Copyright (c) 2009 University of Michigan Law School All rights reserved. http://law.bepress.com/umichlwps Recent documents in University of Michigan Legal Working Paper Series en-us Tue, 18 Aug 2009 09:29:46 PDT 3600 http://law.bepress.com/umichlwps/olin/art107 http://law.bepress.com/umichlwps/olin/art107 Tue, 18 Aug 2009 09:28:03 PDT Using a sample of securities fraud class actions filed between 2003 and 2007, we study the impact of a widely-followed Supreme Court decision from that period, Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007). This decision clarified the law with respect to one of the most hotly contested issues in securities litigation: pleading scienter. The Tellabs decision reversed a very lenient Seventh Circuit decision with respect to pleading scienter, but replaced it with a standard that is nonetheless relatively generous to plaintiffs. Looking at opinions resolving motions to dismiss decided before and after that decision, we find that Tellabs correlates with a significantly lower dismissal rate in circuits previously applying a higher preponderance standard, including the Ninth Circuit, which previously had the most stringent standard for pleading scienter. Perhaps because of the greater difficulty in obtaining dismissal, Tellabs correlates with an increase in nuisance settlements in the Ninth Circuit. Adam C. Pritchard Corporations Securities Law http://law.bepress.com/umichlwps/olin/art106 http://law.bepress.com/umichlwps/olin/art106 Tue, 18 Aug 2009 09:23:28 PDT The current controversy surrounding President Obama's international tax proposals seems like an opportune moment to try to consider them in context. How do these proposals fit in with an agenda for US corporate and international tax reform?Few observers doubt that such reforms are sorely needed, for several reasons. First, the long-term budgetary outlook is unsustainable. Second, the US corporate tax rate is among the highest in the OECD. Third, the current system raises relatively little revenue and large amounts of corporate income go untaxed. Finally, the system is horrendously convoluted and imposes high transaction costs.This paper will attempt to raise some proposals for US corporate and international tax reform. It will begin by asking why we need to tax corporations at all, since the rationale for the corporate tax is important for assessing reform proposals. It will then discuss options for corporate and international tax reform, beginning with long-term options (a 10 year horizon), continuing with the medium term (2-5 years) and concluding with short-term options like the Obama proposals (1-2 years). Reuven S. Avi-Yonah Taxation Taxation-Transnational http://law.bepress.com/umichlwps/olin/art105 http://law.bepress.com/umichlwps/olin/art105 Tue, 18 Aug 2009 09:20:53 PDT This Article begins with the canonical law-and-economics account of tort law as a regulatory tool, that is, as a means of giving regulated parties the optimal ex ante incentives to minimize the costs of accidents. Building on this regulatory picture of tort law, the Article asks the question how tort law should coordinate with already existing non-tort systems of regulation. Thus, for example, if a particular activity is already subject to extensive agency-based regulation, regulation that already addresses the negative externalities or other market failures associated with the activity, what regulatory role remains for tort law? Should tort law in such cases be displaced or preempted? The answer is: It depends. Sometimes, even in the presence of overlapping non-tort regulation, there is a regulatory role that tort law can play, sometimes not. For one example, if the non-tort regulatory standard is already "fully optimizing," in the sense that the regulatory standard (a) sets both an efficient floor and an efficient ceiling of conduct and (b) is fully enforced by the regulatory authority, then tort law arguably should be fully displaced in the sense that no tort remedy should be available for harms caused by such an activity. If, however, the regulatory standard is only "partially optimizing" (for example, it is only an efficient minimum or efficient floor or it is only partially enforced), then tort law continues to have an important regulatory role to play. This framework can be used to explain such tort doctrines as negligence per se and suggests circumstances in which there should be a corollary doctrine of non-negligence per se. It also helps to explain recent federal preemption cases involving overlapping tort and regulatory standards. Finally, the framework produces insights for how tort law might efficiently be adjusted to coordinate with overlapping social norms, which are also considered within the L&E tradition to be a form of regulation. Kyle D. Logue Torts http://law.bepress.com/umichlwps/olin/art104 http://law.bepress.com/umichlwps/olin/art104 Wed, 08 Jul 2009 09:37:08 PDT For the past thirty-five years, the debate on fundamental tax reform in the United States