Volume 7 / Number 1 / Spring 2003

This page contains the abstracts, as well as links to the complete document on Westlaw.com, for the articles in our Spring 2003 Issue.

 

Essay

 

Small Business, Economic Growth, and the Huffman Conjecture
George L. Priest
Westlaw
This Essay examines the role of small business in the process of economic growth and the effects of increasing regulation and civil liability. First, the Essay explores the basic mechanisms of economic growth in society and explains how small business, as opposed to large business, contributes to economic growth. Next, the Essay analyzes to what extent increased regulation and civil liability disproportionately impacts small business operations and the effectiveness of various Congressional benefits and preferences toward small business in relieving these perceived burdens. Finally, Priest applies this analysis to various issues attending the role of small business in economic growth. The Essay concludes that satisfying more particularized consumer demands enhances consumer welfare, that small businesses are likely to be more effective in achieving this end, and that forms of regulation or civil liability that differentially affect small businesses reduce societal welfare.

 

Articles

 

LLC Member and Limited Partner Breach of Fiduciary Duty Claims: Direct or Derivative Actions?
James R. Burkhard
Westlaw
In a breach of fiduciary duty claim by a limited partner or LLC member against a general partner or manager, courts must decide whether to permit the claim to be pursued directly or whether to require that it be brought derivatively. This Article argues in favor of permitting a limited partner or LLC member in a closely held business to pursue the claim directly. Permitting a direct cause of action helps limited partners and non-managing LLC members cut through the procedural requirements of a derivative action, which often keep the plaintiff from getting to the merits of the claim. The Article discusses how courts have determined whether a claim is direct or derivative in this context, outlines an argument and case history in support of permitting direct claims, and then proceeds in Part III to advocate the approach outlined in section 7.01(d) of the American Law Institute’s Principles of Corporate Governance.

Liabilities of the Firm, Member Guaranties, and the At Risk Rules: Some Practical and Policy Considerations
Bruce A. McGovern
Westlaw
Startup ventures commonly borrow to fund operations and often incur tax losses in their initial years. If a venture is organized as a firm that is subject to subchapter K or subchapter S of the Internal Revenue Code, such as a limited partnership, limited liability company, or subchapter S corporation, then the firm’s members are generally able to offset their share of the firm’s losses against income from other sources. One limitation on this ability is that a member can utilize her share of the firm’s loss against income from other sources only to the extent she is considered “at risk” in the firm’s activity at the close of the taxable year. A member is generally considered at risk for the amount of any cash and the adjusted basis of any property she contributes to the firm and, in addition, for any amounts borrowed in connection with the firm’s activity for which she is subject to personal liability. This Article considers the extent to which firm members who are entitled to limited liability under state law, but who personally guarantee a liability of the firm, are considered at risk by virtue of the guarantee. The Article discusses the judicial and administrative development of the law as to when a limited partner is considered at risk as a result of guaranteeing a partnership liability and applies the general principles derived from this discussion to guaranties by members of other business organizations. The Article demonstrates that, despite a significant amount of litigation between taxpayers and the government, ambiguity remains with respect to very basic issues concerning when a firm member’s guarantee will increase the member’s amount at risk. The Article offers guidance on structuring guarantees and concludes with some observations on the many policy questions raised by the at risk rules.

 

Comments

 

Mitigating Measures and the ADA After Sutton: Can Employers Limit Our Ability to Care for Ourselves in the Workplace?
Jennifer G. Brown
Westlaw
The Americans with Disabilities Act (ADA) was enacted in great part to eliminate discrimination against individuals with disabilities in the workplace. However, defining what constitutes a “disability” within the meaning of the ADA has proved difficult in the case of individuals who are able to mitigate their conditions through medication or artificial aids. Are such individuals “disabled,” so that employers are obligated by the ADA to accommodate these individuals’ mitigating measures in the workplace, or does the fact that these individuals’ impairments can be mitigated exclude them from the coverage of the ADA? This Comment examines the problems created by the Supreme Court’s interpretation that the existence of a “disability” under the ADA be determined in an individual’s mitigated state. The Comment argues that such a test places many individuals with disabilities, whose employers refuse to accommodate their mitigating measures at work, in an untenable position; they must stop mitigating their condition in order to be found “disabled” and gain the protection of the ADA. The author proposes that this is contrary to the stated purpose of the ADA and is not in the best interests of either employees or employers. The author advocates for congressional action to either amend the ADA and overrule the current Supreme Court test of what constitutes a “disability” under the Act or include a duty for employers to accommodate mitigating measures in the workplace.

Analysis of Circuit City Stores, Inc. v. Adams in Light of Previous Supreme Court Decisions: An Inconsistent Interpretation of the Scope and Exemption Provisions of the Federal Arbitration Act
Laura Kaplan Plourde
Westlaw
This Comment responds to the 2001 decision in Circuit City Stores, Inc. v. Adams in which the Supreme Court narrowly interpreted the exclusion of employment contracts from coverage under the Federal Arbitration Act (FAA) to be limited to transportation workers. In this Comment, the author challenges the Circuit City decision, arguing that the proper reading of section 1 of the FAA excludes all employment contracts from FAA coverage. Further, the author contends that the enhanced risks inherent in arbitration agreements in the employment context demand heightened scrutiny of such agreements, which the FAA does not provide. Thus, the author proposes removing all employment contracts from FAA coverage and promulgating a federal statute specifically applicable to arbitration contracts in the employment context.

Paying for Employment Dispute Resolution: Dilemmas Confronting Arbitration Cost Allocation Throw the Arbitration Machine into Low Gear
Ryan P. Steen
Westlaw
As arbitration becomes more and more prevalent as a means to settle employment disputes, the determination of who should pay for arbitration costs and fees becomes an important issue in vindicating employment rights. This Comment discusses current case law on the issue of who should pay for these costs and fees, including the split among the circuits and the recent Supreme Court decision in Green Tree Financial Corp. v. Randolph. The author argues that the Green Tree decision has failed to provide guidance on the fee allocation dilemma and that this failure exposes some of the procedural inadequacies of the arbitration process as a whole.

 

Recent Developments

 

Federal Regulatory Policy
Richard A. Greene
Westlaw
For over four years Congress has considered comprehensive bankruptcy reform. A key component of this legislation is designed to make the Chapter 11 reorganization process more efficient for small businesses. The current form of this legislation before Congress, the Bankruptcy Abuse Prevention and Consumer Protection Act, if enacted, will change a number of procedural and substantive rules that are particular to small businesses debtors. This Note explores two of the recent changes proposed in this legislation.