Volume 106

Firearms, Extreme Risk, and Legal Design: “Red Flag” Laws and Due Process

Extreme risk protection order (“ERPO”) laws—often called “red flag” laws—permit the denial of firearms to individuals who a judge has determined present an imminent risk of harm to themselves or others. Following a wave of adoptions in the wake of the Parkland murders, such orders are now authorized by law in nineteen states and the District of Columbia and under consideration in many others. Advocates argue that they provide a tailored, individualized way to deter homicide, suicide, and even mass shootings by providing a tool for law enforcement or others to intervene when harm appears imminent, without having to wait for injury, lethality, or criminal actions to occur. But the laws have also garnered criticism and have become a primary target of the Second Amendment sanctuary movement.

As a matter of constitutional law, the most serious questions about ERPO laws involve not the right to keep and bear arms but due process. Such orders—like domestic violence restraining orders, to which they are often compared—can initially be issued ex parte, and critics often allege that this feature (and others including the burden of proof) raises constitutional problems.

This Article provides a comprehensive analysis of the applicable due process standards and identifies the primary issues of concern. It concludes that, despite some variation, current ERPOs generally satisfy the relevant standards. It also notes those features that are likely to give rise to the strongest challenges. The analysis both builds on and suggests lessons for other areas of regulation where laws are designed so as to lessen extreme risk.

Introduction

What process is due when people who pose an extreme risk of harm to themselves or others are temporarily deprived of a constitutional right? What design choices can legislators make to ensure that such deprivations provide constitutionally adequate protections?

Although such questions have arisen in many different contexts, including domestic violence restraining orders and civil commitments, they are now front and center for what is arguably the most important current development in firearms regulation: the spread of “extreme risk” or “red flag” laws that permit courts to order that firearms be temporarily removed from individuals who pose an imminent risk of harm to themselves or others. Advocates see these laws as an effective, targeted way to save lives while respecting the Second Amendment.1 1.See infra Section I.A.Show More Critics allege that they amount to “pre-crime” punishment and that they violate not only the right to keep and bear arms but also the due process guarantee.2 2.See infra note 159 and accompanying text (“pre-crime” comparison); infra notes 81–88 and accompanying text (Second Amendment critique); infra notes 29–30 (due process critique).Show More In fact, opposition to extreme risk laws has helped fuel the “Second Amendment sanctuary” movement, by which some local governments have pledged their refusal to enforce state and federal gun laws.3 3.Noah Shepardson, America’s Second Amendment Sanctuary Movement Is Alive and Well, Reason (Nov. 21, 2019, 4:00 PM), https://reason.com/2019/11/21/americas-second-amendment-sanctuary-movement-is-alive-and-well/ [https://perma.cc/XKV7-ADF4]; see also Scott Pelley, A Look at Red Flag Laws and the Battle Over One in Colorado, 60 Minutes, CBS News (Nov. 17, 2019), https://www.cbsnews.com/news/red-flag-gun-laws-a-standoff-in-colorado-60-minutes-2019-11-17/ [https://perma.cc/GF5D-BSH2] (examining Second Amendment sanctuaries in Colorado).Show More

Behind the political claims lies an enormously important and difficult set of questions regarding the ways in which the law can be constitutionally designed to account for risky-but-not-criminal behavior. Judges and scholars have long recognized that laws regulating on the basis of future risk raise a different and in many ways harder set of questions than those that, for example, punish prior behavior.4 4.Both categories, of course, may well be based on prior behavior—in the former set, that behavior is evidence of future risk; in the latter, it is the basis for retribution or some other governmental interest.Show More On the one hand, the law often restricts behavior on the basis of predictions. Even basic cost-benefit analysis—which is foundational to the regulatory state5 5.See Richard L. Revesz & Michael A. Livermore, Retaking Rationality: How Cost-Benefit Analysis Can Better Protect the Environment and Our Health9–10 (2008) (noting that the use of cost-benefit analysis has been a contentious issue in regulatory policy making for decades); Cass R. Sunstein, The Cost-Benefit Revolution3–4, 6–7 (2018) (describing how successive Presidents since Ronald Reagan have required that regulations promulgated during their administrations be justified on a cost-benefit basis).Show More—is largely forward-looking. Regulation of risk, in short, is nothing new.6 6.Nor, for that matter, is the notion that regulation often involves trading off one risk against another: denying a firearm to a particular person might lower the risk that he will misuse it, while raising the risk that he will be unable to defend himself in a time of need. For an influential analysis of the tradeoff question, seeRisk Versus Risk: Tradeoffs in Protecting Health and the Environment 3­–5 (John D. Graham & Jonathan Baert Wiener eds., 1995).Show More

But when such regulation intersects with constitutional rights and interests in the absence of a criminal conviction or its equivalent, harder questions arise about the necessary procedures and evidentiary burdens. Intuitively, restraining a person who has harmed others is different from restraining someone who is only at risk of doing so. There is no bright line: civil commitments, restraining orders, and the like all impose significant restraints in an effort to prevent future harms and are not categorically unconstitutional. Scholars have explored those related contexts7 7.For a sampling of the literature regarding involuntary commitments for mental illness, seeDavid L. Bazelon, Institutionalization, Deinstitutionalization and the Adversary Process, 75 Colum. L. Rev. 897, 899–900 (1975) (asking “[i]s confinement on the basis of ‘dangerousness’ alone constitutional?” and providing a skeptical answer); Veronica J. Manahan, When Our System of Involuntary Civil Commitment Fails Individuals with Mental Illness: Russell Weston and the Case for Effective Monitoring and Medication Delivery Mechanisms, 28 Law & Psych. Rev. 1, 32 (2004) (“Civil liberty concerns, as evidenced by the extensive due process protections afforded to those facing involuntary commitment, and the state’s interest in protecting all of its citizens, are fundamentally at odds.”); Alexander Tsesis, Due Process in Civil Commitments, 68 Wash. & Lee L. Rev. 253, 300–01 (2011) (arguing that civil commitment should require a beyond-a-reasonable-doubt standard of proof).Scholars have also explored due process protections as they apply to domestic violence restraining orders (“DVROs”) and similar legal restrictions. See, e.g., Shawn E. Fields, Debunking the Stranger-in-the-Bushes Myth: The Case for Sexual Assault Protection Orders, 2017 Wis. L. Rev. 429, 484 (arguing that sexual assault protection orders—which are different from DVROs—“should employ the lower preponderance-of-the-evidence standard to ensure that victims have an effective mechanism to seek prospective relief and governments have an effective tool in combating the sexual assault epidemic” and stating “[h]owever, procedural due process may require a more nuanced approach with respect to the types of evidentiary showings necessary to meet this standard and with the types of prospective relief available to petitioners”).Show More but have only recently devoted attention to these questions in the context of extreme risk laws,8 8.Timothy Zick, The Constitutional Case for “Red Flag” Laws, Jurist (Dec. 6, 2019, 8:39 PM), https://www.jurist.org/commentary/2019/12/timothy-zick-red-flag-laws/ [https://perm a.cc/G3TS-L53G]. Other scholars have looked at the due process implications of other types of similar statutory mechanisms, like DVROs with specific firearm prohibitions, Aaron Edward Brown, This Time I’ll Be Bulletproof: Using Ex Parte Firearm Prohibitions to Combat Intimate-Partner Violence, 50 Colum. Hum. Rts. L. Rev. 159, 196–98 (2019) (arguing that domestic violence ex parteorders for protection that prohibit firearm possession can survive due process challenges), or laws designed to disarm those in the throes of severe mental health crises, Fredrick E. Vars, Symptom-Based Gun Control, 46 Conn. L. Rev. 1633, 1646–47 (2014) (arguing that a law allowing temporary firearm removal from individuals suffering delusions or hallucinations would not violate due process). None, so far, has assessed the new spate of extreme risk laws passed predominantly in the last two years.Show More and this Article is the first to provide an in-depth examination of the due process issues they raise. (These are often called “red flag” laws, though that label might convey a stigma, so we will use the increasingly common “extreme risk” label.9 9.See Red Flag Laws: Examining Guidelines for State Action: Hearing Before the S. Comm. on the Judiciary, 116th Cong. (2019) (statement of Ronald Honberg, Senior Policy Advisor, National Alliance on Mental Illness) (describing the risk that “red flag” language can stigmatize individuals with mental illness).Show More)

