March 10, 2015
icon Family Film Blogging: McFarland, USA
Posted by Christine Hurt

McFarland, USA with Kevin Costner is the latest in a run of PG Disney movies that are live-action, family films.  In a film industry made up of animated movies on one side and PG-13 action movies and R-rated drama, these movies are big hits with our family of spread-out children's ages.  We also enjoyed Million Dollar Arm with Jon Hamm.

To be honest, our oldest daughter didn't want to go because she thought it sounded so similar to Million Dollar Arm.  The premise of that movie was that an aging (almost washed up) talent agent went to India to find great cricket players to be MLB pitchers; hilarity ensues as cultures clash, leading to the inevitable heartwarming "becoming a big family" moment between the young Indian athletes and the agent.  The agent has an opportunity to return to his former glamorous life but doesn't.  The premise of McFarland is that an aging (almost washed up) football coach moves to a small town near Bakersfield, California, which is populated with migratory farm workers with Mexican roots.  The very white Coach (last name White, new nickname Blanco) sees potential in a small group of bad football players and attempts to turn them into cross-country runners.  Hilarity ensues as cultures clash, leading to the inevitable heartwarming "becoming a big family" moment between the White family and the families in town.  Coach White gets the opportunity to move on to a glamorous life as the Palo Alto track coach, and you can guess what happens.

Though the premises are very similar, the movie was really enjoyable.  Particulary if, like us, you are from the "Texican" part of the world.  The story is sweet and gritty enough to be real.  And, the story is true.  At the end, we get to meet the real characters of the story, set 25-ish years ago.  The movie has a challenge:  cross-country is not exciting to watch.  Other sports movies have pitching contests, stealing bases, football touchdowns, etc.  Cross-country was not designed to be a spectator sport.  But, the movie does a good job of building tension in races anyway.  The movie runs long (over two hours) and probably could have been cut down somewhat, but the scenes move the story.  As evidence, our seven-year-old never got squirmy.

My friend and I had one quibble:  The movie is set in 1987, a year I know very well.  None of the ladies in the movie have 1987 hair.  They have 2014 hair.  There should have been more bangs, perms and hair spray.

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March 09, 2015
icon Business Law Job Announcement: Western Carolina
Posted by David Zaring

It's located in mighty pretty country.  The announcement is after the jump.


more ...

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icon Charity and Debate
Posted by Gordon Smith


Earlier today my friend Steph Tai at Wisconsin got me thinking about academic debates. She was writing about the live debates that are a staple of FedSoc and ACS events, but the thoughts may also apply to written debates. While the debate format has some virtues, the key shortcoming of debates is that people are cast in roles that require disagreement and that lead -- often ... perhaps inevitably, if we really want to win -- to distortion and misunderstanding. Debates are sometimes fun and often interesting, but if the goal is to advance understanding, they are too often unproductive or even counterproductive.

All of this reminded me of the "principle of charity." Although this has religious overtones, I am talking about the idea from philosophy, defined on the linked page as "a methodological presumption ... whereby we seek to understand [a point of] view in its strongest, most persuasive form before subjecting the view to evaluation." This is a useful principle, even for debaters, though my experience has been that it is often ignored.

Maybe the format of our events can make a difference here. Next week I am participating in the annual Law and Entrepreneurship Retreat, hosted this year by Usha at the University of Georgia. One of the features of this event that I really appreciate is the format because we present each other's work. For example, I have a work in progress this year, but it is being presented by Bobby Bartlett at Berkeley. I will get a little time to talk after he presents, but authors mostly just listen and respond to questions during the Q&A. It's not an attempt to reach consensus but an attempt to understand. I am quite certain that everyone at the Retreat will learn more about my topic in this way than they would from a debate.

