NewYorkUniversity
LawReview
Current Issue

Volume 77, Number 6

December 2002
Articles

Protecting Member State Autonomy in the European Union: Some Cautionary Tales from American Federalism

Ernest A. Young

The European Union’s ongoing “Convention on the Future of Europe” must tackle a fundamental issue of federalism: the balance between central authority and Member State autonomy. In this Article, Ernest Young explores two strategies for protecting federalism in America—imposing substantive limits on central power and relying on political and procedural safeguards—and considers their prospects in Europe. American experience suggests that European attempts to limit central power by enumerating substantive “competences” for Union institutions are unlikely to hold up, and that other substantive strategies such as the concept of “subsidiarity” tend to work best as political imperatives rather than judicially enforceable doctrines. Professor Young then examines the “political safeguards” of Member State autonomy in the EU as currently constituted. He argues that the balance between the center and the periphery is likely to be affected by how the EU resolves basic separation-of-powers questions at the center. Efforts to address perceived deficiencies of the Union government in its resource base, lawmaking efficiency, and democratic legitimacy likewise will have a fundamental impact on federalism. Finally, Professor Young touches on two broader themes. He first asks whether Europeans, given their cultural distinctiveness, would prefer a stronger form of federalism than America has been able to maintain; if so, the American experience is relevant primarily as a cautionary tale. He then considers how Europe’s institutional experience and current debate can inform the American discourse on federalism by helping Americans break free of ideological and historical preconceptions and offering insights into emerging issues at the intersection of domestic constitutions and supranational institutions.

The Incorporation Choices of IPO Firms

Robert Daines

This Article presents the first evidence about the choice of corporate law and the market for corporate charters at an initial public offering. Though firms are free to incorporate in any of the fifty states and are said to search for optimal legal rules, they appear to simply make a binary choice: Delaware or their home state. Federalism has thus resulted in a series of local markets with one national producer, rather than a nationwide “race to the top/bottom.” This pattern raises questions about how firms choose a state of incorporation and suggests that there is a substantial home-state advantage (or home bias). Professor Daines explores reasons for this home bias and reports evidence that lawyers play a key role in determining state of incorporation and that agency costs may affect the advice they provide. Professor Daines also examines other factors that affect a firm’s domicile, including variation in state law and firm characteristics. Takeover laws do not appear to be important and there is some mixed evidence that state law may have network qualities.

Liberty, the New Equality

Rebecca L. Brown

Over the past century, especially after the demise of Lochner, both judges and scholars have increasingly endorsed judicial review of equality claims. The Warren Court’s jurisprudence and John Hart Ely’s theory of representation-reinforcement, for example, helped to legitimate the role of courts in requiring reasons for legislative classifications that disproportionately burden certain groups. By contrast, countermajoritarian concerns have led courts to refrain from judicial review of liberty claims. In this Article, Professor Rebecca L. Brown argues that to stay true to their democratic role courts must protect liberty in the same way that they have protected equality. Turning first to history, Brown shows that from the Revolution onward representatives have been expected to achieve what James Madison termed a “communion of interests” by according positive value to the interests of all their constituents and by subjecting themselves to the burdens they impose on others. Suspect classifications have become the prime indication of a breakdown in the legislative process—a clear sign that the communion of interests has been severed. Under Ely’s theory, judicial review is justified in these cases to reinforce a representational system gone awry. In an increasingly heterogeneous society, however, the representative process can malfunction—the communion of interest can be severed—even without the use of suspect classifications. Why then, Brown asks, should judicial review be justified for equality claims but not for liberty claims, when the underlying interests are the same and there is a failure in the representative system? Pushing Ely’s theory further, Brown offers a new approach to the judicial review of liberty claims. The approach requires courts to weigh the public reasons asserted to justify burdening individual liberties, thereby satisfying themselves that lawmakers likely would be willing to assume the same burdens they impose on others. This protection of individual liberty, Brown shows, is the logical evolution of the theory of judicial review that currently supports equality jurisprudence.

Commentaries

Things Fall Apart, But the Center Holds: The Supreme Court and the Death Penalty

Carol S. Steiker

Last June, in the course of a week, the Supreme Court issued two death penalty decisions—Atkins v. Virginia and Ring v. Arizona— which together invalidated, at least in part, the administration of capital punishment in roughly two-thirds of the American states that currently retain the death penalty on their books. Atkins prohibited the application of the death penalty to defendants with mental retardation in the twenty states without statutes already precluding such application, and Ring precluded judges (as opposed to juries) from making factual determinations that render a defendant eligi le for capital punishment in the five states where judges alone make capital sentencing determinations. In addition, Ring is likely to affect four states with hybrid sentencing schemes that mandate shared responsibility between judges and juries.