In the past two years alone, a dozen states have adopted or expanded such laws. Although the details vary, their form is similar: law enforcement officers or sometimes family members or other professionals can petition a court for an extreme risk protection order (“ERPO”)10 10.In California, the order is known as a “gun violence restraining order” or “GVRO.” Cal. Penal Code § 18100 (Deering Supp. 2020).Show More that would require a person to surrender his or her firearms and refrain from acquiring new ones. After receiving the petition, the court can enter a short-term, ex parte ERPO if the petitioner carries his or her burden of proof (which can range from showing “good cause” to “clear and convincing” evidence11 11.See infra notes 302–09 and accompanying text; see also infra Section II.B (discussing constitutional principles for establishing burden of proof and how they should apply in the ERPO context).Show More). After a full, adversary hearing—at which petitioner again bears the burden of proof—the court can enter a lengthier, but still temporary, ERPO.12 12.See infranote 309 and accompanying text.Show More

Politically and empirically, it is easy to see why such laws are increasingly popular. They provide tailored, individualized risk assessments, rather than regulating people’s access to firearms based on their membership in broad classes like felons or the mentally ill.13 13.See infraSubsection I.B.1.Show MoreAnd although scholars are just beginning to evaluate the effectiveness of these new laws, early studies have shown encouraging results.14 14.See infra notes 70–82 and accompanying text. That extreme risk laws might be effective does not make them a panacea, nor should they distract from other forms of effective gun regulation. SeeJoseph Pomianowski & Ling Liang Dong, Red Flag Laws Are Red Herrings of Gun Control, Wired (Sept. 9, 2019, 9:00 AM), https://www.wired.com/story/red-flag-laws-are-red-herrings-of-gun-control/ [https://perma.cc/PSN8-B2UK].Show More This all points to ERPOs being an increasingly important part of the debate about gun rights and regulation going forward.

Of course, there are critics. Some argue that extreme risk laws violate the right to keep and bear arms.15 15.Ivan Pereira, Lawmaker Introduces ‘Anti-Red Flag’ Bill in Georgia To Combat Gun Control Proposals, ABC News (Jan. 15, 2020, 12:52 PM), https://abcnews.go.com/­US/lawmaker-introduces-anti-red-flag-bill-georgia-combat/story?id=68299434 [https://perm a.cc/7V9S-7CMX] (describing legislation introduced in Georgia to forbid extreme risk laws that bears the title “Anti-Red Flag—Second Amendment Conservation Act”).Show More These critics challenge the very notion of a law that allows disarming individuals who have not committed any crime. District of Columbia v. Heller, after all, said the Second Amendment “elevates above all other interests the right of law-abiding, responsible citizens to use arms in defense of hearth and home.”16 16.554 U.S. 570, 635 (2008) (emphasis added).Show More

The focus on the right to keep and bear arms is unsurprising, given the magnetic pull of the Second Amendment in nearly any political or legal discussion of gun regulation; the tendency is often to evaluate any proposed rule related to firearms for its conformity with that right in particular.17 17.See generally Joseph Blocher, Gun Rights Talk, 94 B.U. L. Rev. 813 (2014) (arguing that the invocation of the Second Amendment in debates over proposed gun control laws has defeated many of these measures).Show More But a myopic focus on the Second Amendment unnecessarily flattens the gun debate and minimizes different—and often stronger—constitutional claims.18 18.A federal court in California, for example, blocked on First Amendment grounds a Los Angeles law that would have required city contractors to disclose ties to the NRA. As the NRA put it, the “First Amendment Defends the Second.” See First Amendment Defends the Second, NRA-ILA (Dec. 16, 2019), https://www.nraila.org/articles/20191216/first-amendment-defends-the-second [https://perma.cc/L5TF-6PVS].Show More More generally, it demonstrates the importance of firearms law and scholarship which consider how gun rights intersect with other constitutional rights, including those emanating from the First,19 19.See, e.g., Timothy Zick, Arming Public Protests, 104 Iowa L. Rev. 223, 236–37 (2018) (considering, interalia, the First Amendment rights of speech and assembly and their interaction with the Second Amendment); Luke Morgan, Note, Leave Your Guns at Home: The Constitutionality of a Prohibition on Carrying Firearms at Political Demonstrations, 68 Duke L.J. 175, 179, 211–13 (2018) (same).Show More Fourth,20 20.See, e.g., Jeffrey Bellin, The Right To Remain Armed, 93 Wash. U. L. Rev. 1, 4–5 (2015) (considering implications for search and seizure).Show More and Fourteenth21 21.See, e.g., Pratheepan Gulasekaram, “The People” of the Second Amendment: Citizenship and the Right to Bear Arms, 85 N.Y.U. L. Rev. 1521, 1538 (2010) (illustrating and analyzing the difficulties of limiting “the people” to non-citizens).Show More Amendments.22 22.Not only do these other rights and interests intersect with the Second Amendment in important ways, but the courts have also borrowed from many of these frameworks when fleshing out the contours of the right to keep and bear arms. SeeJacob D. Charles, Constructing a Constitutional Right: Borrowing and Second Amendment Design Choices, 99 N.C. L. Rev. (forthcoming 2021) (manuscript at 1–2) (on file with the Virginia Law Review) (describing how courts and commentators have borrowed from other constitutional rights domains in creating a framework for the Second Amendment).Show More

In this increasingly rich and diverse area of constitutional law, scholarship, and rhetoric, due process has a particularly notable role to play. Consider the debate over “No Fly No Buy,” which would have forbidden gun purchases by those on the federal terror watch list. The proposal had broad23 23.See, e.g., Press Release, Quinnipiac Univ., Overwhelming Support for No-Fly, No-Buy Gun Law, Quinnipiac University National Poll Finds; Support for Background Checks Tops 90 Percent Again (June 30, 2016), https://poll.qu.edu/national/release-detail?ReleaseID=2364 [https://perma.cc/C74J-XGWG].Show More and bipartisan24 24.David M. Herszenhorn, Bipartisan Senate Group Proposes ‘No Fly, No Buy’ Gun Measure, N.Y. Times (June 21, 2016), https://www.nytimes.com/2016/06/22/us/politics/ senate-gun-control-no-fly-list-terrorism.html [https://perma.cc/4J99-TKVT].Show More political support. Some critics predictably argued that it violated the Second Amendment,25 25.See, e.g., Chris W. Cox, Gun Laws Don’t Deter Terrorists: Opposing View, USA Today (June 14, 2016, 1:01 AM), https://www.usatoday.com/story/opinion/2016/06/13/gun-laws-deter-terrorists-opposing-view/85844946/ [https://perma.cc/Q6S7-9C52].Show More but as a matter of doctrine the more serious objections had to do with due process.26 26.See Hina Shamsi & Christopher Anders, The Use of Error-Prone and Unfair Watchlists Is Not the Way To Regulate Guns in America, ACLU (June 20, 2016, 2:45 PM), https://www.aclu.org/blog/washington-markup/use-error-prone-and-unfair-watchlists-not-way-regulate-guns-america [https://perma.cc/YA9S-NYBS]; see also Joseph Greenlee, No Fly, No Buy (And No Due Process), Federalist Soc’y (Feb. 17, 2016), http://www.fed-soc.org/blog/detail/no-fly-no-buy-and-no-due-process [https://perma.cc/V4U6-7ERV].Show More Partly as a result, the proposal ultimately died in the Senate.27 27.Lisa Mascaro & Jill Ornitz, Senate Rejects New Gun Sales Restrictions, L.A. Times, June 21, 2016, at A8.Show More

