Commercial Law Commons^™

The Myth Of Credit Card Competition, Benjamin Dinovelli

Vanderbilt Law Review

You pay an invisible tax every time you swipe your credit card to pay—whether to buy groceries, grab a coffee, or access transportation. Credit card companies charge merchants to process your transaction, who in turn increase their own prices. These swipe fees are both extractive—higher than the cost of service and the fees in most other countries—and regressive—placing more of the cost burden on lower-income consumers and smaller merchants. Such outcomes are typically associated with firms having material market power. Yet, this market has competition: Consumers choose various cards offered by multiple card issuers, including banks and networks like American …

Delaware Supreme Court Clarifies Standard Of Review For Advance Notice Bylaw, Robert S. Reder, Noah Nance

Vanderbilt Law School Faculty Publications

Of the myriad corporate defenses erected during the hostile takeover boom of the mid-to-late 1980s, the one that has received the least scrutiny by the Delaware judiciary-at least until recently-is the so-called advance notice bylaw. Advance notice bylaws adopted by corporate boards of directors are "designed and function to permit orderly meetings and election contests and to provide fair warning to the corporation so that it may have sufficient time to respond to shareholder nominations." Kellner v. AIM ImmunoTech Inc., 320 A.3d 229 (Del. July 11, 2024) ("Kellner") (quoting Openwave Sys. Inc. v. Harbinger Cap. Partners Master Fund I, Ltd., …

Chancery Court Applies Entire Fairness Standard Of Review In Assessing Actions Of Conflicted Fiduciaries Engaging In "Value-Destructive" Spac Transactions, Robert S. Reder, John Rand Dorney

Vanderbilt Law School Faculty Publications

In the Gig Cases, Vice Chancellor Will followed the line of analysis she first adopted in MultiPlan by applying traditional fiduciary principles to address conflicts inherent in the standard SPAC structure. First, the Vice Chancellor rejected application of the deferential business judgment rule in favor of the more exacting entire fairness standard, finding both a conflicted controller and a conflicted board. While maybe not outcome determinative, this standard of review places a heavy burden on fiduciary defendants that generally precludes pleading stage dismissal. Second, the Vice Chancellor closely parsed language in disclosures made to stockholders to support, at least at …

Central Clearing The U.S. Treasury Market, Yesha Yadav

Vanderbilt Law School Faculty Publications

This Essay considers this regulatory response. It focuses on the introduction of mandatory central clearing for most trades in U.S. Treasuries-a proposal seeking to significantly reshape the day-to-day functioning of the Treasury market.10 Central clearing is a well-established means by which to reduce the risk of loss associated when trading parties default. It does so by providing a well-resourced and informed central counterparty (CCP) to step into and stand behind trades. CCPs help promote stability by reducing the probability of, and potential losses associated with, the default of a trading counterparty. But they also impose certain costs on market participants …

Reasonable Ai: A Negligence Standard, Mihailis E. Diamantis

Vanderbilt Law Review

Even as artificial intelligence (“AI”) promises to turbocharge social and economic progress, its human costs are becoming apparent. For example, selfdriving technology will someday make traffic jams a thing of the past, but technologists now acknowledge that it will never eliminate all traffic deaths. By design, AI behaves in unexpected ways. That is how it finds unanticipated solutions to complex problems. But unpredictability also means that AI will sometimes harm us. To curtail these harms, scholars and lawmakers have proposed strict regulations (to help ensure firms develop safe algorithms) and strict corporate liability (for injuries that nonetheless occur). These rigid …

Delaware Supreme Court Rules That Officer Exculpation Amendments Do Not Require Separate Class Vote Of Non-Voting Shares, Robert S. Reder, Ricky Bayon-Barrera

Vanderbilt Law School Faculty Publications

Before 2022, Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL") permitted corporations, via amendments to their corporate charters, to exculpate corporate directors from personal liability for breaches of their duty of care ("& 102(b)(7)"). Delaware amended & 102(b)(7) in 2022 to allow corporations to extend exculpation to officers (the "2022 Amendment").

