Commercial Law Commons^™

The Corporate Transparency Act: Substantial Modifications Are Desperately Needed (And They Might Just Help The Law Withstand Judicial Scrutiny), Lawrence Bialek

Michigan Business & Entrepreneurial Law Review

For decades, the United States has had a reputation as the place to go for bad actors looking to launder money and fund criminal activities. Attempting to rectify this situation, Congress spent years drafting legislation to serve as a deterrent. The product, the Corporate Transparency Act (CTA), was the culmination of years of work by legislators across the aisle and multiple Congresses. The CTA’s mandatory reporting requirement sought to create a centralized database of information about all entities doing business in the United States, both foreign and domestic, and the individuals in positions of authority for each of those entities. …

Reverse Breakup Fees And Antitrust Approval, Albert H. Choi, Abraham L. Wickelgren

Law & Economics Working Papers

The paper examines the antitrust implications of use of reverse breakup (termination) fees in mergers. By promising to pay a reverse breakup fee to the target if the proposed merger does not get the necessary antitrust approval, the acquirer can signal to the antitrust authority that the merger is more likely to be pro-competitive. A large reverse breakup fee can also function as a commitment device by the acquirer to spend more resources in case the merger is challenged by the antitrust authority. While the first, signaling function is efficiency enhancing, the second, commitment function can lead to an efficiency …

Merger Remedies Unbound, Dhruv Aggarwal, Albert H. Choi, Geeyoung Min

Articles

How should foundational contract law doctrines apply to corporate mergers? This Article argues that recent changes in Delaware law grant parties expansive contractual freedom to define their preferred remedies in merger agreements, untethered from the limits imposed by traditional contract law. A new provision in the Delaware corporate code, or the Delaware General Corporation Law (DGCL), permits penalty clauses in merger agreements, notwithstanding the traditional “anti-penalty doctrine” that forbids punitive liquidated damages in contracts. Delaware courts have also shown deference to specific performance provisions, treating them as presumptively enforceable commitments instead of retaining their traditional judicial discretion over the choice …

Designing Contract Modification, Albert H. Choi, George G. Triantis

Articles

For long-term commercial contracts, modification tends to be the norm rather than the exception. While modification often takes place in response to an arrival of new information, contracting parties frequently modify the terms in response to a shift in bargaining power. In this Article, we explain how the flexibility to renegotiate in response to a shift in bargaining power can facilitate long-term contracting and thereby beneficial reliance investments and risk allocation. The prospect of modification can induce contracting parties who expect their bargaining power to improve, such as from the emergence of outside opportunities, to enter into contracts earlier and …

Regulating The Metaverse: Reducing Diffusion Of Trader Responsibility, Hadar Y. Jabotinsky, Michal Lavi

University of Michigan Journal of Law Reform

With the emergence of the metaverse, some problems relating to trader responsibility, which had previously long been addressed, have now resurfaced and come back to life. One of these problems is the question of who should be held accountable for harm inflicted by defective or counterfeit products sold by third-party vendors in metaverse marketplaces. Under the common law, liability for defective or counterfeit products rests with the immediate seller of the product. But, unique aspects of the metaverse may make holding sellers liable unwise, difficult, or even impossible.

The law confronted a similar question after online platforms emerged. Currently, common …

Contractual Remedies In Mergers: Lessons From Crispo V. Musk, Dhruv Aggarwal, Albert H. Choi, Geeyoung Min

Law & Economics Working Papers

The Delaware Chancery Court recently restricted a merger target's ability to recover damages on behalf of its shareholders from a breaching buyer. This paper investigates the impact of the decision. First, we present a theoretical analysis to generate empirical predictions. Second, we show that the decision led to a decrease in the firm value of targets in mergers governed by Delaware law. Third, we hand-collect relevant provisions from merger agreements and find that the agreements governed by Delaware law increasingly include target-friendly non-price terms after the decision. We also present evidence suggesting deal price responds to the inclusion of novel …

Bounded Extraterritoriality, Ruth Mason, Michael S. Knoll

Michigan Law Review

Twenty-first-century politics has inspired a new mode of interstate rivalries and reprisals consisting not of the tariffs that plagued the Founding but rather of regulations with significant impacts outside the enacting state’s borders. Employing the dormant Commerce Clause doctrine of extraterritoriality, the Supreme Court has limited overbroad state regulations, but the extraterritoriality doctrine is unclear both in its normative grounding and practical application. This Article proposes a conceptual framework that situates the prohibition of extraterritoriality as an aspect of horizontal federalism. Our conceptualization of extraterritoriality enables us to distinguish it from two dormant Commerce Clause doctrines with which it is …

