Law Commons^™

Derivatives And The Legal Origin Of The 2008 Credit Crisis, Lynn A. Stout

Cornell Law Faculty Publications

Experts still debate what caused the credit crisis of 2008. This Article argues that dubious honor belongs, first and foremost, to a little-known statute called the Commodities Futures Modernization Act of 2000 (CFMA). Put simply, the credit crisis was not primarily due to changes in the markets; it was due to changes in the law. In particular, the crisis was the direct and foreseeable (and in fact foreseen by the author and others) consequence of the CFMA’s sudden and wholesale removal of centuries-old legal constraints on speculative trading in over-the-counter (OTC) derivatives.

Derivative contracts are probabilistic bets on future events. …

Contracts As Organizations, D. Gordon Smith, Brayden G. King

Faculty Scholarship

Empirical studies of contracts have become more common over the past decade, but the range of questions addressed by these studies is narrow, inspired primarily by economic theories that focus on the role of contracts in mitigating ex post opportunism. We contend that these economic theories do not adequately explain many commonly observed features of contracts, and we offer four organizational theories to supplement-and in some instances, perhaps, challenge-the dominant economic accounts. The purpose of this Article is threefold: first, to describe how theoretical perspectives on contracting have motivated empirical work on contracts; second, to highlight the dominant role of …

Justifying Board Diversity, James A. Fanto, Lawrence M. Solan, John M. Darley

Faculty Scholarship

No abstract provided.

Board Diversity Revisited: New Rationale, Same Old Story, Lisa Fairfax

All Faculty Scholarship

Recently, board diversity advocates have relied on market- or economic-based rationales to convince corporate America to increase the number of women and people of color in the boardroom, in lieu of moral or social justifications. This shift away from moral or social justifications has been deliberate, and it stems from a belief that corporate America would better respond to justifications that centered on the corporate bottom line. However, recent empirical data reveals that despite the increased reliance on, and apparent acceptance of, market- or economic-based rationales for board diversity, there has been little change in actual board diversity. This Article …

Will Cutting The Payroll Tax Increase Jobs? (Empirical Evidence From The Eu Vat), Richard Thompson Ainsworth

Faculty Scholarship

Red Ink Rising, the Peterson–Pew Commission on Budget Reform’s report presents the country with a fiscal/employment dilemma – Congress must act immediately to stem the federal debt, but it must move carefully lest it harm employment in the fragile economy. In short, we must act fast and slow – we must decrease the debt and increase employment. This is a difficult task.

The Peterson-Pew dilemma (notably its jobs-creation aspect) was taken to heart by both of the reform commissions that issued reports soon thereafter (National Commission on Fiscal Responsibility and Reform, The Moment of Truth and The Debt Reduction Task …

Chairmanship: The Effective Chair-Ceo Relationship: Insight From The Boardroom, Elise Walton

Ira M. Millstein Center for Global Markets and Corporate Ownership

This paper examines the role of the corporate Chair in the context of one of the most important relationships the Chair has – his or her relationship with the company’sCEO. To approach the topic, the Chairmen’s Forum sponsored a research effort to interview experienced Chairs,CEOs and stakeholders. After the Forum agreed on the project, a research plan was designed and approved by the sponsors. Key interview questions and interview candidates were reviewed and approved. The main areas of the interview included: background experience with the two roles; successful situations and what worked; challenges and what didn’t work; how a relationship …

Vat Fraud: Mtic & Mtec - The Tradable Services Problem, Richard Thompson Ainsworth

Faculty Scholarship

Tradable services – VoIP termination services, mobile minutes, software as a service (SaaS), or almost any service bought or sold in the “cloud” – are a distinct class of taxable supplies. These service-based supplies both resemble and differ fundamentally from goods. They also differ from services that are consumed-on-purchase (consumed services).

Tradable services are designed from the beginning for re-sale. They are hybrid supplies that behave commercially like goods, but have functional attributes that make them hard to distinguish from services generally. When determining the place of supply/ place of taxation for these kinds of supplies, their hybrid character presents …

Good Faith In Revlon-Land, Christopher M. Bruner

Scholarly Works

The Delaware Supreme Court has set a very high hurdle for plaintiffs challenging directors' good faith in the sale of a company. In Lyondell Chemical Company v. Ryan, the court held that unconflicted directors could be found to have breached the good faith component of their duty of loyalty in the transactional context only if they "knowingly and completely failed to undertake," and "utterly failed to attempt" to discharge their duties.