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icon Dorothy Brown on Law Schools' "Death Spiral"
Posted by Usha Rodrigues

In advance of the US News rankings to be published tomorrow, my friend Dorothy Brown (Emory) has a provocative post at WaPo titled Law schools are in a death spiral. Maybe now they’ll finally change

She makes some interesting points, but her concluding prediction, that "In three years, a top law school will close. Then watch how quickly things change" seems to come out of left field.  I have been waiting for law school closures for some time now, but I expect them to come from the third- and fourth-tier schools.  As Dorothy points out,

Law schools are currently in a bidding war for the students with the highest LSATs and GPAs because U.S. News heavily emphasizes those factors in its rankings. Students with higher LSATs tend to have a higher socioeconomic status; poorer law students lose out on scholarships and end up paying full tuition, financed through student loans, subsidizing their richer classmates. And law schools are still struggling to break even. Most JD programs are hoping their central administrators will remember a not-too-distant past when law schools subsidized the greater university.

But these pressures seem to me to strain to the breaking point at the low end of the pecking order. My instinct is that a "top law school"--meaning, even by a generous metric, a top-50 law school--will try to ride out the current economic situation and trust that it can ride out a storm that will take out lower-ranked schools.  We'll see...

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March 05, 2015
icon Happy Stress Test Day!
Posted by David Zaring

The 31 banks subject to stress tests - to see how their positions would hold up if the economy hypothetically tanked - all passed, good news for them, and especially for Citi, which failed the last one, and vowed not to do so again.  More here, featuring a picture of former law professor/current Fed board member Dan Tarullo, who supervised the test.  And if you're thinking of investing in banks, the Times has a chart of the percentage of money-like assets in the banks' total assets mix.  If you are risk averse, you want to invest in Deutsche Bank or Discover.  But I think leverage is the most powerful force in the world, so hello, Goldman Sachs and Morgan Stanley!



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March 04, 2015
icon The Spread Of The Resource Extraction Reporting Requirement, In A Map
Posted by David Zaring

The SEC still hasn't gotten around to finishing the latest version of the resource extraction rule, which requires publicly traded extractive industries to disclose every payment they make to a government.  But their flexibility is limited, Congress signed on to the rule, and quite explicitly linked it to the so-called Extractive Industries Transparency Initiative, which encourages the adoption of this sort of rule.  I made a map, which shows that the US is one of two wealthy countries to announce that it would abide by the rule.  What do you think of it?



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March 03, 2015
icon Fixing Law Review Submissions
Posted by Usha Rodrigues

Redyip has returned, and by virtue of my new role as Associate Dean for Faculty Development, I'm more interested than usual in the annual springtime flood of submissions to the newly minted law review editorial boards (although I do have an article out this cycle.  And it's totally awesome).

The problem is one of volume: ExpressO and Scholastica have lowered the cost of submission to each additional journal to mere dollars, giving an author the incentive to submit to dozens and dozens of journals.  The fall cycle is diminished, and so more and more submissions funnel into the weeks of February and March.  For years this system limped along mostly on expedites, where authors submitted to large numbers of journals.  Once an author received an offer from a journal, she would expedite up, and law reviews in the tier above the offering school would use those expedites as a screening mechanism.  But anecdotal reports suggest that the sheer volume of articles may be overwhelming students, and expedited articles are going unread.

The typical law prof response is to tut-tut, and murmur approvingly about peer reviewed journals.  But a peer review journal means exclusive submissions, the torture of revise and resubmit, and a whole lot of work from the peers (i.e., us).  I think most professors, when alone with their thoughts in the dark of night, would admit that they like the ability to submit simultaneously, and the closure of knowing where their piece will land come April. So what to do?

ExpressO's now offers two limited forms of relief to student editors: First, it allows law reviews to set a maximum number of simultaneous requests for expedite.  Second, it allows law reviews to select "peers" from which to receive expedites.

Here's a bolder solution: what if authors could credibly commit that they were only offering to 10-20 journals at a time?  This would reduce submissions significantly, and also allow journals more comfort in knowing that the authors really are interested and that their offers, while being shopped, aren't being shopped to every single school ranked higher than they are. 

