Articles

Over the past century, as the regulatory state steadily expanded its reach, courts frequently addressed claims that regulatory actions amounted to an unconstitutional taking. Recently, however, legislation in the telecommunications and electric power industries have brought deregulatory concerns to the fore.

In this landmark Article, Mr. Sidak and Professor Spulber present the first detailed analysis of the interaction between the Takings Clause deregulation, network pricing, and contract law. In the typical case of regulated industries, firms and their investors agree to bear considerable “incumbent burdens” in exchange for a regulated rate of return. Sidak and Spulber first demonstrate that this arrangement represents a regulatory contract and find that recent deregulatory measures constitute breach. The authors then argue that whether or not a regulatory contract in fact exists, recent mandatory unbundling in the electric power industry and open-access regulation in the telecommunications field effectuate a taking without just compensation. Finally, relying on concepts such as investment-backed expectations and the efficient component-pricing rule, the authors not only demonstrate that damages would be equivalent under either contract or takings theory, but also warn that governments could face enormous liability for their deregulatory measures.

Professor Hibbitts reassesses the history and future of the law review in light of changing technological and academic conditions. He analyzes why law reviews developed in the late nineteenth and early twentieth centuries and shows how three different waves of criticism have reflected shifting professorial, professional, and pedagogical concerns about the genre. Recent editorial reforms and the inauguration of on-line services and electronic law journals appear to solve some of the law review’s traditional problems, but Professor Hibbitts suggests that these procedural and technological modifications leave the basic criticisms of the law review system unmet. In this context, Professor Hibbitts proposes that legal writers self-publish on the World Wide Web, as he did in a previous version of this Article. This strategy, Professor Hibbitts argues, would give legal writers more control over the substance and form of their scholarship, would create more opportunities for spontaneity and creativity, and would promote more direct dialogue among legal thinkers. It would also sound the death knell for law reviews in their present form.

Over the last decade, the Supreme Court, through its interpretation of the Federal Arbitration Act of 1925 (FAA), has expanded the role of arbitration in the resolution of legal disputes, including disputes arising under federal and state statutes. Recently, much debate has arisen over the issue of whether the FAA applies to employment contracts, and whether employees can enter into binding predispute agreements to arbitrate statutory employment claims. In Gilmer v. Interstate/Johnson Lane Corp., the Supreme Court held that under the FAA, employees could in fact enter into such predispute agreements. Because the agreement in Gilmer was not part of an employment contract, however, the Supreme Court left open a critical question, namely the scope of the FAA exclusion of employment contracts for certain employees engaged in foreign or interstate commerce. In this Article, Professor Estreicher first addresses the various public policy arguments raised by opponents of predispute agreements to arbitrate statutory employment claims. Addressing each one in turn, he concludes that where certain procedural safeguards are implemented, arbitration is indeed a proper forum for the resolution of statutory employment claims, and that predispute agreements to arbitrate provide valuable benefits for both employers and employees. Turning to the issue left open by the Court in Gilmer, Professor Estreicher explores the confusion surrounding the scope of the FAA exclusion of employment contracts, which in large part stems from an uncertain legislative history, and suggests that, given recent Court decisions and the policies underlying them, a narrow interpretation of the exclusion by the Supreme Court is probable. Professor Estreicher concludes by stressing that a proper arbitration system can advance the public policies contained in federal and state employment statutes.

Mr. Sidak and Professor Spulber extend here the analysis in Deregulatory Takings and Breach of the Regulatory Contract, published last year in this Review. They respond to comments and criticisms raised not only by Professors Baumol and Merrill, but also by Judge Williams and Professor Williamson in their Comments published last year. Sidak and Spulber begin by exploring the constitutional limitations on the government’s ability to redefine the public purpose to which a regulated utility has dedicated its private property. Then, the authors examine whether the government has made “givings” that implicitly compensate the regulated firm for its diminution in value owing to the imposition of policies mandating network unbundling at regulated prices. Sidak and Spulber refine the limiting principles for the recovery of stranded costs that they articulated in their earlier article and show how those principles reconcile with the actual treatment of losses from deregulation in disparate industries. Next, they expose the economic fallacies in the notion of “forward-looking costs” as that term has been used by the Federal Communications Commission and state public utility commissions to set prices for mandatory network access under the Telecommunications Act of 1996. The authors analyze the Supreme Court’s 1996 decision in United States v. Winstar Corp. and argue that the reasoning employed by seven Justices in that case comports not only with earlier decisions of the Court construing the regulatory contract with public utilities, but also with the contemporary economic analysis of why the regulatory contract is essential and efficient. Sidak and Spulber explain how “transition bonds” may solve the stranded cost conundrum in the telecommunications and electric power industries by permitting the securitization of stranded costs in a manner that restores investors’ faith in the state’s ability to make credible commitments. Finally, the authors examine the significance of the Eighth Circuit’s 1997 decision in Iowa Utilities Board v. FCC for the debate over deregulatory takings and breach of the regulatory contract.

Professors Baumol and Merrill reply to Deregulatory Takings and Breach of the Regulatory Contract, published last year in this Review, which argued that the price incumbents may charge potential competitors for bottleneck facilities under the Telecommunications Act of 1996 should be based not on forward-looking costs but on historical costs. Professors Baumol and Merrill contend that pricing with reference to historical costs would depart from the principles called for by economic analysis for efficient pricing, and they further argue that neither the Takings Clause nor the regulatory contract precludes the use of forward-looking costs in setting prices. If a taking or regulatory breach does occur, they suggest that the proper remedy is not to interfere with the pricing decisions readied by regulators but to make the appropriate compensation, if any, after those decisions have been put into effect. Support for these legal observations is reinforced with the economic contentions that the competition introduced by the Act will have minimal effect upon incumbents which will generally receive a very valuable quid pro quo for any damage to their legitimate interests. Finally, they argue that compensating any firm for the loss of monopolistic prices threatens to undermine the most basic purpose of the Act, which is to bring the benefits of competition and competitive pricing to all electronic communications markets.