On Entityness And Takeovers: Acquisition Valuation, Theory Of The Firm, And Coase’S Error, Robert J. Rhee

Vanderbilt Law Review

This Article advances a theory of entityness that theorizes the firm and its relationship to the acquisition premium. This theory is the first scholarly analysis to construct a general model of takeover valuation by integrating the modern finance theory of asset value and a corrected Coasean theory of the firm. The acquisition premium is an enigma. Acquirers must pay it. But why? Isn’t the market price tethered to fundamental value through an efficient market? This enigma reveals a key insight about firms. The theory of entityness postulates that the acquisition premium is compensation for a capitalized asset intrinsic in the …

Fighting Mass Arbitration: An Empirical Study Of The Corporate Response To Mass Arbitration And Its Implications For The Federal Arbitration Act, Richard Frankel

Vanderbilt Law Review

Mass arbitration represents the newest battleground between corporations and consumer and employee advocates over mandatory arbitration and access to justice. Companies thought they had finally won the arbitration wars after the U.S. Supreme Court ruled that they could insert class action bans into their arbitration clauses, bestowing companies with widespread immunity from a large swath of consumer and employee claims.

Recently, however, consumer and employee advocates have responded to class action bans by filing thousands of individual arbitration demands, which have exposed companies to millions of dollars in filing fees and resulted in large settlements. This practice has become known …

A "Profoundly Contractarian Predisposition": Delaware Courts Decide Recent Drafting Disputes By Limiting Their Review To Four Corners Of Contracts, Robert S. Reder, Kathleen E. Sharkey

Vanderbilt Law School Faculty Publications

In the decisions discussed herein, both the Delaware Supreme Court ("Supreme Court") and the Delaware Court of Chancery ("Chancery Court") reaffirmed the Delaware judiciary's commitment to honoring contract language, whenever possible, to settle contractual disputes. Absent irreconcilable ambiguity, no coloring outside the lines will be considered. The goal generally is to reflect the intent of the parties while avoiding absurd or illogical results. Ironically, in each of these cases, better drafting could have ensured the parties were on the same page: " In Arwood v. AW Site Services, Vice Chancellor Slights, confirming Delaware's status as "'more contractarian' than most states," …

Thoughts On Corporate Law And The Problem Of Human Capital, Margaret Blair

Vanderbilt Law School Faculty Publications

The theme of this Symposium takes me back more than thirty years to work I did on corporations and human capital at the Brookings Institution in the 1990s. Although I have been on the faculty of law schools since 2000, I am not a lawyer, and in fact, never went to law school. I did my Ph.D. in economics, and I wrote my dissertation on merger waves-in particular, I developed a macroeconomic theory to explain the wave of corporate mergers and takeo- vers that happened in the 1980s. The most prominent and popular idea about takeovers at the time was …

Risk-Seeking Governance, Brian Broughman, Matthew T. Wansley

Vanderbilt Law School Faculty Publications

Venture capitalists (“VCs”) are increasingly abandoning their traditional role as monitors of their portfolio companies. They are giving startup founders more equity and control and promising not to replace them with outside executives. At the same time, startups are taking unprecedented risks—defying regulators, scaling in unsustainable ways, and racking up billion-dollar losses. These trends raise doubts about the dominant model of VC behavior, which claims that VCs actively monitor startups to reduce the risk of moral hazard and adverse selection. We propose a new theory in which VCs use their role in corporate governance to persuade risk-averse founders to pursue …

Risk-Seeking Governance, Brian J. Broughman, Matthew T. Wansley -- Assoc. Professor Of Law

