Business Law Program

Spring 2021 Faculty Workshop

Opportunity Zones, 1031 Exchanges, and Universal Housing Vouchers
Brandon M. Weiss
Associate Professor of Law

The Tax Cuts and Jobs Act of 2017 contained former President Trump’s signature economic development initiative: the Opportunity Zone program. Allowing a deferral of capital gains tax for certain qualifying investments in low-income areas, the Opportunity Zone program aims to spur economic development by steering capital into economically distressed neighborhoods. The program is the latest iteration of an overly simplistic market-based approach to community development—an approach that transcends political party—based on a flawed yet enduring notion that mere proximity of capital and business will solve deeply entrenched issues of poverty and racial inequity. In reality, the legacy of Opportunity Zones is likely to be one of accelerated neighborhood gentrification left in the wake of wealthy taxpayer windfalls.

Opportunity Zones are more akin to a classic tax shelter than an effective anti-poverty strategy. They share a fundamental DNA with a much older real estate-related tax break, Section 1031 like-kind exchanges, which allow for the nonrecognition of gains for certain qualifying transactions that involve trading one piece of real estate for another. Section 1031 is one of the largest corporate tax expenditures in the U.S. tax code at an annual cost of fourteen billion dollars. Yet, as examined in this Article, the four primary theoretical bases upon which Section 1031 rests—measurement, administrability, liquidity, and economic stimulus—have eroded over time and ultimately are unpersuasive.

Redirecting the value of the Opportunity Zone program and Section 1031 exchanges to the Section 8 Housing Choice Voucher program could roughly double the number of housing vouchers available to extremely low-income households in the United States. I argue that this sort of intervention would have far greater impact in addressing the ills of poverty and racial inequality in the United States than the Opportunity Zone program. This argument is timely in light of President Biden’s recent support for limiting Section 1031 and expanding the Section 8 program.

Balancing Buyer and Supplier Responsibilities:  Model Contract Clauses to Protect Workers in International Supply Chains, Version 2.0, 77 Bus. Law. ___ (forthcoming 2021).
David V. Snyder (with Sue Maslow, Sarah Dadush, and an ABA Business Law Section Working Group)

Professor of Law and Director, Business Law Program

These Model Contract Clauses (MCCs) are designed to help protect the human rights of workers in international supply chains.  This second version (MCCs 2.0) marks a major shift in contract design, reflecting both recent research and thinking about what organizational strategies are most effective and recent and ongoing legislative developments, including not only US legislation but also the likely mandatory human rights due diligence law in the European Union.  While the most prominent shift in MCCs 2.0 is that buyers share contractual responsibility for human rights with their suppliers and sub-suppliers, other contract design changes are equally fundamental.  Instead of a typical regime of representations and warranties, with concomitant strict contractual liability, these clauses provide for a regime of human rights due diligence, requiring the parties to take appropriate steps to identify and address adverse human rights impacts.  This regime aligns better with current and contemplated legislation as well as initiatives such as the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Responsible Business Conduct.  It is also considerably more pragmatic.  Many representations and warranties are questionable in these contexts, encouraging the parties to turn a blind eye to reality while taking on theoretical strict liability (the problematic “tickbox” or “checkbox” approach).  Human rights due diligence is a more realistic process that assumes parties will need to set priorities, addressing the most pressing issues first, without a fictional representation that everything is perfect.

In addition to the shift to human rights due diligence, MCCs 2.0 stress remediation of human rights harms over contractual remedies, and they introduce relational dispute resolution mechanisms.  Finally, in an innovative provision engendered by the covid-19 pandemic, buyers take on an obligation of “responsible exit” both generally and particularly with respect to force majeure or similar events.  As in MCCs 1.0, MCCs 2.0 continue to impose obligations through the supply chain (not merely to first tier suppliers); address the unique problems of mitigation and contract remedies when human rights are involved; and manage the risk and exposure of the buyers through disclaimers, although the disclaimers now reflect the shared responsibilities of both parties.  As before, MCCs 2.0 are fully modular so counsel can choose which provisions and what level of commitment are appropriate for a particular client.  With some adaptation, the MCCs can also be used to advance additional environmental, social, and governance (ESG) goals.

Virtual Currency Law: Growing Regulatory Framework in the Emerging Fintech Ecosystem—Chapter 3: Virtual Currency and Applicability of the Federal Securities Laws to Token and Initial Coin Offerings
V. Gerard (Jerry) Comizio
Associate Director, Business Law Program and Adjunct Professor of Law

Professor Jerry Comizio is under contract with Walters Kluwer/CCH to write a law school textbook on virtual currency law. The proposed book is based on a 2017 article Professor Comizio had published in the UNC Law Banking Law Journal entitled Virtual Currencies: Growing Regulatory Framework and Challenges in the Emerging Fintech Ecosystem, 21 N.C. Banking Inst. 131 (2017) https://scholarship.law.unc.edu/ncbi/vol21/iss1/10.

A major premise of the article was that the explosion of virtual currency since the invention of bitcoin in 2008-today with an aggregate global trading market of almost $ 2.5 trillion-coupled with highly publicized legal and regulatory problems associated early on with bitcoin has triggered legal and regulatory scrutiny of virtual currency. In the U.S., virtual currency and related activities are being analyzed under a wide range of established federal and state laws governing financial activities. This growing regulatory framework is not a centralized legal approach to regulation of virtual currency but rather reflects the fragmented analysis of government agencies, regulators and other authorities as to how virtual currencies should be viewed under their respective legal and regulatory jurisdictions. In this context, virtual currency is being accorded a broad range of legal status under these laws, constituting, among other things, a currency, a security, a commodity, a money transmitter, collateral and intangible property under the commercial laws and its trading subject to federal and state broker-dealer, commodity trading, anti-money laundering, tax and financial technology laws. 

