Material for Professor Mike DeBow

Office:  Room 217, Robinson Hall  --  Phone: 726-2434
Secretary:  Mrs. McAlister  --  726-2774

Web site containing links specifically for this class (see Section D):
     www2.samford.edu/~medebow/courses.htm
My links page offers hundreds of web sites concerned with law, economics, politics, history:
     www2.samford.edu/~medebow/web.htm

Required text:  James D. Gwartney & Richard L. Stroup, WHAT EVERYONE SHOULD
    KNOW ABOUT ECONOMICS AND PROSPERITY (James Madison Institute, 1993).
    This is a short paperback, available in the bookstore for $8.  A webbed version of the text,
    "adapted for Canadian readers," is available at
    oldfraser.lexi.net/publications/books/econ_prosp/

October 18: Private Property & Free Contract; Corporate and Partnership Law as Implied Contracts

    *  Read the Gwartney & Stroup book prior to reading the following assignments.  I will not go
            over the book in class, but would be happy to address any questions, comments, etc., you
            have about it.

    1.  Selections from The Economist of May 25, 1996, and September 11, 1993.

    2.  Meinhard v. Salmon, 164 N.E. 545 (N.Y. 1928).

    3.  Ex parte Brown, 562 So.2d 485 (Ala. 1990).

    4.  Michael DeBow, "Oppression" of Minority Shareholders: Contract, Not Tort, Alabama
            Lawyer, March 1993, at 128.
 

October 25: Corporate Law II

    5.  Henry N. Butler, The Contractual Theory of the Corporation, George Mason U. Law
            Review, vol. 11, no. 4 (summer 1989), at 99.
 

November 1: Government Regulation, Eminent Domain & Compensation I

    6.   U.S. Constitution (especially Article I, section 8; Amendment 5; Amendment 14, section 1;
            Amendment 16).

    7.  Block v. Hirsch, 256 U.S. 135 (1921).

    8.  Village of Euclid v. Ambler Realty Co., 272 U.S. 365 (1926).
 

November 8:  Government Regulation, Eminent Domain & Compensation II

    9.  Stephen Breyer, REGULATION AND ITS REFORM (1982), pp. 15-16, 21-23, 26-35.

    10.  Michael DeBow, Markets, Government Intervention, and the Role of Information, George
            Mason U. Law Review, vol. 14, pp. 32-47 (1991).

    11.  Javins v. First National Realty Corp., 428 F.2d 1071 (D.C. Cir. 1970).

    12.  Jonathan R.T. Hughes, THE GOVERNMENTAL HABIT REDUX (1991), pp. 10-12.
 

November 15:  Government Regulation of Business -- An Historical Perspective

    13.  State ex. rel. Railroad & Warehouse Commission v. Chicago, M. & St. P. Railway, 37
            N.W. 782 (Minn. 1888).

    14.  A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935).

    15.  Walter Berns, book review, Wall St. Journal, March 16, 1995, p. A20.

    16.  Gary Lawson, The Rise and Rise of the Administrative State, Harvard Law Review, vol.
            107, p. 1231 (1994).
 

November 22:  Statutory Interpretation and Administrative Procedure

    17.  Rector, Holy Trinity Church v. United States, 143 U.S. 457 (1892).

    18.  Griffin v. Oceanic Contractors, Inc., 458 U.S. 564 (1981).

    19.  American Textile Manufacturers Institute v. Donovan,  452 U.S. 490 (1981)
 

November 29:  Cigarettes, Taxes, Torts, State AGs & Trial Lawyers

    20.  Michael DeBow,  The States vs. the Tobacco Industry: Smoke and Assorted Mirrors,
            Heartland Policy Study No. 83 (Heartland Institute, June 1997).
 