The problem is that it would be hard for authors to credibly commit, since any individual is best served by cheating.  But what if the system's intermediaries--ExpressO and Scholastica--offered this feature?  That is, allowed authors to signal that they'd only submitted to a limited number of reviews at any one time, and then flagged those pieces as "exclusive" (or at least, semi-exclusive) for law review editors?  If the reviews collectively stated a preference--even a mild one--for such submissions, maybe we'd all be better off. 


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February 25, 2015
icon Job Announcement: Fellow - Berkeley Center for Law, Business and the Economy (BCLBE)
Posted by David Zaring

The business law group there is extremely strong, and the way to apply can be found here.  The announcement:

Fellow - Berkeley Center for Law, Business and the Economy (BCLBE)

  • Boalt School of Law - JD Program


Open Feb 23, 2015 through Apr 30, 2015


Salary Range: Commensurate with experience 
Start Date: August 2015 or earlier by agreement 
This is a 100% time, one-year term contract position, with the possibility of renewal for a second year.

The Berkeley Center for Law, Business and the Economy is seeking to hire a Research Fellow.

The Berkeley Center for Law, Business and the Economy (BCLBE) is Berkeley Law’s hub for rigorous, relevant, empirically based research and education on the interrelationships of law, business, and the economy. BCLBE informs students, policymakers and the public of the implications of this innovative work to promote positive outcomes on business operations, economic growth, and market efficiency. BCLBE’s interdisciplinary approach to basic research, timely policy research, curriculum innovation, and public education empowers current and future leaders in business, law and policy to tackle the most pressing problems of today and tomorrow.

For more information on BCLBE, see If you have questions about the position, contact

Primary Responsibilities: 
The Fellow’s primary responsibilities will include:

• Working with the BCLBE faculty and staff to arrange and implement programming, including student events, conferences workshops and alumni and practitioner events. 
• Working with the BCLBE faculty and staff, to develop research topics in law, business and the economy; 
• Researching and writing white papers of publishable quality for policy-focused audiences, under the direction of faculty and staff; 
• Speaking at workshops, to the academic community and the press about research initiatives; 
• Assisting with other necessary aspects of the operation of BCLBE; and 
• Assisting faculty in research questions involving data collection.

In addition, the Fellow will be provided with a significant opportunity to develop a research and writing agenda, including authorship of their own research work.

Minimum Qualifications: 
• J.D. degree or equivalent is required at the time of application

Preferred Qualifications: 
• Relevant experience in corporate finance, programming, and/or quantitative research is preferred; 
• Excellent research, analytical and writing skills; 
• Excellent communication and interpersonal skills; 
• Organizational skills; 

• Self-starter able to prioritize and function both independently and collaboratively; 
• The ideal candidate will have a high degree of organization skills, experience and knowledge of business law and the ability to work capably with faculty and staff. The candidate should also have an interest in research and academia.

UC Berkeley offers an excellent benefits package as well as a number of policies and programs in place to support employees as they balance work and family. Information about health and retirement benefits can be viewed online at

Early applications are encouraged. The final deadline for applications is April 30, 2015.

Letters of reference and copies of scholarly transcripts may be requested of top candidates. All letters will be treated as confidential per University of California policy and California state law. Please refer potential referees, including when letters are provided via a dossier service or career center, to the UC Berkeley statement of confidentiality ( prior to submitting their letters.

Berkeley Law is interested in candidates who will contribute to diversity and equal opportunity in higher education through research. Qualified women and members of underrepresented groups are strongly encouraged to apply.

The University of California is an Equal Opportunity/Affirmative Action Employer. All qualified applicants will receive consideration for employment without regard to race, color, religion, sex, national origin, disability, age or protected veteran status. For the complete University of California nondiscrimination and affirmative action policy see:


More information about this recruitment:



  • Curriculum Vitae

  • Cover Letter

  • Writing Sample


3 references required (contact information only)

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February 24, 2015
icon I Love You, Trade Deal!
Posted by David Zaring

I've seen hard lobbying before, but this literal love letter from the Chamber of Commerce to the Trans-Pacific Partnership is pretty next level. The big finish:

I love your trade promotion authority as if she were my own family. I’m ready to adopt her today if that would fast-track me to your heart. I can’t wait to call you my own and make sweet sweet economic progress with you.