A similar dynamic seems to be at work with ERPOs, except that the consequences are far more important, since such laws have been widely adopted.28 28.See infra Section I.A (describing the spread of extreme risk laws).Show More Although the Second Amendment continues to draw much of the attention, the more substantive and pressing concern is whether ERPOs violate gun owners’ due process rights. When the Senate held a hearing in 2019 about possibly providing federal incentives for state extreme risk laws, due process concerns were front and center.29 29.Marianne Levine, Senate GOP Open to States Allowing Narrow Gun Restriction, Politico (Mar. 26, 2019, 1:05 PM), https://www.politico.com/story/2019/03/26/senate-republicans-state-gun-law-reform-1237446 [https://perma.cc/F32F-F6EQ].Show More Indeed, in some areas of the states that have adopted extreme risk laws, local officials have vowed not to implement them. One Colorado sheriff put the critique bluntly: “This is the only bill I know of that allows law enforcement officers to take somebody’s property without due process.”30 30.Governor Polis Signs ERPO Into Law, Delta Cnty. Indep. (Apr. 17, 2019), https://www.deltacountyindependent.com/governor-polis-signs-erpo-into-law-cms-15033 [https://perma.cc/S2N7-NW6M].Show More

But, of course, that assumes the answer to the central question: do extreme risk laws provide due process? If so, then “due process” objections should be recognized for what they are: political rhetoric, rather than doctrinal claims.31 31.To be clear, we do not suppose that there is a bright line between “constitutional” and “political” claims—constitutional law and argument often occur outside the courts, and in fact the Second Amendment provides an especially robust and interesting example in that regard. SeeJacob D. Charles, The Right To Keep and Bear Arms Outside the Second Amendment 7 (Feb. 23, 2020) (unpublished manuscript) (on file with the Virginia Law Review).Show More If not, then no amount of political or empirical support will suffice, and this promising new avenue of gun regulation will be shut down by the courts.

This Article examines that question. Part I explains the spread and substance of current extreme risk laws. The wave of new extreme risk laws has encountered opposition from those who claim, often with little attention to the details of the different statutory regimes and the variety among them, that they violate due process. Part II lays out the relevant requirements of due process and applies that framework to the extreme risk context. Such an analysis can, we hope, be useful to lawmakers, litigants, judges, and scholars interested in designing or evaluating the constitutionality of extreme risk laws. Although we do not undertake an exhaustive or individualized assessment of various state laws, we conclude that the basic structure of existing extreme risk laws satisfies the requirements of due process.

The point of the analysis, however, is not to provide a blanket constitutional defense of extreme risk laws. The goal instead is to identify and explore an engaging set of constitutional issues raised by a new wave of firearm regulations. Those issues, in turn, are relevant to our understanding of how the Constitution intersects with risk regulation, and what options society has to protect itself from potential harms.

  1. * Lanty L. Smith ’67 Professor of Law, Duke University School of Law. ↑
  2. ** Lecturing Fellow & Executive Director, Center for Firearms Law, Duke University School of Law.Many thanks to Saul Cornell, Dave Kopel, Anne Levinson, Darrell Miller, Kelly Roskam, Eric Ruben, Jeff Swanson, Fredrick Vars, Julia Weber, Shawn Fields, and Tim Zick for invaluable comments and feedback, as well as to the participants at the University of Alabama School of Law symposium, “Seeing Red: Risk-Based Gun Regulation.” ↑
  3. See infra Section I.A. ↑
  4. See infra note 159 and accompanying text (“pre-crime” comparison); infra notes 81–88 and accompanying text (Second Amendment critique); infra notes 29–30 (due process critique). ↑
  5. Noah Shepardson, America’s Second Amendment Sanctuary Movement Is Alive and Well, Reason (Nov. 21, 2019, 4:00 PM), https://reason.com/2019/11/21/americas-
    second-amendment-sanctuary-movement-is-alive-and-well/ [https://perma.cc/XKV7-ADF4]; see also Scott Pelley, A Look at Red Flag Laws and the Battle Over One in Colorado, 60 Minutes, CBS News (Nov. 17, 2019), https://www.cbsnews.com/news/red-flag-gun-laws-a-standoff-in-colorado-60-minutes-2019-11-17/ [https://perma.cc/GF5D-BSH2] (examining Second Amendment sanctuaries in Colorado). ↑
  6. Both categories, of course, may well be based on prior behavior—in the former set, that behavior is evidence of future risk; in the latter, it is the basis for retribution or some other governmental interest. ↑
  7. See Richard L. Revesz & Michael A. Livermore, Retaking Rationality: How Cost-Benefit Analysis Can Better Protect the Environment and Our Health
    9

    –

    10

    (2008) (noting that the use of cost-benefit analysis has been a contentious issue in regulatory policy making for decades); Cass R. Sunstein, The Cost-Benefit Revolution

    3

    –

    4, 6–7

    (2018) (describing how successive Presidents since Ronald Reagan have required that regulations promulgated during their administrations be justified on a cost-benefit basis). ↑

  8. Nor, for that matter, is the notion that regulation often involves trading off one risk against another: denying a firearm to a particular person might lower the risk that he will misuse it, while raising the risk that he will be unable to defend himself in a time of need. For an influential analysis of the tradeoff question, see Risk Versus Risk: Tradeoffs in Protecting Health and the Environment 3­–5 (John D. Graham & Jonathan Baert Wiener eds., 1995). ↑
  9. For a sampling of the literature regarding involuntary commitments for mental illness, see David L. Bazelon, Institutionalization, Deinstitutionalization and the Adversary Process, 75 Colum. L. Rev
    .

    897, 899–900 (1975) (asking “[i]s confinement on the basis of ‘dangerousness’ alone constitutional?” and providing a skeptical answer); Veronica J. Manahan, When Our System of Involuntary Civil Commitment Fails Individuals with Mental Illness: Russell Weston and the Case for Effective Monitoring and Medication Delivery Mechanisms, 28 Law & Psych. Rev

    .

    1, 32 (2004) (“Civil liberty concerns, as evidenced by the extensive due process protections afforded to those facing involuntary commitment, and the state’s interest in protecting all of its citizens, are fundamentally at odds.”); Alexander Tsesis, Due Process in Civil Commitments, 68 Wash. & Lee L. Rev

    .

    253, 300–01 (2011) (arguing that civil commitment should require a beyond-a-reasonable-doubt standard of proof).

    Scholars have also explored due process protections as they apply to domestic violence restraining orders (“DVROs”) and similar legal restrictions. See, e.g., Shawn E. Fields, Debunking the Stranger-in-the-Bushes Myth: The Case for Sexual Assault Protection Orders, 2017 Wis. L. Rev. 429, 484 (arguing that sexual assault protection orders—which are different from DVROs—“should employ the lower preponderance-of-the-evidence standard to ensure that victims have an effective mechanism to seek prospective relief and governments have an effective tool in combating the sexual assault epidemic” and stating “[h]owever, procedural due process may require a more nuanced approach with respect to the types of evidentiary showings necessary to meet this standard and with the types of prospective relief available to petitioners”). ↑

  10. Timothy Zick, The Constitutional Case for “Red Flag” Laws, Jurist (Dec. 6, 2019, 8:39 PM), https://www.jurist.org/commentary/2019/12/timothy-zick-red-flag-laws/ [https://perm a.cc/G3TS-L53G]. Other scholars have looked at the due process implications of other types of similar statutory mechanisms, like DVROs with specific firearm prohibitions, Aaron Edward Brown, This Time I’ll Be Bulletproof: Using Ex Parte Firearm Prohibitions to Combat Intimate-Partner Violence, 50 Colum. Hum. Rts. L. Rev. 159, 196–98 (2019) (arguing that domestic violence ex parte orders for protection that prohibit firearm possession can survive due process challenges), or laws designed to disarm those in the throes of severe mental health crises, Fredrick E. Vars, Symptom-Based Gun Control, 46 Conn. L. Rev
    .

