Vanderbilt Law Review

The New Exit in Venture Capital

Beccy — Tue, 31 Jan 2012 18:40:30 +0000

This Article examines a third exit option in venture capital to supplement IPOs and trade sales: secondary markets for the sale of individual ownership interests in start-ups and venture capital funds. While investors can readily buy shares in publicly traded companies, until recently they have been unable to own a piece of private start-ups like Facebook or Twitter without working there or investing in exclusive venture capital funds. Now that venture capital has become a $400 billion worldwide asset class, however, start-up stock and limited partnership interests in venture capital funds have begun trading in private secondary markets. These secondary markets (termed “VC secondary markets”) offer initial investors a new path to liquidity, offer buyers access to a previously untapped class of assets, and produce governance benefits for traded firms. The realization of these benefits in venture capital should lead to a net increase in the total amount of entrepreneurial activity. Given the surplus that entrepreneurial activity produces for society, VC secondary markets should be studied by academics and encouraged by policymakers. This Article is the first to study VC secondary markets and the issues they implicate in law and economics analysis. The Article examines VC secondary markets in their present state and contemplates their further development.

The “Independent” Sector: Fee-for-Service Charity and the Limits of Autonomy

Beccy — Tue, 31 Jan 2012 18:30:26 +0000

Although numerous scholars have attempted to explain and justify the benefits provided to charities, none has been completely successful. Their theories share, however, two required characteristics for charities. First, charities must be distinct from other types of entities in society, including governmental bodies, businesses, other types of nonprofit organizations, and informal entities such as families. Second, charities must provide some form of public benefit. Focusing on these common characteristics reveals a previously not fully appreciated role for the laws governing charities: protecting charities from influences that could potentially undermine these traits. Applying this new “autonomy perspective” to the law governing charities reveals that while existing legal rules generally protect charity autonomy, they fail to do so in one major respect. Current law does not directly address the growing and often negative influence of consumers who purchase services from charities primarily for the consumers’ own benefit and with little if any regard to the public benefit charities must provide. Having identified this vulnerability, this Article then samples the existing empirical literature regarding fee-dependent charities to determine under what conditions the influence of these consumers, whether patients, students, retirement community residents, or others, is likely to be detrimental to a charity’s pursuit of public benefit, and what options exist for addressing this influence. It concludes with suggestions for further research that would help lawmakers accurately target this influence and so better address questionable behavior by charities.

Falsely Shouting Fire in a Global Theater: Emerging Complexities of Transborder Expression

Beccy — Tue, 31 Jan 2012 18:20:12 +0000

We have entered an era in which potentially harmful expression can be distributed around the world in an instant. In the emerging global theater, speakers and audiences are connected through new and proliferating media; communicative space and time are compressed to an extraordinary degree; domestic expression can implicate national security and foreign affairs concerns; and a new model of global information dissemination is developing in which speakers are sometimes located beyond the jurisdiction of nations that may be harmed by their communications and disclosures.

This Article examines the First Amendment complexities associated with the dissemination of potentially harmful information in the global theater. These complexities include global dissemination of offensive expression, incitement to unlawful activities abroad, enemy-aiding expression that crosses territorial borders, and global free press concerns. The author argues that traditional First Amendment doctrines and principles ought generally to apply in the global theater. Reliance on marketplace and self-governance principles, application of speech-protective incitement standards, and continued support for an expansive and robust conception of press freedoms will preserve transborder First Amendment liberties in the digital era and allow the global theater to develop and mature. The author urges government officials not to react to potentially dangerous global theater expression by adopting new restrictions on transborder expressive and associational activities; creating new criminal offenses that inhibit transborder information flow; establishing broad penalties relating to transborder commingling and association; resorting to extrajudicial and potentially extralegal penalties for dangerous speakers; or imposing new limits on press freedoms.

In addition to these specific First Amendment issues, the Article also discusses several broader concerns relating to the development of the global theater. The author contends that in the global theater era, it will be critically important to the protection of speech and press liberties that officials and courts act with due regard for the First Amendment’s transborder dimension. Moreover, in the global theater, First Amendment justifications should be interpreted to encompass global information flow, cross-border collaboration, and the global spread of democratic principles. More attention must also be paid to the unique legal, professional, ethical, and identity challenges the press will face in the global theater. Finally, the author urges that more careful legal and scholarly attention be given to new restrictions on global information flow, including actions of private intermediaries and nonconventional forms of government censorship.