Please be mine. I will be yours.


The American Business Community

There's an actual poem too. Well worth your time.  HT.

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February 23, 2015
icon Family Film Blogging: Into The Woods and Annie
Posted by Christine Hurt

Just before DVDs come out, here are two reviews of holiday movies the kids and I finally caught at the "dollar movie" ($4).  We were excited about both of these back in December, but then the reviews came out and we dragged our feet.  In the end, we weren't (too) disappointed.

Into the Woods.  If you were wondering what Anna Kendrick was doing with Neil Patrick Harris last night during the Oscars opening number, this is it.  Kendrick seemed to be wearing her exact dress (but not shoes -- remember the cow ate one) from her role as Cinderella in this musical movie.  Unlike my kids, I had not seen even a high school production of Into the Woods, so I was struck for the first time at how clever the plot is.  Many (many) fairy tales are woven into one story of an old, ugly witch who gives the barren baker couple next door a chance to have a child if they will go "into the woods" and fetch her four objects by midnight in three days -- a red cape, a milk white cow, a gold slipper and hair the color of corn.  The woods here are a metaphor for [life/the world/fears/hopes/whatever].  People are changed when they go into the woods and emerge wiser and less innocent.  The Broadway version (not the high school musical version) is grittier, so some of the songs don't seem quite right with the Disney-fied version, but that's ok.

So, is the singing good?  Yes, by most measures.  Meryl Streep is much better than she was in Mamma Mia, I suppose because the genre is a better fit?  Or the range?  The autotune?  Anna Kendrick is also great, as is Jack (of beanstalk fame), played by Daniel Huttlestone, sounding (and looking) exactly as he did as Gavroche in Les Miserable.  I found this actually distracting, but that may just be me.  The funniest song is "Agony," sung tongue-in-cheek by Prince Charming (Chris Pine) and his brother, Rapunzel's hero (Billy Magnussen).  It goes on a bit long, but so does everything in the movie.  At one point, my son got up to go to the restroom, and I warned him that the movie was almost over.  He gave me a knowing look and said, "No it's not, Mom."  And it wasn't.  So, if you think the play goes on a bit long, so does the movie.  All in all, I'm glad we went and thoroughly enjoyed it. 

Annie.  We were shocked that this movie did not get good ratings, particularly because the trailer seemed so promising.  Now, we aren't as shocked.  I think the reviews for this movie are low for two reasons:  substance and score (I guess that's everything, though).  

When the movie came out, I noticed a lot of chatter on FB about how parents with adopted children should stay clear of the movie.  And here's the problem.  Little Orphan Annie was a depression-era cartoon, and the play and Carol Burnett movie version keep the action in our romantic past.  The long-distance lens lets us pretend that orphans in orphanages are blissfully ignorant of their basket-on-doorstep pasts, perfectly well-adjusted and healthy, one day away from a happily ever after with a new family, and temporarily cared for by a matron who is too campy and funny to be too evil.  But Annie tries to revamp the musical by putting the events in modern day, where we know a little too much about the foster care system, attachment disorders, and reunification to find the fairy tale in five foster care children daydreaming about their real families.  The foster mom, played to the hilt by Cameron Diaz, is more sharp than funny as a bitter alcoholic. Of course, if the movie were too realistic it wouldn't be the same musical, so our five foster care children feel sorry for their foster mom and laugh her off.  The right balance may have been impossible, but it's definitely not there.

