24 January 2020

Two Visiting Professor Slots at Campbell Law

Property Visiting Professor
CAMPBELL UNIVERSITY SCHOOL OF LAW invites applications for a Visiting Faculty Position to begin on or about August 14, 2020 and end on or about May 14, 2021, teaching property law, wills/trusts, and related upper-level courses. The position will be a temporary, full-time, two-semester, non-tenure track appointment. All applicants should have excellent academic credentials and demonstrated skill in teaching and mentoring students. We welcome applications from candidates whose background will contribute to excellence through institutional diversity. Cover letters must explain how the candidate is able and willing to support the distinctives set forth below.

Located in downtown Raleigh, North Carolina, Campbell University School of Law is a highly demanding, purposely small community of faculty and students whose aim, guided by transcendent values, is to develop lawyers who possess moral conviction, social compassion and professional competence, and who view the practice of law as a calling to serve others and to create a more just society. To that end, the law school has adopted the following distinctives: (1) we offer an academic program that is highly demanding; (2) we bring together the theoretical and practical to produce thoughtful and talented lawyers; (3) we utilize the talents of a faculty that is profoundly committed to students and teaching; (4) we view the practice of law as a calling to serve others; and (5) we offer a Christian perspective on law and justice.

LRW Visiting Professor
CAMPBELL UNIVERSITY SCHOOL OF LAW invites applications for a Visiting LRW Professor position, from July 2020 to May 2021, teaching two sections each of Legal Research and Writing I and II. LRW faculty provide students with continuous feedback on their legal writing through individual meetings and ample written critique on finished work. LRW faculty collaborate with the LRW Director to prepare problems, assignments, and in-class exercises for a uniform curriculum. Faculty may enhance the core curriculum through topics of their choice, with the approval of the Director. The position will be a temporary, full-time, two-semester, non-tenure track appointment.  We seek candidates with excellent academic credentials, demonstrated skill in teaching and mentoring students, and some experience in law practice or a judicial clerkship. We welcome applications from candidates whose background will contribute to excellence through institutional diversity.   

Located in downtown Raleigh, North Carolina, Campbell University School of Law is a highly demanding, purposely small community of faculty and students whose aim, guided by transcendent values, is to develop lawyers who possess moral conviction, social compassion and professional competence, and who view the practice of law as a calling to serve others and to create a more just society. To that end, the law school has adopted the following distinctives: (1) we offer an academic program that is highly demanding; (2) we bring together the theoretical and practical to produce thoughtful and talented lawyers; (3) we utilize the talents of a faculty that is profoundly committed to students and teaching; (4) we view the practice of law as a calling to serve others; and (5) we offer a Christian perspective on law and justice.

Cover letters must explain how the candidate is able and willing to support our distinctives. Direct questions to Professor Susan Thrower at thrower@campbell.edu. Apply online at https://chp.tbe.taleo.net/chp01/ats/careers/v2/viewRequisition?org=CAMPUNIV&cws=37&rid=2075 

07 January 2020

A Real Corporations Scholar Looks at Corporations

I've taken a couple of stabs at articulating the nature of corporate personhood and corporate purpose. What's a Corporation Good For, A Real Aristotelian Looks at Corporations, and most recently, The Modern Business Corporation: A Source of Structural Injustice? All good enough in their own ways but I strongly urge my readers to go here to download Christianity and Corporate Purpose by Stephen Bainbridge.

Christianity and Corporate Purpose is a chapter in the soon-to-be published book "Christianity and Private Law." You can read about my contribution here.

Bainbridge begins where I left off here. In other words,
It is consistent with the Christian world view to insist that a realistic social order must be designed around principles that fall short of Christian ideals. In particular, the rules must not be defined in ways that effectively require every citizen to be a practicing Christian. Christian visions of Justice therefore cannot determine the rules of economic order. Instead, legal rules and predictions about human behavior must assume the fallen state of Man 
Why not aim a bit higher when it comes to corporate social purpose? 
The law declines to assume that directors and managers are angels. The law thus recognizes the legal regime “must be based on a certain realism about human beings and, therefore, on a theory of sin and a praxis for dealing with it.” Here, the sin in question is that of self-interest. While corporate social responsibility empowers honest directors to act in the best interests of all the corporation’s constituents, it also empowers dishonest directors to pursue their own self-interest. There is a very real risk that directors and managers given discretion to consider interests other than shareholder wealth maximization will use stakeholder interests as a cloak for actions taken to advance their own selfish interests. 
Even so, is there no moral content in the corporate form? Are corporation only tools and are shareholders the only ones who possess moral agency? Bainbridge seems to say yes yet this raises the question of whether, if at all, corporations can be the subject of criminal prosecution. .