    1633, 1646–47 (2014) (arguing that a law allowing temporary firearm removal from individuals suffering delusions or hallucinations would not violate due process). None, so far, has assessed the new spate of extreme risk laws passed predominantly in the last two years. ↑

  11. See Red Flag Laws: Examining Guidelines for State Action: Hearing Before the S. Comm. on the Judiciary, 116th Cong. (2019) (statement of Ronald Honberg, Senior Policy Advisor, National Alliance on Mental Illness) (describing the risk that “red flag” language can stigmatize individuals with mental illness). ↑
  12. In California, the order is known as a “gun violence restraining order” or “GVRO.” Cal. Penal Code § 18100 (Deering Supp. 2020). ↑
  13. See infra notes 302–09 and accompanying text; see also infra Section II.B (discussing constitutional principles for establishing burden of proof and how they should apply in the ERPO context). ↑
  14. See infra note 309 and accompanying text. ↑
  15. See infra Subsection I.B.1. ↑
  16. See infra notes 70–82 and accompanying text. That extreme risk laws might be effective does not make them a panacea, nor should they distract from other forms of effective gun regulation. See Joseph Pomianowski & Ling Liang Dong, Red Flag Laws Are Red Herrings of Gun Control, Wired (Sept. 9, 2019, 9:00 AM), https://www.wired.com/story/red-flag-laws-are-red-herrings-of-gun-control/ [https://perma.cc/PSN8-B2UK]. ↑
  17. Ivan Pereira, Lawmaker Introduces ‘Anti-Red Flag’ Bill in Georgia To Combat Gun Control Proposals, ABC News (Jan. 15, 2020, 12:52 PM), https://abcnews.go.com/­US/lawmaker-introduces-anti-red-flag-bill-georgia-combat/story?id=68299434 [https://perm a.cc/7V9S-7CMX] (describing legislation introduced in Georgia to forbid extreme risk laws that bears the title “Anti-Red Flag—Second Amendment Conservation Act”). ↑
  18. 554 U.S. 570, 635 (2008) (emphasis added). ↑
  19. See generally Joseph Blocher, Gun Rights Talk, 94 B.U. L. Rev. 813 (2014) (arguing that the invocation of the Second Amendment in debates over proposed gun control laws has defeated many of these measures). ↑
  20. A federal court in California, for example, blocked on First Amendment grounds a Los Angeles law that would have required city contractors to disclose ties to the NRA. As the NRA put it, the “First Amendment Defends the Second.” See First Amendment Defends the Second, NRA-ILA (Dec. 16, 2019), https://www.nraila.org/articles/20191216/first-amendment-defends-the-second [https://perma.cc/L5TF-6PVS]. ↑
  21. See, e.g., Timothy Zick, Arming Public Protests, 104 Iowa L. Rev. 223, 236–37 (2018) (considering, inter alia, the First Amendment rights of speech and assembly and their interaction with the Second Amendment); Luke Morgan, Note, Leave Your Guns at Home: The Constitutionality of a Prohibition on Carrying Firearms at Political Demonstrations, 68 Duke L.J
    .

    175, 179, 211–13 (2018) (same). ↑

  22. See, e.g., Jeffrey Bellin, The Right To Remain Armed, 93 Wash. U. L. Rev
    .

    1, 4–5 (2015) (considering implications for search and seizure). ↑

  23. See, e.g., Pratheepan Gulasekaram, “The People” of the Second Amendment: Citizenship and the Right to Bear Arms, 85 N.Y.U. L. Rev
    .

    1521, 1538 (2010) (illustrating and analyzing the difficulties of limiting “the people” to non-citizens). ↑

  24. Not only do these other rights and interests intersect with the Second Amendment in important ways, but the courts have also borrowed from many of these frameworks when fleshing out the contours of the right to keep and bear arms. See Jacob D. Charles, Constructing a Constitutional Right: Borrowing and Second Amendment Design Choices, 99 N.C. L. Rev. (forthcoming 2021) (manuscript at 1–2) (on file with the Virginia Law Review) (describing how courts and commentators have borrowed from other constitutional rights domains in creating a framework for the Second Amendment). ↑
  25. See, e.g., Press Release, Quinnipiac Univ., Overwhelming Support for No-Fly, No-Buy Gun Law, Quinnipiac University National Poll Finds; Support for Background Checks Tops 90 Percent Again (June 30, 2016), https://poll.qu.edu/national/release-detail?ReleaseID=2364 [https://perma.cc/C74J-XGWG]. ↑
  26. David M. Herszenhorn, Bipartisan Senate Group Proposes ‘No Fly, No Buy’ Gun Measure, N.Y. Times (June 21, 2016), https://www.nytimes.com/2016/06/22/us/politics/ senate-gun-control-no-fly-list-terrorism.html [https://perma.cc/4J99-TKVT]. ↑
  27. See, e.g., Chris W. Cox, Gun Laws Don’t Deter Terrorists: Opposing View, USA Today (June 14, 2016, 1:01 AM), https://www.usatoday.com/story/opinion/2016/06/13/gun-laws-deter-terrorists-opposing-view/85844946/ [https://perma.cc/Q6S7-9C52]. ↑
  28. See Hina Shamsi & Christopher Anders, The Use of Error-Prone and Unfair Watchlists Is Not the Way To Regulate Guns in America, ACLU (June 20, 2016, 2:45 PM), https://www.aclu.org/blog/washington-markup/use-error-prone-and-unfair-watchlists-not-way-regulate-guns-america [https://perma.cc/YA9S-NYBS]; see also Joseph Greenlee, No Fly, No Buy (And No Due Process), Federalist Soc’y (Feb. 17, 2016), http://www.fed-soc.org/blog/detail/no-fly-no-buy-and-no-due-process [https://perma.cc/V4U6-7ERV]. ↑
  29. Lisa Mascaro & Jill Ornitz, Senate Rejects New Gun Sales Restrictions, L.A. Times
    ,

    June 21, 2016, at A8. ↑

  30. See infra Section I.A (describing the spread of extreme risk laws). ↑
  31. Marianne Levine, Senate GOP Open to States Allowing Narrow Gun Restriction, Politico (Mar. 26, 2019, 1:05 PM), https://www.politico.com/story/2019/03/26/senate-republicans-state-gun-law-reform-1237446 [https://perma.cc/F32F-F6EQ]. ↑
  32. Governor Polis Signs ERPO Into Law, Delta Cnty. Indep. (Apr. 17, 2019), https://www.deltacountyindependent.com/governor-polis-signs-erpo-into-law-cms-15033 [https://perma.cc/S2N7-NW6M]. ↑
  33. To be clear, we do not suppose that there is a bright line between “constitutional” and “political” claims—constitutional law and argument often occur outside the courts, and in fact the Second Amendment provides an especially robust and interesting example in that regard. See Jacob D. Charles, The Right To Keep and Bear Arms Outside the Second Amendment 7 (Feb. 23, 2020) (unpublished manuscript) (on file with the Virginia Law Review). ↑

Weaponizing the First Amendment: An Equality Reading

This Article traces how and why the First Amendment has gone from a shield of the powerless to a sword of the powerful in the past hundred years. The central doctrinal role of “content neutrality” and “viewpoint neutrality” in this development is analyzed; the crucial tipping points of anti-Semitism, in Collin v. Smith, and pornography, in Hudnut v. American Booksellers, are identified. The potential for substantive equality to promote freedom of speech is glimpsed.

