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Washington and Lee Law Review - Volume 72:2

Note

Coverage for Ill – Gotten Gains? Discussing the (Un)Insurability of Restitution and Disgorgement

by Katherine C. Skilling

Deciding whether there is insurance coverage for restitution and disgorgement is especially problematic because the restitution remedy is subject to misunderstanding by both lawyers and judges. J.P. Morgan Securities highlights the uncertainty surrounding the meaning of disgorgement and how it should be measured. Courts must look at the nature of the claim or payment, rather than the label, to see if it constitutes restitution or disgorgement. However, the problem remains that restitution and disgorgement are not specific terms with universal definitions. Thus, it is imperative for courts and lawyers to gain a sound understanding of what these terms mean in the vernacular of remedies. This Note explores the legal issues surrounding insurance coverage for restitutionary payments and disgorgement of illgotten gains. Furthermore, this Note argues that utilizing and adopting the definitions of restitution and disgorgement from the Third Restatement of Restitution and Unjust Enrichment can provide guidance and clarity for both judges and lawyers in determining whether there is coverage for claims or payments labeled as restitution or disgorgement.

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Note

The Admissibility of TrueAllele: A Computerized DNA Interpretation System

by Katherine L. Moss

When analyzing the admissibility of emerging scientific technologies, judges balance various competing principles of criminal law. These principles include accuracy and fairness. While the computerized DNA technology may claim to yield accurate results (and may in fact yield accurate results), defense attorneys––and to some extent judges––must test this claim and uphold due process by admitting the evidence in a fair manner. This Note discusses the admissibility of TrueAllele, a computerized DNA interpretation technology.

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Note

Municipal Bonds in Bankruptcy § 902(2) and the Proper Scope of “Special Revenues” in Chapter 9

by Alexander D. Flachsbart

Recent scholarship on Chapter 9 of the Bankruptcy Code has focused on everything from the efficacy of municipal bankruptcy to its intersection with pensioner rights and collective bargaining agreements. However, few (if any) writers have addressed the more intricate question of whether, how, and why certain bondholders have claims superior to other bondholders for scarce municipal assets. This Note seeks to fill that void.

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Note

Adding a Due Diligence Defense to § 13(b) and Rule 13b 2 – 2 of the Securities Exchange Act of 1934

by Michael Evans

Currently, circuit courts are split over whether Rule 13b2–2 contains a scienter requirement. Whereas the Second and Eighth Circuits have found no scienter requirement in Rule 13b2–2, the Ninth Circuit has held the opposite. This debate offers an opportunity to reevaluate the costs and benefits of these provisions. These provisions protect the accuracy and breadth of corporate financial records. Because investors rely on the disclosure of corporate information, inaccurate and incomplete financial records threaten the efficiency of capital markets. Absent a scienter requirement, however, these provisions could impose liability on good-faith actors, potentially increasing the cost of compliance as companies take excessive action to avoid liability.

Thus, the circuit split raises a question: Without scienter, do the costs of § 13(b) and Rule 13b2–2 exceed their benefits? This Note argues that, while § 13(b) and Rule 13b2–2 do not require scienter as a matter of law, Congress can better align the costs and benefits of these provisions by adding a due diligence defense.

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Article

Tools of Ignorance: An Appraisal of Deficiency Judgments

by Alan M. Weinberger

While achieving success as a major league catcher, Mike Matheny was preparing for a post-baseball career in real estate development. He could not have picked a worse time to pursue his aspiration. Matheny lost his accumulated savings and his family’s home after being held personally liable for a $4.2 million deficiency judgment following foreclosure of property he was unable to develop or market during the Great Recession. Matheny’s failure to succeed in real estate was the proximate cause of his return to baseball as manager of the St. Louis Cardinals.

Matheny’s story provides the backdrop for examining the methods by which deficiency judgments are calculated. The traditional common law approach has been criticized as unjust and overdue for reform. The most widely adopted variation, known as the “fair value” method, is hollow at its core. It provides no meaningful guidance to triers of fact charged with adjudicating value. This Article proposes a re-imagination of the method of calculating deficiency judgments based on experience in transactional practice and alternative dispute resolution. It seeks to accommodate the interests of borrowers and lenders, and the public interest in judicial efficiency and access to affordable credit.

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Article

Afterword to the AIG Bailout

by William K. Sjostrom, Jr

In the early spring of 2009, I wrote an article on the federal government’s bailout of American International Group, Inc. (AIG) entitled The AIG Bailout. The bailout was necessitated by AIG’s disastrous multi-billion dollar bets on the United States housing market that brought it to the brink of bankruptcy. At the time, AIG was the largest insurance company in the United States. Because of its size and interconnectedness, and the fact that financial markets were already under serious distress, it was feared that AIG’s failure would lead to the disintegration of the entire financial system. Hence the federal government stepped in with an $85 billion loan, with total aid ultimately reaching $182.5 billion. Many events related to the bailout transpired after my article was published. Hence, this Article serves as an afterword to The AIG Bailout, detailing some of these post-article events. In that regard, the Article proceeds as follows: Part II picks up where Part IV of The AIG Bailout left off. It describes the further restructuring of government assistance through the recapitalization of AIG, details the government’s exit as AIG’s controlling shareholder, and considers the U.S. Department of Treasury’s claim of a $22.7 billion “overall positive return” on the AIG Bailout. Part III delves into the Maiden Lane III transactions, perhaps the most controversial part of the bailout, pursuant to which Société Générale, Goldman Sachs, Merrill Lynch and other AIGFP counterparties were bought out at essentially 100 cents on the dollar. Part IV examines the provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank), the principal federal regulatory response to the financial crisis, most relevant to what happened at AIG. Specifically, it considers how these regulations would have applied to AIG had they been in place prior to its collapse. Part V concludes the Article. Part IV examines the

