Faculty Chapters

Follow

• 

  The Institutional Dimension of Consumer Protection

  Samuel Issacharoff and Ian Samuel

  One of the central functions of the state is protecting the integrity of contracts such that markets and private ordering may thrive. This is such a well understood theme in liberal political theory as to appear to need no further exposition. Unfortunately, the classic account envisioned a single seller and a single buyer who needed the state only to make sure that cross-temporal commitments between purchase and delivery would be honoured and that disputes could be resolved without recourse to private retaliation. As important as this account may be, it is necessarily incomplete. As the scale and scope of markets change, so too must the role of the state in providing assurances against multiple forms of market malfunction. In some markets, particularly those that are close-knit with a great deal of repeat play among the participants, reputation and other informal mechanisms may be sufficient to police against most improper conduct. There, the role of governmental supervision might well be limited to that of the final guarantor that commitments to pay and deliver are honoured. But in our increasingly global economy, with buyers and sellers interchangeable and unknown to each other, community mechanisms of enforcement are difficult and there is a corresponding push for greater governmental supervision. We start from a simple proposition that the integrity of markets requires more than simply enforcing reciprocal terms of exchange. As the breadth of commercial activity expands and as exchange takes on forms unadorned by actual human contact, protecting consumers against harm becomes an essential prerequisite to the healthy functioning of markets. Fraud, product failure, and personal injury threaten the free exchange of goods and services by constricting the networks of trust and exchange and sapping the vitality of markets. Consumer protection is an integral part of the role of the state in mature market societies; our basic approach is to define the risk to markets as a social harm that can be managed in many ways, by many institutions. Simply acknowledging the need to police markets and protect consumers is an important but limited first step. All reasonably developed societies do that in some fashion. What is of interest for us is how that is done and what forms of institutional arrangements follow from the array of choices that remain. In this chapter, we take up two topics: first, the typology of harm management itself. By dividing enforcement agents into “public” and “private,” and the moments of enforcement into ex ante and ex post, it is possible to develop a typology. For example, the prior governmental approval of products before they may enter the market is a classic form of public ex ante regulation. A tort suit by an injured consumer is a corresponding private ex post form. Recently, American law has been dominated by disputes over how national ex ante regulation interacts with state-by-state ex post liability: if the Food and Drug Administration approves a medical device, for example, may an individual state's tort law hold the manufacturer liable for defective designs? Our main focus, however, is not so much on identifying the forms that regulation might take, but on the institutional demands made by these different modes of regulation. It is here that the temporal dimension emerges as critical. The management of social harm can be either ex ante or ex post or, as with the public/private distinction, a mixture of both. Regulation can act prescriptively to limit the potential for injurious conduct or it can react retrospectively to provide compensation to those harmed and attempt to get private actors to condition their behaviour in anticipation of liability rules. Each of the regulatory options must have its own supporting institutions and its own societal infrastructure to make it work. The choice of how to regulate harm ought to be as sensitive to what the tool requires as it is to the shape of the harm itself. These choices are about institutional design and competence as much as alleviation of substantive harm. Our aim here is not to revisit the debates about ex ante versus ex post regulation. These are complicated issues and there are many factors that have to be weighed in the balance, as there are trade-offs between centralized public enforcement as opposed to decentralized private enforcement. In this chapter, however, we are concerned not simply with whether markets can be made more vibrant by lifting ex ante forms of regulation—a view that underlies most efforts at deregulation—but also whether the right processes for ex post accountability are in place. The American experience with ex post regulation turns critically on the role of private enforcement to supplement more limited state responsibility for compensation and deterrence. The ability to harness private enforcement depends not only on the substantive laws governing compensation, but also on the incentives to ferret out wrongdoing, provide efficient resolution of similarly situated claims and compel the proper level of internalization of norms of proper market conduct. Our claim is not that a particular form of regulation is superior across all settings. Rather, it is that each regulatory strategy must ensure that the proper institutional actors are in place for its effective implementation.

• 

  Symposium: Emerging Issues in Class Action Law: Backdoor Federalization

  Samuel Issacharoff and Catherine M. Sharkey

  TTwo primary arguments are advanced for the contemporary functional importance of federalist constraints on centralized political power. The first is captured in Justice Brandeis’ famous invocation of the states as the laboratories of democracy in which ‘a single courageous State’ may blaze new paths by trying ‘novel social and economic experiments.’ The second ties the smaller, decentralized scale of sub-national units to a more robust democratic accountability by which ‘government is brought closer to the people, and democratic ideals are more fully realized.’ Each of these arguments fits well with concerns over the centralization of power inherited from the history of the twentieth century. Federalism, understood in its contemporary role as a vindication of state authority relative to the federal government, stands, as claimed by Judge Easterbrook, as an antidote to the ‘central planner,’ the figure of mythic economic inefficiencies and staunch antidemocratic propensities to totalitarianism. While perhaps these claims saddle the dual sovereignty of federalism with more historic weight than it might bear, the focus on economic heterogeneity and democratic accountability is certainly critical. This chapter is largely about circumstances in which these two arguments for federalism fail. While Justice Brandeis’ aphorism about the states as laboratories of democracy is oft repeated, the tail end of his claim tends to get lost. Brandeis sought to leave open the prospect that ‘a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.’ The question that concerns us is what happens when claims of state sovereignty do pose risks to the rest of the country, when the experiments of democracy within one state’s borders have spillover effects that adversely affect citizens of other states. In such circumstances, not only may the benefits of heterogeneity and interstate competition fail, but also the citizens of other states are deprived of the political means of compelling democratic accountability on economic actors shielded by other states’ claims of sovereignty. The novelty of our approach is to think of the battles over federalism as running across two dimensions. The more familiar is the question of which law controls, state or federal. But a second dimension is the battle over which forum should control, state or federal, and which is to be the catalyst for new legal norms. With a two-by-two matrix corresponding to these substantive and procedural dimensions, we aim to underscore aspects of ‘horizontal federalism’—namely, policing relations between the states—that have tended to be obscured by the looming shadow of ‘vertical federalism’—namely, the balance of power and division of labor between federal and state sources of authority. By approaching the topic indirectly, focusing primarily on what Richard Fallon terms the ‘subconstitutional’ domain of preemption and forum selection, we hope to give a broader rendition of the legal response to market pressures toward predictability and uniformity than would emerge from a narrow focus on formal constitutional doctrine. Our main argument is that the U.S. Supreme Court has, in preemption and forum-allocation cases, attempted to capture the considerable benefits that flow from national regulatory uniformity and to protect an increasingly unified national (and international) commercial market from the imposition of externalities by unfriendly state legislation. We highlight the role that such functional principles can play in illuminating the contemporary Court’s interpretive method across substantive and procedural areas of the law relating to commercial matters. Rather than standing as an ally of state autonomy against the encroachments of the federal behemoth—the exaggerated but commonplace reading of the Court’s highly publicized federalism rulings on the scope of the Eleventh Amendment—the Court appears to be a willing partner of Congress in providing federal oversight to state interference with the national market. We can project the Court’s work in preemption cases across a spectrum of congressional efforts to exert a federal interest. At one pole are statutes such as the Employee Retirement Income Security Act of 1974 (ERISA) or the Copyright Act, in which field preemption of the substantive law is accompanied by exclusive federal-court jurisdiction. In such cases, the only issue is the boundaries of the field. At the other extreme are Dormant Commerce Clause cases, in which the Court has to define the federal interest in the absence of congressional action. In between are the difficult cases in which the Court assesses Congress’ interest in protecting the rational operation of the national market by coordinating state regulation. Products liability cases occupy this middle ground in the federalization process because of the characteristically incomplete manner in which Congress legislates in this area. Typically, Congress acts, in limited product realms, to define standards of liability but leaves to state law the need to provide remedies—an incomplete regulatory regime fraught with the capacity for federal-state conflict.

