Give Smaller Companies a Choice: Solving Sarbanes-Oxley Section 404 Inefficiency

Paul P. Arnold

This Note argues that smaller public companies should have the option to opt out of Section 404 of the Sarbanes-Oxley Act of 2002. Optional compliance is economically preferable to the current approach of mandatory compliance. Companies that choose to comply with Section 404 will send a signal to the financial markets that their internal controls meet the high standards Section 404 demands, and investors will reward such companies if they actually value the benefit of that company's additional controls. Similarly, companies that benefit less from additional internal accounting will be able to avoid Section 404's high costs. To clarify the economics of this argument, this Note develops a framework that models the choice companies make when Section 404 compliance is optional. Under the proposed system, independent auditors would continue to certify Section 404 compliance, providing clarity and simplicity for investors. This Note also examines the issues of imperfect market information and agency costs, concluding that they are not as problematic as they initially appear, and that they are still preferable to the excessive costs and burdens Section 404 places on smaller public companies. Finally, this Note argues that the Securities and Exchange Commission has the legal authority to adopt optional Section 404 compliance given Sarbanes-Oxley's text and legislative intent.

A "Fair Contracts" Approval Mechanism: Reconciling Consumer Contracts And Conventional Contract Law

Shumel I. Becher

Consumer contracts diverge from the traditional paradigm of contract law in various conspicuous ways. They are pre-drafted by one party; they cannot be altered or negotiated; they are executed between unfamiliar contracting parties unequal in their market power and sophistication; they are offered frequently by agents who act on behalf of the seller; and promisees (i.e., consumers) do not read or understand them. Consumer contracts are thus useful in modern markets of mass production, but they cast doubt on some fundamental notions of contract law.

To reframe the long-lasting debate over consumer contracts, this Article develops a superior legal regime whereby sellers can obtain certification of a form contract by an independent third-party. Such approval may be viewed as a quality certification, akin to a "Good Housekeeping Seal of Approval," for standard form contracts.

The many impediments to the design of such a project notwithstanding, its overall advantages are promising. The tension between the duty to read contracts and the common practice of signing consumer contracts without reading them will be better reconciled. The adverse consequences of asymmetric information possessed by typical sellers and consumers will be obviated. This regime will also minimize sellers' ability to manipulate consumers' bounded rationality, increase social welfare by reducing transaction costs, diminish socially undesirable litigation over standardized contracts, make a notable step towards minimizing the alleged anomaly that punitive damage awards create in consumer contract cases, and promote market participants' autonomy by advancing trust between the contracting parties.

Families For Tax Purposes: What About the Steps?

Wendy C. Gerzog

At least 4.4 million families in the United States are blended ones that include stepchildren and stepparents. For tax purposes, these "steps" receive preferential treatment as a result of their status because, on the one hand, they are treated as family members for many income tax benefit sections, but on the other hand, are excluded from the definition of family member for business entity attribution purposes and for gift and estate tax anti-abuse provisions. In the interests of fairness and uniformity, steps should be treated as family members for all tax purposes where they act like their biological or adoptive counterparts, regardless of whether such treatment would decrease or increase their tax burden.

How Many Plaintiffs Are Enough? Venue in Title VII Class Actions

Piper Hoffman

This Article critiques the recent rash of federal district court opinions holding that all named plaintiffs in a class action lawsuit alleging employment discrimination under Title VII of the Civil Rights Act of 1964 must satisfy the venue requirements in the court where they filed the action. Neither the text nor the history of Title VII requires this prevailing interpretation; to the contrary, requiring every named plaintiff to satisfy venue requirements in the same court undermines the legislative purpose behind both Title VII and Federal Rule of Civil Procedure 23 by creating a new obstacle to employees seeking to enforce federal anti-discrimination laws and vindicate their rights. Though the district court opinions have all reached the wrong conclusion, no appellate court has ruled on this issue either way, and no academic article has addressed the issue.

