Volume 165, Issue 4 
March 2017
Articles

Priority Matters: Absolute Priority, Relative Priority, and the Costs of Bankruptcy

Douglas G. Baird

Chapter 11 of the Bankruptcy Code is organized around the absolute priority rule. This rule mandates the rank‐ordering of claims. If one creditor has priority over another, this creditor must be paid in full before the junior creditor receives anything. Many have suggested various modifications to the absolute priority rule. The reasons vary and range from ensuring proper incentives to protecting nonadjusting creditors. The rule itself, however, remains the common starting place.

This Article uses relative priority, an entirely different priority system that flourished until the late 1930s, to show that using absolute priority even as a point of departure is suspect. Much of the complexity and virtually all of the stress points of modern Chapter 11 arise from the uneasy fit between its starting place (absolute instead of relative priority) and its procedure (negotiation in the shadow of a judicial valuation instead of a market sale). These forces are leading to the emergence of a hybrid system of priority that may be more efficient than one centered around absolute priority.


“A Radical Proposal”: The Multidistrict Litigation Act of 1968

Andrew D. Bradt

One of the central stories in current procedural law is the recent and rapid ascendance of federal multidistrict litigation, or, as it is commonly known, MDL. As the class action has declined in prominence, MDL has surged: to wit, currently more than a third of the cases on the federal civil docket are part of an MDL. With MDL’s growth has come attention from scholars, much of it critical. One recurring aspect of this criticism is that MDL judges have expanded the MDL statute beyond its modest ambitions. But what were the original purposes of MDL, and where did the statute come from? This Article unearths the origins of MDL by examining the papers of its principal drafters. Those papers reveal that the aims of the small group—a handful of federal judges and one scholar—who developed and lobbied for the statute’s passage were anything but modest. Rather, the group believed that a mass‐tort “litigation explosion” was coming and that a mechanism was needed to centralize power over nationwide litigation in the hands of individual judges committed to the principles of active case management. Moreover, the papers show that the judges were relentless in their pursuit of the statute’s passage and engaged in sharp‐elbowed tactics and horse‐trading to succeed. In short, MDL was a power grab—a well‐intentioned and brilliant one, but a power grab all the same. Understanding the roots of the judges’ accomplishment clarifies current debates about MDL and should shift those debates away from fights over the scope of the statute to more normative assessments of the concentration of power the drafters sought and successfully achieved. In short, MDL currently does what its creators intended; critiques of the statute should proceed on those terms, not from the position that MDL has somehow grown beyond its modest ambitions.


The Value of the Right to Exclude: An Empirical Assessment

Jonathon Klick & Gideon Parchomovsky

Property theorists have long deemed the right to exclude as fundamental and essential for the efficient use and allocation of property. Recently, however, proponents of the progressive property movement have called into question the centrality of the right to exclude, suggesting that it should be scaled back to allow the advancement of more socially beneficial uses of property. Surprisingly, the debate between the proponents and detractors of the right to exclude is devoid of any empirical evidence. The actual value of the right to exclude remains unknown.

In this Article, we set out to fill this void by measuring, for the first time, the value of the right to exclude. To that end, we use the passage of the Countryside and Rights of Way Act of England and Wales in 2000 as a natural experiment to provide empirical insight into this issue. We show that the Act’s passage led to statistically significant and substantively large declines in property values in areas of England and Wales that were more intensively affected by the Act relative to areas where less land was designated for increased access. While property prices might not capture all social value, our findings provide a critical input to the debate regarding access to private property. Given that the access rights provided by the “right to roam” included in the Act represent seemingly minimal intrusions on private property, our findings indicate that property owners view even small restrictions on their right to exclude very negatively.

We believe that our findings are of significant importance to lawmakers in the United States, as they provide an empirical basis for policymaking in the realms of property and land use. In the United States, private property rights enjoy constitutional protection under the Takings Clause of the Fifth Amendment. Hence, any attempt to formalize a general right to roam or other intrusions on the right to exclude may require the government to pay just compensation to affected property owners. Our study suggests what the just compensation amounts are likely to be. This information would allow lawmakers to make better decisions about the social desirability of various land use measures. We would like to emphasize that our findings should not be read as a call against the adoption of a right to roam or any other public privilege. Our only goal is to furnish a needed empirical foundation that would permit lawmakers to conduct a more precise cost–benefit analysis of different policies.


Comments

Class Action Notice in the Digital Age

Alexander W. Aiken

Technology is advancing dramatically each year, reshaping our society in the process. Despite these rapid changes, however, many federal courts continue to rely on traditional means of disseminating notice, including mail and newspapers, to inform class action members of their rights. As technology continues to progress in the digital age, these methods are becoming increasingly anachronistic. Inadequate notice risks a class member not learning of the action, and failing to learn of an action risks an individual losing a potentially large claim. Moreover, inadequate notice may open a judgment or settlement to direct or collateral attack.

Recognizing limitations in traditional forms of notice, some courts and parties have begun using modern technologies. They are using email notice to deliver individual notice, and banner and pop‐up advertisements on websites, as well as dedicated websites, to try to reach unknown class members. Although these efforts are a promising first step, courts and parties can do more. For example, machine learning systems—which analyze massive accumulations of data to discern unobserved patterns—could be used to identify previously unknown class members, with the ultimate goal of sending them individual notice. Social media also offers an inexpensive way for parties to reach a potentially vast, diverse class. Finally, text messaging could allow parties to deliver notice directly to class members in a matter of seconds. In the digital age, it is imperative that courts and parties harness modern technologies to provide the best notice practicable and protect the interests of class members.


Improving the Patent System by Encouraging Intentional Infringement: The Beneficial Use Standard of Patents

Kai Yi Xie

With the growing importance of intellectual property in the global economy, “patent infringement” has become a dirty phrase for patentees and defendants alike. For plaintiffs, it raises thoughts of the theft of one’s just deserts. Yet defendants may think of nuisance‐value suits and artificial impediments to the free flow of information. Neither side is happy because the American patent system adopts a blunderbuss approach to granting and protecting inventions. We have a one‐size‐fits‐all solution regulated by an administrative agency, the U.S. Patent and Trademark Office, incapable (perhaps intentionally) of reliably screening out low‐quality patent applications. The result has been a deluge of patents that have been granted when they should not have been—i.e., patents that remain unlitigated, impose high costs, and chill follow‐on innovation. But because all patents are treated alike, good patents and bad patents are equal under the law; the patent right is always of equal “strength.”

In this Comment, I argue that patent infringement is something to be embraced, not avoided. Much as the legal academy and practitioners have adopted the counterintuitive idea of the efficient breach of contracts, I note that there is such a thing as the efficient infringement of patents; we should be encouraging infringement in certain circumstances to address to the vast private and social costs in today’s patenting system. In this Comment, I analyze the economic and philosophical underpinnings of patent rights, and also make comparisons to trademark law and water law—another area of law that assigns rights under conditions of scarcity. Through this analysis, I demonstrate that sometimes incentivizing patent infringement by varying the strength of the patent right is preferable to the status quo. There is no reason for us to have a one‐size‐fits‐all patent right when granted patents are often of low quality and there is room to fit the strength of the right to the underlying value of the patent.

Simply put, I show that a “beneficial use” standard for patents, one that identifies whether the patent owner is exploiting the granted patent right in a societally beneficial manner, is more efficient and makes for better policy than our current system.


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