Once a defense of the powerless, the First Amendment1 1.U.S. Const. amend. I.Show More over the last hundred years has mainly become a weapon of the powerful. Starting toward the beginning of the twentieth century, a protection that was once persuasively conceived by dissenters as a shield for radicals, artists and activists, socialists and pacifists, the excluded and the dispossessed, has become a sword for authoritarians, racists and misogynists, Nazis and Klansmen, pornographers, and corporations buying elections in the dark.2 2.All the examples in this sentence are discussed in this Article except the last, which is exemplified by Citizens United v. FEC, 558 U.S. 310 (2010), and preceding cases, discussion of which is beyond the scope of this Article.Show More In public discourse, with which these legal developments are tightly connected, freedom of speech has at the same time gone from a rallying cry for protesters against dominant power to a claimed immunity of those who hold dominant power. Thus weaponized,3 3.Justice Elena Kagan spoke of “weaponizing” the First Amendment in a dissenting opinion contending that fees assessed by statute by public employee unions on all who benefitted from their collective bargaining should have been permitted rather than invalidated under the First Amendment: “There is no sugarcoating today’s opinion. The majority . . . prevents the American people, acting through their state and local officials, from making important choices about workplace governance. And it does so by weaponizing the First Amendment, in a way that unleashes judges, now and in the future, to intervene in economic and regulatory policy.” Janus v. Am. Fed’n of State, Cnty., & Mun. Emps., Council 31, 138 S. Ct. 2448, 2501 (2018) (Kagan, J., dissenting). Although the power alignments in her recognition parallel those argued here, I am not claiming that Justice Kagan agrees with the analysis in this Article.Show More the First Amendment has morphed from a vaunted entitlement of structurally unequal groups to have their say, to expose their inequality, and to seek equal rights, to a claim by dominant groups to impose and exploit their hegemony.

On the social level of the speech itself, dominant groups promoting ideologies of supremacy have solidified and enhanced their power through inaccurately but successfully positioning themselves as marginal powerless dissenters, or as debaters just expressing ideas. As much public speech has accordingly escalated in its abusiveness, markedly on social media, from racist dog whistles and worse through sexual objectification and worse, to some electoral and other political assaults and invitations to violence, a First Amendment appeal is often used to support dominant status and power, backing white supremacy and masculinist misogynistic attacks in particular. Voices challenging inequality on campuses and in media as well as on streets, in communities, in social media, and in courts are frequently effectively muted and exposed to further abuse and silenced through subordinating aggression, including verbal, physical, and legal threats, in the name of freedom of speech. And everyone wonders, how did we get here?

In law, the doctrinal pivot of this twisted development turns on a vicious irony. The very First Amendment doctrine that has supported intensifying hierarchies of power in its results is founded in a purported equality principle. Starting in the 1970s, the First Amendment began to build a doctrine of content neutrality, extended (where applicable) to viewpoint neutrality, said to be predicated on equality.4 4.As traced in detail below, this trajectory went from Schacht v. United States, 398 U.S. 58 (1970), to Police Department of Chicago v. Mosley, 408 U.S. 92 (1972), to Kenneth L. Karst, Equality as a Central Principle in the First Amendment, 43 U. Chi. L. Rev. 20 (1975), as recounted in Geoffrey R. Stone, Kenneth Karst’sEquality as a Central Principle in the First Amendment, 75 U. Chi. L. Rev. 37 (2008). None identifies the “equality” being applied as formal equality, which it is.Show More Neutrality has become its principal tool, overwhelming even its few substantive recognitions. Content neutrality, like gender neutrality or racial neutrality (often termed colorblindness) under the Equal Protection Clause,5 5.U.S. Const.amend. XIV, § 1. For discussion, see Catharine A. MacKinnon, Feminism Unmodified 33–37, 55, 71–74, 164–67, 275 n.6 (1987), and Catharine A. MacKinnon, Sex Equality (3d ed. 2016).Show More is rooted in the abstract Aristotelian notion of formal equality, which can distinguish sameness from difference within a prescribed range, but lacks substantive comprehension or direction. Absent the injection of substance—considered non-neutral, hence non-principled and prohibited by this doctrine—this doctrine has proven to be an instrument of reproduction of the status quo, incapable of reliably distinguishing social dominance from subordination, thus maintaining that dominance. That is, it is incapable of seeing hierarchy, markedly the rank ordering of white over not white, of male and masculine over female and feminine, that (among many other inequalities) defines inequality in reality.6 6.See, e.g., Catharine A. MacKinnon, Substantive Equality: A Perspective, 96 Minn. L. Rev. 1, 27 (2011); Catharine A. MacKinnon, Substantive Equality Past and Future: The Canadian Charter Experience, in Canada in the World: Comparative Perspectives on the Canadian Constitution 227, 227–44 (Richard Albert & David R. Cameron eds., 2018) [hereinafter MacKinnon, Substantive Equality Past and Future]; Catharine A. MacKinnon, Substantive Equality Revisited: A Reply to Sandra Fredman, 14 Int’l J. Const. L. 739 (2016); Catharine A. MacKinnon, Substantive Equality Revisited: A Rejoinder to Sandra Fredman, 15 Int’l J. Const. L. 1174 (2017).Show More So this law has proven unable to support opposition to the way things are, or to counter and change it.

An inadequate approach to power, resulting in an incapacity to identify substantive inequality when it animates First Amendment cases—including a failure to identify inequality in these cases at all—is a major part of the underlying story of the First Amendment’s transformation. Being unable to tell the difference between power and powerlessness relatively speaking—for instance, being unable to identify the deployment of racial and/or gender-based terrorism through historically unambiguous means, that is, a determined blindness to social reality—has become firmly entrenched in the First Amendment, and the social discourse invoking it, as the virtue termed “neutrality.” Inevitably, existing unequal social arrangements, namely structures and practices of inequality, sometimes in aggressive forms, are thereby protected.

The First Amendment, firmly ensconced within the liberal tradition, tends reflexively to see power as residing in the state, which it sees as power’s fountainhead.7 7.This ground zero assumption is so fundamental it is virtually impossible to find articulated explicitly because it operates as unconscious ideology. It is most visible in the choice, when discussing power, only to argue for the legitimacy of state power, that is, the principal power seen to exist, as well as in the relative absence of analysis, for example, of male power (Locke analyzes it in the family only to justify it) or white privilege. See, e.g., John Rawls, Political Liberalism 136 (1996) (“[P]olitical power is always coercive power backed by the government’s use of sanctions, for government alone has the authority to use force in upholding its laws.”); Robert Nozick, Anarchy, State, and Utopia 23 (1974) (“A state claims a monopoly on deciding who may use force when; it says that only it may decide who may use force and under what conditions; it reserves to itself the sole right to pass on the legitimacy and permissibility of any use of force within its boundaries[.]”); Ronald Dworkin, Law’s Empire 188, 190–92 (1986). Given how much violence against women occurs that is no less effectively coercive for being extra-legal, this is all mythic.Show More In liberalism, power, rendered “coercive power,” is seen as emanating nearly exclusively from government; society, absent intrusion by the state, is deemed free. Freedom—here, freedom of speech—thus becomes about protecting existing social arrangements, which includes inequalities of power in society, from the state. This includes protecting inequality when the state supports intervention to address that inequality by means of, for example, civil laws against discrimination that include an expressive element.8 8.This is not always the case. For examples of a lesser but nonetheless existing line of authority, see Part II’s discussion of Pittsburgh Press Co. v. Pittsburgh Commission on Human Relations, 413 U.S. 376 (1973), and Roberts v. United States Jaycees, 468 U.S. 609 (1984).Show More As a result, statutes that aim (for example) to protect socially disempowered and discriminated-against social groups from inequality imposed through speech or expressive conduct, violent or otherwise, because they are statutes, are seen to turn those harmed by such conduct into actors with power, as if they are the state. The statutes are legally mispositioned this way instead of recognizing them as attempted legal interventions on behalf of subordinated social groups, passed in an attempt to shift or mitigate their relative powerlessness, or to shield them from its violent excesses. Social relations are overwhelmingly not grasped as a locus or source or wellspring of power, hence of its inequality. The blinkering or overtly prohibiting of any explicit statutory recognition of grounds of substantive equality such as race or sex—First Amendment rulings considering their realities instead to be “discussions of” those “topics” or “ideas about” those realities9 9.See infra text accompanying notes 91–104 (focusing on R.A.V. v. City of St. Paul, 505 U.S. 377 (1992)); infra text accompanying notes 158–62 (focusing on Am. Booksellers Ass’n v. Hudnut, 771 F.2d 323 (7th Cir. 1985), aff’d mem.,475 U.S. 1001 (1986)).Show More—implements this assumption.10 10.Infra Part II discusses this, focusing on R.A.V. v. City of St. Paul, 505 U.S. 377 (1992).Show More