• 

  On Improving Shareholder Voting: An Essay for D Daniel Prentice

  Marcel Kahan and Edward B. Rock

  This article focuses on an area of corporate law that could do with a dose of cynicism: shareholder voting. One does not have to search hard to find proclamations regarding the essential role of shareholder voting in corporate law: how it legitimates the corporate form, and so forth. This view is particularly well expressed by Chancellor William Allen in his important opinion in Blasisus: “The shareholder franchise is the ideological underpinning upon which the legitimacy of directorial power rests. Generally, shareholder have only two protections against perceived inadequate business performance. They may sell their stock (which, if done in sufficient numbers, may so affect security prices as to create an incentive for altered managerial performance), or they may vote to replace incumbent board members. It has, for a long time, been conventional to dismiss the stockholder vote as a vestige or ritual of little practical importance. It may be that we are now witnessing the emergence of new institutional voices and arrangements that will make the stockholder vote a less predictable affair than it has been. Be that as it may, however, whether the vote is seen functionally as an unimportant formalism, or as an important tool of discipline, it is clear that it is critical to the theory that legitimates the exercise of power by some (directors and officers) over vast aggregations of property that they do not own. Thus, when viewed from a broad, institutional perspective, it can be seen that matters involving the integrity of the shareholder voting process involve consideration not present in any other context in which directors exercise delegated power.” In this article, we argue that shareholder voting, as a mechanism of accountability, is weak and getting weaker; as such, we should not put very much weight on it, whatever its rhetorical and legitimating role.

• 

  Tax and Efficiency Under Global Cap-and-Trade

  Mitchell A. Kane

  Two approaches to the taxation of carbon markets and abatement opportunities can be taken to avoid distorting the market and its participants’ behavior and thereby to preserve the efficiency of trading-based climate regulatory systems: inter-firm tax neutrality and intra-firm tax neutrality. Inter-firm tax neutrality requires that all abatement costs receive the same tax treatment and that all permits receive the same tax treatment, regardless of the firm which undertakes the abatement or acquires permits. In the context of international emissions trading, this approach requires harmonization of the respective domestic tax rates for permits and abatement. Intra-firm tax neutrality requires that each firm face the same tax treatment of actual abatement and permits on the margin. In the context of international emissions trading, this approach requires each country to achieve this matching, but does not require harmonization of tax rates. It does not require international harmonization of tax systems. In the real world, intra-firm tax neutrality is the preferred policy approach due to the lesser degree of required coordination among national tax systems. The key challenge in implementing intra-firm tax neutrality will be to match tax treatment of permits and abatement. Because permits are likely to receive the same tax treatment for all holders, this means the efficient tax policy will require re- moving national-level tax differences among different methods of abatement (except where they are justified by non-climate externalities) or making them ineffective at the margin. Coordination of this particular tax policy goal would be best achieved under the aegis of international climate agreements rather than through tax treaties. A cap-and-trade regime relies on the price of permits to signal which abatement opportunities are cost-effective, in light of the overall cap. Just like any market where we use price signals to achieve allocative efficiency, taxation is a looming problem. To the extent that taxes distort prices, the market will not function optimally, impairing the efficiency of the regulatory system. The very fact that one requires a market to achieve efficient abatement in the first place only arises because there are firm-specific low-cost abatement opportunities. Such firm-specific opportunities can take one of two forms. First, some firms may have low-cost abatement opportunities due to the ownership of some type of proprietary technology that allows production with fewer emissions than competitors. Second, some firms may have low-cost abatement opportunities because they happen to operate in jurisdictions where there are relatively low-cost abatement opportunities. Taxation presents the same type of potential problem in each of these cases: abatement opportunities that should be favored on a pre-tax basis become relatively expensive on an after-tax basis due to differential tax treatment of firms operating in the market, either due to their mode of production/abatement or their territorial location of operations. (Some tax preferences might be independently justified by non-climate externalities, such as national security, and would accordingly not distort the market; these preferences are not the subject of the analysis which follows.) In a first best world there are two ways to structure tax systems in order to preserve efficient allocation of abatement. Each approach involves concepts of tax neutrality, but they operate at different levels. Thus, we can distinguish between inter-firm tax neutrality and intra-firm tax neutrality.

• 

  International Law as Inter-Public Law

  Benedict Kingsbury

  In this essay, I seek to take some steps toward the development of a theory of international law that is an alternative—I hope a better alternative—to the standard account of international law simply as jus inter gentes, the law established between governments of states to regulate relations between states as juridical entities. I do not here present anything approximating a full alternative theory, but I try to indicate some features such an alternative theory could have. I argue that international law should be theorized as the law between public entities outside a single state, these public entities being subject to public law and to requirements of publicness. I focus in this paper on the entities whose practice counts in making international law, on the processes whereby these entities make international law, and some implications about the content of international law. My account incorporates most of the substance and institutions of the established jus inter gentes: much international law is indeed made by the agreements or the practices of national governments among themselves. But I offer a different view of the reasons for treating that as international law, a broader view of the entities responsible for making international law, and a more demanding view of what is needed to make international law. My project is concerned with the generation and modification of international law. I do not in this essay propose any different view to the prevailing one on the question of who is or could be regulated by international law: states, corporations, individuals, inter-state organizations, private standard-setting organizations, and so forth.

