MATTHEW C. MIROW, Florida International University (FIU) - College of Law
Email: mirowm@fiu.edu

St. Augustine’s central square, the Plaza de la Constitución, is not named for the United States Constitution. Instead, its name comes from Florida’s first constitution, the Spanish Constitution of Cádiz of 1812. Daily political life in Florida’s Spanish colonial cities was governed by this document, and cities like St. Augustine ordered their activities around the requirements, rights, and duties expressed in this Constitution.

This Constitution governed Spanish Florida from 1812 to 1815 and then again from 1820 until 1821 when Spain turned Florida over to the United States. Mirow explains the importance of this document to the Spanish colonial world and to Florida. He describes some of the most interesting features of the Constitution and its promulgation in St. Augustine. A fresh and authoritative translation of the entire Constitution is provided along with the Constitution’s original text in Spanish.

LISA BERNSTEIN, University of Chicago Law School
Email: LISA_BERNSTEIN@LAW.UCHICAGO.EDU
FRANCESCO PARISI, University of Minnesota - Law School, University of Bologna
Email: parisi@umn.edu

We wrote this brief essay as an introduction to the volume “Customary Law� (Elgar, 2013). We briefly review several seminal works on customary law. Although scholars in law, economics, and history have provided a wealth of research on the subject, the issues arising from the intersection of customs and the law are far from settled. The discussion is divided into three parts. Part I examines a variety of perspectives on the history of customary law. Part II considers the role and limits of customary systems in a variety of commercial settings. Along the way it focuses on defining the proper relationship between law and custom from a law and economic perspective. Part III explores the role of custom in international law, from a broad set of analytical viewpoints.

MASAFUMI NAKAHIGASHI, Nagoya University - School of Law
Email: masafumi_nakahigashi@yahoo.co.jp
DAN W. PUCHNIAK, National University of Singapore
Email: lawdwp@nus.edu.sg

In this chapter, Nakahigashi and Puchniak explain that from 1950 until the mid-1980s the derivative action ‘in practice’ could not have been any more different in the United States and Japan. During this period derivative litigation (for better or worse) played a significant role in American corporate governance, with almost 20 per cent of US public listed companies experiencing one or more derivative suits. In stark contrast, in Japan from 1950 until the mid-1980s there was less than one derivative action on average per year, and not a single one of them was successful. Interestingly, this divergence between American and Japanese practice did not surprise academics. Rather, it was originally viewed as natural that Japanese shareholders would forgo suing for financial gain, because of their ‘cultural obsession’ for maintaining social harmony. Based on this theory, it made perfect (but economically irrational) sense that Japanese shareholders let their US-transplanted derivative action lie moribund for over three postwar decades when at the same time it was a staple of shareholder litigation in the United States.

In the late 1980s, however, the powerful law and economics movement washed over Japanese legal scholarship, leaving the ‘culturally irrational litigant’ theory in its wake. The assumption that Japanese litigants were economically rational actors (i.e., as classical economic rational choice theory predicts that they would litigate only when the financial benefit from doing so exceeded the cost) became widely accepted. In turn, the absence of derivative actions in Japan became understood largely as the direct result of the high financial costs and meagre financial benefits that derivative litigation in Japan offered.

The most common features cited for making it economically irrational to pursue derivative actions in Japan were similar to those cited for the dearth of derivative actions in most other countries: the application of the Shareholder Cost and Benefit Rules; the lack of a US-style contingency fee system; a ‘loser pays costs’ rule; weak pre-trial discovery rights; an absence of D&O liability coverage; and modest damage awards. As explained in Chapter 1, these economically unattractive features generally distinguish most other jurisdictions from the United States, and help explain the United States’ relatively high rate of derivative litigation. In this sense, the economically rational explanation for the absence of derivative actions in Japan did not make it appear exceptional. However, some scholars pointed to the Japanese rule requiring plaintiff shareholders to pay an expensive stamp fee prior to filing a derivative action as an additional idiosyncratic economic deterrent to derivative actions in Japan. In short, in the early 1990s, it appeared that the mystery of the dearth of derivative actions in Japan had been solved. Like most other jurisdictions, except for the United States, it was economically irrational for Japanese shareholders to pursue derivative actions, and so they did not. This made perfect sense – until, suddenly, it did not.

