Law Commons^™

Rethinking The Nature Of The Firm: The Corporation As A Governance Object, Peer Zumbansen

Peer Zumbansen

This Article attempts to bridge two discourses—corporate governance and contract governance. Regarding the latter, a group of scholars has recently set out to develop a more comprehensive research agenda to explore the governance dimensions of contractual relations, highlighting the potential of contract theory to develop a more encompassing theory of social and economic transactions. While a renewed interest in the contribution of economic theory for a concept of contract governance drives one dimension of this research, another part of this undertaking has been to move contract theory closer to theories of social organization. Here, these scholars emphasize the “social” or …

Financial Hospitals: Defending The Fed’S Role As A Market Maker Of Last Resort, José Gabilondo

José Gabilondo

During the last financial crisis, what should the Federal Reserve (the Fed) have done when lenders stopped making loans, even to borrowers with sterling credit and strong collateral? Because the central bank is the last resort for funding, the conventional answer had been to lend freely at a penalty rate against good collateral, as Walter Bagehot suggested in 1873 about the Bank of England. Acting thus as a lender of last resort, the central bank will keep solvent banks liquid but let insolvent banks go out of business, as they should. The Fed tried this, but when the conventional wisdom …

Salomon Redux: The Moralities Of Business, Allan C. Hutchinson, Ian Langlois

Allan C. Hutchinson

In this Essay, we revisit the Salomon case and its related litigation not only from a legal standpoint but also from a broader moral perspective. 4 In the second Part, we offer a detailed context for and account of the Salomon litigation. The third Part focuses on the historical roots of the corporation and the judicial arguments in Salomon. In the fourth Part, we explore the moral and legal consequences of the Salomon decision. Throughout the Essay, our ambition will be not only to give the Salomon case a more contextual and richer spin but also to tackle the relationship …

Legal Entities As Transferable Bundles Of Contracts, Kenneth Ayotte, Henry Hansmann

Kenneth Ayotte

The large, modern business corporation is frequently organized as a complex cluster of hundreds of corporate subsidiaries under the common control of a single corporate parent. Our Article provides new theory and supportive evidence to help explain this structure. We focus, in particular on the advantages of subsidiary entities in providing the option to transfer some or all of the firm's contractual rights and obligations in the future. The theory not only sheds light on corporate subsidiaries but also illuminates a basic function of all types of legal entities, from partnerships to nonprofit corporations. We show that when, as is …

Insuring Floods: The Most Common And Devastating Natural Catastrophies In America, Christopher French

Christopher C. French

On The Rise Of Shareholder Primacy, Signs Of Its Fall, And The Return Of Managerialism (In The Closet), Lynn Stout

Lynn A. Stout

In their 1932 opus "The Modern Corporation and Public Property," Adolf Berle and Gardiner Means famously documented the evolution of a new economic entity—the public corporation. What made the public corporation “public,” of course, was that it had thousands or even hundreds of thousands of shareholders, none of whom owned more than a small fraction of outstanding shares. As a result, the public firm’s shareholders had little individual incentive to pay close attention to what was going on inside the firm, or even to vote. Dispersed shareholders were rationally apathetic. If they voted at all, they usually voted to approve …

The Role Of The Profit Imperative In Risk Management, Christopher French

Christopher C. French

The Citizen Shareholder: Modernizing The Agency Paradigm To Reflect How And Why A Majority Of Americans Invest In The Market, Anne Tucker

Anne Tucker

This Article examines corporate law from the perspective of personal investment and discusses the economic realities of modern investments in order to understand the role of shareholders within the agency paradigm. Corporate law, its scholars, and suggested reforms traditionally focus on the internal organization of the corporation. For example, agency principles inform corporate law by acknowledging a potential conflict of interest between the managers and shareholders of a corporation. Reforms such as increased shareholder voting rights and proxy access, which seek to give shareholders a more direct means to make their interests known to managers, illustrate corporate law’s focus on …

Limits Of Disclosure, Steven M. Davidoff, Claire A. Hill

Steven Davidoff Solomon

One big focus of attention, criticism, and proposals for reform in the aftermath of the 2008 financial crisis has been securities disclosure. Many commentators have emphasized the complexity of the securities being sold, arguing that no one could understand the disclosure. Some observers have noted that disclosures were sometimes false or incomplete. What follows these issues, to some commentators, is that, whatever other lessons we may learn from the crisis, we need to improve disclosure. How should it be improved? Commentators often lament the frailties of human understanding, notably including those of everyday retail investors—people who do not understand or …

