Law Commons^™

Allocating State Authority Over Charitable Nonprofit Organizations, Lloyd H. Mayer

Journal Articles

This Essay considers the allocation of state authority to enforce the legal obligations particular to charities and their leaders among state officials, including attorneys general, judges, and legislators, and private parties. It first describes the existing allocation. It then reviews the most common criticisms of this allocation, which primarily focus on two concerns: politicization and lack of sufficient enforcement. Finally, it evaluates the most notable proposals for reallocating this authority, including the reallocation of this authority in part to private parties.

This Essay concludes that reform proposals have two fundamental flaws. First, proposals aimed at countering the political nature of …

The Compliance Process, Veronica Root Martinez

Journal Articles

Even as regulators and prosecutors proclaim the importance of effective compliance programs, failures persist. Organizations fail to ensure that they and their agents comply with legal and regulatory requirements, industry practices, and their own internal policies and norms. From the companies that provide our news, to the financial institutions that serve as our bankers, to the corporations that make our cars, compliance programs fail to prevent misconduct each and every day. The causes of these compliance failures are multifaceted and include general enforcement deficiencies, difficulties associated with overseeing compliance programs within complex organizations, and failures to establish a culture of …

The Outsized Influence Of The Fcpa?, Veronica Root Martinez

Journal Articles

The current power and influence of the Foreign Corrupt Practices Act (“FCPA”) is really quite remarkable when one considers the statute was largely ignored for its first twenty-five years of existence. This statute, meant to reign in corruption by United States companies doing business abroad; has generated billions of dollars in revenue for the United States government; prompted the development of law firm practice groups and law school courses; become the subject of numerous scholarly articles; and has, arguably, made anti-bribery efforts the highest of priorities for multinational corporations engaged in robust compliance efforts. Corporations, scholars, and the public would …

The Diminishing Duty Of Loyalty, Julian Velasco

Journal Articles

Fiduciary duties comprise an integral part of corporate law. It is generally understood that directors owe the corporation and its shareholders two fiduciary duties: the duty of care and the duty of loyalty. Although both duties are firmly established in corporate law, they are not treated equally. It is generally understood that the duty of loyalty is enforced far more rigorously than the duty of care. The justification for this dichotomy is twofold. First, differential treatment is appropriate because of the relative urgencies of the underlying subject matter: loyalty issues pose greater risks than do care issues. Second, the deference …

A Defense Of The Corporate Law Duty Of Care, Julian Velasco

Journal Articles

Most people would acknowledge the importance of the duty of loyalty, but the same is not true of the duty of care. Historically, the corporate law duty of care has been underenforced at best, and arguably unenforced entirely. Some scholars do not consider the duty of care to be a fiduciary duty at all, and there are those who would do away with it entirely. In this paper, I intend to provide a comprehensive defense of the corporate law fiduciary duty of care. I hope to show that the duty of care is not simply an ill-fitting appendage to the …

The Monitor-“Client” Relationship, Veronica Root

Journal Articles

This Article argues that providing a set of clear, enforceable, predictable rules regarding the scope of monitorships that facilitate a monitor’s function as a legal counselor will improve the long-term effectiveness of monitorships. This Article suggests one mechanism for achieving this goal—a statutory privilege—aimed at encouraging a formalized relat+H23ionship amongst a monitor, the government, and the corporation, which re-conceptualizes the relationship as “The Monitor-‘Client’ Relationship.”

Fiduciary Duties And Fiduciary Outs, Julian Velasco

Journal Articles

Fiduciary outs are virtually ubiquitous in acquisition agreements, but almost unheard of in other contexts. This is because the fiduciary out is an inherently problematic device. Although it is not intended to do so, it almost necessarily transforms an agreement into an option in the hands of one party. Nevertheless, fiduciary outs make sense in the context of acquisition agreements. This is because fiduciary outs are essentially contractual proxies for fiduciary duties. As such, they have the same purpose: to protect shareholders from abuse at the hands of directors. Fiduciary outs do this in the context of acquisition agreements by …

The Role Of Aspiration In Corporate Fiduciary Duties, Julian Velasco

Journal Articles

Corporate law is characterized by a pervasive divergence between standards of conduct and standards of review. Courts often opine on the relatively demanding standard of conduct, but their judgements must be based on the more forgiving standard of review. Commentators defend this state of affairs by insisting that it provides guidance to directors without imposing ruinous liability. However, the dichotomy can lead many, especially those who focus on the bottom line, to call into question the meaningfulness of standards of conduct. Of particular concern is the increasing popularity, in legal and scholarly circles, of the notion that fiduciary duty standards …

