Volume 96

The Immortality of Equitable Balancing

Professor Goldstein argues that courts should not weigh the burden on defendants in deciding whether to enjoin statutory violations. Such an undue hardship defense to a preventive injunction in statutory cases would, he reasons, allow courts to upend the policy choice that the legislature made in enacting the statute. 

Goldstein sees this practice as a threat to legislative policy choices, because he views equitable discretion as giving judges open-ended discretion to reach whatever result makes sense to them.  He shares this premise with Professors Abram Chayes and Zygmunt Plater; Chayes, however, wanted courts to have broad discretion in formulating injunctions in public law cases while Plater, like Goldstein, seeks to deny discretion to allow violations to continue.  Plater wrote over a quarter century ago. Goldstein makes a valuable contribution not only by dealing with subsequently decided cases, but also going back in time to challenge the Supreme Court’s assumption that the courts have allowed an undue hardship defense for many centuries.

Don’t Tilt the Playing Field: A Response to Polsky and Markel

From modest beginnings in eighteenth-century England, punitive damages have developed into a potent legal weapon. Professors Polsky and Markel would now make that weapon even more powerful by allowing expert testimony concerning the deductibility of punitive damages from taxable income. The Professors envision an expert explaining to the jury the rule regarding deductibility and explaining how the jury could increase the amount of a punitive damages award to offset the effect of the deduction. Their principal rationale is that, otherwise, the defendant’s true cost will be less than the jury intended and less than it deemed necessary for punishment.

This is a solution in search of a problem. As the Professors acknowledge, plaintiffs “have not been seeking to introduce tax evidence against defendants when seeking punitive damages.” The probable explanation is that plaintiffs’ attorneys would prefer to appeal to jurors’ anger rather than their intellect. That preference is not likely to disappear.

But even if some plaintiffs were to offer expert testimony of the kind that the Professors contemplate, such testimony should be excluded. First, receiving testimony about deductibility would tilt the playing field in favor of plaintiffs, since juries usually are not informed either (a) that compensatory damages based on lost wages are not included in determining plaintiffs’ taxable income, even though the wages they replace would have been taxed, or (b) of collateral sources of compensation such as health insurance and disability benefits. Second, admitting expert testimony about the deductibility of punitive awards would exacerbate the distorting effects of admitting evidence of the wealth of corporate defendants. Third, giving effect to the jury’s intent is less significant with respect to the amount of punitive damages than with respect to most other issues submitted to the jury.

Placebo Statutes?: Sarbanes-Oxley and Ethics Code Disclosures

In Placebo Ethics, Usha Rodrigues and Mike Stegemoller (“R&S”) show that Section 406 of the Sarbanes-Oxley Act and its implementing rules have failed to generate disclosures that shed enough light on conflicts of interest and related ethical issues involving senior financial executives at publicly traded companies. They suggest two different stories of failure. One is on the part of those making disclosure decisions at public companies, presumably lawyers, who fail to comply with the letter or spirit of the Section 406 rules. The other is on the part of policymakers, particularly at the Securities and Exchange Commission (“SEC”), whose dim articulation of the rules and subsequent failure to enforce enabled such widespread evasion. R&S seem quite troubled by both.

My comments are about these supposed failures and, more generally, the diffusion of securities law compliance norms among publicly traded issuers. I fully agree with R&S that Section 406 has failed to produce much of value. I am less convinced that many thoughtful observers ever expected it to, or that the investing public has somehow been lulled into thinking otherwise.

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