Of property and federalism.

Author:Bell, Abraham

INTRODUCTION 1. STANDARDIZATION AND CHANGE IN THE LAW OF PROPERTY A. Cotenancies 1. Tenancy by the Entirety 2. Joint Tenancies 3. Community Property 4. The Rise and Fall of Cotenancies B. Easements C. Droit de Suite II. THE VALUE OF STATE COMPETITION A. State Competition in Corporate Law B. The Tiebout Hypothesis C. Politics and the Production of Property Law D. Exit, Voice, and Federalism III. ENHANCING CHOICE IN PROPERTY A. A Proposal for Choice in Property B. The Limits of Choice in Property 1. Information Costs 2. Defensive and Offensive Uses of Property Choice 3. Status 4. Morality and Property CONCLUSION INTRODUCTION

Property law in the United States is largely the domain of the states, not the federal government. (1) This seemingly unremarkable fact has profound implications for the structure and substance of property law and policy. The existence of multiple jurisdictions creates a potential for competition over property forms. Competition over property forms, in turn, leads to innovation in property doctrine. Examples are legion. In the area of marital property, for example, New York recognizes professional degrees as marital property, (2) California and eight other states subject assets accumulated during marriage to a community-property regime, (3) and Massachusetts has recently announced that same-sex marriages must be recognized under its state constitution, effectively granting married same-sex couples the same property rights as all other married couples. (4) Examples can be found outside of the realm of marital property as well. Artists in California enjoy droit de suite--a continuing property right over fine art whose title they have surrendered to others. (5) And many states have recognized the validity of conservation easements for environmental protection, in spite of the common law rule that no nontraditional types of easements may be recognized. (6) American property law may, therefore, be viewed as a giant laboratory in which states vie to develop the most efficient property regime. (7) Although the effects of state competition have been closely scrutinized by scholars in other legal fields--most notably corporate law (8)--the impact on property law has been largely neglected. (9)

The importance of federalism in property law is highlighted by the recent scholarly movement to embrace the numerus clausus principle as a defining feature of the field. (10) The numerus clausus principle, as familiarly enunciated by Bernard Rudden, holds that the law of property "lays down a restricted list of entitlements which it will permit to count as property interests, or 'real rights'. Anything else sounds only, if at all, in contract." (11) Thus, for example, Anglo-American law recognizes only four types of present possessory estates in land: fee simple, fee tail, life estate, and leasehold. (12) Any attempt to create a new type of estate will be rejected by the courts. (13) Yet, as we will argue, the numerus clausus description of property law as limited to this short menu is only partly accurate, because menus differ from state to state.

Interstate competition in property law may be characterized by two poles. In most cases, the menu of available property forms is determined by the situs of the property. Consequently, if an individual wants to benefit from a property form not offered on the local menu of forms, she must incur the cost of relocating to another state. If the relevant asset is realty, changing situs may be impossible altogether. At this extreme, then, the numerus clausus description of property law is quite accurate.

At the other extreme, however, property owners can reach beyond the limits of the local menu and take advantage of the national menu. Under the Full Faith and Credit Clause of the U.S. Constitution, an act establishing property status must generally be respected in all states. Thus, when one state adopts a lax form of divorce or recognizes same-sex marriage, states must generally recognize this status as one giving rise to the ordinary property forms attending marriage or its dissolution. (14) As Nevada's divorce law has demonstrated, (15) it is relatively cheap for parties to take advantage of out-of-state status opportunities and thereby import out-of-state law to expand the list of available property forms beyond those offered on the local menu. At this extreme, then, the humerus clausus description of property law is incomplete. (16)

Federalism allows owners to reach beyond a short menu of forms, making the number of property forms variable over time and between states. The importance of federalism in fostering dynamism and choice can be seen throughout the law of property. Consider again laws related to spousal and joint property rights. Some states provide for the creation of "community property" between spouses; (17) others restrict spousal rights to individually owned property or the traditional cotenancies (joint tenancy, tenancy in common, and tenancy by the entirety). (18) Some states have abolished tenancies by the entirety (a form of joint tenancy available only to married couples); (19) others have simply altered the rules governing such tenancies. (20) Some states allow unilateral conversion of a joint tenancy into a tenancy in common; (21) others do not. (22) Some states allow spousal rights to be claimed by same-sex couples; (23) others do not. (24) These conflicting state rules do not stay meekly in place. According to statistics compiled by the U.S. Census Bureau, 43.4 million Americans changed their place of residence between March 1999 and March 2000, 19.4 million of whom moved to new states. (25) As couples move across state lines, states must adopt rules for dealing with the newly introduced property forms. (26) Some states look to the situs of the property, (27) others look to the place of the property right's creation, (28) and yet others create hybrid rules to compromise between the conflicting property regimes, essentially creating new forms of property. (29)

However, competition under the existing federal system is limited. When creating new property rights, owners may not choose willy-nilly from the competing property regimes now in force throughout the United States. Because real property is both immobile and subject to situs rules, it is excluded from at least some of the salutary effects of federalism. Even when personality is at issue and, therefore, the owner can avoid situs rules, choice-of-law rules will often require that the asset be physically present to some degree in the relevant jurisdiction for the asset to be governed by the jurisdiction's rule.

This artificial geographic limitation on an owner's choice creates an unnecessary obstacle to interstate competition in property forms and the innovation that can result. To see why, consider the effects of federalism on contract law. Individuals may adopt any arrangement they want simply by inserting a choice-of-law clause in the contract. No similar option is available in property law. One may not, for example, create a chattel in California, but specify that it will be governed by the property law of Wyoming. To enjoy the full benefits of federalism, the owner must make sure that the chattel satisfies the relevant situs rules by relocating the chattel to Wyoming at creation.

This Essay proposes a way to change the existing state of affairs. It outlines a new legal mechanism that would increase states' incentives to create new property forms while allowing owners to take advantage of those forms without relocating. We posit that under certain plausible conditions our mechanism will lead to a "race to the top" in property law. Our starting assumption is that the interstate competition made possible by the federal structure is highly desirable. First and foremost, competition expands the menu of available property regimes, providing citizens with greater choice. A richer menu of property rules gives individuals a greater chance of finding the most suitable property regime for them. Second, competition creates a fertile ground for experimentation with new property forms and proliferation of these forms as states adopt laws that have proven useful in other states. Third, more localized control of property forms, particularly those regarding realty, produces property law at a level of government to which property owners are more likely to pay close attention, resulting in better matches between the rules adopted and the affected citizens' welfare preferences. (30)

However, in enlarging the menu of property forms to enhance the beneficial effects of federalism, we must take account of the complications arising from three interlocking elements. First, in order for state legislatures to capture the full value of innovative property forms, they should be able to collect payment from out-of-state property owners who wish to adopt them. Because innovative forms have some characteristics of public goods, other states may be able to free-ride on these innovations. If state legislatures are unable to collect such payments, they may have an insufficient incentive to come up with new property forms, and competition will be diminished. Second, a completely open federal market for property forms would suffer from a peculiar imbalance: It would entitle one to establish property forms in the entire United States by winning the political debate in a single jurisdiction. By contrast, to block a property form, one would have to win the debate in all jurisdictions. Third, and finally, legislation results not simply from the well-intentioned decisions of local policymakers or from local budgetary concerns. The political landscape is also influenced by campaign contributions and other factors related to the personal interests of the policymakers. Our proposal takes account of all three complications. (31)

Our Essay relies on two important reference points. The first is the Tiebout hypothesis...

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