Black Metropolis Research Consortium
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Unplugging Heartbeat Trades and Reforming the Taxation of ETFs
Get PDFThe much-touted tax efficiency of equity exchange traded funds (ETFs) has historically been built upon portfolios that track indices with low turnover and the tax exemption for in-kind distributions of appreciated property.
This rule permits ETFs to distribute appreciated shares tax-free to redeeming authorized participants (APs) and reduce a fund’s future capital gains. ETFs and APs, working together, exploit this rule in so-called heartbeat trades in which an ETF distributes shares of a specific company or companies to a redeeming AP, instead of a pro rata basket of the ETF’s portfolio. The distributed securities are appreciated shares of companies that are on the verge of being acquired in a taxable transaction or that are slated to be removed from the index tracked by the ETF. In the absence of heartbeat trades, the ETF would recognize gain from the sale of the shares.
Through everyday redemptions and heartbeat trades, equity ETFs are able to make tax-free portfolio adjustments and avoid generating capital gains until their shareholders sell their shares. The quasi-consumption tax treatment of ETFs is unwarranted and gives ETFs an unfair tax advantage over mutual funds, publicly traded partnerships, and direct investments by investors. Although these redemptions could be treated as taxable exchanges between the ETF and an AP under substance-over-form principles, given the vagaries of the tax common law, Congress should simply eliminate the exemption for in-kind redemptions. Congress could alternatively limit the exemption to redemptions consisting of a pro rata portion of an ETF’s portfolio. Either alternative would limit tax-free portfolio adjustments and better align the taxable and economic gains of ETF shareholders
The Corporate Governance of Public Utilities
Get PDFRate regulated public utilities own and operate one-third of U.S generators and nearly all the transmission and distribution system. These firms receive special regulatory treatment because they are protected from competition and subject to rate caps. In the past decade, they also have been at the center of high-profile corporate scandals. They have bribed regulators to secure subsidies for coal-fired generators and nuclear reactors. They have caused wildfires and coal ash spills that resulted in hundreds of deaths and billions of dollars in liability. Their failure to maintain reliable electric service has contributed to catastrophic blackouts. Perhaps most consequentially, they have emerged as powerful opponents of state and federal climate action.
This Article describes the unique corporate governance challenges public utilities face and argues that these governance challenges contribute to the pervasive inefficiencies and the frequency of corporate misconduct that characterize utility industries. American corporate law provides special protections to shareholders such as the right to elect corporate boards and the requirement that directors and managers owe fiduciary duties to shareholders. The economic justification for these protections is that shareholders are the residual claimants of corporations: because they receive any value a corporation generates beyond what it owes to its fixed claimants, they have the appropriate incentives to pursue value-enhancing investments.
But the theoretical premise that underlies the American system of corporate governance does not apply to public utilities. Rate regulation limits the value shareholders receive when a firm innovates or reduces costs. It therefore converts shareholders into fixed claimants with the same incentives creditors have in non-utility industries. Because ratepayers, not shareholders, receive the residual value the firm generates beyond what it owes to its fixed claimants, standard corporate law theory suggests that public utilities should be run to advance ratepayer and not shareholder interests. The implication is that managers and directors of public utilities should owe fiduciary duties to their ratepayers, that ratepayers should be represented on the corporate boards of public utilities, and that managers of public utilities should receive less deference on business decisions than they do in other industries. As we discuss, however, these reforms are difficult, and perhaps impossible, to implement effectively. That, in turn, highlights the need for strong regulatory oversight and offers additional reasons to be skeptical of the utility model
The Chinese Antitrust Paradox
Get PDFAntitrust law faces a fundamental paradox between protecting competition and protecting competitors. This paradox is more structurally durable in China than in Western societies thanks to the oversized role of the Chinese state in its economy. This Article examines the changing market conditions in China following the adoption of China’s Antimonopoly Law (AML), and how these changes have led to paradoxical developments in Chinese antitrust. In a number of areas relating to enforcement authorities, transparency, courts, State-Owned Enterprises, cartels, internet platforms, and foreign companies, the tensions between protecting competition and protecting competitors have persisted or even deepened in the post-AML era. How China will resolve its antitrust paradox will be largely determined by how China’s state-capitalism development model will evolve
The Fair Housing Act After Inclusive Communities: Why One-Time Land-Use Decisions Can Still Establish a Disparate Impact
Get PDFThe Fair Housing Act (FHA) is a civil rights statute that prohibits housing discrimination against several protected classes. One theory of liability under the FHA is disparate impact, in which a plaintiff alleges that the defendant’s policy or practice, although facially neutral, nevertheless has discriminatory effects because it disproportionately negatively affects a protected class. In its 2015 opinion, Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., the Supreme Court affirmed that the FHA includes disparate impact liability but also potentially limited its applicability—the Court distinguished between a defendant’s policy and a one-time decision by a defendant, hinting that the latter might not be able to substantiate a disparate impact claim.
