Post on 06-Apr-2016
description
XAVIER UNDERGRADUATE LAW REVIEW
THE XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II - ISSUE I – Fall 2014
Featured Guest Article:
The Upside of the Lid Blowing Off:
How One Letter Changed the Landscape of Campus Sexual Violence
By: Kate Lawson
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 1
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 2
THE XAVIER UNDERGRADUATE LAW REVIEW
VOLUME I - ISSUE II – Spring 2014
EDITOR-IN-CHIEF
Robert Park
EXECUTIVE EDITORS
Annie Szendrey
Toyan Harper Jr.
Juan Martir
Mark Anliker
EDITORS
Rachel Mosqueda
Christian Foisy
Daniel Celani
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 3
MISSION STATEMENT
The Xavier Undergraduate Law Review was established to provide a platform for scholarly
discussion pertaining to the legal field and public policy. XULR allows all students, regardless of
background, an opportunity to present their argument on historical and current issues of legal and
social interest in a civil and equal manner. In the Jesuit spirit, the Review will publish and share
exceptional student work that will help inspire “men and women for others”. To accomplish this,
it is imperative we:
i) Provide resources and guidance for all undergraduate students, Xavier or non-Xavier students,
who wish to express their views in a scholarly outlet that will educate the community.
ii) Be a positive organization that works through collaboration, not competition. The editorial
process will help all students realize their ideas in writing to the fullest extent.
iii) Encourage submissions of any scholarly work that pertains to the legal field or public policy.
There are a plethora of subjects that pertain to the legal field such as economics, history,
medicine, political science, etc. that provide succinct scholarly debate.
iv) Uphold the spirit of Xavier University, “Men and Women for Others.”
SUBMISSIONS
Submissions of any articles to the Xavier Undergraduate Law Review must be:
i) Original
ii) Scholarly
iii) Included with a title and author biography (including name and college)
For any inquiries, visit our website at: www.xulr.org and check out the submission form for
questions, requests, or submissions at: www.xulr.org/submit.html
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 4
EDITOR’S NOTE
Dear Reader,
After a successful inaugural year of the Xavier Undergraduate Law Review (XULR), the XULR
has reviewed and read submissions from college students from different institutions around the
country. The editorial board has decided to publish four outstanding collegiate articles and a
guest article by Kate Lawson, Xavier University’s Title IX Coordinator.
This issue begins with Deniz Irgi’s article, Wrongfully Accused: Who Gets the Blame for
government gridlock and why it is a problem.” The article seeks out how impactful government
job performance ratings have on attitudes towards the Constitution, seeing if Americans do or do
not perceive government dysfunction as a constitutional problem.
In Legitimacy or Democracy? On Rawl’s Legal Theory, Elliot Mamet expands upon a genuine
point of conflict between John Rawls and Jürgen Habermas, which is the role that democratic
public norm determination plays in providing legitimacy for the modern state and its laws.
In his paper, Bitcoin and Tax Evasion, James Bax addresses Bitcoin and the need for regulation
in order to encourage widespread adoption of the currency.
The last collegiate article, An Analysis of Recalls and Safety Issues in the Automotive Industry,
Shawn Gannon highlights recalls and safety issues in the automotive industry in light of recent
legal suits against automotive powerhouses like General Motors and Toyota.
The guest article by Kate Lawson, The Upside of the Lid Blowing Off: How One Letter Changed
the Landscape of Campus Sexual Violence, expands upon the “Dear Colleague Letter” and how
it affected Universities around the country.
The third issue of the Xavier Undergraduate Law Review has been a rewarding and enriching
experience for the editorial board and we hope you enjoy reading the selected articles. 1
Sincerely,
Robert Park
Editor-in-Chief
1 There were two changes to the Spring 2014 Xavier Undergraduate Law Review issue to make note of. The first change was the removal of Mr. Habib Olapade’s article, Legal Hypocrisy and Extravagant Political Theatre. This was due to the risk of double publication in the University of Washington’s Undergraduate Law Journal. The second change was the addition of a missing reference in Daniel Wright’s article, Free Speech and Hate Crimes.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 5
TABLE OF CONTENTS:
Student Articles:
I. Wrongfully Accused: Who Gets the Blame for government gridlock and why it is a
problem
Deniz Irgi …………………………………………………………………………….7
II. Legitimacy or Democracy? On Rawl’s Legal Theory
Elliot Mamet………………………………………………………………………....23
III. Bitcoin and Tax Evasion
James A. Bax III………………………………...………………………...…………32
IV. An Analysis of Recalls and Safety Issues in the Automotive Industry
Shawn Gannon……………………………………………………………………….44
Featured Guest Article
The Upside of the Lid Blowing Off: How One Letter Changed the Landscape of
Campus Sexual Violence
Kate Lawson …….…………………………….…………………………………….54
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 6
STUDENT ARTICLES
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 7
WRONGFULLY ACCUSED: WHO GETS THE BLAME FOR GOVERNMENT
GRIDLOCK AND WHY IT IS A PROBLEM
Deniz Irgi
University of Washington
ABSTRACT
If there is one point of consensus in this era of dysfunctional government, it is the United States
Constitution. However, some scholars argue that constitutional reform is necessary to improve
how government works. But any reform is not likely to succeed without broad public support.
The question is whether the American public similarly perceives the problem of government
dysfunction as a constitutional one. I set out to test what, if any, impact government job
performance ratings have on attitudes towards the Constitution. I model public attitudes towards
the Constitution based on government job performance ratings from responses to a Time
Magazine survey from 2011. I find that people who are more dissatisfied with the government’s
handling of its job are neither more nor less likely to support constitutional reform. This suggests
that Americans do not perceive government dysfunction as a constitutional problem.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 8
INTRODUCTION
The 111th Congress passed universal healthcare reform, financial reform, a bailout of the
automobile industry, and even a repeal of “Don’t ask, don’t tell” in under two years. The 112th
Congress spent more time avoiding a government shutdown, a debt limit crisis, and the “fiscal
cliff” than passing laws. This was part of a broader problem of legislative gridlock. How did
Congress go from passing landmark pieces of legislation to barely performing its basic function
of making laws?
The popular explanation blames party polarization after political realignment in the 1970s. The
argument points to the fact that Democrats had majorities in both chambers of the 111th
Congress, which allowed them to push through these reforms in a short period of time. After the
midterm elections, Democrats lost the House and the seats required to override a filibuster in the
Senate. In a post-realignment political environment, divided government has become
dysfunctional government.
Some scholars argue that in this era of party polarization, the institutions established by the
Constitution are not working. The 112th Congress is a case in point. They argue that institutional
reform is necessary to fix the problems created by realignment. However, this means going
through the difficult process of amending the Constitution. If any proposal is to survive the
amendment process, it will require broad consensus from American public. Legislators are not
likely to support a proposal without strong public support. It remains to be seen, however, if the
public perceives the problem as a constitutional one?
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 9
If these proposals have a chance, the public must support reform during times of government
dysfunction. But it could be the case that Americans do not place blame with the Constitution.
There is a theoretical argument to be made that Americans simply support the Founding
document regardless of how they think government is performing. I will test the relationship
between how the public thinks the government is performing and what impact, if any, this has on
attitudes towards the Constitution.
First, I will examine some reforms critical scholars argue are necessary to improve how
government works. Then, I will explain why the American public might see things differently,
drawing from the literature on the doctrine of infallibility. To see where the public stands, I
model responses to a public opinion survey in 2011 on how well the Constitution has held up
based on responses to government job performance ratings. I find that what the American public
thinks about how government is performing has no impact on attitudes towards the Constitution.
Simply put, the public sees things differently from critical scholars.
THEORETICAL BACKGROUND
To test the relationship between public opinion of government job performance and attitudes
towards the Constitution, I use a national survey from June 2011 (Brohinsky and Schulman
2011). This was conducted at a time when the 112th Congress averted a partial government
shutdown at the last minute. As expected, the survey found that Americans disapproved of
Congress and the President. Across each branch of government, public opinion was below the
historical average. The study also found that 64 percent of Americans believed that the
Constitution has “held up well.”
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 10
Table 1: Public Approval of U.S. Government as a Percentage
Branch of Government Time Survey (2011) Gallup Average*
Congress 17 33
President 46 53
Supreme Court 57 61
*Gallup average for Congress covers 1974-2014, the President 1938-2014, and the Supreme
Court 2001-2013 (See bibliography)
Yet there are certain scholars who attribute government dysfunction to the institutions created by
the Constitution. Some have proposed moderate reforms to the current framework. One such
proposal deals with the U.S. Senate. The argument goes that equal representation in the Senate
creates a source of paralysis in Congress, because less populated states today are more
overrepresented than ever before. In effect, this gives a small number of people a veto on
nationally popular legislation (Levinson 2008). Other scholars have proposed more radical
reforms. One such idea proposes to solve the problems created by party polarization by electing
the President, Senate, and House under a single party (Hasen 2013). In any case, if such reforms
have a chance, the public must agree with the diagnosis: the Constitution is the problem.
However, it could be the case that the public sees things differently. There is an argument to be
made that Americans simply support the Constitution regardless of how they think government is
performing. This means that public opinion of government job performance would have no
impact on attitudes towards the Constitution. This position can be explained by drawing from the
literature on the doctrine of infallibility. The argument is that the polity reveres certain
institutions to such an extent that they “can do no wrong.”
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 11
Walter Bagehot first articulated the “doctrine of royal infallibility” in his sentinel book The
English Constitution. He argues that some institutions have certain qualities that “excite and
preserve the reverence of the population” to such a degree that the public perceives them as
infallible (Bagehot 2001). He describes these qualities as elements that evoke “religious feeling,
or something else that is sacred” (Bagehot 2001). For example, Bagehot argues that theatrical
elements that appeal to the “senses, which claim to be embodiments of the greatest human ideas”
are likely to “excite the easiest reverence” (Magliocca 2012). Lon Fuller’s study of “legal
fictions” in U.S. jurisprudence speaks to this argument. In a similar vein, he argues that certain
institutions satisfy a fundamental want of stability and certainty, which similarly reifies them as
sacred (Fuller 1967).
American legal scholar Gerard Magliocca applies Bagehot’s doctrine of infallibility to the U.S.
