Volume 165, Issue 6 
June 2017

Independent Directors and Controlling Shareholders

Lucian A. Bebchuk & Assaf Hamdani

Independent directors are an important feature of modern corporate law. Courts and lawmakers around the world increasingly rely on these directors to protect investors from controlling shareholder opportunism. In this Article, we argue that the existing director‐election regime significantly undermines the ability of independent directors to effectively perform their oversight role. Both the election and retention of independent directors normally depend on the controlling shareholders. As a result, these directors have incentives to go along with controllers’ wishes, or, at least, have inadequate incentives to protect public investors.

To induce independent directors to perform their oversight role, we argue, some independent directors should be accountable to public investors. This can be achieved by empowering investors to determine or at least substantially influence the election or retention of these directors. These “enhanced‐independence” directors should play a key role in vetting “conflicted decisions,” where the interests of the controller and public investors substantially diverge, but not have a special role with respect to other corporate issues. Enhancing the independence of some directors would substantially improve the protection of public investors without undermining the ability of the controller to set the firm’s strategy.

We explain how the Delaware courts, as well as other lawmakers in the United States and around the world, can introduce or encourage enhanced‐independence arrangements. Our analysis offers a framework of director election rules that allows policymakers to produce the precise balance of power between controlling shareholders and public investors that they find appropriate. We also analyze the proper role of enhanced‐independence directors as well as respond to objections to their use. Overall, we show that relying on enhanced‐independence directors, rather than independent directors whose elections fully depend on the controller, can provide a better foundation for investor protection in controlled companies.

Health Information Equity

Craig Konnoth

In the last few years, numerous Americans’ health information has been collected and used for follow‐on, secondary research. This research studies correlations between medical conditions, genetic or behavioral profiles, and treatments, to customize medical care to specific individuals. Recent federal legislation and regulations make it easier to collect and use the data of the low‐income, unwell, and elderly for this purpose. This would impose disproportionate security and autonomy burdens on these individuals. Those who are well‐off and pay out of pocket could effectively exempt their data from the publicly available information pot. This presents a problem which modern research ethics is not well equipped to address. Where it considers equity at all, it emphasizes underinclusion and the disproportionate distribution of research benefits, rather than overinclusion and disproportionate distribution of burdens.

I rely on basic intuitions of reciprocity and fair play as well as broader accounts of social and political equity to show that equity in burden distribution is a key aspect of the ethics of secondary research. To satisfy its demands, we can use three sets of regulatory and policy levers. First, information collection for public research should expand beyond groups having the lowest welfare. Next, data analyses and queries should draw on data pools more equitably. Finally, we must create an entity to coordinate these solutions using existing statutory authority if possible. Considering health information collection at a systematic level—rather than that of individual clinical encounters—gives us insight into the broader role that health information plays in forming personhood, citizenship, and community.

Legislating in the Shadows

Christopher J. Walker

Federal agencies are deeply involved in both the foreground and shadows of legislative drafting. In the foreground, agencies draft the substantive legislation the Administration desires to submit to Congress. In the shadows, agencies provide confidential “technical drafting assistance” on legislation that originates with congressional staffers. This technical drafting assistance provides Congress with agency expertise on the subject matter, which helps Congress avoid considering legislation that would unnecessarily disrupt the current statutory scheme. It also allows the agency to play an active—yet opaque—role in drafting legislation from the very early stages. In fact, the empirical findings presented in this Article, based on extensive interviews and surveys at some twenty federal agencies, suggest that agencies provide technical drafting assistance on the vast majority of proposed legislation that directly affects them and on most legislation that gets enacted.

The underexplored yet widespread practice of legislating in the shadows has important implications for administrative law theory and doctrine, as well as the conventional principal–agent bureaucratic model. On one hand, this phenomenon perhaps supports the growing scholarly call that agencies should be allowed to engage in more purposivist interpretation (than their judicial counterparts) because of their expertise in legislative history and purpose as well as their role in statutory drafting. On the other, this phenomenon may cast some doubt on the foundations for judicial deference to agency statutory interpretations. Agencies are usually intimately involved in drafting legislation that ultimately delegates—to themselves—the authority to interpret that very legislation. In other words, many of the criticisms of agency self‐delegation raised against Auer deference could apply with some force to Chevron deference as well. At the very least, scholars should consider more closely the administrative state’s role in drafting legislation—especially drafting legislation in the shadows—when evaluating the level of deference courts should give to agency statutory interpretations. Such reconsideration is particularly warranted given the lack of transparency implicated by legislating in the shadows.


Particularity Discovery in Qui Tam Actions: A Middle Ground Approach to Pleading Fraud in the Health Care Sector

Brianna Bloodgood

Health care fraud in the United States is policed in a unique enforcement landscape. The False Claims Act, one major piece of that landscape, grants private citizen whistleblowers the ability to sue on behalf of the government to remedy fraud. Plaintiffs in these qui tam actions are subject to procedural requirements characteristic of any federal civil fraud lawsuit, including the rigid pleading standard of Federal Rule of Civil Procedure 9(b). The Supreme Court has repeatedly declined to resolve a circuit split as to the precise particularity of the claim required under the rule; some circuits require a representative sample of false claims for a complaint to survive a motion to dismiss, while others relax the requirement and hold that general allegations supporting a strong inference of fraud will suffice. Ample literature exists in support of the latter, more lenient approach to evaluating a complaint, but little, if any, explores the possibility that a resolution outside the existing dichotomy could optimize results in the health care fraud qui tam context.

This Comment explores one such solution: pre‐merits “particularity discovery” designed to allow a qui tam plaintiff to plead a representative sample of false claims in her complaint. By exploring the merits and shortfalls of the particularity requirement as it applies to False Claims Act qui tam plaintiffs, this Comment first suggests that health care fraud cases may warrant special considerations at the pleadings stage. Then, this Comment uses examples of pre‐merits discovery in other contexts, namely class certification and jurisdictional disputes, to illustrate relevant, albeit imperfect, blueprints for a particularity discovery procedure. Finally, this Comment proposes a framework for ruling on a qui tam plaintiff’s motion for particularity discovery that could operate within the district court’s existing discretion. Because of the importance of remedying health care fraud, this middle ground could provide opportunities for plaintiffs to bring meritorious claims to court without sacrificing the benefits and purpose of the particularity requirement. This Comment will hopefully encourage courts to consider adopting the more rigid representative sample standard for particularity pleading, recognizing that the addition of targeted particularity discovery to the procedure creates a viable middle ground between the two existing approaches to pleading.

Brewing Better Law: Two Proposals to Encourage Innovation in America's Craft Beer Industry

Andrew D'Aversa

The craft beer industry is one of the most innovative industries in America. Craft brewers blend tradition, regional tastes, and artistry to make some of the best beers in the world. Against all odds, the craft brewing business has boomed in an outmoded and ill‐fitting regulatory environment. As more countries—and multinational brewers—follow in the footsteps of American craft brewers by cultivating their own fledgling markets, the fragile international dominance of our industry is threatened by our own stifling rules.

This Comment proposes two methods that state and federal governments can use to spur competition and thus innovation. First, the federal excise tax should match the size of the brewer. Tax rates must be reduced to lower a significant barrier to entry for the smallest brewers. Second, all states should allow brewpubs to operate with direct sales and reasonable barrelage limits. Barrelage limits threaten growth without furthering a legitimate regulatory purpose. These two small changes in federal and state law will lower barriers to entry, improve the odds of success for existing craft brewers, and create more competition—innovation follows. Importantly, for the regulators and legislators, these changes can coexist harmoniously with the current, post‐Prohibition moral framework.

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