Vanderbilt Law Review

Venture capitalists (“VCs”) are increasingly abandoning their traditional role as monitors of their portfolio companies. They are giving startup founders more equity and control and promising not to replace them with outside executives. At the same time, startups are taking unprecedented risks—defying regulators, scaling in unsustainable ways, and racking up billion-dollar losses. These trends raise doubts about the dominant model of VC behavior, which claims that VCs actively monitor startups to reduce the risk of moral hazard and adverse selection. We propose a new theory in which VCs use their role in corporate governance to persuade risk-averse founders to pursue …

So Far Yet So Close: Comparing Governing Laws In Arbitration Agreements Under English And Chinese Laws, King Fung Tsang, Weijie Lin

Vanderbilt Journal of Transnational Law

The governing law of arbitration agreements determines the validity of an arbitration agreement and equally the entire arbitration. However, there is huge disagreement around the world as to the appropriate choice-of-law rules for deciding this governing law, particularly between rules favoring the governing law of the underlying contract (represented by the English approach) and the curial law (represented by the Chinese approach). By comparing the choice-of-law rules of these two jurisdictions, the authors argue that this disagreement is futile and unnecessary because both jurisdictions’ choice-of-law rules are pro-validity in substance and likely lead to the arbitration agreement being upheld. There …

Regulating Global Stablecoins: A Model-Law Strategy, Steven L. Schwarcz

Vanderbilt Law Review

Digital currencies have the potential to improve the speed and efficiency of the payment system. The principal challenge is retail: to facilitate day-to-day payments among consumers as an alternative to cash, both domestically and across national borders. Two models of digital currencies are becoming viable: central bank digital currencies and nongovernment-issued currencies that are backed by assets having intrinsic value (stablecoins or, when widely used internationally, global stablecoins). Because they are not government issued, global stablecoins present complex and novel cross-border regulatory challenges, including managing the costs of complying with a multitude of national laws and ensuring international legal enforceability. …

A Regulatory Scheme For The Dawn Of Space Tourism, Molly M. Mccue

Vanderbilt Journal of Transnational Law

Today, companies like Blue Origin and Virgin Galactic have successfully launched paying customers into space, forging the future of the space tourism industry. While a growing space tourism industry promotes scientific advancement and opens an activity once reserved for trained astronauts to the public, the industry generates new issues and reveals the vulnerabilities of international space law. This Note explores the history of commercial spaceflight and the international agreements that comprise the current legal regime. It argues that space tourism presents a need for a new international agreement to address three vulnerabilities in the current international regime: environmental protections, protections …

Mergers, Antitrust, And The Interplay Of Entrepreneurial Activity And The Investments That Fund It, Gary Dushnitsky, D. Daniel Sokol

Vanderbilt Journal of Entertainment & Technology Law

This Article addresses the potentially negative implications of proposed antitrust legislation on the entrepreneurial ecosystem in general, with a particular focus on the venture capitalists (VCs) that fund it. First, it offers a review of how antitrust merger law currently works and how proposed legislative changes to antitrust may threaten the innovative Venture Capital (VC)-backed ecosystem that has made the United States the center of global innovation across many different industries. Accompanying this review are some empirical observations. Second, recognizing that the understanding of innovative entrepreneurial activity calls for a deep appreciation of those who back it, the Article also …

Will Corporations Deliver Value To All Stakeholders?, Lucian A. Bebchuk, Roberto Tallarita

Vanderbilt Law Review

Amid growing concerns for the effects that corporations have on stakeholders, supporters of stakeholder governance advocate relying on corporate leaders to use their discretion to protect stakeholders, and they seem to take corporate pledges to do so at face value. By contrast, critics question whether corporate leaders have incentives to protect stakeholders and to follow through on pledges to do so. We provide empirical evidence that can contribute to resolving the debate between these rival views.

The most celebrated pledge by corporate leaders to protect stakeholders was the Business Roundtable's 2019 Statement on the Purpose of a Corporation (the "BRT …

Dynamic Corporate Purpose: Decentralizing The Choice Over Director Orientation, Fields Pierce

Vanderbilt Law Review

The debate over corporate purpose has turned into a “gordian knot” where parties with entrenched beliefs about what the corporation should or should not be within society refuse to waver. There are inherent flaws with the governance models proposed by academics, politicians, and practitioners alike, so a novel method for setting and maintaining corporate purpose is required. This Note asks why there must be a one-size-fits-all approach to purpose and proposes a solution: dynamic corporate purpose.

