Current Issue

Articles

E-Notice
Christine P. Bartholomew
PDF

Social media platforms and smartphone manufacturers face class action lawsuits, but how open are federal courts to using these very technologies to notify members of a class action? This Article details the results from an empirical analysis of over 2700 federal class notice decisions. It finds class notice changing, but very slowly. Supreme Court precedent demands a dynamic standard for class action notice. However, fears of change, technology, and imprecision keep courts tethered to twentieth-century modes of communication. This judicial fear encumbers E-Notice—at a cost to the utility of class action procedures.

Limited Liability and the Known Unknown
Michael Simkovic
PDF

Limited liability is a double-edged sword. On the one hand, limited lia-bility may help overcome investors’ risk aversion and facilitate capital formation and economic growth. On the other hand, limited liability is widely believed to contribute to excessive risk-taking and externaliza-tion of losses to the public. The externalization problem can be mitigated imperfectly through existing mechanisms such as regulation, mandatory insurance, and minimum capital requirements. These mechanisms would be more effective if information asymmetries between industry and poli-cymakers were reduced. Private businesses typically have better infor-mation about industry-specific risks than policymakers.

A charge for limited liability entities—resembling a corporate income tax but calibrated to risk levels—could have two salutary effects. First, a well-calibrated limited liability tax could help compensate the public fisc for risks and reduce externalization. Second, a limited liability tax could force private industry actors to reveal information to policymakers and regulators, thereby dynamically improving the public response to externalization risk.

Charging firms for limited liability at initially similar rates will lead relatively low-risk firms to forgo limited liability, while relatively high-risk firms will pay for limited liability. Policymakers will then be able to focus on the industries whose firms have self-identified as high risk, and thus develop more finely tailored regulatory responses. Because the ben-efits of making the proper election are fully internalized by individual firms, whereas the costs of future regulation or limited liability tax changes will be borne collectively by industries, firms will be unlikely to strategically mislead policymakers in electing limited or unlimited lia-bility. By helping to reveal private information and focus regulators’ at-tention, a limited liability tax could accelerate the pace at which poli-cymakers learn, and therefore, the pace at which regulations improve.

Notes

Saving Disgorgement from Itself: SEC Enforcement After Kokesh v. SEC
Patrick L. Butler
PDF

Disgorgement is under threat. In Kokesh v. SEC , the Supreme Court held that disgorgement—a routine remedy that allows the SEC to recoup ill-gotten gains from financial wrongdoers—is subject to a 5-year statute of limitations because it functions as a “penalty.” This ruling threatens to upend the traditional conception of disgorgement as an ancillary remedy granted by the court’s equity power, because there are no penalties at equity. With the possibility that Kokesh’s penalty reasoning could be adopted beyond the statute of limitations context, the future of disgorgement in federal court is in doubt.

This Note proposes a way forward that allows for disgorgement’s continued viability. The SEC should moderate its use of disgorgement for three reasons: because of a trend of suspicion toward strong government enforcement power by the Supreme Court, because it has been improperly used punitively, and because the rise of other statutory schemes has displaced disgorgement’s original justification. At the same time, disgorgement should be saved because of the uncertain future of administrative disgorgement proceedings, the intuitive notion of recovering money from wrongdoers, and the much-needed ability to compensate victims. To save disgorgement, the SEC should limit its use only to restoring the status quo of injured investors, thereby ensuring a remedial—not penal—purpose.

Practicable and Justiciable: Why North Carolina’s Constitutional Vision of Higher Education is Judicially Enforceable
South A. Moore
PDF

Two hundred and twenty-five years ago, North Carolina established the nation’s oldest public university, choosing as its home a particularly inviting poplar tree in present-day Chapel Hill. Today, UNC-Chapel Hill is part of a sixteen-campus university system known nationwide for its commitment to ensuring that public universities remain financially accessible to the citizens who support them.

That commitment is codified in Article IX, Section 9 of the North Carolina Constitution, which requires that tuition at the State’s public universities be “as far as practicable . . . free of expense.” That clause was first introduced in North Carolina’s 1868 Constitution, nearly eighty years after UNC-Chapel Hill opened its doors. Before its imposition, higher education in North Carolina was anything but affordable. After ratification of the 1868 Constitution, tuition at the State’s public universities not only decreased, but remained at a steady, low-price for more than a century: $1450 in 2017 dollars, except for years when inflation spiked.

This Note argues that Article IX, Section 9 requires the General Assembly to fund higher education such that tuition does not exceed this amount, adjusted for inflation—a standard leaders in Raleigh have failed to meet for nearly two decades.

Should legislators fail to heed this constitutional mandate, students could successfully challenge the legislature’s refusal to adequately fund higher education.

