The present system made sense fifty years ago, but it no longer does. In the 1960s the Supreme Court employed two related strategies to force the states to bring their criminal justice systems into compliance with the fundamental ideals of equality and fairness guaranteed by the U.S. Constitution. First, it incorporated, one by one, most of the specific constitutional provisions from the Bill of Rights into the Due Process Clause of the Fourteenth Amendment, thus obligating states to honor those provisions in state criminal cases. State defendants could seek relief in the Supreme Court for violations of those incorporated federal rights by applying for a writ of certiorari from their state judgments. The second strategy was to expand the availability and scope of federal habeas review, enlisting the lower federal courts to supplement certiorari review in order to enforce these new constitutional rights.

The Court adopted this approach not because it was the best one but because, in the absence of federal legislative action, the Court had no choice. State judges were resisting enforcement of recently incorporated federal criminal procedure rights, and most states lacked effective postconviction review processes to address nonrecord constitutional violations such as jury selection error and prosecutorial misconduct. Expanding federal habeas review provided an incentive for the states to improve their own postconviction review processes and sent clear notice to defiant state judges that they could not deliberately ignore federal law.

Our current multilayered criminal justice system thus originated from a kind of historical accident, the result of institutional inactivity (by Congress) and institutional constraints (on the Court). Retaining that system might make sense today if the problems that gave rise to it persisted, but they do not. Retaining the current system might also make sense today if it represented an effective and efficient way of enforcing the Constitution’s commands in individual cases, but it does not.

The findings of an empirical study of federal habeas litigation completed in 2007 suggest habeas is an expensive but almost completely ineffectual remedy. For the vast majority of the more than two million people now incarcerated in America, the Great Writ is a pipe dream.

Most state defendants convicted of felony offenses have no practical access to federal habeas review, because habeas is limited to those “in custody” when they file, and prisoners must exhaust their state appeals and postconviction proceedings first. As a result, almost 30% of all noncapital habeas petitions were filed by inmates serving life sentences, even though only 1% of all prison sentences are for life, while only 12% of all noncapital habeas petitions were filed by those serving sentences of five years or less, even though that group represents the majority of those sent to prison.

Moreover, except in capital cases, those inmates who do manage to obtain federal habeas review can expect to lose. At the current rate found by the study, only an estimated sixty-five of the more than 18,000 petitions filed each year by noncapital petitioners will eventually be granted by district courts.

The study cannot tell us whether the incredibly low rate of habeas grants reflects a comparably low frequency of meritorious claims or whether there are many more habeas petitioners who deserve relief but do not obtain it. Yet any theory that the threat of habeas is effectively deterring constitutional error is implausible: Most state criminal defendants are short-termers with no access to federal habeas, a point that cannot possibly be lost on police, lawyers, and judges. And even in those cases where the defendant is likely to be in custody long enough to file a habeas petition and has not waived his rights via a plea bargain, grants of habeas relief are so infrequent, and so delayed, that they will make little if any difference to state actors in noncapital cases. Even a rare grant for procedural error will require only that the state conduct the trial, plea, sentencing, or appeal over again. Finally, any police officer, attorney, or judge responsible for the error, even if not long gone, will suffer no personal consequence if a writ is granted. So if the low grant rate in federal habeas cases actually reflects a correspondingly low number of state constitutional errors that require correcting, it cannot be the result of any significant deterrence produced by federal habeas review. And if the state courts are doing a good job on their own, independent of any habeas deterrence, then habeas is a colossal waste of resources.

Consider now the alternative argument: that the low habeas grant rate reflects the current failure of habeas courts to provide needed relief to deserving state prisoners. The best way to fix habeas, many scholars argue, would be to remove procedural restrictions on habeas relief and provide counsel so that prisoners can more effectively litigate their federal claims in a federal forum. But increasing the amount and slowing the pace of habeas litigation even further would be a political nonstarter without some corresponding benefit to the states. More fundamentally, it would not address the inherent limitations discussed above—that habeas is largely inaccessible to most of those convicted of a crime in this country and that it has virtually no deterrent impact on the particular state actors who are to blame for the violations.

Relying on habeas to enforce the Constitution also ignores another problem inherent in federal habeas: There is no easy way to deter the filing of meritless habeas claims without also discouraging potentially valid claims. The danger that at least some deserving constitutional claims will be swept away by the overwhelming flood of meritless ones is substantial.

Not only is habeas futile, it is expensive for both federal and state taxpayers. One out of every fourteen civil cases filed in federal district court is a habeas challenge by a state prisoner. Most of these cases are not summarily dismissed. Instead, the study found that litigation on procedural issues was commonplace before disposition, and noncapital habeas cases averaged eighteen docket entries per case, representing more than a third of the average number of docket entries in the capital cases included in the study. In most cases the state must write a motion or answer in response to the petition, which the study found included four different claims on average, many of which were amended, requiring a second response from the state. Processing the handwritten pleadings of pro se prisoners is more costly than the efficient electronic filing now required in other cases. Furthermore, half the cases were referred to magistrates for disposition, adding a duplicate layer of opinions and briefing before the case was completed. With more than 18,000 habeas petitions filed each year, states can count on winning almost every one of these cases, but they can also count on a significant expenditure of state dollars to defend them.

***

Any system of justice that expends so much effort to produce so little benefit deserves reconsideration. There is a better approach. We propose first that Congress amend the federal habeas statute so that habeas courts retain jurisdiction over only three categories of constitutional claims raised by state prisoners in custody pursuant to a state criminal judgment.

The first category would provide review of constitutional claims that have been rejected or refused in state court but are accompanied by a compelling showing of innocence. Cases of wrongful conviction justify the expenditure needed to allow habeas courts to provide a last-chance remedy. This category would be limited to cases in which the petitioner is able to bring forward newly discovered evidence to rebut his conviction.

A second category would allow for the postconviction enforcement of new constitutional rules that have been held by the Court to apply retroactively to cases already final on direct appeal. Without access to federal habeas review in such cases, a defendant whose direct appeal had concluded by the time the new constitutional rule was declared would be unable to benefit from the rule if the state courts provided no forum for the claim.

The third category would preserve habeas review in capital cases, allowing for the adjudication of any constitutional objection to the petitioner’s capital sentence. The proper scope of habeas in capital cases should be resolved separately from noncapital cases, given the fundamental differences between the two types of cases. Because the Court is continually changing the Eighth Amendment law regulating state capital cases, parties continue to need access to the lower federal courts in order to to work out the implementation of those limits.

Our proposal would dramatically reduce the amount of noncapital habeas litigation by state prisoners. But the point of reducing wasteful federal habeas litigation is not simply to conserve scarce resources. The point is to enable the reallocation of those resources in support of more effective means of ensuring compliance with constitutional rules. Congress should devote whatever can be saved by cutting back on habeas review—as well as additional funds—to a new federal initiative aimed at helping the states prevent and correct constitutional violations in their own courts.

***

Providing defendants with an effective criminal defense at the trial and appellate levels is a far better means of guaranteeing constitutional rights in criminal cases than post hoc habeas litigation, but state criminal defense systems are in crisis. Case-by-case litigation has failed, and will continue to fail, as a means of ensuring the right to counsel in noncapital cases. As a chorus of commentators has observed, the scant postconviction reversals under Strickland v. Washington¹ have had little or no impact on the pervasive pressures on state and county legislative bodies to limit funding for defense services. Systematic underfunding of criminal defense representation in the state courts persists, resulting in repeated and widespread breakdowns in defense representation in many states. This is a problem that habeas is woefully inadequate to address.

We support the creation of a new Federal Center for Defense Services, along the lines of the one first proposed by the ABA in 1979, that could administer matching grants and other financial incentives for state and local governments to improve their efforts to provide defense representation. Similar federal incentives have been useful in encouraging states to take on other criminal justice reforms, and existing state-level commissions on defense representation have been successful in using matching grants and other financial incentives to encourage meaningful funding increases at the local level. This progress, along with recent successes in some jurisdictions in legislating standards for parity of resources for prosecution and defense attorneys, suggests that the effort can work on a larger scale.

The new federal center would also be well situated to conduct comprehensive empirical research to identify the characteristics of effective defense representation on both a systemic and an individual level and to encourage reform through dissemination of that research. Another goal could include drafting standards for defense representation based on “best practices” research.

To be sure, the proposed shift in the federal role will not succeed if Congress simply cuts the budget of the judicial branch by the amount that it projects to save by limiting federal court habeas jurisdiction and simultaneously offers those dollars to the states with few strings attached. The fiscal tradeoff is but one aspect of the more comprehensive political shift in focus that is required from the back end to the front end of the criminal justice system.

But two features of our proposal make it a realistic possibility. First, our proposal does not require Congress to mandate that every state change its defense representation systems overnight, nor does it mean that Congress should condition the curtailment of habeas review in noncapital cases on a particular state’s current compliance with federal standards for improvement of defense representation. Instead, we propose a voluntary renewable grant program that would allow compliance standards to evolve gradually, as “best practices” develop based on innovations in individual states. Lasting systemic changes in state criminal justice cannot be legislated into existence overnight. Model alternatives could be allowed to emerge in a few states, then evaluated and modified for varying local conditions. At least when it comes to noncapital cases, so little benefit would be lost by cutting back on habeas review, and so much more could be gained by any shift of those resources toward encouraging and supporting improvements in state defense representation, that we need not adopt a quid pro quo arrangement that could pose an unwarranted political barrier to state reform efforts.

Proposing such radical restrictions on federal habeas review could, however, lead a state to curtail its own system of appellate and postconviction review in response, leaving state prisoners with no avenue to pursue relief for constitutional claims. The Due Process Clause would not prevent this, but if this was the state’s response, the Suspension Clause should bar the implementation of the drastic habeas restrictions we propose in that state.

The Suspension Clause, ratified in 1789 as part of the original Constitution, provides, “The Privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.”² Although the Court has never squarely held that the Clause limits the suspension of federal habeas for state prisoners convicted of a crime, the Fourteenth Amendment, which broadened both the definition of federal citizenship and the reach of federal law, arguably extended the protections of the Clause to those incarcerated after conviction by the states.

Substantive restrictions on the scope of habeas can survive a Suspension Clause challenge only so long as an “adequate substitute” is available. As interpreted in Boumediene v. Bush,³ the Clause requires that any adequate substitute for habeas review must provide the prisoner with, at a minimum, “a meaningful opportunity to demonstrate that he is being held pursuant to ‘the erroneous application or interpretation’ of relevant law” and must provide the reviewing court with “the power to order the conditional release of an individual unlawfully detained—though release need not be the exclusive remedy.”⁴ In Boumediene, the Court struck down the military tribunal system set up for “enemy combatants” but emphasized that where the original detention proceedings themselves are more rigorous—“e.g., in post-trial habeas cases where the prisoner already has had a full and fair opportunity to develop the factual predicate of his claims”⁵—substituting very limited federal review for broader access to habeas might be permissible.

Limiting federal review of noncapital state criminal cases as we propose—to certiorari review by the Supreme Court plus habeas review of claims held retroactive or accompanied by a showing of innocence—will not violate the Suspension Clause so long as the states continue to provide not only an initial Due Process–compliant adjudication of guilt but also reasonable levels of state appellate and postconviction review. Under Boumediene, state judicial proceedings cannot be an adequate substitute for habeas, but those proceedings can provide the necessary context in which even a severely limited federal judicial forum, such as the one we propose, can nevertheless suffice as an adequate substitute for habeas. Conversely, if a particular state were to curtail its own appellate and postconviction review processes substantially, this analysis would lead to the conclusion that our proposed restrictions on habeas would amount to an unconstitutional suspension of the writ.

The Supreme Court has yet to use its powers under the Suspension Clause in precisely this way. But a speech by Justice Brennan in 1961 foreshadowed this line of reasoning. Justice Brennan articulated two different reasons for expanding federal habeas review for those serving state sentences: (1) defiance by state judges in the face of what they considered an unjustifiable incursion of federal law into the traditional domain of the states and (2) the lack of state postconviction proceedings and remedies adequate to adjudicate defendants’ constitutional claims. If either of these conditions were to recur in a particular state as a consequence of our proposal, the Court should find our proposed habeas restrictions to be a violation of the Suspension Clause as applied to criminal cases from that particular state. This would effectively restore full habeas review in that state.

