Courts As Institutional Reformers: Bankruptcy and Public Law Litigation
47 Pages Posted: 8 Dec 2017 Last revised: 26 Apr 2019
Date Written: January 26, 2018
This article compares two spheres in which courts induce and oversee the restructuring of organizations that fail systematically to comply with their legal obligations: bankruptcy reorganization and public law litigation (civil rights or regulatory suits seeking structural remedies). The analogies between bankruptcy and public law litigation (PLL) have grown stronger in recent years as structural decrees have evolved away from highly specific directives to “framework” decrees designed to induce engagement with stakeholders and make performance transparent. We use the comparison with bankruptcy, where the value and legitimacy of judicial intervention are better understood and more accepted, to address prominent criticisms of PLL. Our comparison shows that judicial intervention in both spheres responds to coordination problems that make individual stakeholder action ineffective, and it explains how courts in both spheres can require and channel major organizational change without administering the organizations themselves or inefficiently constricting the discretion of managers. The comparison takes on greater urgency in light of the Trump Administration’s vow to “deconstruct the administrative state,” a promise which, if kept, will likely increase demand for PLL.
Keywords: institutional reform litigation, structural reform, public law litigation, chapter 11 bankruptcy, equity receiverships, corporate restructuring
JEL Classification: K22, K41
Suggested Citation: Suggested Citation