Category: Articles

Legislative Arrogance and Constitutional Accountability – Article by Caitlin E. Borgmann

From Volume 79, Number 4 (May 2006)
DOWNLOAD PDF

A movement is quietly gaining traction – state legislatures are enacting social policy through laws specially designed to evade constitutional review by the courts. These laws give individuals a private right of action to seek massive damages against those who engage in constitutionally protected but controversial conduct. The coercive nature of potential, massive civil liability has the same effect as an outright ban on constitutionally protected acts. But federal appellate courts have found legal challenges to these laws barred by the doctrines of Article III standing and state sovereign immunity. The resulting legislative arrogation of power is a dangerous trend, forewarned of by the Framers of the Constitution. It contravenes federal supremacy and upsets the balance of power among coordinate branches of government. This Article argues that the courts can address this new phenomenon based on time-honored constitutional principles and a long-overdue reevaluation of the doctrine of Ex parte Young.

 

79_753

The New Vote Buying: Empty Voting and Hidden (Morphable) Ownership – Article by Henry T.C. Hu & Bernard Black

From Volume 79, Number 4 (May 2006)
DOWNLOAD PDF

Corporate law generally makes voting power proportional to economic ownership. This serves several goals. Economic ownership gives shareholders an incentive to exercise voting power well. The coupling of votes and shares makes possible the market for corporate control. The power of economic owners to elect directors is also a core basis for the legitimacy of managerial authority. Both theory and evidence generally support the importance of linking votes to economic interest. Yet the derivatives revolution and other capital markets developments now allow both outside investors and insiders to readily decouple economic ownership of shares from voting rights. This decoupling, which we call the “new vote buying,” has emerged as a worldwide issue in the past several years. It is largely hidden from public view and mostly untouched by current regulation.

Hedge funds have been especially creative in decoupling voting rights from economic ownership. Sometimes they hold more votes than economic ownership – a pattern we call “empty voting.” In an extreme situation, a vote holder can have a negative economic interest and, thus, an incentive to vote in ways that reduce the company’s share price. Sometimes investors hold more economic ownership than votes, though often with “morphable” voting rights – the de facto ability to acquire the votes if needed. We call this situation “hidden (morphable) ownership” because the economic ownership and (de facto) voting ownership are often not disclosed.

This Article analyzes the new vote buying and its potential benefits and costs. We set out the functional elements of the new vote buying and develop a taxonomy of decoupling strategies. We also propose a near-term disclosure-based response and outline a menu of longer-term regulatory choices. Our disclosure proposal would simplify and partially integrate five existing, inconsistent ownership disclosure regimes, and is worth considering independent of its value with respect to decoupling. In the longer term, other responses may be needed: we discuss strategies focused on voting rights, voting architecture, and supply and demand forces in the markets on which the new vote buying relies.

 

79_811

Wireless Telecommunications: Spectrum as a Critical Resource – Article by Gerald R. Faulhaber

From Volume 79, Number 3 (March 2006)
DOWNLOAD PDF

Telecommunications services have always been a mix of wireline services, such as wireline telephone, cable television, and Internet access, and wireless services, such as AM/FM radio, broadcast television, and microwave-satellite transmission of electronic signals. Each mode of service has certain properties, both beneficial and detrimental. Wireline has the potential for almost unlimited capacity, such as the use of multigigabit fiber optics, but requires that the service be delivered to a particular location. Wireless frees the customer from being tied to a specific location, allowing service to be rendered wherever the customer is, but suffers from fading or nonexistent connections and possible privacy concerns. The mix between wireline mode and wireless mode is in constant flux; recently, however, the focus of the market has been shifting toward wireless. Cellular telephony has exploded worldwide, and after a slow start, the market penetration has increased dramatically. Meanwhile, the number of wired access lines in the United States has been declining, for the first time since the Great Depression.

The ability of engineers and innovative firms to bring new and compelling wireless telecommunications applications to an ever-communicating market is very impressive, and bodes well for even greater applications in the future. But even the cleverest of engineers cannot escape the one critical resource absolutely required for wireless services to be deployed: electromagnetic spectrum. Wireless services and devices are all radios, emitting electromagnetic radiation into free space and receiving such radiation. If other nearby transmitters are emitting radiation at the same frequency, the intended receivers will be unable to disentangle the signal they wish to receive from the spurious “interfering” signal. Fundamental to wireless technology is the need to solve this potential interference problem. Since the birth of radio in the 1920s, the interference problem has been solved by government licensing of transmission rights; each licensee is permitted to transmit from a particular place at a particular frequency at a maximum power for a particular application (for example, broadcast radio or police dispatch). Licensing has traditionally been a highly bureaucratic and political process. The outcome, all agree, has been a hugely inefficient use of spectrum resulting from this “command and control” regulatory allocation of a scarce resource.

