. Consider, for instance, the case of Ed Rosenthal. The federal government brought marijuana cultivation charges against Rosenthal in early 2003.11 Rosenthal was, in fact, authorized by the City of Oakland to distribute marijuana for medicinal purposes pursuant to California state law. …

Human Rights Violations as Mass Torts: Compensation as a Proxy for Justice in the United States Civil Litigation System

Abstract: The landmark human rights cases that have been litigated to judgment or settled in the United States' federal court system during the past twenty years have borne witness to the existence and inhumanity of the massive genocides that marred the twentieth century These cases, notably the Marcos Human Rights Litigation, the Swiss Banks and German Holocaust cases, and the pending Talisman energy litigation, have created permanent records, and in many cases substantial compensation, for wrongs that might otherwise go unremembered, unconfronted, and unredressed The United States courts have provided an important, perhaps unique, forum for both formal recognition and monetary compensation These human rights cases have made contributions to our common law that exceed the justice they have provided to the victims of the respective atrocities that gave rise to them Human rights litigation has contributed important principles and procedures to other, more mundane, forms of mass commercial and mass tort litigation The Marcos litigation demonstrated that sampling methodologies could be utilized, in a constitutional manner, to facilitate the adjudication of many mass injury cases The multiphase class action trial structure that was upheld by the Ninth Circuit in the Marcos case has served as a trial structure model in other class actions The sampling procedure pioneered in Marcos, from which aggregate damages may be extrapolated, served as a model for sampling successfully utilized, among other contexts, in California employment class actions The Holocaust and Nazi-Era suits that were brought against German and Swiss banks, businesses, and governments have demonstrated the dangerous fallacy of granting formal or practical immunity to those in power, whether this power is derived politically or financially Human rights litigation has spoken truth to power In so doing, it has armed victims of more routine wrongs-such as exposure to environmental toxics, dangerous drugs, and deceptive financial practices-with the procedural power of an aggregated voice that our courts have now been challenged to acknowledge and deploy I INTRODUCTION On July 26, 2000, final approval was granted to a landmark $125 billion settlement of the claims of an international class of Holocaust victims against Swiss Banks that engaged in massive looting and misappropriation of assets entrusted to them by hundreds of thousands of Jews and other groups1 imprisoned, murdered, and dislocated by the Nazi regime2 The Swiss Banks complaints linked the actions of Swiss financial institutions to the Nazi regime and its program of genocide3 The Swiss Banks litigation was brought and settled under federal class action rules4 in the United States District Court for the Eastern District of New York The class action was brought on behalf of five plaintiff classes,5 whose members resided in over fifty countries and spoke over thirty languages6 Most of the court-appointed class counsel either served without fee in the five-year prosecution and settlement of the litigation or donated their court-awarded fees to international human rights endeavors7 On December 5, 2000, a second court, the United States District Court for the District of New Jersey, approved an international diplomatic/legal agreement creating a foundation titled "Remembrance, Responsibility and the Future," (the "Foundation"), funded with DM $10 Billion (approximately $5 billion USD) The funding for the Foundation was contributed in equal shares by the German government and German industry, to compensate those who worked as slave or forced laborers for the Nazi regime in German factories, were subjected to medical experimentation, were held in Kinderheims (children's homes)8 or whose property or assets were misappropriated9 Again, this litigation was brought, and its claims were settled, on behalf of an international class of Holocaust victims, survivors, and their families …

School Funding Litigation: Who's Winning the War?