So, our 2014 Annie is still waiting for her parents, who left her (somewhere) when she was 4, leaving a note saying they would come back and get her and a locket.  She seems to have no memories prior to being left, and no hard feelings.  But early on, she (literally) runs into Mr. Stacks (Not Warbucks, but close), who is the richest man in America and is running for mayor of New York.  He is elitist and out-of-touch, and befriending a "foster kid" improves his polling.  Annie is worldy-wise and agrees to play along, all the while continuing her search for her real parents.  Of course, the two opposites grow fond of each other, but the evil scheme of Stacks' political consultant and the foster mom to "find" the real parents intervenes.

Here, again, reality intervenes.  In a realistic movie, the thought of paying a couple to pretend to be the real parents of a little girl, take her somewhere and "dump her back in the system" seems like the worst atrocity, not a temporary plot tension.  This twist does not play well in a light-hearted musical.

Which brings us back to the musical.  The credits list as producers not only Will Smith & Jada Pinkett Smith, but also Jay-Z.  These extremely talented people know a lot about music.  But funnily enough, the "new" songs are completely unmemorable.  They are not toe-tapping, and in fact they can't even get the actors in the movie into any sort of dancing most of the time.  The musical restraint here is very boring.  In Enchanted, show-stopping song and dance numbers were woven into the script, even though they seemed out of place and out of time.  The script used that juxtaposition, and it worked.  Here, the subtle songs just don't work. 

there are also some plot holes -- Where is Stacks' mother and the rest of the family?  He acts like an orphan, but his family is just in Queens.  Where is Annie's parents?  If Annie becomes an overnight social media sensation, why don't they come forward?  Especially when the fake reunion is plastered everywhere?  In the 1920s, it is realistic to think that families would become separated and unable to find each other.  Now?  Not so much.  

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February 22, 2015
icon New Article: The Limited Liability Partnership in Bankruptcy
Posted by Christine Hurt

I hope everyone is having a great Oscar Sunday!  Scholastica and ExpressO tell me that I have successfully submitted my latest paper, but I think they mean that I have successfully uploaded my latest paper.  Anyway, months before it is published (if at all), you can get <i>The Limited Liability Partnership in Bankruptcy</i> here.  Here is the abstract:

Brobeck. Dewey. Howrey. Heller. Thelen. Coudert Brothers. These brand-name law firms had many things in common at one time, but today have one: bankruptcy. Individually, these firms expanded through hiring and mergers, took on expensive lease commitments, borrowed large sums of money, and then could not meet financial obligations once markets took a downturn and practice groups scattered to other firms. The firms also had an organizational structure in common: the limited liability partnership.
In business organizations classes, professors teach that if an LLP becomes insolvent, and has no assets to pay its obligations, the creditors of the LLP will not be able to enforce those obligations against the individual partners. In other words, partners in LLPs will not have to write a check from personal funds to make up a shortfall. Creditors doing business with an LLP, just as with a corporation, take this risk and have no expectation of satisfaction of claims by individual partners, absent an express guaranty. In bankruptcy terms, creditors look solely to the capital of the entity to satisfy claims. While bankruptcy proceedings involving general partnerships may have been uncommon, at least in theory, bankruptcy proceedings involving limited liability partnerships have recently become front-page news. The disintegration of large, complex LLPs, such as law firms, does not fit within the Restatement examples of small general partnerships that dissolve fairly swiftly and easily for at least two reasons. First, firm creditors, who have no recourse to individual partners’ wealth, wish to be satisfied in a bankruptcy proceeding. In this circumstance, federal bankruptcy law, not partnership law, will determine whether LLP partners will have to write a check from personal funds to satisfy obligations. Second, these mega-partnerships have numerous clients who require ongoing representation that can only be competently handled by the full attention of a solvent law firm. In these cases, the dissolved law firm has neither the staff nor the financial resources to handle sophisticated, long-term client needs such as complex litigation, acquisitions, or financings.  These prolonged, and lucrative, client matters cannot be simply “wound up” in the time frame that partnership law anticipates. The ongoing client relationship begins to look less like an obligation to be fulfilled and more like a valuable asset of the firm.
Partnership law would scrutinize the taking of firm business by former partners under duty of loyalty doctrines against usurping business opportunities and competing with one’s own partnership, both duties that terminate upon the dissolution of the general partnership or the dissociation of the partner. However, bankruptcy law is not as forgiving as the LLP statutes, and bankruptcy trustees view the situation very differently under the “unfinished business” doctrine. The bankruptcy trustee, representing the assets of the entity and attempting to salvage value for creditors, instead seeks to make sure that assets, including current client matters, remain in partnership solution unless exchanged for adequate consideration, even if the partners agree to let client matters stay with the exiting partners. This Article argues that the high-profile bankruptcies of Heller Ehrman LLP, Howrey LLP, Dewey & LeBeouf, LLP, and others show in stark relief the conflict between general partnership law and bankruptcy law. The emergence of the hybrid LLP creates an entity with general partnership characteristics, such as the right to co-manage and the imposition of fiduciary duties, but with limited liability for owner-partners. These characteristics co-exist peacefully until they do not, which seems to be at the point of dissolution. Then, the availability of limited liability changes partners’ incentives upon dissolution. Though bankruptcy law attempts to resolve this, it conflicts with partnership law to create more uncertainty.