This Note argues that states should not mandate all corporations hold the same corporate purpose but instead should use the logic of the public …

Corporate Personhood And Limited Sovereignty, Elizabeth Pollman

Vanderbilt Law Review

This Article, written for a symposium celebrating the work of Professor Margaret Blair, examines how corporate rights jurisprudence helped to shape the corporate form in the United States during the nineteenth century. It argues that as the corporate form became popular because of the way it facilitated capital lock-in, perpetual succession, and provided other favorable characteristics related to legal personality that separated the corporation from its participants, the Supreme Court provided crucial reinforcement of these entity features by recognizing corporations as rights-bearing legal persons separate from the government. Although the legal personality of corporations is a distinct concept from their …

A Response To Calls For Sec Mandated Esg Disclosure, Amanda M. Rose

Vanderbilt Law School Faculty Publications

This Article responds to recent proposals calling for the SEC to adopt a mandatory ESG-disclosure framework. It illustrates how the breadth and vagueness of these proposals obscures the important--and controversial-- policy questions that would need to be addressed before the SEC could move forward on the proposals in a principled way. The questions raised include some of the most contested in the field of corporate and securities law, such as the value of interjurisdictional competition for corporate charters, the right way to conceptualize the purpose of the corporation, the proper allocation of managerial power as between the board and shareholders, …

Fiduciary Duties And Corporate Climate Responsibility, Cynthia A. Williams

Vanderbilt Law Review

Corporate-law scholarship for decades has been occupied with agency costs and how to mitigate them. But when I teach the basic business organizations class, starting with agency law and looking at the fiduciary duties of care, loyalty, and full disclosure of any agent to her principal, we explore both costs and benefits of agency relationships. I do so by introducing Ronald Coase’s theory of the firm. Using an example close to most second-year law students’ experience, that of buying a suit for interviews, I contrast Brooks Brothers establishing its own factories (the “make” decision) with Brooks Brothers using supply chains, …

Federal Corporate Law And The Business Of Banking, Morgan Ricks, Lev Menand

Vanderbilt Law School Faculty Publications

The only profit-seeking business enterprises chartered by a federal government agency are banks. Yet there is barely any scholarship justifying this exception to state primacy in U.S. corporate law.

This Article addresses that gap. It reinterprets the National Bank Act (NBA) the organic statute governing national banks, the heavyweights of the financial sec- tor-as a corporation law and recovers the reasons why Congress wrote this law: not to catalyze private wealth creation or to regulate an existing industry, but to solve an economic governance problem. National banks are federal instrumentalities charged with augmenting the money supply-- a delegated sovereign privilege. …

A Revised Monitoring Model Confronts Today's Movement Toward Managerialism, Randall S. Thomas, James D. Cox

Vanderbilt Law School Faculty Publications

There are many lessons to be drawn from the sweep of history. In law, the compelling story repeatedly told is the observable co-movement of law on the one hand, and economic, social, and political changes on the other hand. Aberrations, however, do arise but generally do not persist in the long term. Contemporary corporate law seems to be on the cusp of such an abnormality as legal developments and proposed reforms for corporate law are currently conflicting with the direction in which the host environment is moving. This article identifies a series of contemporary judicial and regulatory corporate governance developments …

The Sec's Shareholder Proposal: Creating A Corporate Public Square, Randall S. Thomas, James Cox

Vanderbilt Law School Faculty Publications

In this Article, we take advantage of this Symposium's goals to think broadly about the future of Rule 14a-8 of the Securities Exchange Act of 1934, the shareholder proposal rule. We set forth a vision for the rule to address boardroom insularity by likening the shareholder proposal rule as the public square for shareholders. The existence of such a forum would redound to the benefit of investors, officers, and boards of directors as a fount of current and usefuil information about their investors' and stakeholders' concerns.