Constitution. He argues that in the U.S., the Founding document qualifies as an institution that
“preserves the reverence of the population” (Magliocca 2012). He points out that the
Constitution contains certain theatrical elements that appeal to great human ideas:
We the People of the United States, in Order to form a more perfect Union, establish
Justice, insure domestic Tranquility, provide for the common defence, promote general
Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain
and establish this Constitution for the United States of America (US Const Preamble).
The language and the values the document stands for excite a sacred feeling among the
American public. Further, throughout U.S. history, it has remained a constant. As such, it meets
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 12
Fuller’s description of an institution that satisfies a fundamental want of stability. I contend there
is a strong case to be made that Americans are more likely to support the Constitution than blame
it for government dysfunction.
Whether or not the American public perceives the problem as a constitutional one is indicated by
what, if any, impact poor government job performance ratings have on attitudes towards the
Constitution. Is it the case that during times of low government approval Americans are more
likely to support reform? Or is it that Americans are likely to support the Constitution regardless
of government job performance?
HYPOTHESES
If the American public similarly perceives dysfunction as a constitutional problem, then given
the low government approval ratings in the survey, it is expected that the public will be more
likely to favor constitutional reform. This means that low approval will have a negative impact
on attitudes towards the Constitution.
Hypothesis: Low levels of government approval will have a negative effect on public attitudes
towards the Constitution.
However, there is reason to think that the American public will support the Constitution despite
low levels of government approval. In fact, there is theoretical support to think that the
Constitution is highly regarded in public opinion. As such, it is possible that low government
approval ratings have no impact on attitudes towards the Constitution.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 13
Null Hypothesis: Low levels of government approval will have no effect on public attitudes
towards the Constitution.
METHODS
The data was collected by SRBI Public Affairs Research Center for a Time Magazine survey on
the Constitution conducted in June 2011. Polling was conducted over telephone among a national
random sampling of 1,003 Americans, ages 18 and older. Each case is an individual respondent.
Due to “no” and “unsure” responses, 371 observations were filtered out. Observations are only
respondents who answered questions on public opinion across the three branches of government
and on the Constitution.2
DEPENDENT VARIABLE
The dependent variable measures public attitudes towards the Constitution. I organized responses
as either supporting reform or preserving the status quo. The survey asked:
Would you say that the U.S. Constitution has held up well as the basis for our
government and laws and is in little need of change, or would you say that we should
hold a new Constitutional convention to update the Constitution?
I coded responses that said the Constitution has “held up well up as the basis for our government
and laws and is in little need of change” as preserving the status quo. Generally, proponents for
2 The data was retrieved from the Roper Center’s Public Opinion Archives with assistance from the Center for
Social Science Computation and Research at the University of Washington.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 14
constitutional reform argue for stronger reforms than are captured by “in little need of change.”
This group is not likely to support stronger reforms, such as changing the system of
representation in the Senate. The types of reforms they are more likely to support are not any that
fundamentally change the system of government currently in place.
I coded responses supporting a new Constitutional convention as supporting reform. But it is less
clear what a new convention means. Presumably, a convention could be convened with the intent
of revising the current Constitution, or creating a new government. Either way, this group
believes that there is something fundamentally not working and in need of change. Those who
believe that the Constitution has held up well but support stronger reforms that fundamentally
change how government works fall under this group.
INDEPENDENT VARIABLE
The key independent variables measure public attitudes towards government job performance.
There are three variables that correspond to each branch of government: the President, Congress,
and the Supreme Court. I coded all responses as either “Approve” or “Disapprove” and left out
any blank and “don’t know” observations.
CONTROLS
I included several controls in my regression model that I expect to influence public attitudes
towards the Constitution. These are level of education, constitutional knowledge, ideological
orientation, income, age, race, and gender.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 15
I expect respondents with higher levels of education and greater constitutional knowledge to be
more likely to support reform. Presumably, more informed respondents are more likely than less
informed respondents to see things similarly with those scholars critical of the Constitution.
For ideological orientation, I expect conservatives to favor preserving the status quo. However,
because income, age, gender, and race are important indicators of a conservative demographic,
these controls are expected to be significant for reasons other than conservatism. I expect higher
income respondents to have a stronger financial incentive to preserve the status quo. Similarly, I
expect older respondents to be more likely to favor the status quo.
Lastly, I expect non-whites and females to be more likely to support constitutional reform than
white males. A possible reason is that during the Constitutional Convention these groups were
not directly represented. Although the Constitution serves their interests, presumably citizens
prefer to be governed by institutions that they had a voice in designing.
RESULTS
Overall, I find that people who are more dissatisfied with how government is working are neither
more nor less likely to support constitutional reform. Government job performance ratings for
the President, Congress, and the Supreme Court are statistically not significant in the regression
model. Low government approval ratings had no impact on the American public’s willingness to
support reform.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 16
Table 2: Linear Regression Results Predicting Reform-Oriented Views of the Constitution3
Independent Variables Coefficient
(Standard error)
Presidential Approval 0.0418
(0.04)
Congressional Approval -0.0639
(0.05)
Supreme Court Approval -0.0355
(0.03)
White -0.116*
(0.05)
Female -0.00172
(0.03)
Old -0.0381***
(0.01)
Income -0.0166
(0.01)
Education -0.0445**
(0.02)
Conservatism -0.0777**
(0.03)
Constitutional Knowledge -0.0973***
(0.03)
3 A positive coefficient indicates support for reform, and a negative coefficient indicates preserving the status quo.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 17
_cons 2.324***
(0.14)
N 623
Standard errors in parentheses * p < 0.05,
** p < 0.01,
*** p < 0.001
To see if there was any difference between respondents who approved and disapproved of
government job performance, I compared predicted values for each branch. As shown in Figure
3, the overlap in error suggests that differences between high and low approval have no impact
on the American public’s willingness to support reform. The President’s score came close to
being significant, which would mean those who were more likely to support the President were
also more likely to favor reform. One explanation for this could be broad public support for the
President’s progressive policy agenda.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 18
If how Americans think government is performing has no impact on attitudes towards the
Constitution, scholars arguing for reform have a problem. If the public perceives the problem as
a constitutional one, then low government approval ratings should have a negative impact on
public attitudes towards the Constitution. However, the findings reject this hypothesis. Rather,
the null hypothesis is supported since government performance ratings had no impact on
attitudes towards the Constitution. Simply put, Americans do not perceive the problem of
government dysfunction as a constitutional one.
The findings also show that several demographic controls were significant. Level of education,
constitutional knowledge, ideological orientation, race, and age each had an impact on attitudes
towards the Constitution.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 19
Level of education and constitutional knowledge impacted attitudes towards the Constitution, but
not as expected. I anticipated more informed respondents to be more likely to see things similarly
with scholars critical of the Constitution. However, respondents with higher levels of education
were 4 percent more likely to support preserving the status quo. Similarly, respondents claiming
to have a “great deal” or “some” knowledge of the Constitution were 9 percent more likely to
support it regardless of low government job performance ratings. However, it is important to
note that there is likely a response bias; only 13 percent of respondents admitted knowing “not
much.”
To see if there was any difference between those who claim to know a “great deal” and those
who claim to know “nothing at all” about the Constitution, I ran two separate regressions. For
both high and low knowledge respondents, government job performance ratings were not
statistically significant. Respondents with greater constitutional knowledge were not any more
likely to agree with those scholars critical of the Constitution.
As expected, respondents who identify as conservative were 8 percent more likely to favor the
status quo. Even though race and age are important demographic indicators of conservatism,
both had an impact on attitudes towards the Constitution. White respondents were 12 percent
more likely than non-whites to favor the status quo. To a lesser degree, older respondents were 4
percent more likely to favor the status quo. This suggests that race and age impact attitudes for
reasons other than ideological orientation.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 20
CONCLUSION
The major finding of this study is that people who are more dissatisfied with how government is
performing are neither more nor less likely to support constitutional reform. This is problematic
for some scholars who argue that constitutional reform is necessary to improve how government
works. Even though Americans disapprove of government job performance, they do not perceive
the problem as a constitutional one.
A likely explanation for this is that the American people highly regard the Constitution and are
not likely to attribute it with blame. After all, even respondents with higher levels of education
and greater knowledge were no more likely to agree with scholars arguing for reform. So how do
Americans perceive the problem? It is more likely that politicians and party politics foot the bill.
These are more visible and immediate causes. In any case, elite-driven efforts to reform the
Constitution are not likely to win support among the American public.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 21
REFERENCES
Congress and the Public, Gallup (Gallup 2011), online at
http://www.gallup.com/poll/1600/congress-public.aspx (visited April 17, 2013).
Gerard N. Magliocca, The Constitution Can Do No Wrong, U Illinois L Rev 3 (2012).
Lon L. Fuller, Legal Fictions (Stanford University Press 1967).
Presidential Approval Ratings – Barack Obama, Gallup (Gallup 2011), online at
http://www.gallup.com/poll/116479/barack-obama-presidential-job-approval.aspx (visited April
17, 2013).
Richard L. Hasen, Political Dysfunction and Constitutional Change, 61 Drake L Rev (2013).
Sanford Levinson, Our Undemocratic Constitution: Where the Constitution Goes Wrong
(Oxford University Press 2008).
Seth Brohinsky and Mark Schulman, Constitution Withstands Test of Time, Abt/SRBI (Abt/SRBI
June 23, 2011), online at http://www.srbi.com/Research-Impacts/Polls/Time-Abt-SRBI-Poll-
Constitution-Withstands-Test-of.aspx (visited April 17, 2013).
Supreme Court, Gallup (Gallup 2011), online at http://www.gallup.com/poll/4732/supreme-
court.aspx (visited April 17, 2013).
Walter Bagehot, The English Constitution (Cambridge University Press 2001).
