Between 1999 and 2003, three landmark decisions of the European Court of Justice—Centros, Überseering, and Inspire Art—struck down laws restricting the ability of corporations to exercise their right to free establishment under the EC Treaty. The most significant impact of this freedom is the ability of a corporation to choose its state of incorporation. Prior to the three landmark decisions, continental Europe had effectively prevented such choice by forcing a corporation to be incorporated in the state where its central management was located, the so-called real seat doctrine. Yet the revolution in corporate choice of law expected by many scholars after the three landmark decisions did not occur. This Note argues that this failure resulted from indirect restrictions imposed by continental countries which removed the incentives motivating corporate mobility. Three new decisions by the European Court of Justice, de Lasteyrie du Saillant, Marks & Spencer, and SEVIC Systems, have attacked these indirect restraints. The Court’s analysis in this second wave of liberalization demonstrates a willingness to overturn not only laws that directly restrict corporate freedom of establishment but also statutes that reduce corporate incentives to seek more efficient governing law. While the first wave of landmark decisions may have been more significant jurisprudentially, the second will be far more influential on the actual exercise of freedom of establishment. The effect of the second wave cases will be a European corporate landscape that looks much more like that of the United States than of Europe itself last year.
Volume 92
Two Models of Tort (and Takings)
Since the publication of The Cost of Accidents, the model of costs has been the dominant approach to tort theory. On the model of costs, tort law promotes efficiency by requiring agents to internalize the costs they impose on others when it is efficient to do so. Despite its success, the model of costs is deeply puzzling. Positive externalities are as inefficient as negative externalities. Therefore, if the model of costs provides a good explanation of tort law, one would expect that we would also have a legal regime oriented towards the recapture of the benefits we confer on others. In some instances, restitution allows the recapture of positive externalities, but compared to tort it is a trifling part of the law.
The asymmetry between the legal consequences of harms and benefits is a fundamental, structural feature of our law. Any successful explanation of our legal institutions must account for it. Part One of this Essay explores attempts to explain law’s harm-benefit asymmetry from the perspective of the model of costs. I argue that the economic explanations offered to date are, in a variety of respects, unsatisfying. In Part Two, I develop an alternative to the model of costs, which I call the model of harms. On this model, tort responds to the harms that we inflict on one another, rather than the costs that we impose on one another. I show how harms are different from costs, and I explain how conceiving of tort law as an institution concerned with harms rather than costs make better sense of both tort doctrine and law’s harm-benefit asymmetry.
Part Three explores Takings jurisprudence, which exhibits its own harm-benefit asymmetry. The Constitution requires the government to pay just compensation when it takes property. Abraham Bell and Gideon Parchomovsky have argued that we ought to have a givings jurisprudence, which would require the government to impose a fair charge when it gives away property. I argue that Bell and Parchomovsky’s suggestion makes sense only from the perspective of the model of costs, and that the model of harms better explains the Takings jurisprudence we actually have. I show that, like tort law, constitutional takings jurisprudence responds to the harm that government inflicts when it takes property, rather than the costs it imposes.
Emergencies and Democratic Failure
Critics of emergency measures such as the U.S. government’s response to 9/11 invoke the Carolene Products framework, which directs courts to apply strict scrutiny to laws and executive actions that target political or ethnic minorities. The critics suggest that such laws and actions are usually the product of democratic failure, and are especially likely to be so during emergencies. However, the application of the Carolene Productsframework to emergencies is questionable. Democratic failure is no more likely during emergencies than during normal times, and courts are in a worse position to correct democratic failures during emergencies than during normal times. The related arguments that during emergencies courts should protect aliens, and should be more skeptical of unilateral executive actions than of actions that are authorized by statutes, are also of doubtful validity.