Thursday, September 2, 2010
Robert B. Shepherd, Jr. (JD-MBA, 2010, Quinnipiac University School of Law and School of Business) has recently published his note entitled What Roosevelt Thought: A Rough Rider's Guide to the USTEA [Uniform Statutory Trust Entity Act], 232 Quinnipiac Prob. L.J. 311 (2009). The conclusion of his article is below:
"It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat."
The preceding analysis of the Uniform Statutory Trust Entity Act aims not to deride the great work of the Act's drafters. Indeed, the mere fact that the drafters of the USTEA endeavored to draft a uniform law for the statutory trust form should be lauded. Unfortunately, the mere determination and resolve of a drafting committee does not mean that its resultant legislation will stand the test of time. Ultimately, the continued future success of any act must depend on its ability to resolve problematic areas of the law and adequately predict future trends.
In the words of Sir Edmund Burke, "to innovate is not to reform." To correct the evils of the past, it is not enough for the drafters to simply desire to move away from them. Drafters of new legislation must consciously tackle each of the concerns of their forebears and minimize or completely decimate said problems. Thus, any successful uniform law on the statutory trust form must learn from the evils that the Progressive movement, as embodied by Theodore Roosevelt, saw in its predecessor business trust form. The USTEA unfortunately only considers a few of Roosevelt's criticisms of the business trust. While adequately addressing some concerns, it completely ignores or dismisses others. In so doing, it resolves some issues while simultaneously raising potential future judicial concerns in other areas. Such a creation of new legal issues merely changes old confusion for new, and thereby undercuts the NCCUSL's goal of bringing stability and clarity to the law.
On the issue of monopolization of trusts, the Act relies too heavily on its drafters' conceptualization of modern antitrust law. Presumably the Sherman Antitrust Act will subject excessively monopolistic statutory trusts to regulation. However, the drafters' decision to provide extreme structural flexibility and fail to conclusively specify that a statutory trust is a trust for antitrust purposes practically ensures future litigation of the issue. In essence, by providing excessive flexibility the Act tacitly creates a new area for litigation rather than clarifying legal standards. The drafters have taken Roosevelt's concerns about overcapitalization even less seriously than the concerns of monopolization. Despite the importance of ensuring that investors obtain interests truly worth their claimed value, the drafters completely ignore the issue of overcapitalization. Worse, in their ignorance of the issue, the drafters create even more complex issues for future courts to resolve. Rather than adding clarity, the USTEA raises such issues as whether a trust may issue a temporary beneficial ownership interest, and whether beneficial certificate values constitute "information reasonably related to beneficial ownership rights." It appears the drafters of the USTEA sufficiently considered Roosevelt's calls for publicly available information on trusts but failed to impose such regulations in the prudent manner sought by Roosevelt. The Act's requirements that a trust publicly disclose and annually update a record of its name, address of its office and contact information reasonably protects potentially injured parties seeking relief under a tort or contractual claim and investors including creditors. However, the requirement that a trust disclose information on its series is overly intrusive and not reasonably related to the protection of any group. Thus, while the USTEA's publicity requirements sufficiently protect particular groups, their current stipulation is excessively invasive and needs further revision.
In summation, Roosevelt would likely hold mixed views on the Act. While it fixes some problems, it completely ignores others and creates new ones. However, much of these ignored and new problems can be corrected fairly simply. To resolve concerns associated with monopolization, the drafters should merely note that statutory trusts are trusts for antitrust purposes and, as such, would fall under the regulations imposed by the Sherman Antitrust Act of 1890. To resolve problems with overcapitalization, the drafters need solely draft a provision conclusively stating whether statutory trusts may issue temporary beneficial ownership interests. To address overcapitalization concerns even more quickly, they could instead draft a provision banning the existence of trusts issuing overcapitalized interests and require each trust to periodically state the "true" or inherent value of its issued certificates. Finally, to resolve the publicity requirement's injudicious approach to disclosure, the drafters should simply eliminate Section 201(b) (4)'s reference to series trusts. Although these suggestions may seem disheartening to the drafters who have already spent many years working on the Act's current version, they are well advised to heed Roosevelt's wisdom: "Far better it is to dare mighty things, to win glorious triumphs, even though checkered by failure, than to rank with those poor spirits who neither enjoy much nor suffer much, because they live in that grey twilight that knows neither victory nor defeat."