Strategic Spillovers, Daniel B. Kelly

Journal Articles

The conventional problem with externalities is well known: Parties often generate harm as an unintended byproduct of using their property. This Article examines situations in which parties may generate harm purposely, in order to extract payments in exchange for desisting. Such “strategic spillovers” have received relatively little attention, but the problem is a perennial one. From the “livery stable scam” in Chicago to “pollution entrepreneurs” in China, parties may engage in externality-generating activities they otherwise would not have undertaken, or increase the level of harm given that they are engaging in such activities, to profit through bargaining or subsidies. This …

Somebody's Watching Me: Fcpa Monitorships And How They Can Work Better, F. Joseph Warin, Michael S. Diamant, Veronica S. Root

Journal Articles

This article explores the rise of the corporate compliance monitor as a condition for settling violations of the U.S. Foreign Corrupt Practices Act (“FCPA”) — a setting in which federal prosecutors routinely impose monitors. If U.S. enforcement authorities maintain their current approach, the reality is that companies facing liability for violating the FCPA are likely to have a monitor imposed on them as part of a settlement agreement. From the U.S. government’s perspective, monitorships make sense for companies that violate anti-bribery laws, making it important for offending corporations to learn how to deal with monitors. Pulling from the authors’ extensive …

Shareholder Ownership And Primacy, Julian Velasco

Journal Articles

According to the traditional view, the shareholders own the corporation. Until relatively recently, this view enjoyed general acceptance. Today, however, there seems to be substantial agreement among legal scholars and others in the academy that shareholders do not own corporations. In fact, the claim that shareholders do own corporations often is dismissed as merely a “theory,” a “naked assertion,” or even a “myth.” And yet, outside of the academy, views on the corporation remain quite traditional. Most people - not just the public and the media, but also politicians, and even bureaucrats and the courts - seem to believe that …

How Many Fiduciary Duties Are There In Corporate Law?, Julian Velasco

Journal Articles

Historically, there were two main fiduciary duties in corporate law, care and loyalty, and only the duty of loyalty was likely to lead to liability. In the 1980s and 1990s, the Delaware Supreme Court breathed life into the duty of care, created a number of intermediate standards of review, elevated the duty of good faith to equal standing with care and loyalty, and announced a unified test for review of breaches of fiduciary duty. The law, which once seemed so straightforward, suddenly became elaborate and complex. In 2006, in the case of Stone v. Ritter, the Delaware Supreme Court rejected …

Twenty-Eight Words: Enforcing Corporate Fiduciary Duties Through Criminal Prosecution Of Honest Services Fraud, Lisa L. Casey

Journal Articles

This article examines the federal government's growing use of 18 U.S.C. § 1346 to prosecute public company executives for breaching their fiduciary duties. Section 1346 is a controversial but under-examined statute making it a felony to engage in a scheme "to deprive another of the intangible right of honest services." Although enacted by Congress over twenty years ago, the Supreme Court repeatedly declined to review the statute, until now. In 2009, Justice Antonin Scalia pointed to the numerous interpretive questions dividing the federal appellate courts and proclaimed that it was "quite irresponsible" to let the "current chaos prevail." Since then, …

Back To The Future: Rediscovering Equitable Discretion In Trademark Cases, Mark P. Mckenna

Journal Articles

Courts in recent years have increasingly made blunt use of their equitable powers in trademark cases. Rather than limiting the scope of injunctive relief so as to protect the interests of a mark owner while respecting the legitimate interests of third parties and of consumers, courts in most cases have viewed injunctive relief in binary terms. This is unfortunate, because greater willingness to tailor injunctive relief could go a long way to mitigating some of the most pernicious effects of trademark law’s modern expansion. This Essay urges courts to reverse this trend towards crude injunctive relief, and to re-embrace their …

Sarbanes-Oxley, Kermit The Frog, And Competition Regarding Audit Quality, Matthew J. Barrett

Journal Articles

The regulatory scheme after Sarbanes-Oxley has significantly improved public company audits in the United States, or at least has demonstrated the potential to do so, but the obligation to preserve client confidentially still prevents auditors from competing for new clients on the basis of audit quality. This paper suggests a simple way for the SEC to facilitate such competition within the existing regulatory framework. The SEC should require issuers and registrants to disclose whether their independent audits uncovered any financial fraud and, within specified ranges, the number and amount of all audit adjustments incorporated into the financial statements filed with …

Class Action Criminality, Lisa L. Casey

Journal Articles

This paper examines the criminal prosecution of Milberg Weiss, formerly the most successful plaintiffs’ securities class action firm in the country, for allegedly making undisclosed incentive payments to class representatives. In particular, the article examines the government’s primary charge - that the firm’s practice violated the “honest services” theory of mail and wire fraud. The government’s application of this theory presumes a fiduciary relationship between the class representatives and the class which has never been clearly delineated and, indeed, is against the weight of case law and the realities of class action litigation.