I would also like to have seen Bainbridge address the more fundamental Catholic critique of modern commercial life articulated by trad cath writer Brian McCall in "To Build the City of God: Living as Catholics in a Secular Age". While McCall does not address the corporate form as such, he stands against the separation of ownership and control and the decoupling of moral analysis from the economic framework in which wealth is created. The modern business corporation could not function without such a separation. All sorts of arguments are made in favor of this separation--it promotes specialization, increases risk-taking, and enhances the universe of private goods. But none of these satisfy McCall because the fundamental moral unity of human action (no corporations-as-tools for him) and the primacy of the common good trump utilitarian calculations. In short, Bainbridge (and me, for that matter) are basically (classical) liberals. And liberalism at its best, from McCall's perspective, is an illegitimate stepchild of Christendom.

Nothing in the criticisms above suggests I have anything better to offer. In other words, Bainbridge's argument is careful, winsome, and compelling. His is the best I've seen.

17 December 2019

More on Death and Respect for the Dead

Perhaps second only to student loans have been my posts about death and respect for the remains of of those who are no longer living among us. The Communion of the Saints and A Brief Postscript on the Place of the Dead are two among them. Meditation on death and dying is certainly appropriate in this season of Advent.

But this post serves primarily to send readers to Why We Need an Interfaith Gravedigger's Guild. J. Arthur Bloom observes that "Today if you die on the streets of Washington, DC, and nobody comes to pick you up, you will be turned over to a private contractor for cremation." This might not be so bad--after all, it saves taxpayers' money--except that the private contractor has failed to mark the graves. Sure, no one claimed the body but someday someone might be interested in paying a little respect.

As the title of Bloom's piece suggests, his solution is an interfaith (Christian, Jewish, and Islamic) charitable entity that could "could, with some lobbying, secure the contract from the city and give the indigent dead a decent burial." Bloom goes on to list several common-good reasons why this endeavor would serve a public purpose but for those you'll have to read it yourself.

10 December 2019

Scorsese's Inferno

I finished watching the three-and-a-half hour Netflix feature film  The Irishman the other evening. I have tried to steer clear of reviews but I noted--and agree with--those who stated the film was a bit too long. Finding 30 minutes to cut should have been relatively easy. Cutting much more than 30 minutes, however, would have eviscerated the step-by-step descent into Hell of the leading characters.

The Irishman was in all cinematic respects well done. Notwithstanding the latest anti-aging computer technology, Robert De Niro (a fictionalized version of  the historical (but historically unreliable) Frank Sheeran) and Joe Pesci (as the somewhat-more-historical accurate Russell Bufalino) are a bit old to play their younger selves over the course of the twenty years of the film 's long and sustained flash-back. Yet watching their performances as soul-mortifying Mafiosi was riveting. Al Pacino's Jimmy Hoffa--by turns bombastic and mournful--was superb.

So what's the movie about? There are plenty of plot summaries on the internet but in the morning one insight struck me--The Irishman is Scorsese's version of Dante's Inferno. In the ever-downward moral cycles of Sheeran and Bufalino, Scorsese--our Virgil--portrays the overwhelming power of sin unchecked by grace. Following Dante's path, Scorsese provides a hint of Purgatorio when, in the final scenes, Sheeran follows a priest in prayer but seems unable even to comprehend contrition. Still, even near the end of Sheeran's unrepentant life, Scorsese leaves open the door--literally and figuratively--for Sheeran's redemption but stops well short of Paradisio.

Make no mistake,The Irishman is a deeply spiritual and ultimately ambiguous film. A Catholic First Reformed in many respects. Highly recommended to those who are spiritually inclined but inured to a level of unrelenting hardness of life and language.

19 November 2019

Virtuous Pluralism in a Vicious Age

You may recall that some time ago in Contract Law Pluralism: Incorrect, Incoherent or True? I concluded that Jodi Kraus and Robert Scott failed to make the case they argued in The Case Against Equity in American Contract Law (download here). They had claimed that only contract law rules consistent with advancing personal sovereignty were consistent with the internal dynamic of the historical development of the common law. You can read their article and my post linked above and reach your own conclusion.

