Disrupting Secured Transactions

Article 9 of the Uniform Commercial Code (UCC) governs secured transactions in personal property in all fifty states and has been lauded as “the most successful commercial statute ever.” But while Article 9 has facilitated commerce and economic growth, it remains complicated and inefficient in numerous respects. Its weaknesses are well known but have been considered necessary evils, accepted because no better approaches were available. But just as the UCC was motivated initially by the idea of streamlining the law to accommodate modern commerce, now that goal should motivate revision of the UCC itself. This Article proposes to remove and replace a primary structural component of Article 9 of the UCC—the filing system by which secured creditors put others on notice of their interest in items of collateral. The proposal would jettison this outdated and often ineffective method of providing notice of security interests, and instead, would look to modern technologies to stake clearer and more reliable claims on collateral. It would no longer be necessary to file financing statements indexed under the name and location of the owner of collateral. Instead, the proposed regime would allow creditors to stake their claims directly—by means of online “smart” maps or by electronic tags identifying interests in particular items of collateral—and would eliminate numerous arcane, inefficient, and inequitable features of the current regime. The proposal serves the broader goals of commercial law as well, by reducing needless legal complexity and more closely aligning legal requirements with business realities. The “disruptive” changes proposed in this Article would increase certainty in commerce and shape secured transactions law to emerging practices in business and finance

Who Gets Paid? Section 365(n) Royalty Payments Under Zombie Licenses after a Sale of IP

This short article discusses the Bankruptcy Code\u27s unusual treatment of certain intellectual property licenses. First, it gives a brief overview of § 365(n) of the Bankruptcy Code. It then provides a short analysis of a difficult but important question: If a licensee of a debtor’s intellectual property opts to retain its license rights under § 365(n), who should receive the stream of licensing payments in the event that the IP is sold: the buyer of the IP, or the debtor in bankruptcy? The answer that has emerged in some of the case law is somewhat surprising -- after providing nuanced analyses, several courts have directed royalty payments to the debtor rather than the purchaser (and new owner) of the IP. In conclusion, the article suggests practical approaches that parties might take in negotiating and drafting purchase and sale agreements involving intellectual property in bankruptcy

The Letter of Richard Wyche: An Interrogation Narrative

This is a translation, with introduction, of the Letter of Richard Wyche—one of only two heresy interrogation narratives from medieval England written from the perspective of the accused heretic. The Letter is an autobiographical account of Richard Wyche’s interrogation, in 1402-1403, at the hands of church officials. Wyche originally composed the Letter in (Middle) English but it survives only in a Latin translation, alongside other forbidden texts in a manuscript now in Prague. Wyche wrote and covertly sent away this Letter to an audience of intimates sympathetic to the cause (the so-called Wycliffite or Lollard heresy) before his interrogations ended. Ultimately, Wyche was freed and lived several decades before he was finally burned at the stake for his heretical beliefs, in 1440. Few similar narratives survive from the pre-modern era, and none combines public drama with novelistic inwardness, or layered artifice with personal urgency, as does the Letter. Not just a literary or religious artifact, the letter is a legal narrative comfortable alongside classics such as those presented by Natalie Zemon Davis (Fiction in the Archives) and R. Po-Chia Hsia (Trent 1475). The Letter is a counter-authoritarian and transnational work, produced under enormous pressure and preserved in an alien land and alien language. The fact that such effort was taken to snuff it out, and to save it, lends all the more weight to this engrossing narrative. Still, the author refuses to serve as a stereotyped “heretic” or fit his story into a generalized master narrative. Instead, humanizing details and complicated emotions serve as the engines of an extended consideration of the limits of institutional demands on individual conscience. Wyche’s Letter offers an ambiguous, dramatic meditation on the boundaries of political, spiritual, and social faith, truth, and compromise