Professor Comizio presented draft Chapter 3 of the book manuscript. This chapter examines the application of the federal securities laws to virtual currency token and initial coin offerings (ICOs). It analyzes the broad scope of the term “security” under the Securities Act of 1933 under relevant SEC regulation and case law. Further, it explores the various litigation, judicial decisions and enforcement actions taken by the SEC in deeming token and ICOs securities subject to the SEC’s securities offering laws and rules. Finally, it analyzes the SEC’s approach in seeking to protect retail investors  in connection with the offer and sale of these unique stock offerings. 

Contractual Stakeholderism, 102 B.U. L. Rev. ___ (2022).
Kish Parella 
Professor of Law, Washington & Lee (Visiting Presenter)

In 2019, the Business Roundtable – an organization of CEOs of America’s largest businesses – reversed their earlier position on corporate purpose, announcing their commitment to all of their stakeholders – consumers, employees, suppliers, and communities – and not just their shareholders. This announcement has re-awakened an old debate over whose interests corporate leaders should serve: stakeholders collectively or shareholders exclusively? “Stakeholderism advocates” argue that corporate leaders must take into account the interests of the various stakeholders impacted by corporate decision-making. “Stakeholderism critics” challenge this view, expressing concerns that stakeholderism will magnify managerial agency costs, chill regulation, risk inauthenticity, and lead to impractical solutions.

This Article proposes “contractual stakeholderism” to address the concerns of both these camps. Normatively, it advocates for a shift from a business case for stakeholderism to one focused on the prevention of harms. The business case justifies stakeholderism by highlighting the various benefits that stakeholder protection can offer for advancing shareholder value and other business advantages. But the business case will fall short because it is not always true that what is good for the stakeholder is good for the shareholder; instead, sometimes their interests conflict. In these situations, the business case will inevitably lead to the prioritization of the shareholder over the stakeholder. That is why this Article advocates for a harms based approach that focuses on the risks that a corporation’s activities create for stakeholders. It justifies the normative shift to a harms-based approach by identifying five dimensions of inequality that place stakeholders at unique risk of harm from corporate conduct: notice, choice, risk management, legal remedies, and the fruits of exchange. Practically, it explains that many stakeholder harms arise from the contracting choices that corporate leaders negotiate, draft, and bind their companies to perform. A harms based approach would require corporate leaders to design contracts differently to mitigate or eliminate the risks that their contracts create for stakeholders. In order to incentivize corporate leaders to do so, this Article concludes by proposing the following duty: Corporate leaders, as contracting parties, must take into account the interests of stakeholders when performance of the contract creates a risk of physical harm to them.

Spring 2020 Faculty Workshop

The Complex Implications of Fintech for Financial Inclusion 
Heather Hughes
Professor of Law and Director, S.J.D. Program

Legal scholarship discusses distributed ledgers for giving notice of liens, the classification of blockchain-based assets under Uniform Commercial Code (UCC) Articles 8 and 9, and that smart contracts can involve self-help analogous to that of secured creditors. But this literature has yet to thoroughly consider how emerging technologies may impact core features of UCC Article 9. This Article does not predict whether blockchain and smart contracts will in fact impact secured transactions in all of the ways it contemplates. But given the possibilities, legal scholars and lawmakers should be forward-thinking and should consider how core features of UCC Article 9 may operate in markets of the future.

Jonathan Baker, Strategic and Non-Strategic Oligopoly Coordination in Antitrust

This paper (co-authored with Joe Farrell of the Berkeley Economics Dept) covers the implications for antitrust law and enforcement of the broad view of the nature, likelihood, and extent of coordination among rivals suggested by the modern economic literature on oligopoly conduct.

Hilary J. Allen, Payments Failure

This paper argues that we need to be more prepared for financial crises that are transmitted through glitches in technological infrastructure (cascading failures), rather than focusing solely on the credit channels that have typically transmitted shocks through the financial system in the past.

Joe Pileri, Democratizing the Fourth Sector – B Corps. and Beneficiary Participation

B Corp. certification should emphasize beneficiary participation for two reasons. First, the efficacy of projects and programs is harmed without the input of the intended beneficiaries. Second, assumptions underlying corporate law that justify shareholder franchise and expanded shareholder power also apply to nonshareholder stakeholders in the case of B Corps. Relying on these principles, the Article articulates principles that should be used to design a certification process that seeks to ensure that beneficiaries are involved at every stage of the life of the company – design, implementation, and measurement.

Priya Baskaran, Teaching Theranos

In the piece, Professor Baskaran encourages the creation of a cohesive business law pedagogy to help students grapple with the challenges of representing early-stage enterprises. Professor Baskaran uses Theranos as an example for teaching various models for corporate governance across standard Business Organizations and Small Business Clinics.

Martha Ertman, Carole & Hanan Sibel Professor of Law, University of Maryland

• The Cost of Non-Billable Work, published in the Texas Tech Law Review Online, February 2020

Paolo Saguato, Assistant Professor of Law, George Mason University

• The Pendulum of International Financial Regulation and the Quest for Accountability 

Kevin R. Douglas, Visiting Assistant Professor, George Mason University Antonin Scalia Law School; Assistant Professor, Michigan

• Insider Trading: The Conceptual Roots of the Doctrinal Mess

This article argues that agency officials and courts have always identified both principles as providing a part of the justification for the prohibition.