Notes

The Potential Effects of Nondeferential Reviews on Interest Group Incentives and Voter Turnout

Daniel J. Schwartz

In this Note, Daniel J. Schwartz explores the connections between voter turnout, interest group mobilization, and the standards by which courts assess the constitutional validity of legislative enactments. As traditionally conceived, democracies only function properly when citizen participation in government is widespread and knowledgeable. Since the 1960s, however, few citizens have voted in American congressional elections and fewer still have been aware of the issues at stake. While political scientists attribute this situation to various causes, they agree that an important factor is a lack of electoral mobilization—that is, the process by which interest groups and others stimulate citizens to go to the polls. Drawing from public choice theory, which posits that interest groups use political contributions and electoral support to buy rent-seeking laws from legislatures, Schwartz suggests that groups engage in little electoral mobilization because they successfully obtain the rents they seek through other means, such as lobbying and litigation. He argues that courts reinforce this state of affairs by reviewing the constitutionality of most legislation with a very deferential standard, thereby protecting the value of lobbying and litigation as means of cementing legislative bargains. Schwartz thus proposes that the deferential review of a statute should be contingent on a showing of fifty-percent turnout in the two elections prior to its enactment. He argues that such a condition would decrease the value of lobbying and litigation relative to that of mobilization, which, in turn, would furnish interest groups with the right incentives to turn out voters at election time.

Taxing Issues: Reexamining the Regulation of Issue Advocacy by Tax-Exempt Organizations Through the Internal Revenue Code

David S. Karp

Recent elections show that more than just good ideas are needed to win: Candidates also need money. More than thirty years ago, Congress sought to limit the amount of money that flowed in and out of federal campaigns through a comprehensive set of amendments to the Federal Election Campaign Act (FECA) of 1971. In Buckley v. Valeo, the U.S. Supreme Court held that only campaign legislation that regulated a vague category of activity called “express advocacy” would be tolerated under the First Amendment. Since that decision, candidates have sought to identify themselves with particular issues and, in particular, the tax-exempt groups who propagate those issues. Not only are these tax-exempt groups exempt from income ta, but they also have been used to avoid the restrictions of the FECA. The most recent incarnation of loophole generating tax-exempt organizations elected tax-exempt status under section 527 of the Internal Revenue Code (the Code). These so-called “stealth PACs” successfully avoided most federal regulation, including federal disclosure requirements under the FECA. That same year, Congress put an end to the practice by mandating that such groups disclose the sources of their funding. In this Note, David S. Karp addresses some of the problems raised by these disclosure amendments. Karp argues that the persistent use of the Code to remedy loopholes in the campaign-finance law is dangerous because it traps otherwise law-abiding tax-exempt organizations between two separate regimes, with different goals in mind, regulating the same subject matter. After canvassing the history of the involvement of tax-exempt organizations in politics since Buckley, Karp concludes by arguing that the problem of the “stealth PACs” could be solved by limiting section 527 status to organizations that engage in express advocacy.

Casualties of War: Criminal Drug Law Enforcement and Its Special Costs for the Poor

Keith Donoghue

Over the last three decades, different criticisms have emerged in response to the “war on drugs.” One strain of argument relies on a pragmatic analysis of the costs and benefits to society as a whole of using criminal sanctions. Although the costs associated with drug-related harms and drug enforcement disproportionately burden poor communities, their relationship with poverty has attracted little systematic analysis. In this Note, Keith Donoghue focuses on the particular costs and benefits of the drug war for the poor as a class. Relying on social-scientific theories of drug abuse and criminal law enforcement, he analyzes the effects of the two major drug-enforcement strategies: “top-down,” which seeks to intercept the leaders of drug operations, and “bottom-up,” whose objective is to apprehend retail purchasers of drugs. Donoghue argues that these strategies have imposed unique injuries on the poor, such as more violent crime in poor communities and greater drug abuse among the poor. He concludes that the impact of drug prohibition on the poor is more multifaceted than commonly has been recognized.

Advocating a Broader Understanding of the Necessity of Sex-Reassignment Surgery Under Medicaid

Jerry L. Dasti

Even as the law has become an instrument for combating sex discrimination, it has continued to impose a rigid, binary sex-classification system where fundamental legal rights and protections depend on one being labeled “male” or “female.” In this Note, Jerry Dasti examines how this binary system of sexual identification has created a vicious Catch-22 for the small yet significant population of transgender people whose chosen sex and gender diverge from their sex at birth. While the law’s conception of gender identity is inconsistent and ad hoc, one theme emerges: Courts will not recognize a transgender person’s chosen sex or gender without successful completion of sex-reassignment surgery. Because the costs of the procedure, including pre- and postoperative treatment, are prohibitively high, many transsexual individuals are forced to seek coverage through Medicaid. Medicaid, however, only covers those procedures deemed “medically necessary,” which, for transsexuals, means they must first be diagnosed with a gender identity disorder that can only be cured by sex-reassignment surgery. Therefore, in order to establish a legal identity, transsexuals have to pathologize their social identity, which explains the backlash from many transgender groups against the coverage of sex-reassignment surgery under Medicaid. The law’s sex-classification system not only creates tension for the person seeking surgery but also puts the interests of individual transsexuals at odds with the interests of the transgender community as a whole. This Note argues for a broader conception of medical necessity—one that recognizes the legal and social necessity of the surgery to transsexuals’ full participation in society but does not simultaneously stigmatize gender variance as a “disease” that must be “cured. “