Even if I'm right that Kraus and Scott are wrong, that the rules of contract law should find warrant apart from increasing personal sovereignty, exactly how can another perspective be effectively deployed to support or critique the rules we see? (And by another perspective on the rules of contract law I mean the perspective of virtue.)

Virtue--human character aimed toward the ultimate human end (purpose, goal, telos)--was part and parcel of ethical analysis for much of Western history. I won't take time to argue the point but the genius of the Western tradition was its synthesis of Greek ethical philosophy and Roman law under the aegis of the Christian faith. Shorn of Greek pretensions and then grounded in the Christian doctrines of creation of an orderly natural world and human beings with the power to know and do the Good, recognition of the range of effects of humanity's fall into sin, plus God's two-stage restoration of all things in the person of Jesus Christ, virtue occupied a first place in Western ethical thought. Fine for ethics but what about legal thought?

As I explain at some length in my book chapter "Revisiting Unconscionability: Reciprocity and Justice", the virtue of commutative justice was long-embedded in the Western tradition of contract law. In short, from the twelfth century onward, judges on the Continent (and in the Church courts) would not enforce a contract to sell something for less than half its market price or to buy something for more than twice its value.

In Merrie Old England, however, judges almost never intervened. But that reticence didn't mean that unjust contracts were strictly enforced. Instead, juries were instructed to "‘Do that which God shall put in your minds to the discharge of your consciences." The consciences of jurors, at least those who paid attention to their priests (and pastors), would have known that contracts were framed by justice. Justice trumped personal sovereignty. In other words, jurors would (or at least should) have believed that their consciences were bound to do justice regardless of what a contract may have provided.

All well and good when contracts were relatively simple and the nature of injustice was limited to gross over- or under-payment. Your average English juror would have had a good sense of what, say, a horse, was worth and would award damages appropriately. But what about nowadays when most online contracts would run for ten or more pages if printed? And what juror could be expected to know whether a particular over-the-counter derivatives contract is just?

As I explained in connection with corporate law here (but also here) (and here in connection with criminal law), the complexity of modern life makes it nearly impossible to balance the terms of sophisticated contracts against the norm of justice.

And as if the complexity problem isn't enough, what about institutional capacity? Even if a judge actually understands a several-hundred page debenture for second-lien subordinated debt, what are the chances the same judge has a well-formed conscience when it comes to the canons of commutative justice? And jurors? Well, I'd probably trust the consciences most juries over most judges but then again maybe not. To the extent consciences are the object of formal education today that formation is more likely to be in terms of Wokeness than Justice.

So where does that leave me? 1. Kraus and Scott are still wrong; the Grundnorm of contracts is not personal sovereignty. 2. Contract law is cabined by Justice. The consciences of contract parties (and their lawyers) should cause them to refrain from/take part in transactions in terms of commutative justice.

Then, taking into account practical wisdom: 3. In simple transactions where a party pleads that a price is sufficiently imbalanced as to violate commutative justice, we should trust the consciences of jurors to return a verdict for the just price. 4. In more complex transactions, at least those to which ordinary persons are a party, legislative/regulatory bodies may act to limit non-salient ancillary terms that tend toward injustice. 5. In complex transactions, especially between non-human entities, Kraus and Scott are ultimately correct, courts ex post should respect the parties' ex ante allocation of rights, powers, duties, risks, and even remedies. Whether such contracts are unjust will be left to a higher authority.

05 November 2019

Contract Law Pluralism: Incoherent, Incorrect or True?

Without mentioning me by name, contract law scholars Robert Scott and Jodi Kraus provide an account of why pluralist conceptions of the law of contracts--like mine-- are wrong as a matter of historical interpretation and inconsistent with the only true account of contract law.

(For my pluralistic accounts of contract law you can read Principled Pluralism and Contract Remedies (here) or Mission Possible: A Paradigm for Analysis of Contractual Possibility (here). For shorter pluralistic observations read my blogging trilogy of The Aesthetics (!) of Contract Theory posts here, here, and here.)