In this essay I argue that the Lyondell standard effectively imports into the transactional context the exacting standard previously applied in the oversight context — a move clearly aimed …

Stalled: Gender Diversity On Corporate Boards, Barbara Black

Faculty Articles and Other Publications

In this essay, prepared for the University of Dayton College of Law’s Symposium on Perspectives on Gender and Business Ethics: Women in Corporate Governance, held on February 25, 2011, I discuss the lack of progress in achieving gender diversity on corporate boards.

I first review the numbers that demonstrate that progress is stalled, despite the attention and resources devoted to the issue by a number of well-respected organizations, legal scholars and institutional investors. I argue that, because this is an issue of equal opportunity, it is not really necessary to make a business case to justify increased efforts toward board …

Deconstructing Corporate Governance: Absolute Director Primacy, René Reich-Graefe

Faculty Scholarship

Microtheoretical models of the corporation which focus on corporate governance attempt to answer two deceptively simple, but fundamentally elusive questions: ‘Who are in control of the corporation?’ and ‘Whose interests ultimately control those in control of the corporation?’ Both questions remain partially unanswered within the models developed to date by corporate theoreticians. This Article proposes a radically new model: 'absolute director primacy.’ Existing microtheoretical models conceive that we only need to—and, indeed, can—determine the controlling interests guiding corporate decisionmaking in order to prove the existence of control over the decisionmaking latitude of corporate boards. The absolute director primacy …

Interdisciplinary Transactional Courses, Eric J. Gouvin, Robert Statchen, Anthony J. Luppino, William Kell

Faculty Scholarship

This Article represents a panel presentation on interdisciplinary work in law school transactional courses. The Authors’ focus is on the Small Business Clinic at Western New England University School of Law. Topics covered are: interdisciplinary work and the classroom, professional liability and competency issues in rendering services through a clinic, culture class issues, ethical dilemmas, delivering professional products to the client, and co-curricular opportunities.

Symposium: Fiduciary Duties In The Closely Held Business 35 Years After Wilkes V. Springside Nursing Home: Foreword, René Reich-Graefe

Faculty Scholarship

On October 15, 2010—exactly fifty-nine years to the day after the opening of the original nursing home operation in 1951 which formed the core business asset of the closely held Springside Nursing Home, Inc. corporation—the Western New England University School of Law and School of Business jointly hosted their 2010 Academic Conference on “Fiduciary Duties in the Closely Held Business 35 Years after Wilkes v. Springside Nursing Home.” As with installments from prior years, the Conference was sponsored by the Western New England University Law and Business Center for Advancing Entrepreneurship. This Article examines the case of Wilkes v. Springside …

Clinicians, Practitioners, And Scribes: Drafting Client Work Product In A Small Business Clinic, Robert Statchen

Faculty Scholarship

The recent and rapid growth of transactional clinics, and more specifically small business clinics (SBCs), mandates that time and attention be given to pedagogical methods within this specialized clinical structure. This Article focuses on the drafting component of an SBC. It is often asserted that legal education does not effectively provide students with business-oriented, practical skills training. At the heart of an SBC, is the necessity to prepare appropriate written client work product. SBCs also provide an excellent opportunity for students to acquire interviewing, researching, drafting, counseling, problem-solving, and other areas of expertise. This Article attempts to provide a process …

Restoring Transparency To Automated Authority, Frank Pasquale

Faculty Scholarship

No abstract provided.

Deconstructing Corporate Governance: Director Primacy Without Principle?, René Reich-Graefe

Faculty Scholarship

If profit-maximizing is not enforced by corporate law, why does it nonetheless happen as a matter of almost overwhelming routine in today’s corporate reality? If indeed, director primacy is absolute and our theoretical models are all reliant on protolegal variables to explain general investor confidence ex-ante-investment despite the lack of director accountability ex-post-investment, then how can director primacy be understood and explained as a principled and, thus, just cor-porate governance structure in the first place? Or is director primacy not only absolute, but also without principle?

This Article provides a roadmap for purposes of answering this inquiry. Part II …

Using Comparative And Transitional Corporate Law To Teach Corporate Social Responsibility , Franklin A. Gevurtz

McGeorge School of Law Scholarly Articles

No abstract provided.