Final Examination:  Date and time TBA.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Legal and Social Environment of Business -- Samford MBA Program
Professor Mike DeBow

QUESTIONS FOR DISCUSSION
 

October 18 class meeting

    1.  In Meinhard, notice that the vote was 4 judges for the majority opinion (written by Judge Cardozo, who went on to serve on the U.S. Supreme Court from 1932 to 1938), and 3 judges for the dissenting opinion (written by Judge Andrews).  Meinhard is often cited by lawyers for its description of the "fiduciary duty" that co-venturers (or, more generally, partners in a partnership) owe one another.

    To what extent does Cardozo's opinion depend on its moralistic passages ("the punctilio of an honor the most sound," etc.) ?  Is there another way to reach Cardozo's conclusion (i.e., Meinhard wins) that avoids the open-ended "moral" that Cardozo lays down?

    Maybe another way to reach the same result is by the hypothetical bargain approach to questions of contract interpretation.  One recent explanation of this approach states:
            Socially optimal fiduciary duties approximate the bargain that investors and
            [their] agents would strike if they were able to [negotiate] at no cost.

    So, is Cardozo's answer to the question "Would Meinhard and Salmon have negotiated for the kind of loyalty I want to impose on their contract after the fact?" the correct answer?  Why or why not?
 

    2.  Were the minority shareholders in Brown mistreated in such a way that the law should come to their aid?  Is the result in Brown consistent with Meinhard?  Is Brown consistent with a hypothetical bargain approach to the rights of minority shareholders in small, "closely-held" corporations?  (Think about these questions before you read my Alabama Lawyer article!)
 

October 25 class meeting

    Professor Butler develops the idea that corporate law can be understood best by looking at it in light of the "freedom of contract" of the parties involved (i.e., stockholders and managers).  Viewed in this light, stockholders are the owners of the corporation in the sense that they have the residual claim against the corporation's net profits (and thus run the risk that the corporation will incur losses rather than earn profits).  Note particularly page 121, where Butler explains that "Most corporation laws are enabling statutes" and that "Most, if not all, of the terms [of the statutory contract between stockholders and managers] can be altered by a specific provision in the articles or bylaws."  Legal rules that apply only if the parties do not choose another rule are called default rules, in contrast to mandatory rules that must be followed (or a legal penalty incurred!).

    In the early 1990s, Professor Michael E. Porter of the Harvard Business School chaired that school's "Council on Competitiveness" which studied the U.S. economy and U.S. corporations.  In an article in the Harvard Business Review, Porter announced that the Council had concluded that
        the U.S. system of allocating investment capital both within and across companies is
        failing.  This puts American companies in a range of industries at a serious disadvantage
        in global competition and ultimately threatens the long-term growth of the U.S. economy.
To address these perceived problems, the Council made a number of recommendations for changes in U.S. laws and regulations.   In particular, one set of recommendations read as follows:
        *  Encourage board [of directors] represenation by significant customers, suppliers,
        financial advisors, employees, and community representatives.  The current trend in
        board membership has created boards populated by busy, underinformed
        [executives].  A far better approach would be to create a role on boards of directors
        for significant customrs, suppliers, investment bankers, employees, and others linked
        closely to the company and with a direct interest in its long-term prosperity.
        *  Codify long-term shareholder value rather than current stock price as the
        appropriate corporate goal.  . . . [L]ong term shareholder value should be identified
        as the explicit corporate goal.  The burden of proof should shift so that managers
        must explain any decision that is not consistent with long-term shareholder value.
        [Emphasis in original.]

    What do you think about these proposals?  If you owned shares in corporations that were incorporated in states considering the adoption of Porter's recommendations, would you favor or oppose their adoption?  Would it matter whether Porter's new rules were written as mandatory or default rules?
 

November 1 class meeting

    Before reading the cases, please read the Constitution, in its entirety, twice.  Pay special attention to the sections shown on the assignment sheet.  Then read Block, then Village of Euclid.

    1.  What exactly is the Constitutional problem with the statute under attack in Block?  With the ordinanance under attack in Village of Euclid?

    2.  These two cases are early approvals of government regulation of the use of private property.  Pay close attention to the justifications offered in defense of government's decision to regulate private property.  What are the justifications, exactly?  Do they make sense?  Perhaps most importantly, what would the world look like without the regulations under review in these cases?
 