The initial burden of constitutional challenges to a more restrictive statutory scheme should diminish quickly as the Supreme Court decides whether the review processes in various states provide sufficient judicial review to allow our proposed new habeas restrictions to satisfy the Suspension Clause. After all, the Court expeditiously resolved the Suspension Clause challenges to AEDPA,⁶ allowing the lower federal courts to dispose of such claims summarily. The analysis we propose also comports with the Court’s longstanding practice of exercising control over the scope of the writ, including its frequent adjustments of that scope in response to changing conditions.

Relying upon the Supreme Court as the ultimate authority to decide whether criminal defendants have a reasonable opportunity to litigate the constitutionality of their custody avoids the pitfalls of making statutory restrictions of habeas contingent on the states’ meeting new federal standards for judicial review. If Congress tried to write minimum standards for state appellate and postconviction review, it might overshoot what the Court would mandate under the Clause. Moreover, rather than dealing only with the constitutionality of the habeas statute as applied, courts would also have to determine the meaning of the statutory standards.

Suspension Clause jurisprudence is not well developed. The Supreme Court may not interpret the Clause as suggested here. The Court may conclude that the limits of the Clause do not depend upon variations in state judicial review processes. Or the Court might decide that the Suspension Clause only bars suspensions of the writ for those in federal custody, or that it protects only the post–Civil War statutory version of habeas, but not the expansions that originated with the Warren Court. Should the Court limit its own habeas powers in these ways, Congress should enact the same scaled-back version of habeas but should make the application of the habeas restrictions expressly contingent on a state’s willingness to provide adequate levels of appellate and postconviction review of criminal cases.

***

This Editorial addresses two problems: the federal government’s failure to develop an alternative to wasteful federal habeas review as a way to enforce constitutional criminal procedure rights in state criminal cases and the political and fiscal challenges facing elected state officials in providing adequate defense representation to their citizens. Our proposal goes to the root of each problem, eliminating ineffectual habeas review and presenting a new federal approach that directly addresses both of the challenges that have discouraged state and local efforts to comply with constitutional guarantees.

The proposal also addresses the political realities that make these two problems—the broken remedy and the unfulfilled right—so intractable. Many liberals do not trust state courts to protect individual rights adequately without robust habeas review. Many conservatives view any effort to improve defense representation as “soft on crime,” essentially electoral suicide. Reform stalls; as a result, neither the wastefulness of habeas nor defense underfunding gets addressed.

Our proposal offers a solution that responds to concerns from both sides of the political spectrum. For those who would reject our proposed habeas restriction as a withdrawal of the only hope for state prisoners to escape the oversights and misdeeds of state courts, we cite empirical evidence of the utter futility of habeas review today. For those who would prefer to enhance federal court oversight of state noncapital cases through the Great Writ, we explain why that vision will never be more than a fairy tale. For those who would argue that cutting back habeas would lead to the erosion of state judicial review as well, we map out a Suspension Clause analysis that would ensure that state prisoners continue to receive adequate judicial review of their constitutional claims. For those wary of being associated with any effort to improve indigent defense, we offer a win-win for the states. The proposal allows states to better utilize the funds they would otherwise spend defending noncapital habeas cases in federal court, while providing incentive grants to help them improve defense delivery. The new federal center will identify and promote best practices in indigent defense nationwide but will leave to each state the autonomy to take or leave what the federal center has to offer.

In the end, we envision a transformed three-tiered system of state criminal justice in which (1) the states provide higher-quality trial-level proceedings by improving the quality of defense counsel through the support, encouragement, and financial incentives of the proposed new federal center; (2) the state courts, both on direct appeal and in state postconviction proceedings, continue to fulfill their obligation to provide reasonable levels of review of claims of constitutional error in individual state criminal cases; and (3) the federal courts undertake two subsidiary and supporting roles: (a) the lower habeas courts entertain only the special categories of habeas claims identified above, in which case-by-case federal review would be most valuable; and (b) the Supreme Court, using its authority under the Suspension Clause, ensures that the states do not abdicate their responsibility to provide reasonable levels of judicial review.

What is the best way—the most effective and most efficient way—for the federal government to ensure that federal constitutional rights are observed in state criminal proceedings? In our view, the current system cannot possibly be the right answer. Instead, it is time for a new paradigm, one that relies on state courts to do the heavy lifting of case-by-case judicial review but uses the leadership and financial strength of the federal government to bring about a sea change in state systems of defense representation.

Acknowledgments:

Copyright © 2009 New York University Law Review.

Joseph L. Hoffman is a Professor of Law at Indiana University School of Law.

Nancy J. King is a Professor of Law at Vanderbilt University Law School.

A full-length version of this Editorial was published in the New York University Law Review as Joseph L. Hoffmann & Nancy J. King, Rethinking the Federal Role in State Criminal Justice, 84 N.Y.U. L. Rev. 791 (2009).

This Legal Workshop Editorial is based on the following Law Review Article: Joseph L. Hoffmann   Nancy J. King, Rethinking the Federal Role in State Criminal Justice, 84 N.Y.U. L. REV. 791 (2009).

I.
Theory of Financial Institution Failure

In recent years, it has become apparent that the failure of large, interconnected nonbank financial institutions, such as hedge funds and investment banks, can create substantial systemic risk and thereby impose external costs on the financial markets and economy.² Because no financial institution has the incentive to limit its own systemic risk,³ and because collective action by market participants to prevent systemic risk is unlikely,⁴ some regulation is needed to minimize the external costs produced by the failure of “too big to fail” (TBTF) institutions. Any remedial regulation should (1) prevent overly risky behavior by a TBTF institution that could cause it to fail and create contagion,⁵ and (2) prevent the panic among investors that can precipitate an institutional failure.

Regulation to avert systemic risk, however, can also create moral hazard and uncertainty. One way of reducing systemic risk is by “bailing out” TBTF institutions—guaranteeing their agreements with creditors and counterparties—which reduces the chances of their failure by preventing runs on the institutions. The problem with this approach, however, is that while loss-fearing counterparties and creditors normally exert market discipline to prevent institutions from taking on excessive risk, parties that come to expect future bailouts reduce their discipline accordingly. A policy of “constructive ambiguity”—only bailing out some creditors and counterparties so that none can count on a bailout ex ante—reduces this moral hazard. But constructive ambiguity also creates uncertainty in financial markets, leading panicked investors to withdraw their funds en masse from other financial institutions, which can increase systemic risk. The benefits of constructive ambiguity in reducing moral hazard will be produced most effectively through a discretionary and transparent process that retains uncertainty over the outcome of regulatory decision-making with regard to bailouts, but involves less ambiguity over the rules and process informing such decision-making. Creating clear procedures but preserving uncertainty over the outcome of a regulatory decision produces a better balance between uncertainty and moral hazard: Clear procedures will calm panicky investors, while uncertain outcomes will curb moral hazard.

II.
Evaluating Our Current Regulatory System

Our current regulatory system is suboptimal in both its ex ante and ex post regulation of systemic risk. Ex ante, the system fails to reduce the external costs caused by the overly risky behavior of nonbank financial institutions. Prudential regulations to curb such behavior are either insufficient, as with the Securities and Exchange Commission’s regulation of investment banks through the Consolidated Supervised Entities program, or nonexistent with respect to certain financial institutions, such as hedge funds. Ex post, the system does not sufficiently reduce the systemic risk caused by the failure of nonbank financial institutions and does an inadequate job of limiting the moral hazard and uncertainty that regulation creates. Under our current regulatory framework, when a large nonbank financial institution is on the verge of failure, regulators have two options: either undertake last minute, ad hoc actions to rescue the institution or permit the institution to file for bankruptcy. The problem is that this ad hoc approach can result in (1) bankruptcy filings by TBTF institutions that will likely cause contagion, as exemplified by the failure of Lehman Brothers, and (2) uncertainty in regulators’ decision-making processes that can create panic and worsen an ongoing financial crisis, also apparent during the aftermath of Lehman Brothers’ bankruptcy filing.

III.
The Obama Administration’s Framework for Regulatory Reform

The Obama administration’s proposed legislation would establish rules by which the Federal Reserve would designate certain financial institutions as TBTF—or Tier 1 financial holding companies (Tier 1 FHCs)—which would become subject to more stringent ex ante prudential regulations. The determination of whether an institution should be deemed a Tier 1 FHC would not depend upon the legal status of the institution, such as whether it is legally a bank, a hedge fund, or an investment bank, but rather on the extent to which a failure would be likely to impose external costs on financial markets and the economy. The Obama administration’s proposal retains the current bankruptcy process but adds a resolution regime that governs the failure of Tier 1 FHCs in some circumstances in order “to efficiently and equitably resolve the claims of creditors and other stakeholders”⁶ through a legal process similar to bankruptcy. Although the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) must approve a decision to invoke the resolution regime by a two-thirds vote, the Treasury would ultimately decide whether to invoke the regime upon consultation with the President.

The Obama administration’s proposal improves upon our current regulatory system, but it could do more to avert the systemic risk that could result from the failure of a Tier 1 FHC. Although the proposed framework instructs the regulatory agencies to consider “serious adverse effects” on the financial system and economy when deciding whether to invoke the resolution authority, the procedures for reaching such a determination are so stringent—requiring near consensus among numerous regulatory agencies—that it seems likely that at least some financial institutions whose failure will cause systemic risk will not be bailed out. The proposed legislation also leaves open the possibility that regulators, at the eleventh hour, might elevate moral hazard concerns above concerns about systemic risk. Furthermore, giving the Treasury—an agency firmly within the Executive branch—the ultimate authority to invoke the resolution regime overly politicizes what should be a technical decision based on an assessment of the expected systemic cost.

I also contend that the proposal fails to sufficiently reduce uncertainty in policymaking decisions, which could trigger panic and contribute to an environment where short-term creditors are likely to run a Tier 1 FHC. First, because the proposal leaves open the possibility of bankruptcy, creditors and counterparties of the institution now must worry about their ability to recover if the institution fails under both bankruptcy law and resolution rules. Second, the legislation does not require regulators to disclose the basis for the decision of whether an institution’s failure creates “serious adverse effects.” Without transparency in this crucial determination, ambiguity over the decision-making process remains, creating additional uncertainty for investors.

IV.
An Alternative Regulatory Reform Framework

While the Obama administration’s proposal has clear benefits, I suggest modifying the proposal’s ex post process for resolving the failure of TBTF financial institutions in order to prevent systemic risk more effectively and to reduce uncertainty. I propose that the Federal Reserve be given unilateral power to authorize the FDIC to seize a failing institution and place a value on the expected cost to the financial system and the economy of the institution’s failure. A cost-benefit provision in the new statute would then require the FDIC to provide the institution with financing only up to the cost of the systemic risk created by that institution’s failure.⁷ This will ensure that the expected cost of any bailout is less than the expected cost of systemic effects. Under my proposal, institutions deemed to be Tier 1 FHCs would not be subject to the bankruptcy process.

This alternative regulatory framework will improve upon the administration’s proposal in three ways. First, it will prevent systemic risk more reliably without worsening moral hazard. The cost-benefit provision of the resolution process ensures that systemic risk is properly considered and prioritized ex post in resolving a Tier 1 FHC failure. Under my proposal, regulators would not be permitted to elevate concern about creating moral hazard above the problem of systemic risk when deciding whether to allow a failed institution to liquidate. Furthermore, even though it is more likely under my proposal than under the administration’s proposal that Tier 1 FHCs will be rescued to some extent, any moral hazard will be limited because only short-term creditors with high-priority claims against an institution, not long-term subordinated creditors, are likely to recover fully in a resolution process.

Second, the Federal Reserve, as a regulatory agency with substantial prior experience regulating large, complex financial institutions and as the agency that would be responsible for monitoring and regulating Tier 1 FHCs ex ante, would have the most expertise and independence to make sound technical determinations about whether the systemic risk exception should be invoked.

Third, this framework reduces the additional harm and contagion caused by uncertainty in regulatory behavior without losing the benefit of reduced moral hazard. By removing the possibility of bankruptcy, the framework I propose eliminates a layer of legal uncertainty that could contribute to panic and trigger a run on financial institutions. Requiring transparency in the Federal Reserve’s methodology for making a systemic risk determination also reduces the ambiguity in decision-making procedures that can exacerbate a financial crisis.

Acknowledgments:

Copyright © 2010 New York University Law Review.

Alison M. Hashmall is a J.D. Candidate at New York University School of Law.

This Editorial introduces and is an abbreviated version of Alison M. Hashmall, Note, After the Fall: A New Framework To Regulate “Too Big to Fail” Nonbank Financial Institutions, 85 N.Y.U. L. Rev. (forthcoming June 2010).