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icon There's No Accounting For Taste Or Common Law Fraud?
Posted by David Zaring

Scourge of law schools David Segal has a great article on Peter Lik, the best selling photographer in the world.  Lik is pretty impressed with his life, and has become very, very rich, so perhaps he should be.  However, the photos he sells aren't exactly full of resale value.  Instead, they're way more likely to cost more only if you buy them from Peter Lik, who makes a limited number of copies, and increases the price after he sells each one.

Currently, there are more than 770 Liks for sale on, the most of any artist on the site. As of Friday, that included 27 copies of one image, “Tree of Hope,” with prices that ranged from $5,000 to $29,000.

Or you can buy a copy at the gallery, where it has achieved Second Level Peter Lik Premium status, for $35,000.

Is this okay?  It's not like you should be able to sue any artist who sells you art that doesn't gain in value; as a first approximation, 100% of all artists make art that doesn't gain in value.  And it's not like Lik's in house gallerists have a special duty of care towards potential purchasers.  And common law fraud is a last resort kind of claim, it seems to me.  But boy, the way the those photos are sold...the article is full of dodgy representations by seemingly well-coached, and honest sounding salespeople.  This might be the kind of profile that establishes that yes, there is such a thing as bad publicity.

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February 19, 2015
icon The JOBS Act and the Billion Dollar Startup Club
Posted by Usha Rodrigues

The WSJ has launched the Billion Dollar Startup Club, which tracks venture-backed private firms valued at over $1 billion.  I am getting crotchety in my old age, and view the fact that 73 companies fall into this category as a sign of extreme and unsustainable froth. After all, only 35 firms topped $1 billion in the dot-com bubble (adjusted for inflation).

For me these billion-dollar startups are a product of the JOBS Act's schizophrenia. On the on hand, Title I created the emerging growth companies that made it easier to go public.  Because that's what we want, right? More public companies?  But simultaneously Titles II, IV, and V made it easier for companies to stay private.  Because that's what we want, right?  For private firms to be able to raise money more easily and stay private longer? Hence the schizophrenia: the JOBS Act isn't sure what it wants, but it wants companies to be able to do it easier, whatever it is.

Now I sound like a hater, and I'm not.  I just find it interesting that, for all of the talk of the need to make U.S. capital markets more amenable to new public companies, more and more VC-backed firms are staying private even with sky-high valuations.

Also, get off my lawn.