• 

  Investor-State Arbitration as Governance: Fair and Equitable Treatment, Proportionality and the Emerging Global Administrative Law

  Benedict Kingsbury and Stephan Schill

  Investor-State arbitration, and in particular arbitration based on international investment treaties, is not simply dispute resolution. It is also a structure of global governance. Through publicly available and widely studied awards, investor-State arbitral tribunals are helping to define specific principles of global administrative law and set standards for States in their internal administrative processes. Similarly, investor-State arbitration functions as a review mechanism to assess the balance a government has struck in a particular situation between investor protection and other important public purposes, for example by using proportionality analysis. In addition, decisions made ex post by tribunals with regard to such balances may influence what later tribunals will do, and may influence ex ante the behavior of States and investors. Most arbitrators understandably write their awards and their other public remarks within the framework of the primary and immediate function of these arbitrations as being to settle specific individual disputes between investors and States arising out of foreign investment activities. But investor-State arbitral awards have important effects going beyond those who appear before them in individual disputes. Investor-State arbitral tribunals implement broadly phrased international standards set out in very similar terms in many investment treaties, and concretize and expand or restrict their meaning and reach through interpretation, so that they increasingly define for the majority of States of the world standards of good governance and of the rule of law that are enforceable against them by foreign investors. And they review State action in ways that can have implications for much wider public interests and public policies, and for the legitimacy and methodological justifiability of the tribunals themselves. The standards thus reinforced or created by arbitral tribunals reflect general principles for the exercise of public power that are applicable not only to State conduct, but likely will be applied over time, mutatis mutandis, to the activities of arbitral tribunals themselves. Investor-State arbitration is thus developing into a form of global governance. These tribunals exercise power in the global administrative space. Individual tribunals exercise power directly through the substantive awards they make in favor of investors or States, as well as through their findings of fact and through their decisions on matters such as amicus briefs, the awarding of costs and interest, or decisions as to timing, to the suspension of proceedings to allow for settlement negotiations, etc. More fundamentally, the tribunals as an aggregate exercise power through influencing the development of a body of global administrative law that guides State behavior, tl1rough influencing both customary international law and approaches taken in other sub-fields such as trade law or human rights, and through their approaches to balancing different investor and public interests, in ways that affect public policy and the future conduct of States and investors alike. Any significant exercise of power in the public or administrative sphere raises demands that the exercise of power be legitimate. This applies not only to what is done (or not done) by individual tribunals and arbitrators, and by individual appointing authorities and annulment committees, but also to the system of investor-State arbitration as a whole. The application of global administrative law to, and by, the investor-State arbitration system may be a key future clement in helping to address these legitimacy concerns. Investor-State arbitration, particularly under the more than 2,500 bilateral investment treaties (BITs) and several important regional treaties, including NAFTA and the ASEAN investment treaty, is a burgeoning field, with more than 300 investment treaty-based disputes publicly known and many new arbitrations being initiated each year. At the same time, investor-State arbitration may also be a brittle field. Some States are becoming increasingly wary with respect to investment treaty arbitration and investment treaty protection. The cases related to the Argentine economic emergency, and the stance taken by several other Latin American governments, highlight obvious concerns about the suitability and indeed the legitimacy of the existing system for dealing with certain situations. But also traditional capital-exporting countries, like the United States, are becoming increasingly concerned about restrictions investment treaties and investment treaty arbitration impose on their regulatory powers. The United States' experience with NAFTA Chapter 11, for example, has had a direct influence on the attitudes of the United States in more recent free trade agreement and BIT negotiations, and led to modifications to the US model BIT.

• 

  What Drives the Passage of Damage Caps?

  Jonathan Klick and Catherine M. Sharkey

  A number of states have passed caps on non-economic and punitive damage awards in civil cases. The conventional wisdom is that the passage of these caps is driven by “out-of-control” jury awards that need to be reigned in. However, it could be the case that voters harboring anti-litigation, pro-tort reform sentiments are more likely to support the passage of caps even in the absence of an upsurge in awards. To examine the effect of jury awards on the passage of caps, we estimate seimiparametric hazard models of cap passage using data from the Jury Verdict Research Reporter. KEYWORDS: Damage Caps, Caps, Punitive Damages, Non-economic Damages, Jury, Legislature, Tort Reform, Litigation, Hazard Model.

• 

  Boudin, Leonard B. (1912-1989)

  Lewis A. Kornhauser

  Boudin was born in Brooklyn, N.Y., and graduated from City College of New York in 1933 and from St. John’s Law School in 1935. He practiced labor law with his uncle’s firm, Boudin, Cohen and Glickstine, starting in 1936. In 1947 he established his own firm with Victor Rabinowitz, an association that lasted until Boudin’s death. The McCarthy era and the Cold War shaped his largely appellate practice through the mid-1960s. After that, Boudin, often acting as a trial attorney, resisted and challenged governmental incursions into individual liberties. The passage of the Taft-Hartley Act in 1947 could have ended Boudin’s practice, as it led unions to purge themselves of members and attorneys tainted by left-wing affiliations. Not only had Boudin’s representation of left-wing unions had made him suspect, but in 1950 a federal court appointed him counsel to the alleged spy Judith Coplon. Ironically, the McCarthy era provided a new set of clients. Boudin represented victims of the “witch hunt” before congressional and state legislative committees and in administrative hearings and the courts. In 1952, a year after its founding, he began his life-long tenure as general counsel to the Emergency Civil Liberties Committee. During this period Boudin successfully litigated several issues that greatly changed civil liberties in the United States. He argued a series of cases that culminated in Kent v. Dulles (1958), in which the U.S. Supreme Court held that the government could not deny passports to individuals on the basis of their political beliefs. In 1965 he argued Lamont v. Postmaster General, which held unconstitutional a statute requiring individuals affirmatively to request delivery of “radical” political literature. Boudin briefed and argued 19 cases before the Court.