Title VII, which was intended to expand plaintiffs' options for venue, gives plaintiffs three choices of venue plus an additional "last resort" venue if the defendant is not available in any of the first three places. Rule 23, which governs the certification of federal class actions, was intended to encourage employees to bring class actions against employers that discriminated against them as a class. But the prevailing interpretation of Title VII's venue provision narrows plaintiffs' venue choices and erects a new barrier to Rule 23 class certification that forces plaintiffs to either litigate in their last resort venue or to abandon the nationwide class action vehicle and proceed in individual or statewide actions instead.

The prevailing interpretation also makes little sense as a matter of judicial economy. It will inevitably lead to more procedural complexity and duplicative litigation, and it is inconsistent with interpretations of other Title VII procedural requirements, such as the filing and exhaustion requirements.

This Article calls for examination and reversal of the trend of rulings requiring all named plaintiffs to satisfy venue in Title VII class actions, and adoption of a rule granting venue to all class members as long as one named plaintiff satisfies the venue requirements.

Privacy 3.0 - The Principle of Proportionality

Andrew B. Serwin

Individual concern over privacy has existed as long as humans have said or done things they do not wish others to know about. In their groundbreaking law review article The Right to Privacy, Warren and Brandeis posited that the common law should protect an individual's right to privacy under a right formulated as the right to be let alone-Privacy 1.0. As technology advanced and societal values also changed, a belief surfaced that the Warren and Brandeis formulation did not provide sufficient structure for the development of privacy laws. As such, a second theoretical construct of privacy, Privacy 2.0 as expressed in Dean Prosser's work Privacy was created. Dean Prosser continued (or expanded) upon the concepts formulated by Warren and Brandeis, particularly in emphasizing the role of common law in protecting privacy.

These works, while influential in their time, do not account for paradigm shifts in technology, or, perhaps more importantly, changes in how people live their lives. The unending advance of technology and changes in societal norms fundamentally dictate that privacy theory must change over time, or it will lose its relevance. Indeed, in today's Web 2.0 world where many people instantly share very private aspects of their lives, one can hardly imagine a privacy concept more foreign than the right to be let alone.

The question confronting modern-day privacy scholars is this: Can a common law based theory adequately address the shifting societal norms and rapid technological changes of today's Web 2.0 world where legislatures and government agencies, not courts, are more proactive on privacy protections?

This Article argues that the answer is no and instead argues that the overarching principle of privacy of today should not be the right to be let alone, but rather the principle of proportionality. This is Privacy 3.0.

The Unintended Consequence of Tort Reform in Michigan: An Argument for Reinstating Retailer Product Liability

Ashley L. Thompson

Tort reform became an important issue during the 1994 Congressional Campaign as part of the Republican Party's "Contract with America." Since then, many federal and state laws have attempted to reduce both liability and recovery in tort actions. In 1996, Michigan passed the Tort Reform Act, encompassing many drastic changes to state tort law. One provision of the Act, Section 2947, scaled back liability against non-manufacturing retailers in product liability actions. The Michigan Supreme Court interpreted the exceptions of the law narrowly and the prohibition broadly, essentially barring recovery from retailers. Since 1996, this provision has prevented victims injured by defective products from receiving compensation for their injuries from retailers. Unfortunately, many of the defective products found in the United States originate from manufacturers abroad. If jurisdiction over the manufacturer cannot be established in the United States, then the Michigan victim has no opportunity for recovery. As an example, this Note will discuss the problems associated with establishing jurisdiction to sue a Chinese manufacturer. Many of the recently publicized defective products were manufactured in China, but victims injured by a defective product from China have found it futile to sue the Chinese manufacturer. The Chinese manufacturers therefore remain protected from liability. As a result, a person injured in Michigan by a product manufactured in China is unlikely to recover damages for his or her injury from either the manufacturer or the retailer. This Note will argue that Michigan must reinstate retailer liability in order to discourage the importation of defective products and also to compensate those who are injured when a defective product does make it to market.