Abstract: School funding litigation has its roots in Brown v. Board of Education and addresses the unresolved remnant in Brown's attack on the separate but equal doctrine by advocating for greater equity in school funding. Battles over school funding have been waged on many fronts nationwide, including efforts to influence public opinion and attempts to pass remedial federal and state legislation. When these efforts failed to provide adequate remedies, funding equity advocates turned to litigation. Despite a loss by plaintiffs at the United States Supreme Court in San Antonio v. Rodriguez, plaintiffs followed Justice Marshall's cue in Rodriguez and turned to state courts and state constitutions for school funding remedies. The litigation that followed the Supreme Court of California's landmark school funding equity decision in Serrano v. Priest has touched every state to some degree, with most states experiencing full scale legal challenges to their systems of funding public schools. To date, the highest courts in thirty-six states have issued opinions on the merits of funding litigation suits, with nineteen courts upholding state funding systems and seventeen declaring the system unconstitutional. This Article examines how the landscape of school funding litigation has changed over the three decades since Serrano and Rodriguez. The first part of the Article sets forth the history of school funding litigation since Serrano and Rodriguez and unravels the legal theories that have driven the school financing cases, explaining past dispositions and pointing out likely future trends. The second part of the Article examines the role of the courts in school funding litigation and analyzes the extent to which judges in these cases have become involved in matters that are traditionally left to the legislature and local control. This section explores the political issues that arise in school funding cases where, in contrast to federal judges, state judges are subject to direct public opinion and majoritarian pressures, including popular elections, review by the electorate, and recall votes. The Article considers whether the No Child Left Behind (NCLB) Act's "accountability" measures may have opened the door to a powerful new vein of litigation for plaintiffs in the war over school funding. The last part of the Article scrutinizes the efficacy of school funding litigation and considers whether even the most "activist" courts have actually helped plaintiffs achieve the desired reform. With large revenue shortfalls in most states, even the plaintiffs who believed that they had won the school funding litigation battle are still not sure of the outcome of the war. I. INTRODUCTION Much is being made this year in education law circles and elsewhere about the fiftieth anniversary of Brown v. Board of Education.1 The Brown decision has certainly left an indelible mark on schools and other institutions in the United States. But last year the thirtieth anniversary of another major Supreme Court opinion passed largely without comment, despite the fact that it may be the most significant decision regarding public schools since Brown. In 1973, the U.S. Supreme Court, in San Antonio Independent School District v. Rodriguez, concluded that education was not a fundamental right and that disparities in school funding among school districts do not violate the federal constitution.2 The Court's decision in Rodriguez effectively closed the door on plaintiffs who wished to use the federal Constitution and the federal courts as a vehicle for achieving greater equity in school funding. Yet Justice Marshall, in his dissenting opinion in Rodriguez, noted that "nothing in the Court's decision today should inhibit further review of state educational funding schemes under state constitutional provisions."3 Battles over school funding have been waged on many fronts nationwide including efforts to influence public opinion4 and attempts to pass federal5 and state6 legislation. …

Single-Sex Classes in Public Secondary Schools: Maximizing the Value of a Public Education for the Nation's Students

Abstract: I. INTRODUCTION Throughout the United States, school districts are struggling to educate their students in the face of drug problems, violence, and deteriorated home situations that permeate the lives of large numbers of today's teenagers.1 Many parents likewise face a daunting battle in helping their children attain an education that will enable those children to move beyond what their parents achieved financially.2 Additionally, recent economic downturns mean states have even less money to spend on education, forcing the quality of education in some already inadequate schools to fall further.3 Meanwhile, studies show that American children have fallen behind many of their foreign counterparts in academic evaluations. In light of these issues, many parents and schools are exploring alternative methods of educating students. Perhaps the best-known initiative is the school voucher movement in Cleveland, which the Supreme Court recently upheld.4 Charter schools, too, are becoming more popular with parents dissatisfied with their children's public school educations.5 Additionally, parents are becoming more likely to teach their children at home.6 Legislators and others interested in traditional public schools cite smaller class sizes and higher teacher salaries as ways of promoting achievement.7 One recently revived possibility for improving secondary education is the creation of single-sex classes and schools.8 Proponents argue that single-sex education decreases classroom discrimination, improves educational experiences for both boys and girls, and gives parents more choices from which to select the system of education that works best for their children.9 Proponents also believe that separating students by sex could increase the options available to poor and minority children, whose parents may not otherwise be able to afford the single-sex education traditionally offered only in private schools.10 Opponents contend that single-sex education presents the same legal issue as did Brown v. Board of Education: state-endorsed segregation of students.11 Segregation by gender, in opponents' eyes, threatens to erase the gains women have made over the past century.12 Opponents fear that men who have attended a single-sex school, and thereby have lacked contact with talented women, will be unable to recognize such women as equals. Likewise, girls in a singlesex environment and girls dealing with boys from a single-sex environment may find themselves limited to stereotypical gender roles.13 Before states and school districts can begin to address the social desirability of single-sex education, the legality and constitutional legitimacy of such programs must be resolved. Current Title IX regulations place limits on the ability of schools to restrict student access to classes on the basis of sex.14 Any state-sponsored sex discrimination also raises Equal Protection questions under the Fourteenth Amendment.15 While single-sex schools are permissible under the current regulations interpreting Title IX, school districts nervous about expensive lawsuits challenging the constitutionality of the schools often avoid them.16 While the constitutionality of single-sex programs has been addressed by multiple commentators, several important issues have been neglected. Single-sex schools have received the bulk of the scholarly attention. Single-sex classes are either lumped under the heading of single-sex education or not addressed at all.17 This Note details the strengths of single-sex classes. It then goes a step beyond establishing that single-sex programs in secondary schools can be constitutional to recommending steps that local governments and districts should take to comply with the mandates established by the Supreme Court in Mississippi University for Women v. Hogan and United States v. Virginia. The remainder of this Note will proceed as follows. Part II describes the legislative and regulatory position of single-sex education. …