• 

  Modeling Courts

  Lewis A. Kornhauser

  Models constitute a central element in the methodology of economic analysis of law. John Brown’s model of accident law and others’ models of settlement and litigation, for instance, have provided numerous insights into tort law and to civil procedure respectively. Other models have been less successful. Despite their ubiquity, however, the role of models in economic analysis of law has been little discussed. How do models explain? How, or what, do we learn from them? What explains the differential success of models? What makes a model a good one? Under what circumstances ought policymakers rely on the results of a model? These questions are notoriously difficult, in part because the concept of a model is itself unclear. I shall address the question of what makes a “good” model by discussing in detail two narrow classes of models of adjudication that have often been understood as competitive. These classes—which I shall call, in the context of courts, case space (but in the more general context of administrative agencies and legislatures fact space) and policy space models—seek to explain the behavior of individual judges. Models grounded in policy space abstract from the specific cases that, in actual adjudication, trigger judicial intervention and are the occasion for whatever policymaking courts do. Policy space models treat policies as fundamental and cases as nonexistent. Models grounded in case space, by contrast, take cases as fundamental; policies are described in terms of case dispositions. Policy space and case space models differ in other respects as well. First, the two classes of models identify the domain over which judges have fundamental preferences slightly differently. In policy space models, judges care exclusively about policies; policy space is the domain of preference. Some case space models adopt a similar domain of preference, but case space models are sufficiently flexible to allow a richer domain of preference that includes both policies and case dispositions. Second, in policy space models, each judge chooses a policy, but in case space, each judge also (or exclusively) endorses a disposition of the case. Finally, and particularly important for models of collegial courts, the court in policy space models again announces a policy, but in case space models the court first renders judgment in the case and may also, incidentally, announce a policy. Policy space models dominate the literature in political science and economic analysis of law. Moreover, I shall argue that all models of collegial courts, whether starting in case space or not, rely on a common set of formal results. They offer different, but complementary, interpretations of that formal structure. Nevertheless, I shall argue that, for several reasons, case space models have a certain priority over policy space models. First, case space provides microfoundations for policy space. Second, it provides a common framework within which to analyze and differentiate courts from legislatures and administrative agencies. Each of these institutions has policy effects, but they differ in who sets the agenda and what the agents within them choose or do. Models that begin in case space illuminate these similarities and differences. The discussion proceeds as follows. Section I begins with a brief taxonomy of models. It then defines case space and policy space as well as identifying their relation to each other and to three other potential domains relevant to the study of courts. Section II argues that the appropriate domain of fundamental judicial preference includes policy space but may also reflect concerns for case dispositions. The remaining sections discuss several examples to argue that case space is prior to policy space as a foundation for models of courts.

• 

  Joint and Several Liability

  Lewis A. Kornhauser and Richard L. Revesz

  The law and economics analysis of the comparison of joint and several liability with several only (non-joint) liability examines the relative incentives for both deterrence and settlement generated by the two rules and their fairness. Section 4.2 provides a brief background of the legal regimes. Sections 4.3 and 4.4 compare, respectively, the settlement and deterrence effects of the two rules. Section 4.5 considers the fairness of the two regimes.

• 

  The Cosmopolitan Turn in Constitutionalism: On the Relationship between Constitutionalism in and beyond the State

  Mattias Kumm

  The language of constitutionalism has become widespread among international lawyers. International law as a whole or specific international regimes are described using constitutional language. Yet from the perspective of many national constitutional lawyers—not only, but particularly, in the United States—the application of constitutional language to international law is viewed with skepticism. A constitution, in the modern tradition, is generally understood as the supreme law of a sovereign state. The constitution is a written document, imagined as constituting and authorized by “We the People,” enforced, if need be, by the coercive power of the state. International law, on the other hand, is conventionally imagined as the law among states, founded on the consent of states, and addressing questions of foreign affairs. Within this dualist paradigm, any talk of constitutionalism beyond the state is deeply implausible. Whoever uses the language of constitutionalism in relation to public international law is suspected of effectively advocating some version of a constitutional world state. Given the central role that sovereign states play and are likely to continue to play in the international system, such ideas, whatever their merit from a purely moral point of view might be, are easily dismissed as hopelessly out of touch with reality and certainly of little value for the analysis and assessment of international law as it exists today. Of course most international lawyers embracing the language of constitutionalism do not see themselves as committed to a grand institution-building project that will lead to the establishment of a federal world state. The way that international lawyers use constitutional language to describe facets of international law is, at least on the surface, more modest. Their project is conventional: to describe and analyze international law or some part of it as a coherent legal order. Constitutional language is helpful for this purpose, because there are structural features of international law that bear some resemblance to features associated with domestic constitutional law. In part these are formal: there are elements of a hierarchy of norms in international law. They range from jus cogens norms to article 103 of the UN Charter, establishing the priority of the UN Charter over other norms of international law. In part they are functional: there are multilateral treaties that serve as regime-specific constitutional charters for institutionally complex transnational governance practices. And in part they are substantive: human rights obligations have long pierced the veil of sovereignty that kept the relationship between the state and its citizens from the purview of international law. The individual has long emerged as a subject of rights and obligations under international law. There are international human rights courts established by treaties that authorize individuals to vindicate their rights before international courts. International law even criminalizes certain types of particularly serious human rights violations. These are features more characteristic of modern constitutional systems than of the traditional paradigm of international law as the law among states. To the extent that constitutional language is used to describe international law in these contexts, it appears to be used in a different way from in the domestic context. Domestic constitutionalism and international constitutionalism appear, on the surface, to be homonyms. There is constitutionalism with a “big C” (constitutionalism properly so called, or domestic constitutionalism) and there is constitutionalism with a “small c.” Constitutionalism properly so called is linked to the establishment of ultimate legal authority in the form of a written constitution, in the service of “We the People” people governing itself democratically and supported by the coercive powers of the state. Constitutionalism with regard to international law is constitutionalism with a small c: the project to describe international law or parts of it as a coherent legal system that exhibits some structural features of domestic constitutional law, but that is not connected to the establishment of an ultimate authority, not connected to the coercive powers of state institutions and not connected to the self-governing practices of a people.

