Deal Protection Devices
Albert H. Choi - Professor of Law, University of Michigan Law School
In mergers and acquisitions transactions, a buyer and a seller will often agree to contractual mechanisms (deal protection devices) to deter third parties from jumping the deal and to compensate a disappointed buyer. With the help of auction theory, this Article analyzes various deal protection devices, while focusing on the two most commonly used mechanisms: match rights and target termination fees. A match right gives the buyer a right to “match” a third party’s offer so as to prevent the third party from snatching the target away, while a termination fee compensates the buyer when a third party acquires the target. Such mechanisms raise a number of important corporate and contract law questions. How effective are they in preventing third parties from competing for the target? Do they steer the target to be sold to a buyer who values the target less? Are the devices harmful to the target shareholders? To what extent can the negotiated deal price represent the target’s “fair value” when such devices reduce or eliminate the competition? This Article shows, foremost, that these devices can actually increase the target and buyer’s joint return and possibly the target’s stand-alone return. Match rights and termination fees function quite differently, however. While a large termination fee reduces the target’s stand-alone return and can lead to allocative inefficiency, an unlimited match right increases the target’s stand-alone return and promotes allocative efficiency.
This Article argues that answering the corporate law questions ultimately turns on the question of how and why the target directors are utilizing the devices. If the devices are being deployed with the objective of maximizing the target shareholders’ return, not only can they be beneficial for the target shareholders, but their presence can also make the deal price a more reliable indicator of the target’s fair value. With an improper objective, not only do the devices undermine target shareholders’ return, but the court also should not use the deal price as evidence of fair value. This Article also analyzes stock and asset lockups and examines deal protection devices through the lens of contract law.
Federal Rules of Platform Procedures
Rory Van Loo - Associate Professor of Law, Boston University; Affiliated Fellow, Yale Law School Information Society Project.
Tech platforms serve as private courthouses for disputes about speech, lodging, commerce, elections, and reputation. After receiving allegations of defamatory content in top search results, Google must decide between protecting one person’s public image and another’s profits or speech. Amazon adjudicates disputes between consumers and third-party merchants about defective or counterfeit items. For many small businesses, layoffs and bankruptcy hang in the balance. This Article begins to uncover the processes that these platforms use to resolve disputes and proposes reforms. Other important businesses that intermediate, such as credit card companies ruling on a disputed charge between a merchant and consumer, must by federal law provide timely notice, a reasonable investigation, and other procedural minimums. In contrast, platforms have almost unfettered discretion. Under intense public pressure, Facebook recently began building an independent oversight board that can overrule content moderation decisions. But whether other platforms will follow is unclear, and Facebook’s oversight board has significant limits. If the largest platforms face limited competition while serving as the primary arbiters of disputes in the information age, they warrant mandated procedures as did financial institutions before them. The procedures would aim to improve the administration of justice through public accountability and separation of at least one of platforms’ executive, legislative, and judicial powers.
Vindicating the Right to be Heard: Due Process Safeguards Against Government Interference in the Clemency Process
Jay Clayton - B.A. 2016, Swarthmore College; J.D. Candidate 2022, The University of Chicago Law School.
In Ohio Adult Parole Authority v. Woodard, the Supreme Court held that death row prisoners are entitled to some minimal due process protections in petitioning for clemency—most commonly, a commutation to a sentence of life in prison—from a state governor. This conclusion reflects a tension between the recognition that the Due Process Clause applies after conviction and a historical reluctance to involve the courts in the business of reviewing executive clemency decisions. Yet the Court has never clarified what those protections must look like, or what conduct on the part of government officials violates a prisoner’s due process rights.
At the turn of the century, several courts of appeals held that when government officials interfere with a death row prisoner’s application for clemency—for example, by threatening employees who offer to submit testimony on that prisoner’s behalf—they violate the Due Process Clause. More recently, however, at least one circuit has held otherwise and concluded that such interference is permissible.
This Comment looks beyond the language of the Supreme Court’s opinion, which the circuits have fought over for more than twenty years, to the Court’s historical conception of post-conviction constitutional rights. This jurisprudence reveals a clear dividing line between demands that a state change its procedures for seeking post-conviction relief and allegations that a state has denied a prisoner access to existing procedures for seeking relief. It is this denial of access that offends the Due Process Clause’s requirement that prisoners have a right to be heard. Armed with this conceptual distinction, this Comment argues that government interference in the clemency process is best viewed as an impermissible denial of the right to be heard, and that prohibiting such interference will vindicate, rather than undermine, the discretion of the executive to extend mercy as it sees fit.
Removing Interpretative Barnacles: Counterclaims and Civil Forfeiture
Nicholas Hallock - B.A. 2017, Columbia University; J.D. Candidate 2022, The University of Chicago Law School.
Through civil forfeiture, the federal government can take ownership of property merely by proving it “guilty” by a preponderance of the evidence. The government need not formally accuse its owner of any crime. Yet the procedural mechanisms available to a property owner who wishes to contest a forfeiture are limited, complex, and strictly enforced. A creature of admiralty law, civil forfeiture draws on supplemental provisions of the Federal Rules of Civil Procedure with which many lawyers and federal judges are unfamiliar.
This Comment explores an active circuit split and identifies an undertheorized way for property owners to vindicate their rights: counterclaims against the government. Though the great majority of federal courts to address the question have summarily dismissed property owners’ counterclaims in civil forfeiture actions, those courts are mistaken. The civil forfeiture counterclaim finds strong support in the Civil Rules’ text, as well as in their historical context, purpose, and original public understanding. In the words of then-Judge Charles E. Clark, the principal drafter of the Civil Rules, courts should remove the “interpretative barnacles” that have made it unnecessarily difficult for property owners to defend themselves in civil forfeiture actions.
Education’s Deep Roots: Historical Evidence for the Right to a Basic Minimum Education
Caroline A. Veniero - A.B. 2017, The University of Chicago; J.D. Candidate 2022, The University of Chicago Law School.
For decades, the U.S. Supreme Court has left open the question whether the U.S. Constitution protects a right to some amount of education. While such a right is not specifically enumerated in the Constitution, advocates have long argued for the existence of an implicit, fundamental right to a basic minimum education under the Due Process Clause of the Fourteenth Amendment. Recognition of such a right requires grappling with the Supreme Court’s substantive due process jurisprudence. To be a fundamental right, one requirement is that a proposed right have deep roots in U.S. history and tradition. This Comment examines whether the right to a basic minimum education—defined as basic literacy—is deeply rooted.
While courts differ in how they analyze whether a right is deeply rooted, they all generally view the time around the Fourteenth Amendment’s enactment as a relevant historical consideration. With a focus on that time period, this Comment analyzes two case studies: the Bureau of Refugees, Freedmen, and Abandoned Lands—or “Freedmen’s Bureau”—and the Bureau of Indian Affairs. In both cases, the federal government perceived a gap in local provision of education and responded through these agencies with support for literacy education. In serving as a backstop to local educational failures, the federal government’s actions ensured access to a basic literacy education. This pattern of behavior provides support for the notion that the right to a basic minimum education is deeply rooted.