Laying One Bankrupt Critique to Rest: "Sosa v. Alvarez-Machain" and the Future of International Human Rights Litigation in U.S. Courts

Abstract: In the half-century since the Supreme Court's decision in Brown v. Board of Education, rights consciousness has expanded beyond Brown's domestic constitutional framework. Twenty-five years after Brown, the Second Circuit Court of Appeals decided Filartiga v. Pena-Irala and thereby opened the courts of the United States to civil actions for the enforcement of internationally-guaranteed human rights under the Alien Tort Statute of 1789. Fifty years after Brown, the Supreme Court decided Sosa v. Alvarez-Machain, endorsing the essence of the Filartiga decision and its progeny and putting alien tort litigation where it had been before exaggerated interpretations of the ATS had gained an academic patina of "revisionist" legitimacy. In this Article, Professor Steinhardt demonstrates that the Alvarez-Machain decision is defensible to the extent that it lays the "revisionist" critique to rest and adheres to traditional principles of international law, statutory interpretation, federal jurisdiction, and federal common law. But he also argues that the Court innovated implausibly to the extent that it offered a counter historical interpretation of certain human rights instruments that is at odds with the evolved position of the courts and the United States government. The Article closes with a legislative proposal to address the issues that remain open in the aftermath of Alvarez-Machain and to assure that the Alien Tort Statute remains a viable, modest vehicle for the vindication of human rights. In offering a form of civil redress to the victims of international human rights violations, litigation under the Alien Tort Statute1 ("ATS") has come to reflect in microcosm the ways that international law and practice have changed in the last half century. Specifically, the successful ATS cases since the Second Circuit's seminal decision in Filartiga v. Pena-Irala2 illustrate the blurring of certain structural distinctions that had long given international law its characteristic shape, especially the distinctions between public and private international law, between treaties and custom, between state and nonstate actors, between international and domestic law, and between lex lata and lex ferenda.3 But in the aftermath of the epochal attacks of September 11, 2001, the modest progress made by international human rights litigators in Filartiga and its progeny has been threatened by the same forces that undermine the recognition of domestic civil rights, particularly through the executive branch's broad claims to law-free zones of power. The broadest critiques of the ATS have been that the private litigation of human rights violations complicates the war on terrorism, that it amounts to "plaintiffs' diplomacy" by interfering with executive branch prerogatives in foreign affairs, and that it threatens to impose a uniquely American form of liability on multinational corporations for their alleged complicity in human rights violations by the governments with which they do business. The narrower critique has centered on the more technical assertion that the ATS is purely jurisdictional and provides no private right of action; in other words, Congress must adopt additional legislation implementing an international human rights norm before it can be litigated under Section 1350. The ATS has also provided fresh context for decades-old battles over the constitutional status of international law, the scope of the self-executing treaty doctrine, and the problem of proving the content of customary international law.4 In Sosa v. Alvarez-Machain (Alvarez-Machain II),5 the Supreme Court resolved the most basic of these issues, but muddled others likely to arise in future litigation. To the extent that it adhered to doctrine dating to the founding of the Republic, the Court effectively put alien tort litigation where it was after Filartiga and before exaggerated interpretations of the ATS by its critics gained a patina of academic legitimacy. …