Artworks as Business Entities: Sculpting Property Rights by Private Agreement

Modern business entities, such as LLCs, are increasingly created and deployed to accomplish customized transactions and evade legal restrictions. Rather than acting as traditional business enterprises, entities serve as tools to facilitate complex commercial transactions and surmount limitations presented by existing bodies of law. One limitation constrains the ways that private parties can agree to divide property rights—a doctrinal limitation sometimes referred to as numerus clausus. This Article shows that such limitations on the customizing of property rights by private agreement now can be surmounted by virtue of modern business entity law. After describing the key features of modern business entities, this Article provides a preliminary assessment of their logic and limits. Modern business law permits an asset or set of assets to be placed into separate business entities with carefully tailored structural and governance features. It allows parties to customize their property rights in the asset(s) however they wish, with surprisingly few limits. Entities can be formed and maintained cheaply with virtually no meaningful public disclosure required. Participants in the operation of the entity need undertake very few duties toward each other or the entity itself. The advent of flexible, powerful, and cheap entities under this body of business law renders limitations on the division of property rights increasingly obsolete. Large, complicated businesses already use webs of entities to divide rights in their assets and subsidiaries for financial, operational, and other reasons (such as regulatory arbitrage). Costs and convenience are now so low as to open the door to smaller scale participants in commerce. As a concrete example of these developments, this Article focuses on the “Artist’s Contract,” a 1971 project in which artists sought to retain rights in artworks they sold—to obtain a percentage of future appreciation in value, to exhibit works upon request, and so on. As noted in prior scholarship, the transaction contemplated by the Artist’s Contract could not have been accomplished in regular contract form due to numerus clausus and related limitations. But this no longer remains true. This Article describes an “Art LLC” solution to the “problem” of the Artist’s Contract. By structuring the sale of art as the sale of a membership interest in a carefully crafted business entity that actually holds title to the art, the goals of the Artist’s Contract can be achieved at relatively little expense or inconvenience. In other words, modern business entity law provides convenient, reliable tools to “solve” the legal problems of the Artist’s Contract, and to allow for the bespoke, divided property rights sought by the originators of the Contract. This Article then assesses the proposed Art LLC solution and the broader trend it exemplifies in business law. This Article surveys the various bodies of law that limit the effectiveness of this type of legal maneuver and that protect against its abuse, and it identifies some advantages of novel, business entity-based solutions over more traditional approaches to the division of property rights. This Article concludes by discussing the need for further research into the logic and limits of evolving uses of business entities for transactional purposes

Book Review | Dan Sarooshi, \u3cem\u3eInternational Organizations and Their Exercise of Sovereign Powers\u3c/em\u3e (2005) & Margaret P. Karns & Karen A. Mingst, \u3cem\u3eInternational Organizations: The Politics and Processes of Global Governance\u3c/em\u3e (2004)

This book review considers two books on international organizations: (1) Margaret P. Karns & Karen A. Mingst, International Organizations: The Politics and Processes of Global Governance, and (2) Dan Sarooshi, International Organizations and Their Exercise of Sovereign Powers. The review notes several features that set the Karns & Mingst book apart from other treatments of international organizations. First is a thoroughgoing commitment to an integrated view of international organizations. The book insists (and demonstrates) that knowledge of politics, theory, and history are all indispensable to a rich understanding of the problems and processes of global governance. Second, Karns and Mingst refuse to ignore or avoid the continuing tensions in the thorny, contentious arenas of global governance. The book is bracingly free of simplistic normative frameworks. However, the review\u27s most serious complaint about the Karns and Mingst book is the lack of any substantial consideration of international law. International organizations’ substantive measures to enhance equality and development are incomplete if they do not attend to the problems mentioned in Part Four of the book: global actors’ need for greater legitimacy, accountability, and effectiveness. These are problems that law can help address. Legal approaches provide basic means of enhancing the legitimacy, accountability, and quality of international organizations’ action. Of course, empty legal formalities serve the interests of none. But just as importantly, substantive measures taken by actors unconstrained by established rules, even if the measures are considered to be fair, set dangerous and often counterproductive precedents. In addition to legitimacy and accountability, which are often noted as benefits of legality, effectiveness too can be improved by law. Redundant or conflicting exercises of control are more easily avoided if appropriate decisionmaking channels for different types of decisions are specified in advance. The second book, by Sarooshi, makes two major contributions. The first is a taxonomy or “typology” of conferrals of sovereign powers. The second is an exploration of the circumstances in which an organization’s exercise of power pursuant to these conferrals is most likely to be contested by domestic actors. In pursuing the first task, Sarooshi outlines three types of conferrals of states’ sovereign powers to international organizations: (1) those creating an “agency relationship,” (2) those which he calls “delegations of powers,” and (3) those which he calls “transfers of powers.” While this doctrinal analysis may seem overly abstract at first, Sarooshi effectively uses them to set up his crucial Chapter Six, which amounts to over a third of his book. In that chapter, Sarooshi demonstrates how the abstract doctrine can be help out in real world situations with a subtle but compelling normative approach. He suggests that well-specified legal rules, by providing an appropriately nuanced framework for actors to use in structuring their relations and designing their agreements, can help to guarantee and increase the predictability and consistency of international interactions. Such a framework will also, Sarooshi asserts, include significant means for states to challenge the actions taken by international organizations wielding transferred powers. Building on work by Joseph Weiler, Sarooshi contends that a state’s interest in protecting those values it considers central to its sovereignty, values which are consistently implicated in state decisionmaking of every sort (executive, legislative, administrative, judicial), is not totally relinquished when some of these powers are being exercised by international organizations. Thus as both a political and a normative matter, the international order would be superior if more effective means of “contestation” were available. While Sarooshi does not elaborate at length what sorts of contestation mechanisms he has in mind, he considers the “contestability deficit” to represent a superior way of framing concerns with legitimacy and accountability than the usual ways of framing these concerns (e.g., as resulting from a “democracy deficit”). This is an intriguing insight that one hopes he will address more fully in future work, as it is consonant with what seems to be an increasingly strong intuition among international legal thinkers that the “democracy deficit” is something of a red herring, and is a stand-in for a more broad and pressing - but as yet not clearly defined - crisis of legitimacy. It bears mentioning that this insight also provides a needed rejoinder to Mingst and Karns’s skepticism toward international law