In 2004’s Vieth v. Jubelirer,¹ a four-Justice plurality avoided formulating a doctrinal standard by which to adjudicate partisan gerrymandering due to a claimed lack of judicially discernible and manageable standards. The lack of discernible and manageable standards forms one subcategory of the prudential political question doctrine (PPQD), through which the Court avoids answering constitutional questions for prudential reasons. Unlike the classical political question doctrine, the prudential political question doctrine makes no reference to the constitutional vesting of final decisionmaking authority over a particular legal question in a coordinate federal branch. The Vieth plurality opinion is unique in the modern era of the political question doctrine (PQD) because it relies on the manageability and discernibilty factors of the prudential political question doctrine (PPQD) as sufficient grounds to avoid a merits decision.

Accepting arguendo that judicial avoidance is sometimes legitimate, this Essay uses Vieth as a case study to demonstrate that how a court implements a policy of judicial avoidance has far-reaching and important consequences that ought to be considered by a court before selecting one method over another. This Essay then examines whether the PPQD is a legitimate tool of avoidance, in part by comparing it to the alternative avoidance mechanism of a stringent doctrinal standard. Ultimately, this Essay argues against the use of the PPQD by examining its negative effects for future litigants and concluding that stringent doctrinal standards impose fewer costs.  However, no complete theory of judicial avoidance is proposed here; rather, the comparison between the two means of avoidance is designed only to help analyze the merits of the PPQD.

I.
Vieth and the PPQD’s Flaws

In Vieth in 2004, the Court revisited the issue of partisan gerrymandering for the first time in eighteen years. Yet, rather than adopting one of the many standards suggested at that time, the Vieth plurality ultimately opted to exit the field of policing gerrymandering entirely.

Justice Scalia’s plurality opinion laid out a vision of the PPQD very much in line with the perennial American discomfort with an unconstrained, unelected judiciary:

“The judicial Power” created by Article III, § 1, of the Constitution is not whatever judges choose to do . . . . It is the power to act in the manner traditional for English and American courts. . . . [J]udicial action must be governed by standard, by rule. [Congressional laws] can be inconsistent, illogical, and ad hoc; law pronounced by the courts must be principled, rational, and based upon reasoned distinctions.²

Justice Scalia then attempted to demonstrate that, although the Court was unanimous in finding that an excess of partisan animus in districting could violate the Fourteenth Amendment, “no judicially discernible and manageable standards for adjudicating political gerrymandering claims have emerged.”³ The plurality made this decision based not on a “doctrinal” rule but on a gestalt impression of the wisdom of judicial intervention in this particular area of law. However, the essential problem with the plurality’s opinion is that it presents itself as the former, rather than the latter.

This creates serious costs for future litigants. Future litigants might take the Court at its word and continually expend resources trying to hit the justiciability mark by suggesting new doctrinal tests that better balance discernibility and manageability when in fact no such mark exists. Braver litigants will instead argue that the Court’s substantive notions of discernibility and manageability are erroneous. But because litigants are responding to “doctrinalized” PPQD rationales rather than confessedly prudential judgments, these strategies result in wheel-spinning and the insulation of the Court from criticism of the prudential considerations implicit in the Vieth plurality opinion.

In Vieth, the plurality could be read as arguing that because no evidence had been put forth in the last eighteen years that any manageable standards exist, manageable standards do not exist. Because this reasoning is logically invalid, it may encourage litigants to propose new standards to try to demonstrate to the Court its fallacy. If what is really occurring is a failure of plaintiffs’ proposals to measure up to a preexisting standard of manageability and discernibility, there is no reason to stop making proposals until the standard is met.

The other available option after Vieth, which was taken by certain amici in a subsequent gerrymandering case, is to argue that the Court’s substantive notions of manageability and discernibility are mistaken. This option arises from reading the Vieth plurality opinion as saying that, given the vagueness of the constitutional guarantee in Vieth, any discernible standard will not be sufficiently manageable; hence, the constitutionality of partisan gerrymandering is definitively nonjusticiable. But litigants reading the Vieth plurality in this manner will face similar hurdles. They will argue that the plurality’s notions of manageability and discernibility cannot be squared with the many times and circumstances when the Court has adopted a standard. As one amicus brief in a subsequent partisan gerrymandering case protested, “[j]udicial standards . . . should [not] be evaluated . . . against abstract ideals of doctrinal perfection neither available nor applied in enforcing the Constitution’s other fundamental structural commitments.”⁴

By inviting future litigants to argue for a new understanding of manageability that has the power to explain the entirety of constitutional law, litigants are sent on a wild goose chase, similar to the search for new individual manageable standards. The PPQD thus diverts litigants to arguing the arcane questions of what manageability and discernibility are, rather than how an individual case should be decided. Lawyers and judges are unaccustomed to conducting in-court legal debate about issues at such a high level of abstraction.

II.
The Rational Basis Review Standard

Judges have a better option when they wish to avoid issues for prudential reasons but cannot justify this decision on universally applicable “doctrinal grounds,” such as those upon which the PPQD purports to be based. Namely, judges can craft a stringent doctrinal standard, such as the rational basis review standard for the review of economic and social legislation under the Equal Protection Clause. The rational basis test looks to whether the legislation bears a “rational” relationship to a “legitimate” government interest; both of these key terms have been interpreted extremely deferentially to the government. The option of using a stringent doctrinal standard presents none of the costs of the PPQD outlined in the previous Part and also preserves the Court’s ability to act in egregious cases, an option the PPQD shuts off by stating that an issue is definitively nonjusticiable for all time. In other words, a stringent doctrinal standard does not present the same visible legitimacy costs to changing course because the Court has not said it will never rule on the issue at hand.

Though stringent doctrinal standards and a PPQD holding similarly deny claims without engaging in an in-depth substantive review of them, they produce different effects down the road. A merits holding based on a standard very favorable to the actor whose conduct is challenged presents a standard that can be prodded, tested, argued against, and questioned by new sets of facts. PPQD holdings are not susceptible to these kinds of challenges because there is no announced standard to meet at all.

Despite the fact that rational basis review is one of the hardest standards for a plaintiff to meet in all of constitutional law, the standard is not contentless. Because it is based on overtly announced principles—circumscribing the outer limits of deference to legislative judgment, namely legitimacy of aims and minimal rationality—such principles at least provide argumentative wiggle room. And given the sheer breadth of cases the doctrine covers, it should not be surprising that it has occasionally been used to strike down legislation.

For instance, Justice Kennedy’s majority opinion in Romer v. Evans⁵ applied the rational basis standard to strike down an amendment to the Colorado state constitution.⁶ He admitted that “even if the law seems unwise or works to the disadvantage of a particular group, or if the rationale for it seems tenuous,” it will generally be upheld.⁷ Nonetheless, Kennedy wrote against a backdrop of developed constitutional doctrine about legitimate interests such as public health and safety and economic improvement. These past data points allowed Kennedy to conclude that disadvantaging one particular group of citizens could not serve as a legitimate interest.⁸ As Kennedy wrote:

[Even broad laws] can be explained by reference to legitimate public policies which justify the incidental disadvantages they impose on certain persons. [This law,] however, in making a general announcement that gays and lesbians shall not have any particular protections from the law, inflicts on them . . . injuries that outrun and belie any legitimate justifications that may be claimed for it.⁹

III.
Stringent Doctrinal Standards Are Superior to the PPQD

As in the partisan gerrymandering context, rational basis review requires some underlying vision of what a “legitimate” government interest is, and also requires unelected judges to impose this vision on the democratically elected branches. But if the Vieth PPQD plurality opinion had been written not about partisan gerrymandering in 2004 but about review of economic legislation in the late 1930s, it may have entirely precluded the possibility of later holdings like Romer. Rather than simply adding teeth to a preexisting substantive standard, a litigant would have had to either propose an entirely new acceptable standard or argue that the Court’s abstract notions of discernibility and manageability were erroneous.

These are very different types of arguments than those made in Romer. Post-Vieth arguments lack the footholds of a robust case law applying principles, such as legitimacy and rationality, from which litigants could argue by analogy, distinguish, and hold the Court accountable for its past pronouncements by requesting that it apply similar principles in the case at bar. A stringent doctrinal standard such as rational basis review thus preserves for the Court the option of applying the doctrine more aggressively when confronted with egregious cases. In addition, substantive standards—even when vaguely worded or difficult to meet in practice—can deter rights violations by being internalized by political actors. By contrast, a PPQD holding both effectively and symbolically gives political actors carte blanche.

Perhaps most importantly, a stringent doctrinal standard does not entail the same costs engendered by the PPQD’s disingenuous claim of being “doctrinal.” While a stringent doctrinal standard accomplishes a similar retreat from active adjudication as PPQD, it does not impose the wasteful cost of inviting litigants to continually propose new doctrinal standards in the hope of finding one that is perfectly discernible and manageable. Nor does the stringent doctrinal standard invite litigants to argue for entirely new theoretical conceptions of manageability or discernibility. As with any merits standard, litigants could always propose a replacement test or levy doctrinal critiques based on highly abstract concepts of manageability and discernibility. But unlike in PPQD cases, their ability to do so is not a condition of the justiciability of their claims.

Acknowledgments:

Copyright © 2009 New York University Law Review.

Joshua S. Stillman received his J.D. from New York University School of Law in 2009.

Thanks to Professor Samuel Issacharoff, Professor Richard Pildes, Aaron Clark-Rizzio, Jacob Karabell, Bill Magrath, Rachel Meyer, Ben Stillman, Rebecca Talbott, Marian Ullman, and the New York University Law Review.

This Legal Workshop Editorial is based on the following Student Note: Joshua S. Stillman, The Costs of “Discernible and Manageable Standards” in Vieth and Beyond, 84 N.Y.U. L. REV. 1292 (2009).

But if citizens and noncitizens may be treated differently, how differently may they be treated? Most scholars answer this normative question on the basis of doctrine or political theory. Doctrinal accounts attempt to derive noncitizens’ rights from constitutional and legal traditions. Political theories derive noncitizens’ rights from various theoretical conceptions of democracy and citizenship.

Largely overlooked, however, are equally important descriptive questions: Why do governments, such as the U.S. government, grant any rights to noncitizens at all? Why have the rights of noncitizens improved over the years? And why do they still fall short of the rights enjoyed by citizens? If we assume that a state’s policy toward noncitizens reflects that state’s own interests, what policies would we predict states to have, and how do we explain variations across states and across time?

 
I.
The Structure of Migrants’ Rights

Migrants’ rights vary along two dimensions. First, they differ in their scope. In the United States, migrants are classified in many different ways, and each class enjoys a different bundle of rights. People who enter the country illegally have certain basic rights—to life, to property, to minimal process—but little more. People who enter legally have more generous rights, but their rights are still more limited than those of citizens. For example, tourists and the spouses of certain migrants have the basic rights to life, property, and criminal and civil process, but they do not have the right to work for pay or to remain in the country beyond the period of their visas. Migrants with work visas have the right to work in certain positions but often no right to change jobs.

Lawful permanent residents have the right to work as well as the other rights described above, but they do not enjoy the right to vote. And whereas citizens cannot be “removed” (exiled), lawful permanent residents and other migrants can be removed (deported) for committing certain crimes, posing a security threat, and so forth. Lawful permanent residents are granted an additional important right: the right to become citizens after they have resided in this country for five years, passed a citizenship exam, and satisfied certain other conditions. Some migrants, therefore, but not others, are granted the right to acquire full citizenship rights through naturalization.

Migrants’ rights also vary along a second dimension: their “strength,” or, more precisely, the difficulty or ease with which the government can change them. At one extreme, rights can be administrative: The executive branch has the sole discretion to determine the rights of migrants and can change them at any time. Rights can also be statutory: Congress determines and changes them. At the other extreme, rights can be constitutional, in which case they may be changed only by amendment or through judicial interpretation of the Constitution. Migrants enjoy all three types of rights. For example, the Constitution sets some basic minima for process rights, which statutes and administrative regulations have elaborated on and extended.

Our full-length Article investigates variations in both the content and strength of migrant rights. It also analyzes one type of right, the right to vote, that cuts across these two categories. Voting rights (as well as other rights of political participation) are important citizenship rights. The holder of voting rights has the power to affect political outcomes by influencing the selection of public officials. In one sense, voting rights are an aspect of the scope of a migrant’s rights: Migrants who can vote have rights that other migrants lack. In another sense, voting rights also affect the strength of a migrant’s rights, including the strength of the voting right itself. Although in theory Congress could eliminate a migrant’s voting right by repealing the statute that created it, doing so would be more difficult than repealing other types of migrant rights because migrants would likely vote against politicians who appeared inclined to repeal their voting rights.