"No Provincial or Transient Notion": The Need for a Mistake of Age Defense in Child Rape Prosecutions

Abstract: I. INTRODUCTION Suppose a state legislature enacted a law making any theft a crime punishable by twenty years' imprisonment. Within this law was a provision precluding an accused from introducing evidence that he unwittingly took property to which he was not entitled. Suppose further that after this law was enacted, an elderly woman hung her black coat in a restaurant's lobby and, upon leaving, mistakenly retrieved another's black coat.1 Under the hypothetical statute, her mistake could neither hinder the prosecution's case against her nor be asserted by her as a defense. By inadvertently taking another's coat from a crowded restaurant, the woman could and would be convicted and sentenced to a mandatory twenty years in prison. Most would argue that such a statute would be egregious-it seems inconceivable that a legislature could turn an otherwise simple mistake into a top-level felony. However, most states have statutes or judicial rules with a similar effect in the area of sex crimes against children.2 Nearly every jurisdiction prevents a person accused of engaging in sexual intercourse with a child from introducing evidence that he did so under the mistaken belief that his paramour was above the age of consent, yet there is hardly the public outcry of injustice that one would expect if the hypothetical theft statute were enacted. On one hand, this is completely understandable. Protecting our children is of fundamental importance to our society, and rape, as the Supreme Court has said, is "the ultimate violation of self."3 Sexual predators who prey on children are considered among the most deviant members of society. Most, if not all, people rest easier knowing that anyone who engages in such activities is locked away for extensive periods of time. Moreover, pedophiles are viewed as heinous and vicious precisely because they actively prey on and derive sexual pleasure from children. It is for these reasons that statutory rape and child rape statutes carry such severe penalties, and rightly so. What happens, though, to the person who engages in sexual relations with a child only because he mistakenly believes his partner to be of age? Suppose, for instance, that a graduate student meets a girl at a college party. The girl enters the party with a group of friends, and seems comfortable in her surroundings; she even rebuffs some prospective suitors who attempt to dance with her and pour her a drink. The graduate student strikes up a conversation with this girl, and she tells him that she is a nineteen-year-old sophomore. Her physical appearance, dress, demeanor, and presence at such an event seem to confirm her representations. Shortly thereafter, the two engage in sexual intercourse. It is only then that the girl reveals that she is just shy of her thirteenth birthday. Under the law applicable in all but a very few jurisdictions, this graduate student would face a jail sentence of twenty years and would be unable to proffer any evidence of his mistake of the girl's age. While there is little dispute that the situation just described is implausible, it is not impossible. In fact, recent studies have shown that the onset of puberty occurs at an increasingly early age in girls and, according to an article published by the American Academy of Pediatrics, it is not abnormal for girls to enter puberty as early as age six or seven.4 The fact that a remote possibility is just that-a possibility-begs the question: is it unconstitutional for states to preclude a mistake of age defense in child rape cases? This Note answers this question in the affirmative. Indeed, its goal is to show that statutory preclusion of the mistake of age defense for a man accused of child rape is just as unconstitutional as the hypothetical preclusion of the mistake of fact defense for the errant coat thief. Although sexual intercourse with a child creates much more harm to both the victim and society than does a stolen coat, this Note attempts to demonstrate that disregard of an accused's criminal intent in committing a crime which carries severe penalties is antithetical to Anglo-American criminal jurisprudence, to a person's constitutional rights of due process, and to a person's constitutional right to present a defense. …

The Right of Access: Is There a Better Fit Than the First Amendment?