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 22
APPENDIX
Variable Government job performance ratings
Variable Type Primary Independent
Indicator Public opinion
Current Location The data is available on Roper: [USSRBI2011-5380]
Case Level Individual
Number of Cases 1003
Range Values range from 0 to 100 percent
Sample Values President approval 48% Congress approval 21% Supreme Court
approval 47%
Variable Attitudes towards the Constitution
Variable Type Dependent
Indicator Public opinion
Current Location The data is available on Roper: [USSRBI2011-5380]
Case Level Individual
Number of Cases 1003
Range Values range from 0 to 100 percent
Sample Values 64% of Americans believe Constitution has “held up well”
Variables Race, age, gender, income, level of education, ideological
orientation, and constitutional knowledge
Variable Type Control
Indicator Demographics
Current Location The data is available on Roper: [USSRBI2011-5380]
Case Level Individual
Number of Cases 1003
Range Categorical
Sample Values Female 51% White 81% Conservative 29%
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 23
Legitimacy Or Democracy? On Rawls’ Legal Theory4
Elliot Mamet
Colorado College
ABSTRACT
As the dispute between John Rawls and Jürgen Habermas illustrates, the relationship between
democracy and legitimacy poses an intractable problem for the task of striving for justice in
political life. This essay aims to delineate one point of genuine conflict between Habermas and
Rawls; namely, the role that democratic public norm determination plays in providing legitimacy
for the modern state and its laws. In Part I, I outline the challenge to Rawls’ lack of use of the
democratic public norm determination, as articulated by Habermas and Sheldon Wolin. I am
sympathetic to Habermas and Wolin in their critique of Rawls, and propose two modest ways to
strengthen their critique: first, by leveling an internal critique, examining the sequence of
democracy and legitimacy in Rawls’ theory, and second, by articulating an external critique,
dereifying the homogenous public implicit in the model of political liberalism. However, in Part
II, I briefly conclude that the critique of Rawls, as strong as it might be, falls short. When the
very framework of the game of politics is contestable, moral autonomy as such falls under a
solemn threat.5
4 I thank Dr. Emmanuel Melissaris, Department of Law, London School of Economics and Political Science (LSE) for his comments, as well as Frances Bennett, Simone Davies, Margarita Kato, and the editors of the Xavier Undergraduate Law Review. 5 See Benhabib, Seyla, “Deliberative Rationality and Models of Democratic Legitimacy,” Constellations 1.1 (1994): 26-52, 38-39.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 24
I.
In Section III of his critique of Rawls, Habermas distinguishes two types of liberty from one
another: first, liberty of the moderns, comprising of subjective property rights as well as liberty
of belief and conscience; and second, liberty of the ancients, roughly corresponding to rights
involving democratic deliberation in the public sphere.6 For Habermas, the former is derived
from the liberal tradition, and the latter from Republicanism.7 (Echoing Benjamin Constant, who
first delineated the two terms, I’d add that the former protects individual rights whilst the latter
refers to a collective exercise of sovereignty.)8 Delineating these two forms of liberty allows
Habermas to argue that Rawls ultimately prioritizes liberty of the moderns over liberty of the
ancients. Wolin, supporting Habermas’s position, laments the deeply unstable roots of the project
of political liberalism:
Its supreme political value is not dispersed power but individual liberty; its pivotal institution is
neither popularly elected nor democratically responsible but is the supreme court; and it locates
the true expression of political identity not in the vitality of local institutions but in the
constitution…When democracy is invoked only to be subaltern, what sorts of possibilities,
realities and historical memories are being denied?9
In line with Wolin, Habermas ultimately concludes that if Rawls indeed prioritizes the liberty of
the moderns over the liberty of the ancients, then it follows that Rawls prioritizes individual
6 Habermas, Jürgen, “Reconciliation Through the Public use of Reason: Remarks on John Rawls’s Political Liberalism,” The Journal of Philosophy 92.3 (March 1995): 109-131, 127. 7 Habermas, “Reconciliation Through the Public use of Reason: Remarks on John Rawls’s Political Liberalism,” 127;
Habermas, Jürgen, “On the Internal Relationship between the Rule of Law and Democracy,” European Journal of Philosophy 3.1: 12-20, 16. 8 Constant, Benjamin, Political Writings (Cambridge: Cambridge University Press, 1988): 310-311. 9 Wolin, Sheldon S., “The Liberal/Democratic Divide. On Rawls’ Political Liberalism,” Political Theory 24.1 (February 1996): 97-119, 98.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 25
liberty over the democratic processes.10
Rawls chooses acceptability over acceptance.11
In this
sense, Rawls forgets that both modern and ancient liberty derive from the same root.12
Moreover,
he ignores the internal relationship inherent in the relationship between law and democracy.13
Habermas and Wolin effectively critique Rawls’ prioritization of legitimacy. In a similar vein, I
offer an internal critique, claiming that the sequence of democratic participation and liberal
legitimacy is important for understanding the Rawlsian account. In the last paragraph of “Justice
as Fairness: Political not Metaphysical,” for example, Rawls concludes his defense of the role
overlapping consensus plays in mediating as-yet insolvable conflicts between reasonable
comprehensive doctrines.14
“Doctrines which persist and gain adherents,” Rawls writes, “depend
in part on social conditions, and in particular, on these conditions when regulated by the public
conception of justice.”15
The more that a comprehensive doctrine supports the overlapping
consensus through reasonableness [claim R], the more stable that doctrine becomes [claim S].
Rawls goes on suggest that the popularity of comprehensive doctrines, and in turn the stability of
comprehensive doctrines, depends in part on social conditions. The more democratically popular
a doctrine is [claim P], the more stable that doctrine becomes [claim S]. We are left, however, in
the following quagmire: if both reasonableness and popularity lead to a doctrine’s stability, what
happens if what is reasonable is not popular [R ∧ ~P], or where what is popular is not reasonable
[P ∧ ~R]? The deductive conclusion is that, for the purposes of the doctrine of overlapping
consensus, it remains unclear if stability can be achieved if a doctrine is not both reasonable and
10 Habermas, “Reconciliation Through the Public use of Reason: Remarks on John Rawls’s Political Liberalism,” 128. 11
Ibid., 122. 12 Ibid., 127. 13 Habermas, “On the Internal Relationship between the Rule of Law and Democracy,” 13. 14 Rawls, John, “Justice as Fairness: Political not Metaphysical,” Philosophy & Public Affairs 14.3 (Summer 1985): 223-251, 250. 15 Ibid., 250-251.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 26
democratic.16
We cannot deductively rule out the possibility that stability will not be achieved in
this scenario.
It follows that Rawls’ argument here is so crucial here for two reasons: first, because the
argument assumes that democratic success and reasonableness are linked in tandem, failing to
account for a situation whereby social conditions give rise to one without the other, and second,
because of the sequential order in which liberal legitimacy (viz. reasonableness) and democratic
popularity fall. The former precedes the latter. It is this relationship between popular acceptance
of a doctrine and the acceptability of that doctrine under a theory of political liberalism that
leaves Rawls so susceptible to an internal critique.
Assume that Rawls’ claims do indeed hold against Habermas’ objection about the conflation of
acceptance with acceptability and my internal objection about the sequence of order and
legitimacy.17
Even so, a broader, external critique of the democratic public norm determination
remains. Consider the basis of the Rawlsian theory: a “point of view, removed from and not
distorted by the particular features and circumstances of the all-encompassing background
framework, from which a fair agreement between persons regarded as free and equal can be
reached.”18
This theory is predicated in a particular, situated historical framework. The
framework views human interactions as “a form of intercourse between isolated egoistic
subjects, the bearers of autonomous private interests,”19
to borrow the words of Evgeny
Pashukanis. Moreover, by overcoming social situations through the veil of ignorance, Rawls
16 Given: [R ⊃ S] ∧ [P ⊃ S]
Assume: [R ∧ ~ P] ∨ [P ∧ ~R]
… ∴ S ∨ ~ S In other words, for Rawls, no causal link exists requiring both reasonableness and popularity to ensure a doctrine’s stability. 17 Habermas, “Reconciliation Through the Public use of Reason: Remarks on John Rawls’s Political Liberalism,” 122. 18 Rawls, John, Political Liberalism (New York: Columbia University Press, 1993): 23. 19 Pashukanis, Evgeny B., Law and Marxism: A General Theory (London: Pluto Press, 1978): 188.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 27
engages in a process of reifying disparate and diverse lives into a homogenized public from
whom principles of justice are derived.20
When we reify, “we draw an abstraction from a
concrete milieu and then mistake the abstraction for the concrete.”21
Emerging from an atomistic
view of human nature, then, the difference principle in particular constitutes a form of justice
designed to mediate material inequality. Rawls’ procedural approach to democracy, and its
starting point in the reified “facts” of material exchange and self-interest, stands in stark contrast
to a more substantive view of democracy.22
Put bluntly, Rawls’ theory begins with the concept of
distribution, rather than with concepts of domination and oppression.23
This starting place has
important impacts on the structure of law. Insofar as its so-called “facts” are depictions of
atomistic exchange on behalf of self-interest, Rawlsian political liberalism represents a particular
ontological approach.24
I contend that approach contains profound normative implications.
II.
So far, I have attempted to outline the strongest arguments for the position that the underlying
problem in Rawls’ political theory is its failure to realize the importance that democratic public
norm determination plays in legitimating the state and its laws. What are the weaknesses in that
position? Perhaps, to challenge the above position and to defend the Rawlsian project, one might
critically examine Seyla Benhabib’s work on deliberative democracy. Benhabib—in an attempt
20
Benhabib, 41; see also Young, Iris Marion, Justice and the Politics of Difference (Princeton: Princeton University Press, 1990): 7. 21 Gabel, Peter, “Reification in Legal Reasoning,” Research in Law and Sociology 3.1 (1980): 25-51, 26. 22 Castoriadis, Cornelius, “Democracy as Procedure and Democracy as Regime,” Constellations 4.1 (1997): 1-18, 6. 23
Young, 33. Note that Young’s approach to justice correlates with the distinction between liberty as non-interference vs. liberty as non-domination drawn by Philip Pettit. See Pettit, Philip, “Law and Liberty” in Legal Republicanism: National and International Perspectives, ed. Besson, Samantha & Jose Louis Marti (Oxford: Oxford University Press, 2009). 24 Habermas’ attack on methodological positivism particularly applies here. See Thomassen, Lasse, Habermas: A Guide for the Perplexed (London: Continuum Books, 2010): 25.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 28
to provide an alternative to Rawlsian liberalism— offers a striking metaphor to depict the status
of basic individual rights under a deliberative democracy:
Democratic debate is like a ball game where there is no umpire to definitively interpret the rules
of the game and their application. Rather in the game of democracy the rules of the game no less
than their interpretation and even the position of the umpire are essentially contestable.25
In the deliberative model, the ‘game of democracy’ renders background conditions contingent on
the intersubjective political communication between citizens. Instead of complying with
background conditions of justice that stand beyond, framing the public debate, Benhabib outlines
a model predicated on communicative ethics.26
We tear off the veil of ignorance to find a rich
political dialogue around us. In the deliberative democracy, then, the liberty principle does not
stand fixed, outside the realm of public debate.27
It can instead be found at very core of a referee-
less game where the entire framework of basic rights stands in perennial popular contestation.