Partner Capture in Public International Organizations

A sharp rise of public-private partnerships is changing the way the United Nations and other public international organizations work. Organizations eagerly embrace wealthy, experienced partners, such as major foundations and corporations, in order to fund ambitious projects. But safeguards against potential problems have not kept pace with partnership activities. Looking to fundamental principles of public choice and political economy well-known in the U.S. administrative law context, this Article develops a multifaceted notion of “partner capture” to describe the dangers of this expansion in partnership activities for the U.N. and similar organizations. The dangers include agenda distortion, intra-organizational rivalries, reputational damage, and financial liability. In light of these challenges, the Article proposes a structural solution for these problems in the form of an Office of Independent Review. Such an office would play a restrictive gatekeeper role but could also stimulate new project ideas to fulfill an organization’s goals efficiently. Leveraging the expertise and credibility built by the office would place the international organization – and not its private partners – in the role of primary agenda-setter. In the end, preventing partner capture illustrates one way in which international law can become more effective by drawing on domestic analogues and establishing new accountability structures

The New Small Business Bankruptcy Game: Strategies for Creditors Under the Small Business Reorganization Act

Most unsecured creditors have little incentive to act energetically in bankruptcy proceedings. They are unlikely to be paid enough to make it worth the effort. Our bankruptcy law allocates much more power to debtors and to secured claimants. This Article suggests that the Act further erodes the position of most unsecured creditors. Their expected recoveries will remain too low to justify anything other than a relatively passive attitude toward the bankruptcy proceeding, and the Act lowers the protections for passive creditors. Part I provides an overview of the major features of the Act. It explains how a subchapter V case is initiated and discusses the major differences between subchapter V and standard bankruptcy law. Subchapter V dramatically eases the requirements for confirmation of nonconsensual chapter 11 plans; strongly encourages consensual plans through several new incentives; lowers the debtor\u27s disclosure obligations while removing in most cases the possibility of an official committee of creditors; and requires the appointment of a trustee with a significantly different role than under any other part of the Bankruptcy Code. The Act also permits modification of loans secured by a mortgage on a debtor\u27s primary residence, which the Bankruptcy Code otherwise disallows. Part II sketches strategic considerations relating to eligibility and election into subchapter V. Subchapter V is voluntary and only open to qualified debtors. This Part explores how creditors may influence or control a debtor\u27s choices or options. Strategies including making agreements with debtors concerning the election; using financial maneuvers to work around the debt limits that control entry into subchapter V; and challenging the debtor\u27s eligibility for relief under the subchapter. Part III explores the strategic implications of the addition of the subchapter V trustee and the elimination of the creditors\u27 committee. Subchapter V disturbingly lacks reliable mechanisms to ensure that the trustee take creditors\u27 interests seriously. This Part suggests strategies for creditors to explore ways to make their voices heard in light of the Act\u27s institutional re-alignment, which disfavors them. Strategies range from cultivating and working closely with the trustee, to seeking to minimize the role of the trustee, to opposing and seeking removal of the trustee. Part IV discusses plans of reorganization under subchapter V, and how creditors can strategically seek to shape the outcome of the plan process

