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Washington and Lee Law Review - Volume 75:2


by Julian Velasco

Fiduciary duties comprise an integral part of corporate law. It is generally understood that directors owe the corporation and its shareholders two fiduciary duties: the duty of care and the duty of loyalty. Although both duties are firmly established in corporate law, they are not treated equally. It is generally understood that the duty of loyalty is enforced far more rigorously than the duty of care. The justification for this dichotomy is twofold. First, differential treatment is appropriate because of the relative urgencies of the underlying subject matter: loyalty issues pose greater risks than do care issues. Second, the deference of the business judgment rule is made possible by the rigor of the entire fairness test: directors who are not conflicted can be trusted. In this Article, I demonstrate that the duty of loyalty is not enforced as rigorously as is commonly believed. Over fifty years ago, Professor Harold Marsh argued that the duty of loyalty had been watered down substantially over the preceding century. I argue that the diminishment of the duty of loyalty has continued and increased substantially since the time of his writing. I catalog various legal developments that have had the effect of curtailing the enforcement of the duty of loyalty significantly. As a result of these developments, I maintain that the corporate law reality does not currently match the corporate law theory. I argue that some sort of realignment is necessary: either the law must be amended to correspond to the theory, or the theory must be revised to reflect reality.


by Matthew C. Turk and Karen E. Woody

This Article concerns the recent Supreme Court case, Leidos, Inc. v. Indiana Public Retirement System (Leidos), and examines the broader issues that it raised for securities law. The consensus among scholars and practitioners is that Leidos presented a direct conflict among the circuit courts over a core question of securities law—when a failure to comply with the SEC’s disclosure requirements can constitute fraud under Rule 10b-5. This Article provides a much different interpretation of the case. It begins by demonstrating that the circuit split which is presumed to have brought Leidos to the Supreme Court does not in fact exist. It then shows that, rather than being riddled with disagreement, the leading judicial analysis in this area of the law instead reflects a shared set of misconceptions about how the securities regulation architecture works.

By unraveling the underlying sources of the Leidos mix-up, this Article makes three contributions. First, it identifies overlooked aspects of the disclosure rules at issue in Leidos, and provides a novel analysis of how the case should have been decided. Second, it explains how errors in leading interpretations of the legal authorities implicated in Leidos carry over to other prominent portions of the regulatory framework, namely Sections 11 and 12 of the 1933 Securities Act. Third, it demonstrates that a central yet ill-defined securities doctrine—the duty to disclose—functions primarily to obscure rather than clarify the legal questions at issue in disclosure fraud claims. Taken together, these points suggest that Leidos was a more unusual case than has been appreciated, and stands at a remarkable confluence of legal and scholarly confusions, many of which implicate fundamental principles of securities law.


by Andrew A. Schwartz

Securities crowdfunding is premised on two core policy goals: inclusivity and efficiency. First, crowdfunding is conceived as an inclusive system where all entrepreneurs are given a chance to pitch their idea to the “crowd.” Second, crowdfunding is supposed to be an efficient way to channel funds from public investors to promising startup companies. There is a fundamental tension between these two policy goals, however. A totally inclusive system would ensure that platforms list any and every company that wants to participate. But platforms need to curate and select the companies they list in order to establish a reputation as a reliable market for investors. This gatekeeping function aids efficiency, but is exclusive by its nature. Hence, the tension between inclusive and efficient crowdfunding.

This Article provides a theoretical and an empirical analysis of inclusivity versus efficiency in crowdfunding. It also compares the American crowdfunding system with its counterpart in New Zealand using original research collected by the author during a six-month residency in that country. This research reveals that crowdfunding in New Zealand is much more financially successful than in the United States. This Article explains this outperformance on the basis that New Zealand’s system is focused solely on efficiency, even at the expense of inclusivity. In the United States, by contrast, we closed our eyes to the tension between efficiency and inclusivity and tried to achieve both at the same time. In practice, and perhaps as could have been expected, this has led to only minor success on both fronts.