For Rawls, then, it remains true that for no matter how free and unconstrained the public
deliberation may seem,28
a society without respect for the liberty principle would fail to conform
to a conception of justice derived from the facts of freedom and equality inherent in the modern
constitutional democracy. Recall that the third and final of Rawls’ stages of justification, public
justification by the political society, is a justification made in the terms of politics that fall within
the overlapping consensus.29
Principles of liberty stand outside the field of contestation. Perhaps
legitimacy must be separated from democracy in order to protect justice, whose meaning
includes a fully adequate scheme of equal rights. Discourse alone serves as no match for the dark
25
Benhabib, 38-39. 26 See, e.g., Rawls, John, Political Liberalism (New York: Columbia University Press, 1993): 175-176 & 265-269. 27 Flynn, Jeffrey, “Two Models of Human Rights,” in Habermas and Rawls: Disputing the Political, ed. Finlayson, James Gordon & Fabian Freyenhagen (New York: Routledge, 2001): 247-264, 253. 28 Benhabib, 26. 29 Rawls, John, “Reply to Habermas,” The Journal of Philosophy 92.3 (March 1995): 132-180, 144-145.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 29
ability of democracy to erode fundamental liberties. In this sense, if democracy frames
legitimacy, than the moral autonomy so important to deliberative democracy stands beneath the
grave shadow of the will of all.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 30
Works Cited
Benhabib, Seyla “Deliberative Rationality and Models of Democratic Legitimacy.”
Constellations 1.1 (1994): 26-52.
Castoriadis, Cornelius. “Democracy as Procedure and Democracy as Regime.”
Constellations 4.1 (1997): 1-18.
Constant, Benjamin. Political Writings. Cambridge: Cambridge University Press, 1988.
Flynn, Jeffrey. “Two Models of Human Rights.” In Habermas and Rawls: Disputing the
Political. Ed. Finlayson, James Gordon & Fabian Freyenhagen. New York: Routledge, 2001):
247-264.
Gabel, Peter. “Reification in Legal Reasoning.” Research in Law and Sociology 3.1
(1980): 25-51.
Habermas, Jürgen. “On the Internal Relationship between the Rule of Law and
Democracy.” European Journal of Philosophy 3.1 (1995): 12-20.
Habermas, Jürgen. “Reconciliation Through the Public use of Reason: Remarks on John
Rawls’s Political Liberalism.” The Journal of Philosophy 92.3 (March 1995): 109-131.
Pashukanis, Evgeny B. Law and Marxism: A General Theory. London: Pluto Press, 1978.
Pettit, Philip. “Law and Liberty.” In Legal Republicanism: National and International
Perspectives. Ed. Besson, Samantha & Jose Louis Marti. Oxford: Oxford University Press, 2009.
Rawls, John. “Justice as Fairness: Political not Metaphysical.” Philosophy & Public
Affairs 14.3 (Summer 1985): 223-251.
Rawls, John. “Reply to Habermas.” The Journal of Philosophy 92.3 (March 1995): 132-
180.
Rawls, John. Political Liberalism. New York: Columbia University Press, 1993.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 31
Thomassen, Lasse. Habermas: A Guide for the Perplexed. London: Continuum Books,
2010.
Wolin, Sheldon S. “The Liberal/Democratic Divide. On Rawls’ Political Liberalism.”
Political Theory 24.1 (February 1996): 97-119.
Young, Iris Marion. Justice and the Politics of Difference. Princeton: Princeton
University Press, 1990.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 32
Bitcoin and Tax Evasion
James A. Bax III
Xavier University
ABSTRACT
Bitcoin is an open-source, digital payment system that operates on a decentralized peer-to-peer
network over the internet. By its very nature, Bitcoin has the potential to become an online tax
haven: it requires no third-party intermediaries to oversee transactions, like banks or credit card
companies, has no central governing authority, and operates completely online allowing for a
certain level of anonymity for its users. Those wishing to evade taxes can shelter income by
converting to Bitcoin and hiding behind a wall of anonymity provided by the Tor network and
online “mixing” services. In response, the IRS has provided guidance to taxpayers classifying
Bitcoin as property and requiring those transacting in the currency to calculate capital gains and
losses for every transaction they make. While indeed cumbersome, the Bitcoin marketplace
needs regulation to encourage widespread adoption. Nevertheless, it remains unclear if such a
regulatory regime will be effective at encouraging Bitcoin users to report income to the IRS.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 33
I. Introduction
Between 2001 and 2010, over $3 Trillion of federal revenue was lost to tax
evasion.[1] Evading taxes can be as simple as underreporting income or overstating charitable
contributions on a tax return, or as complicated as stowing money in offshore bank
accounts. But with the advent of digital currencies and their growing popularity, tax evaders
may have a new tool to help them cheat the tax man: Bitcoin. Bitcoin is a decentralized, open-
source digital currency and payment system that can be used to purchase real goods and
services.[2] Bitcoin has several features that make it especially “tax advantaged.” For one,
Bitcoin operates on a peer-to-peer network over the internet making financial intermediaries,
such as banks, unnecessary.[3] Bitcoin users can also set-up numerous Bitcoin “wallets” using
falsified information to store their funds.[4] Additionally, Bitcoin exists in a legal grey area,
devoid of substantive legal regulation by any government or agency. With such unique traits and
a lack of governmental oversight, Bitcoin has the potential to become a viable means for evading
taxes.
II. Background
The idea for Bitcoin can be traced back to an essay written by Wei Dai in 1998 that
examined the application and development of a “crypto-currency” that would use cryptography
to both generate funds and secure transactions between parties over the internet.[5] Wei
proposed that money would be created “by broadcasting the solution to a previously unsolved
computational problem” where “the number of monetary units created is equal to the computing
effort” it takes to solve the problem.[6] Each user of the system maintains his/her own database
to record all transactions—which are broadcast publicly and contain each party’s “signature”—
allowing for every user to debit the buyer’s account and credit the seller’s.[7] In 2009, a
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 34
pseudonymous programmer/collective working under the name of Satoshi Nakamoto, developed
an open-source suite of software to implement Wei Dai’s protocol. Despite several recent
claims, the identity or whereabouts of Satoshi Nakamoto have not been confirmed.[8]
III. Operation
The Bitcoin system operates through the use of public key encryption and cryptography
to conduct transactions using “wallets” to act as a store for the Bitcoin.[9] Each Bitcoin wallet
generates a unique public address comprised of a string of upper and lower case letters and
numbers as well as a unique private address.[10] When a transaction takes place, the entity
paying with Bitcoin enters the receiver’s unique public address into a transaction message (like
an email) and confirms the extraction of funds in their account by “signing” the message with
their private address.[11] The receiving party simply reads the message and accepts or rejects
the Bitcoin with all accepted transactions then being broadcast to the entire Bitcoin
community.[12]
To ensure security and prevent double-spending, all public transactions are also time-
stamped by a peer-to-peer timestamp server and then posted with all other transactions taking
place within a 10 minute time interval to form what is known as a “block.”[13] Each block is
combined to form the “block chain,” which contains a reference to the previous transaction in
addition to an exceedingly difficult cryptographic math problem.[14] Before each block is added
to the block chain, the math problem must be solved and the answer verified by users of the
network.[15] The process of attempting to answer these mathematical puzzles is known as
mining, and correct answers are rewarded with Bitcoin.[16] The process of mining requires an
increasing amount of computing power and performs two functions: it serves as the mechanism
for creation of Bitcoin and as an incentive for maintaining the ledger which prevents
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 35
counterfeiting.[17] Other ways to obtain Bitcoin include online exchanges, private trade and
most recently, ATMs.[18]
IV. Anonymity
The Bitcoin protocol offers an exceptional level of pseudo-anonymity that can be
augmented with a combination of partially decentralized, trustless mixing services and the Tor
network, to completely disassociate users from their Bitcoin transactions, effectively making
Bitcoin anonymous. At a most basic level, mixing services bring together parties wishing to
exchange Bitcoin by allowing them to send a specific quantity of Bitcoin to a mixer that then
shuffles the funds associated with each wallet before sending them to their final destination
address.[19] The link between addresses that normally appears in the block chain is never
reported thus making it nearly impossible to trace funds back to even an exchange, let alone the
actual account holder.[20] However, there is substantial risk involved: the facilitator of the
mixer could easily and untraceably abscond with all the funds.[21] Two Spanish developers
have since devised a workaround that limits this liability.[22]
These mixing services can only be reached through use of the Tor network, a software
package originally developed by the Department of Defense.[23] Tor, an acronym for The
Onion Router, encrypts user data by sending it through an extensive network of Tor relays that
layer on levels of encryption like an onion, effectively obfuscating the user’s IP address.[24] In
the wake of the Edward Snowden scandal, classified NSA documents referred to Tor as “the
King of high secure, low latency Internet Anonymity.”[25] The combination of these two
services provides users with an exceptional level of anonymity; an ideal quality for a medium to
evade taxes. However, the question remains: how can Bitcoin actually be used to facilitate tax
evasion?
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 36
V. Tax Evasion
Tax evasion is generally defined as the unlawful practice or process of a
person/organization/company to pay less tax than what is lawfully owed.[26] Bitcoin can be
used in several ways to perpetrate tax evasion in this respect. The easiest would be to not report
capital gains as a result of Bitcoin’s rise in value. For most of 2011, Bitcoin traded at less than
$3/BTC before rising to a peak near $1,200/BTC in 2013.[27] For early adopters, simply holding
the currency would have resulted in substantial gains that would need to be reported if
exchanged for another currency or used to buy goods or services. The IRS has issued guidance
relating to the personal reporting of capital gains in Bitcoin, instructing users to treat the virtual
currency like property.[28] It is incumbent upon users of the currency to assess and report any
capital gains or losses that may result from the purchasing of assets or services.[29]
Another potential tax compliance issue is not reporting earnings for companies that
transact in Bitcoin.[30] Companies who receive payment in Bitcoin in exchange for services or
goods could, in theory, shelter their earnings by establishing numerous wallets without divulging
the company’s identity provided they do not use a central wallet and use the Tor
network.[31] Earnings in exchange for services or goods are clearly taxable as income yet it is
unlikely that the IRS or any tax authority will ever know about the income or be able to trace it
back to the company without deploying significant resources to investigate the sources of
income.[32] Companies would have to voluntarily offer up their earnings in Bitcoin if they
wished to pay taxes.