The absence of an operative substantive theory of social equality is thus—in the guise of equality, no less—embedded in the First Amendment’s content neutrality. Few if any of its outcomes are neutral as to content, however, and its doctrine of viewpoint neutrality misses the many times dominant viewpoints are obscured while being protected. The upshot is that this doctrine, systematically implemented, protects “speech” that promotes substantive social inequality as it currently exists.11 11.See infra Part II.Show More Claiming freedom of speech, practices of inequality are converted into expressions of ideas about inequality, transforming actionable discrimination into protectable “speech.”

Opposition to discriminatory practices becomes censorship of thoughts or ideas on one side of a discussion. In this light, because discrimination, including through expressive acts of the powerful and advantaged, silences the speech of disadvantaged and subordinated groups as well as promotes their disadvantage and actualizes their subordination, neutrality as a doctrinal approach supports the status quo distribution of social power under the First Amendment just as effectively as it largely does under the Equal Protection Clause, where neutrality became the mainstream doctrine during roughly the same time period.12 12.As discussed in infra Part III, watershed public debates and judicial decisions in this respect revolved around two Seventh Circuit cases on which certiorari was denied concerning, substantively, anti-Semitism and commercialized misogyny: a permitting restriction applied to Nazis marching in Skokie, Illinois, see Collin v. Smith, 578 F.2d 1197, 1199 (7th Cir. 1978), cert. denied, 439 U.S. 916 (1978), and a civil statute recognizing harms of pornography as sex discrimination,see Am. Booksellers Ass’n v. Hudnut, 771 F.2d 323 (7th Cir. 1985), aff’d mem.,475 U.S. 1001 (1986).Show More

If substantive inequality is all but invisible in the text of First Amendment doctrine and commentary, it is vividly visible in the facts of many, even most, First Amendment cases, if read through a substantive inequality lens. In early First Amendment cases, asymmetrical harms of what amounts to inequalities, if not so called, were clearly recognized. Passing without notice or comment, over time the underlying alignments of power, seen in substantive terms, have been reversed. Originally, the statutes suppressing speech sided with state power; those they silenced were its critics. Increasingly, the statutes subjected to First Amendment attack have sided with the powerless and have been attacked by those with power, claiming to be powerless dissenters. Power’s victims were those the statutes aimed to protect or those whose victimization the statutes aimed to remedy. But the statutes have been legally invalidated as First Amendment violations either as applied or on their face by representatives of social dominance, claiming the mantle of the powerless and dispossessed.

  1. * The insightful assistance of Lori Watson and Lisa Cardyn, of Max Waltman (especially in helping to wrestle the vast empirical materials on the harms of pornography below the line), and of Lori Interlicchio for her tremendous help with footnote form and accuracy, is gratefully acknowledged. The essential University of Michigan Law Library and the Cook Fund supported my work beyond measure, always being there. Deliveries of the core ideas at the First Amendment conference at Columbia University sponsored by Vince Blasi in November, 2019, and at The McCorkle Lecture at the University of Virginia, February 6, 2020, produced clarifying discussions. A preliminary sketch appears in The Free Speech Century 140 (Lee Bollinger & Geoffrey Stone eds., 2019). Lee and Geoff practice freedom of expression, contrasting with goose-steppers to First Amendment fundamentalism. Overcoming the best efforts of the latter, this Article is finally being published in full. The Virginia Law Review has my gratitude for courage, principle, and independent thinking, as well as for precision, persistence, and undaunted hard work at a time of challenge. This Article is dedicated to the memory of my teacher and dear friend, Thomas I. Emerson. ↑
  2. U.S. Const. amend. I. ↑
  3. All the examples in this sentence are discussed in this Article except the last, which is exemplified by Citizens United v. FEC, 558 U.S. 310 (2010), and preceding cases, discussion of which is beyond the scope of this Article. ↑
  4. Justice Elena Kagan spoke of “weaponizing” the First Amendment in a dissenting opinion contending that fees assessed by statute by public employee unions on all who benefitted from their collective bargaining should have been permitted rather than invalidated under the First Amendment: “There is no sugarcoating today’s opinion. The majority . . . prevents the American people, acting through their state and local officials, from making important choices about workplace governance. And it does so by weaponizing the First Amendment, in a way that unleashes judges, now and in the future, to intervene in economic and regulatory policy.” Janus v. Am. Fed’n of State, Cnty., & Mun. Emps., Council 31, 138 S. Ct. 2448, 2501 (2018) (Kagan, J., dissenting). Although the power alignments in her recognition parallel those argued here, I am not claiming that Justice Kagan agrees with the analysis in this Article. ↑
  5. As traced in detail below, this trajectory went from Schacht v. United States, 398 U.S. 58 (1970), to Police Department of Chicago v. Mosley, 408 U.S. 92 (1972), to Kenneth L. Karst, Equality as a Central Principle in the First Amendment, 43 U. Chi. L. Rev. 20 (1975), as recounted in Geoffrey R. Stone, Kenneth Karst’s Equality as a Central Principle in the First Amendment, 75 U. Chi. L. Rev. 37 (2008). None identifies the “equality” being applied as formal equality, which it is. ↑
  6.  U.S. Const.
     

    amend. XIV, § 1. For discussion, see Catharine A. MacKinnon, Feminism Unmodified 33–37, 55, 71–74, 164–67, 275 n.6 (1987), and Catharine A. MacKinnon, Sex Equality (3d ed. 2016). ↑

  7. See, e.g., Catharine A. MacKinnon, Substantive Equality: A Perspective, 96 Minn. L. Rev. 1, 27 (2011); Catharine A. MacKinnon, Substantive Equality Past and Future: The Canadian Charter Experience, in Canada in the World: Comparative Perspectives on the Canadian Constitution 227, 227–44 (Richard Albert & David R. Cameron eds., 2018) [hereinafter MacKinnon, Substantive Equality Past and Future]; Catharine A. MacKinnon, Substantive Equality Revisited: A Reply to Sandra Fredman, 14 Int’l J. Const. L. 739 (2016); Catharine A. MacKinnon, Substantive Equality Revisited: A Rejoinder to Sandra Fredman, 15 Int’l J. Const. L.
    1174 (2017)