Permalink | Entrepreneurs, Entrepreneurship, IPOs, JOBS Act, Venture Capital | Comments (View) | TrackBack (0) | Bookmark

icon Gary Osen, Scourge of Banks
Posted by David Zaring

Here's an interesting profile of the guy who is going after banks that held money eventually used in terrorist activities by clients - a potentially long list of defendants, if he can make the legal theory stick.  He came up with that theory, by the way, by noodling it out with one of his law school professors.  HT: Matt Levine

Permalink | Finance, Financial Institutions, Torts | Comments (View) | TrackBack (0) | Bookmark

February 18, 2015
icon Lionel Smith on "Deterrence, Prophylaxis and Punishment in Fiduciary Obligations"
Posted by Gordon Smith

Fiduciary law scholars in the U.S. do not pay enough attention to fiduciary law scholars in other countries. Of course, most of us who write in this area are talking about particular cases decided in the U.S. or areas of law with U.S.-specific attributes. But if you want to learn more about fiduciary law generally, it's worth reading the work of the professors teaching in Commonwealth countries. For example, I highlighted the work of Paul Miller in a JOTWELL post last year. Over the next little while, I will highlight some other work that may be interesting to American academics, and this post is about Lionel Smith's (McGill) excellent article on "Deterrence, Prophylaxis and Punishment in Fiduciary Obligations" in the fine Australian journal (edited by Simone Degeling of UNSW) The Journal of Equity, which you can find on Lexis (but not on Westlaw).

The driving motivation for fiduciary law in the Commonwealth is captured in the oft-repeated refrain that fiduciary duties are proscriptive, not prescriptive. Fiduciary law proscribes conflict transactions, without inquiring into harm to the beneficiary or breach of any other legal norms. Stated another way, fiduciary law in the Commonwealth requires the fiduciary to exercise discretion unselfishly. This is in stark contrast to the American model, at least with respect to fiduciaries in business organizations, under which a breach occurs only when a conflict transaction is unfair, that is, only when the fiduciary has exercised discretion with inappropriate selfishness. (I make this point in Fiduciary Discretion, which should have cited Lionel.)

How should we understand this proscriptive regulation?

Many authors contend that fiduciary law has a deterrence function, but Lionel rightly asks, “what is being deterred?” According to Lionel, fiduciary law cannot plausibly be explained as a deterrent because the level of sanction (avoidance or recission of the conflict transaction or disgorgement of any profits) is simply too low to represent a viable deterrent for most fiduciary breaches. Moreover, the fact that “the no-conflict and no-profit rules operate independently of harm or loss to the beneficiary, bad faith of the fiduciary, the breach of other duties, or any consideration at all” means that the law is unjust because it is “willing to inflict sanctions on people who have not engaged in undesirable conduct.”

Lionel suggests that rather than playing a deterrent role, fiduciary law serves as prophylactic function. According to Lionel, “[d]eterrence operates by aiming to influence human decision-making; prophylaxis operates by the taking of precautions in an effort to avoid an undesirable outcome.” While some references to the prophylactic function of fiduciary law are simply references to the deterrence function, Lionel suggests a different understanding of prophylaxis, which is intimately connected to the duty of unselfishness. In short, fiduciary law prohibits conflict transactions to reduce the likelihood that the fiduciary will exercise discretion for improper reasons.

This is distinct from deterrence because it is not about changing the fiduciary’s motivation, but rather about implementing a precaution. While this is a rather subtle point, it serves to emphasize the crucial difference between fiduciary law in the U.S. and fiduciary law in the Commonwealth. Fiduciary law in the U.S. cannot plausibly be viewed as a prophylactic under Lionel’s reasoning because courts here do not impose the same sort of blanket proscription on conflict transactions that you see in the Commonwelath. Instead, courts are eager to understand whether the conflict transaction was fair and whether the fiduciary acted in good faith.

My description is an oversimplification of Lionel's argument (it's a blog post, after all) and insufficiently nuanced with regard to Commonwealth and U.S. fiduciary law, both of which are highly variegated, coming from multiple jurisdictions. But I hope that I was able to convey the gist of the argument. If you want to read more, you can find Lionel's paper here

In a new paper that I am writing this semester, I will argue that the U.S. is uniquely tolerant of conflict transactions, and the lack of any blanket proscription is one evidence of that tolerance. Further, I will argue that this tolerance reflects our general disposition in favor of entrepreneurial action. More on those thesis in posts to come.

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