More complex schemes are also possible such as using Bitcoin as a medium of exchange
to conduct transactions with a tax-exempt investor or investment entity such as a charity or
endowment fund.[33] As an example, consider the possibility of a member of a student-run
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 37
investment fund converting his/her Bitcoin into dollars and then investing those dollars in
securities through the fund. Earnings from the security’s price appreciation or dividends are then
converted back into Bitcoin by the student who never “realizes” any tax-liability because the
student-run investment fund is tax exempt and the transfer of funds takes place through the
medium of Bitcoin. Such a complex transaction would be difficult to track if the transactions are
performed through the Tor network and in small monetary amounts. Regulators have
acknowledged these risks yet have been unable to set forth any substantive regulatory guidelines
on Bitcoin tax compliance.[34]
VI. General Legal Considerations
The US Constitution grants Congress the right to “coin money, regulate the Value
thereof, and of foreign Coin.”[35] However, the Framers neglected to mention private currency,
which Bitcoin may be categorized as, given that it is not issued by a central authority,
governmental or otherwise.[36] Private currency is mentioned in the Stamp Payments Act of
1862 which reads “whoever makes, issues, circulates, or pays out any note check, memorandum,
token, or other obligation…intended to circulate as money or to be received or used in lieu of
lawful money” will be fined.[37] It is unlikely, however, that Bitcoin would fall under the
purview of the Stamp Payments Act for several reasons: (1) Bitcoin does not “circulate as
money” because it does not possess the physical features of money (“note check, memorandum,
token”) nor is Bitcoin an “other obligation” because no one is obliged to exchange Bitcoin for
something; (2) Bitcoin does not compete with the dollar as much as it competes with credit cards
or PayPal; (3) Bitcoin is not pegged to the dollar.[38] It is also impractical to fine “whoever
makes, issues, circulates” Bitcoin given that it is not issued or made by anyone and circulates in
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 38
cyberspace. Additionally, the Stamp Payments Act has yet to be used in a prosecutorial manner
for other digital currencies preceding Bitcoin.[39]
VII. Current Regulation
The most substantial source of regulation comes from the Financial Crimes Enforcement
Network’s (FinCEN) application of the Bank Secrecy Act of 1970 (BSA) to Bitcoin exchanges
and wallets.[40] FinCEN is a regulatory agency under the Treasury Department that was
established by the BSA to enforce the Act’s provisions.[41] The BSA requires that “financial
institutions keep record of cash purchases of negotiable instruments, file reports of cash
transactions exceeding $10,000 (daily aggregate amount), and report suspicious activity that
might signify…tax evasion” among other crimes.[42] Under the category of “financial
institutions” is one particular type, known as a “money services business” (MSB) which includes
“money transmitters.”[43] A money transmitter is defined as “an administrator or exchanger
that accepts and transmits a convertible virtual currency or buys or sells convertible virtual
currency for any reason.”[44] Bitcoin exchanges clearly qualify as money transmitters and as
such, are required to register with the Treasury Department as MSBs and comply with all
reporting requirements of the BSA.[45] Regulation such as this, however, remains largely
ineffectual at detecting criminal activity and is completely useless if users access the exchanges
through the Tor network to mix their funds.[46]
Another avenue regulators could pursue under the guise of the BSA is through separate
tax-reporting rules designed for banking institutions, which include reports of Foreign Bank and
Financial Accounts (FBARs) and the Foreign Account Tax Compliance Act (FATCA).[47] Any
US citizen who has authority over a financial account that at any point exceeds $10,000 in value
over the previous year must file a report to the IRS or face criminal penalties.[48] FATCAs are
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 39
similar to FBAR, though not mutually exclusive, and require US citizens to disclose information
on foreign financial assets that exceed a threshold amount.[49] Since Bitcoin operates over the
internet, it may be considered a foreign asset. The major assumption undergirding these
regulatory regimes is that Bitcoin users are exchanging Bitcoin back into government-issued
currency.[50] For users who never exchange their Bitcoin and are able to live off the currency
alone, this type of regulation is obviously ineffectual.[51]
VIII. Individual Tax Compliance and Regulation
In its 2013 Annual Report to Congress, the National Tax Payer Advocate Service stated
that the IRS lacked “clear answers to basic questions such as when and how taxpayers should
report gains and losses on digital currency transactions.”[52] A report by the Government
Accountability Office suggests taking a “relatively low-cost” approach to providing information
to taxpayers “on the basic tax reporting requirements for transactions using virtual
currencies.”[53] Since these reports were first published, the IRS has responded by issuing
guidance that Bitcoin is to be treated like property.[54] In practice, those paying with Bitcoin for
goods or services must, at the time of transaction, assess a capital gain or loss based on (1) the
current market $/BTC exchange rate as it relates to the price of the product or service being
purchased, and (2) the holding period of the Bitcoin prior to the transaction.[55] Any capital
gain or loss is then subject to reporting by the payor or payee as normal income on the
appropriate tax reporting form.
IX. Conclusion and Reflection
The Bitcoin economy needs regulation to not only legitimize the currency, but also
expedite its adoption. Successful regulation could mitigate such common issues within the
Bitcoin economy such as high price volatility and fluctuating confidence in the
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 40
currency. Effective regulation would also have the likely effect of increasing adoption by both
public and commercial users who are confident in the viability of the Bitcoin
marketplace. Members of the Bitcoin community need sound regulation; public and commercial
users should be able to easily comply with IRS and BSA reporting guidelines. However, the
most recent IRS guidance only seems to complicate the issue of recording capital gains or
losses. For each fraction of a Bitcoin in a person’s wallet, the wallet holder must be able to trace
that Bitcoin’s original market value at the time it was first acquired in order to then be able
calculate the value of a capital gain or loss on a purchase. It is also unclear which rate of
exchange to use given the numerous exchange rates available to Bitcoin users. In short, the new
IRS reporting requirements encumber Bitcoin users with burdensome calculations and record
keeping. While it is yet to be seen if the current regulatory regime will have any meaningful
effect on the Bitcoin economy, it is imperative that developers work collaboratively with
regulators in the future to produce guidelines that benefit all interested parties in the long run.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 41
References
Buterin, Vitalik, Trustless Bitcoin Anonymity Here at Last, Bitcoin Magazine, August 28, 2013.
Web. <http://bitcoinmagazine.com/6630/trustless-bitcoin-anonymity-here-at-last/>
Doguet, Joshua, The Nature of the Form: Legal and Regulatory Issues Surrounding the Bitcoin
Digital Currency System, 73 La. L. Rev. 1119, 1130 (2013)
Elwell, Craig et al., Bitcoin: Questions, Answers, and Analysis of Legal Issues. United States
Cong. Report. Washington, D.C.: Congressional Research Service, 2013. Web.
Financial Crimes Enforcement Network, Application of FinCEN's Regulations to Persons
Administering, Exchanging, or Using Virtual Currencies, Department of the Treasury, United
States, 2 (2013). Web.
Glater, Jonathan, Privacy for People Who Don’t Show Their Navels, The New York Times,
January 25, 2006. Web.
<http://www.nytimes.com/2006/01/25/technology/techspecial2/25privacy.html?_r=2&>
Goodman, Leah McGrath, The Face Behind Bitcoin, Newsweek, March 6, 2014. Web.
<http://mag.newsweek.com/2014/03/14/bitcoin-satoshi-nakamoto.html>
Government Accountability Office, Virtual Economies and Currencies: Additional IRS
Guidance Could Reduce Tax Compliance Risk, United States, 17 (2013). Web.
Gruber, Sarah, Trust, Identity, and Disclosure: Are Bitcoin Exchanges the Next Virtual Havens
for Money Laundering and Tax Evasion? 32 Quinnipiac L. Rev. 135, 143 (2013)
Internal Revenue Service, IRS Virtual Currency Guidance: Virtual Currency Is Treated as
Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply, March
25, 2014. Web. <http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance>
Internal Revenue Service, Report of Foreign Bank and Financial Accounts (FBAR), August 28,
2014. Web. <http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-
Foreign-Bank-and-Financial-Accounts-FBAR>
Jacobsen, Brad and Fred Pena, What Every Lawyer Should Know About Bitcoins, 27 Utah Bar
J. 40, 43. (2014)
Lever, Rob, ATMs Raise Bitcoin Profile, Concerns, Yahoo News, February 19, 2014.
<http://news.yahoo.com/atms-raise-bitcoin-profile-consumer-protection-concerns-
165539086.html>
Marian, Omri, Are Cryptocurrencies Super Tax Havens? 112 Mich. L. Rev. First Impressions
38, 41 (2013)
Martin, Pablo and Amir Taaki, Anonymous Bitcoin Transactions, Web.
<http://sx.dyne.org/anontx/>
National Tax Payer Advocate Service. 2013 Annual Report to Congress. Rep. IRS. Web.
<http://www.irs.gov/pub/irs-pdf/p2104.pdf>.
Our Fiscal Security, Tax Evasion: The Real Costs, (2011). Web.
<http://www.ourfiscalsecurity.org/storage/infographic_FRI_D5.pdf>
Plassaras, Nicholas, Regulating Digital Currencies: Bring Bitcoin within the Reach of the IMF,
14 Chi. J. Int’l L. 377, 383 (2013)
Smith, Brian, Wilson, Ramsey, How Best to Guide the Evolution of Electronic Currency Law, 46
AM. U. L. Rev. 1105, 1110 (1997)
TheGuardian.com, Tor: ‘The king of high-secure, low-latency anonymity’, The Guardian,
October 4, 2013. Web. <http://www.theguardian.com/world/interactive/2013/oct/04/tor-high-
secure-internet-anonymity>
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 42
Wei Dai, b-money: a scheme for a group of untraceable digital pseudonyms to pay each other
with money and to enforce contracts amongst themselves without outside help. Web.