In the United States, migrants rarely gain voting rights upon arrival, and when they do, they are only at the municipal level and are limited. However, in the past, migrants were granted more substantial voting rights at the state level, as we will discuss. Even today, voting rights remain an important aspect of the incentive system used to lure migrants to the United States: Migrants are promised that if they qualify for citizenship and naturalize, they will have the right to vote. We can thus think of contingent, deferred voting rights as an aspect of the bundle of migrant rights.

 
II.
An Optimal Contract Framework for Migrants’ Rights

To explain the content and strength of migrant rights, we borrow the optimal contract framework developed by economists to analyze contractual behavior. Although migrants do not enter into actual contracts with the U.S. government, their relationship with the U.S. government is analogous to a contractual relationship—both sides gain from an implicit deal. The migrant enters the United States, invests in learning English and aspects of American culture, and obtains a return on this investment in the form of higher wages, a share of public goods, and other benefits. The U.S. government—which we use as a stand-in for native citizens—gains from its contracts with migrants in diverse ways: Increased tax revenues from immigrant workers help finance public goods, immigrant labor reduces average labor costs, and the immigrants contribute to cultural and social life.

In thinking about these issues, most people focus on the question of how the government should select among migrants. The world presents a large pool of potential immigrants, and states have to figure out how to separate those immigrants it considers desirable from those it does not. This debate tends to focus on the desirability of certain characteristics such as labor skills and familial relationships with American citizens. But there is another problem of equal importance: how the “migration contract” between the migrant and the U.S. government should be designed once a particular migrant is selected. The main problem for the government is that a migrant who is highly desirable at the time of migration might become undesirable at a later time—for example, if increased unemployment during a recession makes immigrant workers less helpful to the economy. All else equal, the government would like to retain the option to remove any migrant any time events change such that the benefits from the migrant’s presence no longer exceed the costs.

However, the problem with such flexibility is that a migrant will not enter a country, or will enter but decline to sink roots in that country, if she knows that she can be removed at any time. Countries often do best when their immigrants make what we will call “country-specific investments”—like learning the dominant language and developing social networks—but a typically risk-averse migrant will not make such investments if she can be easily removed. Moreover, migrants may worry that the government will wield its removal power opportunistically, trumping up security threats or exaggerating financial downturns in order to justify deportation.

Since governments want migrants to make country-specific investments, it is in their interest to guarantee a migrant’s right to remain even if bad events occur—at least up to a point. It will therefore sometimes be in a nation’s interest to tie its own hands so that it cannot use its deportation power opportunistically. The optimal migration contract balances the government’s interest in flexibility and the migrant’s interest in tying the government’s hands. It can do so in two ways: (1) by granting migrants more or less generous rights, and (2) by making it harder or easier for the government to change those rights.

 
III.
Different Rights for Different Migrants

Our approach helps expand the possibilities for legal design by showing why different packages of rights might be conferred on different groups of migrants. Much existing scholarship suggests that there is a relatively static, hierarchical relationship among various migrants’ rights. On these accounts, rights increase in lock-step with increasing “membership” in the Receiving State. Rights also tend to be arranged hierarchically, with rights like political participation almost always associated with higher levels of membership than rights like occupational freedom. Our account abandons this idea of a lexical relationship among various migrants’ rights.

We also abandon the assumption common in the literature that all migrants should be accorded the same rights. Migrants come with various goals: Some hope to come and work in the Receiving State for a short time, others hope to remain for a long time but expect eventually to return home, and others intend to remain in the Receiving State permanently. Each of these groups of migrants will value rights differently: For some, the right to remain for a guaranteed period of time will be far more important than occupational freedom, while others will have the opposite preferences. As a result, our approach makes it possible to see why we should expect variations among migration contracts—variations that are hard to evaluate within the literature’s existing frameworks.

Our full-length Article builds on the economic approach to immigration law that we developed in an earlier article.¹ In this approach, the relationship between the Receiving State and the migrant is treated as though it were a contractual relationship, which allows one to use ideas from the optimal contract literature in economics. As in all contractual relationships, the two parties have partially overlapping interests. States gain by allowing migrants to enter, and migrants gain by entering states. But each side of the transaction does better by retaining flexibility unavailable to the other. The contracting problem is to choose “terms”—that is, immigration laws—that maximize the joint benefit.

 
IV.
The Precommitment Problem and the Optimal Migrant Contract

A central theme of our full-length Article is that the optimal migration contract between migrant and government—that is, the package of rights that the migrant receives—is shaped by a central precommitment problem: Governments seek to attract migrants with desirable skills and characteristics, but governments also want to maintain flexibility so that the migrants can be expelled or otherwise regulated if circumstances change. However, if governments maintain flexibility, migrants will be reluctant to enter and invest in their relationship with the Receiving State. The optimal migration contract depends on (and hence changes with) a host of exogenous variables. Rights will be weaker, for example, when governments expect that the risk of future adverse events is high. They will be stronger when governments gain a net benefit as migrants make country-specific investments.

Our full-length Article provides a more comprehensive treatment of these exogenous variables and the ways in which they affect the optimal contract between the migrant and the Receiving State. With an understanding of the relationship between these variables, one can explain some of the variation in the rights granted to migrants.

Acknowledgments:

Copyright © 2010 New York University Law Review.

Adam B. Cox is a Professor of Law at the University of Chicago Law School.
Eric A. Posner is the Kirkland and Ellis Professor of Law at the University of Chicago Law School

This Legal Workshop Editorial is based on the following Law Review Article: Adam B. Cox & Eric A. Posner, The Rights of Migrants: An Optimal Contract Framework, 84 N.Y.U. L. REV. 1403 (2009).

Today, there are new fears that plaintiffs’ lawyers have co-opted securities class actions by paying-to-play. “Paying-to-play” describes the practice of lawyers giving campaign contributions to public pension funds’ political leadership in order to gain favorable consideration by the funds for appointment as class counsel. Many reforms have been proposed and enacted in response to paying-to-play fears. Aside from a few anecdotal reports, however, no examination of campaign contributions from plaintiffs’ lawyers to elected officials exists in the legal literature. This Editorial returns to the first stage of analyzing paying-to-play that many commentators have skipped: whether law firms are contributing to investment funds’ leadership at all. If law firms are not contributing, there can be no rational fear of paying-to-play. My study finds that law firms do indeed contribute to the investment funds that select them as lead counsel.

 
I.
The PSLRA and Paying-To-Play Fears

The PSLRA established a rebuttable presumption that the lead plaintiff is the plaintiff with the largest financial interest in the relief sought by the class. Congress’s theory was that the plaintiff with the largest financial stake would have the greatest incentive to manage the case competently and achieve the highest possible settlement. The PSLRA also guaranteed the lead plaintiff the power to select and control class counsel.

Congress explicitly targeted institutional investors to be the new lead plaintiffs in securities class actions because of their large financial interests and their experience as investors. While from 1997 to 2000, only between ten and twenty institutional investors were named as lead plaintiffs each year,¹ the number grew to thirty-one in 2001 and then to fifty-six institutions in 2002.² In the period covered in my study, 2002 to 2006, 41% of cases had an institutional investor as lead plaintiff.

The first fears over paying-to-play surfaced in media reports in 1998. The legal academy became concerned shortly thereafter, announcing the practice as a problem and then proposing solutions. However, my research revealed only two empirical studies of paying-to-play in the legal literature. Neither study examined lawyers’ campaign contributions; rather, they both used indirect means of investigating paying-to-play.

The lack of empirical evidence of paying-to-play, however, did not stop courts, the American Bar Association, pension funds, Congress, and state legislatures from discussing and implementing reform proposals. Reform may be necessary if paying-to-play indeed negatively affects securities class actions. However, reforms are not without cost; all efforts at reform make tradeoffs in an attempt to insulate pension fund officials from lawyers’ campaign contributions. Generally, there have been four proposals to combat the perceived paying-to-play problem. The first proposal calls for the lead plaintiff fund and the filing law firm to disclose to the court any payments made by the lawyers to the fund, enabling the court to decide whether the fund or firm are fit to serve. The second proposal is merely a bright-line version of the first: A lawyer is barred from representing a fund if the lawyer made a campaign contribution to the fund’s officials. The third proposal requires that elected officials be removed from pension funds’ governing boards and be replaced with unelected leadership. The final proposal is that courts, rather than the lead plaintiff, should select lead counsel through an auction.

The first two proposals would limit lawyers’ participation in the political process. Even if courts had discretion to allow lawyers to continue to serve, the threat of losing a client may be enough to silence lawyers’ political voices. Restructuring pension funds’ leadership—as required by the third proposal—also has costs. Public pension funds likely have elected officials in leadership positions to allow for state government control of the funds. This provides for democratic accountability with regard to the funds’ successes and failures, including their litigation decisions. Finally, as others have noted, a court-run auction to determine lead counsel “is inconsistent with the language of the PSLRA.”³ The PSLRA instructs the court to appoint the “most adequate plaintiff,” not the most adequate law firm, and then allows that plaintiff to choose the lead counsel. Replacing the lead plaintiff’s selection of counsel with that of the court undermines the PSLRA’s intent to empower the lead plaintiff to select and monitor class counsel.

 
II.
Data and Findings: Law Firms’ Contributions to Lead Plaintiff Funds

I examined the 1076 securities class actions filed in the United States from 2002 to 2006. I identified the 445 cases where an institutional investor was at least one of the plaintiffs filing to be lead plaintiff and then narrowed my dataset to the seventy-five cases where the lead plaintiff was an institutional investor with at least one state-level elected official, or person appointed by such an official, on its controlling board. I then identified the membership of the controlling boards of the institutional investors at the time the case was filed. Next, I identified the law firm or firms that each fund selected as counsel in each case. Finally, I used state-level campaign-finance filings to find campaign contributions from the plaintiffs’ law firm (or its lawyers) to any elected official affiliated with the pension fund that selected the firm as counsel. My campaign contribution dataset spanned both before and after the filing of the cases—from 1998 to 2008—in order to capture contributions that could come before law-firm selection as an enticement, or after as a reward. I included contributions made to the relevant candidates directly and also contributions to their political parties’ campaign committees under the theory that candidates may look favorably on contributions to their parties, and donors may seek to exploit such contributions.

I found that in a majority of cases where paying-to-play was possible, at least one law firm made a political contribution to an elected official affiliated with a lead plaintiff pension fund in the case. Of the seventy-four cases in my dataset, a law firm affiliated with a case made a political contribution to a pension fund in forty-eight cases, or 64% of the time.

Because there was sometimes more than one law firm or pension fund filing in each case, and my data grouped these firms and funds together, there were 184 total opportunities for pension funds and law firms to be matched through political contributions. Firms made contributions in seventy-eight of those 184 opportunities, or 42% of the time. Of all the total contributions from a particular firm to officials associated with a particular fund, the mean was $58,942 and the median was $9,300.

 
III.
Discussion and Future Areas of Research

My data confirms that plaintiffs’ law firms are contributing to the pension funds that hire them. These contributions form the baseline of the paying-to-play theory. My study thus provides the first set of paying-to-play data on which future scholarship can build. Some may argue that these contributions themselves create an appearance of impropriety that should be avoided. Others suggest that the focus should be on the actual performance of class counsel, no matter how selected.⁴ The resolution of this question is beyond the scope of this Editorial.

The debate over paying-to-play involves more than a concern over political contributions. The paying-to-play theory has three basic elements: (1) law firms are giving political contributions to officials affiliated with pension funds’ boards; (2) the firms are doing so with the intention of earning favors from the funds; and (3) pension funds are in fact giving those favors by selecting contributing firms as lead counsel in class action cases.

While this Editorial has provided some evidence of the presence of element one, we must examine elements two and three to understand fully the paying-to-play problem and to formulate an appropriate policy response. The factors listed below are not meant to be an exhaustive list of all important matters but rather a helpful guide for future researchers of what I consider to be the most interesting quantifiable factors surrounding the paying-to-play problem.

 
A.     Geography

Pension funds might be likely to select local law firms with whom they are familiar and with whom they can meet frequently. This may be especially true if pension funds plan to, or have been, working with firms for a long period of time, such as funds hiring a firm to provide litigation monitoring services. Geography may also be important for researchers seeking to understand law firms’ political contributions. Contributions from lawyers to politicians in their own states may seem less suspicious than donations to those in distant states.

