Volume and Issue: Vol. 94, No. 3

How the First Amendment’s Commitment to Religious Freedom Could Ironically Save Roe v. Wade . . . If We Let It by Abigail Sellers

Article | Consitutional Law
How the First Amendment’s Commitment to Religious Freedom Could Ironically Save Roe v. Wade . . . If We Let It
by Abigail Sellers*

From Vol. 94, No. 3
94 S. Cal. L. Rev. 691 (2021)

Keywords: First Amendment, Reproductive Health, Abortion, Roe v. Wade

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On May 15, 2019, Alabama Governor Kay Ivey signed the Alabama Human Life Protection Act into law.1 The Act imposes serious punishments on doctors who perform an abortion unless it “is necessary in order to prevent a serious health risk to the unborn child’s mother,” there is an ectopic pregnancy, or the fetus has a “lethal anomaly.”2 Notably, the Act does not provide an exception for pregnancies resulting from rape or incest.3 Of particular interest to this Note are statements made by Alabama lawmakers indicating this law was passed to comport with their and Alabama citizens’ religious belief that “every life is a sacred gift from God.”4 Furthermore, Alabama lawmakers are keenly aware the law is in violation of a woman’s right to terminate a pregnancy as protected under the Fourteenth Amendment Due Process right to privacy.5 In fact, the Act was designed to challenge the cases establishing and upholding this right—Roe v. Wade and Planned Parenthood v. Casey—in the hopes that the Supreme Court will overrule these precedents.6

Even more disconcerting to reproductive health advocates, Alabama was only one of seven states that passed laws in 2019 severely restricting access to abortions.7 The six other states—Georgia, Kentucky, Louisiana, Missouri, Mississippi, and Ohio—criminalized abortion after six to eight weeks of pregnancy when a fetal heartbeat can be detected.8 These are aptly referred to as “heartbeat laws.” The passage of these laws was marked by religious statements from state lawmakers, and some of these laws have been expressly designed to challenge Roe.9

With a challenge to each of these laws making its way through various federal courts,10 it is possible that the Supreme Court will hear a case involving one or more of these laws and will once again get a chance to reconsider its holdings from Roe and Casey.11 This Note will argue that the Court should never reach the privacy issue at the heart of Roe and Casey. Instead, exercising judicial restraint, the Court should decide only as much as is necessary to resolve the case in front of it12 and should deem the Alabama Human Life Protection Act and the six heartbeat laws unconstitutional under the First Amendment’s Establishment Clause. Under current Supreme Court precedent, when a law lacks a sincere secular purpose, it violates the Establishment Clause,13 and as the previously mentioned religious statements by lawmakers indicate, the purpose behind these laws is not secular. Thus, the Court should never reach the privacy issue.

This Note will (1) examine the history of the debate surrounding abortion in American politics to show how Roe and Casey are once again ripe to be challenged, (2) explain the need for a new approach to challenge the abortion laws in question based on the current composition of the Supreme Court, (3) argue that the laws violate the Establishment Clause, and (4) explain why an Establishment Clause claim is worth pursuing.

*. Editor-in-Chief, Southern California Law Review, Volume 94; J.D. Candidate 2021, University of Southern California Gould School of Law; B.S. Biochemistry & B.A. Spanish, 2018, Arizona State University. I would like to thank Melissa Sellers, Dave Sellers, Perry Vargas, and the rest of my Sellers & Vargas family members for their support throughout my time in law school. I would also like to thank Professor Rebecca Brown for her feedback. Finally, many thanks to all the Southern California Law Review for their invaluable work on my piece.

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An Empirical Study of the Enforcement of Liquidated Damages Clauses in California and New York by Luca S. Marquard

Article | Remedies
An Empirical Study of the Enforcement of Liquidated Damages Clauses in California and New York
by Luca S. Marquard*

From Vol. 94, No. 3
94 S. Cal. L. Rev. 637 (2021)

Keywords: Liquidated Damages, Penalty Clause, California Law, New York Law

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A liquidated damages provision is a contract clause that predetermines the measure of damages in case a party breaches an agreement. Liquidated damages clauses are among the most commonly used contract clauses and are standard practice in most commercial agreements.1 Parties typically include such clauses in their contracts in an attempt to minimize anticipated litigation time and cost and to avoid the unpredictability of courts’ damages calculations. The renegotiation leverage gained from a liquidated damages clause provides incentive for a party to bargain for the inclusion of such a clause, especially if the party considers itself likely to be the nonbreaching party in any potential dispute. However, in reality, the security parties get from including a liquidated damages clause in their agreement is far from absolute. While certain types of liquidated damages clauses are more likely to be enforced than others, these clauses cannot confidently be relied on by practitioners. Despite a common perception to the contrary, this Note will show that such unreliability exists across jurisdictions.

