The political economy of private legislatures.

• Author: Schwartz, Alan

INTRODUCTION

A large amount of American law originates with private law-making groups. This Article considers two of these groups, the American Law Institute (the "ALI") and the National Conference of Commissioners on Uniform State Laws ("NCCUSL"). The ALI is a self-perpetuating organization of lawyers, judges, and academics. Its primary function is to promulgate restatements of law. These restatements are sets of rules, organized by subject matter, the content of which is partly a function of the case law but also is a function of the ALI's collective view respecting which legal rules are normatively desirable for courts to apply. Restatement rules do not have binding force but are advisory to courts. Inclusion of a rule in a restatement, however, is widely thought to increase the likelihood that courts will follow it.

The National Conference of Commissioners on Uniform State Laws is an organization of "commissioners," each of whom is appointed by the governor of her state. These commissioners are also lawyers, judges, and academics. NCCUSL creates statutes--called "uniform laws"--that it recommends to state legislatures. The states often reject NCCUSL recommendations, but when they do accept them, they commonly enact the NCCUSL statutes as written. The ALI and NCCUSL jointly created America's longest and most influential commercial statute, the Uniform Commercial Code (the "UCC").

The ALI and NCCUSL currently are engaged in a major revision of the UCC. This process has already resulted in the revisions of UCC Articles 3 and 4 (as well as the promulgation of Article 4A), the recommended repeal of Article 6, and the addition of Article 2A. Completed revisions to Articles 5 and 8 are imminent. The two revisions that remain are especially important events in commercial law: Article 2, regulating sales, has never been revised, and Article 9, regulating secured lending, was last rethought in 1972.

The ALI and NCCUSL have created large portions of American contract and commercial law and have made major contributions in other areas as well, such as tort and property law. Despite these groups' significance, they have never been seriously studied. Rather, uniform laws and restatements have been evaluated as if they were produced by rule-generating "black boxes." Lawyers know that these boxes can produce bad laws as well as good ones, so serious critical attention is devoted to ALI and NCCUSL products. In contrast, the relation between the institutional structures of these organizations and the rules they adopt has been entirely neglected. This lack of attention apparently is because ALI and NCCUSL members are thought to be disinterested legal experts who pursue only the public good: the task is not to study this ideal but rather to extend it to other areas.

The legal community's inattention to the consequences of ALI and NCCUSL procedures, however, is unjustified. Positive political theory teaches us that the form and substance of a law are significantly endogenous to the law-creating institution. Put more simply, a legislature's output is a function both of the preferences of the legislators, whether selfish or altruistic, and of the institutional structure in which the legislators perform. Thus, ALI and NCCUSL outputs also should be endogenous to their organizational forms.

This Article uses the tools of "structure-induced equilibrium" theory(1) to study the ALI and NCCUSL. These tools were developed to study typical legislatures, but their use is apt here because the ALI and NCCUSL actually do function as private legislatures. The analyst doing structure-induced equilibrium theory identifies the utility functions that participants in the legislative process maximize, specifies the institutional structures that transform participant preferences into legislative outcomes, and then shows what outcomes these preferences and structures will produce.(2) When this method is applied to an institution that functions as the ALI and NCCUSL do, it reveals that the institution (a) has a strong status quo bias that induces it to reject significant reform; (b) frequently produces highly abstract rules that delegate substantial discretion to courts; and (c) produces clear, bright-line rules that confine judicial discretion commonly when and because dominant interest groups influence the process. These bright-line rules ordinarily advance the interest group's agenda.(3)

This Article is primarily positive; its goal is to understand how large private law-making groups such as the ALI work. However, the results we develop do have several normative implications. First, when nationally uniform regulation of a subject is desirable, society often has a choice whether to use federal legislation, federal administrative rule-making, a uniform law, or a restatement. Today, such choices are made on the two assumptions that politics can importantly influence the Congress and federal agencies but that politics do not influence the ALI and NCCUSL. We show here that the latter assumption often is false. This showing should influence the choice of which legal vehicle is best for regulating particular subjects. In a related vein, the ALI's or NCCUSL's imprimatur should count for less than it now does when a court or legislature is deciding whether to adopt a legal rule.

The second normative implication relates to the debate as to when a lawmaker should use "rules" (what we call bright-line rules), and when it should use "standards" (what we call abstract rules).(4) An implicit premise in this debate is that the lawmaker will choose between rules or standards depending on which rule form would best implement the policy at issue. We show, in contrast, that the proportion of rules and standards in the ALI's and NCCUSL's output is much more a function of the structural features of these organizations than it is a function of conscious policy choice. The nature of the debate about rules and standards should change if, in important legal contexts, that debate cannot influence what the lawmakers do.

Our analysis has an important pedagogical implication as well. It is now customary to teach the substantive aspect of restatements and uniform laws. For example, a sales law class will ask whether the "open term" rule embodied in UCC section 2-204 is a good idea. This pedagogical style would be considered naive in a course about regulated industries, where both the substance of a statute or regulation and the process that produced the rule are on the table. It is recognized, in such discussions, that normative critique should take account of what the relevant lawmaker is capable of doing and is likely to do. Our analysis suggests that private law courses should be taught on a similar level of sophistication.

In Part I of this Article, we describe ALI and NCCUSL procedures and the "ethos" of these groups. We also develop a taxonomy of legal rules that will facilitate our subsequent analysis of ALI and NCCUSL performance. Part II, the central section of the Article, develops a theory of private legislatures. In particular, we model a private legislature whose features are drawn from the descriptions of the ALI and NCCUSL. In Part III, we test the predictions of the model with data that are largely drawn from the commercial law field, the area we know best. This evidence and an informal content analysis of Uniform Commercial Code rules are consistent with the predictions of our analysis.

Although our formal models generate clear results, for several reasons, our conclusions are tentatively held. The analysis set out below has the defects of a first try at a complex subject.(5) Furthermore, models should be tested not so much by their intuitive plausibility as by the facts. Partly because there has been no serious study of private law-making groups, there is no rigorous data. Thus, the evidentiary base we use is composed largely of anecdote and impression and is limited to business law fields. Nevertheless, when both theory and casual empiricism point in the same direction, as they do here, the intellectual burden of proof should shift. The legal profession thus should no longer assume that groups such as the ALI and NCCUSL ordinarily function well; rather, the quality of their performance should be the relevant issue.

Finally, our analysis applies to those issues that implicate value choices and are sufficiently important to attract interest groups. NCCUSL furnishes useful technical expertise to state legislatures in areas where there is a consensus on the underlying values and where the resulting statutes cannot create large winners and losers. The set of such "technical subjects" is, however, considerably smaller than the set of subjects that NCCUSL and the ALI attempt to regulate.

1. THE NATURE OF PRIVATE LAW-MAKING GROUPS AND THE LEGAL RULES THEY

   PRODUCE

   1. The ALI

      The ALI is a private law-reform group that chooses its own members.(6) These persons, as well as the members of its governing council, are lawyers, legal academics, and judges. The ALI proposes restatements, promulgates the UCC and its revisions (in collaboration with NCCUSL), and sponsors special projects. The ALI council decides whether a restatement is desirable. If so, the president, on the recommendation of the director(7) and with the council's approval, selects a reporter and a set of associate reporters to draft the restatement. The reporters commonly are academics in the relevant field. The ALI council also provides the reporters with an advisory group, which is composed of academics and ALI members. The reporters are responsible for the content of draft restatements. These drafts go initially to the council, which sometimes requests changes. The product on which the reporters and council agree is then sent to the full membership for discussion. The membership meets annually for one week, but no more than one and a half days are devoted to any one subject. Discussions in the...