Business Regulation – Page 20 – Marquette University Law School Faculty Blog

For Finance Industry, a Possible Alternative to the Deregulation-Bust-Bailout-Reregulation Cycle

Post author:Michael M. O'Hear
Post published:March 26, 2010
Post category:Business Regulation Legal Scholarship

No one wants a replay of the financial meltdown of the past couple years, but can new regulations really provide a long-term solution? Periods of heightened regulatory oversight seem inevitably followed by periods of deregulation, while the prospect of government bailouts may create a moral hazard that promotes excessive risk-taking. Thus, in an interesting new article on SSRN, Shelley Smith suggests an alternative response that does not involve government regulatory agencies. Her proposal instead focuses on the courts and reform of the law of adhesion contracts — those take-it-or-leave-it agreements that consumers routinely sign without reading or understanding.

Shelley argues that contracts of adhesion played an important role in creating the subprime mortgage mess, as consumers took on ruinous financial obligations without fully understanding the terms of the deals. She suggests that courts should create stronger incentives for the drafters of contracts of adhesion to make the key terms comprehensible to ordinary consumers. Thus, she would relax the normal presumption that the terms of the written contract will be strictly enforced where there is reason to doubt whether a reasonable person would have read and understood those terms. If the “reasonable person” test is not satisfied, and extrinsic evidence fails to establish that the consumer actually received notice of the disputed term, then the court would not enforce the term as written, but would instead treat the case as a “missing term” case.

The article, entitled “Reforming the Law of Adhesion Contracts: A Judicial Response to the Subprime Mortgage Crisis,” is forthcoming in the Lewis and Clark Law Review. The abstract appears after the jump.

The Business of Bigness

Post author:Nicholas Harken
Post published:March 18, 2010
Post category:Business Regulation Corporate Law

Last summer, Eric Dash of the New York Times wrote an excellent article on the problems associated with big business in the U.S. Dash noted that almost 100 years ago, Supreme Court Justice Louis Brandeis wrote prophetically about the “curse of bigness.” Justice Brandeis denounced generally the influence that big business had on U.S. politics and its economy.

Today, Brandies’s “curse of bigness” is incorporated into the less pejorative term for large U.S. companies — companies that are “too big to fail.” Certainly in light of the recent U.S. financial crisis, people are well aware of the influence that these large U.S. companies have on U.S. politics and its economy. But these “too big to fail” companies may also be creating moral hazards in business operations, and the U.S. has yet to establish a unified system for dealing with the business of bigness.

Federalism, Free Markets, and Free Speech

Post author:Edward A. Fallone
Post published:March 2, 2010
Post category:Business Regulation Constitutional Interpretation Corporate Law Election Law Federalism First Amendment Judges & Judicial Process Legal History U.S. Supreme Court

The Supreme Court decision in Citizens United v. FEC strikes down as unconstitutional a federal law that prohibits corporations and unions from using general treasury funds to make independent expenditures that expressly advocate the election or defeat of candidates for office. The majority opinion, written by Justice Kennedy, ignores hundreds of years of Supreme Court history in interpreting the subjects of federalism, free markets, and free speech. In its place, Justice Kennedy presents a textualist interpretation of the First Amendment that is divorced from any history or context. Justice Kennedy engages in the sort of “faux originalism” (syn. “fake,” “artificial,” “false”) that has been criticized by Judge Richard Posner. Kennedy places a historical glaze on his own personal values and policy preferences, and calls the result the “original understanding” of the First Amendment.

As such, Citizens United v. FEC stands with District of Columbia v. Heller, the Second Amendment case decided in 2008, as an example of the Justices slapping the “originalist” label on a profoundly un-originalist interpretation of the Bill of Rights. It is appropriate to view the two cases together. Both are exercises in raw political power employed in order to accomplish conservative objectives. Both ignore hundreds of years of understanding about the meaning of the relevant constitutional provisions, in favor of a meaning derived by taking the words of the Amendment out of context. And both embrace interpretations of the constitutional Amendment at issue that are inconsistent with the meaning ascribed to that same language by the intellectual father of originalism, Robert Bork. In the same way that modern scholars deride the “Lochner era” as a misguided period in American Constitutional Law, I believe that future scholars and judges will recognize and reject the intellectual dishonesty of the “Heller era.”