Modular Bankruptcy: Toward A Consumer Scheme Of Arrangement, John A.E. Pottow

Articles

In the world of cross-border corporate insolvency, those in the know are familiar with the increasingly popular scheme of arrangement, the British quasi-reorganization procedure that allows a company to restructure some, but not all, of its debt. The typical scheme effects a corporate balance sheet reshuffling by supermajoritarian approval (and judicial "sanction") but often leaves other debt, such as the trade, untouched. A key conceptual component of the scheme mechanism is its intentional modularity, called by some its "selectivity." It does not require a comprehensive reckoning of all claims against a given debtor, only some. The scheme has proved popular-so …

Modular Bankruptcy: Toward A Consumer Scheme Of Arrangement, John A. E. Pottow

Law & Economics Working Papers

The world of international bankruptcy has seen increasing use of the versatile scheme of arrangement, a form of corporate reorganization available under English law. A key feature of the scheme is its modularity, whereby a debtor can restructure only a single class of debt, such as bond indentures, without affecting other debt, such as trade. This is the opposite of chapter 11 of the U.S. Bankruptcy Code’s comprehensive reckoning of all financial stakeholders. This article considers a novel idea: could the scheme be transplanted into the consumer realm? It argues that it could and should. Substantial benefits of more individually …

Teaching Slavery In Commercial Law, Carliss N. Chatman

Michigan Journal of Race and Law

Public status shapes private ordering. Personhood status, conferred or acknowledged by the state, determines whether one is a party to or the object of a contract. For much of our nation’s history, the law deemed all persons of African descent to have a limited status, if given personhood at all. The property and partial personhood status of African-Americans, combined with standards developed to facilitate the growth of the international commodities market for products including cotton, contributed to the current beliefs of business investors and even how communities of color are still governed and supported. The impact of that shift in …

Modernizing Notice Of Breach Rules To Preserve Contract Remedies, Stephen Plass

University of Michigan Journal of Law Reform

Recently, the legal community has scrutinized the capacity of mandatory arbitration rules to deter or foreclose claims for breach of contract. But little attention has been paid to express and constructive notice of breach rules that are just as effective at foreclosing contractual remedies. While four-year statutes of limitations are typically viewed as the default cutoff time for breach of contract claims, contracting parties, particularly buyers of goods, must act much sooner to preserve their legal remedies. It is now common practice for sellers to require notice of breach within days or weeks of their performance as an express condition …

Liability For Non-Disclosure In Equity Financing, Albert H. Choi, Kathryn E. Spier

Law & Economics Working Papers

The paper analyzes the effects of holding firms liable for non-disclosure of material information when raising capital. We develop a model in which a privately-informed entrepreneur can choose to withhold information from prospective investors when issuing and selling stock and the investors can bring suit against the firm ex post for (alleged) non-disclosure. The damage payment received by the investors is partially offset by the reduced value of their equity stake. The analysis shows that the equilibrium depends on, among others, (1) the amount of personal capital the entrepreneur has to commit, (2) the frequency with which the entrepreneur is …

Why Can't I Get Pliny The Elder? Beer Distribution Law In Michigan, Kincaid C. Brown

Law Librarian Scholarship

If you are a craft beer drinker, you have noticed that there are many beers brewed in the United States that you cannot buy in Michigan, like California-based Pliny the Elder. You will have also noticed that there are many craft beers brewed in Michigan that you cannot buy at your local grocery store or bottle shop. Why is that the case? The short answer is because Michigan law mandates that beer pass through what’s known as a three-tier distribution system. This article outlines what a three-tier distribution is, what it means for Michigan brewers and beer drinkers,

Fair Lending For Cannabis Banking Justice, Benjamin T. Seymour

University of Michigan Journal of Law Reform Caveat

This Comment offers a fair lending solution to promote racial equity in cannabis banking reform: amend the Equal Credit Opportunity Act to ensure individuals previously arrested, charged, or convicted for selling, cultivating, or possessing marijuana will not therefore be precluded from loans to start legal cannabis businesses. Given disparities in the criminal enforcement of marijuana laws, this amendment would provide racial justice benefits, while also encouraging entrepreneurship. As a market-based social justice effort, this amendment offers a bipartisan approach to one of the most vexing and contentious issues in marijuana banking reform.

