Dabit, Preemption and Choice of Law

25 Pages Posted: 25 Jul 2006

See all articles by Larry E. Ribstein

Larry E. Ribstein

University of Illinois College of Law (deceased); PERC - Property and Environment Research Center

Date Written: July 2006

Abstract

The Supreme Court's decision in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, involves the reconciliation of three significant policy goals - controlling abusive litigation, deterring securities fraud, and preserving our federal system by limiting the federal government's power. These goals seem to conflict in that controlling litigation involves expanding federal power, thereby foreclosing potential state approaches to controlling fraud. In Dabit, the Court opted to broadly interpret the federal government's preemption of state securities remedies, thereby giving momentum to the federalization of corporate law. This article shows that forcing Congress to attend more closely to the role of state law might have encouraged a better reconciliation of the three policy goals. Specifically, Congress can control abusive litigation without sacrificing the states' role in remedying fraud by preserving fraud remedies imposed under state corporation laws. Letting firms choose the applicable state law would motivate states to develop reasonable remedies rather than to invite abusive litigation. A viable state fraud remedy would, in turn, free Congress and the courts to examine the appropriate extent of federal fraud remedies.

JEL Classification: G3, H11, H77, K22, K41

Suggested Citation

Ribstein, Larry Edward, Dabit, Preemption and Choice of Law (July 2006). U Illinois Law & Economics Research Paper No. LE06-020. Available at SSRN: https://ssrn.com/abstract=920004 or http://dx.doi.org/10.2139/ssrn.920004

Larry Edward Ribstein (Contact Author)

University of Illinois College of Law (deceased)

PERC - Property and Environment Research Center

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

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