This Comment argues that such a distinction is unfounded. One-time land-use decisions should not be categorically excluded from disparate impact liability under the FHA for three reasons. First, one-time employment decisions may serve as the basis for disparate impact liability under two analogous civil rights statutes— Title VII and the Age Discrimination in Employment Act—indicating that the same is true for one-time land-use decisions under the FHA. Second, the distinction between a policy and a one-time decision is untenable and provides little guidance for courts. Third, seminal appellate court cases which first established disparate impact liability under the FHA involved one-time land-use decisions, indicating that such decisions constitute the heartland of disparate impact theory.
The Comment concludes by providing further clarity about which particular one-time land-use decisions should enable litigants to establish successful disparate impact claims. It argues that claims based on zoning decisions and closures of residential buildings should be per se permitted, but that other claims may be less successful or altogether excluded. Ultimately, absent the inclusion of one-time land-use decisions as a basis for disparate impact liability, the FHA will lose much of its power as a tool to combat residential discrimination, segregation, and inequality in the land-use context
Law School Announcements 2023-2024
Get PDFOfficers and Faculty The Law School - History Programs of Instruction Curriculum Student Activities and Organizations Funds and Endowmentshttps://chicagounbound.uchicago.edu/lawschoolannouncements/1137/thumbnail.jp
Judgment-Contingent Penalties: Signaling in Negative-Expected-Value Suits
No full textThis paper explores judgment-contingent commitments as a signaling device in settings that implicate negative-expected-value (NEV) cases. We present two signaling options in which the informed party promises, in case of a loss at trial, to incur some loss in addition to the judgment. In the first, the additional amount is not transferred to the rival litigant (for example, commitment to pay a charity conditional on losing at trial). In the second, the informed party commits to transfer the additional amount to the rival party. The first variation reduces the rate of trials, whereas the second achieves a fully separating equilibrium. We conclude that, in contrast to the positive-expected-value (PEV) setting, informed defendants in NEV cases can always signal by committing to a self-penalty, conditional on losing at trial, without demanding a side payment. We therefore predict that signaling should be more common in NEV settings than in PEV settings
International Law and the Right to Global Internet Access: Exploring Internet Access as a Human Right Through the Lens of Iran’s Women-Life-Freedom Movement
Get PDFThe speed of digital transformation creates major challenges for understanding and protecting digital technology-based human rights. While the internet may once have been a nice-to-have amenity, as societies become increasingly dependent on digital infrastructure, it has become a prerequisite to access fundamental human rights. Because the protection of internet access as a human right is lacking, individuals remain vulnerable to abuses, particularly by autocratic leaders.
This Essay uses the still-unfolding Iranian Women-Life-Freedom Movement to examine the consequences of internet deprivation. The Iranian regime’s brutal treatment of its citizens sparked widespread protests which were largely coordinated through social media, highlighting the critical role of the internet in facilitating freedom of expression and assembly. In response to growing dissent, the Iranian regime intensified its internet censorship, including filtering and shutdowns, effectively silencing its citizens.