 
B.     Experience

Based on my data, from 2002 to 2006, pension funds selected the same few law firms repeatedly. Bernstein Litowitz Berger & Grossman was affiliated with an institutional plaintiff in thirty of the seventy-five cases in my dataset, or 40% of the cases. On the other hand, pension funds selected twenty-nine of the thirty-six total firms each three or fewer times. Future research could quantify indicators of a law firm’s experience, such as the number of previous securities fraud class action cases handled, in an effort to discover whether experience is an independently significant variable in funds’ selection decisions.

 
C.     Previous Relationships

Funds may also be more likely to select firms with which they have had a particular former relationship. This might mean a firm representing the fund in a previous class action, but it could also include a law firm providing other services for a fund. According to one securities class action expert, funds increasingly are relying on law firms to monitor their investments and to provide advice on possible suits to file or join.⁵ Funds typically do not pay the law firms for these litigation and investment monitoring services, but the firms instead hope to be rewarded by being selected as lead counsel if the fund decides to file suit and is named lead plaintiff. In a recent case, Judge Jed S. Rakoff raised concerns at a hearing that a proposed plaintiff law firm had a “blatant, shocking conflict of interest” stemming from free monitoring services provided for a union pension fund client.⁶ Additionally, pension funds have been reported to keep “short lists” of firms that have been prescreened to use when the fund decides to file suit. In these cases, the law firm that provides investment monitoring services competes with other firms on the fund’s list. Pension funds without exclusive lists rely on “requests for proposals” sent to law firms, inviting them to bid for the pension fund’s legal work. All of these arrangements may shed light on law firms’ decisions to contribute to funds, or may impact funds’ lead counsel selection decisions.

 
Conclusion

Past fears, and even reforms, of the paying-to-play practice have been based on anecdotal evidence in the media and scholarly literature. This Editorial provides empirical evidence for the first time showing that plaintiffs’ law firms do contribute to officials affiliated with the public pension funds that select them as lead counsel in securities fraud class actions. Given this prima facie evidence, it is still important to explore other factors that may explain why law firms contribute to funds and how funds choose which law firms to hire. Moreover, even if the worst paying-to-play fears are true and pension funds are selecting law firms based on political contributions, does paying-to-play actually have a negative effect on lawyer-client agency costs in securities fraud class actions? In other words, even if paying-to-play is happening, does it matter? This is a question Stephen J. Choi, Adam C. Pritchard, and I examine in an upcoming paper, The Price of Paying to Play in Securities Class Actions.⁷

Acknowledgments:

Copyright © 2010 New York University Law Review.

Drew T. Johnson-Skinner received his J.D. from New York University School of Law in 2009. He is currently a Law Clerk for Judge John G. Koeltl.

This Legal Workshop Editorial is based on the following Student Note: Drew T. Johnson-Skinner, Paying-To-Play in Securities Class Actions: A Look at Lawyers’ Campaign Contributions, 84 N.Y.U. L. REV. 1725 (2009).

Click here to access the raw data analyzed in this Editorial.

The actual enforceability of medical malpractice exculpatory agreements remains an unsettled and underexplored question.  Courts treat general exculpatory agreements—like those signed at amusement parks—as they do any other contract, enforcing the contracts as long as they are entered into voluntarily.  But medical malpractice exculpatory agreements have been repeatedly invalidated, often under the mysterious “void-for-public-policy” rationale.  This Editorial outlines the basic arguments put forward in my Note exploring the enforceability of medical malpractice exculpatory agreements.  In the process, I set out a blueprint that medical providers might use to craft an enforceable medical malpractice exculpatory agreement.  I argue that the agreement with the best chances of being enforced is one that is not just optional for the patient and clearly worded, but also confidential.

 
I.
Judicial Resistance to Medical Malpractice Exculpatory Agreements

Cases using the void-for-public-policy rationale to invalidate medical malpractice exculpatory agreements abound, while cases upholding the agreements are difficult to find.  However, it is unclear whether the resistance to these agreements is a result of something that renders them categorically void or, alternatively, of some quality of the specific subset of agreements that are actually brought to court.

New York follows the majority rule on medical malpractice exculpatory agreements, so an in-depth analysis of New York case law is illustrative.  When invalidating medical malpractice exculpatory agreements, New York courts seem to focus on the way medical malpractice agreements are presented and worded, rather than on the subject matter or parties to the agreement.  In case after case, the courts look beyond the mere fact that the agreement is between doctor and patient and relates to liability, instead scrutinizing the specific wording of the agreement, the presentation of the agreement, and the circumstances of the bargain before ruling on an agreement’s validity.

There is reason to believe a medical malpractice exculpatory agreement could be crafted such that a New York court (and presumably any court following the majority rule) would enforce it, in spite of the fact that most cases on record involving such agreements have found them to be void for public policy.  The cases suggest that it is neither the subject matter of nor the parties to medical malpractice exculpatory agreements that render them void for public policy, but rather some feature of their presentation and signing.  Unfortunately, the cases provide few clues as to what elements are problematic.

 
II.
A Possible Culprit: Signaling Pressure in Medical Malpractice Exculpatory Agreements

A behavioral economic perspective reveals that medical malpractice exculpatory agreements create a somewhat intuitive problem that may underlie courts’ skepticism.  At the core of this problem is the signaling involved in the decision to sign (or not sign) a medical malpractice exculpatory agreement:  By refusing to sign such an agreement in exchange for a lower fee, a patient unequivocally signals to her doctor that:

(1) she is the sort of patient who would sue her doctor if injured negligently,

and

(2) she thinks there is at least some chance her doctor will make a mistake.

By refusing to sign an exculpatory agreement, the patient essentially says to the doctor, “No thanks, while I like saving money, I think there is a chance I’ll end up suing you.”

This signaling is problematic because we patients want our doctors to think we trust them.  Call it fairness, fear of retaliation, or altruism—the fact remains that many of us are uncomfortable with letting our doctors know that we have anything but the utmost faith in their abilities, even when we do have serious doubts.  This is why we are so hesitant explicitly to ask for a second opinion, even though we do not think twice about double-checking our diagnosis through anonymous means such as logging into WebMD or calling a doctor friend.  The same is true when it comes to deciding whether or not to sign a medical malpractice exculpatory agreement.  We know that if we do not sign, we will signal a lack of trust to our doctors, and this signaling effect puts pressure on us to sign, even if we otherwise would rather retain the right to sue for malpractice.

 
III.
Blueprint for an Enforceable Medical Malpractice Exculpatory Agreement

In my full Note, I discuss the plausibility of the assumption that courts’ skepticism toward medical malpractice exculpatory agreements is related to the signaling pressure identified above.  Assuming that this encumbrance to patient decisionmaking does underlie judicial suspicion of these agreements, it is possible to set out a blueprint for an exculpatory agreement that avoids signaling pressure, thereby alleviating courts’ concerns.

First, courts have clearly stated that patients must actually understand what they are signing in order to be able to waive the right to sue for malpractice.  Furthermore, courts have stated that because medical care is a necessary service, doctors cannot present malpractice waivers on a take-it-or-leave-it basis.  Thus, as a preliminary matter, any agreement that hopes to be enforced must be nonadhesive (optional) and clearly worded.

Such an agreement would still be subject to the signaling encumbrance identified above.  To cure this defect and avoid claims that a patient’s decision was not really voluntary, a medical provider hoping to create an enforceable medical malpractice exculpatory agreement would need to find a way to insulate the patient’s decision from signaling.  This could be done by making the patient’s decision confidential.  By guaranteeing the patient a zone of privacy around her decision to sign—at least vis-à-vis her doctor—a medical provider presenting a patient with a medical malpractice exculpatory agreement could guarantee that the patient’s decision was not influenced by fear of how the doctor might respond.

Contracting over malpractice confidentially would not be difficult.  The simplest method would be to utilize direct contracting between patients and managed care providers.  The doctor would only know that some patients from the managed care provider withheld the malpractice right and some did not.  She would not find out whether a given patient had decided to withhold the right unless that patient chose to sue ex post.

Even without an intermediary, contract law leaves plenty of room for a doctor and patient to enter into a traditional contract confidentially.  The doctor could present and explain two fee arrangements—one including an exculpatory agreement, one not—as two separate offers.  She could then invite the patient’s confidential acceptance of either offer, so as to remain in the dark about the patient’s decision.  Such an arrangement would be perfectly legal:  The Restatement (Second) of Contracts makes clear that the offeror may invite acceptance by whatever reasonable means she designates in making the offer, be it performance or, in this case, acceptance delivered confidentially to a third party.

Of course, even if the contract were formed confidentially, the patient may want a guarantee that her decision would remain confidential.  Confidentiality and privacy clauses are common elements of contracts, and, in this case, both offered contracts need only include clauses that guarantee confidentiality, and perhaps provide some warranty in the event that confidentiality is breached.  In addition, they might designate an independent third party—such as the doctor’s malpractice insurance company—to maintain the confidentiality of the agreement.  Again, the doctor would never find out whether a patient had signed or not, unless that patient decided to sue.

 
Conclusion

This Editorial has focused on signaling effects and confidential contracting in the context of medical malpractice exculpatory agreements, but these ideas might be applicable to other situations.  Within health law, it might be that patient choice would be facilitated in many other highly sensitive areas by using the law to make patient decisions confidential, even vis-à-vis the family doctor.  Decisions like the choice to use birth control, get an STD test, or seek out a second opinion come to mind.  Beyond the medical arena, confidential contracts might be utilized anywhere a special relationship of trust between two parties is in conflict with the signaling caused by standard contracts. Such uses might include contracts in the employment context and contracts regarding legal representation.

Acknowledgments:

Copyright © 2010 New York University School of Law.

Matthew J.B. Lawrence received his J.D. in 2009 from New York University Law School. He is now clerking for Judge Douglas H. Ginsburg of the D.C. Court of Appeals.

This Legal Workshop Editorial is based on the following Student Note: Matthew J.B. Lawrence, In Search of an Enforceable Medical Malpractice Exculpatory Agreement: Introducing Confidential Contracts as a Solution to the Doctor-Patient Relationship Problem, 84 N.Y.U. L. REV. 850 (2009).

Protecting Them from Themselves reveals and analyzes the mutual benefits argument to make three points. First, judges, legislators, and commentators defending contemporary laws and policies frequently claim that restricting rights and opportunities protects women and people of color. The claims appear across a range of contexts, but their common structure has remained hidden from view and critical scrutiny. Second, modern mutual benefits discourse has deep historical roots in widely repudiated forms of discrimination, including slavery, racial segregation, and women’s legalized inequality. Third, the historical deployment of mutual benefits arguments to defend pernicious discrimination creates reason for caution in considering contemporary mutual benefits claims that are now accepted quickly with little evidence, investigation, or debate. Mutual benefits discourse historically operated to rationalize and reinforce discriminatory practices that the nation has since disavowed. Modern mutual benefits arguments must be evaluated carefully or they risk shielding subordination once again.

 
Modern Mutual Benefits Arguments for Limiting Women’s Rights

Protecting Them from Themselves begins by examining contemporary mutual benefits discourse. I first explore how arguments contending that restrictions on women’s legal rights promote women’s welfare have flourished in the modern era, building on the assumption that women’s true interests and ultimate obligations center on marriage and family life. At least twenty-four states, for instance, retain some form of a marital rape exemption. These states criminalize fewer offenses if committed within marriage, punish more leniently the marital rape they do recognize, and/or impose additional procedural barriers to marital rape prosecutions. Legislators, courts, and commentators have explained since the last quarter of the twentieth century that granting wives an unhindered right to pursue marital rape charges would allow women to shatter their marital harmony, destroy their marital privacy, and make marital reconciliation much more difficult. This argument maintains that both husbands and wives are better off if the law limits the criminality of marital rape, although the benefits to men and women differ. Marital rape exemptions protect husbands from prosecution and wives from damage to their marital relationship assertedly more harmful to them than the marital rape itself.