Part II of this Comment briefly surveys the …

Contract Design When Relationship-Specific Investment Produces Asymmetric Information, Albert H. Choi, George Triantis

Articles

Under conventional contract theory, contracts may be efficient by protecting relationship specific investment from holdup in subsequent (re)negotiation over terms of trade. This paper demonstrates a different problem when specific investment also provides significant private information to the investing party. This is fairly common: for example, a manufacturer invests to learn about its buyer's idiosyncratic needs or a collaborator invests to learn about a joint venture. We show how such private information can lead to subsequent bargaining failure and suboptimal ex ante relationship-specific investment. We also show that this inefficiency is worse if the parties enter into a binding and …

Class Actions And Private Antitrust Litigation, Albert H. Choi, Kathryn E. Sprier

Law & Economics Working Papers

When firms collude and charge supra-competitive prices, consumers can bring antitrust lawsuits against the firms. When the litigation cost is low, firms accept the cost as just another cost of doing business, whereas when the cost is high, the firms lower the price to deter litigation. Class action is modeled as a mechanism that allows plaintiffs and attorneys to obtain economies of scale. We show that class actions, and the firms' incentive to block them, may or may not be socially desirable. Agency problems, settlement, fee-shifting, treble damages, public enforcement, and sustaining collusion through repeat play are also considered.

Identifying Fundamental Breach Of Articles 25 And 49 Of The Cisg: The Good Faith Duty Of Collaborative Efforts To Cure Defects - Make The Parties Draw A Line In The Sand Of Substantiality, Yasutoshi Ishida

Michigan Journal of International Law

Article 49(1) of the CISG allows buyers of international goods to avoid their sales contracts “if the failure by the seller to perform . . . amounts to a fundamental breach.” A breach is “fundamental,” as defined by CISG article 25, when it causes the buyer such detriment “as substantially to deprive him of what he is entitled to expect under the contract.” This definition is followed by the so-called “foreseeability test,” an “unless” clause that excepts the situation where “the party in breach did not foresee[,] and a reasonable person of the same kind in the same circumstances would …

Ecosystem Competition And The Antitrust Laws, Daniel A. Crane

Articles

Conventional antitrust norms analyze market power—as a stepping stone to anticompetitive effects and, hence, prohibited conduct—from the perspective of product substitutability. Two goods or services are said to compete with one another when they are reasonably interchangeable from the perspective of consumers, or to put it in more formal economic terms, when there is cross-elasticity of demand between them. Conversely, when two goods or services are not reasonably interchangeable, they are not horizontally related and are said not to compete with one another. Since a concern over horizontal agreements and horizontal effects dominate antitrust—courts even analyze vertical agreement or merger …

The Use Of Soft Law In The Creation Of Legal Norms In International Commercial Law: How Successful Has It Been?, Henry Deeb Gabriel

Michigan Journal of International Law

In this Article, I examine several interrelated points. After defining soft law in Part II, I briefly set out some of the assumed advantages soft law instruments may have over legislation and regulations in Part III. In Part IV, I examine why some soft law instruments in international commercial law have been successful in creating international legal norms. In this Part, I specifically examine the UNIDROIT Principles of International Commercial Contracts to show how one might gauge success by looking beyond the express purpose of the instrument. I also compare the UNIDROIT Principles of Commercial Contracts with the American Law …

Soft And Hard Strategies: The Role Of Business In The Crafting Of International Commercial Law, Susan Block-Lieb

Michigan Journal of International Law

What motivates the choice between hard and soft law in the drafting of international commercial law, and what role does business play in the preference between the two? Broad disagreement exists in international law (IL) commentary as to motivations for reliance on soft international law. Traditionally, this commentary cast a wide gaze across both international public and private law, but debate about the use of hard or soft law is sharpened by focusing exclusively on international commercial lawmaking. Traditionally, IL commentary considered only on states' interests in crafting international law and ignored business interests. But recent scholarship has begun to …

Digital Market Perfection, Rory Van Loo

Michigan Law Review

Google’s, Apple’s, and other companies’ automated assistants are increasingly serving as personal shoppers. These digital intermediaries will save us time by purchasing grocery items, transferring bank accounts, and subscribing to cable. The literature has only begun to hint at the paradigm shift needed to navigate the legal risks and rewards of this coming era of automated commerce. This Article begins to fill that gap by surveying legal battles related to contract exit, data access, and deception that will determine the extent to which automated assistants are able to help consumers to search and switch, potentially bringing tremendous societal benefits. Whereas …

The International Implications Of Wayfair, Reuven Avi-Yonah

Articles

In this article, Avi-Yonah argues that the Court’s recent decision in Wayfair has implications for the EU’s struggle with taxing the digital economy, as well as for the broader international effort to update international tax rules for the 21st century — that is, it bolsters the argument for dispensing with the 19th-century permanent establishment concept.

