A New Strategy for Regulating Arbitration

Confidential arbitration is a standard precondition to employment. But confidential arbitration prevents a state from ensuring or even knowing whether employees’ economic, civil, and due process rights are respected. Further, employers regularly require employees to waive rights to class proceedings (thereby foreclosing small claims) and to arbitrate under the laws of another jurisdiction (thereby evading mandatory state law). In response, states have tried to regulate arbitration provisions, arbitral awards, and arbitral processes. But these efforts have all failed because the Supreme Court says they are preempted by the Federal Arbitration Act. In this Article, I argue that states can and should adopt a new strategy: Deter parties from forming such contracts in the first place. The Article proceeds in three parts. First, I explain the problem. Over the last fifty years, the Supreme Court systematically immunized arbitration provisions against every plausible contract defense. Yet the Supreme Court continues to insist that, just as the Federal Arbitration Act requires, arbitration agreements are still subject to “generally applicable contract defenses, such as fraud, duress, or unconscionability.” This is false. Second, I present the first large-scale evidence on the pervasiveness of arbitration. The Supreme Court’s arbitration precedents have effect only to the extent private parties agree to arbitrate their disputes. To study this, I use machine-learning protocols to parse millions of filings with the Securities and Exchange Commission and create a database of nearly 800,000 contracts formed by public companies. These contracts include employment agreements, credit agreements, joint ventures, purchases, and others. Employment contracts are by far the most likely to include a mandatory arbitration provision. Finally, I argue that, because the Supreme Court has all but stripped states of their power to enforce contracts, states should adopt policies that deter formation of objectionable contracts. For example, states cannot prohibit forced arbitration of sexual harassment claims. They can, however, prohibit sexual harassment as a subject matter for employment contracts; they can also enforce this with civil penalties and whistleblower rewards. Similarly, states cannot stop an employer from arbitrating under the laws of another jurisdiction, thereby evading mandatory limits on noncompete agreements. But states can declare noncompetes illegal, levy civil fines on employers that form them, and again offer employees whistleblower rewards to report violations. These approaches work because they create a cause of action for a third party—the state—who is not subject to the arbitration agreement. And unlike past efforts, these laws would not be preempted because they do not “derive their meaning from the fact that an agreement to arbitrate is at issue.

General Equilibrium Effects of Prison on Crime: Evidence from International Comparisons

We compare crime and incarceration rates over time for the United States, Canada, and England and Wales, as well as for a small selection of comparison countries. Shifts in U.S. punishment policy led to a five-fold increase in the incarceration rate, while nearly every other country experienced only minor increases in incarceration. The large shifts in U.S. punishment policy do not seem to have caused commensurately large improvements in public safety

Altering Rules: The New Frontier for Corporate Governance

Corporate law has taken a contractarian turn. Shareholders are increasingly contracting around its foundational rules—statutory rights, the fiduciary duty of loyalty, even the central role of the board—and Delaware courts are increasingly enforcing these contracts. In the one case where they did not, the legislature swiftly overruled the decision and adopted a new statutory provision permitting boards to completely cede their powers to a shareholder by contract. These developments have sparked a polarized debate, with some calling for a return to mandatory rules, while others push for total contractual freedom. We argue, however, that the solution lies neither in rigid mandatory rules nor unchecked contractual freedom—but in recognizing the untapped potential of corporate law’s altering rules. Altering rules determine how parties can opt out of the default rules of governance. Our theory identifies corporate altering rules’ essential features, namely, whose consent is required to change a default (process) and who is bound by that decision (scope). We show that the central role of altering rules in corporate law is not simply to make changing a default more or less difficult, as is widely supposed, but rather to combine process and scope in ways that define distinct bargaining environments, shaping how insiders negotiate over governance. Corporate law can fine-tune these features in ways that both encourage contractual innovation and manage intra-corporate risks. In response to recent cases and legislation, we propose new altering mechanisms that will broaden decision-making to include non-signatory shareholders, protecting them from harmful externalities. These insights are just the beginning. Altering rules, as they exist now, represent only a fraction of their potential. Rethinking their design opens the door to a vast, largely unexplored landscape of possibilities that could guide corporate governance in its new era of contractual innovation

Don\u27t Go Chasing Waterfalls: Fiduciary Duties in Venture Capital Backed Startups