The Article proceeds on two different levels. …

The Normative Foundations Of Trademark Law, Mark P. Mckenna

Journal Articles

This paper challenges the conventional wisdom that trademark law traditionally sought to protect consumers and enhance marketplace efficiency. Contrary to widespread contemporary understanding, early trademark cases were decidedly producer-centered. Trademark infringement claims, like all unfair competition claims, were intended to protect producers from illegitimate attempts to divert their trade. Consumer deception was relevant in these cases only to the extent it was the means by which a competitor diverted a producer's trade. Moreover, American courts from the very beginning protected a party against improperly diverted trade in part by recognizing a narrow form ofproperty rights in trademarks. Those rights were …

Taking Shareholder Rights Seriously, Julian Velasco

Journal Articles

The great corporate scandals of the recent past and the resulting push for legal reform have revived the role of the shareholder in the corporation as a subject of great debate. Those who favor an expanded role for shareholders in corporate governance tend to focus on developing new legal rights for shareholders, and their critics respond with reasons why such rights are unnecessary and inappropriate. While these issues certainly are worthy of consideration, issues concerning existing shareholder rights are more fundamental. If existing rights are adequate or could be improved, then new rights may not be necessary; but if existing …

The Fundamental Rights Of The Shareholder, Julian Velasco

Journal Articles

Shareholders have many legal rights, but they are not all of equal significance. This article will argue that two rights — the right to elect directors and the right to sell shares — are more important than any others, that these rights should be considered the fundamental rights of the shareholder, and that, as such, they deserve a great deal of respect and protection by law.

The history of corporate law has been one of increasing flexibility for directors and decreasing rights for shareholders. Although the law seems to have coalesced around the norm of shareholder primacy, this is not …

The Congressional Response To Corporate Expatriations: The Tension Between Symbols And Substance In The Taxation Of Multinational Corporations, Michael Kirsch

Journal Articles

During the past few years, several high-profile U.S.-based multinational corporations have changed their tax residence from the United States to Bermuda or some other tax haven. They have accomplished these expatriations, and the resulting millions of dollars of annual tax savings, merely by changing the place of incorporation of their corporate parent, without the need to make any substantive changes to their business operations or their U.S.-based management structure. Congress and the media have focused significant attention on this phenomenon. Despite this attention, Congress initially enacted only a non-tax provision targeting corporate expatriations - a purported ban on expatriated companies …

Structural Bias And The Need For Substantive Review, Julian Velasco

Journal Articles

One of the fundamental debates in corporate law pits the authority of the board of directors to make business decisions without judicial interference against the accountability of directors to shareholders for their decisions. The business judgment rule attests to the value ascribed to authority by providing only limited judicial review for claims of breach of the duty of care, while the entire fairness test demonstrates the value ascribed to accountability by providing far more exacting scrutiny for claims of breach of the duty of loyalty. In cases involving structural bias, however, neither doctrine is appropriate. Whenever the interests of directors …

Just Do It: An Antidote To The Poison Pill, Julian Velasco

Journal Articles

The poison pill is the most powerful defense against hostile takeovers. It can render a company takeover-proof, or nearly so. Efforts at developing an antidote have focused largely on shareholder-adopted bylaws, but the legality of such proposals has been questioned by many. In any event, shareholder-adopted bylaws have not been very successful in eliminating poison pills thus far. In order to effect takeovers, hostile bidders cannot rely on the courts or the target company's shareholders; they can rely only on themselves. In this article, I propose a strategy for hostile bidders to counteract the poison pill and to consummate hostile …

Focusing Failures In Competitive Environments: Explaining Decision Errors In The Monty Hall Game, The Acquiring A Company Problem, And Multiparty Ultimatums, Avishalom Tor, Max Bazerman