November 8 class meeting

    The excerpt from the Breyer book gives the standard justifications given for government regulation of business -- including most prominently the types of "market failure" which many economists argue furnish reasonable grounds for government intervention in the economy.  My article gives the other side of this coin -- namely, the types of "government failure" which may argue for non-intervention (or, as the French put it, "laissez-faire").

    The single sheet excerpted from Professor Hughes's book summarizes some of the most important findings of scholars who have attempted to apply economic reasoning to politics and government -- a field of study known as public choice theory.

    1.  What economic reasons does Judge Wright give in Javins for reading a new term into every residential lease in the District of Columbia?  What do you think of his reasoning?  Think of the ways in which tenants may be benefitted by this ruling, and then think of the ways in which they may be harmed.  On balance, which do you think is greater -- the benefits or the costs?

    2.  Can your analysis of the Javins decision be applied to so-called "consumer protection" statutes generally?  Think about "lemon laws," which allow the buyer of a defective automobile to return the vehicle and get a refund or another car -- do they, on balance help or hurt consumers?

    3.  As a general matter, are courts in a better position than the legislature to make such regulatory changes in the law?  Why?
 
 
 

November 15 class meeting

    1.  The Minnesota decision raises a number of questions about economic (or price-and-entry) regulation.  The statute in question allows only railroad rates that are "equal and reasonable."  What does this mean?  Did the legislature "make the law" to be applied by the agency, or is the agency the one to "make the law" each time it issues an opinion as to a filed rate?  How does the state regulatory agency "know" how much to allow each railroad to charge?  Of what relevance to the agency's decision is a given railroad's profitability?

    2.  The Schechter decision is a landmark case -- it represents the only instance in modern American history in which the Supreme Court struck down a federal regulatory statute on the Constitutional ground that it gave away ("delegated") too much of Congress's legislative power (which it holds under Article I) to another part of the government.  Only two years after it was announced, the decision was a dead letter.  Why?  The book review by Walter Berns helps us understand the impact of the "Revolution of 1937" on federal regulatory authority.  Do you agree with Berns that Justice Roberts was probably "right to change sides"?  Why?  Federalist No. 25, from which Berns quotes, is available on-line at avalon.law.yale.edu/18th_century/fed25.asp

    3.  Professor Lawson's article examines what happened to the U.S. Constitution and to "administrative law" as a result of the expansion of federal authority since, roughly, 1937.  I've decided not to burden you with the footnotes to this article.  (Of course, if you're interested, I'd be happy to provide them.)
    Your question:  Is there any way out of this?  (And: Does the answer to this question matter?)
 

November 22 class meeting

    1.  Holy Trinity Church is often cited by lawyers who want a court to do something other than read the language of a statute and apply it "literally."  What do you think of this?

    2.  Is the outcome in Griffin "absurd"?  If you were a judge, would that be enough to convince you that Congress did not "intend" the statute it wrote to be read in that way?

    3.  The "cotton dust" case deals with an instance of social (or health-and-safety) regulation.  (As a general rule, legislative expansions of government regulatory power are more likely today in areas of "social regulation" than in areas of "economic regulation.")  The case allows us to discuss various aspects of administrative law -- that is, the procedures that government agencies must follow in issuing new regulations and enforcing them.  It also provides a good vehicle for discussing cost-benefit analysis in health-and-safety regulations.  What do you think of the Court's discussion of the cost-benefit issue here?  Was Congress clear about whether it wants OSHA to use cost-benefit analysis in considering whether to issue a new regulation?  Are workers "better off" as a result of the proposed regulation?  Shareholders?  Consumers?  Other third-parties?
 

November 29 class meeting

    The legal crusade against the cigarette companies recently undertaken by 40-plus state attorneys general is, to my mind, the most interesting episode in American law in a very long time.  Rather than summarize here the points I try to make in my article, I'll simply invite you to critique my analysis, and be prepared to add your own observations on the issue.