2018, Vol. 113, No. 2
A healthy system of shareholder voting is crucial for any regime of corporate law. The proper allocation of governance power is subject to debate, of course, but the fitness of the underlying mechanism used to stuff the ballot boxes should concern everyone. Proponents of shareholder power, for instance, cannot argue for greater control if the legitimacy of the resulting tallies is suspect. And those who advocate for board deference do so on the bedrock of authority that reliable shareholder elections supposedly confer.
Unfortunately, our trust in the corporate franchise was forged during an era that predates modern complexities in the way that stock ownership is now tracked and traded. We do not trace shares, and any clear-eyed look at the conferral of voting rights via back-end stock clearing practices is unsettling. Evidence of the various entanglements crops up from time to time—in the form of questionable voting outcomes or disputes about standing for shareholder lawsuits—but the underlying problems are systemic, not episodic. Our stock clearing system is a kludge.
This is an important moment for corporate law, however, because new technology is approaching a state where clearing and settlement systems may soon support traceable shares. The rise of distributed ledgers and blockchain technology is poised to allow for specific share identification and precise records of share provenance. This may sound like an uninteresting technical sideshow, but as this Article will argue, the impact of traceable shares on corporate law will be profound. It will change the structure of shareholder lawsuits, alter the allocation of corporate governance rights, and require lawmakers to rethink fundamental principles of shareholder responsibility for corporate misdeeds.
Modern commercial contracts—those governing mergers and acquisitions and financial derivatives, for instance—have become structurally complex and interconnected. Yet contract law largely ignores structural complexity. This Article develops a theory of “contractual structuralism” to explain the important role of structure in every aspect of contract law, from the design of a contract to courts’ interpretation and enforcement.
For generations, scholars have debated whether a court should consider only the text of a contract or also consider broader context to determine parties’ intent. More recently, scholars have shown that parties can choose between textual and contextual interpretation by drafting a contract provision as a rule or a standard. Rules signal that parties have fully thought through the issues and a court should interpret textually, and standards signal the need for further contextual exploration.
This Article builds upon that pioneering work to make two contributions to the literature. First, it provides the first comprehensive account of structural complexity in modern contracting, and explains how modern contract designers use structure to advance their goals. Second, it shows how the design of contract structure can influence interpretation. Contracts have grown—in scope, length, and complexity—and provisions are no longer strictly rules or strictly standards. Rather, they bleed into and interact with one another, complicating parties’ ability to always pair textualist enforcement with a rule and contextualist enforcement with a standard. Tweaking deal structure provides contract designers with another way, beyond using a rule or standard, to nudge courts toward a particular interpretive mode. Specifically, structural isolation of provisions—a modular contract structure—is required for the kind of toggling between textualism and contextualism that other scholars have envisioned. Understanding how a contract’s parts are put together—the structure of the contract—is important to understanding how to design contracts and can greatly influence how courts interpret contracts.
Notes & Comments
Who, What, and Where: A Case for a Multifactor Balancing Test as a Solution to Abuse of Nationwide Injunctions
There has been a significant increase in the use of a controversial, dramatic remedy known as the nationwide injunction. This development is worrisome because it risks substantial harm to the judiciary by encouraging forum shopping, freezing the “percolation” of legal issues among the circuits, and undermining the comity between the federal courts. But a complete ban on nationwide injunctions is both impractical and undesirable. This Note proposes a solution to limit the abuse of nationwide injunctions without banning them outright. When fashioning remedies, courts should simplify the sheer number of relevant factors by focusing on three main meta-factors, or categories, that should be used as a balancing test: the identity of the parties before the court, the nature of the claim being litigated, and the effect the remedy would have on the courts where the claim is being litigated—“who,” “what,” and “where,” respectively. The balancing of these three meta-factors will enable district courts to weigh more clearly whether nationwide injunctions are proper and will also give appellate courts a framework for reviewing whether district courts have abused their discretion by issuing this type of relief.
In recent years, the wetland mitigation banking program has emerged as a favored mechanism for protecting the nation’s aquatic resources while allowing for economically beneficial development projects to proceed. Mitigation banks generate wetland credits, which in turn can be sold at a profit to developers who need them to offset wetland impacts. The number of mitigation banks has grown significantly in recent years, and the market has seen an influx of institutional investment. However, investors face significant risks and uncertainty, and many prospective investors lack access to information about wetland credit prices—which are neither reported to the regulatory authorities nor made available to the general public—and are therefore deterred from entering the market.
This Note proposes that the market for wetland mitigation credits would be more efficient if bank sponsors were required to report credit price information to regulatory authorities and if this information were made publicly available. Transparency of credit price information would incentivize both greater entry into the wetland mitigation banking market and improved planning on the part of prospective bank sponsors and developers alike. Moreover, by encouraging the establishment of more mitigation banks, regulatory authorities would have greater ability to ensure wetland credits purchased by developers more accurately match the type and functional values of the wetlands impacted.
116 out of 136. That is the number of white men who have served on the eighty-two-year-old committee responsible for creating and maintaining the Federal Rules of Civil Procedure. The tiny number of non-white, non-male committee members is disproportionate, even in the context of the white-male-dominated legal profession. If the rules were simply a technical set of instructions made by a neutral set of experts, then perhaps these numbers might not be as disturbing. But that is not the case. The Civil Rules embody normative judgments about the values that have primacy in our civil justice system, and the rule-makers—while expert—are not apolitical actors. This Essay argues that the homogeneous composition of the Civil Rules Committee, not only historically, but also today, limits the quality of the rules produced and perpetuates inequality. The remedy to this problem is straightforward: appoint different people to the Committee. To be sure, the federal civil rulemaking process is but one small part of where and how gender and racial identity matter. Even still, this Essay argues that the Civil Rules Committee members, the Judiciary, and the Bar should demand that the civil rulemaking Committee cease being #SoWhiteMale.