• 

  Compensation and Deterrence in Consumer Class Actions in the United States

  Geoffrey P. Miller

  One of the ironies of market-based economic systems is that consumers are simultaneously more powerful than ever and also more vulnerable. Consumers are more powerful because systems of trade, production, distribution, and inventory management make available a vast arrays of goods and services displaying an enormous range of quality, functionality and design. Consumers are more vulnerable because these systems cause a separation between consumer and provider and thus limit the available sanctions for poor quality, and because consumers sometimes lack the ability to assess the quality or performance of the products they acquire. A challenge for any modern legal and economic system is to promote the advantages of mass production and distribution while compensating consumers and deterring abusive practices. All developed countries use a mix of regulatory strategies in pursuit of these twin goals of compensation and deterrence. These strategies include; (1) licensing (permitting only qualified firms to do the particular business); (2) disclosure (requiring providers to supply information about their products backed by sanctions for false statements); (3) monitoring (assessments of product quality by the government or by independent evaluators); (4) business-practice regulation (setting minimum standards or directly mandating production or distribution activities); and (5) private legal remedies. This paper examines the availability in the United States and Europe of the last of these strategies, private legal remedies. This chapter considers how the goals of compensation and deterrence come into tension with one another in the class action context. The paper then describes the privately enforceable substantive remedies available to consumers in the United States under federal and state law and examines problems with achieving compensation and deterrence under those theories. The final part of the chapter considers recent class action legislation in Europe and evaluates how these procedures serve the goals of compensation and deterrence.

• 

  The Story of Meinhard v. Salmon: Fiduciary Duty's Punctilio

  Geoffrey P. Miller

  A pair of young New Yorkers, who shared opera tickets and a drive to improve their position in turn-of-the-century Manhattan, pooled their financial and human capital to take a twenty-year leasehold on an aging hotel with an impressive address. By the time the lease ended, their economic outlook had improved to the point that one had thoroughbred winners in a Triple Crown race and the other would soon die on an around-the-world cruise. In between, their financial success permitted them to pursue protracted litigation over the future development of the site in which one retained former presidential candidate and Supreme Court advocate John W. Davis and the other a former New York governor and Court of Appeals judge. That the ultimate decision in the case was written by Benjamin Cardozo, known for his high moral principles and his ability to turn a phrase, has produced a case that after eight decades still defines our thinking about fiduciary duty, the most important issue in the law of business associations. Meinhard v. Salmon is the 1928 decision of the New York Court of Appeals in which Chief Judge Cardozo declared the duty of fiduciaries to be not the morals of the marketplace but the punctilio of an honor the most sensitive. The chapter first situates the case geographically at the center of modern Manhattan and introduces the key participants who provide its memorable story. Subsequent parts address the law of the case and the frame it continues to provide for modern legal discussion.

• 

  Legal Issues in Local Police Enforcement of Federal Immigration Law

  Nancy Morawetz and Alina Das

  As local police consider taking on enforcement of federal immigration law, they should carefully consider the legal complexity of their role and legal constraints on methods of enforcement in a legal and institutional system that operates quite differently from local criminal justice systems. Local police enforcement of federal immigration law must account for local, state, and federal laws that govern the rights of community residents and the obligations of localities. It must also account for the civil nature of most immigration violations. Most importantly, it must be conducted in a way that avoids several common misconceptions about the supposed targets of immigration law enforcement, including confusion over their rights, status, and place in the community. The risk of error is high, and already several localities have been subject to lawsuits over unlawful arrests and detentions, the use of racial profiling in enforcement, poor conditions of confinement, and other violations of law. This paper discusses the legal complexities of federal immigration law enforcement in the local setting and the changing demographics of communities. Risks of liability provide yet another factor for police departments to consider before making a decision about whether to tread into this new field of enforcement.

• 

  The Story of United States v. United States District Court (Keith): The Surveillance Power

  Trevor W. Morrison

  May the President, acting in the interests of national security, authorize the electronic surveillance of persons within the United States without first obtaining a judicial warrant? The Supreme Court’s first and still most important answer to that question came in United States v. United States District Court for the Eastern District of Michigan, Southern Division, better known as the Keith case.1 In what the New York Times called “a stunning legal setback” for the government, the Court concluded that “Fourth Amendment freedoms cannot properly be guaranteed if domestic security surveillance may be conducted solely within the discretion of the Executive Branch.” Thus, the Court held, a judicial warrant must issue before the government may engage in wiretapping or other electronic surveillance of domestic threats to national security. But the Court also limited its holding to cases involving “the domestic aspects of national security,” and “express[ed] no opinion as to [the surveillance of the] activities of foreign powers or their agents.” Both in what it said and what it did not say, Keith has exerted great influence upon the judicial, legislative, and executive approaches to these issues in the years since. Keith is also a great story. Arising in a period of great social and political unrest in this country, its cast of characters features “White Panther” radicals, famed civil liberties lawyers, Watergate accomplices, a federal judge as a named party, and a junior Justice whose opinion for the Court no one would have predicted. Before meeting those characters, however, we need some background both on the law and practice of national security surveillance in general and on the circumstances giving rise to the Keith case in particular.

• 

  Federalism and Families

  Melissa Murray

  The Child: An Encyclopedic Companion offers both parents and professionals access to the best scholarship from all areas of child studies in a remarkable one-volume reference. Bringing together contemporary research on children and childhood from pediatrics, child psychology, childhood studies, education, sociology, history, law, anthropology, and other related areas, The Child contains more than 500 articles—all written by experts in their fields and overseen by a panel of distinguished editors led by anthropologist Richard A. Shweder. Each entry provides a concise and accessible synopsis of the topic at hand. For example, the entry “Adoption” begins with a general definition, followed by a detailed look at adoption in different cultures and at different times, a summary of the associated mental and developmental issues that can arise, and an overview of applicable legal and public policy. While presenting certain universal facts about children’s development from birth through adolescence, the entries also address the many worlds of childhood both within the United States and around the globe. They consider the ways that in which race, ethnicity, gender, socioeconomic status, and cultural traditions of child rearing can affect children’s experiences of physical and mental health, education, and family. Alongside the topical entries, The Child includes more than forty “Imagining Each Other” essays, which focus on the particular experiences of children in different cultures. In “Work before Play for Yucatec Maya Children,” for example, readers learn of the work responsibilities of some modern-day Mexican children, while in “A Hindu Brahman Boy Is Born Again,” they witness a coming-of-age ritual in contemporary India. Compiled by some of the most distinguished child development researchers in the world, The Child will broaden the current scope of knowledge on children and childhood. It is an unparalleled resource for parents, social workers, researchers, educators, and others who work with children.