<http://www.weidai.com/bmoney.txt>
Wood, Robert, Bitcoin In IRS Crosshairs, Says Government Report, Forbes Magazine, June 18,
2013. Web. <http://www.forbes.com/sites/robertwood/2013/06/18/bitcoin-in-irs-crosshairs-says-
government-report/>
[1]Our Fiscal Security, Tax Evasion: The Real Costs, (2011). Web. <http://www.ourfiscalsecurity.org/storage/infographic_FRI_D5.pdf> [2]“This is the official site for Bitcoin developers.” https://bitcoin.org/en/faq [3]Elwell, Craig et al., Bitcoin: Questions, Answers, and Analysis of Legal Issues. United States
Cong. Report. Washington, D.C.: Congressional Research Service, 2013. Web. [4]Marian, Omri, Are Cryptocurrencies Super Tax Havens? 112 Mich. L. Rev. First Impressions 38,
41 (2013)
[5]Bitcoin.org/en/faq, supra note 2 [6]Wei Dai, b-money: a scheme for a group of untraceable digital pseudonyms to pay each other
with money and to enforce contracts amongst themselves without outside help. Web. <
http://www.weidai.com/bmoney.txt> [7]Id. [8]Goodman, Leah McGrath, The Face Behind Bitcoin, Newsweek, March 6, 2014. Web.
<http://mag.newsweek.com/2014/03/14/bitcoin-satoshi-nakamoto.html> [9]Plassaras, Nicholas, Regulating Digital Currencies: Bring Bitcoin within the Reach of the IMF, 14
Chi. J. Int’l L. 377, 383 (2013) [10]Id. [11]Id. [12]Id. [13]Id. at 383
[14]“Wiki-style website about Bitcoin created by active Bitcoin developers.” https://en.bitcoin.it/wiki/Block [15]Id. [16]Id.
[17]Gruber, Sarah, Trust, Identity, and Disclosure: Are Bitcoin Exchanges the Next Virtual Havens for Money Laundering and Tax Evasion? 32 Quinnipiac L. Rev. 135, 143 (2013) [18]Lever, Rob, ATMs Raise Bitcoin Profile, Concerns, Yahoo News, February 19, 2014.
<http://news.yahoo.com/atms-raise-bitcoin-profile-consumer-protection-concerns-165539086.html>
[19]Buterin, Vitalik, Trustless Bitcoin Anonymity Here at Last, Bitcoin Magazine, August 28, 2013. Web.
<http://bitcoinmagazine.com/6630/trustless-bitcoin-anonymity-here-at-last/> [20]Id. [21]Buterin, supra note 19
[22]Martin, Pablo and Amir Taaki, Anonymous Bitcoin Transactions, Web. <http://sx.dyne.org/anontx/> [23]Glater, Jonathan, Privacy for People Who Don’t Show Their Navels, The New York Times, January 25, 2006. Web. <http://www.nytimes.com/2006/01/25/technology/techspecial2/25privacy.html?_r=2&> [24]Id.
[25]TheGuardian.com, Tor: ‘The king of high-secure, low-latency anonymity’, The Guardian, October 4, 2013. Web. <http://www.theguardian.com/world/interactive/2013/oct/04/tor-high-secure-internet-anonymity> [26]http://legal-dictionary.thefreedictionary.com/Tax+Evasion [27]“This site offers customized Bitcoin charts and historical price data.”
http://bitcoincharts.com/charts/bitstampUSD#tgTzm1g10zm2g25zv
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 43
[28]Internal Revenue Service, IRS Virtual Currency Guidance: Virtual Currency Is Treated as
Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply, March 25,
2014. Web. <http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance> [29]Jacobsen, Brad and Fred Pena, What Every Lawyer Should Know About Bitcoins, 27 Utah Bar J.
40, 43. (2014) [30]Marian, supra note 4, at 41 [31]Id.
[32]Id. [33]Id.
[34]National Tax Payer Advocate Service. 2013 Annual Report to Congress. Rep. IRS. Web.
<http://www.irs.gov/pub/irs-pdf/p2104.pdf>. [35]US Constitution. Art. I, Sec. 8
[36]Doguet, Joshua, The Nature of the Form: Legal and Regulatory Issues Surrounding the Bitcoin Digital Currency System, 73 La. L. Rev. 1119, 1130 (2013) [37]18 USC, Sec. 336 [38]Doguet, supra note 33, at 1130 [39]Smith, Brian, Wilson, Ramsey, How Best to Guide the Evolution of Electronic Currency Law, 46
AM. U. L. Rev. 1105, 1110 (1997) [40]Gruber, supra note 17, at 170 [41]31USC, Sec. 310 [42]Id. [43]Elwell, supra note 3, at 14 [44]Financial Crimes Enforcement Network, Application of FinCEN's Regulations to Persons
Administering, Exchanging, or Using Virtual Currencies, Department of the Treasury, United States,
2 (2013). Web. [45]Elwell, supra note 3, at 14 [46]Gruber, supra note 17, at 191 [47]Id. at 194 [48]“This article provides current FBAR guidance.” http://www.irs.gov/Businesses/Small-
Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR [49]Id. [50]Marian, supra note 4, at 45 [51]Id.
[52]National Tax Payer Advocate Service, supra note 31 [53]Government Accountability Office, Virtual Economies and Currencies: Additional IRS
Guidance Could Reduce Tax Compliance Risk, United States, 17 (2013). Web. [54]Jacobsen, supra note 29 [55]Id.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 44
An Analysis of Recalls and Safety Issues in the Automotive Industry
Shawn Gannon
Xavier University
ABSTRACT
The purpose of this research paper is to analyze recalls and safety issues in the automotive
industry in light of recent legal suits against automotive powerhouses like General Motors and
Toyota. This paper will examine the history of automotive litigation, product liability, and
current legal and ethical issues facing the automotive industry. The paper includes a discussion
of contract and tort law, in addition to the legal principles that serve as a foundation for product
liability cases. Furthermore, this paper will analyze the effectiveness of self- versus government
regulation within the automotive industry, and the tension between industry profits and safety
measures. Finally, it emphasizes the need for increased government regulation and ethical
considerations within the industry.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 45
I. Introduction
The automotive industry has made huge strides in innovation in the past few decades,
producing cars that can park themselves, cars that can break even before the driver does, and
even designs for cars that will be able to drive themselves. However, in the shadows of these
great advances in technology are multiple scandals involving safety failures and product liability
issues. From Ford and Firestone’s defective tire cover-up to Toyota’s unintended acceleration
issues to GM’s recent ignition switch failure cover-up, automotive recalls and safety issues have
taken the spotlight. These issues raise many questions regarding automobile safety, automobile
litigation, the effectiveness of self-regulation and the ethical responsibilities of automotive
companies. This paper will explore product liability, the effectiveness of current automobile
regulations and the auto industry’s ability to self-regulate, and the ethical implications of recent
product recalls and self-governance.
II. History of Automotive Litigation and Regulation
The first American legal case involving product liability and automobile safety occurred
in 1920, when a man’s car wheel collapsed and he was thrown from the vehicle.30
The man sued
the car manufacturer and won, with Justice Benjamin Cardozo ruling:
If the nature of a thing is such that it is reasonably certain to place life and limb in peril
where negligently made, it is then a thing of danger…. If to the element of danger there is
added knowledge that the thing will be used by persons other than the purchaser, and
used without new tests, then, irrespective of contract, the manufacturer of this thing of
danger is under a duty to make it carefully.31
30 MacPherson v. Buick Motor Co., New York Court of Appeals, 161 A.D. 906 145 N.Y.S. 1132 1914 N.Y. App. Div. 31 Aaron Ezroj, Product Liability After Unintended Acceleration: How Automotive Litigation Has Evolved, 26 Loy.
Consumer L. Rev., 470, 472 (2014)
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 46
Essentially, the justice concluded that “a manufacturer breaches his duty of care to a foreseeable
consumer if the manufacturer's acts or omissions create an unreasonable risk of harm,” and that
“consumers could, in fact, recover from manufacturers under a negligence theory in the absence
of a contractual relationship.”32
This historic ruling set precedent for future cases involving
automobile safety issues and product liability, making it clear that car manufacturers were
responsible for ensuring the basic safety of their vehicles. The issue of product liability again
rose to significance in the 1960s and 1970s, as the automobile industry shifted with regards to
safety measures. Accidents, once viewed as “inherent risks” of driving and the result of “driver
error,” were now understood to be equally, if not more, dependent on the safety features of a
vehicle.33
A number of landmark lawsuits “motivated important safety improvements… [and]
penalized culpable manufacturers and compensated consumers who suffered losses.”34
Manufacturers were no longer able to blame safety concerns on drivers; they became legally
accountable for their products.
i. The National Highway Traffic Safety Administration
The most important result of this increased demand for automobile safety was the
creation of the National Highway Traffic Safety Administration, a division of the Department of
Transportation, whose mission is “to help reduce the number of deaths, injuries, and economic
losses resulting from motor vehicle crashes on the Nation’s highways.”35
In addition to
32 Andrew A. Bennington, Tort Law: Statutory Stalemate: Strict Products Liability and Comparative Negligence in
South Carolina, 56 S.C. L. Rev., 815, 816-817 (2005).
33 Id. at 473. 34 Id. at 470. 35 National Highway Traffic Safety Administration, Federal Registrar: The Daily Journal of the United States
Government, Web. <https://www.federalregister.gov/agencies/national-highway-traffic-safety-administration>.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 47
regulating and enforcing major safety measures such as seatbelts and standards for crash test
dummies, NHTSA’s responsibilities include conducting “programs relating to the safety
performance of motor vehicles and related equipment” and enforcing Federal Motor Vehicle
Safety Standards, among other things.36
NHTSA can also “independently move to require a
particular safety standard,” trumping the authority of car manufacturers.37
It has access to all
manufacturer, distributor, and dealer records in order to assist the development of new safety
measures.38
Overall, the National Highway Traffic Safety Administration has had a tangible
impact on automobile safety since its creation. Annual deaths on American highways are about
33,000, a lower death rate than before NHTSA was created, even though America’s population
and car usage have increased.39
In addition to these specific safety issues, the National Highway Traffic Safety
Administration also has the authority to legally enforce product liability issues. NHTSA can
independently move to “require particular safety standards,” and also require “manufacturers to
recall automobile vehicles and equipment when they do not meet a Federal safety standard or
there is another safety-related defect.”40
A recall is “a notification to consumers of a product
hazard and procedures for accomplishing its repair.”41
It can also be defined as "a very specific
device by which a manufacturer, seller . . . or other entity in the chain of distribution . . . advises
36 Id. at 1. 37 Ezroj, supra note 2, at 475 38 Ezroj, supra note 2, at 475. 39
Fiscal Year 2015 Budget Overview, National Highway Traffic Safety Administration, 2014, Web.
