Columbia Business Law Review

The Duty to Make Contracts Understandable

Michael A. Blasie — Fri, 07 Mar 2025 00:00:00 +0000

So what if consumers can’t understand contracts? They don’t read contracts. They can’t negotiate contracts. All their contracts have the same unfair terms. And nowadays businesses use algorithms, artificial intelligence, and social scientists to craft individualized contracts that hack consumer’s minds. Choice is an illusion. Consumer understanding is a pipedream.

Even so, contracts should still be understandable.

The opportunity to understand a contract is essential to contract formation’s integrity. While much contract literature focuses on how nonnegotiable contracts cause consumers to make bad deals, this Article challenges the concession that a deal has been made. Contract formation requires consumers have an opportunity to read the contract, which in turn requires consumers have an opportunity to understand what they read. Even if consumers do not exercise this opportunity, and even if exercising that opportunity only reveals how unfair the contract is, this opportunity must exist. The Article proposes that the Uniform Law Commission pass a statute requiring consumer contracts to be understandable to the average intended consumer. Such a law benefits sellers and consumers alike, removes the biggest and oldest impediment to contract innovation (lawyers), incentivizes using machines and science to improve contracts, and might just save transactional lawyers from having their jobs poached by technology.

Reparative Entrepreneurship

Tomica Burke Saul — Fri, 07 Mar 2025 00:00:00 +0000

Cannabis social equity programs are sub-policies within a larger state marijuana regulatory scheme that are geared towards prioritizing War on Drugs survivors when allocating market space and cannabis sales revenue. Of the over 20 states that have legalized recreational marijuana, many include some version of a cannabis social equity program. The idea of repairing past harm through cannabis entrepreneurship gives a sense of “reparations-ish” policymaking. Through a case study of both the intent and implementation of New York’s Social and Economic Equity (SEE) Plan, this Article examines whether the ideological crux of these programs, the belief that entrepreneurship leads to positive economic outcomes for individuals and communities, can fix decades of discriminatory drug policy rooted in systemic racism. Ultimately, the Article argues that these cannabis social equity programs are more likely to sustain barriers to entry, especially for Black entrepreneurs, whether legal, systemic or political. In this moment of reckoning for the War on Drugs, policies must course-correct and experiment with a new concept of “reparative entrepreneurship.” If the reparations framework advanced in this Article were used, the remedies would be more effective in utilizing entrepreneurship to address the harm of the War on Drugs.

Transforming Tax Expenditures

Sloan G. Speck — Fri, 07 Mar 2025 00:00:00 +0000

For decades, reformers have advocated the repeal of tax expenditures—disguised government spending through special preferences in the Internal Revenue Code. And yet, tax expenditures persist, impairing federal tax receipts by more than $1.8 trillion in 2024. This Article introduces a novel mechanism for tax expenditure reform. To the extent that direct statutory repeal proves impossible or impractical, lawmakers can achieve an equivalent result through a strategy of legislative anti-repeal. By radically expanding a tax expenditure’s legal scope, then adjusting progressive income tax rates to account for revenue loss and distributional considerations, lawmakers can effectively eliminate tax expenditures from the tax base and integrate them into the rate structure—a process this Article defines as “base-rate transformation.”

Base-rate transformations reframe conventional understandings of repeal and restrictive reform, as well as traditional reform narratives oriented around a mantra of “broad base, low rates.” Under certain conditions, statutory expansion operates as de facto repeal—or as restrictive reform. The crucial insight is that, for tax expenditures, the stakes of legal change lie largely in how lawmakers address any adjustments to statutory rates. From a normative perspective, base-rate transformations have implications for customary tax norms such as equity, efficiency, and complexity, as well as the political economy of tax expenditure reform. More generally, base-rate transformations challenge standard framings of tax expenditures and press for a more holistic approach to legislative changes to these provisions.

Regulation by Indexation?

Andrew Winden — Fri, 07 Mar 2025 00:00:00 +0000

If index fund asset managers are the new “emperors” of Wall Street, are index providers the power behind the throne? The financial press has called the indexers “kingmakers” and suggested they may soon “rule the world.” If so, why do they seem to have more influence over sovereign governments than corporate executives? Is it appropriate to think of indexers as private regulators? If so, what is the source of their regulatory power? This article answers these questions with the first theoretical model and empirical review assessing the regulatory capacity of global equity index providers.

I propose three regulatory roles through which indexers might deliver incentives or sanctions sufficient to exercise regulatory power: (1) subsidizers, delivering financial benefits to parties who follow their rules for index inclusion, (2) certifiers, delivering reputational benefits to parties who follow their rules, and (3) gatekeepers, delivering access to benefits (e.g., capital, licenses, markets) that are otherwise unavailable. I assess the influence of these regulatory channels on two groups—corporate managers, considering whether indexers can regulate corporate governance and sustainability choices, and sovereign governments, considering whether indexers can influence sovereign choices about financial market rules.

After establishing the theoretical frame, I review the empirical literature to assess the theoretical roles in three contexts: (1) corporate governance restrictions on inclusion in benchmark equity indices, (2) eligibility criteria for inclusion in ESG indices and (3) market requirements for inclusion in emerging markets indices. Empirical studies suggest that the subsidizer role is ineffective, the certifier role may provide sufficient incentives to meet eligibility criteria in some contexts if the costs are not too high, and the gatekeeper role can be very effective, even with high costs, but only if the indexers hold the keys to sufficiently valuable, otherwise unavailable assets.