    . ↑

  8. This ground zero assumption is so fundamental it is virtually impossible to find articulated explicitly because it operates as unconscious ideology. It is most visible in the choice, when discussing power, only to argue for the legitimacy of state power, that is, the principal power seen to exist, as well as in the relative absence of analysis, for example, of male power (Locke analyzes it in the family only to justify it) or white privilege. See, e.g., John Rawls, Political Liberalism 136 (1996) (“[P]olitical power is always coercive power backed by the government’s use of sanctions, for government alone has the authority to use force in upholding its laws.”); Robert Nozick, Anarchy, State, and Utopia 23 (1974) (“A state claims a monopoly on deciding who may use force when; it says that only it may decide who may use force and under what conditions; it reserves to itself the sole right to pass on the legitimacy and permissibility of any use of force within its boundaries[.]”); Ronald Dworkin, Law’s Empire 188, 190–92 (1986). Given how much violence against women occurs that is no less effectively coercive for being extra-legal, this is all mythic. ↑
  9. This is not always the case. For examples of a lesser but nonetheless existing line of authority, see Part II’s discussion of Pittsburgh Press Co. v. Pittsburgh Commission on Human Relations, 413 U.S. 376 (1973), and Roberts v. United States Jaycees, 468 U.S. 609 (1984). ↑
  10. See infra text accompanying notes 91–104 (focusing on R.A.V. v. City of St. Paul, 505 U.S. 377 (1992)); infra text accompanying notes 158–62 (focusing on Am. Booksellers Ass’n v. Hudnut, 771 F.2d 323 (7th Cir. 1985), aff’d mem., 475 U.S. 1001 (1986)). ↑
  11. Infra Part II discusses this, focusing on R.A.V. v. City of St. Paul, 505 U.S. 377 (1992). ↑
  12. See infra Part II. ↑
  13. As discussed in infra Part III, watershed public debates and judicial decisions in this respect revolved around two Seventh Circuit cases on which certiorari was denied concerning, substantively, anti-Semitism and commercialized misogyny: a permitting restriction applied to Nazis marching in Skokie, Illinois, see Collin v. Smith, 578 F.2d 1197, 1199 (7th Cir. 1978), cert. denied, 439 U.S. 916 (1978), and a civil statute recognizing harms of pornography as sex discrimination, see Am. Booksellers Ass’n v. Hudnut, 771 F.2d 323 (7th Cir. 1985), aff’d mem., 475 U.S. 1001 (1986). ↑

Defining Appraisal Fair Value

Appraisal is a statutory mechanism that entitles dissenting stockholders of Delaware merger targets to receive a judicially determined valuation of their shares. During a decade when Delaware courts significantly constrained other legal avenues of merger dissent, appraisal petitions increased dramatically, with individual cases potentially implicating billions of dollars of stockholder value. Recent appraisal case law has sparked considerable controversy over the role of market prices in courts’ appraisal valuations. Courts and commentators have struggled to articulate exactly when market prices are the best evidence of fair value, as well as what types of market prices are most relevant to appraisal fair value. This Note presents a revised conception of appraisal fair value that is informed by economic theory and rooted in Delaware corporate law’s longstanding goals of facilitating capital formation and maximizing stockholder value.

This Note proposes two changes to existing conceptions of merger deal prices in appraisal cases. First, the appraisal statute should be understood to exclude the value of reduced agency costs from appraisal awards. Second, when material non-public information is disclosed to the buyer but withheld from the market, both the appraisal statute and basic notions of market efficiency demand that courts take cognizance of it. The best way to operationalize these conceptual modifications is to presume that the target’s unaffected stock price equals fair value unless the petitioner establishes that material information was withheld from the market.

This approach adds needed clarity to the Delaware Supreme Court’s salutary recent embrace of the efficient capital markets hypothesis in the appraisal context. Adopting it would increase stockholder value, encourage efficient change-of-control transactions, and simplify appraisal proceedings. It preserves appraisal’s foundational role as a safeguard against the exploitation of minority stockholders by compensating them when the deal price omits suppressed material information.

I. Introduction

Section 262 of the Delaware General Corporation Law (“DGCL”) provides that a dissenting target stockholder in a merger or consolidation transaction may petition the Court of Chancery for an award of the fair value of her shares.1 1.Del. Code Ann. tit. 8, § 262 (2020). The appraisal remedy is limited to two types of transactions: “squeeze-outs” effected under §§ 253 and 267, and other mergers or consolidation transactions involving some cash consideration. See id.Show More Appraisal is a critical safety net for minority stockholders, and appraisal petitions increased dramatically during the past decade as Delaware courts have constrained other methods for challenging change-of-control transactions.2 2.See infra notes 20–22 and accompanying text.Show More Disagreement persists about whether and when the market price, the deal price, or some other metric is the best indicator of fair value. Each of these approaches is rooted in an incomplete conception of the determinants of merger prices. This Note presents a revised model of merger deal prices that resolves many of the theoretical and practical impediments to articulating a properly functional appraisal remedy. It then suggests a method for operationalizing the revised model.

In two 2017 decisions, the Delaware Supreme Court (“Supreme Court”) relied on the Efficient Capital Markets Hypothesis (“ECMH”) to reverse the Court of Chancery and endorse the deal price as the best evidence of fair value. The decisions and the Supreme Court’s treatment of the ECMH sparked widespread debate about the proper role of the ECMH in appraisal law and the broader purposes of the appraisal statute. Unresolved questions about the proper role of the ECMH and its broader purposes remain pending before the Supreme Court as of the time of this writing. Although Delaware’s recent emphasis on the ECMH is a welcome development, its failure to account for the role of reduced agency costs and the value of non-public information threatens to undermine the benefits of adopting the ECMH. A more complete theory of appraisal law must acknowledge two critical facts. First, agency cost reductions—the value created by replacing existing managers with more effective ones—are a key motivation for pursuing mergers, and they should belong to the acquirer. To incentivize efficient change-of-control transactions, courts should exclude the value of reduced agency costs from appraisal awards. Second, the value of non-public information about the target company is often a key element of merger prices. By relying on the ECMH without explicitly incorporating the value of non-public information into appraisal fair value, courts subvert the theory’s ability to provide reliable estimates of fair value. The best formulation of the appraisal remedy—and the one most consistent with the ECMH, the appraisal statute, and the purposes of Delaware corporate law—presumes market prices are fair in the absence of evidence that material non-public information was withheld from the market.

To define the “fair value” of an appraisal petitioner’s shares, it is first necessary to re-examine the composition of merger deal prices. If the target company’s stock trades in an efficient market, then its stock price “reflects all publicly available information as a consensus, per-share valuation.”3 3.Dell, Inc. v. Magnetar Glob. Event Driven Master Fund Ltd. (Dell), 177 A.3d 1, 16 (Del. 2017).Show More The existing stock price sets the presumptive baseline for merger fair value because no rational stockholder would tender her shares to an acquirer at a lower price than she would receive on the open market.4 4.It is assumed that the Supreme Court has endorsed the ECMH inclusive of that theory’s conventional assumption that market participants are rational. See Steven M. Sheffrin, Rational Expectations 99 (2d ed. 1996). This assumption is uncontroversial in the present context—i.e., it is beyond doubt that no reasonable shareholder would tender her shares at a lower price than she could readily receive elsewhere—but it has been contested in others. See, e.g., Franco Modigliani & Richard A. Cohn, Inflation, Rational Valuation and the Market, 35 Fin. Analysts J. 24, 24 (1979) (arguing that persistent inflation distorts market prices of securities, a finding inconsistent with some forms of the ECMH); Lawrence H. Summers, Does the Stock Market Rationally Reflect Fundamental Values?, 41 J. Fin. 591 (1986) (arguing that empirical evidence does not conclusively confirm the ECMH and that market prices do not always rationally reflect the fundamental values of securities). This Note does not aspire to contribute to scholarly commentary on the ECMH; like the Supreme Court, it adopts the hypothesis as a tool for deciding appraisal cases. See Dell, 177 A.3d at 24; see also Are Markets Efficient?, Chi. Booth Rev. (June 30, 2016), https://review.chicagobooth.edu/­economics/2016/video/are-markets-efficient [https://perma.cc/7HBU-C4ZL] (interview with Eugene Fama and Richard Thaler) (“The point is not that markets are efficient. . . . It’s just a model.”).Show More The second component of merger prices is the value of merger “synergies,” the value created by combining formerly separate business units. Agency cost reductions are a third source of value, created when an acquirer replaces existing management with superior business administrators. Finally, material non-public information (MNPI) is an often-overlooked fourth component of merger value. Prospective buyers receive MNPI during the diligence phase of merger transactions.5 5.See infra Section III.B.Show More MNPI is by definition relevant to company value; it is information which “would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information available” about the company.6 6.Klang v. Smith’s Food & Drug Ctrs., Inc., 702 A.2d 150, 156 (Del. 1997) (quoting Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985)). Note, too, that MNPI may be value-positive or value-negative. See infra Section III.D.Show More

The appraisal statute excludes from appraisal awards “any element of value arising from the accomplishment or expectation of the merger,”7 7.Del. Code Ann. tit. 8, § 262(h) (2020).Show More and synergies are consequently not included in appraisal awards. This Note will argue that the statute should also bar appraisal petitioners from recovering the value of agency cost reductions because they, too, are created by the transaction itself. This observation has important policy implications for capital formation; most importantly, excluding reduced agency costs is essential to incentivizing efficient change-of-control transactions.

