The University of Chicago Law Review

Volume 78, Issue 3 (more)

The Creditors' Bargain and Option-Preservation Priority in Chapter 11

Article by Anthony J. Casey

Corporate reorganization under Chapter 11 of the Bankruptcy Code is built on the foundation of the absolute priority rule, which requires that senior creditors be paid in full before any value can be distributed to junior creditors.  The standard law and economics understanding is that absolute priority follows inevitably from the "creditors' bargain" model.  In this Article, Professor Casey takes a closer look at that model, revealing that the conventional wisdom is incorrect because it destroys the value of the junior creditors' call option on the firm's assets (a nonbankruptcy contract right) and creates new rights in going-concern value for senior creditors.  Professor Casey examines the potential of an alternative priority mechanism—called Option-Preservation Priority—that can protect the nonbankrupcty contract rights of all creditors and maximize the expected value of assets in bankruptcy.
78 U Chi L Rev 759 [Article PDF]

Randomization and the Fourth Amendment

Article by Bernard E. Harcourt & Tracy L. Meares

Randomized checkpoints are generally taken to be the exact antithesis of reasonablenes under the Fourth Amendment.  In this Article, Professors Harcourt and Meares contend that randomized searches should serve as the very lodestar of a reasonable search.  The notion of "individualized" suspicion is misleading: most suspicion in the modern policing context is group based and not individual specific.  Thus, the constitutional issue should not turn on the question of suspicion-based versus suspicionless police searches, but on the level of suspicion that attaches to any search program and on the evenhandedness of the program.  The authors propose a new paradigm of randomized encounters that will provide the benefits of both privacy protection (by ensuring a minimum level of suspicion) and evenhandedness (by cabining police discretion), the very values we wish to protect through the Fourth Amendment.
78 U Chi L Rev 809 [Article PDF]

Public Entrenchment through Private Law: Binding Local Governments

Article by Christopher Serkin

Anti-entrenchment rules prevent governments from passing unrepealable legislation and ensure that subsequent governments are free to revisit the policy choices of the past.  However, governments—and local governments, in particular—have become increasingly adept at using private law mechanisms like contracts and property conveyances to make binding precommitments into the future.  Simultaneously, courts and state legislatures have reduced the availability of core de-trenching tools like eminent domain.  These tools threaten to shift democratic power intertemporally.  This Article develops a framework for evaluating entrenchment concerns, comparing the costs of decreased flexibility against the benefits of increased reliance.  Viewed through this framework, some recent changes in the law appear particularly problematic, from restrictions on eminent domain, to the rise of development rights, and creative forms of municipal finance like selling assets instead of incurring debt.
78 U Chi L Rev 879 [Article PDF]