Articles

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.

The United States Constitution’s citizenship rule, which grants citizenship to, among others, the American-born children of illegal aliens, has come under attack. Professor Eisgruber defends the Constitution’s birthplace rule against calls for its amendment and against arguments in favor of a parentage rule. He proposes the Responsiveness Principle as a competitor to a consent or reliance theory to provide the normative justification for a rule of citizenship. Under this principle, a government should be responsive to the interests of all those over whom it exerts general jurisdiction. Professor Eisgruber argues that the current birthplacerule is the best way to implement the Responsiveness Principle because it makes it likely that those subject to the laws will have an effective voice in determining their content. He also cautions that an amendment modifying the birthplacerule would likely affect the interpretation of other constitutional provisions by compromising the Constitution’s commitment to political justice.

Given the importance of private enforcement of federal civil rights laws, Congress and the courts have attempted to encourage plaintiffs’ attorneys to accept meritorious civil rights cases through fee shifting and risk multipliers. Recently, however, the Supreme Court has essentially prohibited the use of risk multipliers, thus undercompensating attorneys for the risk of losing civil rights actions and discouraging the filing of such cases. In this Article, Professor Huang develops a new options-based theory of calculating attorney’s fees. Professor Huang argues that a lawsuit consists of a sequence of options to continue with the case rather than a once-and-for-all irreversible commitment thus allowing an attorney to assess the plaintiffs probability of prevailing at trial at different stages in a lawsuit. His proposal is for courts to recognize this option feature of lawsuits and adjust the risk multiplier accordingly. Consequently, the size of the risk multiplier would more accurately reflect the risk of losing, thus providing attorneys with better incentives to bring meritorious civil rights actions. In developing his theory, Professor Huang surveys the history and caselaw on risk multipliers, applies a simple options approach to lawsuits, and discusses the effect of an options-based approach on attorneys’ incentives to bring and settle civil rights actions. A mathematical Appendix formally models Professor Huang’s options-based approach.

In this Article, Professor Golove responds to Professor Tribe on the latter’s own terms by offering a serious textual and structural analysis of the Treaty Clause that supports its nonexclusivity. Professor Golove shows that the constitutional text is in fact indeterminate and that, contrary to Professor Tribe’s claims, textualism cannot render a singularly persuasive construction of the Treaty Clause. By analyzing each of Professor Tribe’s arguments, Professor Golove shows that equally strong formal arguments can be constructed in favor of the nonexclusive reading. Professor Golove thus seeks to demonstrate by illustration that textualism is just as open to manipulation as the interpretive methodologies that Professor Tribe decries and, given the pervasive ambiguities in the text, is generally incapable of yielding unique, objective resolutions to constitutional disputes, even those over concrete provisions of the text. Only by systematically ignoring these equally plausible formalist counterarguments was Professor Tribe able to reach his favored reading of the Treaty Clause. In the final analysis, Professor Tribe’s article reflects free-formism in its most paradoxical form: free-form formalism.

In 1988, hundreds of federal district judges were suddenly confronted with the need to render a decision on the constitutionality of the Sentencing Reform Act and the newly promulgated criminal Sentencing Guidelines. Never before has a question of such importance and involving such significant issues of constitutional law mandated the immediate and simultaneous attention of such a large segment of the federal trial bench. Accordingly, this event provides an archetypal model for exploring the influence of social background, ideology, judicial role and institution, and other factors on judicial decisionmaking. Based upon a unique set of written decisions involving an identical legal problem, the authors have produced an unprecedented empirical study of judicial reasoning in action. By exploiting this treasure trove of data, the authors have looked deeper into the judicial mind and observed the emergence of influences upon the manner in which a judge examined the constitutional issues, adopted a constitutional theory, and engaged in legal reasoning.

Perhaps no concept in tax law is so well established, and yet so widely criticized, as realization, the rule that defers tax on appreciated property until it is sold. In this Article, Professor Schizer offers a new justification for realization: It is a subsidy for savings. The recent reduction in the capital gains tax rate suggests that Congress wants such a subsidy, the author observes. He then argues that realization has a significant advantage as a subsidy. It is credible, in that taxpayers expect it to strive long enough for them to collect it This is important, Professor Schizer then argues, because realization offers taxpayers no benefit when an investment is made. It offers only the government’s word-a promise, in essence-that unrealized appreciation will not be taxed. The author then demonstrates that even though the government remains free to renege on this promise taxpayers will not expect this for reasons rooted in history, administrability, and politics. Taxpayers thus will have more confidence in realization than in another “promise” subsidy, a low capital gains rate. Notwithstanding this advantage, the author then points out, realization has unique disadvantages, such as the tendency to lock investors into particular investments, and also shares efficiency and equity concerns common to all savings subsidies.

This Article analyzes the economic incentives countries face in selecting an antitrust policy. It demonstrates that, in the presence of international trade, antitrust policies chosen by national governments will generally not lead to an outcome that is desirable from an international perspective. Professor Guzman identifies the reasons why national policies are different from the optimal global policy and shows how the direction of the deviation from the optimal policy depends on trade patterns and the extent to which national laws are applied extraterritorially. The author concludes that; although international agreement is not impossible, the prospects for substantive cooperation on international antitrust policy are slight. Unlike trade policy, an international agreement on antitrust policy would benefit some countries at the expense of others. The Article identifies tie potential winners and losers from such an agreement and points out that because international compensatory transfer payments are unlikely, an agreement will be difficult to achieve. Recognizing that agreement is nevertheless desirable to avoid welfare losses associated with a noncooperative approach to international antitrust policy Professor Guzman analyzes the fora in which antitrust agreements are most likely to be negotiated and assesses tire likelihood of success in each forum. Because concessions in other areas of negotiation may be necessary to compensate countries that will suffer a loss under a cooperative antitrust policy, the analysis suggests that negotiations on antitrust policy should be combined with the negotiations of other issues.

In Graham v. Connor, the United States Supreme Court held that the Fourth Amendment effectively preempts any substantive due process claims that law enforcement officers used excessive force in the course of an arrest. Graham‘s disarmingly simple rationale was that an explicit textual provision trumps a more general constitutional provision. Professor Massaro argues that this rationale, as subsequently invoked by the Supreme Court and expansively applied by the lower courts in First, Fourth, Fifth, and Eighth Amendment cases, may ultimately have a pervasive impact on substantive due process. At the very least, the logic of Graham requires that substantive due process be confined to its current doctrinal limits. Carried to its furthest extreme, Graham requires overruling the Court’s substantive due process “unenumerated rights” caselaw altogether. The author argues that Graham is an analytical and doctrinal oddity, inconsistent with well-accepted and regularly enforced principles of constitutional interpretation, that should be overruled rather than used to revive Hugo Black’s “jot for jot” account of substantive due process.

This Article concludes a series by these authors and Professors J. Gregory Sidak and Daniel F. Spulber, published last year in this journal. Here, Professors Baumol and Merrill address the issues surrounding the pricing of local phone services to long distance rivals, clarifying their points of agreement and disagreement with Sidak and Spulber. In their previous articles, Sidak and Spulber argued that the movement toward competition in local telephone service should be accompanied by substantial compensation to existing local telephone carriers, a view that Baumol and Merrill do not share. Rather, they note three points of disagreement between Sidak and Spulber and themselves. First, they maintain that Sidak and Spulber use an incorrect formula to determine whether the transition from regulated monopoly to competition requires compensation. Second, they argue that neither the Compensation Clause nor the regulatory contract requires compensation to take place ex ante. Finally, they do not believe that the magnitude of fixed and common costs will be significant in local telephony.