• 

  The Private Life of Criminal Law

  Melissa Murray

  Jeannie Suk makes an important contribution to our understanding of criminal law and the regulation of private life. By arguing that the use of criminal protective orders in domestic violence enforcement “deliberately and coercively reorders and controls” private relationships, Suk builds on the work of others who have identified criminal law’s increasing role in shaping and controlling behavior in the public sphere. Of course, Suk’s claim is that criminal law’s tentacles not only have reached out to regulate more public terrain, they have turned inward to regulate the private sphere as well. This move, Suk makes clear, is wholly at odds with an inherited legal narrative that denotes marriage, family, and the home as “private,” and therefore insulated from criminal regulation. I would argue, however, that criminal law’s regulation of private relationships is not a new development. Certainly, criminal law has resisted intervening in the home, as the history of domestic violence enforcement makes evident. However, despite this resistance, criminal law has been an important force in defining and regulating the content of private life. As I describe below, criminal law has worked in tandem with family law to police the normative contours of marriage and intimate life. With this history in mind, the developments that Suk identifies are even more troubling because they suggest that criminal law is moving beyond its already quite significant role in structuring the parameters of lawful intimacy to directly regulate within the private sphere.

• 

  Moral Conflict and Political Legitimacy

  Thomas Nagel

  Robert Frost defined a liberal as someone who can't take his own side in an argument. A bit harsh, but there is something paradoxical about liberalism, at least on the surface, and something obscure about the foundations of the sort of impartiality that liberalism professes. That is what I want to discuss. Ethics always has to deal with the conflict between the personal standpoint of the individual and some requirement of impartiality. The personal standpoint will bring in motives derived not only from the individual's interests but also from his attachments and commitments to people, projects, and particular things. The requirement of impartiality can take various forms, but it usually involves treating or counting everyone equally in some respect-according them all the same rights, or counting their good or their welfare or some aspect of it the same in determining what would be a desirable result or a permissible course of action. Since personal motives and impartiality can conflict, an ethical theory has to say something about how such conflicts are to be resolved. It may do this by according total victory to the impartial side in case of conflict, but that is only one solution. The clash between impartiality and the viewpoint of the individual is compounded when we move from personal ethics to political theory. The reason is that in politics, where we are all competing to get the coercive power of the state behind the institutions we favor—institutions under which all of us will have to live—it is not only our personal interests, attachments, and commitments that bring us into conflict, but our different moral conceptions. Political competitors differ as to both the form and the content of the impartial component of morality. They differ over what is good and bad in human life, and what kind of equal respect or consideration we owe each other. Their political disagreements therefore reflect not only conflicts of interest but conflicts over the values that public institutions should serve, impartially, for everyone. Is there a higher-order impartiality that can permit us to come to some understanding about how such disagreements should be settled? Or have we already gone as far as necessary (and perhaps even as far as possible) in taking up other people's point of view when we have accepted the impartial component of our own moral position? I believe that liberalism depends on the acceptance of a higher-order impartiality, and that this raises serious problems about how the different orders of impartiality are to be integrated. To some extent this parallels the familiar problem in moral theory of integrating impartiality with personal motives; but the problem here is more complicated, and the motive for higher-order impartiality is more obscure.' It is so obscure that critics of liberalism often doubt that its professions of impartiality are made in good faith. Part of the problem is that liberals ask of everyone a certain restraint in calling for the use of state power to further specific, controversial moral or religious conceptions—but the results of that restraint appear with suspicious frequency to favor precisely the controversial moral conceptions that liberals usually hold. For example, those who argue against the restriction of pornography or homosexuality or contraception on the ground that the state should not attempt to enforce contested personal standards of morality often don't think there is anything wrong with pornography, homosexuality, or contraception. They would be against such restrictions even if they believed it was the state's business to enforce personal morality, or if they believed that the state could legitimately be asked to prohibit anything simply on the ground that it was wrong. More generally, liberals tend to place a high value on individual freedom, and limitations on state interference based on a higher-order impartiality among values tends to promote the individual freedom to which liberals are partial. This leads to the suspicion that the escalation to a higher level of impartiality is a sham, and that all the pleas for toleration and restraint really disguise a campaign to put the state behind a secular, individualistic, and libertine morality-against religion and in favor of sex, roughly. Yet liberalism purports to be a view that justifies religious toleration not only to religious skeptics but to the devout, and sexual toleration not only to libertines but to those who believe extramarital sex is sinful. Its good faith is to some degree attested in the somewhat different area of free expression, for there liberals in the United States have long defended the rights of those they detest. The American Civil Liberties Union is usually glad of the chance to defend the Nazis when they want to demonstrate somewhere. It shows that liberals are willing to restrain the state from stopping something that they think is wrong—for we can assume most supporters of the ACLU think both that it is wrong to be a Nazi and that it is wrong for the Nazis to demonstrate in Skokie. Another current example is that of abortion. At least some who oppose its legal prohibition believe that it is morally wrong, but that their reasons for this belief cannot justify the use of state power against those who are convinced otherwise. This is a difficult case, to which I shall refer again. Of course liberalism is not merely a doctrine of toleration, and liberals all have more specific interests and values, some of which they will seek to support through the agency of the state. But the question of what kind of impartiality is appropriate arises there as well. Both in the prohibition of what is wrong and in the promotion of what is good, the point of view from which state action and its institutional framework are supposed to be justified is complex and in some respects obscure. I shall concentrate on the issue of toleration, and shall often use the example of religious toleration. But the problem also arises in the context of distributive justice and promotion of the general welfare—for we have to use some conception of what is good for people in deciding what to distribute and what to promote, and the choice of that conception raises similar questions of impartiality.

• 

  Merger Control in the Telecommunications Sector

  Michael Rosenthal and Daniel Francis

  As the first decade of the new millennium draws to a close, the telecommunications sector continues to be a focus for innovation, growth and dynamic competition. Ten years after the liberalization of European markets, the economic and regulatory barriers between Member States are diminishing and the technological divisions that used to help defining telecommunications, broadcasting and internet related markets are becoming harder to pinpoint with certainty. Accordingly, due to the ‘convergence phenomenon’, questions of substitutability and competitive effects become increasingly complex. At the same time, vigorous merger and joint venture activity in this dynamic sector continues to provide the Commission with a full merger-review workload. Merger cases provide the Commission with the opportunity to ‘fix’ certain shortcomings of sector-specific regulation through the imposition of ‘regulatory’ remedies (e.g., open access obligations) as a condition for clearance. The Commission has made use of this approach in the past and appears determined to do so in the future when sector-specific rules are gradually phased out as mandated by the Regulatory Framework for Electronic Communications. Against this background, this chapter is intended to serve as a guide to the European Commission's review of concentrations in the telecommunications industry and the closely related broadcasting and internet sectors. This chapter is divided into five sections. Section I, Introduction, provides a top-level overview of merger control in the European Union—including the basic legal standard and the applicable procedural framework—as well as a bird's eye view perspective of the relevant industries. Section II, Market Definition, reviews decisions of the European Commission that relate to telecommunications and related markets in order to provide an indication of market definitions likely to be reached by the Commission in future decisions. The highly fact-specific nature of the market-definition exercise—as well as the rapid pace of technological, regulatory and societal changes that affect these markets—means that the value of precedent in any single case is questionable at best, and the value of inferences and inductions drawn on the basis of a divergent and occasionally contradictory body of precedent doubly so. Nevertheless, when appropriately qualified, previous Commission decisions provide the best guide to the likely assessment of a given concentration short of direct contact with the Commission itself. Sections III and IV together explain the Commission's practice regarding the analysis of the competitive effects of horizontal (Section III) and non-horizontal (Section IV) mergers. These sections explore the relevant factors used by the Commission to assess the likely effect of the proposed transaction on competition in relevant markets. Illustrating these factors with examples from previous decisions of the Commission in telecommunications and related markets, these sections provide an insight into the heart of the merger review process. Section V, Remedies, explores the Commission's responses, short of outright prohibition, to mergers and concentrations that are found to present a risk of anticompetitive effects. Cases in relevant sectors in which parties to a transaction have successfully negotiated structural or behavioural ‘commitments’ (guarantees subject to which the transaction is allowed to proceed) are discussed to illustrate the practice of the Commission in this regard.