<http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CB4QFjAA&url=http%3A%2F%2F
www.nhtsa.gov%2Fstaticfiles%2Fadministration%2Fpdf%2FBudgets%2FFY2015_NHTSA_Budget_Justification.pdf&
ei=V1VIVO3KBMOuyATSp4KQCg&usg=AFQjCNGPgJN4b4yStiQaY7NwDPMHr4kigQ&sig2=oXceX5XnA8D6flAExUPJE
A&bvm=bv.77880786,d.aWw>.
40 Ezroj, supra note 2, at 475, 476. 41 Anita Bernstein, Voluntary Recalls, U. Chi. Legal F., 359, 362 (2013).
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 48
purchasers, users or anyone else in the possession or control of a product" of "certain activities [a
refund, a repair, or a replacement to consumer-owners at no cost] [that] should be undertaken
with respect to such product."42
Recalls are an indispensible aspect of product liability, as they
protect the health and safety of consumers. Many companies engage in voluntary recalls to
protect their customers and improve their organization’s reputation. However, when companies
fail to recall products that are potentially dangerous, the NHTSA can step in and enforce safety
measures.43
III. Legal Issues at Stake: Product Liability
When considering automotive litigation and regulation, one of the key legal issues at
stake is product liability. Product liability is “the liability of any or all parties along the chain of
manufacture of any product for damage caused by that product.”44
Product liability assumes
strict liability, meaning a defendant is liable when it is shown that the product is defective,
regardless of the “degree of carefulness [exhibited] by the defendant.”45
Essentially, a
manufacturer is responsible for any damages caused by a defect in their product, regardless of
the level of safety precautions that went into creating the product.
i. Contract and Tort Law
Product liability falls within the realm of contract and tort law, as it deals with the
damage of property or a breach of warranty.46
Contract law is “the law of legally enforceable
42 Id. at 362. 43 Id. at 364. 44 Products Liability Law: An Overview, Cornell University Law School Legal Information Institute,
<http://www.law.cornell.edu/wex/products_liability>.
45 Id. at 1. 46 Ezroj, supra note 2, at 480.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 49
promises.”47
A tort is “a civil wrong other than a breach of contract,” and tort law “protects and
compensates owners through private civil lawsuits when their resources, including those they
have in themselves, are wrongfully harmed by the actions of others.”48,49
When an individual
purchases a car, the car usually comes with a warranty, which is “an assurance, promise, or
guarantee by one party that a particular statement of fact is true and may be relied upon by the
other party,”50
or “a guarantee given on the performance of a product or the doing of a certain
thing.”51
In the case of automotive warranties, the warranty guarantees the safe and correct
performance of the car. If the car fails to live up to the safety guarantee in the warranty, the
owner can hold the seller to the promise in the warranty under contract law. Car owners are also
protected under tort law if a car fails to perform standard safety duties, and this failure injures a
person or their resources. Punitive damages can be awarded to victims of crashes in which an
automotive defect or failure to implement a safety feature is a cause of the accident.52
IV. Regulation Within the Auto Industry
i. Benefits of Self-Regulation
Currently, the automotive industry is under multiple forms of regulation, including self-
and governmental regulation. Governmental regulations are “restraints imposed upon firms” that
47 O. Lee Reed, Marisa Anne Pagnattaro, Daniel R. Cahoy, Peter J. Shedd, Jere W. Morehead, The Legal and
Regulatory Environment of Business Sixteenth Edition 781 (2013).
48 Id. at 801. 49 Id. at 10. 50 Warranty, West’s Encyclopedia of American Law, (2008) <http://legal-
dictionary.thefreedictionary.com/warranty>.
51 Lloyd Duhaime, Warranty Legal Definition, Duhaime.org. Web.
<http://www.duhaime.org/LegalDictionary/W/Warranty.aspx>.
52 Ezroj, supra note 2, at 485.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 50
are enforceable by law.53
These regulations seek to protect fundamental rights and the health of
the general public, benefit the wellbeing of other stakeholders, and exert pressure on
organizations “to address concerns overlooked by the industry.”54
Self-regulation, on the other
hand, is “a regulatory process whereby an industry-level organization (such as a trade association
or a professional society), as opposed to a governmental- or firm-level, organization sets and
enforces rules and standards relating to the conduct of firms in the industry.”55
Self-regulation
often occurs in light of “the threat of excessive governmental regulation.”56
Self-regulation is a
vital part of any industry, and in many cases, it can be very beneficial. Those who create
products or offer services “are [often] best equipped to establish rules and ethical guidelines
because [they] have a comprehensive understanding of the industry,” meaning that regulations
are often better targeted to industry concerns.57
Performance-based regulations can spark
“innovations that benefit consumers, producers, and society,” increase the competitiveness
between firms, and establish best practices.58
Self-regulation also helps improve the reputation of
an industry, because producers build trust with consumers by conducting their business in an
honest and transparent way.59
Furthermore, an industry that is self-regulated “has the ability to be
proactive and address issues before they become larger problems” by enforcing up-to-date safety
53
John W. Maxwell, Thomas P. Lyon, and Steven C. Hackett, Self-Regulation and Social Welfare: The Political Economy of Corporate Environmentalism, 43 University of Chicago Law School Journal of Law and Economics, 583, 584 (2000). <http://www.jstor.org/stable/pdfplus/10.1086/467466.pdf?acceptTC=true&jpdConfirm=true>. 54
Daniel Castro, Benefits and Limitations of Industry Self-Regulation for Online Behavioral Advertising, The
Information Technology and Innovation Foundation, December 2011, at 9. Web. <http://www.itif.org/files/2011-
self-regulation-online-behavioral-advertising.pdf>.
55 Id. at 3.
56 Id. at 3. 57 Peter Biscardi, The Time for Self-Regulation is Now, Providers & Administrators Magazine, January 4, 2010. Web. < http://pa-magazine.com/view-from-the-top/the-time-for-self-regulation-is-now/>. 58 Castro, supra note 24, at 3. 59 Biscardi, supra note 27, at 1.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 51
standards on all businesses in an industry, not just an individual company.60
ii. Disadvantages of Self-Regulation
As stated above, there are many benefits to self-regulation within an industry. Many use
these benefits as supporting reasons to reduce governmental regulation, arguing that
“governmental interference generates enormous public costs and yields questionable benefits.”61
This laissez-faire approach places regulation responsibilities on “the auto manufacturers
themselves.”62
However, recent cases have called into question the reliability of self-regulation
in the auto industry. The most current case is that of GM and its defective ignition switches, “the
worst safety crisis in [GM’s] nearly 106-year history.”63
To date, “at least 29 people have died
and 27 people have been seriously injured in crashes involving General Motors cars with
defective ignition switches.”64
The ignition switches “can slip out of the ‘on’ position, which
causes the cars to stall, knocks out power steering, and turns off the air bags.”65
Millions of cars
have been recalled due to the issue. During testing in the early 2000s, GM engineers were aware
of what they believed were only minor issues with the ignition switches in multiple car models.
However, officials cancelled the redesign of the product, claiming “the fix was too costly,”
although it would have cost less than a dollar per car to fix. 66,67
This fatal decision could have
60
Biscardi, supra note 27, at 1. 61
Joan Claybrook and David Bollier, The Hidden Benefits of Regulation: Disclosing the Auto Safety Payoff, 3 Yale J.
on Reg., 87, 90 (1985).
62 Id. at 91, 92.
63 Bill Vlasic, Victims of Defective G.M. Ignition Switches Begin Filing Claims, The New York Times, August 1, 2014.
Web. <http://www.nytimes.com/2014/08/02/business/victims-begin-filing-claims-in-gm-case.html?_r=1>.
64 Deaths Linked to Faulty GM Ignition Switches Rise to 29, NBC News, October 20, 2014. Web.
<http://www.nbcnews.com/storyline/gm-recall/deaths-linked-faulty-gm-ignition-switches-rise-29-n229881>.
65 Id. at 1. 66 Peter Valdes-Dapena and Tal Yellin, GM: Steps to a Recall Nightmare, CNN Money, 2014. Web.
<http://money.cnn.com/infographic/pf/autos/gm-recall-timeline/>.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 52
been easily avoided with a few extra dollars and further testing and investigation into the ignition
switch issues.
The issue at stake is not just that GM’s faulty product has caused the deaths of over 29
people and the injury of many more, but that the company “knew about faulty ignition switches
in Chevrolet Cobalts and other small cars for more than a decade but didn’t recall [the cars] until
February [2014].”68
GM’s company culture promotes this negligent attitude; a past employee
characterized the corporate climate as the “GM nod,” describing countless situations “in which a
room of officials collectively nodded in agreement to a plan of action but never executed it.”69
GM has a history of disregarding the safety of its customers. In 1965, General Motors spent only
$1 million of its $1.7 billion profit to fund external automobile accident research, and “the total
auto industry expenditure that year for internal research and development of crash safety
improvements was estimated at only $2 million.”70
This lack of safety funding and reluctance to
spend less than a dollar per car to fix a fatal flaw exemplifies the casual and careless attitude
towards safety that continues to plague our country’s auto industry.
While the immediate costs of additional safety measures might seem like a burden to auto
companies, the total economic and human cost of failed or lacking safety measures is much
greater than the additional dollar per vehicle GM could have spent to spare the twenty-nine lives
lost due to the company’s negligence. In the twentieth century alone, more than two million
people died and over 100 million were injured through the use of motor vehicles, “a total that is
67
David Stout, Amount GM Saved Per Car by Using Lethal Ignition Switch: About $1, Time, April 2, 2014. Web.
<http://time.com/46483/gm-recall-ignition-switch-1/>.
68 NBC News, supra note 34 at 1.
69 Rebecca Robbins, General Motors Legal Team Comes Under Fire at Senate Hearing, The Washington Post, July
17, 2014. Web. <http://www.washingtonpost.com/business/economy/general-motors-legal-team-comes-under-
fire-at-senate-hearing/2014/07/17/0c87c154-0dd6-11e4-b8e5-d0de80767fc2_story.html>.
70 Claybrook and Bollier, supra note 31 at 95.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 53
more than three times the combat losses suffered by the United States in all wars.”71
In addition
to this gruesome human toll, the economic impact of unsafe auto design is huge: Toyota alone
paid out more than $1.6 billion in settlements to victims of its unintended acceleration issues.72
GM has already paid out $35 million in fines to the NHTSA, the maximum fine allowed in this
situation, and it has also created a compensation fund to pay its victims and their families.73
There is no cap on the potential awards GM will pay out, and they are currently looking at
hundreds of millions of dollars in damages.74
For one victim alone, a ten-year-old paraplegic, the
lifetime cost of accommodations and medical treatments will total about $32 million.75
This
severe economic aftermath of GM’s negligence has challenged the company’s history of apathy.