American courts distinguish between valid liquidated damages clauses and penalty clauses. Simply put, a valid liquidated damages clause compensates the nonbreaching party in the case of breach, while a penalty clause, as its name suggests, penalizes the breaching party and by its coercive nature serves to induce performance.2 The distinction between these two clauses, which is often difficult to make, is an important one: while liquidated damages clauses are enforceable, penalty clauses are unenforceable as being against public policy.3 Whether courts should continue to follow this distinction has been the subject of extensive scholarly debate. Rather than adding another voice to the clamor, this Note will take the current distinction between liquidated damages and penalty clauses as given.

Instead, this Note will examine and compare how courts in New York, the most important American contract law jurisdiction,4 and in California, the state with the largest economy,5 have applied the distinction in recent years. This Note will discuss trends in enforcement and reasoning gleaned from the detailed study of over fifty of the latest court decisions on the enforceability of liquidated damages clauses in each California and New York. In doing so, this Note will test the validity of two hypotheses. The first hypothesis is that courts across jurisdictions are more likely to enforce liquidated damages clauses if the parties to the agreement are sophisticated. The second hypothesis is that New York courts are more likely than California courts to enforce liquidated damages clauses, and that this difference is most pronounced in consumer contracts.

Part I of this Note will provide an overview of the policy debate regarding whether the law should distinguish between liquidated damages clauses and penalty clauses and thus refuse to enforce penalty clauses. This Part will explain the most important arguments both in favor of and against enforcing penalty clauses and point out an argument regarding the theoretical foundation of liquidated damages.

Part II of this Note will describe the current state of the law of liquidated damages, articulating both the formal doctrine and how recent cases have interpreted it. This Part will outline the research methodology used for this project, give an account of first California and then New York law, before making a preliminary comparison of the approaches taken in the two jurisdictions.

Part III of this Note will discuss current trends in the enforcement of liquidated damages clauses in both California and New York, addressing characteristics of common transaction and clause types.

Part IV of this Note will analyze the importance of parties’ sophistication and the negotiation process to courts’ decisions on the enforceability of liquidated damages clauses.

This Note will make two significant contributions to the legal scholarship in this area. First, by describing the findings of an extensive empirical case survey, this Note will provide practitioners with an on-the- ground view of how courts actually treat liquidated damages clauses. This will give attorneys and their clients a better understanding of whether to include liquidated damages clauses in their agreements, how to phrase them, and, when considering breaching an agreement, whether a clause is likely to be enforced.

Second, this Note will ultimately draw several significant conclusions from this empirical analysis. The first being that there is no significant difference between California and New York courts’ treatment of liquidated damages clauses. Courts in both jurisdictions are more likely to enforce liquidated damages clauses in agreements between sophisticated parties. Further, there is no significant difference between how California and New York courts enforce liquidated damages clauses, both generally and against consumers and unsophisticated parties. This Note argues that this is due, at least in part, to the importance of sophistication and negotiation in courts’ determination of the enforceability of liquidated damages clauses. The absence of a significant difference between California and New York courts’ enforcement of liquidated damages clauses calls into question the widely held belief that New York courts take a formalist approach to contract law and that this makes New York an appealing jurisdiction for parties to business contracts. While New York law is the law of choice for parties to commercial contracts and generally preferred over California law,6 where liquidated damages clauses are concerned, parties choosing New York law likely do not receive the benefits they expect from their choice of law.

*. Senior Editor, Southern California Law Review, Volume 94; J.D. Candidate 2021, University of Southern California Gould School of Law; B.A. Economics 2018, University of California, Irvine. Thank you to Deena and Lora Fatehi for their unwavering support and companionship during the writing process. In addition, thank you to Professor Jonathan Barnett for encouraging me to pursue this topic and for his guidance during the drafting of this Note. Finally, thank you to the talented Southern California Law Review editors for their excellent work.