Scott and Kraus explain why they believe pluralistic accounts such as mine (actually, they  cite only a few academics who take a pluralistic perspective, a troubling omission) are balderdash in The Case Against Equity in American Contract Law (download here). Quoting their abstract in full:
The American common law of contracts appears to direct courts to decide contract disputes by considering two opposing points of view: the ex ante perspective of the parties’ intent at the time of formation, and the ex post perspective of justice and fairness to the parties at the time of adjudication. Despite the black letter authority for both perspectives, the ex post perspective cannot withstand scrutiny. Contract doctrines taking the ex post perspective — such as the penalty, just compensation and forfeiture doctrines — were created by equity in the early common law to police against abuses of the then prevalent penal bond. However, when the industrial revolution pushed courts to accommodate fully executory agreements, and parties abandoned the use of penal bonds, the exclusively ex ante focus of the new contract law that emerged rendered the ex post doctrines obsolete. While intended initially to do justice between the parties, if used today these doctrines perversely and unjustly deny parties contractual rights that were bargained for in a free and fair agreement. Yet judges continue to recognize the ex post doctrines, even as they struggle to reconcile them with respect for the parties’ intent. Although infrequently applied, the ex post doctrines are far from dead letter. The penumbra of uncertainty they cast over contract adjudication continues to undermine contracting parties’ personal sovereignty. The only case for continuing to recognize these equitable interventions, therefore, must turn on whether they serve a new valid purpose. We consider and reject the possible purposes of paternalism and anti-opportunism suggested by contemporary pluralist scholars. In our view, the criteria governing theories of legal interpretation support the interpretation of contract law as exclusively serving personal sovereignty rather than any pluralist interpretation. Under its best interpretation, contract law has no place for the ex post perspective. (Emphasis added.)
In short--very short-- Kraus and Scott argue that only personal sovereignty (their revision of the more common turn of phrase, personal autonomy) provides the "fit" for the majority of existing rules of contract law and, therefore, outlying rules are erroneous. Their argument is stronger than my brief comments might suggest. They do not engage in hand-waving denunciations but make an historical and theoretical argument for their conclusion. But ...

They fail to persuade me. First, Kraus and Scott stand solidly in the modern liberal tradition. That is, they do not indicate any belief (at least any belief that is admissible in public discourse) that there may be norms that cabin personal sovereignty. In other words, they don't seem to believe in Justice or the virtues of which justice is a prime example.. As they explain in an aside in a footnote:
Legal prohibition of victimless crimes constitutes a form of legal moralism, which condones legislation that restricts individual liberty in order to vindicate a socially designated conception of the good. If the public policy doctrine refuses to enforce agreements because they further a purpose deemed immoral according to a designated social conception of the good, the doctrine is incompatible with respect for individual autonomy.
("Victimless crimes" for Kraus and Scott are no more than examples of "socially designated conceptions of the good." Belief that there may actually be extra-social Good doesn't cross their minds. Of course, belief in the Good nowadays is largely reserved to the intellectual backwaters. It is rarely advanced in mainstream legal academia.)

Second, and equally telling, Scott and Kraus fail to interact with the leading academic proponents of contract law pluralism. Included among such academics are Omri Ben-Zivi, Robin Bradley Kar, and Roy Kreitner. There are others such as Nate Oman (most recently here) and me, but Kraus and Scott engage meaningful only with Theodore Eisenberg. They would be more persuasive had they taken on the best in the field.

Third, while claiming to ground their valorization of personal sovereignty in the history of the common law, Kraus and Scott are actually reading a 20th century ideology into the earlier common law. The common law was (and to a lesser extent still is) an historical tradition (adversions here). Until the nineteenth century the common law did not instantiate any ideology; it was a form of practical reasoning. As philosopher Gerald Postema recently explained in an interview (here),
The classical common law view was that, fundamentally, law is not a set of rules, but rather a discipline of practical reasoning—a public discipline, or a discipline of public practical reasoning.
So these considerations—the common or public nature of some practical reasoning, especially that associated with social rules and the fundamentally discursive nature of law—forced me to think more broadly and to give up the idea that we could explain the normative foundations of law using the coordination game model. I undertook to look more broadly at customs or social norm as rules of a community in which their social character of is intrinsic to the kind of rules they are. (Emphasis added.)
In addition, I believe that my book chapter "Revisiting Unconscionability: Reciprocity and Justice" (download here) demonstrates that the effort of Scott and Kraus to cabin the origins of ex-post contract rules to the English courts of equity is simply wrong.

Finally, Kraus and Scott sorta' kinda' admit that pluralism might actually provide a better fit if one takes into account all extant rules of contract law. Yet, that's still no reason to accept a pluralistic account because, according to them:
Pluralism’s superior fit with contract law does not provide a reason to prefer it over the personal sovereignty interpretation. This is because pluralism lacks the theoretical resources needed to identify as invalid one among multiple doctrines that may comprise contract law.
This assertion would be true but only if we begin with the conclusion that the single perspective that explains more of the rules than any other perspective is presumptively the one and only correct perspective. Why, one might ask, is the burden of proof on the pluralist? In yet other words, who made "personal sovereignty" king and other perspectives (such as virtue theory) outlaws and rebels?