Courts and academics analyzing appraisal have neglected to account for the value of non-public information as a determinant of merger prices. MNPI is definitionally value-laden, but in a world governed by the ECMH, it is not incorporated into market prices.8 8.This Note adopts the “semi-strong” form of the ECMH embraced by the Supreme Court, which holds that market prices incorporate all publicly available information about asset prices. See Verition Partners Master Fund Ltd. v. Aruba Networks, Inc. (Aruba III), 210 A.3d 128, 137–38, 138 n.53 (Del. 2019).Show More When MNPI disseminated to the buyer is withheld from the market (e.g., if the board fails to disclose a conflict when it recommends stockholders vote in favor of a merger), the risk of minority stockholder exploitation is high. Appraisal analysis should therefore explicitly acknowledge that suppressed MNPI is relevant to company value. However, MNPI will often be prohibitively difficult for courts to value. For example, suppose that an appraisal petitioner establishes at trial that the merger buyer induced the target’s CEO to support an unfairly low deal price by secretly offering her employment at the merged firm. It will likely be very difficult to determine with precision how this undisclosed conflict affected the ultimate sale price; the petitioner certainly should have received a better price for her shares, but it is not clear how much. This presents a dilemma for implementing the proposed merger deal price model in appraisal cases.

The solution is to define market prices as the baseline for appraisal fair value, presuming that the target’s unaffected stock price is the best evidence of the company’s value. This automatically excises synergies and agency cost reductions from appraisal awards. The presumption can be surmounted by evidence of MNPI suppression. Where this threshold is met, the court should exercise its discretion to determine the appraisal award, as it currently does, bearing in mind that buyers are entitled to the value they create through synergies and reduced agency costs. This approach will meaningfully simplify appraisal proceedings and refocus the remedy on the policy goals it serves—facilitating capital formation and encouraging efficient, non-exploitative mergers.

Part II situates the appraisal remedy within its doctrinal context. It introduces appraisal as an important safeguard against minority stockholder exploitation in change-of-control transactions, one that operates outside of the traditional breach of fiduciary duty merger litigation arena. It details several cases that collectively embody the recent controversy over the ECMH’s role in appraisal proceedings and concludes with an economic analysis of appraisal’s role in the broader corporate contract. Part III presents the revised merger deal price framework. Starting with the assumption that Delaware corporate law exists to facilitate investment and maximize long-term stockholder value, it argues that courts should exclude agency cost reductions and include the value of MNPI. It then develops the foregoing analysis into a method for adjudicating appraisal petitions that relies on a rebuttable presumption that market prices are fair.

Part IV analyzes the proposed framework’s likely consequences. It applies the framework to three noteworthy recent appraisal cases, reaching divergent results from the Delaware courts in each. It then argues that, if adopted, the adjudicatory model would bring much-needed clarity and rigor to the Supreme Court’s embrace of the ECMH, enabling courts to more fully utilize the ECMH’s analytical advantages. It would reduce some of the complexity associated with judicial determinations of company value, decrease the volume of appraisal petitions, and discourage speculative appraisal petitions—an outcome consistent with recent trends in Delaware deal jurisprudence. Next, it considers the likely effects on capital formation and the broader merger and acquisition (“M&A”) market. Excluding agency cost reductions would allow M&A buyers to retain the value they create when they replace inefficient management, increasing their incentives to pursue efficient corporate control transactions. It would also further the goal of maximizing stockholder value by eliminating appraisal premia. And, by incorporating MNPI into the fair value calculation, the suggested framework would discourage collusion between targets and buyers during the deal process, thereby preserving appraisal’s traditional function as a check on process adequacy. Part IV closes by describing appraisal’s continuing importance under the revised framework. Many firms’ shares do not trade in efficient markets, and this Note makes no attempt to supplant appraisal’s established role in such cases. Furthermore, appraisal will remain an effective judicial tool for policing process adequacy, particularly in conflict transactions. A brief conclusion follows in Part V.

  1. * J.D. & M.B.A., University of Virginia, 2020. I am very grateful to Professor Quinn Curtis, who introduced me to corporate law and advised me on this Note. For helpful comments and suggestions, I thank Wade Houston, Will Walsh, George Geis, Joe Fore, Nick Carey, Rebecca Lamb, F.D. Carroll, Matt Hoffer-Hawlik, and Matt Levine. I thank Charlotte K. Newell for educating me about the history of Delaware’s appraisal statute, and the staff of the Virginia Law Review for their input and editorial work on this Note—especially Matt West. ↑
  2. Del. Code Ann. tit. 8, § 262 (2020). The appraisal remedy is limited to two types of transactions: “squeeze-outs” effected under §§ 253 and 267, and other mergers or consolidation transactions involving some cash consideration. See id. ↑
  3. See infra notes 20–22 and accompanying text. ↑
  4. Dell, Inc. v. Magnetar Glob. Event Driven Master Fund Ltd. (Dell), 177 A.3d 1, 16 (Del. 2017). ↑
  5. It is assumed that the Supreme Court has endorsed the ECMH inclusive of that theory’s conventional assumption that market participants are rational. See Steven M. Sheffrin, Rational Expectations 99 (2d ed. 1996). This assumption is uncontroversial in the present context—i.e., it is beyond doubt that no reasonable shareholder would tender her shares at a lower price than she could readily receive elsewhere—but it has been contested in others. See, e.g., Franco Modigliani & Richard A. Cohn, Inflation, Rational Valuation and the Market, 35 Fin. Analysts J. 24, 24 (1979) (arguing that persistent inflation distorts market prices of securities, a finding inconsistent with some forms of the ECMH); Lawrence H. Summers, Does the Stock Market Rationally Reflect Fundamental Values?, 41 J. Fin. 591 (1986) (arguing that empirical evidence does not conclusively confirm the ECMH and that market prices do not always rationally reflect the fundamental values of securities). This Note does not aspire to contribute to scholarly commentary on the ECMH; like the Supreme Court, it adopts the hypothesis as a tool for deciding appraisal cases. See Dell, 177 A.3d at 24; see also Are Markets Efficient?, Chi. Booth Rev. (June 30, 2016), https://review.chicagobooth.edu/­economics/2016/video/are-markets-efficient [https://perma.cc/7HBU-C4ZL] (interview with Eugene Fama and Richard Thaler) (“The point is not that markets are efficient. . . . It’s just a model.”). ↑
  6. See infra Section III.B. ↑
  7. Klang v. Smith’s Food & Drug Ctrs., Inc., 702 A.2d 150, 156 (Del. 1997) (quoting Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985)). Note, too, that MNPI may be value-positive or value-negative. See infra Section III.D. ↑
  8. Del. Code Ann. tit. 8, § 262(h) (2020). ↑
  9. This Note adopts the “semi-strong” form of the ECMH embraced by the Supreme Court, which holds that market prices incorporate all publicly available information about asset prices. See Verition Partners Master Fund Ltd. v. Aruba Networks, Inc. (Aruba III), 210 A.3d 128, 137–38, 138 n.53 (Del. 2019). ↑
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