Segmented Settlements Are Not The Answer: A Response To Professor Squire’S Article, How Collective Settlements Camouflage The Costs Of Shareholder Lawsuits, Christopher C. French

Christopher C. French

In his recent article, Professor Richard Squire offers a provocative theory in which he claims the underlying claimants in shareholder litigation against corporate policyholders are overcompensated due to what he describes as “cramdown” settlements, under which insurers are forced to settle due to the “duty to contribute” that arises under multi-layered directors and officers (“D&O”) insurance programs. He also offers a novel idea regarding how this problem could be fixed by what he refers to as “segmented” settlements in which each insurer and the policyholder would be allowed to settle separately and consider only its own interests in doing so. …

An Alternative Universe To §1113 Of The Bankruptcy Code: The Mediation Of American Airlines And Its Pension Obligations, Max L. Schatzow

Max Schatzow

This paper explores mandatory mediation as an alternative method to the current §1113 framework, where judges determine the fate of collective bargaining agreements. Through dialogue, this paper will explore one potential outcome to the ongoing dispute between the various labor unions with collective bargaining agreements with American Airlines.

The “Ensuing Loss” Clause In Insurance Policies: The Forgotten And Misunderstood Antidote To Anti-Concurrent Causation Exclusions, Chris French

Christopher C. French

As a result of the 1906 earthquake and fire in San Francisco which destroyed the city, a clause known as the “ensuing loss” clause was created to address concurrent causation situations in which a loss follows both a covered peril and an excluded peril. Ensuing loss clauses appear in the exclusions section of such policies and in essence they provide that coverage for a loss caused by an excluded peril is nonetheless covered if the loss “ensues” from a covered peril. Today, ensuing loss clauses are found in “all risk” property and homeowners policies, which cover all losses except for …

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

Christopher C. French

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 …

Debunking The Myth That Insurance Coverage Is Not Available Or Allowed For Intentional Torts Or Damages, Christopher French

Christopher C. French

The Misuse Of Tax Incentives To Align Management-Shareholder Interests, James R. Repetti

James R. Repetti

The U.S. tax system contains many provisions which are intended to align management of large publicly traded companies more closely to stockholders. This article shows that many of the tax provisions that have been adopted are of questionable effectiveness because they fail to address the complexities of stockholder-management relations in attempting to motivate management to act in the best interests of stockholders. The article proposes that rather than Congress attempting to identify the best way that it can use the tax system to motivate management, Congress should eliminate tax provisions which subsidize management's inefficiencies in order to encourage stockholders, themselves, …

Fiduciary Relationships Are Not Contracts, Scott Fitzgibbon

Scott T. FitzGibbon

No abstract provided.

Contracting Out Of Process, Contracting Out Of Corporate Accountability: An Argument Against Enforcement Of Pre-Dispute Limits On Process, Meredith R. Miller

Meredith R. Miller

There have been many well-articulated and convincing critiques aimed at mandatory arbitration. Indeed, presently before Congress is proposed legislation titled the Arbitration Fairness Act, that would ban pre-dispute arbitration in the consumer, franchise and employment contexts. However, maligned as the plaintiff bar's pro-lawsuit legislation, the Arbitration Fairness Act is predicted to have very little chance of enactment. Consequently, across varying industries, the pre-dispute arbitration regime endures unheedingly. Thus, this Article sets aside the arguments aimed generally at pre-dispute arbitration clauses and, instead, sets its sights on some of the terms that seem to arise in such clauses. The focus here …

Construction Defects: Are They “Occurrences”?, Chris French

Christopher C. French

An issue in the area of insurance law that has been litigated frequently in recent years is whether construction defects are “occurrences” under Commercial General Liability (“CGL”) insurance policies. The courts have been divided in deciding the issue and in their approaches to analyzing the issue. This article addresses how the issue should be analyzed and concludes that construction defects are “occurrences”.

The relevant rules of insurance policy interpretation dictate that construction defects are “occurrences”. Policy language should be interpreted in such a way as to fulfill the reasonable expectations of the policyholder when the policy is construed as a …

Invisible Ink In The Eighth Arrondissement, Karl T. Muth

Karl T Muth

IMPORTANT: This document may prompt you for a username and password. If this occurs, please simply click "cancel" and the document will load. Thank you. This Article deals with the history of the secret contract that governs the distribution of economic rents enjoyed by Formula One. It further explores the environment in which this secret contract evolved and briefly discusses applications for secret contracts in other scenarios and industries.

"True Human Community": Catholic Social Thought, Aristotelian Ethics, And The Moral Order Of The Business Company, Scott T. Fitzgibbon

Scott T. FitzGibbon

No abstract provided.