The Constitutionality of Stop-and-Frisk in New York City
Stop-and-frisk, a crime prevention tactic that allows a police officer to stop a person based on "reasonable suspicion” of criminal activity and frisk based on reasonable suspicion that the person is armed and dangerous, has been a contentious police practice since first approved by the Supreme Court in 1968. In Floyd v. City of New York, the U.S. District Court for the Southern District of New York ruled that New York City’s stop-and-frisk practices violate both the Fourth and Fourteenth Amendments. Professors David Rudovsky and Lawrence Rosenthal debate the constitutionality of stop-and-frisk in New York City in light of Floyd and Judge Shira A. Scheindlin’s controversial removal from the case. Professor Rudovsky argues that Floyd shows the important role of data and statistical analysis in assessing the constitutionality of stop-and-frisk procedures. He contends that empirical evidence regarding both the factors for and outcomes of stops and frisks in New York demonstrates that either the legal standard is too permissive or police-stop documentation is not truthful. In response, Professor Rosenthal argues that Judge Scheindlin erred in failing to consider evidence of stop-and-frisk’s efficacy—evidence indicating that the NYPD’s stops are based on reasonable suspicion, a standard considerably less demanding than “preponderance of the evidence.” Additionally, Rosenthal argues that Judge Scheindlin should have considered differential offending by race or other potentially nondiscriminatory explanations for the higher stop rates of minorities.
If All Investment Banks Are Conflicted, Why Blame Barclays? An Examination of Investment Bank Fee Structures and Del Monte Foods
In February 2011, Vice Chancellor Laster held in In re Del Monte Foods Co. Shareholders Litigation that the Del Monte Foods board of directors breached its duty of care to the Del Monte stockholders by failing to identify and guard against its investment banker Barclays’ conflicts in a merger transaction with Blue Acquisition Group. The court identified four instances of misbehavior throughout the sale process: (1) Barclays met secretly with potential bidders to solicit interest in acquiring Del Monte before the company was up for sale, and prior to being hired as the company’s sell-side advisor; (2) once the company was up for sale, Barclays facilitated a relationship between two competing bidders in violation of confidentiality agreements between the bidders and the company; (3) Barclays planned to and in fact did obtain the company’s permission to provide the acquirers’ financing; and (4) subsequent to the approval of the merger agreement, Barclays conducted the go-shop despite an agreement to finance the acquirers. And how did the Del Monte board breach its duty? It didn’t stop Barclays.
What could the board have done differently? The court explained that, despite having relied in good faith on Barclays’ independence and expertise, the Del Monte board breached its duty of care by failing to realize that Barclays had pieced together a deal resulting in its earning more than forty million dollars in fees from its dual role. The board, according to the court, should have recognized that Barclays suffered from a conflict of interest as it stood on both sides of the transaction by providing both sell-side advice and buy-side financing. I argue in this Note, however, that Barclays, and indeed all sell-side advisors, face a serious conflict of interest in standing on even one side of the transaction—by receiving success fees contingent on the consummation of a merger. For that reason, it is unclear whether the Del Monte decision imposed on boards of directors a duty to identify conflicts that are more serious than those ordinarily accepted in the investment banking industry, or merely a duty to fully disclose all conflicts. But considering the facts of Del Monte, I argue that the possibility of obtaining permission to provide buy-side financing is just another conflict shared by all full-service investment banks, and that additional disclosure would not have changed the outcome of the case. As a result, I conclude that Delaware courts should either (1) accept that investment bankers are necessarily conflicted when working on the sale of a corporation or (2) require a fundamentally different fee structure for investment bankers working on such a sale, and ultimately advocate for the elimination of success fees and staple financing.