In short, Kraus and Scott's Case Against Equity founders for multiple reasons. It assumes its conclusion from the start, fails to engage the best of its academic opponents, reads the history of the common law simplistically, and takes for granted a unitary perspective on ethics.

Even so--even though personal sovereignty may not be the summum bonum of contract law--exactly what place does (or should) virtue play in contract law today? Some thoughts about the practical challenge of pluralism in a few days.

23 October 2019

Back to the Future of the Law of Restitution

Some long-time readers  my recall my posts here and here on the (then) new Restatement Third Restitution and Unjust Enrichment. I went on to publish an article about what I thought would be the useful impact of the R3RUE in bankruptcy: Third Time's the Charm: The Coming Impact of the R3RUE in Bankruptcy (download here or here).

Even though my article did not examine the history and place of the law of restitution in the common law of America, I nonetheless wish that I had read Chaim Saiman's piece, Restitution in America: Why the US Refuses to Join the Global Restitution Party (download here) before I wrote mine. Quoting from Saiman's abstract:
In the past generation, restitution law has emerged as a global phenomenon. From its Oxbridge home, restitution migrated to the rest of the Commonwealth, and ongoing Europeanization projects have brought the common law of restitution into contact with the Romanist concept of unjust enrichment, further internationalizing this movement. In contrast, in the United States, scholarly interest in restitution, in terms of books, articles, treatises, symposia and courses on restitution, is meager. ... I argue that the Commonwealth restitution discourse is largely a product of pre- or anti-realist legal thought which generates scepticism within the American academic-legal establishment. The article identifies the two dominant camps in American private law thought—left-leaning redistributionalists and the centre-right legal economists—and shows that neither has any use for the Commonwealth’s discourse. (Emphasis added.)
Just so (the italicized portion). The article is worth reading in its entirety but I can confirm that the pervasive legal "realism" that passes for deep insight in US law schools found little traction when I have taught in India, a Commonwealth nation. Most of the world apart from the US legal academy believes there are transcendent principles of justice that (should) norm both the substantive law and practice of judging. Alternatively, non-American academics believe that it is possible to find within the acts of judgment a consistent analytic framework. In other words, most legal scholars in the rest of the world believe that the law is something more than a judge's predilections.

Read Saiman's article for yourself and see if you concur with his evaluation.

24 September 2019

Design Thinking: The New Enneagram?

Warning: Tongue-in-cheek. Mostly. 

What do everyone's favorite tool for self-understanding and the latest mantra for lawyers have in common? Not much unless faddishness counts for something.

While neither the Enneagram nor Design Thinking are trademarked, both are hot topics of discussion in certain circles. Workshops and websites about each abound. You can go to Wikipedia for useful descriptions of each but friend Chuck DeGroat's post here and the recent issue of The Wisconsin Lawyer got me to thinking about what the two have in common.

Chuck, who actually knows something about the Enneagram and uses it professionally, has recently seen himself transition from "enthusiastic to cautious" because the Enneagram has become such a popular tool it has become faddish. With that excitement, Chuck suspects, it will pass away when the next fad comes along. Which is a good thing as far as he's concerned. The Enneagram finds its home in the domain of spiritual formation, not the Twitterverse.

The same short shelf-life will probably true of design thinking although "design thinkers," at least its demotic ones, probably don't know it yet. Consider the following from "Legal Design Thinking" from the September 2019 issue of The Wisconsin Lawyer:
"What is design thinking? you might ask. Simply put, legal design thinking is an innovative problem-solving methodology being taught at leading U.S. law schools.
Where to start? How about answering a what question with a where. Or using "methodology" in place of "method." 

But let's persevere:
Essentially, it is a human-centered approach that identifies a client's needs, then designs a custom solution to achieve the most favorable outcome.
Human-centered as opposed to ...? And a custom solution ... who's paying for that?

Am I only a curmudgeon? Let's see:
Legal design thinking is relationship oriented, meaning that the lawyer approaches the problem from the participants' viewpoint instead of making assumptions about what the problem might be.
Perhaps I was ahead of my time but I regularly (always?) approached problems from my client's viewpoint. Usually the problem was damn clear: someone had not paid what my client believed was owed or my client wanted me to draft a contract to implement a deal. I guess I didn't know that I should have 
involved collaboration with professionals who had diverse skill sets [so we could] redesign a process, leverage existing technology differently, or design new technology.
And it only gets worse. 