Similar arguments that limiting women’s rights serves women’s best interests have increasingly come to shape antiabortion legislation and the Supreme Court’s abortion jurisprudence. Roe v. Wade (1973)¹ stressed the need to mediate between competing rights and interests: a woman’s right to have an abortion versus a state’s interest in protecting women’s health and the potential life of the fetus. Since Roe, however, the antiabortion movement has recognized in increasingly explicit terms that many Americans are unwilling to criminalize abortion if doing so will harm women. The movement and its government allies have turned more and more to the language of aligned interests rather than competing rights, insisting that both women seeking abortions and people opposed to abortion are better off if the law restricts or prohibits abortion. This argument contends that antiabortion laws protect women from the psychological harm that abortion would inflict upon them and the regret they would and should experience after abortion. The argument visibly influenced the Court’s plurality opinion in Planned Parenthood of Southeastern Pennsylvania v. Casey (1992),² which upheld mandatory waiting periods before abortion and “informed consent” laws designed to persuade women not to have abortions. The Court explicitly endorsed the assumption of regret in Gonzales v. Carhart (2007)³ with little discussion or explanation. Carhart upheld the federal prohibition of an abortion procedure—even where that procedure is the safest method of abortion—on the premise that some women will, and perhaps all women should, come to regret having abortions.

 
Mutual Benefits Arguments Against Affirmative Action

Protecting Them from Themselves next considers modern mutual benefits discourse in the racial context. Arguments that whites and people of color have aligned interests in defeating civil rights initiatives have become increasingly prominent in recent years. For example, the Supreme Court’s initial decisions restricting race-based government affirmative action programs and early academic criticism emphasized the conflicting interests of whites and people of color, and the burdens that affirmative action imposed on whites. But the Court and academic critics abruptly switched focus within just a few years and a few opinions. More recent opposition to affirmative action has stressed that affirmative action policies must be severely restricted in scope and duration because otherwise these policies will harm people of color. This account contends that legal decisionmakers need not choose between competing sides because the people participating in affirmative action programs and the people opposed to those programs have shared interests. People of every race and with every view on affirmative action all purportedly benefit in their own way if affirmative action is first limited and then eliminated.

 
A Legal History of Mutual Benefits Arguments for Sexual and Racial Inequality

Protecting Them from Themselves proceeds to uncover the genealogy of mutual benefits claims, analyzing historical manifestations of mutual benefits discourse. The mutual benefits argument is not a recent innovation devised to respond to the demands of the contemporary civil rights era. It is a long-established claim that defenders of unequal status relations have repeatedly deployed, relying on the argument’s familiarity to bolster its plausibility. The contention that more rights would harm the rights holders appeared prominently in defenses of slavery, racial segregation, married women’s subordination to their husbands at common law, and legislation restricting women’s rights to negotiate about market work. Mutual benefits arguments for sex and race inequality especially proliferated in eras, like our own, when reform movements were vigorously working to improve the status of women and people of color. The reform efforts presumably undermined claims that the law should favor men over women, or whites over people of color. Historical mutual benefits arguments were nominally committed to helping women and people of color. But they consistently and explicitly assumed that women and people of color were unusually poor decisionmakers unable to assess their own interests, that women’s true concerns were confined to domesticity, and that people of color were better off the less they challenged and disturbed white people and white-dominated institutions. Connections between the defenses of slavery, segregation, and women’s legal inequality have rarely been noticed. Highlighting them uncovers important precursors to modern civil rights discourse.

 
Evaluating Mutual Benefits Arguments

The extensive use of mutual benefits claims to support now-rejected forms of discrimination should affect how we assess modern mutual benefits arguments. The fact that historical versions of the mutual benefits claim are no longer convincing does not necessarily mean that current or future expressions of the claim cannot be appropriate. Mutual benefits arguments may sometimes be reasonable and cogent. But the role that mutual benefits arguments played in defending pernicious forms of inequality creates grounds for caution in considering contemporary assertions that women and people of color are better off with limited rights and opportunities. Courts, legislators, and commentators may be predisposed to endorse these assertions quickly with little support, deliberation, or debate because the assertions resonate with a long history of mutual benefits arguments and invoke shared cultural memories of prior mutual benefits claims. The antecedent life of mutual benefits discourse can give modern mutual benefits arguments an inordinate power to persuade that makes explanation and elaboration seem unnecessary. Yet mutual benefits arguments were historically employed to support practices that are now repudiated, and they drew on ways of thinking about women and people of color that are now suspect. Whatever one’s views on the merits of legal paternalism as a general matter, there is reason to be cautious about contentions that all parties benefit when the law denies rights and opportunities to women and people of color.

Protecting Them from Themselves concludes by seeking to stimulate greater conversation about mutual benefits claims that are often accepted too easily. I use the reasons why historical mutual benefits arguments are unconvincing to formulate four practical criteria that judges, legislators, and commentators should apply in evaluating contemporary mutual benefits discourse. These criteria ask whether advocates asserting that rights and opportunities will injure women or people of color are consistent in their arguments, whether they present evidence of harm, whether they rely on narrow assumptions about how women or people of color should behave, and whether they engage with counterarguments and opposing viewpoints. I employ these criteria to assess several modern mutual benefits arguments.

Contemporary claims that women or people of color benefit from limited rights and opportunities have many of the same weaknesses as their historical precursors. First, judges, legislators, and commentators have been very selective in contending that people seeking rights and opportunities can be safely ignored because they fundamentally misunderstand their own interests. The law does not usually assume that people are radically mistaken about how to improve their lives and need to be protected from themselves. But claims that women or people of color will be worse off with more rights and choices are common. Second, the evidence that rights and opportunities harm women or people of color is sometimes questionably reliable, and sometimes simply nonexistent. Third, mutual benefits claims frequently depend on and enforce rigid, historically embedded assumptions about how women and people of color should think, act, and live. Modern mutual benefits arguments, like their historical predecessors, typically take for granted that women should orient their lives toward domesticity instead of male-dominated spheres such as the market. Similarly, contemporary mutual benefits arguments track historical patterns in presuming that people of color are better off the more they accommodate and the less they demand from white society. Finally, modern arguments about mutual benefits to women and men, or to people of color and whites, often avoid acknowledging any possible costs associated with restricting the rights and opportunities open to women and people of color.

History richly documents how mutual benefits claims have long served to rationalize and perpetuate legal hierarchies based on sex and race. This history also suggests criteria that legal authorities and advocates should employ in evaluating modern manifestations of mutual benefits discourse that are now accepted too readily. Applying these criteria can help assess arguments that risk reinforcing some of the nation’s most entrenched and intransigent forms of status inequality.

Acknowledgments:

Copyright © 2010 New York University Law Review.

Jill Elaine Hasday is the Julius E. Davis Professor of Law at University of Minnesota Law School.

This Legal Workshop Editorial is based on the following Article: Jill Elaine Hasday, Protecting Them from Themselves: The Persistence of Mutual Benefits Arguments for Sex and Race Inequality, 84 N.Y.U. L. REV. 1464 (2009).

This Editorial explores why state legislatures abandoned the practice of instructing U.S. senators after a century of vigorous use.  In Part I, I argue that the six-year term length for senators, in combination with the possibility of relatively rapid turnover in state legislatures, prevented binding instructions from remaining a common practice.  In Part II, I explain why instructions disappeared after the Civil War.

 
I.
The Interrelation Between State Law and the Constitution

The Seventeenth Amendment, which required senators to be elected by the people, is commonly blamed for the demise of instructions.  However, instructions fell into disuse long before the Amendment was adopted.  Rather, the six-year term length for U.S. senators, combined with the possibility of rapid turnover in state legislatures, prevented binding instructions from becoming entrenched.  Although many states believed the right to instruct was important, the structure of state legislatures limited their ability to instruct federal representatives.  If state legislators had long term lengths, their threats in year one not to reelect disobeying senators might remain credible by year six.  However, state legislators at the Founding had shorter term lengths than U.S. senators.  Promises to punish a senator for disobeying an instruction would be hard to keep if the same state legislators were not around for the senator’s reelection.  And later, as it became more popular to divide legislative bodies into lots or classes for staggered elections, state legislatures turned over more frequently, further weakening the doctrine of instruction.

 
A.     Input from the Lower Houses in State Legislatures

In broadly worded language, the original Constitution specified that senators would be “chosen by the Legislature” of the state.² Because states had presumptive control over the “manner” of Senate elections, states with a multicameral legislative branch might have been able to select senators by a vote in only one house.  Placing the vote in the hands of the upper house, which generally had a longer term length, could have given the state greater leverage over its senators.  By taking into account the votes of the lower house, however, states undercut their ability to ensure that their senators would obey instructions.

 
B.     Short Term Lengths in State Legislatures

By the year 1803, seventeen states had been admitted to the Union.  The short term length these states provided for their state legislators is striking.  All of the states except two elected their lower house annually (or more often), and the median term length in upper houses was two years (mean length of 2.3 years).  Only one state, Maryland, gave its upper house a term length greater than four years—and even it was not willing to go as high as six years.  The shorter term lengths are understandable.  U.S. senators had a long six-year term so they could learn about foreign affairs and the vast (and growing) territory of the United States—concerns that state legislators did not share.  Nevertheless, this structure made it difficult for binding instructions to take hold.

 
C.     Staggered Elections in State Legislatures

In addition, many state legislatures began to split the members of the upper house of their legislature into lots or classes.  For example, no longer would the entire Maryland Senate stand for reelection every fifth year; in 1851, its new constitution shortened the term length to four years and provided that every two years, one-half of the Senate would face reelection.  Staggered elections meant that new members would enter the upper house at more frequent intervals, diminishing the ability of one state legislature to issue credible threats not to reelect a U.S. senator.

 
D.     Ignoring Threats Not To Reelect

A senator wishing to cast a vote contrary to a state legislature’s instruction could take comfort in the fact that different state legislators very likely would be voting for his reelection.  In fact, this often happened.  Often, senators’ longer term lengths allowed them to stand their ground if they believed they could convince the next wave of state legislators not to follow through on their predecessors’ threats.  For example, in 1835, Samuel Southard, a Whig senator from New Jersey, disobeyed instructions to expunge the censure of President Andrew Jackson from the Senate Journal.  He believed the expunging resolution would be a “degradation of the most humiliating character” for the Senate, and refused to vote for it.³ He did not quietly cast his vote; instead, he gave a long and forceful speech criticizing the doctrine of instruction, calling it “an evil,” which the Framers employed “extra constitutional means to prevent.”⁴ Nevertheless, Southard was reelected in 1838.  By that time, the expunging resolution had faded from voters’ minds, as they dealt with the effects of the Depression of 1837.  Voters in New Jersey blamed the party in power (the Democrats) for the depression, helping the Whigs regain control of the state legislature, thus assuring Southard’s easy reelection.

Senator Southard’s reelection after violating instructions on the biggest issue of the day illustrates a key lesson:  The six-year term for senators, when compared to the short term lengths for state legislators, undercut the doctrine of instruction because senators could disobey if they were willing to take their chances with the future members of the state legislature.  Once the culture of adherence to instructions weakened, there was no constitutional structure in place to sustain it.

 
II.
Reconstruction and the Quiet Demise of the Right To Instruct

Instructions in the United States first thrived in New England town meetings, but President Jackson permanently changed the way instructions were viewed.

 
A.     President Jackson’s Use of Instructions

Although Jackson was not the first to use instructions for political purposes, he was devastatingly successful at deploying them to expand the Democratic party in the South.  As state legislatures began to turn Democratic in the mid-1830s, Jackson urged Southern Democratic state legislators to instruct their Whig senators on the politically divisive matters of the day.  This would put the senators in the position of either voting against their party or against their instructions—a difficult choice in areas like Virginia, where most people strongly believed in the sanctity of instructions.  In such areas, a vote against an instruction was more than a vote against the community’s desired outcome; it was an insult to the community—a declaration that its formal opinion, democratically expressed, did not matter. Thus, senators from these places faced an especially delicate task when deciding whether to violate their instructions or violate their conscience—and many, not surprisingly, resigned before or shortly after their votes.

 
B.     Instructions and the Lead-up to the Civil War

After Jackson’s use of instructions to “intervene in state politics and purge his opponents”⁵ in the Senate, the doctrine was strongly, if not indelibly, associated with Southern Democrats.  Leading up to the Civil War and faced with the momentous decision of whether to secede from the Union, some state legislatures in the South used instructions to express their views to their senators.  However, with party lines drawn, some saw the instructions as divisive.  In Maryland, an attempt to issue such an instruction upset the Whigs, who objected to the “ill-timed introduction of an abstract party principle in the face of a great crisis.”⁶ Not surprisingly, the issue of slavery was more important than instructions.  Even before the Civil War, the doctrine of instructions was losing its moral force.