• 

  Maintenance of Monopoly: U. S. v. Microsoft

  Daniel L. Rubinfeld

  In May 1998, the U.S. Department of Justice (DOJ), twenty individual states, and the District of Columbia filed suit against the Microsoft Corporation claiming that Microsoft had monopolized the market for personal computer (PC) operating systems and had used its monopoly to engage in a wide range of antitrust violations. The case was tried in federal district court from October 19, 1998, through June 24, 1999. The court reached its findings regarding the facts of the case on November 5, 1999, and its legal conclusions on April 3, 2000. Microsoft’s appeal to the Circuit Court of Appeals for the District of Columbia was decided on June 28, 2001, followed by extensive settlement discussions among the various parties – the Department of Justice, the states, and Microsoft. The appellate court affirmed the monopolization claim, reversed other findings by the district court, and remanded the case back to the district court to find an appropriate remedy. Following further settlement discussions among the various parties – DOJ, the states, and Microsoft – DOJ and Microsoft reached a settlement agreement. Nine states opted not to join the settlement, proposing a different remedy. A thirty-two-day trial was held, and, on November 1, 2002, the district court issued a remedy ruling. Eventually, all of the remaining states settled with Microsoft. While its ultimate impact on antitrust jurisprudence remains unclear, there is no doubt that from the public’s perspective U.S. v. Microsoft was the antitrust case of the 1990s, and arguably from a policy perspective one of the most significant antitrust cases of the twentieth century. The investigation, the trial, and its aftermath received wide press coverage throughout. A number of the major actors in the drama became household names, as much the result of the public relations battle among the parties as of the litigation itself. Microsoft’s problems did not end with the resolution of the U.S. Government’s case. Microsoft was sued in class actions brought by attorneys on behalf of customer who were alleged to have paid too much money for their Windows operating systems. Most of these lawsuits have now been settled for very substantial sums of money, running into the hundreds of millions of dollars. To make matters worse from Microsoft’s perspective, the turn of the century coincided roughly with increased enforcement activity by the Directorate General for Competition of the European Union. Rather than focusing on browsers and on PC operating systems, the EU directed its attention to the “player,” which allows users to stream audio and video content from the Web and to servers. Real Networks, which dominated the market with its Real Player, was being threatened by Microsoft’s decision to integrate the Microsoft Player into its operating system. After an extensive investigation, the European Commission concluded in March 2004 that Microsoft’s bundling of its operating system with its player constituted a violation of the EC law that characterized certain anticompetitive monopolizing practices. The EC ordered Microsoft to pay a substantial fine and to put onto the market a second version of its operating system Windows XP without a player. Microsoft’s appeal of the EC’s ruling (to the Court of First Instance, and intermediate appellate court) led to a September 2007 ruling that strongly supported the EC. As of the early autumn 2007, the EC continues to monitor and to question Microsoft’s responsiveness to its required remedies. In sum, there is much in the Microsoft case that is of import to the twenty-first-century competition in high technology. Not only does Microsoft’s behavior continue to be scrutinized, but also courts are now beginning to look at the implications of the Court’s ruling in U.S. v. Microsoft on other high-technology companies such as Intel and Google. At the heart of the Microsoft case was the Government’s claim that Microsoft had engaged in a range of anticompetitive acts that was designed to maintain its operating system (OS) monopoly. The Government did not question the source of Microsoft’s historical success. The Government did, however, claim that consumers were harmed by Microsoft’s conduct, in part because consumers were paying higher prices for their operating system software and in part because Microsoft’s actions had reduced innovation in the software industry. In response, Microsoft argued that it was not a monopoly since it face significant competitive threats in a highly dynamic industry. It further argued that its success should be seen as procompetitive, since consumers had benefited as the result of the distribution of its high-quality, innovative software. If the court were to impose substantial antitrust remedies, Microsoft believed, competitive incentive would be reduced, which would lead to less, rather than more, innovation.

• 

  Human Rights and Humanitarian Law in the 'War on Terror': The Story of El Masri v. Tenet

  Margaret L. Satterthwaite

  This book tells the story of 15 human rights cases from around the world, including cases adjudicated by a court or commission as well as controversies decided outside the courthouse. The cases illustrate key themes, including the development of human rights norms and the work of human rights organizations; the function of individual and collective identities in human rights struggles; the role of international criminal norms in protecting human rights; globalization, foreign policy, and the economy; and human rights in a world at war. The text illustrates the dynamic interaction between advocacy and legal doctrine.