 

79_537

Municipal Wireless Broadband: Hype or Harbinger? – Article by Sharon E. Gillett

From Volume 79, Number 3 (March 2006)
DOWNLOAD PDF

Municipal wireless is an important trend, but not for the reasons implied by much of the popular reporting that surrounds this topic. Cities are unlikely to dominate the roster of wireless broadband operators that directly serve the residential and business public. Municipalities, however, have been significant early adopters of innovative unlicensed wireless broadband technologies, providing both a market toehold to innovative products and services using those technologies, and an experimental testing ground for novel organizational models. Most cases of municipal wireless involve the use of unlicensed wireless broadband to meet the local government’s own needs for ubiquitous broadband services, or to construct public-private partnerships aimed at facilitating broadband wireless services to the business and residential public. These uses express local government interests long recognized as legitimate: provision of efficient city services, local economic development, and equity within the community. Thus, the concern for policymakers should not be whether cities should be involved in wireless broadband; there are legitimate reasons why they should, and why increasing numbers of them will be. Rather, the important public policy concern is how to ensure that, in the process of facilitating the first uses of wireless, city authority does not get subverted to create artificial limits on future broadband wireless competition. Doing so will require thoughtful melding of separate legal frameworks governing access to city property and public rights of way into a coherent policy that guides when exclusivity legitimately can or cannot feature in public-private partnership arrangements for communications services.

 

79_561

Advanced Wireless Technologies and Public Policy – Article by Thomas W. Hazlett & Matthew L. Spitzer

From Volume 79, Number 3 (March 2006)
DOWNLOAD PDF

The traditional U.S. spectrum allocation system has long been criticized – even by regulators – as overly rigid. To unleash innovative wireless technologies, the Federal Communications Commission (“FCC”) has gradually loosened government restrictions on airwave use. But the path to liberalization leads in alternative directions. One policy reform paradigm, championed by leading economists such as Ronald Coase, allows markets to allocate exclusively assigned spectrum use rights. A rival approach, advanced by advocates of an “open spectrum” such as Lawrence Lessig, favors allocating greater bandwidth for unlicensed use. In such bands, there is free entry by wireless users, provided they use regulator-approved devices that comply with protocols (including power limits) established by the government.

The FCC’s November 2002 Spectrum Policy Task Force Report called for greater reliance on both the exclusive and unlicensed models. Yet, considered in historical context, the FCC’s analysis veered decidedly toward more intense use of “spectrum commons,” abandoning previous agency goals to expand licensed allocations. Citing the “tremendous success” of unlicensed use of cordless phones and Wi-Fi access points, regulators have since argued that advanced wireless technologies create a new policy imperative. Because modern radios use sophisticated techniques for sorting out competing signals, “block allocations” are outdated.

The FCC sees the “spectrum commons” regulatory paradigm as suited to the new opportunities in wireless. In the wake of the spectrum report, it allocated additional 5 GHz bands for unlicensed use, and pursued several regulatory initiatives to dramatically expand bandwidth available for unlicensed devices. In contrast, new allocations for exclusively assigned, flexible-use spectrum rights (analogized as “property rights”) have stalled.

The FCC states that advanced wireless technologies yield valuable new opportunities to share radio spectrum on an unlicensed basis. Yet, the same advances increase opportunities for using exclusively assigned bands, where market data reveal that the most intense and complex frequency sharing actually occurs. Exclusive rights allow coordination of frequency use by competitive network operators; consumers generally find this a superior form of organization than that provided through regulated protocols, and overwhelmingly value marginal allocations of exclusively assigned rights more highly.

This Article examines tradeoffs in allocating spectrum for exclusive rights versus unlicensed use, focusing on an ongoing FCC rulemaking to create an “interference temperature.” This policy would permit unlicensed users to share bandwidth, including frequencies “exclusively” allocated to licensees, according to FCC rules. Our aim is to demonstrate that standard economic principles illuminate the path to proconsumer rules.