The Globalization Of Corporate Law: The End Of History Or A Never-Ending Story?, Franklin A. Gevurtz

McGeorge School of Law Scholarly Articles

Considerable scholarship during the last few decades addresses the question of whether corporate laws are becoming global by converging on commonly accepted approaches. Some scholars have asserted that such convergence is occurring around the most efficient laws and institutions, thereby marking the “End of History” for corporate law. This Article responds to such assertions by developing three claims not previously given due attention in the convergence literature. First, it demonstrates that the history of corporations and corporate law has been one of seemingly constant movement toward global convergence, yet the resulting convergence is always incomplete or transitory. Next, it points …

“Corporation Law Is Dead”: The Mystery Of Corporation Law At The Height Of The American Century, Harwell Wells

Studio for Law and Culture

In 1962, the corporation law scholar Bayless Manning famously wrote that “[C]orporation law, as a field of intellectual effort, is dead in the United States.” Looking back, most scholars have agreed with Manning, concluding that corporation law from the 1940s to the 1970s was stagnant, only rescued from its doldrums by the triumph of the theory of the firm and modern finance in the 1980s. This paper takes a new look at American corporate law during this time, asking why scholars believed corporation law was “dead” at the same time that the American corporation had seized the commanding heights of …

Wilkes V. Springside Nursing Home, Inc.:The Backstory, Eric J. Gouvin

Faculty Scholarship

As it appears in most casebooks, the Wilkes v. Springside Nursing Home, Inc. case tells the story of a falling-out among the shareholders in a closely-held corporation and the resulting freeze-out of one of the owners, Mr. Stanley Wilkes. The opinion indicates that the heart of the dispute arose out of Mr. Wilkes’s refusal to allow the sale of a piece of corporate property (the “Annex” at 793 North Street) to one of the other shareholders, Dr. Quinn, at a discount. In real life, that transaction did indeed cause a significant rift in the shareholders’ relationship, but, as this article …

Sandbagging: Default Rules And Acquisition Agreements, Charles K. Whitehead

Cornell Law Faculty Publications

In the M&A world, a buyer "sandbags" a seller when, knowing the seller has materially breached a warranty, it closes the deal and then asserts a post-closing claim. Traditionally, the buyer must have relied on the warranty, without knowledge of the breach, in order to prevail. The modern trend, with some exceptions, permits the buyer to sue without regard to knowledge. Parties, in both cases, can contract around the default rule--so that the default rule should affect how acquisition agreements are structured. Yet, a survey of publicly available deals, from July 2007 to June 2011, reveals that--regardless of default rule--roughly …

U.S. Business: Tort Liability For The Transnational Republisher Of Leaked Corporate Secrets, Richard J. Peltz-Steele

Faculty Publications

Wikileaks, the web enterprise responsible for the unprecedented publication of hundreds of thousands of classified government records, is reshaping fundamental notions of the freedom of information. Meanwhile more than half of records held by Wikileaks are from the private sector, and the organization has promised blockbuster revelations about major commercial players such as big banks and oil companies. This paper examines the potential liability under U.S. business-tort law for Wikileaks as a transnational republisher of leaked corporate secrets. The paper examines the paradigm for criminal liability under the Espionage Act to imagine a construct of civil liability for tortious interference …

Criminalizing Corporate Killing: The Irish Approach, Bruce Carolan

Articles

The debate on criminal corporate liability in the United States might benefit from a comparative perspective: How have other countries treated the criminal liability of corporate entities? This benefit might be enhanced by focusing on a country with a similar legal heritage to the United States—a country with a common law legal system inherited from the British. And, it would help if that country were concurrently examining the issue of criminal corporate liability. Interesting questions might include: What issues dominate the debate? How are issues of punishment, reparations, and rehabilitation handled? Is a legislative approach contemplated? The purpose of this …

Recent Developments Concerning Preferred Stockholder Rights Under Delaware Law, Marilyn Blumberg Cane, Joong-Sik Choi, Scott B. Gitterman

Faculty Scholarship

This is a timely article focusing on the conflicting duties owed to preferred and common stockholders. Delaware is the leading corporate law jurisdiction in the United States. Preferred stock is a key component in angel and venture capital transactions. Historically the Delaware courts have accepted as a general principle the proposition that since the preferred rights are contractual in nature, they must be expressly defined in the preferred stock contract in order for the preferred to successfully assert those rights. Accordingly, the directors owe correlative duties to the preferred to the extent that the rights are articulated in the contract. …

The Search For An Unbiased Fiduciary In Corporate Reorganizations, Michelle M. Harner