Intellectual Property In Experience, Madhavi Sunder

Michigan Law Review

In today’s economy, consumers demand experiences. From Star Wars to Harry Potter, fans do not just want to watch or read about their favorite characters— they want to be them. They don the robes of Gryffindor, flick their wands, and drink the butterbeer. The owners of fantasy properties understand this, expanding their offerings from light sabers to the Galaxy’s Edge®, the new Disney Star Wars immersive theme park opening in 2019.Since Star Wars, Congress and the courts have abetted what is now a $262 billion-a-year industry in merchandising, fashioning “merchandising rights” appurtenant to copyrights and trademarks that give fantasy owners …

Understanding The Consumer Review Fairness Act Of 2016, Eric Goldman

Michigan Telecommunications & Technology Law Review

Consumer reviews are vitally important to our modern economy. Markets become stronger and more efficient when consumers share their marketplace experiences and guide other consumers toward the best vendors and away from poor ones. Businesses recognize the importance of consumer reviews, and many businesses take numerous steps to manage how consumer reviews affect their public image. Unfortunately, in a misguided effort to control consumer reviews, some businesses have deployed contract provisions that ban or inhibit their consumers from reviewing them. I call those provisions “antireview clauses.”

Anti-review clauses distort the marketplace benefits society gets from consumer reviews by suppressing peer …

Paypal Is New Money: Extending Secondary Copyright Liability Safe Harbors To Online Payment Processors, Erika Douglas

Michigan Telecommunications & Technology Law Review

The Digital Millennium Copyright Act (DMCA) has shaped the Internet as we know it. This legislation shields online service providers from secondary copyright infringement liability in exchange for takedown of infringing content of their users. Yet online payment processors, the backbone of $300 billion in U.S. e-commerce, are completely outside of the DMCA’s protection. This Article uses PayPal, the most popular online payment company in the U.S., to illustrate the growing risk of secondary liability for payment processors. First it looks at jurisprudence that expands secondary copyright liability online, and explains how it might be applied to PayPal. Then it …

Consumer Preferences For Performance Defaults, Franklin G. Snyder, Ann M. Mirabito

Michigan Business & Entrepreneurial Law Review

Commercial law in the United States is designed to facilitate private transactions, and thus to enforce the presumed intent of the parties, who generally are free to negotiate the terms they choose. But these contracts inevitably have gaps, both because the parties cannot anticipate every situation that might arise from their relationship, and because negotiation is not costless. When courts are faced with these gaps in a litigation context, they supply default terms to fill them. These defaults usually are set to reflect what courts believe similar parties would have agreed to if they had addressed the issue. These “majoritarian” …

Basel Iii And The Future Of Project Finance Funding, Tianze Ma

Michigan Business & Entrepreneurial Law Review

This paper seeks to analyze the new requirements in the Basel III banking regulatory framework and explore their impact on commercial banks’ project finance portfolio. The paper begins with a general introduction of the Basel Accords, followed by an analysis of the changes in the Basel III requirements and their potential impact on project finance, in particular the effects of the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). The paper ends with a discussion of alternative sources of project finance funding that emerged as a result of the new regulatory regime.

Tesla, Dealer Franchise Laws, And The Politics Of Crony Capitalism, Daniel A. Crane

Articles

Public choice theory has long proclaimed that business interests can capture regulatory processes to generate economic rents at the expense of consumers. Such political exploitation may go unnoticed and unchallenged for long time periods because, though the rents are captured by a relatively small number of individuals or firms, the costs are widely diffused over a large number of consumers. The triggering event to expose and mobilize opposition to the regulatory capture may not arise until a new technology seeks to challenge the incumbent technology, thus creating a motivated champion to expose and oppose the regulatory capture and advocate for …

Out Of Sight, Out Of Mind: Hidden Disclaimers And Ucc § 2-316’S Conspicuousness Requirement, Gavin Thole

University of Michigan Journal of Law Reform Caveat

Money now, terms later” agreements, or rolling contracts, are commonplace in consumer transactions. Courts frequently allow these agreements to stand. But problems arise when product manufacturers disclaim a warranty that protects consumers, such as the implied warranty of merchantability, without disclosing the disclaimer upfront—effectively rendering the warranty useless. Suppose, for example, a consumer purchases a refrigerator or computer where the implied warranty of merchantability disclaimer is printed on the last page of a thick instruction booklet. The booklet is hidden deep inside the box, buried in a morass of cords and paperwork. The consumer has no way of knowing about …

Reasoned Awards In International Commercial Arbitration: Embracing And Exceeding The Common Law-Civil Law Dichotomy, S. I. Strong

Michigan Journal of International Law

Unlike many types of domestic arbitration where unreasoned awards (often called “standard awards”) are the norm, international commercial arbitration routinely requires arbitrators to produce fully reasoned awards. However, very little information exists as to what constitutes a reasoned award in the international commercial context or how to write such an award. This lacuna is extremely problematic given the ever-increasing number of international commercial arbitrations that arise every year and the significant individual and societal costs that can result from a badly written award. Although this Article is aimed primarily at specialists in international commercial arbitration, the material is also useful …