Abstract: I. INTRODUCTION James Madison once said, "a popular Government, without popular information, or a means of acquiring it, is but a Prologue to a Farce or Tragedy; or, perhaps both. Knowledge will forever govern ignorance: And a people who mean to be their own Governors, must arm themselves with the power which knowledge gives."1 For almost forty years, the Supreme Court has anchored the press's and public's right of access to government proceedings and information in the language of the First Amendment.2 Grounding the right of access in the language of the First Amendment is unsatisfactory not only because it goes beyond the scope of traditional First Amendment values, but also because it does not provide access to the amount of information necessary to ensure the proper functioning of our democratic government. A more intellectually honest, and ultimately more persuasive, conception of the right of access would recognize it as a systemic right, similar to the right to vote, that is both inherent in and essential to a republican system of self-government. Since an informed electorate is essential to the proper functioning of a democracy, access should be protected to the same extent as other systemic rights.3 Furthermore, courts have recognized that access serves several important functions in a democracy. Access acts as a check on the government, ensures that government does its job properly, enhances the perception of integrity and fairness in government proceedings, and most importantly ensures that the "individual citizen can effectively participate in and contribute to our republican system of self-government."4 These functions demonstrate the importance of protecting the right of access and the "openness" that it creates, but treating access as a speech right that is protected by the First Amendment fails to recognize that the right of access is more fundamental, that it is part of the foundation upon which the First Amendment is built. Part II of this Note explores the Supreme Court's historical definition of the right of access in First Amendment terms. Part III argues that the Court's traditional definition is unsatisfactory because it is inconsistent with other First Amendment doctrine. Consequently, the traditional definition does little to secure the ability of the press and the public to access government-held information. Part IV proposes an approach under which the right of access is recognized as a systemic right that is inherent in, and essential to, our established constitutional structure. Parts V and VI examine more recent language in Supreme Court opinions and in several "right to know" statutes suggesting that the right of access is a systemic right. Finally, Part VII considers some modern restrictions on the right of access following the September 11, 2001, terrorist attacks and suggests that these restrictions should be tailored to address the importance of the right of access in a democracy. II. THE SUPREME COURT AND THE RIGHT OF ACCESS The Supreme Court first considered the right of access not in the context of the constitutional protection of the press and the newsgathering process, but rather in terms of citizens' general right to access information regarding the functioning of the national government. For example, in Zemel v. Rusk, the petitioner raised a First Amendment challenge to the Secretary of State's refusal to validate his passport for travel to Cuba claiming the "travel ban is a direct interference with the First Amendment rights of citizens to travel abroad so that they might acquaint themselves at first hand with the effects abroad of our Government's policies, foreign and domestic, and with conditions abroad which might affect such policies."5 While the Court acknowledged that the travel ban restricted the free flow of information, it rejected the argument that citizens have a constitutional right of access emphasizing that "[t]here are few restrictions on action which could not be clothed by ingenious argument in the garb of decreased data flow. …

Appellate Courts, Historical Facts, and the Civil-Criminal Distinction

Abstract: The standard justification for the general prohibition against the evaluation of facts by appellate courts centers on those courts' perceived incompetence, relative to trial-level fact finders, to engage in the task. This Article examines that justification and finds it wanting. While trial courts and juries are indeed better-positioned to assess much of what takes place at trial, this advantage is not universal. An appellate court's access to and reliance on a transcript of the proceedings below confers on it certain advantages not only because it aids in information retention, but also because its textual basis allows the court to perform more complex intellectual operations with the evidence. Further, because-as research has consistently demonstrated-people perform poorly at using demeanor to determine whether a person is telling the truth, reliance on a transcript may place appellate courts in a superior position to assess witness credibility than those who actually observed the testimony. Appellate judges may also enjoy a competence advantage relative to jurors based on a greater range of experience with certain types of cases or evidence, and are at least the equals of trial-level fact finders when it comes to the assessment of circumstantial and documentary evidence. Having concluded that the institutional competence-based justification for appellate factual deference is not completely up to the task, the Article proceeds to examine the standards governing appellate review of facts and their implementation in both the criminal and civil systems. It also explores possible alternative justifications for appellate deference, including the lack of a need for appellate review, the efficient allocation of judicial resources, the value of finality, and the importance of the role of the jury. Based on this analysis, coupled with a consideration of the disparate functions of the two systems, the Article concludes that any appellate review of facts ought to be relatively more aggressive in the criminal than in the civil system. Accumulating empirical evidence, however, suggests that courts have become increasingly likely to reevaluate facts in civil cases, while declining to do so in criminal cases. The Article finally proposes that appellate review of factual matters be recalibrated to take express account of institutional competence on a case-by-case basis. Such a focus would not only render appellate factual review more transparent and consistent, but would also tend to reverse the imbalance between the criminal and civil systems. Among the pieties of our legal system is the notion that appellate courts do not engage in factual evaluation. Murky though the distinction between "fact" and "law" may be,1 there is general agreement that somewhere along the fact-law spectrum lies a point beyond which appellate courts ought not venture.2 Past it exist questions of "historical fact,"3 the "who, when, what, and where"4 series of questions that we have deemed only juries or trial judges to be capable of answering. Just as well accepted is the reasoning behind this juridical line in the sand. Simply put, we believe that appellate courts are not very good at fact finding. As it is most often articulated, this justification consists largely of reasoning thought to flow from the reality that appellate judges are not present in the courtroom to witness testimony and evidence firsthand.5 Having instead only a transcript of the proceedings below, the reviewing court lacks information critical to a full understanding of what took place. Under the conventional wisdom, then, appellate courts would likely do a worse job of factual evaluation, making the endeavor pointless even without regard to the consumption of judicial resources and other systemic effects it would entail. This Article contends that the conventional wisdom is misguided. There are, it turns out, many respects in which appellate courts enjoy substantial advantages over trial judges and juries when it comes to the evaluation of historical facts. …

