Month: November 2014

Volume 88, Number 1 (November 2014)

Volume 88, Number 1 (November 2014)

What’s Wrong with Law Firms? A Corporate Finance Solution to Law Firm Short-Termism – Article by Jonathan T. Molot

From Volume 88, Number 1 (November 2014)
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Lawyers and clients are unhappy with the contemporary law firm. Associates complain of being treated like “leverage tools” and given inadequate opportunities for mentoring, training, client contact, and career advancement. Clients feel overcharged and underserved, and are constantly searching for a better deal from a different firm. Even partners—the ones who profit from associate hours and client billings—have grown tired of a “what-have-you-done-for-me-lately” culture in which they have to bill and earn as much as possible during their productive working years and who, like clients, are all too willing to chase a better deal at another firm.

What is to blame for this discontent? This Article suggests that the cause is law firm short-termism. Law firms place too much emphasis on current revenue generation—the annual “profits-per-partner” numbers—and not enough emphasis on building long-term value. At core, it is this short-term outlook that leads law firms to squander valuable opportunities to build long-term loyalty among their clients and lawyers.

 

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A Theory of Republican Perogative – Article by Julian Davis Mortenson

From Volume 88, Number 1 (November 2014)
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It was a dark time for the United States. Hopelessly outnumbered and outgunned, the federal troops at Fort Sumter surrendered to Confederate forces on April 13, 1861. Four days later, Virginia politicians voted to secede, and the Commonwealth militia mobilized to seize federal positions throughout the state. Terror swept through Washington, D.C., which suddenly found itself “on a military frontier.” Then things got worse. The Maryland state legislature announced a special session to decide whether to follow Virginia’s example. Riots by Confederate sympathizers exploded across Baltimore as word got out that the federal government was trying to bring in reinforcements by train. Mobs in Maryland blocked Massachusetts’s troops from reinforcing the pathetically under-defended capital. Authorities in Baltimore burned the city’s main railroad bridges—an act that “looked like plain treason” and left the government in Washington “defenseless and cut off from the rest of the North.”

 

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Cy Pres in Class Action Settlements – Article by Rhonda Wasserman

From Volume 88, Number 1 (September 2014)
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Monies reserved to settle class action lawsuits often go unclaimed because absent class members cannot be identified or notified or because the paperwork required is too onerous. Rather than allow the unclaimed funds to revert to the defendant or escheat to the state, courts are experimenting with cy pres distributions—they award the funds to charities whose work ostensibly serves the interests of the class “as nearly as possible.”

Although laudable in theory, cy pres distributions raise a host of problems in practice. They often stray far from the “next best use,” sometimes benefitting the defendant more than the class. Class counsel often lacks a personal financial interest in maximizing direct payments to class members because the fee is just as large if the money is paid cy pres to charity. And if the judge has discretion to select the charitable recipient of the unclaimed funds, she may select her alma mater or another favored charity, thereby creating an appearance of impropriety.

 

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“McDonald Does Dallas”: How Obscenity Laws on Hard-Core Pornography Can End the Nation’s Gun Debate – Note by John Korevec

From Volume 88, Number 1 (November 2014)
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The dialogue on guns in the United States tends to fall toward one of two extremes—“everyday, guns kill good people” or “everyday, guns kill bad people.” The debate becomes a battle of values between two groups with two very different, yet very passionately held worldviews. Even legal scholarship cannot immunize itself from devolving into normative discussions founded on what the law should be, rather than providing analysis of what the law actually is. Unfortunately, a more targeted discussion arising directly out of Second Amendment jurisprudence is particularly difficult, as the U.S. Supreme Court has provided very limited guidance on the types of gun regulations that can pass constitutional muster.

 

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Human Trafficking and U.S. Asylum: Embracing the Seventh Circuit’s Approach – Note by Kelsey M. McGregor

From Volume 88, Number 1 (November 2014)
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After struggling to provide for her children in her native country of Mexico, Esperanza lost one of her children to starvation. Devastated, she determined to leave her children in the care of family and seek work in Los Angeles. Pursuing what she believed to be a legitimate job offer, Esperanza was instead trafficked into a U.S. sweatshop. Separated from her children and unable to send any earnings home, Esperanza was cruelly abused by her traffickers. She recalls one trafficker asserting: “Dogs have more rights than you in this country. You are here illegally. And nobody can trust you. If you go to the police they might put you in jail because you have no papers . . . and if you do something I will call to the INS and they send you back, and not only send you back, they might put you in jail.”

 

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Narrow Banking as a Structural Remedy for the Problem of Systemic Risk: A Comment on Professor Schwarcz’s Ring-Fencing – Postscript (Comment) by Arthur E. Wilmarth, Jr.

From Volume 88, Number 1 (November 2014)
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In Ring-Fencing, Professor Steven Schwarcz provides an insightful overview of the concept of “ring-fencing” as a “potential regulatory solution to problems in banking, finance, public utilities, and insurance.” As Professor Schwarcz explains, “ring-fencing can best be understood as legally deconstructing a firm in order to more optimally reallocate and reduce risk.” Ring-fencing has gained particular prominence in recent years as a strategy for limiting the systemic risk of large financial conglomerates (also referred to herein as “universal banks”). Professor Schwarcz describes several ring-fencing plans that have been adopted or proposed in the United States, United Kingdom, and European Union.

This Comment argues that “narrow banking” is a highly promising ring-fencing remedy for the problems created by universal banks. Narrow banking would strictly separate the deposit-taking function of universal banks from their capital markets activities. If properly implemented, narrow banking could significantly reduce the safety net subsidies currently exploited by large financial conglomerates and thereby diminish their incentives for excessive risk-taking.

 

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Ring-Fencing and Its Alternatives – Postscript (Response) by David Zaring

From Volume 88, Number 1 (November 2014)
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Steven Schwarcz’s “Ring-Fencing” gets much of its impact from its broad definition of the term, which is usually heard these days when thinking about whether a multinational bank ought to be forbidden from removing the assets of its branches in one country to support its activities in another.

One of the singular contributions of the article lies in its willingness to look beyond that use of the term to think about what ring-fencing means more broadly and conceptually. As Schwarcz observes, ring-fencing is nothing less than a way to allocate resources, regulate firms, and reassure stakeholders that could be applied any enterprise. The ring-fencing metaphor posits the separation of assets within a firm—some are inside the ring fence, and others are not. To Schwarcz this amounts to “legally deconstructing a firm in order to more optimally reallocate and reduce risk,” which could include any restructuring involving holding companies, off-balance sheet entities, and even the creation of corporate subsidiaries.

 

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