By analyzing the situation in Iran, this Essay reveals how internet censorship undermines a wide range of human rights enshrined in the U.N.’s Charter, treaties, and declarations with a specific emphasis on nondiscrimination, right to development, and freedom of speech and information. This Essay also argues that, in light of the clear and widespread deprivation suffered by Iranian citizens as a consequence of the Iranian regime’s internet tampering, internet access has become so essential to enjoying a broad array of basic human rights that intentional deprivation of the same can be considered a Crime Against Humanity under the terms of the Rome Statute of the International Criminal Court. Finally, it lays the foundations of such a case, which could benefit human rights globally
The Recent Free Expression Jurisprudence of the Working Group on Arbitrary Detention
Get PDFThe Working Group on Arbitrary Detention is one of the lesser-known United Nations Special Procedures. While its name does not indicate a focus on freedom of expression, it has defined “arbitrary” detention to encompass detention based on conduct protected under the free expression provisions of Article 19 of the International Covenant on Civil and Political Rights (for States Parties) and the corresponding text of the Universal Declaration of Human Rights. As such, the WGAD can serve as a critical forum for protecting free expression—particularly for individuals whose free expression rights may be violated by states not parties to the ICCPR or its Optional Protocol I.
This Essay describes the contributions of the WGAD’s recent free speech jurisprudence to the understanding of protected free expression in international law. It first explains the sources of protected free expression in international law, then summarizes the WGAD’s establishment and functioning, and then identifies key developments in the WGAD’s recent caselaw on the subject. It concludes that the WGAD is a valuable forum for people detained on the basis of free expression
Distributing Deterrence Fairly: A New Rationale for Decoupling Tort Liability
Get PDFTort law faces a dilemma: how to adhere to a principle of make-whole compensation without entrenching social inequities. High-earning people receive greater compensation awards, resulting in an unequal distribution of deterrence. The deterrence disparity arises because injurers would rationally direct risky activity towards poorer victims to reduce liability costs; it persists even if race and gender classifications are barred from compensation. This Article offers a novel solution to the dilemma. It develops a decoupled liability regime under which injurers pay damages and are subject to standards of care that are invariant across individual victims, thus equalizing the distribution of deterrence. At the same time, victims receive compensatory awards that do vary, reflecting the “make whole” principle. The article demonstrates how to design this regime in a balanced-budget, incentive-compatible, manner
Restructuring American Antitrust Law: Institutionalist Economics and the Antitrust Labor Immunity, 1890–1940s
Get PDFLabor unions and their leaders were cast as the perennial antitrust defendants for the first fifty years of federal antitrust law, and this historic imbalance fostered a movement in economic scholarship and labor activism to restructure American antitrust law. The progressive liberal-institutionalist movement in economics played an important role in legitimizing trade unions by recasting them, not as anticompetitive cartels, but rather as a necessary corollary to the growing market power of industrial firms. Louis Brandeis, the litigator and future jurist, drew from institutionalists’ work to support antitrust reform. He argued that antitrust law was not necessarily anathema to the interest of labor organizations, and he advocated for both the application of the rule of reason to labor association activities and the revision of antitrust laws to exempt certain labor activities. The Clayton Act of 1914 created such an antitrust labor exemption, but as soon as union activity spilled over into interstate commerce the Supreme Court insisted on antitrust liability and applied it categorically against laborers. Even after the passage of additional labor exemptions in the 1930s, the reigning Commerce Clause doctrine rendered labor’s immunity from antitrust liability uncertain. This lingering uncertainty was exacerbated by a fracturing within the progressive liberal movement as some economic institutionalists, schooled in the legal realist tradition, revived the Department of Justice’s antitrust prosecutions in the late 1930s. Assistant Attorney General Thurman Arnold led this renewed antitrust agenda; armed with a more expansive interpretation of federal commerce power, he targeted labor groups in several headline-grabbing cases, enraging his former allies on the Left. Arnold, however, seemed to represent a divergent institutionalism that embraced both the Brandeisian distaste for economic concentration and the Keynesian macroeconomic policies of mass consumption. Ultimately, in 1941, an uneasy settlement was reached in United States v. Hutcheson, where the Supreme Court authorized a nonstatutory labor exemption for secondary boycotts. The ruling helped establish guardrails for lawful labor union activities; however, it did not resolve this division on the progressive Left, and laborers continued to seek protective legislation and statutory immunities. Recasting antitrust law’s bias against laborers as historically contingent demonstrates the moments of possibility to reconcile this historic imbalance, and it implicitly argues that the progressive law and economics movement provided necessary groundwork but also required interest group organization and statutory interventions