We therefore rethink the mission of Rule 14a-8. In doing so, we explore whether …

Team Production Revisited, William W. Bratton

Vanderbilt Law Review

This Article reconsiders Margaret Blair and Lynn Stout’s team production model of corporate law, offering a favorable evaluation. The model explains both the legal corporate entity and corporate governance institutions in microeconomic terms as the means to the end of encouraging investment, situating corporations within markets and subject to market constraints but simultaneously insisting that productive success requires that corporations remain independent of markets. The model also integrates the inherited framework of corporate law into an economically derived model of production, constructing a microeconomic description of large enterprises firmly rooted in corporate doctrine but neither focused on nor limited by …

Dodge V. Ford: What Happened And Why?, Mark J. Roe

Vanderbilt Law Review

Behind Henry Ford’s business decisions that led to the widely taught, famous-in-law-school Dodge v. Ford shareholder primacy decision were three industrial organization structures that put Ford in a difficult business position. First, Ford Motor had a highly profitable monopoly and needed much cash for the just-begun construction of the River Rouge factory, which was said to be the world’s largest when completed. Second, to stymie union organizers and to motivate his new assembly-line workers, Henry Ford raised worker pay greatly; Ford could not maintain his monopoly without sufficient worker buy-in. And, third, if Ford explicitly justified his acts as in …

Why The Corporation Locks In Financial Capital But The Partnership Does Not, Richard Squire

Vanderbilt Law Review

Each partner in an at-will partnership can obtain a cash payout of his interest at any time. The corporation, by contrast, locks in shareholder capital, denying general payout rights to shareholders unless the charter states otherwise. What explains this difference? This Article argues that partner payout rights reduce the costs of two other characteristics of the partnership: the non-transferability of partner control rights, and the possibility for partnerships to be formed inadvertently. While these characteristics serve valuable functions, they can introduce a bilateral-monopoly problem and a special freezeout hazard unless each partner can force the firm to cash out his …

Extending Democracy To Corporate Governance And Beyond, Edward Rubin

Vanderbilt Law School Faculty Publications

This article proposes a different rationale for corporate democracy, one that extends more broadly to all forms of employment. It is based on an equivalence, not an analogy. The equivalence is that subordination feels essentially the same to an individual whether a public or a private entity is carrying it out. As recognized in the public arena, it undermines people’s dignity and autonomy, and at least threatens—and often produces—actual oppression. Based on this equivalence, this article proposes a different argument for corporate democracy. Proponents of democracy in the public sphere believe that the citizens of a nation should control its …

Team Production Revisited, William W. Bratton

Vanderbilt Law School Faculty Publications

This Article reconsiders Margaret Blair and Lynn Stout’s team production model of corporate law, offering a favorable evaluation. The model explains both the legal corporate entity and corporate governance institutions in microeconomic terms as the means to the end of encouraging investment, situating corporations within markets and subject to market constraints but simultaneously insisting that productive success requires that corporations remain independent of markets. The model also integrates the inherited framework of corporate law into an economically derived model of production, constructing a microeconomic description of large enterprises firmly rooted in corporate doctrine but neither focused on nor limited by …

Worker Voice And Corporate Governance: Putting Words Into Actions, Thomas A. Kochan

Vanderbilt Law School Faculty Publications

Two decades ago, Margaret Blair and I edited a book focused on governance of modern corporations. At the time it was evident that the dominant paradigm governing corporate governance and behavior centered on maximizing shareholder value. This was a shift in practice that began in the 1980s and was endorsed in 1997 by the Business Roundtable, when it recanted on its 1990 statement that supported a broader stakeholder view of corporate responsibilities.

The effects of the shift from a stakeholder- to a shareholder-maximizing set of practices have been devastating for American workers and the overall economy. It reinforced and accelerated …