The non-uniformity of uniform laws.

• Author: Kobayashi, Bruce H.

1. INTRODUCTION II. BACKGROUND AND INTRODUCTION III. ULLCA'S EFFECT ON UNIFORMITY IV. THE UNIFORM LAWMAKING PROCESS A. NCCUSL's Procedures B. A Model of the Uniform Lawmaking Process V. AN ILLUSTRATION OF THE UNIFORM LAWMAKING PROCESS: ULLCA A. Management Provisions B. Duty of Care C. Waiver of Fiduciary Duties D. Financial Rights: Distributions in Kind E. Acceptance and Rejection of Innovative Provisions VI. CONCLUDING REMARKS 1. INTRODUCTION

   The laws of the myriad nations and subsidiary states stand at a critical crossroad. Technological developments in transportation and communication and the opening up of free trade have dramatically increased national and international trade to a point at which regulation by small countries and states seem anachronistic. Even the smallest firms and transactions now have links across the globe. Applying the laws of all jurisdictions that firms and transactions touch could place significant burdens on modern trade. Coordinating regulation by multiple jurisdictions therefore is one of the main problems facing modern commerce.

   This complex problem has no easy solution. One approach is to permit transacting parties to contract in advance for the law of a single jurisdiction. (1) States, however, have important regulatory interests to protect. Choice-of-law contracts therefore may not be enforced in some places that might adjudicate claims arising out of the transaction. The alternative of federal regulation that imposes a single law across several jurisdictions also is not completely satisfactory. The appropriate regulation may be unclear and different types of regulation may suit different transactions. Accordingly there is significant value to preserving a variety of regulatory approaches and enabling jurisdictions to compete to supply the applicable law. In short, the alternatives present uneasy choices between uniformity and chaos.

   These competing values might be reconciled if jurisdictions could coordinate to make their laws uniform as to matters for which the benefits of uniformity outweigh the benefits of preserving jurisdictional choice. Instead of sweeping away variety or preserving costly chaos, this system of "efficient uniformity" would seek the best of both worlds: choice and coordination. The trick, of course, is finding this happy middle.

   One approach to achieving efficient uniformity is to create lawmaking organizations that are tasked with promulgating proposed statutes for uniform adoption by states. The organizations would be structured to represent the interests of their member states and would develop a reputation for quality and impartiality. The organizations' reputation, political legitimacy, and lawmaking expertise would guide the states toward efficient uniformity.

   There are, indeed, several influential lawmaking organizations that have the objective of increasing uniformity. One of the largest and most influential is the National Conference of Commissioners for Uniform State Laws (NCCUSL). Another is the prestigious American Law Institute (ALI), which was founded in 1923 "to promote the clarification and simplification of the law," stemming in part from "numerous variations within different jurisdictions." (2) The ALI has not only crafted restatements of numerous areas of the law, but has also participated in the creation of the influential Uniform Commercial Code. The International Institute for the Unification of Private Law (UNIDROIT) is an organization of 63 member states established in 1926 to "study needs and methods for modernising, harmonising and coordinating private and in particular commercial law as between States and groups of States." (3) UNIDROIT's most important product is the Convention relating to a Uniform Law on the International Sale of Goods (CISG). (4)

   Uniform lawmaking organizations are becoming increasingly important with the expansion of international trade. Accordingly, it is useful to understand how these organizations operate and to provide mechanisms for evaluating their lawmaking contributions. This Article takes a significant step toward this understanding and provision by examining NCCUSL, one of the leading uniform lawmaking bodies. We look at NCCUSL through the lens of a single project, the Revised Uniform Limited Liability Company Act promulgated in 2006 (ULLCA 2). We chose this approach because two recent NCCUSL projects within a ten-year period and significant state legislative activity regarding a popular new business entity provide a unique opportunity to examine both the NCCUSL process and its interaction with existing state legislation.

   The question we address is whether NCCUSL has the potential for producing efficient uniformity. Surprisingly, we find evidence that NCCUSL's processes actually may be undermining uniformity rather than furthering it. Moreover, our analysis indicates that the problem lies at the heart of the very political mechanisms that NCCUSL uses to promote uniformity. In other words, this study suggests that uniform lawmaking may be a self-limiting process. This analysis is potentially important for understanding the constraints on uniform lawmaking and has implications both for other NCCUSL projects and for uniform lawmakers around the world.

