The Undercivilization of Corporate Law

108 Pages Posted: 28 Feb 2007 Last revised: 16 Mar 2016

See all articles by Christine Hurt

Christine Hurt

Southern Methodist University - Dedman School of Law

Date Written: February 1, 2007

Abstract

This article restructures the current debate surrounding the "overcriminalization" of corporate law by comparing the powerful tools of federal prosecutors with the sometimes insurmountable procedural impediments their civil counterparts, private plaintiffs, must overcome in private litigation surrounding the same corporate misconduct. Although the past five years have seen prosecutors accumulating over 1000 indictments of corporate officers, the same years have seen a decline in the ability of shareholder plaintiffs to receive civil redress for the same wrongs. I frame my analysis in the lexicon of statistical error. Which system, the criminal system or the civil system, is erring in creating more false positives or false negatives? If a court is to determine whether a corporate defendant is guilty, then a false positive finding by the court is a "Type I" error. However, if the defendant actually is culpable, but a court finds the defendant not culpable, a false negative, we say that the system has created a "Type II" error. No system, either a criminal law system or a civil system, can eliminate both Type I and Type II errors. Traditionally, the public has found Type I errors in criminal law fairly intolerable, and has preferred to err on the side of Type II errors. On the other hand, because civil penalties do not threaten liberty and livelihoods as much as criminal penalties, our system has been more tolerant of Type I errors in private litigation. However, post-2002, changes in prosecutorial strategy, substantive laws, and sentencing guidelines have combined to create a criminal law system that creates an intolerable number of Type I errors in prosecutions of corporate misconduct. Ironically, due to laws creating additional obstacles for private plaintiffs in both federal securities law litigation and state law fiduciary duty litigation, the civil system creates an unusually high number of Type II errors in trials for the same or similar misconduct. This article argues that not only is this prosecutorial paradox adverse to traditional preferences regarding protections of criminal defendants, but it is also potentially dangerous to vulnerable shareholders. As the public outcry regarding overcriminalization causes prosecutors and legislators to decrease criminal prosecutions, investors will be left with no other recourse but a private litigation system that is currently "undercivilized."

Suggested Citation

Hurt, Christine, The Undercivilization of Corporate Law (February 1, 2007). Journal of Corporation Law, Vol. 33p. 361, 2008, University of Illinois College of Law Program in Law, Behavior & Social Science Research Paper No. LE07-005, Available at SSRN: https://ssrn.com/abstract=965871 or http://dx.doi.org/10.2139/ssrn.965871

Christine Hurt (Contact Author)

Southern Methodist University - Dedman School of Law

P.O. Box 750116
Dallas, TX 75275
United States

HOME PAGE: https://www.smu.edu/Law/Faculty/Profiles/Hurt-Christine

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