As Nakahigashi and Puchniak’s research reveals, in the early 1990s the number of derivative actions in Japanese public companies skyrocketed to US levels. This left the few remaining proponents of the ‘culturally irrational Japanese litigant’ theory dumbfounded. However, the proponents of the economically motivated and rational Japanese litigant theory did not go quietly into the night. To the contrary, they posited that the dramatic rise in derivative actions was the direct result of a 1993 change in the Japanese law that effectively eliminated the requirement for plaintiff shareholders to pay the expensive stamp fee to file a derivative action. In short, this explanation (which has become the consensus in the literature) suggests that, since the elimination of the stamp fee in 1993, economically motivated and rational Japanese shareholders have utilized derivative actions because the financial benefit of doing so now exceeds the cost.

In this chapter, Nakahigashi and Puchniak challenge this consensus view. Based on the largest econometric and empirical study to date, they demonstrate that the consensus view is fundamentally flawed, for three reasons: (1) the dramatic increase in derivative actions began several years prior to the 1993 stamp fee reduction; (2) even after the 1993 stamp fee reduction empirical evidence demonstrates that neither shareholders nor attorneys have financially benefited from derivative litigation; and (3) even after the 1993 stamp fee reduction the cost-benefit calculus for pursuing a derivative action in Japan has been like most other countries, which have a dearth in derivative actions. The evidence that litigants are not pursuing derivative actions for direct economic gain is clear. However, this obviously raises a conundrum: what is driving the relatively high level of derivative litigation in Japan?

Nakahigashi and Puchniak demonstrate, on the basis of their empirical research and case studies, that there are two types of litigants driving derivative actions in Japan – neither of which is financially benefiting directly from derivative actions. First, there are the ‘quasi-rational’ shareholders, who bring derivative actions for non-monetary benefits. The most important of these is an activist group – the Kabunushi (shareholders’) Onbuzuman – that pursues derivative actions to advance its political agenda. Second, there are the ‘purely irrational’ litigants, who, as a result of bounded rationality (e.g., the use of inaccurate mental heuristics, self-serving bias and herding behaviour), irrationally pursue derivative litigation in Japan. Thus, through the Japan experience, Nakahigashi and Puchniak reveal that, even if the regulatory structure of a derivative action does not make it economically rational to sue, a substantial number of derivative actions may nevertheless still occur.

JOANNA DIANE CAYTAS, Columbia University
Email: jdm2168@columbia.edu

In its emphasis on form and procedure and its focus on the rule of law, positivist legal theory inevitably evinces utter discomfort by a phenomenon that seems indelible from the reality of jurisprudence: judicial and administrative discretion, a partial delegation of legislative rulemaking authority that deviates from the separation of powers. Not only does Kelsen's Pure Theory of Law fail to resolve this contradiction, it makes matters worse: to keep separation of powers inviolate, it declines to stretch the limits of interpretation, noting that historical or teleological construction trespass all too easily into the legislative domain. Despite cogent systemic logic, this conclusion is unhelpful when a statute is silent or flawed. Kelsen even opposed the positivist gap rule in the Swiss Civil Code that authorizes the judge to act in loco legislatoris. As Justice of Austria's Constitutional Court, Kelsen had to pull the rip cord of all supreme courts: to justify social engineering, he invoked formalistic principle in a politically divisive decision, relying on the fact that further review was unavailable. Political reality caught up swiftly: legislators brushed aside whatever separation of powers Kelsen had intended to protect, along with his life tenure at Austria's High Court. His role in the culture war over Austria's family law showcases the limits doctrinally stringent jurisprudence faces when the rubber of legal theory meets the road.

PAUL FINKELMAN, Albany Law School - Government Law Center
Email: pfink@albanylaw.edu

This article explores the development of religious freedom in Dutch New Netherland and early New York. The article argues that for practical reasons the leaders of the Dutch West Indies Company in Holland forced authorities in New Netherland to extend religious toleration to various groups, including Lutherans, Jews, and Quakers. The article further argues that under the British this diversity led to remarkable religious liberty in the New York Colony and set the stage for the first New York State Constitution, which provided more religious liberty and greater separation of church and state than any other early state founding document.