Venture-capital-backed startups are often crucibles of conflict between common and preferred shareholders, particularly around exit decisions. Such conflicts are so common, in fact, that they have catalyzed an emergent judicial precedent – the Trados doctrine – that requires boards to prioritize common shareholders\u27 interest and to treat preferred shareholders as contractual claimants. We evaluate the Trados doctrine using a model of startup governance that interacts capital structure, corporate governance, and liability rules. The nature and degree of inter-shareholder conflict turns not only on the relative rights and options of equity participants, but also on a firm\u27s intrinsic value as well as its value to potential third-party bidders. Certain combinations of these factors can cause both common and preferred shareholders\u27 incentives to stray from value maximization. We show that efficient decisions can be induced by an anti-Trados rule that emphasizes preferred shareholders\u27 interests and treats common shareholders as contractual claimants. The Trados doctrine, by contrast, cannot categorically reconcile private interests with value maximization. More generally, our model offers a precise mechanism through which corporate governance and capital structure jointly determine firm valu

Network Effects in Corporate Governance

Most public companies incorporate in Delaware. Is this because they prefer its legal system or are they simply following a trend? Using the incorporation histories of over 22,000 public companies from 1930 to 2010, I show that firms are more influenced by changes in each other's decisions than by changes in the law. The analysis exploits an unexpected legal shock that increased Delaware's long-run share from 30 to 74 percent. I attribute most of this change to a cascading effect in which the decisions of past firms successively influence future cohorts. These decisions are also highly path dependent: In a counterfactual setting without switching costs, firms would be five times more likely to reincorporate in response to a given a legal change. I conclude that network effects dominate secular trends in corporate governance.</p

A Theory of Corporate Joint Ventures

In a corporate joint venture, two corporations—often competitors—collaborate on a project. But how can corporations be partners and competitors at the same time? Though it sounds like a contradiction, such collaborations are commonplace. Many of the most familiar products come from corporate joint ventures, from high-technology like solid-state drives for laptops or rocket boosters for NASA's Discovery program, to everyday items like Star Wars action figures and even Shredded Wheat cereal. Indeed, Meinhard v. Salmon, arguably the most celebrated case in all of business law, arose out of a dispute within a joint venture. Yet unlike more familiar business forms such as corporations or LLCs, neither case law nor statute provides a clear statement of what a joint venture is or even which laws apply. Given this confusion, it is not surprising that the literature has not produced a unified theory of the corporate joint venture: a coherent statement of both what it is as a matter of law and how it functions. This Article offers a theory of the corporate joint venture. It traces the development of joint venture law and practice from its origins in 19th-century American case law to the present. The central claim is that at the heart of joint venture law and practice, there is a singular legal problem: the foundational fiduciary duty that applies to all business forms—the duty of loyalty—is inherently contradictory within the context of a joint venture. The contradiction arises because the law has effectively treated joint ventures as partnerships whose members happen to be corporations. This formulation is contradictory because partnership law requires each corporation to be loyal to the other, while corporate law requires each agent to be loyal only to her own corporation. Thus, joint venture law both requires and prohibits a division of loyalty. The Article first shows how this inherent conflict was a latent motivation behind the path of early case law, as well as how case law subsequently obfuscated the conflict and left a legacy of confusion. It then uses economic theories of business organization and contract law to explain how the joint venture forms we observe today resolve this conflict through a hybrid corporate-contract form. Finally, it demonstrates empirically how the modern contractual solution has engendered a new set of fiduciary problems via networks of joint venture connections across corporations in an industry. The Article concludes by offering policy prescriptions to tackle these problems and clarify the law of joint ventures.</p

General Equilibrium Effects of Prison on Crime: Evidence from International Comparisons

We compare crime and incarceration rates over time for the United States, Canada, and England and Wales, as well as for a small selection of comparison countries. Shifts in U.S. punishment policy led to a five-fold increase in the incarceration rate, while nearly every other country experienced only minor increases in incarceration. The large shifts in U.S. punishment policy do not seem to have caused commensurately large improvements in public safety.</p

Women in U.S. Law Schools, 1948-2021

We study the progress of women’s representation and achievement in law schools. To do this, we assemble a new dataset on the number of women and men students, faculty, and deans at all ABA-approved U.S. law schools from 1948 to the present. These data enable us to study many unexplored features of women’s progress in law schools for the first time, including the process by which women initially gained access to each law school, the variance in women’s experiences across law schools, the relationship between women’s representation and student achievement, and the extent to which women disproportionally occupy interim and non-tenure track positions. We contextualize our findings by situating them within the vast qualitative literature on women’s experiences in law schools and the legal profession