Broadening the analysis out, we see that inclusive crowdfunding is a luxury that only certain countries can manage, depending on their existing systems for entrepreneurial finance. The United States has a huge and sophisticated venture capital industry and thus can afford to sacrifice some efficiency in our crowdfunding system in order to advance inclusivity. But New Zealand has long had very little venture capital investment and hence a real need to develop crowdfunding as an effective new means for efficiently channeling capital to the country’s startup companies. The need to consciously trade off inclusivity and efficiency is an important lesson from the present research.


by Scott W. Howe

An important question for our time concerns whether the Constitution could establish a right to engage in certain marijuana-related activities. Several states have now legalized cannabis, within strict limits, for recreational purposes, and that number will grow. Yet, some states will not promptly legalize but, instead, continue to criminalize, or only “decriminalize” in minor ways, and the federal criminalization statutes also will likely survive for a time. There currently is no recognized right under the Constitution to possess, use, cultivate, or distribute cannabis for recreational purposes, even in small amounts, and traditional, single-clause arguments for such a right are weak. Neither the Cruel and Unusual Punishment Clause, the Fourth Amendment, the Due Process Clause nor the Equal Protection Clause can justify such a protection, and that would remain true even when most states have legalized. But, could another theory justify this constitutional right?

A second important and topical legal question concerns when two or more rights-based clauses in the Constitution can combine to invalidate government action that none of the clauses could disallow on their own. The Supreme Court generally has declined to recognize multiple-clause rights. But, in the past, it occasionally seemed to endorse the approach. And, recently, in Obergefell v. Hodges, it gave new impetus to the idea by declaring the existence of a “synergy” between the Due Process and Equal Protection Clauses that it asserted had helped explain its acknowledgment of certain rights previously and that purportedly helped lead, in the case at hand, to its acknowledgment of a right to same-sex marriage. In consequence, enthusiasm has again intensified over the notion that rights-based clause aggregation can expand constitutional protections. But, is clause aggregation only rhetoric offered to justify something the Court would have done anyway under a single clause or can it sometimes really matter? And, if so, when?

This Article puts both problems in play by asking this question: After a super-majority of states legalize, could multiple clauses together reveal a constitutional right to engage in certain recreational marijuana activities? The Article answers with cautious affirmance: Clause aggregation could help justify such a constitutional right, in tightly limited circumstances. But, the Article also notes that many of the contours remain undeveloped in the Supreme Court’s jurisprudence on rights-based clause aggregation, complicating any effort to predict whether and how the Justices would apply it in the future to recreational marijuana.


by Russell L. Christopher

Do the Sixth Amendment rights to appointed counsel and jury trial unconstitutionally conflict with defendants’ other constitutional rights? For indigents charged with felonies, Gideon v. Wainwright guarantees the right to appointed counsel; for misdemeanors, Scott v. Illinois limits the right to indigents receiving the most severe authorized punishment—imprisonment.Duncan v. Illinois limits the right to jury trial to defendants charged with serious offenses. Consequently, the greater the jeopardy faced by defendants, the greater the eligibility for appointed counsel and jury trial. But defendants’ other constitutional rights generally facilitate just the opposite— minimizing jeopardy by reducing charges, lessening the likelihood of guilt, and lowering the likelihood and severity of punishment— thereby reducing eligibility for appointed counsel and jury trial. Therefore, defendants potentially face the following coercive dilemma: either exercise numerous constitutional rights, but at the cost of relinquishing the rights to appointed counsel and jury trial, or enjoy appointed counsel and jury trial, but at the cost of relinquishing numerous other constitutional rights. This Article argues that GideonScott and Duncan unconstitutionally burden, penalize, chill, and deter defendants’ exercise of ten constitutional rights afforded by the Fourth, Fifth, Sixth, Eighth, and Fourteenth Amendments. Additionally, Gideon and Scott-based conflicts may independently violate the Equal Protection and Due Process Clauses: non-indigents retaining counsel enjoy all their rights while indigents enjoy only some. The simple remedy, resolving all of the conflicts, is extending the Sixth Amendment right to appointed counsel to all indigents and the right to jury trial to all defendants.