Through a series of reforms over the last two decades, the Age Discrimination in Employment Act (ADEA) has become the most far-reaching of the antidiscrimination statutes. In this Article, Professor Issacharoff and Ms. Harris provide a critical reexamination of both the ADEA itself and, more generally, the use of antidiscrimination law to address the problem of aging in employment. The authors distinguish the disadvantages that older employees face from classic claims of employment discrimination, noting the inapplicability of the antidiscrimination model underlying the ADEA to some of the problems associated with aging in employment. The authors then turn to the development of the ADEA and its amendments, examining the role of regulatory capture in the expansion of ADEA protections. They conclude that the broad use of antidiscrimination law to address the problem of aging in employment without accounting for the differences between classic claims of discrimination and the particular problems faced by older employees has resulted in a dramatic and unjustified shift in wealth toward older Americans. Accordingly, they propose a series of reforms designed to address both the specific problems faced by older employees and the reallocation of wealth imposed by recent ADEA amendments.

Corporations have historically been held to a standard of strict vicarious liability for the wrongdoing of their employees. However, several areas of federal and state law have shifted to new duty-based schemes that mitigate liability for companies that have implemented compliance programs or reported wrongdoing to the government. Some states even grant privilege to environmental audit reports.

Professors Arlen and Kraakman compare the norm of vicarious liability with various types of duty-based liability regimes, analyzing the benefits and costs of each approach. They conclude that social welfare is maximized by a mixed regime that includes elements of both strict and duty-based liability. The authors find that the mixed liability regime with the widest application is a composite regime, which imposes high penalties subject to mitigation for firms that engage in compliance activities. Under this regime, firms that satisfy all enforcement duties would nonetheless face substantial residual liability equal to the harm caused by wrongdoing divided by its probability of detection. They then examine the existing composite liability regimes embodied in the United States Sentencing Guidelines for corporate defendants and the evidentiary privileges that many states have adopted for companies’ environmental audit reports. They conclude that both current approaches are flawed, as they do not adequately create proper incentives for companies to monitor, investigate, and report employee wrongdoing.

In its 1996 decision, Seminole Tribe v. Florida, the Supreme Court, reversing itself, held that Congress lacks Article I power to abrogate states’ Eleventh Amendment immunity from suit in federal court. In exploring the decision’s ramifications, Professor Jackson contends that it may foreshadow more pervasive, and more troubling, shifts in the balance of power between state and federal governments, and among the federal, judicial,  legislative, and executive branches. In particular, the Court’s dubious reasoning in Seminole Tribe may have severe repercussions on the federal courts’ ability to enjoin state officials from violating federal Iaw in the future. The availability of such equitable relief, under the so-called Ex parte Young doctrine, has long been accepted as a necessary counterbalance to the states’ Eleventh Amendment immunity from federal jurisdiction. While the new restrictions on Congress’s power would seem to make the availability of such relief more important than before, Professor Jackson examines how the Court’s unfortunate analysis in Seminole Tribe may presage a substantial limitation of the Ex parte Young doctrine in the federal courts. Professor Jackson concludes by articulating the dangers that such a course might pose to federal courts’ role in maintaining the rule of law and the supremacy of federal law.

Modern scholarship on corporate bankruptcy works from the premise that investors are willing to expend resources identifying and saving insolvent firms that can continue efficiently. In this Article, Professor Adler argues that this premise may be faulty, at least for multiple-creditor firms. Viewed properly, from an ex ante perspective, investors may wish to design initial capital structures that will produce few insolvent but viable firms. Consequently, in a world of unimpeded contractual choice investors might forgo any collective insolvency process directed primarily at the preservation of going concerns. Professor Adler argues, accordingly, that corporate bankruptcy law and proposals for its replacement may be ill-advised for largefirms, not because these firms could efficiently continue post insolvency without bankruptcy reorganization or some substitute, but because it may be appropriate that these firms not continue. In the process of making this argument, Professor Adler offers new interpretations of three puzzling phenomena: asset-based finance; the failure of investors to contractually avoid the seemingly expensive American bankruptcy reorganization process; and common equity’s residual interest in a firm that fails to pay dividends on preferred stock.

The use of affirmative action policies in school admissions has been a continuing source of controversy. In the wake of Hopwood, it is unclear if their continued use will even be possible. In an effort to inform the debate, Professor Wightman has engaged in a comprehensive empirical analysis to examine the impact of abandoning considerations of race and ethnicity in the law school admission process. Using data obtained from students who applied to law schools in 1990-1991 and from Fall 1991 first-year law students, she examined the likely effects of an admission policy that relied exclusively on LSAT scores and undergraduate grade-point averages. Countering arguments that affirmative action policies merely reallocate minority students among schools, Professor Wightman’s study indicates that such a “numbers only” policy would result in a sharp increase in the number of minority applicants who would be denied access to a legal education, not just at the schools to which they applied, but to any of the law schools included in the study. In striking contrast to the decline in admission rates, Professor Wightman found no significant differences in the graduation rates and bar passage rates between those minority students who would have been accepted to law schools and those who would not. Thus a “numbers only” policy would deny a legal education to many minority applicants who were fully capable of the rigors of legal education and of entering the legal profession. Professor Wightman also examined whether any of several factors, such as socioeconomic status, could serve as an effective proxy for race and ethnicity in order to achieve a diverse student body. None of the factors she studied indicated satisfactory results. In short, Professor Wightman’s study shows that affirmative action policies are likely a necessary prerequisite to maintaining a diverse yet capable law school student body.