Fiduciary Discretion

Discretion is an important feature of all contractual relationships. In this Article, we rely on incomplete contract theory to motivate our study of discretion, with particular attention to fiduciary relationships. We make two contributions to the substantial literature on fiduciary law. First, we describe the role of fiduciary law as “boundary enforcement,” and we urge courts to honor the appropriate exercise of discretion by fiduciaries, even when the beneficiary or the judge might perceive a preferable action after the fact. Second, we answer the question, how should a court define the boundaries of fiduciary discretion? We observe that courts often define these boundaries by reference to industry customs and social norms. We also defend this as the most sensible and coherent approach to boundary enforcement

Directors\u27 Duties in Failing Firms

Despite many cases with seemingly contrary dicta, corporate directors of failing firms do not have special duties to creditors. This follows from the nature of fiduciary duties and the business judgment rule. Under the business judgment rule, the directors have broad discretion to decide what to do and in whose interests to act. There is some authority for a limited creditor right to sue on behalf of the corporation to enforce this duty. However, any such right does not make the duty one owed to creditors. The creditors individually may sue the corporation for breach of specific contractual, tort, and statutory duties, particularly on account of fraudulent conveyances. But the creditors are not owed general fiduciary protection even if they are subject to a special risk of abuse in failing firms

Engineering a venture capital market: lessons from the American experience

The venture capital market and firms whose creation and early stages were financed by venture capital are among the crown jewels of the American economy. Beyond representing an important engine of macroeconomic growth and job creation, these firms have been a major force in commercializing cutting edge science, whether through their impact on existing industries as with the radical changes in pharmaceuticals catalyzed by venture-backed firms commercialization of biotechnology, or by the their role in developing entirely new industries as with the emergence of the internet and world wide web. The venture capital market thus provides a unique link between finance and innovation, providing start-up and early stage firms - organizational forms particularly well suited to innovation - with capital market access that is tailored to the special task of financing these high risk, high return activities

(In)equitable Subrogation: The Federal Circuit’s Irrational and Unworkable Progress Payment Framework in Balboa

American taxpayers spend more than $100 billion per year on federal construction projects. Yet massive construction delays, huge budget overruns, and unorganized contractors increase the cost of construction for the federal government. Passed in 1935, the Miller Act attempted to protect the federal government in the event that the contractor defaulted or was unable to complete the project. By requiring contractors to enlist third party “sureties” as guarantors on projects, the Miller Act provides the government with the assurance that another party will step in to complete projects if need be. Contractors are typically paid via periodic progress payments, with monthly invoices paid for work completed. If a contractor defaults, forcing a surety to take over on the project, the doctrine of equitable subrogation entitles the surety to all remaining progress payments due to the contractor. Fearing that default may be imminent and eager to receive any payments it can, a surety may be inclined to warn the federal government of imminent contractor default, at the same time that the contractor assures the federal government that it can perform. A series of Federal Circuit cases allows the surety to sue the federal government to recover progress payments that were already made to the contractor, even though those payments were made prior to the contractor defaulting, in accordance with federal regulations. Given an opportunity to reduce this risk of double payment, the Federal Circuit instead created an incoherent and unworkable progress-payment framework in Balboa Insurance Co. v. United States, complicating a government official’s regulatory mandate to provide progress payments to contractors. The court misinterpreted a standard that is normally extremely deferential to the federal government, and created a complex eight-factor behemoth that unreasonably burdens the federal government. This Note proposes new regulations to replace Balboa, which focuses on whether the federal government received reasonable assurances from the contractor that it would complete performance

From Hierarchies to Markets: FedEx Drivers and the Work contract as Institutional Marker

Judges are often called upon today to determine whether certain workers are “employees” or “independent contractors.” The distinction is important, because only employees have rights under most statutes regulating work, including wage and hour, anti-discrimination, and collective bargaining law. Too often judges exclude workers from statutory protection who resemble what legal scholars have described as typical, industrial employees — long-term, full-time workers with set wages and routinized responsibilities within a large firm. To explain how courts reach these counterintuitive results, the article examines recent federal decisions finding that FedEx delivery drivers are independent contractors rather than employees. It argues that the problem is embedded within the employment contract itself, in the law’s attempt to construe the legal relations of master and servant as a contract. The contemporary employment contract is product of a 19th century incorporation of master-servant authority into contracts for labor services. In the face of institutional disruption, the contradiction within employment between contractual equality and servitude tends to surface in the form of two doctrinal ambiguities. Both make the dominant standard for employment status irresolvable by merging contractual formation and performance. First, the attempt to fit master-servant authority in the framework of contract creates an ambiguity between the activities of bargaining over the work and carrying out the work, or between contracting and producing. Second, it makes ambiguous the relationship between a written agreement and contractual duties. The way in which FedEx organized the drivers’ work manipulated these ambiguities, which enabled the courts to maintain that features of the work that ordinarily, and under the governing legal tests, would be evidence of employment were here consistent with, or even evidence of, independent contracting. In fact, the courts transform some of the same vulnerabilities that place the drivers within the policy concerns of collective bargaining and wage and hour law into evidence of their autonomy. The attempt to encase master-servant relations in contract also destabilizes distinctions between firms and markets. The ambiguity in employment between contracting and producing exposes a tension within major economic theories of the firm: employment is the legal rationale for a firm’s centralized control over indirect, hierarchical, and multilateral relations in production; as a contract, however, employment is a direct and bilateral relationship between equal parties in a market. The FedEx decisions marshal this tension to redefine a firm, as conceptualized by major theories of the firm, as a market. Multilateral relations among drivers as they work under FedEx’s direction appear as bilateral contracts between drivers in a decentralized market. The courts conflate the impersonality of bureaucracy — in which work is embedded in sophisticated technology and a supervisory hierarchy — with the impersonality of the market. The drivers’ very fungibility as low-skilled workers performing standardized routines becomes evidence of their entrepreneurial opportunity. The article hypothesizes that the invisibility of logistics and communications technology, relative to the heavy machinery of industrial manufacturing, helped the courts to submerge the FedEx bureaucracy beneath a nexus of contracts. It critiques the decisions for rejecting theories of the firm that ground the legitimacy of the corporation in the efficient production of goods and services. The article concludes with a thought experiment showing how, using the arguments in the FedEx decisions, one could reinterpret assembly line employment as independent contracting

Addressing the Inadequacies of Private Law in the Regulation of Contracts – During and Post Contract Formation Periods

It has been argued that weaknesses inherent in Private Law rules, which contribute to its inability to effectively regulate contracts, are in part, attributed to its generality as well as inflexibility in adapting to individual situations. Whilst self-regulation, a constituent of the standard setting system which private law supplements, offers advantages which include proximity (in that self regulatory organisations are considered closer to the industry being regulated), flexibility, and a high level of compliance with rules, it will be highlighted in this paper that some other models of regulation, are capable of conferring greater flexibility, compliance, enforcement and accountability. The setting of standards with „an adequate degree of specificity in order to provide effective guidance, as well as the lack of expertise in choosing between standards are amongst some of the challenges which the Private Law of Contract is confronted with. This paper aims to highlight and demonstrate why an interaction with public regulation, as well as an incorporation of substantive equality principles, will be required to address these weaknesses of Private Law. Further, it illustrates how through the evolvement of self regulation, and the interaction of self regulation with public regulation, Private Law has also evolved in its interaction with public regulatio