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The Giant Shadow of Corporate Gadflies by Kobi Kastiel and Yaron Nili

Article | Corporate Governance
The Giant Shadow of Corporate Gadflies

by Kobi Kastiel* and Yaron Nili†

From Vol. 94, No. 3
94 S. Cal. L. Rev. 569 (2021)

Keywords: Corporate Law, Shareholders, Corporate Social Responsibility

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Modern-day shareholders influence corporate America more than ever before. From demanding greater accountability of executives, to lobbying for a variety of social and environmental policies, shareholders today have the power to alter how American companies are run. Amazingly, a small group of individual shareholders wields unprecedented power to set corporate agendas and stands at the epicenter of our contemporary corporate governance ecosystem. In fact, the power of these individuals, known as “corporate gadflies,” continues to rise.
Corporate gadflies present a puzzling reality. Although public corporations in the United States are increasingly owned by large institutional investors, much of their corporate governance agenda has been and is still dominated by a handful of individuals who own tiny slivers of most large companies. How does an economy with corporate equity in the trillions of dollars cede so much governance power to corporate gadflies? More importantly, should it? Surprisingly, scholars have paid little attention to the role of corporate gadflies in this ever-changing governance landscape.
This Article is the first to address the giant shadow that corporate gadflies cast on the corporate governance landscape in the United States. The Article makes three contributions to the literature. First, using a comprehensive dataset of all shareholder proposals submitted to the S&P 1500 companies from 2005 to 2018, it offers a detailed empirical account of both the growing power and influence that corporate gadflies wield over major corporate issues and of gadflies’ power to set governance agendas. Second, the Article uses the context of corporate gadflies to elucidate a key governance debate over the role of large institutional investors in corporate governance. Specifically, the Article underscores the potential concerns raised by the activity of corporate gadflies and questions the current deference of institutional investors to these gadflies regarding the submission of shareholder proposals. Finally, the Article proposes policy reforms aimed at reframing the current discourse on shareholder proposals and potentially sparking a new line of inquiry regarding the role of investors in corporate governance.

*. Assistant Professor of Law, Tel Aviv University; Research Fellow and Lecturer on Law, Harvard Law School Program on Corporate Governance.

†. Associate Professor of Law, University of Wisconsin Law School and Smith-Rowe Faculty Fellow in Business Law. For helpful comments and suggestions, the Authors would like to thank Albert Choi, Asaf Eckstein, Yuval Feldman, Jesse Fried, Eric Goodwin, Zohar Goshen, Assaf Hamdani, Sharon Hannes, Cathy Hwang, Rob Jackson, Adi Libson, Amir Licht, Ehud Kamar, Kate Litvak, Dorothy Lund, James McRitchie, Gideon Parchomovsky, Ed Rock, Sarath Sanga, Bernard Sharfman, Eric Talley and the participants of the Rethinking the Shareholder Franchise Conference at the University of Wisconsin, the 2020 National Business Law Scholars Conference, the 2020 Annual Meeting of the Israeli Private Law Association, the Faculty Lunch Seminar at Tel Aviv University, the law and economics and empirical studies workshops at Bar Ilan University, the Securities and Exchange Commission, the Missouri Law School Faculty Colloquium, the BYU Law 2020 Winter Deals Conference, the University of Florida 2020 Business Law Conference, and the Soshnick Colloquium on Law and Economics at Northwestern Pritzker School of Law. Maya Ashkenazi, Katie Gresham, Gabrielle Kiefer, James Kardatzke, Chris Kardatzke, Tom Shifter, Maayan Weisman, and Gretchen Winkel provided valuable research assistance.

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Does Fair Use Matter? An Empirical Study of Music Cases by Edward Lee and Andrew Moshirnia

Article | Intellectual Property Law
Does Fair Use Matter? An Empirical Study of Music Cases
by Edward Lee* and Andrew Moshirnia†

From Vol. 94, No. 3
94 S. Cal. L. Rev. 471 (2021)