Current Issue

Articles

E-Notice
Christine P. Bartholomew
PDF

Social media platforms and smartphone manufacturers face class action lawsuits, but how open are federal courts to using these very technologies to notify members of a class action? This Article details the results from an empirical analysis of over 2700 federal class notice decisions. It finds class notice changing, but very slowly. Supreme Court precedent demands a dynamic standard for class action notice. However, fears of change, technology, and imprecision keep courts tethered to twentieth-century modes of communication. This judicial fear encumbers E-Notice—at a cost to the utility of class action procedures.

Limited Liability and the Known Unknown
Michael Simkovic
PDF

Limited liability is a double-edged sword. On the one hand, limited lia-bility may help overcome investors’ risk aversion and facilitate capital formation and economic growth. On the other hand, limited liability is widely believed to contribute to excessive risk-taking and externaliza-tion of losses to the public. The externalization problem can be mitigated imperfectly through existing mechanisms such as regulation, mandatory insurance, and minimum capital requirements. These mechanisms would be more effective if information asymmetries between industry and poli-cymakers were reduced. Private businesses typically have better infor-mation about industry-specific risks than policymakers.

A charge for limited liability entities—resembling a corporate income tax but calibrated to risk levels—could have two salutary effects. First, a well-calibrated limited liability tax could help compensate the public fisc for risks and reduce externalization. Second, a limited liability tax could force private industry actors to reveal information to policymakers and regulators, thereby dynamically improving the public response to externalization risk.

Charging firms for limited liability at initially similar rates will lead relatively low-risk firms to forgo limited liability, while relatively high-risk firms will pay for limited liability. Policymakers will then be able to focus on the industries whose firms have self-identified as high risk, and thus develop more finely tailored regulatory responses. Because the ben-efits of making the proper election are fully internalized by individual firms, whereas the costs of future regulation or limited liability tax changes will be borne collectively by industries, firms will be unlikely to strategically mislead policymakers in electing limited or unlimited lia-bility. By helping to reveal private information and focus regulators’ at-tention, a limited liability tax could accelerate the pace at which poli-cymakers learn, and therefore, the pace at which regulations improve.

Notes

Saving Disgorgement from Itself: SEC Enforcement After Kokesh v. SEC
Patrick L. Butler
PDF

Disgorgement is under threat. In Kokesh v. SEC , the Supreme Court held that disgorgement—a routine remedy that allows the SEC to recoup ill-gotten gains from financial wrongdoers—is subject to a 5-year statute of limitations because it functions as a “penalty.” This ruling threatens to upend the traditional conception of disgorgement as an ancillary remedy granted by the court’s equity power, because there are no penalties at equity. With the possibility that Kokesh’s penalty reasoning could be adopted beyond the statute of limitations context, the future of disgorgement in federal court is in doubt.

This Note proposes a way forward that allows for disgorgement’s continued viability. The SEC should moderate its use of disgorgement for three reasons: because of a trend of suspicion toward strong government enforcement power by the Supreme Court, because it has been improperly used punitively, and because the rise of other statutory schemes has displaced disgorgement’s original justification. At the same time, disgorgement should be saved because of the uncertain future of administrative disgorgement proceedings, the intuitive notion of recovering money from wrongdoers, and the much-needed ability to compensate victims. To save disgorgement, the SEC should limit its use only to restoring the status quo of injured investors, thereby ensuring a remedial—not penal—purpose.

Practicable and Justiciable: Why North Carolina’s Constitutional Vision of Higher Education is Judicially Enforceable
South A. Moore
PDF

Two hundred and twenty-five years ago, North Carolina established the nation’s oldest public university, choosing as its home a particularly inviting poplar tree in present-day Chapel Hill. Today, UNC-Chapel Hill is part of a sixteen-campus university system known nationwide for its commitment to ensuring that public universities remain financially accessible to the citizens who support them.

That commitment is codified in Article IX, Section 9 of the North Carolina Constitution, which requires that tuition at the State’s public universities be “as far as practicable . . . free of expense.” That clause was first introduced in North Carolina’s 1868 Constitution, nearly eighty years after UNC-Chapel Hill opened its doors. Before its imposition, higher education in North Carolina was anything but affordable. After ratification of the 1868 Constitution, tuition at the State’s public universities not only decreased, but remained at a steady, low-price for more than a century: $1450 in 2017 dollars, except for years when inflation spiked.

This Note argues that Article IX, Section 9 requires the General Assembly to fund higher education such that tuition does not exceed this amount, adjusted for inflation—a standard leaders in Raleigh have failed to meet for nearly two decades.

Should legislators fail to heed this constitutional mandate, students could successfully challenge the legislature’s refusal to adequately fund higher education.