 
C.     Instructions After the Civil War

The Civil War led to an enormously different Constitution, and the doctrine of instructions was one of the casualties.  The Thirteenth Amendment, drafted shortly after President Abraham Lincoln’s reelection, was a radical break with the past constitutional system; it “pulverized bedrock legal principles and practices in more than one-third of the states and imposed new affirmative federal obligations on every state.”⁷ The balance of power dramatically shifted away from the states.  After President Andrew Johnson vetoed the 1866 Civil Rights Act—claiming that it would “sap and destroy our federative system,” imperil “the rights of the States,” and “centraliz[e]” and “concentrat[e]” “all legislative powers in the National Government”⁸—Congress responded in dramatic fashion by overriding his veto.  This, indeed, was a different government.

 
D.     A Power Reversal: Federal Regulation of State Elections

Four months after using its newly minted Thirteenth Amendment authority to pass the 1866 Civil Rights Act, Congress used its authority under the Founders’ Constitution to prevent state recalcitrance.  Acting to regulate the time and manner of Senate elections under Article I, Congress decreed that state legislatures, on the day of election, should vote concurrently for a senator:  If the two houses did not agree, then on the next day a joint vote of all state legislators should be conducted.  Writing less than two decades after the Act was passed, prominent Republican Senator James Blaine declared that whereas before the Civil War there was a “reluctance to interfere” with the states, after the War “thoughtful statesmen” believed that “every thing which may be done by either Nation or State may be better and more securely done by the Nation.”⁹ Little wonder, then, that the practice of states instructing federal legislators on how to vote virtually disappeared after the War.  The roles were reversed:  Now the states were taking instructions from the federal government.

The South’s loss in the Civil War, and the resulting constitutional changes, dealt a fatal blow to the doctrine of instruction; never again was it meaningfully exercised.  Progressive ideas like the direct primary for Senate elections spread quickly through the populist South.  By 1910, more than half of the Union’s senators were directly elected by the people.  One year later, thirty-seven state legislatures, by their actions and their words, had “indicated that they no longer wanted to elect senators.”¹⁰ The enactment of the Seventeenth Amendment shortly thereafter eliminated any possibility that instructions would again be effective.

States still commonly “urge” their representatives to vote certain ways, but often these resolutions are viewed as political stunts and are disobeyed at no cost.  More persuasive, perhaps, are letters, phone calls, and emails from constituents, which returns us to Madison’s conception of instructions:  A right of “the people . . . to express and communicate their sentiments and wishes”¹¹ to their representatives.

 
Conclusion

Instructions began as a way to make government more democratic.  The House of Commons in England proudly brandished instructions as an indication of popular support, and colonists in New England governed, in large part, by the use of town meetings.  After adopting the Constitution, towns lost their supreme political status.  Nevertheless, instructions survived the Founding and were reincarnated in state legislatures, which used them to command U.S. senators.  But again, after changes in the structure of government after the Civil War and a corresponding shift in constitutional culture (as senators saw no need to resign to protect their reputation), instructions ultimately faded away.

The history of instructions in America reminds us that the meaning of the text of the Constitution—here the “six years” provision—depends not just on how the text is interpreted by courts, but on how those words are “made flesh” by the actors—including state actors—who are invited by the constitution to play a role in our government.

Acknowledgments:

Copyright © 2010 New York University Law Review.

Christopher Terranova received his J.D. from New York University School of Law in 2009.

This Legal Workshop Editorial is based on the following Student Note: Christopher Terranova, The Constitutional Life of Legislative Instructions in America, 84 N.Y.U. L. REV. 1331 (2009).

This topic is of more than academic interest.  My subject—how the corporate law and governance rules of our states interact with each other in a federal system—bears importantly on the efficient operation of the American economy.  In this current economic environment, this is a subject that concerns us all.

In this short Editorial, I will cover three topics.  First, I will outline the historical background behind the current model of how state corporate laws are supposed to interact.  Second, I will discuss how reality has come to diverge from the model, as a result of attempts to give state corporate law extraterritorial reach through the internal affairs doctrine and corporate outreach statutes.  Finally, I will attempt to answer the “so what?” question:  What are the practical implications of this divergence, and what do they spell for the future?

 
I.
Historical Development of the Model

As I said earlier, our federalist model resembles a patchwork of fifty separate bodies of state corporate law, plus the corporate law of the District of Columbia, all overlaid by an additional body of federal law.  By “corporate law,” I mean state statutes and judicial decisions that regulate internal corporate matters such as the forming of a corporation, the powers and duties of officers and directors, corporate elections, the rights of stockholders, the corporate decisionmaking process, corporate mergers, sales of assets, and the like.  “Corporate law” must be distinguished from “commercial law,” which is the body of rules that governs the corporation’s external economic relationships with parties outside the corporate family, such as suppliers and customers.

A key characteristic of this corporate federalist model is that a state’s corporate law governs only those corporations that are formed under that particular state’s corporate law.  The main reason for this is historical:  Until the twentieth century, all American corporate law was local.  In fact, until the late nineteenth century, state corporate statutes did not even exist; to form a corporation in any state, a special act of that state’s legislature was required.  This regime was problematic because it tethered economic expansion to access to the political system.  Eventually, the requirement that corporations be created by special legislative acts was jettisoned, and in its place, the states adopted general corporation laws that allowed any citizen who followed the prescribed statutory rules to form a corporation privately.

A second important feature of the late nineteenth century federalist model was that the reach of state corporate law was local¾that is, each state’s law stopped at the state boarder.  Again, the reasons were historical:  Except for a few giant multistate operations such as Standard Oil, U.S. Steel, and the large railroad companies, most corporations chartered under the new state statutes—their officers, directors, stockholders, and business operations—were located in a single state. Not surprisingly, any disputes involving these corporations’ internal affairs were governed by local state corporate law, and the resolution of those disputes affected, by and large, only the citizens of that state.

During the twentieth century, however, this model changed.  In the 1930s, as we know, the New Deal added a second, overlying layer of newly enacted federal law to remedy dislocations caused by the failure or inability of state law to keep up with changes in our national economy.

This new federal scheme fundamentally altered the original legal model.  Whereas before 1934 there had been one layer of regulation, after 1934 there were two.  Each layer operated independently of the other and with different functions.  Although most internal affairs of corporations continued to be regulated by state law, now some were removed from the state law domain and transferred to the federal.  Capital raising and other interstate transactions in corporate securities became, and have continued to be, governed by a separate body of overriding and preemptive federal law.

I now turn to the second topic, which is how the corporate federalist model and reality have come to diverge over the past seventy years.  In metaphorical terms, the question is how, in defiance of the theory of federalism, it became possible for one state’s corporate law to cross over that state’s boundary line and, in unforeseen ways, influence business activity that other states arguably had an interest in regulating.

 
II.
The Model and the Reality Diverge

This divergence between the model and reality has taken three quite different forms.  The first form of divergence resulted from what some refer to as the “first generation” of anti-takeover statutes; the second resulted from the widespread application of the internal affairs doctrine, which for generations has been a central feature of American corporate law; and the third resulted from the so-called “corporate outreach” statutes, which are exemplified by legislation adopted in California and New York.  I will discuss the second and third forms here.¹

 
A.     The Internal Affairs Doctrine

The internal affairs doctrine is a judge-made choice-of-law rule that mandates that disputes regarding “internal affairs”—“those matters which are peculiar to the relationships among or between the corporation and its . . . directors, officers and shareholders”²—are governed by the laws of the state of incorporation.  Illustrative examples of internal affairs include the mechanics of incorporating, the election or appointment of officers and directors, the adoption of bylaws, the issuance of shares and bonds, voting, mergers, the reclassification of shares, and the declaration and payment of dividends.

Extraterritoriality is an unavoidable consequence of the internal affairs doctrine.  As an example, imagine a company that is incorporated in Iowa.  A lawsuit involving that corporation’s internal affairs (say, a breach of fiduciary duty action) is filed in a New York state court.  In that lawsuit, the New York court will apply the internal affairs doctrine and decide the case under Iowa corporate law, even if the director-defendants all live in Illinois, or the plaintiff-shareholder lives in Wisconsin, or both.  By virtue of this choice-of-law principle, the corporate law of the state of incorporation has extraterritorial effect.

At first blush, this fact may appear to have only theoretical interest and no real-world importance; however, this is not the case, because the internal affairs doctrine does not exist in a vacuum.  It operates conjointly with two real-world facts.  First, internal affairs disputes frequently involve large corporations that have far-flung operations.  Second, a majority of those firms are incorporated in one state, namely, Delaware.  In practice, because of these facts, mega-disputes involving the internal affairs of America’s largest companies are often resolved under Delaware law.  And because of the large number of Delaware corporate law cases, Delaware corporate jurisprudence has become more widespread and more developed than the corporate jurisprudence of other states.  As a result, Delaware corporate law has come to have significant extraterritorial effect.

 
B.     The Corporate Outreach Statutes

The corporate outreach statutes adopted by California and New York have extraterritorial reach because they legislatively overrule the internal affairs doctrine and impose their own, often different, internal governance requirements upon foreign corporations having a specified level of contact with the forum state.³ I will focus on the California outreach statute, not only because it is the most illustrative, but also because it has actually been a subject of litigation.  Section 2115 of the California Corporations Code requires certain foreign corporations to conform to a broad range of California internal affairs requirements.  It provides that in cases where it applies, California corporate law will govern a host of internal governance matters.  These include the annual election of directors, the removal of directors, the filling of director vacancies in specified circumstances, the directors’ standard of care, the directors’ liability for unlawful distributions, the indemnification of directors and officers, and many others.  Lest there be any doubt about its intended purpose, the statute specifically provides that in cases where it applies, “the foreign corporation’s articles of incorporation are deemed amended to the exclusion of the law of the state of incorporation.”⁴

These outreach statutes are an effort, through legislation, by one state to give its corporate law extraterritorial reach.  Foreign corporations that are subject to these statutes risk being caught in a crossfire between two conflicting sets of governance requirements¾one imposed by the outreach statute of the forum state and the other mandated by the corporate law of the state of incorporation.  Because a corporation cannot obey two conflicting legal commands at the same time, the “hot button” question is which state’s corporate law will take precedence.

That issue has been litigated in both California and Delaware, and the results thus far have been a mixed bag.  In California, some court decisions have upheld the application of California governance requirements to corporations that had major California contacts but were incorporated elsewhere.⁵ In Delaware, the courts have held that by virtue of the internal affairs doctrine, Delaware corporate law trumped the conflicting California statutory rules.⁶ The question is ultimately one of constitutional law.  As the law currently stands, there is no single answer because the answer in any particular case depends upon which state’s jurisprudence¾Delaware’s or California’s¾a court looks to when deciding that question.

This brings me to my third and last topic.  We now know that a state’s corporate law may reach beyond its borders even though under the corporate federalist model it should not.  We also know that two of the three ways under which this can happen could set, at least potentially, a collision course that may affect more than just the two states whose corporate laws are in conflict.  The question becomes:  how will this uncertain state of affairs unfold in the future?

 
III.
What Will the Future Look Like?

In guessing what the future may hold, there are several possibilities, but they all turn on one question:  whether the internal affairs doctrine is only a choice-of-law rule or whether it is also a rule of constitutional law.  If the doctrine is only a choice-of-law rule, then any state is free to adopt or reject it.  If it is a principle of constitutional law, then no state is free to reject it.  The only court that can decide that question with finality is the United States Supreme Court, and thus far, the question has not percolated up to that level.

Language in some earlier Supreme Court decisions suggest that the Supreme Court has already recognized the constitutional dimension of the internal affairs doctrine.⁷ In addition, I personally subscribe to the view that the stability and certainty afforded by the internal affairs doctrine justifies according that doctrine constitutional status.  But my personal view is of minimal relevance.  The question is debatable, and legal commentators have lined up on both sides of the debate.⁸ So, any prediction about how the nation’s highest court might rule would be hazardous.  It is more productive, in my opinion, to tease out what might happen under both scenarios.

 
A.     The Internal Affairs Doctrine as a Choice-of-Law Rule

Let us first assume that the Supreme Court decides that outreach statutes such as California’s are constitutional.  Should this occur, I predict that the legislatures of other states will adopt their own outreach statutes, at the behest of shareholder activists and other interest groups.  Those statutes would likely impose various, perhaps highly idiosyncratic, kinds of corporate governance requirements upon foreign corporations that do business in those states.