This Note proceeds as follows: In Part I, I describe investment banking services provided in the sale of a corporation and common fee structures used in those services. In Part II, I contextualize Del Monte with respect to relevant case law, and in Part III, I describe the facts of the case. In Parts IV and V, respectively, I present the claims brought against the Del Monte board as well as the Delaware Court of Chancery’s response to those claims. Part VI describes the consequences of the court’s holding for Del Monte and Blue Acquisition Group. Finally, in Part VII, I argue that Barclays’ conflicts were no more significant than the conflicts that exist for nearly all full-service investment banks, and that, for this reason, additional disclosure would not have affected the outcome. I do make the caveat that the Del Monte board did breach its duty of care by permitting Barclays to conduct the go-shop after Barclays had committed to provide the acquirers’ financing. Finally, I analyze the standard for investment bank conflicts going forward and advocate for eliminating success fees and staple financing altogether.
Whose Conception of Insurance?
Professor Abraham’s new Article, Four Conceptions of Insurance, offers an invaluable overview and critique of four modern conceptions of insurance. He cautions that “the particular lens through which we view insurance law cannot tell us what principles should govern or what policy choices to make.” But who is the “we” in that statement? This Response focuses on three overlooked groups with an important interest in such governing principles and policy choices. First, Abraham mentions insurance brokers only briefly, describing how large insurance brokers can negotiate policy terms. But brokers, large and small, play an important role in deciding which available insurance a policyholder purchases. Second, any discussion of homeowners insurance should include mortgage holders, who require mortgagors to purchase insurance and whose interest in the scope of coverage is equal to or greater than the homeowner’s. Third, within the construction industry, general contractors seek to transfer risk to their subcontractors, who must purchase liability policies naming general contractors as “additional insureds.” The contract model, which looks to the intent of the insurer and the subcontractor, as expressed in the policy language, preserves the expectations of the parties to the contract. In examining each of these three overlooked groups’ interests in an insurance transaction, we may discover that the contract model, so frequently maligned in the academic literature, is not so bad after all.
"Reverse" Patent Declaratory Judgment Actions: A Proposed Solution for Medtronic
The United States Supreme Court has taken an interest in shaping patent law in recent years, deciding many important cases, a number of which have involved special procedural rules created by the Federal Circuit. With the Court scheduled to hear Medtronic Inc. v. Boston Scientific Corp. in early November, this term is no exception. The issue in Medtronic is whether the burden of proof in patent declaratory judgment actions (DJ actions) should be on the patent owner (i.e., the defendant) to prove infringement or on the accused infringer (i.e., the plaintiff) to prove noninfringement. Ordinarily, the patent owner bears the burden of proving infringement, and the declaratory posture of a suit does not shift that burden. In Medtronic, however, the Federal Circuit created an exception for “MedImmune-type” cases—that is, declaratory judgment actions where the plaintiff is a licensee in good standing—since the patent owner cannot counterclaim for infringement. “Because the declaratory judgment plaintiff is the only party seeking the aid of the court,” the Federal Circuit reasoned, it should bear the burden of proving noninfringement.
Medtronic and its supporting amici (including the United States) argue that the Supreme Court should reverse the opinion below because the Federal Circuit misallocated the burden of proof as a legal matter and because the Federal Circuit’s rule undermines the policy goal of encouraging patent validity challenges. Without disputing Medtronic’s position, this short Essay suggests, first, that Medtronic sweeps more broadly than the parties have acknowledged, and, second, that there may be an additional—and perhaps simpler—ground for reversing the Federal Circuit.
The litigants all appear to believe that the Federal Circuit’s new exception is limited to MedImmune-type suits, but Medtronic could be interpreted more expansively. In Medtronic, the Federal Circuit shifted the burden of proof to the accused infringer because the patent owner could not counterclaim for infringement. Yet, there are declaratory judgment actions outside the MedImmune context where an infringement counterclaim is also precluded. For instance, plaintiffs sometimes file “anticipatory” declaratory judgment actions before engaging in any potentially infringing activities. In these suits, the patent owner cannot counterclaim for infringement because no infringing activity has occurred. Under the logic of Medtronic, therefore, the burden of proof would shift to the plaintiff in this category of cases even though there’s no license involved.