• 

  Known Unknowns

  Margaret L. Satterthwaite

  The stories of Guantánamo detainees, silenced and imprisoned without trial, as told by their lawyers: Following the terrorist attacks of 9/11, the United States imprisoned more than seven hundred and fifty men at its naval base at Guantánamo Bay, Cuba. These men, ranging from teenage boys to men in their eighties from over forty different countries, were detained for years without charges, trial, and a fair hearing. Without any legal status or protection, they were truly outside the law: imprisoned in secret, denied communication with their families, and subjected to extreme isolation, physical and mental abuse, and, in some instances, torture. These are the detainees’ stories, told by their lawyers because the prisoners themselves were silenced. It took habeas counsel more than two years—and a ruling from the United States Supreme Court—to finally gain the right to visit and talk to their clients at Guantánamo. Even then, lawyers were forced to operate under severe restrictions designed to inhibit communication and envelop the prison in secrecy. In time, however, lawyers were able to meet with their clients and bring the truth about Guantánamo to the world. The Guantánamo Lawyers contains over one hundred personal narratives from attorneys who have represented detainees held at “GTMO” as well as at other overseas prisons, from Bagram Air Base in Afghanistan to secret CIA jails or “black sites.” Mark Denbeaux and Jonathan Hafetz—themselves lawyers for detainees—collected stories that cover virtually every facet of Guantánamo, and the litigation it sparked. Together, these moving, powerful voices create a historical record of Guantánamo’s legal, human, and moral failings, and provide a window into America’s catastrophic effort to create a prison beyond the law. An online archive, hosted by New York University Libraries, will be available at the time of publication and will contain the complete texts as well as other accounts contributed by Guantánamo lawyers. The documents will be freely available on the Internet for research, teaching, and non-commercial uses, and will be preserved indefinitely as a historical collection. Read free excerpts from the book at http://www.theguantanamolawyers.com and explore the complete archive of narratives at http://dlib.nyu.edu/guantanamo

• 

  The U.S. Program of Extraordinary Rendition and Secret Detention: Past and Future

  Margaret L. Satterthwaite

  In January 2009, the ECCHR published the second edition of their report “CIA 'Extraordinary Rendition' Flights, Torture and Accountability: A European Approach.” The study provides an overview of legal proceedings and other judicial responses to CIA rendition flights in pertinent European countries such as Germany, Poland, Italy, and Spain, as well as in the U.S. In his preface to the report, Prof. Dr. Manfred Nowak, UN Special Rapporteur on Torture and Director of the Ludwig Boltzmann Institute for Human Rights in Vienna, stresses the importance of legal proceedings against human rights abuses committed as part of the U.S.-led strategy of combating global terrorism. He also adds that the systematic practice of rendition and torture by the Americans and their allies has provided an extremely negative example for other states. In addition, Margaret L. Satterthwaite, Associate Professor with the New York University School of Law, examines the violations of international law committed under the long-classified CIA program and the policies brought about by the new Obama administration. The authors of the ECCHR also give a detailed account of the numerous on-going civil and criminal proceedings filed by victims of abuse and human rights organizations in both Europe and the U.S. in recent years. These groups, using freedom of information claims and other judicial means, call for a full disclosure of the facts. Moreover, in the past few years, ECCHR has facilitated several events concerning the CIA program and the responsibility of European nations in cities such as Berlin, Warsaw and Copenhagen. Numerous human rights organizations and dedicated attorneys from countries affected by the CIA program have taken part in these events in order to examine not only the overall program, but also the individual cases involved. While on the one hand investigations and legal proceedings occurring in the respective countries have been regarded as a positive step, on the other hand, these endeavors admittedly also face many judicial and political obstacles. These challenges became evident in the summer of 2007, during criminal proceedings concerning the CIA-orchestrated kidnapping of the German citizen Khaled El-Masri. In order to avoid a political conflict with the U.S., the German government declined to file an extradition request in September 2007. In response to this move, in June 2008 the ECCHR filed an action on behalf of Khaled El-Masri against the Federal Republic of Germany before the Administrative Court in Berlin. The action included a request for the extradition of CIA agents who have been accused of kidnapping El-Masri and against whom an arrest warrant was issued by the District Court of Cologne. This request was postponed and later transferred to the Administrative Court in Cologne, where it is still pending review. To receive a hard copy of “CIA 'Extraordinary Rendition' Flights, Torture and Accountability: A European Approach” (€6 + shipping costs), please contact us per e-mail at info@ecchr.eu.

• 

  Count Capital Gains in AMT, Unify Higher Education Credits

  Deborah H. Schenk

  Two assignments of the Volcker task force are to identify specific measures to close loopholes that help create the $300 billion tax gap and to simplify the code. I'll offer one of each. Closing the tax gap may mean reducing tax evasion and loopholes, but it also may mean raising revenue, because one of the Obama administration's goals is to cut the budget deficit in half. Closing the tax gap through enforcement alone will not do the trick; hence, raising rates or widening the base may be necessary. Neither is politically palatable, and doing both simultaneously might be political suicide. But there is a way to accomplish the goal that is not so transparent and might fly under the political radar: Include capital gains in the alternative minimum tax base. That suggestion rests on the assumption that Congress will not repeal the AMT. Even though the AMT is everyone's favorite whipping boy, it raises a lot of revenue. Indeed, the revenue from it is far greater than the tax gap, and AMT repeal would be a huge tax cut for the wealthy. So even if lawmakers are looking for ways to raise revenue to reduce the deficit, repealing the AMT will not be on the table. So instead let's return the AMT to its original function of closing loopholes and reducing tax preferences. The first AMT, adopted in 1969, increased the effective tax rate on capital gains. The Tax Reform Act of 1986 eliminated the capital gains preference, and as a result, capital gains disappeared from the AMT base. When the preferential rate made a quick reappearance, Congress failed to reinsert it into the AMT. Now would be a good time to do that.

• 

  The Story of Kirby Lumber: The Many Faces of Discharge of Indebtedness Income

  Deborah H. Schenk

  Surely United States v. Kirby Lumber Co. is one of the shortest Supreme Court opinions ever to pack such a wallop. The Court's opinion is only two paragraphs long, and the first is largely a recitation of the facts. Despite its length (or maybe because of its length), it has spawned seven decades of controversy. The holding of the case is concise—the cancellation of a debt creates taxable income—but the reasoning is obscure and has produced many exceptions and much uncertainty. The situation that gives rise to the Kirby Lumber issue can be stated very simply. Suppose Lender lends Borrower $10,000. Then some time later, because B is unable to repay the full amount of the loan, L agrees to accept $3,000 in satisfaction of the loan. Kirby Lumber holds that B has $7,000 of income. But what if B had taken the $10,000 and lost it all in his business or in gambling so that he did not make any money in the transaction? Or what if at the time L discharged the loan, B was insolvent or had declared bankruptcy? What if L was B's mother who lent the $10,000 to help B pay medical school tuition and on graduation day forgave the loan? What if L had lent B the $10,000 as the sales price of a used car, which turns out to be a lemon, and L accepts $3,000 as payment for the car? The resolution of these cases turns in large part on why the borrower in the simple case has $7,000 of cancellation of debt (“COD”) income. The story begins with Kirby Lumber.