FinTech\u27s Double Edges

This symposium essay examines the double-edged nature of financial technologies in financial transactions, especially transactions involving consumers. There are both benefits and risks—often undiscovered or hidden at first—in each new round of financial technologies. A FinTech tool may benefit consumers and then, applied later or in a different context, threaten consumer interests; a tool that harms consumer interests may then lead to development of a tool that favors them. This double-edged nature is an important but unappreciated structural feature of financial technologies. From the perspective of consumer protection, then, FinTech can neither be fully embraced as friend nor restricted as foe. Rather, it must be regulated with sensitivity to various competing goals: fostering innovation, policing abuse, and protecting access to markets, to financial services, and to the legal system. This essay cautiously endorses several strategies: the use of purposive and compliance-driven regulatory frameworks; regulatory “sandboxes” and other experimentalist and stakeholder-participatory approaches to FinTech governance; and the development of consumer-protective and consumer-enabling FinTech. It also calls attention the issues of distributive justice and equity that arise when there are prohibitive financial or cognitive barriers to effective use of FinTech; in other words, it calls attention to the fact that access to fair participation in the markets and access to justice may increasingly rely on access to FinTech

The Consumer Protection Ecosystem: Law, Norms, and Technology

In recent years, the tools consumers use to buy and borrow have changed radically. New technologies for advertising, contracting, and transacting have proliferated, and so have fierce policy debates on issues such as identity theft and online privacy; arbitration clauses and class action lawsuits; and Americans’ accumulation of debt and the unsavory practices sometimes used by collectors of it. Facing these realities, scholars, policymakers, and advocates have devoted increasing energy to this area of law. Despite its prominence, confusion persists regarding what consumer protection really is or does. Though much discussed, it remains undertheorized. In particular, analysis of consumer law and policy has not sufficiently taken account of the implications of social and technological change. This Article constructs a new model of the consumer protection ecosystem by contextualizing purely legal constraints amid the other realities of commercial relationships. Drawing on scholarship in the areas of technology, social change, and law, the model lays out three basic types of constraints on the activities of participants in consumer commercial transactions: legal, technical, and social. This model provides a basis for exploring how those constraints interact and shape behavior. The model has significant ramifications for scholars, policymakers, and advocates. It underscores why the area of consumer commerce defies one-size-fits-all solutions: good policies require not only consideration of consumers, merchants, and the commercial relationships they pursue, but of the dynamic social and technological contexts of those relationships. For instance, when technology opens unexpected new areas of feasible conduct, both law and social norms may lag behind in their ability to constrain its socially undesirable aspects. Focused, public deliberation and increased regulatory attention may be merited at least until social norms have developed to define the acceptable contours of such conduct. This Article provides a more refined and inclusive framework for future research and debate

FinTech\u27s Double Edges

The pace of change in financial technologies has quickened due to the rapid advances in technology from the late 1990s through today, exemplified by the advance of handheld devices and applications and the pervasiveness of the Internet in every facet of commerce. New financial technologies--commonly identified by the portmanteau FinTech or fmtech --have already reshaped many commercial practices that affect businesses and consumers, and they are likely to change many more. The increasing availability and sophistication of FinTech offers both promises and perils. Artificial intelligence-driven algorithms purport to improve access to credit on objective criteria but may sometimes reinforce longstanding discriminatory race and class barriers; online financial services may ease immediate access to banking and credit and to information about price and quality of products, but may also make it easier to saddle oneself with a lemon in an impulse buy; credit reports requested instantaneously online may make it easier to monitor or correct such records, but may lead to reports being used in more contexts to bar individuals with spotty or non-existent credit histories from holding jobs or from participating fully in important aspects of mainstream financial, political, or social life. In other words, a FinTech tool may benefit some set of business or consumer interests and then, applied later or in a different context, threaten those same interests; a tool that harms some group may then lead to development of a tool that favors them. The point of this essay is not the well-worn one that technology can be misused, or that it can have a dark side. Rather the point is that, as this essay terms it, FinTech tools have double edges : the same technological tool may be used in different ways and have different effects, particularly on consumers-and each tool may lead to the development of a new tool that yields yet more sets of ultimate uses and effects. In other words, the development of financial technological tools is unpredictable and pathdependent, contingent both on technological developments as well as the social contexts in which tools are developed and used