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Article

Super – Liens to the Rescue? A Case Against Special Districts in Real Estate Finance

by Christopher K. Odinet

Although special taxing districts have received significant consideration by legal scholars in the past, this Article helps draw a more focused attention to the blatant abuses and negative effects caused by the use of special taxing districts in the purely private real-estate development setting. This process undermines the basic notions of vested property rights without implicating constitutional considerations. The lender whose loan enables the developer to buy the land traditionally receives a first priority mortgage on the property. Except in rare cases, the lender would refuse to make that loan without a first priority lien, which ensures that the debt will be paid before others whose liens or other interests in the property arose after the first mortgage loan was made. However, the law gives the special taxing district lien, imbued with public power but used for purely private purposes, superpriority. Even though the developer’s nonpayment of the assessments occurs only after the bank first obtains its mortgage, the mortgage is nonetheless inferior to the lien. While this type of subordination has merit in the context of general property taxes imposed by a municipality for purposes of education, police protection, and other public services, it represents an extreme injustice in the context of purely private, profit-driven developments. Despite this, there is no requirement that the special district or the municipality that created it pay just compensation to the first secured party for the impairment to its rights in the property. And lastly, the use of special taxing districts for private real estate developments has a wider adverse effect on community lending as a whole. Because real estate lenders cannot rely, as they have traditionally in the past, upon a first lien mortgage, many will no longer make loans for projects in areas that are subject to special taxing districts, no matter what legitimate and larger societal good they serve. Further, because of the potential to be primed by the district’s super lien, financial institutions at the secondary mortgage market level—who play such a critical role in making a liquid residential mortgage market possible— will likely refuse to purchase mortgages that are secured by properties within special districts, something that has already occurred in recent, similar situations involving PACE financing. While this has the potential to kill off effectively the use of purely private real estate development special districts, it will have the unintended consequence of eliminating the use of these financing tools in scenarios where they are truly warranted, such as in projects that improve poor neighborhoods or economically depressed areas where no conventional lender will extend credit. By doing so, a whole sector of viable community development financing will be utterly abolished.

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Article

Progressive Legal Thought

by Herbert Hovenkamp

A widely accepted model of American legal history is that “classical” legal thought, which dominated much of the nineteenth century, was displaced by “progressive” legal thought, which survived through the New Deal and in some form to this day. Within its domain, this was a revolution nearly on par with Copernicus or Newton. This paradigm has been adopted by both progressive liberals who defend this revolution and by classical liberals who lament it. Nevertheless, the model seriously misinterprets the legal revolution that occurred in the early twentieth century.

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Article

Regulating Professional Sports Leagues

by Nathaniel Grow

Four monopoly sports leagues currently dominate the U.S. professional sports industry. Although federal antitrust law—the primary source of regulation governing the industry—would normally be expected to provide a significant check on anticompetitive, monopolistic behavior, it has failed to effectively govern the leagues due to both their well-entrenched monopoly status and the unique level of coordination necessary among their respective teams. Consequently, the four leagues today each, in many respects, enjoy unregulated monopoly status in what is estimated to be a $67 billion industry.

As one might expect, these leagues use their largely unchecked monopoly power to injure the public in various ways. By restricting expansion, leagues create an artificial shortage of franchises enabling their existing teams to extract billions of dollars in stadium subsidies from U.S. taxpayers. Similarly, by preventing their franchises from individually licensing their broadcast rights nationally or over the Internet, the leagues are able to demand significantly higher fees from television networks and consumers than would be obtainable in a competitive marketplace while at the same time subjecting viewers to arcane and outdated blackout provisions.

Unfortunately, existing proposals in the academic literature to remedy this undesirable state of affairs are both impractical and unlikely to be effective. This Article instead proposes a surprisingly often overlooked solution: the creation of a federal sports regulatory body. Because the U.S. professional sports leagues today effectively operate as natural monopolies—with nearly 150 years of history establishing that competing leagues cannot sustainably coexist in a sport for any significant length of time—direct government regulation of the industry is warranted. Indeed, a specialized regulatory body would be particularly well suited to ensure that the leagues’ activities are aligned with the public interest, while at the same time accommodating the industry’s unusual economic characteristics.

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Article

When Judges Have Reasons Not to Give Reasons: A Comparative Law Approach

by Mathilde Cohen

Influential theories of law have celebrated judicial reason-giving as furthering a host of democratic values, including judges’ accountability, citizens’ participation in djudication, and a more accurate and transparent decision-making process. This Article has two main purposes. First, it argues that although reason-giving is important, it is often in tension with other values of the judicial process, such as guidance, sincerity, and efficiency. Reason-giving must, therefore, be balanced against these competing values. In other words, judges sometimes have reasons not to give reasons. Second, contrary to common intuition, common law and civil law systems deal with this tension between reasons for and against reason-giving in increasingly similar ways.

By combining theories of democratic legitimacy with empirical, doctrinal, and historical evidence of judges’ concrete reason-giving practices in the United States and Europe, the Article argues that rather than being in opposition, these two legal cultures are converging toward a common methodology. No longer can it be assumed that civil law judges and common law judges are on opposite ends of the spectrum.

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