Bucking the Trend: The Unsupportability of Index Providers' Imposition of Licensing Fees for Unlisted Trading of Exchange Traded Funds

Abstract: I. INTRODUCTION Exchange traded funds (ETFs) are popular investment products that have recently generated substantial investment press, several new regulations, huge earnings for the securities markets, and potential legal conflicts that will likely lead to major litigation. ETFs are derivative securities that represent ownership in funds, unit investment trusts, or depositary receipts with portfolios of securities designed to track the performance and dividends of specific securities indices.1 ETFs track indices by holding a representative sampling of securities in the index, thus approximating investment results of the index as a whole.2 They may or may not hold all the stocks in a particular index in weighted proportion.3 Exchange traded funds, while conceptually similar to mutual funds, trade more like common stock because their net asset value is determined throughout the day.4 A mutual fund's net asset value is determined at the end of the trading day after the fund manager has made his trades.5 Exchange traded funds, however, trade rapidly in response to changes in the value of fund components and "changes in prices of options and futures contracts on the funds."6 A large enough bloc of ETF shares, called a "creation unit," may be exchanged for stock in the companies forming the tracking portfolio.7 Exchange traded funds are popular with investors because they offer a diversified, low-cost, tax-efficient method of investing.8 There are several players in the ETF market: the index provider, the ETF creator and issuer, the securities markets, and the individual investors. Each stands to profit tremendously from the popularity of these products. The free-market structure designed by Congress, however, makes it nearly impossible for index providers to maintain financial interests in ETFs based on their indices. This Note examines the difficulties that arise when index providers nonetheless attempt to maintain a financial interest in ETFs based on their indices by charging licensing fees to secondary exchanges that sell ETFs. Consideration of these problems leads to a surprising conclusion: the index providers' practice of imposing licensing fees on secondary exchanges for ETFs is without support in market regulation law, trademark law, or economic policy. Without a clear basis for imposing the licensing fees, the fees are an unjustified burden ultimately borne by the investing public. The current practice should not be tolerated by exchanges that presently pay such fees. Part II of this Note examines the history of exchange traded funds, the concept of unlisted trading privileges, and their interrelation in the current competitive landscape of the ETF market. The legislative history of the Unlisted Trading Privileges Act of 1994 (UTP Act) shows that Congress intended to eliminate procedural formalities and encourage inter-market competition for efficiency.9 The latter purpose is apparent in the current environment, as intermarket competition for ETFs can be seen driving efficiency. Part III argues that the current practice of imposing licensing fees on secondary exchanges is contrary to the congressional policies embodied in the UTP Act. Part IV contends that a trademark-based, intellectual property argument for licensing fees, while intuitively appealing, does not withstand scrutiny because (1) index providers do not have a protectable interest in their marks as used in ETFs on secondary exchanges and (2) even if index providers could establish a protectable interest, secondary exchanges can defend on the ground that they are making a fair use of the index providers' marks. Part V examines possible economic justifications for the imposition of licensing fees on secondary exchanges. For example, the negative effects of market fragmentation might suggest that index providers should employ licensing fees to control the circumstances of ETF trading. Professors Amihud and Mendelson argue that securities issuers, having a clear incentive to increase the liquidity of their claims, should be the sole determiners of where and how those claims are traded. …