Volume 5 / Number 1 / Spring 2001

This page contains the abstracts, as well as links to the complete document on Westlaw.com, for the Articles and Essays of the Spring 1999 Issue, which was dedicated to the annual business law forum.

Introduction

 

Articles

Securities Regulation and Small Business: Rule 504 and the Case for an Unconditional Exemption
C. Steven Bradford
Westlaw
Small businesses are an important part of the U.S. economy. When small businesses need to raise capital from the public, they must comply with securities laws and regulations. Most operators of small businesses are unfamiliar with the intricacies of securities law. As a result, they are likely to unwittingly violate these laws. This, combined with the high relative cost to small businesses of registering securities, led the Securities and Exchange Commission (SEC) to create several exemptions, including Rule 504 of Regulation D. Until recently, Rule 504 was a virtually unlimited exception to the registration requirement for offerings of under million. But recent amendments have made the exemption of Rule 504 available to substantially fewer small businesses. This Article explores the evolution of the small offering exemption, including those recent amendments. It looks at the costs and benefits of securities regulation, and explains why SEC should return to an unconditional, or at least virtually unconditional, small offering exemption.

The Impact of Land Use Regulations on Small and Emerging Businesses
James L. Huffman & Elizabeth Howard
Westlaw
Small businesses are critical to the welfare of our communities. They contribute to economic growth, create job opportunities, provide new and innovative products and services, and offer business ownership opportunities to diverse groups of people. Nevertheless, local and state government regulators frequently fail to account for the impact that land use regulations can have on small and emerging businesses. Land use regulations can increase property and rental expenses, employee compensation and retention costs, permit acquisition expenses, and other expenses. These expenses disproportionately impact small and emerging businesses which because of their size find it more difficult to absorb fixed costs of regulatory compliance costs than large businesses. Consequently, as land use regulations increase, small business health decreases and small businesses are acquired or simply dissolve. If government is truly concerned with maximizing the public good, it must adequately justify the reduction of economic and social benefits which results when small businesses fade due to the burden of complying with the substance and procedures of state and local land use regulations. One method by which governments could measure when a new land use regulation will provide an appropriate balance of public goods would be determining whether local constituents are willing to compensate business owners for the reduced value of small businesses that results from the land use regulation. If the government determines taxpayers are unwilling to provide such compensation, it can generally conclude the value that the public places on the goods currently produced by the business owner outweighs the value the public places on goods that would result from the new land use regulation. Local governments have uniformly resisted this balancing approach. Nevertheless, the authors of this Article suggest that if local government representatives are truly seeking to maximize the public good, they must provide a balance of public goods that reflects the public’s desires. To do otherwise would be a dereliction of their duty as a public servant.

 

Essays

Institute for Justice Clinic on Entrepreneurship: A Real World Model in Stimulating Private Enterprise in the Inner City
William H. Mellor & Patricia H. Lee
Westlaw
In three years, the Institute for Justice (IJ) Clinic on Entrepreneurship located at the University of Chicago Law School has grown from little more than an abstract idea of two enterprising University of Chicago law students returning from an Institute for Justice summer conference to what it is today—a fully operational public interest law office serving entry-level entrepreneurs. The IJ Clinic is the first transactional legal clinic in the United States dedicated to helping entrepreneurs of modest means form private sector businesses and navigate through regulatory red tape. Its successes to date stem from the events discussed in this paper and from the very entrepreneurial nature of the IJ Clinic itself.

246 Glorious Cheeses or the Impact of Environmental Regulation on Small and Emerging Business
David Schoenbrod
Westlaw
The Environmental Protection Agency (EPA) oversees a “top-down” approach to environmental protection in which appointed officials in Washington, D.C. impose detailed requirements on a diverse nation. This largely unaccountable, highly centralized mode of lawmaking does not necessarily produce better environmental quality than would a more accountable and decentralized alternative. It does, however, disproportionately harm small and emerging businesses because it produces an inefficient mix of emission limits, subjects sources to superfluous bureaucratic procedures, and discriminates against new sources. Large corporations have adapted to the top down approach and even benefit from it because they can pass its costs along to consumers and are protected from competition. In contrast, small and emerging businesses lack the infrastructure to cope with the bureaucratic complexity and find it harder to start up the new sources that they need to compete. The costs of EPA’s heavy hand thus fall not on entrenched corporate interests but rather on those who dream of growing their own businesses and ordinary citizens.

 

Comments

Defamation, Negligent Referral, and the World of Employment References
John W. Belknap
Westlaw
Employers asked to provide references for former employees face significant challenges. This Comment reviews the dangers employers face in the areas of defamation, negligent misrepresentation, and negligent referral. To deal with these threats, many companies choose to offer no comment when asked for a referral for a former employee. In response, some courts and commentators have argued for an affirmative duty of past employers to warn new employers of potentially dangerous employees. This Comment reviews those recent decisions and discusses the current viability of a no comment policy in light of this trend. The author offers a solution that addresses employers’ concern over lawsuits from former employees while providing important information to potential employers.

Beyond the Route 128 Paradigm: Emerging Legal Alternatives to the Non-Compete Agreement and their Potential Effect on Developing High Technology Markets
Kristina L. Carey
Westlaw
The free movement of employees in high-technology markets has been cited as one of the most significant factors in their continued expansion, particularly in the context of the Silicon Valley region of Northern California and the Silicon Forest regions of Oregon and Washington. The dynamic growth of these areas has been aided by a legal climate that either holds non-compete agreements unenforceable or severely restricts the scope of their application. The intensely competitive nature of this market sector has lead employers to seek alternate means to hold on to the intellectual capital personified in their employees. Three legal theories have emerged as possible alternatives to the non-compete agreement. The claim of inevitable disclosure of trade secrets, the antitrust claim of predatory hiring, and the tort claim of intentional interference with economic relations are all being tested in courts in these regions. This note assesses each of these claims and focuses on how their application in a high-technology market may encourage or limit the emergence of high-technology start-up companies.

Pissed Off: Drug Tests Conducted Under the Workers’ Compensation and Unemployment Systems are Government Searches Subject to Constitutional Scrutiny
Matthew S. Walstatter
Westlaw
A number of states have instituted workers’ compensation systems which deny benefits to workers on the basis of a positive drug test or the refusal to submit to such testing. A similar number of states have unemployment insurance systems which deny benefits under similar circumstances. This Comment argues that such drug tests, though conducted by private employers, involve the government sufficiently to require that they pass the constitutional standard of reasonableness. The United States Supreme Court considers drug tests searches, and that these searches are subject to the reasonableness requirement of the Fourth Amendment whether the government is acting in its role as enforcer of laws or as an employer of private citizens. Further, the Supreme Court has a standard for determining when government involvement in drug testing is sufficient to trigger constitutional inquiry. By applying this standard to drug tests conducted pursuant to the workers’ compensation and unemployment insurance systems, it becomes evident that such testing involves the government to a degree which requires that the tests be reasonable under the Fourth Amendment.

 

Recent Developments

Copyright Law and Napster
Westlaw
Advances in technology force legal practitioners to question established legal doctrines. The controversy surrounding the Napster music-sharing service will have a significant impact on small and emerging businesses concerned about Internet-related copyright law. This section analyzes the Napster litigation and discusses its effect on copyright statutes and case law.