 

79_595

Abusing “Duty” – Article by Dilan A. Esper & Gregory C. Keating

From Volume 79, Number 2 (January 2006)
DOWNLOAD PDF

“Duty” occupies an odd place in contemporary negligence law. On the one hand, it is hornbook law that duty – along with breach, actual and proximate cause, and injury – is one of the elements of a plaintiff’s prima facie case. As the first element of a plaintiff’s case – and the only element whose existence is a matter of law for the court – duty seems to stand out even among the elements of the prima facie case. If a plaintiff cannot establish that the defendant was under a duty to exercise at least some care to ensure that its actions did not impose an unreasonable risk of injury on the plaintiff, then we need not ask if the defendant breached its duty of care and if that breach was the actual and “proximate” cause of the plaintiff’s injury. Duty, in short, seems important.

 

79_265

Shielding Duty: How Attending to Assumption of Risk, Attractive Nuisance, and Other “Quaint” Doctrines Can Improve Decisionmaking in Negligence Cases – Article by John C.P. Goldberg & Benjamin C. Zipursky

From Volume 79, Number 2 (January 2006)
DOWNLOAD PDF

From 1950 to 1980 the California Supreme Court set as one of its main tasks the project of modernizing negligence law. This program had two main facets. With respect to substantive doctrine, the court sought to purge what it regarded as vestiges of politically regressive common law, particularly limited-duty or “no duty” rules that governed premises liability claims, nonphysical harm claims, and claims alleging nonfeasance. In terms of method, the court adopted and advocated an antiformalist, reductively instrumentalist approach to judicial decisionmaking.

These efforts were thought to be complementary. The view was that nineteenth century negligence doctrine, including duty doctrines, as well as the defenses of assumption of risk and contributory negligence, systematically accorded undue protection to landowners and firms, either out of medieval notions of privilege (in the case of the former) or a pro-entrepreneur, every-man-for-himself ideology (in the case of the latter). Seizing on these doctrines, late nineteenth century judges had been all too prone to issue matter-of-law rulings that, for a given class of negligence claims, either assigned responsibility for victims’ injuries to the fault or choices of victims, or wrote them off as harms not traceable to anyone’s wrong. Antiformalism permitted judges to undermine this deep bias in the law by redefining the question being posed to judges in negligence cases. Thus, nominally legal questions that seemed rather obviously to raise issues of responsibility – questions of duty, fault, assumption of risk, etc. – were “revealed” instead to be open-ended policy questions about appropriate levels of liability: whether it would serve the cause of justice or the common good to leave it open to juries to award damages in the class of cases represented by a given case.

 

79_329

When Churches Fail: The Diocesan Debtor Dilemmas – Article by Jonathan C. Lipson

From Volume 79, Number 2 (January 2006)
DOWNLOAD PDF

The road from defendant to debtor is often short, and the cases of the Catholic dioceses would appear to be no exceptions. Facing hundreds of millions of dollars in liability for priests’ sexual misconduct, dioceses in Washington, Arizona, and Oregon recently filed cases under Chapter 11 of the U.S. Bankruptcy Code. Other dioceses may soon follow suit. Like the Dow Corning Corporation, the A.H. Robins Company, countless asbestos manufacturers, and other tortfeasors of recent memory, the dioceses seek to discharge – to reduce or eliminate – the claims against them.

As with most mass tort bankruptcies, these cases present a struggle between two sets of comparatively innocent parties: tort claimants (the victims of the sexual abuse) and other creditors, on the one hand, versus the parishioners, or church members, on the other. Unlike most bankruptcies, however, these cases present two dilemmas: one doctrinal and the other constitutional.

The doctrinal dilemma will force bankruptcy courts to choose between the bankruptcy rules that would ordinarily apply in a Chapter 11 case and exceptions imposed by religious liberty principles. The choice will be difficult, for at least three reasons. First, if a diocese were effectively shut down (because all assets were sold) over the objection of the diocese and parishioners, those parishioners, and perhaps the bishop, may credibly claim that this use of the Bankruptcy Code “substantially burdens” their exercise of religion under both the Religion Clauses of the First Amendment and statutory protections for religious actors. Second, for a variety of complex reasons, the internal rules of the churches themselves (that is, canon law) may displace or modify state law rules on property and governance that would ordinarily apply in bankruptcy. Third, use of some of the more intrusive powers ordinarily available in bankruptcy cases, such as appointment of a Chapter 11 trustee, might violate the Establishment Clause by “entangling” state actors in church affairs.

 

79_363