GM’s CEO, Mary Barra, recently made a statement regarding the company’s new attitude:
“Today, if there is a safety issue, we take action. If we know there is a defect, we do not look at
the cost associated with it, we look at the speed at which we can fix the issue.”76
V. Reflection & Conclusion
The prevailing economic and human costs of failed automobile safety measures challenge
the effectiveness of self-regulation in an industry with such significant safety responsibilities,
and also challenge the effectiveness of the current level of government regulation. The lawsuit
against Toyota’s unintended acceleration issues and the case against General Motors demonstrate
71 Claybrook and Bollier, supra note 31, at 92. 72 Ezroj, supra note 2, at 470. 73
Michael A. Fletcher and Rebecca Robbins, GM Offers Millions to Compensate Some Ignition Switch Victims,
Families, The Washington Post, June 30, 1014. Web.
<http://www.washingtonpost.com/business/economy/gm-offers-millions-to-compensate-some-ignition-switch-
victims-families/2014/06/30/032d45c0-ffbc-11e3-8572-4b1b969b6322_story.html>.
74 Id. at 1. 75 Id. at 1. 76 Randy Conat, GM CEO Testifies Before Congress About Delayed Recall, ABC News, April 1, 2014. Web.
<http://www.abc12.com/story/25133759/gm-ceo-testifies-before-congress-about-delayed-recall>.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 54
“the inability of the primary regulatory agency, the National Highway Traffic Safety
Administration, to independently motivate the adoption of state-of-the-art safety technology or
adequately penalize manufacturers with fines limited in both scope and amount.”77
For
manufacturers, “even an expensive recall is understood as cheaper than liability…[and] in the
aggregate, recalls are also cheaper for manufacturers than compliance with safety standards.”78
Time and time again, as demonstrated by Firestone, Toyota, GM, and countless other automobile
product liability cases, cost considerations are placed before passenger safety. While NHTSA has
brought many significant improvements to American automobile safety, its ability to convey and
enforce the dire importance of vehicle safety is far from perfect. Even in the 21st century, a
century after the first American automobile product liability case against Buick, manufacturers
would still rather skimp on initial costs and pay out damages instead of spending more up front
to improve safety measures. This careless attitude in an industry that significantly affects the
daily lives of almost all Americans is simply unacceptable. Clearly, self-regulatory measures
within the industry and NHTSA measures have failed to convince manufacturers of the
economic, ethical, and legal benefits of increased safety measures. The current “legal strictures
that guide the actions of corporate boards of directors” simply do not “provide sufficient
protection to consumers or shareholders of these large institutions.”79
In conclusion, greater
industry and governmental regulations, as well as a more defined sense of industry ethics and
morals, need to be put in place and regularly enforced in order to decrease costs to the American
public and ultimately protect the lives and wellbeing of passengers.
77 Ezroj, supra note 2, at 471. 78 Berstein, supra note 11, at 360. 79 Brian Allen Warwick, Reinventing the Wheel: Firestone and the Role of Ethics in the Corporation, 54 Ala. L. Rev.,
1455 (2003)
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 55
FEATURED GUEST ARTICLE
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 56
The Upside of the Lid Blowing Off:
How One Letter Changed the Landscape of Campus Sexual Violence
Kate Lawson80
Title IX of the 1972 Education Amendments (“Title IX”) 81
is the federal civil rights law
stating “No person in the United States shall on the basis of sex be excluded from participation
in, be denied the benefits of, or be subjected to discrimination under any education program or
activity receiving federal financial assistance.” For nearly forty years after its passage most
people had never heard of Title IX and those who did equated it primarily with gender equity for
women’s sports.
That perception was shaken to its core when, amid a growing din from students who had
had been sexually assaulted on campuses nationwide and sexual violence survivor advocates
vocalizing their frustration with how schools handled (or mishandled or did not handle at all)
student on student sexual violence, the United States Department of Education’s Office for Civil
Rights (OCR) took action. On April 4, 2011, OCR, the enforcement agency for Title IX, issued
its now infamous Dear Colleague Letter (“2011 DCL”) 82
to all federally funded education
programs. This letter announced no new law or regulations- it simply reminded schools of what
had been in Title IX all along: that under the umbrella of prohibited sex discrimination falls
student on student sexual harassment and sexual violence, and schools must meet their
obligations under the law to address that issue.
The 2011 DCL addressed the basics of schools’ obligations to address student on student
sexual violence, such as a school’s obligation to 1) widely disseminate an easily understood and
accessed nondiscrimination notice; 2) designate at least one employee to coordinate its Title IX
80 Kate Lawson graduated from Ohio University in 1998 and Suffolk University Law School in 2006. She has served
as Xavier’s Title IX Coordinator since July 2013. 81
Title 20 U.S.C. §§ 1681-1688. 82 Assistant Secretary for Civil Rights Russlynn Ali, Dear Colleague Letter (April 4, 2011), online at
http://www2.ed.gov/about/offices/list/ocr/letters/colleague-201104.pdf.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 57
compliance; and 3) to adopt and publish grievance procedures providing for prompt and
equitable resolution of sexual violence complaints, as well as the more complex topics, such as
1) what level of training personnel investigating and adjudicating these complaints should have;
2) the difference and interplay between a school’s internal obligations under Title IX and the
criminal justice system response; and 3) what types of safety, housing, academic or other interim
measures a school must provide for a complainant while the complaint resolution process was
pending.
On the ground in universities and colleges across the country the 2011 DCL raised more
questions than answers and led to a flurry of activity, from holding campus wide listening
sessions to establishing task forces to assess campus response to sexual violence to making
personnel changes in response to these newly emphasized responsibilities. Soon the 2011 DCL’s
impact went beyond the gates of individual campuses and triggered a national conversation on
how campuses respond to sexual violence, with voices from all aspects of the issue weighing in-
students who had experienced sexual violence on campus and those who had been accused,
campus administrators, faculty, law enforcement, and lawyers and advocates from all angles. The
topics of campus sexual violence and Title IX became, and remain, a mainstay of mainstream
media outlets including the New York Times, Huffington Post, Time Magazine, and even
Rolling Stone.
In April 2014 OCR issued its next guidance document83
- fifty-three pages aimed at
addressing the multitude of questions raised by schools in the four years following the 2011
DCL. By this time the issue of campus sexual violence had made its way to the very top,
83 Assistant Secretary for Civil Rights Catherine E. Lhamon, Dear Colleague Letter (April 29, 2014), online at
http://www2.ed.gov/about/offices/list/ocr/docs/qa-201404-title-ix.pdf.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 58
capturing the attention and focus of several members of Congress84
as well as the White House.
In January 2014, President Obama announced the formation of the White House Task Force to
Protect Students from Sexual Assault. By April 2014 that Task Force had released its first report
with recommendations on how campuses could best prevent and respond to sexual violence in
their communities.85
As the spotlight brightened, it also broadened, expanding out from campuses to focus on
OCR’s role and work in ensuring schools’ compliance with the law. Stakeholders on all sides
requested greater transparency from OCR on how the agency does its work and, in particular,
how many schools have been and are being investigated for non-compliance. OCR responded by
publishing that information and the public learned that, to date, approximately eight-five colleges
are under federal investigation by OCR for their response to sexual assault cases.86
High profile
cases, firsthand accounts from alleged victims and alleged perpetrators in various media outlets,
and an ever-increasing, vocal, media-savvy wave of student activism will likely keep the
spotlight on this critical issue impacting the lives of so many students across the country.
Importantly, although OCR and the national conversation has focused primarily on
student on student sexual harassment and sexual violence, the spotlight has allowed those of us
who do Title IX work on the ground to share with our campus communities that Title IX is even
broader than that- it protects employees of and visitors to our campus from sex discrimination; it
84 For example, United States Senator Claire McCaskill issued a survey to 440 four-year colleges and universities
the spring of 2014 and spear-headed the creation and publication of the subsequent July 9, 2014 report “Sexual
Violence on Campus: How too many institutions of higher education are failing to protect students,” online at
http://www.mccaskill.senate.gov/SurveyReportwithAppendix.pdf. 85 “Not Alone: the First Report of the White House Task Force to Protect Students from Sexual Assault,” online at
http://www.whitehouse.gov/sites/default/files/docs/report_0.pdf. 86 Tyler Kinkade, “85 Colleges are Now Under Federal Investigation For Their Response to Sexual Assault Cases”
(October 15, 2014), online at http://www.huffingtonpost.com/2014/10/15/colleges-federal-investigation-sexual-
assault_n_5990286.html.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 59
affords rights to pregnant and parenting students; and protects transgender students experiencing
discrimination or harassment based on their gender identity.
As a campus administrator doing this work on the ground every day and charged with
leading Xavier University’s efforts to prevent and response to sex discrimination under Title IX,
I for one welcome the rigorous, passionate conversation and the heightened scrutiny. Increased
scrutiny opens the door for higher standards for us to strive toward for all of our students and
critical space in which best practices can involve.
I have seen firsthand how sexual violence impacts not just the lives of the students’ who
are directly involved, but the lives’ of their roommates, team members, friends, family, and
beyond. I have also seen firsthand how critical it is for a university to ensure that its policies to
addressing sex discrimination are not just written in a way that is equitable, fair, and impartial,
but are implemented that way every time by properly trained individuals. It is a privilege to lead
Xavier University’s efforts to ensure that our response to sex discrimination is not only
compliant with Title IX and best practices, but aligns with our vision that Xavier men and
women become people of learning and reflection, integrity and achievement, in solidarity for and
with others.
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 60
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 61
XAVIER UNDERGRADUATE LAW REVIEW
PARTNERSHIPS
7Sage LSAT Prep
Lsat Hacks
SCOTUSblog
LSAT Blog: Ace The LSAT
ACLU of Ohio
University of Chicago Undergraduate Law Review
Penn Undergraduate Law Journal
Texas Undergraduate Law Review At The University of
Texas At Austin
Washington Undergraduate Law Review
XAVIER UNDERGRADUATE LAW REVIEW
VOLUME II · ISSUE I · Fall 2014 62