Faculty Scholarship

When a company experiences financial distress, a control contest often follows. Management fights to remain in control of the company, and shareholders, creditors and others try to influence management’s exercise of that control—or wrest it away. This is not a new phenomenon. The degree of influence now exerted by corporate stakeholders in the distressed context, however, is strikingly different than in the past. Recent headlines highlight that stakeholder control issues are at the forefront of financially-distressed situations large and small. The U.S. government, as creditor, dictated the terms of Chrysler’s and General Motors’ bankruptcies. It also demanded and received preferred …

Mitigating Financial Risk For Small Business Entrepreneurs, Michelle M. Harner

Faculty Scholarship

Financial distress by definition threatens a company’s viability. Entrepreneurial and start-up entities are particularly vulnerable to this threat. Yet, much of the discussion following the recent recession focuses almost exclusively on financial institutions and “too-big-to-fail” entities. This essay re-examines lessons gleaned from the recession in the context of smaller, entrepreneurial entities. Specifically, it analyzes how small business entrepreneurs might invoke principles of enterprise risk management to mitigate the long-term impact of financial distress on their business models. It also considers related refinements to extant small business regulations, including the U.S. bankruptcy laws. The essay’s primary objective is to help policymakers, …

Private Actors And Public Governance Beyond The State: The Multinational Corporation, The Financial Stability Board And The Global Governance Order, Larry Cata Backer

Journal Articles

Transnational corporations are at the center of extraordinary and complex governance systems that are developing outside the state and international public organizations, and beyond the conventionally legitimating framework of the forms of domestic or international hard law. Though these systems are sometimes recognized as autonomous and authoritative among its members, they are neither isolated from each other nor from the states with which they come into contact. Together these systems may begin to suggest a new template for networked governance beyond the state, but one in which public and private actors are integrated stakeholders. This provides the source of the …

On The Evolution Of The United Nations’ 'Protect-Respect-Remedy' Project: The State, The Corporation And Human Rights In A Global Governance Context, Larry Cata Backer

Journal Articles

The advent of contemporary economic globalization has substantially altered the regulatory environment in which economic enterprises operate. Once assumed to be creatures of the states that recognized and regulated their existence, economic enterprises today are increasingly capable of arranging their activities beyond the regulatory scope of any state or groups of states. That gap between operational and regulatory capacity has produced a sustained reaction at the national and international levels. States have sought to extend their power over corporations beyond their borders. International organizations have sought to develop supra national legal governance frameworks. This paper examines one of the more …

The “Non-Cumulation Clause”: An “Other Insurance” Clause By Another Name, Chris French

Journal Articles

How long-tail liability claims such as asbestos bodily injury claims and environmental property damage claims are allocated among multiple triggered policy years can result in the shifting of tens or hundreds of millions of dollars from one party to another. In recent years, insurers have argued that clauses commonly titled, “Prior Insurance and Non-Cumulation of Liability” (referred to herein as “Non-Cumulation Clauses”), which are found in commercial liability policies, should be applied to reduce or eliminate their coverage responsibilities for long-tail liability claims by shifting their coverage responsibilities to insurers that issued policies in earlier policy years. The insurers’ argument …

Good Faith In Revlon-Land, Christopher M. Bruner

Scholarly Articles

The Delaware Supreme Court has set a very high hurdle for plaintiffs challenging directors' good faith in the sale of a company. In Lyondell Chemical Company v. Ryan, the court held that unconflicted directors could be found to have breached the good faith component of their duty of loyalty in the transactional context only if they "knowingly and completely failed to undertake," and "utterly failed to attempt" to discharge their duties.

In this essay I argue that the Lyondell standard effectively imports into the transactional context the exacting standard previously applied in the oversight context — a move clearly aimed …

Managing Corporate Federalism: The Least-Bad Approach To The Shareholder Bylaw Debate, Christopher M. Bruner

Scholarly Articles

Over recent decades, shareholders in public corporations have increasingly sought to augment their own power – and, correlatively, to limit the power of boards – through creative use of corporate bylaws. The bylaws lend themselves to such efforts because enacting, amending, and repealing bylaws are essentially the only corporate governance actions that shareholders can undertake unilaterally. In this Article I examine the contested nature of bylaws, the fundamental issues of corporate power and purpose that they implicate, and the differing ways in which state and federal lawmakers and regulators may impact the debate regarding the scope of the shareholders' bylaw …