has centered on whether some type of consumption tax would replace all or part of the federal income tax. In my opinion, this debate has now been decided. Given recent budgetary developments and the impending eligibility of the baby boom generation for Social Security and Medicare, we cannot dispense with the revenue from the corporate and individual income tax. Moreover, we will need huge amounts of additional revenue, and most informed observers believe that the only plausible source for such revenues is a federal Value Added Tax (VAT) enacted in addition to, and not as a replacement of, the federal income tax.When a federal consumption tax is considered as an addition to, and not as a replacement of, the existing income tax, it becomes clear that a lot of the discussion of consumption taxes in the preceding US debate has been misguided. Consumption tax advocates typically began by asking how the income tax should be modified to reach only consumption. As a result, consumption tax proposals centered on features that derive from the income tax, such as progressivity and entity-based taxation. The resulting proposals bore little resemblance to existing VATs around the world. They were designed in large part to look more like income taxes and therefore perhaps be more politically acceptable.Once this central complication is abandoned, it becomes clear that the US should not reinvent the wheel. For example, most earlier consumption tax proposals were subtraction based (i.e., based on inclusions and deductions, like the income tax) rather than credit-invoice based (i.e., based on transactions). Almost all existing VATs, however, are credit-invoice based, for good reasons (explored below in Itai Grinberg's article). Another example is that many consumption tax proposals (like David Bradford's X-Tax and the Flat Tax) are origin based, while all VATs are destination based. This feature stems in part from the need to make a subtraction-method consumption tax WTO compatible. But as Keen and Hellerstein explain in this volume, destination based taxes are clearly superior, and once the US tax is a "normal" credit-invoice VAT, it can be destination based as well. Finally, if progressivity issues are addressed by the income tax, then the consumption tax can be applied at a single rate, like most modern VATs. Reuven S. Avi-Yonah Taxation http://law.bepress.com/umichlwps/olin/art103 http://law.bepress.com/umichlwps/olin/art103 Fri, 12 Jun 2009 13:33:21 PDT On 18 and 19 February 2009, the American Tax Policy Institute (ATPI) sponsored a conference in Washington, DC, on "Structuring a Federal VAT: Design and Coordination Issues." The conference was co-organized by Charles E. McLure, Jr. of Stanford University and the present writer, and featured many of the world's leading VAT experts from academia, government, and the private sector. The purpose of the conference was to lay the ground for a potential future adoption of a federal VAT in the United States by discussing some of the technical issues related to two broad topics: Firstly, how should such a US federal VAT be designed, and secondly, how should it be coordinated with existing state Retail Sales Taxes (RST). The assumption underlying the conference was that, as in other OECD countries, the US federal VAT would be levied in addition to, and not as a replacement for, the existing US federal income tax. This article summarizes the conference papers. The papers are being revised for publication, so what appears below does not necessarily represent the final views of the authors but summarizes the conference proceedings. Reuven S. Avi-Yonah Taxation http://law.bepress.com/umichlwps/olin/art102 http://law.bepress.com/umichlwps/olin/art102 Fri, 12 Jun 2009 13:31:18 PDT While there have been few decided cases under the 1995 Transfer Pricing regulations and the OECD Guidelines, it is clear by now that the transfer pricing problem is as bad as it ever was. That is why my co-authors Kimberly Clausing and Michael Durst and I have recently re-proposed adopting Formulary Apportionment (FA). However, it is clear from the reactions we received that it is unlikely we will persuade advocates of the ALS and in particular the OECD that FA is the way forward (although this may change if the Obama Administration were to press the issue, or if the EU adopts CCCTB). Thus, I would like to propose a compromise: Use FA in the context of the Arm's Length Standard (ALS). Specifically, I would suggest using FA to allocate the residual profit in the Profit Split method. The rest of this article is devoted to (a) explaining the drawbacks of ALS as currently applied, (b) developing the above proposal, and (c) concluding with a plea for further discussion by both sides of the FA/ALS debate. Reuven S. Avi-Yonah Law and Economics http://law.bepress.com/umichlwps/olin/art101 http://law.bepress.com/umichlwps/olin/art101 Wed, 27 May 2009 09:18:49 PDT A number of Canadian provinces recently have adopted legislation providing shareholders with