   This Article proceeds as follows. Part 11 provides general background by discussing NCCUSL in the general context of uniform lawmaking, and our prior work on NCCUSL and state law uniformity. Part III discusses data from our prior work and new data on the effect of the original Uniform Limited Liability Company Act (ULLCA 1) on state LLC adoptions. ULLCA 1's sparse enactment record is a red flag indicating that NCCUSL may be subverting the process of state uniformity in this area, consistent with implications of our prior work. Part IV models the uniform lawmaking process, showing that its perverse effect on uniformity results from inherent aspects of this process. This suggests that the problems we find with NCCUSL are likely to infect other NCCUSL projects and other uniform lawmaking organizations. Part V illustrates and supports this model by showing how ULLCA 2 repeats many of the same problems as ULLCA 1.

   11. BACKGROUND AND INTRODUCTION

   NCCUSL is one of the best known and most important uniform lawmaking bodies. Founded in 1892, NCCUSL is a quasi-political organization of state commissions, generally provided for by state statue. (5) Three hundred lawyers, judges, and law professors serve as uniform law commissioners for specified terms without compensation. (6) NCCUSL says its function is "to study and review the law of the states to determine which areas of law should be uniform. The commissioners promote the principle of uniformity by drafting and proposing specific statutes in areas of the law where uniformity between the states is desirable." (7)

   NCCUSL was created out of a concern for the continued vitality of state law against the onslaught of "federal common law" under the authority of Swift v. Tyson, (8) and interstate competition's erosion of state lawmakers' power. (9) Even after the Supreme Court overruled Swift in Erie R. Co. v. Tompkins, (10) the federal threat was greater than ever because of the New Deal. The federal threat to state regulatory autonomy has continued to grow, particularly given potential moves toward another federal New Deal in the wake of the current financial meltdown.

   NCCUSL has proposed more than 200 laws on a wide variety of subjects from child custody to partnerships. (11) NCCUSL worked with the ALI to produce the Uniform Commercial Code, which NCCUSL regards as its "signature product." (12) NCCUSL's scope, long history, and reputation make it by far the most influential uniform lawmaking organization in the United States, and perhaps the single most important influence on the content of state legislation.

   In a 1996 article we surveyed NCCUSL's proposals and their adoption by the states. (13) We found that states tended to reject NCCUSL proposals in areas for which uniformity was inefficient, such as in long-term or large contracts in which the parties can easily mitigate the costs of state law diversity by contracting for the application of a particular state's law. On the other hand, states tended to widely adopt NCCUSL proposals where uniformity was efficient--that is, where the parties' conduct or transactions may be subject to the laws of several different states, making it difficult to determine at the time of the conduct, or even at the time of litigation, which state law will apply, and where the affected parties cannot easily settle these issues by contract. (14) Examples are torts and short-term commercial contracts like those covered by the Uniform Commercial Code where the transaction costs of negotiating customized terms, or of contractually choosing a particular law, may outweigh the benefits.

   A question posed by the above data concerns NCCUSL's contribution to the uniformity the states evidently are achieving. We hypothesized in our 1996 article that NCCUSL encouraged state adoption of their proposals, among other ways, by lobbying and providing a coordination mechanism. Supporting this hypothesis, we found that states that have relatively small legislative resources tend to adopt more NCCUSL proposals, perhaps because they rely on NCCUSL to provide drafting resources. Moreover, fewer states adopt NCCUSL proposals that NCCUSL does not push for uniform adoption (which NCCUSL designates as "model" acts) than proposals that NCCUSL urges for uniform adoption. NCCUSL therefore seemed to be helping move the states toward efficient uniformity.

   These data still leave open important questions concerning NCCUSL's impact on uniformity. Even if states tend to adopt NCCUSL statutes in situations in which uniformity is efficient, states can still vary individual provisions of these statutes. Does NCCUSL create more uniformity than what states could achieve without NCCUSL's help? In order to...