Whether limited to MedImmune-type suits or not, the Federal Circuit’s reasoning in Medtronic is significantly flawed. While it’s true that patent owners cannot counterclaim for infringement in certain types of declaratory judgment actions, they may always counterclaim for a declaration of future infringement. In other words, the patent owner in Medtronic was not, as the Federal Circuit determined, precluded from “seeking the aid of the court”; instead, the owner could have asked the court to resolve the infringement question by filing a “reverse” declaratory judgment action against the accused infringer. Thus, the Federal Circuit’s rationale for crafting this exception was wholly unjustified, and Medtronic should be reversed.
A Theory of Preferred Stock
Should preferred stock be treated under corporate law as an equity interest in the issuing corporation or under contract law as a senior security? Should a preferred certificate of designation be subsumed in the corporate charter and treated as an incomplete contract filled out by fiduciary duty, or should it be treated as a complete contract with the drafting burden on the party asserting the right, as would occur with a bond contract? Is preferred stock equity or debt? This Article shows that preferred stock is both corporate and contractual—neither all one nor all the other. It sits on a fault line between two great private law paradigms, corporate and contract law, and draws on both. The overlap brings two competing grundnorms to bear when interests of preferred and common stockholders come into conflict: on the one hand, managing to the common stock as residual interest holder maximizes value; on the other hand, holding parties to contractual risk allocations maximizes value. When questions arise concerning the relative rights of preferred and common stock, the norms hold out conflicting answers. Delaware courts have taken the lead in confronting these questions by seeking to synchronize the law of preferred stock with the rest of corporate law—a project that has led to both innovation and stress.
This Article examines recent cases about preferred stock to show two facets of Delaware law coming to bear as the synchronization process proceeds: first, reliance on independent directors for dispute resolution, and second, the common stock– value maximization norm. These trends cause the law to tilt toward corporate norms, thereby disrupting allocated risks in heavily negotiated transactions, particularly in the venture capital sector. The Article makes three recommendations that would promote the goal of restoring balance between the corporate and contract paradigms. First, the meaning and scope of preferred contract rights should be determined by courts, rather than by issuer boards of directors. Second, conflicts between preferred and common should not be decided by reference to a norm of common stock–value maximization. Instead, the goal should be the maximization of the value of the equity as a whole. Third, independent-director determinations of conflicts between preferred and common should not be accorded ordinary business judgment review. Instead, a door should be left open for good faith review tailored to the context. This review would require a showing of bad faith treatment of the preferred where the integrity of a deal has been undermined, with the burden of proof on the board.
Music Piracy and Diminishing Revenues: How Compulsory Licensing for Interactive Webcasters Can Lead the Recording Industry Back to Prominence
This Comment suggests that Congress should amend the Copyright Act to ensure that promising new music-based technologies are able to survive. The establishment of a compulsory license for interactive webcasters will help ensure that sound recording copyright owners are properly compensated for their recordings and performances, while also guaranteeing that the public will be able to utilize these copyrighted works to their greatest benefit. As a result of the recording industry’s failed efforts to combat music piracy over the past two decades, Congress must concern itself with the interests and future viability of the entire music industry. By expanding compulsory licensing to cover both noninteractive and interactive webcasters, the dual purposes of copyright law envisioned in the Constitution can best be achieved.
Part I of this Comment provides a discussion of the severe problems music piracy has generated for the recording industry over the past two decades and the many ways in which the recording industry has failed to combat the piracy epidemic. Part II outlines the advancement of music in the digital age, with a particular focus on the importance of streaming technology in the future. Part III chronicles the history of copyright protection for sound recordings, from the initial structure of the digital performance right to the current tripartite framework of the public performance right in sound recordings. Part IV provides further details of the noninteractive webcasting royalty proceedings, detailing the key shortcomings of the current rate structure and the issues that industry participants have been grappling with for the past two decades. Part V argues that compulsory licensing should be congressionally established for interactive webcasters and outlines the general structure that should be adopted. Lastly, Part VI provides a detailed discussion of the economic benefits an interactive webcasting compulsory license rate will have for the recording industry so long as Congress and the major record labels fully embrace streaming technology and interactive webcasting.