Were that to happen, what would the landscape look like?  I suspect it would resemble a corporate law version of the “Gunfight at the O.K. Corral.”  Companies that do business in several states could find themselves subject to inconsistent internal governance requirements.  Were these conflicts to become widespread and frequent, it could become economically disruptive.  Corporations facing the impossibility of complying with two or more inconsistent governance requirements might simply choose not to do business in the states having inconsistent rules—a choice that could distort economic incentives and seriously inhibit economic growth.  Or, corporations might instead choose to create separate subsidiaries to operate in each state in which they do business.  Creating new levels of corporate ownership may solve the inconsistency problem, but it would inflict other costs such as (not limited to) additional taxes and increased cost of capital.

Were this state of affairs to become sufficiently disruptive, it could create pressure for Congress to eliminate the conflict by enacting some kind of preemptive uniform legislation.  The least intrusive form of such legislation—that is, the kind that would preserve the states’ authority to regulate corporations chartered under state law—would just mandate the internal affairs doctrine on a nationwide basis, in effect overturning our hypothetical Supreme Court decision upholding outreach statutes.  The most intrusive¾that is, the kind that would be least protective of state sovereignty¾would be a federal corporation law that would displace the corporation law of all fifty states.  For those of us who have devoted our professional lifetimes to shaping and improving corporate governance law at the state level, that would be a most unfortunate development, if only because it would create rigidity and retard experimental (and, hopefully, beneficial) change.  Experience shows that laws enacted by Congress, even if flawed, are politically difficult, if not impossible, to change.  In contrast, imperfect laws that are enacted by state legislatures or imperfect rules crafted by judges as part of the common law adjudication process tend to be more easily correctible.

 
B.     The Internal Affairs Doctrine as a Rule of Constitutional Law

Now, assume the alternative scenario:  The Supreme Court decides that the internal affairs doctrine is also a rule of constitutional law.  In that event, the corporate outreach statutes would be invalid, at least as applied to a foreign corporation whose state of incorporation imposes inconsistent requirements.  There would be a clear, easily applied rule that regardless of where a lawsuit involving the corporation’s internal affairs is filed, only the law of the state of incorporation governs the case.  That would essentially preserve the status quo, but it is important to keep in mind that the status quo is not necessarily static or quiescent.  Far from it.  For years, other states have been competing with Delaware, and with each other, to encourage firms either to incorporate or to reincorporate in their jurisdictions. If the internal affairs doctrine were to become the universal rule, that competition could well intensify.

By way of example, beginning in the 1980s, thirty-one states, including Pennsylvania, Virginia, and Rhode Island, adopted so-called “other constituency” statutes.  These statutes did two things.  First, they relieved target company boards responding to takeover bids from any obligation to treat the interests of shareholders as paramount over all others.  Second, they permitted those boards to consider the effects of a hostile takeover on other constituency groups, such as employees, suppliers, customers, creditors, and local communities. Essentially, these statutes were a legislative rejection of Delaware case law, specifically the Unocal⁹ and Revlon¹⁰ decisions, which imposed greater limitations upon how directors may respond defensively to hostile takeover bids.

If the Supreme Court were to constitutionalize the internal affairs doctrine, absent preemptive federal legislation, we could expect more and different forms of this kind of competition among states for incorporation business and the franchise tax income it generates.  That is, in an internal affairs doctrine world, there would be competition among state legislatures, but there would be no irreconcilable direct conflicts imposed on individual firms.  Different states would offer different arrays of legal choices, and corporations would choose whatever legal regime they preferred, just as they do now.

Acknowledgments:

Copyright © New York University Law Review.

The Honorable Jack B. Jacobs is a Justice of the Delaware Supreme Court.

This Legal Workshop Editorial is an abbreviated version of the following Lecture: Jack B. Jacobs, The Reach of State Corporate Law Beyond State Borders: Reflections Upon Federalism, 84 N.Y.U. L. REV. 1149 (2009). The original Lecture was delivered on February 26, 2009 at the New York University School of Law as the 15th Annual William J. Brennan, Jr., Lecture on State Courts and Social Justice.

I.
The Concept of Mixed Speech

Examples of mixed speech abound.  They include speech by private individuals subsidized by the government, including doctors receiving Title X subsidies, lawyers funded by the Legal Services Corporation, or artists awarded National Endowment for the Arts grants.  Mixed speech also includes speech by private entities on government property such as private advertisements on public transportation systems.  Speech by government employees is another example of speech with both a private and a governmental component.

A final example is the one alluded to above:  specialty license plates.  It is not difficult to see why both the government and the private car owner can be seen as a speaker of the message on specialty license plates.  On the one hand, the state authorizes, manufactures, and owns the license plate.  On the other hand, private individuals select, pay extra for, and display them on their private property (i.e., their cars).  Given the mixed nature of the speech on specialty license plates, it is not surprising that there is a circuit split about whether they represent private speech or government speech.  Finding that specialty license plates were private speech, the Fourth Circuit Court of Appeals held that Virginia could not refuse to issue Sons of Confederate Veterans plates with confederate flags:  Since Virginia issued scores of other plates with images, refusing to issue this one would be viewpoint discrimination.¹ In contrast, the Sixth Circuit concluded that specialty license plates were government speech and therefore Tennessee could issue a pro-life plate without issuing a pro-choice one.²

II.
Problems with Characterizing Mixed Speech as Private Speech or Government Speech

The problem with categorizing mixed speech such as specialty license plates as private speech or government speech is that, either way, half the competing interests are overlooked.

A.     Problems with Classifying Mixed Speech as Private Speech

Classifying mixed speech as private speech ignores the government’s interest in dissociating itself from certain kinds of speech.  As private speech, license plates are protected by the Free Speech Clause’s prohibition against viewpoint discrimination, so that once a state has allowed a subject, it must allow all viewpoints on that subject.  As a result, if a state allows specialty plates for fraternal organizations like the Rotary Club with their wagon wheel symbol, then it must allow them for the Sons of Confederate Veterans with their confederate flag and the Aryan Nation with their eagle and swastika symbol.  Likewise, if the state issues “Just Say No to Drugs” plates, then it would have to allow “Just Say Yes to Jesus” plates.  Otherwise it will be seen as discriminating against religious perspectives on healthy living or child rearing and the Supreme Court would consider that unconstitutional viewpoint discrimination.

But although the courts may treat specialty license plates as pure private speech, they are not. On the contrary, there is an irreducible government component. Consequently, the government will be linked to the message on the plate.  In other words, a license plate with both “Virginia” and a swastika embossed on it will be seen as, and is in fact, a government-sanctioned racist message.  Similarly, a license plate with “Virginia” on top and “Just Say Yes to Jesus” below may well amount to government endorsement of religion in violation of the Establishment Clause.  The bottom line is that private individuals are not the only speakers of the messages on specialty license plates.  The government is speaking as well.  To treat them as private speech will lead to government racist messages and government religious messages.

B.     Problems with Classifying Mixed Speech as Government Speech

Classifying mixed speech as government speech, however, is not a solution because it overlooks the free speech interests of private speakers and audiences.  Free speech protections against viewpoint discrimination do not apply to government speech.  While this allows the government to make Rotary Club plates without having to issue Aryan Nation ones, it also means the state can provide pro-life plates without allowing pro-choice ones, or vice versa.

Granted, if the government is speaking, it should be allowed to control the content of its own speech and take positions on controversial issues like abortion.  After all, people vote for parties and candidates based on their political positions.  However, there is an implicit bargain:  The reason that the government is allowed to advance one viewpoint over others is that it is ultimately accountable to the electorate.  If the people dislike the current government’s position, they can vote it out of office.

But in order to hold government accountable for its advocacy, citizens have to understand that the government is speaking and advocating a position.  And that is where mixed speech is problematic:  When both the government and private individuals are speaking, the resulting mixed speech is not readily identifiable as government advocacy.  In other words, when people see pro-life but not pro-choice specialty license plates on the road, they may reasonably but mistakenly conclude that the absence of pro-choice plates is due to the lack of support for the pro-choice position, rather than the government’s pro-life advocacy.  The risk of people mistaking government advocacy for popular opinion is especially high with specialty license plate programs that have dozens if not hundreds of plates from which to choose.  Adding to the confusion is the fact that many plates—like “I Love Bowling” or “Foxhunting Enthusiast” or “Parrothead”—seem completely unrelated to any government policy.

In addition to allowing the government to suppress a point of view without being accountable for its advocacy, treating specialty license plates as government speech distorts the marketplace of ideas.  While barring a viewpoint on a license plate does not banish the idea entirely, it does distort the perceived popularity of it, which, as studies have shown, can affect its persuasiveness.  In short, it allows the government to manipulate the marketplace of ideas in favor of its own position.

An example of treating mixed speech as government speech with particularly serious repercussions can be seen in Rust v. Sullivan, where the Supreme Court upheld the “gag rule” forbidding federally funded doctors from counseling patients about abortion.³ Even assuming a patient was aware that abortion was a legal option, confusion about whether the information conveyed by the doctor represented government policy or her doctor’s professional advice might lead a patient to reasonably believe that her doctor did not think abortion was a medically viable option for her.  In sum, treating mixed speech as government speech can be equally problematic.

III.
The Solution: Classification as “Mixed Speech”

What is the solution?  Instead of treating mixed speech as private speech or government speech, I propose that we acknowledge that it is mixed speech, with both private and government interests present, and subject any government restrictions on viewpoint to a vigorous intermediate scrutiny.  This approach would allow for more nuanced and more transparent decisions.

Let me make this claim concrete with an example.  Take two proposed specialty license plates:  “Say Yes to Jesus” and “Say Yes to Choice.”  Under current free speech jurisprudence, these plates must be classified as either private speech or government speech.  If they represent government speech, then the state can refuse to issue the “Say Yes to Choice” plate even if it issues a pro-life plate, and thereby distort the marketplace of ideas and advocate a viewpoint without accountability.  If the license plates represent private speech, then the state must allow both plates, in which case the “Say Yes to Jesus” plate may run afoul of the Establishment Clause.  In reality, these two plates embody different competing interests and ought not necessarily come out the same way.  Applying intermediate scrutiny shifts the focus from putting all specialty license plates into the same box to examining the competing interests at play in each individual specialty license plate. Rather than having an all or nothing result, intermediate scrutiny supports limiting one plate but not the other.

A.     The “Say Yes to Jesus” Plate

The intermediate scrutiny test generally consists of three questions:

1. Does the government have a substantial interest in restricting the viewpoint?
2. Does the government have alternate means of accomplishing the same goals?
3. Does the speaker have alternate means of reaching the same audience?

Government refusal to issue a “Say Yes to Jesus” specialty plate will likely survive a strong intermediate scrutiny.  The government does have a substantial interest—avoiding an Establishment Clause violation by linking the state to an explicitly sectarian religious message.  The state cannot avoid attribution of this message by alternate means such as adding a disclaimer because license plates are just too small to accommodate such disclaimers.  Finally, the religious speaker does have alternate means of reaching the same audience: Even if the marketplace is defined narrowly as speech on one’s car, bumper stickers are available.

B.     The “Say Yes to Choice” Plate

The result differs for government refusal to issue a “Say Yes to Choice” specialty plate.   Even assuming that advocating a pro-life position is a substantial government interest, the state has plenty of alternate means of achieving that same goal.  For example, it can run a pro-life advertising campaign or refuse to fund abortions.  And though the pro-choice speaker, like the religious speaker, has alternate means of reaching the same audience, the restriction is much more suspect as it is motivated by government hostility toward a particular point of view, rather than the government’s good faith desire to comply with the Constitution.

IV.
Responses to Possible Criticisms

Finally, while intermediate scrutiny has been criticized for inviting ad hoc balancing and possible judicial bias, the current private-speech-or-government-speech approach is no better at curtailing judicial discretion.  A categorical approach only limits judicial discretion if it is obvious which category applies.  That is not the case with mixed speech, which has elements of both.  In other words, balancing of interests is unavoidable in mixed speech cases.  Right now, it takes place sub rosa at the categorization stage.   Given that some kind of balancing is bound to happen, it is better that the courts be open about it, which is much more likely to happen if courts apply intermediate scrutiny.   In sum, in order to reach more nuanced and transparent results, we need to recognize a new category of speech—mixed speech.

Acknowledgments:

Copyright © 2009 New York University Law Review.

Caroline Mala Corbin is Associate Professor of Law at University of Miami School of Law.

This Legal Workshop Editorial is based on the following Article: Caroline Mala Corbin, Mixed Speech: When Speech is Both Private and Governmental, 83 N.Y.U. L. REV. 605 (2008).