With Whom Is Your Issue?: Use of Investor Sophistication in Defining the Scope of Seller Liability Under § 12(a)(2) of the Securities Act of 1933

Zachary Becker — Fri, 07 Mar 2025 00:00:00 +0000

The rise of social media in the last two decades has given retail investors unprecedented information about and access to financial markets. But the introduction of new marketing strategies for financial products has also introduced new challenges for financial regulators. Regulatory agencies and judicial bodies alike are tasked with conforming the investor protection and market efficiency statutes of the 1930s to contemporary problems. Responses to the new paradigm of social media have diverged, though. One such divergence is the standard applied for Section 12(a)(2) liability under the Securities Act of 1933. Some circuit courts rely on traditional precedents that require direct solicitation of the investor as set forth in Capri v. Murphy and Craftmatic Securities Litigation v. Kraftsow. Meanwhile others have responded that mass communications like social media can give rise to Section 12(a)(2) liability. Most recently, the Ninth Circuit adopted this approach in Pino v. Cardone Capital LLC. This circuit split not only increases uncertainty amongst issuers of securities about the scope of potential liability. It also encourages forum shopping by plaintiffs seeking courts with broader and more favorable liability schemes. This Note proposes a solution to the circuit split in the form of an investor sophistication standard.

The First "State Sponsor of Mass IP Theft": China, Sovereign Immunity, and Upholding Americans’ Intellectual Property Rights

Dore Feith — Fri, 07 Mar 2025 00:00:00 +0000

The government of China has long orchestrated a massive campaign to steal intellectual property (IP) from Americans, but few victims have been able to seek redress through civil litigation. A key reason is that U.S. law does not recognize a foreign government’s vicarious liability for such thefts. Even when liability can be established, China’s government has sovereign immunity from the jurisdiction of U.S. courts. This Note proposes a new legislative framework, including amendments to the Foreign Sovereign Immunities Act (FSIA), that would allow Americans to sue the Chinese government and collect Chinese state assets as damages for thefts of IP perpetrated for its benefit.

This Note suggests two legislative steps: First, creating a new category—“state sponsors of mass IP theft”—modeled on the State Department’s state-sponsors-of-terrorism list, and designating China under it; second, amending the FSIA to: (i) deny sovereign immunity to designated state sponsors of mass IP theft in suits under federal and state laws protecting trade secrets, trademarks, patents, and copyrights; (ii) provide a federal private right of action that resets the statutes of limitations for those claims, and that recognizes the state sponsor’s liability for the actions of its agents—including spies and military operatives, government regulators, state-owned enterprises, nominally private companies under the control of the Chinese Communist Party, participants in talent recruitment programs, and non-traditional collectors; and, (iii) permit successful plaintiffs to enforce judgments by attaching commercial assets of the foreign state and its state companies.

Controlling the Controllers: Section 20(a) Control Person Liability and Promoting Gatekeeper Behavior Among Officers and Directors

Noah Graves — Fri, 07 Mar 2025 00:00:00 +0000

Section 20(a) of the Securities Exchange Act of 1934 allows controlling persons to be held vicariously liable for breaches of the securities laws by parties whom they control. A circuit split has emerged between the Second and the Ninth Circuits concerning whether a plaintiff must show that a control person defendant was a culpable participant in the violative act. This Note argues in favor of the Ninth Circuit standard which holds that plaintiffs should not be required to plead that control person defendants were culpable participants. In doing so, this Note argues that broader exposure for control persons would encourage increased monitoring and gatekeeper behavior among officers and directors.

The Rules Governing Director Election Contests in Global Activism: A U.S.-Japan Comparative Study

Takumi Ichikawa — Fri, 07 Mar 2025 00:00:00 +0000

In recent years, the relationship between corporate management and shareholders has grown increasingly confrontational, driven by a surge in shareholder activism. In the U.S., the Securities and Exchange Commission (SEC) has responded with updates to shareholder communication regulations, including the Universal Proxy Rule. Meanwhile, Japan has seen a notable increase in activist campaigns, developing a proxy solicitation framework that was initially inspired by the U.S. system but has since evolved to incorporate unique local practices. This Note examines key distinctions between the U.S. and Japanese approaches to “solicitation” under proxy rules, analyzing regulatory constraints on shareholder and management actions, the role of information disclosure, and mechanisms that facilitate shareholder participation beyond voting rights. By re-evaluating these systems within the context of global corporate governance, this paper provides insights into the influence of shareholder activism on regulatory practices and offers perspectives relevant to emerging activism in jurisdictions beyond the U.S. and Japan.

Targeting Corporate Political Activity Through Caremark

Alexandra Mothner — Fri, 07 Mar 2025 00:00:00 +0000

Corporations are increasingly active in the political realm. This is due in part to the strong First Amendment protections that corporations enjoy. This political activity, however, can also incur material risk; when corporations endorse political stances that their shareholder and consumer bases disagree with, they are often met with fallout that can impact their bottom line. Corporate political risk, as defined in this Note, is a meaningful threat to shareholders, who can experience material harm resulting from the corporation’s political activity. But the traditional corporate law remedy which relates to risk management—the fiduciary duty of good faith oversight as articulated by Caremark—is fairly narrow, and the burden on plaintiffs is heavy. It is unlikely that shareholders could bring a successful claim under Caremark for political risk management because of the limited doctrine. Therefore, this Note advocates for an expanded Caremark regime to address the harms of corporate political risk. A new Caremark framework for corporate political risk will advance two goals: (1) to better protect shareholders from material losses; and (2) to minimize the impact of corporate intervention in the American political process. Through shareholder protection, an expanded Caremark doctrine for political risk could serve to defang corporate political power in American democracy.