a claim for secondary market fraud. Although the legislation has some similarities to the "fraud on the market" class action found in the United States, the laws have some important differences. This article compares securities class actions in Canada and the United States, highlighting the differences between the two regimes that are likely to have important strategic consequences for class action attorneys and issuers. The article also collects and analyzes data on the securities class actions that have been filed to date against Canadian issuers in both Canada and the US, sometimes simultaneously. Finally, the article analyzes the effect of the new legislation on premia for directors' and officers' insurance. We find that the relative price of D&O insurance went up substantially for issuers listed only in Canada after the legislation went into effect. Adam C. Pritchard Securities Law http://law.bepress.com/umichlwps/olin/art100 http://law.bepress.com/umichlwps/olin/art100 Wed, 20 May 2009 09:01:24 PDT Regulatory competition has long driven the path of corporate law in the federal system of the United States. Now, jurisdictional competition has spread to exchange listings. New York took an early lead in that competition in the 1990s, but has now been overtaken by London. Can London prevail in the competition for stock listings in the long term? This essay explores that question through the insights offered by Delaware's dominance in the market for corporate listings. Delaware has prevailed by offering corporate directors a predictable body of that credibly shields directors from the vagaries of political backlash in times of financial crisis. London's performance during the recent financial crisis suggests that it - like New York - lacks the capacity to shield players in the financial system from the populist forces that seek retribution in the wake of economic reversals. In the long run, neither London nor New York is likely to enjoy a comparative advantage in the market for stock exchange listings. Adam C. Pritchard Corporations Securities Law http://law.bepress.com/umichlwps/olin/art99 http://law.bepress.com/umichlwps/olin/art99 Fri, 08 May 2009 13:25:42 PDT On May 4, 2009, President Obama in person introduced a set of proposals to reform U.S. international taxation that are the most significant advance toward preserving the income tax on cross-border transactions since the enactment of Subpart F by the Kennedy Administration in 1962. In essence, the Obama proposals (the "Obama Plan") introduce a 21st Century version of the vision begun by Thomas Adams in 1918 and continued by Stanley Surrey in 1961: A world in which source and residence taxation are coordinated so as to achieve the underlying goals of the international tax regime. As I have explained at length elsewhere, these goals are the Single Tax Principle (all income from cross-border transactions should be subject to tax once, not more and not less) and the Benefits Principle (active income should be taxed primarily at source, passive income primarily at residence). The Obama Plan does this by addressing the central problem of implementing corporate and individual income taxation in a world of open economies: Effective source taxation requires residence taxation, and effective residence taxation requires source taxation.In what follows, I will comment on the major proposals in the Obama Plan and explain how they form a coherent step forward toward achieving the Single Tax and Benefit Principles. I will first address the proposals related to the taxation of active income earned by corporations, and then the proposals related to the taxation of passive income earned by individuals. Reuven S. Avi-Yonah Taxation-Transnational http://law.bepress.com/umichlwps/olin/art98 http://law.bepress.com/umichlwps/olin/art98 Wed, 08 Apr 2009 11:05:33 PDT Legal scholars have never settled on a satisfactory account of the evolution of property rights. The touchstone for virtually all discussion, Harold Demsetz's Toward a Theory of Property Rights, has a number of well-known (and not so well-known) shortcomings, perhaps because it was never intended to be taken as an evolutionary explanation in the first place. There is, in principle at least, a pretty straightforward fix for the sort of evolutionary approach pursued by followers of Demsetz, but even then that approach - call it the conventional approach - fails to account for very early property rights, right at the genesis. The early developments are better explained by a very different approach based on evolutionary game theory. The game theoretic approach can account for a basic system of property rights rooted in possession; it cannot, however, account for complex property systems. To explain the latter requires the conventional approach. Hence, the two approaches combined suggest a satisfactory account of the origins and development of property rights systems. James E. Krier Law and Economics Property-Personal and Real Public Law and Legal Theory