Blowing Hot Air: An Analysis of State Involvement in Greenhouse Gas Litigation

Beccy — Tue, 31 Jan 2012 18:10:34 +0000

My Fellow Americans, We Are Going to Kill You: The Legality of Targeting and Killing U.S. Citizens Abroad

Beccy — Tue, 31 Jan 2012 18:00:11 +0000

Go White, Young Man

Beccy — Mon, 30 Jan 2012 20:56:31 +0000

Reviewed: DANIEL J. SHARFSTEIN, THE INVISIBLE LINE: THREE AMERICAN FAMILIES AND THE SECRET JOURNEY FROM BLACK TO WHITE (Penguin Press, 2011).

Sharfstein’s book follows three families whose members at some point crossed the color line separating black from white—or tried and failed to. These case studies tell us what it is to be American—how race is central to our identity, how we use race to take down opponents or to exclude—and how the line separating black and white is sometimes porous. However, is not the story of race and American legal history about the ways that race is defined by law and by norms? Race mattered because people policed the line separating blacks and whites. That many states classified people with a small percentage of African ancestry as white suggests that it was possible to move across the color line. Still, the cases where the color line was policed, rather than crossed, are significant.

Deterring and Compensating Oil-Spill Catastrophes: The Need for Strict and Two-Tier Liability

Beccy — Tue, 29 Nov 2011 18:55:33 +0000

The BP Deepwater Horizon oil spill highlighted the glaring weaknesses in the current liability and regulatory regime for oil spills and for environmental catastrophes more broadly. This Article proposes a new liability structure for deep-sea oil drilling and for catastrophic risks generally. It delineates a two-tier system of liability. The first tier would impose strict liability up to the firm’s financial resources, including insurance coverage. The second tier would be an annual tax equal to the expected costs in the coming year beyond this damages amount. Before beginning a risky operation, the proposed liability scheme would identify a single firm—the operator of an oil well—as responsible for generating the risk. That firm would be expected to contract with other participants in order to be reimbursed in the event of an accident. The proposed liability scheme would also require the responsible firm to demonstrate substantial ability to pay in the first tier before being permitted to engage in the risky activity. This structure provides for efficient deterrence for environmental catastrophes since the responsible party is expecting to bear the risks that it is imposing. The two-tier system also addresses the challenges posed by the fat-tailed distributions of catastrophic environmental risks and provides for more assured and adequate compensation of potential losses than do current liability and regulatory arrangements.

Catastrophic Oil Spills and the Problem of Insurance

Beccy — Tue, 29 Nov 2011 18:45:43 +0000

The BP oil spill of 2010 focused considerable attention on the operating conduct of BP, on the potential liability of BP and other entities associated with the spill, and on the fund that BP established to provide compensation to victims of the spill. Much less attention has been paid, however, to the nature and scope of insurance covering losses caused by catastrophic environmental disasters such as oil spills. BP’s establishment of the Gulf Coast Claims Facility, and the compensation that will be paid by that facility, will likely dampen awareness of the mismatches between the resulting losses and the insurance available to cover such losses. What might otherwise have been a very dramatic demonstration of the ways in which our insurance and liability systems fall short in such situations will probably be much more muted. Future spills, however, may not follow this pattern. Understanding the structure of insurance and liability that are and are not available when spills occur is therefore critical to developing satisfactory approaches to dealing with the consequences of spills. This Article identifies the matches, and mismatches, between the losses resulting from oil spills, the insurance available to the victims of spills, the liability of the parties responsible for losses caused by spills, and the insurance available to the parties who face such liability. The Article then attempts to make sense of the situation it has identified, considering three explanations for the mismatches: difficulties associated with proving the cause of pure economic loss, traditional challenges to the insurance of pollution loss and liability, and preexisting portfolio diversification by potential spill defendants that discourages the purchase of large amounts of insurance. Finally, the Article critically analyzes two proposals that have been made for remedying the insurance mismatches in this field: the imposition of an ex ante drillers’ tax on the amount of their potential liability in excess of their combined assets and liability insurance and the imposition of mandatory liability insurance requirements far in excess of the amounts of insurance that are currently available or purchased.