I'm sure that someone, somewhere can make sense of "design thinking for lawyers" but they better do so quickly or we'll be on to the next fad before anyone figures out what the old one really meant.

19 September 2019

The Modern Business Corporation: A Source of Structural Injustice?

From the early days of the Western legal tradition, the classical notions of distributive and corrective justice played a foundational role. The Christian synthesis of distributive and corrective justice was grounded and explicated in terms of natural law, a web of interlocking rights and duties grounded in humanity's social nature and directed toward the end of fellowship with God.
The place of distributive justice in understanding law began to wane, however, in the early 17th century with the writings of Hugo Grotius (here) culminating, in the Anglo-American tradition anyway, with John Locke's purely contractarian vision of public life (here). Protection of life, liberty, and property--and no (or little) more--was the floor and ceiling of the law. Natural rights came to the fore while natural law found itself shunted into an antiquarian academic closet (here).
The contractarian view of social and political life came to dominate during the Enlightenment. Only in the nineteenth century was political life readjusted but by creating ever more "rights" out of thin air instead of a return to a tradition in which both duties and rights had their place in a well-ordered society. Ever more interests have found recognition as social and political rights, and appeals to distributive justice are at most a smokescreen for contemporary rights advocates. (You can read my full argument in Looking for Bedrock: Accounting for Human Rights in Classical Liberalism, Modern Secularism, and the Christian Tradition here.)
But the 19th century saw another very important tweak to the Lockean trilogy: the rise of the general purpose business corporation. Until the middle of the 1800s, the power to create an artificial person was reserved to state legislatures, who would vote to charter a corporation only if it was to serve some public good. Or at least that was the theory. In grimy politics of the day, legislators were persuaded to vote to issue a charter for more venal reasons, most of them pecuniary.
And what was the most distinctive feature of the business corporation? The creation of a wall of separation between claims that could be asserted against it and its property and the assets of its shareholders. In brief, limited liability. 
Sophisticated parties who contracted with a corporation would take this phenomenon into account. They can adjust the price charged for goods or services commensurate with the risk that the corporation's assets might be insufficient to pay all its debts. Or, they might ask individual shareholders to guarantee their corporation's debts. Unsophisticated or involuntary creditors--for example, employees or those injured by a corporation's acts--did not or could not adjust the "price" of their potential claims. An example of structural distributive injustice? Perhaps, but such a concern had long since fallen from public consideration.
Yet--and here's the rub--even with the creation of many new artificial persons the purpose of the law was still the same: protection of life, liberty, and property. One the one hand, the plentitude of general purpose corporations increased the number of natural-rights bearers. On the other hand, the fact that corporations might deprive some natural persons of life and property without compensation was perceived as a small bug that did not send the system back to its roots.
You can read Adam Levitin's post Private Equity's Abuse of Limited Liability here. I recommend that you read it in full to understand his argument in favor of Elizabeth Warren's proposed solution to a contemporary problem:
The premise of the bill is that private equity firms have abused limited liability to engage in excessive risk-taking at the expense of American workers and communities, as limited liability creates a lopsided investment risk: all of the upside, but only limited downside.
Now, that is the case whenever one buys corporate stock ..., but private equity firms have taken this to a new level by combining limited liability with extreme leverage. First, there is the leverage in the acquisition of the target company—the private equity fund might put in only 20-40% of the acquisition price, with the rest borrowed by the target company itself and secured by the target company’s assets. But then there is additional leverage in the structure of the private equity fund. The private equity firm itself contributes only a small amount of the capital to the fund, but gets a much larger slice of the return. This extreme leverage, when combined with (1) limited liability and (2) corporate control produces an incentive for private equity firms to saddle target companies with extremely high and often unsustainable debt burdens.
Nothing Levitin writes is untrue. As I've argued above, limited liability is a legal subsidy that can facilitate injustice, and extremely high-leverage corporate acquisitions are the tip of the spear of potential distributive injustice. But why eliminate the benefit of the corporate shield only for some investors? What moral standard accounts for sticking it to the principals of private equity firms and not, say, me (who owns shares of corporate stock through mutual fund investments)?