Keywords: Intellectual Property Law, Music Law, Entertainment Law

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Copyright law recognizes fair use as a general limitation. It is assumed that fair use provides breathing room above and beyond the determination of infringement to facilitate the creation of new works of expression. This conventional account presupposes that fair use matters—that is, fair use provides greater leeway to a defendant than the test of infringement. Despite its commonsense appeal, this assumption has not been empirically tested. Except for fair uses involving exact copies (for which infringement would otherwise exist), it has not been proven that fair use makes much, if any, difference in results. Indeed, in one sector, the music industry, defendants have avoided pursuing fair use as a defense in most infringement cases (except parodies) decided under the 1976 Copyright Act. This fair use avoidance is surprising given that musicians now face a spate of lawsuits due to a predicament we call copyright clutter, which occurs when copyrights protect numerous subelements of many works in a field of creation, thereby making it difficult for people to create a new work in that field without facing exposure to copyright liability simply based on a similar subelement. If fair use provides breathing room, why do musicians avoid it?
This Article provides the first empirical testing of the significance of fair use as a defense. In an experimental study involving approximately 500 subjects, we found that fair use does make a difference: subjects found no liability more frequently under fair use than the test of infringement when examining the same case. And greater knowledge of music or law resulted in higher findings of no liability under fair use. These findings provide a better conceptual understanding of how fair use operates and practical information for litigants that call into question the predominant strategy of musicians avoiding fair use as a defense. Such a strategy may result in greater findings of liability where fair use would have otherwise been found.

*. Professor of Law and Co-Director, Program in Intellectual Property Law, Illinois Tech Chicago-Kent College of Law. In the interest of full disclosure, I joined an amicus brief submitted to the Ninth Circuit in support of the jury verdict against Pharrell Williams in Williams v. Gaye, 895 F.3d 1106 (9th Cir. 2018). See Brief Amicus Curiae of the Institute for Intellectual Property and Social Justice Musician and Composers and Law, Music, and Business Professors in Support of Appellees, Williams, 895 F.3d 1106 (No. 15-56880) 2016 U.S. 9th Cir. Briefs LEXIS 2423. I also joined an amicus brief submitted to the Second Circuit in support of the lower court’s finding of fair use by Drake in Estate of Smith v. Cash Money Records, Inc., 253 F. Supp. 3d 737 (S.D.N.Y. 2017), aff’d sub nom. Estate of Smith v. Graham, 799 F. App’x 36 (2d Cir. 2020). Brief for Amicus Curiae Intellectual Property Professors Supporting Defendants-Appellees, Estate of Smith, 799 F. App’x 36 (No. 19-0028). In both appeals, the courts sided with the result supported by the amicus briefs. See Williams, 895 F.3d at 1120–27; Estate of Smith, 253 F. Supp. 3d at 742–43. We are grateful for the comments we received from colleagues during a presentation of a draft of this Article at the 2019 Intellectual Property Law Scholars Conference. Many thanks to our research assistants Sarah Anderson, Elizabeth Campbell, Elizabeth Jedrasek, Brittany Kaplan, and Annika Morin. This research was funded by a grant from the Chicago-Kent Center for Empirical Studies of IP and was approved for human subjects testing by the Institutional Review Board of Illinois Institute of Technology.

†. Associate Professor, and Director of Education, Business Law & Taxation, Monash University.

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On Electronic Word of Mouth and Consumer Protection: A Legal and Economic Analysis by Jens Dammann

Article | Computer & Internet Law
On Electronic Word of Mouth and Consumer Protection: A Legal and Economic Analysis
by Jens Dammann*

From Vol. 94, No. 3
94 S. Cal. L. Rev. 423 (2021)

Keywords: Internet and Technology Law, Product Reviews, Consumer Protection

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The most fundamental challenge in consumer protection law lies in the information asymmetry that exists between merchants and consumers. Merchants typically know far more about their products and services than consumers do, and this imbalance threatens the fairness of consumer contracts.

However, some scholars now argue that online consumer reviews play a crucial role in bridging the information gap between merchants and consumers. According to this view, consumer reviews are an adequate substitute for some of the legal protections that consumers currently enjoy.

This Article demonstrates that such optimism is unfounded. Consumer reviews are—and will remain—a highly flawed device for protecting consumers, and their availability therefore cannot justify dismantling existing legal protections.

This conclusion rests on three main arguments. First, there are fundamental economic reasons why even well-designed consumer review systems cannot eliminate information asymmetries between merchants and consumers.

Second, unscrupulous merchants undermine the usefulness of reviews by manipulating the review process. While current efforts to stamp out fake reviews may help to eliminate some of the most blatant forms of review fraud, sophisticated merchants can easily resort to more refined forms of manipulation that are much more difficult to address.

Third, even if the firms operating consumer review systems were able to remedy all the various shortcomings that such systems have, it is highly unlikely that they would choose to do so: by and large, the firms using review systems lack the right incentives to optimize them.

*. Ben H. and Kitty King Powell Chair in Business and Commercial Law, The University of Texas School of Law. For research assistance or editing, or both, I am grateful to Jael Dammann, Elizabeth Hamilton, Stella Fillmore-Patrick, and Jean Raveney.

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