Journal Articles

This paper offers a unifying conceptual explanation for failures in competitive decision-making across three seemingly unrelated tasks: the Monty Hall game (Nalebuff, 1987), the Acquiring a Company problem (Samuelson & Bazerman, 1985), and multiparty ultimatums (Messick, Moore, & Bazerman, 1997). We argue that the failures observed in these three tasks have a common root. Specifically, due to a limited focus of attention, competitive decision-makers fail properly to consider all of the information needed to solve the problem correctly. Using protocol analyses, we show that competitive decision-makers tend to focus on their own goals, often to the exclusion of the decisions …

The Enduring Illegitimacy Of The Poison Pill, Julian Velasco

Journal Articles

The poison pill is the ultimate defense against a hostile takeover. From management's perspective, it is almost too good to be true. Originally, the poison pill was seen as a way to guard against the worst of hostile takeover tactics. It has been successful; the poison pill has virtually eliminated these tactics from the repertoires of hostile bidders. However, the poison pill is extremely potent, capable of preventing all hostile takeovers, regardless of their underlying merit. Thus, the poison pill eventually became the means to employ a just say no defense of resisting hostile takeovers, regardless of the interests of …

Corporate Initiatives: A Second Human Rights Revolution?, Douglass Cassel

Journal Articles

This Essay examines the role of multinational corporations in protecting human rights around the globe. Part I analyzes the conduct of corporations, describes examples of corporations' involvement in human rights violations, and discusses the merits of greater responsibility of corporations. Part II suggests that the level of responsibility for a multinational corporation depends on the proximity of the corporation's operations to human rights violations, in combination with the seriousness of the violations, and proposes five gradations of responsibility. This Essay concludes that the evolving nature of the global economy is producing a shift in responsibilities from government to the private …

The Character Of A Partner's Distributive Share Under The "Substantial Economic Effect" Regulation, Alan Gunn

Journal Articles

Partnership income and deductions are allocated according to the amount and the character of each partner's distributive share. This article examines the ways in which the section 704(b) regulations apply the "substantial economic effect" test to character allocations. It argues that it is important to distinguish allocations of character from allocations of amounts to understand these regulations. This is because tests that the regulations apply to character issues have to do with source-measurement correspondence and proration, while amounts are determined according to economic effect in the capital account sense. Although the regulations' rules for character allocations purport to define "substantiality," …

Government Enforcement Policy Of Section 7 Of The Clayton Act: Carte Blanche For Conglomerate Mergers?, Joseph P. Bauer

Journal Articles

This Article argues that the Department of Justice's recently articulated enforcement intentions with respect to conglomerate mergers are inconsistent with the case law applying section 7 of the Clayton Act to these transactions and also represent unsound policy. Part I will review the conglomerate merger jurisprudence of the past two decades - looking at the theories that have been used to challenge them, at the important judicial decisions interpreting and applying those theories, and at the Guidelines adopted by the Department of Justice in 1968 to codify these developments. It will then briefly discuss certain developments regarding conglomerate mergers the …

The Legal Status Of Joint Venture Corporations, Thomas F. Broden, Alfred L. Scanlan

Journal Articles

American industry employs many forms of business organizations. The sole proprietorship, the partnership, general and limited, the joint venture, the joint stock company, the corporation, public issue and close, and many others are all familiar and well established in their use. This article deals with the use by American industry of the close corporation to carry on a joint venture. With due deference to purists in legal terminology we have elected to refer to this particular type of corporate entity as the joint venture corporation. In this article we not only look at the use made of the joint venture …

Federal Income Tax In Relation To Consumer Cooperatives, Joseph O'Meara

Journal Articles

The taxation of consumer cooperative associations has proceeded on an erroneous assumption deriving from Eisner v. Macomber. Contrary to that assumption, so long as these non-profit, mutual-benefit undertakings confine themselves to their proper functions they have no income under the Sixteenth Amendment and cannot validly be required to pay an income tax.

Reorganization Of The Federal Judiciary, Thomas Frank Konop

Journal Articles

This article examines the controversy the Supreme Court have declaring unconstitutional several acts of Congress by striking social and beneficial laws from the statute books. The Supreme Court in effect told the American people that because of the Constitution their representatives could not pass these laws. It is the Supreme Court that is usurping the power of Congress and the President. It is the Supreme Court that has been destroying laws passed by Congress for a better life, more liberty and equality; social justice, and pursuit of happiness of one hundred thirty million people. This article favors the President's proposal …