Anticipating such a question Levitin goes on to explain that
This is a totally different situation from when I invest in IBM. First, I usually have to pay full freight for my IBM stock. I don’t get it at 20-40¢ on the dollar. Even if I buy on margin, I’m still going to pay at least 50¢ on the dollar, and likely far more. Second, when I buy the IBM stock, I don’t get the extra leverage that exists from the private equity GP structure.Third, my acquisition of IBM stock is not inherently connected with IBM taking on massive debt itself. And fourth, I don’t have control over IBM, such that I’m not able to loot the company or starve it of R&D resources or reinvestment to pay the LBO debt, etc.
Okay, I'm not as bad as "the other" who multiplies her profits through multiple corporate leverages, but is that enough to make me innocent of the benefits that accrue to me as an investor in forms of structural distributive injustice? I may not be as evil as Hitler but I'm sure not blameless.
In other words, is there a moral justification for a form of legal existence that--by virtue of the legal attributes of that form--creates the potential for structural injustice? If so, what might that justification be?
A couple of thoughts. First, no one should expect that the law will conform to perfect justice. That injustice goes unredressed by the legal system is to be expected in a fallen world. Even so, one might respond, the law should not create a legal form that enhances the likelihood of distributive injustice. Moving on ...
Second: rule utilitarianism. The standard account proffered to justify corporate limited liability is that it increases net social utility. Sure, some creditors cannot adjust prices to corporate parties to account for limited liability but many of us can and collectively the rest of us get much more in return. Individuals are generally risk-averse but the corporate form increases risk-taking and thus contributes to the social good by subsidizing business activity. Business activity, in turn, creates employment for some and goods for all. Levitin doesn't buy this argument: 
Limited liability is a relic of the underdeveloped financial markets of the Gilded Age and operates as an implicit form of leverage provided by law. But it’s hardly either economically efficient or necessary for modern business activity. It's a fairly recent development in the western world, there are numerous exceptions to it, and a number of notable firms have prospered without it. 
For what's it worth, I can't buy Levitin's rejection of the utilitarian argument for limited liability if only because there's no way to test it. When it comes to the costs of distributive injustice vs. the benefits of limited liability, one hunch is as good as another.
Third: limited liability is part and parcel of late-modern political life. Business activity provides all of us with an endless stream of tchotchkes to distract us from considering the Goods of life. In other words, non-teleological political liberalism depends on maintaining a non-teleological economy. Political post-liberalism and some pre-liberal religious approaches to political life find themselves allied against the liberal order but it's not going away soon.
Last: it doesn't much matter. As one who did commercial collections in the early days of my practice, I can say with some confidence that it is very difficult to compel payment from a recalcitrant judgment debtor. With tools such as tenancies by the entireties, exemptions for pensions and retirement accounts, "protection" provided by friendly secured creditors, the ability to self-settle spendthrift trusts, and the use of off-shore private banking, any smart (and rich) individual who hires a good lawyer can shield his most of assets from most of his creditors. 
As for me, call me morally lazy but I am willing to tolerate the distributive injustice enabled by corporate liability. In other words, I oppose Senator Warren's proposed solution to the problems created by hyper-leverage. The injustices practiced by some private equity firms are real but the proposed cure both under-reaches the fundamental structural problem of limited liability, and exposes even good-faith shareholders to the risk of eventually losing their corporate shields for political reasons. An example of the latter concern: many already would argue that shareholders of a corporation that, say, practices any form of private discrimination (bakers and photographers come to mind) or one that sells guns should not be "subsidized" by the corporate form. Those who earnestly believe they are on the right side of history may be willing to eliminate the benefit of limited liability for those who are blind to the truth. Frankly, I'm willing to tolerate the lesser injustices created by private equity to the potential of pervasively greater injustices to the politically vulnerable.
Of course, I need to remember this warning:
Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal.  For where your treasure is, there your heart will be also. ...  No one can serve two masters, for either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve God and money. 
Sadly, making money is the final cause most modern corporations. While it need not be profit ΓΌber Alles, the fact remains it is for most. Yet, as crucial as Jesus' warning is, abolishing or reducing corporate limited liability is unlikely to persuade anyone to take it to heart.

28 August 2019

"Blinded by the Light"

Only a few weeks after watching the Beatles-themed Yesterday, several of us went went to see Blinded by the Light featuring the music of Bruce Springsteen. Like the Beatles's songbook, music of The Boss functions like a narrator in Blinded by the Light. Yet more than we saw in Yesterday, Springsteen's oeuvre captures the heart of young Javed (played by Viveik Kalra) as he navigates life as a second-generation Pakistani in 1980s working class England.

Decades earlier Javed's father and mother, Malik and Noor, emigrated from Pakistan as a young couple and now live with their three children in Luton, a small city in southeastern England. Malik's goal is to maintain a traditional Pakistani patriarchal family in an increasingly egalitarian England. His father's goal for Javed is upward financial mobility and for his two daughters a good match made by dad and mom. All the while Malik and Javed endure daily humiliations from the young members of the National Front who live in their neighborhood.

Upon entering high school, Javed's desire to write is encouraged by his teacher, to the great consternation of his father. Without friends, until he meets Roops, a Sikh and only other South Asian in the school, who introduces him to the music of Bruce Springsteen, Javed seems destined for a crushed will or an explosive blow up. Javed finds in the working-class music of Springsteen a voice through which he channels his inner and outer conflicts into writing that eventually lands him a scholarship at university.

Loosely based on the life of Sarfraz Manzoor, Blinded by the Light features plenty of situational humor, personal humiliations, and an ultimate triumph including reconciliation. It is regrettably marred by the one-dimensional, poster-board characterization of the Tory parents of Javed's girlfriend. I found even that forgivable, however, because of the careful interweaving of Springsteen songs into the foreground of the film. It even encouraged me to listen to my Springsteen albums at home.
I was also interested to see how the manner of dress of Pakistani Muslims was more similar to Indian Hindus than to the Arab Muslims of the Middle East. 

In any event, catch it while you can.

27 August 2019

Lurking in the Shadows

I left off posting about Chapter 9 municipal bankruptcy with a warning here that deep structural reasons account for the phenomenon of "debt-overhang" that dooms many American cities to an upcoming stay in financial purgatory. (And their immobile taxpayer-citizens to years of municipal hell.)

You can read a short post about "debt-overhang" here.

So what's new? Well, nothing really, except that my warnings here and here about the parlous situation of the City of Chicago have been clarified and amplified by a Windy City insider. You can go here to read "Dichotomy, Demographic Transformation, Urban Renaissance & Bankruptcy" published in the well-respected Data Analytics Illinois.

This is not drive-by shooting. It is a painstaking account of where Chicago stands. In short,
As the state’s economic engine, Chicago’s pension problems demand a fix beyond short term strategies that compound the longer-term problem. After decades of corruption and mismanagement, officials cannot tax or borrow their way out of the fiscal crisis.
But, unlike much of what we read on the internet, this conclusion is supported by careful analysis and posits a solution. The solution is too long and carefully laid out to summarize in this post so I commend the entire piece to the attention of my readers, especially those who live in Illinois. (Of course, there are other American cities in a similar boat that don't have the potential of Chicago to work their way out of it so beware if you live in a number of cities in California and Connecticut.)

22 August 2019


A few days ago the New York Times reported here that President Trump is considering tax cuts to spur the economy. It seems unlike that further reductions in the marginal income rates or even cuts to taxes on capital gains would make much difference to an economy that's chugging along rather well. Cuts to the so-called "payroll tax" were reported to be on the table  Another report here says they're not being considered. Only time (and Twitter) will tell.

"Payroll taxes" are a euphemism (or better, Orwellian doublespeak) for worker contributions to Social Security. The most recent occasion for cutting what is needed to keep Social Security afloat was by President Obama in the early years of this decade. I wonder what our current president had to say about that move?

In any event, you can read what I said about it here. I fully stand by what I wrote then:
The Internet and the chattering political class are all in an uproar about yesterday's agreement by the House Republican caucus to a two-month extension of reduction in what the media persists in euphemistically calling the "payroll tax." Here's today's New York Times report. Perhaps only once have I heard any news report on television or radio tell the audience what this tax funds: Social Security (and Medicare).
Republicans have been spewing venom since the election of President Obama about the $14 trillion U.S. deficit. That's chump change. The unfunded benefits of Social Security are projected to exceed $50 trillion. The federal government is already borrowing money to pay benefits (read a good account here). And we're cutting the tax that is already not high enough to cover the costs? I understand why politicians don't want the sheep-like American electorate to understand the "payroll tax" shell game but what explains the media's silence?
The so-called Social Security trust fund (my previous comments about the "no-trust fund" here and here) will expend its surplus (currently invested in US Treasury obligations) around 2036. There's a good chance I'll still be collecting and I would prefer that my benefits not be cut by, say, 25%.

One way to help insure that I'll take the hit, however, is to reduce contributions. One more thing: any assertion that cutting contributions will be offset by greater income on which the taxes are assessed is a pipe dream. There's not much room for income growth in an economy where only 4.1% are unemployed and wages have been stagnant for years.